As filed with the Securities and Exchange Commission-subject to change
File No.333-75067
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Pre-Effective Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
GORDON & CO.
a Massachusetts Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 6218 04-2106089
(State or other jurisdiction (Primary Standard Industrial (I.R.S Employer
of incorporation or organization) Classification Code Number)Identification No.)
One Gateway Center
Newton, Massachusetts 02458
(617) 964-6672
(Address,including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------
MICHAEL B. SALKE
GORDON & CO.
One Gateway Center
Newton, Massachusetts 02458
(617) 964-6672
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
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 5 and 16(b) (Exhibit 23)
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<PAGE>
GORDON & CO.
10,000 LIMITED PRICE PUT AND CALL OPTIONS
Gordon Limited Price Options are put and call options. Each option
relates to a particular underlying security that is listed on a national
securities exchange or quoted on an automated quotation system of a national
securities association (NASDAQ). Gordon & Co. also issues its options on
securities issued by the United States of America and on standardized stock
options and standardized stock index options that are listed on a
national securities exchange.
The purchaser of a Gordon Option negotiates the price or premium
with Gordon & Co. As a general rule the premium ranges from 11 1/2 to 30% of
the market value of the underlying security when it is listed on a national
securities exchange and from 15 1/2 to 40% of its market value when the
underlying security is listed on NASDAQ. This general rule does not apply to
Gordon Options issued on stock options or stock index options. Gordon & Co.
and the purchaser negotiate those premiums specially.
Gordon Options do not trade on any recognized market. The
purchaser of a Gordon Option may be able to realize its value only by
reselling it to Gordon & Co.
Gordon Options are speculative securities that involve a high
degree of risk. The purchaser of a Gordon Option must be prepared to sustain
a total loss of the premium he pays. The discussion at page 7 of this
prospectus describes many of the Risk Factors that pertain to Gordon Options.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this Prospectus. Any representation
to the contrary is a criminal offense.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------- -------------------- ------------------- --------------------
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Issuer(2)
- -------------------------------------------------------------- -------------------- ------------------- --------------------
- -------------------------------------------------------------- -------------------- ------------------- --------------------
Per $8,000 None $8,000
Option........................................................
- -------------------------------------------------------------- -------------------- ------------------- --------------------
- -------------------------------------------------------------- -------------------- ------------------- ====================
Total..............................................................$80,000,000 None $80,000,000
- -------------------------------------------------------------- -------------------- ------------------- ====================
(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.
</TABLE>
The Date of this Prospectus is April 23, 1999.
<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.
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 35 at the request of prospective
option buyers.
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.
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.
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 17.)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing. You should read the entire prospectus
carefully, including the "Risk Factors" in the following section.
Gordon & Co.
Gordon & Co. is the only issuer of Gordon Limited Price Put and Call
Options. Gordon & Co. creates, sells and agrees to perform or repurchase
every Gordon Option. Gordon & Co. is a Massachusetts Limited Partnership
whose office is at One Gateway Center, Newton, Massachusetts 02458; telephone
(617) 964-6672.
Gordon Options are Unique
Gordon Options are different from other put and call options. The
primary difference is that Gordon Options expire not only on a particular
date, but also if the security underlying the option trades at a specified
price prior to the expiration date of the option. When Gordon & Co. issues
an option it defines the expiration prices applicable during the term of
the option. Expiration prices of Gordon put options decrease as the option
grows older; expiration prices of Gordon call options increase as the option
grows older.
Cost and Terms of Premiums for Options
The price of an option is called a premium. Gordon & Co. negotiates the
premium and expiration prices with the purchaser of the option when an option
transaction is initiated. A purchaser of an option may modify the exercise
price and expiration prices of an outstanding option by paying an additional
premium.
Exercise and Repurchase of Options
There is no secondary market for Gordon Options. The holder of a Gordon
Option can recover its value either by exercising the option or by reselling it
to Gordon & Co. Gordon & Co. agrees to perform each option or to repurchase it
in accordance with its terms upon request of the holder of the option. When
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.
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 and additional premium.
<PAGE>
RISK FACTORS
The risks associated with the purchase of Gordon Options are substantial.
Any purchaser of a Gordon Option must be prepared and be able to afford to
lose his entire investment in the option. This section of the prospectus
discusses some of the most significant risks of trading in Gordon Options.
Other risks are described throughout the prospectus.
The examples used throughout this prospectus include the purchaser's
transaction costs. The actual commission assumed to be paid on the purchase
or sale of the underlying security is a hypothetical figure. It may vary from
the actual commission because commissions are subject to negotiation
between a customer and his broker. Tax considerations also play a
significant role in evaluating an option transaction. The following examples
do not take them into account.
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 provides 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 provides 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.
Gordon & Co. and the purchaser of a Gordon Limited Price Option agree on
the applicable expiration prices of the option when the option is issued.
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".) 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".
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".
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 rises 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.
<PAGE>
Summary of losses of A and B
(A Sells Short; B Purchases Put Option)
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
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.
<PAGE>
Summary of losses of A and B
(A Purchases Stock; B Purchases Call Option)
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
These examples 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 on 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 38. 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.
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. The holder of a Gordon Limited Price Option may not exercise an Option
or require Gordon & Co. to repurchase an Option while the market for the
underlying security is subject to a trading halt.
The holder of a Gordon Option may not exercise the Option or require
Gordon & Co. to repurchase the Option while trading in the underlying security
has been halted or suspended. Any trading halt or suspension does not extend
any applicable expiration date. If such a halt is in effect on the final
expiration date of the Option, the Option nevertheless expires on its
stated expiration date. If trading in the underlying security resumes
prior to the expiration date of an option at a price above the applicable
expiration price of a Gordon Put Option or below the applicable expiration
price of a Gordon 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"),
it may find itself without sufficient funds to repurchase options it issues.
(See "The Back-Up System".)
<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 34 and 36.)
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. 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 17), 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. the
underlying 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 23).
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 23.)
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.
<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 it
s options provided that the premiums received for the
options are premiums set forth in a schedule of premiums at page 30. 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 13 and 14 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
<S> <C> <C> <C> <C> <C>
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
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:
<PAGE>
<TABLE>
<CAPTION>
Monthly Expiration Prices of Listed Securities Selling for $50 a Share
<S> <C> <C> <C> <C> <C>
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
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 52.25 47.75 54.50 45.50
7th month.................. 51.50 48.50 53.75 46.25
8th month.................. 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 23. 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 17.
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 29).
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 13 and
14).
<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 17)
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 23).
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 15-17.
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 17.
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 23).
Other significant differences between Gordon Options and other options
are discussed at "Adjustments in Terms" at pages 15-17,
"Limitations on Exercise, Transfer and Repurchase of Options" at page 17; and
"Exercise of Gordon Options" at page 26.
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.
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.
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 34 and 36.) 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.
<PAGE>
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. 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 39, 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
(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.
<PAGE>
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 18, "Position
Limits" at page 17, "Limitations on Option Purchases" at page 23, and
"Limitations on Exercise, Transfer and Repurchase of Options"
at page 17.
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 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 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
13-14, 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 page 3, 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.
<PAGE>
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 17.)
REPURCHASE AGREEMENT IN GORDON OPTIONS
General
As mentioned at pages 14 and 15 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 17, 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 35 and 37.)
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 17, 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,
<PAGE>
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 38) 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 38) 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 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 17.)
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 38) 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 38) 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.
Restatement of buyer's moderation of loss in
the above examples
Paid for option..............................................$662.50
Realized on sale of option.................................. 375.00
Loss on option transaction...................................$287.50
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 5,
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 23) prior to its expiration, it will become worthless.
