SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 1997
Commission file number: 0-18188
PAULSON CAPITAL CORP.
----------------------------------------------------
Exact name of registrant as specified in its charter
Oregon 93-0589534
------------------------ --------------------------------
(State of incorporation) (I.R.S. Employer Identification)
811 S.W. Front Avenue
Portland, OR 97204
------------------------ --------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (503) 243-6000
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes ___ No _X_
Number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1997:
Common stock, no par value - 3,973,770 shares
Transitional Small Business Disclosure Format Yes ___ No _X_
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(unaudited)
6/30/97 12/31/96
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 76,921 185,445
Receivable from broker-dealers and
clearing organizations 2,948,393 5,035,144
Notes and other receivables 227,192 182,859
Trading securities 5,945,006 5,152,783
Investment securities 3,487,248 4,789,270
Refundable income taxes 801,292 412,261
Prepaid and deferred expenses 364,052 160,121
Secured demand note 100,000 100,000
Deferred income taxes 112,000 112,000
---------- ----------
Total current assets 14,062,104 16,129,883
---------- ----------
FURNITURE AND EQUIPMENT, net 150,583 150,925
---------- ----------
DEFERRED INCOME TAXES 10,400 10,400
---------- ----------
$14,223,087 $16,291,208
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - CONTINUED
(unaudited)
6/30/97 12/31/96
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 804,884 $ 380,707
Payable to broker-dealers and clearing
organizations 397,621 3,690,844
Compensation, employee benefits and
payroll taxes 1,292,992 1,940,422
Securities sold, not yet purchased 874,958 280,688
Income taxes payable -- --
Subordinated note payable 100,000 100,000
---------- -----------
Total current liabilities 3,470,455 6,392,661
---------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized, 500,000 shares; issued and
outstanding, no shares -- --
Common stock, no par value; authorized,
10,000,000 shares; issued and
outstanding, 3,920,700 and
4,081,241, respectively 738,225 733,701
Retained earnings 10,014,407 9,164,846
---------- -----------
10,752,632 9,898,547
---------- -----------
$14,223,087 $ 16,291,208
========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six month periods ended
June 30, 1997 and June 30, 1996 (unaudited)
Three months ended Six months ended
6/30/97 6/30/96 6/30/97 6/30/96
<S> <C> <C> <C> <C>
Revenues
Commissions $ 2,748,611 $ 3,537,386 $ 5,208,165 $ 6,655,517
Corporate finance 548,975 485,229 848,384 1,748,208
Investment income 760,055 4,561,110 2,248,253 5,285,299
Trading income (loss) 381,547 485,388 618,797 828,295
Interest and dividends 1,331 1,382 2,740 3,472
Other 7,432 4,949 16,456 8,664
---------- ---------- ---------- -----------
4,447,951 9,075,444 8,942,795 14,529,455
---------- ---------- ---------- -----------
Expenses
Commissions and salaries 2,616,310 3,580,438 4,983,360 6,724,045
Underwriting expenses 131,742 19,666 145,575 324,226
Rent, telephone and
quotation services 189,000 234,343 383,642 412,091
Interest expense 1,464 1,859 2,996 3,957
Professional fees 176,325 126,763 318,232 221,500
Bad debt expense 29,513 47,109 58,513 91,998
Travel and entertainment 40,701 43,324 79,988 71,472
Settlements 7,000 50,000 7,000 69,625
Other 280,026 247,089 669,060 513,735
---------- ---------- ---------- -----------
3,472,081 4,350,591 6,648,366 8,432,649
Earnings (loss) before income taxes
975,870 4,724,853 2,294,429 6,096,806
Provision for income taxes
Current 392,500 1,889,900 920,000 2,438,700
Deferred -- -- -- --
Net Earnings (Loss) $ 583,370 $ 2,834,953 $ 1,374,429 $ 3,658,106
========== ========== ========== ===========
Earnings (loss) per share $ 0.15 $ 0.66 $ 0.35 $ 0.85
========== ========== ========== ===========
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three year period ended December 31, 1996
and the six months ended June 30, 1997 (unaudited)
Common Stock
------------------------------------------- Retained
Shares Amount Earnings
------------------ ----------------- -----------------
<S> <C> <C> <C>
Balance at December 31, 1993 4,448,541 $ 867,073 $ 2,305,505
Issuance of common stock in lieu
of directors' cash compensation 21,960 16,500 -
Redemption of common stock (107,000) (107,843) -
Net loss for the year - - (1,080,462)
---------- ------------ ------------
Balance at December 31, 1994 4,363,501 775,730 1,225,043
Issuance of common stock in lieu
of directors' cash compensation 10,338 10,500 -
Redemption of common stock (49,300) (50,341)
Net earnings for the year - - 2,925,033
---------- ------------ ------------
Balance at December 31, 1995 4,324,539 735,889 4,150,076
Exercise of stock options 38,570 40,892 -
Issuance of common stock in lieu
of directors' cash compensation 3,432 7,500 -
Redemption of common stock (285,300) (50,580) (712,432)
Net earnings for the year - - 5,727,202
---------- ------------ ------------
Balance at December 31, 1996 4,081,241 $ 733,701 $ 9,164,846
Exercise of stock options 38,570 40,892 -
Redemption of common stock (199,111) (36,368) (524,868)
Net earnings for the year to date - - 1,374,429
---------- ------------ ------------
Balance at June 30, 1997 3,920,700 $ 738,225 $ 10,014,407
========== ============ ============
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAULSON CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the six month periods ended June 30, 1997 and June 30, 1996
6/30/97 6/30/96
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings (loss) $ 1,374,429 $ 3,658,106
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities
Unrealized (appreciation) depreciation
on investment securities (165,909) 111,355
Realized gain on investment securities (2,115,407) (5,396,654)
Depreciation and amortization 28,937 26,040
Gain from sale of furniture and equipment (6,799) --
Change in assets and liabilities
Receivables 2,042,418 779,124
Trading securities (792,223) (4,787,266)
Refundable income taxes (389,031) 157,138
Prepaid and deferred expenses (203,931) 201,042
Accounts payable and accrued liabilities (3,516,476) (766,673)
Securities sold, not yet purchased 594,270 248,369
Bank overdraft -- --
Income taxes payable -- 1,319,560
----------- -----------
Net cash provided by (used in) operating activities (3,149,722) (4,449,859)
----------- -----------
Cash flows from investing activities
Purchases of investment securities (7,161,322) (9,434,245)
Proceeds from sale of investment securities 10,744,660 13,925,231
Additions to furniture and equipment (31,396) (41,117)
Proceeds from sale of furniture and equipment 9,600 -
----------- -----------
Net cash provided by (used in) investing activities $ 3,561,542 $ 4,449,869
----------- -----------
The accompanying notes are an integral part of these statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - CONTINUED
6/30/97 6/30/96
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Proceeds from exercise of stock options 40,892 27,946
Payments to retire common stock (561,236) (28,800)
Decrease in bank overdraft payable - -
----------- -----------
Net cash provided by (used in) financing activities (520,344) (854)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (108,524) (844)
Cash and cash equivalents at beginning of year 185,445 174,029
----------- -----------
Cash and cash equivalents at June 30 $ 76,921 $ 173,185
=========== ===========
Cash paid during the six months for
Interest $ 1,464 $ 3,957
=========== ===========
Income taxes $ 1,313,130 $ 937,102
=========== ===========
The accompanying notes are an integral part of these statements
</TABLE>
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for interim financial statements in
Article 10 of Regulation S-X and, therefore, do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the interim financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary to state fairly the information shown therein. The nature of
the Company's business is such that the results of any interim period are not
necessarily indicative of results for a full fiscal year.
