HARRIS & HARRIS GROUP, INC.
EMPLOYEE PROFIT SHARING PLAN

Effective as of January 1, 2000

Purpose of Plan

The purpose of this Plan is to provide a special incentive for
designated key employees of Harris & Harris Group, Inc., a New York
corporation (the "Company") to increase the future profits of the Company, by
allowing such employees to share in the historical after-tax profits of the
Company as set forth herein.

SECTION 1.

Definitions

As used herein, unless otherwise required by the context, the following
terms shall have these meanings:

"Award" shall mean an award made or due to a Participant pursuant
to the provisions of the Plan.

"Award Percentage" shall mean, with respect to any Participant for
any Plan Year, the percentage established by the Committee for such
Participant for such Plan Year (or, in the case of a Terminating Participant,
for the Plan Year in which the Participant became a Terminating Participant);
provided, however, that the aggregate Award Percentages for all Full
Participants and New Participants for any Plan Year may not exceed 20%. For
the Plan Year beginning January 1, 2000, the Award Percentages shall be as
follows for the following named Participants: Charles E. Harris--13.790%; Mel
P. Melsheimer--4.233%; Rachel M. Pernia--1.524%; Jacqueline M. Matthews--
0.453%. An Award Percentage established for a Plan Year may not be changed
during that Plan Year. Except for the Plan Year commencing January 1, 2000,
the Award Percentages shall be established no later than January 1 of each
Plan Year. In the event that the Award Percentages are not established by
that date, the Award Percentages from the prior Plan Year shall continue to
apply.

"Board" shall mean the board of directors of the Company.

"Cause" shall mean: (1) that an employee has materially failed to
perform the duties and responsibilities of his or her position with the
Company for reasons other than disability or has been insubordinate; (2) that
an employee has violated any securities law or regulation, lost appropriate
required licensing, been convicted of a felony or a crime involving moral
turpitude (regardless of whether involving the Company), or has not complied
to a significant degree with any policy of the Company; or (3) that an
employee has committed any act of fraud, embezzlement, or similar conduct
against the Company or any of its shareholders constituting dishonesty,
intentional breach of fiduciary obligation, or intentional and material
wrongdoing or gross misfeasance or that results in a material economic
detriment to the assets, business, or prospects of the Company or any of its
shareholders. Whether there is Cause for the termination of any person's
employment shall be determined by the chief executive officer or president of
the Company and, with respect to the chief executive officer or president, the
Board.

"Committee" shall mean the Compensation Committee of the Board.

"Fair Market Value" shall mean, with respect to any asset of the
Company, the value thereof most recently determined by the Committee, using
the valuation methodologies set forth in the Company's 10-K or other filings
under the 1940 Act with respect to the determination of the "net asset value"
of the Company's assets, provided, however, that in no event shall this Plan
be interpreted as giving the Committee the power to determine the "net asset
value" of the Company's assets for purposes of the 1940 Act.

"Full Participant" shall mean any Participant who is neither a
Terminating Participant nor a New Participant.

"Net Realized Income" for a Plan Year shall mean the net realized
income of the Company as reflected in the consolidated statement of operations
of the Company for such Plan Year. For greater clarity, such amount shall
include investment income, fee, service, and other income, realized gains and
losses, and operating expenses (including taxes paid or payable by the Company
for such Plan Year), but shall be calculated without regard to dividends paid
or distributions made to shareholders, payments under this Plan, unrealized
gains or losses, and loss carryovers from other years.

"New Participant" shall mean each Participant who begins
participation in the Plan on or after January 1, 2001. A New Participant may
begin participation in the Plan only as of the first day of a Plan Year.

"New Participant Measuring Date" shall mean, with respect to a New
Participant, the last day of the calendar quarter ending on or immediately
prior to the date such person became an employee of the Company.

"1940 Act" shall mean the Investment Company Act of 1940, as
amended.

"Participant" shall mean each person who is or was designated by
the Committee as a participant in the Plan, including each Full Participant,
Terminating Participant, and New Participant.

