HARRIS & HARRIS GROUP, INC. 2006 EQUITY INCENTIVE PLAN FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT

HARRIS & HARRIS GROUP, INC.

2006 EQUITY INCENTIVE PLAN

FORM OF

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), dated as of ____________, 20__, is made between Harris & Harris Group, Inc., a corporation organized under the laws of the State of New York (the "Company"), and _________________ (the "Optionee").

WHEREAS, the Company has adopted the Harris & Harris Group, Inc., 2006 Equity Incentive Plan (the "Plan"), pursuant to which options may be granted to purchase Stock;

WHEREAS, the Company desires to grant to the Optionee a non-qualified stock option (or "NQSO") to purchase the number of shares of Stock provided for herein;

NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:

Section 1.               Grant of Option

(a)            Grant of Option .  The Company hereby grants to the Optionee an Option to purchase ______ shares of Stock on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.  The Option is not intended to be treated, and shall not be construed, as an ISO.

(b)            Incorporation of Plan.   The provisions of the Plan are hereby incorporated herein by reference.  Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.  The Board shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon the Optionee and his/her legal representative in respect of any questions arising under the Plan or this Agreement.  To the extent that the Committee has been given the authority to administer and interpret the Plan, the Committee shall also have all of the authority otherwise granted to the Board under this Agreement.

Section 2.               Terms and Conditions of Option

(a)            Exercise Price .  The price at which the Optionee shall be entitled to purchase shares of Stock upon the exercise of all or any portion of the Option shall be $______ per share.

(b)            Expiration Date. The Option shall expire at the close of business on the ______ anniversary of the date of this Agreement.

 (c)            Exercisability of Option.   Subject to the other terms of this Agreement regarding the exercisability of the Option, the Option shall vest and become exercisable in accordance with the schedule set forth below for the cumulative percentages of Stock subject to the Option set forth below; provided, however, that the Option shall become fully vested and exercisable (1) when the market price of the shares of Stock reaches $_____ per share at the close of business on three consecutive trading days on the Nasdaq Global Market, or (2) when the Board of Directors accepts an offer for the sale of substantially all of the Company’s assets; and provided, further, that the Optionee is employed by the Company as of each such date:

The Board may, but shall not be required to, provide at any time for the acceleration of the schedule set forth above.

(d)            Method of Exercise.   The Option may be exercised only by written notice in such form as the Company may adopt from time to time, delivered in person or by mail in accordance with Section 3(a) and accompanied by payment therefor or pursuant to such other procedure as the Company may adopt from time to time.  The purchase price of the shares of Stock shall be paid to the Company (i) in cash or its equivalent, (ii) to the extent permitted by law, by a "broker cashless exercise" procedure approved by the Board, or (iii) by a combination of the foregoing methods.  If requested by the Board, the Optionee shall deliver this Agreement evidencing the Option to the Chief Compliance Officer of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee.  A minimum of 100 shares of Stock must be purchased upon the exercise of the Option unless a lesser number of shares of Stock so purchased constitutes the total number of shares of Stock then purchasable under the Option.

(e)            Exercise Following Termination of Employment.   Subject to Section 2(g), in the event that the Optionee ceases to be employed by the Company, that portion of the Option that is not then exercisable shall immediately terminate and that portion of the Option that is exercisable at the time of the Optionee's termination of employment with the Company shall terminate as follows: