Harris & Harris Group, Inc.; Notice of Application, 14839-14842 [2012-5987]

Download as PDF Federal Register / Vol. 77, No. 49 / Tuesday, March 13, 2012 / Notices questions about NRC dockets to Carol Gallagher; telephone: 301–492–3668; email: Carol.Gallagher@nrc.gov. FOR FURTHER INFORMATION CONTACT: Timothy C. Johnson, Office of Nuclear Material Safety and Safeguards, U.S. Nuclear Regulatory Commission, Rockville, Maryland 20852; telephone: (301) 492–3121; email: Timothy.Johnson@nrc.gov. SUPPLEMENTARY INFORMATION: I. Introduction By letter dated June 26, 2009, the applicant submitted to the NRC an application requesting a license, under Title 10 of the Code of Federal Regulations Parts 30, 40, and 70, to possess and use byproduct material, source material, and SNM in a laserbased uranium enrichment facility. Revisions to the application were submitted on March 23, 2010; June 25, 2010; December 16, 2010; March 29, 2011; August 1, 2011; August 12, 2011; October 14; and November 11, 2011. The Applicant proposes that the facility be located in Wilmington, North Carolina. The NRC staff prepared the SER in support of this license application. The SER discusses the results of the safety review performed by the staff in the following areas: general information, organization and administration, Integrated Safety Analysis (ISA) and ISA summary, radiation protection, nuclear criticality safety, chemical process safety, fire safety, emergency management, environmental protection, decommissioning, management measures, material control and accounting, physical protection, physical security of the transportation of SNM of low strategic significance, human factors engineering, and electrical power and instrumentation and control systems. mstockstill on DSK4VPTVN1PROD with NOTICES II. Further Information The SER is available online in the NRC’s Electronic Reading Room at https://www.nrc.gov/reading-rm/ adams.html. From this site, you can access the NRC’s Agencywide Documents Access and Management System (ADAMS), which provides text and image files of NRC’s public documents. The ADAMS Accession Number for the June 26, 2009, license application is ML091871003 and ML092110280. Revisions of the application are available at ADAMS Accession Numbers ML100910053, ML101810134, ML103610078, ML103610080, ML110960272, ML112140138, ML112290297, ML112990562, and ML11326A177. The VerDate Mar<15>2010 18:29 Mar 12, 2012 Jkt 226001 ADAMS Accession Number for the February 2012 SER is ML12060A007. If you do not have access to ADAMS or if there are problems in accessing the documents located in ADAMS, contact the NRC Public Document Room Reference staff at 800–397–4209, 301– 415–4737, or via email to pdr.resource@nrc.gov. These documents may also be viewed electronically on the public computers located at the NRC’s PDR, O1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. The PDR reproduction contractor will copy documents for a fee. Dated at Rockville, Maryland this 1st day of March, 2012. For the U.S. Nuclear Regulatory Commission. Marissa G. Bailey, Deputy Director, Division of Fuel Cycle Safety and Safeguards, Office of Nuclear Material Safety and Safeguards. [FR Doc. 2012–6002 Filed 3–12–12; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 29976; 812–13313] Harris & Harris Group, Inc.; Notice of Application March 7, 2012. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 23(a), 23(b) and 63 of the Act; under sections 57(a)(4) and 57(i) of the Act and rule 17d–1 under the Act permitting certain joint transactions otherwise prohibited by section 57(a)(4) of the Act; and under section 23(c)(3) of the Act for an exemption from section 23(c) of the Act. AGENCY: Harris & Harris Group, Inc. (‘‘Applicant’’ or ‘‘Company’’) requests an order that would permit Applicant to (a) issue restricted shares of its common stock (‘‘Restricted Stock’’) as part of the compensation package for certain participants in its Amended and Restated 2012 Equity Incentive Plan (the ‘‘Plan’’), (b) withhold shares of the Applicant’s common stock or purchase shares of Applicant’s common stock from participants to satisfy tax withholding obligations relating to the vesting of Restricted Stock or the exercise of options to purchase shares of SUMMARY OF THE APPLICATION: PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 14839 Applicant’s common stock (‘‘Options’’), and (c) permit participants to pay the exercise price of Options with shares of Applicant’s common stock. FILING DATES: The application was filed on July 11, 2006, and amended May 24, 2010, October 25, 2011, and February 29, 2012. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving the applicant with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on April 2, 2012, and should be accompanied by proof of service on 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 who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Applicant, 1450 Broadway, 24th Floor, New York, NY 10018. FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at (202) 551–6876, or Mary Kay Frech, Branch Chief, at (202) 551–6821, (Division of Investment Management, Office of Investment Company Regulation). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm, or by calling (202) 551–8090. Applicant’s Representations 1. Applicant is an internally managed venture capital company specializing in nanotechnology and microsystems that has elected to be regulated as a business development company (‘‘BDC’’) under the Act.1 Since 2001, Applicant has 1 Applicant was incorporated under the laws of the state of New York in August 1981. In 1995, Applicant elected to become a BDC. Section 2(a)(48) of the Act defines a BDC to be any closed-end investment company that operates for the purpose of making investments in securities described in sections 55(a)(1) through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers of such securities. E:\FR\FM\13MRN1.SGM 13MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES 14840 Federal Register / Vol. 77, No. 49 / Tuesday, March 13, 2012 / Notices made initial venture capital investments exclusively in nanotechnology and microsystems, which it sometimes refers to as ‘‘tiny technology.’’ Applicant considers a company to be a tiny technology company if the company employs or intends to employ technology that Applicant considers to be at the microscale or smaller and if the employment of that technology is material to its business plan. Shares of Applicant’s common stock are traded on the Nasdaq Global Market under the symbol ‘‘TINY.’’ As of December 31, 2011, there were 31,000,601 shares of Applicant’s common stock outstanding. As of that date, Applicant had 10 employees. 2. Applicant currently has a ten member board of directors (the ‘‘Board’’) of whom eight are not ‘‘interested persons’’ of Applicant within the meaning of section 2(a)(19) of the Act, and two are considered ‘‘interested persons’’ of Applicant. As of June 7, 2012, Applicant will have a nine member Board of whom eight will be non-interested persons of Applicant and one will be considered an interested person of Applicant.2 3. Applicant believes that, because the market for highly qualified investment professionals is highly competitive, Applicant’s success depends on its ability to offer compensation packages to its professionals that are competitive with those offered by other venture capital firms and investment management businesses. Applicant states that the ability to offer equitybased compensation to its professionals, which both aligns employee behavior with shareholder interests and provides a retention tool, is vital to Applicant’s future growth and success. 4. Effective May 4, 2006, Applicant adopted the Harris & Harris Group, Inc. 2006 Equity Incentive Plan (the ‘‘2006 Plan’’). Applicant has issued Options to participants under the 2006 Plan, all of whom were employees at the time of the grants, and as of December 31, 2011, there were 3,389,117 Options outstanding. Applicant has not issued any Restricted Stock pursuant to the 2006 Plan. Applicant proposes to amend and restate the 2006 Plan by adopting the Plan, which will supersede the 2006 Plan, subject to the issuance of the requested order. The Plan authorizes the issuance of Options to its officers and employees, and Restricted Stock to its directors, including non-employee 2 For purposes of the requested relief, Applicant will be granting Restricted Stock pursuant to the Plan to the individuals who are directors as of June 7, 2012, including the Applicant’s chief executive officer, who will then be the sole interested director. VerDate Mar<15>2010 18:29 Mar 12, 2012 Jkt 226001 directors (‘‘Non-Employee Directors’’), officers and employees (‘‘Participants’’).3 5. The Plan will authorize the issuance of shares of Restricted Stock subject to certain forfeiture restrictions. The restrictions may relate to continued employment or service as a director (lapsing either on an annual or other periodic basis or on a ‘‘cliff’’ basis, i.e., at the end of a stated period of time), the satisfaction of performance goals as stated in the Plan, or other restrictions deemed by the Required Majority 4 and the Compensation Committee 5 from time to time to be appropriate and in the best interests of Applicant and its stockholders. Unless otherwise determined by the Board, a Participant granted Restricted Stock will have all of the rights of a stockholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends, including deemed dividends, thereon. Restricted Stock may not be transferred, pledged, hypothecated, margined, or otherwise encumbered by the Participant during the Restricted Period, except for disposition by will or intestacy. Except as the Board otherwise determines, upon termination of a Participant’s employment or director relationship with the Company during the applicable restriction period, the Participant’s Restricted Stock and any accrued but unpaid dividends that are then subject to restrictions shall generally be forfeited.6 6. Under the Plan, a maximum of twenty percent (20%) of Applicant’s total shares of common stock issued and outstanding (as of the Effective Date) 7 will be available for awards under the Plan. Under the Plan, no more than fifty percent (50%) of the shares of stock reserved for the grant of awards under the Plan may be Restricted Stock awards at any time during the term of the Plan. Thus, the maximum amount of 3 Options will not be granted to Non-Employee Directors. 4 Section 57(o) of the Act provides that the term ‘‘required majority,’’ when used with respect to the approval of a proposed transaction, plan, or arrangement, means both a majority of a BDC’s directors or general partners who have no financial interest in such transaction, plan, or arrangement and a majority of such directors or general partners who are not interested persons of such company. 5 The ‘‘Compensation Committee’’ is composed of ‘‘non-employee directors’’ within the meaning of rule 16b–3, and ‘‘outside directors’’ within the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended. 6 If any shares subject to an award granted under the Plan are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without an issuance of shares, those shares will again be available for awards under the Plan. 7 Effective Date is defined in section 2(i) of the Plan as the date on which the Plan is approved by Applicant’s stockholders. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 Restricted Stock that may be outstanding at any particular time will be ten percent of the Applicant’s voting securities.8 No more than 1,000,000 shares of common stock may be made subject to awards under the Plan to any Participant in any year.9 7. The Plan will be administered by the Compensation Committee and the Board will have the responsibility to ensure that the Plan is operated in a manner that best serves the interests of Applicant and its stockholders. Restricted Stock will be awarded to certain employees, officers and directors, including Non-Employee Directors, from time to time as part of the employees’, officers’ or directors’ compensation based on their actual or expected performance and value to the Company. All awards of Restricted Stock to employees will be approved by the Required Majority. Awards of Restricted Stock to Non-Employee Directors will be made on the schedule described below. 8. Under the Plan, Non-Employee Directors will each receive a grant of up to 2,000 shares of Restricted Stock at the beginning of each one-year term of service on the Board, for which forfeiture restrictions will lapse as to one-third of such shares each year for three years. Each grant of Restricted Stock to Non-Employee Directors will be made pursuant to this schedule and will not be changed without Commission approval. 9. The Plan provides that the Company is authorized to withhold stock (in whole or in part) from any award of Restricted Stock granted in satisfaction of a Participant’s tax obligations. In addition, as discussed more fully in the application, the exercise of Options will result in the recipient being deemed to have received compensation in the amount by which the fair market value of the shares of the Company’s common stock, determined as of the date of exercise, exceeds the exercise price. Accordingly, Applicant requests relief to withhold shares of its common stock or purchase shares of its common stock from Participants to satisfy tax withholding obligations related to the vesting of Restricted Stock or the exercise of Options that were 8 For purposes of calculating compliance with this limit, the Company will count as Restricted Stock all shares of its common stock that are issued under the Plan less any shares that are forfeited back to the Company and cancelled as a result of forfeiture restrictions not lapsing. 9 If the Company does not receive the requested order to issue Restricted Stock, all shares granted under the Plan may be subject to Options. All Option awards will be issued in accordance with section 61 of the Act and will not be granted to Non-Employee Directors. E:\FR\FM\13MRN1.SGM 13MRN1 Federal Register / Vol. 77, No. 49 / Tuesday, March 13, 2012 / Notices granted under the 2006 Plan or will be granted pursuant to the Plan. Applicant also requests an exemption to permit Participants to pay the exercise price of Options that were granted under the 2006 Plan or will be granted to them pursuant to the Plan with shares of the Company’s common stock. 10. The Plan was approved on February 29, 2012, by the Compensation Committee and the Board, including the Required Majority. The Plan will be submitted for approval to the Company’s stockholders, and will become effective upon such approval, subject to and following receipt of the requested order. Applicant’s Legal Analysis mstockstill on DSK4VPTVN1PROD with NOTICES Sections 23(a) and (b), Section 63 1. Under section 63 of the Act, the provisions of section 23(a) of the Act generally prohibiting a registered closed-end investment company from issuing securities for services or for property other than cash or securities are made applicable to BDCs. This provision would prohibit the issuance of Restricted Stock as a part of the Plan. 2. Section 23(b) of the Act generally prohibits a registered closed-end investment company from selling any common stock of which it is the issuer at a price below its current net asset value. Section 63(2) of the Act makes section 23(b) applicable to BDCs unless certain conditions are met. Because Restricted Stock that would be granted under the Plan would not meet the terms of section 63(2), sections 23(b) and 63 would prevent the issuance of Restricted Stock. 3. Section 6(c) provides, in part, that the Commission may, by order upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes thereof, from any provision of the Act, if and to the extent that the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 4. Applicant requests an order pursuant to section 6(c) of the Act granting an exemption from the provisions of sections 23(a), 23(b) and 63 of the Act. Applicant states that the Plan would not violate the concerns underlying these sections, which include: (a) Preferential treatment of investment company insiders and the use of options and other rights by insiders to obtain control of the investment company; (b) complication of the investment company’s structure that made it difficult to determine the VerDate Mar<15>2010 18:29 Mar 12, 2012 Jkt 226001 value of the company’s shares; and (c) dilution of shareholders’ equity in the investment company. Applicant asserts that the Plan does not raise concerns about preferential treatment of Applicant’s insiders because the Plan is a bona fide compensation plan of the type that is common among corporations generally. In addition, section 61(a)(3)(B) of the Act permits a BDC to issue to its directors, officers, employees, and general partners warrants, options, and rights to purchase the BDC’s voting securities pursuant to an executive compensation plan, subject to certain conditions. Applicant states that, for reasons that are unclear, section 61 and its legislative history do not address the issuance by a BDC of restricted stock as incentive compensation. Applicant believes, however, that the issuance of Restricted Stock is substantially similar, for purposes of investor protection under the Act, to the issuance of warrants, options, and rights as contemplated by section 61. Applicant also asserts that the issuance of Restricted Stock would not become a means for insiders to obtain control of Applicant because the maximum amount of Restricted Stock that may be issued under the Plan at any one time will be ten percent of the outstanding shares of common stock of Applicant. Moreover, no Participant will be granted more than 25% of the shares of stock reserved for issuance under the Plan. 5. Applicant further states that the Plan will not unduly complicate Applicant’s capital structure because equity-based incentive compensation arrangements are widely used among corporations and commonly known to investors. Applicant notes that the Plan will be submitted for approval to the Company’s stockholders. Applicant represents that the proxy materials submitted to Applicant’s stockholders will contain a concise ‘‘plain English’’ description of the Plan and its potential dilutive effect. Applicant also states that it will comply with the proxy disclosure requirements in Item 10 of Schedule 14A under the Securities Exchange Act of 1934. Applicant further notes that the Plan will be disclosed to investors in accordance with the requirements of the Form N–2 registration statement for closed-end investment companies and pursuant to the standards and guidelines adopted by the Financial Accounting Standards Board for operating companies. Applicant also will comply with the disclosure requirements for executive compensation plans applicable to PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 14841 BDCs.10 Applicant thus concludes that the Plan will be adequately disclosed to investors and appropriately reflected in the market value of Applicant’s shares. 6. Applicant acknowledges that awards granted under the Plan may have a dilutive effect on the stockholders’ equity per share in Applicant, but believes that effect would be outweighed by the anticipated benefits of the Plan to Applicant and its stockholders. Moreover, based on the manner in which the issuance of Restricted Stock pursuant to the Plan will be administered, the Restricted Stock will be no more dilutive than if Applicant were to issue only Options to Participants who are employees, as is permitted by section 61(a)(3) of the Act. Applicant asserts that it needs the flexibility to provide the requested equity-based compensation in order to be able to compete effectively with other venture capital firms for talented professionals. These professionals, Applicant suggests, in turn are likely to increase Applicant’s performance and stockholder value. Applicant also asserts that equity-based compensation would more closely align the interests of Applicant’s employees with those of its stockholders. In addition, Applicant states that its stockholders will be further protected by the conditions to the requested order that assure continuing oversight of the operation of the Plan by the Board. Section 57(a)(4), Rule 17d–1 7. Section 57(a) proscribes certain transactions between a BDC and persons related to the BDC in the manner described in section 57(b) (‘‘57(b) persons’’), absent a Commission order. Section 57(a)(4) generally prohibits a 57(b) person from effecting a transaction in which the BDC is a joint participant absent such an order. Rule l7d–1, made applicable to BDCs by section 57(i), proscribes participation in a ‘‘joint enterprise or other joint arrangement or profit-sharing plan,’’ which includes a stock option or purchase plan. Employees and directors of a BDC are 57(b) persons. Thus, the issuance of shares of Restricted Stock could be deemed to involve a joint transaction involving a BDC and a 57(b) person in contravention of section 57(a)(4). Rule 17d–1(b) provides that, in considering 10 See Executive Compensation and Related Party Disclosure, Securities Act Release No. 8655 (Jan. 27, 2006) (proposed rule); Executive Compensation and Related Party Disclosure, Securities Act Release No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as amended by Executive Compensation Disclosure, Securities Act Release No. 8756 (Dec. 22, 2006) (adopted as interim final rules with request for comments). E:\FR\FM\13MRN1.SGM 13MRN1 14842 Federal Register / Vol. 77, No. 49 / Tuesday, March 13, 2012 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES relief pursuant to the rule, the Commission will consider (a) whether the participation of the BDC in a joint enterprise is consistent with the policies and purposes of the Act and (b) the extent to which such participation is on a basis different from or less advantageous than that of other participants. 