As filed with the Securities and Exchange Commission-subject to change
File No. 333-75067
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Post-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)
-----------------
ALLISON D. 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
------------------
<PAGE>
GORDON & CO.
--------------
Cross Reference Sheet Between Items of S-1 and Prospectus
<TABLE>
<CAPTION>
Registration Statement
Item and Heading Prospectus Caption
---------------- ------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Facing Page; Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges.......... Prospectus Summary (p. 5); Risk Factors
(p. 7)
4. Use of Proceeds.............................. *
5. Determination of Offering Price.............. *
6. Dilution..................................... *
7. Selling Security Holders..................... *
8. Plan of Distribution......................... *
9. Description of Securities to be Registered... Description of Gordon Options (p. 12)
10. Interests of Named Experts and Counsel....... Organization and Management of Gordon & Co.
(p. 31)
11(a). Description of Business...................... Description of Gordon Options (p. 12)
11(b). Description of Property...................... *
11(c). Legal Proceedings............................ Litigation Relating to Gordon & Co. (p. 31)
11(d). Market Price of and Dividends on
Registrant's Common Equity
and Related Stockholder Matters............. *
11(e). Financial Statements......................... Financial Statements (p. 42)
11(f). Selected Financial Data...................... (p. 42)
11(g). Supplementary Financial Information.......... *
11(h). Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. *
11(i). Changes In and Disagreements With
Accountants on Accounting Matters and
Financial Disclosure........................ *
11(j). Directors and Executive Officers............. Organization and Management of Gordon & Co.
(p. 31)
11(k). Executive Compensation....................... Organization and Management of Gordon & Co.
(p. 31)
11(l). Security Ownership of Certain Beneficial
Owners and Management....................... Organization and Management of Gordon & Co.
(p. 31)
11(m). Certain Relationships and Related
Transactions................................ Organization and Management of Gordon & Co.
(p. 31)
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. *
- -------------------
*Not applicable
</TABLE>
<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 March 8, 2000.
<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 its 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 16-17.
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 16-17; "Limitations on
Exercise, Transfer and Repurchase of Options" at page 17; and "Exercise of
Gordon Options" at page 26.
<PAGE>
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 23).
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 paymentof 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 23).
(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.
<PAGE>
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 $2,000,000.
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.
<PAGE>
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 37.)
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.
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 pageS 38-39, 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:
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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 23. 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.
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 7, 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. 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.
<PAGE>
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 34 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 pricefor 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, 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.
<PAGE>
In order to require the repurchase by Gordon & Co. of a Limited Price Put
Option, the holder (bearer) must present the option to Gordon & Co. prior to
the earlier of (a) 3:15 P.M. Eastern Time on the expiration date of the option
or (b) such time as a sale shall occur of the underlying security on a national
securities exchange, if listed on an exchange, or if not so listed at such time
as an ask price appears for the underlying security on NASDAQ, at a price equal
to or more than the expiration price specified in the option as applicable to
the period which includes the date of such sale or of such ask price.
In order to require the repurchase by Gordon & Co. of a Limited Price Call
Option, the holder (bearer) must present the option to Gordon & Co. prior to the
earlier of (a) 3:15 P.M. Eastern Time on the expiration date of the option or
(b) such time as a sale shall occur of the underlying security on a national
securities exchange, if listed on an exchange, or if not so listed at such time
as a bid price appears for the underlying security on NASDAQ, at a price equal
to or less than the expiration price specified in the option as applicable to
the period which includes the date of such sale or of such bid price.
The holder (bearer) of the option cannot exercise or require its
repurchase while trading in the underlying security of the option has been
halted by governmental authority, by the exchange where listed, or by the NASD.
Such a trading halt shall not extend the date on which the option expires or the
dates on which the expiration prices become applicable. If such a trading halt
is in effect on the expiration date of the option, the option nevertheless
expires on its expiration date.
The holders of Gordon Limited Price Options may save stock brokerage
commissions when they resell their options to Gordon & Co. instead of exercising
them, and in certain instances, receive a portion of the premium they paid for
the options by obtaining the spread, if any, between the expiration price (not
the striking price)and the current market price of the security underlying the
options.
For example, a holder might have purchased the typical limited price put
option described at "Typical Limited Price Options" (page 40)for $662.50 when
XYZ stock was selling at $50 per share. Twenty-nine days later, XYZ stock is
selling for $45 (and it had not risen during said period of time to $53.75). By
exercising the repurchase agreement of the option, the holder would receive, in
accordance with the repurchase agreement, $875 (if the underlying stock is
purchased by Gordon & Co. at $45), this sum being the difference between the
first month expiration price of $53.75 (not the striking price of $50) and the
purchase price of the underlying stock at $45. The profit made by selling the
option in this transaction would be $212.50 ($875 less the $662.50 premium
paid for the option) less the difference, if any, of any commission Gordon & Co.
pays to buy-in XYZ over the commission it paid to sell XYZ short at the time
the option was written.
Again, for example, a holder might have purchased the typical limited price
call option described at "Typical Limited Price Options" (page 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.
<PAGE>
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 40) for a premium of $662.50.
