AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION-SUBJECT TO CHANGE
FILE NO. 333-1220
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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GORDON & CO.
a Massachusetts Limited Partnership
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 6218 04-2106089
(State or other jurisdiction (Primary Standard Industrial (I.R.S Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ONE GATEWAY CENTER
NEWTON, MASSACHUSETTS 02158
(617) 964-6672
(Address,including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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MICHAEL B. SALKE
GORDON & CO.
One Gateway Center
Newton, Massachusetts 02158
(617) 964-6672
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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COPY TO:
WARREN G. MILLER, ESQ.
15 COURT SQUARE
BOSTON, MASSACHUSETTS 02108
(617) 227-6493
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Amending: The Prospectus
Part II, Items 13, 16a, 16b (Exhibits 5, 16 and 23)
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<PAGE>
GORDON & CO.
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CROSS REFERENCE SHEET BETWEEN ITEMS OF S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING PROSPECTUS CAPTION
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<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges......... Prospectus Summary (p. 5); Risk Factors
(p. 9)
4. Use of Proceeds.............................. *
5. Determination of Offering Price.............. *
6. Dilution..................................... *
7. Selling Security Holders..................... *
8. Plan of Distribution......................... *
9. Description of Securities to be Registered... Description of Gordon Options (p. 14)
10. Interests of Named Experts and Counsel....... Organization and Management of Gordon &
Co. (p. 33)
11(a). Description of Business...................... Description of Gordon Options (p. 14)
11(b). Description of Property...................... *
11(c). Legal Proceedings............................ Litigation Relating to Gordon & Co. (p. 33)
11(d). Market Price of and Dividends on Regis-
trant's Common Equity and Related
Stockholder Matters........................ *
11(e). Financial Statements......................... Financial Statements (p. 42)
11(f). Selected Financial Data...................... (p. 42)
11(g). Supplementary Financial Information.......... *
11(h). Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. *
11(i). Changes In and Disagreements With
Accountants on Accounting Matters and
Financial Disclosure....................... *
11(j). Directors and Executive Officers............. Organization and Management of Gordon &
Co. (p. 33)
11(k). Executive Compensation....................... Organization and Management of Gordon &
Co. (p. 33)
11(l). Security Ownership of Certain Beneficial Organization and Management of Gordon &
Owners and Management...................... Co. (p. 33)
11(m). Certain Relationships and Related Organization and Management of Gordon &
Transactions............................... Co. (p. 33)
12. Disclosure of Commission Position on In-
demnification for Securities Act Liabilities *
</TABLE>
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* Not applicable
<PAGE>
PROSPECTUS
GORDON & CO.
8,000 LIMITED PRICE PUT AND CALL OPTIONS
This prospectus pertains to Gordon & Co. Limited Price Put and Call Options
("Gordon Limited Price Option(s)" or "Limited Price Option(s)") which may be
purchased or sold in transactions with Gordon & Co. Gordon Limited Price
Options are put and call options, each of which relates to a particular
underlying stock, bond, warrant, right or unit, which islisted on a national
securities exchange or quoted on an automated quotation system of a national
securities association (NASDAQ), or to a particular underlying security issued
by the United States of America, or, subject to certain limitations on transfer
and exercise, to a standardized stock option or standardized stock index option
which is listed on a national securities exchange, all of which are hereinafter
referred to as "security" or "securities". Gordon Limited Price Options are
issued by Gordon & Co., a broker-dealer registered under the Securities
Exchange Act of 1934. Every Limited Price Option issued by Gordon & Co. is
registered under the Securities Act of 1933, and all purchasers of such
options are entitled to the protection of that Act. Gordon & Co. or any other
broker-dealer may be deemed to be an underwriter in a transaction in which it
acts on behalf of a purchaser of a Limited Price Option. Purchasers of Limited
Price Options are entitled to the protection of the applicable provisions of
the Securities Exchange Act of 1934.
The prices (also referred to as premiums) at which Gordon Limited Price
Options may be purchased are determined by agreement of the parties in a
transaction with Gordon & Co. The premiums are paid to Gordon & Co.
SUMMARY OF COSTS OF GORDON LIMITED PRICE OPTIONS, ALL SUBJECT TO NEGOTIATION
AND CHANGE (See page 31 for more details).
PREMIUM: 11 1/2% to 30% of the market value of the underlying security when
the security is traded on a national securities exchange. 15 1/2% to 40% of
the market value of the underlying security when the security is quoted on
NASDAQ. Premiums for Limited Price Options on standardized stock or
standardized index options are specially negotiated.
ADDITIONAL PREMIUM FOR INCREASING OR DECREASING THE EXERCISE AND EXPIRATION
PRICES: For each point the exercise price and expiration prices are increased
or decreased, $1.0625 per share of stock, warrant, right or unit, $10.625 per
bond and $106.25 per underlying option.
CHARGE FOR EXERCISE OF OPTION: There is no charge to the buyer for the
exercise of any Limited Price Option.
THESE ARE SPECULATIVE SECURITIES. THE PURCHASE OF GORDON LIMITED
PRICE OPTIONS INVOLVES A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR MANY
INVESTORS. SUCH TRANSACTIONS SHOULD BE ENTERED INTO ONLY BY INVESTORS
WHO HAVE READ AND UNDERSTAND THIS PROSPECTUS AND, IN PARTICULAR, WHO
UNDERSTAND THE NATURE AND EXTENT OF THEIR RIGHTS AND OBLIGATIONS AND
ARE AWARE OF THE RISKS INVOLVED. AN INVESTOR SHOULD NOT PURCHASE A
LIMITED PRICE OPTION UNLESS HE IS ABLE TO SUSTAIN A TOTAL LOSS OF THE
PREMIUM PAID AND ANYONE PURCHASING SUCH AN OPTION MUST EXPECT TO LOSE
THE ENTIRE AMOUNT PAID FOR THE OPTION. NO INVESTOR SHOULD PURCHASE A
LIMITED PRICE OPTION IF HE CAN PURCHASE A STANDARDIZED OPTION FOR A
COMPARABLE PREMIUM.
RISKS OF LIMITED PRICE OPTIONS TRANSACTIONS ARE DISCUSSED
THROUGHOUT THIS PROSPECTUS, AND PARTICULARLY AT PAGES 5, 9, 22 AND 27.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS ISSUER(2)
<S> <C> <C> <C>
Per Option............ $8,000 None $8,000
Total................. $64,000,000 None $64,000,000
</TABLE>
(1) Gordon Limited Price Options are not issued for predetermined premiums.
The figures set forth are estimated.
(2) The proceeds to the issuer are estimated. They may be substantially less
because of the repurchase provision of the Options and will vary depending on
the actual premiums received for the Options.
--------------------
The Date of this Prospectus is February 10, 1997.
<PAGE>
AVAILABLE INFORMATION
Gordon & Co. has been issued an exemption by the Commission from the
informational requirements of Section 15(d) of the Securities Exchange Act of
1934 (the"1934 Act"), but as a broker-dealer the Company is subject to the
informational requirements of Section 17 of the 1934 Act and in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission" or the "SEC"). Such reports and other
information, when filed, will be available for inspection and copying at the
Public Reference Section maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024,Washington, D.C. 20549, and at the Commission's
Regional Office in Boston, Massachusetts. Copies of such material can also be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
On or about July 31 of each year, Gordon & Co. will furnish the holder of each
outstanding Gordon Option with an unaudited balance sheet as of the previous
June 30, including a computation of Gordon & Co.'s net capital. On or about
March 15 of each year, Gordon & Co. will furnish the holder of each outstanding
Gordon Option with financial statements of Gordon & Co. for the year ended on
the previous December 31, audited by independent certified public accountants.
This Prospectus, which constitutes a part of a Registration Statement filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "1933 Act"), omits certain of the information contained in the
Registration Statement as permitted by the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement, including
the exhibits thereto, for further information with respect to the Company and
the Options offered hereby. Statements contained herein concerning provisions
of documents are necessarily summaries of such documents and each statement is
qualified in its entirety by reference to the applicable document filed with
the Commission. A copy of the complete registration statement is available for
inspection at the office of Gordon & Co. without charge.
GLOSSARY OF TERMS
The following Glossary briefly defines many of the technical terms used in the
Prospectus. More comprehensive explanations of these terms are included in the
body of the Prospectus.
The definitions in this Glossary all pertain to American-style options as
opposed to European-style options. The distinction is important. An
American-style option may be exercised by the holder at any time after it is
purchased and before it expires, but a European-style option may be exercised
only during a specified period - which may be as short as a single business
day - before the option expires. All Gordon Options are American-style
options, but they include an EXPIRATION PRICE as well as an EXPIRATION DATE
which is not typical of most American-style options. Most standardized options
(i.e., options traded on the national securities exchanges) are American-style
options, but some are European-style options, and more European-style options
may be introduced on those exchanges in the future.
CALL: The right to require another to sell and deliver a security (UNDERLYING
SECURITY) upon payment of a stated price (EXERCISE PRICE) at any time prior to
a stated date (EXPIRATION DATE).
CALL OPTION: A contract which creates a right in the holder of the contract to
require the writer or issuer of the contract to sell the UNDERLYING SECURITY of
the CALL OPTION to the holder of the option for a stated price during a stated
period of time.
COVERED CALL OPTION: A CALL OPTION written by a person who owns the UNDERLYING
SECURITY of the option during the entire period that the option is outstanding.
2
<PAGE>
EXERCISE PRICE: The price at which the holder of the option may sell in a PUT
OPTION, or purchase in a CALL OPTION, the UNDERLYING SECURITY upon exercise.
The EXERCISE PRICE is sometimes called the striking price.
EXPIRATION DATE: The date on which the option expires, provided that it has
not expired previously because of its EXPIRATION PRICE provision.
EXPIRATION PRICE: The price at which the holder of a Gordon Option loses his
right to sell the option or sell or buy the UNDERLYING SECURITY. If the
UNDERLYING SECURITY sells on a national securities exchange, or is quoted on an
automated quotation system of a national securities association, at designated
periods of time, at or above this price in a PUT OPTION, or at or below this
price in a CALL OPTION, the option expires regardless of the EXPIRATION DATE of
the contract. The EXPIRATION PRICES and periods of time to which they are
applicable are the prices and periods of time agreed upon by the buyer or his
agent in transactions with Gordon & Co. When the automated quotation system of
a national securities association (NASDAQ) indicates a sale price as well as a
bid and ask price for a security, the EXPIRATION PRICE of an option shall be
determined by the reported sale price. References to EXPIRATION PRICE
throughout this Prospectus shall be construed accordingly.
LIMITED PRICE CALL OPTION: A contract which creates a right in the purchaser
of the contract to require Gordon & Co. to a) repurchase the option on the
terms and conditions stated therein, or b) sell to the holder of the CALL
OPTION contract the UNDERLYING SECURITY of the option at a stated price
(EXERCISE PRICE) at any time prior to a stated date (EXPIRATION DATE) provided
the UNDERLYING SECURITY has not sold at or below the applicable EXPIRATION
PRICE stated in the contract.
LIMITED PRICE PUT OPTION: A contract which creates a right in the purchaser of
the contract to require Gordon & Co. to a) repurchase the option on the terms
and conditions stated therein, or b) purchase from the holder of the PUT OPTION
contract the UNDERLYING SECURITY of the option at a stated price (EXERCISE
PRICE) at any time prior to a stated date (EXPIRATION DATE) provided the
UNDERLYING SECURITY has not sold at or above the applicable EXPIRATION PRICE
stated in the contract.
LONG OR LONG POSITION: The ownership of or right to receive a security.
NAKED CALL OPTION: A CALL OPTION written by a person who does not own the
UNDERLYING SECURITY of the option during a period of time when the option is
outstanding.
NAKED PUT OPTION: A PUT OPTION written by a person who does not have a SHORT
POSITION in the UNDERLYING SECURITY of the option during a period of time when
the option is outstanding.
OFFSETTING PUT OPTION: A PUT OPTION written by a person who does have a SHORT
POSITION in the UNDERLYING SECURITY of the option during the period that the
option is outstanding. The PUT OPTION is OFFSETTING because the writer's SHORT
POSITION in the UNDERLYING SECURITY OFFSETS or hedges the writer's risk in the
event the PUT OPTION is exercised. The writer can then close out his SHORT
POSITION by delivering the securities which are PUT to the writer. But the
writer's short position does not OFFSET the theoretically unlimited risk of
loss incurred by the writer if the market price of the UNDERLYING SECURITY
increases above the exercise price of the PUT OPTION.
PREMIUM: The aggregate price of the option agreed upon between the buyer or
his agents in a transaction with Gordon & Co.
PUT: The right to require another to purchase a security (UNDERLYING SECURITY)
at a stated price (EXERCISE PRICE) at any time prior to a stated date
(EXPIRATION DATE).
PUT OPTION: A contract which creates a right in the holder of the contract to
require the writer or issuer of the contract to purchase the UNDERLYING
SECURITY of the PUT OPTION from the holder of the option at a stated price
during a stated period of time.
3
<PAGE>
SHORT OR SHORT POSITION: The obligation to deliver a security which a person
does not own.
STANDARDIZED OPTION: An option on stock or on a stock index issued by the
Options Clearing Corporation and traded on a national securities exchange.
UNDERLYING SECURITY: The stock, warrants, rights, units, bonds, U.S. Treasury
securities or standardized stock or standardized index options subject to being
sold or purchased upon exercise of an option. Gordon Limited Price Options
written on standardized stock or standardized index options may not be
transferred or exercised. They may only be resold to Gordon & Co. (See
Limitations on Exercise, Transfer, and Repurchase of Options at page 19.)
4
<PAGE>
PROSPECTUS SUMMARY
The following is intended to summarize in brief outline form certain facts
discussed in greater detail in the balance of this prospectus. See "Glossary
of Terms" at the inside front cover page for an explanation of some of the
technical terms used in this summary and throughout the prospectus.
THE ISSUER AND THE ENDORSER
The issuer and the endorser of Gordon Limited Price Options is Gordon & Co.
Gordon & Co. is a broker-dealer, registered under the Securities Exchange Act
of 1934. Gordon & Co. is obligated to carry out the obligations of the options
it issues and endorses in accordance with the terms and conditions thereof.
Gordon & Co. acts as issuer, endorser and writer of Gordon Limited Price
Options. In every case Gordon & Co. is the primary obligor on all Gordon
Limited Price Options. Gordon & Co. offices are at One Gateway Center, Newton,
Massachusetts 02158; telephone (617) 964-6672.
THE WRITER
As the writer of every Gordon Limited Price Option, Gordon & Co. assumes an
obligation to purchase (if a put option) or sell (if a call option) the
underlying security of the option in accordance with the terms of the option.
Gordon & Co. writes offsetting put options, covered call options and naked put
and call options. In the past Gordon & Co. has almost exclusively confined its
activity to writing and endorsing offsetting put options and covered call
options. Only on rare occasions has Gordon & Co. written or endorsed naked put
or call options. Gordon & Co. intends to pursue this same policy in the future
but Gordon & Co. reserves the right to consider each transaction on its merits
and to issue, write or endorse naked options in its discretion.
THE OPTIONS AND RISKS OF OPTIONS TRANSACTIONS
Gordon Limited Price Options are limited price put and call option contracts
which may be purchased or sold in transactions with Gordon & Co. Gordon & Co.
has reserved the right to sell its Limited Price Options only to buyers who
meet the suitability standards that Gordon & Co. has established. (See "Buying
Gordon Options" at page 22.)
A Gordon & Co. Limited Price Put Option contract is a contract which (subject
to certain exceptions summarized hereunder in "Limitations on Exercise,
Transfer and Repurchase of Options" at page 19), gives the holder of the option
the right to require Gordon & Co. to (a) repurchase the option under the terms
and conditions of the option, (see "Repurchase Agreement in Gordon Options" at
page 25), or (b) purchase from the holder a designated security (underlying
security) at a stated price at any time prior to a stated date (expiration
date) provided that the underlying security of the option has not sold at or
above one of a stated series of decreasing prices (expiration prices) on a
national securities exchange, or the ask price on an automated quotation system
of a national securities association (hereinafter referred to as NASDAQ) has
not been at or above such expiration prices during stated periods of time prior
to the stated expiration date of the option. (See "Description of Gordon
Options" at page 14.)
A Gordon & Co. Limited Price Call Option contract is a contract which (subject
to certain exceptions summarized hereunder in "Limitations on Exercise,
Transfer and Repurchase of Options" at page 19) gives the holder of the option
the right to require Gordon & Co. to (a) repurchase the option under the terms
and conditions of the option, (see "Repurchase Agreement in Gordon Options" at
page 25), or (b) sell to the holder a designated security (underlying security)
at a stated price at any time prior to a stated date (expiration date) provided
that the underlying security of the option has not sold at or below one of a
stated series of increasing prices (expiration prices) on a national securities
exchange, or the bid price on NASDAQ has not been at or below such expiration
prices during stated periods of time prior to the stated expiration date of the
option. (See "Description of Gordon Options" at page 14.)
5
<PAGE>
Gordon Limited Price Options are not standardized options. Standardized
options do not have an expiration price provision. A standardized option has a
stated expiration date (a stated term) which is not affected (shortened) by the
price movement of the underlying security during the stated term of the option.
A Limited Price Option contains an expiration price provision which causes the
option to expire before its stated expiration date (its stated term) if the
underlying security of the option sells at, or is quoted at, any one of a
stated series of prices set forth in the option during the stated term of the
option. (See "Description of Gordon Options" at page 14.)
Risks involved in Options Transactions are substantial. They are discussed
throughout the prospectus, and in particular under "Certain Risk Factors" at
page 9, and "Buying Gordon Options-Purposes and Risks" at page 22. The risks
are summarized here:
* The Purchaser of a Gordon Limited Price Option incurs the risk of
losing his entire investment any time after he purchases the Option because of
the expiration price provision in the Option.
* The term of a Gordon Option may be shortened by as much as one
month- 10 days under certain circumstances because of a requirement that the
expiration price during the last month of any option and during the last
month- 10 days of a 6 month- 10 day Option or a 12 month- 10 day Option must
equal the exercise price of the Option.
* A Gordon Option written on an underlying option, warrant or right
expires no later than the expiration date of the underlying option, warrant or
right.
* Gordon & Co. assumes no obligation to notify the holder of a Gordon
Limited Price Option that the market price of the underlying security is
approaching the expiration price of the option. Accordingly, the Option may
expire without the prior knowledge of the purchaser or holder of the Option.
* Once a Gordon Limited Price Option expires by virtue of its expiration
price provision it becomes worthless. It is not revived by subsequent
fluctuation in the market price of the underlying security prior to the
original expiration date of the Option.
* Gordon Limited Price Options may not be exercised nor may Gordon & Co.
be required to repurchase an Option at any time while the market for the
underlying security is subject to a trading halt even on the expiration date of
the Option.
* No secondary market for Gordon Options currently exists nor is any such
market expected to develop. A purchaser of a Gordon Option may be unable to
realize the value of an option by selling it to anyone other than Gordon & Co.
Gordon Limited Price Options written on standardized options or on standardized
index options may not be transferred or exercised in any event They may be
resold only to Gordon & Co.
* The purchaser of a Gordon Option incurs the risk that Gordon & Co. may
be financially unable to fulfill its obligation as issuer and writer of the
Option.
OPTIONS TRANSACTIONS-PREMIUMS
Options may be purchased or sold through Gordon & Co. The price (premium) of
the option, which is paid by the purchaser and is received by Gordon & Co., is
determined by negotiation. The expiration prices and the exercise price of an
option are also determined by negotiation. The purchaser pays an additional
premium if he wishes to modify the terms of the option prior to its expiration.
These premiums may be significant in evaluating the option. (See "Costs of
Options Transactions" at page 31.)
6
<PAGE>
UNDERLYING SECURITIES
Securities approved by Gordon & Co. for options transactions are registered or
qualified under the Securities Exchange Act of 1934 for trading on a national
securities exchange or quoted on NASDAQ, and they and their issuers must have
characteristics conforming to the guidelines of Gordon & Co. summarized at page
20. Gordon & Co. generally refrains from issuing an option on a stock,
warrant, right, unit or option with a market price less than $5.00 or on a bond
with a market price less than $250.00. Gordon & Co. will not issue an option
on a security quoted on NASDAQ but not listed on a national securities exchange
unless the security is quoted by at least two market makers. (See "Underlying
Securities" at page 20.) Gordon & Co. also writes options on securities issued
by the United States of America. The list of securities which are the subject
of options trading may be obtained at the offices of Gordon & Co.
EXERCISE OF OPTIONS
If the holder of a Gordon Limited Price Option does not liquidate his position
by selling his option to Gordon & Co. pursuant to the repurchase agreement of
the Option (see Repurchase Agreement in Gordon Options at page 25), he can
realize the value of the option only by exercising it before it expires. No
secondary market for the Options currently exists and none is expected to
develop. Although Gordon Options are transferable (except for Options written
on standardized options or standardized index options) a holder may be unable
to locate a purchaser or to obtain a satisfactory price from any purchaser
other than Gordon & Co. Gordon Options written on standardized options or on
standardized index options can not be exercised. (See Limitations on Exercise,
Transfer and Repurchase of Options at page 19.) A Gordon Limited Price Option
may be exercised by the timely submission to Gordon & Co. of the option with an
oral or written notice of exercise, together with the underlying security of a
put option or payment of the exercise price of a call option. The procedures
for exercising Options are discussed in detail under "Exercise of Gordon
Options" at page 28. Failure to exercise an Option prior to its expiration
either by virtue of its expiration date or expiration price provision renders
the Option worthless. Once a Gordon Option expires it has no further value.