8. Applicant requests an order pursuant to sections 57(a)(4) and 57(i) of the Act and rule 17d–1 under the Act to permit Applicant to issue Restricted Stock under the Plan. Applicant acknowledges that its role is necessarily different from the other participants because the other participants are its directors and employees. It notes, however, that the Plan is in the interest of the Company’s stockholders, because the Plan will help align the interests of Applicant’s employees with those of its stockholders, which will encourage conduct on the part of those employees designed to produce a better return for Applicant’s stockholders. Additionally, section 57(j)(1) of the Act expressly permits any director, officer or employee of a BDC to acquire warrants, options and rights to purchase voting securities of such BDC, and the securities issued upon the exercise or conversion thereof, pursuant to an executive compensation plan which meets the requirements of section 61(a)(3)(B) of the Act. Applicant submits that the issuance of Restricted Stock pursuant to the Plan poses no greater risk to stockholders than the issuances permitted by Section 57(j)(1) of the Act. Section 23(c) 9. Section 23(c) of the Act, which is made applicable to BDCs by section 63 of the Act, generally prohibits a BDC from purchasing any securities of which it is the issuer except in the open market pursuant to tenders, or under other circumstances as the Commission may permit to ensure that the purchases are made in a manner or on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. Applicant states that the withholding or purchase of shares of Restricted Stock and common stock in payment of applicable withholding tax obligations or of common stock in payment for the exercise price of a stock option might be deemed to be purchases by the Company of its own securities within the meaning of section 23(c) and therefore prohibited by the Act. 10. Section 23(c)(3) of the Act permits a BDC to purchase securities of which it is the issuer in circumstances in which the repurchase is made in a manner or on a basis that does not VerDate Mar<15>2010 18:29 Mar 12, 2012 Jkt 226001 unfairly discriminate against any holders of the class or classes of securities to be purchased. Applicant believes that the requested relief meets the standards of section 23(c)(3). 11. Applicant submits that these purchases will be made in a manner that does not unfairly discriminate against Applicant’s stockholders because all purchases of Applicant’s stock will be at the closing price of the common stock on the Nasdaq Global Market (or any primary exchange on which its shares of common stock may be traded in the future) on the relevant date (i.e., the public market price on the date of grant of Restricted Stock and the date of grant of Options). Applicant submits that because all transactions with respect to the Plan will take place at the public market price for the Company’s common stock, these transactions will not be significantly different than could be achieved by any stockholder selling in a market transaction. Applicant represents that no transactions will be conducted pursuant to the requested order on days where there are no reported market transactions involving Applicant’s shares. 12. Applicant represents that the withholding provisions in the Plan do not raise concerns about preferential treatment of Applicant’s insiders because the Plan is a bona fide compensation plan of the type that is common among corporations generally. Furthermore, the vesting schedule is determined at the time of the initial grant of the Restricted Stock and the option exercise price is determined at the time of the initial grant of the Options. Applicant represents that all purchases may be made only as permitted by the Plan, which will be approved by the Company’s stockholders prior to any application of the relief. Applicant believes that granting the requested relief would be consistent with the policies underlying the provisions of the Act permitting the use of equity compensation as well as prior exemptive relief granted by the Commission under section 23(c) of the Act. Applicant’s Conditions Applicant agrees that the order granting the requested relief will be subject to the following conditions: 1. The Plan will be authorized by Applicant’s stockholders. 2. Each issuance of Restricted Stock to an officer or employee will be approved by the Required Majority of Applicant’s directors on the basis that such grant is in the best interest of Applicant and its stockholders. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 3. The amount of voting securities that would result from the exercise of all of Applicant’s outstanding warrants, options and rights, together with any Restricted Stock issued and outstanding pursuant to the Plan, will not at the time of issuance of any warrant, option, right or share of Restricted Stock under the Plan, exceed 20 percent of Applicant’s outstanding voting securities. 4. The amount of Restricted Stock issued and outstanding will not at the time of issuance of any shares of Restricted Stock exceed ten percent of Applicant’s outstanding voting securities. 5. The Board will review the Plan at least annually. In addition, the Board will review periodically the potential impact that the issuance of Restricted Stock under the Plan could have on Applicant’s earnings and net asset value per share, such review to take place prior to any decisions to grant Restricted Stock under the Plan, but in no event less frequently than annually. Adequate procedures and records will be maintained to permit such review. The Board will be authorized to take appropriate steps to ensure that the issuance of Restricted Stock under the Plan will be in the best interest of Applicant and its stockholders. This authority will include the authority to prevent or limit the granting of additional Restricted Stock under the Plan. All records maintained pursuant to this condition will be subject to examination by the Commission and its staff. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–5987 Filed 3–12–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, March 15, 2012 at 9:30 a.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has E:\FR\FM\13MRN1.SGM 13MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 49 (Tuesday, March 13, 2012)]
[Notices]
[Pages 14839-14842]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5987]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29976; 812-13313]