2. Securities Owned
Any losses from the disposition of securities are reflected in trading
revenues on the income statement for the period.
3. Commitments and Contingencies
The Company and PIC are defendants in Holly Millar v. Pearce Systems
International, Inc., et al., filed in San Francisco Superior Court, State of
California, in March 1996. An asserted class action, plaintiff alleges
violations of the California securities law, deceit, negligent misrepresentation
and unfair business practices relating to alleged misstatements in the
prospectus used in connection with a February 1994 public offering in which PIC
acted as the managing underwriter. The offering consisted of 675,000 units at a
price of $7.25 per unit. Plaintiff seeks rescission of the offering as well as
actual damages, interest, attorney fees and punitive damages. No class has been
certified, although a motion for class certification is pending. The case is
expected to be set for trial June 22, 1998. Discovery in this matter is still in
the early stages. Therefore, the Company and PIC have not had an opportunity to
investigate this matter fully but believe they have meritorious defenses and
intend to defend this matter vigorously. Pursuant to a tolling agreement with
the plaintiff, the Company (but not PIC) expects to be dismissed without
prejudice from the lawsuit.
PIC has been named as a respondent in Smith Benton & Hughes, Inc. v.
Paulson Investment Co., Inc., an NASD arbitration proceeding served on PIC in
February 1996. Claimant, an NASD broker-dealer, alleges that PIC was negligent
in supervising one of PIC's brokers who maintained a securities account with
claimant. Claimant alleges that the former PIC broker engaged in various acts of
fraud, misrepresentation, violation of federal securities laws and breach of
contract, and seeks in excess of $104,000 in compensatory damages, attorney
fees,
8
<PAGE>
and interest against PIC. An arbitration hearing is set for September 16, 1997.
PIC believes it has meritorious defenses and intends to defend this matter
vigorously.
Richard Toscano Claim In November 1996, Richard Toscano, a former PIC
customer, asserted claims against PIC and Jeff Hudson, a former PIC broker,
alleging various securities law violations, including unsuitability and
misrepresentation, in connection with his account with PIC. He has also alleged
that PIC failed to supervise Mr. Hudson. Mr. Toscano has demanded an amount in
excess of $130,000 plus interest in order to settle this matter. At this time,
no arbitration claim has been filed. PIC has not had an opportunity to fully
investigate this claim, but intends to defend this matter vigorously if an
arbitration claim is filed.
Philip Cutler Claim In March 1996, Philip Cutler, a former PIC customer,
asserted various claims against Todd Bollman, a former PIC broker, and PIC
alleging unsuitability and churning in his account with PIC. Mr. Cutler has
indicated that his losses approach $90,000, not including commissions. PIC has
indicated to Mr. Cutler that it believes he is an experienced, sophisticated
investor who spoke regularly with Mr. Bollman and was well informed with respect
to the risks involved in the trading that he selected in his account. Although
Mr. Cutler indicated that he would seek arbitration, no arbitration has been
filed at this time. PIC has not had an opportunity to fully investigate this
matter, but believes it has meritorious defenses and intends to defend this
matter vigorously if an arbitration claim is filed.
Employment Claim by Jack Alexander. A claim was filed in state court in
California in May 1996 against PIC by Jack Alexander, who performed services for
PIC in California between 1991 and 1995. Plaintiff alleges age discrimination,
wrongful termination, breach of employment contract and breach of a covenant of
good faith and fair dealing. The suit seeks compensatory and punitive damages,
interest and attorney fees, but no specific amounts are plead in the complaint.
Plaintiff filed a complaint with the California Department of Fair Employment
and Housing in October 1995 on the same issues and previously indicated that, in
any litigation, he would request damages of $1,218,000 plus attorney fees and
punitive damages. In July 1996, PIC caused the case to be moved to the Federal
District Court for the Southern District of California. The case has been stayed
pending NASD arbitration initiated by PIC. PIC denies Mr. Alexander's claims,
believes they are unfounded, and intends to vigorously defend the action.
An adverse outcome in certain of the matters described above could have a
material adverse effect on PIC or the Company. PIC has been named in certain
other legal proceedings and has received notice that certain customers may
commence legal proceedings against PIC. The Company believes, based upon
information received to date and, where the Company believes it appropriate,
discussions with legal counsel, that resolution of this additional pending or
threatened litigation will have no material adverse effect on the consolidated
financial condition, results of operations, or business of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996
Results of Operations
The revenues and operating results of the Company's operating subsidiary,
Paulson Investment Company, Inc. ("PIC"), are influenced by fluctuations in the
equity underwriting markets as well as general economic and market conditions,
particularly conditions in the over-the-counter market, where PIC's investment
account, trading inventory positions and underwriter warrants are heavily
concentrated. Significant fluctuations can occur in PIC's revenues and operating
results from one period to another. PIC's operations depend upon many factors,
such as the number of companies that are seeking public financing, the quality
and financial condition of those companies, market conditions in general, the
performance of previous PIC underwritings and interest in certain industries by
investors. As a result, revenues and income derived from these activities may
vary significantly from period to period. In the table below, "Trading Income"
is the net gain or loss from trading positions before commissions paid to the
representatives in the trading department. "Investment Income" includes amounts
received, if any, from the exercise of PIC's underwriter warrants.