AN OVERVIEW OF OPTIONS TRADING
Option trading is not suitable for many investors. It is a highly speculative
activity which involves a high degree of risk on the part of the purchaser of
any put or call option. It is not unusual for the purchaser of an option to
lose the entire premium he pays for the option because the price of the
underlying security does not fluctuate in the direction the purchaser
anticipated when he purchased the option.
In general, the purchaser of a put option speculates that the price of the
underlying security will fall below the exercise price of the option during the
term of the option. He hopes to be able to "put" or deliver the security to
the writer of the option in exchange for the exercise price of the option,
thereby realizing a profit. If the price of the underlying security rises, or
fails to fall sufficiently below the exercise price during the term of the
option to compensate for the premium paid for the option, the purchaser of the
option will lose all or part of the premium he paid for the option.
In general, the purchaser of a call option speculates that the price of the
underlying security will rise above the exercise price of the option during the
term of the option. He hopes to be able to "call" upon the writer of the
option to sell and deliver the underlying security of the option for the
exercise price of the option, thereby realizing a profit. If the price of the
underlying security falls, or fails to rise sufficiently above the exercise
price during the term of the option to compensate for the premium paid for the
option, the purchaser of the option will lose all or part of the premium he
paid for the option.
It is apparent that the purchaser of an option speculates not only that the
price of the underlying security will move in the anticipated direction, but
also that it will do so within the designated term of the option.
7
<PAGE>
These risks are even greater for the purchaser of a Gordon Limited Price Put or
Call Option. As indicated throughout this Prospectus, Gordon Limited Price
Options contain an Expiration Price as well as an Expiration Date. If the
price of the underlying security of a Limited Price Option rises (in the case
of a Limited Price Put Option) or falls (in the case of a Limited Price Call
Option) to one of a series of pre-negotiated prices stated in the Option, the
Option will expire even though the Expiration Date of the Option has not yet
been reached. The Expiration Price provision compounds the purchaser's risk
because the Option may expire even before its Expiration Date and will not be
renewed by subsequent changes in the price of the underlying security which may
occur prior to the stated Expiration Date.
The rationale for the inclusion of the Expiration Price provision in every
Gordon Limited Price Option is to moderate Gordon & Co.'s risk as the writer of
the option, by releasing Gordon & Co. from its obligations under the option
when the market price of the underlying security rises to or above the
applicable expiration price of a put option, or falls to or below the
applicable expiration price of a call option. For example, if the applicable
expiration price of a call option is $46.25 per share and the exercise price is
$50.00 per share, the option will expire when the underlying security trades at
or below $46.25. Gordon & Co. will then be relieved of its obligation as
writer of the option. But the purchaser of the option will lose his entire
premium.
Gordon Options do contain provisions which permit the purchaser to modify the
exercise and expiration prices of any option which has not expired by paying an
additional premium. If a purchaser desires to keep an option in force despite
adverse movement in the price of the underlying security, he may do so by
paying an additional premium.
8
<PAGE>
CERTAIN RISK FACTORS
Before an investor purchases a Gordon Limited Price Option he should inform
himself of the risks involved, including the particular risks pertaining to the
business and financial condition of the issuer of the underlying security of
the option, and should determine whether such a transaction is appropriate for
him in light of his financial situation and investment objectives. A summary
of the reports and other materials required to be made publicly available by
each issuer of an underlying security is included on page 20.
Since the value of a limited price option depends upon the likelihood of
favorable movements in the price of the underlying security of the option in
relation to the exercise and expiration prices of the option during the life of
the option, information concerning past price behavior of the underlying
security may be significant in evaluating an option transaction. This
information is available through various financial publications, in the
financial press and elsewhere. In addition, Gordon & Co. will furnish the
applicable information set forth on page 41 at the request of prospective
option buyers.
The risks of options transactions are described in further detail in a
subsequent section of this prospectus at page 22, but the following salient
points should be emphasized at the outset. In all examples in this prospectus
all transaction costs of buyers of Gordon Limited Price Options are included.
It must be noted that any reference to commissions on the purchase or sale of
an underlying security is an assumed figure. These commissions are not fixed,
but are subject to negotiation between a customer and his broker. Accordingly,
the commission used in the examples may be more or less than the actual
commission. The tax effects on buyers are not considered and are not included
in these examples. Tax effects may be significant and should be taken into
account by anyone considering buying Gordon Limited Price Options. (See
Federal Income Tax Considerations at page 30.)
SIGNIFICANT RISKS OF PURCHASING GORDON OPTIONS ARE DISCUSSED IN THIS SECTION AS
WELL AS THROUGHOUT THE PROSPECTUS, AND PARTICULARLY UNDER "BUYING GORDON
OPTIONS" BEGINNING AT PAGE 22.
1. THE PURCHASER OF A GORDON LIMITED PRICE OPTION RUNS THE RISK OF LOSING HIS
ENTIRE INVESTMENT ANY TIME AFTER HE PURCHASES THE OPTION BECAUSE OF THE
EXPIRATION PRICE PROVISION IN THE OPTION.
Every Gordon & Co. limited price put option has a provision which states that
if the underlying security of the option sells at or above one of a stated
series of decreasing prices (expiration prices) on a national securities
exchange or the ask price on NASDAQ is at or above such expiration prices
during stated periods of time during the term of the option (before its
expiration date), the option expires and becomes worthless.
Every Gordon & Co. limited price call option has a provision which states that
if the underlying security of the option sells at or below one of a stated
series of increasing prices (expiration prices) on a national securities
exchange or the bid price on NASDAQ is at or below such expiration prices
during stated periods of time during the term of the option (before its
expiration date), the option expires and becomes worthless.
The expiration prices in Gordon Limited Price Options and the periods of time
to which they are applicable are determined by agreement of the buyers of the
options and Gordon & Co. when the transaction is consummated.
The expiration price provision in Gordon Limited Price Options makes them a
less desirable and more speculative option than a standardized or
exchange-traded option. (See "Prospectus Summary" at pages 5 to 8.) No buyer
should purchase a Limited Price Option if he can purchase a standardized option
for a comparable premium.
The likelihood of a Limited Price Option expiring before its expiration date
because of its expiration price provision is greatly increased if the
underlying security of the option is selling near the expiration price, is a
volatile security and especially if it is a low priced security. As a general
rule, in order for the purchase of an option to become a profitable investment,
the price of the underlying security of the option (before it sells at a price
which will cause the option to expire) must fall sufficiently below the
exercise price in a put option, and must rise sufficiently above the exercise
price in a call option, to cover the premium and transaction costs. Certain
limited exceptions to this general rule are discussed at "Repurchase Agreement
in Gordon Options" at page 25.
9
<PAGE>
The risk of purchasing Gordon Limited Price Options is extremely great because
of their expiration prices, and anyone purchasing such an option must expect to
lose the amount paid for the option. Accordingly, no investor should commit
any amount of money to the purchase of Limited Price Options unless he is able
to withstand the loss of the entire amount so committed. Because the risks of
options transactions generally, and of transactions in Gordon Options in
particular, are so great, the rules of the National Association of Securities
Dealers, Inc. ("NASD") of which Gordon & Co. is a member, impose special
requirements on its members regarding the approval and suitability of customers
for options trading. Gordon Options will be sold only to customers who have
been approved by Gordon & Co. for options trading and who satisfy the rules of
the NASD regarding customer suitability for options trading. Moreover, only
customers who demonstrate to Gordon & Co. that they are extremely sophisticated
investors capable of understanding and bearing the peculiar financial risks
attendant on buying Gordon Options issued on standardized stock options or
standardized index options will be approved by Gordon & Co. for buying those
types of Gordon Options. See "Method of Buying Gordon Options" at page 24.
The risk of purchasing a limited price put option may be illustrated by
comparing Investor A, who for a total deposit of $5,000 plus a $71.50
commission sells short 100 shares of XYZ stock which is listed on a national
securities exchange at $50 per share,* with Investor B who invests $5,100 (the
premium) in a 6 month- 10 day limited price put option covering 800 shares of
the same XYZ stock at an exercise price of $50 per share with expiration prices
of
$53.75 during the first monthly term of the option,
$53.00 during the second monthly term of the option,
$52.25 during the third monthly term of the option,
$51.50 during the fourth monthly term of the option,
$50.75 during the fifth monthly term of the option,
$50.00 during the last month-10 day term of the option.
Both A and B anticipate a drop in the market price of XYZ, but should their
expectations not be realized and XYZ rise in market price, A's loss would be
different from B's. If XYZ rose in market price to $53.75 a share within 30
days after A had sold it short, (and assuming XYZ has paid no dividends), A
will have suffered a paper loss of $375 (plus being out-of-pocket the $71.50
commission) and his deposit will be worth $4,625. He will not be required to
realize this loss, and may recover it should XYZ fall in price while he is
still short the 100 shares of XYZ. On the other hand, if XYZ rose in market
price to $53.75 a share any time within 30 days of Investor B's purchase of the
limited price put option ($53.75 being the expiration price during the first
monthly term of his option), and Investor B had not exercised or sold the
option, Investor B will have suffered the loss of his entire $5,100 investment
with no possibility of recovery because his option would have expired.
- ---------
* This example, as well as all other examples in this prospectus, is based
upon hypothetical values which are not necessarily indicative of the values in
any actual transaction.
10
<PAGE>
SUMMARY OF LOSSES OF A AND B
(A Sells Short; B Purchases Put Option)
<TABLE>
<S> <C>
A sells short 100 shares of XYZ and deposits $5,000.00
A pays a commission to sell stock short 71.50
---------
Total funds deposited and commission paid $5,071.50
=========
Stock rises in price to $53.75 a share
A's paper loss is $3.75 a share x 100 shares $375.00
Plus commission paid to sell stock short 71.50
---------
A's paper loss plus commission on transaction $446.50
=========
B buys a put option on 800 shares of XYZ for $5,100.00
Stock rises in price to $53.75 a share (its expiration price)
Option expires and B receives 0.00
---------
B's loss on transaction $5,100.00
=========
</TABLE>
The risk of purchasing a limited price call option may be illustrated by
comparing Investor A, who for a total investment of $5,000 plus a $71.50
commission buys 100 shares of XYZ stock which is listed on a national
securities exchange at $50 per share, with Investor B who invests $5,100 (pays
no commission) in a 6 month- 10 day limited price call option covering 800
shares of the same XYZ stock at an exercise price of $50 per share with
expiration prices of
$46.25 during the first monthly term of the option,
$47.00 during the second monthly term of the option,
$47.75 during the third monthly term of the option,
$48.50 during the fourth monthly term of the option,
$49.25 during the fifth monthly term of the option,
$50.00 during the last month-10 day term of the option.
Both A and B anticipate a rise in the market price of XYZ, but should their
expectations not be realized and XYZ fall in market price, A's loss would be
different from B's. If XYZ fell in market price to $46.25 a share within 30
days after A had purchased it (and assuming XYZ has paid no dividends), A will
have suffered a paper loss of $375 (plus being out-of-pocket the $71.50
commission) and his investment will be worth $4,625. He will not be required
to realize this loss, and may recover it should XYZ rise in price while he
still owns the 100 shares of XYZ. On the other hand, if XYZ fell in market
price to $46.25 a share any time within 30 days of Investor B's purchase of the
limited price call option ($46.25 being the expiration price during the first
monthly term of his option), and Investor B had not exercised or sold the
option, Investor B will have suffered the loss of his entire $5,100 investment
with no possibility of recovery because his option would have expired.
11
<PAGE>
SUMMARY OF LOSSES OF A AND B
(A Purchases Stock; B Purchases Call Option)
<TABLE>
<S> <C>
A buys 100 shares of XYZ $5,000.00
A pays a commission to buy stock 71.50
---------
A's total cost $5,071.50
=========
Stock falls in price to $46.25 a share
A's paper loss is $3.75 a share x 100 shares $375.00
Plus commission paid to buy stock 71.50
---------
A's paper loss plus commission on transaction $446.50
=========
B buys a call option on 800 shares of XYZ for $5,100.00
Stock falls in price to $46.25 a share (its expiration price).Option
expires and B receives 0.00
---------
B's loss on transaction $5,100.00
=========
</TABLE>
All that has been stated in the examples set forth above would also apply to
warrants, rights, units, bonds, U.S. Treasury securities and options if they
were the underlying security of the option.
In the above examples if XYZ was not listed on a national securities exchange
but was quoted on NASDAQ and A and B had taken the same investment positions as
they had in the above examples, the same results as set forth above would have
taken place except:
Investor A might not have paid the same commission.
Investor B, in all likelihood, would have paid Gordon & Co. a larger
premium when he purchased the put and call option. Gordon & Co. generally
charges higher premiums for Gordon Options overlying securities quoted on
NASDAQ because the market for such securities is often less liquid, deep and
continuous than the market for securities traded other national securities
exchanges. B would have lost his entire investment in the put option if,
during the first monthly term of the option, the quoted ask price for XYZ on
NASDAQ was at or above $53.75 a share. Similarly, B would have lost his
entire investment in the call option if, during the first monthly term of the
option, the quoted bid price for XYZ on NASDAQ was at or below $46.25 a
share.
2. THE TERM OF A GORDON OPTION MAY BE SHORTENED BY AS MUCH AS ONE MONTH- 10
DAYS UNDER CERTAIN CIRCUMSTANCES BECAUSE OF A REQUIREMENT THAT THE EXPIRATION
PRICE DURING THE LAST MONTH OF ANY OPTION AND DURING THE LAST MONTH- 10 DAYS OF
A 6 MONTH- 10 DAY OPTION OR A 12 MONTH- 10 DAY OPTION MUST EQUAL THE EXERCISE
PRICE OF THE OPTION.
The expiration prices of Gordon Limited Price Options are determined by
agreement of the parties in a transaction with Gordon & Co. However, Gordon &
Co. will issue Limited Price Options only when the buyer agrees that the
expiration price of the option during the last month- 10 day term of a 6
month- 10 day option or of a 12 month- 10 day option will be at the exercise
price of the option; or that during the final month of any other option the
expiration price of the option will be at the exercise price of the option.
This agreement will result in reducing the term of any option by as much as one
month and will result in reducing the term of a 6 month- 10 day option or a 12
month- 10 day option by as much as one month- 10 days if the market price of
the underlying security of the option is at the exercise price of the option at
the beginning of the last month of an option or at the beginning of the last
month- 10 days of a 6 month- 10 day or a 12 month- 10 day option.
The effect of this agreement may be illustrated by referring to the "Typical
Limited Price Options" at page 40. If the market price of XYZ is $50 a share
(the exercise price) at any time after the fifth monthly term of the Typical
Put or Call Option, either option expires.
12
<PAGE>
3. A GORDON OPTION WRITTEN ON AN UNDERLYING OPTION, WARRANT OR RIGHT EXPIRES
NO LATER THAN THE EXPIRATION DATE OF THE UNDERLYING OPTION, WARRANT OR RIGHT.
When an option, warrant or right underlying a Gordon Option expires, the
option, warrant or right becomes worthless. As a result, the Gordon Limited
Price Option will automatically expire by virtue of its expiration price
provision.
4. GORDON & CO. ASSUMES NO OBLIGATION TO NOTIFY THE HOLDER OF A GORDON LIMITED
PRICE OPTION THAT THE MARKET PRICE OF THE UNDERLYING SECURITY IS APPROACHING
THE EXPIRATION PRICE OF THE OPTION. ACCORDINGLY, THE OPTION MAY EXPIRE WITHOUT
THE PRIOR KNOWLEDGE OF THE PURCHASER OR HOLDER OF THE OPTION.
Every purchaser of a Gordon Option assumes the risk that the market price of
the underlying security may reach the applicable expiration price of the Option
at any moment without knowledge of or notice to the holder of the Option. It
is the responsibility of the holder of the Option - not of Gordon & Co. - to
keep apprised of the market price of the security underlying a Gordon Option.
5. ONCE A GORDON LIMITED PRICE OPTION EXPIRES BY VIRTUE OF ITS EXPIRATION
PRICE PROVISION IT BECOMES WORTHLESS. IT IS NOT REVIVED BY SUBSEQUENT
FLUCTUATION IN THE MARKET PRICE OF THE UNDERLYING SECURITY PRIOR TO THE
ORIGINAL EXPIRATION DATE OF THE OPTIOn.
If a Gordon Option expires by virtue of its expiration price provision it no
longer has any value. Even if the market price of the underlying security of
the Option subsequently fluctuates in favor of the holder of the Option prior
to the expiration date of the Option, the Option is not renewed. Once a Gordon
Option expires, it is completely worthless.
6. GORDON LIMITED PRICE OPTIONS MAY NOT BE EXERCISED NOR MAY GORDON & CO. BE
REQUIRED TO REPURCHASE AN OPTION AT ANY TIME WHILE THE MARKET FOR THE
UNDERLYING SECURITY IS SUBJECT TO A TRADING HALT EVEN ON THE EXPIRATION DATE OF
THE OPTION.
Gordon Options may not be exercised nor may Gordon & Co. be required to
repurchase a Gordon Option while trading in the underlying security has been
halted or suspended by governmental authority, by the Exchange where the
underlying security is listed or by the NASD. Any such a trading halt or
suspension shall not extend the date on which an option expires or the dates on
which expiration prices become applicable. If such a trading halt or
suspension is in effect on the stated expiration date of an Option, the Option
nevertheless expires on its stated expiration date. If trading in the
underlying security is permitted to resume prior to the expiration date of the
option, but resumes at a price above the applicable expiration price of a
Gordon Limited Price Put Option or below the applicable expiration price
of a Gordon Limited Price Call Option, the Option will be deemed to have
expired as of the date trading in the underlying security was resumed.
7. NO SECONDARY MARKET FOR GORDON OPTIONS CURRENTLY EXISTS NOR IS ANY SUCH
MARKET EXPECTED TO DEVELOP. A PURCHASER OF A GORDON OPTION MAY BE UNABLE TO
REALIZE THE VALUE OF AN OPTION BY SELLING IT TO ANYONE OTHER THAN GORDON & CO.
GORDON LIMITED PRICE OPTIONS WRITTEN ON STANDARDIZED OPTIONS OR ON STANDARDIZED
INDEX OPTIONS MAY NOT BE TRANSFERRED OR EXERCISED IN ANY EVENT. THEY MAY BE
RESOLD ONLY TO GORDON & CO.
8. THE PURCHASER OF A GORDON OPTION INCURS THE RISK THAT GORDON & CO. MAY BE
FINANCIALLY UNABLE TO FULFILL ITS OBLIGATION AS ISSUER AND WRITER OF THE
OPTION.
Gordon & Co. has been a writer of Limited Price Options since 1970. Although
it has met all its obligations in the past as a writer of options, and expects
to be able to meet all its obligations in the future as an issuer and/or writer
of options because of its capital, (see "Financial Statements" at pages
42- 57), it may find itself without sufficient funds to repurchase options it
issues. (See The Back-Up System, page 29.)
13
<PAGE>
DESCRIPTION OF GORDON OPTIONS
Gordon Limited Price Options are issued by Gordon & Co., a broker-dealer
registered under the Securities Exchange Act of 1934. Every Limited Price
Option issued by Gordon & Co. is registered under the Securities Act of 1933,
and all purchasers of such options are entitled to the protection of that act.
Purchasers of Limited Price Options are entitled to the protection of the
applicable provisions of the Securities Exchange Act of 1934.
The rights and obligations of Gordon & Co. and the holders of its options are
set forth in written contracts issued by Gordon & Co. (See facsimiles of
Limited Price Option contracts at pages 36 and 38.) This description of Gordon
Limited Price Options is a summary thereof as in effect on the date of this
Prospectus.
TERMS OF OPTIONS
Every Limited Price Option indicates on its face whether it is a Limited Price
Put Option or a Limited Price Call Option. It also states the date of the
option contract, its number, its expiration date, the name and amount of the
underlying security, the exercise price of the option, its expiration prices
and the period of time during which each expiration price is applicable.
The basic contractual rights and obligations of Gordon & Co. and the holders of
its options are described in the Prospectus Summary under the heading "The
Options and Risks of Options Transactions" at page 5. Generally speaking, a
Limited Price Option is a contract which gives the holder the right (subject to
certain exceptions described at "Limitations on Exercise, Transfer and
Repurchase of Options" at page 19), commencing at the time the option is issued
and expiring on the expiration date of the option or at such earlier time as
the option expires pursuant to its expiration price provision, to sell to
Gordon & Co. theunderlying securities for the exercise price of a put option,
or to purchase from Gordon & Co. the underlying securities upon payment of the
exercise price of a call option, or in either case, to require Gordon & Co. to
repurchase the option. (See "Repurchase Agreement in Gordon Options" at page
25).
Every Limited Price Put Option contract provides that the option will expire
automatically if the underlying security of the option sells on an exchange
where listed, or if the ask price on NASDAQ is at or above one of a stated
series of decreasing prices (expiration prices) during stated periods of time
prior to the expiration date of the option.
Every Limited Price Call Option contract provides that the option will expire
automatically if the underlying security of the option sells on an exchange
where listed, or if the bid price on NASDAQ is at or below one of a stated
series of increasing prices (expiration prices) during stated periods of time
prior to the expiration date of the option.
PARTIES TO THE OPTION TRANSACTION
The writer of every Gordon Limited Price Option is Gordon & Co. It is possible
that Gordon & Co. may not have a short position in the underlying security when
it writes a put option, or own the underlying security when it writes a call
option in which event, it is a writer of a "naked option".
