[Federal Register Volume 61, Number 36 (Thursday, February 22, 1996)]
[Notices]
[Pages 6870-6871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3983]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21755; 812-9780]


Harris & Harris Group, Inc.; Notice of Application

February 15, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application under the Investment Company Act of 1940 
(the ``Act'').

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APPLICANT: Harris & Harris Group, Inc.

RELEVANT ACT SECTION: Section 61(a)(3)(B).

SUMMARY OF APPLICATION: Applicant requests an order authorizing 
applicant to issue stock options to applicant's non-employee directors 
pursuant to applicant's Amended and Restated 1988 Stock Option Plan 
(the ``Stock Option Plan'').

FILING DATES: The application was filed on September 22, 1995 and 
amended on December 29, 1995 and on February 8, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on March 11, 1996 
and should be accompanied by proof of service on the applicant, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicant, One Rockfeller Plaza, New York, New York 10020.

FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Robert A. 
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application 

[[Page 6871]]
may be obtained for a fee from the SEC's Public Reference Branch.

Applicant's Representations

    1. Applicant is a business development company (``BDC'') under the 
Act. Applicant's investment objective is long-term growth through 
capital appreciation primarily through investing in start-up companies 
and other investments. Applicant's investment portfolio includes 
companies ranging from software development to biotechnology. Applicant 
may provide assistance to its portfolio companies in the form of 
product planning and development, raising capital, and establishing 
relationships with investment bankers and other professionals. In 
addition, several of applicant's officers serve on the boards of the 
portfolio companies.
    2. Applicant requests an order authorizing it to grant options to 
purchase shares of applicant's common stock to each of its present non-
employee directors (``Outside Directors'') and to each Outside Director 
who may be elected or appointed to its board of directors in the 
future. In this regard, applicant's shareholders approved certain 
amendments to the Stock Option Plan on October 20, 1995. Applicant will 
implement the amendments subsequent to receiving an order from the SEC.
    3. Under the Stock Option Plan, all Outside Directors who have not 
previously received options would receive options to purchase 20,000 
shares of applicant's common stock, cumulatively vesting 20% each year 
for a five-year period commencing on the date of grant. Each option 
will have a term of not more than ten years. The exercise price of the 
options may not be less than the current market value of applicant's 
common stock on the date of grant. The options would not be 
transferable except by will or by the laws of descent and distribution.
    4. Each Outside Director receives $1,000 for each board meeting 
attended, $500 for each committee meeting attended, and reimbursement 
for out of pocket expenses.
    5. At the end of an Outside Director's service, an Outside Director 
may exercise options only with respect to the number of shares of stock 
that the Outside Director could have acquired by an exercise of the 
options immediately prior to cessation of service as an Outside 
Director.
    6. In the event of an Outside Director's retirement, all of the 
Outside Director's unexercised options would immediately become 
exercisable for a period of three years following the date of 
retirement, but in no event after the expiration date of the options. 
In the event of an Outside Director's death or disability, all the 
Outside Director's unexercised options would immediately become 
exercisable for a period of six months following the date of death or 
one year following the date of disability, but in no event after the 
expiration date of the options. If an Outside Director ceases to serve 
as Outside Director for any reason other than those mentioned above, 
any options held by the Outside Director shall be exercisable for 90 
days after cessation of service, but in no event after the expiration 
date of the options.
    7. The aggregate number of options to be granted to Outside 
Directors is limited to 200,000 shares, exclusive of any options 
outstanding on August 31, 1995. As of August 31, 1995, the total number 
of applicant's voting securities that would be issued as a result of 
the exercise of all options issued or currently issuable to applicant's 
directors, officers, and employees under the Amended 1988 Plan would be 
1,391,763, of which 648,563 are fully vested. The options to purchase 
1,391,763 shares, together with the 475,017 shares available for future 
awards and the 200,000 shares to be granted pursuant to the order 
sought hereby, comprise 2,066,780 shares reserved for the issuance of 
awards. Options granted to purchase 200,000 shares of applicant's 
common stock would currently represent 1.9% of applicant's 10,333,902 
outstanding shares of common stock. None of the Outside Directors who 
previously received options will be eligible to receive additional 
options under the Stock Option Plan.\1\ Applicant has no other 
warrants, options or rights to purchase its voting securities 
outstanding other than those granted to its directors, officers, and 
employees.

    \1\See Harris & Harris Group, Inc., Investment Company Act 
Release Nos. 21174 (June 29, 1995) (notice) and 21250 (July 25, 
1995) (order).
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Applicant's Legal Analysis

    1. Section 61(a)(3)(B) of the Act provides, in pertinent part, that 
a BDC may issue to its non-employee directors options to purchase its 
voting securities pursuant to an executive compensation plan, provided 
that certain conditions are met, including the options being approved 
by the company's shareholders and the SEC issuing an order approving 
the options on the basis that the proposal is fair and reasonable and 
does not involve overreaching of the company or its shareholders.
    2. Applicant represents that the Stock Option Plan and the options 
to be granted to applicant's Outside Directors pursuant to the Stock 
Option Plan meet the requirements of section 61(a)(3)(B), other than 
SEC approval. Applicant believes that the terms of the Stock Option 
Plan and the options to be granted automatically to applicant's Outside 
Directors are fair and reasonable and do not involve any overreaching 
of applicant or its shareholders. Applicant also believes that the 
exercise of the options would not have a significant dilutive effect on 
applicant's existing shareholders.
    3. Applicant states that its long-term success is tied to its 
ability to attract retain, and provide appropriate incentives to the 
Outside Directors. Applicant asserts that because the stock options 
granted to Outside Directors would vest in cumulative installments of 
20% per year, the Stock Option Plan would provide Outside Directors 
with incentives to remain with applicant. In addition, applicant 
contends that because the options granted pursuant to the Stock Option 
Plan have no value unless the price of applicant's common stock exceeds 
the exercise price of the option, the interests of Outside Directors 
would be aligned with the interests of the Company's shareholders.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3983 Filed 2-21-96; 8:45 am]
BILLING CODE 8010-01-M