Instead of falling in price as A anticipated, the market price of XYZ
fluctuates between $47 and $51 a share, and is selling at $50 a share three
weeks after he purchases the put option. A desires to liquidate his investment
of $662.50 in the put option he owns. A can liquidate his investment with
financial benefit to himself by electing to sell it to Gordon & Co., who is
obligated to buy the option under the repurchase agreement of the option, for
the amount by which the expiration price of $53.75 is above the price at which
Gordon & Co. can purchase 100 shares of XYZ. If Gordon & Co. purchases 100
shares of XYZ at $50 a share, it is obligated to pay A $375 for the put option
(expiration price of $53.75 less $50 purchase price). A could realize no gain
if he exercised his put option and delivered 100 shares of XYZ at $50 a share
when the market price of XYZ is $50 a share (except he would save the assumed
commission of $71.50 if he owned the 100 shares of XYZ) but does recoup $375 of
his investment of $662.50 by selling the option under the repurchase agreement
of the option.
The moderation of the buyer's risk in purchasing a limited price call
option may be illustrated as follows:
A purchases the typical limited price call option described at "Typical
Limited Price Options" (page 40) for a premium of $662.50.
Instead of rising in price as A anticipated, the market price of XYZ
fluctuates between $53 and $49 a share, and is selling at $50 a share three
weeks after he purchases the call option. A desires to liquidate his investment
of $662.50 in the call option he owns. A can liquidate his investment with
financial benefit to himself by electing to sell it to Gordon & Co., who is
obligated to buy the option under the repurchase agreement of the option, for
the amount by which the expiration price of $46.25 is below the price at which
Gordon & Co. can sell 100 shares of XYZ. If Gordon & Co. sells 100 shares of XYZ
at $50 a share, it is obligated to pay A $375 for the call option ($50
purchase price less expiration price of $46.25). A could realize no gain if
he exercised his call option and called for 100 shares of XYZ at $50 a share
when the market price of XYZ is $50 a share (except he would save the assumed
commission of $71.50 if he wanted to own the 100 shares of XYZ) but does recoup
$375 of his investment of $662.50 by selling the option under the repurchase
agreement of the option.
<PAGE>
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 earlierof (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 y 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
Except for the premiums discussed herein, Gordon & Co. makes no charge to
the buyer or holder of a Gordon Option for the purchase,modification, exercise
or repurchase of the option.
LITIGATION RELATING TO GORDON & CO.
There is no administrative action, criminal or civil litigation pending or
threatened against Gordon & Co. or its general partner which in the opinion of
management or counsel to Gordon & Co. would materially adversely affect the
financial condition of Gordon & Co.
ORGANIZATION AND MANAGEMENT OF GORDON & CO.
Organization
Gordon & Co. is a broker-dealer registered under the Securities Act of
1934 and it is subject to that Act and to the regulatory jurisdiction of the
Securities and Exchange Commission.
Gordon & Co. was organized in 1937 in Massachusetts as a common law
partnership by Louis Gordon, Milton Gordon and Stanley Gordon under the name of
Beacon Finance Company. On May 1, 1961 Beacon Finance Company registered with
the Commonwealth of Massachusetts as a limited partnership. On December 15,
1971 Beacon Finance Company registered with the Securities and Exchange
Commission as a broker-dealer pursuant to the Securities Exchange Act of 1934
and has, since its registration, engaged in the business of writing options on
securities. On December 21, 1971, Beacon Finance Company changed its name to
Gordon & Co. Its offices are located at One Gateway Center, Newton,
Massachusetts 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 42.)
Management
The general partner of Gordon & Co. is Kezar Limited Partnership, a
Massachusetts limited partnership organized on January 1, 1987. An audited
consolidated balance sheet of Kezar Limited Partnership is included at page
52 of this Prospectus. The general 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, 1999. 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, 1999. 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.
<PAGE>
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 Allison D. Salke,
age 34. Ms. Salke has been actively engaged in the securities business of
Gordon & Co. since 1989 and has served as Chief Operating Officer since 1997.
Michael B. Salke, age 61 had been the Chief Executive Officer of Gordon & Co.
since 1986 and had been actively engaged as its general manager and general
partner from 1961 through 1986. Mr. Salke retired as Chief Executive Officer
effective January 1, 2000, buth he continues to serve as consultant and adviser
to Gordon & Co. Mr. Salke is also a limited partner of Kezar Limited
Partnership, the general partner of Gordon & Co.
Executive Compensation
As the Chief Executive Officer of Gordon & Co., Allison D.Salke will
Receive an annual salary for the year ended December 31, 2000 of $208,000.00
plus expenses and bonuses to be established at year end.
Michael B. Salke will receive annual compensation for advice and
consultation for the year ended December 31, 2000 of $402,000 plus expenses and
bonuses to be established at year end.
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, 1999 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, by
Michael B. Salke, who was the Chief Executive Officer of the company at that
date and by Allison D. Salke who is the present Chief Executive Officer of the
company.
<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 69.4%
Massachusetts Limited Partnership
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Marital Trust under will of Stanley Limited Partner 09.9%
Gordon (2)
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Joan Salke (3) Limited Partner 14.9%
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Allison D. Salke Chief and Only Executive Officer 00.1%
- --------------------------------------- ------------------------------------ ------------------------------------
- --------------------------------------- ------------------------------------ ------------------------------------
Michael B. Salke Chairman (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 and the grandfather of
Allison D. Salke.