Gordon & Co. is the issuer of every Gordon Option. Gordon & Co. is always
obligated, upon the timely exercise of a put option, to pay the holder of the
option the exercise price of the option against delivery of the underlying
security of the option and, upon the timely exercise of a call option, to
deliver to the holder of the option the underlying security of the option
against payment of the exercise price of the option. Gordon & Co. is always
obligated to repurchase the option in accordance with its terms. (See
"Repurchase Agreement in Gordon Options" at page 25.)
EXERCISE PRICE OF OPTIONS
All Limited Price Options issued by Gordon & Co. have an exercise price per
share, warrant, right, unit, option or per bond equal to or approximating the
market price of the underlying security at the time the option is issued. No
options are issued by Gordon & Co. in which the exercise price is more than
five per cent (5%) above or five per cent (5%) below the market price of the
underlying security when the option is issued.
14
<PAGE>
RENEWAL OF OPTIONS
Gordon Limited Price Options do not provide for renewal.
EXPIRATION PRICES OF OPTIONS
Gordon & Co. offers (subject to negotiation and change) to issue or write its
6 month-10 day, 9 month, and 12 month-10 day Limited Price Options with an
exercise price at the market, with expiration prices ranging from 16 1/2% to 0%
above (in the case of a put option) or below (in the case of a call option) the
exercise price of its options provided that the premiums received for the
options are premiums set forth in a schedule of premiums at page 32.
Expiration prices of Gordon Limited Price Options written on standardized or
index options are specially negotiated.
The expiration prices of a Gordon Limited Price Put Option will be above, and
the expiration prices of a Gordon Limited Price Call Option will be below the
exercise price of the option when the option is issued by that percentage of
such exercise price as is shown on the charts on pages 15 and 16 for the
various periods of time during the term of the option.
If the expiration prices as so computed do not come to an even 1/8 of a point,
the expiration prices are decreased in the case of a Limited Price Put Option
and increased in the case of a Limited Price Call Option to the next 1/8 of a
point.
EXPIRATION PRICES OF LIMITED PRICE OPTIONS
(Expressed as a percentage adjustment to the exercise price of the option. For
Limited Price Put Options add the percentage shown to the exercise price. For
Limited Price Call Options subtract the percentage shown from the exercise
price).
<TABLE>
<CAPTION>
6 MONTH-10 DAY OPTIONS 9 MONTH OPTIONS 12 MONTH-10 DAY OPTIONS
---------------------- --------------- -----------------------
PERIOD PERCENTAGE OF THE PERIOD PERCENTAGE OF THE PERIOD PERCENTAGE OF THE
OF EXERCISE PRICE OF EXERCISE PRICE OF EXERCISE PRICE
TIME OF THE OPTION TIME OF THE OPTION TIME OF THE OPTION
------ --------------- ------ --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st month 7 1/2 % 1st month 12 % 1st month 16 1/2 %
2nd month 6 % 2nd month 10 1/2 % 2nd month 15 %
3rd month 4 1/2 % 3rd month 9 % 3rd month 13 1/2 %
4th month 3 % 4th month 7 1/2 % 4th month 12 %
5th month 1 1/2 % 5th month 6 % 5th month 10 1/2 %
6th month- 6th month 4 1/2 % 6th month 9 %
10 days 0 % 7th month 3 % 7th month 7 1/2 %
8th month 1 1/2 % 8th month 6 %
9th month 0 % 9th month 4 1/2 %
10th month 3 %
11th month 1 1/2 %
12th month-
10 days 0 %
</TABLE>
The computation of expiration prices of a Limited Price Put and Call Option may
be illustrated as follows:
A purchases a 6 month-10 day, 9 month or 12 month-10 day Limited Price Option
on 100 shares of XYZ listed on a national securities exchange at $50 per share
and pays a premium set forth on pp. 30-32. Gordon & Co. will issue a Limited
Price Put or Call Option with an exercise price at $50 per share with the
following monthly expiration prices:
15
<PAGE>
MONTHLY EXPIRATION PRICES OF LISTED SECURITIES SELLING FOR $50 A SHARE
<TABLE>
<CAPTION>
6 MONTH-10 DAY OPTION 9 MONTH OPTION 12 MONTH-10 DAY OPTION
--------------------- -------------- ----------------------
TERM OF PUT CALL PUT CALL PUT CALL
THE OPTION OPTION OPTION OPTION OPTION OPTION OPTION
- ---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1st month $53.75 $46.25 $56.00 $44.00 $58.25 $41.75
2nd month 53.00 47.00 55.25 44.75 57.50 42.50
3rd month 52.25 47.75 54.50 45.50 56.75 43.25
4th month 51.50 48.50 53.75 46.25 56.00 44.00
5th month 50.75 49.25 53.00 47.00 55.25 44.75
6th month -10 days 50.00 50.00 50.75 49.25 53.00 47.00
9th month 50.00 50.00 52.25 47.75
10th month 51.50 48.50
11th month 50.75 49.25
12th month -10 days 50.00 50.00
</TABLE>
These expiration prices apply to stocks, warrants, rights, units, bonds and
U.S. Treasury securities. Expiration prices of Limited Price options on
underlying options are specially negotiated. Expiration prices of Limited
Price Options with expiration dates other than those listed above are agreed
upon with Gordon & Co. when the transaction is negotiated.
REPURCHASE OF GORDON LIMITED PRICE OPTIONS
Gordon & Co. is obligated by the express terms of every option it issues to
repurchase the option from the holder at any time prior to its expiration for a
price determined as set forth in the option and described in detail at
"Repurchase Agreement in Gordon Options" at page 25. Certain exceptions to the
obligation of Gordon & Co. to repurchase the options it issues are discussed at
"Limitations on Exercise, Transfer and Repurchase of Options" at page 19.
MODIFICATION OF TERMS OF OPTIONS
Gordon & Co. is further obligated by the express terms of every option it
issues at the request of the holder of the option at any time prior to the
expiration of the option, to increase the exercise and expiration prices of a
put option, and decrease the exercise and expiration prices of a call option,
as much (as many points) as the holder desires upon receipt of an appropriate
premium. (See "Costs of Options Transactions" at page 31).
PREMIUMS FOR OPTIONS
The premiums for Gordon Limited Price Options, as well as their commencement
dates, expiration dates, exercise prices, expiration prices and the periods of
time to which they are applicable are all determined by agreement of the
parties in transactions with Gordon & Co. and are all negotiable. The schedule
of premiums at page 32 and of expiration prices at pages 15-16 are
representative only and are always subject to negotiation and change. Some of
the factors which bear upon the determination of the premium for an option are
discussed at "Costs of Options Transactions" at page 31. The buyer of Gordon
Options always negotiates solely with Gordon & Co.
SOME DIFFERENCES BETWEEN GORDON & CO. OPTIONS AND OTHER OPTIONS
Gordon Limited Price Options differ from other options in these major respects
among others:
1. Every Gordon Limited Price Option contains an expiration price provision
which causes the option to expire before its stated expiration date (its stated
term) if the underlying security of the option sells on a national securities
exchange or is quoted on NASDAQ at one of a stated series of prices set forth
in the option during the term of the option. (See pages 15 and 16).
16
<PAGE>
2. Gordon Limited Price Options provide the potential availability of a
premium refund (subject to certain exceptions summarized hereunder in
"Limitations on Exercise, Transfer and Repurchase of Options" at page 19)
pursuant to the repurchase agreement provision which obligates Gordon & Co. to
repurchase the option under certain circumstances any time before it expires.
Gordon Options may not be exercised or submitted for repurchase while trading
in the underlying security is halted. (See "Repurchase Agreement in Gordon
Options" at page 25).
3. Gordon Limited Price Options are not traded on any exchange. The holder of
a Limited Price Option should expect only to exercise it, sell it to Gordon &
Co. or permit it to expire. There is no secondary market for Gordon Options
and none is expected to develop. Gordon Limited Price Options do not provide
the depth, liquidity and continuity of a secondary market provided by an option
exchange. While it is theoretically possible
for the holder of a Gordon Option to sell it to a third party, the holder may
be unable to locate a purchaser or obtain a satisfactory price from anyone
other than Gordon & Co. As previously noted, Gordon Options written on
standardized stock options or on standardized index options may not be
transferred or exercised in any event.
4. Options issued by the Options Clearing Corporation are known as
"Standardized Options" and are traded on several national securities exchanges.
Standardized Options contain no expiration price.
5. Gordon Limited Price Options provide that applicable expiration prices and
exercise prices are decreased by the value of cash dividends on the date the
underlying security goes ex-dividend. See discussion under "Adjustments in
Terms" at pages 17-18.
6. Gordon Limited Price Options may not be exercised nor may the repurchase of
an option be required of Gordon & Co. while the market for the underlying
security is subject to a trading halt even on the expiration date of the
option. Standardized options are subject to more liberal rules. See the
discussion under "Limitations on Exercise, Transfer and Repurchase of Options"
at page 19.
7. Each of the options markets has established minimum requirements that must
be met by underlying securities and issuers thereof in connection with their
selection for options trading. Minimum requirements have also been fixed as
maintenance standards for the continued listing of options previously selected
which must be met by both the underlying securities and the issuers thereof.
These requirements are, in part, designed to assure that underlying securities
are widely held and actively traded, and they relate to such matters as the
number of shares or other units of the underlying security outstanding and held
by persons other than affiliates of the issuer, the number of shareholders,
trading volume of the underlying security, and the market price of the
underlying security. In addition, other standards relate to such matters as
compliance by the issuer of the underlying security with the reporting
requirements of the SEC, the past earnings history of such issuer and the
absence of defaults by such issuer in meeting certain of its obligations. The
options markets' criteria regarding underlying securities and the issuers
thereof are subject to change.
Gordon & Co. does not limit or restrict its Limited Price Put and Call Options
to underlying securities and issuers thereof which meet the minimum
requirements established by the options markets. Gordon Limited Price Options
are written on most of the securities listed on national securities exchanges
and on many securities quoted on NASDAQ. (See "Limitations on Option
Purchases" at page 25).
Other significant differences between Gordon Options and other options are
discussed at "Adjustments in Terms" at pages 17-18, "Limitations on Exercise,
Transfer and Repurchase of Options" at page 19; and "Exercise of Gordon
Options" at page 28.
ADJUSTMENTS IN TERMS
The number of securities underlying Gordon Limited Price Options and the
exercise price (striking price) and expiration prices are subject to adjustment
in the event of dividends, distributions, stock splits, reverse splits,
recapitalizations, reorganizations or similar activity by the issuer of the
underlying security.
17
<PAGE>
If the underlying security of an option is a stock, these adjustments are as
follows:
1. (a) The contract striking price and expiration prices shall be reduced by
the value of any cash dividend on the day the stock goes ex-dividend. Options
traded on national securities exchanges do not provide for these adjustments to
reflect the declaration or payment of ordinary cash dividends. Options traded
in the over-the-counter market may provide for adjustments similar to Gordon
Options in this respect.
For example, assume that A purchases a 6 month-10 day put option on 100
shares of XYZ with a contract striking price of $50 per share with an
expiration price of $53.75 during the first monthly term of the option.
Three weeks after A purchases the option, the issuer of the underlying
security declares and pays a $2 cash dividend. Under the "Adjustment of
Terms" set forth above, the exercise price is lowered from $50 to $48 per
share and the expiration price is lowered from $53.75 to $51.75 per share
during the first monthly term of the option and by $2 per share during each
subsequent monthly term of the option. The financial disadvantage to A,
because of the declaration and payment of the dividend, is that A can deliver
the underlying security of the option for only $48 instead of $50 per share
and can obtain, under the repurchase agreement of the option, only the
excess, if any, between the adjusted applicable expiration price of $51.75
(instead of $53.75) per share, and the amount XYZ can be purchased for during
the first monthly term of the option. The repurchase price during subsequent
monthly terms of the option will be similarly reduced by $2 per share. (See
"Repurchase Agreement in Gordon Options" at page 25).
Now assume that A purchases a 6 month-10 day call option on 100 shares of XYZ
with a contract striking price of $50 per share with an expiration price of
$46.25 during the first monthly term of the option. Three weeks after A
purchases the option, the issuer of the underlying security declares and pays
a $2 dividend. Under the "Adjustment of Terms" set forth above, the exercise
price is lowered from $50 to $48 per share and the expiration price is
lowered from $46.25 to $44.25 per share during the first monthly term of the
option and by $2 per share during each subsequent monthly term of the option.
The financial advantage to A, because of the declaration and payment of the
dividend, is that A can call for the underlying security of the option at $48
instead of $50 per share and can obtain, under the repurchase agreement of
the option, the excess, if any, between what XYZ can be sold for and the
adjusted expiration price of $44.25 (instead of $46.25) per share, during the
first monthly term of the option. The repurchase price during subsequent
monthly terms of the option will be similarly increased by $2 per share.
(See "Repurchase Agreement in Gordon Options" at page 25).
(b) Where the underlying security of an option is entitled to rights and/or
warrants the contract striking price and the expiration prices of the option
shall be reduced by the value of same as fixed by the opening sale thereof on
the day the stock sells ex-rights and/or warrants. If the underlying security
is traded in the over-the-counter market and quoted on NASDAQ the opening sale
will be determined by the opening ask price on NASDAQ in the case of a put
option; and by the opening bid price on NASDAQ in the case of a call option.
2. (a) In the event of stock splits, reverse splits or other similar actions by
the issuer of the stock, warrant or unit, the option shall become an option for
the equivalent in new securities when duly listed for trading, and the contract
striking price and expiration prices shall not be reduced;
(b) Stock dividends or the equivalent due-bills shall be attached to the
stock, warrant or unit when and if the option is exercised, and the contract
striking price and expiration prices shall not be reduced.
If the underlying security of an option is a bond these adjustments are as
follows:
1. The contract striking price and expiration prices shall be reduced by the
value of any interest on the date interest is paid.
2. Upon exercise or election to require repurchase of the option, the
contract striking price and expiration prices shall be reduced by the amount
of accrued interest from the last interest payment date to the date of
presentation.
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3. If the underlying bond is called for redemption by the issuing
corporation, wholly or in part, the option shall expire on the date fixed for
redemption by the issuing corporation and the contract striking price and
expiration prices shall be reduced by the amount of accrued interest from the
last payable date to the date of redemption.
LIMITATIONS ON EXERCISE, TRANSFER AND REPURCHASE OF OPTIONS
Gordon Limited Price Options may not be exercised or the repurchase of an
option be required of Gordon & Co. while trading in the underlying security has
been halted by governmental authority, by the Exchange where listed or by the
NASD. Such a trading halt shall not extend the date on which an option expires
or the dates on which expiration prices become applicable. If such a trading
halt is in effect on the stated expiration date of an option, the option
nevertheless expires on its stated expiration date. It should be noted that
the rules of national securities exchanges listing options for trading state
that an option is exercisable during the ten (10) days prior to and including
its expiration date even if trading in the underlying security has been halted.
There is authority to the effect that conventional options traded in the
over-the-counter market may similarly be exercised on and prior to their
expiration date under certain circumstances even if trading in the underlying
security has been halted. In this respect, Gordon Options differ from
Standardized Options.
As previously indicated in this Prospectus, Gordon Limited Price Options
written on underlying standardized stock options or on underlying standardized
index options cannot be transferred or exercised. The only method by which the
holder of such a Gordon Option can realize the value, if any, of that Option is
by reselling the Option to Gordon & Co. pursuant to the repurchase provisions
of the Option.
POSITION LIMITS
Gordon & Co. has established limitations governing the maximum number of shares
of stock, warrants, rights, units, options or bonds on which Gordon Limited
Price Options will be issued and may be held by a single investor or group of
investors acting in concert (regardless of whether the options are held in one
or more accounts or through one or more brokers) and has established limits
governing the amount of aggregate premium received for such options. Gordon &
Co. will issue options contracts on no more than 100,000 shares of stock,
100,000 warrants, rights or units, $1,000,000 of bonds or 1,000 options
covering the same underlying security and having the same expiration date up to
a maximum of 200,000 shares of stock, 200,000 warrants, rights or units,
$2,000,000 of bonds or 2,000 options covering the same underlying security
regardless of the expiration date. In no event will Gordon & Co. issue options
on the same underlying security if the premium received for such options
exceeds $1,000,000.
For purposes of calculating these Position Limits, both for Gordon & Co., as
writer, and for buyers of Gordon Options, positions in Gordon Options will be
aggregated with positions in standardized options.
EVIDENCE OF OPTION CONTRACTS
Gordon Limited Price Options are evidenced by option contracts issued by Gordon
& Co. Gordon & Co. maintains daily records of all options it issues. The
ownership of Limited Price Options is evidenced by possession of the option
contracts. (See facsimiles of Limited Price Options at pages 36 and 38.)
Gordon & Co. also furnishes confirmations and statements to every account for
whom it sells and buys options. It is responsible for inaccuracies or
omissions in confirmations and statements of account. The transfer of Gordon &
Co.'s option contracts changes the ownership of the options.
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UNDERLYING SECURITIES
The underlying securities on which Gordon Limited Price Options are available
are securities registered under the Securities Exchange Act of 1934 and are
listed on national securities exchanges or quoted on NASDAQ, and, accordingly,
the issuers of the underlying securities are subject to the reporting and
disclosure requirements of the Securities Exchange Act of 1934. (See
"Prospectus Summary-Underlying Securities" at page 7). Also, those stocks,
warrants, bonds, rights, units or options which are listed on exchanges are
subject to the listing agreement of the exchanges where listed and have
satisfied the listing standards of that exchange. Issuers of the stocks,
warrants, rights, units or bonds which underlie Gordon Options are all subject
to the Securities and Exchange Commission (SEC) reporting requirements imposed
by Sections 13 and 15(d) of the 1934 Act, including, but not limited to, the
filing of periodic reports with the SEC and, in the case of issuers whose
securities are listed on a national securities exchange, with one or more
securities exchanges. Such reports include annual reports on Form 10-K as well
as reports on Forms 10-Q and 8-K describing the business of the issuer and
containing financial statements, quarterly financial reports and current
reports of certain significant events. These materials are maintained for the
last three fiscal years in the public files of the SEC and certain securities
exchanges. Gordon & Co. will issue and write options on securities only if it
appears from the SEC public files that the issuer of the security is in
compliance with SEC reporting and other requirements. Gordon & Co. makes a
diligent effort, prior to writing an option, to determine that the issuer of
the underlying security is not delinquent in its filings. A list of securities
on which Gordon & Co. Limited Price Options are available may be obtained at
the offices of Gordon & Co. Gordon & Co. also issues options on United States
Government Securities.
Gordon & Co. generally issues an option on a security only if the security has
a price of $5 or more if a stock, warrant or option or $250 or more if a bond,
as determined by reference to: (1) the closing price on the principal national
securities exchange on which the security is listed on the last day on which a
sale occurred on such exchange, or (2) if the security is not so listed, the
closing best bid on the preceding business day on NASDAQ. However, Gordon &
Co. reserves the right to deviate from this policy at any time.
Gordon & Co. will issue an option on a security quoted on NASDAQ but not listed
on a national securities exchange only if, at the time the option is issued,
there are two or more dealers (market makers) standing willing to, and who do
in fact, make a market in such security including making regular published bona
fide bids and offers for such security for their own accounts.
Historical price and volume information concerning underlying securities may be
significant in evaluating options transactions. This information is available
through various financial publications, in the financial press and elsewhere.
Upon request at or prior to any option transaction, Gordon & Co. will furnish
the buyers of its Limited Price Options, simultaneously with the written
confirmation of the transaction (generally on the same day or within
twenty-four hours of the time the transaction is executed), with a disclosure
statement, substantially in the form set forth on page 41, containing the
following information applicable to the underlying security unless the security
underlying the option is a security authorized for trading on the Listed
Options Exchanges, or unless the underlying security is exempt under the 1933
Act:
(a) The identity of the issuer and the number of shares outstanding at
the end of its last fiscal year;
(b) The exchange where the security is traded or an indication that it is
traded over-the-counter;
(c) The sales/revenues and earnings per share of the issuer for the past
three fiscal years;
(d) The quarterly high and low sales prices (or bid prices) of the
underlying security and the dividends paid or declared quarterly for the
last two fiscal years; and
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(e) The volume of trading in the underlying security on the primary
market where the security is traded for the four weeks (ending on Friday)
preceding the date of the transaction and the average volume of trading in
such primary market during those four weeks.
(The remainder this page is intentionally left blank. The Prospectus continues
on Page 22.)
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BUYING GORDON OPTIONS
PURPOSES AND RISKS
There are a number of possible uses of Gordon Limited Price Options by buyers
(holders). Each of these uses involves risks in varying degrees, and not every
use is suitable for every investor. Some uses of options and attendant risks
are illustrated below. As before, tax consequences are not considered in these
descriptions but are significant in determining the net gain or loss in options
transactions.
It must be noted that all of the purposes served by Gordon Limited Price
Options are also served by standardized options traded on national securities
exchanges as well as by certain other options which may be available on the
over-the-counter market, ("Over-the-Counter-Options").
Over-the-Counter-Options and standardized options do not contain the expiration
price provision found in Gordon Limited Price Options. Accordingly,
Over-the-Counter-Options and standardized options give the holder an
opportunity to wait-out a favorable movement in the price of the underlying
security over the entire term of the option, whereas a Gordon Limited Price
Option will expire prior to its expiration date if the underlying security
sells at or is quoted at the applicable expiration price.