Harris & Harris Group, Inc.; Notice of Application

March 7, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 23(a), 23(b) and 63 of the Act; under sections 57(a)(4) and
57(i) of the Act and rule 17d-1 under the Act permitting certain joint
transactions otherwise prohibited by section 57(a)(4) of the Act; and
under section 23(c)(3) of the Act for an exemption from section 23(c)
of the Act.

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SUMMARY OF THE APPLICATION: Harris & Harris Group, Inc. (``Applicant''
or ``Company'') requests an order that would permit Applicant to (a)
issue restricted shares of its common stock (``Restricted Stock'') as
part of the compensation package for certain participants in its
Amended and Restated 2012 Equity Incentive Plan (the ``Plan''), (b)
withhold shares of the Applicant's common stock or purchase shares of
Applicant's common stock from participants to satisfy tax withholding
obligations relating to the vesting of Restricted Stock or the exercise
of options to purchase shares of Applicant's common stock
(``Options''), and (c) permit participants to pay the exercise price of
Options with shares of Applicant's common stock.

FILING DATES: The application was filed on July 11, 2006, and amended
May 24, 2010, October 25, 2011, and February 29, 2012. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving the applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on April 2, 2012, and should be accompanied by proof of service on
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
who wish to be notified of a hearing may request notification by
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicant, 1450 Broadway, 24th
Floor, New York, NY 10018.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 551-6876, or Mary Kay Frech, Branch Chief, at (202) 551-6821,
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicant's Representations

1. Applicant is an internally managed venture capital company
specializing in nanotechnology and microsystems that has elected to be
regulated as a business development company (``BDC'') under the Act.\1\
Since 2001, Applicant has

[[Page 14840]]

made initial venture capital investments exclusively in nanotechnology
and microsystems, which it sometimes refers to as ``tiny technology.''
Applicant considers a company to be a tiny technology company if the
company employs or intends to employ technology that Applicant
considers to be at the microscale or smaller and if the employment of
that technology is material to its business plan. Shares of Applicant's
common stock are traded on the Nasdaq Global Market under the symbol
``TINY.'' As of December 31, 2011, there were 31,000,601 shares of
Applicant's common stock outstanding. As of that date, Applicant had 10
employees.
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\1\ Applicant was incorporated under the laws of the state of
New York in August 1981. In 1995, Applicant elected to become a BDC.
Section 2(a)(48) of the Act defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
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2. Applicant currently has a ten member board of directors (the
``Board'') of whom eight are not ``interested persons'' of Applicant
within the meaning of section 2(a)(19) of the Act, and two are
considered ``interested persons'' of Applicant. As of June 7, 2012,
Applicant will have a nine member Board of whom eight will be non-
interested persons of Applicant and one will be considered an
interested person of Applicant.\2\
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\2\ For purposes of the requested relief, Applicant will be
granting Restricted Stock pursuant to the Plan to the individuals
who are directors as of June 7, 2012, including the Applicant's
chief executive officer, who will then be the sole interested
director.
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3. Applicant believes that, because the market for highly qualified
investment professionals is highly competitive, Applicant's success
depends on its ability to offer compensation packages to its
professionals that are competitive with those offered by other venture
capital firms and investment management businesses. Applicant states
that the ability to offer equity-based compensation to its
professionals, which both aligns employee behavior with shareholder
interests and provides a retention tool, is vital to Applicant's future
growth and success.
4. Effective May 4, 2006, Applicant adopted the Harris & Harris
Group, Inc. 2006 Equity Incentive Plan (the ``2006 Plan''). Applicant
has issued Options to participants under the 2006 Plan, all of whom
were employees at the time of the grants, and as of December 31, 2011,
there were 3,389,117 Options outstanding. Applicant has not issued any
Restricted Stock pursuant to the 2006 Plan. Applicant proposes to amend
and restate the 2006 Plan by adopting the Plan, which will supersede
the 2006 Plan, subject to the issuance of the requested order. The Plan
authorizes the issuance of Options to its officers and employees, and
Restricted Stock to its directors, including non-employee directors
(``Non-Employee Directors''), officers and employees
(``Participants'').\3\
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\3\ Options will not be granted to Non-Employee Directors.
---------------------------------------------------------------------------