(3) Joan Salke is the wife of Michael B. Salke and the daughter of
Stanley Gordon and the mother of Allison D. Salke.
(4) Michael B. Salke does not directly own any beneficial interest
in Gordon & Co. He is a limited partner of Kezar Limited
Partnership, general partner of Gordon & Co. As of December 31, 1999,
Mr. Salke owned a 38.9% 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, 1999 and 1998 and for each of the three years
in the period ended December 31, 1999 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, 1999 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> <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, 1999.
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, 1999 and 1998 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, 1999. 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, 1999 and 1998 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 14, 2000
Cambridge, Massachusetts
<PAGE>
Gordon & Co.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1999 and 1998
ASSETS
<TABLE>
<S> <C> <C>
NOTES 1999 1998
------ ----------------- -----------------
Cash and money market accounts 2,8 $3,619,488 $6,910,185
Deposits with clearing organizations 153,000 153,000
Receivables from brokers, dealers and
clearing organizations 1 168,033 82,484
Receivables from customers 1 889,512 285,878
Securities purchased 1,3,6 14,403,803 12,120,316
Property - net of accumulated depreciation of
$196,149 in 1999 $2,005,979 in 1998. 1 14,479 28,061
Other assets 7 47,130 284,025
----------------- -----------------
================= =================
TOTAL $19,295,445 $19,863,949
================= =================
LIABILITIES AND PARTNERSHIP CAPITAL
Unsecured loans 5 $ - $48,667
Payables to customers 1,475,344 210,164
Payables to brokers, dealers and
clearing organizations 6 31,745 818,047
Securities sold but not purchased 1,3 871,777 233,435
Accrued and other liabilities 24,002 142,825
----------------- -----------------
----------------- -----------------
TOTAL 2,402,868 1,453,138
----------------- -----------------
----------------- -----------------
Partnership capital 16,892,577 18,410,811
----------------- -----------------
================= =================
TOTAL $19,295,455 $19,863,949
================= =================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF INCOME
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C>
NOTES 2000 1998 1997
---------------- ---------------- ----------------
------- ---------------- ---------------- ----------------
REVENUES:
Net gains on option transactions (including
unrealized income/(loss) of $3,800,161
in 1999, ($267,390) in 1998 and
$1,208,780 in 1997) 1 $4,341,546 $1,975,413 $2,160,077
Interest 7 119,533 618,422 768,055
Other income 266,694 235,017 227,077
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Total 4,727,773 2,828,852 3,155,209
EXPENSES:
Compensation and benefits 1,470,599 994,443 1,092,570
Interest 5, 12 35,342 7,597 50,679
Other operating costs 862,440 876,545 1,165,616
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Total 2,368,381 1,878,585 2,308,865
---------------- ---------------- ----------------
---------------- ---------------- ----------------
NET INCOME $2,359,392 $950,267 $846,344
================ ================ ================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
For the years ended December 31, 1999, 1998 and 1997
GENERAL PARTNER
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $12,714,122 $13,117,538 $14,492,399
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 1,569,162
Distributive share of net income 1,913,060 489,122 333,437
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 3,482,222 489,122 333,437
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 4,637,906 892,538 1,708,298
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $11,558,438 $12,714,122 $13,117,538
================= ================= =================
================= ================= =================
LIMITED PARTNERS
1999 1998 1997
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $5,696,689 $5,955,991 $6,577,601
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 63,381 328,522 2,978
Distributive share of net income 446,332 461,145 512,906
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 509,713 789,667 515,884
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 872,263 1,048,969 1,137,494
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $5,334,139 $5,696,689 $5,955,991
================= ================= =================
================= ================= =================
TOTAL
1999 1998 1997
----------------- ----------------- -----------------
----------------- ----------------- -----------------
PARTNERSHIP CAPITAL, BEGINNING OF PERIOD $18,410,811 $19,073,529 $21,070,000
----------------- ----------------- -----------------
----------------- ----------------- -----------------
ADD:
Capital contributions 1,632,543 328,522 2,978
Distributive share of net income 2,359,392 950,267 846,343
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total 3,991,935 1,278,789 849,321
----------------- ----------------- -----------------
----------------- ----------------- -----------------
DEDUCT:
Capital withdrawals 5,510,169 1,941,507 2,845,792
----------------- ----------------- -----------------
================= ================= =================
PARTNERSHIP CAPITAL, END OF PERIOD $16,892,577 $18,410,811 $19,073,529
================= ================= =================
================= ================= =================
</TABLE>
See notes to financial statements.
