Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment
No. )
Filed by
the Registrant x
Filed by
a Party other than the Registrant o
Check the
appropriate box:
o
Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
x
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
Harris
& Harris Group, Inc.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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x
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No
fee required.
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o
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Fee
computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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o
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Fee
paid previously with preliminary materials.
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o
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD MAY 6, 2010
To the
Shareholders of Harris & Harris Group, Inc.:
NOTICE IS
HEREBY GIVEN that the 2010 Annual Meeting of Shareholders of Harris & Harris
Group, Inc. (the "Company") will be held on May 6, 2010, at 4:00 p.m., local
time, at Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square
(between 42nd and
43rd
Streets), New York, New York 10036. 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:
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1.
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To
elect 10 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;
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2.
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To
ratify, confirm and approve the Audit Committee's selection of
PricewaterhouseCoopers LLP as the independent registered public accountant
for the fiscal year ending December 31, 2010;
and
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3.
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To
transact such other business as may properly come before the meeting or
any postponements or adjournments
thereof.
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We
encourage you to contact us at 877-846-9832, from 9:00 a.m. to 5:00 p.m. EST, if
you have any questions.
Holders
of record of the Company's common stock as of the close of business on March 16,
2010, 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 card and return it promptly in the enclosed business
reply envelope, which requires no postage if mailed in the United States, so you
will be represented at the Annual Meeting. Even if you vote your
shares prior to the meeting, you still may attend the meeting and vote your
shares in person.
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By
Order of the Board of Directors,
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March
31, 2010
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New
York, New York
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Sandra
M. Forman
Secretary
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IMPORTANT: PLEASE
MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THE MEETING DATE
IS MAY 6, 2010.
Harris
& Harris Group, Inc.
1450
Broadway, 24th
Floor
New York,
New York 10018
(212)
582-0900
PROXY
STATEMENT
FOR
THE
ANNUAL
MEETING OF SHAREHOLDERS
TO
BE HELD ON MAY 6, 2010
Our Board
of Directors is sending you this proxy statement to ask for your vote as a
shareholder of Harris & Harris Group, Inc. (the "Company," "we," "us" or
"our") on certain matters to be voted on at our upcoming 2010 annual meeting of
shareholders (the "Annual Meeting"), which will be held on Tuesday, May 6, 2010,
at 4:00 p.m., local time, at Skadden, Arps, Slate, Meagher & Flom LLP, Four
Times Square (between 42nd and
43rd
Streets), New York, New York 10036, and at any postponements or adjournments
thereof. We are mailing this proxy statement and the accompanying
notice and proxy card, along with our Company's Annual Report for the fiscal
year ended December 31, 2009, on or about March 31, 2010.
ABOUT THE
MEETING
What
Is The Purpose Of The Annual Meeting?
At the Annual Meeting, you will be
asked to vote on the following proposals:
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1.
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To
elect 10 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 ("Election of Directors
Proposal");
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2.
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To
ratify, confirm and approve the Audit Committee's selection of
PricewaterhouseCoopers LLP as the independent registered public accountant
for the fiscal year ending December 31, 2010 ("Ratification of Auditor
Proposal"); and
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3.
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To
transact such other business as may properly come before the meeting or
any postponements or adjournments
thereof.
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We are not aware of any other matter
that will be presented for your vote at the meeting.
Who
Is Entitled To Vote?
Only shareholders of record at the
close of business on the record date, March 16, 2010, are entitled to receive
notice of and to vote the shares of our common stock that they held on the
record date at the meeting, or any postponement or adjournment of the
meeting. Each outstanding share of common stock entitles its holder
as of the record date to cast one vote on each matter acted upon at the
meeting. As of the record date, the Company had 30,859,593 shares of
common stock outstanding. 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.
How
Is A Quorum Determined?
Approval
of any of the matters submitted for shareholder approval requires that a quorum
be present. Our Bylaws provide that a majority of the shareholders
entitled to vote, represented in person or by proxy, is necessary to constitute
a quorum for the transaction of business at the Annual
Meeting. Abstentions and broker "non-votes" will be counted as shares
present at the Annual Meeting for purposes of determining the existence of a
quorum. A broker non-vote occurs when a broker holding shares for a
beneficial owner does not vote on a particular proposal because the broker does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner or other persons entitled to
vote.
How
Can I Vote?
We
encourage you to vote your shares, either by voting in person at the Annual
Meeting or by granting a proxy (i.e., authorizing someone to vote your
shares). If you properly sign and date the accompanying proxy card
and the Company receives it in time for the Annual Meeting, the persons named as
proxies will vote the shares registered directly in your name in the manner that
you specified. If
you give no instructions on the proxy card, the shares covered by the proxy card
will be voted FOR the election of the nominees as directors and FOR the other
matter listed in the accompanying Notice. If any other matters properly come
before the Annual Meeting, the persons named on the proxies will vote upon such
matters at their discretion.
What
Does It Mean If I Receive More Than One Proxy Card?
If you receive more than one proxy
card, your shares are registered in more than one name or are registered in
different accounts. Please complete, sign and return each proxy card
to ensure that all of your shares are voted.
What
Is Required To Approve Each Proposal?
Election of
Directors. For the Election of Directors Proposal, the
directors will be elected by a plurality of the votes cast (that is, the 10
nominees who receive more affirmative votes than any other nominees will be
elected).
Ratification of
Auditor. For the Ratification of Auditor Proposal, the
proposal will be approved if a majority of the votes cast are cast in
favor.
Other Matters. All
other matters being submitted to a shareholder vote pursuant to the Notice of
Annual Meeting will be approved if a majority of the votes cast on a particular
matter are cast in favor of that matter.
What
Happens If I Abstain?
For
purposes of the Ratification of Auditor Proposal, and unspecified matters that
come before the meeting, votes withheld or abstentions will not be counted as
votes cast on the matter and will have no affect on the result of the
vote. A broker non-vote occurs when a broker holding shares for a
beneficial owner does not vote on a particular proposal because the broker does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner. If your broker holds
your shares in its "street" name, the broker may not vote your shares on the
Election of Director Proposal.
What
Happens If A Quorum Is Not Present At The Meeting?
If a quorum is not present at the
scheduled time of the Annual Meeting, we may adjourn the meeting, either with or
without the vote of shareholders. If we propose to have the
shareholders vote whether to adjourn the meeting, the proxy holders will vote
all shares for which they have authority in favor of the
adjournment. We may also adjourn the meeting if for any reason we
believe that additional time should be allowed for the solicitation of
proxies. An adjournment will have no effect on the business that may
be conducted at the Annual Meeting.
Who
Will Bear The Costs Of This Solicitation?
Proxies
are being solicited by Innisfree M&A Incorporated, pursuant to its standard
contract as proxy solicitor, the cost of which will be borne by us and is
estimated to be approximately $6,500 plus out-of-pocket expenses. We
will pay the cost of this solicitation of proxies by mail. Our
officers and regular employees may also solicit proxies in person or by
telephone without additional compensation. We will make arrangements
with brokerage houses, custodians, nominees and other fiduciaries to send proxy
materials to their principals, and we will reimburse these persons for related
postage and clerical expenses. It is estimated that those costs will
be approximately $60,000.
May
I Revoke My Vote?
Any proxy
given pursuant to this solicitation may be revoked by a shareholder at any time,
before it is exercised, by written notification delivered to our Secretary, by
voting in person at the Annual Meeting, or by executing another proxy bearing a
later date.
How
Many Shares Do the Company’s Principal Shareholders, Directors and Executive
Officers Own?
Set forth below is information, as of
March 16, 2010, with respect to the beneficial ownership of our common stock by
(i) each person who is known by us to be the beneficial owner of more than five
percent of the outstanding shares of the common stock, (ii) each of our
directors and nominees, (iii) each of our named executive officers (as defined
below) and (iv) all of our directors and executive officers as a
group. Except as otherwise indicated, to our knowledge, all shares
are beneficially owned and investment and voting power is held by the persons
named as owners. None of the shares owned by directors or officers
have been pledged. The information in the table below is from
publicly available information that may be as of dates earlier than March 16,
2010. At this time, we are unaware of any shareholder owning five
percent or more of the outstanding shares of common stock other than Charles E.
and Susan T. Harris. Unless otherwise provided, the address of each
holder is c/o Harris & Harris Group, Inc., 1450 Broadway, 24th Floor,
New York, New York 10018.
Name
and Address of Beneficial Owner
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Amount
and Nature of Beneficial Ownership(1)
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Percentage
of Outstanding Common Shares Owned(2)
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Independent
Directors:
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W.
Dillaway Ayres, Jr.
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13,477
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*
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Dr.
C. Wayne Bardin
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35,578
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*
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Dr.
Phillip A. Bauman
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38,770(3)
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*
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G.
Morgan Browne
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40,000
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*
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Dugald
A. Fletcher
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35,760
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*
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Charles
E. Ramsey
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48,109
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*
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James
E. Roberts
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34,386
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*
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Richard
P. Shanley
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17,677
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*
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Interested
Directors:
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Douglas
W. Jamison
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335,197(4)
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1.1
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Lori
D. Pressman
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15,171
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*
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Named
Executive Officers:
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Alexei
A. Andreev
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293,863(5)
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*
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Sandra
M. Forman
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166,125(6)
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*
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Michael
A. Janse
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281,500(7)
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*
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Daniel
B. Wolfe
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209,776(8)
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*
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All
directors and executive officers as
a
group (16 persons)
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1,682,274(9)
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5.2
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Name
and Address of Beneficial Owner
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Amount
and Nature of Beneficial Ownership(1)
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Percentage
of Outstanding Common Shares Owned(2)
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Five Percent
Shareholders:
Charles
E. and Susan T. Harris
c/o
Lawrence B. Thompson, Esq.
Emmet,
Marvin & Martin, LLP
120
Broadway
New
York, NY 10271
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1,736,515(10)
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5.4
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________________
(1)
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Beneficial
ownership has been determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934 (the "1934
Act").
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(2)
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The
percentage of ownership is based on 30,859,593 shares of common stock
outstanding as of March 16, 2010, together with the exercisable options
for such shareholder, as applicable. In computing the
percentage ownership of a shareholder, shares that can be acquired upon
the exercise of outstanding options are not deemed outstanding for
purposes of computing the percentage ownership of any other
person.
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(3)
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Includes
5,637 shares owned by Ms. Milbry C. Polk, Dr. Bauman's wife; 100 shares
owned by Adelaide Polk-Bauman, Dr. Bauman's daughter; 100 shares owned by
Milbry Polk-Bauman, Dr. Bauman's daughter; and 100 shares owned by Mary
Polk-Bauman, Dr. Bauman's daughter. Ms. Milbry C. Polk is the
custodian for the accounts of the three
children.
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(4)
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Includes
31,428 shares and 303,769 shares that can be acquired upon the exercise of
outstanding options.
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(5)
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Includes
11,909 shares and 281,954 shares that can be acquired upon the exercise of
outstanding options.
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(6)
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Includes
8,814 shares, 250 shares owned by Mr. Edward B. Forman, Ms. Forman's
husband, and 157,061 shares that can be acquired upon the exercise of
outstanding options.
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(7)
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Amount
represents 1,600 shares and 279,900 shares that can be acquired upon the
exercise of outstanding options.
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(8)
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Includes
11,702 shares and 198,074 shares that can be acquired upon the exercise of
outstanding options.
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(9)
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Includes
346,613 shares and 1,335,661 shares that can be acquired upon the exercise
of outstanding options.
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(10)
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Pursuant
to a 13D/A filed on February 22, 2010, includes 608,254 shares and
1,128,261 shares that can be acquired upon the exercise of outstanding
options.
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Set forth below is the dollar range of
equity securities beneficially owned by each director and nominee as of March
16, 2010.
Name
of Director or Nominee
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Dollar
Range of Equity Securities
Beneficially
Owned (1)(2)(3)
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Independent
Directors
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W.
Dillaway Ayres, Jr.
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$50,001
- $100,000
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Dr.
C. Wayne Bardin
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Over
$100,000
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Dr.
Phillip A. Bauman
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Over
$100,000
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G.
Morgan Browne
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Over
$100,000
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Dugald
A. Fletcher
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Over
$100,000
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Charles
E. Ramsey
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Over
$100,000
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James
E. Roberts
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Over
$100,000
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Richard
P. Shanley
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$50,001
- $100,000
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Interested
Directors
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Douglas
W. Jamison (4)
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Over
$100,000
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Lori
D. Pressman (5)
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$50,001
- $100,000
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(1)
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Beneficial
ownership has been determined in accordance with Rule 16a-1(a)(2) of the
1934 Act.
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(2)
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The
dollar ranges are: none, $1-$10,000, $10,001-$50,000,
$50,001-$100,000 and over $100,000.
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(3)
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The
dollar ranges are based on the price of the equity securities as of March
16, 2010.