Every tender of an exercise notice and option to Gordon & Co. is irrevocable.
<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.
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.
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.
<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>
<S> <C> <C> <C>
6 Month-10 Day 12 Month-10 Day
Market Price of Options 9 Month Options Options
Underlying Security Premium Premium Premium
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>
<S> <C> <C> <C>
6 Month-10 Day 12 Month-10 Day
Market Price of Options 9 Month Options Options
Underlying Security Premium Premium Premium
5 to 9 7/8 not available not available26 %
10 to 14 7/8 not available not available23 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>
<S> <C> <C> <C>
6 Month-10 Day 12 Month-10 Day
Market Price of Options 9 Month Options Options
Underlying Security Premium Premium Premium
5 to 9 7/8 not available not available27 1/2 %
10 to 14 7/8 not available not available25 %
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.
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 02458; 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 40.)
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
partner of Kezar Limited Partnership is Warren G. Miller as trustee of The
Salke Family Trust. The Salke Family Trust had a net
worth in excess of eight million ($8,000,000) dollars as of December 31,
1998. Warren G. Miller is general counsel to Gordon & Co.
Warren G. Miller had a net worth in excess of five hundred thousand ($500,000)
dollars as of December 31, 1998. He does not have an
active role in the operation of the business of Gordon & Co. and does not
receive any compensation as an employee of Gordon & Co. As
general 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 60. 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, 1999
at an annual salary of $300,000.00 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, 1998 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>
<S> <C> <C>
Name and Address of Beneficial Owner Nature of Beneficial Ownership Percentage of Partnership Owned
(1)
- --------------------------------------- ------------------------------------ ------------------------------------
Kezar Limited Partnership, a General Partner 69.1%
Massachusetts Limited Partnership
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Marital Trust under will of Stanley Limited Partner 08.5%
Gordon (2)
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Joan Salke (3) Limited Partner 14.5%
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ====================================
Michael B. Salke Chief and Only Executive Officer (4)
- --------------------------------------- ------------------------------------ ====================================
</TABLE>
<PAGE>
(1) The address of each owner is One Gateway Center, Newton, MA 02458
(2) Stanley Gordon who died on June 9, 1997 was 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.
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, 1998,
Mr. Salke owned a 33.1% beneficial interest in Kezar Limited Partnership.
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, 1998 and 1997 and
for each of the three years in the period ended December
31, 1997 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, 1998 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.
<PAGE>
617) 964-6672
GORDON & CO.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02458
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
<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.
<PAGE>
(617) 964-6672
GORDON & CO.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02458
LIMITED PRICE CALL OPTION CONTRACT
CONTRACT NO. NEWTON, MASS.
Date
<TABLE>
<S> <C> <C>
For Value Received, the Bearer may call on Gordon & Co. for
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
</TABLE>
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 a 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 a bid price appears
for the security on an automated quotation system of a
national securities association, at or below 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
<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 S
tock (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.
<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.
<PAGE>
(617) 964-6672
Gordon & Co.
Broker-Dealer
ONE GATEWAY CENTER
SUITE 516 WEST
NEWTON, MA 02458
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.
<TABLE>
<CAPTION>
Underlying Security Exchange No. Shs.
Outstanding
Sales/Revenues and Earnings per Share During Past Three Fiscal Years
<S> <C> <C> <C> >
Yr. Ended 19 19 19
- -------------- ------------- -------------- ---------------
Sales/Revenues:
(in thousands)
------------- -------------- ---------------
Earnings per Sh.
------------- -------------- ---------------
</TABLE>
Quarterly High/Low Price Range and
Dividends Declared or Paid During Past 2 Fiscal Years
19 19
-------------------- -------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Quarters High/Low Dividend High/Low Dividend
1st........................ ___________________ _________________ _________________ ________________
2nd........................ ___________________ _________________ _________________ ________________
3rd........................ ___________________ _________________ _________________ ________________
4th........................ ___________________ _________________ _________________ ________________
</TABLE>
Trading Volume During Past Four Weeks
Week Ended Volume (in Hundreds)
______________ ___________________________
______________ ___________________________
______________ ___________________________
______________ ___________________________
Past 4-wk Average Volume:_______________________________________________________
<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. Also set forth below is a
certified consolidated balance sheet of Kezar Limited
Partnership and Subsidiary at December 31, 1998.
It should be noted that Gordon & Co. is the issuer and writer of every G
ordon & 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.
<PAGE>
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,
1998 and 1997 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, 1998. 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, the financial statements referred to above present
fairly, in all material respects, the financial position
of the Partnership as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
TOFIAS FLEISHMAN SHAPIRO & CO., P.C.
January 22, 1999
Cambridge, Massachusetts
<PAGE>
Gordon & Co.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997
ASSETS
<TABLE>
<S> <C> <C>
NOTES 1998 1997
----------------- -----------------
------- -----------------
Cash and money market accounts 2,8 $6,910,185 $13,510,268
Deposits with clearing organizations 153,000 153,000
Receivables from brokers, dealers and
clearing organizations 1 82,484 1,263,449
Receivables from customers 1 285,878 35,595
Securities purchased 1,3,6 12,120,316 5,479,811
Secured demand note receivable 7 1,100,000
-----
Property - net of accumulated depreciation of
$2,005,979 in 1998 and $2,113,155 in 1997 1 28,061 38,510
Other assets 7 284,025 309,190
----------------- -----------------
================= =================
TOTAL $19,863,949 $21,889,823
================= =================
================= =================
LIABILITIES AND PARTNERSHIP CAPITAL
Unsecured loans 5 $48,667 $386,823
Payables to customers 210,164 895,720
Payables to brokers, dealers and
clearing organizations 6 818,047
----
Securities sold but not purchased 1,3 233,435 332,378
Accrued and other liabilities 142,825 101,373
----------------- -----------------
----------------- -----------------
TOTAL 1,453,138 1,716,294
----------------- -----------------
----------------- -----------------
Subordinated loan 7 1,100,000
-----
Partnership capital 18,410,811 19,073,529
----------------- -----------------
================= =================
TOTAL $19,863,949 $21,889,823
================= =================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<S> <C> <C> <C> <C>
NOTES 1998 1997 1996
---------------- ---------------- ----------------
------- ---------------- ---------------- ----------------
REVENUES:
Net gains on option transactions (including
unrealized income/(loss) of ($267,390)
in 1998, ($1,208,780) in 1997 and
$1,063,741 in 1996) 1 $1,975,413 $2,160,077 $6,509,861
Interest 7 618,422 768,055 526,658
Other income 235,017 227,077 276,851
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Total 2,828,852 3,155,209 7,313,370
EXPENSES:
Compensation and benefits 994,443 1,092,570 2,377,003
Interest 5 7,597 50,679 46,639
Other operating costs 876,545 1,165,616 990,781
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Total 1,878,585 2,308,865 3,414,423
---------------- ---------------- ----------------
---------------- ---------------- ----------------
NET INCOME $950,267 $846,344 $3,898,947
================ ================ ================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
For the years ended December 31, 1998, 1997 and 1996
GENERAL PARTNER
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $13,117,538 $14,492,399 $11,299,270
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 594,788
Distributive share of net income 489,122 333,437 3,371,543
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 489,122 333,437 3,966,331
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 892,538 1,708,298 773,202
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $12,714,122 $13,117,538 $14,492,399
================= ================= =================
================= ================= =================
LIMITED PARTNERS
1998 1997 1996
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $5,955,991 $6,577,601 $6,637,906
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 328,522 2,978 1,756,698
Distributive share of net income 461,145 512,906 527,404
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 789,667 515,884 2,284,102
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 1,048,969 1,137,494 2,344,407
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $5,696,689 $5,955,991 $6,577,601
================= ================= =================
================= ================= =================
TOTAL
1998 1997 1996
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $19,073,529 $21,070,000 $17,937,176
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 328,522 2,978 2,351,486
Distributive share of net income 950,267 846,343 3,898,947
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 1,278,789 849,321 6,250,433
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 1,941,507 2,845,792 3,117,609
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $18,410,811 $19,073,529 $21,070,000
================= ================= =================
================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
-------------- ----------------- -----------------
OPERATING ACTIVITIES:
Net income $950,267 $846,344 $3,898,947
Add items not requiring the use of cash:
Loss on sale of property 18,523
Depreciation 29,066 48,037 86,554
Accretion of discounts (34,597)
Changes in operating assets and liabilities:
Deposits with clearing organizations (65,000)
Receivables from brokers, dealers and
clearing organizations 1,180,965 (1,177,013) 682,714
Receivables from customers (250,283) 22,124 55,377
Securities purchased (6,640,505) 2,530,244 (312,649)
Other assets 25,165 450,149 (386,658)
Payables to customers (685,556) 644,103 (673)
Payables to brokers, dealers and
clearing organizations 818,047 - (74,564)
Securities sold but not purchased (98,943) 332,378 (31,499)
Accrued and other liabilities 41,452 (84,282) (11,703)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total (4,630,325) 3,612,084 3,824,772
-------------- ----------------- -----------------
-------------- ----------------- -----------------
INVESTING ACTIVITIES:
Property additions (18,617) (19,249)
Proceeds from sale of property 38,000
Purchase of investments (1,975,030)
Redemption of investments 3,989,170
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total (18,617) (19,249) 2,052,140
-------------- ----------------- -----------------
-------------- ----------------- -----------------
FINANCING ACTIVITIES:
Proceeds from /(Payments of) unsecured
loans (338,156) 49,681 34,033
Capital contributions 327,346 2,978 2,351,486
Capital withdrawals (1,940,331) (2,845,793) (3,117,609)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total (1,951,141) (2,793,134) (732,090)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
INCREASE / (DECREASE) IN CASH AND
MONEY MARKET ACCOUNTS (6,600,083) 799,701 5,144,822
-------------- ----------------- -----------------
-------------- ----------------- -----------------
CASH AND MONEY MARKET ACCOUNTS
AT BEGINNING OF YEAR 13,510,268 12,710,567 7,565,745
-------------- ----------------- -----------------
-------------- ----------------- -----------------
CASH AND MONEY MARKET ACCOUNTS
AT END OF YEAR $6,910,185 $13,510,268 $12,710,567
============== ================= =================
</TABLE>
See notes to financial statements
<PAGE>
Gordon & Co. (A Partnership)
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
by securities borrowed or sold. Receivables from customers are collateralized
primarily by securities owned by customers which are not reflected in the
financial statements.
Fair Value of Financial Instruments
The Partnership's financial instruments, except as discussed elsewhere, are
recorded at carrying amounts which approximate fair value.
<PAGE>
Gordon & Co. (A Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Property
Computer equipment, furniture and fixtures, 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.
Income Taxes
A provision for income taxes has not been made as each partner is
individually liable for his/her own tax payments.
2. CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash and money market accounts 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 totaled $6,492,667 and $13,222,713 at December 31, 1998
and 1997 respectively.
3. SECURITIES PURCHASED AND SOLD
<TABLE>
<S> <C> <C>
1998 1997
Market value of securities purchased $16,934,517 $7,427,386
Less reduction of securities valuation to reflect the repurchase
provisions of options sold (Note 1) 4,814,201 1,947,575
Total $12,120,316 $5,479,811
Cost of securities purchased $15,670,110 $7,171,359
Market value of securities sold but
not purchased $217,878 $299,587
Plus increase in securities valuation
to reflect the repurchase provisions
of options sold (Note 1) 15,557 32,791
Total $233,435 $332,378
Cost of securities sold but
not purchased $219,301 $293.356
At December 31, 1998 and 1997, four and three securities respectively
account for approximately 35% of the market value of securities purchased. At
December 31, 1998 and 1997 all outstanding call and put options were covered.
</TABLE>
<PAGE>
Gordon & Co. (A Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
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. The Partnership's net capital ratio, net capital, and net capital
requirements at December 31, 1998 and 1997 were as follows:
1998 1997
Net capital ratio .02 to 1 .07 to 1
================ ================
Net capital $16,822,271 18,986,016
================ ===============
Required net capital $250,000 $250,000
================ ================
5. UNSECURED LOANS
Loans payable at December 31, 1998 and 1997 consisted of the following:
1998 1997
Unsecured demand loans payable to relatives of the Chief
Executive Officer, bearing interest at 7 1/2% $48,677 $48,677
Unsecured subordinated demand loans payable to a trust for
the benefit of a relative of a limited partner, bearing
interest at 7 1/2% - 338,156
Total $48,677 $386,823
The Partnership also has an agreement with a bank to borrow funds on an
offering basis determined by the bank's internal guidelines. The interest rate
on this line is based on the 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
Included in other assets is a $215,000 mortgage receivable with interest at
8% due from a trust of which one beneficiary is a related party.
The subordinated loan in the amount of $1,100,000 at December 31, 1997 was
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% was fully collateralized by U.S. Treasury notes. The loan
matured on January 31, 1998.
The secured demand note receivable was due from the same trust and was
non-interest bearing.
<PAGE>
Gordon & Co. (A Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1998 and 1997, cash of $154,000 and $169,000 respectively was
segregated in special reserve bank accounts for the benefit of customers under
Rule 15c3-3 of the Securities and Exchange Commission. An additional deposit of
$50,000 was made o January 4, 1999 to meet the required reserve computed as of
December 31, 1998. No additional deposit was necessary to meet the required
reserve computed as of December 31, 1997.
9. COMMITMENTS
The Partnership leases its office facilities through September, 2002 and a
motor vehicle under noncancelable operating leases expiring through November,
1999. Minimum annual rental payments are as follows:
1999: $79,644
2000: $56,011
2001: $58,473
2002: $45,239
10. EMPLOYEE BENEFITS
The Partnership has a Keogh plan providing for contributions on behalf of all
full-time employees with more than one year of service at the discretion of the
Chief Executive Officer. For 1998, no contribution was made to the plan. For
years ended December 31, 1997 and 1996, contributions of $135,947 and $128,610
respectively were made to the plan.
11. CONTINGENCY
In November 1995, the Partnership brought suit to recover sums due from certain
customers in connection with accounts they maintained with the Partnership for
trading of options. These customers have subsequently asserted counterclaims
against the Partnership. The Partnership's legal counsel has indicated that it
is too early in the case to determine the likelihood of an unfavorable outcome
or range of potential exposure to the Partnership.
Although there can be no assurance as to the ultimate disposition of this
matter, it is the opinion of management that the Partnership should prevail in
this matter. Accordingly, the Partnership has not accrued any liability
associated with this litigation.
12. YEAR 2000 CONSIDERATIONS
As a result of the Year 2000 ("Y2K") issue, some computer systems may be unable
to interpret dates beyond the year 1999, which could cause a system failure or
other computer errors, leading to disruptions in operations. The Partnership
has assessed its specific Y2K issues and has implemented an action plan to
attempt to remediate any such issues. The Partnership has modified
its internal software and installed new hardware in order to be Y2K ready. Such
changes have already been implemented. The Partnership has also contacted all
significant vendors in order to ascertain the status of any third party risks.