<PAGE>
Gordon & Co.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
-------------- ----------------- -----------------
OPERATING ACTIVITIES:
Net income $2,359,392 $950,267 $846,344
Add items not requiring the use of cash:
Depreciation 13,582 29,066 48,037
Changes in operating assets and liabilities:
Deposits with clearing organizations
Receivables from brokers, dealers and
clearing organizations (85,549) 1,180,965 (1,177,013)
Receivables from customers (603,634) (250,283) 22,124
Securities purchased (2,283,487) (6,640,505) 2,530,244
Other assets 21,895 25,165 450,149
Payables to customers 1,265,180 (685,556) 644,103
Payables to brokers, dealers and
clearing organizations (786,302) 818,047 -
Securities sold but not purchased 638,342 (98,943) 332,378
Accrued and other liabilities (118,823) 41,452 (84,282)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total 420,596 (4,630,325) 3,612,084
-------------- ----------------- -----------------
-------------- ----------------- -----------------
INVESTING ACTIVITIES:
Proceed from note receivable 215,000
Property additions (18,617) (19,249)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total 215,000 (18,617) (19,249)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
FINANCING ACTIVITIES:
Proceeds from /(Payments of) unsecured
loans (48,667) (338,156) 49,681
Capital contributions 1,632,543 327,346 2,978
Capital withdrawals (5,510,169) (1,940,331) (2,845,793)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Total (3,926,293) (1,951,141) (2,793,134)
-------------- ----------------- -----------------
-------------- ----------------- -----------------
INCREASE / (DECREASE) IN CASH AND
MONEY MARKET ACCOUNTS (3,290,697) (6,600,083) 799,701
-------------- ----------------- -----------------
-------------- ----------------- -----------------
CASH AND MONEY MARKET ACCOUNTS
AT BEGINNING OF YEAR 6,910,185 13,510,268 12,710,567
-------------- ----------------- -----------------
-------------- ----------------- -----------------
CASH AND MONEY MARKET ACCOUNTS
AT END OF YEAR $3,619,488 $6,910,185 $13,510,268
============== ================= =================
</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.
Allocation of Partnership Income
Each limited partner received a guaranteed allocation equal to 7 1/2% of
the average capital of the limited partner during the years ended December 31,
1999 and 1998 with the exception of the special limited partners who received
10% during 1999 and 1998 as defined. Net income of the Partnership remaining
after the limited partners was allocated to the general partner.
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 $3,219,488 and $6,492,667 at December 31, 1999
and 1998 respectively.
3. SECURITIES PURCHASED AND SOLD
<TABLE>
<S> <C> <C>
1999 1998
Market value of securities purchased $24,985,435 $16,934,517
Less reduction of securities valuation to reflect the repurchase
provisions of options sold (Note 1) 10,581,632 4,814,201
Total $14,403,803 $12,120,316
Cost of securities purchased $16,485,435 $15,670,110
Market value of securities sold but
not purchased $807,306 $217,878
Plus increase in securities valuation
to reflect the repurchase provisions
of options sold (Note 1) 64,471 15,557
Total $871,777 $233,435
Cost of securities sold but
not purchased $810,806 $219,301
At December 31, 1999 and 1998, three secutities account for approximately
51% and 35% of the market value of securities purchased, respectively. At
December 31, 1999 and 1998 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, 1999 and 1998 were as follows:
1999 1998
Net capital ratio .10 to 1 .02 to 1
================ ================
Net capital $14,345,499 $16,822,271
================ ===============
Required net capital $250,000 $250,000
================ ================
5. UNSECURED LOANS
Included in Unsecured loans at December 31, 1998 was an unsecured demand loan
payable to a relative of the chief Executive Officer, bearing interest of
7 1/2%. The full amount was paid during 1999.
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 amount was
collected during 1999.
<PAGE>
Gordon & Co. (A Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1999 and 1998, cash of $200,000 and $154,000 respectively was
segregated in special reserve bank accounts for the benefit of customers under
Rule 15c3-3 of the Securities and Exchange Commission. No additional deposit was
necessary to meet the required reserve computed as of December 31, 1999. An
additional deposit of $50,000 was made o 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. Minimum
annual rental payments are as follows:
2000: $64,000
2001: $64,000
2002: $49,000
Rental expense, including certain adjustments relating to changes in real estate
taxes and other operating expenses, for each of the years ended December 31,
1999, 1998 and 1997 unter the aforementioned leases was $81,830, $85,433 and
$72,476 respectively.
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 years ended December 31, 1999, 1998 and 1997,
contributions of $88,979, $85,201 and $135,947respectively 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. LINE OF CREDIT
At December 31, 1999 the Partnership had an unused demand line of credit of
$10,000,000 with a bank. Under this agreement all amounts borrowed, if any,
are secured by the Partnership's fully paid for securities. The interest rate
bill be the bank's overnight feceral fund rate plus 100 basis points. This
agreement will expire March 15, 2000. However, the Partnership intends to
renew it at that time.
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, 1999, the Partnership does not expect to incur
significant additional costs to complete the implementation of its Y2K
remediation program.
14. STATEMENT OF CASH FLOWS
The Partnership paid approximately $35,300 in interest during 1999. The
Partnership paid $7,600 and $50,700 in interest during the years ended December
31, 1998 and 1997 respectively. No income taxes were paid as these are the
responsibility of the individual partners.
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, 1999. 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, 1999, in conformity with generally
accepted principles.
Tofias, Fleishman, Shapiro & Co., P.C.
