<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1999
REGISTRATION NO. 333-88119
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LABRANCHE & CO INC.
------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6211 13-4064735
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ONE EXCHANGE PLAZA
NEW YORK, NEW YORK 10006-3008
(212) 425-1144
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
GEORGE M.L. LABRANCHE, IV
LABRANCHE & CO INC.
ONE EXCHANGE PLAZA
NEW YORK, NEW YORK 10006-3008
(212) 425-1144
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------
WITH COPIES TO:
JEFFREY M. MARKS, ESQ.
WARREN J. NIMETZ, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
TEL: (212) 318-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1999
PROSPECTUS
EXCHANGE OFFER FOR $100.0 MILLION
9 1/2% SENIOR NOTES DUE 2004 OF
[LOGO]
TERMS OF THE EXCHANGE OFFER
- - We are offering to exchange the notes that we sold in a private offering for
new registered exchange notes.
- - The exchange offer expires 5:00 p.m., New York City time, , 1999, unless
extended.
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer.
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged.
- - We believe that the exchange of notes will not be a taxable exchange for U.S.
federal income tax purposes.
- - We will not receive any proceeds from the exchange offer.
- - The terms of the notes to be issued are identical to the outstanding notes,
except for the transfer restrictions and registration rights relating to the
outstanding notes.
WE ARE NOT MAKING AN OFFER TO EXCHANGE NOTES IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED.
INVESTING IN THE NOTES ISSUED IN THE EXCHANGE OFFER INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1999
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 9
Forward-Looking Statements.................................. 19
The Exchange Offer.......................................... 20
Use of Proceeds............................................. 30
Selected Historical Consolidated Financial Data............. 31
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
Business.................................................... 44
Management.................................................. 59
Employment Agreements and Noncompetition Agreements......... 61
Incentive Awards to Our Employees........................... 63
Principal Stockholders...................................... 66
Certain Transactions........................................ 67
Description of Exchange Notes............................... 70
Description of Other Indebtedness........................... 108
United Stated Income Tax Considerations..................... 110
Plan of Distribution........................................ 110
Legal Matters............................................... 111
Experts..................................................... 111
Where You Can Find Additional Information................... 111
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. THIS
PROSPECTUS INCLUDES SPECIFIC TERMS OF THE NOTES WE ARE OFFERING, AS WELL AS
INFORMATION REGARDING OUR BUSINESS AND DETAILED FINANCIAL DATA. WE ENCOURAGE YOU
TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE EXCHANGE OFFER
On August 24, 1999, we issued $100,000,000 aggregate principal amount of
9 1/2% Senior Notes due 2004 to Salomon Smith Barney Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation in a private offering. These initial
purchasers placed the notes with institutional investors in transactions exempt
from the registration requirements of the Securities Act of 1933 pursuant to
Section 4(2) of, and Regulation S under, the Securities Act and applicable state
securities laws.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
When we issued the initial notes, we entered into a Registration Rights
Agreement in which we agreed to use our reasonable best efforts to complete an
exchange offer for the initial notes on or prior to December 22, 1999.
THE EXCHANGE OFFER
Under the terms of the exchange offer, you are entitled to exchange the
initial notes for registered exchange notes with substantially identical terms.
You should read the discussion under the heading "Description of the Exchange
Notes" for further information regarding the exchange notes. As of this date,
there are $100.0 million aggregate principal amount of the initial notes
outstanding. The initial notes may be tendered only in integral multiples of
$1,000.
RESALE OF EXCHANGE NOTES
We believe that the exchange notes issued in the exchange offer may be
offered for resale, resold or otherwise transferred by you without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes; and
- you are not an "affiliate" of ours.
If any of the foregoing are not true and you transfer any exchange note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from the registration requirements of the Securities
Act, you may incur liability under the Securities Act. We do not assume or
indemnify you against that liability.
If you are a broker-dealer and receive exchange notes for your own account
in exchange for initial notes that you acquired as a result of market making or
other trading activities, you must acknowledge that you will deliver a
prospectus meeting the requirements of the Securities Act upon any resale of the
exchange notes. A broker-dealer may use this prospectus in connection with an
offer to resell, resale or other transfer of the exchange notes. We will take
steps to ensure that the issuance of the exchange notes will comply with state
securities or "blue sky" laws.
CONSEQUENCES OF FAILURE TO EXCHANGE INITIAL NOTES
If you do not exchange your initial notes for exchange notes, subject to
some exceptions, you will no longer be able to require us to register the
initial notes under the Securities Act. In addition, you will not be able to
offer or sell the initial notes unless:
- they are registered under the Securities Act (and we will have no
obligation to register them, except for some limited exceptions), or
- you offer or sell them under an exemption from the requirements of, or in
a transaction not subject to, the Securities Act.
1
<PAGE>
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999 unless we decide to extend the expiration date.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest at 9 1/2% per year, beginning on the
last date we paid interest on the initial notes exchanged. We will pay interest
on the exchange notes on February 15 and August 15 of each year.
CONDITIONS TO THE EXCHANGE OFFER
We will proceed with the exchange offer, so long as:
- the exchange offer does not violate any applicable law or applicable
interpretation of law of the staff of the Securities and Exchange
Commission;
- no litigation materially impairs our ability to proceed with the exchange
offer; and
- we obtain all governmental approvals we deem necessary for the exchange
offer.
PROCEDURES FOR TENDERING INITIAL NOTES
If you wish to accept the exchange offer, you must:
- complete, sign and date the letter of transmittal, or a facsimile of it,
and
- send the letter of transmittal and all other documents required by it,
including the initial notes to be exchanged, to Firstar Bank, N.A., as
exchange agent, at the address set forth on the cover page of the letter
of transmittal. Alternatively, you can tender your initial notes by
following the procedures for book-entry transfer, as described in this
document.
GUARANTEED DELIVERY PROCEDURE
If you wish to tender your initial notes and you cannot get your required
documents to the exchange agent by the expiration date, you may tender your
initial notes according to the guaranteed delivery procedure described under the
heading "The Exchange Offer--Guaranteed Delivery Procedure."
WITHDRAWAL RIGHTS
You may withdraw the tender of your initial notes at any time prior to
5:00 p.m., New York City time, on the expiration date of the exchange offer. To
withdraw, you must send a written or facsimile transmission notice of withdrawal
to the exchange agent at its address set forth herein under "The Exchange
Offer--Exchange Agent" by 5:00 p.m., New York City time, on the expiration date.
ACCEPTANCE OF INITIAL NOTES AND DELIVERY OF EXCHANGE NOTES
If all the conditions to the exchange offer are satisfied or waived, we will
accept any and all initial notes that are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the expiration date. We will
deliver the exchange notes promptly after the expiration date.
TAX CONSIDERATIONS
We believe that the exchange of initial notes for exchange notes will not be
a taxable exchange for federal income tax purposes. You should consult your tax
adviser about the tax consequences of the exchange as they apply to your
individual circumstances.
EXCHANGE AGENT
Firstar Bank, N.A. is serving as exchange agent for the exchange offer.
FEES AND EXPENSES
We will bear all expenses related to consummating the exchange offer and
complying with the Registration Rights Agreement.
2
<PAGE>
OUR COMMON STOCK OFFERING
Simultaneously with the initial note offering, we converted our firm from
partnership to corporate form and completed an initial public offering of
10,500,000 shares of our common stock at an initial public offering price of $14
per share. We received net proceeds of approximately $134.7 million in our
common stock offering.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. We used the proceeds from the sale of the initial notes to redeem some
limited partnership and membership interests and to repay certain subordinated
indebtedness as part of the reorganization of our firm from partnership to
corporate form.
LABRANCHE & CO INC.
Founded in 1924, our subsidiary, LaBranche & Co., is one of the oldest and
largest specialist firms on the New York Stock Exchange. In 1998, the stocks for
which we acted as specialist accounted for approximately 14.2% of the dollar
volume of common stock traded on the NYSE, constituting one of the largest
market shares among specialist firms. As of June 30, 1999, we acted as
specialist in 280 common stock listings, including 47 of the S&P 500 and five of
the 30 companies comprising the Dow Jones Industrial Average. Our five Dow
stocks are AT&T, Chevron, Exxon, Merck and Minnesota Mining & Manufacturing.
PRINCIPAL EXECUTIVE OFFICE
Our headquarters are located at One Exchange Plaza, New York, New York 10006
(telephone number (212) 820-0400).
REORGANIZATION AND RELATED TRANSACTIONS
LaBranche & Co Inc. is a recently formed holding corporation, and our assets
consist solely of our ownership interests in our two subsidiaries, LaBranche &
Co. and LaB Investing Co. L.L.C. LaBranche & Co. is a limited partnership, and
LaB Investing Co. L.L.C. is the general partner of LaBranche & Co. The
reorganization of our firm from partnership to corporate form, as illustrated
below, was effected through the transactions summarized below. All these
transactions were completed simultaneously with the completion of our initial
note offering and our common stock offering.
[LOGO]
3
<PAGE>
- The members of LaB Investing Co. L.L.C. exchanged their membership
interests in LaB Investing Co. L.L.C. for an aggregate of 34,816,334
shares of our common stock. In addition to receiving a portion of those
shares, three members of LaB Investing Co. L.L.C. also received an
aggregate of $9.0 million in cash as part of the exchange. We thus became
the sole member of LaB Investing Co. L.L.C., and LaB Investing Co. L.L.C.
continues to be the general partner of LaBranche & Co.
- The limited partners of LaBranche & Co., other than Mill Bridge, Inc.,
exchanged their limited partnership interests in LaBranche & Co. for an
aggregate of $66.2 million in cash, 558,666 shares of our common stock and
subordinated indebtedness of $350,000.
- Mill Bridge, Inc., a subsidiary of Van der Moolen Holding NV, received
$90.0 million from us in exchange for its limited partnership interest in
LaBranche & Co., including $74.0 million in cash and a note for
$16.0 million. In addition, we repaid $5.0 million of subordinated debt to
an affiliate of Van der Moolen.
- As a result of the above transactions, we became the sole limited partner
of LaBranche & Co., which continues to operate as a broker-dealer and a
NYSE specialist firm.
- We granted (1) options to purchase an aggregate of 1,200,000 shares of our
common stock to our executive officers and (2) restricted stock units for
1,059,000 shares of our common stock to employees who are not managing
directors, in each case under our Equity Incentive Plan.
RECENT DEVELOPMENTS
On October 21, 1999 we announced financial results for the third quarter and
nine months ended September 30, 1999. Pro forma revenues for the third quarter
were $41.6 million, a 78% increase compared to pro forma revenues of
$23.3 million in the third quarter of 1998. Pro forma net income for the quarter
was $10.8 million, a significant increase over the pro forma $3.7 million
recorded in the same quarter last year. The pro forma consolidated results give
effect to our July 1998 acquisition of substantially all the assets of Fowler,
Rosenau & Geary, LLC, our August 1999 reorganization from partnership to
corporate form and related transactions and the application of the net proceeds
from our August 1999 common stock offering and initial note offering, as if the
transactions occurred at the beginning of the respective periods.
Historical revenue and net income for the three and nine month periods of
1999 were $41.6 million and $7.2 million and $145.1 million and $13.5 million,
respectively. Historical revenue and net income for the three and nine month
periods of 1998 were $23.3 million and $0.7 million and $75.5 million and
$1.9 million, respectively. Historical results reflect our reorganization from
partnership to corporate form and related transactions and the application of
the net proceeds from our common stock offering and initial note offering only
for the period subsequent to August 23, 1999. In addition, the historical
results for the nine months ended September 30, 1998 reflect our ownership and
operation of the business formerly conducted by Fowler, Rosenau & Geary, LLC
only for the period commencing with our acquisition of the business on July 1,
1998.
4
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered............ $100,000,000 principal amount of 9 1/2% Senior Notes due
2004.
Maturity...................... August 15, 2004.
Interest Payment Dates........ February 15 and August 15, commencing on February 15, 2000.
Sinking Fund.................. None.
Ranking....................... The exchange notes are senior obligations of LaBranche & Co
Inc. and will rank equally with our existing and future
other unsecured senior indebtedness. They will rank senior
in right of payment to all of our current and future
subordinated indebtedness for borrowed money, except secured
indebtedness that expressly provides that it is senior to
the exchange notes.
We may issue additional senior indebtedness subject to
certain limitations. At June 30, 1999, on a pro forma basis,
our total consolidated indebtedness would have been $162.5
million. For more details, see "Description of Exchange
Notes."
Optional Redemption........... The exchange notes will be redeemable, at any time, in whole
or in part, at a price equal to 100% of the principal amount
plus accrued and unpaid interest, if any, to the date of
redemption plus a make-whole premium, as described under
"Description of Exchange Notes--Optional Redemption."
Change of Control............. If we sell substantially all of our assets or experience
specific kinds of changes of control, we must offer to
repurchase the exchange notes at a price in cash equal to
101% of their principal amount, plus accrued and unpaid
interest, if any, to the date of purchase.
Covenants..................... The exchange notes will be issued under an indenture with
Firstar Bank, N.A. The indenture contains certain covenants
that, among other things, limits our ability to:
- borrow money;
- pay dividends on our stock or purchase our stock;
- make investments in certain subsidiaries;
- engage in transactions with stockholders and
affiliates;
- create liens on our assets; and
- sell assets or engage in mergers and consolidations.
For more details, see "Description of Exchange
Notes--Certain Covenants."
Use of Proceeds............... We will not receive any cash proceeds from the issuance of
the exchange notes. We used the proceeds from the sale of
the initial notes to redeem some limited partnership and
membership interests and to repay certain subordinated
indebtedness as part of the reorganization of our firm from
partnership to corporate form.
</TABLE>
5
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data set forth below for the
years ended December 31, 1996, 1997 and 1998 have been derived from our
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants, and are included elsewhere in this
prospectus. The summary historical consolidated financial data set forth below
for the years ended December 31, 1994 and 1995 have been derived from our
consolidated financial statements, audited by Arthur Andersen LLP, independent
public accountants, which are not included elsewhere in this prospectus. The
summary historical financial data set forth below for the six months ended
June 30, 1998 and 1999 have been derived from our unaudited consolidated
financial statements. In our opinion, such unaudited data include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of results to be expected for any future period. The summary historical
consolidated financial data set forth below should be read in conjunction with
the consolidated financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(In thousands, except Other Data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net gain on principal transactions......... $23,406 $26,290 $37,113 $47,817 $ 95,048 $40,825 $ 78,666
Commissions................................ 5,995 7,736 10,180 15,186 26,576 10,412 17,885
Other...................................... 465 3,147 2,643 4,637 4,787 902 6,942
------- ------- ------- ------- -------- ------- --------
Total revenues......................... $29,866 $37,173 $49,936 $67,640 $126,411 $52,139 $103,493
======= ======= ======= ======= ======== ======= ========
Income before managing directors'
compensation, limited partners' interest in
earnings of subsidiary and unincorporated
business taxes............................. $20,725 $26,254 $32,783 $47,732 $ 91,635 $37,718 $ 79,349
======= ======= ======= ======= ======== ======= ========
OTHER DATA:
Number of our common stock listings.......... 122 125 132 202 284 207 280
Total share volume on the NYSE of our
specialist stocks (in billions)............ 3.4 4.0 5.6 10.9 20.0 7.5 12.9
Total dollar volume on the NYSE of our
specialist stocks (in billions)............ $ 112.3 $ 133.3 $ 201.4 $ 476.7 $ 950.4 $ 326.6 $ 657.8
NYSE average daily trading share volume (in
millions).................................. 291.4 346.1 412.0 526.9 673.6 620.8 801.5
Ratio of earnings to fixed charges (A)....... 26.10 32.83 20.02 10.69 9.04 9.27 13.90
</TABLE>
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(A) For puposes of this ratio, earnings represent pre-tax income plus limited
partners' interest in earnings of subsidiary and fixed charges. Fixed
charges represent interest expensed and capitalized, as well as amortized
premiums, discounts and capitalized expenses related to indebtedness.
Historically, we have operated as a partnership and have distributed all of
our income after unincorporated business taxes to our managing directors as
compensation and to our partners. As of August 24, 1999, we reorganized our firm
from partnership to corporate form and redeemed limited partnership and
membership interests. As a corporation, we include payments to managing
directors as part of compensation and benefits. Therefore, historical income
before managing directors' compensation, limited partners' interest in earnings
of subsidiary and unincorporated business taxes understates our expected
operating costs after August 24, 1999. See "--Reorganization and Related
Transactions" and "--Summary Pro Forma Consolidated Financial Data." As a
partnership, we generally had not been subject to U.S. federal, state and local
income taxes, apart from unincorporated business taxes. As a consequence of our
reorganization to a corporation, we are subject to U.S. federal, state and local
income taxes.
6
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The pro forma consolidated statement of operations data set forth below for
the year ended December 31, 1998 and the six months ended June 30, 1999 give
effect to (1) our July 1998 acquisition of substantially all of the assets of
Fowler, Rosenau & Geary, LLC and (2) the reorganization of our firm from
partnership to corporate form and the related transactions. The pro forma
consolidated statement of operations for the six months ended June 30, 1999 and
for the year ended December 31, 1998 presents our results as if the
reorganization and related transactions had occurred on January 1, 1998.
Additionally, the pro forma consolidated statement of operations for the year
ended December 31, 1998 presents our results as if the acquisition of Fowler,
Rosenau had occurred on January 1, 1998. The pro forma consolidated balance
sheet data as of June 30, 1999 give further effect to (1) the reorganization and
related transactions as if they occurred on June 30, 1999, (2) our initial note
offering, (3) the application of the net proceeds of our initial note offering,
(4) the sale by us of 10,500,000 shares of common stock in our common stock
offering, after deducting the underwriting discounts and offering expenses
payable by us, and (5) the application of the net proceeds from our common stock
offering. The pro forma consolidated financial information has been prepared by
our management and is not necessarily indicative of the results that would have
been achieved had the above-described transactions occurred on the dates
indicated or that may be achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net gain on principal transactions........ $ 95,048 $ 98,736 $ 78,666 $ 78,666
Commissions............................... 26,576 33,963 17,885 17,885
Other..................................... 4,787 5,151 6,942 6,942
-------- -------- -------- --------
Total revenues........................ 126,411 137,850 103,493 103,493
-------- -------- -------- --------
Expenses:
Employee compensation and benefits........ 13,921 40,445(A) 11,299 33,000(A)
Lease of exchange memberships............. 6,568 7,064 4,165 4,165
Interest.................................. 3,577 14,535(B) 2,195 7,469(B)
Exchange, clearing and brokerage fees..... 2,898 3,233 1,997 1,997
Amortization of intangibles............... 2,526 6,863(C)(D) 1,693 3,431(D)
Other operating expenses.................. 5,286 6,281 2,795 2,795
-------- -------- -------- --------
Total operating expenses.............. 34,776 78,421 24,144 52,857
-------- -------- -------- --------
Income before managing directors'
compensation, limited partners interest in
earnings of subsidiary and provisions for
income taxes.............................. 91,635 59,429 79,349 50,636
Managing directors' compensation............ 58,783 --(E) 48,214 --(E)
-------- -------- -------- --------
Income before limited partners' interest in
earnings of subsidiary and provision for
income taxes.............................. 32,852 59,429 31,135 50,636
Limited partners' interest in earnings of
subsidiary................................ 26,292 --(F) 21,054 --(F)
-------- -------- -------- --------
Income before provision for income taxes.... 6,560 59,429 10,081 50,636
Provision for income taxes.................. 3,900 27,638(G) 3,789 23,024(G)
-------- -------- -------- --------
Net income.................................. $ 2,660 $ 31,791 $ 6,292 $ 27,612
======== ======== ======== ========
EBITDA...................................... $ 81,321(H) $ 61,780(H)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................. $ 38,063 $116,063(B)(I)(J)
Working capital............................................. 123,698 201,698(B)(I)(J)
Total assets................................................ 346,101 553,888(B)(I)(J)
Total long-term indebtedness (K)............................ 51,158 162,508(B)
Limited partners' interest in subsidiary.................... 37,094 --(I)
Members' capital/stockholders' equity....................... 95,569 229,100(I)(J)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, 1999
PRO FORMA
-------------------
<S> <C>
OTHER DATA:
Ratio of total debt to EBITDA (K)(L)........................ 1.32
Ratio of net debt to EBITDA (K)(L)(M)....................... 0.38
Ratio of EBITDA to total interest expense................... 8.27
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
PRO FORMA PRO FORMA
----------------- ----------------
<S> <C> <C>
Ratio of earnings to fixed charges (N)...................... 4.81 7.36
</TABLE>
- ------------------------
(A) Employee compensation and benefits was adjusted to reflect managing
directors' compensation based on authorized revised compensation policies
which were implemented at the time of the reorganization.
(B) Reflects pro forma repayment of $5.0 million of subordinated liabilities
owed to a limited partner and reverses the related interest expense.
Reflects our initial note offering, the issuance of a $16.0 million note and
$350,000 of subordinated indebtedness and the related interest expense.
(C) Reflects the pro forma pre-acquisition amortization of intangibles for the
six months ended June 30, 1998 related to the Fowler, Rosenau acquisition.
(D) Reflects pro forma amortization of intangibles related to redemption of
limited partners' interests.
(E) Managing directors' compensation was adjusted to reverse the actual amounts
previously recorded.
(F) Reflects reversal of limited partners' interest in earnings of subsidiary.
(G) Reflects federal, state and local income taxes at an estimated effective tax
rate of approximately 44%.
(H) EBITDA means net income (loss) before interest expense, taxes, depreciation
and amortization. EBITDA is not a generally accepted accounting principles
measure and may not be comparable to similarly titled items of other
companies. You should not consider EBITDA as an alternative to net income
(loss) or any other generally accepted accounting principles measure of
performance as an indicator of our operating performance or as a measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use because certain future cash expenditures are not reflected
in the EBITDA presentation. Some investors use these data as an indicator of
a company's ability to service debt.
(I) Reflects the redemption of limited partnership interests for
$164.4 million, comprised of $140.2 million in cash, a $16.0 million note,
$350,000 of subordinated indebtedness and $7.8 million in common stock.
Reflects redemption of membership interests for $9.0 million in cash.
(J) Reflects net proceeds of $134.7 million received upon completion of our
common stock offering.
(K) Excludes subordinated liabilities related to contributed exchange
memberships.
(L) Calculated on an annualized basis.
(M) Net debt means total debt less cash and short-term investments.
(N) For purposes of this ratio, earnings represent pre-tax income plus fixed
charges. Fixed charges represent interest expensed and capitalized, as well
as amortized premiums, discounts and capitalized expenses related to
indebtedness.
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO MAKE
AN INVESTMENT IN THE EXCHANGE NOTES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE THE MATERIAL RISKS THAT OUR COMPANY FACES.
IF YOU DO NOT PARTICIPATE IN THE EXCHANGE OFFER, YOU WILL CONTINUE TO BE SUBJECT
TO TRANSFER RESTRICTIONS.
If you do not exchange your initial notes for exchange notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of your initial notes. We do not intend to register the initial notes under the
Securities Act. To the extent initial notes are tendered and accepted in the
exchange offer, the trading market, if any, for the initial notes would be
adversely affected. See "The Exchange Offer."
A LIQUID TRADING MARKET FOR THE EXCHANGE NOTES MAY NOT DEVELOP.
There has not been an established trading market for the exchange notes.
Although each initial purchaser has informed us that it currently intends to
make a market in the exchange notes, it has no obligation to do so and may
discontinue any such market making at any time without notice. The initial notes
were offered and sold only to qualified institutional buyers and to persons
outside the United States and were are subject to restrictions on transfer.
The initial notes were designated as eligible for trading in the PORTAL
Market. However, we did not apply for listing of the initial notes and do not
intend to apply for listing of the exchange notes, on any securities exchange or
for quotation through the National Association of Securities Dealers Automated
Quotation System.
The liquidity of any market for the exchange notes will depend upon the
number of holders of the exchange notes, our performance, the market for similar
securities, the interest of securities dealers in making a market in the
exchange notes and other factors. A liquid trading market may not develop for
the exchange notes.
WE WILL HAVE SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS.
We are highly leveraged. We may also need to incur additional debt in the
future for working capital or to complete acquisitions, even though our
principal credit facility imposes some limits on our ability to do so. Our
ability to pay interest on the exchange notes and to satisfy our other debt
obligations will depend upon our future operating performance and our ability to
obtain additional debt or equity financing. If in the future we cannot generate
sufficient cash from operations to make scheduled payments on the notes or to
meet our other obligations, we will need to refinance the exchange notes, obtain
additional financing or sell assets. We cannot assure you that our business will
generate cash flow, or that we will be able to obtain funding, sufficient to
satisfy our debt service requirements.
The exchange notes will be effectively subordinated to our existing and
future secured indebtedness to the extent of the assets securing that
indebtedness. In addition, because we, LaBranche & Co Inc., are a recently
formed holding company with no operations of our own, we are dependent on
distributions from LaBranche & Co. and LaB Investing Co. L.L.C. to pay interest
and principal on our debt. The exchange notes will be effectively subordinated
to all of the indebtedness of LaBranche & Co. and LaB Investing Co. L.L.C.,
including subordinated debt. This structural subordination may adversely affect
our ability to service our debt and could result in insolvency or other
circumstances that could adversely affect our ability to satisfy our payment
obligations with respect to the exchange notes. Further, LaBranche & Co. is a
broker-dealer and a specialist regulated by the Securities and Exchange
Commission and the NYSE. Such regulations include strict rules regarding capital
requirements and approval requirements for withdrawal of capital from, and in
some
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cases, other distributions by, the broker-dealer. These regulations could
prevent us from obtaining funds necessary to satisfy our obligations to pay
interest on or repay our indebtedness, including the exchange notes. See "--We
are subject to net capital requirements" and "Business--Operations--Regulatory
Matters" for a discussion of our net capital requirements.
OUR ABILITY TO TAKE ACTIONS MAY BE RESTRICTED BY THE TERMS OF OUR INDEBTEDNESS.
The covenants in our existing debt agreements, including the Credit
Agreement, the note purchase agreements relating to LaBranche & Co.'s existing
senior subordinated indebtedness and the indenture governing the notes, and any
future financing agreements, may adversely affect our ability to finance future
operations or capital needs or to engage in other business activities. These
covenants limit or restrict our ability and the ability of our subsidiaries to:
- incur additional debt;
- pay dividends and make distributions;
- repurchase our securities;
- make certain investments;
- create liens on our assets;
- transfer or sell assets;
- enter into transactions with affiliates;
- issue or sell stock of subsidiaries; or
- merge or consolidate.
In addition, the Credit Agreement and the note purchase agreements relating
to LaBranche & Co.'s existing senior subordinated indebtedness also require
LaBranche & Co. to comply with certain financial ratios. LaBranche & Co.'s
ability to comply with these ratios may be affected by events beyond our or its
control. If any of the covenants in our Credit Agreement, the note purchase
agreements or the indenture are breached, or if LaBranche & Co. is unable to
comply with required financial ratios, it may be in default under the Credit
Agreement or the note purchase agreements and we may be in default under the
indenture. A significant portion of our indebtedness then may become immediately
due and payable. We are not certain whether we would have, or be able to obtain,
sufficient funds to make these accelerated payments, including payments on the
exchange notes. Compliance with the covenants is also a condition to borrowings
under the Credit Agreement on which LaBranche & Co. relies to fund its
liquidity. See "Description of Notes" and "Description of Other Indebtedness."
WE ARE REQUIRED TO TAKE ACTIONS UPON THE OCCURRENCE OF A CHANGE OF CONTROL.
Upon the occurrence of a change of control, we will be required to offer to
repurchase all outstanding exchange notes at a price equal to 101% of their
principal amount, together with accrued and unpaid interest, if any, to the date
of repurchase. Certain important corporate events, such as leveraged
recapitalizations that would increase our level of indebtedness, would not
constitute a change of control. If a change of control were to occur, it is
possible that we would not have sufficient funds to repurchase the exchange
notes owned by holders seeking to accept our offer or that restrictions in the
Credit Agreement or the note purchase agreements relating to LaBranche & Co.'s
existing senior subordinated indebtedness will not allow such repurchases.
Furthermore, a change of control will most likely trigger a default under the
Credit Agreement and the note purchase agreements. To the extent we do not have
sufficient funds to meet our repurchase obligations and any other obligations in
respect
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of the Credit Agreement and the note purchase agreements, we would necessarily
seek third-party financing. However, it is possible that we will not be able to
obtain such financing.
THE EXCHANGE NOTES MAY BE SUBJECT TO FRAUDULENT TRANSFER STATUTES.
Under federal or state fraudulent transfer laws, a court could avoid all or
a portion of our obligations to the holders of the exchange notes, subordinate
our obligations to the holders of the exchange notes to our other existing and
future indebtedness, and take other action detrimental to the holders of the
exchange notes, including invalidating the exchange notes if it were to find
that,
- we issued the initial notes in order to damage or defraud current or
future creditors; or
- we received less than fair consideration in exchange for the initial
notes and
- we (1) were insolvent or were rendered insolvent by reason of the
issuance of the initial notes, (2) were engaged, or about to engage, in a
business or transaction for which our assets were unreasonably small or
(3) intended to incur, or believed (or should have believed) we would
incur, debts beyond our ability to pay as the debts mature.
We cannot assure you that, in that event, any repayment on the exchange
notes would ever be recovered by the holders of the exchange notes.
Based upon financial and other information currently available to us, our
management believes that the initial notes were incurred for proper purposes and
in good faith and that we were solvent and continue to be solvent after issuing
the initial notes, will continue to have sufficient capital for carrying on our
business and will be able to pay our debts as they mature. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
WE MAY HAVE INSUFFICIENT CAPITAL IN THE FUTURE AND MAY BE UNABLE TO SECURE
ADDITIONAL FINANCING
WHEN WE NEED IT.
Our business depends on the availability of adequate capital. We cannot be
sure that we will have sufficient capital in the future or that additional
financing will be available on a timely basis, or on terms favorable to us.
Historically, we have satisfied these needs with internally generated funds, our
bank credit facilities and the issuance of subordinated debt. We currently
anticipate that the net proceeds from our initial note offering and our common
stock offering, together with our available cash resources and credit
facilities, will be sufficient to meet our anticipated working capital,
regulatory capital and capital expenditure requirements through the end of 2000.
We may, however, need to raise additional funds to:
- increase the capital available to us for our inventory positions;
- support more rapid expansion;
- acquire complementary businesses; or
- respond to unanticipated capital requirements.
We may be required to obtain this additional financing on short notice as a
result of rapid, unanticipated developments, such as a steep market decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity."
OUR REVENUES MAY DECREASE DUE TO CHANGES AFFECTING THE ECONOMY, SUCH AS
INCREASES IN INTEREST RATES OR INFLATION, OR CHANGES AFFECTING THE SECURITIES
MARKETS, SUCH AS DECREASED VOLUME OR LIQUIDITY.
We recently experienced a substantial increase in the revenues we earn from
our specialist activities. An adverse change affecting the economy or the
securities markets could result in a decline
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in market volume or liquidity. This would result in lower revenues from our
specialist activities. Our recent increase in revenues was caused primarily by
significant increases in the volume of trading on the NYSE and favorable
conditions in the securities markets. The current favorable business environment
will not continue indefinitely. For more details about the factors which have
contributed to increases in volume on the NYSE, see "Business--Industry
Background--Recent Trends in NYSE Trading and the Specialist's Role."
SUSTAINED DECLINES IN PRICE LEVELS OF SECURITIES COULD CAUSE US TO INCUR LOSSES.
Adverse changes in the economy and the securities markets could lead to
lower price levels of securities. Sustained declines in these price levels may
result in:
- losses from declines in the market value of securities held in our
inventory;
- the failure of buyers and sellers of securities to fulfill their
settlement obligations; and
- increases in claims and litigation.
TRADING THROUGH NYSE SPECIALISTS COULD BE REPLACED BY ALTERNATIVE TRADING
SYSTEMS WHICH COULD REDUCE
OUR REVENUE.
Alternative trading systems could reduce the levels of trading of
NYSE-listed stocks executed through specialists. This, in turn, could have an
adverse effect on our revenues. Over the past few years, a number of alternative
trading systems have developed or emerged which may compete with specialists by
increasing trading in NYSE-listed stocks off the NYSE trading floor in
over-the-counter markets. In the future, similar new systems may continue to be
developed and placed in operation. For more information regarding trading off
the NYSE trading floor and alternative trading systems, see "Business--Industry
Background--Recent Trends in NYSE Trading and the Specialist's Role."
COMPETITION FROM NASDAQ FOR NEW LISTINGS COULD ADVERSELY AFFECT NYSE TRADING
VOLUME AND, IN TURN,
REDUCE OUR REVENUES.
Nasdaq continues to grow and gain in popularity, attracting companies which
might otherwise have listed on the NYSE. If more companies decide to be quoted
on Nasdaq as opposed to listing their stocks on the NYSE, or if companies choose
to delist using recently relaxed delisting procedures, trading volume on the
NYSE could be adversely affected. This, in turn, could adversely affect our
trading revenue. In recent years, many high technology companies have opted to
be quoted on Nasdaq, even though many of them would have qualified for NYSE
listing. In addition, the SEC recently approved a revision to NYSE Rule 500
which makes it easier for a company to delist its shares from the NYSE. The
original rule required supermajority shareholder approval before a listed
company could delist from the NYSE. Under the recently approved amendment of
Rule 500, a company can delist from the NYSE if it obtains the approval of a
majority of the company's board of directors and the company's audit committee.
The company would then provide its 35 largest shareholders with written notice
of the proposed delisting and allow a 20-40 day waiting period to elapse.
OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our revenues may fluctuate significantly based on factors relating to the
securities markets. These factors include:
- a decrease in trading volume on the NYSE;
- volatility in the equity securities markets; and
- changes in the value of our securities positions.
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For example, in the third quarter of 1998, compared to the second quarter of
1998, we experienced a decline in revenues primarily due to a decline in our net
trading gains from principal transactions conducted as part of our specialist
activities. Our net trading gains from principal transactions decreased during
this period primarily because the price levels of many of our specialist stocks
declined.
Our cost structure does not decline if we experience quarterly reductions in
our revenues. As a result, if market conditions cause our revenues to decline,
we may be unable to adjust our cost structure on a timely basis and we could
suffer losses.
RISKS ASSOCIATED WITH OUR TRADING TRANSACTIONS COULD RESULT IN TRADING LOSSES.
A majority of our specialist-related revenues are derived from trading by us
as principal. We also operate a proprietary trading desk separately from our
NYSE specialist operations, which represented 1.8% of our total revenues in
1998. We may incur trading losses relating to these activities since each
primarily involves the purchase, sale or short sale of securities for our own
account. In any period, we may incur trading losses in a significant number of
our specialist stocks for a variety of reasons, including price declines of our
specialist stocks, lack of trading volume in our specialist stocks and the
required performance of our specialist obligations. From time to time, we have
large position concentrations in securities of a single issuer or issuers
engaged in a specific industry. In general, because our inventory of securities
is marked to market on a daily basis, any downward price movement in these
securities will result in a reduction of our revenues and operating profits.
Although we have adopted risk management policies, we cannot be sure that
these policies have been formulated properly to identify or limit our risks.
Even if these policies are formulated properly, we cannot be sure that we will
successfully implement these policies. As a result, we may not be able to manage
our risks successfully or avoid trading losses.
NYSE SPECIALIST RULES MAY REQUIRE US TO MAKE UNPROFITABLE TRADES OR TO REFRAIN
FROM MAKING PROFITABLE TRADES.
When we trade as principal, we attempt to derive a profit from the
difference between the prices at which we buy and sell securities. Our role as a
specialist, at times, requires us to make trades that adversely affect our
profitability. In addition, as a specialist, we are at times required to refrain
from trading for our own account in circumstances in which it may be to our
advantage to trade. For example, we may be obligated to act as a principal when
buyers or sellers outnumber each other. In those instances, we may take a
position counter to the market, buying or selling shares to support an orderly
market in the affected stocks. In order to perform these obligations, we hold
varying amounts of securities in inventory. In addition, specialists generally
may not trade for their own account when public buyers are meeting public
sellers in an orderly fashion and may not compete with public orders at the same
price. By having to support an orderly market, maintain inventory positions and
refrain from trading under some favorable conditions, we are subjected to a high
degree of risk. Additionally, the NYSE periodically amends its rules and may
make the rules governing our activities as a specialist more stringent or may
implement changes which could adversely affect our trading revenues. For more
information regarding the rules which govern our activities as a specialist, see
"Business--Operations--NYSE Rules Governing Our Specialist Activities."
OUR SUCCESS DEPENDS ON OUR ABILITY TO ACCURATELY PROCESS AND RECORD OUR
TRANSACTIONS, AND ANY FAILURE TO DO SO COULD SUBJECT US TO LOSSES.
Our specialist activities require us to accurately record and process a very
large number of transactions on a daily basis. Any failure or delay in recording
or processing transactions could cause substantial losses for brokers, their
customers and/or us and could subject us to claims for losses. We rely on our
staff to operate and maintain our information and communications systems
properly, and
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we depend on the integrity and performance of those systems. Our recording and
processing of trades is subject to human and processing errors. Moreover,
extraordinary trading volume or other events could cause our information and
communications systems to operate at an unacceptably low speed or even fail. Any
significant degradation or failure of our information systems or any other
systems in the trading process could cause us to fail to complete transactions
or could cause brokers who place trades through us to suffer delays in trading.
OUR MANAGEMENT INFORMATION SYSTEMS MAY FAIL AND INTERRUPT OUR BUSINESS.
Any information or communication systems failure or decrease in information
or communications systems performance that causes interruptions in our
operations could have an adverse effect on our business, financial condition
and/or operating results. Our systems may fail as a result of:
- hardware or software failure; or
- power or telecommunications failure.
Although we have established a back-up disaster recovery center in Hoboken,
New Jersey, it may not be effective in preventing an interruption of our
business.
WE DEPEND ON THE NYSE AND CLEARING AND DEPOSITORY INSTITUTIONS TO EFFECT TRADES,
AND THEIR FAILURE TO PERFORM COULD SUBJECT US TO LOSSES.
We are dependent on the proper and timely function of complex information
and communications systems maintained and operated by or for the NYSE and
clearing and depository institutions. Failures or inadequate or slow performance
of any of those systems could adversely affect our ability to operate and
complete trades. The failure to complete trades on a timely basis could subject
us to losses and claims for losses of brokers and their customers.
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO UPGRADE OUR INFORMATION AND
COMMUNICATIONS SYSTEMS, AND ANY FAILURE TO DO SO COULD HARM OUR BUSINESS AND
PROFITABILITY.
The development of complex communications and new technologies, including
Internet-based technologies, may render our existing information and
communications systems outdated. In addition, our information and communications
systems must be compatible with those of the NYSE. As a result, if the NYSE
upgrades its systems, we will need to make corresponding upgrades. Our future
success will depend on our ability to respond to changing technologies on a
timely and cost-effective basis. We cannot be sure that we will be successful in
upgrading our information and communications systems on a timely or
cost-effective basis. Our failure to do so could have an adverse effect on our
business, financial condition and/or operating results.
The NYSE's ability to develop information and communications systems and
complex computer and other technology systems has been instrumental in its
recent growth and success. We are dependent on the continuing development of
technological advances by the NYSE, a process over which we have no control. If
the NYSE for any reason is unable to continue its recent history of
computer-related and other technological developments and advances, it could
have an adverse effect on the success of the NYSE, including its ability to
grow, to manage its trading volumes or to attract new listings. Any such
developments can be expected to adversely affect our operations, financial
condition and operating results.
IF WE LOSE THE SERVICES OF OUR KEY PERSONNEL OR CANNOT HIRE ADDITIONAL QUALIFIED
PERSONNEL, OUR BUSINESS WILL BE HARMED.
Our future success depends on the continued service of key employees,
particularly George M.L. LaBranche, IV (Michael LaBranche), our Chairman, Chief
Executive Officer and President. The loss of
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the services of any of our key personnel or the inability to identify, hire,
train and retain other qualified personnel in the future could have an adverse
effect on our business, financial condition and/or operating results. We have
entered into employment agreements with Mr. LaBranche and other key employees.
We also maintain "key person" life insurance policies on Mr. LaBranche and other
key employees. Competition for key personnel and other highly qualified
management, trading, compliance and technical personnel is intense. We cannot
assure you that we will be able to attract new or retain currently employed
highly qualified personnel in the future. See "Management--Employment Agreements
and Noncompetition Agreements."
In connection with our initial note offering, our common stock offering and
the reorganization of our firm from partnership to corporate form, our managing
directors received substantial amounts of our common stock in exchange for their
interests in LaB Investing Co. L.L.C. Because the shares of common stock were
received in exchange for membership interests, ownership of the shares is not be
dependent upon the continued employment of those managing directors. In
addition, employees who are not managing directors received grants of stock
options and restricted stock units. The steps we have taken to encourage the
continued service of these individuals, who include key senior personnel in our
specialist activities, after our initial note offering and our common stock
offering may not be effective. For a description of the compensation plan for
our employees implemented after our initial note offering and our common stock
offering, see "Management--Executive Compensation" and "Incentive Awards to Our
Employees."
WE DEPEND SIGNIFICANTLY ON REVENUES FROM OUR SPECIALIST ACTIVITIES FOR A SMALL
GROUP OF LISTED COMPANIES, AND THE LOSS OF ANY OF THEM COULD REDUCE OUR
REVENUES.
Historically, a small number of listed companies have accounted for a
significant portion of our revenues from our specialist trading activities. The
loss of any of these listed companies could have an adverse effect on our
revenues. For the years ended December 31, 1997 and 1998, transactions in our 10
most actively traded specialist stocks accounted for approximately 35.0% and
39.0% of our total revenues, respectively. For the six months ended June 30,
1999, our revenues from transactions in our 10 most actively traded specialist
stocks accounted for approximately 36.0% of our total revenues. We cannot assure
you that we will be able to retain these or other listed companies. We can lose
these listed companies if they cease to be traded on the NYSE as a result of
being acquired or otherwise delisted. In addition, if the NYSE were to determine
that we have failed to fulfill our obligations as specialist for a listed
company, our registration as a specialist for that listed company could be
cancelled or suspended.
WE DEPEND ALMOST ENTIRELY ON OUR SPECIALIST ACTIVITIES, AND IF THEY FAIL TO GROW
AS ANTICIPATED, IT WOULD HARM OUR REVENUES.
We derive substantially all of our revenues from specialist activities. If
demand for our specialist services fails to grow, grows more slowly than we
currently anticipate, or declines, our revenues would be adversely affected. We
expect our specialist activities to continue to account for substantially all of
our revenues for the foreseeable future. Our future success will depend on:
- continued growth in the volume of trading and the number of listings on
the NYSE;
- our ability to be chosen as specialist for additional listing companies;
- our ability to respond to regulatory and technological changes; and
- our ability to respond to changing demands in the marketplace.
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WE ARE SUBJECT TO INTENSE COMPETITION FOR NEW LISTINGS, AND OUR PROFITABILITY
WILL SUFFER IF WE DO NOT
COMPETE EFFECTIVELY.
We cannot be sure that we will be able to compete effectively with current
or future competitors. Our failure to compete effectively would have an adverse
effect on our profitability. We obtain all of our new listings on the NYSE by
going through an allocation process. Under this process either a committee of
the NYSE or the listing company chooses the specialist. The competition for
obtaining new listing companies is intense. We expect competition to continue
and to intensify in the future. Some of our competitors may have significantly
greater financial and other resources than we have and may have greater name
recognition. These competitors may be able to respond more quickly to new or
evolving opportunities and listing company requirements. They may also be able
to undertake more extensive promotional activities to attract new listing
companies. In addition, the specialist industry has recently been consolidating.
The combined companies resulting from this consolidation may have a stronger
capital base. This trend has intensified the competition in our industry.
Finally, the NYSE retains the ability to name new specialist firms.
WE MAY HAVE DIFFICULTY SUCCESSFULLY MANAGING OUR GROWTH.
Since 1994, we have experienced significant growth in our business
activities and the number of our employees. We cannot assure you that we will be
able to manage our growth successfully. Our inability to do so could have an
adverse effect on our business, financial condition and/or operating results.
The growth of our business has increased the demands upon our management and
operations and we expect it to continue to do so in the future. This growth has
required, and will continue to require, us to increase our investment in
management personnel, financial and management systems and controls, and
facilities. In the absence of continued revenue growth, the costs associated
with our expected growth would cause our operating margins to decline from
current levels. The scope of procedures for assuring compliance with applicable
rules and regulations has changed as the size and complexity of our business has
increased. In response, we have implemented formal compliance procedures which
are regularly updated. Our future operating results will depend on our ability
to continue:
- to improve our systems for operations, financial control, and
communication and information management;
- to refine our compliance procedures and enhance our compliance oversight;
and
- to recruit, train, manage and retain our employees.
YEAR 2000 COMPLIANCE PROBLEMS COULD CAUSE OUR TRADING-RELATED COMMUNICATIONS AND
PROCESSING SYSTEMS TO FAIL, WHICH COULD RESULT IN LOSSES.
We may discover Year 2000 compliance problems that will require substantial
revisions. If we fail to fix our trading-related communications or data
processing systems or to fix or replace third-party software, hardware or
services on a timely basis, we could suffer a loss in revenues and our business,
financial condition and/or operating results could be adversely affected.
Moreover, our failure to address adequately Year 2000 compliance issues in our
main trading-related, communications or data processing systems could result in
litigation which could be a costly and time-consuming process. In addition, we
cannot be sure that third-party software, hardware or services incorporated into
our computer systems will not need to be revised or replaced. This could be
time-consuming and expensive.
In addition, we cannot assure you that the NYSE, trading counterparties,
governmental agencies, utility companies, third-party service providers,
including clearing agencies and depositories, and others outside our control,
particularly other broker-dealers, will be Year 2000 compliant. The failure by
any
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of these entities to be Year 2000 compliant could result in a systemic failure
beyond our control, including:
- a loss or reduction in our trading volume;
- limitations on our ability to effectively engage in specialist activities;
or
- prolonged telecommunications or electrical failure.
The occurrence of any systemic failure, including those listed above, could
prevent us from engaging in specialist activities and could have an adverse
effect on our business, financial condition and/or operating results.
We have made an assessment of the Year 2000 readiness of our trading-related
communications and data processing systems. For more information regarding our
Year 2000 readiness, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000."
THE FAILURE BY US OR OUR EMPLOYEES TO COMPLY WITH APPLICABLE LAWS AND
REGULATIONS COULD RESULT IN SUBSTANTIAL FINES AND OTHER PENALTIES.
The securities industry is subject to extensive regulation under both
federal and state laws. In addition, the SEC, the NYSE, other self-regulatory
organizations, commonly referred to as SROs, and state securities commissions
require strict compliance with their respective rules and regulations. Failure
to comply with any of these laws, rules or regulations could result in serious
adverse consequences. We and our officers and employees may be subject in the
future to claims arising from acts in contravention of these laws, rules and
regulations. An adverse ruling against us and/or our officers and other
employees as a result of any of these claims could result in us and/or our
officers and other employees being required to pay a substantial fine or
settlement. It could also result in the suspension or revocation of our
registration with the SEC as a broker-dealer or our suspension or expulsion as a
member of the NYSE. If this occurred, we would be unable to operate our
business.
THE REGULATORY ENVIRONMENT IN WHICH WE OPERATE MAY CHANGE, MAKING IT DIFFICULT
FOR US TO REMAIN IN COMPLIANCE.
The regulatory environment in which we operate is subject to change which we
cannot predict. It may be difficult for us to comply with new or revised
legislation or regulations imposed by the SEC, other U.S. or foreign
governmental regulatory authorities and SROs, including the NYSE. Failure to
comply would have an adverse effect on our business, financial condition and/or
operating results. Changes in the interpretation or enforcement of existing laws
and rules by the SEC, these governmental authorities, SROs and the NYSE could
also have an adverse effect on our business, financial condition and/or
operating results.
WE CANNOT PREDICT THE EFFECT A PROPOSED PUBLIC OFFERING BY THE NYSE WOULD HAVE
ON OUR BUSINESS.
The NYSE announced that it is considering offering shares of its capital
stock to the public. We are unable to predict what effect, if any, such an
offering would have on our business and the specialist industry.
FAILURE TO COMPLY WITH NET CAPITAL REQUIREMENTS MAY RESULT IN THE REVOCATION OF
OUR REGISTRATION WITH THE SEC OR OUR EXPULSION FROM THE NYSE.
The SEC, the NYSE and various other regulatory agencies have stringent rules
with respect to the maintenance of minimum levels of capital by securities
brokers-dealers as well as specialist firms. Failure to maintain compliance with
required minimum capital levels may subject us to suspension or
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revocation of registration by the SEC and suspension or expulsion as a member of
the NYSE and other regulatory bodies. If this occurred, we would be unable to
operate our business. In addition, a change in these capital rules, the
imposition of new capital rules or any unusually large requirement or charge
against our regulatory capital could limit any of our operations that require
the intensive use of capital. These rules could also restrict our ability to
withdraw capital from LaBranche & Co. Any limitation on our ability to withdraw
capital from LaBranche & Co. could limit our ability to receive distributions
from LaBranche & Co. and LaB Investing Co. L.L.C., which, in turn, could limit
our ability to pay cash dividends, repay debt and repurchase shares of our
outstanding stock. A substantial market decline, a significant operating loss or
any unusually large requirement or charge against regulatory capital could
adversely affect our ability to expand or even maintain our present levels of
business, which could have an adverse effect on our business, financial
condition and/or operating results. See "Business--Regulatory Matters."
EMPLOYEE MISCONDUCT IS DIFFICULT TO DETECT AND DETER AND COULD RESULT IN LOSSES.
There have been a number of highly publicized cases involving fraud, stock
manipulation or other misconduct by employees in the financial services industry
in recent years, and we run the risk that employee misconduct could occur.
Misconduct by employees could include binding us to transactions that exceed
authorized limits or present unacceptable risks, or hiding from us unauthorized
or unsuccessful activities, which, in either case, may result in unknown and
unmanaged risks or losses. Employee misconduct could also involve the improper
use or disclosure of confidential information, which could result in regulatory
sanctions and serious reputational or financial harm. It is not always possible
to deter employee misconduct and the precautions we take to prevent and detect
this activity may not be effective in all cases.
WE ARE SUBJECT TO RISK RELATING TO LITIGATION AND POTENTIAL SECURITIES LAWS
LIABILITY.
Many aspects of our business involve substantial risks of liability. A
specialist is exposed to substantial risks of liability under federal and state
securities laws, other federal and state laws and court decisions, as well as
rules and regulations promulgated by the SEC and the NYSE. We are also subject
to the risk of litigation and claims that may be without merit. We could incur
significant legal expenses in defending ourselves against such lawsuits or
claims. An adverse resolution of any future lawsuits or claims against us could
have an adverse effect on our business, financial condition and/or operating
results.
COUNTERPARTIES MAY FAIL TO PAY US.
As a specialist of listed stocks, the majority of our securities
transactions are conducted as principal with broker-dealer counterparties
located in the United States. The NYSE and the clearing houses monitor the
credit standing of the counterparties with which we conduct business. However,
we cannot assure you that any of these counterparties will not default on their
obligations. If any do, our business, financial condition and/or operating
results could be adversely affected.
SOME OF OUR EXECUTIVE OFFICERS ARE IN A POSITION TO CONTROL MATTERS REQUIRING A
STOCKHOLDER VOTE.
Our managing directors own approximately 75.6% of our outstanding common
stock. These stockholders have entered into a stockholders' agreement under
which they have agreed, among other things, that their shares of our common
stock will be voted, for as long as they own their shares, as directed by a
majority vote of Michael LaBranche, our Chairman, Chief Executive Officer and
President, James G. Gallagher and Alfred O. Hayward, Jr., each an executive
officer and director. Accordingly, these individuals have the ability to control
all matters requiring approval by our stockholders. These matters include the
election and removal of directors and the approval of any merger, consolidation
or sale of all or substantially all of our assets. In addition, they are able to
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dictate the management of our business and affairs. This concentration of
ownership could have the effect of delaying, deferring or preventing a change in
control, a merger or consolidation, a takeover or another business combination.
The interests of these individuals may differ from the interests of holders of
the notes.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our company and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors described in "Risk
Factors" and elsewhere in this prospectus. We undertake no obligation to update
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the initial notes pursuant to a purchase
agreement dated as of August 18, 1999 by and among us and the initial purchasers
(the "Purchase Agreement"), the initial purchasers and their respective
assignees became entitled to the benefits of the Registration Rights Agreement
dated as of August 24, 1999 by and among us and the initial purchasers (the
"Registration Rights Agreement").
The Registration Rights Agreement requires us to file the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issue of new notes identical in all material respects to the
initial notes but containing no restrictive legend. Under the Registration
Rights Agreement, we are required to:
- file the registration statement not later than 45 days following the date
of original issuance of the initial notes (the "Issue Date");
- use our reasonable best efforts to cause the registration statement to be
declared effective by the SEC not later than 90 days after the Issue Date;
- keep the exchange offer open for not less than 20 business days (or longer
if required by applicable law) after the date that notice of the exchange
offer is mailed to holders of the initial notes;
- use our reasonable best efforts to consummate the exchange offer not later
than 120 days after the Issue Date;
- mail, or cause to be mailed, to each holder of record entitled to
participate in the exchange offer a copy of the prospectus forming part of
the exchange registration statement, together with an appropriate letter
of transmittal and related documents;
- utilize the services of a depositary for the exchange offer with an
address in the Borough of Manhattan, The City of New York;
- permit holders to withdraw validly tendered notes at any time prior to the
close of business, New York time, on the last business day on which the
exchange offer shall remain open; and
- otherwise comply in all material respects with all applicable laws, rules
and regulations.
The exchange offer being made hereby, if commenced and consummated within
the time periods described in this paragraph, will satisfy those requirements
under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, all initial notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be
accepted for exchange. Exchange notes of the same class will be issued in
exchange for an equal principal amount of outstanding initial notes accepted in
the exchange offer. Initial notes may be tendered only in integral multiples of
$1,000. This prospectus, together with the letter of transmittal, is being sent
to all record holders of initial notes as of , 1999. The exchange
offer is not conditioned upon any minimum principal amount of initial notes
being tendered in exchange. However, our obligation to accept initial notes for
exchange is subject to certain conditions as set forth herein under
"--Conditions."
Initial notes will be deemed accepted when, as and if the Trustee has given
oral or written notice to the exchange agent. The exchange agent will act as
agent for the tendering holders of initial notes for the purposes of receiving
the exchange notes and delivering them to the holders.
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Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to other issuers, we believe that the exchange notes issued in
the exchange offer may be offered for resale, resold or otherwise transferred by
each holder without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- the holder is not a broker-dealer who acquires the exchange notes directly
from us for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act;
- the holder is not our "affiliate", as that term is defined in Rule 405
under the Securities Act; and
- the exchange notes are acquired in the ordinary course of the holder's
business and the holder is not engaged in, and does not intend to engage
in, a distribution of the exchange notes and has no arrangement or
understanding with any person to participate in a distribution of the
exchange notes.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will represent to us that:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it is not engaged in, and does not intend to engage in, a distribution of
the exchange notes and has no arrangement or understanding to participate
in a distribution (within the meaning of the Securities Act) of the
exchange notes; and
- it is not our affiliate, as defined in Rule 405 under the Securities Act,
or if it is our affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable.
If, prior to consummation of the exchange offer, an initial purchaser holds
any notes acquired by it and having, or that are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, or any other holder of notes is not entitled to participate in the
exchange offer, we, upon the request of that initial purchaser or any holder
shall, simultaneously with the delivery of the exchange notes in the exchange
offer, issue and deliver to that initial purchaser and any such holder, in
exchange (the "private exchange") for such notes held by that initial purchaser
and any such holder, a like principal amount of our debt securities that are
identical in all material respects to the exchange notes (the "private exchange
notes") (and that are issued pursuant to the same indenture as the exchange
notes). The private exchange notes will bear the same CUSIP number as the
exchange notes.
If a holder of initial notes is engaged in or intends to engage in a
distribution of the exchange notes or has any arrangement or understanding with
respect to the distribution of the exchange notes to be acquired pursuant to the
exchange offer, the holder may not rely on the applicable interpretations of the
staff of the SEC and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives exchange notes for its own account
in the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer to satisfy their prospectus delivery obligations
under the Securities Act in connection with resales of exchange notes for their
own accounts. We have agreed that we will keep the registration statement of
which this prospectus is a part effective for a period of up to six months or
such earlier
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date as each participating broker-dealer shall have notified us in writing that
it has resold all exchange notes acquired in the exchange offer. See "Plan of
Distribution."
As soon as practicable after the close of the exchange offer, we will:
- accept for exchange all registrable notes validly tendered and not validly
withdrawn as part of the exchange offer; and
- deliver to the Trustee for cancellation all registrable notes so accepted
for exchange and cause the Trustee to authenticate and deliver promptly to
each holder of registrable notes, exchange notes or private exchange
notes, as the case may be, equal in principal amount to the securities of
such holder so accepted for exchange.
In the event that:
a) we are not permitted to effect the exchange offer because the exchange
offer is not permitted by applicable law or SEC policy;
b) the exchange offer is not completed within 120 days of the Issue Date;
c) any holder of any private exchange notes so requests in writing to us
within 30 days after the consummation of the exchange offer; or
d) in the case of any holder that participates in the exchange offer, the
holder does not receive exchange notes on the date of the exchange that
may be sold without restriction under state and federal securities laws
(other than due solely to the status of such holder as our affiliate
within the meaning of the Securities Act):
then we shall:
1) promptly deliver to the holders and the trustee written notice of the
filing of a shelf registration statement under the Registration Rights
Agreement;
2) use our reasonable best efforts to file with the SEC an initial shelf
registration statement for an offering to be made on a continuous basis
under Rule 415 covering all of the registrable notes not exchanged in the
exchange offer and exchange notes as to which paragraph (d) above is
applicable, on or before the 45(th) day after the occurrence of any one
of the events specified in the Registration Rights Agreement and
summarized above which gives rise to our obligation to file a shelf
registration statement; and
3) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or before
the 45(th) day after the initial shelf registration filing date.
We will, in the event that a shelf registration statement is filed, provide
to each holder of the initial notes copies of the prospectus that is a part of
the shelf registration statement, notify each holder when the shelf registration
statement has become effective and take certain other actions as are required to
permit unrestricted resales of the exchange notes. A holder that sells initial
notes pursuant to the shelf registration statement will be required to be named
as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with its sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to that holder (including certain indemnification rights and obligations).
We will pay additional interest if:
1. we fail to file the exchange offer registration statement by the 45(th)
day after the Issue Date;
2. the exchange offer registration statement is not declared effective by
the Securities and Exchange Commission by the 90th day after the Issue
Date;
3. we fail to consummate the exchange offer by 120(th) day after the Issue
Date;
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4. the exchange offer registration statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
exchange notes in accordance with and during the periods specified in the
Registration Rights Agreement;
5. we fail to file a shelf registration statement by the 45(th)day
following the date of the occurrence of one of the events specified in
the Registration Rights Agreement which gives rise to our obligation to
file a shelf registration statement;
6. the shelf registration statement is not declared effective by the
Securities and Exchange Commission by the 45(th) day following the
initial shelf registration filing date; or
7. the shelf registration statement is declared effective and thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities (described below) in accordance with and during the
periods specified in the Registration Rights Agreement.
Each event described above is a "Registration Default." The term "Transfer
Restricted Securities" means each initial note, or exchange note, until:
- the date on which the initial note has been exchange by a person other
than a broker-dealer for a new note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an
initial note for an exchange note, the date on which the exchange note is
sold to a purchaser who receives from the broker-dealer on or prior to the
date of sale a copy of the exchange offer prospectus;
- the date on which the initial note has been effectively registered under
the Securities Act and disposed of under the shelf registration statement;
or
- the date on which the initial note is publicly sold under Rule 144 under
the Securities Act.
If a Registration Default occurs, we will be obligated to pay, as liquidated
damages, additional interest on the initial notes equal to 0.25% per annum of
the aggregate principal amount of the initial notes held by such holder, during
the 90-day period immediately following the occurrence of the first Registration
Default. The amount of the additional interest will increase by an additional
0.25% per annum at the beginning of each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum aggregate amount of
additional interest equal to 1.00% per annum. Following the cure of all
Registration Defaults, the accrual of additional interest will cease.
Upon completion of the exchange offer, subject to certain exceptions,
holders of initial notes who do not exchange their initial notes for exchange
notes in the exchange offer will no longer be entitled to registration rights
and will not be able to offer or sell their initial notes, unless the initial
notes are subsequently registered under the Securities Act (which, subject to
certain limited exceptions, we will have no obligation to do), except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors--If you do not participate
in the exchange offer, you will continue to be subject to transfer
restrictions."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "expiration date" shall mean , 1999 (20 business days
following the commencement of the exchange offer), unless the exchange offer is
extended if and as required by applicable law, in which case the term
"expiration date" shall mean the latest date to which the exchange offer is
extended.
In order to extend the expiration date, we will notify the exchange agent of
any extension by oral or written notice and may notify the holders of the
initial notes by mailing an announcement or by means of a press release or other
public announcement prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled expiration date.
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We reserve the right to delay acceptance of any initial notes, to extend the
exchange offer or to terminate the exchange offer and not permit acceptance of
initial notes not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been waived by us
(if permitted to be waived), by giving oral or written notice of such delay,
extension or termination to the exchange agent. We also reserve the right to
amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the initial notes. If any material change is made
to terms of the exchange offer, the exchange offer shall remain open for a
minimum of an additional five business days, if the exchange offer would
otherwise expire during such period. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice of the delay to the exchange agent. If the exchange offer is
amended in a manner determined by us to constitute a material change, we will
promptly disclose the amendment in a manner reasonably calculated to inform the
holders of the initial notes of the amendment including providing public
announcement, or giving oral or written notice to the holders of the initial
notes. A material change in the terms of the exchange offer could include, among
other things, a change in the timing of the exchange offer, a change in the
exchange agent, and other similar changes in the terms of the exchange offer.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise, or otherwise
communicate any such public announcement.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest payable in cash at 9 1/2% per annum,
from the later of:
- the last interest payment date on which interest was paid on the initial
notes surrendered in exchange therefor; or
- if the initial notes are surrendered for exchange on a date subsequent to
the record date for an interest payment date to occur on or after the date
of such exchange and as to which interest will be paid, the date of such
interest payment.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder of initial notes must complete,
sign and date the letter of transmittal, and mail or otherwise deliver the
letter of transmittal or facsimile, or an agent's message, together with the
initial notes and any other required documents, to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date. In addition:
- certificates for the initial notes must be received by the exchange agent
along with the letter of transmittal;
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the initial notes, if such procedure is available, into
the exchange agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedure for
book-entry transfer described below, must be received by the exchange
agent prior to the expiration date; or
- the holder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR
HAND-DELIVERY SERVICE. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR INITIAL NOTES SHOULD BE SENT TO US.
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Delivery of all documents must be made to the exchange agent at its address
set forth below. Holders of initial notes may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to tender
initial notes for them.
The term "agent's message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the exchange agent and forming a part of
a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering initial notes that are the subject of the Book-Entry
Confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce this agreement
against the participant.
The tender by a holder of initial notes will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth herein and in the letter of transmittal.
Only a holder of initial notes may tender the initial notes in the exchange
offer. The term "holder" for this purpose means any person in whose name initial
notes are registered on our books or any other person who has obtained a
properly completed bond power from the registered holder.
Any beneficial owner whose initial notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his or her behalf. If the beneficial owner wishes
to tender on his or her own behalf, such beneficial owner must, prior to
completing and executing the letter of transmittal and delivering his or her
initial notes, either make appropriate arrangements to register ownership of the
initial notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Exchange Act (each, an "Eligible Institution"), unless
the initial notes tendered pursuant thereto are tendered:
- by a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal and the exchange notes are
being issued directly to such registered holder (or deposited into the
participant's account at DTC); or
- for the account of an Eligible Institution.
If the letter of transmittal is signed by the recordholder(s) of the initial
notes tendered thereby, the signature must correspond with the name(s) written
on the face of the initial notes without alteration, enlargement or any change
whatsoever. If the letter of transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the initial notes.
If the letter of transmittal is signed by a person other than the registered
holder of any initial notes listed therein, those initial notes must be endorsed
or accompanied by bond powers and a proxy that authorize such person to tender
the initial notes on behalf of the registered holder, in each case as the name
of the registered holder or holders appear on the initial notes.
If the letter of transmittal or any initial notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
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A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by initial
notes, or a timely confirmation received of a book-entry transfer of initial
notes into the exchange agent's account at DTC with an agent's message, or a
notice of guaranteed delivery from an Eligible Institution is received by the
exchange agent. Issuances of exchange notes in exchange for initial notes
tendered pursuant to a notice of guaranteed delivery by an Eligible Institution
will be made only against delivery of the letter of transmittal and any other
required documents, and the tendered initial notes or a timely confirmation
received of a book-entry transfer of initial notes into the exchange agent's
account at DTC with the exchange agent.
All questions as to the validity, form, eligibility, time of receipt,
acceptance and withdrawal of the tendered initial notes will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all initial notes not properly
tendered or any initial notes which, if accepted, would, in our opinion or that
of our counsel, be unlawful. We also reserve the absolute right to waive any
conditions of the exchange offer or irregularities or defects in tender as to
particular initial notes. Our interpretation of the terms and conditions of the
exchange offer (including the instructions in the letter of transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of initial notes must be cured within such time as we
will determine. None of us, the exchange agent and any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of initial notes, and none of them shall incur any liability for failure
to give such notification. Tenders of initial notes will not be deemed to have
been made until such irregularities have been cured or waived. Any initial notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the exchange agent to the tendering holders of such initial
notes, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provision of the Indenture, to:
- purchase or make offers for any initial notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Expiration
Date; Extensions; Amendments; Termination," to terminate the exchange
offer in accordance with the terms of the Registration Rights Agreement;
and
- to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all initial notes properly tendered will be accepted, promptly after the
expiration date, and the exchange notes will be issued promptly after acceptance
of the initial notes. See "--Conditions" below. For purposes of the exchange
offer, initial notes shall be deemed to have been accepted as validly tendered
for exchange when, as and if we have given oral or written notice thereof to the
exchange agent.
In all cases, issuance of exchange notes for initial notes that are accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of certificates for such initial notes or a timely
Book-Entry Confirmation of such initial notes into the exchange agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
letter of transmittal and all other required documents. If any tendered initial
notes are not accepted for any reason set forth in the terms and conditions of
the exchange offer or if initial notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
initial
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notes will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer. In the
case of initial notes tendered by the book-entry transfer procedures described
below, the non-exchanged initial notes will be credited to an account maintained
with the Book-Entry Transfer Facility.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the initial notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of initial notes by causing the
Book-Entry Transfer Facility to transfer such initial notes into the exchange
agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of initial notes may be effected through book-entry transfer into the
exchange agent's account at the Book-Entry Transfer Facility, an agent's message
or the letter of transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted to
and received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent" on or prior to the expiration date or the guaranteed delivery
procedures described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in the
prospectus to deposit of initial notes shall be deemed to include the Book-Entry
Transfer Facility's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURE
If a registered holder of the initial notes desires to tender the notes, and
the notes are not immediately available, or time will not permit the holder's
initial notes or other required documents to reach the exchange agent before the
expiration date, or the procedures for book-entry transfer cannot be completed
on a timely basis and an agent's message delivered, a tender may be effected if:
1. the tender is made through an Eligible Institution;
2. prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed letter of
transmittal or facsimile thereof and notice of guaranteed delivery,
substantially in the form provided by us, by facsimile transmission, mail
or hand delivery, setting forth the name and address of the holder of the
initial notes and the amount of initial notes tendered, stating that the
tender is being made thereby and guaranteeing that within five business
days after the expiration date, the certificates for all physically
tendered initial notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the Eligible Institution with
the exchange agent; and
3. the certificates for all physically tendered initial notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the letter of transmittal are received by
the exchange agent within five business days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of initial notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent prior to 5:00 p.m., New York City time on the
business day prior to the expiration date at the
27
<PAGE>
address set forth below under "--Exchange Agent" and prior to acceptance for
exchange thereof by the Company. Any such notice of withdrawal must:
1. specify the name of the person having tendered the initial notes to be
withdrawn (the "Depositor");
2. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of such
initial notes;
3. be signed by the Depositor in the same manner as the original signature
on the letter of transmittal by which such initial notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to
the initial notes to register the transfer of such initial notes into the
name of the Depositor withdrawing the tender;
4. specify the name in which any such initial notes are to be registered,
if different from that of the Depositor; and
5. if the initial notes have been tendered pursuant to the book-entry
procedures, specify the name and number of the participant's account at
DTC to be credited, if different than that of the Depositor.
All questions as to the validity, form and eligibility, time of receipt of
such notices will be determined by us, whose determination shall be final and
binding on all parties. Any initial notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
initial notes that have been tendered for exchange and that are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of initial notes tendered by book-entry transfer, such
initial notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the initial notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn initial notes may be re-tendered by following one of the procedures
described under "--Procedures for Tendering" and "--Book-Entry Transfer" above
at any time on or prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, initial notes will not
be required to be accepted for exchange, nor will exchange notes be issued in
exchange for any initial notes, and we may terminate or amend the exchange offer
as provided herein before the acceptance of such initial notes if:
1. because of any change in law, or applicable interpretations thereof by
the SEC, we determine that we are not permitted to effect the exchange
offer;
2. an action or proceeding is commenced or threatened that would materially
impair our ability to proceed with the exchange offer; or
3. not all government approvals that we deem necessary for the consummation
of the exchange offer have been received.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of initial notes:
- from our affiliates within the meaning of Rule 405 under the Securities
Act;
- from any other holder or holders who are not eligible to participate in
the exchange offer under applicable law or interpretations by the SEC; or
- if the exchange notes to be received by such holder or holders of initial
notes in the exchange offer, upon receipt, will not be tradable by such
holder without restriction under the Securities
28
<PAGE>
Act and the Exchange Act and without material restrictions under the "blue
sky" or securities laws of substantially all the states of the United
States.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
initial notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by us. The costs of the exchange offer and the unamortized expenses
related to the issuance of the initial notes will be amortized over the term of
the exchange notes.
EXCHANGE AGENT
Firstar Bank, N.A. has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Mail, Overnight Mail or Courier:
Firstar Bank, N.A.
425 Walnut Street,
Corporate Trust Services, 6(th) Floor
Cincinnati, OH 45202
ATTN: Keith Maurmeier
Facsimile Transmission: (513) 632-5511
Confirm by Telephone: (513) 632-4843
FEES AND EXPENSES
We will pay the expenses of soliciting tenders under the exchange offer. The
principal solicitation for tenders pursuant to the exchange offer is being made
by mail; however, additional solicitations may be made by telegraph, telephone,
telecopy or in person by our officers and regular employees.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection
therewith. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the prospectus, letters of transmittal and related documents to the
beneficial owners of the initial notes, and in handling or forwarding tenders
for exchange.
The expenses to be incurred in connection with the exchange offer will be
paid by us, including fees and expenses of the exchange agent and Trustee and
accounting, legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes pursuant to the exchange offer. If, however:
- certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the initial notes tendered; or
- if tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- if a transfer tax is imposed for any reason other than the exchange of
initial notes pursuant to the exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or
29
<PAGE>
exemption therefrom is not submitted with the letter of transmittal, the amount
of the transfer taxes will be billed directly to the tendering holder.
USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the
exchange notes under the exchange offer. In consideration for issuing the
exchange notes as contemplated in this prospectus, we will receive initial notes
in like principal amount, the terms of which are identical in all material
respects to the exchange notes. The initial notes surrendered in exchange for
the exchange notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the exchange notes will not result in any increase
in our indebtedness. The proceeds received from the sale of the initial notes
were used to redeem some limited partnership interests in LaBranche & Co.,
redeem membership interests in LaB Investing Co. L.L.C. and repay some
subordinated indebtedness.
30
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 1996, 1997 and 1998 and as of December 31, 1997 and 1998 have been
derived from our consolidated financial statements, which have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in this prospectus. The selected consolidated financial data set forth below for
the years ended December 31, 1994 and 1995 and as of December 31, 1994, 1995 and
1996 have been derived from our consolidated financial statements, audited by
Arthur Andersen LLP, independent public accountants, which are not included
elsewhere in this prospectus. The selected consolidated financial data set forth
below for the six months ended June 30, 1998 and 1999 and as of June 30, 1999
have been derived from our unaudited consolidated financial statements. In our
opinion, such unaudited data include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The results of operations for the six months ended June 30, 1999
are not necessarily indicative of results to be expected for any future period.
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements and related notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Net gain on principal transactions........... $23,406 $26,290 $37,113 $47,817 $95,048 $40,825 $78,666
Commissions.................................. 5,995 7,736 10,180 15,186 26,576 10,412 17,885
Other........................................ 465 3,147 2,643 4,637 4,787 902 6,942
------- ------- ------- ------- ------- ------- -------
Total revenues............................. 29,866 37,173 49,936 67,640 126,411 52,139 103,493
------- ------- ------- ------- ------- ------- -------
EXPENSES:
Employee compensation and benefits........... 4,496 5,167 5,723 8,108 13,921 5,229 11,299
Severance.................................... -- 650 5,375 300 -- -- --
Lease of exchange memberships................ 2,049 2,113 2,468 3,727 6,568 2,777 4,165
Interest..................................... 90 116 331 1,566 3,577 1,494 2,195
Exchange, clearing and brokerage fees........ 1,336 1,557 1,514 2,042 2,898 1,360 1,997
Amortization of intangibles.................. -- -- -- 737 2,526 834 1,693
Occupancy.................................... 151 156 435 465 1,121 415 725
Communications............................... 283 367 495 709 964 432 538
Legal and professional fees.................. 124 194 170 620 916 265 466
Other........................................ 612 599 642 1,634 2,285 1,615 1,066
------- ------- ------- ------- ------- ------- -------
Total expenses before managing directors'
compensation, limited partners' interest
in earnings of subsidiary and
unincorporated business taxes............ 9,141 10,919 17,153 19,908 34,776 14,421 24,144
------- ------- ------- ------- ------- ------- -------
Income before managing directors'
compensation, limited partners' interest in
earnings of subsidiary and unincorporated
business taxes............................. 20,725 26,254 32,783 47,732 91,635 37,718 79,349
Managing directors' compensation............. 15,128 16,895 23,235 30,008 58,783 23,725 48,214
------- ------- ------- ------- ------- ------- -------
Income before limited partners' interest in
earnings of subsidiary and unincorporated
business taxes............................. 5,597 9,359 9,548 17,724 32,852 13,993 31,135
Limited partners' interest in earnings of
subsidiary................................. 2,754 7,046 9,638 14,354 26,292 10,848 21,054
------- ------- ------- ------- ------- ------- -------
Income before unincorporated business
taxes...................................... 2,843 2,313 (90) 3,370 6,560 3,145 10,081
Unincorporated business taxes................ 734 1,179 1,602 1,881 3,900 1,900 3,789
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................ $ 2,109 $ 1,134 $(1,692) $ 1,489 $ 2,660 $ 1,245 $ 6,292
======= ======= ======= ======= ======= ======= =======
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments... $ 9,481 $ 8,971 $16,479 $ 17,989 $ 25,822 $ 38,063
Working capital................... 32,110 32,855 27,694 62,562 104,250 123,698
Total assets...................... 52,522 65,177 78,918 157,754 272,201 346,101
Total long-term indebtedness
(1)............................. 750 1,150 2,919 31,423 48,073 51,158
Limited partners' interest in
Subsidiary...................... 11,773 14,227 12,129 20,724 37,574 37,094
Members' capital.................. 20,123 18,270 13,735 37,658 77,093 95,569
</TABLE>
- ------------------------
(1) Excludes subordinated liabilities related to contributed exchange
memberships.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS TOGETHER WITH THE FINANCIAL STATEMENTS AND THE NOTES TO
SUCH STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS,
ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION
AND ELSEWHERE IN THIS PROSPECTUS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY
ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES
AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
OVERVIEW
Founded in 1924, our subsidiary, LaBranche & Co. is one of the oldest and
largest specialist firms on the New York Stock Exchange. Our business has grown
considerably during the past five years. We have accomplished this growth both
internally and through selective acquisitions. Our revenues increased from
$29.9 million in 1994 to $126.4 million in 1998, representing a compound annual
growth rate of 43.4%. During the same period, we increased the number of our
common stock listings from 122 to 284.
REVENUES
Our revenues consist primarily of net gains earned from principal
transactions in securities for which we act as specialist, and commissions
revenue earned from specialist activities. Net gain on principal transactions
represents trading gains net of trading losses and transaction fees, and are
earned by us when we act as principal buying and selling our specialist stocks.
These revenues are primarily affected by changes in share volume and
fluctuations in price in our specialist stocks. Share volume for our specialist
stocks has historically been driven by general trends in NYSE trading volume, as
well as factors particularly affecting our listed companies, including increased
merger and acquisition activity, stock splits, greater frequency of company news
releases (i.e., earnings guidance and reports), heightened research analyst
coverage and investor sentiment. Commissions revenue consists of commissions we
earn when acting as agent to match buyers and sellers for limit orders executed
by us on behalf of brokers after a specified period of time; we do not earn
commissions when we match market orders. Commissions revenue is primarily
affected by share volume of the trades executed by us as agent. Other revenue
consists of proprietary trading revenue and short-term interest income. In 1998,
net gain on principal transactions represented 75.2% of our total revenues,
commissions revenue represented 21.0% of our total revenues, and other revenue
represented 3.8% of our total revenues. For the first six months of 1999, net
gain on principal transactions represented 76.0% of our total revenues,
commissions revenue represented 17.3% of our total revenues, and other revenue
represented 6.7% of our total revenues.
EXPENSES
Our largest operating expense is compensation and benefits. Employee
compensation and benefits primarily consist of salaries and wages and
profitability-based compensation. Profitability-based compensation includes
compensation and benefits paid to managing directors, trading professionals and
other employees based on our profitability and the employee's overall
performance.
Historically, a large portion of the compensation payments to our managing
directors has not been presented as part of operating expenses. The aggregate
amount of these compensation payments has generally approximated LaB Investing
Co. L.L.C.'s interest in the income of LaBranche & Co., before managing
directors' compensation. Generally, these payments of compensation have been
allocated
33
<PAGE>
among our managing directors based on their respective percentage interests in
the profits of LaB Investing Co. L.L.C. As a corporation, we will include
payments to managing directors in employee compensation and benefits expense.
Therefore, historical income before managing directors' compensation, limited
partners' interest in earnings of subsidiary and unincorporated business taxes
understates our expected operating costs after our initial note offering and our
common stock offering.
REORGANIZATION
We incurred indebtedness of approximately $116.4 million through our initial
note offering and the simultaneous issuance of subordinated indebtedness to
redeem some limited partnership interests in LaBranche & Co. and some membership
interests in LaB Investing Co. L.L.C. and to repay subordinated indebtedness. As
a result of this increased indebtedness, our interest expense following the
reorganization and related issuances of indebtedness is higher than historical
levels.
The redemption of the limited partners' interests was accounted for as a
step acquisition under the purchase method of accounting. The pro forma excess
of purchase price over the limited partners' capital accounts of $127.3 million
was allocated to intangible assets. Accordingly, amortization of intangible
assets is expected to increase in the future.
INCOME TAXES
As a partnership, we were generally not subject to U.S. federal, state and
local income taxes, apart from the 4% New York City unincorporated business tax.
As part of our restructuring to a corporation, we are subject to U.S. federal,
state and local income taxes. For information on our pro forma effective tax
rate as a corporation, see the pro forma consolidated information included
elsewhere in this prospectus.
ACQUISITIONS
In the third quarter of 1998, we acquired substantially all the assets of
Fowler, Rosenau & Geary, LLC (or "Fowler, Rosenau"). The acquisition was
accounted for under the purchase method and the excess of cost over estimated
fair value of the net assets acquired, totaling $25.8 million, was allocated to
goodwill. The results of the specialist operations formerly conducted by Fowler,
Rosenau have been included in our consolidated financial statements since
July 1, 1998.
In August 1997, we admitted Ernst & Company (or "Ernst") as a limited
partner in connection with our acquisition of the specialist operations of
Ernst. At that time, we also acquired the specialist operations conducted by
individual specialists at the firms of Homans & Co. (or "Homans") and Ware &
Keelips, Inc. (or "Ware & Keelips"). In connection with these transactions, we
also hired as specialists and admitted as members of LaB Investing Co. L.L.C.
several individuals who had previously worked as specialists for Ernst, Homans
and Ware & Keelips. These transactions were accounted for under the purchase
method and the excess of cost over estimated fair value of the net assets
acquired, totaling $17.2 million, was allocated to goodwill. The results of
these specialist operations have been included in our consolidated financial
statements since August 1, 1997.
In July 1997, Thomas Shanley, James Stack and Mark Soltz, formerly
specialists on behalf of Stern Bros., LLC (or "Stern"), were admitted as members
of LaB Investing Co. L.L.C. In connection with their admission,
Messrs. Shanley, Stack and Soltz contributed capital to LaB Investing Co. L.L.C.
which was, in turn, contributed to LaBranche & Co. This transaction was
accounted for under the purchase method and the excess of cost over estimated
fair value of the net assets acquired, totaling $7.8 million, was allocated to
goodwill. The results of these specialist operations have been included in our
consolidated financial statements since July 1, 1997.
34
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
periods indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions.............. 74.3% 70.7% 75.2% 78.3% 76.0%
Commissions..................................... 20.4 22.5 21.0 20.0 17.3
Other........................................... 5.3 6.8 3.8 1.7 6.7
----- ----- ----- ----- -----
Total revenues................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
EXPENSES:
Employee compensation and benefits.............. 11.5 12.0 11.0 10.0 10.9
Severance....................................... 10.8 0.4 -- -- --
Lease of exchange memberships................... 4.9 5.5 5.2 5.3 4.0
Interest........................................ 0.7 2.3 2.8 2.9 2.1
Exchange, clearing and brokerage fees........... 3.0 3.0 2.3 2.6 2.0
Amortization of intangibles..................... -- 1.1 2.0 1.6 1.6
Occupancy....................................... 0.9 0.7 0.9 0.8 0.7
Communications.................................. 1.0 1.0 0.8 0.8 0.5
Legal and professional fees..................... 0.3 0.9 0.7 0.5 0.5
Other........................................... 1.3 2.5 1.8 3.1 1.0
----- ----- ----- ----- -----
Total expenses before managing directors'
compensation, limited partners' interest in
earnings of subsidiary and unincorporated
business taxes................................ 34.4 29.4 27.5 27.6 23.3
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary and unincorporated business
taxes......................................... 65.6 70.6 72.5 72.4 76.7
Managing directors' compensation.................. 46.5 44.4 46.5 45.5 46.6
----- ----- ----- ----- -----
Income before limited partners' interest in
earnings of subsidiary and unincorporated
business taxes................................ 19.1 26.2 26.0 26.9 30.1
Limited partners' interest in earnings of
subsidiary...................................... 19.3 21.1 20.8 20.8 20.3
----- ----- ----- ----- -----
Income (loss) before unincorporated business
taxes......................................... (0.2) 5.0 5.2 6.1 9.8
Unincorporated business taxes..................... 3.2 2.8 3.1 3.6 3.7
----- ----- ----- ----- -----
Net income (loss)............................... (3.4)% 2.2% 2.1% 2.5% 6.1%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Total revenues increased 98.5% to $103.5 million for the six months ended
June 30, 1999, from $52.1 million for the same period in 1998, principally due
to the increase in revenue from net gain on principal transactions. Net gain on
principal transactions increased 92.7% to $78.7 million for the six months ended
June 30, 1999, from $40.8 million for the same period in 1998. This increase was
primarily due to an increase in share volume of our specialist stocks traded on
the NYSE. This increase, in turn, was primarily due to the Fowler, Rosenau
acquisition, under which we became the specialist for 76 additional common stock
listings, and was due also to increased share volume as
35
<PAGE>
principal in our existing specialist stocks traded on the NYSE. Our share volume
as principal increased 97.3% to 4.5 billion shares for the six months ended
June 30, 1999, from 2.3 billion shares for the same period in 1998.