"Plan" shall mean the Harris & Harris Group, Inc. Employee Profit
Sharing Plan, as amended from time to time.

"Plan Year" shall mean the calendar year.

"Post-Participation Qualifying Income" for any New Participant for
a Plan Year shall mean the Net Realized Income of the Company for such Plan
Year, less the pre-participation nonqualifying gain, if any. With respect to
a New Participant, pre-participation nonqualifying gain is intended to reduce
Net Realized Income by the portion of net after-tax realized gains
attributable to asset values as of such person's New Participant Measuring
Date, and shall be so interpreted. For each New Participant, the pre-
participation nonqualifying gain shall be the aggregate of, with respect to
each portfolio investment position or portion thereof sold or otherwise
disposed of by the Company during the Plan Year (determined on a first-in,
first-out basis): (1) the Fair Market Value as of the respective New
Participant Measuring Date of any such position or portion, minus (2) the sum
of (a) the tax basis of such position or portion as of such date, plus (b) a
portion of the costs of sale or other disposition equal to the ratio of the
excess of (1) above over (2)(a) above, divided by the gain realized by the
Company on the sale or other disposition of such position or portion (ignoring
sale or disposition costs), plus (c) the amount of taxes payable by the
Company for the Plan Year attributable to the excess of (1) above over the sum
of (2)(a) and (b) above, plus (d) an amount equal to the expenses of the
Company for such Plan Year (other than the amount of taxes attributable to
sales or other dispositions of portfolio investment positions or portions
thereof and expenses of such sales or dispositions) multiplied by a fraction
the numerator of which is the excess of (1) above over (2)(a) above and the
denominator of which is the aggregate gross income of the Company for such
Plan Year before expenses and taxes of any sort.

For purposes of this entire definition, any calculation that would
otherwise yield a negative number as the solution to the calculation shall be
deemed to yield an answer of zero.

Solely for purposes of determining the amount of the pre-participation
nonqualifying gain with respect to any New Participant, if the proceeds
received from any sale or other disposition of a portfolio investment position
or portion thereof are less than the Fair Market Value of such position or
portion as of the relevant New Participant Measuring Date, then the Fair
Market Value of such position or portion as of the New Participant Measuring
Date shall be deemed to equal the amount of such proceeds.

In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the pre-participation nonqualifying gain
the aggregate net realized gain, if any, attributable to such sales or
dispositions shall be allocated between or among the gain positions based on
the relative amounts of the gains realized on the gain positions, consistent
with the purpose of this Plan.

"Qualifying Income" shall mean the Net Realized Income of the Company
for such Plan Year, less the nonqualifying gain, if any. Nonqualifying gain
is intended to reduce Net Realized Income by the portion of net after-tax
realized gains attributable to asset values as of September 30, 1997, and
shall be so interpreted. The nonqualifying gain shall be the aggregate of,
with respect to each portfolio investment position or portion thereof sold or
otherwise disposed of by the Company during the Plan Year (determined on a
first-in, first-out basis) and held by the Company on September 30, 1997: (1)
the Fair Market Value as of September 30, 1997 of such position or portion,
minus (2) the sum of (a) the tax basis of such position or portion as of
September 30, 1997, plus (b) a portion of the costs of sale or disposition
equal to the ratio of the excess of (1) over (2)(a) above, divided by the gain
realized by the Company on the sale or other disposition of such position or
portion (ignoring sale or disposition costs), plus (c) the amount of taxes
payable by the Company for the Plan Year attributable to the excess of (1)
above over the sum of (2)(a) and (b) above, plus (d) an amount equal to the
expenses of the Company for such Plan Year (other than the amount of taxes
attributable to sales or other dispositions of portfolio investment positions
or portions thereof and expenses of such sales or dispositions) multiplied by
a fraction the numerator of which is the excess of (1) above over (2)(a) above
and the denominator of which is the aggregate gross income of the Company for
such Plan Year before expenses and taxes of any sort.

For purposes of this entire definition, any calculation (or part
thereof) that would otherwise yield a negative number as the solution to the
calculation (or part) shall be deemed to yield an answer of zero.

