<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PAULSON CAPITAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which
the filing fee is calculated and state how it was determined.
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
PAULSON CAPITAL CORP.
May 19, 2000
Dear Stockholder:
The 2000 Annual Meeting of Stockholders of Paulson Capital Corp. (the
"Company") will be held at the Company's headquarters, 811 SW Naito Parkway,
Portland, Oregon 97204 in the third-floor conference room on Tuesday, June 20,
2000 at 2:00 p.m. (PDT).
The attached material includes the Notice of Annual Meeting and the
Proxy Statement, which describes the business to be transacted at the meeting.
We ask that you give them your careful attention.
As in the past, we will be reporting on your Company's activities and
you will have an opportunity to ask questions about its operations.
We hope that you are planning to attend the Annual Meeting personally,
and we look forward to seeing you. It is important that your shares be
represented at the meeting whether or not you are able to attend in person.
Accordingly, the return of the enclosed proxy as soon as possible will be
greatly appreciated and will ensure that your shares are represented at the
Annual Meeting. If you do attend the Annual Meeting, you may, of course,
withdraw your proxy if you wish to vote in person.
On behalf of the Board of Directors of Paulson Capital Corp., I would
like to thank you for your continued support and confidence.
Sincerely,
Chester L.F. Paulson
Chairman of the Board
1
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
JUNE 20, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Paulson Capital Corp. (the "Company") will be held at the Company's
headquarters, 811 SW Naito Parkway, Portland, Oregon in the third-floor
conference room on Tuesday, June 20, 2000 at 2:00 p.m. (PDT) for the following
purposes:
1. To elect six Directors whose term of office will expire in 2001.
2. To approve the adoption of the Company's 1999 Stock Option Plan.
3. To transact any other business that properly comes before the Annual
Meeting and any adjournments thereof.
Holders of Common Stock of record as of the close of business on May
19, 2000 are entitled to receive notice of and vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting.
For that reason, we ask that you promptly sign, date and mail the enclosed proxy
card in the return envelope provided. Stockholders who attend the Annual Meeting
may revoke their proxies and vote in person.
By order of the Board of Directors
Jacqueline M. Paulson
Secretary
Portland, Oregon
May 19, 2000
2
<PAGE>
PAULSON CAPITAL CORP.
811 SW NAITO PARKWAY
PORTLAND, OREGON 97204
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 20, 2000
This Proxy Statement and the accompanying Notice of Annual Meeting and
form of proxy are being furnished to the stockholders of Paulson Capital Corp.
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the 2000 Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held in the third-floor conference room
of the Company's headquarters, 811 SW Naito Parkway, Portland, Oregon on
Tuesday, June 20, 2000 at 2:00 p.m. (PDT) and any adjournments thereof. These
proxy materials are being mailed on or about May 19, 2000 to holders of record
on May 19, 2000 of the Company's Common Stock.
A proxy may be revoked by a stockholder prior to its exercise by
written notice to the Secretary of the Company, by submission of another proxy
bearing a later date or by voting in person at the Annual Meeting. Such notice
or later proxy will not affect a vote on any matter taken prior to the receipt
thereof by the Company. The mere presence at the Annual Meeting of the
stockholder appointing the proxy will not revoke the appointment. If not
revoked, the proxy will be voted at the Annual Meeting in accordance with the
instructions indicated on the proxy by the stockholder or, if no instructions
are indicated, will be voted FOR the slate of directors and the adoption of the
Company's 1999 Stock Option Plan.
All expenses of the Company in connection with this solicitation will
be borne by the Company. In addition to solicitation by mail, proxies may be
solicited by directors, officers and other employees of the Company and its
subsidiary, by telephone, telegraph, telex, fax, in person or otherwise, without
additional compensation. The Company will also request brokerage firms,
nominees, custodians and fiduciaries to forward proxy material to the beneficial
owners of shares held of record by such persons and will reimburse such persons
for their reasonable out-of-pocket expenses in forwarding such material.
3
<PAGE>
THE COMPANY
The Company, which was incorporated under the laws of the state of
Oregon in 1970, is a holding company which, through its wholly owned subsidiary,
Paulson Investment Company, Inc. ("PIC"), engages in a full service brokerage
business, including the purchase and sale of securities from and to the public
and for its own account and in investment banking activities.
VOTING SECURITIES
Holders of record at the close of business on May 19, 2000 of the
Company's Common Stock, no par value, ("Common Stock") are entitled to notice of
and to vote at the Annual Meeting and any adjournments thereof. Each outstanding
share of Common Stock entitles the holder to one vote. The Company's Articles of
Incorporation do not provide for cumulative voting.
On March 31, 2000, 3,549,535 shares of Common Stock were outstanding.
The presence in person or by proxy at the Annual Meeting of the holders of a
majority of these shares constitutes a quorum.
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<PAGE>
STOCK OWNERSHIP OF PRINCIPAL OWNERS AND MANAGEMENT
The following table provides information concerning persons known to
the Company to be the beneficial owners of more than 5 percent of the Company's
outstanding Common Stock as of March 31, 2000, and sets forth the number of
shares of Common Stock beneficially owned by each director of the Company and by
all directors of the Company and executive officers of the Company or PIC as a
group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF RELATIONSHIP TO SHARES BENEFICIALLY
BENEFICIAL OWNER COMPANY OWNED (1) PERCENT OF CLASS
<S> <C> <C> <C>
Chester L.F. and Jacqueline M. President and Chairman of 1,568,433 42.6 %
Paulson, as joint tenants (2) the Board of Directors of
the Company, officer and
director of PIC
(Mr. Paulson);
Secretary-Treasurer and
Director of the Company and
officer and director of PIC
(Ms. Paulson)
Kenneth T. LaMear Director, officer and 59,622 1.6 %
director of PIC
Glen Davis Officer and director of PIC 28,842 0.8 %
Shannon P. Pratt Director 2,627 0.1 %
Paul Shoen Director 17,627 0.5%
John Westergaard Director 2,627 0.1 %
Steven Kleemann Shareholder 369,900 10.4
All Directors and Executive 1,679,778 45.7 %
Officers as a group (7 persons)
</TABLE>
- ---------------------------------------
(1) "Shares beneficially owned" and "Percent of Class" include vested options
issued under the Company's 1999 Stock Option Plan, which is subject to
shareholder approval. Chester and Jacqueline Paulson own 1,540,443 shares
in joint name and each have options to purchase 14,000 additional shares.