<TABLE>
<CAPTION>
Summary of Changes in Major Categories
of Revenues and Expenses
Quarter Ended June 30 Six Months Ended June 30
1997 vs. 1996 1997 vs. 1996
<S> <C> <C> <C> <C>
Revenues:
Sales Commissions $ (788,775) (22.3 %) $ (1,447,352) (21.8 %)
Corporate Finance 63,746 13.1 %) (899,824) (51.5 %)
Investment Income (3,801,055) (83.3 %) (3,037,046) (57.5 %)
Trading Income (103,841) (21.4 %) (209,498) (25.3 %)
Other 2,432 38.4 % 7,060 58.2 %
----------- ------- ------------ ------
Total $(4,627,493) (51.0 %) $ (5,586,660) (38.4 %)
Expenses:
Commissions and Salaries $ (964,128) (26.9 %) $ (1,740,685) (25.9 %)
Underwriting Expenses 112,076 N/M (178,651) (55.1 %)
Rent, Telephone and Quotes (45,343) (19.4 %) (28,449) (6.9 %)
Other 18,885 3.7 % 163,502 16.8 %
----------- ------- ------------ ------
Total $ (878,510) (20.2 %) $ (1,784,283) (21.2 %)
Pretax Income $(3,748,983) (79.4 %) $ (3,802,377) (62.3 %)
</TABLE>
10
<PAGE>
Total revenues for the second quarter of 1997 fell 51.0 percent from the
second quarter of 1996, from $9,075,444 to $4,447,951. As shown in the table
above, sales commissions fell $788,775, or 22.3 percent, from $3,537,386 in the
second quarter of 1996 to $2,748,611 in the comparable 1997 period. This
decrease resulted primarily from the less favorable price movements and trading
levels in smaller capitalization issues in the 1997 quarter, compared to more
favorable levels in 1996. The Nasdaq Industrial Average rose more in the second
quarter of 1997 than in the second quarter of 1996, but in the 1996 quarter,
very active trading in two companies for which PIC had completed public
offerings raised commission and trading activity levels. Corporate finance
revenues rose 13.1 percent, or $63,746, in the second quarter of 1997 compared
to the second quarter of 1996. One corporate finance transaction was completed
in the 1997 quarter in which PIC acted as the managing underwriter, raising a
total of $ 20.70 million for the issuer; no transactions were completed in the
1996 quarter. Investment income fell $3,801,055, or 83.3 percent, from
$4,561,110 in the second quarter of 1996 to $760,055 in the second quarter of
1997, primarily due to the exercise in the 1996 quarter of an underwriter
warrant received in a previous corporate finance transaction and substantial
realized gains on positions in the investment account compared to smaller
realized gains on positions in the investment account and no underwriter warrant
exercises in the 1997 quarter. Trading income fell $103,841, or 21.4 percent, to
$381,547 in the second quarter of 1997 from $485,388 in the comparable 1996
period. This decrease was also due to the very active trading in two corporate
finance client company stocks in 1996.
Total expenses fell $878,510 in the second quarter of 1997 from the
comparable 1996 period, a decrease of 20.2 percent, from $4,350,591 to
$3,472,081. Commissions and salaries fell $964,128, or 26.9 percent, from
$3,580,438 in the 1996 period to $2,616,310 in 1997. This decrease was primarily
due to decreased commission revenues resulting in a lower level of commissions
paid. (Higher percentage commission levels are generally paid to employee
registered representatives at higher production levels.) Underwriting expenses
increased by $112,076 due primarily to the corporate finance transaction
completed in the 1997 quarter; no transactions were completed in the 1996
quarter. Rent, telephone and quote expenses decreased from $243,343 in the 1996
period to $189,000 in 1997, a decrease of 19.4 percent, primarily due to
increased overhead reimbursements from independent contractor representatives.
Other expenses increased 3.7 percent, from $516,144 in the second quarter of
1996 to $535,029 in the second quarter of 1997.
The Company had a pretax profit of $975,870 in the second quarter of 1997
compared to a pretax profit of $4,724,853 in the comparable 1996 period. The
biggest factor in this decline was the decrease in investment income in the 1997
quarter, which added to declines in PIC's general securities and trading
activities. Significant fluctuations can occur in PIC's revenues and operating
results from one period to another.
The Company also accrued $392,500 in income taxes for the second quarter of
1997, compared to an accrual for income taxes in the second quarter of 1996 of
$1,889,900.
11
<PAGE>
Independent of investment income, the Company would have had a profit before
income taxes of $215,815 in the second quarter of 1997 compared to a profit
before income taxes of $163,743 in the second quarter of 1996.
Liquidity and Capital Resources
The majority of PIC's assets are cash and assets readily convertible to
cash. PIC's securities inventory is stated at market value. The liquidity of the
market for many of PIC's securities holdings, however, varies with trends in the
stock market. Since many of the securities held by PIC are thinly traded, and
PIC is in many cases a primary market maker in the issues held, any significant
sales of PIC's positions could adversely affect the liquidity of the issues
held. In general, falling prices in OTC securities (which make up most of PIC's
trading positions) lead to decreased liquidity in the market for these issues,
while rising prices in OTC issues tend to increase the liquidity of the market
for these securities. The overall increase in prices for the OTC securities
traded by PIC in 1995, 1996 and so far 1997 was combined with a general increase
in the liquidity of the markets for these securities. The decline in prices for
the OTC securities traded by PIC in 1994 was combined with a general decrease in
the liquidity of the markets for these securities. PIC's investment account and
trading inventory accounts are stated at fair market value, which is at or below
quoted market price.
PIC owed $100,000 at June 30, 1997 pursuant to a subordinated loan from an
investor. PIC also borrows money from its clearing firm in the ordinary course
of its business, pursuant to an understanding under which the clearing firm
agrees to finance PIC's trading accounts. As of June 30, 1997, no net loans were
outstanding pursuant to this arrangement. PIC and the Company are generally able
to meet their compensation and other obligations out of current liquid assets.
Another source of capital to PIC and the Company has been the exercise of
underwriter warrants issued to PIC in connection with its corporate finance
activities and the sale of the underlying securities. These warrants are not
reflected on the balance sheet of PIC or Paulson Capital. While the warrants and
the securities issuable upon exercise of the warrants are not immediately
saleable, PIC receives the right to require the issuer to register the
underlying securities for resale to the public. Profits, if any, from the
warrants are realized based upon the difference between the market price and the
exercise price on the date of exercise. Further profits or losses are
subsequently realized when the underlying securities are sold. Profits and
losses realized from the warrants are recorded as "Investment Income." There is
no public market for the underwriter warrants. The securities receivable upon
exercise of the underwriter warrants cannot be resold unless the issuer has
registered these securities with the SEC and the states in which the securities
will be sold or exemptions are available. Any delay or other problem in the
registration of these securities would have an adverse impact upon PIC's ability
to obtain funds from the exercise of the underwriter warrants and the resale of
the underlying securities. At June 30, 1997, PIC owned 31 underwriter warrants
(from 30 issuers), of which 25
12
<PAGE>
were currently exercisable and nine had an exercise price below the current
market price of the securities receivable upon exercise. The value of the firm's
underwriter warrants depends on the prices of the underlying securities. These
prices are influenced by general movements in the prices of OTC securities as
well as the success of the issuers of the underwriter warrants.
In the six months ended June 30, 1997, $3,149,722 of net cash was used in
operating activities of the Company. The major adjustments to reconcile this
result to the Company's net profit included a decrease in accounts payable and
accrued liabilities of $3,516,476, a realized gain on investment securities of
$2,115,407, an increase in trading securities of $792,223, an increase in
refundable income taxes of $389,031, an increase in prepaid and deferred
expenses of $203,931 and unrealized appreciation on investment securities of
$165,909, partially offset by a decrease in receivables of $2,042,418 and an
increase in securities sold but not yet purchased of $594,270. In the first six
months of 1997, $3,561,542 of net cash was provided to the Company from
investing activities, primarily resulting from $10,744,660 of proceeds from the
sale of short-term investment securities more than offsetting the purchase of
$7,161,322 of short-term investment securities. In the first six months of 1997,
$520,344 of net cash was used in financing activities, consisting of $561,236
used to retire common stock partially offset by $40,892 in proceeds from the
exercise of stock options. The net decrease in cash and cash equivalents for the
period totaled $108,524. See "Financial Statements -- Consolidated Statements of
Cash Flows."
As a securities broker-dealer, the Company's wholly owned subsidiary, PIC,
is required by SEC regulations to meet certain liquidity and capital standards.
At June 30, 1997, the Company had no material commitments for capital
expenditures.
In general, the primary ongoing sources of PIC's, and therefore the
Company's, liquidity, including PIC's trading positions, borrowings on those
positions and profits realized upon the exercise of underwriter warrants, all
depend in large part on the trend in the general markets for OTC securities.
Rising OTC price levels will tend to increase the value and liquidity of PIC's
trading positions, the amount that can be borrowed from its clearing firm based
upon those positions, and the value of PIC's underwriter warrants. The Company
believes its liquidity is sufficient to meet its needs for the foreseeable
future.
Inflation
Because PIC's assets are primarily liquid, they are not significantly
affected by inflation. The rate of inflation affects PIC's expenses, such as
employee compensation, office leasing and communications costs. These costs may
not readily be recoverable in the price of services offered by the Company. To
the extent inflation results in rising interest rates and has other adverse
effects in the securities markets and the value of securities held in inventory
or PIC's investment account, it may adversely affect the Company's financial
position and results of operations.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 3 of Notes to Condensed Consolidated Financial Statements
in Item 1.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting on June 12, 1997. The three existing
Company directors (Chester L.F. Paulson, Jacqueline M. Paulson and Kenneth T.
LaMear) were elected for additional one year terms. In addition, the Company's
shareholders approved a proposal to authorize an amendment to the articles of
incorporation of the Company to effect a 1-for-4 reverse split of the Common
Stock of the Company upon the occurrence of certain events, with 3,099,427
shares voting for the proposal, 15,750 shares voting against the proposal, with
4,100 votes abstaining. Under the proposal, the Company's directors are
authorized to effect the reverse split if the closing bid of the Company's
common stock falls below $1.00 and the directors determine that the reverse
split is in the best interests of the Company's shareholders. The purpose of the
proposal was to enable the Company to maintain a listing for the Company's
common stock on the Nasdaq System.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.4 Office Lease renewal for the period from 6/1/97 to 5/31/02,
dated as of May 6, 1997
27 Financial Data Schedule
Reports on Form 8-K:
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAULSON CAPITAL CORP.
Date: AUGUST 5, 1997 By: CHESTER L.F. PAULSON
--------------------- -------------------------------------
Chester L.F. Paulson
President
Date: AUGUST 6, 1997 By: CAROL RICE
--------------------- -------------------------------------
Carol Rice
Principal Accounting Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
------- ----------- --------
10.4 Office Lease renewal for the period from 6/1/97 to
5/31/02, dated as of May 6, 1997
27 Financial Data Schedule
16
OFFICE LEASE
This lease, made and entered into at Portland, Oregon, this 6th day of May,
1997 by and between:
LANDLORD: Trustees of The Oregon-Washington Carpenters-Employers Pension
Trust Fund and Trustees of The Oregon Laborers-Employers
Pension Trust Fund
AND
TENANT: Paulson Investment Company
Landlord hereby leases to Tenant the following:
The entire second and third floors (the Premises)
in The Paulson Capital Building (the Building)
at 811 SW Front Avenue, Portland, Oregon, containing approximately 17,136
rentable square feet
Tenant's Proportion Share for purposes of Section 19 shall be 40 percent.
This lease is for a term commencing June 1, 1997 and continuing through May
31, 2002 at a Monthly Base Rental as follows:
Month 1 - $0.00
Month 2-60 - $22,848.00
Rent is payable in advance on the first day of each month commencing
July , 1997.
Landlord and Tenant covenant and agree as follows:
1.1 Delivery of Possession.
Should Landlord be unable to deliver possession of the Premises on the date
fixed for the commencement of the term, commencement will be deferred and Tenant
shall owe no rent until notice from Landlord tendering possession to Tenant. If
possession is not so tendered within 90 days following commencement of the term,
then Tenant may elect to cancel this lease by notice to Landlord within 10 days
following expiration of the 90-day
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period. Landlord shall have no liability to Tenant for delay in delivering
possession, nor shall such delay extend the term of this lease in any manner
unless the parties execute a written extension agreement. Tenant is in
possession of premises as of lease commencement.
2.1 Rent Payment.
Tenant shall pay the Base Rent for the Premises and any additional rent
provided herein without deduction or offset. Rent or any partial month during
the lease term shall be prorated to reflect the number of days during the month
that Tenant occupies the Premises. Additional rent means amounts determined
under Section 19 of this lease and any other sums payable by Tenant to Landlord
under this lease. Rent not paid when due shall bear interest at the rate of
one-and-one-half percent per month until paid. Landlord may at its option impose
a late charge of $.05 for each $1 of rent for rent payments made more than 10
days late in lieu of interest for the first month of delinquency, without
waiving any other remedies available for default. Failure to impose a late
charge shall not be a waiver of Landlord's rights hereunder.
3.1 Lease Consideration.
[DELETED]
4.1 Use.
Tenant shall use the Premises as business for Investment Brokerage Offices
and for no other purpose without Landlord's written consent. In connection with
its use, Tenant shall at its expense promptly comply and cause the Premises to
comply with all applicable laws, ordinances, rules and regulations of any public
authority and shall not annoy, obstruct, or interfere with the rights of other
tenants of the Building. Tenant shall create no nuisance nor allow any
objectionable fumes, noise, or vibrations to be emitted from the Premises.
Tenant shall not conduct any activities that will increase Landlord's insurance
rates for any portion of the Building or that will in any manner degrade or
damage the reputation of the Building.
4.2 Equipment.
Tenant shall install in the Premises only such office equipment as is
customary for general office use and shall not overload the floors or electrical
circuits of the Premises or Building or alter the plumbing or wiring of the
Premises or Building. Landlord must approve in advance the location of and
manner of installing any wiring or electrical, heat generating or communication
equipment or exceptionally heavy articles. All telecommunications equipment,
conduit, cables and wiring, additional dedicated circuits and any additional air
conditioning required because of heat generating equipment or special
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lighting installed by Tenant shall be installed and operated at Tenant's
expense. Landlord shall have no obligation to permit the installation of
equipment by any telecommunications provider whose equipment is not then
servicing the Building.
4.3 Signs.
No signs, awnings, antennas, or other apparatus shall be painted on or
attached to the Building or anything placed on any glass or woodwork of the
Premises or positioned so as to be visible from outside the Premises without
Landlord's written approval as to design, size, location, and color. All signs
installed by Tenant shall comply with Landlord's standards for signs and all
applicable codes and all signs and sign hardware shall be removed upon
termination of this lease with the sign location restored to its former state
unless Landlord elects to retain all or any portion thereof.
