April 3, 2015 

Frank Zarb, Esq. 

Proskauer Rose LLP 

1001 Pennsylvania Avenue, N.W., Suite 600 South 

Washington, DC 20004-2533 

Re: Harris & Harris Group, Inc. (the “Company”) 

Dear Mr. Zarb: 

In a letter dated January 28, 2014, you requested confirmation that we would not recommend 

enforcement action to the Commission if the Company omits, in reliance on Rule 14a-8 under 

the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the shareholder 

proposal and supporting statement (the “Proposal”) submitted by Messrs. Ronald Lazar and 

Anthony Polak, Managing Directors Wealth Management, Aegis Capital Corp. (the 

“Proponents”) from the Company’s proxy materials for the Company’s 2015 Annual Meeting of 

Shareholders (the “Proxy Materials”). 

You state that the Company received a letter dated November 17, 2014, from the Proponents 

requesting that the following Proposal be included in the Proxy Materials: 

“Our proposal is for the company to buy back stock on a quarterly basis utilizing 

5% of its existing cash when the stock is selling for more than a 10% discount to 

book value. 

We feel that rather than spending cash on new investments that may or may not 

prove successful and take a long time to achieve liquidity, that buying back stock 

will increase the book value of the existing shares immediately.” 

In support of your request, you assert that the Proposal and Supporting Statement may be omitted 

in reliance on subparagraphs (i)(1) and (i)(7) of Rule 14a-8, respectively, on the grounds that the 

Proposal (1) is not a proper subject for action by shareholders under the laws of the jurisdiction 

of the Company’s organization; and (2) deals with a matter relating to the Company’s ordinary 

business operations. 

There appears to be some basis for your view that the Company may exclude the proposal under 

Rule 14a-8(i)(7), as relating to the Company’s ordinary business operations. Accordingly, we 

will not recommend enforcement action to the Commission if the Company omits the proposal 

from its proxy materials in reliance on Rule 14a-8(i)(7). In reaching this position, we have not 

found it necessary to address the alternative basis for omission upon which the Company relies. 
 

 

 

 

 

Attached is a description of the informal procedures the Division follows in responding to 

shareholder proposals. If you have any questions or comments concerning this matter, please 

call me at (202) 551-6964. 

Sincerely, 

/s/ Dominic Minore 

Dominic Minore 

Senior Counsel 

Division of Investment Management 

Attachment 

cc:	 Messrs. Ronald Lazar & Anthony Polak 

Managing Directors Wealth Management 

Aegis Capital Corp. 

2
 
 

 

DIVISION OF INVESTMENT MANAGEMENT 

INFORMAL PROCEDURES REGARDING SHAREHOLDER PROPOSALS 

The Division of Investment Management believes that its responsibility with respect to matters 

arising under Rule 14a-8 [17 CFR 240.14a-8], as with other matters under the proxy rules, is to 

aid those who must comply with the rule by offering informal advice and suggestions and to 

determine, initially, whether or not it may be appropriate in a particular matter to recommend 

enforcement action to the Commission. In connection with a shareholder proposal under Rule 

14a-8, the Division's staff considers the information furnished to it by an investment company in 

support of its intention to exclude the proposals from the investment company's proxy material, 

as well as any information furnished by the proponent's representative. 

The staff will always consider information concerning alleged violations of the statutes 

administered by the Commission, including argument as to whether or not activities proposed to 

be taken would be violative of the statute or rule involved. The receipt by the staff of such 

information, however, should not be construed as changing the staff's informal procedures and 

proxy review into a formal or adversary procedure. 

The determination reached by the staff in connection with a shareholder proposal submitted to 

the Division under Rule 14a-8 does not and cannot purport to “adjudicate” the merits of an 

investment company's position with respect to the proposal. Only a court, such as a U.S. District 

Court, can decide whether an investment company is obligated to include shareholder proposals 

in its proxy material. Accordingly, a discretionary determination not to recommend or take 

Commission enforcement actions, does not preclude a proponent, or any shareholder of an 

investment company, from pursuing any rights he or she may have against the investment 

company in court, should the management omit the proposal from the investment company's 

proxy material. 
 