Cambridge, Massachusetts
January 14, 2000
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS NOTES
Cash and money market accounts...................................................... 2,6 $3,624,917
Deposits with clearing organizations................................................ 153,000
Receivables from brokers, dealers and clearing
organizations..................................................................... 1 168,033
Receivables from customers.......................................................... 1 889,512
Securities purchased................................................................ 1,3,5 14,403,803
Property - net of accumulated depreciation
of $196,149....................................................................... 1 14,479
Other assets........................................................................ 7 47,130
TOTAL............................................................................... $19,300,874
LIABILITIES AND PARTNERSHIP CAPITAL
Payable to customers?.............................................................. 1,475,344
Payables to brokers, dealers and clearing
organizations..................................................................... 5 31,745
Accrued and other liabilities....................................................... 24,002
Securities sold but not purchased................................................... 1,3 871,777
Total liabilities................................................................... 2,402,868
Minority interest................................................................... 5,334,139
Partnership capital................................................................. 9 11,563,867
TOTAL............................................................................... $19,300,874
</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, 1999
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 $3,219,488 at December 31, 1999.
3. SECURITIES PURCHASED AND SOLD
Market value of securities purchased................... $24,985,435
Less reduction of securities valuation to reflect
the repurchase provisions of options sold (Note 1)... 10,581,632
Total.................................................. $14,403,803
Cost of securities purchased........................... $16,485,435
Market value of securities sold but
not purchased....................................... $807,306
Plus increase in securities valuation
to reflect the repurchase provisions
of options sold (Note 1)............................ 64,471
Total................................................... $871,777
Cost of securities sold but
not purchased....................................... $810,806
At December 31, 1999, three securities account for approzimately 51% of
the market value of securities purchased. At December 31, 1999 all outstanding
call and put options were covered.
<PAGE>
KEZAR LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statement
December 31, 1999
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, 1999, the Partnership's net capital ratio was .10 to
1, net capital was $14,345,499 and required net capital was $250,000.
5. PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Payables to brokers, dealers and clearing organizations are collateralized by
securities purchased.
6. CASH SEGREGATED UNDER FEDERAL REGULATIONS
At December 31, 1999, cash of $200,000 was segregated in special reserve bank
accounts for the benefit of customers under Rule 15c3-3 of the Securities and
Exchange Commission. No additional deposit was neccessary to meet the required
reserve computed as of December 31, 1999.
7. COMMITMENTS
The Partnership leases its office facilities through September, 2002 and a motor
vehicle under noncancelable operating leases expiring through June, 2002.
Minimum annual rental payments are as follows:
2000: $64,000
2001: $64,000
2002: $49,000
8. 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
9. PARTNERS' CAPITAL
Individual partners' capital balance changes during the year ended December
31, 1999 are as follows:
General Partner Limited Partner
Total The Salke Family Michael B. Salke
Trust
Capital balances,
January 1, 1999 $12,754,252 $8,528,748 $4,225,504
Net income:
General partner residual 1,569,162 1,435,436 133,726
Withdrawals (4,672,607) 1,502,257 410,803
(1,190,385) (4,397,123) (275,484)
Capital balances,
December 31, 1999 $11,563,867 $7,069,318 $4,494,549
10. 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.
11. LINE OF CREDIT
At December 31, 1999 the Partnership had an unused demand line of credit of
$10,000,000 with a bank. Under this agreement all amounts borrowed, if any,
are secured by the Partnership's fully paid for securities. The interest rate
bill be the bank's overnight feceral fund rate plus 100 basis points. This
agreement will expire March 15, 2000. However, the Partnership intends to
renew it at that time.
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, 1999, the Partnership does not expect to incur
significant additional costs to complete the implementation of its Y2K
remediation program. Some Y2K issues may occur after January 1, 2000. However,
the Partnership believes the risk of such issues to be remote.
<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 12
Terms of Options............................... 12
Parties to the Option Transaction.............. 12
Exercise Price of Options...................... 12
Renewal of Options............................. 13 One Gateway Center
Expiration Prices of Options................... 13
Repurchase of Gordon Limited Price Options..... 14 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........................... 16
Limitations on Exercise, Transfer and Repurchase
of Options................................... 17
Position Limits................................ 17
Evidence of Option Contracts................... 18
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
Moderation of Buyer's Risks.................... 25 CALL OPTIONS
Exercise of Gordon Options........................ 26
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 March 8, 2000
Beneficial Ownership........................... 32
Legal Opinion and Expert Report................... 33
Facsimile of Limited Price Put Option Contract.... 34
Facsimile of Limited Price Call Option Contract... 37
Typical Limited Price Options..................... 40
Financial Statements.............................. 42 -------------------------
---------------------
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>
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 14,210.00
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, 1999 and 1998
Statements of Income for the Years Ended December 31, 1999, 1998 and 1997
Statements of Changes in Partnership Capital for the Years Ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997
Notes to Financial Statements
Kezar Limited Partnership
Independent Auditors' Report
Statement of Financial Condition, December 31, 1999
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, 1999 (p. S-3
through S-3.3).
Schedule IX - Amounts Payable to Banks: December 31, 1999, 1998
and 1997 (p. S-4)
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 Partnersip 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
Registrant's 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 incorporated by reference to Pages S-6 to
S-6.2 in registrant's Registration Satement on Form S-1 which was
filed with the commission on March 25, 1999 (File No. 333-75067).