Commissions revenue increased 71.8% to $17.9 million for the six months
ended June 30, 1999, from $10.4 million for the same period in 1998. This
increase was due to an increase in share volume in which we acted as agent. This
increase, in turn, was primarily due to the increase in the number of our common
stock listings due to the Fowler, Rosenau acquisition, and was also due to
increased share volume in our existing specialist stocks traded on the NYSE. The
share volume executed by us as agent in our specialist stocks increased 73.6% to
2.0 billion shares for the six months ended June 30, 1999, from 1.1 billion
shares for the same period in 1998.
Other revenue increased 669.6% to $6.9 million for the six months ended
June 30, 1999, from $902,000 for the same period in 1998. This increase was
primarily due to net gains in proprietary trading of non-specialist securities.
EXPENSES
Total expenses before managing directors' compensation, limited partners'
interest in earnings of subsidiary and unincorporated business taxes increased
67.4% to $24.1 million for the period ended June 30, 1999 from $14.4 million for
the same period in 1998.
Employee compensation and related expenses increased 116.1% to
$11.3 million for the six months ended June 30, 1999, from $5.2 million for the
same period in 1998. Our number of employees increased to 161 as of June 30,
1999, from 107 as of June 30, 1998, primarily due to the Fowler, Rosenau
acquisition. As a percentage of total revenues, employee compensation increased
to 10.9% of total revenues for the six months ended June 30, 1999, from 10.0% of
total revenues for the same period in 1998.
Lease of exchange membership expense increased 50.0% to $4.2 million for the
six months ended June 30, 1999, from $2.8 million for the same period in 1998.
This increase was due to the increase in the number of leased memberships from
32 to 44, primarily resulting from the Fowler, Rosenau acquisition, and was also
due to an increase in the average annual leasing cost of the memberships from
approximately $180,000 to $192,000 per membership. As a percentage of total
revenues, lease of exchange memberships expense decreased to 4.0% for the six
months ended June 30, 1999, from 5.3% for the same period in 1998.
Interest expense increased 46.9% to $2.2 million for the six months ended
June 30, 1999, from $1.5 million for the same period in 1998. This increase was
primarily due to an increase in outstanding subordinated indebtedness of
$15.0 million on June 30, 1998.
Exchange, clearing and brokerage fees consist primarily of fees paid by us
as a specialist to the NYSE and to clearing houses. Fees paid by us to the NYSE
include primarily fees based on the volume of transactions executed as principal
and as agent, as well as a flat annual fee. Exchange, clearing and brokerage
fees expense increased 46.8% to $2.0 million for the six months ended June 30,
1999, from $1.4 million for the same period in 1998. This increase was primarily
attributable to an increase in share volume.
Amortization of intangibles increased 103.0% to $1.7 million for the six
months ended June 30, 1999, from $834,000 for the same period of the prior year.
Amortization of intangibles increased as a result of the Fowler, Rosenau
acquisition.
Occupancy expense consists primarily of rent on our premises, including our
executive offices and our space on the NYSE floor, and depreciation on leasehold
improvements. Occupancy expense
36
<PAGE>
increased 74.7% to $725,000 for the six months ended June 30, 1999, from
$415,000 for the same period in 1998. This increase was primarily the result of
the expansion of our business.
Communications expense consists primarily of data retrieval and information
services and telephone and data lines. Communications expense increased 24.5% to
$538,000 for the six months ended June 30, 1999, from $432,000 for the same
period in 1998. This increase was the result of additional telephone, data
retrieval and informational services utilized due to the growth of our business.
Legal and professional fees increased 75.8% to $466,000 for the six months
ended June 30, 1999, from $265,000 for the same period in 1998.
Other expenses decreased 34.0% to $1.1 million for the six months ended
June 30, 1999, from $1.6 million for the same period in 1998. This was the
result of payments made to Fowler, Rosenau in 1998 under a profit sharing
arrangement for trading in a specialist stock. This arrangement was terminated
when we acquired Fowler, Rosenau in July 1998.
Income before managing directors' compensation, limited partners' interest
in earnings of subsidiary and unincorporated business taxes increased 110.4% to
$79.3 million for the six months ended June 30, 1999, from $37.7 million for the
same period in 1998.
Managing directors' compensation increased 103.2% to $48.2 million for the
six months ended June 30, 1999, from $23.7 million for the same period in 1998
as a result of the increased profitability of the firm.
Unincorporated business tax expense increased 99.4% to $3.8 million for the
six months ended June 30, 1999, from $1.9 million for the same period in 1998 as
a result of increased profitability of the firm.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Total revenues increased 86.9% to $126.4 million for 1998 from
$67.6 million for 1997, due primarily to the increase in revenue from net gain
on principal transactions. Net gain on principal transactions increased 98.8% to
$95.0 million for 1998, from $47.8 million for 1997. This increase was primarily
due to an increase in share volume. This increase in share volume, in turn, was
primarily due to increased share volume as principal in our existing specialist
stocks traded on the NYSE, and was also due to the increase in the number of our
common stock listing due to the Fowler, Rosenau acquisition. Our share volume as
principal increased 134.4% to 5.9 billion shares for 1998, from 2.5 billion
shares for 1997.
Commissions revenue increased 75.0% to $26.6 million for 1998 from
$15.2 million for 1997. This increase was due to an increase in share volume in
which we acted as agent. This increase, in turn, was primarily due to increased
share volume in our existing specialist stocks traded on the NYSE, and was also
due to the increase in the number of our common stock listings due to the
Fowler, Rosenau acquisition. The share volume executed by us as agent in our
specialist stocks increased 70.6% to 2.9 billion shares for 1998, from
1.7 billion shares for 1997.
Other revenue increased 3.2% to $4.8 million for the twelve months ended
December 31, 1998, from $4.6 million for the same period in 1997. This increase
was primarily due to net gains in proprietary trading of non-specialist
securities.
37
<PAGE>
EXPENSES
Total expenses before managing directors' compensation, limited partners'
interest in earnings of subsidiary and unincorporated business taxes increased
74.7% to $34.8 million for 1998, from $19.9 million for 1997.
Employee compensation and related expenses increased 71.7% to $13.9 million
for 1998, from $8.1 million for 1997. Our number of employees increased to 152
as of December 31, 1998, from 95 as of December 31, 1997, primarily due to the
Fowler, Rosenau acquisition. As a percentage of total revenues, employee
compensation decreased to 11.0% of total revenues for 1998, from 12.0% of total
revenues for 1997.
Severance expense was $0 in 1998 and $300,000 in 1997. We incurred severance
expense during 1997 as a result of a subsequent change in the retirement package
of one of our senior managing directors who retired in 1996.
Lease of exchange membership expense increased 76.2% to $6.6 million for
1998, from $3.7 million for 1997. This increase was due to the increase in the
number of leased memberships from 32 to 44, resulting from the Fowler, Rosenau
acquisition, and due to an increase in the average annual leasing cost of the
memberships from approximately $150,000 to $180,000 per membership. As a
percentage of total revenues, lease of exchange memberships expense decreased to
5.2% for 1998, from 5.5% for 1997.
Interest expense increased 128.4% to $3.6 million for 1998, from
$1.6 million for 1997. This increase was primarily due to an increase in
outstanding subordinated indebtedness to $48.1 million at December 31, 1998 from
$31.4 million at December 31, 1997.
Exchange, clearing and brokerage fees expense increased 41.9% to
$2.9 million for 1998, from $2.0 million for 1997. This increase was primarily
attributable to an increase in share volume.
Amortization of intangibles increased 242.7% to $2.5 million for 1998, from
$737,000 for 1997. Amortization of intangibles increased due to the Fowler,
Rosenau acquisition. In addition, amortization of intangibles arising from the
Ernst and Stern acquisitions was incurred for the full year of 1998 and was only
incurred during the second half of 1997.
Occupancy expense increased 141.1% to $1.1 million for 1998, from $465,000
for 1997. This increase was primarily the result of the leasing of additional
office space.
Communications expense increased 36.0% to $964,000 for 1998, from $709,000
for 1997. This increase was the result of additional telephone, data retrieval
and informational services utilized due to the growth of our business.
Legal and professional fees increased 47.7% to $916,000 for 1998, from
$620,000 for 1997. This increase was primarily the result of increased legal and
accounting fees due to the Fowler, Rosenau acquisition and consulting services
we obtained to comply with data processing testing required by the NYSE in
anticipation of the acquisition.
Other expenses increased 39.8% to $2.3 million for 1998, from $1.6 million
for 1997. This was the result of payments made to Fowler, Rosenau in 1998 under
a profit sharing arrangement for trading in a specialist stock. This contractual
arrangement was terminated when we acquired Fowler, Rosenau in July 1998.
Income before managing directors' compensation, limited partners' interest
in earnings of subsidiary and unincorporated business taxes increased 92.0% to
$91.6 million for 1998, from $47.7 million for 1997.
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Managing directors' compensation increased 95.9% to $58.8 million for 1998,
from $30.0 million for 1997 as a result of the increased profitability of the
firm.
Unincorporated business tax expense increased 107.3% to $3.9 million in
1998, from $1.9 million for 1997 as a result of the increased profitability of
the firm.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues increased 35.5% to $67.6 million for 1997 from $49.9 million
for 1996, principally due to the increase in revenue from principal
transactions, net. Net gain on principal transactions increased 28.8% to
$47.8 million for 1997, from $37.1 million for 1996. This increase was primarily
due to an increase in share volume of our specialist stocks traded on the NYSE.
This increase, in turn, was due to our acquisitions of Ernst and Stern, under
which we became the specialist for 55 additional common stock listings, and was
also due to increased share volume as principal in our existing specialist
stocks traded on the NYSE. Our share volume as principal increased 106.3% to
2.5 billion shares for 1997, from 1.2 billion shares for 1996.
Commissions revenue increased 49.2% to $15.2 million for 1997, from
$10.2 million for 1996. This increase was primarily due to increased share
volume in which we acted as an agent. This increase, in turn, resulted from the
increase in number of common stock listings due to the Stern and Ernst
acquisitions, and was also due to increased share volume in our existing
specialist stocks traded on the NYSE. The share volume executed by us as agent
in our specialist stocks increased 45.5% to 1.7 billion shares for 1997, from
1.2 billion shares for 1996.
Other revenue increased 75.4% to $4.6 million for 1997, from $2.6 million
for 1996. This increase was primarily due to net gains in proprietary trading of
non-specialist securities.
EXPENSES
Total expenses before managing directors' compensation, limited partners'
interest in earnings of subsidiary and unincorporated business taxes increased
16.1% to $19.9 million for 1997, from $17.2 million for 1996.
Employee compensation and related expenses increased 41.7% to $8.1 million
for 1997, from $5.7 million for 1996. Our number of employees increased to 95 on
December 31, 1997 from 61 on December 31, 1996 primarily due to the Ernst and
Stern acquisitions. As a percentage of total revenues, employee compensation
increased to 12.0% of total revenues for 1997, from 11.5% of total revenues for
1996.
Severance expense decreased 94.4% to $300,000 in 1997 from $5.4 million in
1996. This decrease was due to the retirement of two of our senior managing
directors in 1996.
Lease of exchange membership expense increased 51.0% to $3.7 million for
1997, from $2.5 million for 1996. This increase was due to the increase in the
number of leased memberships from 20 to 32, resulting from the Ernst and Stern
acquisitions, and was also due to the increase in the average annual leasing
cost of the memberships from approximately $132,000 to $150,000 per membership.
As a percentage of total revenues, lease of exchange membership expense
increased to 5.5% for the twelve months ended December 31, 1997, from 4.9% for
the same period in 1996.
Interest expense increased 373.1% to $1.6 million for 1997, from $331,000
for 1996. This increase was primarily due to an increase in outstanding
subordinated indebtedness to $31.4 million at December 31, 1997 from
$2.9 million at December 31, 1996.
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Exchange, clearing and brokerage fees expense increased 34.9% to
$2.0 million for 1997, from $1.5 million for 1996. This increase was primarily
attributable to an increase in share volume.
Amortization of intangibles was $737,000 for 1997 and $0 for 1996.
Amortization of intangibles for 1997 resulted from the Ernst and Stern
acquisitions.
Occupancy expense increased 6.9% to $465,000 for 1997, from $435,000 for
1996.
Communications expense increased 43.2% to $709,000 for 1997, from $495,000
for 1996.
Legal and professional fees increased 264.7% to $620,000 for 1997, from
$170,000 for 1996. This increase was primarily the result of increased legal
fees incurred in connection with the Stern and Ernst acquisitions.
Other expenses increased 154.5% to $1.6 million for 1997, from $642,000 for
1996. This was the result of payments made to Fowler, Rosenau beginning in the
third quarter of 1997 under a profit sharing arrangement for trading in a
specialist stock. This contractual arrangement was terminated when we acquired
Fowler, Rosenau in July 1998.
Income before managing directors' compensation, limited partners' interest
in earnings of subsidiary and unincorporated taxes increased 45.6% to
$47.7 million for 1997, from $32.8 million for 1996.
Managing director compensation increased 29.2% to $30.0 million for 1997,
from $23.2 million for 1996 as a result of the increased profitability of the
firm.
Unincorporated business tax expense increased 17.4% to $1.9 million for
1997, from $1.6 million for 1996 as a result of the increased profitability of
the firm.
LIQUIDITY
Prior to our initial note offering and our common stock offering we had
financed our business primarily through partners' capital and the issuance of
subordinated indebtedness. As of June 30, 1999, we had $346.1 million in assets,
$38.1 million of which consisted of cash and short-term investments, which
primarily consist of reverse repurchase agreements payable on short notice. As
of December 31, 1998, we had $272.2 million in assets, $25.8 million of which
consisted of cash and short-term investments.
During 1999, we increased and extended our line-of-credit with The Bank of
New York to $100.0 million. Amounts outstanding under The Bank of New York
credit facility would be secured by our inventory in our specialist stocks and
would bear interest at The Bank of New York's broker loan rate. To date, we have
not utilized this facility. The credit facility matures on June 23, 2000. In
addition, we have outstanding letter of credit agreements with U.S. Trust
Company aggregating approximately $1.6 million, collateralized by a Treasury
bill with a face value of $1.5 million and a cash balance of approximately
$171,000.
As of June 30, 1999, our subordinated debt totaled $51.2 million (excluding
subordinated liabilities related to contributed exchange memberships). Of this
amount, $35.0 million represented senior subordinated debt placed through
several note purchase agreements. Of this $35.0 million, $20.0 million matures
on September 15, 2002 and bears interest at an annual rate of 8.2%, payable on a
quarterly basis; and $15.0 million matures on June 3, 2008 and bears interest at
an annual rate of 7.7%, payable on a quarterly basis. These notes are senior to
all other subordinated notes. Subordinated debt totaling $16.2 million
represents junior subordinated debt placed with limited partners and their
family members, and employees of the firm. This debt has maturities ranging from
the second half of 1999 through 2000, and bears interest at an annual rate of
10.0%, payable on a quarterly basis. The agreements relating to the junior
subordinated debt generally have automatic rollover provisions which
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extend the maturities for an additional year, unless the lender provides notice
at least seven months prior to maturity. Concurrently with our initial note
offering and our common stock offering, we repaid $5.0 million of the junior
subordinated debt as part of the reorganization of our firm from partnership to
corporate form.
Concurrently with our initial note offering and our common stock offering,
we paid $149.2 million to acquire some limited partnership interests in
LaBranche & Co. and some membership interests in LaB Investing Co. L.L.C., as
part of the reorganization of our firm from partnership to corporate form. At
approximately the same time as our initial note offering and our common stock
offering, we issued a $16.0 million note as partial payment for the acquisition
of a limited partnership interest. The note will be repayable as to
$6.0 million on the first anniversary of issuance, $5.0 million on the second
anniversary of issuance and $5.0 million on the third anniversary of issuance,
and bears interest at the annual rate of 9.5%. LaBranche & Co. also entered into
a $350,000 cash subordinated loan agreement, bearing interest at an annual rate
of 8.0%, as payment for the acquisition of a limited partnership interest. In
addition, we repaid $1.1 million in indebtedness owed in connection with our
retirement plans, which amount has been accrued in the historical consolidated
statement of financial condition.
As a broker-dealer, we are subject to regulatory requirements intended to
ensure the general financial soundness and liquidity of broker-dealers and
requiring the maintenance of minimum levels of net capital, as defined in SEC
Rule 15c3-1. We are required to maintain minimum net capital, as defined,
equivalent to the greater of $100,000 or 1/15 of aggregate indebtedness, as
defined. NYSE Rule 326(c) also prohibits a broker-dealer from repaying
subordinated borrowings, paying cash dividends, making loans to any parent,
affiliates or employees, or otherwise entering into transactions which would
result in a reduction of our total net capital to less than 150% of our required
minimum capital. Moreover, broker-dealers, including us, are required to notify
the SEC prior to repaying subordinated borrowings, paying dividends and making
loans to any parent, affiliates or employees, or otherwise entering into
transactions which, if executed, would result in a reduction of 30% or more of
their excess net capital (net capital less minimum requirement). The SEC has the
ability to prohibit or restrict such transactions if the result is detrimental
to the financial integrity of the broker-dealer. At June 30, 1999, we had net
capital of $100.0 million, which was $96.8 million in excess of our required net
capital of $3.2 million.
The NYSE generally requires members registered as specialists to establish
that they can meet, with their own net liquid assets, a minimum dollar amount
which is the greater of $1,000,000 or 25% of their position requirement. As of
December 31, 1998, due to the market share represented by our specialist book,
the NYSE mandated that, notwithstanding the general rule, we maintain minimum
net liquid assets of the greater of $90.0 million or 120% of the position
requirement, adjusted by the amount of the position requirement for any new
stock allocated to us as specialist. The position requirement is the ability to
assume positions in our specialist stocks, of 30,000 shares of each S&P 500
common stock, 22,500 shares in all other common stocks, 4,500 shares in each
convertible preferred stock and 1,800 shares in each nonconvertible preferred
stock for which we act as a specialist. "Net liquid assets" for a specialist who
also engages in transactions other than specialist activities is based upon its
excess net capital as determined in accordance with SEC Rule 15c3-1. As of
June 30, 1999, our NYSE minimum required dollar amount of net liquid assets was
$91.5 million compared to actual net liquid assets of approximately
$116.3 million.
Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.
We currently anticipate that net proceeds from our initial note offering,
our common stock offering and the additional contemplated indebtedness, together
with our available cash resources and credit facilities, will be sufficient to
meet our anticipated working capital, regulatory capital and capital expenditure
requirements through the end of 2000.
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MARKET RISK
A majority of our specialist related revenues are derived from trading by us
as principal. We also operate a proprietary trading desk separately from our
NYSE specialist operations, which represented 1.8% of our total revenues in
1998. These activities involve primarily the purchase, sale or short sale of
securities for our own account. These activities are subject to a number of
risks, including risks of price fluctuations and rapid changes in the liquidity
of markets. In any period, we may incur trading losses in our specialist stocks
for a variety of reasons, including price declines of our specialist stocks,
lack of trading volume in our specialist stocks and the performance of our
specialist obligations. From time to time, we have large position concentrations
in securities of a single issuer or issuers engaged in a specific industry. In
general, because our inventory of securities is marked to market on a daily
basis, any downward price movement in these securities will result in a
reduction of our revenues and operating profits.
We have developed a risk management process which is intended to balance our
ability to profit from our specialist activities with our exposure to potential
losses. In addition, we have trading limits relating to our proprietary trading
desk. For a full description of our risk management procedures and the limits
placed on our proprietary trading desk, please see "Business--Risk Management"
and "--Our Proprietary Trading."
Although we have adopted risk management policies, we cannot be sure that
these policies have been formulated properly to identify or limit our risks.
Even if these policies are formulated properly, we cannot be sure that we will
successfully implement these policies. As a result, we may not be able to manage
our risks successfully or avoid trading losses.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish between 21st century dates
and 20th century dates. As a result, computer systems and/or software used by
many companies and governmental agencies, including computers involved in the
securities industry, may need to be upgraded to comply with such Year 2000
requirements. Otherwise, these systems could suffer system failure or
miscalculations that would disrupt normal business activities. Significant
uncertainty exists concerning the potential effects associated with the failure
to achieve compliance with the Year 2000 requirements.
We have made an assessment of the Year 2000 readiness of our
trading-related, communications and data processing systems. We participated in
the Securities Industry Association "streetwide" testing during the period of
February through April 1999. We believe that our main trading-related and
clearing systems are currently Year 2000 compliant. In addition, the NYSE has
assured us that their information and communications systems are Year 2000
compliant. We require vendors of material hardware and software components of
our information technology systems to provide oral assurances of their Year 2000
compliance. We intend to enforce these assurances from third parties to the
fullest extent permitted by law.
We cannot be sure that we will not discover Year 2000 compliance problems
that will require substantial revisions. In addition, we cannot be sure that
third-party software, hardware or services incorporated into our computer
systems will not need to be revised or replaced. This could be time-consuming
and expensive. If we fail to fix our trading-related, communications or data
processing systems or to fix or replace third-party software, hardware or
services on a timely basis, our business, financial condition and/or operating
results could be adversely affected. Moreover, our failure to address Year 2000
compliance issues adequately in our main trading-related, communications or data
processing systems could result in litigation which could be a costly and
time-consuming process.
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In addition, we cannot assure you that the NYSE, trading counterparties,
governmental agencies, utility companies, third-party service providers,
including clearing houses and others outside our control, particularly other
broker-dealers, will be Year 2000 compliant. We believe that, in the worst case
scenario, the failure by any of these entities to be Year 2000 compliant would
induce a systemic failure beyond our control resulting in, among other things:
- a loss or reduction in our trading volume;
- limitations on our ability to effectively engage in specialist activities;
or
- a prolonged telecommunications or electrical failure.
The occurrence of any systemic failure, including those listed above, could
prevent us from engaging in specialist activities and could have an adverse
effect on our business, financial condition and/or operating results.
We have devised a contingency plan in the event of a Year 2000 system
related failure. After the close of business on December 31, 1999, we will back
up our entire system creating a second backup system. Our staff will process
December 31, 1999 trades during the period between January 1, 2000 through the
open of trading on January 3, 2000, giving us 48 hours to resolve any potential
problems prior to the start of trading on January 3, 2000.
The total cost of our Year 2000 project is currently estimated to be
approximately $150,000. Costs related to the project are expensed as incurred,
and we have incurred approximately $125,000 of such costs as of June 30, 1999.
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BUSINESS
OVERVIEW
Founded in 1924, our subsidiary, LaBranche & Co. is one of the oldest and
largest specialist firms on the New York Stock Exchange. As a NYSE specialist,
our role is to maintain, as far as practicable, a fair and orderly market in our
specialist stocks. In doing so, we provide a service to our listed companies,
and to the brokers, traders and their respective customers who trade in our
specialist stocks. We believe that, as a result of our commitment to providing
high quality specialist services, we have developed a strong reputation among
our constituencies, including investors, members of the Wall Street community
and our listed companies.
Our business has grown considerably during the past five years. Our revenues
increased from approximately $29.9 million in 1994 to $126.4 million in 1998,
representing a compound annual growth rate of 43.4%. We have accomplished our
growth both internally and through selective acquisitions. For example, since
the NYSE implemented its new specialist allocation process in March 1997, we
were selected by 43 new listed companies, resulting from 67 listing interviews.
In addition, we have acquired three specialist operations since 1997, adding 131
new common stock listings to our firm. During the past five years, we have also
increased the scope of our business, as illustrated by the following data
obtained from the NYSE:
- the annual dollar volume on the NYSE of stocks for which we acted as
specialist increased to $950.4 billion in 1998, as compared to
$112.3 billion in 1994. Based on these dollar volumes, we were the largest
specialist firm in 1998 as compared to the sixth largest in 1994;
- the annual share volume on the NYSE of stocks for which we act as
specialist increased to 20.0 billion in 1998, as compared to 3.4 billion
in 1994. Based on these share volumes, we were the second largest
specialist firm in 1998 as compared to the fourth largest in 1994; and
NYSE Average Daily Trading Volume from 1984 to 1998
(Share Volume in millions)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NYSE AVERAGE DAILY TRADING VOLUME FROM 1984 TO 1998
<S> <C>
1984 91.2
1985 109.2
1986 141
1987 188.9
1988 161.5
1989 165.5
1990 156.8
1991 178.9
1992 202.3
1993 264.5
1994 291.4
1995 346.1
1996 412
1997 526.9
1998 673.6
</TABLE>
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- the total number of our common stock listings increased to 280 as of
June 30, 1999, as compared to 122 as of December 31, 1994. Based on the
number of our common stock listings, we were the third largest specialist
firm as of both of these dates. In addition, we act as specialist for 71
other listed securities.
Our listed companies include:
- 47 of the S&P 500 companies; and
- five of the 30 companies comprising the Dow Jones Industrial Average. Our
five Dow stocks are AT&T, Chevron, Exxon, Merck and Minnesota Mining &
Manufacturing.
INDUSTRY BACKGROUND
THE NYSE
The NYSE is currently the largest securities market in the world. The market
capitalization of all U.S. shares listed on the NYSE increased from
approximately $4.4 trillion at December 31, 1994 to approximately $10.9 trillion
at December 31, 1998, representing a compound annual growth rate of 25.0%. The
number of companies listed on the NYSE increased from 2,570 at the end of 1994
to 3,114 at the end of 1998.
The NYSE's average daily trading volume increased from 91.2 million shares
in 1984 to 673.6 million shares in 1998, as illustrated by the following graph:
Trading on the NYSE takes place through open bids to buy and open offers to
sell made by NYSE members, acting as principal or as agent for institutions or
individual investors. Buy and sell orders meet directly on the trading floor
through an auction process, and prices are determined by the interplay of supply
and demand in that auction. In order to buy and sell securities on the NYSE, a
person must first be accepted for membership in the NYSE. The number of
memberships, or seats, is presently limited to 1,366, and the price of a
membership depends on supply and demand. Based on recent transfers of
memberships, the market price of a membership on the NYSE is over $2.0 million.
To become a member, each prospective applicant must also pass an examination
covering NYSE rules and regulations.
NYSE members are generally categorized based upon the activities in which
they engage on the trading floor, such as specialists or brokers. The largest
single membership group is floor brokers, which consists of both commission
brokers and independent brokers. Commission brokers are employed by
broker-dealer firms that are members of the NYSE and earn salaries and
commission. Independent floor brokers are brokers who independently handle
orders for other broker-dealers and financial institutions.
THE SPECIALIST
All trading of securities on the NYSE is conducted through an auction
process. The auction process for each security is managed by the specialist for
that security. The specialist is a broker-dealer who applies for and, if
accepted, is assigned the role to maintain a fair and orderly market in its
specialist stocks. The number of specialist units on the NYSE, many of which are
organized as private partnerships, has decreased from 39 at December 31, 1994 to
29 at June 30, 1999. Of these, the three largest specialist units as ranked by
their number of specialist stocks were responsible for approximately 41.0% of
the average daily trading volume (measured by dollar volume) in 1998.
A specialist firm is granted the franchise by the NYSE in a particular stock
to conduct the auction in that security. Specialist firms conduct their auctions
at specific trading posts located on the floor of the NYSE. Because the
specialist firm runs the auction in its specialist stocks, it knows of all bids
and offers in those stocks and gathers orders to price its stocks appropriately.
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Specialist firms compete for the original listing of stocks through an
allocation process organized by the NYSE. As part of this allocation process,
companies seeking a listing may select a specialist firm in one of two ways.
Under the first method, the NYSE's allocation committee selects the specialist
firm based on specific criteria. Under the second method, available since
March 1997, the listing company requests that the allocation committee select
three to five potential specialist firms suitable for the stock, based on
criteria specified by the listing company. The listing company then has the
opportunity to meet with each specialist firm identified by the allocation
committee. Within one week after meeting the competing specialist firms, the
listing company must select a specialist firm. Currently, substantially all of
the companies seeking a listing on the NYSE are opting to make the final choice
of their own specialist firm under the second allocation method.
When assigned a particular stock, the specialist firm agrees to specific
obligations. The specialist firm's role is to maintain, as far as practicable,
trading in the stock that will be fair and orderly. This implies that the
trading will have reasonable depth and price continuity, so that, under normal
circumstances, a customer may buy or sell stock in a manner consistent with
market conditions. A specialist firm helps market participants achieve price
improvement in their trades because the best bids and offers are discovered
through the auction process. In performing its obligations, the specialist firm
is exposed to all transactions that occur in each of its specialist stocks on
the NYSE floor. In any given transaction, the specialist firm may act as:
- an auctioneer by setting opening prices for its specialist stocks and by
matching the highest bids with the lowest offers, permitting buyers and
sellers to trade directly;
- a facilitator bringing together buyers and sellers who do not know of each
other in order to execute a trade which would not otherwise occur;
- an agent for broker-dealers who wish to execute transactions as instructed
by their customers. Typically, these orders are limit orders entrusted to
the specialist at prices above or below the current market price; or
- a principal using its own capital to buy or sell stocks for its own
account.
The specialist firm's decision to buy or sell shares of its specialist
stocks as principal for its own account may be based on obligation or
inclination. For example, the specialist firm may be obligated to buy or sell
its specialist stock to counter short-term imbalances in the prevailing market,
thus helping to maintain a fair and orderly market in that stock. At other
times, the specialist firm may be inclined to buy or sell the stock as principal
based on attractive opportunities. The specialist firm may trade at its election
so long as the trade will contribute to a fair and orderly market. In
actively-traded stocks, the specialist firm continually buys and sells its
specialist stocks at varying prices throughout each trading day. The specialist
firm's goal and expectation is to profit from differences between the prices at
which it buys and sells these stocks. In fulfilling its specialist obligations,
however, the specialist firm may, at times, be obligated to trade against the
market, adversely impacting the profitability of the trade. In addition, the
specialist firm's trading practices are subject to a number of restrictions, as
described in "--Operations-NYSE Rules Governing Our Specialist Activities."
RECENT TRENDS IN NYSE TRADING AND THE SPECIALIST'S ROLE
Specialist firms generate revenues by executing trades, either as agent or
principal, in their specialist stocks. Accordingly, the specialist firms'
revenues are primarily driven by the volume of trading on the NYSE. This volume
has increased significantly in recent years. The increase in trading volume has
resulted from a number of factors, including:
- an increase in the number of households investing in stocks;
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- an increase in the amount of assets managed through retirement plans,
mutual funds, annuity and insurance products, index funds and other
institutional investment vehicles;
- the increased popularity and use of computerized trading, hedging and
other derivative strategies;
- an increase in NYSE-listed stocks due to:
- IPOs and spin-offs;
- transfers from Nasdaq and the American Stock Exchange; and
- an increase in listings of foreign companies;
- higher equity portfolio turnover by individuals and institutional
investors as a result of lower commission rates and other transaction
costs;
- an increase in on-line trading;
- trading in smaller price increments;
- an increase in the market capitalization of growth stocks; and
- an increase in the amount of shares traded due to stock splits and stock
dividends.
These factors have, in turn, been influenced by a strong U.S. economy, low
interest rates and low levels of inflation. In addition, the NYSE is considering
the following changes:
- longer trading days;
- trading in decimals; and
- trading of foreign stocks in ordinary form side by side with their
American depository receipts (ADRs).
These changes are being considered for implementation within the next
18 months. We believe that, if instituted, these changes will likely contribute
to additional growth in NYSE trading volume.
The majority of trades in NYSE-listed stocks take place through NYSE
specialist firms. In 1998, specialist firms handled approximately 84.1% of
trades in NYSE-listed stocks. Trades in NYSE-listed stocks are also generally
effected as follows:
- some stocks are listed on multiple exchanges, such as regional exchanges,
and trades take place on those exchanges;
- NYSE members may trade NYSE stocks that were listed after April 26, 1979
off the NYSE in the over-the-counter market. Approximately 70.0% of the
NYSE-listed stocks may be traded by NYSE members over-the-counter; and
- non-NYSE members may trade NYSE-listed stocks off of the NYSE in
over-the-counter markets.
Technological advances have contributed to the increased trading through
alternative trading systems (ATSs), such as electronic communications networks
(ECNs) and crossing systems. While the first ECN was created in 1969, most of
the others currently in operation were started in the past few years. These
systems electronically facilitate the matching of buy and sell orders that are
entered by their network members. If a match does not occur, some ATSs will
forward unfilled orders to other ATSs or to exchanges such as the NYSE. Some of
these networks also allow limited negotiation between members to facilitate a
match. These ATSs generally limit trades over their systems to their members,
who are typically large financial institutions, well-capitalized traders or
brokerage firms. Additionally, some ATSs are being developed to facilitate
trading by retail investors. In April 1999, the
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SEC ruled that these networks are allowed, and in specified cases are required,
to register and become subject to regulation as stock exchanges. To date, only
one of these networks has applied to register as a stock exchange.
The percentage of annual trading of listed stocks on the NYSE has ranged
from 82.8% to 84.1% for the past five years. It is unclear, however, how the
alternative trading methods and new technologies just described or that may be
developed will affect the percentage of trading in listed stocks conducted on
the NYSE. The NYSE has indicated that it is studying the possibility of
embracing electronic communications network technology to expand trading. ATSs
may be developed, organized and operated by large brokerage houses and
investment banks with greater capital, better access to technology and direct
access to investors. As a result, these parties may be well positioned to direct
trading to these networks. These alternative trading methods may account for a
growing percentage of the trading volume of NYSE-listed stocks.
The accelerating growth of trading volume and the increase in stock prices
on the NYSE in the 1990s has increased the demands upon specialists. In order to
fulfill their obligations, specialists are required to execute a greater number
of trades in a shorter period of time with greater price volatility. In
addition, specialists are called upon to take larger positions in their
specialist stocks. These factors have led to a consolidation of specialist units
in the past five years. The number of specialist units on the NYSE decreased
from 39 at December 31, 1994 to 29 at June 30, 1999. We believe that the
specialist market is becoming increasingly dominated by a number of large,
better-capitalized specialist firms which are able to provide an enhanced level
of service.
LABRANCHE'S COMPETITIVE POSITION
We are committed to providing the highest quality service to our various
constituencies. We believe our success is based on the following factors:
- LEADING POSITION IN THE SPECIALIST MARKET. We have a long-standing
reputation as one of the leading specialist firms on the NYSE. We have
successfully grown our business and improved our services through widely
varying market conditions. As of December 31, 1998:
- trading in the stocks for which we acted as specialist during 1998
accounted for 14.2% of the dollar volume on the NYSE. Based on this
percentage, we were the largest specialist firm on the NYSE; and
- trading in the stocks for which we acted as specialist during 1998
accounted for 12.7% of the share volume on the NYSE. Based on this
percentage, we were the second largest specialist firm on the NYSE.
- DIVERSE AND HIGH QUALITY SPECIALIST STOCKS. Our listed companies operate
in a variety of industries including financial services, media, oil and
gas, retail, technology and telecommunications. Many of our listed
companies are leaders in their respective fields. We believe that acting
as specialist in the stocks of industry leaders will benefit us as these
leading companies continue to expand their businesses through internal
growth and acquisitions.
- STRONG MARKET-MAKING SKILLS. We utilize our strong market-making skills to
actively trade as principal in our specialist stocks. We believe that we
significantly improve liquidity in our specialist stocks, particularly
during periods of market volatility. In 1998, approximately 30.4% of our
trades were as principal as compared to an average of approximately 25.3%
for all NYSE specialists.
- INNOVATIVE CUSTOMER-ORIENTED SERVICES. We are committed to providing our
listed companies a high level of service, in addition to our specialist
functions on the trading floor. We provide our listed companies with
detailed reports on the trading activity of their stocks. We also maintain
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frequent contact with a majority of our listed companies to discuss the
trading in their stock. In addition, we were the first specialist firm to:
- host an annual listed company conference;
- publish a company newsletter; and
- commission customer satisfaction surveys from our listed companies.
- RECENT ACQUISITIONS. Since 1997, we have acquired the following three
specialist operations, solidifying our position as one of the leading NYSE
specialist firms:
- Fowler, Rosenau & Geary, LLC (July 1998);
- Ernst, Homans, Ware & Keelips (August 1997); and
- a portion of the specialist operations of Stern Bros., LLC (July 1997).
We have effectively employed our capital resources and skilled personnel to
maximize the synergies created through consolidation. In doing so, we have
succeeded in growing each of these acquired operations and enhancing their
profitability.
LABRANCHE GROWTH STRATEGY:
Our objective is to continue the growth in our revenues and profits by
pursuing the following strategies:
- AGGRESSIVELY PURSUE NEW LISTINGS. We have been and will continue to be
aggressive in positioning ourselves in the NYSE allocation process.
Between March 1997, when the NYSE adopted the new allocation procedure,
and June 30, 1999, we participated in 67 selection pools for listed
companies and were chosen by management of the listed companies in 43 of
them. Recently, we were selected as specialist by Pepsi Bottling Group and
Fox Entertainment, as these companies completed two of the six largest
initial public offerings in the United States measured in dollars. In
addition, Viacom chose us as specialist in 1999 when it transferred its
listing to the NYSE, the largest transfer to the NYSE measured by market
capitalization.
- ACTIVELY PARTICIPATE IN THE CONSOLIDATION OF THE SPECIALIST INDUSTRY
THROUGH SELECTIVE ACQUISITIONS. We intend to take advantage of the
consolidation trend in the specialist industry by selectively pursuing
acquisitions of other specialist operations. Largely due to our three
recent acquisitions, we have more than doubled the number of our common
stock listings from 122 at December 31, 1994 to 280 at June 30, 1999. We
gained valuable experience through these transactions by effectively
integrating the operations of other specialist firms with those of our
own. We believe this experience will help us to:
- identify and attract acquisition candidates; and
- successfully integrate operations we may acquire.
In addition, we believe that the ability to offer our publicly traded common
stock as part of the purchase price for acquisitions will further help us in
attracting acquisition candidates.
- INCREASE OUR CAPITAL BASE AND EXPAND ACCESS TO CAPITAL. As a result of our
initial note offering and our common stock offering, we have a more
permanent capital base. We intend to proceed to strengthen our capital
base to meet the increasing demands imposed by the current marketplace.
For example, after our initial note offering and our common stock offering,
our working capital increased from $123.7 million to $201.7 million. In
selecting a specialist firm, listed companies often focus on the capital
resources of the specialist, especially more recently as trading volumes
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have increased. We believe that a more permanent and stronger capital base
will help us to continue our active capital utilization, thereby enhancing
our reputation as an active specialist and helping us attract more new
listings.
RECENT ACQUISITIONS
In July 1998, we acquired substantially all the assets of Fowler, Rosenau &
Geary, LLC, including its right to act as a specialist on the NYSE. In
connection with the acquisition, the inactive members of Fowler, Rosenau were
admitted to LaBranche & Co. as limited partners and the active members of
Fowler, Rosenau became members of LaB Investing Co. L.L.C. The former members of
Fowler, Rosenau acquired an aggregate interest in LaBranche's future profits
equal to 22.4% at that time. In connection with this acquisition and with the
approval of the NYSE, we became the specialist firm for an additional 76 common
stock listings, including Chevron, Merck, Minnesota Mining & Minerals and
Schlumberger.
In August 1997, we admitted Ernst & Company as a limited partner in
connection with our acquisition of the specialist operations of Ernst. At that
time, we also acquired the specialist operations conducted by individual
specialists at the firms of Homans and Ware & Keelips. In connection with these
transactions, we also hired as specialists, and admitted as members of LaB
Investing Co. LLC., several individuals who had been employed as specialists by
Ernst, Homans and Ware & Keelips. At the time of its admission as a limited
partner, Ernst acquired an interest in LaBranche & Co.'s future profits equal to
7.2% at that time. In connection with our acquisition of these specialist
operations and with the approval of the NYSE, we became the specialist firm for
an additional 36 common stock listings, including Exxon and Compaq.
In July 1997, Thomas Shanley, James Stack and Mark Soltz, formerly
specialists on behalf of Stern Bros., LLC, were admitted as new members of LaB
Investing Co. L.L.C. In connection with their admission as members,
Messrs. Shanley, Stack and Soltz contributed capital to LaB Investing Co. L.L.C.
which was, in turn, contributed to LaBranche & Co. In connection with this
acquisition and with the approval of the NYSE, we became the specialist firm for
an additional 19 common stock listings.
OPERATIONS
NYSE RULES GOVERNING OUR SPECIALIST ACTIVITIES
Under the NYSE rules, a specialist has a duty to maintain, as far as
practicable, a fair and orderly market in its specialist stocks. In order to
fulfill its obligations, the specialist must at times trade for its own account,
even when it may adversely affect the specialist's profitability. In addition,
under some circumstances, the specialist is prohibited from making trades as
principal in its specialist stocks. The specialist's obligations are briefly
described below.