Mr. LaMear owns 51,622 shares and has options to purchase 8,000 additional
shares. Mr. Davis owns 14,842 shares and has options to purchase 14,000
additional shares. Mr. Shoen owns 15,627 shares and has options to purchase
2,000 additional shares. Messrs. Pratt and Westergaard each own 627 shares
and each has options to purchase 2,000 additional shares.
(2) Address is 811 SW Naito Parkway, Suite 200, Portland, OR 97204
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for services in all capacities to the Company and its subsidiary
for the fiscal years ended December 31, 1999, 1998 and 1997 of those persons who
were, at December 31, 1999, the Chief Executive Officer of the Company and the
only other executive officers of the Company whose total annual compensation
exceeded $100,000 in 1999 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
----------------------------------- ------------ ------------
Name and Principal Securities Underlying
Position Year $ Salary (1) $ Bonus (2) Options (# Shares) $ (3)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chester L.F. Paulson, 1999 351,621 175,000 14,000 30,000
President 1998 226,011 1,667 -- 1,500
1997 562,234 200,000 -- 24,956
Kenneth T. LaMear, Senior 1999 58,348 65,000 8,000 12,529
Vice President of PIC 1998 71 064 1,667 -- 1,500
1997 107,657 115,000 -- 24,956
Glen Davis, President of PIC 1999 320,512 125,000 14,000 30,000
1998 239,318 1,667 -- 1,500
1997 298,465 75,000 -- 24,956
Jacqueline M. Paulson, 1999 49,804 75,000 14,000 10,914
Secretary-Treasurer 1998 36,472 1,667 -- 1,500
1997 131,849 75,000 -- 24,956
</TABLE>
(footnotes on next page)
6
<PAGE>
(1) Neither Mr. Paulson nor Mrs. Paulson is paid any salary. The
amounts included in the "Salary" column above for Mr. Paulson consist of amounts
paid contingent upon the completion of PIC's corporate finance transactions. The
amounts included in "Salary" for Mrs. Paulson consists of retail commissions
from Mrs. Paulson's service as a registered representative of PIC. The amounts
included in "Salary" for Mr. LaMear include retail commissions from Mr. LaMear's
service as a registered representative of PIC as well as a salary of $20,400,
$16,073 and $20,400 and in 1999, 1998 and 1997, respectively. The amounts
included in "Salary" for Mr. Davis are retail commissions from Mr. Davis's
service as a registered representative of PIC as well as a salary of $36,000 per
year. No Named Executive Officer received any perquisites or other personal
benefits the aggregate amount of which exceeded the lesser of either $50,000 or
10 percent of the total annual salary and bonus reported for 1999 in the Summary
Compensation Table.
(2) Bonus amounts are based upon a percentage (fixed by the Board of
Directors) of a bonus pool based upon profits, if any. The Board has authorized
15 percent of PIC's pretax income up to $1 million and 10 percent of pretax
income thereafter to be placed into the bonus pool. For 1997, the bonus pool
calculation was $869,738, but the Board of Directors reduced actual bonus
payments to officers and directors to $820,000. For 1998, the bonus pool
calculation was $20,000. For 1999, the bonus pool calculation was $1,354,336,
but the Board of Directors reduced actual bonus payments to officers and
directors to $1,050,000.
(3) Amounts shown for 1999 include contributions for each of Mr. LaMear
and Ms. Paulson relating to PIC's match of employee contributions pursuant to
PIC's 401(k) retirement plan. Amounts shown for 1998 and 1997 include
contributions of $1,500 for each of Messrs. Paulson, LaMear and Davis and Ms.
Paulson relating these matching contributions. Amounts shown for 1999 include
contributions of $30,000 for each of Mr. Paulson and Mr. Davis, $11,029 for Mr.
LaMear and $9,414 for Ms. Paulson to PIC's tax qualified profit sharing plan.
There was no profit sharing contribution for 1998. Amounts shown for 1997
include contributions of $23,456 for each of Mr. Paulson, Mr. LaMear, Mr. Davis
and Ms. Paulson to PIC's tax qualified profit sharing plan. The profit sharing
plan provides for annual contributions at the discretion of PIC's board of
directors which are allocated to participants' accounts in proportion to their
compensation. Of the amount allocated to an individual, 20 percent, 40 percent,
60 percent, 80 percent and 100 percent is vested after two, three, four, five
and six years of service, respectively. In the event of death, retirement at or
after age 59, or termination of employment because of disability, the
participant immediately becomes entitled to 100 percent of his or her account.
No portion of the Company's contributions to the plan became vested during
fiscal 1999 with respect to any executive officer or director. Retirement
benefits are based on the investment performance of each participant's account
under the plan. There was no other annual compensation, restricted stock awards,
or long term incentive plan payouts during the periods shown. While any amounts
representing the net gain received from the exercise of underwriter warrants
allocated to Mr. Paulson, based upon the difference in the price of the security
on the date of the exercise of the warrant and the exercise price of the
warrant, would be included in the table above, there was no net gain in 1999,
1998 or 1997. Underwriter warrants are received by PIC upon the completion of
corporate finance transactions for its clients.
7
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options
granted to the Named Executive Officers pursuant to the Company's 1999 Stock
Option Plan during the year ended December 31, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------------------
Number of
Shares
Underlying Percent of Total Exercise Price Expiration
Name Options Options Granted Per Share Date
Granted
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chester L.F. Paulson 14,000 11.3 % $4.4375 8/15/04
- -----------------------------------------------------------------------------------------------------------
Kenneth T. LaMear 8,000 6.4 % $4.4375 8/15/04
- -----------------------------------------------------------------------------------------------------------
Glen Davis 14,000 11.3 % $4.4375 8/15/04
- -----------------------------------------------------------------------------------------------------------
Jacqueline M. Paulson 14,000 11.3 % $4.4375 8/15/04
- -----------------------------------------------------------------------------------------------------------
</TABLE>
On August 16, 1999, the date the options were granted, the Company's
common stock, as reported on the Nasdaq stock market, had a closing price of
$4.4375. Unless otherwise determined by the Board of Directors, in the event the
employment of any optionee by the Company or a subsidiary terminates by
retirement or for any reason other than because of death or physical disability,
the term of any exercisable option shall end not later than three months after
the date of the termination of employment. The Company's 1999 Option Plan,
pursuant to which these options were granted, is subject to stockholder
approval.