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(4)
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Denotes
an individual who is an "interested person" as defined in the Investment
Company Act of 1940 (the "1940
Act").
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(5)
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Denotes
an individual who may be considered an "interested person" because of
consulting work performed for us.
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ELECTION
OF DIRECTORS
(Proposal
No. 1)
The 10
nominees listed below have been nominated to serve as our directors until the
next annual meeting or until their respective successors are duly elected and
qualified. All nominees currently serve as
directors. 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 our present Board of
Directors.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE
NOMINEES.
Nominees
Certain
information, as of March 16, 2010, with respect to each of the 10 nominees for
election at the Annual Meeting is set forth below, including their names, ages
and a brief description of their recent business experience, including present
occupations and employment, certain directorships held by each and the year in
which each became a director of the Company. All of the nominees have
agreed to serve if elected and consent to being referred to in this Proxy
Statement. 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 1940 Act or persons who may be considered "interested persons" because of
consulting work done for us. We do not have an advisory
board.
Interested
Directors
Douglas W.
Jamison. Mr. Jamison, age 40, has served as Chairman and Chief
Executive Officer since January 2009, as President and as Chief
Operating Officer from January 2005 through December 2008, as
Treasurer from March 2005 to May 2008, as a Managing Director since January
2004, as Chief Financial Officer from January 2005 through December 2007 and as
Vice President from September 2002 through December 2004. He has been
a member of our Board of Directors since May 2007. Since January
2009, he has served as Chairman and Chief Executive Officer of Harris &
Harris Enterprises, Inc., a wholly owned subsidiary of Harris & Harris
Group, Inc.; since January 2005, he has served as a Director; and from January
2005 to December 2008 he served as President. Mr. Jamison is a
director of Ancora Pharmaceuticals, Inc., a privately held
nanotechnology-enabled company in which we have an investment. He is
a board observer of ABS Materials, Inc., Mersana Therapeutics, Metabolon, Inc.,
Nextreme Thermal Solutions, Inc., and Solazyme, Inc., privately held
nanotechnology-enabled companies in which we have investments. He is
Co-Editor-in-Chief of "Nanotechnology Law & Business." He is
Co-Chair of the Advisory Board, Converging Technology Bar Association and a
member of the University of Pennsylvania Nano-Bio Interface Ethics
Advisory. From 1997 to 2002, he worked as a senior technology manager
at the University of Utah Technology Transfer Office, where he managed
intellectual property in physics, chemistry and the engineering
sciences. He was graduated from Dartmouth College (B.A.) and the
University of Utah (M.S.).
Areas of Relevant
Experience: Corporate executive, venture capital, intellectual
property, technology transfer and start-ups, entrepreneurism and finance and
accounting.
Lori D.
Pressman. Ms. Pressman, age 52, has served as a member of our
Board of Directors since March 2002. She has served as a consultant
to us on nanotechnology, microsystems, intellectual property and in our due
diligence work on certain prospective investments. She also acts as
an observer for us at Board meetings of certain portfolio companies in the
Boston area. She is a business consultant providing advisory services
to start-ups and venture capital companies, including certain of our portfolio
companies. She consults internationally on technology transfer
practices and metrics for non-profit and government
organizations. She was graduated from the Massachusetts Institute of
Technology (S.B., Physics) and the Columbia School of Engineering
(MSEE). She may be considered to be an "interested person" of the
Company because of the consulting work she does for us.
Areas of Relevant
Experience: Intellectual property strategy and law, technology
transfer and start-ups, technology, venture capital, valuations and
entrepreneurism.
Independent
Directors
W. Dillaway Ayres, Jr. Mr. Ayres, age 59, has
served as a member of our Board of Directors since November 2006. He
has served as the Chief Operating Officer of Cold Spring Harbor Laboratory, a
research and educational institution in the biological sciences, since November
2000. Prior to joining Cold Spring Harbor Laboratory in 1998, Mr.
Ayres had a 20-year business career during which he worked as a corporate
executive at Union Carbide, American Express and American Broadcasting
Corporation, an investment banker and an entrepreneur at a venture
capital-backed internet company. He also served for five years at
Veronis Suhler & Associates, a private equity firm. He was
graduated from Princeton University (A.B., English) and from the Columbia
University Graduate School of Business (M.B.A., Finance).
Areas of Relevant
Experience: Capital markets and investment banking, risk
management, finance and accounting, valuations, personnel and recruitment,
technology transfer and start-ups, venture capital, entrepreneurism and
corporate executive.
Dr. C. Wayne
Bardin. Dr. Bardin, age 75, has served as a member of our
Board of Directors since December 1994. Since 1996, he has served as
the President of Bardin LLC, a consulting firm to pharmaceutical
companies. He also serves on the Board of Health Advocates for Older
People. 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. He has also served as a consultant
to several pharmaceutical companies. He has been appointed to the
editorial boards of 15 journals. He has also served on national and
international committees and boards for the National Institutes of Health, World
Health Organization, The Ford Foundation and numerous scientific
societies. He was graduated from Rice University (B.A.), Baylor
University (M.S., M.D.), and he received a Doctor Honoris Causa from the
University of Caen, the University of Paris and the University of
Helsinki.
Areas of Relevant
Experience: Healthcare and technology, start-ups and
technology transfer, venture capital, corporate executive, compliance,
valuations, and personnel and recruiting.
Dr. Phillip A.
Bauman. Dr. Bauman, age 54, has served as a member of our
Board of Directors since February 1998. Since 1999, he has been
Senior Attending of Orthopaedic Surgery at St. Luke's/Roosevelt Hospital Center
in Manhattan, and since 2000, he has served as an elected member of the
Executive Committee of the Medical Board of St. Luke's/Roosevelt
Hospital. He is a founding member and has been on the Board of
Managers for the Hudson Crossing Surgery Center since 2005. Since
1997, he has been Assistant Professor of Orthopaedic Surgery at Columbia
University. Since 1994, he has been Vice President of Orthopaedic
Associates of New York. Since 2005, he has consulted for Skyline
Venture Partners, a venture capital firm specializing in healthcare
companies. He is an active member of the American Academy of
Orthopaedic Surgeons, the American Orthopaedic Society for Sports Medicine, the
American Orthopaedic Foot and Ankle Society, the New York State Society of
Orthopaedic Surgeons, the New York State Medical Society and the American
Medical Association. He was graduated from Harvard College (A.B.),
Harvard University (A.M., Biology) and the College of Physicians and Surgeons at
Columbia University (M.D.).
Areas of Relevant
Experience: Healthcare and technology, venture capital,
technology transfer and start-ups, entrepreneurism, compliance, personnel and
recruiting, and corporate executive.
G. Morgan
Browne. Mr. Browne, age 75, has served as a member of our
Board of Directors since June 1992. Since 2004, he has been President
and since 2000, a Trustee of Planting Fields Foundation, a supporting
institution of Planting Fields Arboretum State Historic Park. Since
2004, he has been a Director and Treasurer of Society for Preservation L.I.
Antiquities. Since 1987, he has been a Director of Huntington
Hospital. Since 2004, he has been Chairman of the OSI Pharmaceuticals
Foundation, which supports cancer and diabetes patient care and science
education. He was a founding director of the New York Biotechnology
Association. He has also previously served as the Administrative
Director and Chief Financial Officer of Cold Spring Harbor Laboratory and Chief
Financial Officer of Lunn Industries, a manufacturing company. He was
graduated from Yale University (B.A.).
Areas of Relevant
Experience: Corporate executive, capital markets and
investment banking, finance and accounting, and venture capital.
Dugald A.
Fletcher. Mr. Fletcher, age 80, has served as Lead Independent
Director since November 2006. Since 1996, he has served as a member
of our Board of Directors. Since 1984, he has served as President of
Fletcher & Company, Inc., a management consulting firm. He
is currently a Trustee of the Gabelli Growth Fund and a Director of the Gabelli
Convertible and Income Securities Fund, Inc. Previously, he has
served as a director and/or an executive officer for many financial services
firms, including Baker Weeks & Co., Booz Allen Acquisition Services, Booz
Allen and Hamilton, Paine Webber and three leveraged buyout firms. He
was graduated from Harvard College (A.B.) and Harvard Business School
(M.B.A.).
Areas of Relevant
Experience: Compliance, risk management, 1940 Act/regulation,
finance and accounting, capital markets and investment banking, valuations,
venture capital and corporate executive.
Charles E.
Ramsey. Mr. Ramsey, age 67, has served as a member of our
Board of Directors since October 2002. Since 1997, he has been a consultant in
the area of human resources and venture capital. He is a retired
founder and principal of Ramsey/Beirne Associates, Inc., an executive search
firm that specialized in recruiting top officers for high technology companies,
many of which were backed by venture capital. He is a member of the
board of directors and Chairman Emeritus of Bridges to Community, a
non-governmental organization dedicated to construction projects in
Nicaragua. As Chairman Emeritus, he serves on the Executive,
Personnel and Administration and Fund Development Committees. He was
graduated from Wittenberg University (B.A.).
Areas of Relevant
Experience: Personnel and recruitment, venture capital,
corporate executive, start-ups and technology transfer, entrepreneurism,
valuations and technology.
James E.
Roberts. Mr. Roberts, age 64, has served as a member of our
Board of Directors since June 1995. Since October 2009, he has been
Managing Vice President Corporate Underwriting with Tower Group,
Inc. Prior to joining Tower Group, Mr. Roberts was employed by
AequiCap Group from January 2006 to October 2009, serving as President of
AequiCap Insurance Company from January 2006 to October 2009, and as President
of AequiCap Program Administrators from September 2007 to October
2009. From November 2002 to October 2005, he was Executive Vice
President and Chief Underwriting Officer of the Reinsurance Division of Alea
North America Company and Senior Vice President of Alea North America Insurance
Company. He was graduated from Cornell University
(A.B.).
Areas of Relevant
Experience: Risk management, compliance, capital markets and
investment banking, valuations, finance and accounting, corporate executive and
venture capital.
Richard P.
Shanley. Mr. Shanley, age 63, has served as a member of our
Board of Directors since March 2007. From February 2001 to December
31, 2006, he was a partner of Deloitte & Touche LLP. During his
over 30 years of public accounting experience, he served as lead audit partner
on numerous audit engagements for public and private companies and companies
making public stock offerings. He served as lead audit partner
primarily for biotech, pharmaceutical and high-tech companies, including
companies enabled by nanotechnology. He has been actively involved on
the Biotech Council of New Jersey, the New Jersey Technology Council, the New
York Biotechnology Association, the Connecticut Venture Group, the Biotechnology
Industry Organization and the NanoBusiness Alliance. He is a member
of the board of directors of Redpoint Bio Corporation, a publicly held
biotechnology company. He is an active member of the New York State
Society of Certified Public Accountants and the American Institute of Certified
Public Accountants. He is currently serving his fifth term on the New
York State Society of CPA's Professional Ethics Committee and as of June 2009 is
chairing that committee. He is a licensed Certified Public Accountant
in New York. He was graduated from Fordham University (B.S.) and Long
Island University (M.B.A. in Accounting).
Areas of Relevant
Experience: Finance and accounting, valuations, compliance,
risk management and entrepreneurism.
Board of Directors and
Committees
In 2009,
there were six meetings of the Board of Directors of the Company, and the full
Board acted six times by unanimous written consent. During 2009, no
director attended fewer than 75 percent of the total Board of Directors'
meetings and applicable committee meetings on which each director
served.
Our
policy is that our directors are encouraged to attend annual meetings of
shareholders. In 2009, all but one of the Company's directors
attended the annual meeting of shareholders.
Board
Leadership Structure
The Board
of Directors does not require the separation of the offices of the Chairman of
the Board and the Chief Executive Officer. The Board believes it
should be free to choose its Chairman of the Board in any way that it deems best
for the Company at any given point in time. Mr. Jamison, the current
Chairman of the Board and Chief Executive Officer is an "interested person" of
the Company (as defined in Section 2(a)(19) of the 1940 Act). At
present, the Board of Directors believes that Mr. Jamison’s service as both
Chairman of the Board and Chief Executive Officer is in the best interest of the
Company and its shareholders. Mr. Jamison possesses detailed and
in-depth knowledge of the issues, opportunities and challenges facing the
Company and its business and is thus best positioned to develop agendas that
ensure that the Board’s time and attention are focused on the most critical
matters.
His
combined role enables decisive leadership, ensures clear accountability, and
enhances the Company’s ability to communicate its message and strategy clearly
and consistently to the Company’s shareholders, employees, and portfolio
companies, particularly during times of turbulent economic
conditions. The Board of Directors also believes that combining the
Chairman of the Board and Chief Executive Officer roles is appropriate given our
current asset size, bearing in mind the goal of keeping costs as low as
possible.