For purposes of determining the amount of the nonqualifying gain, if the
proceeds received from any sale or other disposition of a portfolio investment
position or portion thereof are less than the Fair Market Value of such
position or portion as of September 30, 1997, then the Fair Market Value of
such position or portion as of September 30, 1997 shall be deemed to equal
such proceeds.

In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the nonqualifying gain the aggregate net
realized gain, if any, attributable to such sales or dispositions shall be
allocated between or among the gain positions based on the relative amounts of
the gains realized on the gain positions, consistent with the purpose of this
Plan.

"Terminating Participant" shall mean a person whose full
participation in Qualifying Income has been terminated pursuant to this Plan.
Following the action or event in a Plan Year that results in a Participant
becoming a Terminating Participant, the person shall remain a Participant for
that Plan Year and for succeeding Plan Years for purposes of such
Participant's rights to Terminating Qualifying Income. A Terminating
Participant shall cease to be a Participant when all portfolio investments
held by the Company at the time such person became a Terminating Participant
are sold or otherwise disposed of by the Company (determined on a first-in,
first-out basis).

"Terminating Qualifying Income" for any Terminating Participant
for a Plan Year shall mean the Net Realized Income of the Company for such
Plan Year, less the terminating nonqualifying gain, if any. With respect to
any Terminating Participant, terminating nonqualifying gain is intended to
reduce Net Realized Income by the portion of net after-tax realized gains
attributable to increases in asset values after the time such person becomes a
Terminating Participant, as well as by the amount of nonqualifying gain (as
defined in "Qualifying Income"), and shall be so interpreted. For each
Terminating Participant, the terminating nonqualifying gain shall be the
aggregate of:

(1) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis) and held by the Company on
September 30, 1997, (a) (i) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), plus (ii) the excess of the
Fair Market Value of such position or portion as of September 30, 1997 over
the tax basis of such position or portion as of September 30, 1997, minus
(iii) the excess of the Fair Market Value of such position or portion as of
the last day of the quarter ending on or immediately prior to the date such
person became a Terminating Participant over the tax basis of such position or
portion thereof as of such date, minus (b) the sum of (i) a portion of the
costs of sale or other disposition equal to the ratio of (a) above divided by
the gain realized by the Company on the sale or other disposition of such
position or portion (ignoring sale or disposition costs), plus (ii) the amount
of taxes payable by the Company for the Plan Year attributable to the excess
of (a) over (b)(i) above, plus

(2) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis), acquired by the Company after
September 30, 1997, and held by the Company on the date such person became a
Terminating Participant, (a) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), minus the excess of the Fair
Market Value of such position or portion as of the last day of the quarter
ending on or immediately prior to the date such person became a Terminating
Participant over the tax basis of such position or portion as of such date,
minus (b) the sum of (i) a portion of the costs of sale or other disposition
equal to the ratio of (a) above divided by the gain realized by the Company on
the sale or other disposition of such position or portion thereof (ignoring
sale or disposition costs), plus (ii) the amount of taxes payable by the
Company for the Plan Year attributable to the excess of (a) over (b)(i) above,
plus

(3) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis) and acquired by the Company after
the date such person became a Terminating Participant, (a) the gain realized
on such sale or other disposition (ignoring sale or disposition costs), minus
(b) the sum of (i) the costs of sale or other disposition, plus (ii) the
amount of taxes payable by the Company for the Plan Year attributable to such
sale or other disposition, minus

(4) an amount equal to the expenses of the Company for such Plan
Year (other than the amount of taxes attributable to sales or other
dispositions of portfolio investment positions or portions thereof and
expenses of such sales or dispositions) multiplied by a fraction the numerator
of which is the excess of (a) the aggregate net realized gain from the sale or
other disposition of portfolio investment positions or portions thereof
(ignoring sale or disposition costs) over (b) the sum of (1)(a) above, (2)(a)
above, and (3)(a) above and the denominator of which is the aggregate gross
income of the Company for such Plan Year before expenses and taxes of any
sort.

For purposes of this entire definition, any calculation that would
otherwise yield a negative number as the solution to the calculation shall be
deemed to yield an answer of zero.