5.1 Utilities and Services.
Landlord will furnish water and electricity to the Building at all times
and will furnish heat and air conditioning (if the Building is air conditioned)
during the normal Building hours as established by Owner. Janitorial service
will be provided in accordance with the regular schedule of the Building, which
schedule and service may change from time to time. Tenant shall comply with all
government laws or regulations regarding the use or reduction of use of
utilities on the Premises. Interruption of services or utilities shall not be
deemed an eviction or disturbance of Tenant's use and possession of the
Premises, render Landlord liable to Tenant for damages, or relieve Tenant from
performance of Tenant's obligations under this lease. Landlord shall take all
reasonable steps to correct any interruptions in service. Electrical service
furnished will be 110 volts unless different service already exists in the
Premises. Tenant shall provide its own surge protection for power furnished to
computers.
5.2 Extra Usage.
If Tenant uses excessive amounts of utilities or services of any kind
because of operation outside of normal Building hours, high demands from office
machinery and equipment, nonstandard lighting, or any other cause, Landlord may
impose a reasonable charge for supplying such extra utilities or services, which
charge shall be payable monthly by Tenant in conjunction with rent payments. In
case of dispute over any extra charge under this paragraph, Landlord shall
designate a qualified independent engineer whose decision shall be conclusive on
both parties. Landlord and Tenant shall each pay one-half the cost of such
determination.
5.3 Security.
Landlord may but shall have no obligation to provide security service or to
adopt security measures regarding the Premises, and Tenant shall cooperate with
all reasonable
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security measures adopted by Landlord. Tenant may install a security system
within the leased Premises with Landlord's written consent which will not be
unreasonably withheld. Landlord will be provided with an access code to any
security system and shall not have any liability for accidentally setting off
Tenant's security system. Landlord may modify the type or amount of security
measures or services provided to the Building or the Premises at any time.
6.1 Maintenance and Repair.
Landlord shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or repair is
given by Tenant and Landlord fails to commence efforts to remedy the problem in
a reasonable time and manner. Landlord shall have the right to erect scaffolding
and other apparatus necessary for the purpose of making repairs, and Landlord
shall have no liability for interference with Tenant's use because of repairs
and installations. Tenant shall have no claim against Landlord for any
interruption or reduction of services or interference with Tenant's occupancy,
and no such interruption or reduction shall be construed as a constructive or
other eviction of Tenant. Repair of damage caused by negligent or intentional
acts or breach of this lease by Tenant, its employees or invitees shall be at
Tenant's expense.
6.2 Alterations.
Tenant shall not make any alterations, additions, or improvements to the
Premises, change the color of the interior, or install any wall or floor
covering without Landlord's prior written consent which may be withheld in
Landlord's sole discretion. Any such improvements, alterations, wiring, cables
or conduit installed by Tenant shall at once become part of the Premises and
belong to Landlord except for removable machinery and unattached movable trade
fixtures. Landlord may at its option require that Tenant remove any
improvements, alterations, wiring, cables or conduit installed by or for Tenant
and restore the Premises to the original condition upon termination of this
lease. Landlord shall have the right to approve the contractor used by Tenant
for any work in the Premises, and to post notices of nonresponsibility in
connection with work being performed by Tenant in the Premises. Work by Tenant
shall comply with all laws then applicable to the Premises.
7.1 Indemnity.
Tenant shall not allow any liens to attach to the Building or Tenant's
interest in the Premises as a result of its activities. Tenant shall indemnify
and defend Landlord and its managing agents from any claim, liability, damage,
or loss occurring on the Premises, arising out of any activity by tenant, its
agents, or invitees or resulting from Tenant's failure to comply with any term
of this lease. Neither the Landlord nor its managing agent shall have any
liability to Tenant because of loss or damage to Tenant's property or for death
or
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bodily injury caused by the acts or omissions of other Tenants of the Building,
or by third parties (including criminal acts).
7.2 Insurance.
Tenant shall carry liability insurance with limits of not less than One
Million Dollars ($1,000,000) combined single limit bodily injury and property
damage which insurance shall have an endorsement naming Landlord and Landlord's
managing agent, if any, as an additional insured, cover the liability insured
under paragraph 7.1 of this lease and be in form and with companies reasonably
acceptable to Owner. Prior to occupancy, Tenant shall furnish a certificate
evidencing such insurance which shall state that the coverage shall not be
cancelled or materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be furnished at
least 10 days prior to expiration of any policy.
8.1 Fire or Casualty.
"Major Damage" means damage by fire or other casualty to the Building or
the Premises which causes the Premises or any substantial portion of the
Building to be unusable, or which will cost more than 25 percent of the
pre-damage value of the Building to repair, or which is not covered by
insurance. In case of Major Damage, Landlord may elect to terminate this lease
by notice in writing to the Tenant within 30 days after such date. If this lease
is not terminated following Major Damage, or if damage occurs which is not Major
Damage, Landlord shall promptly restore the Premises to the condition existing
just prior to the damage. Tenant shall promptly restore all damage to tenant
improvements or alterations installed by Tenant or pay the cost of such
restoration to Landlord if Landlord elects to do the restoration of such
improvements. Rent shall be reduced from the date of damage until the date
restoration work being performed by Landlord is substantially complete, with the
reduction to be in proportion to the area of the Premises not usable by Tenant.
8.2 Waiver of Subrogation.
Tenant shall be responsible for insuring its personal property and
trade fixtures located on the Premises and any alterations or tenant
improvements it has made to the Premises. Neither Landlord, its managing agent
nor Tenant shall be liable to the other for any loss or damage caused by water
damage, sprinkler leakage, or any of the risks that are or could be covered by a
special all risk property insurance policy, or for any business interruption,
and there shall be no subrogated claim by one party's insurance carrier against
the other party arising out of any such loss. The waiver is binding only if it
does not invalidate the insurance coverage of either party hereto.
9.1 Eminent Domain.
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If an condemning authority takes title by eminent domain or by agreement in
lieu thereof to the entire Building or a portion sufficient to render the
Premises unsuitable for Tenant's use, then either party may elect to terminate
this lease effective on the date that possession is taken by the condemning
authority. Rent shall be reduced for the remainder of the term in an amount
proportionate to the reduction in area of the Premises caused by the taking. All
condemnation proceeds shall belong to Landlord, and Tenant shall have no claim
against Landlord or the condemnation award because of the taking.