The Board
members also believe that the Lead Independent Director plays an important role
and fulfills most of the benefits to the Company of having an independent
Chairman without the full expense of hiring an independent
Chairman. The Lead Independent Director’s duties include acting as a
liaison between the independent directors and the Chairman regarding any
specific feedback or issues, providing the Chairman with input regarding agenda
items for Board and Committee meetings, coordinating with the Chairman to
provide information to the independent directors regarding their duties,
coordinating the activities of the Independent Directors, including performing
the role of Chairman of the Independent Directors Committee, coordinating the
agenda for and moderating sessions of the Board's Independent Directors and
other non-employee directors, and facilitating communications between the other
members of the Board, between the board and senior management, and between the
Chief Compliance Officer and the Board. The Board believes that this
approach appropriately and effectively complements the combined Chief Executive
Officer/Chairman structure.
In
addition, most of the Directors, other than Mr. Jamison and Ms. Pressman, are
independent, and the Board believes that the Independent Directors provide
effective oversight of management. Moreover, in addition to feedback
provided during the course of Board meetings, the Independent Directors have
regular executive sessions. Also, the Independent Directors serve as
the chairperson for all Board Committees (other than the Executive Committee)
and meet on a quarterly basis in executive session with the Chief Compliance
Officer.
Board’s
Role in Risk Oversight
The Board
as a whole, under the direction of the Lead Independent Director, has
responsibility for risk oversight, with reviews of certain areas being conducted
by the relevant Board committees that report on their deliberations to the
Board. The oversight responsibility of the Board and its Committees
is enabled by management reporting processes that are designed to provide
visibility to the Board about the identification, assessment and management of
critical risks and the controls that management uses to mitigate those
risks. Members of the senior management team meet annually to review
the current risks for the Company’s business, and to ensure that the compliance
policies and procedures are revised along with changes to the current
risks. The risks and the amended policies and procedures are
presented to the Board of Directors for their input and approval at least
annually. In addition, commencing in 2010, members of the senior
management team meet quarterly to review strategic risks, and report to the
Board about these discussions as appropriate.
Additionally,
the Board Committees assist the full Board in risk assessment. The
Independent Directors Committee meets regularly in executive session, with and
without the Chief Compliance Officer, and oversees compliance and strategic
risks of the Company. It also oversees the compliance policies and
procedures of the Company and its service providers. The Audit
Committee oversees compliance by the Company with legal and regulatory
requirements. Specifically, the Audit Committee discusses with
the Company’s management and independent registered public accountants the
integrity of the Company’s financial reporting processes and controls,
particularly the controls in areas representing significant financial and
business risks. The Audit Committee Chairman meets independently with
the registered public accountants and the other outside accounting
firms. The Compensation Committee reviews risks related to
compensation policies and procedures. The Nominating Committee
considers risk assessment skills when considering nominees for the Board of
Directors. The Board has appointed all independent members of the
Board to the Valuation Committee to have oversight of valuation
risk.
Communications
with the Board of Directors
Shareholders
and other interested parties may contact the Board, Dugald A. Fletcher, our Lead
Independent Director, or any member of the Board by mail. To
communicate with the Board, the Lead Independent Director or any member of the
Board, correspondence should be addressed to the Board or the Board members with
whom you wish to communicate, by either name or title. All such
correspondence should be sent c/o Harris & Harris Group, Inc., 1450
Broadway, 24th Floor,
New York, New York 10018. Such correspondence will be forwarded to
the appropriate board member or members after screening to eliminate marketing
and junk mail.
Board
Committees
The
Company's Board of Directors currently has six committees comprised of the
following members in 2009, all
of whom except Mr. Jamison are independent under the rules of the Nasdaq Global
Market and "not interested" directors for the purposes of the 1940
Act:
Executive
|
Audit
|
Compensation
|
|
|
|
Douglas
W. Jamison(1)
|
Richard
P. Shanley(1)
|
James
E. Roberts(1)
|
W.
Dillaway Ayres
Dr.
C. Wayne Bardin
|
W.
Dillaway Ayres
G.
Morgan Browne
|
Dr.
Phillip A. Bauman
Dugald
A. Fletcher
|
Dugald
A. Fletcher
|
Dugald
A. Fletcher
|
Richard
P. Shanley
|
Charles
E. Ramsey
|
James
E. Roberts
|
|
Nominating
|
Valuation
|
Independent
Directors
|
|
|
|
Charles
E. Ramsey(1)
|
G.
Morgan Browne(1)
|
Dugald
A. Fletcher(1)
|
Dr.
C. Wayne Bardin
|
W.
Dillaway Ayres
|
W.
Dillaway Ayres
|
Dr.
Phillip A. Bauman
|
Dr.
C. Wayne Bardin
|
Dr.
C. Wayne Bardin
|
G.
Morgan Browne
|
Dr.
Phillip A. Bauman
|
Dr.
Phillip A. Bauman
|
|
Dugald
A. Fletcher
|
G.
Morgan Browne
|
|
Charles
E. Ramsey
|
Charles
E. Ramsey
|
|
James
E. Roberts
|
James
E. Roberts
|
|
Richard
P. Shanley
|
Richard
P. Shanley
|
(1) Denotes
the Chairman of the Committee.
Executive Committee. The Executive Committee
may meet from time to time between regular meetings of the Board of Directors
for strategic planning and to exercise the authority of the Board to the extent
provided by law. The Executive Committee met once and did not act by
unanimous written consent in 2009.
Audit Committee. The Audit Committee (i)
oversees all material aspects of our accounting and financial reporting
processes, internal control and audit functions; (ii) monitors the independence
and performance of our independent registered public accountants; (iii) provides
a means for open communication among our independent registered public
accountants, financial and senior management, and the Board; and (iv) oversees
compliance by us with legal and regulatory requirements.
The Audit
Committee operates pursuant to a written charter approved by our Board of
Directors. A current copy of the Audit Committee Charter of the
Company is available on our website
(http://www.hhvc.com/governance.cfm). The Audit Committee Charter
sets out the responsibilities, authority and duties of the Audit
Committee. The Audit Committee met four times and did not act by
unanimous written consent in 2009. The Audit Committee has selected,
and a majority of the Board of Directors has ratified, PricewaterhouseCoopers
LLP ("PwC") as the Company's independent registered public accounting firm for
the fiscal year ending December 31, 2010, subject to shareholder
approval.
Audit
Committee's Pre-Approval Policies
In 2009,
the Audit Committee of the Company has pre-approved all audit and non-audit
services provided by PwC to us. The Audit Committee's Pre-Approval
Policies and Procedures provide that the Audit Committee (or the Chairman
pursuant to delegated authority) must pre-approve all auditing services and
permitted non-audit services and that all such requests to provide services must
be submitted to the Audit Committee or the Chairman, as the case may be, by both
the independent auditor and the Chief Financial Officer.
The Audit
Committee has determined that the provision of non-audit services that were
provided during 2009 is compatible with maintaining PwC's independence in
performing audit services for the Company.
Audit
Committee Report
Our Audit
Committee presents the following report:
The Audit
Committee of the Company has performed the following functions: (i) the Audit
Committee reviewed and discussed the audited financial statements of the Company
with management, (ii) the Audit Committee discussed with the independent
auditors the matters required to be discussed by the Statements on Auditing
Standards No. 61, as amended, as adopted by the Public Company Accounting
Oversight Board in Rule 3200T, (iii) the Audit Committee received the written
disclosures and the letter from the independent auditors required by applicable
requirements of the Public Company Accounting Oversight Board regarding the
independent auditor's communications with the Audit Committee concerning
independence, and has discussed with the auditors the auditors' independence,
and (iv) based on the review and discussions, the Audit Committee recommended to
the Board of Directors of the Company that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the last fiscal
year.
Respectfully,
Members
of the Audit Committee
Richard
P. Shanley (Chairman)
Dugald A.
Fletcher
W.
Dillaway Ayres
G. Morgan
Browne
James E.
Roberts
Compensation Committee. The Compensation
Committee of the Board (the "Committee") annually reviews and approves corporate
goals and objectives relevant to total compensation -- that is, changes in
components of total compensation, including base salary, bonus and equity
incentive plan compensation -- of the Chief Executive Officer and other
executive officers, evaluates their performance against these goals and
objectives, and, based on its evaluation, sets their total
compensation. The Committee is composed entirely of Independent
Directors, as defined in the 1940 Act and under the NASDAQ listing
standards. Each of the committee members is also a "non-employee
director" as defined in Section 16 of the 1934 Act, and is an "outside
director," as defined by Section 162(m) of the Internal Revenue Code of 1986
(the "Code"). The Committee also annually reviews benefits for all
employees. The details of the processes and procedures involved in
the establishment of executive compensation and benefits are described in the
Compensation Discussion & Analysis ("CD&A") beginning on page
20. The Committee met five times and did not act by unanimous written
consent in 2009.
The
Company's full Board ultimately makes the final decisions regarding the Chief
Compliance Officer's compensation as required by Rule 38a-1 under the 1940 Act
and also approves grants under the Equity Incentive Plan made by the Committee
for all employees.
The
Compensation Committee Charter is available on the Company's website
(http://www. hhvc.com/governance.cfm).
Role
of Compensation Consultant
In 2009,
the Committee again engaged Johnson Associates to advise it on relevant
executive pay and related issues. Mr. Roberts, the Chairman of the
Committee, with the assistance of Ms. Forman, in her role as Director of Human
Resources, provided information to Johnson Associates regarding the role of each
employee, our perceived competition and the Committee's goals with respect to
compensation in general and specifically the granting of long-term and
short-term equity incentive awards. Mr. Jamison, our Chief Executive
Officer, also participated in conversations with Johnson Associates regarding
the granting of long-term and short-term equity incentive
awards. During 2009, Johnson Associates assisted the Committee
by:
|
·
|
Reviewing
the Company's cash compensation and competitive market data with respect
to private venture capital firms, asset management firms, public companies
with similar market capitalizations and compliance
professionals;
|
|
·
|
Reviewing
and providing recommendations for the option awards to be granted to
employees in 2010; and
|
Compensation
Committee Interlocks and Insider Participation
There
were no Compensation Committee interlocks or insider participation on the
Committee in 2009.
All
members of the Committee are independent directors and none of the members are
present or past employees of the Company. No member of the Committee:
(i) has had any relationship with us requiring disclosure under Item 404 of
Regulation S-K under the 1934 Act; or (ii) is an executive officer of another
entity, at which one of our executive officers serves on the board of
directors.
Compensation Committee Report on
Executive Compensation
Our
Compensation Committee presents the following report:
The
Committee has reviewed and discussed the CD&A with management and has
recommended to the Board of Directors that the CD&A be included in this
Proxy Statement.
Respectfully,
Members
of the Compensation Committee
James E.
Roberts (Chairman)
Dr.
Phillip A. Bauman
Dugald A.
Fletcher
Richard
P. Shanley
Nominating Committee. The Nominating Committee
acts as an advisory committee to the Board by identifying individuals qualified
to serve on the Board as directors and on committees of the Board, and to
recommend that the Board select the Board nominees for the next annual meeting
of shareholders. The Nominating Committee met twice and did not act
by unanimous written consent in 2009.
The
Nominating Committee annually reviews the requisite skills and characteristics
of Board members, as well as the composition of the Board as a
whole. This assessment includes a consideration of independence,
potential conflicts of interest, diversity, age, skills, including risk
assessment skills and specific past experience or particular expertise that
would be useful to the Company, and industry backgrounds and knowledge in the
context of the needs of the Board and the Company. The Nominating Committee also
considers the ability of current and prospective directors to devote sufficient
time to performing their duties in an effective manner. Directors are
expected to exemplify the highest standards of personal and professional
integrity and to constructively challenge management through their active
participation in meetings. In particular, the Nominating Committee
seeks directors with established strong professional reputations and expertise
in areas relevant to the strategy and operations of the Company’s
business.
While the
Company’s Corporate Governance Guidelines do not prescribe diversity standards
other than diversity of experience, as a matter of practice, the Nominating
Committee considers diversity in the context of the Board as a whole and takes
into account the personal characteristics (gender, ethnicity, age) and
experience (skills, industry, professional, public service) of current and
prospective directors to facilitate Board deliberations that reflect a broad
range of perspectives. The Board of Directors believes that director
nominees should not be chosen nor excluded solely or largely because of age,
race, color, gender, national origin or sexual orientation or
identity. Most important, the Board of Directors believes that
diversity of experience is an important factor to consider when evaluating
nominees because of the breadth of our business as a publicly traded, venture
capital firm, operating as a business development company in many different
industries relating to nanotechnology.
The
Nominating Committee evaluates all candidates for the Board based on the above
qualifications, regardless of whether the candidate was nominated by an officer,
Board member or shareholder. The Nominating Committee also conducts
regular reviews of current directors whose terms are nearing expiration, but who
may be proposed for re-election, by reviewing the considerations described above
and past contributions to the Board.
