Document:

Exhibit 10.5

                         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.

<PAGE>

      (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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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 reasonable 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,
                                                     PresidentExhibit 10.6
                                   TRUST UNDER
                           HARRIS & HARRIS GROUP, INC.
                         DEFERRED COMPENSATION AGREEMENT

      This Trust Agreement made this 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 "Trustee");
WHEREAS, the Company has entered into a deferred compensation agreement (the
"Deferred Compensation Agreement") (attached hereto as Appendix "A") effective
as of October 19, 1999, with Charles E. Harris (the "Executive") pursuant to the
Executive's employment agreement;

      WHEREAS, the Company may incur liability under the terms of the Deferred
Compensation Agreement with respect to the Executive;

      WHEREAS, the Deferred Compensation Agreement contemplates the
establishment of this trust (hereinafter called the "Trust") and the
contribution by the Company to the Trust of amounts that shall be held therein,
in order to assist the Company in meeting its obligations under the Deferred
Compensation Agreement;

      WHEREAS, the assets of this Trust shall be subject to the claims of the
Company's creditors in the event of the Company's Insolvency, as herein defined,
until paid to the Executive (or his beneficiary) in such manner and at such
times as specified in the Deferred Compensation Agreement;

      WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Deferred Compensation Agreement as an unfunded plan maintained for the purpose
of providing deferred compensation for a highly compensated employee for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA");

<PAGE>

      NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

      (1) The Company hereby deposits with the Trustee in trust the sum of
$____________, which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Trust Agreement.

      (2) The Trust hereby established shall be irrevocable, but is subject to
termination in accordance with Section 12 hereof.

      (3) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.

      (4) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the purposes herein set forth. The Executive and his beneficiary shall have
no preferred claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Deferred Compensation Agreement and this
Trust Agreement shall be a mere unsecured contractual right of the Executive and
his beneficiary against the Company. Any assets held by the Trust will be
subject to the claims of the Company's general creditors under federal and state
law in the event that the Company is considered Insolvent, as defined in Section
3(1) herein.

      (5) On the last business day of each month, or otherwise as required
pursuant to the Deferred Compensation Agreement, the Company shall contribute in
cash to the Trustee hereunder an amount equal to the contributions required to

<PAGE>

be made pursuant to the terms of the Deferred Compensation Agreement. The
Trustee shall not have any right or duty to compel such contributions.

Section 2. Payments to Executive and Beneficiary.

      (1) The Trustee shall make payment to the Executive or his beneficiary in
accordance with the directions of the Company. With respect to payments to Trust
Beneficiaries, the Company shall be solely responsible for determining the
amounts of income that are taxable and reportable, determining the nature and
amounts of taxes to be withheld and for withholding, remitting and reporting all
such income and taxes to the applicable government entities. The Trustee shall
have no duties with respect thereto.

      (2) The entitlement of the Executive or his beneficiary to benefits shall
be determined by the Company in accordance with the provisions of the Deferred
Compensation Agreement.

      (3) The Company may make payment of benefits directly to the Executive or
his beneficiary as they become due under the terms of the Deferred Compensation
Agreement. The Company shall notify the Trustee of its decision to make a direct
payment of benefits prior to the time amounts payable to the Executive or his
beneficiary are due. In the event that the Company pays the entire amount due to
the Executive or his beneficiary pursuant to the terms of the Deferred
Compensation Agreement, then the Trustee, upon receipt of a certification from
the Company that such payment has been made, shall return all remaining Trust
assets to the Company.

<PAGE>

Section 3. Trustee Responsibility Regarding Payments When the Company Is
           Insolvent.

      (1) The Trustee shall cease payment to the Executive and his beneficiary
if the Company is Insolvent. The Company shall be considered "Insolvent" for
purpose of this Trust Agreement if (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending procedure as a
debtor under the United States Bankruptcy Code.

      (2) At all times during the continuance of this Trust, as provided in
Section 1(4) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.

            (1) The Board of Directors and the Chief Financial Officer of the
      Company shall have the duty to inform the Trustee in writing of the
      Company's becoming Insolvent. If a person claiming to be a creditor of the
      Company alleges in writing to the Trustee that the Company has become
      Insolvent, the Trustee shall determine whether the Company is Insolvent
      and, pending such determination, the Trustee shall discontinue payment of
      benefits hereunder.

            (2) Unless the Trustee has actual knowledge of the Company's
      becoming Insolvent, or has received notice from the Company or a person
      claiming to be a creditor alleging that the Company is Insolvent, the
      Trustee shall have no duty to inquire whether the Company is Insolvent.
      The Trustee may in all events rely on such evidence concerning the
      Company's solvency as may be furnished to the Trustee and that provides
      the Trustee with a reasonable basis for making a determination concerning
      the Company's solvency.

<PAGE>

            (3) If at any time the Trustee has determined that the Company is
      Insolvent, the Trustee shall discontinue payments to the Executive or his
      beneficiary and shall hold the assets of the Trust for the benefit of the
      Company's general creditors. Nothing in this Trust Agreement shall in any
      way diminish any right of the Executive or his beneficiary to pursue
      rights as a general creditor of the Company with respect to benefits due
      under the Deferred Compensation Agreement or otherwise.