10.1 Assignment and Subletting.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided that Tenant shall not assign
its interest under this lease or sublet all or any portion of the Premises
without first obtaining Landlord's consent in writing. This provision shall
apply to all transfers by operation of law including but not limited to mergers
and changes in control of Tenant. No assignment shall relieve Tenant of its
obligation to pay rent or perform other obligations required by this lease, and
no consent to one assignment or subletting shall be a consent to any further
assignment or subletting. Landlord shall not unreasonably withhold its consent
to any assignment or subletting provided the effective rental paid by the
subtenant or assignee is not less than the current scheduled rental rate of the
Building for comparable space and the proposed Tenant is compatible with
Landlord's normal standards for the Building. If Tenant proposes a subletting or
assignment to which Landlord is required to consent under this paragraph,
Landlord shall have the option of terminating this lease and dealing directly
with the proposed subtenant or assignee, or any third party. If an assignment or
subletting is permitted, any cash profit, or the net value of any other
consideration received by Tenant as a result of such transaction shall be paid
to Landlord promptly following its receipt by Tenant. Tenant shall pay any costs
incurred by Landlord in connection with a request for assignment or subletting,
including reasonable attorney's fees.
11.1 Default.
Any of the following shall constitute a default by Tenant under this lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 10 days after it is due, or failure to comply with any other term or
condition within 20 days following written notice from Landlord specifying the
noncompliance. If such noncompliance cannot be cured within the 20-day period,
this provision shall be satisfied if Tenant commences correction within such
period and thereafter proceeds in good faith and with reasonable diligence to
effect compliance as soon as possible. Time is of the essence of this lease.
(b) Tenant's insolvency, business failure or assignment for the benefit of
its creditors. Tenant's commencement of proceedings under any provision of any
bankruptcy or
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insolvency law or failure to obtain dismissal of any petition filed against it
under such laws within the time required to answer; or the appointment of a
receiver for all or any portion of Tenant's properties or financial records.
(c) Assignment or subletting by Tenant in violation of paragraph 10.1.
(d) Vacation or abandonment of the Premises without the written consent of
Landlord or failure to occupy the Premises within 20 days after notice from
Landlord tendering possession.
11.2 Remedies for Default.
In case of default as described in paragraph 11.1 Landlord shall have the
right to the following remedies which are intended to be cumulative and in
addition to any other remedies provided under applicable law:
(a) Landlord may at its option terminate the lease by notice to Tenant.
With or without termination, Landlord may retake possession of the Premises and
may use or relet the Premises without accepting a surrender or waiving the right
to damages. Following such retaking of possession, efforts by Landlord to relet
the Premises shall be sufficient if Landlord follows its usual procedures for
finding tenants for the space at rates not less than the current rates for other
comparable space in the Building. If Landlord has other vacant space in the
Building, prospective tenants may be placed in such other space without
prejudice to Landlord's claim to damages or loss of rentals from Tenant.
(b) Landlord may recover all damages caused by Tenant's default which shall
include an amount equal to rentals lost because of the default, lease
commissions paid for this lease, and the unamortized cost of any tenant
improvements installed by Landlord to meet Tenant's special requirements.
Landlord may sue periodically to recover damages as they occur throughout the
lease term, and no action accrued damages shall bar a later action for damages
subsequently accruing. Landlord may elect in any one action to recover accrued
damages plus damages attributable to the remaining term of the lease. Such
damages shall be measured by the difference between the rent under this lease
and the reasonable rental value of the Premises for the remainder of the term,
discounted to the time of judgment at the prevailing interest rate on judgments.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to recover from
Tenant upon demand all amounts so expended, plus interest from the date of the
expenditure at the rate of one-and-one half percent per month. Any such payment
or performance by Landlord shall not waive Tenant's default.
12.1 Surrender.
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On expiration or early termination of this lease Tenant shall deliver all
keys to Landlord and surrender the Premises vacuumed, swept, and free of debris
and in the same condition as at the commencement of the term subject only to
reasonable wear from ordinary use. Tenant shall remove all of its furnishings
and trade fixtures that remain its property and repair all damage resulting from
such removal. Failure to remove shall be an abandonment of the property, and
Landlord may dispose of it in any manner without liability. If Tenant fails to
vacate the Premises when required, including failure to remove all of its
personal property, Landlord may elect either: (i) to treat Tenant as a tenant
from month to month, subject to the provisions of this lease except that rent
shall be one-and-one-half times the total rent being charged when the lease term
expired, and any option or other rights regarding extension of the term or
expansion of the Premises shall no longer apply; or (ii) to eject Tenant from
the Premises and recover damages caused by wrongful holdover.
13.1 Regulations.
Landlord shall have the right but shall not be obligated to make, revise
and enforce regulations or policies consistent with this lease for the purpose
of promoting safety, health (including moving, use of common areas and
prohibition of smoking), order, economy, cleanliness, and good service to all
tenants of the Building. All such regulations and policies shall be complied
with as if part of this lease.
14.1 Access.
During times other than normal Building hours Tenant's officers and
employees or those having business with Tenant may be required to identify
themselves or show passes in order to gain access to the Building. Landlord
shall have no liability for permitting or refusing to permit access by anyone.
Landlord may regulate access to any Building elevators outside of normal
Building hours. Landlord shall have the right to enter upon the Premises at any
time by passkey or otherwise to determine Tenant's compliance with this lease,
to perform necessary services, maintenance and repairs or alterations to the
Building or the Premises, or to show the Premises to any prospective tenant or
purchasers. Except in case of emergency such entry shall be at such times and in
such manner as to minimize interference with the reasonable business use of the
Premises by Tenant.
14.2 Furniture and Bulky Articles.
Tenant shall move furniture and bulky articles in and out of the Building
or make independent use of the elevators only at times approved by Landlord
following at least 24 hours written notice to Landlord of the intended move.
Landlord will not unreasonably withhold its consent under this paragraph.
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15.1 Notices.
Notices between the parties relating to this lease shall be in writing,
effective when delivered, or if mailed, effective on the second day following
mailing, postage prepaid, to the address for the party stated in this lease or
to such other address as either party may specify by notice to the other. Notice
to Tenant may always be delivered to the Premises. Rent shall be payable to
Landlord at the same address and in the same manner, but shall be considered
paid only when received.
16.1 Subordination and Attornment.
This lease shall be subject to and subordinate to any mortgages, deeds of
trust, or land sale contracts (hereafter collectively referred to as
encumbrances) now existing against the Building. At Landlord's option this lease
shall be subject and subordinate to any future encumbrance hereafter placed
against the Building (including the underlying land) or any modifications of
existing encumbrances, and Tenant shall execute such documents as may reasonably
be requested by Landlord or the holder of the encumbrance to evidence this
subordination. If any encumbrance is foreclosed, then if the purchaser at
foreclosure sale gives to Tenant a written agreement to recognize Tenant's
lease, Tenant shall attorn to such purchaser and this lease shall continue.
16.2 Transfer of Building.
If the Building is sold or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee and recognize it
as the lessor under this lease, and, provided the purchaser or transferee
assumes all obligations hereunder, the transferor shall have no further
liability hereunder.
16.3 Estoppels.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying whether or
not this lease has been modified and is in full force and effect; whether there
are any modifications or alleged breaches by the other party; the dates to which
rent has been paid in advance, and the amount of any security deposit or prepaid
rent; and any other facts that may reasonably be requested. Failure to deliver
the certificate within the specified time shall be conclusive upon the party of
whom the certificate was requested that the lease is in full force and effect
and has not been modified except as may be represented by the party requesting
the certificate. If requested by the holder of any encumbrance, or any ground
lessor, Tenant will agree to give such holder or lessor notice of and an
opportunity to cure any default by Landlord under this lease.