For this reason, Gordon Limited Price Options are more speculative investments
and involve a greater degree of risk than standardized options or most
Over-the-Counter-Options. No purchaser should buy a Gordon Limited Price
Option if he can purchase a Standardized Option or an Over-the-Counter-Option
on the same securities for an equivalent premium.
On the other hand, Over-the-Counter-Options are not always readily available
especially on large blocks of securities. Standardized options are available
at the present time only on a selected group of securities. Gordon Options are
generally readily available to sophisticated stock market investors,
speculators and traders in large quantity on all securities listed on a
national securities exchange or quoted on NASDAQ subject to certain conditions
discussed at "Underlying Securities" at page 20, "Position Limits" at page 19,
"Limitations on Option Purchases" at page 25, and "Limitations on Exercise,
Transfer and Repurchase of Options" at page 19.
Limited Price Options have been available from time to time from issuers other
than Gordon & Co. Gordon & Co. is presently aware of the current availability
of limited price options from other issuers, and prospective buyers of Gordon
Options should be advised that limited price options may be available from
issuers other than Gordon & Co. on terms more favorable to the buyer. For
example, not all broker-dealers who have sold limited price options have used
the same formula as Gordon & Co. when computing premium refunds. Some
broker-dealers who have sold limited price options have computed premium
refunds in certain instances on a basis more favorable to the holder of the
option than the basis of computation presently employed by Gordon & Co.
Accordingly, no prospective buyer should purchase a Gordon Option without
investigating the current availability of other limited price options and
should not purchase a Gordon Option if he can purchase a similar option on more
favorable terms for a comparable premium.
1. Using Options for Leverage Potential. Because a limited price put option
premium is considerably less than the cost of selling short the underlying
security, and a limited price call option premium is considerably less than the
cost of purchasing the underlying security, a given amount of funds may
purchase options covering a much larger quantity of securities than could be
sold short or purchased directly. By so leveraging his funds, the purchaser of
options is able to benefit from any decreases in the price of the underlying
security in a put option, and any increases in the price of the underlying
security in a call option, to a considerably greater extent than had he sold
short or purchased the security outright. However, if the option is not
exercised or sold while it has a remaining value, and if the value of the
underlying security has not decreased in a put option or increased in a call
option during the life of the option (before it expires because of its
expiration date or expiration price provision), the option purchaser will lose
his entire investment, whereas had he sold short or purchased the security
directly, he might have had no loss or only a paper loss.
Further, except when the value of the remaining life of an option may be
realized by selling it, for an option purchase to be profitable, the underlying
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security must depreciate in value in a put option and appreciate in value in a
call option by more than the total premium paid in connection with the purchase
and sale (or exercise) of the option. For example, if a limited price put
option covering 100 shares of XYZ stock at an exercise price of $50 per share
is purchased for a premium of $662.50, and if the option has no value which may
be realized on account of its remaining life (i.e. its only value depends upon
the exercise price being above the market price of the underlying stock),
before the option can be exercised or sold at a profit, the price of the
underlying stock must decrease below $43.375 (the $6.625 decrease will cover
the premium). Also, for example, if a limited price call option covering 100
shares of XYZ stock at an exercise price of $50 per share is purchased for a
premium of $662.50, and if the option has no value which may be realized on
account of its remaining life (i.e. its only value depends upon the exercise
price being below the market price of the underlying stock), before the option
can be exercised or sold at a profit, the price of the underlying stock must
increase to $56.625 (the $6.625 increase will cover the premium). Accordingly,
this use of options is extremely speculative, expecially because of the
expiration price provision of Gordon Limited Price Options, and is unsuitable
for investors who do not have the financial capacity to withstand large losses.
2. Using Options as an Alternative to Selling Short or Investing in the
Underlying Security. This use of options assumes an investor who anticipates a
drop or rise in the price of XYZ stock but does not think it prudent to expose
himself to the risk of a severe price rise by selling XYZ short or to the risk
of a severe price decline by buying XYZ outright. Through the purchase of a
put option on 100 shares of XYZ as an alternative to the short sale or, through
the purchase of a call option on 100 shares of XYZ as an alternative to the
outright purchase of 100 shares of the stock, the investor may put himself in a
position to realize the hoped for profit (less the premium paid for the option)
and to limit his losses to the premium should the stock increase in value in a
put option and decline in value in a call option. This use of options
anticipates the investment of the entire difference between the cost of the
option and the short sale price or cost of the stock in a relatively risk-free
manner (such as a savings account or Treasury bills), the income from which
helps offset the cost of the option. (To the extent that an investor departs
from this risk limiting use of options by failing to invest in a relatively
risk-free manner the entire difference between the cost of the option and the
short sale selling price of the stock in a put option and the cost of the stock
in a call option, the option investment becomes more of a leverage device as
described under example 1 above, and the investor becomes subject to the risks
specified thereunder).
Although generally considered to be among the more conservative uses of option
buying, the use of options described in this example 2 still involves
significant risks that are not present in an ordinary short sale or stock
purchase. Unlike the stock investor, the option purchaser must not only
predict whether the price of the stock is going to fall or rise, but when it
will fall or rise. If the stock price does not fall below in a put option, or
rise above in a call option, the exercise price during the life of the option,
the option purchaser will lose his entire option investment (unless he is able
to recover a portion of the premium in an option repurchase transaction),
whereas the stock investor will have suffered only a paper loss until he
chooses to buy in the stock he is short or sell the stock he owns. Thus, an
option investor does not have the choice of "waiting out" an unexpected upturn
or downturn in the stock price beyond the expiration of the option. Obviously,
the shorter the term of the option, the greater is this risk. It should be
emphasized that this risk is increased by the expiration price provision of
Gordon Limited Price Options.
Further, the very security which might be considered more conservative from the
standpoint of a direct short sale or purchase could be more risky as an option
investment. For example, a stable security might be considered a safer
investment than a more volatile security because its price is less likely to
rise or fall, but the same stability factor also means that a security with a
stable price is less likely to fall significantly in a put option or rise
significantly in a call option during the relatively short duration of an
option. If the underlying security price does not fall in a put option or rise
in a call option during that period, the option holder stands to lose his
entire investment in the option.
The above enumeration of certain purposes and risks of buying options does not
purport to be inclusive; there are other uses that may involve greater or
lesser degrees of risk than stated above. Further, because of the repurchase
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agreement of Gordon Limited Price Options, the holder of an option may sell it
to Gordon & Co. Such sale transactions permit additional uses which are
discussed at page 25. No investor should undertake any transaction in options
unless he thoroughly understands the mechanics and risks involved and is
financially able to bear the risks.
It must be noted that the operation of the expiration price provision of Gordon
Limited Price Options may cause any such option to expire at any time after it
is purchased by virtue of fluctuation in the market price of the underlying
security. A Gordon Limited Price Option may expire without the knowledge of
the buyer or holder of such option. Gordon & Co. assumes no obligation to
notify the buyer or holder of any Gordon Limited Price Option that the market
price of the underlying security is approaching the expiration price of the
option. Once a Gordon Limited Price Option expires by virtue of its expiration
price provision, it becomes worthless. Subsequent fluctuation in the market
price of the underlying security prior to the expiration date of the option
does not revive the option.
METHOD OF BUYING GORDON OPTIONS
Gordon Limited Price Options may be purchased by placing an order with a broker
or directly with Gordon & Co. An order should specify the premium being
offered, the underlying security and the quantity thereof, the expiration date,
the exercise price, and the expiration prices and the periods of time to which
they are applicable. The order may be accepted or rejected by Gordon & Co., or
negotiation may occur concerning the premium, exercise price, expiration prices
and other terms of the option. As stated at pages 15-16, the charts indicating
premiums and expiration prices of Gordon Options included in this prospectus
are illustrative only, and are always subject to negotiation.
As indicated at pages 5 and 14, Gordon & Co. generally issues only offsetting
put options and covered call options with an exercise price equal to the market
price of the underlying security when the option is issued. Promptly upon
receipt of a customer's order and agreement on the terms of the Gordon Limited
Price Option to be issued Gordon sells (if a put option) or purchases (if a
call option) the underlying security through a securities broker. The price at
which the underlying security is positioned by Gordon & Co. determines the
exercise price of the Gordon Option and directly affects the amount of the
premium for the option. Accordingly, a customer should instruct Gordon & Co.
when he places his order whether Gordon should position the underlying security
by issuing a market order, a limit order or some other form of contingency
order.
In those rare instances when Gordon elects to issue a naked option, Gordon
sells, as promptly as applicable short selling regulations permit, and
simultaneously purchases (if a naked put option) or purchases and
simultaneously sells (if a naked call option) the underlying security. The
actual price which Gordon & Co. receives on the sale of the underlying security
of a naked put option, or the actual price which Gordon & Co. pays for the
underlying security of a naked call option determines the exercise price of the
Gordon Option issued to the customer and directly affects the amount of the
premium for the option.
When Gordon & Co. and the customer agree on the premium and other terms of the
Limited Price Option and the exercise price of the option is established
according to the procedures herein described a trade binding on the parties
results.
The buyer, or his broker, is required to pay the premium to Gordon & Co. prior
to 9:30 A.M. Eastern Time of the following business day, at which time the
option is issued by Gordon & Co. It is important to note that an option cannot
be exercised or resold until the premium is paid.
Gordon & Co. reserves the right to sell Limited Price Options only to buyers
determined by Gordon & Co. to be sophisticated stock market investors, traders
and speculators. These buyers must satisfy Gordon & Co. that they have
complete comprehension of the mechanics and risks involved in trading in
options, especially Limited Price Options, and have the financial resources to
enable them to bear the risk of trading in such options. As previously stated
under "Certain Risk Factors" at page 9, the NASD imposes special disclosure and
suitability rules for customers who engage in options trading. Gordon & Co.
sells Gordon Options only to purchasers who satisfy the options disclosure and
suitability requirements imposed by the NASD.
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Moreover, Gordon & Co. will sell Gordon Options written on standardized stock
options or on standardized index options only to extremely sophisticated
investors who demonstrate a clear understanding of and ability to bear the
unusual risks attendant in a derivative instrument written on another
derivative instrument.
Gordon & Co. determines the suitability of option buyers by requiring each
prospective buyer to submit a signed written application to open an account
with Gordon & Co. The applicant is required to disclose his full name, age,
marital status, number of dependents, home and business addresses and telephone
numbers, name of employer and position held, bank references, stockbroker
reference, taxpayer identification number, date of birth, annual income, net
worth, investment experience and knowledge, and investment objectives.
An authorized representative of Gordon & Co. analyzes each application and
determines whether the applicant is suitable for option trading before any
transaction is consummated.
LIMITATIONS ON OPTION PURCHASES
Gordon & Co. has established position limits governing the maximum number of
shares of stock, warrants, bonds or options on which Gordon Limited Price
Options may be held by a single investor or group of investors acting in
concert and the amount of the aggregate premiums received for such options.
Gordon & Co. generally refrains from issuing options if the underlying security
of an option has a closing market price or bid price of less than $5 per share
or per option or $250 per bond. (See "Position Limits" at page 19.)
REPURCHASE AGREEMENT IN GORDON OPTIONS
GENERAL
As mentioned at pages 16 and 17 in this prospectus, the repurchase agreement in
Gordon Limited Price Options permits investors with existing positions as
holders of options, subject to certain exceptions summarized hereunder in
"Limitations on Exercise, Transfer and Repurchase of Options" at page 19, to
liquidate their positions by selling their options to Gordon & Co.
A holder (bearer) of a Limited Price Option who desires to sell his option to
Gordon & Co. must present the option and notify Gordon & Co. that he elects to
require Gordon & Co. to repurchase the option. This must be done before the
option expires. The holder may give this notice orally or in writing when he
presents the option to Gordon & Co. Upon receipt of the option and notice,
Gordon & Co. will offer to purchase or sell the underlying security in
accordance with the terms of the notice. Upon the purchase or sale of the
underlying security, Gordon & Co. will pay the holder of the option the
repurchase price calculated in accordance with the method set forth under
"Liquidating Sales Transactions" below. If Gordon & Co. cannot purchase or
sell the underlying security of the option because a trading halt on the
underlying security imposed by governmental authority, by the exchange where
the security is listed, or by the NASD, is in effect, Gordon & Co.'s obligation
to repurchase the option ceases under the repurchase agreement of the option,
unless trading in the underlying security resumes before the expiration date of
the option. (See Paragraph 5 in Facsimiles of Limited Price Options at pages
36 and 38.)
LIQUIDATING SALE TRANSACTIONS
The repurchase agreement in Gordon Limited Price Options is available to the
holder of options, subject to certain exceptions summarized hereunder in
"Limitations on Exercise, Transfer and Repurchase of Options" at page 19, up to
the time the options expire by virtue of their expiration date or expiration
price provision. The repurchase price for a put option is the amount by which
the applicable expiration price of the put option is above the price Gordon &
Co. pays to purchase the underlying security when the holder of the put option
requests its repurchase. The repurchase price for a call option is the amount
by which the applicable expiration price of the call option is below the price
Gordon & Co. receives on the sale of the underlying security when the holder of
the call option requests its repurchase. The repurchase price for a put or
call option is reduced by the amount,
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if any, by which the commission paid to purchase or sell the underlying
security when the holder of the option requests its repurchase, exceeds the
commission paid to sell short or purchase the underlying security at the time
the option was issued.
In order to require the repurchase by Gordon & Co. of a Limited Price Put
Option, the holder (bearer) must present the option to Gordon & Co. prior to
the earlier of (a) 3:15 P.M. Eastern Time on the expiration date of the option
or (b) such time as a sale shall occur of the underlying security on a national
securities exchange, if listed on an exchange, or if not so listed at such time
as an ask price appears for the underlying security on NASDAQ, at a price equal
to or more than the expiration price specified in the option as applicable to
the period which includes the date of such sale or of such ask price.
In order to require the repurchase by Gordon & Co. of a Limited Price Call
Option, the holder (bearer) must present the option to Gordon & Co. prior to
the earlier of (a) 3:15 P.M. Eastern Time on the expiration date of the option
or (b) such time as a sale shall occur of the underlying security on a national
securities exchange, if listed on an exchange, or if not so listed at such time
as a bid price appears for the underlying security on NASDAQ, at a price equal
to or less than the expiration price specified in the option as applicable to
the period which includes the date of such sale or of such bid price.
The holder (bearer) of the option cannot exercise or require its repurchase
while trading in the underlying security of the option has been halted by
governmental authority, by the exchange where listed, or by the NASD. Such a
trading halt shall not extend the date on which the option expires or the dates
on which the expiration prices become applicable. If such a trading halt is in
effect on the expiration date of the option, the option nevertheless expires on
its expiration date.
The holders of Gordon Limited Price Options may save stock brokerage
commissions when they resell their options to Gordon & Co. instead of
exercising them, and in certain instances, receive a portion of the premium
they paid for the options by obtaining the spread, if any, between the
expiration price (not the striking price) and the current market price of the
security underlying the options.
For example, a holder might have purchased the typical limited price put option
described at "Typical Limited Price Options" (page 40) for $662.50 when XYZ
stock was selling at $50 per share. Twenty-nine days later, XYZ stock is
selling for $45 (and it had not risen during said period of time to $53.75).
By exercising the repurchase agreement of the option, the holder would receive,
in accordance with the repurchase agreement, $875 (if the underlying stock is
purchased by Gordon & Co. at $45), this sum being the difference between the
first month expiration price of $53.75 (not the striking price of $50) and the
purchase price of the underlying stock at $45. The profit made by selling the
option in this transaction would be $212.50 ($875 less the $662.50 premium paid
for the option) less the difference, if any, of any commission Gordon & Co.
pays to buy-in XYZ over the commission it paid to sell XYZ short at the time
the option was written.
Again, for example, a holder might have purchased the typical limited price
call option described at "Typical Limited Price Options" (page 40) for $662.50
when XYZ stock was selling at $50 per share. Twenty-nine days later, XYZ stock
is selling for $55 (and had not fallen during said period of time to $46.25).
By exercising the repurchase agreement of the option, the holder would receive,
in accordance with the repurchase agreement, $875 (if the underlying stock is
sold by Gordon & Co. at $55), this sum being the difference between the
expiration price of $46.25 (not the striking price of $50) and the sale price
of the underlying stock at $55. The profit made by selling the option in this
transaction would be $212.50 ($875 less $662.50 premium paid for the option)
less the difference, if any, of any commission Gordon & Co. pays to sell XYZ
over the commission it paid to purchase XYZ at the time the option was written.
When the holder of a limited price option makes a timely request upon Gordon &
Co. to repurchase the option, Gordon & Co. immediately places a market order
for the purchase of the underlying security of a put option (whether it is an
offsetting put option or a naked put option) or for the sale of the underlying
security of a covered call option and utilizes its best efforts to effect a
prompt and expeditious purchase or sale of the underlying security. The actual
purchase price of the securities underlying a put option or the actual sales
price of the securities underlying a covered call option is used to calculate
26
<PAGE>
the repurchase price of the Gordon Option as explained above. If the option is
a naked call option Gordon & Co. immediately places a market order for the
purchase and simultaneous sale of the underlying security of the naked call
option and utilizes its best efforts to effect a prompt and expeditious
purchase and sale of the underlying security. The actual sale price of the
underlying security is used to compute the repurchase price exactly as if the
call option had been a covered call option. Gordon & Co. may be legally
responsible to the holder of the option for negligence in executing the
transaction.
MODERATION OF BUYER'S RISKS
In appropriate circumstances, the buyers of options may be able to limit their
losses by closing out their position in options prior to their expiration,
pursuant to the Repurchase Agreement in Gordon Options. Although the
repurchase agreement may assist buyers of Gordon Limited Price Options in
limiting their losses, there can be no assurance that the repurchase agreement
will be applicable to any particular option because of a lack of a market to
buy or sell the underlying security of the option, a rapid price fluctuation in
the market price of the underlying security, or the possibility that a trading
halt on an underlying security may eliminate the buyer's right to require
Gordon & Co. to repurchase the option. (See "Limitations on Exercise, Transfer
and Repurchase of Options" at page 19.)
The moderation of the buyer's risk in purchasing a limited price put option may
be illustrated as follows:
A purchases the typical limited price put option described at "Typical Limited
Price Options" (page 40) for a premium of $662.50.
Instead of falling in price as A anticipated, the market price of XYZ
fluctuates between $47 and $51 a share, and is selling at $50 a share three
weeks after he purchases the put option. A desires to liquidate his investment
of $662.50 in the put option he owns. A can liquidate his investment with
financial benefit to himself by electing to sell it to Gordon & Co., who is
obligated to buy the option under the repurchase agreement of the option, for
the amount by which the expiration price of $53.75 is above the price at which
Gordon & Co. can purchase 100 shares of XYZ. If Gordon & Co. purchases 100
shares of XYZ at $50 a share, it is obligated to pay A $375 for the put option
(expiration price of $53.75 less $50 purchase price). A could realize no gain
if he exercised his put option and delivered 100 shares of XYZ at $50 a share
when the market price of XYZ is $50 a share (except he would save the assumed
commission of $71.50 if he owned the 100 shares of XYZ) but does recoup $375 of
his investment of $662.50 by selling the option under the repurchase agreement
of the option.
The moderation of the buyer's risk in purchasing a limited price call option
may be illustrated as follows:
A purchases the typical limited price call option described at "Typical Limited
Price Options" (page 40) for a premium of $662.50.
Instead of rising in price as A anticipated, the market price of XYZ fluctuates
between $53 and $49 a share, and is selling at $50 a share three weeks after he
purchases the call option. A desires to liquidate his investment of $662.50 in
the call option he owns. A can liquidate his investment with financial benefit
to himself by electing to sell it to Gordon & Co., who is obligated to buy the
option under the repurchase agreement of the option, for the amount by which
the expiration price of $46.25 is below the price at which Gordon & Co. can
sell 100 shares of XYZ. If Gordon & Co. sells 100 shares of XYZ at $50 a
share, it is obligated to pay A $375 for the call option ($50 purchase price
less expiration price of $46.25). A could realize no gain if he exercised his
call option and called for 100 shares of XYZ at $50 a share when the market
price of XYZ is $50 a share (except he would save the assumed commission of
$71.50 if he wanted to own the 100 shares of XYZ) but does recoup $375 of his
investment of $662.50 by selling the option under the repurchase agreement of
the option.
A's loss on his investment in both of the above examples is moderated by the
amount A received on the sale of his option.
27
<PAGE>
RESTATEMENT OF BUYER'S MODERATION OF LOSS IN THE ABOVE EXAMPLES
<TABLE>
<S> <C>
Paid for option $662.50
Realized on sale of option 375.00
-------
Loss on option transaction $287.50
=======
</TABLE>
A would have lost his entire investment if he exercised either of the above
options when the market price of the underlying security was $50.
All that has been stated in the examples set forth above would apply to
warrants, rights, units, options and bonds if they were the underlying security
of the option and would apply if XYZ was listed on a national securities
exchange or quoted on NASDAQ.
EXERCISE OF GORDON OPTIONS
GENERAL
Except as limited in the following sentence, a Gordon Limited Price Option may
be exercised by the timely submission to Gordon & Co. of the option with an
oral or written notice of exercise, together with the underlying security of a
put option or payment of the exercise price of a call option. As noted under
Exercise of Options at page 7, Gordon Options written on standardized stock
options or on standardized index options can not be exercised. They can be
only resold to Gordon & Co. under the terms of the Repurchase Agreement
contained therein.
In order to exercise a limited price put option, the holder (bearer) must
present the option to Gordon & Co. prior to the earlier of (a) 3:15 P.M.