            (4) The Trustee shall resume the payment of benefits to the
      Executive or his beneficiary in accordance with Section 2 of this Trust
      Agreement only after the Trustee has determined that the Company is not
      Insolvent (or is no longer Insolvent).

      (3) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(2) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Executive or his beneficiary under the terms of the Deferred Compensation
Agreement for the period of such discontinuance, less the aggregate amount of
any payments made to the Executive or his beneficiary by the Company in lieu of
the payments provided for hereunder during any such period of discontinuance.

Section 4. Payments to Company.

      Except as provided in Sections 2(3) and 3 hereof, the Company shall have
no right or power to direct the Trustee to return to the Company or to divert to
others any of the Trust assets before all payments of benefits have been made to
the Executive and his beneficiary pursuant to the terms of the Deferred
Compensation Agreement.

<PAGE>

Section 5. Accounts and Investment Authority.

      (1) The Trustee shall determine the manner in which the assets shall be
invested; subject to the investment guidelines established for the Trust by the
Company from time to time. Without limitation of and in addition to the
foregoing, the term "investments" as used in this Section shall include stocks
of all kinds and classes (other than stocks of the Company or any affiliate),
bonds, notes, debentures, savings bank accounts and other interest bearing
deposits (including accounts or deposits in the Trustee's Banking Department),
mortgages and other obligations, insurance contracts and annuities, common trust
funds, shares or participations in any investment company, fund or trust,
including a registered investment company from which the Trustee or its
affiliates received compensation for providing investment advisory, custodial,
transfer agency or other services, and all other property, tangible and
intangible, real, personal and mixed of every kind and nature. The Company
acknowledges that interests in registered investment companies are not bank
deposits and are not insured by, guaranteed by, obligations of, or otherwise
supported by the United States of America, the Federal Deposit Insurance
Corporation, PNC Bank, National Association or any bank or government entity. In
making such investments, the Trustee shall not be restricted by any state law or
statute designating investments eligible for trust funds.

      (2) The Trustee is authorized to hold uninvested, from time to time,
without liability for interest thereon, such amounts as are necessary for the
cash requirements of the Plan; and to hold assets of the Trust in cash or
equivalents, government securities, or straight debt securities in varying
proportions when and for so long as, in the opinion of the Trustee, prevailing
market and economic considerations indicate that it is in the best interest of
the Trust to do so.

<PAGE>

      (3) The Trustee is authorized to cause any securities or other property to
be registered in its own name or in the name of one or more of its nominees or a
nominee or nominees of any national registered securities depository which it
has selected and to hold any investment in bearer or other negotiable form
provided that the books and records of the Trustee at all times show that such
investments are part of the Trust. In compliance herewith, the Trustee may give
to any registrar, transfer agent, or insurer, including but not limited to
corporations, state, or Federal authorities or agents, any bond or other
guarantee which may be required. Any registrar, transfer agent, or insurer shall
be fully protected and saved harmless from any action either at law or in equity
for acting upon or in compliance with the instructions received in writing from
the Trustee.

      (4) The Trustee shall have the power to vote upon any stocks, bonds or
other securities; to give general or special proxies or powers of attorney with
or without power of substitution; to exercise any conversion privileges,
subscription rights, or other options, and to make any payments incidental
thereto; to oppose or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, to delegate
discretionary powers, and to pay any assessments or charges in connection
therewith; and generally to exercise any of the powers of an owner with respect
to stocks, bonds, securities, or other properties held as part of the Trust.

      (5) The Trustee shall have the power to settle, compromise, or submit to
arbitration any claims, debts, or damage due or owing to or from the Trust, to
commence or defend suits or legal or administrative proceedings, and to
represent the Trust in all legal and administrative proceedings, provided,
however, the Trustee shall not be obligated to take any action or to appear and
participate in any action which would subject it to expense or liability unless
it is first indemnified in an amount and manner satisfactory to it, or is
furnished with funds sufficient, in its sole judgment, to cover the same.

<PAGE>

      (6) In addition to the foregoing powers, the Trustee shall have all of the
powers, rights and privileges conferred upon trustees by the fiduciary laws of
the Commonwealth of Pennsylvania to the extent such law is not preempted by
federal law, and the power to do all acts, take all proceedings, and execute all
rights and privileges, although not specifically mentioned herein, as the
Trustee may deem necessary to administer the Trust and to carry out the purposes
of this Trust.

