DEFERRED COMPENSATION AGREEMENT
AGREEMENT made as of the second day of February, 2000, by and
between Harris & Harris Group, Inc., a corporation organized under the laws
of the State of New York (the "Company"), and Charles E. Harris (the
"Executive").
WHEREAS, the Company and the Executive are parties to an
employment agreement;
WHEREAS, the employment agreement obligates the Company to adopt a
supplemental executive retirement plan for the benefit of the Executive;
WHEREAS, in order to effect the foregoing, the Company and the
Executive wish to enter into a Deferred Compensation Agreement on the terms
and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties hereto agree as follows:
Section 1. Deferred Compensation Account; Contributions to Trust.
(1) The Company shall credit to a book reserve (the
"Deferred Compensation Account") commencing as of October 19, 1999 and for
each month thereafter, an amount equal to 8.25% of the Executive's Base Salary
(as defined in the employment agreement between the Company and the Executive
dated October 19, 1999 (the "Employment Agreement")) for such month; provided
that the Executive is employed with the Company on the last business day of
such month. The Deferred Compensation Account shall be debited with amounts
representing all losses and distributions from the Trust (as hereinafter
defined) and shall be credited with all earnings of and deposits to the Trust
or amounts otherwise contributed to the Trust.
(2) Any amounts represented by credits made to the Deterred
Compensation Account in accordance with the first sentence of paragraph (1)
above shall be contributed by the Company on the last business day of each
month to the trust (the "Trust") established under the Trust Agreement
substantially in the form of Exhibit A annexed hereto (the "Trust Agreement");
provided, however, that amounts represented by credits in respect of all
completed calendar months from October 19, 1999 to the date of execution
hereof shall be contributed to the Trust within 5 business days after
execution of this Agreement. Amounts contributed to the Trust shall be
invested and reinvested in accordance with the provisions of the Trust
Agreement. To the extent that the Company is required to withhold hospital
insurance tax or other taxes in respect of credits to the Deferred
Compensation Account representing earnings of the Trust prior to distribution
of such earnings to the Executive pursuant to Section 2 below, the Company
and the Executive may agree that such withholding obligation shall be
satisfied from amounts otherwise payable to the Executive and, in the absence
of such agreement, such withholding obligation shall be satisfied from
amounts held in the Trust or amounts otherwise contributed to the Trust.
(3) The Executive agrees on behalf of himself and his
designated beneficiary to assume all risk in connection with any debits or
credits made to him under the Trust by reason of losses or earnings on
investments made in accordance with the provisions of the Trust Agreement.
Section 2. Benefit Payments.
(1) The Executive shall determine the form and timing of
the distribution of amounts held in the Trust; provided that, however, no
distribution shall be made from the Trust unless the Executive shall have
provided the Company with a written request for a distribution (such request
shall specify the timing and form of the distribution) at least six months in
advance of the day such distribution is to be made from the Trust, and further
provided that, such request shall have been forwarded to the Trustee at least
six months in advance of the day such distribution is to be made from the
Trust. In addition, where the Executive requests a distribution from the
Trust while still employed by the Company, a six percent reduction shall be
imposed on such distribution, and a corresponding debit shall be made to the
Deferred Compensation Account. Notwithstanding the foregoing, in the event a
termination of the Period of Employment (as defined in the Employment
Agreement) occurs pursuant to paragraph 6 ("Disability"), 7 ("Death") or 8
("Effect of Termination of Employment") of the Employment Agreement, the
Company shall pay (or cause to be paid from the Trust) to the Executive or
to the Executive's beneficiary or estate (in the event of his death) in
cash a lump sum equal to the amount reflected in the Deferred Compensation
Account as of the effective date of the Executive's termination.
(2) The beneficiary referred to in paragraph (1) above may
be designated or changed by the Executive (without the consent of any prior
beneficiary) on a form provided by the Company and delivered to the Company
before the Executive's death. If no such beneficiary shall have been
designated, or if no designated beneficiary shall survive the Executive, the
lump sum payment payable under paragraph (1) above shall be payable to the
Executive's estate.
Section 3. Vesting.
The Executive's interest in the Deferred Compensation Account
shall be 100% vested and non-forfeitable.
Section 4. Unfunded Arrangement.
It is the intention of the parties hereto that the arrangement
described in this Agreement be unfunded for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974, as amended.
Nothing contained in this Agreement or the Trust Agreement and no action taken
pursuant to the provisions of this Agreement or the Trust Agreement shall
create or be construed to create a fiduciary relationship between the Company
and the Executive, his designated beneficiary or any other person. Any funds
that may be invested under the provisions of the Trust Agreement shall
continue for all purposes to be a part of the general funds of the Company and
no person other than the Company shall by virtue of the provisions of this
Agreement have any interest in such funds. To the extent that any person
acquires a right to receive payments from the Company under this Agreement,
such right shall be no greater than the right of any unsecured general
creditor of the Company. This Agreement constitutes a mere promise by the
Company to make a benefit payment in the future.
Section 5. Nonalienation of Benefits.
The right of the Executive or any other person to the payment of
deferred compensation or other benefits under this Agreement shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of the Executive
or the Executive's beneficiary or estate.
Section 6. No Right to Employment.
Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ of the Company as an executive
or in any other capacity.
Section 7. Effect on Other Benefits.
Any deferred compensation payable under this Agreement shall not
be deemed salary or other compensation to the Executive for the purpose of
computing benefits to which he may be entitled under any pension plan or other
arrangement of the Company for the benefit of its employees.
Section 8. Binding Agreement.
This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns and the Executive and his heirs,
executors, administrators and legal representatives.
Section 9. Governing Law.
This Agreement shall be construed in accordance with and governed
by the laws of the State of New York without regard to its conflict of laws
principles.
Section 10. Validity.
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
Section 11. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
Section 12. Arbitration.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in the City of New
York in accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. The expense of such arbitration shall be shared equally
by the Company and by the Executive; provided that the arbitrator shall be
entitled to include as part of the award to the prevailing party the reason
able legal fees and expenses incurred by such party in an amount not to exceed
$25,000 in connection with enforcing its rights hereunder.
Section 13. Amendment.
The Agreement may be amended in whole or in part by a written
instrument executed by both parties hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers and the Executive has hereunto set
his hand and seal as of the date first above written.
HARRIS & HARRIS GROUP, INC.
By: /s/ Mel P. Melsheimer
---------------------
Mel P. Melsheimer,
President