REQUIREMENT TO TRADE AS PRINCIPAL. A specialist must buy and sell securities
as principal when necessary to minimize an actual or reasonably anticipated
short-term imbalance between supply and demand in the auction market. The
specialist must effect these transactions when their absence could result in an
unreasonable lack of continuity and/or depth in their specialist stocks. The
specialist is not expected to act as a barrier in a rising market or a support
in a falling market, but must use its own judgment to try to keep such price
increases and declines equitable and consistent with market conditions.
A specialist must make firm and continuous two-sided quotations that are
timely and that accurately reflect market conditions. In making these
quotations, the specialist's transactions are
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calculated to contribute to the maintenance of price continuity with reasonable
depth. Following is an illustration of how a specialist acts as principal to
maintain price continuity:
The most recent sale in a listed stock was $50, the best public bid (to buy)
on the specialist's book is $49 3/4, and the best public offer (to sell) on
the book is $50 1/4. A broker who wants to buy 100 shares at the market in
this instance without a specialist would purchase at $50 1/4, the offer
price. Similarly, a broker seeking to sell 100 shares without a specialist
would receive $49 3/4, the bid price. The specialist, who is expected to
provide reasonable price continuity, in this case might narrow the quote
spread by offering or bidding for stock for its own account. In this
instance, the broker who wants to buy 100 shares might buy at $50 1/16 from
the specialist, as opposed to buying the same amount of shares from the best
offer of $50 1/4, thereby offering price improvement to the customer. In the
next trade, a broker willing to sell 100 shares might sell to the specialist
at $50, as opposed to selling to the best available bid of $49 3/4, again
achieving price improvement for the customer.
TRADING RESTRICTIONS. In trading for its own account, the specialist must
avoid initiating a market-destabilizing transaction. All purchases and sales
must be reasonably necessary to permit the specialist to maintain, as far as
practicable, a fair and orderly market in its specialist stocks. In addition,
the specialist must comply with the following trading requirements:
- A specialist must first satisfy a customer's market buy order (an order to
buy at the prevailing market price) before buying any stock for its own
account. Similarly, a specialist must first satisfy a customer's market
sell order (an order to sell at the prevailing market price) before
selling any stock for its own account.
- A specialist must first satisfy a customer's limit order held by it before
buying or selling at the same price for its own account. A limit order is
an order either to buy only at or below a specified price, or to sell only
at or above a specified price. A specialist may not have priority over any
customer's limit order. A specialist, however, may buy or sell at the same
price as a customer limit order as long as that limit order is executed
first.
- If a public buyer wants to buy at a particular price and a seller wants to
sell at the same price, the buyer and seller trade directly with each
other, and the specialist should not interfere in the transaction.
- The specialist does not charge commissions for trades in which it acts as
a principal.
- Except in some circumstances in less active markets, the specialist may
not, without permission from an NYSE official, initiate destabilizing
trades for its own account which cause the stock price to rise or fall.
- Any transactions by the specialist for its own account must be effected in
a reasonable and orderly manner in relation to the condition of the
general market, the market in the particular stock and the adequacy of the
specialist's position to the immediate and reasonably anticipated needs of
the market.
In addition, the specialist cannot be in a control relationship with any of
its listed companies. This means a specialist may not acquire more than 5% of
any common or preferred issue of its specialist stocks and may not own 10% or
more of any common or preferred stock. A specialist should not hold any position
as an officer or director or receive payments or loans or engage in business
transactions with any of its listed companies.
RISK MANAGEMENT
Because our specialist activities expose our capital to significant risks,
managing these risks is a constant priority for us. Our central role in the
auction process helps us to reduce risks by enabling us
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to incorporate up-to-date market information in the management of our inventory,
subject to our specialist obligations. In addition, we have developed a risk
management process which is designed to balance our ability to profit from our
specialist activities with our exposure to potential losses. Our risk management
process includes as participants our executive operating committee, our floor
management committee, our floor team captains and our specialists. These
parties' roles are described as follows:
EXECUTIVE OPERATING COMMITTEE. Our executive operating committee is
composed of Michael, LaBranche, Vincent J. Flaherty, Alfred O. Hayward, Jr.,
Michael J. Naughton, James G. Gallagher and John O. Pickett. This committee is
responsible for approving all risk management policies and trading guidelines
for particular specialist stocks, after receiving input and proposals by the
floor management committee. In addition, our executive operating committee
reviews all unusual situations reported to it by our floor management committee.
FLOOR MANAGEMENT COMMITTEE. Our floor management committee is composed of
Messrs. Flaherty Hayward, Naughton, Gallagher and Pickett. This committee is
responsible for formulating and overseeing our overall risk management policies
and risk guidelines for each of our specialist stocks. In arriving at these
policies and guidelines, our floor management committee considers the advice and
input of our floor team captains. Our floor management committee meets with all
floor team captains no less than once a month to review and, if necessary,
revise the risk management policies for our company as a whole and/or for
particular specialist stocks. In addition, a member of our floor management
committee is always available on the trading floor to review and assist with any
unusual situations reported by a captain. Our floor management committee reports
to our executive operating committee about each of these situations.
FLOOR TEAM CAPTAINS. We have seven floor team captains who monitor the
activities of our specialists throughout the trading day from various positions
at our trading posts. The captains observe trades and constantly review trading
positions in real-time through our information systems. In addition, the
captains are readily available to assist our specialists in determining when to
deviate from our policies and guidelines to react to any unusual situations or
market conditions. The captains must report these unusual situations to
management, including any deviations from our policies and guidelines. Captains
meet with each specialist at least once a week to evaluate the specialist's
adherence to our risk management policies and guidelines. Captains also meet
among themselves at least twice weekly to review risk policies and guidelines
and, if appropriate, make new recommendations to the floor management committee.
SPECIALISTS. Our specialists conduct auctions based upon the conditions of
the marketplace. In doing so, specialists should observe our risk management
policies and guidelines as much as practicable. Specialists must immediately
notify a captain of any unusual situations or market conditions requiring a
deviation from our policies and guidelines.
We rely heavily on our information systems in conducting our risk
management. Management members and captains must constantly monitor our
positions and transactions in order to mitigate our risks and identify
troublesome trends as they occur. We have invested substantial capital in
real-time, on-line systems which give management instant access to specific
trading information at any time during the trading day, including:
- our aggregate long and short positions;
- the various positions of any one of our trading professionals;
- our overall position in a particular stock;
- capital and profit-and-loss information on an aggregate, per specialist or
per issue basis; and
- average position size.
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CIRCUIT BREAKER RULES. The NYSE has instituted certain circuit breaker
rules intended to halt trading in all NYSE-listed stocks in the event of a
severe market decline. The circuit breaker rules impose temporary halts in
trading when the Dow Jones Industrial Average drops a certain number of points.
Circuit breaker levels are set quarterly at 10, 20 and 30 percent of the Dow
Jones Industrial Average closing values of the previous month, rounded to the
nearest 50 points.
LISTED COMPANY SERVICES
We are committed to providing our listed companies with a high level of
service, in addition to our specialist functions on the trading floor. We have a
Corporate Relations Department, consisting of five full-time employees and one
independent consultant devoted to serving our listed companies. The most
important function of the Corporate Relations Department is to provide current
information to the listed companies. Upon request, our Corporate Relations
Department provides our listed companies with the following reports:
- daily reports on the trading results of their stock;
- real-time data regarding intra-day trading activity in their stock; and
- weekly, monthly and yearly reports which analyze short and long term
trading trends in their stock.
In addition to providing trading information, we help to educate our listed
companies on general market trends. We organize annual educational conferences
that review trends in the securities industry and NYSE trading. We also publish
for and distribute to our listed companies a periodic newsletter that reviews
market trends. Finally, we survey our specialist companies annually on the
quality of our services, and use the information obtained in these surveys to
continually improve our services.
NYSE MEMBERSHIPS
NYSE memberships are granted only to individuals, and each individual
specialist must own or lease an NYSE membership. We have 48 specialists, each of
whom owns or leases a membership under the following arrangements:
- 10 memberships are owned directly by 10 of our specialists;
- four are owned by specialists and were financed by us, or by Fowler,
Rosenau prior to the Fowler, Rosenau acquisition; and
- 34 are leased by 34 of our specialists from other individual members, and
we pay and guarantee the lease payments.
OUR INFORMATION AND COMMUNICATIONS SYSTEMS AND THE NYSE'S SUPER-DOT SYSTEM
As a self-clearing broker-dealer, we have made significant investments in
our trade processing systems. Our use of and dependence on technology have
allowed us to maintain our significant growth over the past several years. In
addition to using consultants who primarily service the specialist industry, we
have an in-house information technology staff. We currently clear an average of
33,000 principal trades per day. We do not clear trades for third parties. Our
information systems send and receive data from the NYSE through a dedicated data
feed.
Our systems enable us to monitor, on a real-time basis, our profits and
losses along with our trading positions. The NYSE supplies us with specialist
position reporting system terminals both on the trading floor and in our
offices. These terminals allow us to monitor our trading profits and losses as
well as our positions. We have also developed software that allows us to monitor
these items in the event that the NYSE-provided systems fail.
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We have established a back-up disaster recovery center in Hoboken, NJ in the
event of a local disaster. The back-up system operates as a mirror image of our
primary computer system in New York City as we have a direct connection between
the two sites which we utilize to back-up all data on an hourly basis. On a
regular basis, we test both systems to assure that they are fully operational.
In executing trades on the NYSE, we receive electronic orders from the
Super-DOT system, an order routing system operated by the NYSE. The Super-DOT
System is designed to handle individual orders of up to 100,000 shares and is
essentially an electronic broker. Orders that originate through the Super-DOT
system are routed directly to us through our computer system at the NYSE. When
we receive an order from the Super-DOT system, we conduct the same auction
process and we are subject to the same obligations as with any other order.
Our information technology staff has developed software which enables our
corporate relations staff and our specialists to share information with each
other regarding upcoming company and industry conferences. In addition, we
monitor each of our specialist stocks intra-day to see if there are any
significant price and/or volume variances of which we should alert the listed
company. This has proven to be a valuable customer service tool.
OUR PROPRIETARY TRADING
In 1995, we initiated a proprietary trading program, seeking to leverage our
trading and market experience. Our strategy is short-term oriented, and most of
our positions are intra-day and not held overnight. Four of our traders focus
primarily on stocks listed on the NYSE. A fifth trader focuses entirely on
listed futures and options on both United States Treasury obligations and
Eurodollars. In 1998, we derived less than 2.0% of our revenues from our
proprietary trading and we have averaged less than 3.0% over the past three
fiscal years; in the first six months of 1999, we derived approximately 4.7% of
our revenues from our proprietary trading. Our proprietary trading desk utilizes
a Windows NT based trade reporting system which captures all trades executed by
the trading desk and marks all positions to market. We are not permitted to
trade in stocks for which we act as specialist.
We have taken the following actions to manage the risks associated with our
proprietary trading:
- for 1999, we have limited our capital commitment for our proprietary
trading to an aggregate maximum of $22.0 million per day and overnight
positions of up to $13.5 million per day;
- each of our proprietary traders have specific trading limits, which may
not be exceeded without the approval of executive management. Our most
experienced trader may invest up to $12.0 million per day and may hold
overnight positions up to $1.5 million. Each of our other traders have
daily investment limits of $5.0 million or less and overnight investment
limits of $3.0 million or less, depending on their experience;
- the positions of our futures and options traders are monitored by an
in-house model that measures potential intra-day risk as well as actual
dollar exposure; and
- one of our managing directors who is not involved in our proprietary
trading program serves as the risk manager for that program. He oversees
all of our proprietary trading and has the authority to instruct the
proprietary trading desk to liquidate positions or otherwise reduce risk.
He reports directly to Michael LaBranche, our Chairman, Chief Executive
Officer and President.
SPECIALIST COMPANIES
As of June 30, 1999, we acted as specialist for 280 common stocks listed on
the NYSE. Our listed companies operate in a variety of industries including
financial services, media, oil and gas, retail, technology and
telecommunications. They ranged in market capitalization from some of the
smallest on the NYSE to some of its largest and well-known corporations. We also
represent 44 foreign listings on
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the NYSE. The following is a list of our top 50 listed companies in terms of
market capitalization as of June 30, 1999 in order of their respective global
market capitalization:
<TABLE>
<S> <C>
Lucent Technologies Kroger
Exxon Household International
AT&T Suntrust Banks
Merck Lowes Companies
SBC Communications CVS
Glaxo Wellcome Istituto Bancario San Paolo di
Torino Istituto Mobiliare Italiano
Tyco International Equant
SmithKline Beecham Firstar
Chevron Fox Entertainment Group
ING Groep Bestfoods
Medtronic Australia & New Zealand
MediaOne Group Banking Group
The Gap TNT Post Group
Taiwan Semiconductor Computer Sciences Corporation
Manufacturing Capital One Financial
Compaq Tribune Company
TOTAL Fina PPG Industries
Minnesota Mining & Conseco
Manufacturing Circuit City Stores
Schlumberger Comerica
Koninklijke Philips Electronics Archer-Daniels Midland
ABN AMRO Holding Bank of Ireland Group
The News Corporation Public Service Enterprise Group
Viacom Entergy
US West Dollar General
Atlantic Richfield
National Australia Bank
Royal PTT Nederland
</TABLE>
MARKETING
It is a priority for our management to proactively identify potential
listing companies before the allocation process begins. We contact these
companies and commence our marketing efforts upon determining that they are
considering listing on the NYSE. Our marketing efforts typically consist of
members of our management group visiting with the companies that are considering
listing on the NYSE and describing our services. We also provide written
literature describing our operations, our listed companies, our 75-year history
as a specialist firm and our industry in general.
REGULATORY MATTERS
GENERAL
The securities industry in the United States, including all broker-dealers,
is subject to extensive regulation under both federal and state laws. In
addition, the SEC and the NYSE require strict compliance with their rules and
regulations. As a matter of public policy, regulatory bodies are charged with
safeguarding the integrity of the securities and other financial markets and
with protecting the interests of investors participating in those markets.
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As a broker-dealer, we are subject to regulations concerning operational and
financial aspects of our business. We are subject to extensive registration
requirements with various government entities and self-regulatory organizations,
commonly referred to as SROs, with which we must comply before we can conduct
our business. We are also subject to laws, rules and regulations forcing us to
comply with financial reporting requirements, trade practices, capital structure
requirements, and record retention requirements governing the conduct of our
directors, officers and employees. Failure to comply with any of these laws,
rules or regulations could result in censure, fine, the issuance of
cease-and-desist orders or the suspension or disqualification of our directors,
officers or employees, and other adverse consequences, which could have an
adverse effect on our business.
As a NYSE specialist firm, we are under constant review by the NYSE on all
aspects of our operations and financial condition. As part of the price
discovery mechanism implemented by the NYSE, every specialist transaction is
published immediately on the tape and is broadcast worldwide. The NYSE also
employs sophisticated monitoring and stringent rules approved by the SEC. The
NYSE's Market Surveillance Division examines specialists' trading in all stocks,
every trading day, including specialists' decisions to trade or to not trade as
principal.
NET CAPITAL REQUIREMENTS
As a broker-dealer, we are subject to SEC Rule 15c3-1, which requires
minimum net regulatory capital. We are required to maintain minimum net capital,
as defined, equivalent to the greater of $100,000 or 1/15 of our aggregate
indebtedness, as defined. At June 30, 1999, our net capital, as defined by this
rule, was approximately $100.0 million and exceeded minimum requirements by
approximately $96.8 million.
The NYSE also requires members registered as specialists to establish that
they can meet, with their own net liquid assets, a minimum dollar amount which
is the greater of $1,000,000 or 25% of their position requirement. As of
December 31, 1998, due to the market share represented by our specialist book,
the NYSE mandated that, notwithstanding the general rule, we maintain minimum
net liquid assets of the greater of $90.0 million, adjusted by the amount of the
position requirement for any new stock allocated to us as specialist or 120% of
the position requirement. Our position requirement is the ability to assume
positions in stock in which we are registered, of 30,000 shares of each S&P 500
common stock, 22,500 shares in all other common stocks, 4,500 shares in each
convertible preferred stock and 1,800 shares in each nonconvertible preferred
stock in which we are a specialist. "Net liquid assets" for a specialist firm
that also engages in transactions other than specialist activities is based upon
its excess net capital as determined in accordance with SEC Rule 15c3-1. As of
June 30, 1999, our NYSE minimum required dollar amount of net liquid assets was
$91.5 million compared to actual net liquid assets of approximately
$116.3 million.
Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.
COMPETITION
We obtain each of our new listings on the NYSE by participating in an
allocation process. As part of this process, either the allocation committee of
the NYSE or the listing company chooses the specialist firm. We compete with
other specialist firms based on a number of factors, including:
- the strength of our capital base;
- our willingness to commit our own capital and trade for our own account
while conducting our specialist operations; and
- the ancillary services we offer our specialist companies, such as
providing information on the trading activities in their stocks.
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The following is a list of the top ten specialist units as of June 30, 1999,
based on their number of common stock listings:
- Spear, Leeds & Kellogg
- Fleet Specialists, Inc.
- LaBranche & Co.
- Wagner, Stott, Mercator LLC
- Robb Peck McCooey Specialist Corp.
- Bear/Hunter Specialists, LLC
- Henderson Bros., Inc.
- CMJ Partners LLC
- MJ Meehan & Co., LLC
- Fagenson & Co.
The competition for obtaining new listed companies is intense. We expect
competition to continue and intensify in the future. Some of our competitors may
have significantly greater financial resources than we have and may also have
greater name recognition. These competitors may be able to respond more quickly
to new or evolving opportunities and listed company requirements. They may also
be able to undertake more extensive promotional activities to attract new
listing companies. In addition, the specialist industry has recently been
consolidating. The combined companies resulting from the consolidation may have
a stronger capital position. This trend has intensified the competition in our
industry. We cannot be sure that we will be able to compete effectively with our
current or future competitors. We also cannot be sure that the competitive
pressures we face will not have an adverse effect on our business, financial
condition and/or operating results.
NYSE-listed stocks may be traded:
- by NYSE members over-the-counter as long as the stocks were listed after
April 26, 1979. Approximately 70.0% of the NYSE-listed stocks may be
traded by NYSE members over-the counter; and
- by non-NYSE members over-the-counter.
Technological advances have also contributed to the recent emergence of
trading through alternative trading systems, such as electronic communication
networks and crossing systems. In April 1999, the SEC ruled that alternative
trading systems can apply and, in specified cases, are required to register as
stock exchanges, subject to regulation as a stock exchange. This would enable
NYSE members to trade all NYSE-listed stocks on these networks, regardless of
when the stocks were originally listed. These networks may be developed,
organized and operated by large brokerage houses and investment banks with
greater capital, better access to technology and direct access to investors. As
a result, these parties may be well-positioned to direct trading to these
networks. These alternative trading systems may adversely affect the trading of
NYSE-listed stock through specialists on the NYSE. That, in turn, would have an
adverse effect on our business.
The NYSE faces competition from Nasdaq for new listings. Nasdaq continues to
grow and gain in popularity, attracting companies which might otherwise have
listed on the NYSE. In recent years in particular, many high technology
companies have opted to be quoted on Nasdaq, even though many of them would have
qualified for NYSE listing. If more companies decide to be quoted on Nasdaq as
opposed to listing their stocks on the NYSE, trading volume on the NYSE could be
adversely affected.
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EMPLOYEES
As of June 30, 1999, we had 161 full-time employees, including 36 managing
directors, with:
- 48 specialists, including 34 managing directors;
- five traders in our proprietary trading department;
- 85 trading assistants;
- five Corporate Relations Department employees; and
- 18 management, administration and finance staff, including two managing
directors.
Our employees are not covered by a collective bargaining agreement. We have
never experienced an employment-related work stoppage. We consider our employee
relations to be good.
Following our reorganization and the completion of our initial note offering
and our common stock offering, three of our managing directors retired from our
firm.
PROPERTIES
Currently, our main offices are located at One Exchange Plaza, New York New
York. We lease approximately 23,500 square feet at this location. In 1999, our
lease payment will total $684,000. This lease expires in 2008. We also lease two
trading posts on the floor of the NYSE.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
58
<PAGE>
MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of LaBranche & Co Inc., and their ages
and positions, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Michael LaBranche............................... 44 Chairman, Chief Executive Officer and
President
James G. Gallagher.............................. 52 Executive Vice President and Director
Alfred O. Hayward, Jr........................... 51 Executive Vice President and Director
S. Lawrence Prendergast......................... 58 Executive Vice President, Finance and Director
Vincent J. Flaherty............................. 54 Senior Vice President, Floor Operations
Michael J. Naughton............................. 53 Senior Vice President, Specialist Operations
</TABLE>
MICHAEL LABRANCHE has been our Chairman and Chief Executive Officer and a
member of our executive committee since our inception in June 1999 and our
President since August 1999. Mr. LaBranche has served as Chief Executive Officer
of LaBranche & Co. since 1996 and has been a specialist with LaBranche & Co.
since 1977. Mr. LaBranche has served on the management committee and executive
operating committee of LaBranche & Co. since 1988 and as the chairman of the
executive operating committee of LaBranche & Co. since 1996. He currently is a
Governor of the NYSE and is a member of the NYSE's Market Performance Committee.
JAMES G. GALLAGHER has been our Executive Vice President and a director and
a member of our executive committee since our inception. Mr. Gallagher has
served as the Executive Vice President and a member of the executive operating
committee of LaBranche & Co. since 1998. Prior to July 1998, Mr. Gallagher was a
specialist and managing partner with Fowler, Rosenau since 1980. Mr. Gallagher
is currently a NYSE Senior Floor Official. Mr. Gallagher has also served for six
years as a NYSE Floor Governor.
ALFRED O. HAYWARD, JR. has been our Executive Vice President and a director
and member of our executive committee since our inception. Mr. Hayward has been
a specialist with LaBranche & Co. since 1983 and was appointed to the executive
operating committee of LaBranche & Co. in 1994. He currently sits on the NYSE
Arbitration Panel and is involved with NYSE education programs. Mr. Hayward has
served as a NYSE Floor Official and has also served as the Chairman of the
Allocation Committee.
S. LAWRENCE PRENDERGAST has been our Executive Vice President, Finance and a
director since July 1999. Prior to July 1999, Mr. Prendergast was the Chairman
and CEO of AT&T Investment Management Corp. since May 1997. Prior to 1997,
Mr. Prendergast was the Vice President and Treasurer of AT&T for 14 years.
Mr. Prendergast currently is a director of AT&T Investment Management Corp., a
money management subsidiary of AT&T.
VINCENT J. FLAHERTY has been our Senior Vice President since our inception.
Mr. Flaherty has been a specialist with LaBranche & Co. since 1997. Prior to
joining our specialist firm, Mr. Flaherty was the managing partner of Homans,
which he joined in 1963.
MICHAEL J. NAUGHTON has been our Senior Vice President since our inception.
Mr. Naughton has been a specialist with LaBranche & Co. since 1979 and was
appointed to the executive operating committee of LaBranche & Co. in 1990.
BOARD COMMITTEES
The audit committee of our board of directors will be established as soon as
practicable and will review, act on and report to our board of directors with
respect to various auditing and accounting matters, including the recommendation
of our auditors, the scope of our annual audits, fees to be paid to our
auditors, the performance of our independent auditors and our accounting
practices. The audit committee will be comprised solely of independent
directors.
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<PAGE>
The compensation committee of our board of directors will be established as
soon as practicable and will recommend, review and oversee salaries, bonuses,
benefits and equity incentives for our employees, consultants and directors. The
compensation committee will also administer our incentive compensation plans.
The compensation committee will be comprised of a majority of independent
directors.
DIRECTOR COMPENSATION
We intend to elect two non-employee directors as soon as practicable. It is
anticipated that non-employee directors will receive an annual retainer,
attendance fees for board and committee meetings plus options to purchase our
common stock. Our employee directors will not receive any additional
compensation for serving on our board or any committee of our board.
EXECUTIVE COMPENSATION
Historically, our managing directors have all been members of LaB Investing
Co. L.L.C., the general partner of LaBranche & Co. The aggregate amount of
compensation received by all our managing directors generally approximated LaB
Investing Co. L.L.C.'s interest in LaBranche & Co.'s income before managing
directors' compensation. These payments of compensation have been allocated
among our managing directors based on the managing directors' respective
percentage interests in the profits of LaB Investing Co. L.L.C. Following our
initial note offering and our common stock offering, we conduct business in
corporate form. As a result, we believe that historical data does not provide a
meaningful basis for evaluating anticipated executive compensation following our
initial note offering and our common stock offering.
The following table sets forth the annual salary we intend to pay during
fiscal 1999 our Chief Executive Officer and our four other executive officers
named under "--Our Executive Officers and Directors" (the "Named Executive
Officers") who acted as executive officers during fiscal 1998. The Named
Executive Officers will also be entitled to participate in our Annual Incentive
Plan. Under this plan, a compensation pool of up to 30% of our pre-tax income
will be set aside for our managing directors and other employees. The amounts
payable under the Annual Incentive Plan to the Named Executive Officers will be
dependent on our operating results and upon the overall performance of the Named
Executive Officers, as determined by the compensation committee of our board of
directors. In addition, the Named Executive Officers will be entitled to
participate in our Equity Incentive Plan. Our Annual Incentive Plan and Equity
Incentive Plan are described below under "Incentive Awards to Our Employees."
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR ANNUAL SALARY (1)
- --------------------------- -------- -----------------
<S> <C> <C>
Michael LaBranche........................................... 1999 $250,000
Chairman, Chief Executive Officer and President
James G. Gallagher.......................................... 1999 250,000
Executive Vice President
Alfred O. Hayward, Jr....................................... 1999 250,000
Executive Vice President
Vincent J. Flaherty......................................... 1999 250,000
Senior Vice President, Floor Operations
Michael J. Naughton......................................... 1999 250,000
Senior Vice President, Specialist Operations
</TABLE>
- ------------------------
(1) The actual salary paid to the Named Executive Officers will be a prorated
portion of these amounts for fiscal 1999.
60
<PAGE>
The following table sets forth the number of shares issuable upon the
exercise of options granted to our executive officers under our Equity Incentive
Plan upon completion of our common stock offering. These options have an
exercise price of $14, the initial public offering price, and are not currently
exercisable.
<TABLE>
<CAPTION>
NAME SHARES UNDERLYING OPTIONS
- ---- -------------------------
<S> <C>
Michael LaBranche........................................... 500,000
James G. Gallagher.......................................... 250,000
Alfred O. Hayward, Jr....................................... 100,000
S. Lawrence Prendergast..................................... 200,000
Vincent J. Flaherty......................................... 50,000
Michael J. Naughton......................................... 100,000
</TABLE>
EMPLOYMENT AGREEMENTS AND NONCOMPETITION AGREEMENTS
As part of the reorganization of our firm from partnership to corporate
form, our managing directors, all of whom are members of LaB Investing Co.
L.L.C., exchanged their membership interests in LaB Investing Co. L.L.C. for
shares of our common stock. We have entered into employment agreements, pledge
agreements and agreements regarding noncompetition and other covenants with all
members who continue as managing directors after our common stock offering,
including each managing director who is a member of our board of directors or is
an executive officer. We have also entered into an employment agreement and
noncompetition agreement with our Executive Vice President, Finance. The
material terms of the employment, noncompetition and pledge agreements are
described below. You should refer to the exhibits that are a part of the
registration statement for copies of the forms of these agreements. See
"Available Information."
THE EMPLOYMENT AGREEMENTS
Each employment agreement, other than the employment agreement with our
Executive Vice President, Finance, has an initial term of three to five years,
requires the managing director to devote his or her entire working time to our
business and affairs and is terminable on 90 days' notice by either party. The
employment agreement with our Executive Vice President, Finance, has an initial
term of one year, requires him to devote his time as is reasonable necessary for
him to perform his duties and responsibilities and is terminable on 30 days'
notice by either party.
THE NONCOMPETITION AGREEMENTS
Each noncompetition agreement contains the following provisions:
CONFIDENTIALITY. Each managing director and each executive officer is
required to protect and use "confidential information" in accordance with the
restrictions which we place on its use and disclosure.
NONCOMPETITION. During employment and until the later of 12 months
following termination of employment with us or the fifth anniversary of our
common stock offering, a managing director or executive officer may not:
- form, or acquire a 5% or greater ownership, voting or profit participation
interest in, any competitive enterprise; or
- associate with any competitive enterprise and in connection with such
association engage in, or directly or indirectly manage or supervise
personnel engaged in, any business activity that is related to his or her
activities with us.
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For this purpose, a "competitive enterprise" is any business enterprise that
engages in activity, or owns or controls a significant interest in an entity
that engages in activity that competes, directly or indirectly, with any
activity in which we are engaged. These activities include, without limitation,
specialist services and/or securities brokerage, sales, lending, custody,
clearance, settlement or trading.
NONSOLICITATION. During employment and until the later of 12 months
following termination of employment with us or the fifth anniversary of our
common stock offering, a managing director or executive officer may not,
directly or indirectly:
- solicit any of our listed companies;
- interfere with or damage any relationship between us and any of our listed
companies or prospective allocated companies; or
- solicit any of our employees to apply for, or accept employment with, any
competitive enterprise.
TRANSITION ASSISTANCE. The noncompetition agreements also provide that each
managing director and each executive officer will take all actions and do all
things reasonably requested by us during a 90-day transition period following
termination of employment to maintain the business, goodwill and business
relationships in which or with which he or she was previously involved on our
behalf.
LIQUIDATED DAMAGES. If a managing director breaches the noncompetition or
nonsolicitation provisions of the noncompetition agreement before the later of
12 months following termination of employment with us or the fifth anniversary
of the date of the completion of our common stock offering, then he or she will
be liable for liquidated damages in an amount equal to 75% of the aggregate
value of the common stock and cash received by that managing director from us in
exchange for his or her membership interest in LaB Investing Co. L.L.C. The
noncompetition agreement with our Executive Vice President, Finance does not
provide for the payment of liquidated damages.
THE PLEDGE AGREEMENTS
Under each managing director's pledge agreement, the liquidated damages
obligations under each noncompetition agreement are secured by a pledge of
common stock with an initial value equal to 100% of the liquidated damages
amount. The pledge agreement will terminate with respect to a managing director
on the earliest to occur of:
- the death of the managing director;
- the fifth anniversary of the date of the completion of our common stock
offering; or
- payment in cash or other satisfaction by the managing director of all
liquidated damages incurred.
NONEXCLUSIVITY AND ARBITRATION
The liquidated damages and pledge arrangements discussed above are not
exclusive of any injunctive relief to which we may be entitled for a breach of a
covenant against competition or solicitation. Prior to and after the expiration
of the pledge agreements, we will be entitled to all available remedies for a
breach of the noncompetition agreements. The employment and noncompetition
agreements generally provide that any disputes thereunder will be resolved by
binding arbitration.
62
<PAGE>
INCENTIVE AWARDS TO OUR EMPLOYEES
THE EQUITY INCENTIVE PLAN
The following is a description of the material terms of the LaBranche &
Co Inc. Equity Incentive Plan, which became effective prior to the closing of
our common stock offering. You should, however, refer to the exhibits that are a
part of the registration statement relating to our common stock offering for a
copy of the Equity Incentive Plan. See "Available Information."
Immediately prior to the closing of our common stock offering, we granted
(1) options to purchase an aggregate of 1,200,000 shares of our common stock at
the initial public offering price to our executive officers and (2) restricted
stock units for 1,059,000 shares of common stock to our employees who are not
managing directors. Subject to continuing service with the firm and certain
other conditions, the initial grant of options will generally become exercisable
in three equal annual installments commencing on the first anniversary of the
date of the grant and restricted stock units will generally vest in three equal
annual installments commencing on the third anniversary of the grant date.
TYPES OF AWARDS. The Equity Incentive Plan provides for grants of options
to purchase shares of common stock, including options intended to qualify as
incentive stock options ("ISOs") (within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended), and options which do not qualify as
ISOs ("NQSOs"), restricted shares of our common stock, restricted stock units,
the value of which is tied to shares of our common stock and other equity-based
awards related to our common stock.
AVAILABLE SHARES. A maximum of 4,687,500 shares of our common stock has been
reserved for issuance under the Equity Incentive Plan. The number, class and
exercise price per share will be adjusted proportionately or as otherwise
appropriate to reflect any increase in, decrease in, or exchange of the
outstanding shares of our common stock through merger, consolidation,
recapitalization, reclassification, stock split, reverse stock split, stock
dividend or similar corporate transaction. These shares may be authorized but
unissued shares of our common stock or issued shares of our common stock held in
our treasury or otherwise acquired for the purposes of the Equity Incentive
Plan. New awards may be granted under the Equity Incentive Plan with respect to
shares of our common stock covered by any award that terminates or expires by
its terms (by cancellation or otherwise) or with respect to shares of our common
stock that are withheld or surrendered to satisfy a recipient's income tax or
other withholding obligations or tendered to pay the purchase price of any
award.
The maximum number of shares of our common stock with respect to which
options, restricted stock, restricted stock units or other equity-based awards
may be granted under the Equity Incentive Plan during any calendar year to any
employee may not exceed 500,000 shares, subject to adjustment upon certain
corporate transactions (as described above).
ELIGIBILITY. Awards under the Equity Incentive Plan may be granted to any
of our directors, officers, managing directors or other employees, including any
prospective employee, and to any of our advisors or consultants selected by the
compensation committee of our board of directors.
ADMINISTRATION. The Equity Incentive Plan, currently administered by our
board of directors, will be administered by the compensation committee of our
board of directors once the compensation committee is established. The
compensation committee will have full discretion and authority to make awards
under the Equity Incentive Plan, to apply and interpret the provisions of the
Equity Incentive Plan and to take such other actions as may be necessary or
desirable in order to carry out the provisions of the Equity Incentive Plan. The
determinations of the compensation committee on all matters relating to the
Equity Incentive Plan and the options, restricted stock, restricted stock units
and other equity-based awards granted thereunder will be final, binding and
conclusive.
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<PAGE>
STOCK OPTIONS. The compensation committee may grant ISOs and NQSOs in such
amounts and subject to such terms and conditions as it may determine. The
exercise price of an option granted under the Equity Incentive Plan will not be
less than the fair market value of our common stock on the date of grant (as
determined under the plan). Unless sooner terminated or exercised, options will
generally expire ten years from the date of grant. Payment for shares acquired
upon the exercise of an option may be made (as determined by the compensation
committee) in cash and/or such other form of payment as may be permitted from
time to time, which may include previously-owned shares of our common stock or
pursuant to a broker's cashless exercise procedure. Except as otherwise
permitted by the compensation committee, no option may be exercised more than
30 days after termination of the optionee's service (or, if the optionee's
service is terminated by reason of disability or death, one year thereafter). If
an optionee's employment is terminated for cause, options held by such optionee,
immediately terminate. An optionee will not have any of the rights of a
stockholder with respect to shares subject to an option until the issuance of
such shares.
RESTRICTED STOCK. The compensation committee may grant restricted shares of
our common stock in amounts, and subject to terms and conditions (such as time
vesting and/or performance-based vesting criteria) as it may determine.
Generally, prior to vesting, the recipient will have the rights of a stockholder
with respect to the restricted stock, subject to any restrictions and conditions
as the compensation committee may include in the award agreement.
RESTRICTED STOCK UNITS. The compensation committee may grant restricted
stock units, the value of which is tied to shares of our common stock, in
amounts, and subject to terms and conditions, as the compensation committee may
determine. Recipients of restricted stock units have only the rights of our
general unsecured creditors and no rights as a stockholder until the common
stock referenced by the restricted stock units is delivered to the recipient.
OTHER EQUITY-BASED AWARDS. The compensation committee may grant other types
of equity-based awards related to our common stock under the Equity Incentive
Plan, including the grant of unrestricted shares of our common stock and stock
appreciation rights, in amounts and subject to terms and conditions as the
compensation committee may determine. These awards may involve the transfer of
actual shares of common stock or the payment in cash or otherwise of amounts
based on the value of shares of our common stock.
CHANGE IN CONTROL. The compensation committee may provide, in any award
agreement, for provisions relating to a "change in control" of us or any of our
subsidiaries or affiliates, including, without limitation, the acceleration of
the exercisability of, or the lapse of restrictions with respect to, the award.
NONASSIGNABILITY. Except to the extent otherwise provided in an award
agreement or approved by the compensation committee with respect to NQSOs, no
award granted under the Equity Incentive Plan will be assignable or transferable
other than by will or by the laws of descent and distribution and all awards
will be exercisable during the life of a recipient only by the recipient or his
or her legal representative.
AMENDMENT AND TERMINATION. The Equity Incentive Plan may be amended or
terminated at any time by our board of directors, subject, however, to
stockholder approval in the case of certain material amendments, such as an
increase in the number of shares available under the Equity Incentive Plan or a
change in the class of individuals eligible to participate in the Equity
Incentive Plan.
U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description
of the material U.S. federal income tax consequences generally arising with
respect to awards granted under the Equity Incentive Plan.
64
<PAGE>
The grant of an option will have no income tax consequences to the recipient
or to us. Upon the exercise of an option, other than an ISO, the recipient
generally will recognize ordinary income equal to the excess of the fair market
value of the shares of common stock subject to the option on the date of
exercise over the exercise price for such shares (i.e., the option spread), and
we generally will be entitled to a corresponding tax deduction in the same
amount. Upon the sale of the shares of our common stock acquired pursuant to the
exercise of an option, the recipient will recognize capital gain or loss equal
to the difference between the selling price and the sum of the exercise price
plus the amount of ordinary income recognized on the exercise.
A recipient generally will not recognize ordinary income upon the exercise
of an ISO (although, on exercise, the option spread is an item of tax preference
income potentially subject to the alternative minimum tax, and we will not
receive any deduction. If the stock acquired upon exercise of an ISO is sold or
otherwise disposed of within two years from the grant date or within one year
from the exercise date, then gain realized on the sale generally is treated as
ordinary income to the extent of the ordinary income that would have been
realized upon exercise if the option had not been an ISO, and we generally will
be entitled to a corresponding deduction in the same amount. Any remaining gain
is treated as capital gain.
If the shares acquired upon the exercise of an ISO are held for at least two
years from the grant date and one year from the exercise date and the recipient
is employed by us at all times beginning on the grant date and ending on the
date three months prior to the exercise date, then all gain or loss realized
upon the sale will be capital gain or loss and we will not receive any
deduction.
In general, an individual who receives an award of restricted stock will
recognize ordinary income at the time such award vests in an amount equal to the
difference between the value of the vested shares and the purchase price for
such shares, if any, and we generally will be entitled to a deduction in an
amount equal to the ordinary income recognized by the recipient at such time.
The recipient of an award of restricted stock units generally will recognize
ordinary income upon the issuance of the shares of common stock underlying such
restricted stock units in an amount equal to the difference between the value of
such shares and the purchase price for such units and/or shares, if any, and we
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the recipient at such time.
With respect to other equity based awards, upon the payment of cash or the
issuance of shares or other property that is either not restricted as to
transferability or not subject to a substantial risk of forfeiture, the
participant will generally recognize ordinary income equal to the cash or the
fair market value of shares or other property delivered, less any amount paid by
the participant for such award. Generally, we will be entitled to a deduction in
an amount equal to the ordinary income recognized by the participant.
THE ANNUAL INCENTIVE PLAN
The board of directors adopted, effective upon the closing of our common
stock offering, the LaBranche & Co Inc. Annual Incentive Plan. Our managing
directors and other employees selected by the compensation committee of our
board of directors will be eligible to participate in the Annual Incentive Plan.
Under this plan, a compensation pool of up to 30% of our pre-tax income, or such
lesser percentage determined by the compensation committee, will be set aside
for our managing directors and other employees selected by the compensation
committee to participate in this plan. In determining the 30% compensation pool,
the compensation expenses relating to the grant of restricted stock units at the
time of our common stock offering will be deducted. Under the plan, no
individual participant may receive more than 25% of the compensation pool for
any fiscal year. The amounts payable under the Annual Incentive Plan to our plan
participants will be reviewed on an annual basis and will be based on such
factors and considerations as the compensation committee deems
65
<PAGE>
appropriate in individual cases and on our operating results and the overall
performance of these participants. An award made by the compensation committee
to our managing directors and other employees is completely discretionary. The
Annual Incentive Plan may be amended or terminated at any time by our board of
directors.
PRINCIPAL STOCKHOLDERS
The following table presents information about the beneficial ownership of
our common stock by:
- each person known to beneficially own more than 5.0% of the outstanding
shares of common stock;
- each of our directors;
- each named executive officer;
- and all executive officers and directors as a group.
All persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated. Unless otherwise indicated, the address of
the beneficial owners is: c/o One Exchange Plaza, New York, New York, 10006.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock issuable pursuant to
options, to the extent such options are currently exercisable or convertible
within 60 days of September 29, 1999, are treated as outstanding for computing
the percentage of the person holding such securities but are not treated as
outstanding for computing the percentage of any other person.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES BENEFICIALLY PERCENTAGE OF SHARES
OF BENEFICIAL OWNER(1) OWNED BENEFICIALLY OWNED
- ---------------------- ------------------- --------------------
<S> <C> <C>
Michael LaBranche.......................................... 3,500,994 7.6%
James G. Gallagher......................................... 2,287,100 5.0
Alfred O. Hayward, Jr...................................... 1,908,068 4.2
S. Lawrence Prendergast.................................... -0- 0.0
Vincent J. Flaherty........................................ 2,087,926 4.6
Michael J. Naughton........................................ 1,958,066 4.3
All executive officers and directors as a group............ 11,742,154 25.6
</TABLE>
- ------------------------
(1) Each of our managing directors, including all our executive officers, has
entered into a stockholders' agreement, the terms of which are described
under "Certain Transactions--Reorganization and Related
Transactions--Stockholders' Agreement." Messrs. LaBranche, Gallagher and
Hayward beneficially own an aggregate of 7,696,262 shares of common stock,
constituting approximately 16.8% of the outstanding shares of common stock.