As the Partnership's financial and operational computer systems are not directly
linked to any third party systems, such a direct risk does not appear to be
present. At December 31, 1998, the Partnership does not expect to incur
significant additional costs to complete the implementation of its Y2K
remediation program.
13. STATEMENT OF CASH FLOWS
The Partnership paid approximately $7,600 in interest during 1998. The
Partnership paid $50,679 and $46,539 in interest during the years ended December
31, 1997 and 1996 respectively. No income taxes were paid as these are the
responsibility of the individual partners. (See note 7)
During 1998, the $1,100,000 subordinated loan payable to a related party was
offset against the secured demand note receivable due from the same party.
<PAGE>
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, 1998. This financial statement is the responsibility of the
Limited Partnership's management. Our responsibility is to express an
opinion on this consolidated 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, 1998, in conformity with generally
accepted principles.
Tofias, Fleishman, Shapiro & Co., P.C.
Cambridge, Massachusetts
January 22, 1999
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1998
<TABLE>
<S> <C> <C>
ASSETS NOTES
Cash and money market accounts...................................................... 2,8 $6,950,315
Deposits with clearing organizations................................................ 153,000
Receivables from brokers, dealers and clearing
organizations..................................................................... 1 82,484
Receivables from customers.......................................................... 1 285,878
Securities purchased................................................................ 1,3,6 12,120,316
Property - net of accumulated depreciation
of $2,005,979..................................................................... 1 28,061
Other assets........................................................................ 7 284,025
TOTAL............................................................................... $19,904,079
LIABILITIES AND PARTNERSHIP CAPITAL
Unsecured loans..................................................................... 5 $48,667
Payables to customers............................................................... 210,164
Payables to brokers, dealers and clearing
organizations..................................................................... 6 818,047
Accrued and other liabilities....................................................... 142,825
Securities sold but not purchased................................................... 1,3 233,435
Total liabilities................................................................... 1,453,138
Minority interest................................................................... 5,696,689
Partnership capital................................................................. 11 12,754,252
TOTAL............................................................................... $19,904,079
</TABLE>
See notes to financial statement.
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statement
December 31, 1998
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"). 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 Warren G. Miller is the
trustee. 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.
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. Receivables from customers are collateralized
primarily by securities owned by customers which are not reflected in the
financial statements.
Fair Value of Financial Instruments
The Partnership's financial instruments, except as discussed elsewhere, are
recorded at carrying amounts which approximate fair value.
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statement
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Property
Computer equipment, furniture and fixtures, 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.
Principles of Consolidation
The consolidated financial statement includes 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/her own tax payments.
2. CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash and money market accounts 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 totaled $6,492,667 at December 31, 1998.
3. SECURITIES PURCHASED AND SOLD
Market value of securities purchased................... $16,934,517
Less reduction of securities valuation to reflect
the repurchase provisions of options sold (Note 1)... 4,814,201
Total.................................................. $12,120,316
Cost of securities purchased........................... $15,670,110
Market value of securities sold but
not purchased....................................... $217,878
Plus increase in securities valuation
to reflect the repurchase provisions
of options sold (Note 1)............................ 15,557
Total................................................... $233,435
Cost of securities sold but
not purchased....................................... $219,301
At December 31, 1998, four securities account for approximately 35% of
the market value of securities purchased.
At December 31, 1998 all outstanding call and put options were covered.
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statement
December 31, 1998
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, 1998, the Partnership's net capital ratio was .02 to
1, net capital was $16,822,271 and required net capital was $250,000.
5. UNSECURED LOANS
Loans payable at December 31, 1998 consisted of a $48,667 unsecured demand
loan payable to a relative of the Chief Executive Officer, bearing interest at
7 1/2%.
The Partnership also has an agreement with a bank to borrow funds on an offering
basis determined by the bank's internal guidelines. The interest rate on this
line is based on the 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
Included in other assets is a $215,000 mortgage receivable due from a trust of
which one beneficiary is a related party.
8. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1998, cash of $154,000 was segregated in special reserve bank
accounts for the benefit of customers under Rule 15c3-3 of the Securities and
Exchange Commission. An additional deposit of $50,000 was made on January 4,
1999 to meet the required reserve computed as of December 31, 1998.
9. COMMITMENTS
The Partnership leases its office facilities through September, 2002 and a motor
vehicle under noncancelable operating leases expiring through November, 1999.
Minimum annual rental payments are as follows:
1999: $79,644
2000: $56,011
2001: $58,473
2002: $45,239
10. EMPLOYEE BENEFITS
The Partnership has a Keogh plan providing for contributions on behalf of all
full-time employees with more than one year of service at the discretion of the
Chief Executive Officer.
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statement
December 31, 1998
11. PARTNERS' CAPITAL
Individual partners' capital balance changes during the year ended December
31, 1998 are as follows:
General Partner Limited Partner
Total The Salke Family Michael B. Salke
Trust
Capital balances,
January 1, 1998 $13,166,926 $8,645,712 $4,521,214
Net income:
General partner residual 489,122 117,590 371,532
Withdrawals ( 901,796) ( 234,554) ( 667,242)
( 412,674) ( 116,964) ( 295,710)
Capital balances,
December 31, 1998 $12,754,252 $8,528,748 $4,225,504
12. CONTINGENCY
In November 1995, the Partnership brought suit to recover sums due from certain
customers in connection with accounts they maintained with the Partnership for
trading of options. These customers have subsequently asserted counterclaims
against the Partnership. The Partnership's legal counsel has indicated that it
is too early in the case to determine the likelihood of an
unfavorable outcome or range of potential exposure to the Partnership.
Although there can be no assurance as to the ultimate disposition of this
matter, it is the opinion of management that the Partnership should prevail in
this matter. Accordingly, the Partnership has not accrued any liability
associated with this litigation.
13. YEAR 2000 CONSIDERATIONS
As a result of the Year 2000 ("Y2K") issue, some computer systems may be unable
to interpret dates beyond the year 1999, which could cause a system failure or
other computer errors, leading to disruptions in operations. The Partnership
has assessed its specific Y2K issues and has implemented an action plan to
attempt to remediate any such issues. The Partnership has modified its
internal software and installed new hardware in order to be Y2K ready. Such
changes have already been implemented. The Partnership has also contacted all
significant vendors in order to ascertain the status of any third party risks.
As the Partnership's financial and operational computer systems are not directly
linked to any third party systems, such a direct risk does not appear to be
present. At December 31, 1998, the Partnership does not expect to incur
significant additional costs to complete the implementation of its Y2K
remediation program.
<PAGE>
<TABLE>
<S> <C> <C>
Available Information 2
Glossary of Terms....................................2
Prospectus Summary...................................5
Certain Risk Factors.................................7 GORDON & CO.
Description of Gordon
Options
Terms of Options............................... 12
Parties to the Option Transaction.............. 12
Exercise Price of Options...................... 12
Renewal of Options............................. 12 One Gateway Center
Expiration Prices of Options................... 13
Repurchase of Gordon Limited Price Options..... 13 Newton, Massachusetts 02458
Modification of Terms of Options............... 14
Premiums for Options........................... 14
Some Differences between Gordon & Co. Options (617) 964-6672
and Other Options............................ 14
Adjustments in Terms........................... 15
Limitations on Exercise, Transfer and Repurchase
of Options................................... 17
Position Limits................................ 17
Evidence of Option Contracts................... 17
Underlying Securities.......................... 18
Buying Gordon Options............................. 20
Purposes and Risks............................. 20 GORDON & CO.