 

 

 

 

 

 

 

 

Proskauer Rose LLP 1001 Pennsylvania Avenue, NW Suite 600 South Washington, DC 20004-2533 

January 28, 2015 Frank Zarb 

Member of the Firm 

d 202.416.5870 

f 202.416.6899 

fzarb@proskauer.com 

www.proskauer.com 

Via Email 

imshareholderproposals@sec.gov 

U.S. Securities and Exchange Commission 

Division of Investment Management 

Office of Chief Counsel 

100 F Street, N.E. Washington, D.C. 20549 

Re: Harris & Harris Group, Inc. – Shareholder Proposal Submitted by Messrs. Lazar and 

Polak 

Ladies and Gentlemen: 

This letter is submitted on behalf of Harris & Harris Group, Inc. (the “Company”) 

pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended (the 

“Exchange Act”). Pursuant to Staff Legal Bulletin No. 14 (“SLB 14”), the Company, which has 

elected to be regulated as a business development company (“BDC”) under the Investment 

Company Act of 1940 (the “40 Act”), is submitting this letter to the Division of Investment 

Management. The Company requests that the staff of the Division of Investment Management 

(the “Staff”) of the Securities and Exchange Commission (the “Commission”) not recommend 

enforcement action if the Company omits from its proxy materials for the Company's 2015 

Annual Meeting of Shareholders (the “2015 Annual Meeting”) the proposal described below for 

the reasons set forth herein. 

General 

The Company received a proposal and supporting statement (the “Proposal”) in a letter 

dated November 17, 2014 from Messrs. Ronald Lazar and Anthony Polak (the “Proponents”). A 

copy of the Proposal and letter is attached as Exhibit A. As required by Rule 14a-8(j), a copy of 

this letter is simultaneously being sent to the Proponents. Pursuant to Rule 14a-8(j), the 

Company will file its definitive proxy statement and form of proxy for the 2015 Annual Meeting 

no earlier than 80 calendar days following the date of this letter. 

The Proposal 

The Proposal reads as follows: 

Our proposal is for the company to buy back stock on a quarterly basis utilizing 

5% of its existing cash when the stock is selling for more than a 10% discount to 

book value. 

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Office of Chief Counsel 

January 28, 2015 

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We feel that rather than spending cash on new investments that may or may not 

prove successful and take a long time to achieve liquidity, that buying back stock 

will increase the book value of the existing shares immediately. 

Bases for Exclusion 

For the reasons set forth below, we request that the Staff concur that the Proposal may be 

excluded under Rule 14a-8(i)(7) as an ordinary business matter, or Rule 14a-8(i)(1) as improper 

under state law. 

I. The Proposal is Excludable under Rule 14a-8(i)(7) 

Rule 14a-8(i)(7) under the Exchange Act permits a company to exclude a shareholder 

proposal if the “proposal deals with a matter relating to the company’s ordinary business 

operations.” Because the Proposal does not implicate a fundamental policy of the Company, but 

is more analogous to a proposal that the Company establish a standard corporate repurchase plan, 

we believe it is excludable under this provision. We could not locate any letters submitted by 

BDCs or closed-end investment companies regarding proposals to implement a share repurchase 

program that did not involve an interval fund structure. We located two letters involving 

proposals to implement an interval fund structure, but believe that these should not control the 

Staff’s evaluation of the instant request. These letters are The Swiss Helvetia Fund, Inc. (May 5, 

2010) and The Growth Fund of Spain, Inc. (March 15, 1996). In both of these letters, the Staff 

denied no-action relief under Rule 14a-8(i)(7) and its predecessor for share repurchase proposals 

that sought to implement an interval fund structure pursuant to Rule 23c-3 for traditional closedend funds. In denying the request in The Growth Fund of Spain, Inc., for instance, the Staff 

explained that “the . . . proposal does not deal with the ordinary operations of an investment 

company, such as the buying and selling of securities. . . . [it] deals with the capital structure of a 

company which is subject to regulation under Sections 18 and 23 of the 1940 Act.” For these 

reasons, the Staff concluded that the proposal went beyond ordinary business operations because 

it had “major implications.” 

The instant Proposal, by contrast, does address the buying and selling of securities, 

ordinary operations of an investment fund. It does not implicate a fundamental policy, and it 

does not seek to create an interval fund structure in accordance with Rule 23c-3 under the 40 

Act. First, the Proposal does not request such an interval fund structure, or refer to Rule 23c-3.1 

In addition, it asks the Company to make repurchases only if the Company’s common stock “is 

selling for more than a 10% discount to book value.” A policy established under Rule 23c-3 

would require the Company to make repurchases at the designated intervals regardless of the 

trading price for its common stock. Second, the Proposal asks the Company to make repurchases 

1 Pursuant to Rule 23c-3, a BDC could establish a policy pursuant to which it would be required to make repurchase 

offers to all holders of its common stock at periodic intervals, subject to certain conditions. The establishment of an 

interval fund structure is a fundamental policy of a fund, and could only be reversed by a vote of a majority of 

outstanding shares. 