5. The Plan will authorize the issuance of shares of Restricted
Stock subject to certain forfeiture restrictions. The restrictions may
relate to continued employment or service as a director (lapsing either
on an annual or other periodic basis or on a ``cliff'' basis, i.e., at
the end of a stated period of time), the satisfaction of performance
goals as stated in the Plan, or other restrictions deemed by the
Required Majority \4\ and the Compensation Committee \5\ from time to
time to be appropriate and in the best interests of Applicant and its
stockholders. Unless otherwise determined by the Board, a Participant
granted Restricted Stock will have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock and
the right to receive dividends, including deemed dividends, thereon.
Restricted Stock may not be transferred, pledged, hypothecated,
margined, or otherwise encumbered by the Participant during the
Restricted Period, except for disposition by will or intestacy. Except
as the Board otherwise determines, upon termination of a Participant's
employment or director relationship with the Company during the
applicable restriction period, the Participant's Restricted Stock and
any accrued but unpaid dividends that are then subject to restrictions
shall generally be forfeited.\6\
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\4\ Section 57(o) of the Act provides that the term ``required
majority,'' when used with respect to the approval of a proposed
transaction, plan, or arrangement, means both a majority of a BDC's
directors or general partners who have no financial interest in such
transaction, plan, or arrangement and a majority of such directors
or general partners who are not interested persons of such company.
\5\ The ``Compensation Committee'' is composed of ``non-employee
directors'' within the meaning of rule 16b-3, and ``outside
directors'' within the meaning of section 162(m) of the Internal
Revenue Code of 1986, as amended.
\6\ If any shares subject to an award granted under the Plan are
forfeited, cancelled, exchanged or surrendered or if an award
terminates or expires without an issuance of shares, those shares
will again be available for awards under the Plan.
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6. Under the Plan, a maximum of twenty percent (20%) of Applicant's
total shares of common stock issued and outstanding (as of the
Effective Date) \7\ will be available for awards under the Plan. Under
the Plan, no more than fifty percent (50%) of the shares of stock
reserved for the grant of awards under the Plan may be Restricted Stock
awards at any time during the term of the Plan. Thus, the maximum
amount of Restricted Stock that may be outstanding at any particular
time will be ten percent of the Applicant's voting securities.\8\ No
more than 1,000,000 shares of common stock may be made subject to
awards under the Plan to any Participant in any year.\9\
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\7\ Effective Date is defined in section 2(i) of the Plan as the
date on which the Plan is approved by Applicant's stockholders.
\8\ For purposes of calculating compliance with this limit, the
Company will count as Restricted Stock all shares of its common
stock that are issued under the Plan less any shares that are
forfeited back to the Company and cancelled as a result of
forfeiture restrictions not lapsing.
\9\ If the Company does not receive the requested order to issue
Restricted Stock, all shares granted under the Plan may be subject
to Options. All Option awards will be issued in accordance with
section 61 of the Act and will not be granted to Non-Employee
Directors.
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7. The Plan will be administered by the Compensation Committee and
the Board will have the responsibility to ensure that the Plan is
operated in a manner that best serves the interests of Applicant and
its stockholders. Restricted Stock will be awarded to certain
employees, officers and directors, including Non-Employee Directors,
from time to time as part of the employees', officers' or directors'
compensation based on their actual or expected performance and value to
the Company. All awards of Restricted Stock to employees will be
approved by the Required Majority. Awards of Restricted Stock to Non-
Employee Directors will be made on the schedule described below.
8. Under the Plan, Non-Employee Directors will each receive a grant
of up to 2,000 shares of Restricted Stock at the beginning of each one-
year term of service on the Board, for which forfeiture restrictions
will lapse as to one-third of such shares each year for three years.
Each grant of Restricted Stock to Non-Employee Directors will be made
pursuant to this schedule and will not be changed without Commission
approval.
9. The Plan provides that the Company is authorized to withhold
stock (in whole or in part) from any award of Restricted Stock granted
in satisfaction of a Participant's tax obligations. In addition, as
discussed more fully in the application, the exercise of Options will
result in the recipient being deemed to have received compensation in
the amount by which the fair market value of the shares of the
Company's common stock, determined as of the date of exercise, exceeds
the exercise price. Accordingly, Applicant requests relief to withhold
shares of its common stock or purchase shares of its common stock from
Participants to satisfy tax withholding obligations related to the
vesting of Restricted Stock or the exercise of Options that were

[[Page 14841]]

granted under the 2006 Plan or will be granted pursuant to the Plan.
Applicant also requests an exemption to permit Participants to pay the
exercise price of Options that were granted under the 2006 Plan or will
be granted to them pursuant to the Plan with shares of the Company's
common stock.
10. The Plan was approved on February 29, 2012, by the Compensation
Committee and the Board, including the Required Majority. The Plan will
be submitted for approval to the Company's stockholders, and will
become effective upon such approval, subject to and following receipt
of the requested order.