Method of Buying Gordon Options................ 22
Limitations on Option Purchases................ 23
Repurchase Agreement in Gordon Options............ 23
General........................................ 23 10,000 LIMITED PRICE PUT AND
Liquidating Sale Transactions.................. 23
Exercise of Gordon Options........................ 26 CALL OPTIONS
General........................................ 26
Tender of Exercise Notice...................... 26
Payment and Delivery........................... 27 ----------
Remedies....................................... 27
The Back-Up System............................. 27 PROSPECTUS
Federal Income Tax Considerations................. 28
Costs of Options Transactions..................... 29 ____________
Litigation Relating to Gordon & Co................ 31
Organization and Management of Gordon & Co........ 31
Organization................................... 31
Management..................................... 31
Executive Compensation......................... 32 April 23, 1999
Beneficial Ownership........................... 32
Legal Opinion and Expert Report................... 34
Facsimile of Limited Price Put Option Contract.... 34
Facsimile of Limited Price Call Option Contract... 36
Typical Limited Price Options..................... 38
Financial Statements.............................. 40 -------------------------
---------------------
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.
</TABLE>
<PAGE>
TABLE OF CONTENTS
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:
Registration Fees:
Securities and Exchange Commission $24,242.00
Various States 12,710.00
Printing 2,000.00
Legal 15,000.00
Accounting 7,000.00
Total $62,452.00
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, 1998 and 1997
Statements of Income for the Years Ended December 31, 1998, 1997 and 1996
Statements of Changes in Partnership Capital for the Years Ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996
Notes to Financial Statements
Kezar Limited Partnership
Independent Auditors' Report
Statement of Financial Condition, December 31, 1998
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, 1998 (p. S-3
through S-3.5).
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, 1998, 1997
and 1996 (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). A Third
Amendment to the Registrant's Restated Articles of Limited Partnership dated as
of December 30, 1997 is filed herewith at pages S-6 to S-6.2.
(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, 1998
December 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Number of Security Cost Value Expiration Date
Shares Long Position of Option
1,000 3Com Corp. $ 48,125.00 $ 44,812.50 5/20/99
1,000 3Com Corp. 47,375.00 44.812.50 3/27/99
1,000 3Com Corp. 47,500.00 44,812.50 4/27/99
1,000 3Com Corp. 47,562.50 44,812.50 5/28/99
200 American Tel. & Tel. 14,465.90 15,150.00 6/25/99
300 American Tel. & Tel. 22,167.60 22,725.00 4/22/99
2000 American Tel. & Tel. 150,659.00 151,500.00 4/26/99
1,000 Amgen Inc. 104,812.50 104,562.50 4/28/99
300 AMR Corp. 19,223.85 17,812.50 6/16/99
200 AMR Corp. 12,953.40 11,875.00 6/17/99
200 AMR Corp. 12,128.40 11,875.00 6/28/99
100,000 Ansama Corp. 725,000.00 825,000.00 9/6/99
50,000 Ansama Corp. 362,500.00 412,500.00 12/20/99
3,200 Apple Orthodontix Inc. 10,454.40 10,400.00 1/4/00
89,700 Artra Group Inc. 504,562.50 375,618.75 6/15/99
33,800 Artra Group Inc. 202,800.00 141,537,50 9/12/99
500 Artra Group Inc. 3,000.00 2,093.75 9/12/99
4,800 Artra Group Inc. 19,200.00 20,100.00 3/21/99
1,900 Artra Group Inc. 11,875.00 7,956.25 9/11/99
3,600 Artra Group Inc. 19,800.00 15,075.00 8/8/99
2,000 Amtel Corp. 28,687.50 30,625.00 6/14/99
257 Aviation Sales Co. 9,819.50 10,440.63 1/7/99
200 Aviation Sales Co. 7,053.40 8,125.00 6/30/99
1,000 Barrick Gold Corp. 22,017.00 19,500.00 5/20/99
500 Barrick Gold Corp. 10,571.00 9,750.00 5/24/99
4,000 Brown Group Inc. 67,436.75 70,250.00 5/24/99
2,000 Brown Group Inc. 33,721.50 35,125.00 8/13/99
1,100 Brown Group Inc. 19,268.70 19,318.75 8/19/99
1,000 Buffets Inc. 11,625.00 11,037.50 9/26/99
12,000 Cambridge Tech. Part. 253,768.75 265,500.00 9/11/99
1,000 Cambridge Tech. Part. 21,375.00 22,125.00 6/24/99
1,000 Cambridge Tech. Part. 22,750.00 22,125.00 12/25/99
1,000 Cambridge Tech. Part. 23,031.25 22,125.00 6/30/99
7,000 Chromatics Color Sci. 37,500.00 55,343.40 4/9/99
5,000 Chromatics Color Sci. 27,437.50 39,531.00 5/10/99
8,000 Chromatics Color Sci. 46,000.00 63,249.60 5/30/99
10,000 Chromatics Color Sci. 69,840.61 79,062.00 5/11/99
9,000 Chromatics Color Sci. 71,937.60 71,155.80 4/22/99
400 Ciena Corporation 7,150.00 5,850.00 6/4/99
400 Ciena Corporation 7,075.00 5,850.00 12/4/99
400 Ciena Corporation 5,500.00 5,850.00 12/20/99
19,200 Colonial Comm. Corp. 43,200.00 43,799.04 7/8/99
79,400 Colonial Comm. Corp 178,650.00 183,612.50 4/9/99
2,500 Columbia Labs Inc. 7,692.50 7,656.25 10/23/99
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
continued
<S> <C> <C> <C> <C>
Number of Security Cost Value Expiration Date
Shares Long Position of Option
2,500 Columbia Labs Inc. 9,212.50 7,656.25 10/31/99
3,000 Columbia Labs Inc. 8,863.50 9,187.50 1/4/00
1,000 Com 21 Inc. 18,906.25 21,000.00 4/30/99
2,000 Com 21 Inc. 34,830.00 42,000.00 3/16/99
2,000 Com 21 Inc. 37,048.80 42,000.00 3/20/99
47,000 Comforce Group 382,408.00 252.625.00 9/12/99
42,500 Comforce Group 201,875.00 228.437.50 8/27/99
300 Comforce Group 3,941.70 1,612.50 3/22/99
300 Compaq Computer Corp. 12,511.35 12,600.00 4/13/99
500 Compaq Computer Corp. 20,877.25 21,000.00 4/13/99
500 Compaq Computer Corp. 20,877.25 21,000.00 4/13/99