Solely for purposes of determining the amount of the terminating
nonqualifying gain with respect to any Terminating Participant, (i) if the
proceeds received from any sale or other disposition of a portfolio investment
position or portion thereof are less than the Fair Market Value of such
position or portion as of September 30, 1997, then the Fair Market Value of
such position or portion as of September 30, 1997 shall be deemed to equal the
amount of such proceeds, and (ii) if the proceeds received from any sale or
other disposition of a portfolio investment position or portion thereof are
less than the Fair Market Value of such position or portion as of the last day
of the quarter ending on or immediately prior to the date such person became a
Terminating Participant, then the Fair Market Value of such position or
portion as of the last day of the quarter ending on or immediately prior to
the date such person became a Terminating Participant shall be deemed to equal
the amount of such proceeds.

For purposes of (2) above, in the event the relevant portfolio
investment position or portion thereof was acquired after the last day of the
quarter ending on or immediately prior to the date a person became a
Terminating Participant, the Fair Market Value of such position as of the end
of such quarter shall be the acquisition cost.

In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the terminating nonqualifying gain the
aggregate net realized gain, if any, attributable to such sales or
dispositions shall be allocated between or among the gain positions based on
the relative amounts of the gains realized on the gain positions, consistent
with the purpose of this Plan.

SECTION 2.

Amount of Award; Payment of Award

As soon as practicable following the end of each Plan Year, the
Committee shall determine whether, and if so, how much, Qualifying Income
exists with respect to such Plan Year and whether, and if so, how much,
Terminating Qualifying Income or Post-Participation Qualifying Income exists
with respect to any Terminating Participant or New Participant. The Committee
shall make a provisional determination, based on accruals provided by
management, within 45 days after the end of each Plan Year.

Not later than 60 days after the end of each Plan Year the Company shall
pay (1) to each Full Participant an Award in an amount equal to the product of
(a) 90% of the estimated Qualifying Income for such Plan Year, multiplied by
(b) such Full Participant's Award Percentage, (2) to each Terminating
Participant an Award in an amount equal to the product of (a) 90% of the
estimated Terminating Qualifying Income for such Terminating Participant for
such Plan Year, multiplied by (b) such Terminating Participant's Award
Percentage, and (3) to each New Participant an Award in an amount equal to the
product of (a) 90% of the estimated Post-Participation Qualifying Income for
such New Participant for such Plan Year, multiplied by (b) such New
Participant's Award Percentage. Not later than 45 days after the filing of
the Company's federal income tax return, the Committee shall finalize the
foregoing determinations and pay to the Participants any remaining Award
amounts owed to the Participants, determined under principles consistent with
the preceding sentence. In the event that any portion of the maximum amount
payable under this Plan for a Plan Year is not required to be paid pursuant to
the foregoing provisions (because a Participant has become a Terminating
Participant or has been terminated for Cause or because of the participation
in the Plan of New Participants), the remaining portion of such maximum amount
shall be paid to the eligible Participants (other than (1) any Terminating
Participants or (2) any New Participants who have participated in the Plan for
less than three years) based on their relative Award Percentages, provided,
however, that the aggregate amount payable to all Participants for a Plan Year
shall not exceed 20% of the Qualifying Income for the Plan Year. In the event
that the aggregate amount of all Awards payable for any Plan Year shall be
greater than 20% of the Qualifying Income for such Plan Year (a "Plan
prohibited payment"), each Participant's Award for such Plan Year shall be
reduced, pro-rata, by the minimum amount necessary to allow the aggregate
Awards for such Plan Year not to constitute a Plan prohibited payment. If
such a reduction is necessary, each Participant shall unconditionally forfeit
the amount of any reduction made pursuant to this paragraph.