(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-5)
(23) Consents
(1) Tofias Fleishman Shapiro & Co., P.C. (p. S-6)
(2) Warren G. Miller, Esq. (p. S-7)
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, 1999
<TABLE>
<S> <C> <C> <C> <C>
Number Security Market Expiration
of Shares Long Position Cost Value Date of Option
1,500 Accrue Software Inc $81,875.00 $81,187.50 09/24/00
300 Accrue Software Inc 11,287.50 16,237.50 06/23/00
800 Accrue Software Inc 33,550.00 43,300.00 09/21/00
500 Accrue Software Inc 20,734.40 27,062.50 09/10/00
500 ACXIOM CORP 12,000.00 12,000.00 07/03/00
7,900 Adstar.com Inc Unit due 12/15/2004 66,162.50 63,200.00 12/26/00
10,000 American Multiplexer Corp 40,000.00 35,000.00 07/25/00
2,000 American Multiplexer Corp 8,500.00 7,000.00 10/17/00
3,000 American Multiplexer Corp 12,750.00 10,500.00 10/18/00
10,000 American Multiplexer Corp 48,750.00 35,000.00 09/26/00
30,000 Americas Shopping Mall Inc 135,000.00 210,000.00 09/02/00
20,000 Americas Shopping Mall Inc 90,000.00 140,000.00 09/12/00
100,000 Americas Shopping Mall Inc 450,000.00 700,000.00 10/07/00
50,000 Americas Shopping Mall Inc 225,000.00 350,000.00 10/14/00
1,000 ANADIGICS Inc 44,187.50 47,187.50 03/16/00
1,000 ANADIGICS Inc 38,750.00 47,187.50 05/08/00
400 ANADIGICS Inc 13,350.00 18,875.00 01/18/00
500 Applied Digital Solutions Inc 3,875.00 3,750.00 08/28/00
2,000 Applied Microsystems Corp 19,375.00 22,750.00 12/13/00
2,000 Applied Microsystems Corp 16,875.00 22,750.00 12/05/00
2,000 Applied Microsystems Corp 24,750.00 22,750.00 12/17/00
4,000 Applied Microsystems Corp 34,250.00 45,500.00 12/06/00
257 Aviation Sales Co 9,819.50 4,240.50 07/07/00
500 AxyS Pharmaceuticals Inc 2,062.50 2,031.25 12/26/00
2,000 BackWeb Technologies Ltd 67,625.00 84,250.00 03/19/00
1,000 BEA Systems Inc 71,360.65 69,937.50 04/27/00
3,000 Beyond.com Corp 23,528.08 23,437.50 01/03/01
500 Biopure Corp 8,881.25 8,312.50 04/26/00
500 Bitwise Designs Inc 7,795.00 8,312.50 04/12/00
1,000 Bitwise Designs Inc 14,601.25 16,625.00 04/11/00
1,000 Bitwise Designs Inc 15,685.00 16,625.00 04/12/00
1,000 Bitwise Designs Inc 16,750.00 16,625.00 04/25/00
1,000 Bitwise Designs Inc 16,560.00 16,625.00 07/12/00
1,000 Bitwise Designs Inc 14,687.50 16,625.00 05/28/00
1,000 Bitwise Designs Inc 16,062.50 16,625.00 09/21/00
1,000 Bitwise Designs Inc 17,060.00 16,625.00 04/14/00
3,000 Bitwise Designs Inc 38,073.72 49,875.00 05/10/00
25,000 Celestial Ventures Corp 162,500.00 150,000.00 05/27/00
75,000 Celestial Ventures Corp 375,000.00 450,000.00 07/16/00
100,000 Celestial Ventures Corp 625,000.00 600,000.00 04/27/00
10,000 Chromatics Color Sciences Intl Inc 86,770.83 70,312.00 08/11/00
3,000 Chromatics Color Sciences Intl Inc 18,187.50 21,093.60 06/29/00
7,000 Chromatics Color Sciences Intl Inc 42,437.50 49,218.40 02/29/00
5,000 Chromatics Color Sciences Intl Inc 30,462.50 35,156.00 05/08/00
7,000 Chromatics Color Sciences Intl Inc 40,793.75 49,218.40 02/25/00
1,500 Chromatics Color Sciences Intl Inc 12,375.00 10,546.80 10/10/00
500 COLT Telecom Group 103,782.50 102,000.00 03/28/00
10,000 Columbia Labs Inc 65,925.00 75,000.00 10/25/00
42,500 Comforcs Corp 201,875.00 122,187.50 08/30/00
47,000 Comforcs Corp 382,408.00 135,125.00 09/13/00
2,000 Crosswalk,com Inc 10,375.00 10,250.00 01/03/01
500 Daleen Technologies 15,687.50 10,937.50 06/16/00
1,000 Daleen Technologies 21,875.00 21,875.00 09/24/00
500 Daleen Technologies 11,062.50 10,937.50 09/17/00
</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
1,000 Daleen Technologies 23,500.00 21,875.00 09/15/00
500 Daleen Technologies 11,562.50 10,937.50 09/22/00
2,000 DATA BROADCASTING CORP 18,687.60 16,500.00 12/17/00
2,000 Disc Graphics Inc 6,750.00 6,125.00 01/03/01
2,000 Diversinet Corp 37,375.00 44,000.00 04/10/00
5,000 Diversinet Corp 33,125.00 110,000.00 09/02/00
1,900 Entrade Inc 11,875.00 77,662.50 09/13/00
3,600 Entrade Inc 19,800.00 147,150.00 08/12/00
4,800 Entrade Inc 19,200.00 196,200.00 12/11/00