Eastern Time on the expiration date of the option or (b) such time as a sale
shall occur of the underlying security on a national securities exchange, if
listed on an exchange, or if not so listed, at such time as an ask price
appears for the underlying security on NASDAQ, at a price equal to or more than
the expiration price specified in the option as applicable to the period which
includes the date of such sale or of such ask price.
In order to exercise a limited price call option, the holder (bearer) must
present the option to Gordon & Co. prior to the earlier of (a) 3:15 P.M.
Eastern Time on the expiration date of the option or (b) such time as a sale
shall occur of the underlying security on a national securities exchange, if
listed on an exchange, or if not so listed at such time as a bid price appears
for the underlying security on NASDAQ, at a price equal to or less than the
expiration price specified in the option as applicable to the period which
includes the date of such sale or of such bid price.
The expiration date of every Gordon Option is calculated to fall on a business
day on which the market for the underlying security is open for trading. If,
by some oversight or inadvertence, the expiration date of a Gordon Option falls
on a day other than such a business day, then the option does not expire until
3:15 P.M. Eastern Time on the next business day on which the market for the
underlying security is open for trading.
In no event may any Gordon Option be exercised after it has expired either by
virtue of its expiration date or expiration price provision. When a Gordon
Option has expired, it has no further value.
TENDER OF EXERCISE NOTICE
Gordon & Co. assumes no responsibility for the timely or proper tender to it of
the exercise notice and option. If an option is not properly exercised (or
tendered for repurchase by Gordon & Co. pursuant to the repurchase agreement in
the option discussed at page 25) prior to its expiration, it will become
worthless.
Every tender of an exercise notice and option to Gordon & Co. is irrevocable.
28
<PAGE>
PAYMENT AND DELIVERY
Gordon & Co. will pay the striking price of a put option, and deliver the
underlying security in a call option, within three business days of the timely
submission of an exercise notice, delivery of the option, and delivery of the
underlying security in a put option, and payment of the exercise price in a
call option.
It should be noted that when the holder of a standardized option exercises the
option, unless a firm has a house rule to the contrary, the holder is not
required to pay the exercise price until three business days later when he
should also receive delivery of the underlying security of a call option or
receive the exercise price of a put option.
In this respect, standardized options are different from Gordon Options which
require the holder to pay the exercise price of a call option, or deliver the
underlying security of a put option, at the time the holder exercises the
option, even though Gordon & Co. is not obligated to deliver the underlying
security of the call option or pay the exercise price of a put option until
three business days after the option is exercised.
Upon the payment of the exercise price of a put option, and delivery of the
underlying security in a call option, to the holder or his broker, the
obligation of Gordon & Co. under the option will be completely discharged.
REMEDIES
If Gordon & Co. does not pay the striking price on the exercise of a put
option, or deliver the underlying security on the exercise of a call option, on
or before the settlement date, the holder may sell the underlying security in a
put option or buy the underlying security in a call option. Gordon & Co. is
obligated to pay the holder of a put option any amount by which the price
obtained for the underlying security was less than the exercise price of the
put option; and to pay the holder of a call option any amount by which the
price paid for the underlying security exceeded the exercise price of the call
option.
THE BACK-UP SYSTEM
The mechanics of trading in Gordon Limited Price Options and the settlement
procedures of Gordon & Co. are designed so that for every outstanding option
Gordon & Co. has undertaken to perform the obligations of the option in the
event of an exercise of the option. As a result, no matter how many options
may be outstanding at any time with respect to a particular underlying security
Gordon & Co. is always obligated to perform each option.
Once an exercise notice is given and delivery of the option is made by the
holder to Gordon & Co., and the underlying security is tendered to Gordon & Co.
in a put option, or payment of the exercise price is tendered to Gordon & Co.
in a call option, Gordon & Co. is contractually obligated to perform the
obligation of the option in accordance with its terms. Gordon & Co.'s
obligation is secured by margin which Gordon & Co. segregates, maintains and
holds to secure the performance of the option.
I. Gordon & Co.'s Net Capital. Gordon & Co. issues limited price options only
if it has at least the net capital required by law. Gordon & Co. will not
permit the withdrawal of any funds from any subordinated loan account or from
the account of any partner if the effect of such withdrawal or payment would be
to reduce its net capital below such required amount.
Gordon & Co. will furnish semi-annually to the holder of each outstanding
option a balance sheet which includes a detailed computation of its net
capital. The financial books and records of Gordon & Co. will be audited at
least once annually by independent certified public accountants and a report of
such audit will be furnished to each holder of outstanding Gordon Limited Price
Options and to the SEC.
II. Gordon & Co. Margin Deposits. When Gordon & Co. issues an option, Gordon
& Co. segregates as margin, cash or Treasury bills or the underlying security
(or, in certain cases, a security exchangeable for or convertible into the
underlying security) by 9:30 A.M. on the day after the option is issued.
29
<PAGE>
III. Gordon & Co.'s Lien. Gordon & Co. has a lien on all options, other
securities, margins and funds maintained in each customer's account with Gordon
& Co. If any customer does not perform its obligations to Gordon & Co., the
assets in the customer's account with Gordon & Co. may be sold or converted to
cash by Gordon & Co. and the proceeds applied to the performance of the
customer's obligation as a buyer of Gordon Limited Price Options. The customer
is obligated to pay Gordon & Co. any deficiency between the amount of the
customer's obligation to Gordon & Co. and the amount Gordon & Co. receives from
the liquidation of the customer's account.
FEDERAL INCOME TAX CONSIDERATIONS
Federal income tax considerations are important in evaluating option
transactions. Any investor considering the purchase of a Gordon Limited Price
Put or Call Option should consult with his tax advisor as to how taxes may
affect the outcome of a particular contemplated option transaction.
Gordon & Co. has obtained private rulings from the Internal Revenue Service
with respect to material federal income tax consequences to buyers of Gordon
Options. The specific circumstances of a particular transaction and of any
particular taxpayer may impact the resulting tax consequences so it is not
possible to provide information with respect to the federal income tax
treatment of every conceivable option transaction. These rulings are set forth
below and they are based on the assumption that the options are capital assets
of the holder of the option.
1. The cost of a Gordon Limited Price Call Option or a Gordon Limited Price
Put Option is a nondeductible capital expenditure.
2. If a Gordon Limited Price Call Option or a Gordon Limited Price Put Option
is sold prior to exercise, any gain or loss recognized by the holder
constitutes capital gain or loss and is short-term or long-term, depending on
the holding period of the call or the put.
3. If a Gordon Limited Price Call Option or a Gordon Limited Price Put Option
is allowed to expire without exercise, the expiration is treated as a sale or
exchange of such option on the expiration date. The resulting loss is a
capital loss and is short-term or long-term, depending on the holding period of
the option.
4. If a Gordon Limited Price Call Option is exercised, its cost is added to
the basis of the stock purchased.
5. If a Gordon Limited Price Put Option is exercised, its cost reduces the
amount realized on the sale of the underlying stock in determining gain or
loss. Such gain or loss is capital gain or loss and is short-term or
long-term, depending on the holding period of the stock involved.
6. For purposes of section 1233(b) of the Internal Revenue Code (the "Code"),
the acquisition of a Gordon Limited Price Put Option constitutes a short sale
and the exercise, sale or expiration of the put is a closing of the short sale.
If the put is acquired at a time when the underlying stock has been held for
less than the holding period required for long-term capital gain purposes or if
shares of the underlying security are acquired after acquisition of the Put
Option and before its exercise, sale or expiration, any gain on exercise, sale
or expiration of the Put Option is short-term capital gain, and the holding
period of the underlying security begins to run on the earliest of (1) the date
such security is disposed of, (2) the date the Put Option is exercised, (3) the
date the Put Option is sold or (4) the date the Put Option expires.
7. If a Gordon Put Option and securities identified to be used in its exercise
are acquired on the same day, the acquisition of the Put Option does not
constitute a short sale for purposes of section 1233(b) of the Code. If the
Put Option is exercised and if the identified securities are delivered pursuant
to the exercise, the premium paid for the Put Option
reduces the amount realized on the sale. If the Put Option is not exercised,
the premium paid for the Put Option is added to the basis of the identified
securities.
30
<PAGE>
These private tax rulings may not preclude the Internal Revenue Service from
making adjustments in the tax return of individual investors with respect to
transactions in Gordon Options depending on the particular facts applicable to
a specific transaction or to a specific taxpayer. Current laws, regulations,
rulings, decisions and policies of the Internal Revenue Service are subject to
change at any time.
State income tax considerations may also be significant. No attempt is made to
explain them here. Nothing herein is to be construed as tax advice with
respect either to federal or state tax considerations.
COSTS OF OPTIONS TRANSACTIONS
The price which a buyer pays to purchase a Gordon Option is known as a
"premium". The amount of the premium for a particular option is determined by
agreement of the parties to the transaction. The premium depends upon such
factors as the market price and the quantity of the underlying security
involved in the transaction, the identity of the issuer of the underlying
security, the volatility of the underlying security, the term of the option,
the difference, if any, between the exercise price and the market price of the
underlying security, the expiration prices and dates to which they are
applicable, the commission cost involved in positioning and disposing of the
underlying security, whether the underlying security is traded on a national
securities exchange or quoted on NASDAQ, and the premium at which a
conventional or standardized option on the same underlying security is
available.
Gordon & Co. offers its 6 month-10 day, 9 month and 12 month-10 day limited
price options for premiums (subject to negotiation and change) ranging from
11 1/2% to 30% of the market value of the underlying security when the security
is traded on a national securities exchange and for premiums ranging from
15 1/2% to 40% of the market value of the underlying security when the security
is quoted on NASDAQ. Premiums for Limited Price Options on underlying options
are specially negotiated.
The premiums are paid to Gordon & Co.
Gordon & Co. may purchase or sell the securities underlying an option through a
broker who has referred the option buyer to Gordon & Co. The referring broker
will receive a commission from Gordon & Co. for executing transactions in the
underlying securities. No additional fee or other form of compensation is paid
to the referring broker by Gordon & Co.
Illustrative premiums at which Gordon & Co. offers its limited price put and
call options (subject to negotiation and change) on securities listed on a
national securities exchange, with exercise prices equivalent to the market
price of the underlying security at the time the options are issued, are
$12.50 per 100 shares of stock, 100 warrants, rights or units or 10 bonds plus
the percentages of the market price of the underlying securities set forth
below.
All premiums are adjusted to the next highest 1/8 of a point if on being
computed they do not come to an even 1/8.
31
<PAGE>
PREMIUMS ON LIMITED PRICE PUT AND CALL OPTIONS
(EXPRESSED AS A PERCENTAGE OF THE MARKET PRICE OF THE UNDERLYING SECURITY)
OPTIONS ON 1,000 SHARES OR MORE OF LISTED STOCK,
1,000 WARRANTS, RIGHTS OR UNITS OR 100 BONDS
<TABLE>
<CAPTION>
6 MONTH-10 DAY 12 MONTH-10 DAy
MARKET PRICE OF OPTIONS 9 MONTH OPTIONS OPTIONS
UNDERLYING SECURITY PREMIUM PREMIUM PREMIUM
------------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 to 9 7/8 not available not available 25 1/2 %
10 to 14 7/8 not available not available 23 %
15 to 24 7/8 not available 18 % 22 1/2 %
25 to 39 7/8 12 1/2 % 17 % 21 1/2 %
40 to 74 7/8 11 1/2 % 16 % 20 1/2 %
75 to 149 7/8 11 % 15 1/2 % 20 %
150 and up 10 1/2 % 15 % 19 1/2 %
</TABLE>
OPTIONS ON 500 TO 900 SHARES OF LISTED STOCK,
500 TO 900 WARRANTS, RIGHTS OR UNITS OR 50 TO 90 BONDS
<TABLE>
<CAPTION>
6 MONTH-10 DAY 12 MONTH-10 DAy
MARKET PRICE OF OPTIONS 9 MONTH OPTIONS OPTIONS
UNDERLYING SECURITY PREMIUM PREMIUM PREMIUM
------------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 to 9 7/8 not available not available 26 %
10 to 14 7/8 not available not available 23 1/2 %
15 to 24 7/8 not available 18 % 22 1/2 %
25 to 39 7/8 13 % 17 1/2 % 22 %
40 to 74 7/8 12 1/2 % 17 % 21 1/2 %
75 to 149 7/8 11 1/2 % 16 % 20 1/2 %
150 and up 11 % 15 1/2 % 20 %
</TABLE>
OPTIONS ON LESS THAN 500 SHARES OF LISTED STOCK,
500 WARRANTS, RIGHTS OR UNITS OR 50 BONDS
<TABLE>
<CAPTION>
6 MONTH-10 DAY 12 MONTH-10 DAy
MARKET PRICE OF OPTIONS 9 MONTH OPTIONS OPTIONS
UNDERLYING SECURITY PREMIUM PREMIUM PREMIUM
------------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 to 9 7/8 not available not available 27 1/2 %
10 to 14 7/8 not available not available 25 %
15 to 24 7/8 not available 19 1/2 % 24 %
25 to 39 7/8 14 % 18 1/2 % 23 %
40 to 74 7/8 13 % 17 1/2 % 22 %
75 to 149 7/8 12 1/2 % 17 % 21 1/2 %
150 and up 12 % 16 1/2 % 21 %
</TABLE>
Illustrative premiums at which Gordon & Co. offers its limited price put and
call options (subject to negotiation and change) on securities quoted on NASDAQ
are 33 1/3% more than the premiums on securities quoted on a national
securities exchange.
Premiums for Limited Price Options with expiration dates other than those
listed above are agreed upon with Gordon & Co. when the transaction is
negotiated.
Prior to the expiration of any limited price option it has issued, Gordon & Co.
will increase the exercise and expiration prices in a put option, and decrease
the exercise and expiration prices in a call option, as much (as many points)
as the holder desires, upon the receipt from the holder of a premium of $1.0625
per share of stock or per warrant, right or unit; $10.625 per bond; and $106.25
per underlying option for each point the exercise and expiration prices of the
option are increased or decreased.
32
<PAGE>
Except for the premiums discussed herein, Gordon & Co. makes no charge to the
buyer or holder of a Gordon Option for the purchase, modification, exercise or
repurchase of the option.
LITIGATION RELATING TO GORDON & CO.
There is no administrative action, criminal or civil litigation pending or
threatened against Gordon & Co. or its general partner which in the opinion of
management or counsel to Gordon & Co. would materially adversely affect the
financial condition of Gordon & Co.
ORGANIZATION AND MANAGEMENT OF GORDON & CO.
ORGANIZATION
Gordon & Co. is a broker-dealer registered under the Securities Act of 1934 and
it is subject to that Act and to the regulatory jurisdiction of the Securities
and Exchange Commission.
Gordon & Co. was organized in 1937 in Massachusetts as a common law partnership
by Louis Gordon, Milton Gordon and Stanley Gordon under the name of Beacon
Finance Company. On May 1, 1961 Beacon Finance Company registered with the
Commonwealth of Massachusetts as a limited partnership. On December 15, 1971
Beacon Finance Company registered with the Securities and Exchange Commission
as a broker-dealer pursuant to the Securities Exchange Act of 1934 and has,
since its registration, engaged in the business of writing options on
securities. On December 21, 1971, Beacon Finance Company changed its name to
Gordon & Co. Its offices are located at One Gateway Center, Newton,
Massachusetts 02158; telephone number (617) 964-6672.
Gordon & Co. has written limited price options for many years. The vast
majority of the options have been repurchased by Gordon & Co. with or without
prior modification pursuant to the repurchase agreement in the options. Those
options which were repurchased may or may not have resulted in a profit to the
holder. Options which have expired have always resulted in a loss to the
holder. Gordon & Co. has never failed to fulfill its obligations as a writer
of options including its obligation to repurchase any option as required by the
terms thereof.
Gordon & Co. issues no research reports to its customers other than information
published by national publication services, and makes no recommendations with
respect to the underlying securities to buyers or writers of its limited price
options.
The capitalization of Gordon & Co. consists of funds invested in Gordon & Co.
by its partners. The issuance and/or writing of the limited price options
offered by this prospectus has a direct effect upon the capitalization of
Gordon & Co. (See the Balance Sheet and Statement of Income of Gordon & Co.
included under "Financial Statements" beginning at page 42.)
MANAGEMENT
The general partner of Gordon & Co. is Kezar Limited Partnership, a
Massachusetts limited partnership organized on January 1, 1987. An audited
consolidated balance sheet of Kezar Limited Partnership is included at page 52
of this Prospectus. The general partners of Kezar Limited Partnership are
Stanley Gordon and Warren G. Miller as trustees of The Salke Family Trust. The
Salke Family Trust had a net worth in excess of nine million ($9,000,000)
dollars as of December 31, 1996. Stanley Gordon is also a limited partner of
Gordon & Co. Warren G. Miller is general counsel to Gordon & Co. Stanley
Gordon and Warren G. Miller each had a net worth in excess of five hundred
thousand ($500,000) dollars as of December 31, 1996. Neither of them has an
active role in the operation of the business of Gordon & Co. and neither of
them receives any compensation as an employee of Gordon & Co. As general
33
<PAGE>
partner of Gordon & Co., Kezar Limited Partnership is obligated by law to
satisfy all of the financial obligations of Gordon & Co.
The chief and only executive officer of Gordon & Co. is Michael B. Salke, age
58. Mr. Salke has been actively engaged in the securities business of Gordon &
Co. (formerly Beacon Finance Company) as general manager from 1961 to 1971 and
thereafter as general partner of Gordon & Co. from 1971 through 1986 when he
assumed his present position of Chief Executive Officer. He was the general
manager of Beacon Finance Co., Inc. from 1961 to 1971 when it merged with
Gordon & Co. Inc. and was also president of Gordon & Co. Inc. until its
voluntary dissolution in 1976. Mr. Salke is also a limited partner of Kezar
Limited Partnership.
EXECUTIVE COMPENSATION
As the chief and only executive officer of Gordon & Co., Michael B. Salke
serves under an employment contract which expires on December 31, 1997 at an
annual salary of $402,000.00 plus expenses. Mr. Salke's previous employment
contracts have been renewed annually since 1986, generally at increasing rates
of compensation and are likely to be so renewed on an annual basis for the
foreseeable future.
After each limited partner of Gordon & Co receives a guaranteed return on his
average annual investment in Gordon & Co. the balance of the partnership's net
income is paid to its general partner, Kezar Limited Partnership in which
Michael Salke has a significant financial interest as limited partner.
BENEFICIAL OWNERSHIP OF GORDON & CO.
The following table sets forth as of December 31, 1996 certain information
regarding the ownership of and equity interest in Gordon & Co., a Massachusetts
limited partnership, by each person who is the beneficial owner of more than
five percent of the equity of the partnership and by the named chief and sole
executive officer of the company, Michael B. Salke.
<TABLE>
<CAPTION>
Name and Address of Nature of Beneficial Percentage of Partnership
Beneficial Owner (1) Ownership Owned
- -------------------- -------------------- -------------------------
<S> <C> <C>
Kezar Limited General Partner
Partnership, a 68.8%
Massachusetts Limited
Partnership
Stanley Gordon (2) Limited Partner 11.4%
Joan Salke (3) Limited Partner 15.4%
Michael B. Salke Chief and Only Executive (4)
Officer
</TABLE>
<PAGE>
(1) The address of each owner is One Gateway Center, Newton, MA 02158
(2) Stanley Gordon is the father-in-law of Michael B. Salke and the father of
Joan Salke.
(3) Joan Salke is the wife of Michael B. Salke and the daughter of Stanley
Gordon.
(4) Michael B. Salke does not directly own any beneficial interest in Gordon &
Co. He is a limited partner of Kezar Limited Partnership, general partner of
Gordon & Co. As of December 31, 1996, Mr. Salke owned a 34.4% beneficial
interest in Kezar Limited Partnership.
CERTAIN RELATIONSHIPS
As indicated in the financial statements at page 42, there is a $1,100,000
subordinated demand loan payable by the Company to a trust for the benefit of
Harriett Gordon, the wife of Stanley Gordon, a limited partner, pursuant to a
secured demand note collateral agreement. Harriett Gordon is also the
mother-in-law of Michael B. Salke and the mother of Joan Salke.
The Company is indebted to the same trust in the amount of $268,476 as of
December 31, 1996, pursuant to an unsecured subordinated demand note.
LEGAL OPINION AND EXPERT REPORT
Legal matters in connection with options offered hereby, including legal
matters related to federal income taxes under "Federal Income Tax
Considerations" have been passed upon by Warren G. Miller, Esquire, Boston,
Massachusetts, General Counsel to Gordon & Co. Mr. Miller is a trustee of The
Salke Family Trust which is the general partner of Kezar Limited Partnership, a
Massachusetts limited partnership which is the general partner of Gordon & Co.
The financial statements included in this prospectus and the related
supplemental schedules included elsewhere in the registration statement of
Gordon & Co. as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in this prospectus have been
audited by Tofias Fleishman Shapiro & Co., P.C., independent public
accountants, as stated in their report appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon such reports
given upon the authority of that firm as experts in accounting and auditing.
The consolidated balance sheet of Kezar Limited Partnership and Subsidiary as
of December 31, 1996 has been audited by Tofias Fleishman Shapiro & Co., P.C.,
independent public accountants, as stated in their report appearing herein and
elsewhere in the registration statement, and has been so included in reliance
upon such report given upon the authority of that firm as experts in accounting
and auditing.
35
<PAGE>
(617) 964-6672
GORDON & CO.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02158
LIMITED PRICE PUT OPTION CONTRACT
CONTRACT NO. NEWTON, MASS.