8
<PAGE>
DECEMBER 31, 1999 OPTION VALUE TABLE
Shown below is information with respect to the unexercised options to
purchase the Company's common stock granted under the Company's 1999 Stock
Option Plan to the Named Executive Officers. None of the Named Executive
Officers exercised any stock options during 1999. The Company's 1999 Option
Plan, pursuant to which these options were granted, is subject to stockholder
approval.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Number of Shares Underlying Value of Unexercised In-the-money
Unexercised Options at 12/31/99 Options at 12/31/99
- -------------------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chester Paulson 14,000 0 $13,125.00 0
- -------------------------------------------------------------------------------------------------------------------
Kenneth LaMear 8,000 0 $7,500.00 0
- -------------------------------------------------------------------------------------------------------------------
Glen Davis 14,000 0 $13,125.00 0
- -------------------------------------------------------------------------------------------------------------------
Jacqueline Paulson 14,000 0 $13,125.00 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The options in the table above were granted on August 16, 1999. The closing
price of the Company's common stock, as reported on the Nasdaq stock market, was
$4.4375 on August 16, 1999 and $5.375 on December 31, 1999.
OPTION EXERCISES
There were no stock options exercised during 1999 by any of the Named
Executive Officers.
The Company has no employment agreements with any of its executive
officers.
COMPENSATION OF DIRECTORS. Through 1999, the Company paid its directors
and certain officers invited to the meetings of the Board of Directors $500 per
meeting, up to a maximum of six meetings per year, payable in Common Stock of
the Company based upon the stock price on the day prior to the meeting. This
arrangement also covered participants at meetings of the board of directors of
any subsidiary of the Company. Seven members of the Board of Directors, two
officers of PIC and one non-officer director of PIC were issued a total of 1,783
shares in 1999 (1,020 shares at $4.875 and 763 at $4.625). Messrs. Paulson,
Davis and LaMear and Ms. Paulson each received 211 shares and directors and
executive officers as a group received 1,477 shares. With the adoption of the
1999 Stock Option Plan, the Company does not anticipate continuing to issue
stock with respect to directors meetings in 2000 and future years.
9
<PAGE>
I. ELECTION OF DIRECTORS
The Board of Directors has nominated and recommends the election of
each of the nominees set forth below in the table as a director to serve until
the next Annual Meeting of Stockholders or until his or her successor is duly
elected and qualified. Each nominee is currently a director of the Company.
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATIONS AND PUBLIC DIRECTOR
DIRECTORSHIPS DURING PAST FIVE YEARS SINCE
<S> <C>
Chester L.F. Paulson, Age 64 1970
President of the Company; Director of Corporate Finance of PIC
Jacqueline M. Paulson, Age 61 1976
Secretary-Treasurer of the Company; Secretary-Treasurer
of PIC
Glen Davis, Age 44 1999
President of PIC since 2/98 (Senior Vice President of PIC
prior to 2/98)
Shannon P. Pratt, Age 66 1998
Managing Director, Founder - Willamette Management Associates, a business
valuation firm
Paul Shoen, Age 43 1998
Chairman of the Board of Directors and Chief Executive Officer of
Panetechnicon Aviation, an operator and lessor of aircraft; private investor;
Director - AMERCO, the parent company of U-Haul Trucking Rental, and
Telepartner A/S, a long distance telephone provider
John Westergaard, Age 68 1998
Chairman/Editorial Director of Westergaard.com, Inc., an Internet publisher
of investment research
</TABLE>
If any nominee becomes unable or unwilling to accept nomination or
election, it is intended that the persons named in the enclosed proxy will vote
the shares that they represent for the election of a nominee designated by the
Board of Directors, unless the board reduces the number of directors.
10
<PAGE>
If a quorum of shareholders is present at the annual meeting, the seven
nominees for election as directors who receive the greatest number of votes cast
at the meeting will be elected directors.
Chester L.F. Paulson and Jacqueline M. Paulson are husband and wife.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held two meetings during 1999. Each director
nominated for reelection attended 75 percent or more of the aggregate number of
meetings of the Board of Directors that were held during the period in which he
or she was a director.
The Company has an audit committee, which consisted of Ms. Paulson, Dr.
Pratt and Mr. Shoen. The committee met three times during 1999. Among other
matters, the Audit Committee reviews the Company's expenditures, reviews the
Company's internal accounting controls and financial statements, reviews with
the Company's independent certified public accountants the scope of their audit,
their report and their recommendations, and recommends the selection of the
Company's independent certified public accountants.
The Board of Directors does not have executive, compensation or
nominating committees.
11
<PAGE>
II. ADOPTION OF THE 1999 STOCK OPTION PLAN
Effective September 30, 1999, the Company's Board of Directors approved
the Company's 1999 Stock Option Plan (the "Plan") for the benefit of its
employees and directors and created a Committee of non-employee directors (the
"Committee") to review and approve the grant of options under the Plan. The
Board of Directors believes the availability of stock incentives is an important
factor in the Company's ability to attract and retain experienced and competent
employees and directors and to provide an incentive for them to exert their best
efforts on behalf of the Company. 500,000 shares of Common Stock have been
reserved for issuance upon exercise of options granted under the Plan. Effective
September 30, 1999, the Committee approved the grant of options under the Plan
to purchase an aggregate of 128,000 shares of common stock. These option grants
are subject to shareholder approval of the Plan and, if the Plan is not
approved, the grants will be void.
Shareholder approval of this Proposal will constitute a approval of the
per-recipient limit of 75,000 shares on grants of options under the Plan. This
approval is required every five years for continued compliance with proposed
regulations under Section 162(m) of the Internal Revenue Code of 1986. See "Tax
Consequences."