1,000 Compaq Computer Corp. 41,735.75 42,000.00 4/13/99
500 Compaq Computer Corp. 21,008.50 21,000.00 5/14/99
100 Compaq Computer Corp. 4,201.70 4,200.00 5/14/99
100 Compaq Computer Corp. 4,201.70 4,200.00 5/14/99
200 Compaq Computer Corp. 8,403.40 8,400.00 5/14/99
500 Compaq Computer Corp. 20,477.25 21,000.00 6/24/99
1,500 Compaq Computer Corp. 66,463.00 63,000.00 4/19/99
100 Compaq Computer Corp. 4,439.20 4,200.00 4/19/99
100 Compaq Computer Corp. 4,439.20 4,200.00 4/19/99
500 Compaq Computer Corp. 22,196.00 21,000.00 4/20/99
500 Compaq Computer Corp. 22,196.00 21,000.00 4/20/99
100 Compaq Computer Corp. 4,439.20 4,200.00 4/20/99
100 Compaq Computer Corp. 4,439.20 4,200.00 4/20/99
500 Compaq Computer Corp. 21,414.75 21,000.00 4/26/99
500 Compaq Computer Corp. 21,039.75 21,000.00 5/27/99
1,000 Delia's Inc. 12,500.00 12,500.00 9/26/99
2,000 Dell Computer Corp. 149,150.00 146,375.00 4/28/99
400 Delta Airlines Inc. 20,656.80 20,800.00 6/16/99
300 Delta Airlines Inc. 15,567.60 15,600.00 6/17/99
200 Delta Airlines Inc. 10,253.40 10,400.00 6/28/99
200 Delta Airlines Inc. 10,253.40 10,400.00 6/30/99
50,000 Digital Solutions Inc. 81,250.00 59,375.00 7/11/99
50,000 Digital Solutions Inc. 68,750.00 59,375.00 11/21/99
2,000 Disc Graphics 6,750.00 8,875.00 5/12/99
500 EMC Corp. (Mass.) 40,196.00 42,500.00 4/14/99
500 EMC Corp. (Mass.) 40,664.75 42,500.00 4/15/99
500 EMC Corp. (Mass.) 41,227.25 42,500.00 4/27/99
1,000 EntreMed Inc. 20,812.50 21,000.00 9/26/99
5,000 Fischer Imaging Corp. 33,857.50 10,625.00 10/20/99
10,000 Fischer Imaging Corp. 72,070.00 21,250.00 6/21/99
500 Fleet Financial Group 21,789.75 22,343.75 5/16/99
1,000 Fleet Financial Group 43,923.25 44,687.50 4/19/99
500 Fleet Financial Group 22,321.00 22,343.75 4/27/99
500 Fleet Financial Group 22,571.00 22,33.75 5/29/99
2,000 Fremont General Corp 47,034.00 50,375.00 6/29/99
1,000 General Instrument Corp 34,329.50 33,937.50 5/21/99
1,000 General Instrument Corp 34,767.00 33,937.50 7/26/99
1,750 GP Strategies Corp. 13,125.00 26,250.00 11/3/99
400 Great Lakes Chem. Corp 15,881.80 16,000.00 6/24/99
3,000 Halter Marine Group 14,488.50 14,625.00 1/4/00
10 Heller Financial Inc. 6,771.50 8,250.00 12/28/99
</TABLE>
S-3.1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
continued
<S> <C> <C> <C> <C>
Number of Security Cost Value Expiration Date
Shares Long Position of Option
2,000 Hollis-Eden Pharm. Inc. 24,500.00 37,000.00 7/27/99
3,000 Hollis-Eden Pharm. Inc. 36,375.00 55,500.00 10/20/99
900 IDT Corporation 14,062.50 13,837.50 7/6/99
1,000 IDT Corporation 15,500.00 15,375.00 9/25/99
10,000 Infinity Co. Inc. 1,250.00 n/a
-
12,000 Info. Resource Eng. 44,850.00 111,750.00 9/12/99
2,500 Info. Resource Eng. 21,406.25 23,281.25 9/13/99
10,000 Integrated Circuit Sys. 146,250.00 176,250.00 5/12/99
25,000 Interallied Restau. Grp. 71,875.00 106,250.00 11/10/99
30,000 Interallied Restau. Grp. 105,000.00 127,500.00 11/16/99
35,000 Interallied Restau. Grp. 135,625.00 148,750.00 11/28/99
45,400 Interallied Restau. Grp. 192,950.00 192,950.00 6/29/99
500 Intimate Brands Inc. 12,789.75 14,937.50 6/28/99
1,000 Intimate Brands Inc. 28,204.50 29,875.00 9/18/99
500 Intimate Brands Inc. 14,164.75 14,937.50 7/5/99
600 JW Genesis Fin. Corp. 3,460.20 3,562.50 1/4/99
900 Longs Drug Stores Corp. 29,565.30 33,750.00 5/31/99
600 Longs Drug Stores Corp. 20,747.70 22,500.00 6/2/99
2,000 Longs Drug Stores Corp. 69,471.50 75,000.00 6/4/99
1,000 Longs Drug Stores Corp. 34,892.00 37,500.00 6/7/99
500 Longs Drug Stores Corp. 18,571.00 18,750.00 6/16/99
500 Longs Drug Stores Corp. 18,071.00 18,750.00 6/28/99
500 Longs Drug Stores Corp. 18,946.00 18,750.00 7/1/99
4,500 Luxottica Group SPA 49,107.75 54,000.00 8/19/99
1,000 Luxottica Group SPA 10,892.00 12,000.00 8/28/99
4,000 Luxottica Group SPA 40,818.00 48,000.00 9/5/99
5,000 Luxottica Group SPA 51,897.50 60,000.00 9/9/99
2,000 Luxottica Group SPA 21,534.00 24,000.00 9/13/99
1,000 Luxottica Group SPA 11,017.00 12,000.00 9/16/99
2,000 Luxottica Group SPA 23,346.50 24,000.00 9/19/99
3,000 Maverick Tube Corp. 15,375.00 16,687.50 1/4/00
2,000 Maxwell Shoe Inc. 25,000.00 21,875.00 12/4/99
500 Maxwell Shoe Inc. 6,000.00 5,468.75 9/12/99
300 May Dept. Stores Co. 18,061.35 18,112.50 7/5/99
5,000 Micromuse Inc. 100,850.00 97,500.00 4/16/99
5,000 Miravant Medical Tech. 75,000.00 64,375.00 4/5/99
2,000 Motorola, Inc. 122,909.00 122,125.00 3/29/99
500 Motorola, Inc. 30,571.00 30,531.25 3/29/99
2,000 Neopharm, Inc. 21,284.00 24,250.00 9/9/99
25,000 Neopharm, Inc. 270,312.50 303,125.00 4/13/99
1,000 Nine West Group Inc. 12,079.50 15,562.50 12/15/99
13,500 Nine West Group Inc. 167,010.75 210,093.75 9/9/99
7,000 Nine West Group Inc. 87,806.50 108,937.50 9/10/99
7,000 Nine West Group Inc. 86,181.50 108,937.50 9/11/99
1,500 Nine West Group Inc. 18,494.25 23,343.75 12/21/99
1,000 Nine West Group Inc. 12,239.50 15,562.50 12/25/99
2,000 Nine West Group Inc. 24,534.00 31,125.00 6/29/99
500 Nine West Group Inc. 6,602.25 7,781.25 9/19/99
1,000 Novellus Systems Inc. 57,937.50 49,500.00 6/29/99
500 OKC Ltd. Dep. Unit n/a
- -
1,400 Oxigene Inc. 23,161.82 15,050.00 n/a
50,200 Oxigene Inc. Warrant 53,263.42 94,125.00 n/a
5,000 Parker Drilling Co. 15,710.00 15,937.50 1/4/00
1,000 Payless Shoe Source Inc. 46,767.00 47,375.00 5/18/99
3,000 Payless Shoe Source Inc. 143,688.50 142,125.00 5/19/99
</TABLE>
S-3.2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
continued
<S> <C> <C> <C> <C>
Number of Security Cost Value Expiration Date
Shares Long Position of Option
500 Payless Shoe Source Inc. 24,789.75 23,687.50 5/20/99
6,500 Payless Shoe Source Inc. 312,775.50 307,937.50 5/24/99
500 Payless Shoe Source Inc. 23,571.00 23,687.50 5/25/99