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Office of Chief Counsel 

January 28, 2015 

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“utilizing 5% of its existing cash.” A policy established under Rule 23c-3 would require the 

Company to utilize as much cash as necessary, which may be more or less than 5% of its cash, to 

make repurchases at the designated intervals. While Rule 23c-3(b)(3) contains conditions 

permitting a company to suspend its repurchase program, none of the conditions relate to using 

5% of existing cash. 

The fact that the proposal could be implemented by the Company’s Board of Directors 

further highlights that it is an ordinary business matter entrusted to the Company and its Board. 

Indeed, the Proposal implicates a key operating matter for the Company’s management. 

Congress enacted the BDC provisions of the 40 Act in order to encourage the flow of capital into 

small private companies,2 which are highly illiquid. Therefore, in fulfilling its purpose as a BDC, 

the Company’s mandate is to use its limited cash to make investments in portfolio companies. 

The Company makes venture capital investments primarily in private companies. The Company 

rarely commits the total amount of cumulative capital intended for investment in any portfolio 

company at one point in time. Instead, the Company’s investments consist of multiple rounds of 

financing of a given portfolio company, in which it typically participates if it believes that the 

merits of such an investment outweigh the risks. As is common with venture capital financings, 

the Company also commonly has preemptive rights to invest additional capital in its privately 

held portfolio companies. These rights are useful to protect and potentially increase the value of 

its positions in its portfolio companies as they mature. Commonly, the terms of such financings 

in privately held companies also include penalties for those investors that do not invest in these 

subsequent rounds of financing. Without available capital at the time of investment, the 

ownership in the portfolio company would be subject to these penalties, which could lead to a 

partial or complete loss of the capital invested prior to that round of financing. Accordingly, it is 

important the Board of Directors and management of the Company have the discretion to 

manage the use of the Company’s cash in order to best increase shareholder value by having cash 

available for follow on investments. 

As you are aware, the staff of the Division of Corporation Finance (the “CorpFin Staff”) 

has consistently considered and granted relief under Rule 14a-8(i)(7) for proposals seeking to 

implement share repurchase programs for operating companies. As further discussed above, we 

believe that the Proposal does not implicate a fundamental policy, and that the Proposal is more 

analogous to the proposals addressed by the CorpFin Staff. 

The CorpFin Staff has previously permitted a company to exclude a share repurchase 

proposal under Rule 14a-8(i)(7) when the proponent disagreed with the company’s use of cash 

on hand. In Concurrent Computer Corporation (July 13, 2011), the proponent believed that the 

company’s cash on hand was better used if returned to shareholders via a Dutch auction tender 

offer than being “stockpile[d]...for undefined uses.” The CorpFin Staff permitted the company 

to exclude the proposal under Rule 14a-8(i)(7) and noted that the proposal related to “the 

implementation and particular terms of a share repurchase program.” The CorpFin Staff has also 

2 126 Cong. Rec. H9333 (daily ed. Sept. 22, 1980). 

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Office of Chief Counsel 

January 28, 2015 

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granted relief under Rule 14a-8(i)(7) for share repurchase proposals that were submitted for other 

3 reasons.

We believe that the Staff should consider as more analogous to these facts the letters 

relating to operating companies that are discussed above in analyzing whether exclusion pursuant 

to Rule 14a-8(i)(7) is appropriate for the instant proposal. 

II. The Proposal is Excludable under Rule 14a-8(i)(1) 

Rule 14a-8(i)(1) permits a company to exclude a shareholder proposal if the proposal is 

“not a proper subject for action by shareholders under the laws of the jurisdiction of the 

company’s organization.” A note to Rule 14a-8(i)(1) states that, “[d]epending on the subject 

matter, some proposals are not considered proper under state law if they would be binding on the 

company if approved by shareholders.” 

Section G of SLB 14 provides that, “[w]hen drafting a proposal, shareholders should 

consider whether the proposal, if approved by shareholders, would be binding on the company. 