      (7) Notwithstanding anything to the contrary, the Company may reserve to
itself the exclusive authority to direct the Trustee as to the acquisition,
retention or disposition of all or any portion of the assets of the Trust and,
to the extent the Company reserves such authority, the Trustee shall not be
responsible for the management and control of such assets other than to serve as
custodian of them. Upon receipt by the Trustee of a written notice from the
Company advising the Trustee that the Company has reserved such authority, the
Trustee shall, pursuant to such notice, invest all or any portion of the Trust
designated in such notice only in accordance with the instructions of the
Company. The Trustee shall be under no duty to question any instruction of the
Company. Any such instruction may be of a continuing nature or otherwise and may
be changed or revoked in writing by the Company at any time. In the absence of
such a written direction, the Trustee shall have full authority as to the
acquisition, retention or disposition of the assets of the Trust. The Company
may revoke or amend the investment powers that it reserves to itself provided
such revocation or amendment is in writing and is consented to in advance by the
Trustee.

<PAGE>

      (8) In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company or affiliate,
other than a de minimis amount held in common investment vehicles in which the
Trustee invests.

Section 6. Disposition of Income.

      During the term of this Trust, all income received by the Trust, net of
expenses, shall be accumulated and reinvested.

Section 7. Accounting by Trustee.

      The Trustee shall separately keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as may be agreed upon in writing between
the Company and the Trustee. Within 60 days following the close of each calendar
quarter and within 120 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such quarter or during the period from the close of the last
preceding quarter to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it for
the Executive, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust for the Executive at the
end of such quarter or as of the date of such removal or resignation, as the
case may be. The Company may approve the account either by written notice of

<PAGE>

approval delivered to the Trustee or by failure to object in writing to the
Trustee within one hundred and eighty (180) days from the date on which the
account was delivered to the Trustee. Upon receipt of written approval of the
accounting, or upon the expiration of the 180-day period without written
objections, the account shall be approved, and the Trustee shall be released and
discharged with respect to the account as if the account had been settled and
allowed by a decree of a court of competent jurisdiction. Nothing herein
contained, however, shall be deemed to preclude the Trustee of its right to have
its account settled by a court of competent jurisdiction.

Section 8. Responsibility of Trustee.

      (1) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company or the Executive that is
contemplated by, and in conformity with, the terms of the Deferred Compensation
Agreement or this Trust; and provided further, that the Trustee shall incur no
liability to any person for any reasonable action or failure to act taken
pursuant to a reasonable determination of the existence or nonexistence of an
event of Insolvency pursuant to Section 3 hereunder. In the event of a dispute
between the Company and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.

      (2) If the Trustee undertakes, defends or settles any pending or
threatened claim or litigation arising in connection with this Trust, the
Company agrees to indemnify the Trustee against the Trustee's costs, expenses
and liabilities (including, without limitation, attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments. If the Company
does not pay such costs, expenses and liabilities in a reasonably timely manner,
the Trustee may obtain payment from the Trust.

<PAGE>

      (3) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder and shall be fully protected in reasonably relying upon the advice of
counsel.

      (4) Provided there is a prior consultation with the Company, the Trustee
may hire agents, accountants, actuaries, investment advisors, financial
consultants or other professionals to assist it in performing any of its duties
or obligations hereunder.

      (5) The Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein.

      (6) Notwithstanding any power granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code of
1986, as amended.

Section 9. Compensation and Expenses of Trustee.

      The Company shall pay all administrative and Trustee's fees and expenses.
If the Company fails to pay such fees and expenses in a reasonably timely
manner, Trustee may obtain payment from the Trust.

Section 10. Resignation and Removal of Trustee.

      (1) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.

      (2) The Trustee may be removed by the Company on 30 days notice or upon
shorter notice accepted by Trustee.

<PAGE>

      (3) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.

      (4) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (1) or (2) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.

Section 11. Appointment of Successor.

      (1) If the Trustee resigns or is removed in accordance with Section 10(1)
or (2) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.

      (2) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or

<PAGE>

liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.

Section 12. Amendment or Termination.

      (1) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company; provided, however, that no amendment that alters
or impairs the rights of the Executive hereunder may be made without the prior
written consent of the Executive.

      (2) The Trust shall not terminate until the date on which the Executive
and his beneficiary are no longer entitled to benefits pursuant to the terms of
the Deferred Compensation Agreement. Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company.

      (3) Upon written approval of the Executive or his beneficiary entitled to
payment pursuant to the terms of the Deferred Compensation Agreement, the
Company may terminate this Trust prior to the time all benefit payments under
the Deferred Compensation Agreement have been made. All assets in the Trust at
termination shall be returned to the Company.

Section 13. Miscellaneous.

      (1) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.

      (2) Benefits payable to the Executive and his beneficiary under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.

<PAGE>

      (3) This Trust Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania without regard to its
conflict of laws principles.

Section 14. Effective Date.

      The effective date of this Trust Agreement shall be as of February 2,
2000.

      IN WITNESS WHEREOF, the parties hereto have executed the Trust as of the
date first above written.

                                            HARRIS & HARRIS GROUP, Inc.

                                            By:/s/ Mel P. Melsheimer
                                               ---------------------
                                               Mel P. Melsheimer
                                               President

                                            PNC BANK, Trustee

                                            By:/s/ Denise M. Gargan
                                               --------------------------------
                                               Denise M. Gargan, Vice President

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