1,500 Payless Shoe Source Inc. 74,275.50 71,062.50 5/27/99
1,000 Payless Shoe Source Inc. 49,735.75 47,375.00 5/28/99
1,900 Payless Shoe Source Inc. 95,694.80 90,012.50 5/31/99
1,500 Payless Shoe Source Inc. 67,025.50 71,062.50 6/10/99
500 Payless Shoe Source Inc. 21,446.00 23,687.50 7/6/99
1,000 PennzEnergy Co. 15,875.00 16,312.50 9/26/99
1,000 Pennzoil-Quaker State Co. 15,875.00 14,750.00 9/26/99
5 Pfizer Incorporated 6,885.75 13,875.00 4/20/99
5 Pfizer Incorporated 8,015.75 3,437.50 1/18/99
10,000 Pharmerica Inc. 41,250.00 60,000.00 8/29/99
5,000 Pharmerica Inc. 21,250.00 30,000.00 8/30/99
1,000 Pier 1 Imports Inc. 10,579.50 9,687.50 6/7/99
4,000 Pier 1 Imports Inc. 35,818.00 38,750.00 12/22/99
2,000 Pier 1 Imports Inc. 18,659.00 19,375.00 12/25/99
1,000 Polo Ralph Lauren 18,767.00 19,187.50 7/6/99
1,000 Polo Ralph Lauren 19,204.50 18,187.50 7/7/99
10,000 Power Efficiency Corp. 82,500.00 61,250.00 7/11/99
100,000 Power Efficiency Corp. 606,250.00 612,500.00 9/15/99
50,000 Power Efficiency Corp. 303,125.00 306,250.00 9/19/99
20,000 Power Efficiency Corp. 110,000.00 122,500.00 12/20/99
1,000 Rambus Inc. 103,062.50 96,250.00 3/20/99
500 Rambus Inc. 48,468.75 48,125.00 4/27/99
500 Rambus Inc. 47,000.00 48,125.00 4/29/99
2,000 Reuters Holding PLC 126,343.75 126,750.00 5/27/99
500 Reuters Holding PLC 31,750.00 31,687.50 5/27/99
100 Reuters Holding PLC 6,350.00 6,337.50 5/27/99
200 Reuters Holding PLC 12,700.00 12,675.00 5/27/99
3,000 Sensormatics Elect. Corp. 24,801.00 20,812.50 12/4/99
2,000 Shoe Carnival Inc. 20,250.00 22,250.00 11/20/99
1,000 Shoe Carnival Inc. 10,375.00 11,125.00 8/13/99
2,000 Shoe Carnival Inc. 19,000.00 22,250.00 12/12/99
2,000 Shoe Carnival Inc. 18,625.00 22,250.00 12/13/99
4,000 Shoe Carnival Inc. 39,187.50 44,500.00 12/14/99
1,000 Shoe Carnival Inc. 10,375.00 11,125.00 12/27/99
1,000 Shoe Carnival Inc. 10,750.00 11,125.00 9/23/99
1000 Shoe Carnival Inc. 10,843.75 11,125.00 9/24/99
500 Shoe Carnival Inc. 5,531.25 5,562.50 1/3/00
1,000 Shoe Carnival Inc. 11,125.00 11,125.00 9/26/99
1,000 Shoe Pavilion 6,250.00 7,500.00 1/2/00
1,000 Shoe Pavilion 7,187.50 7,500.00 1/4/99
116,700 Sierra Home Svc. Warrant n/a
- -
3,000 Sirena Apparel Group Inc. 19,237.50 22,500.00 12/12/99
1,000 Sirena Apparel Group Inc. 7,437.50 7,500.00 1/2/00
3,000 Sirena Apparel Group Inc. 22,443.75 22,500.00 1/3/00
3,000 Sirena Apparel Group Inc. 23,562.50 22,500.00 1/4/00
30,000 Softnet Systems Inc. 240,000.00 521,250.00 6/23/99
10,000 Softnet Systems Inc. 105,140.00 173,750.00 6/4/99
49,750 Softnet Systems Inc. 693,980.00 861,278.75 6/28/99
47,000 Softnet Systems Inc. 658,000.00 816,625.00 6/28/99
1,000 Sotheby's Holdings Inc. 39,767.00 32,000.00 1/1/00
2,000 Stolt Comex Seaway SA 13,125.00 13,500.00 1/4/00
</TABLE>
S-3.3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
continued
<S> <C> <C> <C> <C>
Number of Security Cost Value Expiration Date
Shares Long Position of Option
1,000 SUN Microsystems Inc. 84,343.75 85,625.00 3/20/99
1,000 SUN Microsystems Inc. 85,250.00 85,625.00 4/28/99
1,000 Tele-Comm. Inc. 53,312.50 55,312.50 4/22/99
1,000 Tele-Comm. Inc. 53,500.00 55,312.50 4/22/99
400 Tele-Comm. Inc. 21,375.00 22,125.00 4/26/99
500 Tele-Comm. Inc. 26,718.75 27,656.25 4/26/99
1,500 Tele-Comm. Inc. 80,968.75 82,968.75 3/28/99
100 Tele-Comm. Inc. 5,325.00 5,531.25 3/28/99
6 Telefonos De Mexico Adr 14.06 n/a
-
1,000 The Limited Inc. 25,642.00 29,125.00 6/28/99
500 The Limited Inc. 13,914.75 14,562.50 7/5/99
3,000 Timberland Co. 112,863.50 136,687.50 6/14/99
800 Timberland Co. 31,213.60 36,450.00 6/15/99
600 Timberland Co. 22,922.70 27,337.50 6/16/99
500 Timberland Co. 19,102.25 22,781.25 6/17/99
500 Timberland Co. 17,633.50 22,781.25 6/24/99
2,500 Timberland Co. 83,261.25 113,906.25 6/29/99
2,100 Timberland Co. 72,835.70 95,681.25 6/30/99
1,000 Timberland Co. 36,642.00 45,562.50 7/5/99
1,000 TLC Laser Center, Inc. 13,625.00 20,500.00 2/13/99
15,000 Total Film Group Inc. 47,812.50 57,187.50 7/21/99
60,000 Total Film Group Inc. 172,500.00 228,750.00 12/20/99
100,000 Transmedia Europe Inc. 150,000.00 134,380.00 11/24/99
100,000 Tristar Corp. 550,000.00 631,250.00 6/4/99
100,000 Tristar Corp. 562,500.00 631,250.00 9/13/99
3,000 Triton Energy Ltd. 22,926.00 23,812.50 1/4/00
200 UAL Corporation 12,353.40 11,937.50 6/17/99
2,800 Unidigital Inc. 12,250.00 14,350.00 10/26/99
2,000 Unisys Corporation 69,627.75 68,875.00 4/27/99
500 Unisys Corporation 17,446.00 17,218.75 7/8/99
300 US Airways Group Inc. 15,680.10 15,600.00 6/17/99
200 US Airways Group Inc. 9,503.40 10,400.00 6/22/99
400 US Airways Group Inc. 19,219.30 20,800.00 6/23/99
200 US Airways Group Inc. 10,453.40 10,400.00 6/28/99
200 US Airways Group Inc. 10,215.90 10,400.00 6/30/99
500 US Airways Group Inc. 26,289.75 26,000.00 7/7/99
1,000 Value City Dept. Stores 12,017.00 13,937.50 9/16/99
1,000 Value City Dept. Stores 11,892.00 13,937.50 12/28/99
500 Value City Dept. Stores 6,383.50 6,968.75 9/25/99
2,000 Value City Dept. Stores 26,409.00 27,875.00 1/4/00
1,000 Valuevision Intnl. Inc. 4,812.50 7,031.20 10/4/99
1,000 Veramark Tech. Inc. 7,875.00 5,750.00 2/26/99
1,000 Vesta Insurance Grp. Inc. 6,017.00 6,000.00 9/26/99
1,000 Vesta Insurance Grp. Inc. 5,829.50 6,000.00 1/4/00
1,000 Vicor Corporation 7,937.50 9,000.00 12/21/99
1,000 Vicor Corporation 8,125.00 9,000.00 1/1/00
1,000 Vicor Corporation 8,500.00 9,000.00 9/24/99
900 Vicor Corporation 7,312.50 8,100.00 1/2/00
1,000 Vicor Corporation 8,892.00 9,000.00 1/4/00
500 Wolverine World Wide 6,633.50 6,625.00 9/24/99
3,000 XCL Ltd. 14,854.50 5,625.00 4/5/99
2,500 Youth Services Intnl. 25,962.50 9,531.25 1/20/99
Inc.