Upon the termination of employment of any Full Participant or New
Participant for any reason other than termination by the Company for Cause,
such Full Participant or New Participant shall become a Terminating
Participant. In the event a New Participant becomes a Terminating
Participant, the definition of Terminating Qualifying Income shall be modified
by substituting such Participant's New Participant Measuring Date for
September 30, 1997, wherever the latter date appears in such definition. That
substitution is intended to ensure that such a Terminating Participant does
not share in any net after-tax realized gains attributable to asset values as
of such person's New Participant Measuring Date, and the provisions of this
Plan shall be so interpreted. If the employment of any Participant is
terminated for Cause, such former employee shall cease to be a Participant and
any Awards not yet paid to or earned by such person shall automatically be
forfeited.

Notwithstanding any other provision of the Plan, in no event shall the
aggregate amount of all Awards payable for any Plan Year during which the
Company remains a "business development company" within the meaning of the
1940 Act be greater than the maximum percentage of the Company's "net income
after taxes" (within the meaning of Section 57(n)(1)(B) of the 1940 Act or any
successor provision thereto) permitted to be paid as profit sharing under the
1940 Act or other applicable law. In the event that any portion of any Award
may not be paid pursuant to the limitation set forth in the preceding sentence
(a "1940 Act prohibited payment"), each Participant's Award for such Plan Year
shall be reduced, pro-rata, by the minimum amount necessary to allow the
aggregate Awards for such Plan Year not to constitute a 1940 Act prohibited
payment. If such a reduction is necessary, each Participant shall
unconditionally forfeit the amount of any reduction made pursuant to this
paragraph.

Further, notwithstanding any provision of this Plan to the contrary, in
the case of any Participant for any Plan Year, no Award of more than the
excess of $1,000,000 over the amount of other compensation paid by the Company
to such Participant for such Plan Year (after any Award reduction described in
this Section 2) shall be paid unless and until the shareholders of the Company
have approved the making of such Awards pursuant to the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended.

SECTION 3.

Administration

The Plan shall be administered by the Committee with decisions taken in
accordance with its normal procedures. Members of the Committee shall not be
liable for any acts or omissions to act in the administration of the Plan.

A secretary selected by the Committee shall keep full and accurate
minutes of all meetings and records of the actions of the Committee, and these
minutes and records shall be at all times open to inspection by the members of
the Board. The secretary shall periodically transmit to the Board certified
copies of any statements or schedules prepared in connection with the
administration of the Plan.

SECTION 4.

Amendment, Termination or Modification of the Plan

The Plan at any time and for any reason may be modified, amended, or
terminated by the Committee (subject to the approval of the Board); provided,
however, that no such amendment, modification, or termination of the Plan
shall adversely affect the Award rights of any Participant for or during such
Plan Year (or any subsequent Plan Year) unless such Participant has consented
in writing to such action. Nothing in this Plan shall preclude the Committee
from, for any Plan Year subsequent to the current Plan Year, naming additional
Participants in the Plan or changing the Award Percentage of any Full
Participant or New Participant (subject to the overall percentage limitations
contained herein).

SECTION 5.

General Provisions

Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan
shall be subject to all applicable federal and state laws, rules, and
regulations, and to such approvals by any regulatory or governmental agency as
may be required.

Nontransferability. Awards not yet earned shall not be transferable or
subject to assignment or alienation under any circumstances. Awards earned
but not yet paid shall not be transferable by a Participant except by will or
the laws of descent and distribution.

No Right to Continued Employment. Nothing in the Plan or in any Award
granted or other agreement entered into pursuant hereto shall confer upon any
Participant the right to continue in the employ of the Company or to be
entitled to any remuneration or benefits not set forth in the Plan or other
agreement or to interfere with or limit in any way the right of the Company to
terminate such Participant's employment.

Withholding Taxes. Where a Participant or other person is entitled to
receive a cash payment pursuant to an Award hereunder, the Company shall have
the right to withhold any taxes or to require the Participant or such other
person to pay to the Company the amount of any taxes that the Company may be
required to withhold before delivery to such Participant or other person of
such payment.

Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.

Governing Law. The Plan and all determinations made and actions taken
pursuant hereto to the extent not governed by federal law shall be governed by
the laws of the State of New York without giving effect to the conflict of
laws principles thereof.

Effective Date. The Plan shall be effective as of January 1, 2000.

Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the Participant's
beneficiary.