20,000 Entrade Inc 134,246.25 817,500.00 02/27/00
33,800 Entrade Inc 202,800.00 1,381,575.00 10/22/00
89,700 Entrade Inc 504,562.50 3,666,487.50 05/08/00
6,500 Entrade Inc 42,673.00 265,687.50 03/05/00
6,500 Entrade Inc 42,673.00 265,687.50 03/05/00
500 Entrade Inc 3,000.00 20,437.50 06/04/00
20,000 Entrade Inc 134,246.25 817,500.00 02/27/00
400 Epitope Inc 1,880.00 2,600.00 11/18/00
1,500 Extreme Networks Inc 91,156.25 125,250.00 06/09/00
1,000 Extreme Networks Inc 68,500.00 83,500.00 06/07/00
400 Extreme Networks Inc 27,400.00 33,400.00 09/03/00
10,000 Fischer Imaging Corp 72,070.00 18,750.00 06/24/00
40,000 Flexemessaging.com Inc 195,000.00 272,500.00 10/18/00
20,000 Flexemessaging.com Inc 102,500.00 136,250.00 10/24/00
20,000 Flexemessaging.com Inc 92,500.00 136,250.00 12/26/00
1,000 Genrad Inc 20,329.50 16,125.00 07/07/00
14,000 Genrad Inc 268,625.00 225,750.00 05/18/00
20,000 HealthCentral.com 147,681.25 146,250.00 01/02/01
5,000 HealthCentral.com 37,500.00 36,562.50 01/03/01
10 Heller Financial Inc Jan 25 Call
exp 1/22/00 4,396.50 750.00 07/23/00
500 Hollis Eden Pharmaceuticals Inc 6,062.50 5,187.50 10/22/00
500 HotJobs.com Ltd 18,000.00 21,843.75 03/20/00
2,000 iGo Corporation 18,125.00 18,125.00 01/03/01
100,000 Interallied Group Inc 550,000.00 512,500.00 01/13/00
100,000 Interallied Group Inc 550,000.00 512,500.00 02/19/00
300 Internet initiative Japan Inc 34,114.50 29,156.25 05/14/00
1,000 Interstate National Dealer Services 6,125.00 6,000.00 12/04/00
1,000 iVillage Inc 20,125.00 20,250.00 09/25/00
500 Johnson and Johnson 48,737.50 46,625.00 06/09/00
1,000 K-TEL INTERNATIONAL INC 9,718.80 5,875.00 12/19/00
500 Liberty Digital Inc 34,156.25 37,125.00 02/28/00
2,000 MARKETING SERVICES GROUP INC 34,245.00 33,500.00 04/28/00
1,000 Mortgage.com Inc 5,750.00 5,812.50 01/03/01
1,000 MSU Corp 5,312.50 2,093.80 05/24/00
1,000 NATIONAL DISCOUNT BROKERS GROUP INC 26,392.00 26,250.00 09/25/00
3,000 Navigant Consulting Inc 29,863.50 32,625.00 04/03/00
3,000 Navigant Consulting Inc 33,426.00 32,625.00 03/22/00
1,000 NBC Internet Inc 69,000.00 77,250.00 03/08/00
1,000 NBC Internet Inc 80,000.00 77,250.00 04/24/00
1,000 NBC Internet Inc 70,250.00 77,250.00 03/14/00
500 Neopharm Inc 9,133.50 10,781.25 02/12/00
500 Neopharm Inc 8,758.50 10,781.25 04/25/00
50 NetSpeak Jan 17.5 Call exp 1/22/00 14,442.50 14,375.00 01/02/01
3,000 Newkidco Intl Inc 9,000.00 9,000.00 12/16/00
50,000 Nutrisystem.com Inc 712,500.00 787,500.00 01/03/01
</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
50,000 Nutrisystem.com Inc 600,000.00 787,500.00 12/20/00
50,000 Nutrisystem.com Inc 362,500.00 787,500.00 08/01/00
50,000 Nutrisystem.com Inc 712,500.00 787,500.00 01/01/01
5,000 Online Gaming Systems Ltd 14,062.50 5,781.00 08/06/00
3,000 Online Gaming Systems Ltd 8,062.50 3,468.60 08/09/00
3,000 Online Gaming Systems Ltd 7,906.25 3,468.60 08/08/00
5,000 Online Gaming Systems Ltd 14,062.50 5,781.00 08/07/00
800 OpenTV Corp 45,425.00 64,200.00 07/04/00
1,000 Osicom Technologies Inc 12,000.00 45,375.00 03/25/00
500 Osicom Technologies Inc 5,750.00 22,687.50 08/13/00
2,000 Pennaco Energy Inc 22,784.00 16,000.00 06/21/00
3,000 Pennaco Energy Inc 34,176.00 24,000.00 02/03/00
40,000 PetPlanet.com Inc 245,000.00 157,500.00 11/25/00
80,000 PetPlanet.com Inc 600,000.00 315,000.00 01/02/00
3,000 PNV Inc 23,062.50 24,562.50 01/02/01
7,000 PNV Inc 53,812.50 57,312.50 01/03/01
10,000 Power Efficiency Corp 121,250.00 61,250.00 05/27/00
38,000 Power Efficiency Corp 304,000.00 232,750.00 12/30/00
25,000 Power Efficiency Corp 215,625.00 153,125.00 10/18/00
10,000 Power Efficiency Corp 122,500.00 61,250.00 08/04/00
50,000 Power Efficiency Corp 318,750.00 306,250.00 01/03/01
10,000 Power Efficiency Corp 82,500.00 61,250.00 06/05/00
4,000 QUALCOMM Incorporated 683,624.80 704,500.00 07/07/00
1,000 Rambus Inc 68,250.00 67,437.50 04/17/00
200 Sanchez Computer Associates Inc 7,400.00 8,237.50 05/05/00