As a result of the stockholders' agreement, Messrs. LaBranche, Gallagher and
Hayward, acting together as a group, may be deemed to beneficially own an
aggregate of 34,686,343 shares of common stock (including the 7,696,262
shares beneficially owned by them individually), constituting approximately
75.6% of the outstanding shares of common stock. Each of Messrs. LaBranche,
Gallagher and Hayward disclaims beneficial ownership of any and all shares
of common stock held by any person or entity other than him.
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<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION AND RELATED TRANSACTIONS
REORGANIZATION
Concurrently with our initial note offering and our common stock offering,
we completed a number of transactions in order to effect the reorganization of
our firm from partnership to corporate form. These transactions are summarized
below:
- The 36 members of LaB Investing Co. L.L.C. exchanged their membership
interests in LaB Investing Co. L.L.C. which represented a 69.8% interest
in the profit of LaBranche & Co. for an aggregate of 34,816,334 shares of
our common stock. In addition to receiving a portion of those shares,
three members of LaB Investing Co. L.L.C. also received an aggregate of
$9.0 million in cash as part of their exchange. All members who have
remained employed by us following our common stock offering only received
shares of our common stock, and no cash, in the reorganization. We thus
became the sole member of LaB Investing Co. L.L.C., and LaB Investing Co.
L.L.C. continues to be the general partner of LaBranche & Co. Our common
stock received by the members of LaB Investing Co. L.L.C. is subject to
certain restrictions, as described below under "--Stockholders'
Agreement." Set forth below is the percentage interest in the profits of
LaBranche & Co. owned by each of our Named Executive Officers, as members
of LaB Investing Co. L.L.C., before giving effect to the reorganization
and the number of shares of our common stock that each of our Named
Executive Officers received upon the closing of our common stock offering:
<TABLE>
<CAPTION>
PERCENTAGE INTEREST IN NUMBER OF SHARES OF OUR
NAMED EXECUTIVE OFFICER PROFITS OF LABRANCHE & CO. COMMON STOCK RECEIVED
- ----------------------- -------------------------- -----------------------
<S> <C> <C>
Michael LaBranche................................ 5.3% 3,500,994
James G. Gallagher............................... 3.6 2,287,100
Alfred O. Hayward, Jr............................ 3.6 1,908,068
Vincent J. Flaherty.............................. 5.0 2,087,926
Michael J. Naughton.............................. 3.6 1,958,066
</TABLE>
- The 19 limited partners of LaBranche & Co., other than Mill Bridge, Inc.,
exchanged their limited partnership interests in LaBranche & Co. which
represented a 16.0% interest in the profits of LaBranche & Co. to us in
exchange for an aggregate of $66.2 million in cash, 558,666 shares of our
common stock and subordinated indebtedness of $350,000 issued to a family
member of Mr. Gallagher. The shares of our common stock received by
limited partners are subject to lock-up restrictions which prohibits the
transfer of 50% of those shares for a period of one year and the remaining
50% for a period of two years following our common stock offering.
- Mill Bridge, Inc., a subsidiary of Van der Moolen Holding NV, received
$90.0 million from us, including $74.0 million in cash and our note for
$16.0 million, in exchange for its limited partnership interest in
LaBranche & Co., which represented a 14.2% interest in the profit of
LaBranche & Co. In addition, we repaid $5.0 million of subordinated debt
to an affiliate of Van der Moolen.
- As a result of the above transactions, we became the sole limited partner
of LaBranche & Co., which will continue to be a broker-dealer and a NYSE
specialist firm.
- Immediately prior to the closing of our common stock offering, we granted
options under the Equity Incentive Plan to purchase an aggregate of
1,200,000 shares of our common stock to our executive officers. The
options have an exercise price of $14, the initial public offering price
of our common stock, and are not currently exercisable.
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<PAGE>
- Immediately prior to the closing of our common stock offering, we granted
restricted stock units under the Equity Incentive Plan for 1,059,000
shares of our common stock to employees who are not managing directors.
The restricted stock units are not yet vested.
- Prior to the closing of our common stock offering, we completely
discharged our remaining obligations under all outstanding loans received
from the LaBranche & Co. Retirement Plan by making a single lump sum
payment in the amount of $1.1 million to the plan. Since certain of our
executive officers directed the plan to lend to us a portion of the
amounts credited to their individual accounts under the plan, part of the
proceeds of our payment were allocated to those individual accounts in
accordance with the terms of the plan.
The consideration paid to the members and limited partners in connection
with the reorganization was arrived at through negotiation.
STOCKHOLDERS' AGREEMENT
We entered into a stockholders' agreement with all 36 members of LaB
Investing Co. L.L.C. who received our common stock in the reorganization, 33 of
whom remain managing directors following our common stock offering, and with the
employees who received options and restricted stock or restricted stock unit
awards in connection with the reorganization. This stockholders' agreement
contains various restrictions on the transfer of our stock by the parties to
such agreement and a voting agreement.
TRANSFER RESTRICTIONS. The stockholders' agreement prohibits the transfer
of our shares by the former members of LaB Investing Co. L.L.C. who remain
managing directors following our common stock offering for a period of three
years. Beginning on the third anniversary of our common stock offering, up to
one-third of these shares may be transferred. Beginning on the fourth
anniversary, up to an additional one-third of these shares may be transferred,
and beginning on the fifth anniversary, all of these shares may be transferred.
In addition, the former members of LaB Investing Co. L.L.C. who did not continue
as managing directors after our common stock offering are restricted from
transferring shares as follows:
- 50% of the shares will be transferable after the first anniversary of our
common stock offering; and
- all of the shares will be transferable after the second anniversary of our
common stock offering.
Notwithstanding this,
- if the stockholder is employed by us, at all times during the course of
his or her employment, he or she must retain at least 25% of the aggregate
of the shares of our common stock received in the reorganization and other
shares received under the Equity Incentive Plan or similar plans; and
- an employee may not sell shares of our common stock which are subject to a
pledge agreement, unless the requirements of the pledge agreement are
waived by us.
VOTING AGREEMENT. The shares owned by each party to the stockholders'
agreement will be voted at the general stockholder vote as directed by
Messrs. LaBranche, Gallagher and Hayward, as determined by a majority of those
individuals. These individuals will name alternates to replace them in the event
of their death or disability.
INTEREST ON CAPITAL
The members of LaB Investing Co. L.L.C. have historically contributed
capital to LaB Investing Co. L.L.C., which was, in turn, contributed to
LaBranche & Co. For 1998, the Named Executive
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Officers listed below earned interest income on their capital account balance in
the amounts set forth opposite their names:
<TABLE>
<CAPTION>
CAPITAL INTEREST
NAME INCOME
- ---- ----------------
<S> <C>
Michael LaBranche........................................... $428,015
James G. Gallagher.......................................... 149,332
Alfred O. Hayward, Jr....................................... 274,017
Vincent J. Flaherty......................................... 164,400
Michael J. Naughton......................................... 293,061
</TABLE>
LEASE PAYMENT ON MEMBERSHIPS
Some of our Named Executive Officers have contributed the use of their NYSE
membership to LaBranche & Co. and receive lease payments from LaBranche & Co.
based on the market value of the membership. For 1998, the Named Executive
Officers listed below received payments from LaBranche & Co. in the amounts set
forth opposite their names:
<TABLE>
<CAPTION>
NAME LEASE INCOME
- ---- ------------
<S> <C>
Michael LaBranche........................................... $180,000
James G. Gallagher.......................................... 180,000
Michael J. Naughton......................................... 180,000
</TABLE>
INTEREST ON INDEBTEDNESS
A family member of Mr. Flaherty holds $600,000 of subordinated indebtedness
due August 31, 2000 and Mr. LaBranche's spouse holds $1.3 million of secured
subordinated indebtedness due March 2, 2000. This debt bears interest at an
annual rate of 10.0% payable on a quarterly basis. The agreements relating to
this debt have automatic rollover provisions which extend the maturities for an
additional year, unless the lender provides notice at least seven months prior
to maturity. The interest income in 1998 for Mr. Flaherty's family member was
$60,000 and the interest income in 1998 for Mr. LaBranche's spouse was $71,250.
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DESCRIPTION OF EXCHANGE NOTES
The initial notes were, and the exchange notes will be, issued under an
indenture (the "Indenture") dated as of August 24, 1999 by and among the Company
and Firstar Bank, NA., as Trustee (the "Trustee"). The following is a summary of
the material provisions of the Indenture. It does not include all of the
provisions of the Indenture. We urge you to read the Indenture because it
defines your rights. The terms of the exchange notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"). A copy of the Indenture may be
obtained from the Company.
You can find definitions of certain capitalized terms used in this
description under "--Certain Definitions." When we refer to the "Company" in
this section, we mean only LaBranche & Co Inc. and not its Subsidiaries.
OVERVIEW OF THE EXCHANGE NOTES
The exchange notes will:
- be general unsecured senior obligations of the Company;
- rank equal in right of payment with all other existing and future senior
unsecured obligations of the Company;
- rank senior in right of payment to all existing and future subordinated
indebtedness of the Company, if any;
- be effectively subordinated to all existing and future secured
indebtedness of the Company; and
- not be guaranteed by any Subsidiary of the Company and therefore will be
effectively subordinated to all existing and future indebtedness of the
Company's Subsidiaries.
As of June 30, 1999, on a pro forma basis as described in the pro forma
consolidated financial information included in this prospectus (excluding
subordinated liabilities related to contributed exchange memberships):
- the Company and its Subsidiaries would have had consolidated long-term
indebtedness of $162.5 million;
- the Company would have had long-term indebtedness of $116.0 million, none
of which would have been secured; and
- Subsidiaries of the Company would have had long-term indebtedness of
$46.5 million, excluding any intercompany indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be limited to $100.0 million aggregate principal
amount. The exchange notes will mature on August 15, 2004. Interest on the
exchange notes will accrue at the rate of 9 1/2% per annum and will be payable
semiannually in cash on each February 15 and August 15 to the persons who are
registered holders of the exchange notes (the "Holders") at the close of
business on the February 1 and August 1 immediately preceding the applicable
interest payment date. Interest on the exchange notes, will accrue from and
including the most recent date to which interest has been paid on the initial
notes or, if no interest has been paid on the initial notes, from and including
the date of issuance of the initial notes.
The exchange notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as paying agent and registrar for the exchange notes. The
exchange notes may be presented for registration or transfer and exchange at
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the offices of the registrar, which initially will be the Trustee's corporate
trust office. The Company may change any paying agent and registrar without
notice to the Holders.
The Company will pay principal (and premium, if any) on the exchange notes
at the Trustee's corporate office in New York, New York. At the Company's
option, interest may be paid at the Trustee's corporate trust office or by check
mailed to the registered address of the Holders.
The exchange notes will not be entitled to the benefit of any mandatory
sinking fund.
OPTIONAL REDEMPTION
The Company may redeem the exchange notes, at its option, in whole or in
part at any time, at a redemption price equal to the principal amount of the
exchange notes redeemed plus the Make-Whole Premium as of the date of
redemption. The Company will also pay accrued and unpaid interest on the
exchange notes redeemed.
In the event that less than all of the exchange notes are to be redeemed at
any time, selection of the exchange notes for redemption will be made by the
Trustee either:
(1) in compliance with the requirements of the principal national securities
exchange, if any, on which the exchange notes are listed; or
(2) if the exchange notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate.
No exchange notes of a principal amount of $1,000 or less shall be redeemed
in part.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the Redemption Date to each Holder of exchange notes to
be redeemed at its registered address. If any exchange note is to be redeemed in
part only, the notice of redemption that relates to such exchange note shall
state the portion of the principal amount thereof to be redeemed. A new exchange
note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
exchange note. On and after the date of redemption, interest will cease to
accrue on exchange notes or portions thereof called for redemption as long as
the Company has deposited with the paying agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require that the Company purchase all or a portion of such Holder's exchange
notes pursuant to the offer described below (the "Change of Control Offer"), at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest, if any, thereon to the date of purchase.
Within 30 days following the date upon which the Change of Control occurs,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have an exchange note purchased pursuant to a Change
of Control Offer will be required to surrender the note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the exchange note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
If a Change of Control Offer is required to be made, there can be no
assurance that the Company will be permitted by the terms of the Credit
Agreement or other Indebtedness of the Company to
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make such a Change of Control Offer or that it will have available funds
sufficient to pay the Change of Control purchase price for all the exchange
notes that might be delivered by Holders seeking to accept the Change of Control
Offer. A Change of Control may be a default under the Credit Agreement. In the
event the Company is required to purchase outstanding exchange notes pursuant to
a Change of Control Offer, the Company expects that it would seek third party
financing to the extent it does not have available funds to meet its purchase
obligations. However, there can be no assurance that the Company would be able
to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to require the purchase of exchange notes
upon a Change of Control. Restrictions in the Indenture on the ability of the
Company and the Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on its property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require the purchase of the exchange
notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to effect such purchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of exchange notes protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The Company will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, Incur any Indebtedness, other than Permitted
Indebtedness; provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
Incurrence of any such Indebtedness, the Company may Incur Indebtedness and the
Restricted Subsidiaries may Incur Acquired Indebtedness, in each case if on the
date of the Incurrence of such Indebtedness, after giving effect to the
Incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.75 to 1.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution, other than
dividends or distributions payable in Qualified Capital Stock of the
Company, on or in respect of shares of the Company's Capital Stock;
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(b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock;
(c) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness which is
subordinated in right of payment to the exchange notes, except a payment
of interest or any principal payment at the Stated Maturity thereof;
(d) make any Investment, other than a Permitted Investment; or
(e) make compensation or consulting payments (in excess of base salaries
limited to $250,000) to managing directors and other executive officers
(as defined in Rule 3b-7 under the Exchange Act) of the Company or any of
its Restricted Subsidiaries, except to the extent authorized under the
Annual Incentive Plan or the Equity Incentive Plan or otherwise approved
by a majority of the disinterested members of the Board of Directors of
the Company or a duly authorized committee thereof who are not managing
directors or other executive officers of the Company or any of its
Affiliates;
(each of the foregoing actions set forth in clauses (a), (b), (c), (d) and
(e) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be
continuing; or
(2) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
the covenant described under "--Limitation, on Incurrence of
Additional Indebtedness"; or
(3) the aggregate amount of Restricted Payments, including the proposed
Restricted Payment, made subsequent to the Issue Date (the amount
expended for such purpose, if other than in cash, being the fair
market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum
of:
(A) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss)
of the Company earned from the beginning of the first full fiscal
quarter following the Issue Date and through the end of the most
recent fiscal quarter for which financial statements are
available prior to the date such Restricted Payment occurs (the
"Reference Date"), treating such period as a single accounting
period; plus
(B) 100% of the aggregate net cash proceeds received by the Company
from any Person, other than a Subsidiary of the Company, from the
issuance and sale subsequent to the Issue Date and on or prior to
the Reference Date of Qualified Capital Stock of the Company or
of other securities that have been converted into Qualified
Capital Stock of the Company; plus
(C) without duplication of any amounts included in clause (3)(B)
above, 100% of the aggregate net cash proceeds of any
contribution to the common equity capital of the Company received
by the Company from a holder of the Company's Qualified Capital
Stock,
excluding, in the case of clauses (3)(B) and (C), any net proceeds
from a sale of Qualified Capital Stock received from a Subsidiary of
the Company or applied in accordance with clause (2)(b) of the
immediately following paragraph; plus
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(D) an amount equal to the lesser of:
- the sum of the fair market value of the Capital Stock of an
Unrestricted Subsidiary owned by the Company and/or the
Restricted Subsidiaries and the aggregate amount of all
Indebtedness of such Unrestricted Subsidiary owed to the
Company and each Restricted Subsidiary on the date of
Revocation of such Unrestricted Subsidiary as an Unrestricted
Subsidiary in accordance with the covenant described under
"--Limitation on Designations of Unrestricted Subsidiaries";
and
- the Designation Amount treated as a Restricted Payment pursuant
to clause (d) above with respect to such Unrestricted
Subsidiary on the date of the Designation of such Subsidiary as
an Unrestricted Subsidiary in accordance with the covenant
described under "--Limitation on Designations of Unrestricted
Subsidiaries"; plus
(E) in the case of the disposition of an Investment treated as a
Restricted Payment pursuant to clause (d) above to a Person other
than the Company or one of its Subsidiaries, an amount equal to
the lesser of:
- the amount of such Investment treated as a Restricted Payment
pursuant to clause (d) above, and
- the amount in cash received by the Company or any Restricted
Subsidiary upon such disposition; plus
(F) $10.0 million.
The provisions set forth in the immediately preceding paragraph do not
prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been
permitted on the date of declaration;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of Indebtedness of the Company or any Restricted
Subsidiary or of Capital Stock of the Company, in each case to the
extent constituting a Restricted Payment pursuant to clause (b) or
(c) of the first paragraph of this covenant either:
(a) solely in exchange for shares of Qualified Capital Stock of the
Company, or
(b) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company or
of any contribution to the common equity capital of the Company
received by the Company from a holder of the Company's Qualified
Capital Stock;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness of the Company or any Restricted Subsidiary with the net
cash proceeds from an Incurrence of Permitted Refinancing
Indebtedness therefor; and
(4) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases of Capital Stock (or options therefor) of the
Company from officers, directors, employees, consultants or former
officers, directors, employees or consultants of the Company (or any
of its Subsidiaries) pursuant to equity ownership or compensation
plans or stockholders agreements not to exceed $5.0 million in any
year.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (3) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1) and (4) of this paragraph
shall be included in the calculation.
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LIMITATION ON ASSET SALES
The Company will not, and will not permit any of the Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of the Asset Sale at least
equal to the fair market value of the assets sold or otherwise
disposed of as determined in good faith by the Board of Directors of
the Company;
(2) at least 75% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from the Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the
time of such Asset Sale; and
(3) upon the consummation of each Asset Sale, the Company applies, or
causes such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 360 days of receipt thereof
either:
(a) to repay any Indebtedness of the Company to the extent secured by
a Lien pursuant to clause (a), (b), (c), (d), (e) or (h) of
"--Limitation on Liens," and effect a permanent reduction in the
availability in respect of the Indebtedness (without refinancing
the Indebtedness);
(b) to repay any Indebtedness of a Wholly Owned Restricted Subsidiary
owed to any Person other than the Company or any of its
Affiliates and effect a permanent reduction in any availability
in respect of the Indebtedness(without refinancing the
Indebtedness);
(c) to acquire Replacement Assets; or
(d) a combination of prepayment and investment permitted by the
preceding clauses (3)(a), (b) and (c).
The assumption by the transferee in an Asset Sale (and release of the Company
and its Restricted Subsidiaries of further liability) of Indebtedness for
borrowed money of the Company or any Restricted Subsidiary other than
Disqualified Capital Stock or Indebtedness subordinated in right of payment to
the exchange notes shall be deemed to be cash applied in accordance with this
covenant. The receipt by the Company or the applicable Restricted Subsidiary of
marketable securities of a company subject to and then current in its
obligations as a reporting company under Section 13 or 15 under the Exchange
Act, which are resold for cash or Cash Equivalents by the Company or the
Restricted Subsidiary within 120 days of the relevant Asset Sale and applied in
accordance with this covenant, shall be deemed to be cash received pursuant to
clause (2) above.
On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to the Asset Sale as set forth in
clause (3) of the immediately preceding paragraph (each, a "Net Proceeds Offer
Trigger Date"), the aggregate amount of Net Cash Proceeds that have not been
applied on or before the Net Proceeds Offer Trigger Date as permitted in that
clause (3) (a "Net Proceeds Offer Amount") shall be applied by the Company to
make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
Proceeds Offer Payment Date") not less than 30 nor more than 60 days following
the Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
principal amount of exchange notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the exchange notes to be
purchased, plus accrued and unpaid interest, if any, thereon to the date of
purchase; provided that the Company may make a concurrent offer to repurchase on
a pro rata basis Indebtedness of a Wholly Owned Restricted Subsidiary or
Indebtedness of the Company ranking PARI PASSU with the exchange notes.
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If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration) or Cash Equivalents,
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. Pending application in accordance with this covenant, Net Cash
Proceeds may be used to repay revolving credit borrowings without reducing
commitments thereunder.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $5.0 million
resulting from one or more Asset Sales or deemed Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $5.0 million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not
transferred for purposes of this covenant and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value (as determined in good faith by the Board of
Directors of the Company) of such properties and assets of the Company or the
Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their exchange notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender exchange
notes in an amount exceeding the Net Proceeds Offer Amount, exchange notes of
tendering Holders will be purchased on a pro rata basis based on the principal
amount of exchange notes (and other Indebtedness for which a concurrent offer is
being made as permitted by this covenant) tendered. A Net Proceeds Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law.
The Company will comply with the requirements of Rule 14e-l under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of exchange notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
LIMITATION ON DISTRIBUTIONS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(b) make loans or advances or pay any Indebtedness or other obligation owed
to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reasons of:
(1) applicable law or regulation or NYSE regulations;
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(2) the Indenture;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or
assets of the Person so acquired;
(5) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(6) any other agreement entered into after the Issue Date that contains
encumbrances and restrictions that are not materially more
restrictive with respect to any Restricted Subsidiary than those in
effect with respect to such Restricted Subsidiary pursuant to
agreements as in effect on the Issue Date so long as any such
restrictions expressly permit scheduled payments on the exchange
notes;
(7) customary restrictions on the transfer of any property or assets
arising under a security agreement governing a Lien permitted under
the Indenture; and
(8) any agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4) or (5) above; provided,
however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are not
materially more restrictive than the provisions relating to such
encumbrance or restriction contained in agreements referred to in
such clause (2), (4) or (5) and expressly permit dividends and other
distributions for scheduled payments on the exchange notes.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit:
(a) any Restricted Subsidiary to issue any Capital Stock other than to the
Company or a Restricted Subsidiary;
(b) any Person (other than the Company or a Restricted Subsidiary) to own or
control any Capital Stock of any Restricted Subsidiary (other than
directors' qualifying shares or as may be required by law);
PROVIDED, that clauses (a) and (b) will not prohibit:
(1) any sale of 100% of the shares of the Capital Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary effected
in accordance with "--Limitation on the Sale of Assets," or
(2) any sale of 100% of the shares of the Capital Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary effected
in accordance with "--Merger, Consolidation and Sale of Assets."
LIMITATION ON LIENS
The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon, or enter into or
otherwise become liable in respect of, a Sale and Leaseback Transaction with
respect to, any property or assets of the Company or any of the Restricted
Subsidiaries, whether owned on the
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Issue Date or acquired after the Issue Date, or any proceeds therefrom or assign
or otherwise convey any right to receive income or profit therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly subordinate
or junior in right of payment to the exchange notes, the exchange notes
are secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens; and
(2) in all other cases, the exchange notes are equally and ratably secured,
except for:
(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(b) Liens on Investment Securities securing Indebtedness incurred
pursuant to clause (b) of the definition of "Permitted Indebtedness"
and Interest Swap Obligations and Currency Agreements related
thereto;
(c) Liens on Capital Stock of Subsidiaries securing a bank credit
facility of the Company and Interest Swap Obligations and Currency
Agreements related thereto;
(d) Liens securing Purchase Money Indebtedness (or Refinancing
Indebtedness in respect thereof) or Sale and Leaseback Transactions
involving Capitalized Lease Obligations, in each case Incurred
pursuant to clause (1) of the definition of "Permitted Indebtedness;"
provided, however, that:
(1) the Purchase Money Indebtedness (or Refinancing Indebtedness) or
Capitalized Lease Obligation shall not exceed the cost of the
property or assets to be acquired or which is the subject of the
Sale and Leaseback Transaction, and shall not be secured by any
property or assets of the Company or any Restricted Subsidiary
other than the property and assets to be acquired or which is the
subject of the Sale and Leaseback Transaction, and
(2) the Lien securing any Purchase Money Indebtedness shall be
created within 90 days of such acquisition;
(e) Liens securing Acquired Indebtedness (and any Refinancing
Indebtedness in respect thereof); provided that:
(1) the Liens secured the Acquired Indebtedness at the time of and
prior to the Incurrence of the Acquired Indebtedness by the
Company or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of the Incurrence of the
Acquired Indebtedness by the Company or a Restricted Subsidiary;
and
(2) the Liens do not extend to or cover any property or assets of the
Company or of any of the Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior
to the time the Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary;
(f) Liens securing the exchange notes;
(g) Liens in favor of the Company;
(h) Liens securing Refinancing Indebtedness incurred to Refinance any
Indebtedness, which Refinanced Indebtedness had been secured by a
Lien permitted under the Indenture; provided, however, that such
Liens do not extend to or cover any property or assets of the Company
or any of the Restricted Subsidiaries not securing the Indebtedness
so Refinanced; and
(i) Permitted Liens.
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MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless:
(1) either:
(a) the Company shall be the surviving or continuing corporation; or
(b) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by
sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and the Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture (in form and
substance reasonably satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the
exchange notes and the performance of every covenant of the
exchange notes, the Indenture and the Registration Rights
Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the assumption
contemplated by clause (1)(b)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness Incurred or anticipated to be
Incurred in connection with or in respect of such transaction), the
Company or such Surviving Entity, as the case may be, shall be able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "--Limitation on
Incurrence of Additional Indebtedness";
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default
or Event of Default shall have occurred or be continuing; and
(4) the Company or the Surviving Entity shall have delivered to the Trustee
an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
the applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been
satisfied.
The above paragraph will not apply to a merger or consolidation between the
Company and a Restricted Subsidiary in which the Company is the surviving
company or between one or more Restricted Subsidiaries to the extent that a
Person that is a Restricted Subsidiary immediately before and after the
transaction is the surviving entity, or to the sale of substantially all of the
assets of a Restricted Subsidiary to the Company or to a Person that is a
Restricted Subsidiary immediately before and after the transaction. For purposes
of this covenant, the transfer by lease, assignment, sale or otherwise, in a
single transaction or series of transactions, of all or substantially all of the
properties or assets of one or more Restricted Subsidiaries, the Capital Stock
of which constitutes all or substantially
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all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged, or to which such conveyance, lease or transfer is made, shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the exchange notes with the same effect as
if such surviving entity had been named as such.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its
Affiliates (each an "Affiliate Transaction") unless the Affiliate
Transaction is on terms that are not materially less favorable than those
that would have reasonably been expected in a comparable transaction at
such time on an arm's-length basis from a Person that is not an Affiliate
of the Company or such Restricted Subsidiary. Prior to the consummation
by the Company or any Restricted Subsidiary of any Affiliate Transactions
(or series of related Affiliate Transactions which are similar or part of
a common plan) involving aggregate payments or other property with a fair
market value in excess of:
(1) $5 million, the Company or such Restricted Subsidiary, as the case
may be, shall obtain the approval of its Board of Directors
(including a majority of the independent directors) of such
transaction or series of related transactions evidenced by a Board
Resolution stating that such Board of Directors (including a majority
of the independent directors) has determined that such transaction
complies with the foregoing provisions, and
(2) $10 million, the Company or such Restricted Subsidiary, as the case
may be, shall obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial
point of view, from an Independent Financial Advisor, and file it
with the Trustee.
(b) The restrictions set forth in paragraph (a) above shall not apply to:
(1) employment, stock option, consulting, agency or other compensation or
benefit plans, arrangements and agreements of the Company or any
Restricted Subsidiary in accordance with the Annual Incentive Plan or
the Equity Incentive Plan or as approved by a majority of the
disinterested members of the Board of Directors (or a majority of the
disinterested members of a committee thereof);
(2) reasonable fees and compensation paid to directors, and reasonable
indemnity provided on behalf of officers, directors, employees,
consultants or agents, of the Company or any Restricted Subsidiary as
determined in good faith by the Company's Board of Directors or
senior management;
(3) transactions exclusively between or among the Company and any
Restricted Subsidiaries or exclusively between or among Restricted
Subsidiaries, provided such transactions are not otherwise prohibited
by the Indenture; and
(4) Restricted Payments permitted to be made pursuant to the
"--Limitation on Restricted Payments" covenant.
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LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES
The Company may designate any Subsidiary of the Company, other than
LaBranche or a Person holding Capital Stock of LaBranche, as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or after
giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an Investment
at the time of Designation assuming the effectiveness of the Designation
in an amount (the "Designation Amount") equal to the sum of:
(1) the fair market value of the Capital Stock of the Subsidiary owned by
the Company and/or any of the Restricted Subsidiaries on such date
and
(2) the aggregate amount of Indebtedness of the Subsidiary owed to the
Company and the Restricted Subsidiaries on that date; and
(c) the Company would be permitted to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "--Limitation on Incurrence of Additional Indebtedness" at the time
of Designation assuming the effectiveness of the Designation.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "--Limitation on Restricted Payments"
for all purposes of the Indenture. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time:
(1) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness),
(2) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or,
(3) be directly or indirectly liable for any Indebtedness that provides
that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any
Unrestricted Subsidiary (including any right to take enforcement
action against the Unrestricted Subsidiary).
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary ("Revocation"), whereupon such Subsidiary shall then constitute a
Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time and after
giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiaries outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by an officers'
certificate of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
REPORTS TO HOLDERS
The Indenture provides that the Company will deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information,
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documents and other reports, if any, that the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Sections 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual and quarterly reports and such
information, document and other reports specified in Section 13 and 15(d) of the
Exchange Act. The Company will also comply with the other provisions of TIA
Section314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(a) the failure to pay interest (including any additional interest payable,
under the Registration Rights Agreement) on any exchange notes when the
same becomes due and payable and the default continues for a period of
30 days;
(b) the failure to pay the principal on any exchange notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase exchange
notes tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer), whether or not such payment shall be prohibited by the
subordination provision of the Indenture;
(c) a default in the observance or performance of the covenant described
under "--Certain Covenants--Merger, Consolidation and Sale of Assets";
(d) a default in the observance or performance of any other covenant or
agreement contained in the Indenture, which default continues for a
period of 45 days after the Company receives written notice specifying
the default from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the exchange notes;
(e) a default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary (or the
payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness now exists or is created after the
Issue Date, which default:
(1) is caused by failure to pay principal of such Indebtedness after any
applicable grace period provided in such Indebtedness on the date of
such default (a "payment default") or
(2) results in the acceleration of such Indebtedness prior to its express
maturity,
and the aggregate principal amount of any Indebtedness to which clause (1)
or (2) applies at the relevant time, exceeds $5.0 million;
(f) one or more judgments in an aggregate amount in excess of $5.0 million
shall have been rendered against the Company or any of the Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed
for a period of 45 days after such judgment or judgments become final and
nonappealable;
(g) certain events of bankruptcy affecting the Company or any of the
Significant Subsidiaries (or any group of Subsidiaries which, taken
together, would constitute a Significant Subsidiary) pursuant to SIPA or
bankruptcy laws;
(h) LaBranche is not a specialist broker in good standing with the NYSE;
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(i) the Commission revokes the registration of LaBranche as a broker-dealer
under the Exchange Act or LaBranche fails to maintain such registration;
or
(j) the Examining Authority (as defined in Rule 15c3-1) for the Company
shall suspend (and not reinstate within 10 days) or revoke LaBranche's
status as a member organization thereof.
If an Event of Default (other than an Event of Default specified in
clause (g) above) shall occur and be continuing, the Trustee or the Holders of
at least 25% in principal amount of outstanding exchange notes may declare the
principal of, and accrued interest on, all the exchange notes to be due and
payable by notice in writing to the Company and (if given by the Holders) the
Trustee specifying the respective Events of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable. If an
Event of Default specified in clause (g) above occurs and is continuing, then
all unpaid principal of, and accrued and unpaid interest on, all of the
outstanding exchange notes shall become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the exchange notes as described in the preceding paragraph, the
Holders of a majority in principal amount of the then outstanding exchange notes
may rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely
because of the acceleration;
(3) to the extent payment of such interest is lawful, if interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid;
(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances;
and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (g) of the description above of Events of
Default, the Trustee shall have received an officers' certificate and
an opinion of counsel that such Event of Default has been cured or
waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the then outstanding
exchange notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any exchange notes.
Holders of the exchange notes may not enforce the Indenture or the exchange
notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding exchange notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
The Company is required to provide an officers' certificate to the Trustee
promptly upon the Company obtaining knowledge of any Default or Event of Default
(provided that the Company shall provide such certification at least annually
whether or not it knows of any Default or Event of Default) that has occurred
and, if applicable, describe such Default or Event of Default and the status
thereof.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding exchange notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
exchange notes, except for:
(1) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the exchange notes when such
payments are due solely from the trust described below;
(2) the Company's obligations with respect to the exchange notes concerning
issuing temporary exchange notes, mutilated, destroyed, lost or stolen
exchange notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission or failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the exchange notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"--Events of Default" will no longer constitute an Event of Default with respect
to the exchange notes.
In order to exercise Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accounts, to pay the principal of, premium, if any, and interest
on the exchange notes on the stated date of payment thereof or on the
applicable redemption date, as the case may be;
(b) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United Stares reasonably acceptable
to the Trustee confirming that:
(1) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling; or
(2) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance
had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit;
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(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with
the intent of defeating, hindering, delaying or defrauding other
creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(h) the Company shall have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(i) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights as expressly provided for in the Indenture) as to
all outstanding exchange notes when:
(a) either:
(1) all the exchange notes theretofor authenticated and delivered (except
lost, stolen or destroyed exchange notes which have been replaced or
paid and exchange notes for whose payment money has theretofor been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation; or
(2) all exchange notes not theretofor delivered to the Trustee for
cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the exchange notes not theretofor delivered to the
Trustee for cancellation, for principal of, and premium, if any, and
interest on, the exchange notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as
the case may be;
(b) the Company has paid all other sums payable under the Indenture by the
Company; and
(c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, doubts or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the
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Holders of a majority in principal amount of the then outstanding exchange notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may:
(a) reduce the amount of exchange notes whose holders must consent to an
amendment;
(b) reduce the rate of or change or have the effect of changing the time for
payment of interest, including defaulted interest, on any exchange notes;
(c) reduce the principal of or change or have the effect of changing the
fixed maturity of any exchange notes, or change the date on which any
exchange notes may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor;
(d) make any exchange notes payable in money other than that stated in the
exchange notes;
(e) make any change in provisions of the Indenture protecting the right of
each Holder to receive payment of principal of and interest on such
exchange notes on or after the stated due date thereof or to bring suit
to enforce such payment, or permitting Holders of a majority in principal
amount of the then outstanding exchange notes to waive Defaults or Events
of Default;
(f) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer after the
occurrence of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto; or
(g) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the exchange notes in a manner which
adversely affects the Holders.
GOVERNING LAW
The Indenture provides that it and the exchange notes will be governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and power vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the exchange notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the exchange notes or because of the creation of any Indebtedness represented
thereby shall be had against any Person solely as a result of their capacity as
incorporator, stockholder, officer, director, employee or controlling person of
the Company or of any successor Person thereof. Each holder, by accepting the
exchange notes, waives and releases all such liability.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. The Indenture includes the full definition of all these terms, as
well as any other terms used below for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed by the Company or any Restricted Subsidiary in
connection with the acquisition of assets from such Person and in each case
whether or not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"AFFILIATE TRANSACTION" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Affiliates."
"ANNUAL INCENTIVE PLAN" means the LaBranche & Co Inc. Annual Incentive Plan
as in effect on the Issue Date or as amended from time to time as approved by a
majority of the disinterested members of the Board of Directors (or a majority
of the disinterested members of a committee thereof).
"ASSET ACQUISITION" means:
(a) an Investment by the Company or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted Subsidiary
or shall be merged with or into the Company or any Restricted Subsidiary,
or
(b) the acquisition by the Company or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) that constitute
all or substantially all of the assets of such Person or comprises any
division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease,
assignment or other transfer (other than the granting of a Lien in accordance
with the Indenture) for value by the Company or any of the Restricted
Subsidiaries (including any Sale and Leaseback Transaction) to any Person other
than the Company or a Restricted Subsidiary of:
(a) any Capital Stock of any Restricted Subsidiary; or
(b) any other property or assets (excluding Capital Stock) of the Company or
any Restricted Subsidiary,
provided, however, that "Asset Sale" shall not include:
(1) a transaction or series of related transactions for which the Company or
the Restricted Subsidiaries receive aggregate consideration of less than
$2.0 million;
(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted by the
covenant described under "--Certain Covenants--Merger, Consolidation and
Sale of Assets";
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(3) any Restricted Payment made in accordance with the covenant described
under "--Certain Covenants--Limitation on Restricted Payments";
(4) the sale or lending of Investment Securities in the ordinary course of
business of the Company and its Restricted Subsidiaries;
(5) Sale and Leaseback Transactions involving up to $15.0 million in the
aggregate after the Issue Date; or
(6) the disposition of obsolete or worn-out equipment or entering into
operating leases for real property or equipment or subleases in respect
thereof, in each case in the ordinary course of business.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof,
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the secretary or an assistant secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations, at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means:
(a) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of Common
Stock and Preferred Stock of such Person; and
(b) with respect to any Person that is not a corporation, any and all
partnership, limited liability company interests or other equity
interests of such Person.
"CASH EQUIVALENTS" means:
(a) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within twelve months from the date of
acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(c) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(d) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$500,000,000;
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(e) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) entered into
with any bank meeting the qualifications specified in clause (d) above;
and
(f) investments in money market funds that invest substantially all their
assets in securities of the types described in clauses (a) through
(e) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(a) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of the Company (determined on a consolidated basis) to any Person or
group of related Persons for purposes of Section 13(d) of the Exchange
Act (a "Group"), (whether or not otherwise in compliance with the
provisions of the Indenture);
(b) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether or
not otherwise in compliance with the provisions of the Indenture);
(c) any Person or Group, other than the Permitted Holders, becomes the
beneficial owner (as defined by Section 13(d) of the Exchange Act)
directly or indirectly, of more than 35% of the total voting power of the
Capital Stock of the Company, and the Permitted Holders beneficially own,
directly or indirectly in the aggregate, a lesser percentage of the total
voting power of the Capital Stock of the Company than such Person or
Group and do not have the right or ability by voting power, contract, or
otherwise to elect or designate for election a majority of the Board of
Directors (or any analogous governing body) of the Company; or
(d) the replacement of a majority of the Board of Directors of the Company
over a consecutive 24-month period from the directors who constituted the
Board of Directors of the Company at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors of the Company, then still in office
who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "--Change of
Control."
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "--Change
of Control."
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of the Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"COMMISSION NET CAPITAL" means, at any time, the "net capital" of LaBranche
computed in accordance with Rule 15c3-1.
"COMMISSION REQUIRED NET CAPITAL" means, at any time, the minimum amount to
which Commission Net Capital must be equal pursuant to Rule 15c3-1 in order to
remain in compliance with all provisions thereof.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of:
(a) Consolidated Net Income; and
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(b) to the extent Consolidated Net Income has been reduced thereby;
(1) any income taxes of the Company and the Restricted Subsidiaries paid
or accrued in accordance with GAAP for such period (other than income
taxes attributable to extraordinary or nonrecurring gains or taxes
attributable to Asset Sales outside the ordinary course of business);
(2) Consolidated Interest Expense; and
(3) Consolidated Non-cash Charges, less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for the Company and the Restricted Subsidiaries in
accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to:
(a) the Incurrence or repayment of any Indebtedness of the Company or any of
the Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any Incurrence or
repayment of other Indebtedness (and the application of the proceeds
thereof), other than the Incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on
or prior to the Transaction Date, as if such Incurrence or repayment, as
the case may be (and the application of the proceeds thereof), occurred
on the first day of the Four Quarter Period;
(b) any Asset Sales, any disposition of assets excluded from the definition
of Asset Sale pursuant to clause (3) thereof or any Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person that becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale or other disposition during the Four
Quarter Period, provided that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated
Net Income") occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date as if such Asset Sale, other disposition or Asset
Acquisition (including the Incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the Company or any of the Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the Incurrence of such guaranteed
Indebtedness as if the Company or any Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness; and
(c) the Reorganization.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of the "Consolidated Fixed
Charge Coverage Ratio"
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(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor
of a prime or similar rate, a eurocurrency interbank offered rate, or
other rates, then the interest rate in effect on the Transaction Date
will be deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on
a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to the Company for any
period, the sum, without duplication, of:
(a) Consolidated Interest Expense; plus
(b) the product of:
(1) the amount of all dividend payments on any series of Preferred Stock
of the Company (other than dividends paid in Qualified Capital Stock)
paid, accrued or scheduled to be paid or accrued during such period
times; and
(2) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal,
state and local income tax rate of the Company, expressed as a
decimal.
"CONSOLIDATED INTEREST EXPENSES" means, with respect to the Company for any
period, the sum of, without duplication:
(a) the aggregate of the interest expense of the Company and the Restricted
Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation, whether or not
constituting interest expense in accordance with GAAP:
(1) any amortization of debt discount,
(2) the net costs under Interest Swap Obligations,
(3) any capitalized interest and
(4) the interest portion of any deferred payment obligation; and
(b) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains (but not losses) from Asset Sales or reserves relating
thereto;
(b) extraordinary gains or losses;
(c) for purposes of calculating Consolidated Net Income pursuant to
clause (3) of the first paragraph of "Certain Covenants--Limitation on
Restricted Payments" only, the net income of any Person acquired in a
"pooling of interests" transaction accrued prior to the date it
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becomes a Restricted Subsidiary or is merged or consolidated with the
Company or any Restricted Subsidiary;
(d) the net income (but not loss) of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the relevant time
permitted by a contract operation of law or otherwise;
(e) any increase (but not decrease) in net income attributable to minority
interests in Restricted Subsidiaries;
(f) the net income of any Person, other than a Restricted Subsidiary, except
to the extent of cash dividends or distributions paid to the Company or
to a Restricted Subsidiary by such Person;
(g) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date;
(h) in the case of a successor to the Company by consolidation or merger or
as a transferee of the Company's assets, for purposes of calculating
Consolidated Net Income pursuant to clause (3) of the first paragraph of
"Certain Covenants--Limitation on Restricted Payments" only, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets; and
(i) the cumulative effect of changes in accounting principles.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charge that requires an accrual of or a reserve
for cash charges for any future period).
"COVENANT DEFEASANCE" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"CREDIT AGREEMENT" means the Credit Agreement between LaBranche and The Bank
of New York, dated June 26, 1998, as amended.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice of both would be, an Event of Default.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitations on Designations of Unrestricted Subsidiaries."
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock that,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is mandatorily exchangeable for Indebtedness, or is redeemable, or exchangeable
for Indebtedness, at the sole option of the holder thereof on or prior to the
91st day after the final maturity date of the exchange notes.
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"EQUITY INCENTIVE PLAN" means the LaBranche & Co Inc. Equity Incentive Plan
as in effect on the Issue Date or as amended from time to time as approved by a
majority of the disinterested members of the Board of Directors (or a majority
of the disinterested members of a committee thereof).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth under "--Events of Default."
"FOUR QUARTER PERIOD" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"HOLDERS" has the meaning set forth under "--Principal, Maturity and
Interest."
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion change or otherwise),
assume, guarantee or otherwise become liable, contingently or otherwise, in
respect of such Indebtedness or other obligation on the balance sheet of such
Person. Indebtedness of any Acquired Person or any of its Subsidiaries existing
at the time such Acquired Person becomes a Restricted Subsidiary (or is merged
into or consolidated with the Company or any Restricted Subsidiary), whether or
not such Indebtedness was Incurred in connection with, as a result of, or in
contemplation of, such Acquired Person becoming a Restricted Subsidiary (or
being merged into or consolidated with the Company or any Restricted
Subsidiary), shall be deemed Incurred at the time any such Acquired Person
becomes a Restricted Subsidiary or merges into or consolidates with the Company
or any Restricted Subsidiary.
"INDEBTEDNESS" means, with respect to any Person, without duplication:
(a) all Obligations of such Person for borrowed money,
(b) all Obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(c) all Capitalized Lease Obligations of such Person;
(d) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted);
(e) all letters of credit, banker's acceptances or similar credit
transactions (including any Obligations for reimbursement in respect
thereof);
(f) guarantees and other contingent obligations in respect of Indebtedness
of any other Person referred to in clauses (a) through (e) above and
clause (h) below;
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(g) all Obligations of any other Person of the type referred to in clauses
(a) through (e) that are secured by any Lien on any property or asset of
such Person, the amount of such Obligation being deemed to be the lesser
of the fair market value of such property or asset or the amount of the
Obligation so secured;
(h) all Obligations under Currency Agreements and Interest Swap Obligations
of such Person; and
(i) all Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if
any.
Notwithstanding anything to the contrary herein, "Indebtedness" shall not
include any overnight borrowings by the Company or any Restricted Subsidiary
Incurred in connection with the lending of Investment Securities which does not
constitute indebtedness under GAAP.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a qualified accounting, appraisal or
investment banking firm of national standing that does not, and whose directors,
officers and employees and Affiliates do not, have a direct or indirect
financial interest in the Company.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person:
(a) any direct or indirect advance, loan or other extension of credit
(including, without limitation, a guarantee) or capital contribution to
any other Person (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others); or
(b) any purchase or acquisition by such Person of any Capital Stock (or
warrants, rights or options to purchase Capital Stock), bonds, notes,
debentures or other securities or evidences of Indebtedness issued by,
any other Person.
"INVESTMENT" shall exclude extensions of trade credit by the Company and the
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Restricted Subsidiary, as the case
may be. If the Company or any Restricted Subsidiary sells or otherwise disposes
of any Capital Stock of any Restricted Subsidiary (the "Referent Subsidiary")
such that, after giving effect to any such sale or disposition the Referent
Subsidiary shall cease to be a Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Capital Stock of the Referent Subsidiary
not sold or disposed of.
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"INVESTMENT SECURITIES" means marketable securities of a Person (other than
an Affiliate or joint venture of the Company or any Restricted Subsidiary)
acquired by the Company or any of its Restricted Subsidiaries in the ordinary
course of its specialist or related businesses.
"ISSUE DATE" means the first date of issuance of the initial notes.
"LABRANCHE" means LaBranche & Co., a New York limited partnership, or any
other Wholly-Owned Subsidiary registered as a broker-dealer under the Exchange
Act which succeeds to the business of LaBranche & Co.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature hereof and any agreement to give
any security interest).
"MAKE-WHOLE PREMIUM" means, with respect to any exchange note on any
Redemption Date, the greater of:
(a) 1% of the principal amount of such exchange note; and
(b) the excess, if any, of,
(1) the present value at such time of the payment of the outstanding
principal amount of such exchange note on the maturity date therefor
and the remaining scheduled payments of interest on such exchange
note to the maturity date therefor, computed using a discount rate
equal to the Treasury Rate plus 0.50% per annum, over
(2) the outstanding principal amount of such exchange note.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest), received
by the Company or any of the Restricted Subsidiaries from such Asset Sale net
of:
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees, sales commissions and relocation expenses);
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(c) repayments of Indebtedness secured by the property or assets subject to
such Asset Sale that is required to be repaid in connection with such
Asset Sale; and
(d) appropriate amounts to be determined by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"NET PROCEEDS OFFER" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NET PROCEEDS OFFER AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
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"NET PROCEEDS OFFER PAYMENT DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NYSE" means the New York Stock Exchange, Inc. or any successor operator of
the New York Stock Exchange.
"NYSE NET CAPITAL" means, at any time, the "net capital" of LaBranche
computed in accordance with Rule 326(a) of the NYSE (or any successor
provision).
"NYSE REQUIRED NET CAPITAL" means, at any time, the minimum amount of NYSE
Net Capital necessary at such time in order to permit LaBranche to "expand its
business" pursuant to Rule 326(a) of the NYSE (or any successor provision).
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any indebtedness.
"PERMITTED HOLDERS" means:
(a) individually or a combination of any of the following individuals:
George M.L. LaBranche, IV, James G. Gallagher, Alfred O. Hayward, Jr.,
Vincent J. Flaherty or Michael J. Naughton;
(b) a spouse of any of the Person, referred to in clause (a) or any of his
or her lineal descendants;
(c) the trustee(s) of any trust established solely for any of the Persons
referred to in clause (a) or (b);
(d) any organization to which contributions by any of the Persons referred
to in a clause (a), (b) or (c) are deductible for federal income, estate
or gift tax purposes or any split-interest trust described in
Section 4947 of the Internal Revenue Code of 1986, as amended, provided
that, in each case, such Person is a trustee or a member of the board of
directors, trustees or other governing body or group having the ultimate
authority, inter alia, to vote, dispose or direct the voting or
disposition of Capital Stock of the Company held by such Person; and
(e) a corporation of which a majority of the voting power of its outstanding
Capital Stock is beneficially owned by, or a partnership or limited
liability company of which a majority of the partnership or limited
liability company interests entitled to vote and participate in the
management of the partnership or limited liability company are
beneficially owned by, a Person described in clause (a), (b), (c) or (d).
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(a) Indebtedness under the exchange notes;
(b) Indebtedness of the Company and the Restricted Subsidiaries Incurred
pursuant to working capital facilities (including, without limitation,
the Credit Agreement) in an amount not to exceed 70% of the market value
of the Investment Securities securing such facilities constituting equity
securities listed on the NYSE or the NASDAQ National Market System, less
the amount of any permanent prepayments or reductions of commitments in
respect of any such Indebtedness made pursuant to "--Certain
Covenants--Limitation on Asset Sales";
(c) Indebtedness of the Company and the Restricted Subsidiaries outstanding
on the Issue Date (excluding Indebtedness under the Credit Agreement but
including Indebtedness owed to Mill Bridge, Inc. and Kathryn Gallagher
and other Indebtedness Incurred on the Issue Date
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pursuant to the Reorganization) reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(d) Permitted Subordinated Indebtedness Incurred after the Issue Date not to
exceed $50.0 million at any one time outstanding;
(e) Interest Swap Obligations of the Company covering Indebtedness of the
Company and Interest Swap Obligations of any Restricted Subsidiary
covering Indebtedness of such Restricted Subsidiary; provided, however,
that such Interest Swap Obligations are entered into to protect the
Company and the Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligations
does not exceed the principal amount of the indebtedness to which such
Interest Swap Obligations relates;
(f) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(g) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary for so long as the Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held
by a Person other than the Company or a Restricted Subsidiary, provided
that if as of any date any Person other than the Company or a Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such Indebtedness shall be deemed to be Incurred on
such date and not constitute Permitted Indebtedness under this
clause (g);
(h) Indebtedness of the Company to a Restricted Subsidiary, provided that:
(1) any Indebtedness of the Company to any Restricted Subsidiary is
subordinate in right of payment to the exchange notes, and
(2) if as of any date any Person other than a Restricted Subsidiary owns
or holds any such Indebtedness or any Person holds a Lien in respect
of such Indebtedness, such date shall be deemed the date of
Incurrence of Indebtedness not constituting Permitted Indebtedness by
the Company;
(i) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar installment inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
indebtedness is extinguished within five business days of Incurrence;
(j) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security
for workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of
business;
(k) Refinancing Indebtedness;
(l) Purchase Money Indebtedness and Capitalized Lease Obligations (and any
Indebtedness incurred to Refinance such Purchase Money Indebtedness or
Capitalized Lease Obligations) of the Company or any Restricted
Subsidiary not to exceed $20.0 million at any one time outstanding; and
(m) additional Indebtedness of the Company or any Restricted Subsidiary in
an aggregate principal amount not to exceed $15.0 million at any one time
outstanding.
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"PERMITTED INVESTMENTS" means:
(a) Investments by the Company or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Company or a
Restricted Subsidiary;
(b) Investments in the Company by any Restricted Subsidiary; provided that
any Indebtedness evidencing such Investment is unsecured and subordinate
to the exchange notes;
(c) Investments in cash and Cash Equivalents;
(d) loans and advances to employees, officers and directors of the Company
and the Restricted Subsidiaries in the ordinary course of business for
bona fide business purposes not in excess of $5.0 million at any time
outstanding in the aggregate;
(e) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or a Restricted Subsidiary's businesses
and otherwise in compliance with the Indenture;
(f) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(g) Investments made by the Company or the Restricted Subsidiaries as a
result of noncash consideration received in connection with an Asset Sale
made in compliance with the covenant described under "--Certain
Covenants--Limitation on Asset Sales";
(h) Investments in Investment Securities (including borrowings or loans of
Investment Securities) in the ordinary course of business of the Company
and its Restricted Subsidiaries; or
(i) additional Investments not to exceed $10.0 million at any one time
outstanding in the aggregate.
"PERMITTED LIENS" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims either:
(1) not delinquent; or
(2) contested in good faith by appropriate proceedings and as to which
the Company or any Restricted Subsidiary shall have set aside on its
books such reserves as may be required pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by
law or pursuant to customary reservations or retentions of title, in each
case arising in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice
in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the
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review of such judgment shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(e) easements, rights-of-way, zoning restrictions, minor defects or
irregularities in title and other similar charges or encumbrances in
respect of real property not impairing in any material respect the
ordinary conduct of the business of the Company or any Restricted
Subsidiary;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(h) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the
Company or any of the Restricted Subsidiaries, including rights of offset
and set-off;
(j) leases or subleases in respect of real property or equipment granted to
others not interfering in any material respect with the ordinary conduct
of the business of the Company or any Restricted Subsidiary;
(k) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the
importation of goods; and
(l) normal and customary rights of setoff upon deposits of cash in favor of
banks or other depositary institutions.
"PERMITTED SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company
Incurred at a time when no Default or Event of Default has occurred and is
continuing:
(a) which matures at least 91 days after the final maturity date for the
exchange notes and is not prior to that time:
(1) mandatorily redeemable, or
(2) exchangeable for Indebtedness other than Permitted Subordinated
Indebtedness pursuant to a sinking fund obligation or otherwise or
upon the occurrence of any event,
(b) which has a Weighted Average Life to Maturity greater than that of the
exchange notes;
(c) which is subordinate in right of payment to the exchange notes with
payment blockage rights in favor of the Holders of the exchange notes as
set forth in the Indenture; and
(d) the proceeds of which are loaned by the Company to LaBranche pursuant to
clause (g) of the definition of Permitted Indebtedness and a subordinated
loan agreement (as defined in Appendix D to Rule 15c3-1) for use by
LaBranche for net capital purposes and properly accounted for by
LaBranche as Commission Net Capital and NYSE Net Capital; provided that
any subordination of the loan by the Company will apply only to the
extent required to permit the loan to qualify as Commission Net Capital
and NYSE Net Capital.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
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"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed such purchase price or cost.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REDEMPTION DATE" has the meaning set forth under "Optional Redemption."
"REFERENCE DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"REFINANCE" means in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with "Certain
Covenants--Limitation on the Incurrence of Additional Indebtedness" (other than
Permitted Indebtedness) or clause (a) or (c) of the definition of "Permitted
Indebtedness," in each case that does not:
(a) result in an increase in the aggregate principal amount of any
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium reasonably necessary to Refinance such
Indebtedness and plus the amount of reasonable expenses incurred by the
Company in connection with such Refinancing); or
(b) create Indebtedness with:
(1) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or
(2) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that if such Indebtedness being Refinanced
is Indebtedness of the Company, then such Refinancing Indebtedness
shall be Indebtedness solely of the Company.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated the Issue Date by and among the Company and Salomon Smith Barney Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, as Initial Purchasers.
"REORGANIZATION" means, as described in this prospectus, the creation of the
Company as a holding company for LaB Investing Co. L.L.C. and LaBranche, the
acquisition by the Company on the Issue Date of all of the limited partnership
interests in LaBranche and the entire membership interest in LaB Investing Co.
L.L.C., the issuance by the Company of the initial notes and the Incurrence by
the Company and LaBranche of other Indebtedness as described in this prospectus.
"REPLACEMENT ASSETS" means assets and property that will be used in the
business of the Company and/or its Restricted Subsidiaries as such business is
then being conducted (including Capital Stock of a Person that becomes a Wholly
Owned Restricted Subsidiary).
"RESTRICTED PAYMENT" has the meaning set forth under "--Certain
Covenants--Limitations on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted
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Subsidiary pursuant to and in compliance with the covenant described under
"--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
Any such Designation may be revoked by a Board Resolution of the Company
delivered to the Trustee, subject to the provisions of such covenant.
"REVOCATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"RULE 15C3-1" means Rule 15c3-1 under the Exchange Act (or any successor
provision).
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"SIPA" means the Securities Investor Protection Act of 1970, as amended, or
any successor statute or statutes thereto, and the rules and regulations
promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Section 1.02(w) of Regulation S-X under the Securities
Act as in effect on the Issue Date, except that all references to 10% in
Section 1.02(w) shall be changed to 5%.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"SUBSIDIARY" with respect to any Person, means:
(a) any corporation of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of directors
under ordinary circumstance shall at the time be owned, directly or
indirectly, by such Person; or
(b) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"SURVIVING ENTITY" has the meaning set forth under "--Certain
Covenants--Merger, Consolidation and Sale of Assets."
"TRANSACTION DATE" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"TREASURY RATE" means the yield to maturity at the time of computation of
U.S. Treasury securities with a constant maturity, as compiled in the most
recent Federal Reserve Release H.15 (519) which has become publicly available at
least two business days prior to the relevant Redemption Date (or, if such
statistical release is no longer published, any publicly available source of
similar market data), closest to the period from such Redemption Date to the
maturity date for the exchange notes, provided that, if the period from such
Redemption Date to the maturity date is, not equal to the constant maturity of a
U.S. Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of one year) from the weekly average yields of U.S. Treasury
securities for which such yields are given, except that if the period from such
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Redemption Date to the maturity date is less than one year, the weekly average
yield on actually traded U.S. Treasury securities adjusted to a constant
maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the then outstanding aggregate principal amount of such Indebtedness
into
(b) the sum of the total of the products obtained by multiplying:
(1) the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by
(2) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of the Company means any Restricted
Subsidiary of which all the outstanding voting securities (other than in the
case of a Subsidiary not organized under the laws of a State of the United
States, directors' qualifying shares or an immaterial amount of shares required
to be owned by other Persons pursuant to applicable law) are owned directly or
indirectly by the Company or any Wholly Owned Restricted Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will be issued in the form of a global note (the "Global
Note"). The Global Note will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of DTC or its nominee. Except
as set forth below, the Global Note may be transferred in whole and not in part,
only to DTC or another nominee of DTC. Investors may hold their beneficial
interests in the Global Note directly through DTC if they have an account with
DTC or indirectly through Euroclear System ("Euroclear") or Cedel Bank, N.A.
("Cedel Bank"), organizations which have accounts with DTC.
Exchange notes that are issued as described below under "--Certificated
Exchange Notes" will be issued in definitive form. Upon the transfer of an
exchange note in definitive form, such exchange note will, unless the Global
Note has previously been exchanged for exchange notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of exchange notes being transferred.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel Bank set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. The
Company takes no responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
DTC has advised the Company that it is:
- a limited purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of the New York Banking Law,
- a member of the Federal Reserve System,
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- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of Participants, thereby eliminating the need for physical transfer and
delivery of certificates. DTC Participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Investors who are not Participants may beneficially own securities
held by or on behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC
- upon deposit of the Global Note, DTC will credit the accounts of
Participants with an interest in the Global Note, and
- ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC
(with respect to the interests of Participants) and the records of
Participants and the Indirect Participants (with respect to the interests
of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the exchange notes represented
by a Global Note to such persons may be limited. In addition, because DTC can
act only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in exchange notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of the Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the exchange notes resented by the Global Note for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in the
Global Note will not be entitled to have exchange notes represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any direction, instruction or approval to the Trustee
thereunder. Accordingly, each holder owning a beneficial interest in the Global
Note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest, to exercise any rights of a holder of exchange
notes under the Indenture of such Global Note. The Company understands that
under existing industry practice, in the event that the Company requests any
action of holders of exchange notes, or a holder that is an owner of a
beneficial interest in the Global Note desires to take any action that DTC, as
the holder of such Global Note, is entitled to take, DTC could authorize the
Participants to take such action and the Participants would authorize holders
owning through such Participants to take such action or would otherwise act upon
the instruction of such holders. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of exchange notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such exchange notes.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest on the Global Note, will credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Note as shown on the records of DTC or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in the Global Note held through such Participants will be
governed by standing instructions and customary practices and will be the
responsibility of such Participants. The Company will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global Note
for any exchange note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between DTC and Participants or the relationship between such
Participants and the owners of beneficial interests in the Global Note owning
through such Participants.
Transfers between Participants will be effected in accordance with DTC's
procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel Bank will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between Participants, on the one hand, and Euroclear
or Cedel Bank participants, on the other hand, will be effected through DTC in
accordance with DTC's rules on behalf of Euroclear or Cedel Bank, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel Bank, as the case
may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel Bank, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Notes in DTC, and making or receiving payment
in accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel Bank participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in a Global Note from a
Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel Bank participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel Bank)
immediately following the settlement date of DTC. Cash received in Euroclear or
Cedel Bank as a result of sales of interests in the Global Note by or through a
Euroclear or Cedel Bank participant to a Participant will be received with value
on the settlement date of DTC but will be available in the relevant Euroclear or
Cedel Bank cash account only as of the business day for Euroclear or Cedel Bank
following DTC's settlement date.
Although DTC, Euroclear and Cedel Bank have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Note among
participants in DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel Bank or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
If:
- DTC (1) notifies the Company that it is no longer willing or able to act
as a depositary and the Company fails to appoint a successor depositary or
(2) ceases to be registered as a clearing agency under the Exchange Act;
- the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of exchange notes in certificated form; or
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- at the request of DTC, if there shall have occurred and be continuing an
event of default with respect to the exchange notes,
then, upon surrender by DTC of the Global Note, certificated exchange notes
in definitive form in denominations of U.S. $1,000 and integral multiples
thereof will be issued to each person that DTC identifies as the beneficial
owner of the exchange notes represented by the Global Note. Upon any such
issuance, the Trustee is required to register such certificated exchange
notes in the name of such person or persons (or the nominee of any thereof)
and cause the same to be delivered thereto. Subject to the foregoing, the
Global Note is not exchangeable, except for a Global Note of the same
aggregate denomination to be registered in the name of DTC or its nominee.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related exchange notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the exchange notes to be issued.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
We entered into a registration rights agreement with the initial purchasers
concurrently with the issuance of the initial notes. You may obtain a copy of
the agreement by calling or writing to us at One Exchange Plaza, New York, New
York 10006; (212) 425-1144. Under the agreement, we agreed to file with the SEC
an exchange offer registration statement of which this prospectus is a part with
respect to an offer to exchange the initial notes for a new series of exchange
notes with terms substantially identical to the initial notes. We will also
file a shelf registration statement to cover resales of initial notes or
exchange notes by holders who provide us with certain information if:
a) we are not permitted to effect the exchange offer because the exchange
offer is not permitted by applicable law or SEC policy;
b) the exchange offer is not completed within 120 days of the Issue Date;
c) any holder of any private exchange notes so requests in writing to us
within 30 days after the completion of the exchange offer; or
d) in the case of any holder that participates in the exchange offer, such
holder does not receive exchange notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than due
solely to the status of such holder as an affiliate of the Company within the
meaning of the Securities Act).
We will use our best efforts to obtain effectiveness of the applicable
registration statement as promptly as possible.
UNDER EXISTING INTERPRETATIONS OF THE STAFF OF THE DIVISION OF CORPORATION
FINANCE OF THE SEC, THE EXCHANGE NOTES WOULD IN GENERAL BE FREELY TRADABLE AFTER
THE COMPLETION OF THE EXCHANGE OFFER WITHOUT FURTHER COMPLIANCE WITH THE
REGISTRATION AND DELIVERY REQUIREMENTS OF THE SECURITIES ACT. HOWEVER, THE SEC
INDICATED THAT IT MAY REPEAL THESE INTERPRETATIONS. FURTHERMORE, THE SEC MAY
ADOPT CERTAIN PROPOSED RULE CHANGES UNDER THE SECURITIES ACT. IF THE
INTERPRETATIONS REFERRED TO ABOVE ARE REPEALED BEFORE THE EXCHANGE OFFER IS
COMPLETED SO THAT THE EXCHANGE OFFER WOULD NO LONGER BE PERMISSIBLE, THEN
HOLDERS OF THE INITIAL NOTES WILL NOT BE ABLE TO RECEIVE EXCHANGE NOTES PURSUANT
TO AN EXCHANGE OFFER. RATHER, THE INITIAL NOTES WILL ONLY BE REGISTERED IN
CONNECTION WITH RESALES BY THE HOLDERS. IN CONNECTION WITH SUCH RESALES, THE
HOLDERS WILL BE REQUIRED TO DELIVER A PROSPECTUS TO THE PURCHASERS AND WILL BE
SUBJECT TO CERTAIN OF THE CIVIL LIABILITY PROVISIONS UNDER THE SECURITIES ACT.
105
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Under the registration rights agreement we agreed to:
- file the exchange offer registration statement with the SEC by the 45th
day after the closing of our initial note offering;
- use our best efforts to obtain effectiveness of the exchange offer
registration statement by the 90th day after the closing for our initial
note offering;
- unless the exchange offer would not be permitted by applicable law or SEC
policy, commence the exchange offer and use our best efforts to issue by
the 120th day after the closing of our initial note offering exchange
notes in exchange for all initial notes tendered in the exchange offer;
- if obligated to file a shelf registration statement, use our best efforts
to file such shelf registration statement with the SEC by the 45th day
following the date of the occurrence of one of the events specified in the
registration rights agreement which gives rise to our obligation to
file a shelf registration statement; and
- if obligated to file a shelf registration statement, use our best efforts
to obtain effectiveness of such shelf registration statement by the 45th
day after the initial shelf registration filing date.
We agreed to pay additional interest if:
- we fail to file the exchange offer registration statement by the 45th day
after the closing of our initial note offering;
- the exchange offer registration statement is not declared effective by the
SEC by the 90th day after the closing of our initial note offering;
- we fail to consummate the exchange offer by the 120th day after the
closing of our initial note offering;
- the exchange offer registration statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
exchange notes in accordance with and during the periods specified in the
registration rights agreement;
- we fail to file a shelf registration statement by the 45th day following
the date of the occurrence of one of the events specified in the
registration rights agreement which gives rise to our obligation to
file a shelf registration statement;
- the shelf registration statement is not declared effective by the SEC by
the 45th day following the initial shelf registration filing date; or
- the shelf registration statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities (as defined below) in accordance with and during the
periods specified in the registration rights agreement.
Each event described above is a "Registration Default." The term "Transfer
Restricted Securities" means each initial note, or exchange note, until:
- in the case of an initial note, the date on which such initial note has
been exchanged by a person other than a broker-dealer for an exchange note
in the exchange offer;
- in the case of an exchange note received by a broker-dealer in the
exchange offer in exchange for an initial note, the date on which the
exchange note is sold to a purchaser who receives from the broker-dealer
on or prior to the date of sale a copy of the exchange offer prospectus;
- in the case of an initial note, the date on which the initial note has
been effectively registered under the Securities Act and disposed of under
the shelf registration statement; or
106
<PAGE>
- in the case of an initial note, the date on which the initial note is
publicly sold under Rule 144 under the Act.
If a Registration Default occurs, we will pay to each holder of initial
notes or exchange notes, as liquidated damages and not as a penalty, additional
interest equal to 0.25% per annum of the aggregate principal amount of the
initial notes or exchange notes held by such holder, during the 90-day period
immediately following the occurrence of the first Registration Default. The
amount of additional interest will increase by an additional 0.25% per annum at
the beginning of each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum aggregate amount of additional interest equal
to 1.00% per annum. All accrued additional interest with respect to initial
notes or exchange notes held in global form will be paid by wire transfer of
immediately available funds or by federal funds check. All accrued additional
interest with respect to initial notes or exchange notes held in certificated
form will be paid by wire transfer to the accounts specified by the relevant
holder or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of additional interest will cease.
Holders of initial notes have made certain representations to us (as
described in the registration rights agreement) to participate in the exchange
offer. Holders of initial notes and/or exchange notes must also deliver
information required to be included in the shelf registration statement and
provide comments on the shelf registration statement within the time periods set
forth in the registration rights agreement in order to have their initial notes
and/or exchange notes included in the registration statement and receive
liquidated damages as described above.
107
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The following summarizes the principal terms of the other indebtedness of
LaBranche & Co Inc., LaBranche & Co. and LaB Investing Co. L.L.C. Copies of the
material agreements relating to the other indebtedness have been filed with the
SEC and the description below is qualified in its entirety by reference to the
agreements. See "Where You Can Find Additional Information."
CREDIT AGREEMENT WITH THE BANK OF NEW YORK
Effective as of June 23, 1999, the Credit Agreement between LaBranche & Co.
and The Bank of New York was extended for an additional one-year term, and
amended in order to increase the credit facility available thereunder from
$75.0 million to $100.0 million. Borrowings under the Credit Agreement are
secured by a pledge of the investment securities of LaBranche & Co. identified
in the Credit Agreement. Loans under the Credit Agreement will bear interest at
The Bank of New York's broker loan rate. All loans under the Credit Agreement
will become due on June 23, 2000.
The Credit Agreement contains covenants that require LaBranche & Co., among
other things, to
- maintain net capital of not less than $75.0 million, and
- maintain a net worth of not less than $100.0 million.
The Credit Agreement also restricts LaBranche & Co.'s ability to incur
additional indebtedness, including guarantee liabilities, certain mortgages or
other encumbrances or the assets pledged under the Credit Agreement.
LABRANCHE & CO.'S PRIVATE PLACEMENT DEBT
LaBranche & Co. has two series of outstanding unsecured senior subordinated
notes in the aggregate principal amounts of $20.0 million and $15.0 million,
respectively. These notes mature on September 15, 2002 and June 3, 2008,
respectively, and bear interest payable quarterly at respective annual rates of
8.17% and 7.69%.
LaBranche & Co. may prepay, at a premium, all or any part of the senior
subordinated notes at any time, provided that the amount prepaid is not less
than 5% of the aggregate principal amount of the senior subordinated notes then
outstanding.
Upon the occurrence of a change of control, LaBranche & Co. may, but is not
required to, make one irrevocable separate offer to each holder of the senior
subordinated notes to prepay all of the senior subordinated notes then held by
that holder. The occurrence of a change of control also constitutes an event of
acceleration under each of the series of senior subordinated notes.
Among other things, the agreements relating to the senior subordinated notes
require that LaBranche & Co. comply with certain covenants including covenants
that
- restrict the type of businesses in which it may engage;
- require its net capital to be at least 150% of the net capital required by
the NYSE or the SEC and its adjusted partners' capital to be at least
$40.0 million; and
- prohibit it from making restricted payments.
108
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A failure to make timely payments of principal and/or interest on the senior
subordinated notes or the occurrence of certain other events may result in a
default under, or an acceleration of, the senior subordinated notes. These
events include:
- the Securities Investor Protection Corporation makes an application
stating that the customers of LaBranche & Co. are in need of protection
under the Securities Investor Protection Act, and the application is not
dismissed within 30 days;
- the SEC revokes the registration of LaBranche & Co. as a broker-dealer;
- the NYSE suspends the status of LaBranche & Co. as a member organization;
and
- LaBranche & Co. fails to meet its net capital requirements.
CASH SUBORDINATED LOAN AGREEMENTS
LaBranche & Co. is a party to a number of separate cash subordinated loan
agreements with current employees, former partners and family members or
affiliates of current and former partners of the firm. These cash subordinated
loan agreements represent junior subordinated debt of LaBranche & Co. The
current aggregate principal amount of such subordinated indebtedness is
approximately $16.2 million. This debt bears interest payable quarterly at an
annual rate of 10.0%. LaBranche & Co. has the option to prepay all or a portion
of this debt, subject to the approval of the NYSE and the application of
regulatory net capital requirements. The indebtedness represented by these cash
subordinated loan agreements generally matures one year from the date of
issuance, subject to automatic rollover for additional one-year terms, unless
notice is given by either party not to renew the term at least seven months
prior to the scheduled maturity date.
As part of the reorganization of our firm from partnership to corporate
form, LaBranche & Co. repaid $5.0 million in satisfaction of one of these cash
subordinated loan agreements and incurred $350,000 of subordinated indebtedness
pursuant to a new cash subordinated loan agreement in connection with the
redemption of a limited partnership interest which bears interest at an annual
rate of 8.0%.
NOTE ISSUED TO MILL BRIDGE
In connection with the reorganization of our firm from partnership to
corporate form, we acquired the limited partnership interest in LaBranche & Co.
held by Mill Bridge, Inc. for $90.0 million, of which $74.0 million was paid in
cash upon the consummation of our initial note offering and our common stock
offering and $16.0 million was satisfied by the issuance by us of a note which
is payable over three years. This $16.0 million obligation is a senior unsecured
obligation of LaBranche & Co Inc. and is payable as to $5.0 million on the first
anniversary of the completion of our initial note offering and our common stock
offering, $5.0 million on the second anniversary of the completion of our
initial note offering and our common stock offering and $6.0 million on the
third anniversary of the completion of our initial note offering and our common
stock offering, and bears interest at an annual rate of 9.5%. This obligation
ranks pari passu with the exchange notes.
RETIREMENT PLAN OBLIGATIONS
Upon the completion of our initial note offering and our common stock
offering, LaBranche & Co. repaid approximately $1.1 million in indebtedness owed
to participants in LaBranche & Co.'s retirement plan, which amount has been
accrued in the historical consolidated statement of financial condition.
109
<PAGE>
UNITED STATES INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the exchange of the initial notes for exchange notes that may be
relevant to a beneficial owner of initial notes that is a citizen or resident of
the United States or a U.S. domestic corporation or that otherwise is subject to
United States federal income taxation on a net income basis in respect of such
initial notes. This summary is based on laws, regulations, rulings and judicial
and administrative decisions now in effect, all of which are subject to change.
This summary deals only with investors that hold the initial notes as capital
assets, and does not address tax considerations applicable to investors that may
be subject to special tax rules, such as, but not limited to, banks, tax-exempt
entities, insurance companies or dealers in securities or currencies, traders in
securities electing to mark to market, persons that hold the initial notes as a
position in a "straddle" or conversion transaction, or as part of a "synthetic
security" or other integrated financial transaction or persons that have a
"functional currency" other than the U.S. dollar.
The exchange of initial notes for exchange notes pursuant to the exchange
offer will not be a taxable event for U.S. federal income tax purposes. As a
result, a U.S. holder of an initial note whose initial note is accepted in the
exchange offer will not recognize gain or loss on the exchange for U.S. federal
income tax purposes. Such holder's tax basis in the exchange notes will be equal
to such holder's tax basis in the initial notes exchanged therefor, and the
holding period for the exchange notes received pursuant to the exchange offer
will include the holder's holding period for the initial notes surrendered
therefor.
Investors should consult their own tax advisors in determining the tax
consequences to them, as a result of their individual circumstances, of the
exchange of initial notes for exchange notes and of the ownership and
disposition of exchange notes received in the exchange offer, including the
application of state, local, foreign or other tax laws.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes pursuant to the exchange offer, where such initial
notes were acquired by such broker-dealer as a result of market making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for initial notes where such initial notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of up to six-months, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1999, all dealers effecting transactions in
the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and that participates in a distribution of such
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of exchange notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under
110
<PAGE>
the Securities Act. The letter of transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of up to six-months, the Company will promptly send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests such documents in the letter of transmittal. The
Company has agreed to pay all expenses incident to the exchange offer, including
the expenses of one special counsel for all of the holders of the initial notes,
other than commissions or concessions of any broker-dealers. The Company will
indemnify the holders of the initial notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of issuance of the exchange notes offered hereby will be passed
upon for LaBranche & Co Inc. by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The audited financials statements and schedules of LaB Investing Co. L.L.C.
and Subsidiary and the audited financial statements of LaBranche & Co. included
in this prospectus have been audited by Arthur Andersen LLP, independent
auditors, as stated in their reports appearing herein.
The audited financial statements of Fowler, Rosenau & Geary, LLC included in
this prospectus have been audited by Sugarman & Thrope, P.C., independent
auditors, as stated in their report appearing herein.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement under the Securities Act
on Form S-4 with respect to the exchange notes (together with all amendments and
exhibits thereto, the "Registration Statement") and are subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy statements and other information with the SEC. For
further information with respect to LaBranche & Co Inc., please refer to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this prospectus as to the
contents of any contract, agreement of any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit. A
copy of the Registration Statement, including exhibits and schedules thereto,
may be inspected without charge and obtained at prescribed rates at the Public
Reference Section of the SEC at its principal offices, located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and may be inspected without charge at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Registration Statement, including the exhibits and
schedules thereto, is also available at the SEC's site on the World Wide Web at
http://www.sec.gov.
(Remainder of this page has been left blank intentionally.)
111
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
LABRANCHE & CO INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Consolidated Financial Information (Overview)
(unaudited)............................................... F-3
Pro Forma Consolidated Statement of Financial Condition as
of June 30, 1999 (unaudited).............................. F-5
Pro Forma Consolidated Statement of Operations for the Six
Months Ended June 30, 1999 (unaudited).................... F-6
Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1998 (unaudited)....................... F-7
Notes to Pro Forma Consolidated Financial Information
(unaudited)............................................... F-8
LAB INVESTING CO. L.L.C. AND SUBSIDIARY CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-9
Consolidated Statements of Financial Condition as of
June 30, 1999 (unaudited) and as of December 31, 1998 and
1997...................................................... F-10
Consolidated Statements of Operations for the Six Months
Ended June 30, 1999 and 1998 (unaudited) and the Years
Ended December 31, 1998, 1997 and 1996.................... F-11
Consolidated Statements of Changes in Members' Capital for
the Six Months Ended June 30, 1999 (unaudited) and the
Years Ended December 31, 1998, 1997 and 1996.............. F-12
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (unaudited) and the Years
Ended December 31, 1998, 1997 and 1996.................... F-13
Notes to Consolidated Financial Statements.................. F-14
LAB INVESTING CO. L.L.C. (PARENT COMPANY ONLY) CONDENSED
FINANCIAL STATEMENTS
Condensed Statements of Financial Condition as of
December 31, 1998 and 1997................................ F-19
Condensed Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-20
Condensed Statements of Changes in Members' Capital for the
Years Ended December 31, 1998, 1997 and 1996.............. F-21
Condensed Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-22
Note to Condensed Financial Statements...................... F-23
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
LABRANCHE & CO. FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-24
Statements of Financial Condition as of June 30, 1999
(unaudited) and as of December 31, 1998 and 1997.......... F-25
Statements of Operations for the Six Months Ended June 30,
1999 and 1998 (unaudited) and the Years Ended
December 31, 1998, 1997 and 1996.......................... F-26
Statements of Changes in Partners' Capital for the Six
Months Ended June 30, 1999 (unaudited) and the Years Ended
December 31, 1998, 1997 and 1996.......................... F-27
Statements of Cash Flows for the Six Months Ended June 30,
1999 and 1998 (unaudited) and the Years Ended
December 31, 1998, 1997 and 1996.......................... F-28
Notes to Financial Statements............................... F-29
FOWLER, ROSENAU & GEARY, LLC FINANCIAL STATEMENTS
Independent Auditor's Report................................ F-35
Statements of Financial Condition as of June 30, 1998,
November 30, 1997 and 1996................................ F-36
Statements of Income for the Seven Months Ended June 30,
1998 and the Years Ended November 30, 1997 and 1996....... F-37
Statements of Changes in Members' Capital for the Seven
Months Ended June 30, 1998 and the Years Ended
November 30, 1997 and 1996................................ F-38
Statements of Cash Flows for the Seven Months Ended
June 30, 1998 and the Years Ended November 30, 1997 and
1996...................................................... F-39
Notes to Financial Statements............................... F-40
</TABLE>
F-2
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
OVERVIEW
The following pro forma consolidated financial information is based on the
historical consolidated financial statements of LaBranche & Co. and LaB
Investing Co. L.L.C., its sole general partner (together, the "Partnership"),
after giving effect to the acquisition of Fowler, Rosenau & Geary, LLC ("Fowler,
Rosenau") and the reorganization and related transactions (the "Reorganization
Transactions") to convert the Partnership to corporate form. The Reorganization
Transactions are described in greater detail below. The pro forma consolidated
statement of financial condition presents the Reorganization Transactions as if
they occurred on June 30, 1999 and gives effect to the completion of the initial
public offering. The pro forma consolidated statement of operations for the six
months ended June 30, 1999 and for the year ended December 31, 1998 present the
results of the Partnership as if the Reorganization Transactions had occurred on
January 1, 1998. Additionally, the pro forma consolidated statement of
operations for the year ended December 31, 1998 present the results of the
Partnership as if the acquisition of Fowler, Rosenau had occurred on January 1,
1998.
Effective July 1, 1998, the Partnership acquired the specialist operations
of Fowler, Rosenau for an aggregate purchase price of approximately
$45.0 million, representing a 22.4% total general and limited partners' interest
in the Partnership. The acquisition of Fowler, Rosenau was accounted for under
the purchase method of accounting. The purchase price consisted of general and
limited partnership interests issued to new partners admitted into the
Partnership. The limited partners' interests were issued by LaBranche & Co. The
excess purchase price over fair value of net assets acquired of approximately
$25.8 million has been allocated to goodwill, which is being amortized over a
15-year period. The following unaudited pro forma consolidated financial
statement of operations for the year ended December 31, 1998 gives effect to
this acquisition as if it had occurred on January 1, 1998, by consolidating the
results of operations of Fowler, Rosenau for the six months ended June 30, 1998
with the results of operations of the Partnership, which include the results of
Fowler, Rosenau after June 30, 1998, for the year ended December 31, 1998.
The Partnership is not currently subject to federal or state income taxes,
but is currently subject to New York City unincorporated business tax. LaBranche
& Co Inc., on a consolidated basis, is subject to federal, state and local
income taxes. Concurrently with the closing of the common stock offering, the
Partnership completed the following Reorganization Transactions:
- The limited partners of LaBranche & Co. redeemed their interests for
$140.2 million in cash, a $16.0 million note, $350,000 of subordinated
indebtedness and 558,666 shares of common stock of LaBranche & Co Inc.
with a value of $7.8 million, for a total purchase price of $164.4
million.
- The members of LaB Investing Co. L.L.C. exchanged their membership
interests in LaB Investing Co. L.L.C. for $9.0 million in cash and
34,816,334 shares of common stock of LaBranche & Co Inc.
- $5.0 million of subordinated debt at an interest rate of 10.0% was repaid.
In addition, simultaneously with the initial public offering, LaBranche & Co
Inc. incurred indebtedness with a principal amount of $100.0 million. The
proceeds of the indebtedness, net of estimated issuance costs of approximately
$2.5 million, were used to redeem a portion of the limited partners' interests
in LaBranche & Co. and withdrawing members' interests.
F-3
<PAGE>
The redemption of the limited partners' interest is accounted for as a step
acquisition under the purchase method of accounting. The excess of purchase
price over the limited partners' capital accounts is allocated to intangible
assets with corresponding respective lives as follows:
<TABLE>
<CAPTION>
INTANGIBLE ASSET AMOUNT LIFE
- ---------------- -------------- --------
<S> <C> <C>
Specialist Stock List....................................... $ 93.6 million 40 years
Trade Name.................................................. 26.6 million 40 years
Goodwill.................................................... 7.1 million 15 years
--------------
$127.3 million
==============
</TABLE>
The allocation of purchase price and determination of useful lives was based
upon an independent appraisal. The useful life of the specialist stock list was
determined based upon analysis of historical turnover characteristics of the
specialist stocks.
Historically, the Partnership paid substantially all its earnings to its
members as managing directors' compensation. Upon reorganization to corporate
form, managing directors became employees of the corporation. The Board of
Directors of LaBranche & Co Inc. approved the LaBranche & Co Inc. Annual
Incentive Plan (the "Plan"). Under the Plan, a compensation pool of up to 30% of
pre-tax income, which is assumed to include related employee benefits, will be
set aside for managing directors and other employees. In determining the 30%
compensation pool, compensation expenses relating to the grant of restricted
stock units at the time of the common stock offering will be deducted. Managing
directors will also be paid base annual compensation of amounts ranging between
$150,000 to $250,000. Such base amounts are considered to be drawn against the
30% compensation pool.
The pro forma consolidated financial information has been prepared by the
Partnership's management and is not necessarily indicative of the results that
would have been achieved had the acquisition of Fowler, Rosenau and the
Reorganization Transactions occurred on the dates indicated or that may be
achieved in the future. The pro forma consolidated financial information should
be read in conjunction with the audited consolidated financial statements of the
Partnership as of December 31, 1998 and 1997 and the three years in the period
ended December 31, 1998, the notes thereto, and the unaudited consolidated
financial statements as of June 30, 1999 and the six months in the periods ended
June 30, 1999 and 1998, and the notes thereto.
F-4
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1999
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REORGANIZATION OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS............................. $ 2,763 $ 97,500 (A) $134,710(I) $ 80,763
(140,210)(B)
(9,000)(C)
(5,000)(D)
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL....... 35,300 -- -- 35,300
RECEIVABLE FROM BROKERS AND DEALERS................... 115,467 -- -- 115,467
SECURITIES OWNED, at market value:
Corporate equities.................................. 106,247 -- -- 106,247
United States Government obligations................ 1,436 -- -- 1,436
Other............................................... 1,500 -- -- 1,500
COMMISSIONS RECEIVABLE................................ 3,265 -- -- 3,265
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market
value............................................... 20,000 -- -- 20,000
EXCHANGE MEMBERSHIPS OWNED, at cost (market value of
$8,000)............................................. 6,300 -- -- 6,300
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost,
less accumulated depreciation and amortization...... 1,469 -- -- 1,469
INTANGIBLE ASSETS..................................... 45,838 127,287 (E) -- 173,125
OTHER ASSETS.......................................... 6,516 2,500 (A) -- 9,016
-------- -------- -------- --------
Total assets...................................... $346,101 $ 73,077 $134,710 $553,888
======== ======== ======== ========
LIABILITIES AND MEMBERS' CAPITAL/ STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to brokers and dealers...................... $ 3,347 $ -- $ -- $ 3,347
Securities sold, but not yet purchased, at market
value............................................. 90,578 -- -- 90,578
Accrued compensation................................ 35,208 -- -- 35,208
Accounts payable and other accrued expenses......... 12,042 -- -- 12,042
Other liabilities................................... 1,105 -- -- 1,105
-------- -------- -------- --------
142,280 -- -- 142,280
-------- -------- -------- --------
LONG TERM DEBT........................................ -- 100,000 (F) -- 100,000
-- 16,000 (G) -- 16,000
-------- -------- -------- --------
-- 116,000 -- 116,000
-------- --------
COMMITMENTS........................................... -- -- -- --
SUBORDINATED LIABILITIES:
Exchange memberships, at market value............... 20,000 -- -- 20,000
350 (H) -- 350
Other subordinated indebtedness..................... 51,158 (5,000)(D) -- 46,158
-------- -------- -------- --------
71,158 (4,650) -- 66,508
-------- -------- -------- --------
LIMITED PARTNERS' INTEREST IN SUBSIDIARY.............. 37,094 (37,094)(B) -- --
-------- -------- -------- --------
(9,000)(C)
MEMBERS' CAPITAL/STOCKHOLDERS' EQUITY................. 95,569 7,821 (B) 134,710 (I) 229,100
-------- -------- -------- --------
Total liabilities and members'
capital/stockholders' equity.................... $346,101 $ 73,077 $134,710 $553,888
======== ======== ======== ========
</TABLE>
See notes to pro forma consolidated financial information.
F-5
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Net gain on principal transactions............... $78,666 $ -- $ 78,666
Commissions...................................... 17,885 -- 17,885
Other............................................ 6,942 -- 6,942
------- -------- -----------
Total revenues................................. 103,493 -- 103,493
------- -------- -----------
EXPENSES:
Employee compensation and benefits............... 11,299 21,701 (J) 33,000
Lease of exchange memberships.................... 4,165 -- 4,165
Interest......................................... 2,195 4,750 (K) 7,469
760 (L)
14 (M)
(250)(N)
Exchange, clearing and brokerage fees............ 1,997 -- 1,997
Amortization of intangibles...................... 1,693 1,738 (O) 3,431
Occupancy........................................ 725 -- 725
Communications................................... 538 -- 538
Legal and professional fees...................... 466 -- 466
Other............................................ 1,066 -- 1,066
------- -------- -----------
Total expenses before managing directors'
compensation, limited partners' interest in
earnings of subsidiary and provision for
income taxes................................. 24,144 28,713 52,857
------- -------- -----------
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary and provision for income taxes...... 79,349 (28,713) 50,636
MANAGING DIRECTORS' COMPENSATION................... 48,214 (48,214)(P) --
------- -------- -----------
Income before limited partners' interest in
earnings of subsidiary and provision for income
taxes.......................................... 31,135 19,501 50,636
LIMITED PARTNERS' INTEREST IN EARNINGS OF
SUBSIDIARY....................................... 21,054 (21,054)(Q) --
------- -------- -----------
Income before provision for income taxes......... 10,081 40,555 50,636
PROVISION FOR INCOME TAXES......................... 3,789 19,235 (R) 23,024
------- -------- -----------
Net income....................................... 6,292 21,320 27,612
======= ======== ===========
Pro forma weighted average shares outstanding...... 45,875,000(S)
===========
Pro forma basic and diluted net earnings per
share............................................ $ 0.60(S)
===========
</TABLE>
See notes to pro forma consolidated financial information.
F-6
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
FOWLER REORGANIZATION PRO
HISTORICAL ACQUISITION(T) TRANSACTIONS FORMA
---------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions.... $95,048 $ 3,688 $ -- $ 98,736
Commissions........................... 26,576 7,387 -- 33,963
Other................................. 4,787 364 -- 5,151
------- ------- -------- -----------
Total revenues...................... 126,411 11,439 -- 137,850
------- ------- -------- -----------
EXPENSES:
Employee compensation and benefits.... 13,921 1,055 25,469 (J) 40,445
Lease of exchange memberships......... 6,568 496 -- 7,064
Interest.............................. 3,577 410 9,500 (K) 14,535
1,520 (L)
28 (M)
(500 )(N)
Exchange, clearing and brokerage
fees................................ 2,898 335 -- 3,233
Amortization of intangibles........... 2,526 860 (U) 3,477 (O) 6,863
Occupancy............................. 1,121 111 -- 1,232
Communications........................ 964 26 -- 990
Legal and professional fees........... 916 198 -- 1,114
Other................................. 2,285 660 -- 2,945
------- ------- -------- -----------
Total expenses before managing
directors' compensation, limited
partners' interest in earnings of
subsidiary and provision for
income taxes...................... 34,776 4,151 39,494 78,421
------- ------- -------- -----------
Income before managing directors'
compensation, limited partners'
interest in earnings of subsidiary
and provision for income taxes...... 91,635 7,288 (39,494) 59,429
MANAGING DIRECTORS' COMPENSATION........ 58,783 1,387 (60,170)(P) --
------- ------- -------- -----------
Income before limited partners'
interest in earnings of subsidiary
and provision for income taxes...... 32,852 5,901 20,676 59,429
LIMITED PARTNERS' INTEREST IN EARNINGS
OF SUBSIDIARY......................... 26,292 -- (26,292)(Q) --
------- ------- -------- -----------
Income before provision for income
taxes............................... 6,560 5,901 46,968 59,429
PROVISION FOR INCOME TAXES.............. 3,900 200 23,538 (R) 27,638
------- ------- -------- -----------
Net income............................ $ 2,660 $ 5,701 $ 23,430 $ 31,791
======= ======= ======== ===========
Pro forma weighted average shares
outstanding........................... 45,875,000(S)
===========
Pro forma basic and diluted net earnings
per share............................. $ 0.69(S)
===========
</TABLE>
See notes to pro forma consolidated financial information.
F-7
<PAGE>
LABRANCHE & CO INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(A) Reflects net proceeds received for issuance of the long-term indebtedness
which does not reflect the debt discount of approximately $200,000. Debt
issuance costs of approximately $2.5 million have been reflected.
(B) Reflects the redemption of limited partnership interests in exchange for
$164.4 million, comprised of $140.2 million in cash, a $16.0 million note
and $350,000 of subordinated indebtedness and $7.8 million in common stock.
(C) Reflects redemption of members' interest for $9.0 million in cash.
(D) Reflects pro forma repayment of $5.0 million of subordinated liabilities
owed to a limited partner.
(E) Reflects $127.3 million of purchase price allocated to intangibles for the
redemption of limited partnership interests.
(F) Reflects the issuance of $100.0 million of long-term indebtedness at the
principal amount. The net proceeds are assumed to be used for redemption of
limited partners' and members' interest.
(G) Reflects the issuance of a $16.0 million note assumed to be used for
redemption of limited partners' interest.
(H) Reflects the issuance of $350,000 of subordinated indebtedness assumed to be
used for the redemption of a limited partners' interest.
(I) Reflects net proceeds of $134.7 million to be received upon completion of
the initial public offering.
(J) Employee compensation and benefits was adjusted to reflect managing
directors' compensation based on new authorized revised compensation
policies which will be implemented at the time of the reorganization. Under
this policy, a compensation pool of up to 30% of pre-tax income, which is
assumed to include related employee benefits, will be set aside for managing
directors and other employees. The pro forma compensation adjustment
reflects managing directors' compensation, which is comprised of an annual
base salary of approximately $6.3 million (36 managing directors at
approximately $175,000, on average), employee benefits of approximately
$1.1 million (2.5% of total managing directors' compensation) and the
remaining balance as bonus, as well as compensation expenses related to
employee restricted stock awards of $17.0 million which vest over 5 years
and result in an annual expense of $3.4 million. The pro forma adjustment
does not include any other compensation expenses related to employees who
are not managing directors.
(K) Reflects interest expense for the $100.0 million of long-term indebtedness
based upon an interest rate of 9.5%.
(L) Reflects interest expense for the $16.0 million note based upon an interest
rate of 9.5%.
(M) Reflects interest expense for the $350,000 of subordinated indebtedness
based upon an interest rate of 8.0%.
(N) Reflects the reversal of the interest expense related to the $5.0 million of
subordinated indebtedness based upon an interest rate of 10.0%.
(O) Reflects pro forma amortization of intangibles related to redemption of
limited partners' interests.
(P) Managing directors' compensation was adjusted to reverse the actual amounts
previously recorded.
(Q) Reflects reversal of limited partners' interest in earnings of subsidiary.
(R) Reflects federal, state and local income taxes at an estimated effective tax
rate of approximately 44%.
(S) Based on 45,875,000 shares outstanding immediately after the offerings.
Excludes (1) 1,200,000 shares of common stock subject to options and
(2) restricted stock units for 1,059,000 shares of common stock, in each
case granted under the Equity Incentive Plan.
(T) Reflects the pro forma pre-acquisition results of operations of Fowler,
Rosenau for the six months ended June 30, 1998.
(U) Reflects the pro forma amortization of intangibles for the six months ended
June 30, 1998 related to the Fowler, Rosenau acquisition.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
LaB Investing Co. L.L.C. and Subsidiary:
We have audited the accompanying consolidated statements of financial
condition of LaB Investing Co. L.L.C. and Subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of operations, changes in members'
capital and cash flows for the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LaB Investing Co. L.L.C. and
Subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The parent company only condensed
financial statements appearing on pages F-19 through F-23 are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not part of the basic financial statements. Such statements have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
January 25, 1999
F-9
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
JUNE 30, 1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS.................................. $ 2,763 $ 4,722 $ 2,989
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL............ 35,300 21,100 15,000
RECEIVABLE FROM BROKERS AND DEALERS........................ 115,467 54,808 58,174
SECURITIES OWNED, at market value:
Corporate equities....................................... 106,247 114,994 37,027
United States Government obligations..................... 1,436 1,468 2,466
Other.................................................... 1,500 1,360 868
COMMISSIONS RECEIVABLE..................................... 3,265 3,009 1,737
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market
value.................................................... 20,000 12,250 12,250
EXCHANGE MEMBERSHIPS OWNED, at cost (market value of $8,000
and $4,900 at June 30, 1999 and December 31, 1998,
respectively)............................................ 6,300 6,300 --
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost, less
accumulated depreciation and amortization of $973, $729
and $346, respectively................................... 1,469 1,647 586
INTANGIBLE ASSETS.......................................... 45,838 47,532 24,243
OTHER ASSETS............................................... 6,516 3,011 2,414
-------- -------- --------
Total assets......................................... $346,101 $272,201 $157,754
======== ======== ========
LIABILITIES AND MEMBERS' CAPITAL
LIABILITIES:
Payable to brokers and dealers........................... $ 3,347 $ 3,892 $ 1,661
Securities sold, but not yet purchased, at market
value.................................................. 90,578 67,896 39,327
Accrued compensation..................................... 35,208 17,735 9,894
Accounts payable and other accrued expenses.............. 12,042 6,347 3,476
Other liabilities........................................ 1,105 1,341 1,341
-------- -------- --------
142,280 97,211 55,699
-------- -------- --------
COMMITMENTS................................................ -- -- --
SUBORDINATED LIABILITIES:
Exchange memberships, at market value.................... 20,000 12,250 12,250
Other subordinated indebtedness.......................... 51,158 48,073 31,423
-------- -------- --------
71,158 60,323 43,673
-------- -------- --------
LIMITED PARTNERS' INTEREST IN SUBSIDIARY................... 37,094 37,574 20,724
-------- -------- --------
MEMBERS' CAPITAL........................................... 95,569 77,093 37,658
-------- -------- --------
Total liabilities and members' capital............... $346,101 $272,201 $157,754
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ------------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions....... $ 78,666 $40,825 $95,048 $47,817 $37,113
Commissions.............................. 17,885 10,412 26,576 15,186 10,180
Other.................................... 6,942 902 4,787 4,637 2,643
-------- ------- ------- ------- -------
Total revenues......................... 103,493 52,139 126,411 67,640 49,936
-------- ------- ------- ------- -------
EXPENSES:
Employee compensation and benefits....... 11,299 5,229 13,921 8,108 5,723
Severance................................ -- -- -- 300 5,375
Lease of exchange memberships............ 4,165 2,777 6,568 3,727 2,468
Interest................................. 2,195 1,494 3,577 1,566 331
Exchange, clearing and brokerage fees.... 1,997 1,360 2,898 2,042 1,514
Amortization of intangibles.............. 1,693 834 2,526 737 --
Occupancy................................ 725 415 1,121 465 435
Communications........................... 538 432 964 709 495
Legal and professional fees.............. 466 265 916 620 170
Other.................................... 1,066 1,615 2,285 1,634 642
-------- ------- ------- ------- -------
Total expenses before managing
directors' compensation, limited
partners' interest in earnings of
subsidiary and unincorporated
business taxes....................... 24,144 14,421 34,776 19,908 17,153
-------- ------- ------- ------- -------
Income before managing directors'
compensation, limited partners'
interest in earnings of subsidiary and
unincorporated business taxes.......... 79,349 37,718 91,635 47,732 32,783
MANAGING DIRECTORS' COMPENSATION........... 48,214 23,725 58,783 30,008 23,235
-------- ------- ------- ------- -------
Income before limited partners' interest
in earnings of subsidiary and
unincorporated business taxes.......... 31,135 13,993 32,852 17,724 9,548
LIMITED PARTNERS' INTEREST IN EARNINGS OF
SUBSIDIARY............................... 21,054 10,848 26,292 14,354 9,638
-------- ------- ------- ------- -------
Income (loss) before unincorporated
business taxes......................... 10,081 3,145 6,560 3,370 (90)
UNINCORPORATED BUSINESS TAXES.............. 3,789 1,900 3,900 1,881 1,602
-------- ------- ------- ------- -------
Net income (loss)........................ $ 6,292 $ 1,245 $ 2,660 $ 1,489 $(1,692)
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
(000'S OMITTED)
<TABLE>
<CAPTION>
MEMBERS'
CAPITAL
--------
<S> <C>
BALANCE, January 1, 1996.................................... $ 18,270
Net (loss)................................................ (1,692)
Contributions to capital.................................. 6,092
Distributions of capital.................................. (8,935)
--------
BALANCE, December 31, 1996.................................. 13,735
Net income................................................ 1,489
Contributions to capital.................................. 28,574
Distributions of capital.................................. (6,140)
--------
BALANCE, December 31, 1997.................................. 37,658
Net income................................................ 2,660
Contributions to capital.................................. 66,563
Distributions of capital.................................. (29,788)
--------
BALANCE, December 31, 1998.................................. 77,093
Net income................................................ 6,292
Contributions to capital.................................. 18,096
Distributions of capital.................................. (5,912)
--------
BALANCE, June 30, 1999 (unaudited).......................... $ 95,569
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ------------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 6,292 $ 1,245 $ 2,660 $ 1,489 $ (1,692)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities--
Depreciation and amortization.............. 1,887 971 3,020 909 131
Undistributed limited partners interest in
earnings of subsidiary................... (2,148) (704) 3,646 1,241 (2,098)
Changes in assets and liabilities--
Securities purchased under agreements to
resell................................... (14,200) (19,800) (6,100) (8,500) 800
Receivable from brokers and dealers........ (60,659) 21,108 3,366 (40,188) 6,085
Corporate equities......................... 8,747 (24,209) (77,967) (6,338) (16,132)
United States Government obligations....... 32 1,037 998 1 3,577
Other assets............................... (873) (1,231) (1,970) (2,047) (255)
Payable to brokers and dealers............. (545) (200) 2,231 (2,731) 4,202
Securities sold, but not yet purchased..... 22,682 (9,003) 28,569 20,591 2,935
Accrued compensation....................... 17,473 8,902 8,891 (5,322) 11,068
Accounts payable and other liabilities..... 5,459 425 2,379 1,371 1,210
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities............................. (15,853) (21,459) (30,277) (39,524) 9,831
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in office equipment and
leasehold improvements..................... (74) (1,034) (1,550) (278) (449)
-------- -------- -------- -------- --------
Net cash (used in) investing
activities............................. (74) (1,034) (1,550) (278) (449)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of subordinated
debt....................................... 1,784 16,300 16,750 28,004 1,769
Proceeds from contributions to capital....... 18,096 7,234 46,598 10,948 6,092
Payments for distributions of capital........ (5,912) (1,518) (29,788) (6,140) (8,935)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................. 13,968 22,016 33,560 32,812 (1,074)
-------- -------- -------- -------- --------
(Decrease) increase in cash and cash
equivalents............................ (1,959) (477) 1,733 (6,990) 8,308
CASH AND CASH EQUIVALENTS, beginning of
period....................................... 4,722 2,989 2,989 9,979 1,671
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period....... $ 2,763 $ 2,512 $ 4,722 $ 2,989 $ 9,979
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
PAID FOR:
Interest..................................... $ 6,344 $ 3,461 $ 8,788 $ 4,360 $ 2,764
Unincorporated business taxes................ 5,339 920 2,244 2,161 1,092
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES
Excess of purchase price over fair value of
assets acquired.............................. $ -- $ -- $ 25,815 $ 24,980 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of LaB Investing
Co. L.L.C. ("LaB Investing"), a New York limited liability company and its
subsidiary LaBranche & Co., a New York limited partnership (collectively, the
"Partnership"). LaB Investing is the general partner of LaBranche & Co. and has
a partnership interest in LaBranche & Co. of 69.7%. Limited partners own the
remaining 30.3% of LaBranche & Co. LaBranche & Co. operates primarily as a
specialist on the New York Stock Exchange, Inc. ("NYSE").
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
The unaudited interim consolidated financial information as of June 30, 1999
and for the six months ended June 30, 1999 and 1998, are presented in the
accompanying consolidated financial statements. The unaudited interim
consolidated financial information reflects all adjustments, which are, in the
opinion of management, necessary for a fair presentation of the results for such
periods. Results of the interim periods are not necessarily indicative of
results to be obtained for a full fiscal year.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of consolidated 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 at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Management does not believe
that actual results will differ materially from these estimates.
INTANGIBLE ASSETS
Intangible assets are soley comprised of goodwill. Goodwill is being
amortized on a straight-line basis over 15 years. Subsequent to its acquisition,
the Partnership continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life may warrant
revision or that the remaining balance may not be recoverable. When factors
indicate that intangible assets should be evaluated for possible impairment, the
Partnership uses an estimate of the undiscounted net income over the remaining
life in measuring whether the assets are recoverable.
EXCHANGE MEMBERSHIPS
Exchange memberships owned by the Partnership are carried at cost.
Certain members of the Partnership have contributed the use of 10
memberships on the NYSE to the Partnership. These memberships are subordinated
to claims of general creditors and are carried at market value with a
corresponding amount recorded in subordinated liabilities. Lease payments are
paid by the Partnership to the members and limited partners for the use of the
exchange memberships at a rate management believes is commensurate with the rent
paid to nonaffiliated parties for the use of their exchange memberships.
F-14
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of less than three months.
SECURITIES TRANSACTIONS
Securities transactions and the related revenues and expenses are recorded
on a trade date basis. Securities owned and securities sold, but not yet
purchased are reflected at market value and unrealized gains and losses are
reflected in net gain on principal transactions. Dividends and Securities and
Exchange Commission (the "SEC") fees are also included in net gain on principal
transactions. Dividend income and expense is recognized on the payable date
which does not differ materially from the ex-date.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of office equipment and leasehold improvements.
COLLATERALIZED FINANCING TRANSACTIONS
Securities purchased and sold under agreements to resell and repurchase, as
well as securities borrowed and loaned for which cash is deposited or received,
are treated as collateralized financing transactions and are recorded at
contract amount.
COLLATERAL
The Partnership continues to report assets as owned when they are pledged as
collateral in secured financing arrangements and the secured party cannot sell
or repledge the assets or the Partnership can substitute collateral or otherwise
redeem it on short notice. The Partnership continues not to report securities
received as collateral in secured financing arrangements because the debtor
typically has the right to substitute or redeem the collateral on short notice.
REPORTABLE OPERATING SEGMENT
The Partnership considers its present operations to be one reportable
segment for purposes of presenting consolidated financial information and for
evaluating its performance. The financial statement information presented in the
accompanying consolidated financial statements is consistent with the
preparation of financial information for the purpose of internal use.
MANAGING DIRECTORS' COMPENSATION
The managing directors of LaBranche & Co. are the members of LaB Investing.
The Partnership pays out substantially all of its earnings as compensation
expense to its managing directors.
F-15
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS
The balances presented as receivable from, and payable to, brokers and
dealers consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Receivable from brokers and dealers:
Pending trades, net......................................... $34,390,173 $42,858,436
Securities borrowed......................................... 17,386,200 13,410,300
Receivable from clearing organizations...................... 1,812,999 1,905,532
Securities failed to deliver................................ 1,218,950 --
----------- -----------
$54,808,322 $58,174,268
=========== ===========
Payable to brokers and dealers:
Securities failed to receive................................ $ 3,892,030 $ 1,661,359
=========== ===========
</TABLE>
5. TAXES
The Partnership is not subject to federal or state income taxes. Such taxes,
if any, are the responsibility of the individual members. The Partnership is
subject to the New York City Unincorporated Business Tax.
6. CAPITAL AND NET LIQUID ASSET REQUIREMENTS
As a specialist and member of the NYSE, LaBranche & Co. is subject to SEC
Rule 15c3-1 adopted and administered by the NYSE and the SEC. LaBranche & Co. is
required to maintain minimum net capital, as defined, equivalent to the greater
of $100,000 or 1/15 of aggregate indebtedness, as defined.
As of June 30, 1999 (unaudited) and as of December 31, 1998, LaBranche &
Co.'s net capital, as defined under SEC Rule 15c3-1, was $99,993,833 and
$86,545,533, respectively, and exceeded minimum requirements by $96,820,130 and
$85,169,019, respectively. LaBranche & Co.'s aggregate indebtedness to net
capital ratio was .48 to 1 and .24 to 1, respectively.
The NYSE also requires members registered as regular specialists to
establish that they can meet, with their own net liquid assets, a minimum dollar
amount which shall be the greater of $1,000,000 or 25% of their position
requirement ("Rule 104.2"). In 1998, due to the market share represented by the
Partnership's specialist book, the NYSE mandated the firm to maintain minimum
net liquid assets of the greater of 120% of LaBranche & Co.'s Rule 104.2
position requirement, or $90.0 million, adjusted by the amount of the position
requirement for any new stock allocations. The position requirement is the
ability to assume positions in stocks in which they are registered, of 30,000
shares of each S&P 500 common stock, 22,500 shares in all other common stocks,
4,500 shares in each convertible preferred stock and 1,800 shares in each
nonconvertible preferred stock. The term "net liquid assets" for a specialist
which also engages in transactions other than specialist activities is based
upon its excess net capital determined in accordance with SEC Rule 15c3-1.
As of June 30, 1999 (unaudited) and as of December 31, 1998, the
Partnership's NYSE minimum required dollar amount of net liquid assets, as
defined, was $91.5 million and $90.6 million, respectively, compared to actual
net liquid assets, as defined, of $116,251,755 and $103,134,594, respectively.
F-16
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS
The acquisitions of the specialist operations described below were accounted
for under the purchase method of accounting. The purchase price associated with
each acquisition consisted of general partnership and limited partnership
interests issued to new partners admitted into the Partnership. Such partnership
interests were valued based upon an independent appraisal. Excess purchase price
over fair value of net assets acquired has been allocated to goodwill.
Effective July 1, 1997, the Partnership acquired a portion of the specialist
operations of Stern Bros., LLC for an aggregate purchase price of approximately
$9.3 million representing an 8.3% total general partners' interests in the
Partnership. The goodwill associated with the acquisition was approximately
$7.8 million.
Effective August 1, 1997, the Partnership acquired the specialist operations
of Ernst, Homans, Ware & Keelips for an aggregate purchase price of
approximately $18.5 million representing general and limited partnership
interest totaling 16.4%. The excess purchase price over fair value of net assets
acquired was approximately $17.2 million.
Effective July 1, 1998, the Partnership acquired the specialist operations
of Fowler, Rosenau & Geary, LLC ("Fowler, Rosenau") for an aggregate purchase
price of approximately $45.0 million representing a 22.4% total general and
limited partners' interest in the Partnership. The excess purchase price over
fair value of net assets acquired was approximately $25.8 million (The audited
financial statements of Fowler, Rosenau have been included elsewhere in this
prospectus).
8. COMMITMENTS
During 1998, the Partnership secured a $75.0 million committed line of
credit with The Bank of New York. The agreement matured on June 25, 1999. In
June 1999, the Partnership amended and extended the committed line of credit to
$100.0 million through June 23, 2000 (unaudited). In addition, the Partnership
has outstanding letter of credit agreements with U.S. Trust aggregating
approximately $1,581,000. Such letter of credit agreements are collateralized
with U.S. Trust by a Treasury bill with a face value of $1.5 million and a cash
balance of approximately $179,000.
Minimum rental commitments under existing noncancelable leases for office
space and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999........................................................ $ 684,000
2000........................................................ 468,000
2001........................................................ 540,000
2002........................................................ 540,000
2003........................................................ 540,000
Thereafter.................................................. 2,304,000
</TABLE>
These leases contain escalation clauses providing for increased rentals
based upon maintenance and tax increases.
9. SUBORDINATED LIABILITIES
The Partnership has subordinated indebtedness agreements approved by the
NYSE for inclusion as net capital, as defined. Interest is payable quarterly at
various annual rates. Eleven of the agreements
F-17
<PAGE>
LAB INVESTING CO. L.L.C. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SUBORDINATED LIABILITIES (CONTINUED)
representing $11,473,000 mature within the last six months of 1999, and the
remaining four agreements representing $1,200,000 mature within the first six
months of 2000. These agreements all have automatic rollover provisions as long
as at least six months notice is given by the lender.
Seven agreements representing $20,000,000 mature on September 15, 2002 with
an annual rate of 8.17% paid on a quarterly basis. Five agreements representing
$15,000,000 mature on June 3, 2008 with an annual rate of 7.69% paid on a
quarterly basis. These notes are senior to all other subordinated notes.
The Partnership entered into a subordinated liability related to a Secured
Demand Note Receivable for $300,000 due July 15, 1999 and $100,000 due May 1,
1999 both with an annual rate of 10.0% paid on a quarterly basis. These
agreements have automatic rollover provision unless at least seven months notice
is given by the lender.
Interest expense related to the above subordinated liabilities primarily
comprises interest expense in the accompanying statements of operations.
Exchange membership contributed pursuant to subordination agreements in the
amount of $12,250,000 comprise the remaining subordinated liabilities.
10. SEVERANCE ARRANGEMENTS
For the years ended December 31, 1997 and 1996, the Partnership entered into
severance arrangements with two of their former members. The Partnership
recorded the full amount of severance upon termination of these individuals in
1997 and 1996.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires companies to report the fair value of
financial instruments for certain assets and liabilities. Substantially all of
the Partnership's financial instruments are short-term in nature or carry market
interest rates and, accordingly, approximate fair value.
12. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET
RISK
As a specialist on the NYSE, the Partnership is engaged in various
securities trading and lending activities. In connection with its activities as
a specialist, the Partnership assumes positions in the stocks for which it is
responsible. The Partnership is exposed to credit risk associated with the
nonperformance of counterparties in fulfilling their contractual obligations
pursuant to these securities transactions. The Partnership is exposed to market
risk associated with the sale of securities not yet purchased, which can be
directly impacted by volatile trading on the NYSE. Additionally, in the event of
nonperformance and unfavorable market price movements, the Partnership may be
required to purchase or sell financial instruments, which may result in a loss
to the Partnership.
The Partnership enters into collateralized financing agreements in which it
extends short-term credit to major financial institutions. The Partnership
controls access to the collateral pledged by the counterparties, which generally
consists of U.S. equity and government securities. The value and adequacy of the
collateral are continually monitored. Consequently, the risk of credit loss from
counterparties' failure to perform in connection with collateralized lending
activities is minimal.
F-18
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CASH........................................................ $ 21 $ 15
DUE FROM SUBSIDIARY......................................... -- 13
INVESTMENT IN SUBSIDIARY, AT EQUITY VALUE................... 77,072 37,630
------- -------
Total Assets.............................................. $77,093 $37,658
======= =======
MEMBERS' CAPITAL
MEMBERS' CAPITAL............................................ 77,093 37,658
------- -------
Total Members' Capital.................................... $77,093 $37,658
======= =======
</TABLE>
See accompanying note to condensed financial statements.
F-19
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Equity earnings (losses) in investment in subsidary....... $2,663 $ 1,480 $(1,704)
------ ------- -------
Total revenue........................................... 2,663 1,480 (1,704)
------ ------- -------
EXPENSES:
Other expenses............................................ 3 1 --
------ ------- -------
Total expenses.......................................... 3 1 --
------ ------- -------
Income (loss) before unincorporated business tax.......... 2,660 1,479 (1,704)
------ ------- -------
UNINCORPORATED BUSINESS TAX BENEFIT......................... -- (10) (12)
------ ------- -------
Net income (loss)......................................... $2,660 $ 1,489 $(1,692)
====== ======= =======
</TABLE>
See accompanying note to condensed financial statements.
F-20
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
(000'S OMITTED)
<TABLE>
<CAPTION>
MEMBERS'
CAPITAL
---------
<S> <C>
BALANCE, January 1, 1996.................................... $ 18,270
Net (loss)................................................ (1,692)
Contributions to capital.................................. 6,092
Distributions of capital.................................. (8,935)
--------
BALANCE, December 31, 1996.................................. 13,735
Net income................................................ 1,489
Contributions to capital.................................. 28,574
Distributions of capital.................................. (6,140)
--------
BALANCE, December 31, 1997.................................. 37,658
Net income................................................ 2,660
Contributions to capital.................................. 66,563
Distributions of capital.................................. (29,788)
--------
BALANCE, December 31, 1998.................................. $ 77,093
========
</TABLE>
See accompanying note to condensed financial statements.
F-21
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOW
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,660 $ 1,489 $(1,692)
Changes in assets and liabilities--
Due from subsidiary..................................... 13 26 52
(Increase) decrease in investment in subsidiary......... (19,477) (6,343) 4,812
Other liabilities....................................... -- (10) (360)
-------- -------- -------
(16,804) (4,838) 2,812
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from contributions to capital.................... 46,598 10,948 6,092
Payments for distributions of capital..................... (29,788) (6,140) (8,935)
-------- -------- -------
Net change in cash.......................................... 6 (30) (31)
Cash, beginning of year..................................... 15 45 76
-------- -------- -------
Cash, end of year........................................... $ 21 $ 15 $ 45
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Unincorporated business tax............................... $ 3 $ 11 $ 344
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Excess of purchase price over fair value of assets
acquired................................................ $ 19,965 $ 17,626 $ --
</TABLE>
See accompanying note to condensed financial statements.
F-22
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. NOTE TO CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of LaB Investing Co. L.L.C. (parent
company only) should be read in conjunction with the consolidated financial
statements of LaB Investing Co. L.L.C. and Subsidiary and the notes thereto
contained elsewhere in this prospectus.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
LaBranche & Co.:
We have audited the accompanying statements of financial condition of
LaBranche & Co. (a New York limited partnership) as of December 31, 1998 and
1997, and the related statements of operations, changes in partners' capital and
cash flows for the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LaBranche & Co. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
January 25, 1999
F-24
<PAGE>
LABRANCHE & CO.
STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1999 1998 1997
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS.................................. $ 2,739 $ 4,701 $ 2,974
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL............ 35,300 21,100 15,000
RECEIVABLE FROM BROKERS AND DEALERS........................ 115,467 54,808 58,174
SECURITIES OWNED, at market value:
Corporate equities..................................... 106,247 114,994 37,027
United States Government obligations................... 1,436 1,468 2,466
Other.................................................. 1,500 1,360 868
COMMISSIONS RECEIVABLE..................................... 3,265 3,009 1,737
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market
value.................................................... 20,000 12,250 12,250
EXCHANGE MEMBERSHIPS OWNED, at cost (market value of $8,000
and $4,900 at June 30, 1999 and December 31, 1998,
respectively)............................................ 6,300 6,300 --
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost, less
accumulated depreciation and amortization of $973, $729
and $346, respectively................................... 1,469 1,647 586
INTANGIBLE ASSETS.......................................... 45,838 47,532 24,243
OTHER ASSETS............................................... 5,852 3,011 2,414
-------- -------- --------
Total assets......................................... $345,413 $272,180 $157,739
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Payable to brokers and dealers......................... $ 3,347 $ 3,892 $ 1,661
Securities sold, but not yet purchased, at market
value................................................ 90,578 67,896 39,327
Accrued compensation................................... 35,208 17,735 9,894
Accounts payable and other accrued expenses............ 11,378 6,347 3,489
Other liabilities...................................... 1,105 1,341 1,341
-------- -------- --------
141,616 97,211 55,712
COMMITMENTS................................................ -- -- --
SUBORDINATED LIABILITIES:
Exchange memberships, at market value.................. 20,000 12,250 12,250
Other subordinated indebtedness........................ 51,158 48,073 31,423
-------- -------- --------
71,158 60,323 43,673
-------- -------- --------
PARTNERS' CAPITAL:
General partner........................................ 95,545 77,072 37,630
Limited partners....................................... 37,094 37,574 20,724
-------- -------- --------
Total partners' capital.............................. 132,639 114,646 58,354
-------- -------- --------
Total liabilities and partners' capital.............. $345,413 $272,180 $157,739
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
LABRANCHE & CO.
STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------- ------------------------------
1999 1998 1998 1997 1996
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net gain on principal transactions......... $78,666 $40,825 $95,048 $47,817 $37,113
Commissions................................ 17,885 10,412 26,576 15,186 10,180
Other...................................... 6,942 902 4,787 4,627 2,617
------- ------- ------- ------- -------
Total revenues........................... 103,493 52,139 126,411 67,630 49,910
------- ------- ------- ------- -------
EXPENSES:
Employee compensation and benefits......... 11,299 5,229 13,921 8,108 5,723
Severance.................................. -- -- -- 300 5,375
Lease of exchange memberships.............. 4,165 2,777 6,568 3,727 2,468
Interest................................... 2,195 1,494 3,577 1,566 331
Exchange, clearing and brokerage fees...... 1,997 1,360 2,898 2,042 1,514
Amortization of intangibles................ 1,693 834 2,526 737 --
Occupancy.................................. 725 415 1,121 465 435
Communications............................. 538 432 964 709 495
Legal and professional fees................ 466 265 916 620 170
Other...................................... 1,064 1,614 2,282 1,633 638
------- ------- ------- ------- -------
Total expenses before managing directors'
compensation, and unincorporated
business taxes......................... 24,142 14,420 34,773 19,907 17,149
------- ------- ------- ------- -------
Income before managing directors'
compensation, and unincorporated
business taxes......................... 79,351 37,719 91,638 47,723 32,761
MANAGING DIRECTORS' COMPENSATION............. 48,214 23,725 58,783 30,008 23,235
------- ------- ------- ------- -------
Income before unincorporated business
taxes.................................. 31,137 13,994 32,855 17,715 9,526
UNINCORPORATED BUSINESS TAXES................ 3,789 1,900 3,900 1,881 1,592
------- ------- ------- ------- -------
Net income............................... $27,348 $12,094 $28,955 $15,834 $ 7,934
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
LABRANCHE & CO.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(000'S OMITTED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
BALANCE, January 1, 1996.................................... $18,473 $ 14,227 $ 32,700
Net income (loss)......................................... (1,704) 9,638 7,934
Contributions to capital.................................. 3,243 1,770 5,013
Distributions of capital.................................. (6,351) (13,506) (19,857)
------- -------- --------
BALANCE, December 31, 1996.................................. 13,661 12,129 25,790
Net income................................................ 1,480 14,354 15,834
Contributions to capital.................................. 26,555 10,572 37,127
Distributions of capital.................................. (4,066) (16,331) (20,397)
------- -------- --------
BALANCE, December 31, 1997.................................. 37,630 20,724 58,354
Net income................................................ 2,663 26,292 28,955
Contributions to capital.................................. 42,630 18,324 60,954
Distributions of capital.................................. (5,851) (27,766) (33,617)
------- -------- --------
BALANCE, December 31, 1998.................................. 77,072 37,574 114,646
Net income................................................ 3,939 23,409 27,348
Contributions to capital.................................. 17,395 1,028 18,423
Distributions of capital.................................. (2,861) (24,917) (27,778)
------- -------- --------
BALANCE, June 30, 1999 (unaudited).......................... $95,545 $ 37,094 $132,639
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
LABRANCHE & CO.
STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $27,348 $ 12,094 $28,955 $15,834 $ 7,934
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities-
Depreciation and amortization................. 1,887 971 3,020 909 131
Changes in assets and liabilities-
Securities purchased under agreements to
resell...................................... (14,200) 21,108 (6,100) (8,500) 800
Receivable from brokers and dealers........... (60,659) (19,800) 3,366 (40,188) 6,085
Corporate equities............................ 8,747 (24,209) (77,967) (6,338) (16,132)
United States Government obligations.......... 32 1,037 998 1 3,577
Commissions receivable........................ (256) (225) (1,272) (742) (240)
Other assets.................................. (2,622) (1,015) (1,089) (1,598) 1,333
Payable to brokers and dealers................ (545) (200) 2,231 (2,731) 4,202
Securities sold, but not yet purchased........ 22,682 (9,003) 28,569 20,591 2,935
Accrued compensation.......................... 17,473 8,902 7,841 (5,322) 11,032
Accounts payable and other liabilities........ 5,796 425 2,858 1,181 381
------- -------- ------- ------- -------
Net cash (used in) provided by operating
activities.............................. 5,683 (9,915) (8,590) (26,903) 22,038
------- -------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in office equipment and leasehold
improvements................................ (74) (1,034) (1,555) (278) (449)
------- -------- ------- ------- -------
Net cash (used in) investing activities......... (74) (1,034) (1,555) (278) (449)
------- -------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of subordinated
debt........................................ 1,784 16,300 16,650 28,471 1,594
Proceeds from contributions to capital........ 18,423 8,029 28,840 12,147 5,013
Payments for distributions of capital......... (27,778) (13,842) (33,618) (20,397) (19,857)
------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities.............................. (7,571) 10,487 11,872 20,221 (13,250)
------- -------- ------- ------- -------
(Decrease) increase in cash and cash
equivalents............................. (1,962) (462) 1,727 (6,960) 8,339
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 4,701 2,974 2,974 9,934 1,595
------- -------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period........ $ 2,739 $ 2,512 $ 4,701 $ 2,974 $ 9,934
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest...................................... $ 6,344 $ 3,461 $ 8,788 $ 4,360 $ 2,764
Unincorporated business taxes................. 5,339 920 2,244 2,161 1,092
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Excess of purchase price over fair value of
assets acquired............................. $ -- $ -- $25,815 $24,980 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
LaBranche & Co. ("LaBranche") was formed as a limited partnership, under the
New York Uniform Limited Partnership Act. LaBranche operates primarily as a
specialist in certain equity securities listed on the New York Stock
Exchange, Inc. ("NYSE").