The
Nominating Committee will consider director candidates recommended by
shareholders. In considering candidates submitted by shareholders,
the Nominating Committee will take into consideration the needs of the Board and
the qualifications of the candidate. The Nominating Committee may
also take into consideration the number of shares held by the recommending
shareholder and the length of time that such shares have been
held. To have a candidate considered by the Nominating Committee, a
shareholder must submit the recommendation in writing and must
include:
|
·
|
The
name of the shareholder and evidence of the person's ownership of shares
of the Company, including the number of shares owned and the length of
time of ownership;
|
|
·
|
The
name of the candidate, the candidate's resume or a listing of his or her
qualifications to be a director of the Company and the person's consent to
be named as a director if selected by the Nominating Committee and
nominated by the Board; and
|
|
·
|
If
requested by the Nominating Committee, a completed and signed director's
questionnaire.
|
The
shareholder recommendation and information described above must be sent to the
Company's Corporate Secretary, c/o Harris & Harris Group, Inc., 1450
Broadway, 24th Floor,
New York, New York 10018, and must be received by the Corporate Secretary not
less than 120 days prior to the anniversary date of the Company's most recent
annual meeting of shareholders or, if the meeting has moved by more than 30
days, a reasonable amount of time before the meeting.
Preliminary
interviews of director candidates may be conducted by the Chairman of the
Nominating Committee or, at his request, any other member of the Nominating
Committee, the Lead Independent Director and the Chairman of the
Board. Background material pertaining to director candidates is
distributed to the members of the Nominating Committee for their
review. Director candidates who the Nominating Committee determines
merit further consideration are interviewed by the Chairman of the Nominating
Committee and such other Nominating Committee members, directors and key senior
management personnel as determined by the Chairman of the Nominating
Committee. The results of these interviews are considered by the
Nominating Committee in its deliberations. We do not currently pay
any third party a fee to assist in the process of identifying and evaluating
candidates.
The
Nominating Committee operates pursuant to a written charter approved by our
Board of Directors. The Nominating Committee Charter sets out the
responsibilities, authority and duties of the Nominating
Committee. The Nominating Committee Charter is available on our
website (http://www. hhvc.com/governance.cfm).
Valuation Committee. The Valuation Committee
has the full power and authority of the Board in reviewing and approving the
valuation of our securities for reporting purposes, pursuant to our Valuation
Procedures that were established and approved by the Board of
Directors. The Valuation Committee met five times and did not act by
unanimous written consent in 2009.
Independent Directors
Committee. The Independent
Directors Committee has the responsibility of proposing corporate governance and
long-term planning matters to the Board of Directors, overseeing compliance and
making the required determinations pursuant to the 1940 Act. All of
the Independent Directors are members of the committee. The
Independent Directors Committee met four times and did not act by unanimous
written consent in 2009.
Executive
Officers
Our
executive officers who are not nominees for directors are set forth
below. Information relating to our executive officers who are
nominees for directors is set forth under "Election of Directors –
Nominees." Our executive officers are elected to serve until they
resign or are removed, or are otherwise disqualified to serve, or until their
successors are elected and qualified.
Daniel B.
Wolfe. Mr. Wolfe, age 33, has served as President and Chief
Operating Officer since January 2009, as Chief Financial Officer and as a
Managing Director since January 2008 and as Treasurer since May
2008. He served as Principal from January 2007 to January 2008, as
Senior Associate from January 2006 to January 2007, and as Vice President from
July 2004 to January 2008. Since January 2009, he has served as
President of Harris & Harris Enterprises, Inc., a wholly owned subsidiary of
the Company; and since October 2008 he has served as a Director. He
is a Director of Enumeral Technologies, Inc., Laser Light Engines, Inc.,
Nextreme Thermal Solutions, Inc. and SiOnyx, Inc., privately held
nanotechnology-enabled companies in which we have investments. Prior
to joining us, he served as a consultant to Nanosys, Inc. (from 2002 to 2004),
to CW Group (from 2001 to 2004) and to Bioscale, Inc. (from January 2004 to June
2004). He was graduated from Rice University (B.A., Chemistry), where
his honors included the Zevi and Bertha Salsburg Memorial Award in Chemistry and
the Presidential Honor Roll, and from Harvard University (A.M., Ph.D.,
Chemistry), where he was a NSF Predoctoral Fellow.
At our
request, Mr. Wolfe was interim Chief Executive Officer of Evolved Nanomaterial
Sciences, Inc. ("ENS"), one of our portfolio companies, from July 1, 2007, to
September 28, 2007. ENS filed for Chapter 7 bankruptcy on September
30, 2007.
Alexei A.
Andreev. Mr. Andreev, age 38, has served as an Executive Vice
President and as a Managing Director since March 2005. From 2002 to
March 2005, he was an Associate with Draper Fisher Jurvetson, a venture capital
firm. He is a Director of Xradia, Inc., a privately held
nanotechnology-enabled company in which we have an investment. He is
a board observer of CFX Battery, Inc., Cobalt BioFuels, Inc., D-Wave Systems,
Inc., Kovio, Inc., Molecular Imprints, NeoPhotonics, Inc., and PolyRemedy, Inc.,
privately held nanotechnology-enabled companies in which we have
investments. From 2002 to 2009, he was also a Director of American
Business Association of Russian Speaking Professionals Club, a non-profit
organization. He was graduated with honors in Engineering/Material
Sciences (B.S.), in Solid State Physics (Ph.D.) from Moscow Steel and Alloys
Institute and from Stanford Graduate School of Business (M.B.A.).
Michael A.
Janse. Mr. Janse, age 41, has served as an Executive Vice
President and as a Managing Director since April 2007. From January
2007 to April 2007, he was a Principal with ARCH Venture Partners and was an
Associate from June 2002 to January 2007, following earlier roles as an intern
and then consultant. He is a director of Adesto Technologies Corp.,
Innovalight, Inc., and Laser Light Engines, Inc., privately held
nanotechnology-enabled companies in which we have investments. He is
a board observer of BridgeLux, Inc., Cambrios Technology Corporation, Crystal
IS, Inc., and Siluria Technologies, Inc. privately held nanotechnology-enabled
companies in which we have investments. He was graduated from Brigham Young
University (B.S., Chemical Engineering) and The University of Chicago
(M.B.A.).
Sandra Matrick Forman,
Esq. Ms. Forman, age 44, has served as General Counsel, as
Chief Compliance Officer and as Director of Human Resources since August 2004,
and as our Corporate Secretary since January 1, 2009. Prior to
joining us, she was an Associate at Skadden, Arps, Slate, Meagher &
Flom LLP, in the Investment Management Group. She was graduated from
New York University (B.A.), where her honors included National Journalism Honor
Society, and from the University of California Los Angeles (J.D.), where her
honors included Order of the Coif and membership on the Law
Review. She is currently a member of the working group for the
National Venture Capital Association model documents.
Misti Ushio. Ms.
Ushio, age 38, has served as a Principal since January 2010, as a Vice President
since May 2007 and an Associate from May 2007 to December 2009. From June 2006
to May 2007, Ms. Ushio was a Technology Licensing Officer at Columbia
University. From May 1996 to May 2006, she was employed by Merck
& Co., Inc., most recently as a Senior Research Biochemical Engineer
with the Bioprocess R&D group. She is a member of the Nanotechnology
Institute Corporate Advisory Group of Philadelphia, Pennsylvania. She
is a director of Ancora Pharmaceuticals, Inc. and Enumeral Technologies, Inc.,
privately held nanotechnology-enabled companies in which we have
investments. She is a board observer of BioVex Group, Inc., Ensemble
Discovery, Inc., Mersana Therapeutics, Inc., and Tetravitae Bioscience, Inc.,
privately held nanotechnology-enabled companies in which we have
investments. She was graduated from Johns Hopkins University (B.S.,
Chemical Engineering), Lehigh University (M.S., Chemical Engineering) and
University College London (Ph.D., Biochemical Engineering).
Patricia N. Egan. Ms. Egan,
age 35, has served as Chief Accounting Officer, as a Vice President and as
Senior Controller since June 2005. From June 2005 to December 2005,
from August 2006 to March 2008 and from May 2008 to December 31, 2008, she
served as an Assistant Secretary. Since January 2006, she has served
as Treasurer and as Secretary of Harris & Harris Enterprises, Inc., a wholly
owned subsidiary of the Company. From 1996 to 2005, she was employed
by PwC, most recently as a Manager in its financial services group. She was
graduated from Georgetown University (B.S., Accounting), where her honors
included the Othmar F. Winkler Award for Excellence in Community
Service. She is a Certified Public Accountant.
Mary P. Brady. Ms. Brady, age 48, has
served as a Vice President and as Controller since November
2005. From November 2005 to March, 2008, she served as an Assistant
Secretary. From 2003 through 2005, she served as a senior accountant
at Clarendon Insurance Company in its program accounting group. Prior
to that, she was a Senior Associate at PwC in its financial services
group. She was graduated Summa Cum Laude from Lehman College (B.S.,
Accounting). She is a Certified Public Accountant.
Related Party
Transactions
In the ordinary course of business, the
Company enters into transactions with portfolio companies that may be
considered
related-party transactions. Other than these transactions, for the
fiscal year ended December 31, 2009, there were no transactions, or
proposed transactions, exceeding $120,000 in which the Company was or is a participant in which any
related person had or will
have a direct or indirect material interest.
In order
to ensure that the Company does not engage in any prohibited transactions with
any persons affiliated with the Company, the Company has implemented procedures,
which are set forth in the Company's Compliance Manual. Our Audit
Committee must review in advance any "related-party" transaction, or series of
similar transactions, to which the Company or any of its subsidiaries was or is
to be a party, in which the amount involved exceeds $120,000 and in which such
related party had, or will have, a direct or indirect material
interest. The Board of Directors reviews these procedures on an
annual basis.
In
addition, the Company's Code of Conduct for Directors and Employees ("Code of
Conduct"), which is signed by all employees and directors on an annual basis,
requires that all employees and directors avoid any conflict, or the appearance
of a conflict, between an individual's personal interests and the interests of
the Company. Pursuant to the Code of Conduct, which is available on
our website (http://www.hhvc.com/governance.cfm), each employee and director
must disclose any conflicts of interest, or actions or relationships that might
give rise to a conflict, to the Chief Compliance Officer. The
Independent Directors Committee is charged with monitoring and making
recommendations to the Board of Directors regarding policies and practices
relating to corporate governance. If there were any actions or
relationships that might give rise to a conflict of interest, such actions or
relationships would be reviewed and pre-approved by the Board of
Directors.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section
16(a) of the 1934 Act requires our officers and directors, and persons who own
more than 10 percent of our common stock, to file reports (including a year-end
report) of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and to furnish the Company with copies of all reports
filed.
Based
solely on a review of the forms furnished to us, or written representations from
certain reporting persons, we believe that all persons who were subject to
Section 16(a) in 2009 complied with the filing requirements.
EXECUTIVE
COMPENSATION
Compensation Discussion
& Analysis
Overview
This Compensation Discussion &
Analysis ("CD&A") describes the material elements of compensation awarded
to, earned by, or paid to our principal executive officer, principal financial
officer and the three most highly paid executive officers (other than the
principal executive officer and the principal financial officer) serving as such
at the end of 2009 (the "named executive officers"):
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·
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Douglas
W. Jamison, Chairman, Chief Executive Officer and a Managing
Director;
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·
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Daniel
B. Wolfe, President, Chief Operating Officer, Chief Financial Officer and
a Managing Director;
|
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·
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Alexei
A. Andreev, Executive Vice President and a Managing
Director;
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·
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Michael
A. Janse, Executive Vice President and a Managing Director;
and
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·
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Sandra
M. Forman, General Counsel, Chief Compliance Officer, Director of Human
Resources and Corporate Secretary.
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This
CD&A focuses on the information contained in the following tables and
related footnotes and narrative for primarily the last completed fiscal
year. We also describe compensation actions taken before or after the
last completed fiscal year to the extent it enhances the understanding of our
executive compensation for the last completed fiscal year. Pursuant
to our Compensation Committee's written charter, the Committee oversees the
design and administration of our executive compensation program. The
Committee ensures that the total compensation paid to our executive officers is
fair, reasonable and competitive.
Compensation
Program Objectives and Philosophy
In General. The objectives of the
Company's compensation program are to:
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·
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attract,
motivate and retain employees by providing market-competitive compensation
while preserving company resources;
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·
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maintain
our leadership position as a venture capital firm specializing in
nanotechnology and microsystems;
and
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·
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align
management's interests with shareholders'
interests.
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To
achieve the above objectives, the Committee designed a total compensation
program in 2009 for our named executive officers composed of a base salary, a
bonus opportunity and equity awards in the form of stock options. The
Committee believes that the equity component of compensation is a crucial
component of our compensation package. Stock options have been
utilized for short-term and long-term incentive, and to make the Company's
compensation program more competitive, particularly with compensation programs
of private partnerships that, unlike the Company, are able to award carried
interest taxable as long-term gains and to permit co-investments in
deals. Our executive compensation programs and related data are
reviewed throughout the year and on an annual basis by the Committee to
determine whether the compensation program is providing its intended
results.
