PAULSON CAPITAL CORP.
May 11, 2001
Dear Stockholder:
The 2001 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 12,
2001 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
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
JUNE 12, 2001
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 12, 2001 at 2:00 p.m. (PDT) for the following
purposes:
1. To elect six Directors whose term of office will expire in 2002.
2. 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
11, 2001 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 11, 2001
PAULSON CAPITAL CORP.
811 SW NAITO PARKWAY
PORTLAND, OREGON 97204
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 12, 2001
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 2001 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 12, 2001 at 2:00 p.m. (PDT) and any adjournments thereof. These
proxy materials are being mailed on or about May 11, 2001 to holders of record
on May 11, 2001 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.
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.
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 11, 2001 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, 2001, 3,276,866 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.
2
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, 2001, 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:
NAME AND ADDRESS OF BENEFICIAL RELATIONSHIP TO COMPANY SHARES PERCENT
OWNER BENEFICIALLY OF CLASS
OWNED (1)
Chester L.F. and Jacqueline M. President and Chairman of the Board of 1,559,443 46.9%
Paulson, as joint tenants (2) Directors of the Company, officer and
director of PIC (Mr. Paulson);
Secretary-Treasurer and Director of
the Company and officer and director
of PIC (Mrs. Paulson)
Glen Davis Officer and director of PIC 21,843 0.7%
Shannon P. Pratt Director 2,627 0.1%
Paul Shoen Director 17,627 0.5%
Johan Westergaard Director 2,000 0.1%
Steven Kleemann Shareholder 369,900 10.4
All Directors and Executive 1,603,540 48.2%
Officers as a group (6 persons)
- ---------------------------------------
(1) "Shares beneficially owned" and "Percent of Class" include vested options
issued under the Company's 1999 Stock Option Plan exercisable within 60
days of March 31, 2001. Chester and Jacqueline Paulson each have options to
purchase 14,000 shares, each own 30,000 shares in their individual
retirement accounts, and the balance of their shares indicated in the table
are held in the name of Paulson Family LLC. 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. Dr. Pratt owns
627 shares and each of Dr. Pratt and Mr. Westergaard has options to
purchase 2,000 additional shares.
(2) Address is 811 SW Naito Parkway, Suite 200, Portland, OR 97204
3
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, 2000, 1999 and 1998 of those persons who
were, at December 31, 2000, the Chief Executive Officer of the Company and the
only other executive officers of the Company whose total annual compensation
exceeded $100,000 in 2000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION
COMPENSATION --------------------- -------------
Name and Principal Position ----------------------------------------- Securities Underlying
Year $ Salary (1) $ Bonus (2) Options (# Shares) $ (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Chester L.F. Paulson, 2000 1,040,857 45,000 -- 2,788,206
President 1999 351,621 175,000 14,000 30,000
1998 226,011 1,667 -- 1,500
Glen Davis, President of PIC 2000 482,377 45,000 -- 14,056
1999 320,512 125,000 14,000 30,000
1998 239,318 1,667 -- 1,500
Jacqueline M. Paulson, 2000 25,301 40,000 -- 8,908
Secretary-Treasurer 1999 49,804 75,000 14,000 10,914
1998 36,472 1,667 -- 1,500
(footnotes on next page)
4
(1) Neither Mr. Paulson nor Mrs. Paulson is paid any salary. The
amounts included in the "Salary" column for Mr. Paulson consist of amounts paid
contingent upon the completion of PIC's corporate finance transactions and a
percentage of the profit in PIC's investment account. The mounts 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. Davis are retail commissions from Mr. Davis's service as a registered
representative of PIC as well as a salary of $37,800 in 2000 and $36,000 per
year in 1999 and 1998. 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
2000 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 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. For 2000, the bonus pool calculation was $447,078, but
the Board of Directors reduced actual bonus payments to officers and directors
to $400,000.