Date
For Value Received, the Bearer may Deliver to Gordon & Co.
Shares of at $ per share
Bonds of at $ per bond
Warrants of at $ per warrant
Rights of at $ per right
Units of at $ per unit
Options(7) on at $ per option
hereinafter referred to as the Contract Striking Price.
This option can be exercised only prior to the earlier of (A) 3:15 P.M. Eastern
Time on the expiration date described below or (B) such time as a sale shall
occur of the above described security on a national securities exchange if
listed on an exchange, or if not so listed, at such time as an ask price
appears for the above described security on an automated quotation system of a
national securities association, at a price equal to or more than the
expiration price specified below as applicable to the period which includes
the date of such sale or such ask price.
EXPIRATION PRICE EXPIRATION PRICE
PER SHARE PER SHARE
PER BOND PER BOND
PER WARRANT PER WARRANT
PER RIGHT PER RIGHT
PER UNIT PERIOD TO WHICH PER UNIT PERIOD TO WHICH
PER OPTION(7) APPLICABLE PER OPTION(7) APPLICABLE
------------- ---------- ------------- ----------
From to From to
From to From to
From to From to
From to From to
From to From to
From to From to
If the security underlying the Option is a standardized (listed) or index
option, this Option can not be exercised. It can only be resold to Gordon &
Co. pursuant to the terms on the reverse side hereof.
The regular expiration date of this option is or the earlier
expiration date of the underlying security if the underlying security is an
Option, warrant or right, but this option will expire automatically upon the
sale of the security if listed on a national securities exchange, or at such
time as an ask price appears for the security on an automated quotation system
of a national securities association, at or above the applicable expiration
price specified herein. Gordon & Co. does not assume any responsibility to
notify the bearer of the prices at which the security has been sold, offered
for sale or the ask price of the security.
At any time prior to the expiration of this option, the bearer may require
Gordon & Co. to repurchase this option at the price determined pursuant to
paragraph 4 of the terms and conditions on the reverse side.
This option must be presented to Gordon & Co. before the exact time of its
expiration in order to exercise this option or to require the repurchase of
this option.
This option is subject to the terms and conditions on the reverse side.
Gordon & Co. agrees to carry out all of the obligations of this option in
accordance with the terms and conditions thereof.
GORDON & CO.
By
36
<PAGE>
TERMS AND CONDITIONS
Definitions of Terms. As used in the Option, "Underlying Security" means the
Stock, Bond, Warrant, Right, Unit or Option of the issuer and class specified
on the face hereof; "Contract Striking Price" (7) means the price specified on
the face hereof as the price at which the Bearer may deliver or call the
Underlying Security, subject to an adjustment pursuant to these Terms and
Conditions; and "Expiration Price" (7) as of a specified date, means the amount
shown on the face hereof as the expiration price applicable to the period which
includes such date, subject to adjustment pursuant to these Terms and
Conditions.
Prior to the expiration of this Option if the Underlying Security is a Stock
(or, where applicable, a Warrant, Unit or Option):
1. (a)-The Contract Striking Price and Expiration Prices hereof shall be
reduced by the value of any cash dividend on the day the Stock goes
ex-dividend;
(b)-Where the underlying stock is entitled to rights and/or warrants the
Contract Striking Price and Expiration Prices shall be reduced by the value
of same as fixed by the opening sale thereof on the day the Stock sells
ex-rights and/or warrants.
2. (a)-In the event of stock splits, reverse splits or other similar action by
the issuer of the Stock, Warrant or Unit or by the issuer of the security
underlying an option which is the subject of this Option, this Option shall
become an Option for the equivalent in new securities when duly listed for
trading and the total Contract Striking Price and Expiration Prices shall
not be reduced.
(b)-Stock dividends or the equivalent due-bills shall be attached to the
Stock, Warrant or Unit when and if this Option is exercised, and the total
Contract Striking Price and Expiration Prices shall not be reduced.
Prior to the Expiration of this Option if the Underlying Security is a Bond:
3. (a)-The Contract Striking Price and Expiration Prices shall be reduced by
the value of any interest on the day interest is paid on the Bond.
(b)-Upon exercise or election to require repurchase of this Option, the
Contract Striking Price and Expiration Prices of the Underlying Bond shall
be reduced by the amount of accrued interest from the last interest payment
date to the date of presentation.
(c)-If the Underlying Bond is called for redemption by the issuing
corporation, wholly or in part, this Option shall expire on the date fixed
for redemption by said corporation and the Contract Striking Price and
Expiration Prices shall be reduced by the amount of accrued interest from
the last payable date to the date of redemption.
4. If prior to the expiration of this Option there are presented to Gordon &
Co. this Option and notice that the Bearer has elected to require the
repurchase of this Option, Gordon & Co. will offer to purchase if a Put
Option, or will offer for sale if a Call Option, at a price which conforms
to the conditions as to price stated in such notice, the Stock, Bonds,
Warrants, Rights Units or Options covered by this Option. Subject to the
purchase or sale on the Exchange where listed, or on the over-the-counter
market if not listed on an Exchange, by Gordon & Co., prior to the
expiration of this Option and in conformity with such conditions as to
price, of such Stock, Bonds, Warrants, Rights, Units or Options, Gordon &
Co. will repurchase this Option at a price equal to the amount by which the
purchase price of such purchase of the Stock,Bonds, Warrants, Rights, Units
or Options is below in a Put Option, or sales price of such sale of the
Stock, Bonds, Warrants, Rights, Units or Options is above in a Call Option,
(without reduction for transfer taxes) the amount determined by multiplying
the number of shares of Stock, Bonds, Warrants, Rights, Units or Options
covered by this Option by the applicable Expiration Price in effect at the
date of such purchase or sale, less the difference, if any, in a Put Option,
by which the amount of commission paid to purchase the optioned security
exceeds the commission paid to sell short the optioned security at the time
the option was written, and less the difference, if any, in a Call Option,
by which the amount of commission paid to sell the optioned security exceeds
the commission paid to purchase the optioned security at the time the option
was written. Gordon & Co.'s repurchase of this Option shall be deemed to
have been effected on the date of such purchase or sale of the Underlying
Security.
5. Except as provided herein, this Option may not be exercised, or the
repurchase of this Option required, while trading in the Underlying Security
has been halted by governmental authority, the Exchange where listed, or by
the NASD and such a trading halt shall not extend the date on which this
Option expires or the dates on which Expiration Prices become applicable.
If such a trading halt is in effect on the expiration date of this Option,
this Option shall expire.
6. Prior to the expiration of this Option, the Bearer may have the exercise
price and expiration prices of this Option increased in a Put Option, and
decreased in a Call Option, as many points as the Bearer desires upon paying
Gordon & Co. an additional premium. The additional premium for each point
the exercise and expiration prices of the Option are increased or decreased
is $1.0625 per share of Stock, Warrant, Right or Unit if the Underlying
Security is a Stock, Warrant, Right or Unit; $10.625 per Bond if the
Underlying Security is a Bond; and $106.25 per Underlying Option if the
Underlying Security is an Option.
7. Underlying Options are generally quoted and traded on the exchange where
listed or on the over-the-counter market at prices representing 1/100th of
the price of the Underlying Option which covers 100 shares or units of the
security or index subject to the Underlying Option. Accordingly for
purposes of determining the Contract Striking Price and applicable
expiration prices of this Option, the Contract Striking Price and Expiration
Prices of this Option stated on the face hereof must be multiplied by 100.
37
<PAGE>
(617) 964-6672
GORDON & CO.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02158
LIMITED PRICE CALL OPTION CONTRACT
CONTRACT NO. NEWTON, MASS.
Date
For Value Received, the Bearer may Deliver to Gordon & Co.
Shares of at $ per share
Bonds of at $ per bond
Warrants of at $ per warrant
Rights of at $ per right
Units of at $ per unit
Options(7) on at $ per option
hereinafter referred to as the Contract Striking Price.
This option can be exercised only prior to the earlier of (A) 3:15 P.M. Eastern
Time on the expiration date described below or (B) such time as a sale shall
occur of the above described security on a national securities exchange if
listed on an exchange, or if not so listed, at such time as an bid price
appears for the above described security on an automated quotation system of a
national securities association, at a price equal to or less than the
expiration price specified below as applicable to the period which includes
the date of such sale or such bid price.
EXPIRATION PRICE EXPIRATION PRICE
PER SHARE PER SHARE
PER BOND PER BOND
PER WARRANT PER WARRANT
PER RIGHT PER RIGHT
PER UNIT PERIOD TO WHICH PER UNIT PERIOD TO WHICH
PER OPTION(7) APPLICABLE PER OPTION(7) APPLICABLE
------------ ---------- ------------- ----------
From to From to
From to From to
From to From to
From to From to
From to From to
From to From to
If the security underlying the Option is a standardized (listed) or index
option, this Option can not be exercised. It can only be resold to Gordon &
Co. pursuant to the terms on the reverse side hereof.
The regular expiration date of this option is or the earlier
expiration date of the underlying security if the underlying security is an
Option, warrant or right, but this option will expire automatically upon the
sale of the security if listed on a national securities exchange, or at such
time as an bid price appears for the security on an automated quotation system
of a national securities association, at or beolw the applicable expiration
price specified herein. Gordon & Co. does not assume any responsibility to
notify the bearer of the prices at which the security has been sold, offered
for sale or the bid price of the security.
At any time prior to the expiration of this option, the bearer may require
Gordon & Co. to repurchase this option at the price determined pursuant to
paragraph 4 of the terms and conditions on the reverse side.
This option must be presented to Gordon & Co. before the exact time of its
expiration in order to exercise this option or to require the repurchase of
this option.
This option is subject to the terms and conditions on the reverse side.
Gordon & Co. agrees to carry out all of the obligations of this option in
accordance with the terms and conditions thereof.
GORDON & CO.
By
38
<PAGE>
TERMS AND CONDITIONS
Definitions of Terms. As used in the Option, "Underlying Security" means the
Stock, Bond, Warrant, Right, Unit or Option of the issuer and class specified
on the face hereof; "Contract Striking Price" (7) means the price specified on
the face hereof as the price at which the Bearer may deliver or call the
Underlying Security, subject to an adjustment pursuant to these Terms and
Conditions; and "Expiration Price" (7) as of a specified date, means the amount
shown on the face hereof as the expiration price applicable to the period which
includes such date, subject to adjustment pursuant to these Terms and
Conditions.
Prior to the expiration of this Option if the Underlying Security is a Stock
(or, where applicable, a Warrant, Unit or Option):
1. (a)-The Contract Striking Price and Expiration Prices hereof shall be
reduced by the value of any cash dividend on the day the Stock goes
ex-dividend;
(b)-Where the underlying stock is entitled to rights and/or warrants the
Contract Striking Price and Expiration Prices shall be reduced by the value
of same as fixed by the opening sale thereof on the day the Stock sells
ex-rights and/or warrants.
2. (a)-In the event of stock splits, reverse splits or other similar action by
the issuer of the Stock, Warrant or Unit or by the issuer of the security
underlying an option which is the subject of this Option, this Option shall
become an Option for the equivalent in new securities when duly listed for
trading and the total Contract Striking Price and Expiration Prices shall
not be reduced.
(b)-Stock dividends or the equivalent due-bills shall be attached to the
Stock, Warrant or Unit when and if this Option is exercised, and the total
Contract Striking Price and Expiration Prices shall not be reduced.
Prior to the Expiration of this Option if the Underlying Security is a Bond:
3. (a)-The Contract Striking Price and Expiration Prices shall be reduced by
the value of any interest on the day interest is paid on the Bond.
(b)-Upon exercise or election to require repurchase of this Option, the
Contract Striking Price and Expiration Prices of the Underlying Bond shall
be reduced by the amount of accrued interest from the last interest payment
date to the date of presentation.
(c)-If the Underlying Bond is called for redemption by the issuing
corporation, wholly or in part, this Option shall expire on the date fixed
for redemption by said corporation and the Contract Striking Price and
Expiration Prices shall be reduced by the amount of accrued interest from
the last payable date to the date of redemption.
4. If prior to the expiration of this Option there are presented to Gordon &
Co. this Option and notice that the Bearer has elected to require the
repurchase of this Option, Gordon & Co. will offer to purchase if a Put
Option, or will offer for sale if a Call Option, at a price which conforms
to the conditions as to price stated in such notice, the Stock, Bonds,
Warrants, Rights Units or Options covered by this Option. Subject to the
purchase or sale on the Exchange where listed, or on the over-the-counter
market if not listed on an Exchange, by Gordon & Co., prior to the
expiration of this Option and in conformity with such conditions as to
price, of such Stock, Bonds, Warrants, Rights, Units or Options, Gordon &
Co. will repurchase this Option at a price equal to the amount by which the
purchase price of such purchase of the Stock, Bonds, Warrants, Rights, Units
or Options is below in a Put Option, or sales price of such sale of the
Stock, Bonds, Warrants, Rights, Units or Options is above in a Call Option,
(without reduction for transfer taxes) the amount determined by multiplying
the number of shares of Stock, Bonds, Warrants, Rights, Units or Options
covered by this Option by the applicable Expiration Price in effect at the
date of such purchase or sale, less the difference, if any, in a Put Option,
by which the amount of commission paid to purchase the optioned security
exceeds the commission paid to sell short the optioned security at the time
the option was written, and less the difference, if any, in a Call Option,
by which the amount of commission paid to sell the optioned security exceeds
the commission paid to purchase the optioned security at the time the option
was written. Gordon & Co.'s repurchase of this Option shall be deemed to
have been effected on the date of such purchase or sale of the Underlying
Security.
5. Except as provided herein, this Option may not be exercised, or the
repurchase of this Option required, while trading in the Underlying Security
has been halted by governmental authority, the Exchange where listed, or by
the NASD and such a trading halt shall not extend the date on which this
Option expires or the dates on which Expiration Prices become applicable.
If such a trading halt is in effect on the expiration date of this Option,
this Option shall expire.
6. Prior to the expiration of this Option, the Bearer may have the exercise
price and expiration prices of this Option increased in a Put Option, and
decreased in a Call Option, as many points as the Bearer desires upon paying
Gordon & Co. an additional premium. The additional premium for each point
the exercise and expiration prices of the Option are increased or decreased
is $1.0625 per share of Stock, Warrant, Right or Unit if the Underlying
Security is a Stock, Warrant, Right or Unit; $10.625 per Bond if the
Underlying Security is a Bond; and $106.25 per Underlying Option if the
Underlying Security is an Option.
7. Underlying Options are generally quoted and traded on the exchange where
listed or on the over-the-counter market at prices representing 1/100th of
the price of the Underlying Option which covers 100 shares or units of the
security or index subject to the Underlying Option. Accordingly for
purposes of determining the Contract Striking Price and applicable
expiration prices of this Option, the Contract Striking Price and Expiration
Prices of this Option stated on the face hereof must be multiplied by 100.
39
<PAGE>
TYPICAL LIMITED PRICE OPTIONS
The following typical limited price put and call options are referred to in
various examples throughout this prospectus:
1. Typical Put Option
A limited price put option written for a term of 6 months-10 days on 100 shares
of XYZ stock listed on a national securities exchange with a market value of
$50 a share, for a premium of $662.50, at an exercise price of $50 per share,
with expiration prices of
$53.75 during the first monthly term of the option,
$53.00 during the second monthly term of the option,
$52.25 during the third monthly term of the option,
$51.50 during the fourth monthly term of the option,
$50.75 during the fifth monthly term of the option,
$50.00 during the last monthly term of the option.
2. Typical Call Option
A limited price call option written for a term of 6 months-10 days on 100
shares of XYZ stock listed on a national securities exchange with a market
price of $50 a share, for a premium of $662.50, at an exercise price of $50 per
share, with expiration prices of
$46.25 during the first monthly term of the option,
$47.00 during the second monthly term of the option,
$47.75 during the third monthly term of the option,
$48.50 during the fourth monthly term of the option,
$49.25 during the fifth monthly term of the option,
$50.00 during the last monthly term of the option.
40
<PAGE>
(617) 964-6672
GORDON & CO.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02158
Date:
The following information pertains to the security underlying the Gordon
Limited Price Option which you purchased from or sold through Gordon & Co. on
the above date. Financial data has been compiled from the most recent annual
report (on Form 10-K) filed by the issuer with the Securities and Exchange
Commission. Data relating to trading volume of the underlying security has
been obtained from financial publications. Gordon & Co. believes these sources
to be reliable but does not guarantee the accuracy or completeness of the
information.
- ----------------------------- ---------------- ----------------
Underlying Security Exchange No. Shs.
Outstanding
SALES/REVENUES AND EARNINGS PER SHARE DURING PAST THREE FISCAL YEARS
YR. ENDED 19 19 19
- -------------- ------------- -------------- --------------
Sales/Revenues:
(in thousands)
------------- -------------- --------------
Earnings per Sh.
------------- -------------- --------------
QUARTERLY HIGH/LOW PRICE RANGE AND
DIVIDENDS DECLARED OR PAID DURING PAST 2 FISCAL YEARS
19 19
-------------------- -------------------
QUARTERS HIGH/LOW DIVIDEND HIGH/LOW DIVIDEND
1st
2nd
3rd
4th
TRADING VOLUME DURING PAST FOUR WEEKS
WEEK ENDED VOLUME (IN HUNDREDS)
Past 4-wk Average Volume:
41
<PAGE>
FINANCIAL STATEMENTS
There are set forth below the certified financial statements of Gordon & Co.
for the last three fiscal years including statements of financial condition for
the last two fiscal years and a certified consolidated balance sheet of Kezar
Limited Partnership and Subsidiary at December 31, 1996.
It should be noted that Gordon & Co. is the issuer and writer of every Gordon &
Co. Option. The financial statements of Gordon & Co. and of its general
partner, Kezar Limited Partnership, are presented to furnish buyers of Gordon
Limited Price Options with information as to Gordon & Co.'s financial net worth
and its financial ability to honor all options it issues and writes.
42
<PAGE>
<AUDITOR-REPORT>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Gordon & Co.:
We have audited the accompanying statements of financial condition of Gordon &
Co. (the "Partnership") as of December 31, 1996 and 1995 and the related
statements of income, changes in partnership capital, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1996 and
1995 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
TOFIAS FLEISHMAN SHAPIRO & CO., P.C.
January 21, 1997
Cambridge, Massachusetts
</AUDIT-REPORT>
43
<PAGE>
GORDON & CO.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
NOTES 1996 1995
----- ---- ----
<S> <C> <C> <C>
Cash and money market accounts 3,9 $12,710,567 $7,565,745
Investments 1 1,979,543
Deposits with clearing organizations 153,000 88,000
Receivables from brokers, dealers and clearing
organizations 1 86,436 769,150
Receivables from customers 57,719 113,096
Securities purchased 1,4,7 8,010,055 7,697,406
Secured demand note receivable 8 1,100,000 1,100,000
Property - net of accumulated
depreciation of $2,065,118 in 1996 and
$1,993,321 in 1995 1 67,299 210,376
Other assets 759,339 372,681
----------- -----------
TOTAL $22,944,415 $19,895,997
=========== ===========
</TABLE>
LIABILITIES AND PARTNERSHIP CAPITAL
<TABLE>
<S> <C> <C> <C>
Unsecured loans 6 $ 337,143 $ 303,110
Payables to brokers, dealers and clearing
organizations 7 74,564
Payables to customers 251,617 252,290
Securities sold but not purchased 1,4 31,499
Accrued and other liabilities 185,655 197,358
Total 774,415 858,821
----------- -----------
Subordinated loan 7 1,100,000 1,100,000
Partnership capital 21,070,000 17,937,176
----------- -----------
Total partnership capital and subordination 22,170,000 19,037,176
----------- -----------
TOTAL $22,944,415 $19,895,997
=========== ===========
</TABLE>
See notes to financial statements.
44
<PAGE>
GORDON & CO.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NOTE 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net gains on option transactions (including
unrealized income (loss) of $1,063,741
in 1996 and $2,715,804 in 1995
and ($1,984,706) in 1994) 1 $6,509,861 $2,464,625 $2,739,897
Interest 526,658 595,772 456,218
Other income 276,851 226,412 189,638
---------- ---------- ----------
Total 7,313,370 3,286,809 3,385,753
---------- ---------- ----------
EXPENSES:
Compensation and benefits 2,377,003 843,447 844,085
Interest 6,8 46,639 44,073 45,357
Other operating costs 990,781 997,218 1,056,332
---------- ---------- ----------
Total 3,414,423 1,884,738 1,945,774
---------- ---------- ----------
NET INCOME $3,898,947 $1,402,071 $1,439,979
========== ========== ==========
</TABLE>
See notes to financial statements.
45
<PAGE>
GORDON & CO.
STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
GENERAL PARTNER
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PARTNERSHIP CAPITAL, BEGINNING OF YEAR $11,299,270 $11,327,404 $12,043,332
----------- ----------- -----------
ADD:
Capital contributions 594,788
Distributive share of net income 3,371,543 873,800 904,477
----------- ----------- -----------
Total 3,966,331 873,800 904,477
----------- ----------- -----------
DEDUCT-Capital withdrawals 773,202 901,934 1,620,405
----------- ----------- -----------
PARTNERSHIP CAPITAL, END OF YEAR $14,492,399 $11,299,270 $11,327,404
=========== =========== ===========
</TABLE>
LIMITED PARTNERS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PARTNERSHIP CAPITAL, BEGINNING OF YEAR $6,637,906 $6,692,450 $6,967,828
---------- ---------- ----------
ADD:
Capital contributions 1,756,698 19,228 17,110
Distributive share of net income 527,404 528,271 535,502
---------- ---------- ----------
Total 2,284,102 547,499 552,612
---------- ---------- ----------
DEDUCT-Capital withdrawals 2,344,407 602,043 827,990
---------- ---------- ----------
PARTNERSHIP CAPITAL, END OF YEAR $6,577,601 $6,637,906 $6,692,450
========== ========== ==========
</TABLE>
TOTAL
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PARTNERSHIP CAPITAL, BEGINNING OF YEAR $17,937,176 $18,019,854 $19,011,160
----------- ----------- -----------
ADD:
Capital contributions 2,351,486 19,228 17,110
Distributive share of net income 3,898,947 1,402,071 1,439,979
----------- ----------- -----------
Total 6,250,433 1,421,299 1,457,089
----------- ----------- -----------
DEDUCT-Capital withdrawals 3,117,609 1,503,977 2,448,395
----------- ----------- -----------
PARTNERSHIP CAPITAL, END OF YEAR $21,070,000 $17,937,176 $18,019,854
=========== =========== ===========
</TABLE>
See notes to financial statements.
46
<PAGE>
GORDON & CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,898,947 $ 1,402,071 $ 1,439,979
Add (Deduct) items not requiring the
use of cash:
Loss on sale of property 18,523
Depreciation 86,554 152,386 223,055
Accretion of discounts < 34,597) ( 111,525) ( 29,537)
------------ ------------ ------------
Total 3,969,427 1,442,932 1,633,497
Changes in operating assets and liabilities:
Deposits with clearing organizations ( 65,000)
Receivables from brokers, dealers
and clearing organizations 682,714 ( 10,750) 2,889,100
Receivables from customers 55,377 669,863 ( 411,950)
Securities purchased ( 312,649) 1,511,823 2,807,926
Other assets ( 386,658) 187,281 ( 512,802)
Payables to brokers, dealers
and clearing organizations ( 74,564) ( 2,416,043) 2,055,613
Payables to customers ( 673) ( 174,423) ( 613,875)
Securities sold but not purchased ( 31,499) ( 1,044,037) ( 3,528,280)
Accrued and other liabilities ( 11,703) 114,393 ( 89,895)
------------ ------------ ------------
Total 3,824,772 281,039 4,229,334
------------ ------------ ------------
INVESTING ACTIVITIES:
Property additions ( 2,200) ( 61,600)
Proceeds from sale of property 38,000
Purchase of investments ( 1,975,030) ( 7,889,660) ( 3,948,820)
Redemption of investments 3,989,170 8,000,000 2,000,000
------------ ------------ ------------
Total 2,052,140 108,140 ( 2,010,420)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from unsecured loans payable 34,033 16,802 83,469
Capital contributions and transfers 2,351,486 19,228 17,110
Capital withdrawals and transfers ( 3,117,609) ( 1,503,977) ( 2,448,395)
------------ ------------ ------------
Total ( 732,090) ( 1,467,947) ( 2,347,816)
------------ ------------ ------------
INCREASE (DECREASE) IN MONEY
MARKET ACCOUNTS 5,144,822 ( 1,078,768) ( 128,902)
CASH AND MONEY MARKET ACCOUNTS AT
BEGINNING OF YEAR 7,565,745 8,644,513 8,773,415
------------ ------------ ------------
CASH AND MONEY MARKET ACCOUNTS AT
END OF YEAR $12,710,567 $ 7,565,745 $ 8,644,513
============ ============ ============
</TABLE>
See notes to financial statements.
47
<PAGE>
GORDON & CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Gordon & Co. (the "Partnership"), a Massachusetts limited partnership, is a
registered broker-dealer engaged primarily in the writing of limited price put
and call options. Under the terms of such options, expiration prices are
established. If the market price of the underlying security falls to or below
(call options) or rises to or above (put options) the expiration price, the
option expires. Upon issuance of each option, Gordon & Co. agrees to
repurchase the option prior to expiration for certain specified prices. An
option may be exercised, but if it is not exercised, modified or repurchased,
it expires at the end of the term of the option as determined either by the
expiration price or the expiration date of the option. The expiration price
provision limits the off-balance sheet market risk should there be an
unfavorable change in the price of the underlying financial instrument. If a
put option expires, Gordon & Co.'s policy is to immediately purchase the
underlying security to cover its short position.
Principal customers are individuals located throughout the United States who
are familiar with the type of risk associated with these investments and who
satisfy the options disclosure and suitability requirements imposed by the
NASD.
Accounting for Option Income
Option income is recognized over the term of the option, measured by the
difference between the premiums received for writing and/or modifying the
option and the amount of the Partnership's obligation to repurchase the option.
For covered options, the amount of the repurchase obligation is considered in
determining the realizable value of the underlying securities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities Transactions and Valuation of Securities
Securities transactions are recorded on a trade date basis. Securities, most
of which are subject to outstanding put or call options, are recorded at
realizable value, taking into account the repurchase provisions included in the
options. Changes in the realizable value of securities are included in income.
Receivables from brokers, dealers and clearing organizations are collateralized
in part by securities borrowed or sold.
Fair Value of Financial Instruments
The Partnership's financial instruments, except as discussed elsewhere, are
recorded at carrying amounts which approximate fair value.
48
<PAGE>
GORDON & CO.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
Property
Computer equipment, furniture and fixtures, motor vehicles, and leasehold
improvements are recorded at cost and are depreciated using the applicable tax
depreciation methods over their estimated useful lives. Maintenance and
repairs are charged to expense as incurred.
Investments
Investments consisting of short-term United States government debt securities
are carried at amortized cost which approximates market price.
Income Taxes
A provision for income taxes has not been made as each partner is individually
liable for his own tax payments.
2. STATEMENT OF CASH FLOWS
The Partnership paid $46,639, $44,073 and $45,357 in interest during the years
ended December 31, 1996, 1995 and 1994 respectively. No income taxes were paid
as these are the responsibility of the individual partners. (See note 8).
3. CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash and equivalents at several financial
institutions. Balances deposited in commercial banks are insured by the
Federal Deposit Insurance Corporation up to $100,000. The partnership's
uninsured cash balances totalled $12,419,480, $7,121,167 and $8,124,701 at
December 31, 1996, 1995 and 1994 respectively.
4. SECURITIES PURCHASED AND SOLD (TO COVER OUTSTANDING OPTIONS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Market value of securities purchased $10,382,894 $10,141,192
Less reduction of securities valuation to reflect
the repurchase provisions of options sold (Note 1) 2,372,839 2,443,786
----------- -----------
Total $ 8,010,055 $ 7,697,406
=========== ===========
Cost of securities purchased $ 8,978,687 $10,043,203
=========== ===========
Market value of securities sold but not purchased $ 0 $ 27,525
Plus increase in securities valuation to reflect
the repurchase provisions of options sold (Note 1) 0 3,974
----------- -----------
Total $ 0 $ 31,499
=========== ===========
Selling price of securities sold but not purchased $ 0 $ 26,544
=========== ===========
At December 31, 1996, two securities account for approximately 40% of the
market value of securities purchased.
At December 31, 1996 and 1995 all outstanding put and call options were
covered.
49
<PAGE>
GORDON & CO.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. CAPITAL REQUIREMENTS
The Partnership is subject to the Uniform Net Capital Rule pursuant to Rule
15c3-1 under the Securities Exchange Act of 1934 which provides that aggregate
indebtedness, as defined, shall not exceed fifteen times net capital, as
defined. The Partnership's net capital ratio, net capital, and net capital
requirements at December 31, 1996 and 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net capital ratio .04 to 1 .04 to 1
=========== ===========
Net capital $20,290,336 $17,632,492
=========== ===========
Required net capital $ 250,000 $ 250,000
=========== ===========
</TABLE>
6. UNSECURED LOANS
Loans payable at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Unsecured demand loans payable to relatives
of the chief executive officer, bearing interest
at 7 1/2 % $ 68,667 $ 93,867
Unsecured subordinated demand loans payable
to a trust for the benefit of a relative of a
limited partner, bearing interest at 7 1/2% 268,476 209,243
-------- --------
Total $337,143 $303,110
======== ========
</TABLE>
At December 31, 1996 the Partnership had available an unused line of credit of
$1,500,000 on an unsecured basis. The Partnership also has an agreement with a
bank to borrow funds on an offering basis determined by the bank's internal
guidelines. Interest rates on these lines are determined by the prime rate or
federal funds rate.
7. PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Payables to brokers, dealers and clearing organizations are collateralized by
securities purchased.
8. RELATED PARTY AGREEMENTS
The subordinated loan in the amount of $1,100,000 at December 31, 1996 and
1995 is payable to a trust for the benefit of a relative of a limited partner,
pursuant to a secured demand note collateral agreement. The present loan,
bearing interest at 2% is fully collateralized by U.S. Treasury notes. The
loan matures on January 31, 1998. It is the intention of the Partnership to
renegotiate this loan when it comes due.
The secured demand note receivable is due from the same trust and is non-
interest bearing.
Included in other assets is a $215,000 mortgage receivable due from a trust of
which one benficiary is a related party.
50
<PAGE>
GORDON & CO.
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. RELATED PARTY TRANSACTIONS-(Continued)
The secured demand note receivable and subordinated loan payable bear
interest rates determined in accordance with industry standards. Since both of
these instruments are with the same related entity, the Partnership's
management estimates that adjustment to fair value would not have a material
effect on income or partner's capital.
9. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1996 and 1995, cash of $174,000 and $259,000, respectively,
was segregated in special reserve bank accounts for the benefit of customers
under Rule 15c3-3 of the Securities and Exchange Commission. No additional
deposit was necessary to meet the required reserve computed as of December 31,
1996 or 1995.
10. COMMITMENTS
The Partnership leases its office facilities and a motor vehicle under
noncancelable operating leases expiring through November, 1999. Minimum
annual rental payments are as follows:
1997: $59,858
1998: $28,468
1999: $26,096
Rental expense, including certain adjustments relating to changes in real
estate taxes and other operating expenses, for each of the years ended December
31, 1996 and 1995 under the aforementioned lease were $46,851 and $41,854,
respectively.
10. EMPLOYEE BENEFITS
The Partnership has a Keogh plan providing for contributions at the discretion
of the Chief Executive Officer. For the years ended 1996 and 1995, $128,610
and $59,919 respectively were contributed to the plan.
51
<PAGE>
<AUDIT-REPORT>
Independent Auditors' Report
The Partners
Kezar Limited Partnership
We have audited the accompanying consolidated balance sheet of Kezar Limited
Partnership, a Massachusetts limited partnership, and subsidiary, as of
December 31, 1996. This financial statement is the responsibility of the
Limited Partnership's management. Our responsibility is to express an opinion
on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Kezar Limited
Partnership and subsidiary as of December 31, 1996, in conformity with
generally accepted principles.
Tofias, Fleishman, Shapiro & Co., P.C.
Cambridge, Massachusetts
January 21, 1997
</AUDIT-REPORT>
52
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS NOTES
- ------ -----
<S> <C> <C>
Cash and money market accounts 2,8 $12,765,009
Deposits with clearing organizations 153,000
Receivables from brokers, dealers and clearing
organizations 1 86,436
Receivables from customers 57,719
Securities purchased 1,3,6 8,010,055
Secured demand note receivable 7 1,100,000
Property - net of accummulated depreciation
of $2,065,118 1 67,299
Other assets 759,339
-----------
TOTAL $22,998,857
===========
LIABILITIES AND PARTNERSHIP CAPITAL
- -----------------------------------
Unsecured loans 5 $ 337,143
Payables to customers 251,617
Accrued and other liabilities 185,655
-----------
Total 774,415
-----------
Minority Interest 6,577,601
-----------
Subordinated loan 7 1,100,000
Partnership capital 11 14,546,841
-----------
Total partnership capital and subordination 15,646,841
-----------
TOTAL $22,998,857
===========
</TABLE>
53
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
- ---------------------------
Kezar Limited Partnership ("Kezar"), a Massachusetts limited partnership, is
the General Partner of Gordon & Co. (the "Partnership"), a registered
broker-dealer engaged primarily in the writing of limited price put and call
options. Kezar is obligated by law to satisfy all the financial obligations of
the Partnership. The General Partner of Kezar is The Salke Family Trust of
which Stanley Gordon and Warren G. Miller are trustees. The General Partner of
Kezar is obligated by law to satisfy all the financial obligations of Kezar.
Gordon & Co., a Massachusetts limited partnership, is a registered
broker-dealer engaged primarily in the writing of limited price put and call
options. Under the terms of such options, expiration prices are established.
If the market price of the underlying security falls to or below (call options)
or rises to or above (put options) the expiration price, the option expires.
Upon issuance of each option, Gordon & Co. agrees to repurchase the option
prior to expiration for certain specified prices. An option may be exercised,
but if it is not exercised, modified or repurchased, it expires at the end of
the term of the option as determined either by the expiration price or the
expiration date of the option. The expiration price provision limits the
off-balance sheet market risk should there be an unfavorable change in the
price of the underlying financial instrument. If a put option expires, Gordon
& Co.'s policy is to immediately purchase the underlying security to cover its
short position.
Principal customers are individuals located throughout the United States who
are familiar with the type of risk associated with these investments and who
satisfy the options disclosure and suitability requirements imposed by the
NASD.
Accounting for Option Income
- ----------------------------
Option income is recognized over the term of the option, measured by the
difference between the premiums received for writing and/or modifying the
option and the amount of the Partnership's obligation to repurchase the option.
For covered options, the amount of the repurchase obligation is considered in
determining the realizable value of the underlying securities.
54
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Use Of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities Transactions and Valuation of Securities
- ---------------------------------------------------
Securities transactions are recorded on a trade date basis. Securities, most
of which are subject to outstanding put or call options, are recorded at
realizable value, taking into account the repurchase provisions included in the
options. Changes in the realizable value of securities are included in income.
Receivables from brokers, dealers and clearing organizations are
collateralized by securities borrowed or sold.
Fair Value of Financial Instruments
- -----------------------------------
The Partnership's financial instruments, except as discussed elsewhere, are
recorded at carrying amounts which approximate fair value.
Property
- --------
Computer equipment, furniture and fixtures, motor vehicles, and leasehold
improvements are recorded at cost and are depreciated using the applicable tax
depreciation methods over their estimated useful lives. Maintenance and
repairs are charged to expense as incurred.
Allocation of Kezar Income
- --------------------------
Kezar consists of a Limited Partner and a General Partner. The Limited Partner
is entitled to receive a distribution equal to 10% of the average capital of
the Limited Partner during the year, as defined in Article 2.2 of the Limited
Partnership Agreement (the "Kezar Agreement"). In addition, the Limited
Partner is entitled to receive special allocations as defined in Article 4.1 of
the Kezar Agreement.
Net income remaining after the guaranteed payments to the Limited Partner is
allocated to the General Partner.
55
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Kezar and its
majority owned subsidiary Gordon & Co. All material intercompany balances and
transactions are eliminated in consolidation.
Income Taxes
- ------------
A provision for income taxes has not been made as each partner is individually
liable for his own tax payments.
2. CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash and equivalents at several financial
institutions. Balances deposited in commercial banks are insured by the
Federal Deposit Insurance Corporation up to $100,000. The partnership's
uninsured cash balances totalled $12,419,480 at December 31, 1996.
3. SECURITIES PURCHASED
<TABLE>
<S> <C>
Market value of securities purchased $10,382,894
Less reduction of securities valuation to reflect
the repurchase provisions of options sold (Note 1) 2,372,839
-----------
Total $ 8,010,055
===========
Cost of securities purchased $ 8,978,687
===========
</TABLE>
At December 31, 1996, two securities account for approximately 40% of the
market value of securities purchased and all outstanding call options were
covered.
4. CAPITAL REQUIREMENTS
The Partnership is subject to the Uniform Net Capital Rule pursuant to Rule
15c3-1 under the Securities Exchange Act of 1934 which provides that aggregate
indebtedness, as defined, shall not exceed fifteen times net capital, as
defined. At December 31, 1996, the Partnership's net capital ratio was .04 to
1, net capital was $20,290,336 and required net capital was $250,000.
56
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996
5. UNSECURED LOANS
Loans payable at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Unsecured demand loans payable to relatives of the
chief executive officer, bearing interest at 7 1/2% $ 68,667
Unsecured subordinated demand loan payable to a trust
for the benefit of a relative of a limited partner,
bearing interest at 7 1/2% 268,476
--------
Total $337,143
========
</TABLE>
At December 31, 1996, the Partnership had available an unused line of credit of
$1,500,000 on an unsecured basis. The Partnership also has an agreement with a
bank to borrow funds on an offering basis determined by the bank's internal
guidelines. Interest rates on these lines are determined by the prime rate or
federal funds rate.
6. PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Payables to brokers, dealers and clearing organizations are collateralized by
securities purchased.
7. RELATED PARTY TRANSACTIONS
The subordinated loan at December 31, 1996 is payable to a trust for the
benefit of a relative of a limited partner, pursuant to a secured demand note
collateral agreement. The loan in the amount of $1,100,000, bearing interest
at 2% and fully collateralized by U.S. Treasury notes, matures on January 31,
1998. It is the intention of the Partnership to renegotiate this loan when it
comes due.
The secured demand note receivable is due from the same trust and is
non-interest bearing.
The secured demand note receivable and subordinated loan payable bear interest
rates determined in accordance with industry standards. Since both of these
instruments are with the same related entity, the Partnership's management
estimates that adjustment to fair value would not have a material effect on
income or partners' capital.
Included in other assets is a $215,000 mortgage receivable due from
a trust of which one beneficiary is a related party.
57
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996
8. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1996, cash of $174,000 was segregated in special reserve bank
accounts for the benefit of customers under Rule 15c3-3 of the Securities and
Exchange Commission. No additional deposit was necessary to meet the required
reserve computed as of December 31, 1996.
9. COMMITMENTS
The Partnership leases its office facilities and a motor vehicle under
noncancelable operating leases expiring through November, 1999. Minimum annual
rental payments are as follows:
1997: $59,858
1998: $28,468
1999: $26,096
10. EMPLOYEE BENEFITS
The Partnership has a Keogh plan providing for contributions at the discretion
of the Chief Executive Officer. For the year ended 1996 $128,610 was
contributed to the Plan.
11. PARTNERS' CAPITAL
Individual partners' capital balance changes during the year ended December 31,
1996 are as follows:
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
THE SALKE FAMILY MICHAEL B.
TOTAL TRUST SALKE
<S> <C> <C> <C>
Capital balances,
January 1, 1996 $11,353,712 $6,765,688 $4,588,024
Net income:
General partner residual 3,371,543 2,945,100 426,443
Additions 594,788 594,788
Withdrawals ( 773,202) ( 175,114) ( 598,088>
------------ ----------- -----------
3,193,129 2,769,986 423,143
------------ ----------- -----------
Capital balances,
December 31, 1996 $14,546,841 $9,535,674 $5,011,167
============ =========== ===========
</TABLE>
58
<PAGE>
---------- ----------
TABLE OF CONTENTS
PAGE
----
Available Information 2
Glossary of Terms 2
Prospectus Summary 5
Certain Risk Factors 9
Description of Gordon Options 14 GORDON & CO.
Terms of Options 14
Parties to the Option Transaction 14
Exercise Price of Options 14
Renewal of Options 15 ONE GATEWAY CENTER
Expiration Prices of Options 15
Repurchase of Gordon Limited Price Options 16 NEWTON, MASSACHUSETTS 02158
Modification of Terms of Options 16
Premiums for Options 16
Some Differences between Gordon & Co. Options (617) 964-6672
and Other Options 16
Adjustments in Terms 17
Limitations on Exercise, Transfer and Repurchase
of Options 19
Position Limits 19
Evidence of Option Contracts 19
Underlying Securities 20
Buying Gordon Options 22 GORDON & CO.
Purposes and Risks 22
Method of Buying Gordon Options 24
Limitations on Option Purchases 25
Repurchase Agreement in Gordon Options 25
General 25 8,000 LIMITED PRICE PUT AND
Liquidating Sale Transactions 25
Moderation of Buyer's Risks 27 CALL OPTIONS
Exercise of Gordon Options 28
General 28
Tender of Exercise Notice 28
Payment and Delivery 29 ----------
Remedies 29
The Back-Up System 29
Federal Income Tax Considerations 30 PROSPECTUS
Costs of Options Transactions 31
Litigation Relating to Gordon & Co 33
Organization and Management of Gordon & Co 33 ----------
Organization 33
Management 33
Executive Compensation 34
Beneficial Ownership 34
Certain Relationships 35
Legal Opinion and Expert Report 35
Facsimile of Limited Price Put Option Contract 36
Facsimile of Limited Price Call Option Contract 38
Typical Limited Price Options 40
Disclosure Statement 41
Financial Statements 42
----------- FEBRUARY 10, 1997
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY LIMITED PRICE
OPTIONS IN ANY JURISDICTION IN WHICH SUCH AN OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS.
-------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The securities offered by this registration statement do not create any equity
participation in Gordon & Co. There are no proceeds from the distribution of
Gordon Options other than the premiums which may be received for Options which
are sold. Accordingly, there are no expenses of issuance and distribution
which are of any material consequence to the purchasers of these Options.
Nonetheless, a reasonably itemized statement of all expenses in connection with
the registration of these securities is as follows:
<TABLE>
<S> <C>
Registration Fees:
Securities and Exchange Commission $22,069.00
Various States 15,310.00
Printing 2,000.00
Legal 15,000.00
Accounting 7,000.00
----------
Total $61,379.00
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Not applicable
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable
ITEM 16. EXHIBITS; FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
(1) Included in Prospectus and incorporated by reference
Gordon & Co.