In our experience, we have found that proposals that are binding on the company face a much 

greater likelihood of being improper under state law and, therefore, excludable under rule 14a8(i)(1).” Similarly, the Commission has explained that typical state statutes provide for 

management of the business and affairs of a corporation by the board of directors. As a result, 

“[u]nder such statute, a board may be considered to have exclusive discretion in corporate 

matters, absent a specific provision to the contrary in the statute itself, or the corporation’s 

charter or by-laws. Accordingly, proposals by security holders that mandate or direct the board to 

take certain action may constitute an unlawful intrusion on the board's discretionary authority 

under the typical statute.”4 

The Company is incorporated under New York law. Section 701 of the New York 

Business Corporation Law provides that “the business of a corporation shall be managed under 

the direction of its board of directors” subject to the specified powers in the certificate of 

incorporation. No provision in the Company’s Certificate of Incorporation or Bylaws confers 

such management power on the shareholders. Consequently, because the Proposal does not allow 

the Company’s Board of Directors to exercise its judgment in managing the Company, it is not a 

proper subject for action by shareholders under the laws of New York. 

3 See Citigroup Inc. (Jan. 24, 2014) (proposal to repurchase underwater employee equity awards for certain types of 

employees), Inland American Real Estate Trust, Inc. (Sept. 3, 2013) (proposal to repurchase stock for certain 

shareholders so as to permit such shareholders to avoid a required minimum withdrawal from their IRA), Fauquier 

Bankshares, Inc. (Feb. 21, 2012) (proposal to repurchase stock to offset dilution caused by equity grants to directors 

and officers). 

4 See Release No. 34-12999 (Nov. 22, 1976). 

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Office of Chief Counsel 

January 28, 2015 

Page 5 

The Staff has consistently concurred with the view that a shareholder proposal mandating 

or directing a company’s board of directors to take certain action is inconsistent with the 

discretionary authority provided to a board of directors under state law. For example, in TriContinental Corp. (March 25, 2003) the Staff concurred that a shareholder proposal requiring the 

company to cease repurchasing its shares on the open market could be omitted from the 

company’s proxy materials under Rule 14a-8(i)(1) as improper under Maryland law unless the 

proponent recast the proposal as a recommendation or request. Similarly, in The Growth Fund of 

Spain, the Staff noted that the mandatory proposal to adopt interval fund status could be 

excluded under Rule 14a-8(i)(1)’s predecessor as improper under state law. The CorpFin Staff 

has also consistently found mandatory proposals to be similarly excludable under 14a-8(i)(1). 5 

The Proposal is not a precatory proposal; rather, if passed, it would require “the company 

to buy back stock on a quarterly basis utilizing 5% of its existing cash when the stock is selling 

for more than a 10% discount to book value.” If approved by shareholders, the Proposal would 

impose an obligation on the Board to repurchase shares in accordance with the specified limits, 

regardless of whether, in the Board’s good faith judgment, repurchasing shares at that time and 

in those amounts is in the best interest of the Company and all of its shareholders. 

This letter also serves as confirmation for purposes of Rule 14a-8(i)(1) that, as a member 

in good standing admitted to practice before courts in the State of New York, I am of the opinion 

that the subject matter of the Proposal is not a proper subject for action by the Company's 

shareholders under the laws of the State of New York. Therefore, we believe that the Proposal 

may be omitted from the Company’s proxy statement for its 2015 Annual Meeting pursuant to 

Rule 14a-8(i)(1). 

Conclusion 

On the basis of the forgoing, the Company requests the concurrence of the Staff that the 

Proposal may be excluded from the Company’s proxy materials for the 2015 Annual Meeting, 

or, if the Staff does not concur that the Proposal may be excluded, that it be revised to make it 

precatory rather than mandatory. If you have any questions or would like any additional 

information regarding the foregoing, please do not hesitate to contact me at (202) 416-5870. 

Regards, 

/s/ Frank Zarb 

Frank Zarb 

5 See, e.g., General Electric Co. (Jan. 31, 2007), Enzo Biochem Inc. (Oct. 27, 2006), International Paper Co. (Mar. 

1, 2004). 

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Office of Chief Counsel 

January 28, 2015 

Page 6 

Enclosures 

cc:	 Douglas W. Jamison, Harris & Harris Group, Inc. 

Ronald Lazar 

Anthony Polak 

46693528v6 
Exhibit A 

(see attached) 

46693528v6