The
Committee believes that retention is especially important for a company of our
size (11 employees) and the specialized nature of our business. Our
employees have been selected and trained to support our focus on investment in
companies enabled by nanotechnology and microsystems, and the administration
necessary to comply with the specialized regulatory environment required of a
business development company. Our nanotechnology focus requires
highly specialized scientific knowledge. There are relatively few
individuals who have both such scientific knowledge and venture capital
experience. Additionally, our business development company structure
requires specialized management, administrative, legal and financial knowledge
of our specific regulatory regime. Because there are very few
business development companies, it could be difficult to find replacements for
certain executive, legal and financial positions.
Competitive
Market. For our investment team members, the competition for
retention and recruitment is primarily private venture capital firms, hedge
funds, asset management firms, venture-backed nanotechnology companies and, to a
lesser extent, investment banking firms. Venture capital funds
commonly pay at least 20 percent of the realized profits (including capital
gains), or carried interest, of each newly raised fund to the management firm,
which awards interests to its partners and employees. For our legal
and accounting professionals, in addition to the foregoing, the competition is
other public companies without regard to industry, asset management companies
and legal and accounting firms. The Company does not have a readily
identifiable peer group, because most business development companies are not
early-stage venture capital companies, and most other early-stage venture
capital companies are not publicly traded. Thus, we do not emphasize
the use of peer comparison groups in the design of our compensation
program. As one factor in determining compensation, we utilize
compensation comparables, on an individual basis, to the extent that they seem
appropriately analogous, as provided to the Committee by an independent
compensation consultant.
Compensation Process. On an annual basis, the
Committee reviews and approves each element of compensation for each of our
executive officers, taking into consideration the recommendation of our Chief
Executive Officer (for compensation other than his own) in the context of the
Committee's compensation philosophy, to ensure that the total compensation
program and the weight of each of its elements meets the overall objectives
discussed above. For the Chief Compliance Officer, the Committee
recommends her compensation to the full Board, for approval by at least a
majority of the non-interested directors (as defined in Section 2(a)(19) of the
1940 Act). None of our employees have employment agreements and they
are all at will employees.
In 2009,
an independent compensation consultant, Johnson Associates, supplied the
Committee with market data on all positions. The information provided
for 2009 was for private equity firms, venture capital firms and investment
management firms, and was adjusted to reflect compensation for a venture capital
firm with $100 – $200 million in assets under management. Data was
also provided for public companies with comparable market
capitalizations. Further data was provided for 1940 Act compliance
personnel (collectively, the "Identified Group"). The independent
consultant did not identify the names of companies included in the Indentified
Group.
The
Committee considers recommendations from the Chief Executive Officer regarding
compensation, along with factors such as individual performance, current and
potential impact on Company performance, reputation, skills and
experience. When determining compensation, the Committee considers
the importance of retaining certain key officers whose replacement would be
challenging owing to the Company's status as a 1940 Act company and owing to its
nanotechnology specialty. The Committee also considers the highly
specialized nature of certain positions in determining overall
compensation.
When
addressing executive compensation matters, the Committee generally meets outside
the presence of all executive officers except our Chief Executive Officer and
our General Counsel, each of whom leaves the meeting when his/her compensation
is reviewed.
Regulatory
Considerations. The 1940 Act permits business development
companies to either pay out up to 20 percent of net income after taxes through
the implementation of a profit-sharing plan or issue up to 20 percent of shares
issued and outstanding through implementation of a stock-option
plan. The exercise price of stock options may not be less than the
current market value at the date of issuance of the options.
We have
applied for exemptive relief from the SEC to permit us to issue restricted stock
to employees pursuant to the Harris & Harris Group, Inc. 2006 Equity
Incentive Plan (the "Stock Plan") and to permit non-employee directors to
participate in the Stock Plan. Until such time as we receive such
exemptive relief and such provisions are approved by shareholders, we will not
issue any shares of restricted stock, and our non-employee directors will not
participate in the Stock Plan.
The
Company has been informed that the SEC has commenced its review of the exemptive
application, and we have received and responded to formal written
comments. We cannot, however, evaluate whether or when an order
regarding our application for the relief requested may be granted.
We have
also designed our Stock Plan with the intention that awards made thereunder
generally will qualify as performance-based compensation under Section 162(m) of
the Code, but we reserve the right to pay amounts thereunder that do not qualify
as such performance-based compensation if we determine such payments to be
appropriate in light of our compensation objectives from time to
time. Section 162(m) of the Code generally disallows a tax deduction
to publicly held companies for compensation paid to their chief executive
officer or any of their three other most highly compensated executive officers
(other than the chief financial officer), to the extent that compensation
exceeds $1 million per covered officer in any fiscal year. However,
if compensation qualifies as performance-based, the limitation does not
apply.
Our
status for federal income taxes purposes as a regulated investment company under
Subchapter M of the Code makes the deductibility of our compensation
arrangements a much less important factor for the Committee to consider than it
would be if we were an operating company. The Company presently has
more operating expenses than it can deduct for tax purposes, even before equity
compensation. As a regulated investment company, the Company cannot,
however, deduct operating expenses from its long-term capital gains, which are
its most significant form of income. In addition, under Subchapter M
of the Code, the Company cannot carry forward or backward any unused operating
expenses from one year to future or prior tax years.
Compensation
Components
The principal elements of our executive
compensation program for 2009 are base salary, bonus, equity and other benefits
and perquisites. The Committee believes that each element is
essential to achieve the Company's objectives as set forth above. The
Committee is mindful of keeping cash compensation expenses at as low a level of
total operating expenses as is consistent with maintaining the Company's
competitiveness to attract and retain high-quality employees.
Base Salaries. We
recognize the need to pay our named executive officers, and other employees, a
competitive annual base salary. We review base salaries for our named
executive officers annually. In 2009, the Committee compared salary
ranges for all executive officers against the Identified Group. Base
salaries are generally adjusted annually for inflation and also based on changes
in the marketplace and an executive's individual performance, salary position
among peers, career growth potential and/or a change in
responsibilities. All of the Managing Directors and Ms. Forman are
paid the same base salary.
Other than cost of living adjustments,
none of the named executive officers received material salary increases in
2009. There presently are no contemplated increases in base salary,
nor cost of living adjustments for any of the named executive officers in
2010.
Bonuses. We have
been informed by the Committee’s independent compensation consultant that
historically our overall compensation has not always been competitive for our
named executive officers because we have not always paid bonuses. If
the named executive officers do not receive sufficient cash from base salary in
a given year to provide market-competitive total compensation, as determined by
the Committee, and based on advice from the independent compensation consultant,
the Committee may pay the named executive officers cash bonuses. In
general, we have historically refrained from increasing base salaries, other
than cost of living adjustments, from year to year, even when market data has
supported an increase, and have used the ability to provide bonuses at the end
of the year to provide market-competitive total compensation. We
believe this strategy has provided management with the greatest flexibility in
managing expenses. In 2009, the named executive officers each
received a bonus of $50,000 for Messrs. Jamison, Wolfe, Andreev and Janse, and
$30,000 for Ms. Forman. The Committee believes that retention of key
employees is crucial because of the specialized nature of our business as
described more fully below. Based on market conditions, our cash
position and the size of our assets, the Committee may exercise its discretion
to (1) award additional bonuses based on individual employee performance, or (2)
not award bonuses that are market competitive. Based on conversations
with the Committee’s compensation consultant, Johnson Associates, we believe
that the compensation comparables of the Identified Group in 2010 for our
Managing Directors will be at or above the levels reported in
2009. If the compensation comparables are indeed at or above these
levels, we would expect to pay bonuses to our Managing Directors in
2010.
Equity Incentive
Awards.
In General
In 2009,
we have provided the opportunity for our named executive officers and other
employees to earn long-term and short-term equity incentive
awards. Equity incentive awards in the form of options potentially
generate cash for the Company that can be used for portfolio company investments
and for working capital. In 2010, we anticipate that equity incentive
awards will generally be long-term options with an expiration period of five
years.
Long-Term
Equity Incentive Awards
Long-term
equity incentive awards provide employees with the incentive to stay with us for
long periods of time, which in turn provides us with greater
stability. In 2009, 46 percent of options granted expire in five to
ten years and were considered long-term equity incentive
awards. Long-term equity incentive awards are meant to substitute for
carried interest that our investment professionals would receive were they
employed by private-sector venture capital firms, which typically pay at least
20 percent of profits before any taxes. Further, that carried
interest is usually in the form of long-term capital gains, not ordinary income.
Short-Term
Equity Incentive Awards
Short-term
equity incentive awards help to motivate employees in the short
term. Short-term options are also meant to substitute for carried
interest that our investment professionals would receive were they employed by
private-sector venture capital firms. Short-term equity incentive
awards also permit each executive officer to increase his/her ownership in
Company stock, pursuant to minimum share ownership guidelines established by our
Board. Short-term vesting periods have the potential of generating
cash for the Company in the short term, through the purchase of stock in the
course of the exercise of options that can be used for making venture capital
investments and for working capital. In 2009, 54 percent of option
awards were short-term awards that expire within two years from the date of
grant. In 2010, the Committee does not plan to grant any short-term
equity incentive awards that expire within two years from the date of
grant.
Awards
Under the Stock Plan
In
accordance with the Stock Plan, which was approved by shareholders at the 2006
Annual Meeting of Shareholders, the Committee can issue options from time to
time for up to 20 percent of the total shares of stock issued and
outstanding. Thus, the number of shares of stock able to be reserved
for the grant of awards under the Stock Plan will automatically increase (or
decrease) with each increase (or decrease) in the number of shares of stock
issued and outstanding. The Board may increase the number of shares
reserved for stock option grants (currently 5,171,915) from time to time as the
number of outstanding shares increases. The Committee may grant
awards under the Stock Plan to the full extent permitted at the time of each
grant in order to compete with the Identified Group by retaining the specially
qualified and trained personnel that have been carefully recruited and developed
for the Company's specialized business. Because our primary
competitors are organized as private partnerships, they do not have the overhead
of a publicly traded company. As a consequence, unlike the Company,
they can afford for cash compensation to be a large percentage of their total
expenses. Unlike us, they are not prohibited from paying out at least
20 percent of their profits to key employees, primarily in the form of long-term
capital gains. They also, unlike us, are permitted to grant their
employees co-investment rights.
Under the
Stock Plan, no more than 25 percent of the shares of stock reserved for the
grant of the awards under the Stock Plan may be restricted stock awards at any
time during the term of the Stock Plan. If any shares of restricted
stock are awarded, such awards will reduce on a percentage basis the total
number of shares of stock for which options may be awarded. If we do
not receive exemptive relief from the SEC to issue restricted stock, all shares
granted under the Stock Plan must be subject to stock options. If we
were to receive such exemptive relief and were to issue the full 25 percent of
the shares of stock reserved for grant under the Stock Plan as restricted stock,
no more than 75 percent of the shares granted under the Stock Plan could be
subject to stock options. No more than 1,000,000 shares of our common
stock may be made subject to awards under the Stock Plan to any individual in
any year.
On March
18, 2009, the Committee and the full Board of Directors of the Company approved
a grant of individual Non-Qualified Stock Option ("NQSO") awards for certain
officers and employees of the Company. Options to purchase a total of 329,999
shares of stock were granted with vesting periods ranging from March 2010 to
March 2013, and with an exercise price of $3.75, which was the closing price of
our shares of common stock as quoted on the Nasdaq Global Market on March 18,
2009. The awards were to become fully vested and exercisable prior to
the date or dates in the vesting schedule if (1) the market price of the shares
of our stock reaches $6 per share at the close of business on three consecutive
trading days on the Nasdaq Global Market or (2) the Board of Directors accepts
an offer for the sale of substantially all of the Company's
assets. Upon exercise, the shares would be issued from our previously
authorized but unissued shares.
At the
close of business on July 28, 2009, the price of our stock reached $6.00 for the
third consecutive trading day on the Nasdaq Global Market. Pursuant
to the terms of the stock options granted on March 18, 2009, the vesting
schedule accelerated and all 329,999 options became immediately vested and
exercisable.
On May
13, 2009, the Committee and the full Board of Directors of the Company approved
a grant of individual NQSO awards for certain officers and employees of the
Company. The terms and conditions of the stock options granted were
set forth in award agreements between the Company and each award recipient
entered into on that date. Options to purchase a total of 200,000
shares of stock were granted with vesting periods ranging from November 2009 to
May 2013, and with an exercise price of $4.46, which was the closing price of
our shares of common stock as quoted on the Nasdaq Global Market on May 13,
2009. The awards may become fully vested and exercisable prior to the
date or dates in the vesting schedule if the Board of Directors accepts an offer
for the sale of substantially all of the Company's assets. Upon
exercise, the shares would be issued from our previously authorized but unissued
shares.