Certain provisions of the Plan are described below. The complete text
of the Plan is attached to this proxy statement as Appendix A.
DESCRIPTION OF THE PLAN
ELIGIBILITY. All employees, officers and directors of the Company and
its subsidiaries are eligible to participate in the Plan. Incentive Stock
Options ("ISO's") may be granted only to employees of the Company or a
subsidiary. No employee may be granted options to purchase more than 75,000
shares under the Plan.
ADMINISTRATION. Authority to administer the Plan is placed in a
Committee of the Board of Directors (the "Committee"), which may promulgate
rules and regulations for the operation of the Plan and generally supervise the
administration of the Plan. Only the Board of Directors, however, may amend,
modify or terminate the Plan.
TERM OF PLAN. The Plan will continue until all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board of Directors may suspend or terminate the Plan at any
time.
STOCK OPTIONS. The Board of Directors or an appropriate committee
determines the persons to whom options are granted, the option price, the number
of shares to be covered by each option, the period of each option, the times at
which options may be exercised and whether the option is an ISO or a
nonqualified stock option ("NSO"). If the option is an ISO, the option price
cannot be less than the fair market value of the Common Stock on the date of
grant. If an optionee with respect to an ISO at the time of grant owns stock
possessing more than ten percent of the combined voting power of the Company,
the option price may not be less than 110 percent
12
<PAGE>
of the fair market value of the Common Stock on the date of grant. In addition,
the Plan limits the amount of ISOs that may become exercisable under the Plan in
any year to $100,000 per optionee (based on the fair market value of the stock
on the date of grant). No monetary consideration is paid to the Company upon the
granting of options.
Options granted under the Plan generally continue in effect for the
period fixed by the Board of Directors or appropriate committee or officer,
except that ISOs are not exercisable after the expiration of 10 years from the
date of grant. Options are exercisable in accordance with the terms of an option
agreement entered into at the time of grant and are nontransferable except on
death of a holder. Options may be exercised only while an optionee is employed
by the Company or a subsidiary or within 12 months following termination of
employment by reason of death or disability or 30 days following termination for
any other reason. The Plan provides that the Committee may extend the exercise
period for any period up to the expiration date of the option and may increase
the number of shares for which the option may be exercised up to the total
number underlying the option. The purchase price for each share purchased
pursuant to exercise of options is determined by the Committee. Shares subject
to options that expire or are cancelled or othewise terminated unexercised are
again available for issuance on exercise of options granted under the Plan,
However, upon the exercise of an option, the number of shares subject to the
option and the number of shares available under the Plan for future option
grants are reduced by the number of shares with respect to which the option is
exercised.
CHANGES IN CAPITAL STRUCTURE. The Plan provides that if the outstanding
Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any recapitalization, stock split or certain
other transactions, appropriate adjustment will be made by the Board of
Directors in the number and kind of shares available for awards under the Plan.
In the event of a dissolution, merger, consolidation or plan of exchange to
which the Company is a party (each a "Transaction"), the Committee may, in its
sole discretion provide a 30-day period prior to the consummation of the
Transaction during which outstanding options shall be exercisable in whole or in
part without any limit on exercisability and upon the expiration of such 30-day
period, all unexercised options shall immediately terminate.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
considerations concerning non-statutory stock options and incentive stock
options. The discussion does not describe any tax consequences under the tax
laws of any state, locality or foreign jurisdiction. Furthermore, the discussion
is based on the provisions of the Code and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be repealed
or modified retroactively so as to result in federal income tax consequences
different from those discussed below. THE DISCUSSION BELOW DOES NOT DISCUSS ALL
FEDERAL TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR OPTIONEE, AND IS
NOT INTENDED AS TAX ADVICE. FOR EXAMPLE, THE DISCUSSION BELOW GENERALLY IS
APPLICABLE ONLY IF SHARES ACQUIRED PURSUANT TO EXERCISE OF OPTIONS ARE HELD BY
OPTIONEES AS CAPITAL ASSETS. ALSO, THE DISCUSSION BELOW GENERALLY IS
13
<PAGE>
APPLICABLE ONLY IF SHARES ACQUIRED PURSUANT TO EXERCISE OF OPTIONS ARE NOT
SUBJECT TO REPURCHASE BY THE COMPANY.
NON-STATUTORY STOCK OPTIONS
GENERAL. No income is realized by the grantee of a non-statutory stock
option until the option is exercised. When a non-statutory stock option is
exercised, the optionee recognizes ordinary compensation income, and the Company
generally becomes entitled to a deduction, in the amount by which the market
value of the shares subject to the non-statutory stock option at the time of
exercise exceeds the exercise price. With respect to options exercised by
certain executive officers, the Company's deduction can in certain circumstances
be limited by the $1,000,000 cap on deductibility set forth in Section 162(m) of
the Code. The Company is required to withhold income and employment taxes on all
amounts treated as ordinary income to optionees who are employees of the
Company. Upon the sale of shares acquired by exercise of a non-statutory stock
option, the amount by which the sale proceeds exceed the market value of the
shares on the date of exercise will constitute capital gain. In general, capital
gain will be taxed at favorable rates if the optionee holds the shares for more
than one year, and will be taxed at even more favorable rates in certain
circumstances if the optionee holds the shares for more than five years.
EXERCISE USING PREVIOUSLY ACQUIRED SHARES. If an optionee exercises a
non-statutory stock option using previously acquired shares (the "exercise
shares"), the tax results of the option exercise generally will be as set forth
above, except that for purposes of determining the tax consequences upon
disposition of the shares acquired upon exercise of the option (the "option
shares") the option shares will be divided into two groups. The first group,
consisting of the number of option shares equal to the number of exercise
shares, will have a tax basis equal to the tax basis of the exercise shares
immediately before the exercise of the option. The second group, consisting of
the balance of the option shares, will have a tax basis equal to the market
value of the shares on the date of exercise of the option. The gain upon
disposition of option shares will be the excess of the sales proceeds over the
tax basis of the shares. If the exercise shares were acquired on exercise of an
incentive stock option, the option shares in the first group generally will be
treated for tax purposes as if acquired at the same time as the exercise shares.