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17.1 Attorneys' Fees.
In any litigation arising out of this lease, the prevailing party shall be
entitled to recover attorney's fees at trial and on any appeal. If Landlord
incurs attorney's fees because of a default by Tenant, Tenant shall pay all such
fees whether or not litigation is filed.
18.1 Quiet Enjoyment.
Landlord warrants that so long as Tenant complies with all terms of this
lease it shall be entitled to peaceable and undisturbed possession of the
Premises free from any eviction or disturbance by Landlord. Neither Landlord nor
its managing agent shall have any liability to Tenant for loss or damages
arising out of the acts, including criminal acts, of other tenants of the
Building or third parties, nor any liability for any reason which exceeds the
value of its interest in the Building.
19.1 Additional Rent - Tax Adjustment.
Whenever for any July 1 - June 30 tax year, the real property taxes levied
against the Building and its underlying land exceed those levied for the
1997-1998 tax year, then the monthly rental for the next succeeding calendar
year shall be increased by one-twelfth of such tax increase times Tenant's
proportionate share. "Real property taxes" as used herein means all taxes and
assessments of any public authority against the Building and the land on which
it is located, the cost of contesting any tax and any form of fee or charge
imposed on Landlord as a direct consequence of owning or leasing the Premises,
including but not limited to rent taxes, gross receipt taxes, leasing taxes, or
any fee or charge wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now existing or hereafter
enacted. If any portion of the Building is occupied by a tax-exempt tenant so
that the Building has a partial tax exemption under ORS 307.112 or a similar
statute, then real property taxes shall mean taxes computed as if such partial
tax exemption did not exist. If a separate assessment or identifiable tax
increase arises because of improvements to the Premises, then Tenant shall pay
100 percent of such increase.
19.2 Additional Rent - Cost-of-Living Adjustment.
[DELETED]
19.3 Operating Expense Adjustment.
Tenant shall pay as additional rent Tenant's Proportionate Share of the
amount by which operating expenses for the Building increase over those
experienced by Landlord during the calendar year 1988 (base year). Effective
January 1 of each year Landlord shall estimate the amount by which operating
expenses are expected to increase, if any, over those incurred in the base year.
Monthly rental for that year shall be increased by one-twelfth of
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Tenant's share of the estimated increase. Following the end of each calendar
year, Landlord shall compute the actual increase in operating expenses and bill
Tenant for any deficiency or credit Tenant with any excess collected. As used
herein "operating expenses" shall mean all costs of operating and maintaining
the building as determined by standard real estate accounting practice,
including, but not limited to: all water and sewer charges; the cost of natural
gas and electricity provided to the building; janitorial and cleaning supplies
and services; administration costs and management fees; superintendent fees;
security services, if any; insurance premiums; licenses; permits for the
operation and maintenance of the building and all of its component elements and
mechanical systems; the annual amortized capital improvement cost (amortized
over such a period as Landlord may select but not shorter than the period
allowed under the Internal Revenue Code and at a current market interest rate)
for any capital improvements to the Building required by any governmental
authority or those which have a reasonable probability of improving the
operating efficiency of the Building.
19.4 Disputes.
If Tenant disputes any computation of additional rent or rent adjustment
under paragraphs 19.1 through 19.3 of this lease, it shall give notice to
Landlord not later than one year after the notice from Landlord describing the
computation in question, but in any event not later than 30 days after
expiration or earlier termination of this lease. If Tenant fails to give such a
notice, the computation by Landlord shall be binding and conclusive between the
parties for the period in question. If Tenant gives a timely notice, the dispute
shall be resolved by an independent certified public accountant selected by
Landlord whose decision shall be conclusive between the parties. Each party
shall pay one-half of the fee for making such determination except that if the
adjustment in favor of Tenant does not exceed ten percent of the escalation
amounts for the year in question, Tenant shall pay (i) the entire cost of any
such third-party determination; and (ii) Landlord's out-of-pocket costs and
reasonable expenses for personnel time in responding to the audit. Nothing
herein shall reduce Tenant's obligations to make all payments as required by
this lease.
20.1 Complete Agreement; No Implied Covenants.
This lease and the attached Exhibits and Schedules, if any, constitute the
entire agreement of the parties and supersede all prior written and oral
agreements and representations and there are no implied covenants or other
agreements between the parties except as expressly set forth in this lease.
Neither Landlord nor Tenant is relying on any representations other than those
expressly set forth herein.
20.2 Space Leased As Is.
Unless otherwise stated in this lease, the Premises are leased AS IS in the
condition now existing with no alterations or other work to be performed by
Landlord.
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20.3 Captions.
The titles to the paragraphs of this lease are descriptive only and are not
intended to change or influence the meaning of any paragraph or to be part of
this lease.
20.4 Nonwaiver.
Failure by Landlord to promptly enforce any regulation, remedy or right of
any kind under this lease shall not constitute a waiver of the same and such
right or remedy may be asserted at any time after Landlord becomes entitled to
the benefit thereof notwithstanding delay in enforcement.
20.5 Exhibits.
The following Exhibits are attached hereto and incorporated as part of this
lease:
Addendum
Exhibit A - Floor Plan
Exhibit B - Work Letter/Construction Agreement
21.0 Landlord's Liability.
Landlord's liability shall be limited to the assets of the Trusts.
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
LANDLORD:
Trustees of the Oregon - Washington
Carpenters - Employers Pension Trust Fund
and Trustees of the Oregon Laborers -
Employers Pension Fund
By: GARY A. LARSON
-------------------------------------
Title: Chairman, Carpenters
----------------------------------
By: R.M. PADDACH
-------------------------------------
Title: Chrmn. Invest. Comm.
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By: JOHN D. ABBOTT
-------------------------------------
Title: Chairman, Laborers
----------------------------------
By: JAY MINOR
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Title: Employer Trustee
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Address for Notices:
c/o Norris & Stevens
520 SW Sixth, Suite 400
Portland, OR 97204
TENANT:
Paulson Investment Company
By: KENNETH T. LAMEAR
-------------------------------------
Title: President and CEO
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
Address for Notices:
811 SW Front Avenue, Suite 200
Portland, OR 97204
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ADDENDUM TO OFFICE LEASE
dated
- --------------------------------------------------------------------------------
| May 6, 1997 |
| By and Between |
| |
| Trustees of The Oregon - Washington Carpenters - |
| Employers Pension Trust Fund and |
| Trustees of The Oregon - Laborers - |
| Employers Pension Trust Fund, Landlord |
| |
| and |
| |
| Paulson Investment Company, Tenant |
| |
| in the |
| |
| Paulson Capital Building |
| |
| located at |
| |
| 811 SW Front Avenue |
| Portland, Oregon |
- --------------------------------------------------------------------------------
1. Carpet Protection.
The Tenant must provide, at its own expense, protection to the carpets from
chair wheels or other abnormal wear, tear, or staining. The Tenant shall be
responsible for replacing carpet where damage has occurred due to lack of said
protection. Tenant shall be responsible for heavy stain removal and periodic
shampooing of carpet. It is recommended that carpets be shampooed at least
annually.