On
November 11, 2009, the Committee and the full Board of Directors of the Company
approved a grant of individual NQSO awards for certain officers and employees of
the Company. Options to purchase a total of 200,000 shares of stock
were granted with vesting periods ranging from November 2010 to November 2012,
and with an exercise price of $4.49, which was the closing price of our shares
of common stock as quoted on the Nasdaq Global market on November 11,
2009. The awards may become fully vested and exercisable prior to the
date or dates in the vesting schedule if the Board of Directors accepts an offer
for the sale of all or substantially all of the Company's
assets. Upon exercise, the shares would be issued from our previously
authorized but unissued shares.
In 2009,
the Committee granted the same number of stock options to each of the Managing
Directors regardless of any other corporate duties that an individual Managing
Director may have. Ms. Forman generally receives a smaller number of
options than the Managing Directors.
The
number of options per employee and the vesting and expiration dates were
originally proposed by the independent consultant after conversations with the
Chairman of the Committee and input from the Chief Executive Officer (with
respect to options other than his own). All awards granted to
executive officers vest subject to continued employment with the Company through
each applicable vesting date, except for certain types of
retirement. All stock option awards to the named executive officers
will be subject to share ownership guidelines (as described below on pages
29-30).
The Committee plans to give small
grants three times per year, rather than one large annual grant, to executive
officers if there are options available to grant and if there is an "open
window," i.e., when we do not have knowledge of any material non-public
information, in which to grant options. The Committee believes that
this plan of three grants will more closely align employees' interests with
those of shareholders. We do not time stock option grants in
coordination with the release of material, non-public information, nor do we
time the release of material, non-public information for the purpose of
affecting the value of executive compensation. All Committee meetings
for the purpose of granting options are generally scheduled at the end of each
year for the next year’s grants.
Option
grants in 2009 were not subject to performance goals. Other than
stock options being tied to stock price, no other items of corporate performance
were taken into account at the time of grant, because of the difficulty of
determining annual performance metrics. Business development
companies like us do not report earnings per share; moreover, write-downs and
write-offs of investments are an expected part of our risk-seeking strategy, and
it is not uncommon for even our most successful investments to take years to
come to fruition. The Committee may create performance goals for the
vesting of restricted stock (subject to receipt of an exemptive
order). If performance goals are used in the future, the Board will
have the authority to make equitable adjustments to the performance goals in
recognition of unusual or non-recurring events affecting the Company or the
financial statements of the Company, in response to changes in applicable laws
or regulations or to account for items of gain, loss or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence or related to the
disposal of a segment of a business or related to a change in accounting
principles.
Generally,
the Committee is made aware of the tax and accounting treatment of various
compensation alternatives. Generally Accepted Accounting Principles
("GAAP"), require us to record the fair value of equity awards on the date of
grant as a component of equity. We account for the Stock Plan in
accordance with GAAP, which requires that we determine the fair value of all
share-based payments to employees, including the fair value of grants of
employee stock options, and record these amounts as an expense in the
Consolidated Statement of Operations over the vesting period with a
corresponding increase to our additional paid-in capital. The
increase to our operating expenses is offset by the increase to our additional
paid-in capital, resulting in no net impact to our net asset
value. Thus, the granting of options is expected to have no net
impact on our net asset value. If and when the options are exercised,
the net asset value per share will be decreased if the net asset value per share
at the time of exercise is higher than the exercise price, and increased if the
net asset value per share at the time of exercise is lower than the exercise
price. As a result, although we consider the accounting treatment of
granting options, we do not consider the accounting treatment to be a dominant
factor in the form and/or design of awards.
Additionally,
we do not record tax benefits associated with expensing of stock options,
because we intend to qualify as a regulated investment company under Subchapter
M of the Code. As a regulated investment company, we cannot use all
of our existing operating expenses for tax purposes.
10b5-1
Plans
We have
established a policy of permitting our officers to enter into trading plans to
sell shares of our common stock in accordance with Rule 10b5-1 under the 1934
Act. The policy allows our participating officers to adopt
pre-arranged stock trading plans to sell pre-determined amounts of our common
stock over a period of time, after an appropriate waiting period from when the
plan was entered into. Our participating officers may only enter into
10b5-1 plans during an "open window." In general, at a minimum, these
potential open windows occur several days after the filing of our Form 10-K or
10-Q until the end of the next fiscal quarter. Accordingly, employees
may not enter into 10b5-1 plans or purchase shares in the open market during any
closed window. We generally do not permit our employees to sell
shares of our common stock either purchased in the open market or retained
through the exercise of stock options pursuant to our Share Ownership Guidelines
until they meet substantial share ownership thresholds discussed below under
"Share Ownership Guidelines." This 10b5-1 trading policy was
established in recognition of the liquidity and diversification objectives of
our officers, including enabling our officers to sell certain shares of our
common stock (shares they acquire upon exercise of stock options, to pay for the
exercise of options, to provide for taxes triggered by the exercise of options
and to generate cash from the exercise of options).
Share Purchase Plan
On March
11, 2010, the Board of Directors approved the Harris & Harris Group, Inc.,
Employee Stock Purchase Plan (the "ESPP"). The ESPP was adopted to
encourage stock ownership in the Company by employees, thus giving them a
proprietary interest in the Company’s performance. The ESPP will
allow employees to buy shares of the Company in the open market up to four times
per year, at the closing price on the Nasdaq Global Market using post-tax
payroll deductions.
The sole purpose of the ESPP is to
facilitate the ability of employees to increase their ownership in the
Company. Employees have not always been able to buy shares in the
open market owing to short-swing trading restrictions. Employees are
generally prohibited from buying shares in the open market if they have 10b5-1
trading plans in place and during any black out periods (i.e., when Company
shares are in restricted periods for employees). Since most employees
have 10b5-1 plans in place, our employees have been limited in the number of
shares they can purchase. Acquisitions under the ESPP will be exempt
from the short-swing trading rules so employees will be able to purchase shares
at set times regardless of whether the Company is in a blackout period or
whether the individual has a 10b5-1 plan in place.
The ESPP
will be administered by our Compensation Committee, which may select an
administrator to whom its duties may be delegated. The ESPP
administrator has the authority under the ESPP to promulgate such rules and
regulations as it deems necessary for the proper administration of the ESPP, to
interpret the ESPP and make all other determinations necessary for plan
administration.
A
Participant may withdraw from participation under the Plan at any time not less
than 20 days prior to commencement of the next purchase period by giving written
notice to the Company. Such Participant’s participation in future
purchases under the Plan will thereupon be automatically
terminated. A participant may re-enroll in the plan, but no purchases
will take place until the next purchase period, which will be after the end of
the next calendar quarter.
Benefits and
Perquisites. We provide the opportunity for our named
executive officers and other full-time employees to receive certain perquisites
and general health and welfare benefits, discussed more fully below, which
consist of life and health insurance benefits, reimbursement for certain medical
expenses and gym membership fees. We also offer
participation in our defined contribution 401(k) plan. For the year
ended December 31, 2009, the Committee approved a 401(k) plan match of 100
percent of employee contributions up to the annual maximum of
$16,500. In 2009, our executive officers, including our Chief
Executive Officer, Mr. Jamison, generally received the same benefits and
perquisites as our full-time administrative employees. None of our
named executive officers are currently entitled to any non-qualified deferred
compensation benefits.
Profit
Sharing. Prior to the adoption of the Stock Plan, the Company
maintained the Amended and Restated Harris & Harris Group, Inc. Employee
Profit-Sharing Plan (the "2002 Plan"). Under the 2002 Plan,
approximately 90 percent of the amount determined as "qualifying income" was
paid out to participants pursuant to distribution percentages determined by the
Committee. The remaining payment was paid out after we finalized our
tax returns for each plan year. Effective May 4, 2006, the 2002 Plan
was terminated. On January 31, 2007, a final profit sharing award of
$261,661 was paid to certain participants related to the 2005 plan year after
finalization of our tax returns for 2005.
Internal Pay
Equity. In 2009, the Committee discussed the internal pay
equity of the named executive officers. The Committee noted that our
investment professionals work together as a team rather than as a collection of
individuals, which was the basis for the Committee's decision to pay all
Managing Directors identically, regardless of any other corporate duties, such
as Chief Executive Officer, President, Chief Operating Officer or Chief
Financial Officer. The Committee also noted that Ms. Forman's base
salary was on parity with the Managing Directors to make her compensation
competitive based on her 1940 Act specialty and her management role in the
Company as General Counsel, Chief Compliance Officer and Director of Human
Resources. The Committee further noted that the Managing Directors
should receive more stock options than other employees based on their
income-generating role and to keep their total compensation competitive with the
Identified Group. The Committee believes that, on a small team, all members must
pull their full weight. Accordingly, the Committee believes that the
team approach to compensation promotes teamwork among the Managing
Directors.
In 2010
and beyond, the Committee may vary certain elements of compensation for the
Chief Executive Officer and the Chief Financial Officer, based on data received
from the independent compensation consultant.
Share
Ownership Guidelines
Officers:
Each
named executive officer may establish a 10b5-1 plan to exercise and sell
(through a cashless exercise) up to 95 percent of the options granted to that
individual in each grant by the Board of Directors. The remaining
five percent of these options must be available to meet the retention
requirements. For example, if an officer sells 9,500 shares in a
cashless exercise, he or she must use a portion of the net proceeds received to
exercise and hold 500 shares. Our Managing Directors are also
encouraged to use some portion of their cash proceeds obtained from the exercise
of options and sale of the underlying shares to retain shares above the minimum
retention requirement.
Each
named executive officer is subject to this retention requirement until such time
as he or she meets a minimum share ownership percentage level. For
the Managing Directors, the share ownership percentage level is 2.5 percent of
the total shares issued and outstanding. For other deal team members
(including the General Counsel and Investment Team Principal) the percentages
are a smaller percentage of the issued and outstanding shares based on the
number of options granted as compared with the number granted to the Managing
Directors. In 2009, the named executive officers and Misti Ushio, all
officers subject to these requirements, collectively increased their ownership
by 19,462 shares by buying in the open market and through the exercise of stock
options. As of March 16, 2010, none of the named executive
officers has met the minimum share ownership requirements.
Directors:
The Board
of Directors believes that the Company's directors should also own and hold
shares of common stock of the Company to further align their interests and
actions with interests of the Company's shareholders. Members of the
Board of Directors who are not also officers of the Company are encouraged to
buy shares of the Company's common stock with an appropriate percentage (as
determined by each director) of the fees received for their service on the Board
or Board committees, and to hold those shares as long as they serve on the
Board. In order to facilitate these acquisitions, the Company will
assist in establishing a brokerage account in each director’s name at a
brokerage firm approved by the applicable director. The Company will
obtain from each director on an annual basis a participation election that will
identify the percentage, if any, of the director’s fees for services (including
the retainer) that he or she directs to be used to purchase shares of the
Company’s stock on the open market. The Company will thereafter
deposit such amounts in the applicable director’s broker account at the time
that fees are paid. The Company, the broker and the directors will
work together to take all actions necessary such that the purchases of Company
shares are made in accordance with the requirements of Rule 10b5-1 under the
1934 Act. In 2009, the non-employee directors collectively bought
41,783 shares in the open market.
Remuneration of Named
Executive Officers
2009
Summary Compensation Table
The
following table sets forth a summary for the years ended December 31, 2009,
December 31, 2008, and December 31, 2007, of the cash and non-cash compensation
paid to our named executive officers. The primary elements of each
named executive officer's total compensation reported in the table are base
salary, bonus and equity incentives consisting of stock options. The
Summary Compensation Table should be read in conjunction with the CD&A and
the other tables and narrative descriptions that follow.
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards(3)
($)
|
Non-Equity
Incentive Plan Compensation(4)
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation
($)(5)
|
Total
($)(6)
|
Douglas
W. Jamison
Chairman,
Chief Executive Officer and
a Managing Director(1)
|
2009
2008
2007
|
288,335
274,770
267,403
|
50,000
75,000
0
|
263,826
1,007,093
785,737
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
618,661
1,372,363
1,068,640(7)
|
Daniel
B. Wolfe
President,
Chief Operating Officer, Chief Financial Officer and a Managing Director
(2008)(2)
|
2009
2008
2007
|
288,335
274,770
210,000
|
50,000
75,000
0
|
263,826
1,007,093
251,436
|
0
0
7,849
|
0
0
0
|
16,500
15,500
15,500
|
618,661
1,372,363
484,785(8)
|
Alexei
A. Andreev
Managing
Director, Executive Vice President
|
2009
2008
2007
|
288,335
274,770
267,403
|
50,000
75,000
0
|
263,826
1,007,093
628,590
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
618,661
1,372,363
911,493(9)
|
Michael
A. Janse
Managing
Director, Executive Vice President(10)
|
2009
2008
2007
|
288,335
274,770
184,211
|
50,000
75,000
0
|
263,826
1,007,093
2,038,717
|
0
0
0
|
0
0
0
|
16,500
15,500
45,500
|
618,661
1,372,363
2,268,428(11)
|
Sandra
M. Forman, Esq.
General
Counsel, Chief Compliance Officer, Director of Human Resources and
Corporate Secretary
|
2009
2008
2007
|
288,335
274,770
267,403
|
30,000
75,000
0
|
148,038
593,453
420,312
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
482,873
958,723
703,215(12)
|
(1)
|
Mr.