The use of shares previously acquired on exercise of an incentive stock option
to exercise a non-statutory stock option will not be treated as an early
disposition of the exercise shares even though the applicable holding periods
have not been satisfied. Before exercising a non-statutory stock option using
previously acquired shares, optionees should consult their individual tax
advisers.
EXERCISE BY "INSIDERS". The tax consequences described above also apply
to an optionee who is an "insider" for purposes of Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), unless both
(a) the grant of the option was not approved by either the board of directors or
a committee composed solely of two or more non-employee directors and (b) the
insider exercises the option within six months of the date of grant. Optionees
who are insiders should consult their individual tax advisers before exercising
a non-statutory stock option in such cases.
14
<PAGE>
INCENTIVE STOCK OPTIONS
GENERAL. No income will be recognized by an optionee upon either grant
or exercise of an incentive stock option. The amount by which the market value
of shares issued upon exercise of an incentive stock option exceeds the exercise
price, however, is included in the optionee's alternative minimum taxable income
and may, under certain conditions, be taxed under the alternative minimum tax.
If the optionee holds shares acquired upon exercise of an incentive stock option
for two years after the date of grant and one year after the date of exercise
(the "holding periods"), and if the optionee has been an employee of the Company
(or of any parent or subsidiary of the Company) at all times from the date of
grant to the date three months (or longer in cases of death or disability)
before exercise, then any gain realized by the optionee upon sale or exchange of
the shares will be capital gain. In general, capital gain will be taxed at
favorable rates if the optionee holds the shares for more than one year, and
will be taxed at even more favorable rates in certain circumstances if the
optionee holds the shares for more than five years.
Generally, if an optionee disposes of shares acquired upon exercise of
an incentive stock option within the holding periods and all requirements other
than the holding period rules are met (an "early disposition"), the optionee
generally will recognize ordinary compensation income for the year of
disposition equal to the lesser of (i) the excess of the market value of the
shares on the date of exercise over the exercise price or (ii) the excess of the
amount realized on disposition of the shares over the exercise price. The
remainder of the gain realized upon the early disposition, if any, will be
capital gain. In general, capital gain will be taxed at favorable rates if the
optionee holds the shares for more than one year, and will be taxed at even more
favorable rates in certain circumstances if the optionee holds the shares for
more than five years. If shares acquired upon exercise of an incentive stock
option are disposed of in an early disposition, the Company generally will be
entitled to a deduction in the year of disposition equal to the amount of
ordinary compensation income recognized by the optionee. With respect to shares
purchased by certain executive officers, the Company's deduction can, in certain
circumstances, be limited by the $1,000,000 cap on deductibility under Section
162(m) of the Code.
EXERCISE USING PREVIOUSLY ACQUIRED SHARES. If an optionee exercises an
incentive stock option using previously acquired shares (the "exercise shares")
to acquire new shares (the "option shares"), the tax results generally will be
as set forth above, with the following exceptions. If the exercise shares were
acquired on exercise of an incentive stock option and the applicable holding
periods have not been satisfied with respect to the exercise shares, the
optionee will be treated as having made an early disposition of the exercise
shares, and accordingly will have ordinary compensation income for the year of
disposition as discussed above.
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In addition, regulations proposed by the Internal Revenue Service
divide the option shares into two groups for purposes of determining the tax
consequences upon their disposition. The first group, consisting of the number
of option shares equal to the number of exercise shares, will have a tax basis
equal to the tax basis of the exercise shares immediately before exercise of the
option, increased by any amount recognized as ordinary compensation income on
the disposition of the exercise shares. The second group, consisting of the
balance of the option shares, will have a tax basis of zero. The gain upon
disposition of option shares will be the excess of the sales proceeds over the
tax basis of the shares. If the exercise shares were acquired on exercise of an
incentive stock option and the applicable holding periods had been satisfied
with respect to the exercise shares, the option shares in the first group
generally will be treated for tax purposes as if acquired at the same time as
the exercise shares. Only shares in the second group will effectively be subject
to the incentive stock option holding periods, and on an early disposition of
those shares an amount equal to their market value on the date of exercise will
be treated as ordinary compensation income. The disposition of any option share,
however, will be treated as the disposition of a share in the second group until
either all of the shares in the second group have been disposed of or the
holding periods have been satisfied. Before exercising an incentive stock option
using previously acquired shares, optionees should consult their individual tax
advisers.
EXERCISE BY "INSIDERS". The tax consequences described above also apply
to an optionee who is an "insider" for purposes of Section 16(b) of the Exchange
Act, unless both (a) the grant of the incentive stock option was not approved by
either the board of directors or a committee composed solely of two or more
non-employee directors and (b) the insider exercises the incentive stock option
within six months of the date of grant. Optionees who are insiders should
consult their individual tax advisers before exercising an incentive stock
option in such cases.
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NEW PLAN BENEFITS AND FINANCIAL STATEMENT IMPACT
Subject to stockholder approval of the Plan, the Company's Board of
Directors made options grants under the Plan that are summarized in the
following table. The options were granted on August 16, 1999. All options have
been exercisable since the date of grant. The closing price of the Company's
common stock, as reported on the Nasdaq stock market, was $4.4375 on August 16,
1999 and $5.375 on December 31, 1999. The value of the unexercised options will
vary with the price of the Company's common stock.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Value of Unexercised In-the-
Name and Position Options Granted money Options at 12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chester L.F. Paulson, President 14,000 $13,125.00
- -------------------------------------------------------------------------------------------------------------------
Kenneth T. LaMear, Senior Vice 8,000 $7,500.00
President of PIC
- -------------------------------------------------------------------------------------------------------------------
Glen Davis, President of PIC 14,000 $13,125.00
- -------------------------------------------------------------------------------------------------------------------
Jacqueline M. Paulson, 14,000 $13,125.00
Secretary-Treasurer
- -------------------------------------------------------------------------------------------------------------------
Executive Officer Group 50,000 $46,875.00
- -------------------------------------------------------------------------------------------------------------------
Non-Executive Director Group 6,000 $5,625.00
- -------------------------------------------------------------------------------------------------------------------
Non-Executive Officer Employee Group 72,000 $67,500.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
If the Plan is approved and the market value of the stock on the date of
approval is greater than the grant price, the Company will incur compensation
expense equal to the price per share differential multiplied by the number of
shares granted.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common Stock
present and entitled to vote on the matter is required to approve this Proposal.