Landlord shall be responsible for vacuuming and minor spot removal as
provided for in the lease.
2. Security.
Management recommends that Tenant considers security systems within their
own premises such as monitored systems. Tenant should consult experts in this
field for advice.
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If the Tenant installs a monitored system, neither the Landlord nor its
contractors shall be held responsible for setting off the alarm mistakenly, and
the possible fines which could be levied.
3. Signs.
The Landlord shall at its sole expense provide one listing in the building
lobby directory displaying the Tenant's firm name. Additional listings may be
available depending on space availability and building policy at the Tenant's
expense.
Door signs or any other signs shall be at the expense of the Tenant.
Landlord reserves the right to approve all such signage. Such signs will be
required to be displayed in the "building standard" manner.
It is incumbent upon Tenant to clarify signage policies to the Tenant's
satisfaction prior to entering into this lease agreement. The Tenant should
submit a written sign request to management identifying the correct spelling and
manner by which the firm's name should be displayed.
4. Americans with Disabilities Act.
The publisher strongly recommends that both the Tenant and the Landlord
become familiar with the Americans with Disabilities Act of 1990, Public Laws
101-336. The act may impose certain duties and responsibilities upon either or
both parties to this lease. These duties and responsibilities may include, but
not be limited to the removal of certain architectural barriers and ensure that
disabled persons are not denied the opportunity to benefit from the same goods
and services as those available to persons without disabilities. Under the Act,
prohibition against discrimination applies to any person who is the owner,
operator, landlord or tenant of a place of public accommodation.
5. Parking.
Paulson Investment Company is allocated the right to park sixteen (16)
automobiles in the building. The Landlord will make its best efforts to
guarantee parking for Paulson Investment Company's clients, and not oversell the
parking lot.
6. Tenant Improvements.
Landlord will provide a Tenant Improvement Allowance in an amount not to
exceed One Hundred Twenty-Five Thousand and no/100 Dollars ($125,000.00). Any
tenant improvement expenses above said $125,000.00 Tenant Improvement Allowance
shall be borne solely by the Tenant. Any savings will accrue to the Landlord and
the Tenant equally;
Please initial
KTL
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Landlord Tenant
<PAGE>
however, the maximum amount of any savings that can accrue to the Tenant is Ten
Thousand and no/100 Dollars ($10,000.00).
In the event the cost of the tenant improvements does not reach the maximum
tenant improvement allowance of $125,000.00, Tenant may elect to complete
additional improvements within the premises, however, any additional
improvements must begin within sixty (60) days of commencement of this lease and
be approved by the Landlord.
The cost of all HVAC repairs made will be included within the $125,000.00
Tenant Improvement Allowance. The Tenant's carpet supplier will be allowed to
submit a competitive bid for the carpet replacement portion of the Tenant
Improvements. All bids for all Tenant Improvements will be disclosed to Tenant.
Specifications for all Tenant Improvements to be completed in Paulson
Investment Company's offices are stated on the attached Exhibit B - Work
Letter/Construction Agreement.
7. Previous Lease Agreement.
The previous Lease Agreement for the premises, dated March 12, 1992, is
null and void as of the commencement of this lease, dated June 1, 1997.
Please initial
KTL
-------- ------
Landlord Tenant
<PAGE>
EXHIBIT B TO OFFICE LEASE
dated
- --------------------------------------------------------------------------------
| May 6, 1997 |
| By and Between |
| |
| Trustees of The Oregon - Washington Carpenters - |
| Employers Pension Trust Fund |
| and Trustees of The Oregon - Laborers - |
| Employers Pension Trust Fund, Landlord |
| |
| and |
| |
| Paulson Investment Company, Tenant |
| |
| in the |
| |
| Paulson Capital Building |
| |
| located at |
| |
| 811 SW Front Avenue |
| Portland, Oregon |
- --------------------------------------------------------------------------------
Work Letter / Construction Agreement
1. Tenant Improvements.
All Tenant Improvements work will be managed by the Landlord.
Tenant Improvements provided by Landlord, up to a maximum of one-hundred
twenty five thousand and no/100 dollars ($125,000.00). All expenses for plans,
permits, and code requirement are included in the Tenant Improvement allowance.
Landlord agrees to provide the following tenant improvements in the
Premises:
a. Heating Ventilation and Air Conditioning:
Repairs to HVAC system shall be made based on detailed analysis and
specific recommendations set forth in the letter from Interstate Mechnical,
Inc., dated March 7, 1997 (attached). Installation shall be completed of an
additional cooling unit in the area commonly
Please initial
KTL
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Landlord Tenant
<PAGE>
known as the "trading room" based on recommendation from Interstate Mechnical,
Inc., in letter dated June 20, 1997 (attached).
b. Carpet:
Installation of 30 oz. building standard throughout the entire office space
on the second and third floors in a color chosen by Tenant.
c. Paint:
One coat of paint throughout the entire office space on the second and
third floors, in a color chosen by Tenant.
d. Cabinets:
Installation of cabinets in the "trading room" per the drawing by Oregon
Business Architecture dated September 6, 1996 (attached).
e. Partitions:
Demolish and install approximately 250 lineal feet of partitions per plans
approved by Tenant and Landlord. Partitions will be constructed in the order
that is most efficient in coordination with carpet installation and painting.
f. Lobby Redecoration:
Second and third floor lobbies will be redecorated per specifications as
agreed by Tenant and Landlord. Lobby redecorating will be done in coordination
with the other tenant improvements to be completed on the second and third
floors.
g. Furniture Moving:
In coordination with carpet installation and painting, furniture will be
moved to accommodate the carpet installation and painting. Carpet installation
and painting will be done after normal business hours to limit interruptions to
Tenant's business and staff. Tenant will be required to pack and unpack personal
property items, and move personal computers, and wiring, if any.
Please initial
KTL
-------- ------
Landlord Tenant
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF PAULSON CAPITAL CORP. AND SUBSIDIARY AS OF JUNE
30, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS'
EQUITY AND CASH FLOWS FOR THE SIX MONTHS IN THE PERIOD ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 77
<RECEIVABLES> 3,176
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 9,432
<PP&E> 151
<TOTAL-ASSETS> 14,223
<SHORT-TERM> 100
<PAYABLES> 2,496
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 875
<LONG-TERM> 0
0
0
<COMMON> 738
<OTHER-SE> 10,014
<TOTAL-LIABILITY-AND-EQUITY> 14,223
<TRADING-REVENUE> 619
<INTEREST-DIVIDENDS> 3
<COMMISSIONS> 5,208
<INVESTMENT-BANKING-REVENUES> 848
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3
<COMPENSATION> 4,983
<INCOME-PRETAX> 2,294
<INCOME-PRE-EXTRAORDINARY> 2,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,374
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