8,100 Zila Pharm. Inc. 52,650.00 79,987.50 7/18/99
Total Securities $15,670,109.65 $16,934,516.73
</TABLE>
S-3.4
<PAGE>
SCHEDULE I
GORDON & CO.
Marketable Securities
Securities Sold But Not Purchased
(To Cover Outstanding Put Options)
December 31, 1998
December 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Number of Security Sold Short Value Expiration Date
Shares Long Position of Option
1,000 America Online $159,977.66 $160,000.00 2/28/99
1,500 Children's Place 38,623.71 37,688.00 4/29/99
800 Children's Place 20,699.31 20,100.00 9/26/99
Total Securities $ 219,300.68 $ 217,788.00
</TABLE>
S-3.5
<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, 1998
----------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, Amounts Amounts Not
Name of debtor 1997 Additions collected written off Current current
- -----------------------------------------------------------------------------------------------------------------------------------
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 $-0- $1,100,000 $-0- $-0- $-0-
- --------------------------------------------------------- ----------------------- -- --------------------------
Balance at
Deductions December 31, 1997
----------------------- --------------------------
Balance at
December 31, Amounts Amounts Not
Name of debtor 1996 Additions collected written off Current current
- -----------------------------------------------------------------------------------------------------------------------------------
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 $-0- $-0- $-0- $1,100,000 $-0-
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
Gordon & Co.
Year End During the Year Ended
--------------------------- ---------------------------------------------------
Weighted Average*
-------------------------------------
Amount Average Maximum Amount
<S> <C> <C> <C> <C> <C>
Description Outstanding Interest Rate Outstanding Amount Outstanding Interest Rate
Amounts Payable to
Banks:
December 31, 1998.......... $ -0- N/A $ -0- $ -0- N/A
December 31, 1997.......... -0- N/A $ -0- -0- N/A
December 31, 1996.......... -0- N/A $ 350,000 -0- N/A
_______________
v........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.
</TABLE>
S-5
<PAGE>
Gordon & Co.
a Massachusetts Limited Partnership
______________________
THIRD AMENDMENT TO RESTATED ARTICLES OF LIMITED PARTNERSHOP ORIGINALLY DATED AS
OF JANUARY 1, 1987
___________________________________
Acting pursuant to ARTICLE NINE, section 9.3 of the Restated Articles
of Limited Partnership of Gordon & Co. (the "Restated
Articles") dated as of January 1, 1987, as amended by a First Amendment
effective as of January 1, 1991, and by a Second Amendment
dated as of January 1, 1992, Kezar Limited Partnership, the sole general partner
of Gordon & Co. and the owner of more than fifty-one
(51%) percent of the capital of Gordon & Co., does hereby further amend the
Restated Articles as follows:
I. Stanley Gordon, a Special Limited Partner of Gordon & Co., died on
June 9, 1997. Article Five, Section 5.2(e) of the
Restated Articles provides that the legatees of a deceased limited partner to
whom that deceased's limited partner's interest is
distributable by will shall become limited partners of the partnership.
Stanley Gordon's interest as Special Limited Partner of the
partnership passed by the terms of his will to two testamentary trusts known as
1) Trust under Article Fifth B of the will of Stanley
Gordon f/b/o Harriett S. Gordon.
Accordingly, effective as of June 9, 1997 the two aforesaid trusts are
designated as Special Limited Partners of Gordon & Co.
The rights and obligations of each trust as a Special Limited Partner
shall be identical to the rights and obligations that
Stanley Gordon formerly enjoyed and assumed as a Special Limited Partner of
Gordon & Co., including, without limitation, the right to
receive annually, without regard to the amount of the Net Income or Net Loss of
the Partnership, as a guaranteed payment for the use
S-6
<PAGE>
of the trust's capital within the meaning of Section 707(a) of the Code, an
of the trust's capital within the meaning of Section 707(a) of the Code, an
amount equal to ten (10%) of the Average Capital of the
trust in the Partnership during the year.
II. Pursuant to Article Five Section 5.2(c) of the Restated Articles,
David Miller withdraws as a limited partner effective as of December 31, 1997,
and his entire capital account shall be distributed to him as soon as
practicable after that date.
III. Pursuant to Article Three Section 3.5 of the Restated Articles,
the following persons are admitted as Limited Partners of the Partnership
effective January 1, 1998:
Allison D. Salke
1308 Walnut Street
Newton, MA 02461
Isabella Manilov
5 Young Path
Newton, MA 02459
The effective dates of the various sections of this amendment are as follows:
As to Section I June 9, 1997
As to Section II December 31, 1997
As to Section III January 1, 1998
Executed under seal on this 30 day of December, 1997.
Kezar Limited Partnership
(General Partner of Gordon & Co.)
By___________________________
Warren G. Miller, sole Trustee of
The Salke Family Trust
General Partner of Kezar Limited Partnership
S-6.1
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, SS Boston, December 31, 1998
Personally appeared before me Warren G. Miller, who, being duly sworn,
acknowledged that he had executed the above Third Amendment to the Restated
Articles of Limited Partnership of Gordon & Co. and that the statements therein
set forth are true
___________________________Notary Public
Mary Lou Barbagallo
My commission expires: July 1, 2005
S-6.2
<PAGE>
Gordon & Co.
One Gateway Center
Newton, Massachusetts 02458
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 March 25,
1999 concerning "Limited Price Put and Call Options".
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 register the
securities described in the Registration Statement,
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 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 the trustee of The Salke Family Trust which is the
general partner of Kezar Limited Partnership, the general partner of Gordon &
Co.
______________________________________
WARREN G. MILLER, Esquire
Boston, Massachusetts
March 15, 1999
S-7
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this First Pre- Effective Amendment to the
Registration Statement of Gordon & Co. on Form S-1 of our report dated
January 22, 1999 and to our report on the Balance Sheet of Kezar Limited
Partnership dated January 22, 1999, 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, 1998 and for the year then ended, and the
Balance Sheet of Kezar Limited Partnership as of
December 31, 1998, listed in Item 16(a)(1) and 16(a)(2) of Part II of the
Registration Statement. 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
April 23, 1999
S-8
<PAGE>
CONSENT OF WARREN G. MILLER
GORDON & CO.
I hereby consent to the use in this Registration Statement of Gordon & Co.
of my opinion dated March 25, 1999 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.
____________________________________
WARREN G. MILLER, Esquire
Boston, Massachusetts
March 25, 1999
S-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement of Gordon & Co. has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
Signature Title Date
Principal Executive,
Financial and
Accounting Officer March 25, 1999
___________________________________
Michael B. Salke
KEZAR LIMITED PARTNERSHIP
General Partner of
the Issuer
By______________________________________ March 25, 1999
Warren G. Miller, Trustee
as he is Trustee of the
Salke Family Trust, its
General Partner
</TABLE>
S-10