Applicant's Legal Analysis

Sections 23(a) and (b), Section 63

1. Under section 63 of the Act, the provisions of section 23(a) of
the Act generally prohibiting a registered closed-end investment
company from issuing securities for services or for property other than
cash or securities are made applicable to BDCs. This provision would
prohibit the issuance of Restricted Stock as a part of the Plan.
2. Section 23(b) of the Act generally prohibits a registered
closed-end investment company from selling any common stock of which it
is the issuer at a price below its current net asset value. Section
63(2) of the Act makes section 23(b) applicable to BDCs unless certain
conditions are met. Because Restricted Stock that would be granted
under the Plan would not meet the terms of section 63(2), sections
23(b) and 63 would prevent the issuance of Restricted Stock.
3. Section 6(c) provides, in part, that the Commission may, by
order upon application, conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes thereof, from
any provision of the Act, if and to the extent that the exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act.
4. Applicant requests an order pursuant to section 6(c) of the Act
granting an exemption from the provisions of sections 23(a), 23(b) and
63 of the Act. Applicant states that the Plan would not violate the
concerns underlying these sections, which include: (a) Preferential
treatment of investment company insiders and the use of options and
other rights by insiders to obtain control of the investment company;
(b) complication of the investment company's structure that made it
difficult to determine the value of the company's shares; and (c)
dilution of shareholders' equity in the investment company. Applicant
asserts that the Plan does not raise concerns about preferential
treatment of Applicant's insiders because the Plan is a bona fide
compensation plan of the type that is common among corporations
generally. In addition, section 61(a)(3)(B) of the Act permits a BDC to
issue to its directors, officers, employees, and general partners
warrants, options, and rights to purchase the BDC's voting securities
pursuant to an executive compensation plan, subject to certain
conditions. Applicant states that, for reasons that are unclear,
section 61 and its legislative history do not address the issuance by a
BDC of restricted stock as incentive compensation. Applicant believes,
however, that the issuance of Restricted Stock is substantially
similar, for purposes of investor protection under the Act, to the
issuance of warrants, options, and rights as contemplated by section
61. Applicant also asserts that the issuance of Restricted Stock would
not become a means for insiders to obtain control of Applicant because
the maximum amount of Restricted Stock that may be issued under the
Plan at any one time will be ten percent of the outstanding shares of
common stock of Applicant. Moreover, no Participant will be granted
more than 25% of the shares of stock reserved for issuance under the
Plan.
5. Applicant further states that the Plan will not unduly
complicate Applicant's capital structure because equity-based incentive
compensation arrangements are widely used among corporations and
commonly known to investors. Applicant notes that the Plan will be
submitted for approval to the Company's stockholders. Applicant
represents that the proxy materials submitted to Applicant's
stockholders will contain a concise ``plain English'' description of
the Plan and its potential dilutive effect. Applicant also states that
it will comply with the proxy disclosure requirements in Item 10 of
Schedule 14A under the Securities Exchange Act of 1934. Applicant
further notes that the Plan will be disclosed to investors in
accordance with the requirements of the Form N-2 registration statement
for closed-end investment companies and pursuant to the standards and
guidelines adopted by the Financial Accounting Standards Board for
operating companies. Applicant also will comply with the disclosure
requirements for executive compensation plans applicable to BDCs.\10\
Applicant thus concludes that the Plan will be adequately disclosed to
investors and appropriately reflected in the market value of
Applicant's shares.
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\10\ See Executive Compensation and Related Party Disclosure,
Securities Act Release No. 8655 (Jan. 27, 2006) (proposed rule);
Executive Compensation and Related Party Disclosure, Securities Act
Release No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as
amended by Executive Compensation Disclosure, Securities Act Release
No. 8756 (Dec. 22, 2006) (adopted as interim final rules with
request for comments).
---------------------------------------------------------------------------

6. Applicant acknowledges that awards granted under the Plan may
have a dilutive effect on the stockholders' equity per share in
Applicant, but believes that effect would be outweighed by the
anticipated benefits of the Plan to Applicant and its stockholders.
Moreover, based on the manner in which the issuance of Restricted Stock
pursuant to the Plan will be administered, the Restricted Stock will be
no more dilutive than if Applicant were to issue only Options to
Participants who are employees, as is permitted by section 61(a)(3) of
the Act. Applicant asserts that it needs the flexibility to provide the
requested equity-based compensation in order to be able to compete
effectively with other venture capital firms for talented
professionals. These professionals, Applicant suggests, in turn are
likely to increase Applicant's performance and stockholder value.
Applicant also asserts that equity-based compensation would more
closely align the interests of Applicant's employees with those of its
stockholders. In addition, Applicant states that its stockholders will
be further protected by the conditions to the requested order that
assure continuing oversight of the operation of the Plan by the Board.