Abstentions and broker non-votes have the same effect as "no" votes in
determining whether the Proposal is approved. The proxies will be voted for or
against the Proposal or as an abstention, in accordance with the instructions
specified on the proxy form. If no instructions are given, proxies will be voted
for approval of the Proposal. IF NO INSTRUCTIONS ARE GIVEN, PROXIES WILL BE
VOTED FOR APPROVAL OF THE PROPOSAL. The Board of Directors recommends a vote FOR
the proposal.
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III. OTHER MATTERS
At the date of this Proxy Statement, the Company has no knowledge of
any business other than that described above that will be presented at the
Annual Meeting.
DISCRETIONARY AUTHORITY
The enclosed proxy, however, gives discretionary authority to the proxy
holders to vote in accordance with their judgment if any other matters are
presented.
For this year's annual meeting of shareholders, if notice of a
shareholder proposal to be raised at the annual meeting of shareholders was
received at the principal executive offices of the Company after date 45 days
before the anniversary of the date on which the Company first mailed its proxy
materials for the prior year annual meeting, proxy voting on that proposal when
and if raised at the annual meeting will be subject to the discretionary voting
authority of the designated proxy holders. For the 2001 annual meeting of
shareholders, if notice of a shareholder proposal to be raised at the meeting is
received at the principal executive offices of the Company after April 14, 2001
proxy voting on that proposal when and if raised at the annual meeting will be
subject to the discretionary voting authority of the designated proxy holders.
The Board of Directors has selected Grant Thornton as the Company's
independent auditors for 2000. Representatives of Grant Thornton will be present
at the annual meeting, will have the opportunity to make a statement if they
desire and will be available to respond to appropriate questions.
Any stockholder who wishes to submit a proposal for inclusion in the
proxy materials to be distributed by the Company in connection with its Annual
Meeting of Stockholders to be held in 2001 must do so not later than January 19,
2001. To be eligible for inclusion in the 2001 proxy materials of the Company,
proposals must conform to the requirements set forth in Regulation 14A under the
Securities Exchange Act of 1934.
UPON THE RECEIPT OF A WRITTEN REQUEST FROM ANY STOCKHOLDER, THE COMPANY
WILL MAIL, AT NO CHARGE TO THE STOCKHOLDER, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES REQUIRED
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1
UNDER THE SECURITIES EXCHANGE ACT OF 1934, FOR THE COMPANY'S MOST RECENT FISCAL
YEAR. WRITTEN REQUESTS FOR SUCH REPORT SHOULD BE DIRECTED TO:
JACQUELINE M. PAULSON, SECRETARY
PAULSON CAPITAL CORP.
811 SW NAITO PARKWAY, SUITE 200
PORTLAND, OREGON 97204
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You are urged to sign and return your proxy promptly in the enclosed
return envelope to make certain your shares will be voted at the Annual Meeting.
By order of the Board of Directors
Jacqueline M. Paulson
Secretary
Portland, Oregon
May 19, 2000
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<PAGE>
APPENDIX A
PAULSON CAPITAL CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1999 Stock Option Plan (the "Plan") is
to enable Paulson Capital Corporation (the "Company") to attract and retain the
services of selected employees, officers, and directors of the Company and of
any subsidiary thereof, and to provide added incentive to such persons by
increasing their ownership interests in the Company.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below
and in paragraph 7, the shares to be offered under the Plan shall consist of
Common Stock of the Company, and the total number of shares of Common Stock that
may be issued under the Plan shall not exceed 500,000 shares. The shares issued
under the Plan may be authorized and unissued shares or reacquired shares. If an
option granted under the Plan expires, terminates or is canceled, the unissued
shares subject to such option shall again be available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors; provided, however, that prior to shareholder approval of the
Plan, any awards shall be subject to and conditioned on approval of the Plan by
a majority of the votes cast at a shareholders' meeting at which a quorum is
present. Options may be granted under the Plan at any time after the effective
date and before termination of the Plan.
(b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options then outstanding under the Plan.
4. ADMINISTRATION. The Plan shall be administered by a committee of the
Board of Directors of the Company (the "Committee"), which shall determine and
designate from time to time the persons to whom awards shall be made and the
amount and other terms and conditions of the awards. Subject to the provisions
of the Plan, the Committee may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Committee necessary or desirable for
the administration of the Plan. The interpretation and construction of the
provisions of the Plan and related agreements by the Committee shall be final
and conclusive. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect,
and it shall be the sole and final judge of such expediency. No director shall
vote on any action by the Committee or the Board of Directors of the Company
with respect to any matter relating to an award held by such director.
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5. TYPES OF AWARDS; ELIGIBILITY. The Committee may, from time to time,
grant (i) Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in Sections 6(a) and
6(b); and (ii) options other than Incentive Stock Options ("Non-Statutory Stock
Options"), as provided in Sections 6(a) and 6(c). Options may be awarded
pursuant to this Plan only to employees, officers, and directors of the Company
or any subsidiary thereof; provided, however, that only employees of the Company
shall be eligible to receive Incentive Stock Options under the Plan. The
Committee shall select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom an award is
made. At the discretion of the Committee, a director may be given an election to
surrender an award in exchange for the grant of a new award. Notwithstanding
anything to the contrary herein, and in addition to any other applicable
limitation, no single employee may be granted more than 75,000 options under
this plan.
6. OPTION GRANTS.
(a) TERMS OF GRANT. The Committee may grant options under the Plan.
With respect to each option grant, the Committee shall determine the number of
shares subject to the option, the option price, the period of the option, the
time or times at which the option may be exercised, and whether the option is an
Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant
of an option or at any time thereafter, the Committee may provide that an
optionee who exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal to the
number of shares surrendered and may specify the terms and conditions of such
new options.
(b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) LIMITATION ON AMOUNT OF GRANTS. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair market
value, on the date of grant, of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by that
employee during any calendar year under the Plan and under all
incentive stock option plans (within the meaning of Section 422 of the
Code) of the Company or any parent or subsidiary of the Company exceeds
$100,000.
(ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive
Stock Option may be granted under the Plan to an employee possessing
more than ten percent of the total combined voting power of all classes
of stock of the Company or of any parent or subsidiary of the Company
only if the option price is at least 110 percent of the fair market
value of the Common Stock subject to the option on the date it is
granted and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
(iii) DURATION OF OPTIONS. Subject to Sections 6(b)(ii) and 6(d),
Incentive Stock Options granted under the Plan shall continue in effect
for the period fixed by the
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Committee, except that no Incentive Stock Option shall be exercisable
after the expiration of ten years from the date it is granted.
(iv) OPTION PRICE. The option price per share shall be determined by
the Committee at the time of grant. Except as provided in Section
6(b)(ii), the option price shall not be less than 100 percent of the
fair market value of the Common Stock covered by the Incentive Stock
Option at the date the option is granted. The Committee shall make a
good faith determination of the fair market value. If the Common Stock
of the Company is not publicly traded on the date the option is
granted, the Committee may consider any valuation methods it deems
appropriate and may, but is not required to, obtain one or more
independent appraisals of the Company. If the Common Stock of the
Company is publicly traded on the date the option is granted, the fair
market value shall be deemed to be the closing price of the Common
Stock as reported in The Wall Street Journal on the day preceding the
date the option is granted, or, if there has been no sale on that date,
on the last preceding date on which a sale occurred or such other value
of the Common Stock as shall be specified by the Committee.
(v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall be
granted on or after the tenth anniversary of the date of the last
action by the Committee approving an increase in the number of shares
available for issuance under the Plan, which action was subsequently
approved within 12 months by the shareholders.
(vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Committee may at any
time without the consent of the optionee convert an Incentive Stock
Option to a Non-Statutory Stock Option.
(c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:
(i) OPTION PRICE. The option price for Non-Statutory Stock Options
shall be determined by the Committee at the time of grant and may be
any amount determined by the Committee.
(ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted under the
Plan shall continue in effect for the period fixed by the Committee.
(d) EXERCISE OF OPTIONS. Except as provided in paragraph 6(f) or as
determined by the Committee, no option granted under the Plan may be exercised
unless at the time of such exercise the optionee is employed by or in the
service of the Company or a subsidiary thereof and shall have been so employed
or provided such service continuously since the date such option was granted.
Absence on leave or on account of illness or disability under rules established
by the Committee shall not, however, be deemed an interruption of continuous
service for this purpose. Unless otherwise determined by the Committee, vesting
of options shall not continue during an absence on leave (including an extended
illness) or on account of disability. Except as provided in paragraphs 6(f) and
7, options granted under the Plan may be
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exercised from time to time over the period stated in each option in such
amounts and at such times as shall be prescribed by the Committee, provided that
options shall not be exercised for fractional shares. Unless otherwise
determined by the Committee, if the optionee does not exercise an option in any
one year with respect to the full number of shares to which the optionee is
entitled in that year, the optionee's rights shall be cumulative and the
optionee may purchase those shares in any subsequent year during the term of the
option.
(e) NONTRANSFERABILITY. Except as provided below, each stock option
granted under the Plan by its terms shall be nonassignable and nontransferable
by the optionee, either voluntarily or by operation of law, and each option by
its terms shall be exercisable during the optionee's lifetime only by the
optionee. A stock option may be transferred by will or by the laws of descent
and distribution of the state or country of the optionee's domicile at the time
of death. The Committee may, in its discretion, authorize all or a portion of an
option to be on terms which permit transfer by the optionee to (A) the spouse,
children or grandchildren of the optionee, including stepchildren and adopted
children ("Immediate Family Members"), (B) a trust or trusts for the exclusive
benefit of Immediate Family Members, or (C) a partnership or limited liability
company in which Immediate Family Members are the only partners or members,
provided that (X) there may be no consideration for any transfer, (Y) the stock
option agreement pursuant to which the options are granted or an amendment
thereto must expressly provide for transferability in a manner consistent with
this paragraph, and (Z) subsequent transfers of transferred options shall be
prohibited except by will or by the laws of descent and distribution. Following
any transfer, options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of paragraphs 6(g) and 7 the term "optionee" shall be deemed to refer
to the transferee. The continued service requirement of paragraph 6(d) and the
events of termination of service of paragraph 6(f) shall continue to be applied
with respect to the original optionee, and following the termination of
employment or service of the original optionee the options shall be exercisable
by the transferee only to the extent, and for the periods specified, and all
other references to employment or service, termination of employment or service,
life or death of the optionee shall continue to be applied with respect to the
original optionee.
(f) TERMINATION OF SERVICE.
(i) GENERAL RULE. Unless otherwise determined by the Committee, in the
event the employment or service of the optionee with the Company or a
subsidiary thereof terminates for any reason other than because of
physical disability or death as provided in subparagraphs 6(f)(ii) and
(iii) the option may be exercised at any time prior to the expiration
date of the option or the expiration of 30 days after the date of such
termination, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
such termination.
(ii) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise
determined by the Committee, in the event of the termination of
employment or service because of total disability, the option may be
exercised at any time prior to the expiration date of the option or the
expiration of 12 months after the date of such termination, whichever
is the
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shorter period, but only if and to the extent the optionee was entitled
to exercise the option at the date of such termination. The term "total
disability" means a mental or physical impairment which is expected to
result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the optionee to
be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties as an employee, director or
officer of the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the
first day after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
(iii) TERMINATION BECAUSE OF DEATH. Unless otherwise determined by the
Committee, in the event of the death of an optionee while employed by
or providing service to the Company or a subsidiary, the option may be
exercised at any time prior to the expiration date of the option or the
expiration of 12 months after the date of such death, whichever is the
shorter period, but only if and to the extent the optionee was entitled
to exercise the option at the date of such termination and only by the
person or persons to whom such optionee's rights under the option shall
pass by the optionee's will or by the laws of descent and distribution
of the state or country of domicile at the time of death.
(iv) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The
Committee, at the time of grant or at any time thereafter, may extend
the 30-day and 12-month exercise periods specified above any length of
time not later than the original expiration date of the option, and may
increase the portion of an option that is exercisable, subject to such
terms and conditions as the Committee may determine.