Independent Auditors' Report
Statements of Financial Condition, December 31, 1996 and 1995
Statements of Income for the Years Ended December 31, 1996, 1995
and 1994
Statements of Changes in Partnership Capital for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994
Notes to Financial Statements
Kezar Limited Partnership
Independent Auditors' Report
Statement of Financial Condition, December 31, 1996
Notes to Statement of Financial Condition
Not included in Prospectus - The information with respect to
selected financial data is not included in the Prospectus in as
much as the securities being offered create no equity interest in
the Registrant and the inclusion of selected financial data of the
Registrant would be inappropriate.
II-1
<PAGE>
(2) Schedules Included
Schedule I - Marketable Securities: December 31, 1996 (p. S-3
through S-3.3).
Schedule II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than Related Parties
(S-4)
Schedule IX - Amounts Payable to Banks: December 31, 1996, 1995 and
1994 (p. S-5)
All other schedules have been omitted since the information
required is either disclosed in the notes to the financial
statements, not applicable to the Registrant or immaterial to its
financial condition.
(b) Exhibits
(3) A copy of the Restated Articles of Limited Partnership of the
Registrant are incorporated by reference to Pages S-5.2 through
S-5.24 in the Registrant's Post-Effective Amendment No. 16 to Form
S-1 which was filed with the commission on March 6, 1987 (File No.
2-52026). A First Amendment to the Registrant's Restated Articles
of Limited Partnership dated as of January 1, 1991 is incorporated
by reference to Pages S-6 through S-6.2 in Registrants
Post-Effective Amendment No. 4 to Form S-1 which was filed with the
Commission on March 26, 1991 (File No. 33-16109). A Second
Amendment to the Registrant's Restated Articles of Limited
Partnership dated as of January 1, 1992 is incorporated by
reference to Pages S-6 through S-6.3 in registrant's Registration
Statement on Form S-1 which was filed with the Commission on
February 24, 1992 (File No. 33-45944).
(4) Copies of Registrant's Limited Price Put and Call Option (2)
- Included in Prospectus at pages 36-39 and incorporated by
reference.
(5) Opinion of Counsel (1) (p. S-7)
(23) Consents
(1) Tofias Fleishman Shapiro & Co., P.C. (p. S-8)
(2) Warren G. Miller, Esq. (p. S-9)
ITEM 17. UNDERTAKINGS
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to its registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
II-3
<PAGE>
SCHEDULE I
GORDON & CO.
------------
MARKETABLE SECURITIES
SECURITIES PURCHASED
(TO COVER OUTSTANDING CALL OPTIONS)
DECEMBER 31, 1996
DECEMBER 31, 1996
----------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITY EXPIRATION DATE
SHARES LONG POSITION COST VALUE OF OPTION
- -------- ------------- ---- ----- ---------
<S> <C> <C> <C> <C>
15,000 Alfacell Corp $ 69,375.00 $ 95,625.00 8/26/97
4,600 America Online Inc 152,064.50 152,375.00 3/30/97
400 America Online Inc 14,155.60 13,250.00 2/24/97
500 Ampex Corp Cl A 5,187.50 4,687.50 8/2/97
1,000 Ancor Communications Inc 14,271.50 14,000.00 5/28/97
2,000 ARC International Corp 5,780.00 7,500.00 5/7/97
1,000 Artra Group Inc. 5,639.00 6,375.00 8/20/97
3,800 Artra Group Inc 20,900.00 24,225.00 8/23/97
89,700 Artra Group Inc 504,562.50 571,837.50 10/15/97
33,800 Artra Group Inc 202,800.00 215,475.00 12/16/97
1,900 Artra Group Inc 11,875.00 12,112.50 12/13/97
500 Artra Group Inc 3,000.00 3,187.50 9/3/97
3,600 Artra Group Inc 19,350.00 22,950.00 2/12/97
1,200 AT Cross Co. 13,650.00 13,950.00 6/17/97
1,000 AT Cross Co. 13,012.50 11,625.00 1/17/97
8,000 Austrian Trading Services Inc 34,000.00 40,000.00 9/28/97
12,000 Austrian Trading Services Inc 54,000.00 60,000.00 10/21/97
32,000 Austrian Trading Services Inc 148,000.00 160,000.00 4/23/97
8,000 Austrian Trading Services Inc 34,000.00 40,000.00 4/30/97
35,000 Austrian Trading Services Inc 166,250.00 175,000.00 10/26/97
25,000 Biomatrix Inc 368,750.00 400,000.00 5/25/97
28,500 CECO Environmental Corp 64,125.00 57,000.00 11/4/97
25,000 Celestial Ventures Corp 109,375.00 125,000.00 6/9/97
65,000 Celestial Ventures Corp 235,625.00 325,000.00 4/6/97
1,500 Columbia Labs Inc 18,000.00 21,750.00 8/23/97
2,000 Columbia Labs Inc 24,000.00 29,000.00 6/4/97
2,000 Columbia Labs Inc 24,000.00 29,000.00 6/4/97
1,000 Columbia Labs Inc 12,875.00 14,500.00 12/22/97
8,000 Columbia Labs Inc 70,000.00 116,000.00 2/1/97
5,000 Columbia Labs Inc 58,750.00 72,500.00 5/22/97
2,000 Columbia Labs Inc 25,600.00 29,000.00 2/24/97
1,000 Columbia Labs Inc 12,875.00 14,500.00 4/10/97
5,000 Columbia Labs Inc 59,375.00 72,500.00 2/19/97
4,000 Columbia Labs Inc 50,000.00 58,000.00 5/11/97
2,000 Columbia Labs Inc 24,750.00 29,000.00 2/24/97
2,000 Columbia Labs Inc 25,500.00 29,000.00 2/26/97
12,500 Columbia Labs Inc 143,750.00 181,250.00 4/13/97
5,000 Columbia Labs Inc 58,750.00 72,500.00 3/27/97
1,000 Columbia Labs Inc 12,250.00 14,500.00 4/23/97
2,000 Columbia Labs Inc 23,750.00 29,000.00 2/19/97
2,000 Columbia Labs Inc 24,750.00 29,000.00 2/24/97
2,000 Columbia Labs Inc 25,500.00 29,000.00 2/26/97
2,000 Columbia Labs Inc 23,500.00 29,000.00 5/22/97
3,000 Comforce Corporation. 49,875.00 42,750.00 1/15/97
</TABLE>
S-3
<PAGE>
SCHEDULE I
(CONTINUED)
GORDON & CO.
------------
MARKETABLE SECURITIES
SECURITIES PURCHASED
(TO COVER OUTSTANDING CALL OPTIONS)
DECEMBER 31, 1996
DECEMBER 31, 1996
----------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITY EXPIRATION DATE
SHARES LONG POSITION COST VALUE OF OPTION
- -------- ------------- ---- ----- ---------
<S> <C> <C> <C> <C>
10,000 Commodore Applied
Technologies Inc $ 90,130.00 $ 50,000.00 7/29/97
1,000 Commodore Applied
Technologies Inc 4,951.50 5,000.00 10/26/97
4,500 Complete Management Inc 57,435.75 57,937.50 7/29/97
1,000 Consolidated Stainless Inc 4,500.00 3,875.00 12/7/97
500 Control Data Systems Inc 11,375.00 11,000.00 7/16/97
1,000 Delta Financial Corp 22,764.00 18,000.00 6/4/97
44,000 Disc Graphics Inc 99,000.00 90,750.00 12/17/97
2,000 Disc Graphics Inc 6,750.00 4,125.00 5/7/97
12,500 Disc Graphics Inc 37,500.00 25,781.25 7/7/97
5,000 Disc Graphics Inc 12,500.00 10,312.50 7/26/97
500 ESS Technology Inc 14,250.00 14,062.50 4/18/97
500 Excalibur Technologies Corp 8,250.00 7,875.00 8/18/97
2,000 Executone Information
Systems Inc 5,000.00 4,750.00 12/24/97
40,000 Fidelity Holdings Inc 150,000.00 180,000.00 11/4/97
1,000 Filenes Basement Corp 3,000.00 4,125.00 4/26/97
3,000 FORE Systems Inc 107,124.90 98,625.00 4/16/97
500 Forte Software Inc 16,125.00 16,375.00 3/22/97
1,500 Forte Software Inc 48,201.35 49,125.00 3/25/97
2,000 Forte Software Inc 70,784.85 65,500.00 3/3/97
2,000 Forte Software Inc 71,500.00 65,500.00 9/11/97
5,000 Forte Software Inc 160,625.00 163,750.00 2/17/97
1,000 Forte Software Inc 31,178.61 32,750.00 2/14/97
1,000 Forte Software Inc 32,264.00 32,750.00 2/28/97
1,500 Forte Software Inc 49,757.05 49,125.00 3/26/97
1,000 Forte Software Inc 33,734.40 32,750.00 4/28/97
13,000 Galileo Corp 312,000.00 326,625.00 7/30/97
2,000 Galileo Corp 48,000.00 50,250.00 7/1/97
20,400 Galileo Corp 481,950.00 512,550.00 6/4/97
12,600 Galileo Corp 302,400.00 316,575.00 11/20/97
3,900 Galileo Corp 45,897.15 97,987.50 4/30/97
1,000 Galileo Corp 24,896.50 25,125.00 2/19/97
6,000 Galileo Corp 162,000.00 150,750.00 9/4/97
5,000 Galileo Corp 137,357.50 125,625.00 9/4/97
20,000 Galileo Corp 237,853.64 502,500.00 7/12/97
500 Galileo Corp 12,385.75 12,562.50 2/18/97
2,000 Galileo Corp 49,543.00 50,250.00 2/19/97
2,000 Galileo Corp 54,543.00 50,250.00 6/16/97
5,000 Galileo Corp 134,295.00 125,625.00 1/3/97
1,000 Geotel Communications Corp 15,125.00 13,000.00 12/21/97
1,000 Geotel Communications Corp 14,000.00 13,000.00 6/30/97
10,000 Hemispherx Biopharma Inc 44,613.00 22,500.00 10/14/97
</TABLE>
S-3.1
<PAGE>
SCHEDULE I
(CONTINUED)
GORDON & CO.
------------
MARKETABLE SECURITIES
SECURITIES PURCHASED
(TO COVER OUTSTANDING CALL OPTIONS)
DECEMBER 31, 1996
DECEMBER 31, 1996
----------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITY EXPIRATION DATE
SHARES LONG POSITION COST VALUE OF OPTION
- -------- ------------- ---- ----- ---------
<S> <C> <C> <C> <C>
10,000 Hemispherx Biopharma Inc $ 45,500.00 $ 22,500.00 10/15/97
9,000 Hemispherx Biopharma
Inc WTS 14,062.50 6,187.50 10/29/97
5,000 Hemispherx Biopharma
Inc UTS 20,187.50 14,687.50 2/10/97
5,000 Hemispherx Biopharma
Inc UTS 25,717.50 14,687.50 4/29/97
5,000 Hemispherx Biopharma
Inc UTS 22,592.50 14,687.50 2/11/97
3,000 Imclone Systems Inc 30,300.00 29,250.00 6/26/97
10,000 Infinity Companies Inc 0.00 625.00 n/a
2,500 International Precious
Metals Corp 7,656.25 10,937.50 10/13/97
5,000 International Precious
Metals Corp 13,531.50 21,875.00 2/24/97
500 MRV Communications Inc 11,937.50 10,875.00 4/30/97
1,000 Mti Technology Corp 2,250.00 3,312.50 8/4/97
2,000 Mehl Biophile
International Corp 9,250.00 5,125.00 9/16/97
500 Micrion Corp 10,500.00 10,875.00 6/20/97
2,000 Moscom Corp 23,646.50 15,718.75 2/27/97
2,000 Moscom Corp 21,000.00 15,718.75 5/30/97
10,000 Moscom Corp 109,875.00 78,593.75 2/14/97
1,750 National Patent
Development 13,125.00 13,453.13 11/8/97
6,400 North Star Universal Inc 48,800.00 52,000.00 5/28/97
500 Nu Skin Asia Pacific Inc 14,382.00 15,437.50 5/3/97
2,000 Nuko Information Systems Inc 23,418.00 22,250.00 6/30/97
500 Nuko Information Systems Inc 7,198.25 5,562.50 8/21/97
500 Nuko Information Systems Inc 7,073.25 5,562.50 12/6/97
7,000 Oxigene Inc 32,426.55 164,500.00 n/a
75,000 Oxigene Inc WTS 99,804.92 975,000.00 n/a
5,000 PDT Inc 125,000.00 140,000.00 5/24/97
10,000 PDT Inc 237,500.00 280,000.00 5/7/97
5,000 PDT Inc 150,092.50 140,000.00 1/22/97
3,000 PDT Inc 82,500.00 84,000.00 3/10/97
2,000 PeopleSoft Inc 96,521.50 95,875.00 3/30/97
5,000 Projectavision Inc 17,500.00 12,812.50 9/13/97
2,500 Projectavision Inc 9,687.50 6,406.25 9/3/97
2,500 Projectavision Inc 9,062.50 6,406.25 9/24/97
1,000 R.G. Barry Corp 11,125.00 11,000.00 6/6/97
1,000 Security Dynamics 37,125.00 31,500.00 4/17/97
1,000 Security Dynamics 33,875.00 31,500.00 7/7/97
500 Shiva Corp 20,010.75 17,437.50 12/6/97
</TABLE>
S-3.2
<PAGE>
SCHEDULE I
(CONTINUED)
GORDON & CO.
------------
MARKETABLE SECURITIES
SECURITIES PURCHASED
(TO COVER OUTSTANDING CALL OPTIONS)
DECEMBER 31, 1996
DECEMBER 31, 1996
----------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITY EXPIRATION DATE
SHARES LONG POSITION COST VALUE OF OPTION
- -------- ------------- ---- ----- ---------
<S> <C> <C> <C> <C>
28,000 Sigma Alpha Group Ltd $ 66,500.00 $ 80,500.00 11/24/97
27,000 Sigma Alpha Group Ltd 67,500.00 77,625.00 11/23/97
10,000 Sigma Alpha Group Ltd 26,563.00 28,750.00 12/31/97
50,000 Softnet Systems Inc 475,000.00 228,125.00 1/20/97
10,000 Softnet Systems Inc 68,125.00 45,625.00 8/9/97
10,000 Softnet Systems Inc 45,000.00 45,625.00 11/1/97
1,000 Softnet Systems Inc 4,889.00 4,562.50 11/19/97
1,000 Summit Design Inc 10,260.75 10,250.00 12/14/97
1,000 Technology Solutions Co. 40,514.00 41,500.00 6/24/97
6 Telefonos De Mexico SA
de CV 0.00 9.56 n/a
500 Trinitech Systems Inc 2,569.50 2,250.00 12/21/97
2,000 Trinitech Systems Inc 10,215.60 9,000.00 12/21/97
10,000 Tristar Corp 76,250.00 69,062.50 5/7/97
15,000 Tristar Corp 106,407.00 103,593.75 4/15/97
500 Veeco Instruments Inc 9,250.00 11,000.00 7/15/97
500 Whitehall Corp 19,069.50 21,500.00 2/10/97
4,200 Whitehall Corp 179,550.00 180,600.00 9/26/97
500 Whitehall Corp 19,757.00 21,500.00 2/28/97
3,700 Zila Inc 33,300.00 24,512.50 2/23/97
500 Zoran Corp 10,573.25 9,000.00 6/6/97
------------ --------------
Total Securities $8,978,687.12 $10,382,893.94
============= ==============
</TABLE>
S-3.3
<PAGE>
SCHEDULE II
GORDON & CO.
-------------
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Balance at
Deductions December 31, 1996
------------- --------------
Balance at
December 31, Amounts Amounts Not
Name of debtor 1995 Additions collected written off Current current
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Gordon Trust
For the Benefit of
Harriett S. Gordon,
pursuant to a
secured demand note
collateral agreement
bearing interest at
2% and fully col-
lateralized by U.S.
Treasury notes
with a maturity of
January 31, 1998 $1,100,000 $1,100,000 $1,100,000 $-0- $-0- $1,100,000
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Balance at
Deductions December 31, 1996
------------- -------------
Balance at
December 31, Amounts Amounts Not
Name of debtor 1995 Additions collected written off Current current
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Gordon Trust
For the Benefit of
Harriett S. Gordon,
pursuant to a
secured demand note
collateral agreement
bearing interest at
2% and fully col-
lateralized by U.S.
Treasury notes
with a maturity of
January 31, 1996 $1,100,000 $-0- $-0- $-0- $1,100,000 $-0-
- -----------------------------------------------------------------------------------------
</TABLE>
S-4
<PAGE>
SCHEDULE IX
GORDON & CO.
------------
<TABLE>
<CAPTION>
YEAR END DURING THE YEAR ENDED
------------------------- -------------------------------------
WEIGHTED AVERAGE*
AMOUNT AVERAGE MAXIMUM AMOUNT ------------------
DESCRIPTION OUTSTANDING INTEREST RATE OUTSTANDING AMOUNT OUTSTANDING INTEREST RATE
- ----------- ----------- ------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Amounts Payable to
Banks:
December 31, 1996 $ -0- N/A $350,000 $ -0- N/A
December 31, 1995 -0- N/A $ -0- -0- N/A
December 31, 1994 -0- N/A $ -0- -0- N/A
</TABLE>
- ----------
* Average borrowings were calculated using the average month-end borrowings
outstanding, and the average interest rates were calculated by dividing the
interest expense for such borrowings by the average borrowings outstanding.
S-5
Next Page is S-7
<PAGE>
Gordon & Co.
One Gateway Center
Newton, Massachusetts 02158
In re: Gordon Limited Price Put and Call Options
Gentlemen:
I have addressed myself to the questions of law concerning the legality of the
securities registered by your company with the Securities and Exchange
Commission by a Registration Statement dated February 26, 1996 concerning
"Limited Price Put and Call Options" as amended by a First Post-Effective
Amendment dated February 10, 1997. In my opinion, based upon current laws,
regulations, rulings, decisions and policies of the Securities and Exchange
Commission, all of which are subject to change at any time, you
have legal right to continue to register the securities described in the
Registration Statement, as amended, and they will when sold be legally issued,
fully paid and non-assessable, and upon issuance thereof there will be a
binding obligation on your company as registrant to perform the obligation of
all options you issue, including an obligation to repurchase all options you
issue, in accordance with the repurchase agreement set forth in the options and
in the Prospectus under the heading "Repurchase Agreement in Gordon Options".
I advise you further that, in my opinion, based upon current laws, regulations,
rulings, court decisions and policies of the Internal Revenue Service and upon
certain private rulings issued to Gordon & Co. by the Internal Revenue Service,
all of which are subject to change at any time, all material federal income tax
consequences to buyers of Gordon Options are as set forth in the Prospectus
Section of the First Post-Effective Amendment to the Registration Statement
entitled "Federal Income Tax Considerations".
Neither this opinion nor the discussion in the Prospectus under the caption
"Federal Income Tax Considerations" constitutes tax advice to any purchaser of
a Gordon Option. That discussion does not address all aspects of federal
income taxation that may be relevant to particular holders of Gordon Options in
light of their personal investment or tax circumstances or in light of the
particular options transactions in which they may engage. Neither does the
discussion explain state income tax consequences which may also be significant.
As you know, I am a trustee of The Salke Family Trust which is the general
partner of Kezar Limited Partnership, the general partner of Gordon & Co.
WARREN G. MILLER
------------------------------
WARREN G. MILLER, Esquire
Boston, Massachusetts
February 10, 1997
S-7
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this Post-Effective Amendment No. 1 to the
Registration Statement of Gordon & Co. on Form S-1 of our report dated January
21, 1997 and to our report on the Balance Sheet of Kezar Limited Partnership
dated January 21, 1997, appearing in the Prospectus which is a part of such
Registration Statement as amended, and to the reference to us under the heading
"Legal Opinion and Expert Report" in such Prospectus.
Our audit of the financial statements referred to in our aforementioned reports
also included the financial statement schedules of Gordon & Co. as of December
31,1996 and for the year then ended, and the Balance Sheet of Kezar Limited
Partnership as of December 31, 1996, listed in Item 16(a)(1) and 16(a)(2) of
Part II of the Registration Statement as amended. These financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
TOFIAS FLEISHMAN SHAPIRO & CO., P.C.
Cambridge, Massachusetts
February 10, 1997
S-8
<PAGE>
CONSENT OF WARREN G. MILLER
GORDON & CO.
I hereby consent to the use in this First Post-Effective Amendment to the
Registration Statement of Gordon & Co. of my opinion dated February 10, 1997
and to the reference to me under the heading "Legal Opinion and Expert Report"
in the Prospectus which is a part of such Registration Statement as amended.
WARREN G. MILLER
------------------------------
WARREN G. MILLER, Esquire
Boston, Massachusetts
February 10, 1997
S-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this First
Post-Effective Amendment to the registration statement of Gordon & Co. has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
Principal Executive,
Financial and
MICHAEL B. SALKE Accounting Officer February 10, 1997
--------------------------------
Michael B. Salke
General Partner of
KEZAR LIMITED PARTNERSHIP the Issuer
By STANLEY GORDON February 10, 1997
--------------------------------
Stanley Gordon, Trustee
and
By WARREN G. MILLER February 10, 1997
--------------------------------
Warren G. Miller, Trustee
as they are Trustees of the
Salke Family Trust, its
General Partner
S-10
<PAGE>