Section 57(a)(4), Rule 17d-1

7. Section 57(a) proscribes certain transactions between a BDC and
persons related to the BDC in the manner described in section 57(b)
(``57(b) persons''), absent a Commission order. Section 57(a)(4)
generally prohibits a 57(b) person from effecting a transaction in
which the BDC is a joint participant absent such an order. Rule l7d-1,
made applicable to BDCs by section 57(i), proscribes participation in a
``joint enterprise or other joint arrangement or profit-sharing plan,''
which includes a stock option or purchase plan. Employees and directors
of a BDC are 57(b) persons. Thus, the issuance of shares of Restricted
Stock could be deemed to involve a joint transaction involving a BDC
and a 57(b) person in contravention of section 57(a)(4). Rule 17d-1(b)
provides that, in considering

[[Page 14842]]

relief pursuant to the rule, the Commission will consider (a) whether
the participation of the BDC in a joint enterprise is consistent with
the policies and purposes of the Act and (b) the extent to which such
participation is on a basis different from or less advantageous than
that of other participants.
8. Applicant requests an order pursuant to sections 57(a)(4) and
57(i) of the Act and rule 17d-1 under the Act to permit Applicant to
issue Restricted Stock under the Plan. Applicant acknowledges that its
role is necessarily different from the other participants because the
other participants are its directors and employees. It notes, however,
that the Plan is in the interest of the Company's stockholders, because
the Plan will help align the interests of Applicant's employees with
those of its stockholders, which will encourage conduct on the part of
those employees designed to produce a better return for Applicant's
stockholders. Additionally, section 57(j)(1) of the Act expressly
permits any director, officer or employee of a BDC to acquire warrants,
options and rights to purchase voting securities of such BDC, and the
securities issued upon the exercise or conversion thereof, pursuant to
an executive compensation plan which meets the requirements of section
61(a)(3)(B) of the Act. Applicant submits that the issuance of
Restricted Stock pursuant to the Plan poses no greater risk to
stockholders than the issuances permitted by Section 57(j)(1) of the
Act.

Section 23(c)

9. Section 23(c) of the Act, which is made applicable to BDCs by
section 63 of the Act, generally prohibits a BDC from purchasing any
securities of which it is the issuer except in the open market pursuant
to tenders, or under other circumstances as the Commission may permit
to ensure that the purchases are made in a manner or on a basis that
does not unfairly discriminate against any holders of the class or
classes of securities to be purchased. Applicant states that the
withholding or purchase of shares of Restricted Stock and common stock
in payment of applicable withholding tax obligations or of common stock
in payment for the exercise price of a stock option might be deemed to
be purchases by the Company of its own securities within the meaning of
section 23(c) and therefore prohibited by the Act.
10. Section 23(c)(3) of the Act permits a BDC to purchase
securities of which it is the issuer in circumstances in which the
repurchase is made in a manner or on a basis that does not unfairly
discriminate against any holders of the class or classes of securities
to be purchased. Applicant believes that the requested relief meets the
standards of section 23(c)(3).
11. Applicant submits that these purchases will be made in a manner
that does not unfairly discriminate against Applicant's stockholders
because all purchases of Applicant's stock will be at the closing price
of the common stock on the Nasdaq Global Market (or any primary
exchange on which its shares of common stock may be traded in the
future) on the relevant date (i.e., the public market price on the date
of grant of Restricted Stock and the date of grant of Options).
Applicant submits that because all transactions with respect to the
Plan will take place at the public market price for the Company's
common stock, these transactions will not be significantly different
than could be achieved by any stockholder selling in a market
transaction. Applicant represents that no transactions will be
conducted pursuant to the requested order on days where there are no
reported market transactions involving Applicant's shares.
12. Applicant represents that the withholding provisions in the
Plan do not raise concerns about preferential treatment of Applicant's
insiders because the Plan is a bona fide compensation plan of the type
that is common among corporations generally. Furthermore, the vesting
schedule is determined at the time of the initial grant of the
Restricted Stock and the option exercise price is determined at the
time of the initial grant of the Options. Applicant represents that all
purchases may be made only as permitted by the Plan, which will be
approved by the Company's stockholders prior to any application of the
relief. Applicant believes that granting the requested relief would be
consistent with the policies underlying the provisions of the Act
permitting the use of equity compensation as well as prior exemptive
relief granted by the Commission under section 23(c) of the Act.

Applicant's Conditions

Applicant agrees that the order granting the requested relief will
be subject to the following conditions:
1. The Plan will be authorized by Applicant's stockholders.
2. Each issuance of Restricted Stock to an officer or employee will
be approved by the Required Majority of Applicant's directors on the
basis that such grant is in the best interest of Applicant and its
stockholders.
3. The amount of voting securities that would result from the
exercise of all of Applicant's outstanding warrants, options and
rights, together with any Restricted Stock issued and outstanding
pursuant to the Plan, will not at the time of issuance of any warrant,
option, right or share of Restricted Stock under the Plan, exceed 20
percent of Applicant's outstanding voting securities.
4. The amount of Restricted Stock issued and outstanding will not
at the time of issuance of any shares of Restricted Stock exceed ten
percent of Applicant's outstanding voting securities.
5. The Board will review the Plan at least annually. In addition,
the Board will review periodically the potential impact that the
issuance of Restricted Stock under the Plan could have on Applicant's
earnings and net asset value per share, such review to take place prior
to any decisions to grant Restricted Stock under the Plan, but in no
event less frequently than annually. Adequate procedures and records
will be maintained to permit such review. The Board will be authorized
to take appropriate steps to ensure that the issuance of Restricted
Stock under the Plan will be in the best interest of Applicant and its
stockholders. This authority will include the authority to prevent or
limit the granting of additional Restricted Stock under the Plan. All
records maintained pursuant to this condition will be subject to
examination by the Commission and its staff.

For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5987 Filed 3-12-12; 8:45 am]
BILLING CODE 8011-01-P

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