(v) FAILURE TO EXERCISE OPTION. To the extent that the option of any
deceased optionee or of any optionee whose employment or service
terminates is not exercised within the applicable period, all further
rights to purchase shares pursuant to such option shall cease and
terminate.
(g) PURCHASE OF SHARES.
(i) Unless the Committee determines otherwise, shares may be acquired
pursuant to an option granted under the Plan only upon receipt by the
Company of notice in writing from the optionee of the optionee's
intention to exercise, specifying the number of shares as to which the
optionee desires to exercise the option, the date on which the optionee
desires to complete the transaction, and, if required in order to
comply with the Securities Act of 1933, as amended, containing a
representation that it is the optionee's present intention to acquire
the shares for investment and not with a view to distribution.
(ii) Unless the Committee determines otherwise, on or before the date
specified for completion of the purchase of shares pursuant to an
option, the optionee must have paid the Company the full purchase price
of such shares in cash (including, with the consent of the Committee,
cash that may be the proceeds of a loan from the Company) or, with the
consent of the Committee, in whole or in part, in Common Stock of the
Company valued
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at fair market value, restricted stock, performance units or other
contingent awards denominated in either stock or cash, deferred
compensation credits, promissory notes and other forms of
consideration. The Committee shall make a good faith determination of
the fair market value of Common Stock provided in payment of the
purchase price. If the Common Stock of the Company is not publicly
traded on the date the option is exercised, the Committee may consider
any valuation methods it deems appropriate and may, but is not required
to, obtain one or more independent appraisals of the Company. No shares
shall be issued until full payment therefor has been made. With the
consent of the Committee, an optionee may request the Company to apply
automatically the shares to be received upon the exercise of a portion
of a stock option (even though stock certificates have not yet been
issued) to satisfy the purchase price for additional portions of the
option.
(iii) Each optionee who has exercised an option shall immediately upon
notification of the amount due, if any, pay to the Company in cash
amounts necessary to satisfy any applicable federal, state and local
tax withholding requirements. If additional withholding is or becomes
required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on
demand. If the optionee fails to pay the amount demanded, the Company
may withhold that amount from other amounts payable by the Company to
the optionee, including salary, subject to applicable law. With the
consent of the Committee an optionee may satisfy this obligation, in
whole or in part, by having the Company withhold from the shares to be
issued upon the exercise that number of shares that would satisfy the
withholding amount due or by delivering to the Company Common Stock to
satisfy the withholding amount.
(iv) Upon the exercise of an option, the number of shares reserved for
issuance under the Plan shall be reduced by the number of shares issued
upon exercise of the option.
7. CHANGES IN CAPITAL STRUCTURE. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Committee in the number and kind of shares available for awards under the
Plan. In addition, the Committee shall make appropriate adjustment in the number
and kind of shares as to which outstanding options then unexercised, shall be
exercisable, so that the optionee's proportionate interest before and after the
occurrence of the event is maintained. Notwithstanding the foregoing, the
Committee shall have no obligation to effect any adjustment that would or might
result in the issuance of fractional shares, and any fractional shares resulting
from any adjustment may be disregarded or provided for in any manner determined
by the Committee. Any such adjustments made by the Committee shall be
conclusive. In the event of dissolution of the Company or a merger,
consolidation or plan of exchange affecting the Company, in lieu of providing
for options or in lieu of having the options continue unchanged, the Committee
may, in its sole discretion, provide a 30-day period prior to such event during
which optionees shall have the right to exercise options in whole or in part
without any limitation
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on exercisability and upon the expiration of which 30-day period all unexercised
options shall immediately terminate.
8. AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraph 6(d), however, no change in an
award already granted shall be made without the written consent of the holder of
such award.
9. APPROVALS. The obligations of the Company under the Plan are subject
to the approval of state and federal authorities or agencies with jurisdiction
in the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
10. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
11. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
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PAULSON CAPITAL CORP. -- REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF PAULSON CAPITAL CORP.
THE UNDERSIGNED stockholder(s) of PAULSON CAPITAL CORP. (the
"Company"), 811 SW Naito Parkway, Portland, Oregon 97204, hereby appoints
Chester L.F. Paulson and Jacqueline M. Paulson as their designees and each of
them, with full powers of substitution, proxies of the undersigned to cast all
votes which undersigned would be entitled to vote at the Annual Meeting of
Stockholders of the Company, to be held June 20, 2000 at 2:00 p.m. (PDT) in the
third-floor conference room at the Company's offices, and all adjournments
thereof, with all powers undersigned would possess if personally present, and
particularly (without limiting the generality of the foregoing) to vote and act.
Item 1. ELECTION OF DIRECTORS. List of Nominees: Chester L.F. Paulson,
Jacqueline M. Paulson, Glen Davis, Shannon P. Pratt, Paul F. Shoen, John
Westergaard
[ ] For all nominees [ ] Withhold all nominees
[ ] Withhold nominees indicated:_____________________________
The Board of Directors recommends a vote FOR all nominees.
Item 2. PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1999 STOCK OPTION
PLAN.
[ ] For Proposal [ ] Against Proposal [ ] Abstain
The Board of Directors recommends a vote FOR approval of the Proposal.
The Company knows of no other business to come before the meeting. THE
PROXY HOLDERS INTEND TO VOTE FOR THE DIRECTORS AND FOR APPROVAL OF THE ADOPTION
OF THE COMPANY'S 1999 STOCK OPTION PLAN, UNLESS THIS PROXY IS MARKED TO THE
CONTRARY. If any other business comes before the meeting, this Proxy will be
voted in accordance with the best judgment of the Proxy Holders. This Proxy will
be used only at the June 20, 2000 Annual Meeting or any adjournment(s) thereof.
Undersigned hereby acknowledge(s) receipt of the accompanying Notice of
Annual Meeting and Proxy Statement dated May 19, 2000 prior to signing this
Proxy. Please sign, date and return this proxy in the envelope provided. PLEASE
SIGN EXACTLY AS SHOWN ON THIS PROXY. ONLY ONE SIGNATURE IS NEEDED FOR JOINT
OWNERSHIP.
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