(3) Amounts shown for 2000 include contributions of $1,500 for each
of the Named Executive Officers relating to PIC's match of employee
contributions of $1,500 pursuant to PIC's 401(k) retirement plan. Amounts
shown for 1999 include a contribution of $1,500 for Mrs. Paulson relating to
PIC's match of employee contributions pursuant to PIC's 401(k) retirement
plan. Amounts shown for 1998 include contributions of $1,500 for each of
Messrs. Paulson and Davis and Mrs. Paulson relating these matching
contributions. Amounts shown for 2000 include contributions of $12,556 for
each of Mr. Paulson and Mr. Davis and $7,408 for Mrs. Paulson to PIC's tax
qualified profit sharing plan. Amounts shown for 1999 include contributions
of $30,000 for each of Mr. Paulson and Mr. Davis and $9,414 for Mrs. Paulson
to PIC's tax qualified profit sharing plan. There was no profit sharing
contribution for 1998. 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 2000
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. 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, are included in the table above. In 2000, this gain was
$2,774,150. There was no net gain in 1999 or 1998. Underwriter warrants are
received by PIC upon the completion of corporate finance transactions for its
clients.
5
STOCK OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers pursuant
to the Company's 1999 Stock Option Plan during the year ended December 31, 2000.
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.
DECEMBER 31, 2000 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 2000.
- ---------------------------- ---------------------------------------------- ---------------------------------------------
Number of Shares Underlying Unexercised Value of Unexercised In-the-money Options
Options at 12/31/00 at 12/31/00
- ---------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Chester Paulson 14,000 0 $10,062.00 0
- ---------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Glen Davis 14,000 0 $13,125.00 0
- ---------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Jacqueline Paulson 14,000 0 $13,125.00 0
- ---------------------------- ---------------------- ----------------------- ---------------------- ----------------------
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 $5.1562 on December 31, 2000.
OPTION EXERCISES
There were no stock options exercised during 2000 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
6
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 Mrs. 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 did not issue stock with
respect to directors meetings in 2000 and does not anticipate issuing stock with
respect to directors meetings in future years.
7
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.
NAME, AGE, PUBLIC DIRECTORSHIPS DIRECTOR
AND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS SINCE
Chester L.F. Paulson, Age 65 1970
President of the Company; Director of Corporate Finance of PIC
Jacqueline M. Paulson, Age 62 1976
Secretary-Treasurer of the Company; Secretary-Treasurer
of PIC
Glen Davis, Age 45 1999
President of PIC since 2/98 (Senior Vice President of PIC
prior to 2/98)
Shannon P. Pratt, Age 67 1998
Managing Director, Founder--Willamette Management Associates, a business
valuation firm
Paul Shoen, Age 44 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 from 2/97 to
8/98
John Westergaard, Age 69 1998
Publisher/Editor of Westergaard Online Systems, Inc., an Internet publisher of
financial "webzines"
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.
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.
8
Chester L.F. Paulson and Jacqueline M. Paulson are husband and wife.
Two companies affiliated with John Westergaard, Westergaard.com,
Inc. ("WCI") and its wholly owned subsidiary Westergaard Broadcasting
Network.com, Inc. ("WBN"), are each subject to court orders enjoining them
from violating Section 17(b) of the Securities Act of 1933 (the "Act") by
describing a security, though not purporting to be offering such security for
sale, for consideration received or to be received without disclosing the
receipt of such consideration and its amount. These orders were issued
pursuant to a complaint filed by the Securities and Exchange Commission
against Mr. Westergaard, WCI and WBN alleging that they violated Section
17(b) of the Act by disseminating favorable information regarding certain
small-cap, publicly traded companies without adequately disclosing that the
companies were paying for such coverage. Mr. Westergaard is also alleged to
have violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder by these same activities. At the time of the alleged
misconduct, Mr. Westergaard was the majority shareholder as well as the
Chairman, Publisher and Editorial Director of WCI and the Chairman of WBN. No
order, judgment or decree has been entered against Mr. Westergaard.
BOARD AND COMMITTEE MEETINGS
The Board of Directors has an audit committee. The audit committee
reviews and makes recommendations to the Board of Directors concerning our
internal accounting procedures, reviews and consults with its independent
accountants on the accounting principles and auditing practices used for its
financial statements and makes recommendations to the board of directors
concerning the engagement of independent accountants and the scope of the
audit to be undertaken by the accountants. The current members of the audit
committee are Mr. Westergaard, Dr. Pratt and Mr. Shoen. The Board of
Directors and the audit committee believe that the audit committee's current
member composition satisfies the rule of the National Association of
Securities Dealers, Inc. ("NASD") that governs audit committee composition,
including the requirement that audit committee members all be "independent
directors" as that term is defined by NASD Rule 4200(a)(14).
The Board of Directors held four meetings during 2000 and the audit
committee held two meetings. Each current director attended, in person or by
teleconference, at least 75 percent of the aggregate of (i) the total number of
meetings of the board, and (ii) the number of meetings held by all the
committees of the board on which he served.
The Board of Directors does not have executive, compensation or
nominating committees.
9
AUDIT COMMITTEE MATTERS
The Board of Directors has approved and adopted an Audit Committee
Charter, a copy of which is attached to this Proxy Statement as APPENDIX A.
REPORT OF THE AUDIT COMMITTEE
In connection with our audited financial statements for 2000, the Audit
Committee (1) reviewed and discussed the audited financial statements with
management; (2) discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61; and (3) received the
written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 and discussed with the independent
auditors their independence. Based upon these reviews and discussions, the Audit
Committee has recommended to the board of directors, and the board of directors
has approved, that our audited financial statements be included in our Annual
Report on Form 10-KSB for the year ended December 31, 2000 for filing with the
Securities and Exchange Commission.
Shannon P. Pratt
Paul Shoen
John Westergaard
PRINCIPAL ACCOUNTING FIRM FEES
We incurred the following fees for services performed by our principal
accounting firm, Grant Thornton LLP, in 2000:
Audit fees $ 54,100 (1)
Financial information
systems design and
implementation fees $ 0 (2)
All other fees $ 30,290 (2)(3)
Total $ 84,390
(1) Fees for the audit of our annual financial statements for 2000 and
the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-QSB for the fiscal year ended December 31, 2000 were $54,100,
of which an aggregate amount of $4,700 has been billed through December 31,
2000.
(2) The Audit Committee has considered whether the provision of the
services covered by these fees is compatible with maintaining the principal
accountant's independence.
(3) Represents the aggregate fees billed for all other services
rendered by Grant Thornton LLP for 2000.
10
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.
INDEPENDENT ACCOUNTANTS
Grant Thornton LLP audited the Company's consolidated financial
statements for the year ended December 31, 2000 and has been selected to audit
the Company's consolidated financial statements for 2001. Representatives of
Grant Thornton LLP will be at the annual meeting and will be available to
respond to appropriate questions. They do not plan to make any statement but
will have the opportunity to make a statement if they wish.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who own more than 10
percent of the common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors, and beneficial owners of more than 10 percent of the common
stock are required by SEC regulation to furnish the Company with copies of all
section 16(a) reports they file. Based solely on a review of such reports
received by the Company and on written representations from certain reporting
persons that they have complied with the relevant filing requirements, the
Company believes that all section 16(a) filing requirements applicable to its
executive officers and directors have been complied with.
DISCRETIONARY AUTHORITY
Although the Notice of Annual Meeting of Shareholders provides for
transaction of any other business that properly comes before the meeting, the
Board of Directors has no knowledge of any matters to be presented at the
meeting other than the matters described in this proxy statement. 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 is
received at the principal executive offices of the Company after the date 45
days before the anniversary of the date on which the Company first mailed its
proxy materials for the 2001 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 2002 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 March 22, 2002,
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.
11
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in proxy
materials for the Company's 2002 annual meeting must be received at the
principal executive offices of the Company no later than January 11, 2002. To be
eligible for inclusion in the 2002 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
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 11, 2001
12
APPENDIX A
PAULSON CAPITAL CORP.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of Directors to assist
the Board in monitoring the integrity of the financial statements of the Company
and the independence and performance of the Company's external auditors. The
Audit Committee has the responsibilities and powers set forth in this Charter,
but it is the responsibility of management of the Company and the independent
auditor, not the Audit Committee, to plan or conduct audits and to determine
that the Company's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles and other applicable
standards. It is not the duty of the Audit Committee to conduct investigations,
to resolve disagreements, if any, between management and the independent auditor
or to assure compliance with laws and regulations.
The members of the Audit Committee shall meet the independence and
experience requirements of the Nasdaq Stock Market or of any exchange on which
the Company's securities are listed for trading.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee may
request any officer or employee of the Company or the Company's outside legal
counsel or independent auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board.
2. Meet periodically, but no less than once per year, with management
and the independent auditor to:
(a) Review the annual audited financial statements,
including major issues regarding accounting and
auditing principles and practices and the adequacy of
internal controls that could significantly affect the
Company's financial statements.
(b) Review an analysis prepared by management and the
independent auditor of significant financial
reporting issues and judgments made in connection
with the preparation of the Company's financial
statements.
(c) Review the Company's major financial risk exposures
and the steps management has taken to monitor and
control the exposures.
A-1
(d) Obtain reports from management and the independent
auditor as to whether the Company and its
subsidiaries are in conformity with applicable legal
requirements.
(e) Review major changes to the Company's auditing and
accounting principles and practices as suggested by
the independent auditor or management.
3. Review with management and the independent auditor the Company's
quarterly financial statements prior to the release of quarterly
earnings.
4. Evaluate the performance of the independent auditor and recommend
to the Board the appointment or replacement of the independent
auditor. Receive confirmation from the independent auditor of its
understanding that it is ultimately accountable to the Audit
Committee and the Board.
5. Approve the fees to be paid to the independent auditor.
6. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
7. Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss these reports with the auditor,
and, if so determined by the Audit Committee, recommend that the
Board take appropriate action to ensure the independence of the
auditor. Review and approve requests for any significant management
consulting engagements to be performed by the independent auditor.
8. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
9. Review with the independent auditor any problems or difficulties
the auditor may have encountered and any management letter provided
by the auditor and the Company's response to that letter. This
review should include a discussion of any difficulties encountered
in the course of the audit work, including any restrictions on the
scope of activities or access to required information.
10. Review the internal audit function of the Company, including the
independence and authority of its reporting obligations, and the
qualification of the Company's internal audit staff. Meet with the
Company's internal audit department representative to review the
plan and scope of work of the internal audit staff and to monitor
the progress of the plan.
11. Prepare the report of the Audit Committee required by the rules of
the Securities and Exchange Commission to be included in the
Company's proxy statement for its annual meeting of shareholders.
A-2
12. Review with the Company's general counsel, or other management
personnel if there is no general counsel, legal matters that may
have a material impact on the financial statements, the Company's
compliance policies and any material reports or inquiries received
from regulators or governmental agencies.
13. Meet at least annually with the chief financial officer and the
independent auditor in separate sessions.
14. Perform any other oversight or special investigatory functions
delegated by the Board of Directors.
15. Make regular reports to the Board.
A-3
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 12, 2001 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.
The Company knows of no other business to come before the meeting. THE
PROXY HOLDERS INTEND TO VOTE FOR THE DIRECTORS 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 judgment of the Proxy Holders. This Proxy will be
used only at the June 12, 2001 Annual Meeting or any adjournment(s) thereof.
Undersigned hereby acknowledge(s) receipt of the accompanying Notice of
Annual Meeting and Proxy Statement dated May 11, 2001 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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Date Signature Signature