2,000 Sanchez Computer Associates Inc 98,950.00 82,375.00 07/26/00
500 Sanchez Computer Associates Inc 18,362.50 20,593.75 01/22/00
500 Sanchez Computer Associates Inc 19,200.00 20,593.75 02/06/00
300 Sanchez Computer Associates Inc 11,737.50 12,356.25 03/24/00
500 Smithfield Foods Inc 14,312.50 12,000.00 05/19/00
2,300 Softnet Systems Inc 63,187.50 57,787.50 11/26/00
9,570 Softnet Systems Inc 133,980.00 240,446.25 01/17/00
10,000 Softnet Systems Inc 260,170.00 251,250.00 01/27/00
30,000 Softnet Systems Inc 240,000.00 753,750.00 04/09/00
13,100 Softnet Systems Inc 301,993.75 329,137.50 12/03/00
10,000 Softnet Systems Inc 105,140.00 251,250.00 01/26/00
7,000 Source Information Mgmt Co New 117,250.00 117,250.00 06/19/00
3,000 Source Information Mgmt Co New 44,400.00 50,250.00 03/16/00
5,000 Source Information Mgmt Co New 72,500.00 83,750.00 03/15/00
8,000 SVI HOLDINGS INC. 65,000.00 96,000.00 11/15/00
500 Telefonica SA 37,795.00 39,406.25 02/27/00
2,000 TheGlobe.com Inc 16,750.00 16,750.00 01/03/01
100,000 Transmedia Europe Inc 150,000.00 396,880.00 07/16/00
100,000 Transmedia Europe Inc 112,500.00 396,880.00 12/13/00
100,000 Tristar Corp 512,500.00 587,500.00 05/08/00
100,000 Tristar Corp 600,000.00 587,500.00 04/11/00
500 Tyco International 15,133.50 19,500.00 12/25/00
1,000 USA Technologies 6,500.00 2,218.80 12/05/00
100 VA Linux Systems Inc 18,250.00 20,662.50 07/04/00
1,000 Veramark Technologies Inc 7,875.00 12,250.00 11/26/00
Total Securities $16,485,434.88 $24,985,435.00
</TABLE>
S-3.2
<PAGE>
SCHEDULE I
GORDON & CO.
Marketable Securities
Securities Purchased
(To Cover Outstanding Call Options)
December 31, 1999
<TABLE>
<S> <C> <C> <C> <C>
Number Security Value Expiration
of Shares Position Cost Date of Option
500 Nasdaq 100 Shares $89,363.52 $91,375.00 03/03/00
1,000 Nasdaq 100 Shares 185,747.63 182,750.00 03/03/00
500 Tiffany and Co 38,990.20 44,625.00 01/27/00
500 Tiffany and Co 43,958.78 44,625.00 01/26/00
100 America Online 7,585.54 7,587.50 01/29/00
100 Merrill Lynch Internet 17,128.97 16,906.25 01/29/00
1,000 Merrill Lynch Internet 179,727.00 169,062.50 01/28/00
1,000 Liberty Digital Inc 74,997.50 74,250.00 01/29/00
1,000 Qualcomm Inc 173,306.72 176,125.00 01/29/00
Total Securities $810,805.86 $807,306.25
</TABLE>
S-3.3
<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, 1999.......... $ -0- N/A $3,6000,000 $ -0- 9.14%
December 31, 1998.......... -0- N/A $ -0- -0- N/A
December 31, 1997.......... -0- N/A $ -0- -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-4
<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 on April 27, 1999 concerning "Limited
Price Put and Call Options" as amended by a First Post-Effective Amendment dated
March 8, 2000. 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 8, 2000
S-5
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this Post-Effective Amednment No. 1 to the
Registration Statement of Gordon & Co. on Form S-1 of our report dated
January 14, 2000 and to our report on the Balance Sheet of Kezar Limited
Partnership dated January 14, 2000, 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, 1999, 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
March 8, 2000
S-6
<PAGE>
CONSENT OF WARREN G. MILLER
GORDON & CO.
I hereby consent to the use in this First Post-Effective Amendment to the
Registration Statement of Gordon & Co. of my opinion dated March 8, 2000 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 8, 2000
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the registration statement of Gordon & Co. has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C> <C>
Signature Title Date
Principal Executive,
Financial and
Accounting Officer March 8,2000
___________________________________
Allison D. Salke
KEZAR LIMITED PARTNERSHIP
General Partner of
the Issuer
By______________________________________ March 8,2000
Warren G. Miller, Trustee
as he is Trustee of the
Salke Family Trust, its
General Partner
</TABLE>
S-8