Jamison was the President and Chief Operating Officer in 2008, and also
the Chief Financial Officer in
2007.
|
(2)
|
Mr.
Wolfe was a Vice President and Principal in 2007 and Managing Director and
Chief Financial Officer in 2008.
|
(3)
|
The
figures in this column do not represent amounts actually paid to the named
executive officers, but represent the GAAP-based grant date fair value for
all options granted in 2009, 2008 and 2007. We use the
Black-Scholes and Lattice models to calculate compensation cost under
GAAP. You may find more information about the assumptions we
use in the Black-Scholes and Lattice models under "Fair Valuation of
Option Awards." These options may or may not be actually
exercised prior to their expiration
dates.
|
(4)
|
In
2007, the amount for Mr. Wolfe represents a final amount paid related to
the 2005 profit-sharing plan
payout.
|
(5)
|
Amounts
reported for 2009 represent our contributions on behalf of the named
executive to the Harris & Harris Group, Inc. 401(k)
Plan. The named executives did not earn any other compensation
reportable in this column for 2009 that met the threshold reporting
requirements.
|
(6)
|
Includes
grant fair value for options that may or may not be actually exercised
prior to their expiration date.
|
(7)
|
157,365
options or 63 percent of those granted in 2007, have expired unexercised,
representing option award value of
$421,819.
|
(8)
|
50,443
options or 63 percent of those granted in 2007, have expired unexercised,
representing option award value of
$134,982.
|
(9)
|
126,108
options or 63 percent of those granted in 2007, have expired unexercised,
representing option award value of
$337,455.
|
(10)
|
Mr.
Janse joined the Company in April
2007.
|
(11)
|
476,108
options or 76 percent of those granted in 2007, have expired unexercised,
representing option award value of
$1,205,555.
|
(12)
|
88,276
options or 65 percent of those granted in 2007, have expired unexercised,
representing option award value of
$236,220.
|
2009
Cash Compensation Table
As required by federal proxy rules, the
amounts listed in the Option Award column of the Summary Compensation Table
above are not actual amounts paid to the named executive officers, but represent
the GAAP-based grant date fair value of options granted in 2009, 2008 and
2007. To reflect the amount of actual income for each named executive
officer received in a particular year, in the supplemental table below we have
removed the Option Awards column and added a column for Options Exercised, which
represents the taxable income for options exercised. Amounts in the
Options Exercised column include total cash value earned before the named
executive officer satisfied the Company's retention requirements. The
2009 Cash Compensation Table, which is not required by the federal proxy rules,
should be read in conjunction with the Summary Compensation table, the CD&A
and the other tables and narrative descriptions that follow.
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Value
Realized on Option Exercises
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
Douglas
W. Jamison
Chairman,
Chief Executive Officer and
a Managing Director
|
2009
2008
2007
|
288,335
274,770
267,403
|
50,000
75,000
0
|
0
0
359,391
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
354,835
365,270
642,294
|
Daniel
B. Wolfe
President,
Chief Operating Officer, Chief Financial Officer and a Managing Director
(2008)
|
2009
2008
2007
|
288,335
274,770
210,000
|
50,000
75,000
0
|
135,552
0
93,490
|
0
0
7,849
|
0
0
0
|
16,500
15,500
15,500
|
490,387
365,270
326,839
|
Alexei
A. Andreev
Managing
Director, Executive Vice President
|
2009
2008
2007
|
288,335
274,770
267,403
|
50,000
75,000
0
|
16,582
0
343,632
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
371,417
365,270
626,535
|
Michael
A. Janse
Managing
Director, Executive Vice President
|
2009
2008
2007
|
288,335
274,770
184,211
|
50,000
75,000
0
|
14,497
0
0
|
0
0
0
|
0
0
0
|
16,500
15,500
45,500
|
369,332
365,270
229,711
|
Sandra
M. Forman, Esq.
General
Counsel, Chief Compliance Officer, Director of Human Resources and
Corporate Secretary
|
2009
2008
2007
|
288,335
274,770
267,403
|
30,000
75,000
0
|
75,324
0
210,136
|
0
0
0
|
0
0
0
|
16,500
15,500
15,500
|
410,159
365,270
493,039
|
Fair
Valuation of Option Awards
The fair
value of each stock option award is estimated on the date of grant generally
using the Black-Scholes option pricing model as permitted by
GAAP. The stock options were awarded in five different grant types,
each with different contractual terms. The assumptions used in the
calculation of fair value using the Black-Scholes model for grants in 2009 were
as follows:
|
|
Number
|
Expected
|
Expected
|
Expected
|
Risk-free
|
Fair
|
|
Option
|
of
Options
|
Term
|
Volatility
|
Dividend
|
Interest
|
Value
|
Type of
Award
|
Term
|
Granted
|
in
Yrs
|
Factor
|
Yield
|
Rate
|
Per
Share
|
|
|
|
|
|
|
|
|
Non-qualified
stock options
|
2
Years
|
394,570
|
Ranging
from 1.375 to 1.5
|
Ranging
from 71.7% to 105.5%
|
0%
|
Ranging
from 0.52% to 0.71%
|
Ranging
from $1.29 to $2.08
|
Non-qualified
stock options
|
5
Years
|
200,000
|
3.5
|
64.6%
|
0%
|
1.64%
|
$2.11
|
|
|
|
|
|
|
|
|
Non-qualified
stock options
|
10
Years
|
51,200
|
6.25
|
60.6%
|
0%
|
2.35%
|
$2.60
|
|
|
|
|
|
|
|
|
Total
|
|
645,770
|
|
|
|
|
|
For the March 2009 grant of 10-year
non-qualified stock options, we used a Lattice model to calculate fair
value. The assumptions used in the Lattice model for the March 2009
grant of 10-year options were as follows:
|
|
Number
|
|
Expected
|
Expected
|
Risk-free
|
Fair
|
|
Option
|
of
Options
|
Suboptimal
|
Volatility
|
Dividend
|
Interest
|
Value
|
Type of
Award
|
Term
|
Granted
|
Factor
|
Factor
|
Yield
|
Rate
|
Per
Share
|
|
|
|
|
|
|
|
|
Non-qualified
stock options
|
10
Years
|
84,229
|
2
|
73.1%
|
0%
|
2.59%
|
$1.97
|
An option's expected term is the
estimated period between the grant date and the exercise date of the
option. As the expected-term period increases, the fair value of the
option and the compensation cost will also increase. The
expected-term assumption is generally calculated using historical stock option
exercise data. The Company does not have historical exercise data to
develop such an assumption. In cases where companies do not have
historical data and where the options meet certain criteria, SEC Staff
Accounting Bulletin 107 ("SAB 107") provides the use of a simplified
expected-term calculation. Accordingly, the Company calculated the
expected terms using the SAB 107 simplified method.
Expected volatility is the measure of
how the stock's price is expected to fluctuate over a period of
time. An increase in the expected volatility assumption yields a
higher fair value of the stock option. Expected volatility factors
for the stock options were based on the historical fluctuations in the Company's
stock price over a period commensurate with the expected term of the option,
adjusted for stock splits and dividends.
The expected-dividend yield assumption
is traditionally calculated based on a company's historical dividend
yield. An increase to the expected-dividend yield results in a
decrease in the fair value of the option and resulting compensation
cost. Although the Company has declared deemed dividends in previous
years, most recently in 2005, the amounts and timing of any future dividends
cannot be reasonably estimated. Therefore, for purposes of
calculating fair value, the Company has assumed an expected-dividend yield of 0
percent.
The risk-free interest rate assumptions
are based on the annual yield on the measurement date of a zero-coupon U.S.
Treasury bond, the maturity of which equals the option's expected
term. Higher assumed interest rates yield higher fair
values.
2009
Grants of Plan-Based Awards
The following table presents
information regarding the equity incentive awards granted to the named executive
officers during the fiscal year ended December 31, 2009.
Name
|
Grant
Date
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards* ($/Sh)
|
Grant
Date Fair Value of Option Awards
|
Douglas
W. Jamison
|
March
18, 2009
May
13, 2009
Nov.
11, 2009
|
65,010
39,100
39,100
|
3.75
4.46
4.49
|
94,914
86,411
82,501
|
Daniel
B. Wolfe
|
March
18, 2009
May
13, 2009
Nov.
11, 2009
|
65,010
39,100
39,100
|
3.75
4.46
4.49
|
94,914
86,411
82,501
|
Alexei
A. Andreev
|
March
18, 2009
May
13, 2009
Nov.
11, 2009
|
65,010
39,100
39,100
|
3.75
4.46
4.49
|
94,914
86,411
82,501
|
Michael
A. Janse
|
March
18, 2009
May
13, 2009
Nov.
11, 2009
|
65,010
39,100
39,100
|
3.75
4.46
4.49
|
94,914
86,411
82,501
|
Sandra
M. Forman
|
March
18, 2009
May
13, 2009
Nov.
11, 2009
|
36,300
22,000
22,000
|
3.75
4.46
4.49
|
52,998
48,620
46,420
|
*Equals
the closing price on the day of grant.
2009
Outstanding Equity Awards at Fiscal Year-End
The following table presents
information regarding the outstanding equity awards held by each of the named
executive officers as of December 31, 2009.
|
|
Option
Awards
|
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Douglas W.
Jamison
|
28,429
|
49,455(1)
|
10.11
|
June 26,
2016
|
|
92,365
|
0
|
11.11
|
Dec. 27,
2010
|
|
18,138
|
54,412(2)
|
6.18
|
Dec. 27,
2017
|
|
49,921
|
149,761(3)
|
6.92
|
Dec. 27,
2017
|
|
48,758
|
0
|
3.75
|
Mar.18,
2011
|
|
16,252
|
0
|
3.75
|
Mar. 18,
2019
|
|
14,663
|
14,662(4)
|
4.46
|
May 13,
2011
|
|
0
|
9,775(5)
|
4.46
|
May 13,
2019
|
|
0
|
39,100(6)
|
4.49
|
Nov. 11,
2014
|
Daniel B.
Wolfe
|
36,967
|
49,455(1)
|
10.11
|
June 26,
2016
|
|
29,557
|
0
|
11.11
|
Dec. 27,
2010
|
|
18,138
|
54,412(2)
|
6.18
|
Dec. 27,
2017
|
|
49,921
|
149,761(3)
|
6.92
|
Dec. 27,
2017
|
|
13,585
|
0
|
3.75
|
Mar. 18,
2019
|
|
14,663
|
14,662(4)
|
4.46
|
May 13,
2011
|
|
0
|
9,775(5)
|
4.46
|
May 13,
2019
|
|
0
|
39,100(6)
|
4.49
|
Nov. 11,
2014
|
Alexei A.
Andreev
|
32,517
|
49,455(1)
|
10.11
|
June 26,
2016
|
|
73,892
|
0
|
11.11
|
Dec. 27,
2010
|
|
18,138
|
54,412(2)
|
6.18
|
Dec. 27,
2017
|
|
49,921
|
149,761(3)
|
6.92
|
Dec. 27,
2017
|
|
42,662
|
0
|
3.75
|
Mar.18,
2011
|
|
14,918
|
0
|
3.75
|
Mar. 18,
2019
|
|
14,663
|
14,662(4)
|
4.46
|
May 13,
2011
|
|
0
|
9,775(5)
|
4.46
|
May 13,
2019
|
|
0
|
39,100(6)
|
4.49
|
Nov. 11,
2014
|
Michael A.
Janse
|
73,892
|
0
|
11.11
|
Dec. 27,
2010
|
|
29,673
|
49,455(7)
|
11.11
|
June 26,
2016
|
|
18,138
|
54,412(2)
|
6.18
|
Dec. 27,
2017
|
|
49,921
|
149,761(3)
|
6.92
|
Dec. 27,
2017
|
|
14,918
|
0
|
3.75
|
Mar.18,
2011
|
|
43,452
|
0
|
3.75
|
Mar. 18,
2019
|
|
14,663
|
14,662(4)
|
4.46
|
May 13,
2011
|
|
0
|
9,775(5)
|
4.46
|
May 13,
2019
|
|
0
|
39,100(6)
|
4.49
|
Nov. 11,
2014
|
Sandra M.
Forman
|
32,382
|
49,455(1)
|
10.11
|
June 26,
2016
|
|
46,724
|
0
|
11.11
|
Dec. 27,
2010
|
|
10,883
|
32,647(2)
|
6.18
|
Dec. 27,
2017
|
|
29,240
|
87,719(3)
|
6.92
|
Dec. 27,
2017
|
|
9,075
|
0
|
3.75
|
Mar.18,
2019
|
|
8,250
|
8,250(4)
|
4.46
|
May 13,
2011
|
|
0
|
5,500(5)
|
4.46
|
May 13,
2019
|
|
0
|
22,000(6)
|
$
|
4.49
|
Nov. 11,
2014
|
(1)
|
Options
vest in five equal installments on June 26, 2010, June 26, 2011, June 26,
2012, June 26, 2013, and June 26,
2014.
|
(2)
|
Options
vest in three equal installments on March 19, 2010, March 19, 2011, and
March 19, 2012.
|
(3)
|
Options
vest in three equal installments on August 13, 2010, August 13, 2011, and
August 13, 2012.
|
(4)
|
Options
vest on May 13, 2010.
|
(5)
|
Options
vest in four equal installments on May 13, 2010, May 13, 2011, May 13,
2012, and May 13, 2013.
|
(6)
|
Options
vest 25 percent on November 11, 2010, 50 percent on November 11, 2011 and
the remaining 25 percent on November 11,
2012.
|
(7)
|
Options
vest in five equal installments on June 27, 2010, June 27, 2011, June 27,
2012, June 27, 2013, and June 27,
2014.
|
2009
Option Exercises and Stock Vested
The following table presents
information regarding the exercises of stock options by named executive officers
for the fiscal year ended December 31, 2009.
|
Option
Awards
|
Name
|
Number
of Shares Acquired on Exercise
(#)
|
Value
Realized on Exercise
($)
|
Douglas
W. Jamison
|
0
|
0
|
Daniel
B. Wolfe
|
51,425
|
135,552
|
Alexei
A. Andreev
|
7,430
|
16,582
|
Michael
A. Janse
|
6,640
|
14,497
|
Sandra
M. Forman
|
27,225
|
75,324
|
The following table presents
information about the pension benefits attributable to the named executive
officers as of December 31, 2009, and any pension benefit payments to them
during 2009.
Name
|
Plan
Name
|
Number
of Years Credited Service
(#)(1)
|
Present
Value of Accumulated Benefits
($)
|
Payments
During Last Fiscal Year
($)
|
Douglas
W. Jamison
|
Executive
Mandatory Retirement Benefit Plan
|
4
|
0
|
0
|
Daniel
B. Wolfe
|
Executive
Mandatory Retirement Benefit Plan
|
1
|
0
|
0
|
(1)
|
Represents
the number of years as Chief Executive Officer and/or President, and does
not represent the number of years employed in other positions at the
Company.
|
In 2003, in order to begin planning for
eventual management succession, the Board of Directors voted to establish the
Executive Mandatory Retirement Benefit Plan for individuals who are employed by
us in a bona fide executive or high policy-making position. The plan was amended
and restated effective January 1, 2005, to comply with certain provisions of the
Code. There are currently two named executive officers serving in
positions that qualify under the plan: Douglas W. Jamison, the Chief Executive
Officer, age 40, and Daniel B. Wolfe, the President, age 33. Under
this plan, mandatory retirement takes place effective December 31 of the year in
which the eligible individuals attain the age of 65. On an annual
basis beginning in the year in which the designated individual attains the age
of 65, a committee of the Board consisting of non-interested directors may
determine for our benefit to postpone the mandatory retirement date for that
individual for one additional year.
Under
applicable law prohibiting discrimination in employment on the basis of age, we
can impose a mandatory retirement age of 65 for our executives or employees in
high policy-making positions only if each employee subject to the mandatory
retirement age is entitled to an immediate retirement benefit at retirement age
of at least $44,000 per year. The benefits payable at retirement to
Mr. Harris and Mr. Melsheimer under our existing 401(k) plan did not equal this
threshold. The Executive Mandatory Retirement Plan was established to
provide the difference between the benefit required under the age discrimination
laws and that provided under our existing plans. For individuals
retiring after January 1, 2009, the benefit under the plan will be paid within
60 days after the participant's separation from service.
The present value of accumulated
benefits amount reported in the table above was calculated in accordance with
GAAP. Several statistical and other factors that attempt to
anticipate future events are used in calculating the expense and liability
values related to our pension plan. These factors include a discount
rate assumption of 5.75 percent and use of the 94GAM mortality
table. The calculation also assumes that the benefit is earned
uniformly over the employees' careers.
Potential
Payments upon Termination or Change in Control
None of our executive officers has a
change in control agreement. All stock option award agreements in
2009 contained a provision that if the Board of Directors accepts an offer for
the sale of all or substantially all of the Company's assets, the stock options
would vest immediately. Other than this provision, none of our
executive officers is entitled to any special payments solely upon a change in
control. See "2009 Grants of Plan-Based Awards" for the grant date
fair value of all such stock option awards.
In 1994,
we adopted the Medical Benefit Retirement Plan, which has been amended from time
to time. The coverage is secondary to any government or subsequent
employer-provided health-insurance plans. The annual premium cost to
us with respect to the entitled retiree was $15,338 for 2009. The
stock options of retirees who qualify for the Medical Benefit Retirement Plan
will remain exercisable (to the extent exercisable at the time of the optionee's
termination) post retirement until the expiration of their term, subject to
certain conditions, if such retiree executes a post-termination non-solicitation
agreement, in a form reasonably acceptable to the Company. None of
the named executive officers were eligible for coverage under the plan as of
December 31, 2009.
None of
the named executive officers are entitled to severance or other benefits upon
death, disability or other separation from the Company, except through
disability insurance.
Remuneration of
Directors
The
following table sets forth the compensation paid by us to our directors for the
year ended December 31, 2009. During 2009, we did not grant any stock
option awards or pay or accrue any pension or retirement benefits for our
non-employee directors.
2009
Director Compensation
|
|
Fees
Earned or Paid in Cash ($)
|
|
All
Other Compensation ($)
|
|
|
Independent
Directors:
|
|
|
|
|
|
|
W.
Dillaway Ayres, Jr.
|
|
42,000
|
|
0
|
|
42,000
|
Dr.
C. Wayne Bardin
|
|
34,000
|
|
0
|
|
34,000
|
Dr.
Phillip A. Bauman
|
|
42,000
|
|
0
|
|
42,000
|
G.
Morgan Browne
|
|
42,000
|
|
0
|
|
42,000
|
Dugald
A. Fletcher
|
|
54,000
|
|
0
|
|
54,000
|
Charles
E. Ramsey
|
|
35,000
|
|
0
|
|
35,000
|
James
E. Roberts
|
|
46,500
|
|
0
|
|
46,500
|
Richard
P. Shanley
|
|
45,000
|
|
0
|
|
45,000
|
|
|
|
|
|
|
|
Interested
Directors:
|
|
|
|
|
|
|
Douglas
W. Jamison(1)
|
|
0
|
|
0
|
|
0
|
Lori
D. Pressman
|
|
18,000
|
|
24,793(2)
|
|
42,793
|
——————————
(1)
|
Mr.
Jamison does not receive additional compensation as a
Director. Refer to the "2009 Summary Compensation Table" for
details of Mr. Mr. Jamison's compensation for
2009.
|
(2)
|
Represents
payment for consulting services. Ms. Pressman may be considered
an "interested person" because of consulting work performed for
us. Ms. Pressman did not perform consulting work for any of our
portfolio companies in 2009. Ms. Pressman was paid $22,413 and
$3,438 in 2008 for consulting work for two of our portfolio companies,
Ancora Pharmaceuticals and Phoenix Molecular, respectively. Ms.
Pressman's total compensation paid by us and our portfolio companies for
the last two fiscal years is
$131,507.
|
There are
no outstanding option awards to outside directors.
The
directors who are not officers receive $1,500 for each meeting of the Board of
Directors and $1,500 for each committee meeting they attend, and a monthly
retainer of $750. Each non-employee committee Chairman receives an
additional monthly retainer of $250. The Lead Independent Director
receives an additional monthly retainer of $500.
SELECTION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
(Proposal
No. 2)
PricewaterhouseCoopers
LLP ("PwC") has been selected as the independent registered public accounting
firm by our Audit Committee and ratified by a majority of our Board, including a
majority of the independent directors by vote cast in person, to audit the
accounts of the Company for and during the Company's fiscal year ending December
31, 2009. This selection is subject to ratification or rejection by the
shareholders of the Company. The Company knows of no direct or
indirect financial interest of PwC in the Company.
Representatives
of PwC will not attend the Annual Meeting in person but will be available to
respond to appropriate questions by telephone.
Fees Paid to PwC for 2009
and 2008
PwC
performed various audit and other services for us during 2009 and
2008. The following table presents a summary of the 2009 and 2008
fees billed by PwC:
|
|
Fiscal
Year Ended
December
31, 2009
|
|
Fiscal
Year Ended
December
31, 2008
|
Audit
Fees
|
|
$430,000
|
|
$395,500
|
Audit-Related
Fees
|
|
0
|
|
0
|
Tax
Fees
|
|
35,000
|
|
33,000
|
All
Other Fees
|
|
1,626
|
|
1,626
|
TOTAL
FEES:
|
|
$466,626
|
|
$430,126
|
Audit
Fees
Audit fees include fees for
professional services rendered by PwC, in connection with its annual audit of
the Company's consolidated financial statements, reviews of the consolidated
financial statements included in the Company's quarterly reports on Form 10-Q,
and assistance with and review of documents filed with the SEC.
Audit-Related
Fees
Audit-related fees consist of fees
billed for assurance and related services that are reasonably related to the
performance of the audit or review of the Company's consolidated financial
statements and are not reported under "Audit Fees."
Tax
Fees
Tax fees
consist of fees billed for professional services for tax
compliance. These services included assistance regarding federal,
state and local tax compliance, including tax-return preparation.
All
Other Fees
All other fees would include fees for
products and services other than the services reported above. In 2008
and 2009, these services include an accounting research tool licensed from
PwC.
The Audit Committee has determined that
the provision of non-audit services that were provided during 2009 is compatible
with maintaining PwC's independence in performing audit services for the
Company.
Unless
marked to the contrary, the shares represented by the enclosed proxy card will
be voted "FOR" ratification of the appointment of PwC as the independent
registered public accounting firm of the Company.
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
Our
Annual Report on Form 10-K, as filed with the SEC, is being delivered with this
Proxy Statement.
We
undertake to provide, without charge, to each shareholder as of March 16, 2010,
upon the written request of such shareholder, a copy of our Annual Report on
Form 10-K and/or our last Quarterly Report on Form 10-Q, including the financial
statements and the financial statement schedules, required to be filed with the
SEC for our most recent fiscal year and/or quarter. Any shareholder
who would like to request a copy of our most recent Annual Report on Form 10-K
or Quarterly Report on Form 10-Q may do so by calling toll-free 1-877-846-9832
or submitting a written request to the following address, which shall contain a
representation in good faith that such shareholder was a beneficial owner, as of
March 16, 2010, of our securities, entitled to vote:
Investor
Relations
Harris
& Harris Group, Inc.
1450
Broadway, 24th
Floor
New
York, NY 10018
Submission of Shareholder
Proposals
Under SEC
rules, any shareholder proposals intended to be presented for inclusion in our
proxy statement and form of proxy for the next Annual Meeting of Shareholders to
be held in 2011 must be received in writing by the Secretary of the Company at
Harris & Harris Group, Inc., 1450 Broadway, 24th Floor,
New York, New York 10018, no later than November 30, 2010, in order for such
proposals to be considered for inclusion in the proxy statement and proxy
relating to the 2011 Annual Meeting of Shareholders.
Shareholders
who do not wish to follow the SEC rules for submitting a proposal must notify
the Company in accordance with the provisions of the Company's
Bylaws. Under our Bylaws, nominations for director may be made only
by the Board or by the Nominating Committee, or by a shareholder entitled to
vote who has delivered written notice to our Secretary (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 (i.e., between January 6, 2011, and February 5, 2011);
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. Proposals must also comply with the other requirements
contained in the Company's Bylaws. 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.
Rule
14a-4 of the SEC's proxy rules allows us to use discretionary voting authority
to vote on matters coming before an Annual Meeting of Shareholders, if we do not
have notice of the matter at least 45 days before the anniversary of the date on
which we first mailed our proxy materials for the prior year's Annual Meeting of
Shareholders or the date specified by the advance notice provision in our
Bylaws. Our Bylaws contain such an advance notice provision as
described above. For our Annual Meeting of Shareholders expected to
be held in May of 2011, shareholders must submit such written notice to our
Secretary in accordance with our advance notice provision, as described
above.
A copy of
the full text of the Bylaw provisions discussed above may be obtained by writing
to our Secretary.
|
By
Order of the Board of Directors,
|
|
|
New
York, New York
|
|
March
31, 2010
|
Sandra
M. Forman
Secretary
|
|
|