LaBranche's general partner is LaB Investing Co. L.L.C. ("LaB"), a New York
limited liability company, which owns 69.7% of LaBranche. The remaining 30.3% is
owned by limited partners. The individual members of LaB are managing directors
of LaBranche.
2. INTERIM FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
The unaudited interim financial information as of June 30, 1999 and for the
six months ended June 30, 1999 and 1998, is presented in the accompanying
financial statements. The unaudited interim financial information reflects all
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for such periods. Results of the interim periods are
not necessarily indicative of results to be obtained for a full fiscal year.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management does not believe that actual
results will differ materially from these estimates.
INTANGIBLE ASSETS
Intangible assets are soley comprised of goodwill. Goodwill is being
amortized on a straight-line basis over 15 years. Subsequent to its acquisition,
LaBranche continually evaluates whether later events and circumstances have
occurred that indicate the remaining estimated useful life may warrant revision
or that the remaining balance may not be recoverable. When factors indicate that
intangible assets should be evaluated for possible impairment, LaBranche uses an
estimate of undiscounted net income over the remaining life in measuring whether
the assets are recoverable.
EXCHANGE MEMBERSHIPS
Exchange memberships owned by LaBranche are carried at cost.
Certain members of LaBranche have contributed the use of 10 memberships on
the NYSE to LaBranche. These memberships are subordinated to claims of general
creditors and are carried at market value with a corresponding amount recorded
in subordinated liabilities. Lease payments are paid by LaBranche to certain
managing directors for the use of the exchange memberships at a rate management
believes is commensurate with the rent paid to nonaffiliated parties for the use
of their exchange memberships.
F-29
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of less than three months.
SECURITIES TRANSACTIONS
Securities transactions and the related revenues and expenses are recorded
on a trade date basis. Securities owned and securities sold, but not yet
purchased are reflected at market value and unrealized gains and losses are
reflected in net gain on principal transactions. Dividends and Securities and
Exchange Commission (the "SEC") fees are also included in net gain on principal
transactions. Dividend income and expense are recognized on the payable date,
which does not differ materially from the ex-date.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of office equipment and leasehold improvements.
COLLATERALIZED FINANCING TRANSACTIONS
Securities purchased and sold under agreements to resell and repurchase, as
well as securities borrowed and loaned for which cash is deposited or received,
are treated as collateralized financing transactions and are recorded at
contract amount.
COLLATERAL
LaBranche continues to report assets as owned when they are pledged as
collateral in secured financing arrangements and the secured party cannot sell
or repledge the assets or LaBranche can substitute collateral or otherwise
redeem it on short notice. LaBranche continues not to report securities received
as collateral in secured financing arrangements because the debtor typically has
the right to substitute or redeem the collateral on short notice.
MANAGING DIRECTORS' COMPENSATION
LaBranche pays out substantially all of its earnings as compensation expense
to its managing directors.
F-30
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS
The balances presented as receivable from and payable to brokers and dealers
consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Receivable from brokers and dealers:
Pending trades, net......................................... $34,390,173 $42,858,436
Securities borrowed......................................... 17,386,200 13,410,300
Receivable from clearing organizations...................... 1,812,999 1,905,532
Securities failed to deliver................................ 1,218,950 --
----------- -----------
$54,808,322 $58,174,268
=========== ===========
Payable to brokers and dealers:
Securities failed to receive................................ $ 3,892,030 $ 1,661,359
=========== ===========
</TABLE>
5. TAXES
LaBranche is not subject to federal or state income taxes. Such taxes, if
any, are the responsibility of the individual members. LaBranche is subject to
the New York City Unincorporated Business Tax.
6. CAPITAL AND NET LIQUID ASSET REQUIREMENTS
As a specialist and member of the NYSE, LaBranche is subject to SEC
Rule 15c3-1 adopted and administered by the NYSE and the SEC. LaBranche is
required to maintain minimum net capital, as defined, equivalent to the greater
of $100,000 or 1/15 of aggregate indebtedness, as defined.
As of June 30, 1999 (unaudited) and as of December 31, 1998, LaBranche's net
capital, as defined under SEC Rule 15c3-1, was $99,993,833 and $86,545,533,
respectively, and exceeded minimum requirements by $96,820,130 and $85,169,019,
respectively. LaBranche's aggregate indebtedness to net capital ratio was .48 to
1 and .24 to 1, respectively.
The NYSE also requires members registered as regular specialists to
establish that they can meet, with their own net liquid assets, a minimum dollar
amount which shall be the greater of $1,000,000 or 25% of their position
requirement ("Rule 104.2"). In 1998, due to the concentration of LaBranche's
specialist book, the NYSE mandated the firm to maintain minimum net liquid
assets of the greater of 120% of the LaBranche's Rule 104.2 position
requirement, or $90.0 million, adjusted by the amount of the position
requirement for any new stock allocations. The position requirement is the
ability to assume positions in stocks in which they are registered of 30,000
shares of each S&P 500 common stock, 22,500 shares in all other common stocks,
4,500 shares in each convertible preferred stock and 1,800 shares in each
nonconvertible preferred stock. The term "net liquid assets" for a specialist
who also engages in transactions other than specialist activities is based upon
its excess net capital determined in accordance with SEC Rule 15c3-1.
As of June 30, 1999 (unaudited) and as of December 31, 1998, LaBranche's
NYSE minimum required dollar amount of net liquid assets, as defined, was
$91.5 million and $90.6 million, respectively, compared to actual net liquid
assets, as defined, of $116,251,755 and $103,134,594, respectively.
F-31
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS
The acquisitions of the specialist operations described below were accounted
for under the purchase method of accounting. The purchase price of the
acquisitions have been pushed down and reflected in LaBranche's financial
statements. The purchase price associated with each acquisition consisted of
general partnership and limited partnership interests issued to new members
admitted into LaB and new partners admitted into LaBranche. Such partnership
interests were valued based upon an independent appraisal. Excess purchase price
over fair value of net assets acquired has been allocated to goodwill.
Effective July 1, 1997, LaBranche acquired a portion of the specialist
operations of Stern Bros., LLC for an aggregate purchase price of approximately
$9.3 million, representing an 8.3% total general partners' interest in
LaBranche. The goodwill associated with the acquisition was approximately
$7.8 million.
Effective August 1, 1997, LaBranche acquired the specialist operations of
Ernst, Homans, Ware & Keelips for an aggregate purchase price of approximately
$18.5 million, representing general and limited partnership interests totaling
16.4%. The excess purchase price over fair value of net assets acquired was
approximately $17.2 million.
Effective July 1, 1998, LaBranche acquired the specialist operations of
Fowler, Rosenau & Geary, LLC ("Fowler, Rosenau") for an aggregate purchase price
of approximately $45.0 million, representing a 22.4% total general and limited
partners' interest in LaBranche. The excess purchase price over fair value of
net assets acquired was approximately $25.8 million.
8. COMMITMENTS
During 1998, LaBranche secured a $75.0 million committed line of credit with
The Bank of New York. The agreement matured on June 25, 1999. In June 1999, the
Partnership amended and extended the committed line of credit to $100.0 million
through June 23, 2000 (unaudited). In addition, LaBranche has outstanding letter
of credit agreements with U.S. Trust aggregating approximately $1,581,000. Such
letter of credit agreements are collateralized with U.S. Trust by a Treasury
bill with a face value of $1.5 million and a cash balance of approximately
$179,000.
Minimum rental commitments under existing noncancelable leases for office
space and equipment are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999........................................................ $ 684,000
2000........................................................ 468,000
2001........................................................ 540,000
2002........................................................ 540,000
2003........................................................ 540,000
Thereafter.................................................. 2,304,000
</TABLE>
These leases contain escalation clauses providing for increased rentals
based upon maintenance and tax increases.
F-32
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBORDINATED LIABILITIES
LaBranche has subordinated indebtedness agreements approved by the NYSE for
inclusion as net capital, as defined. Interest is payable quarterly at various
annual rates. Eleven of the agreements representing $11,473,000 mature within
the last six months of 1999, and the remaining four agreements representing
$1,200,000 mature within the first six months of 2000. These agreements all have
automatic rollover provisions as long as at least six months' notice is given by
the lender.
Seven agreements representing $20,000,000 mature on September 15, 2002 with
an annual rate of 8.17% paid on a quarterly basis. Five agreements representing
$15,000,000 mature on June 3, 2008 with an annual rate of 7.69% paid on a
quarterly basis. These notes are senior to all other subordinated notes.
LaBranche entered into a subordinated liability related to a Secured Demand
Note Receivable for $300,000 due July 15, 1999 and $100,000 due May 1, 1999,
both with an annual rate of 10.0% paid on, a quarterly basis. These agreements
have automatic rollover provisions unless at least seven months notice is given
by the lender.
Interest expense related to the subordinated liabilities comprises interest
expense in the accompanying statements of operations.
Exchange memberships contributed pursuant to subordination agreements in the
amount of $12,250,000 comprise the remaining subordinated liabilities.
10. SEVERANCE ARRANGEMENTS
For the years ended December 31, 1997 and 1996, LaBranche entered into
severance arrangements with two of its former members. LaBranche recorded the
full amount of severance upon termination of these individuals in 1997 and 1996.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires companies to report the fair value of
financial instruments for certain assets and liabilities. Substantially all of
LaBranche's financial instruments are short-term in nature or carry market
interest rates and, accordingly, approximate fair value.
12. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET
RISK
As a specialist on the NYSE, LaBranche is engaged in various securities
trading and lending activities. In connection with its activities as a
specialist, LaBranche assumes positions in stocks for which it is
responsible. LaBranche is exposed to credit risk associated with the
nonperformance of counterparties in fulfilling their contractual obligations
pursuant to these securities transactions. LaBranche is exposed to market
risk associated with the sale of securities not yet purchased, which can be
directly impacted by volatile trading on the NYSE. Additionally, in the
event of nonperformance and unfavorable market price movements, LaBranche
may be required to purchase or sell financial instruments, which may result
in a loss to LaBranche.
F-33
<PAGE>
LABRANCHE & CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET
RISK (CONTINUED)
LaBranche enters into collateralized financing agreements in which it
extends short-term credit to major financial institutions. LaBranche controls
access to the collateral pledged by the counterparties, which generally consists
of U.S. equity and government securities. The value and adequacy of the
collateral are continually monitored. Consequently, the risk of credit loss from
counterparties' failure to perform in connection with collateralized lending
activities is minimal.
F-34
<PAGE>
INDEPENDENT AUDITOR'S REPORT:
To the Members of Fowler, Rosenau & Geary, LLC
We have audited the accompanying statements of financial condition of
Fowler, Rosenau & Geary, LLC as of November 30, 1997 and 1996, and June 30, 1998
and the related statements of income, changes in members' capital, and cash
flows for the periods then ended. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
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 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 statements 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 Fowler, Rosenau & Geary, LLC
as of November 30, 1997 and 1996, and June 30, 1998, and the results of its
operations and its cash flows for the periods then ended in conformity with
generally accepted accounting principles.
/s/ Sugarman & Thrope, P.C.
January 20, 1999
New York, NY
F-35
<PAGE>
FOWLER, ROSENAU & GEARY, LLC
STATEMENTS OF FINANCIAL CONDITION
(000'S OMITTED)
<TABLE>
<CAPTION>
NOVEMBER 30,
JUNE 30, -------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Cash...................................................... $ 312 $ 189 $ 69
Commissions Receivable.................................... 2,698 817 875
Inventory of Specialist Stocks--at market................. 15,486 9,482 8,315
Receivable from Broker Dealers............................ 7,163 14,040 12,643
Deposits and Rent Security................................ 606 752 550
Memberships (four) in New York Stock Exchange--at cost.... 3,414 2,209 2,209
Furniture, Equipment and Leasehold Improvements at cost,
Net of Accumulated Depreciation and Amortization........ -- 124 161
Investment in Clearing Broker............................. -- -- 509
Other Assets.............................................. 26 33 47
------- ------- -------
Total assets............................................ $29,705 $27,646 $25,378
======= ======= =======
LIABILITIES AND CAPITAL
Short Sales of Specialist Stocks--at market............... $ 7,084 $ 2,848 $ 4,188
Accounts Payable and Accrued Expenses..................... 618 1,365 1,311
------- ------- -------
Total Liabilities....................................... 7,702 4,213 5,499
Members' Capital.......................................... 22,003 23,433 19,879
------- ------- -------
Total liabilities and members' capital.................. $29,705 $27,646 $25,378
======= ======= =======
</TABLE>
See the accompanying notes.
F-36
<PAGE>
FOWLER, ROSENAU & GEARY, LLC
STATEMENTS OF INCOME
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE
SEVEN
MONTHS FOR THE YEARS ENDED
ENDED NOVEMBER 30,
JUNE 30, -----------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
REVENUES
Principal Transactions, net............................. $ 4,664 $ 11,874 $ 9,396
Commissions............................................. 8,300 10,909 9,786
Other................................................... 367 773 217
-------- -------- --------
Total Revenues........................................ 13,331 23,556 19,399
-------- -------- --------
EXPENSES
Employee Compensation and Related Expenses.............. 1,233 2,192 1,828
Severance............................................... 54 281 281
Rental of Exchange Memberships.......................... 577 547 505
Seat Interest Paid to Members........................... 233 420 200
Unincorporated Business Tax............................. 465 713 591
Brokerage, Clearing and Exchange Fees................... 401 1,225 802
Occupancy............................................... 129 214 211
Communications.......................................... 31 50 24
Legal and Professional Fees............................. 208 100 159
Insurance............................................... 199 323 321
Other................................................... 546 709 614
-------- -------- --------
Total expenses before members' compensation........... 4,076 6,774 5,536
-------- -------- --------
Net Income before members' compensation............... 9,255 16,782 13,863
Members' Compensation................................. 1,626 2,987 2,825
-------- -------- --------
Net Income............................................ $ 7,629 $ 13,795 $ 11,038
======== ======== ========
</TABLE>
See the accompanying notes.
F-37
<PAGE>
FOWLER, ROSENAU & GEARY, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS FOR THE YEARS ENDED
ENDED NOVEMBER 30,
JUNE 30, --------------------------
1998 1997 1996
------------- --------- --------
<S> <C> <C> <C>
Balance, beginning of period............................ $ 23,433 $ 19,879 $ 18,563
Net income.............................................. 7,629 13,795 11,038
-------- --------- --------
31,062 33,674 29,601
Additions (withdrawals) of capital, net................. (9,059) (10,241) (9,722)
-------- --------- --------
Balance, end of period.................................. $ 22,003 $ 23,433 $ 19,879
======== ========= ========
</TABLE>
See the accompanying notes.
F-38
<PAGE>
FOWLER, ROSENAU & GEARY, LLC
STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE
SEVEN FOR THE
MONTHS YEARS ENDED
ENDED NOVEMBER 30,
JUNE 30, -------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 7,629 $ 13,795 $11,038
Adjustments to Reconcile to Net Cash Provided by Operating
Activities:
Depreciation............................................ 134 71 41
Changes in Assets and Liabilities:
Commissions and Dividends Receivable.................... (1,881) 58 (195)
Inventory of Specialist Stocks.......................... (6,004) (1,167) 1,354
Clearing Accounts--net.................................. 6,877 (1,397) (2,435)
Other Assets............................................ 7 14 (2)
Short Inventory of Specialist Stocks.................... 4,236 (1,340) (720)
Accounts Payable and Accrued Expenses................... (747) 54 476
------- -------- -------
Net Cash Provided by Operating Activities................. 10,251 10,088 9,557
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Office Furniture and Equipment Purchase................... (10) (34) (194)
Investment in Clearing Broker............................. -- 509 1,475
Rent, Security and Deposits............................... 146 (202) (240)
Increase in Exchange Memberships.......................... (1,205) -- (921)
------- -------- -------
Net Cash (used in) provided by Investing Activities....... (1,069) 273 120
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Withdrawal of Capital................................. (9,059) (10,241) (9,722)
------- -------- -------
Increase (decrease) in cash............................... 123 120 (45)
Cash, beginning of period................................. 189 69 114
------- -------- -------
Cash, end of period....................................... $ 312 $ 189 $ 69
======= ======== =======
</TABLE>
See the accompanying notes.
F-39
<PAGE>
FOWLER, ROSENAU & GEARY, LLC
NOTES TO FINANCIAL STATEMENTS
(1) Accounting policies followed by the Firm:
As of December 1, 1995, the firm changed from a limited partnership
(L.P.) to a limited liability company (LLC)
Security transactions are recorded on a trade date basis.
The inventory of securities in the firm's specialist trading account was
valued under the last in first out, (LIFO) method of valuation until
November 30, 1993. Thereafter, the securities inventory is valued at market.
Federal, State and City income taxes have not been provided for since
each member is individually liable for his own tax payments. The firm is
liable for New York City Unincorporated Business Tax and has filed returns
and paid the tax to November 30, 1998.
The company's business operations were "merged" into LaBranche & Co. as
of the close of business on June 30, 1998. At that time the Specialist
securities, (long and short), and four memberships were transferred to
LaBranche & Co. All other assets and liabilities were retained by Fowler,
Rosenau & Geary, LLC
(2) In addition to the three New York Stock Exchange memberships, the use of
which is contributed to the parternship, the firm holds four other
memberships subject to ABC agreements. An ABC agreement is an agreement
under which a membership is held in the name of an individual affiliated
with the broker-dealer and typically the purchase of the seat is financed by
the broker-dealer. An ABC agreement provides that if the affiliated person
leaves the broker-dealer, he or she can retain title to the membership if he
or she pays the broker-dealer the replacement value of the membership or the
sales proceeds thereof; otherwise the broker-dealer will be entitled to
transfer title to another affiliated individual.
(3) The investment in clearing broker Murphey, Marseilles, Smith & Nammack, Inc.
became worthless in December, 1996 and was written off as a loss in the year
ended November 30, 1997.
(4) The Deposit and rent security is comprised of:
<TABLE>
<S> <C>
Internal Revenue Service -- certain deposit attributable to
the use of a fiscal year other than the calendar year..... $581,144
Rent security deposit....................................... 25,000
--------
$606,144
========
</TABLE>
(5) Off Balance Sheet Risk -- the firm is subject to the risks of fluctuation in
the value of its long and short positions, which positions it is required to
take as part of its functioning as a NYSE specialist.
F-40
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALERPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING
LETTER OF TRANSMITTAL. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
AN OFFER TO SELL OR TO BUY ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
CURRENT ONLY AS OF THEIR RESPECTIVE DATES.
- --------------------------------------------------------------------------------
[LOGO]
THROUGH AND INCLUDING , 1999 (THE 40(TH) DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
, 1999
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to indemnify him
against such liabilities under such Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit.
Article Tenth of the certificate of incorporation of LaBranche & Co Inc.
(the "Company"), states that to the fullest extent permitted by the DGCL, no
director of the Company shall be personally liable to the Company, any of its
stockholders or any other person or entity for monetary damages for breach of
fiduciary duty owed to the Company, its stockholders or such other person or
entity owing to such director's position as a director of the Company.
II-1
<PAGE>
Article Eleventh of the Company's certificate of incorporation, contains
substantially the same provisions for indemnification as those contained in
Section 145 of the DGCL.
The Company has entered into indemnification agreements with its current
directors and executive officers. The Company has agreed to insure its directors
and officers against losses arising from any claim against them as such for
wrongful acts or omission, subject to certain limitations.
Under the underwriting agreement, the underwriters are obligated, under
certain circumstances, to indemnify officers, directors and controlling persons
of the Company against certain liabilities, including liabilities under the
Securities Act of 1933. Reference is made to the underwriting agreement filed as
Exhibit 1.1 hereto.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
1.1 Underwriting Agreement.*
2.1 Plan of Incorporation of LaBranche & Co.*
2.2 Exchange Agreement by and among LaBranche & Co Inc., LaB
Investing Co., L.L.C. and the members of LaB Investing Co.
L.L.C. listed on Schedule A thereto.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.*
3.2 Amended and Restated Bylaws of the Company.*
4.1 Indenture, dated as of August 24, 1999, among LaBranche &
Co Inc., as issuer, and Firstar Bank, N.A., as trustee,
relating to the 9 1/2% Senior Notes due 2004.*
4.2 Form of 9 1/2% Senior Notes due 2004 of LaBranche & Co Inc.
(the "Initial Notes") (included as Exhibit A to the
Indenture filed as Exhibit 4.1).*
4.3 Form of 9 1/2% Senior Notes due 2004 of LaBranche & Co Inc.
(the "Exchange Notes") (included as Exhibit A to the
Indenture filed as Exhibit 4.1).*
4.4 Registration Rights Agreement, dated as of August 24, 1999,
by and among LaBranche & Co Inc., as issuer, and Salomon
Smith Barney Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as initial purchasers.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality of
the Exchange Notes.
10.1 Agreement of Lease between Aetna Life Insurance Company and
LaBranche & Co., dated January 6, 1984, as amended to
date.**
10.2 Second Amendment to Lease Agreement by and between Bank of
Communications and LaBranche & Co. dated July 1995, as
amended to date.**
10.3 Equity Incentive Plan of the Company.**
10.4 Annual Incentive Plan.**
10.5 Form of Employment Letter between the Company and its
executive officers.**
10.6 Form of Agreement Relating to Noncompetition and Other
Covenants.**
10.7 Form of Pledge Agreement.**
10.8 Stockholders' Agreement by and among LaBranche & Co Inc. and
the Stockholders listed on Schedule I thereto.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.9 LaBranche & Co. Note Purchase Agreement, dated
September 15, 1997, relating to the issuance of $20,000,000
aggregate principal amount of 8.17% Subordinated Notes, as
amended.**
10.10 LaBranche & Co. Note Purchase Agreement, dated June 3, 1998,
relating to the issuance of $15,000,000 aggregate principal
amount of 7.69% Subordinated Notes.**
10.11 Amendment to Note Purchase Agreements, dated as of
August 23, 1999, relating to the issuance of $20,000,000
aggregate principal amount of 8.17% Subordinated Notes and
$15,000,000 aggregate principal amount of 7.69% Subordinated
Notes.*
10.12 Form of Subordinated Note.**
10.13 Credit Agreement, dated as of June 26, 1998, by and among
LaBranche & Co. and The Bank of New York.**
10.14 Amendment No. 1 to Credit Agreement, dated as of June 23,
1999, by and among LaBranche & Co. and The Bank of New
York.*
10.15 Amendment No. 2 to Credit Agreement, dated as of August 24,
1999, by and among LaBranche & Co. and The Bank of New
York.*
10.16 Form of Indemnification Agreement.**
10.17 Note Purchase Agreement, dated August 18, 1999, by and among
LaBranche & Co Inc. and the initial purchasers.*
10.18 Amended and Restated Articles of Partnership of LaBranche &
Co.*
10.19 LaB Investing Co., L.L.C. Amended and Restated Operating
Agreement.*
10.20 Acquisition Agreement, dated August 16, 1999, by and between
Ernst & Company and LaBranche & Co.*
10.21 Acquisition Agreement, dated August 16, 1999, by and between
Mill Bridge Inc., LaB Investing Co. L.L.C., LaBranche &
Co Inc. and LaBranche & Co.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
23.1 Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Sugarman & Thrope, P.C.
24.1 Power of attorney (included on signature page).*
25.1 Form T-1.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Previously filed.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-81079), as amended, effective August 18,
1999.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to
II-3
<PAGE>
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.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on October 25, 1999.
<TABLE>
<S> <C> <C>
LaBRANCHE & CO INC.
By: /s/ GEORGE M.L. LABRANCHE, IV
-----------------------------------------
George M.L. LaBranche, IV
Chairman and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Executive Officer,
/s/ GEORGE M.L. LABRANCHE, IV President and Chairman of
------------------------------------------- the Board (Principal October 25, 1999
George M.L. LaBranche, IV Executive Officer)
/s/ TODD GRABER
------------------------------------------- Controller (Principal October 25, 1999
Todd Graber Accounting Officer)
*
------------------------------------------- Director October 25, 1999
James G. Gallagher
*
------------------------------------------- Director October 25, 1999
Alfred O. Haytward, Jr.
*
------------------------------------------- Executive Vice President, October 25, 1999
S. Lawrence Prendergast Finance and Director
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ TODD GRABER
--------------------------------------
Todd Graber
AS ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C>
1.1 Underwriting Agreement.*
2.1 Plan of Incorporation of LaBranche & Co.*
2.2 Exchange Agreement by and among LaBranche & Co Inc., LaB
Investing Co. L.L.C. and the members of LaB Investing Co.,
L.L.C. listed on Schedule A thereto.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.*
3.2 Amended and Restated Bylaws of the Company.*
4.1 Indenture, dated as of August 24, 1999, among LaBranche &
Co Inc., as issuer, and Firstar Bank, N.A., as trustee,
relating to the 9 1/2% Senior Notes due 2004.*
4.2 Form of 9 1/2% Senior Notes due 2004 of LaBranche & Co Inc.
(the "Initial Notes") (included as Exhibit A to the
Indenture filed as Exhibit 4.1).*
4.3 Form of 9 1/2% Senior Notes due 2004 of LaBranche & Co Inc.
(the "Exchange Notes") (included as Exhibit A to the
Indenture filed as Exhibit 4.1).*
4.4 Registration Rights Agreement, dated as of August 24, 1999,
by and among LaBranche & Co Inc., as issuer, and Salomon
Smith Barney Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as initial purchasers.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality of
the Exchange Notes.
10.1 Agreement of Lease between Aetna Life Insurance Company and
LaBranche & Co., dated January 6, 1984, as amended to
date.**
10.2 Second Amendment to Lease Agreement by and between Bank of
Communications and LaBranche & Co. dated July 1995, as
amended to date.**
10.3 Equity Incentive Plan of the Company.**
10.4 Annual Incentive Plan**
10.5 Form of Employment Letter between the Company and its
executive officers.**
10.6 Form of Agreement Relating to Noncompetition and Other
Covenants.**
10.7 Form of Pledge Agreement.**
10.8 Stockholders' Agreement by and among LaBranche & Co Inc. and
the Stockholders listed on Schedule I thereto.*
10.9 LaBranche & Co. Note Purchase Agreement, dated
September 15, 1997, relating to the issuance of $20,000,000
aggregate principal amount of 8.17% Subordinated Notes, as
amended.**
10.10 LaBranche & Co. Note Purchase Agreement, dated June 3, 1998,
relating to the issuance of $15,000,000 aggregate principal
amount of 7.69% Subordinated Notes.**
10.11 Amendment to Note Purchase Agreements, dated as of
August 23, 1999, relating to the issuance of $20,000,000
aggregate principal amount of 8.17% Subordinated Notes and
$15,000,000 aggregate principal amount of 7.69% Subordinated
Notes.*
10.12 Form of Subordinated Note.**
10.13 Credit Agreement, dated as of June 26, 1998, by and among
LaBranche & Co. and The Bank of New York.**
10.14 Amendment No. 1 to Credit Agreement, dated as of June 23,
1999, by and among LaBranche & Co. and The Bank of New
York.*
10.15 Amendment No. 2 to Credit Agreement, dated as of August 24,
1999, by and among LaBranche & Co. and The Bank of New
York.*
10.16 Form of Indemnification Agreement.**
10.17 Note Purchase Agreement, dated August 18, 1999, by and among
LaBranche & Co Inc. and the initial purchasers.*
10.18 Amended and Restated Articles of Partnership of LaBranche &
Co.*
10.19 LaB Investing Co. L.L.C. Amended and Restated Operating
Agreement.*
10.20 Acquisition Agreement by, dated August 16, 1999, and between
Ernst & Company and LaBranche & Co.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C>
10.21 Acquisition Agreement by, dated August 16, 1999, and between
Mill Bridge Inc., LaB Investing Co. L.L.C., LaBranche &
Co Inc. and LaBranche & Co.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
23.1 Consent of Fulbright & Jaworski L.L.P. (Included in
Exhibit 5.1).
23.2 Consent of Arthur Andersen L.L.P.
23.3 Consent of Sugarman & Thorpe, RC.
24.1 Power of attorney (included on signature page).*
25.1 Form T-1.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Previously filed.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-81079), as amended, effective August 18,
1999.
<PAGE>
Exhibit 5.1
[Letterhead]
October 22, 1999
LaBranche & Co Inc.
One Exchange Plaza
New York, NY 10006
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4, as
amended (the "Registration Statement"), filed by LaBranche & Co Inc., a Delaware
corporation (the "Company"), under the Securities Act of 1933, as amended (the
"Act"), relating to the 9 1/2% Senior Notes due 2004 (the "Exchange Notes") to
be offered in exchange for all outstanding 9 1/2% Senior Notes due 2004 (the
"Initial Notes"), pursuant to an indenture (the "Indenture"), dated as of August
24, 1999, between the Company and Firstar Bank, N.A., as trustee, you have
requested our opinion, as counsel for the Company, with respect to the validity
of issuance and enforceability of the Exchange Notes. Our opinion set forth
below is limited to the General Corporation Law of the State of Delaware.
We assume that appropriate action will be taken, prior to the
offer of Exchange Notes, to register and qualify the Exchange Notes for sale
under all applicable state securities or "blue sky" laws.
As counsel for the Company, we have examined such corporate
records, other documents and questions of law as we have considered necessary or
appropriate for the purposes of this opinion. In our examination of the
foregoing documents, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents.
Based on the foregoing and subject to the assumptions and
qualifications set forth above, we advise you that, in our opinion, when the
Exchange Notes, in the form filed as an exhibit to the Registration Statement,
have been duly executed and authenticated in accordance with the Indenture,
<PAGE>
October 22, 1999
Page 2
and duly issued and delivered by the Company in exchange for an equal principal
amount of Initial Notes pursuant to the terms of the Registration Rights
Agreement, as filed as an exhibit to the Registration Statement, the Exchange
Notes will be legal, valid, binding and enforceable obligations of the Company
entitled to the benefits of the Indenture, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Prospectus contained therein. This consent is not to be
construed as an admission that we are a party whose consent is required to be
filed with the Registration Statement under the provisions of the Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE>
Exhibit 23.2
[LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated January 25, 1999 and to all references to our Firm included in, or made
part of, this registration statement.
[LOGO]
New York, New York
October 25, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated January 20, 1999 and to all references to our Firm included in or
made part of this registration statement.
/s/ Sugarman & Thrope, P.C.
New York, New York
October 25, 1999
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
LABRANCHE & CO INC.
Offer to Exchange
$100,000,000 9 1/2% Senior Notes due 2004
Exhibit 99.1 which have been registered under the Securities Act
of 1933, as amended,
for any and all outstanding
$100,000,000 9 1/2% Senior Notes due 2004
Pursuant to the Prospectus, dated _______________________, 1999.
DELIVERY TO: FIRSTAR BANK, N.A., EXCHANGE AGENT
BY MAIL: BY HAND:
Firstar Bank, N.A. Firstar Bank, N.A.
425 Walnut Street 425 Walnut Street
Corporate Trust Services, 6th Floor Corporate Trust Services, 6th Floor
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
ATTN: Keith Maurmeier ATTN: Keith Maurmeier
Telephone: (513) 632-4843
Facsimile: (513) 632-5511
Delivery of this instrument to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated
____________________, 1999 (the "Prospectus"), of LaBranche & Co Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter"), which together constitute the offer (the "Exchange Offer") to
exchange an aggregate principal amount of up to $100,000,000 9 1/2% Senior Notes
due 2004 (the "Exchange Notes") for an equal principal amount of the outstanding
$100,000,000 9 1/2% Senior Notes due 2004 (the "Initial Notes").
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount at maturity equal
to that of the surrendered Initial Note. The Exchange Notes will accrue interest
at the applicable per annum rate from and including the most recent date to
which interest has been paid on the Initial Notes or, if no interest has been
paid on the Initial Notes, from and including the date of issuance of the
Initial Notes. Interest on the Exchange Notes is payable on February 15 and
August 15 of each year commencing February 15, 2000. The Company reserves the
right, at any time or from time to
<PAGE>
time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean ___ , 1999 (20 days following the commencement of
the Exchange Offer), unless the Exchange Offer is extended if and as required by
applicable law, in which case Expiration Date shall mean the latest date to
which the Exchange Offer is extended. In order to extend the Expiration Date,
the Company will notify the Exchange Agent of any extension by oral or written
notice and may notify the holders of the Initial Notes by mailing an
announcement or by means of a press release or other public announcement prior
to 9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
This Letter is to be completed by a holder of Initial Notes either if
Initial Notes are to be forwarded herewith or if a tender of Initial Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure set forth in "The Exchange Offer" section
of the Prospectus. Holders of Initial Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Initial Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer-Terms of the Exchange Offer-Guaranteed Delivery Procedure" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
List below the Initial Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Initial Notes should be listed on a separate signed schedule affixed hereto.
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF INITIAL NOTES (1) (2) (3)
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
NAME(S) AND ADDRESS(ES) CERTIFICATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
OF REGISTERED HOLDER(S) NUMBER(S)* AMOUNT OF INITIAL TENDERED
(PLEASE FILL IN, IF BLANK) NOTE(S) (IF LESS THAN ALL)**
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
<S> <C> <C> <C>
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
TOTAL
- --------------------------------------------- - ------------------ - -------------------------- -- -----------------------
</TABLE>
* Need not be completed if Initial Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Initial Notes represented by the Initial Notes
indicated in column 2. See Instruction 2. Initial Notes tendered hereby
must be in denominations of principal amount of $1,000 and any integral
multiple thereof. See Instruction 1.
<PAGE>
ACCOUNT INFORMATION
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________
Account Number ___________________ Transaction Code Number ____________
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) _______________________________________
Window Ticket Number (if any) _________________________________________
Date of Execution of Notice of Guaranteed Delivery ___________________
Name of Institution which guaranteed delivery _______________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number _________________ Transaction Code Number _____________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _________________________________________________________________
Address: ____________________________________________________________
_______________________________________________________________________
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Initial Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Initial Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Initial Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Initial Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such Exchange Notes, whether
or not such person is the undersigned, that neither the holder of such Initial
Notes nor any such other person is engaged in, or intends to engage in a
distribution of such Exchange Notes, or has an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes, and that
neither the holder of such Initial Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being
made based upon the Company's understanding of an interpretation by the staff of
the Securities and Exchange Commission (the "Commission") as set forth in
no-action letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available April 13, 1988), Morgan Stanley &
Co. Incorporated, SEC No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993), that the Exchange Notes
issued in exchange for the Initial Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than a broker-dealer who acquires such Exchange Notes directly from the Company
for resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such Exchange Notes and have no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. If a holder of Initial Notes is engaged in or intends to
engage in a distribution of the Exchange Notes or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale
<PAGE>
transaction. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Initial Notes, it represents that the
Initial Notes to be exchanged for the Exchange Notes were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Initial Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer-Terms of the Exchange Offer-Withdrawal of Tenders" section of the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Initial Notes for any Initial Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Initial Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the Exchange
Notes (and, if applicable, substitute certificates representing Initial Notes
for any Initial Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Initial Notes".
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES
AS SET FORTH IN SUCH BOX ABOVE.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if certificates for Initial Notes not exchanged and/or
Exchange Notes are to be issued in the name of and sent to someone other than
the person(s) whose signature(s) appear(s) on this Letter below, or if Initial
Notes delivered by book-entry transfer which are not accepted for exchange are
to be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue Exchange Notes and/or Initial Notes to (please type or print):
Name(s):
________________________________________________________________________
Address:
________________________________________________________________________
________________________________________________________________________________
(Complete accompanying Substitute Form W-9)
Credit unexchanged Initial Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
________________________________________________________________________________
(Book-Entry Transfer Facility
________________________________________________________________________________
(Account number)
SPECIAL DELIVERY INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if certificates for Initial Notes not exchanged
and/or Exchange Notes are to be sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter below or to such person(s) at an address
other than shown in the box entitled "Description of Initial Notes" on this
Letter above.
Mail Exchange Notes and/or Initial Notes to (Please type or print):
Name(s):
________________________________________________________________________
Address:
________________________________________________________________________
________________________________________________________________________________
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
INITIAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
_____________________________________________________________________________ x
_____________________________________________________________________________ x
(Signature(s) of Owner) (Date)
Area Code and Telephone Number: _________________________________________
If a holder is tendering any Initial Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Initial Notes or by any person(s) authorized to become registered holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s) (Please Type or Print):
____________________________________________
____________________________________________
Capacity:
__________________________________________________________________
Address:
__________________________________________________________________
___________________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed
by an Eligible Institution:
__________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name and Firm)
Dated: , 1999
______________________
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS
AND CONDITIONS OF THE OFFER TO EXCHANGE
$100,000,000 9 1/2% SENIOR NOTES DUE 2004 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
$100,000,000 9 1/2% SENIOR NOTES DUE 2004
LABRANCHE & CO INC.
1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY
PROCEDURES.
This Letter is to be completed by holders of Initial Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Terms of the Exchange Offer--Book-Entry Transfer" section of the
Prospectus. Certificates for all physically tendered Initial Notes, or
Book-Entry Confirmation, as the case may be, as well as a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) and any other
documents required by this Letter, must be received by the Exchange Agent at the
address set forth herein on or prior to the Expiration Date, or the tendering
holder must comply with the guaranteed delivery procedures set forth below.
Initial Notes tendered hereby must be in denominations of principal amount at
maturity of $1,000 and any integral multiple thereof.
Holders of Initial Notes whose certificates for Initial Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Initial Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Terms of the Exchange Offer--Guaranteed Delivery
Procedure" section of the Prospectus. Pursuant to such procedures, (i) such
tender must be made through an Eligible Institution (as defined in instruction 3
below), (ii) prior to the Expiration Date, the Exchange Agent must receive from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Initial Notes and the amount of Initial Notes tendered, stating that the tender
is being made thereby and guaranteeing that within five business days after the
Expiration Date, the certificates for all physically tendered initial notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Initial Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within five business days after the
Expiration Date.
The method of delivery of this Letter, the Initial Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Initial Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery
<PAGE>
to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF INITIAL NOTES WHO TENDER
BY BOOK-ENTRY TRANSFER).
If less than all of the Initial Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Initial Notes to be tendered in the box above
entitled "Description of Initial Notes-Principal Amount Tendered." A reissued
certificate representing the balance of nontendered Initial Notes will be sent
to such tendering holder, unless otherwise provided in the appropriate box on
this Letter, promptly after the Expiration Date. All of the Initial Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
3. SIGNATURES OF THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the recordholder(s) of the Initial Notes
tendered hereby, the signature must correspond exactly with the name(s) as
written on the face of the Initial Notes without any change whatsoever. If this
Letter is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the holder of the Initial Notes.
If any tendered Initial Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Initial Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder of the Initial
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Initial Notes are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificates
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
of any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by
trustees, executors,
<PAGE>
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
Endorsements on certificates for Initial Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934 (an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Initial Notes are tendered: (i) by a registered holder
(or by a participant in The Depository Trust Company whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Delivery Instructions" on the letter of transmittal and the Exchange
Notes are being issued directly to such registered holder (or deposited into the
participant's account at The Depository Trust Company), or (ii) for the account
of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Initial Notes should indicate in the applicable
box the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Initial Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. A holder of Initial Notes tendering Initial Notes by book-entry
transfer may request that Initial Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such holder of Initial
Notes may designate thereon. If no such instructions are given, such Initial
Notes not exchanged will be returned to the name or address of the person
signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Initial Notes are accepted for exchange must provide the Company (as payor) with
such Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which, in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption, such tendering holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
of exchange Notes to such tendering holder may be subject to backup withholding
in an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Initial Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See
<PAGE>
the enclosed Guidelines of Certification of Taxpayer Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Initial Notes
must provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to a backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Initial Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Company a completed
Form W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Initial Notes are in more than one name or are not in the
name of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If such holder does not provide its TIN to
the Company within 60 days, backup withholding will begin and continue until
such holder furnishes its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay or cause to be paid all transfer taxes, if any,
applicable to the transfer of Initial Notes to it or its order pursuant to the
Exchange Offer. If, however (i) certificates representing Exchange Notes or
Initial Notes for principal amounts not tendered or accepted for exchange are
delivered to, or, are to be registered or issued in the name of, any person
other than the registered holder of the initial notes tendered, (ii) tendered
initial notes are registered in the name of any person other than the person
signing this Letter or (iii) a transfer tax is imposed for any reason other than
the exchange of Initial Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes, whether imposed on the registered holder or any other
persons, will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it is not necessary for
transfer tax stamps to be affixed to the Initial Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
<PAGE>
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Initial Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Initial Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Initial Notes, nor shall any of them incur any liability for failure
to give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
Any holder whose Initial Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: FIRSTAR BANK, N.A.
<TABLE>
<CAPTION>
<S> <C> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX
Form W-9 AT RIGHT AND CERTIFY BY SIGNING AND
Department of the DATING BELOW. [___]
Treasury ___________________________________
Internal Revenue (Social Security Number or Employer
Service Part 2-- TIN Applied for [___] Identification Number)
</TABLE>
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to
be issued to me).
(2) I am not subject to backup withholding either because:
Payor's Request (a) I am exempt from backup withholding, or(b) I have
For Taxpayer not been notified by the internal revenue service
Identification (the "IRS") that I am subject to backupwithholding as
Number ("TIN") a Result of a Failure to Report All Interest or
and Certification Dividends, or (c) the IRS has notified me thatI am no
longer subject to backup withholding, and
(3) any other information provided on this form is true
and correct.
SIGNATURE: __________________________________________ DATE:_________________
You must cross out item (2) of the above certification if you have been notified
by the irs that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
________________________________________________________________________________
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION
NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate internal revenue
service center of social security administration office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
------------------------------ ---------------------------
Signature Date
<PAGE>
EXHIBIT 99.2
LABRANCHE & CO INC. 99.2
NOTICE OF GUARANTEED DELIVERY 99.2
This form or one substantially equivalent hereto must be used to accept
the Exchange 99.2 Offer of LaBranche & Co Inc. (the "Company") made pursuant to
the Prospectus, dated ________________, 1999 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
Initial Notes are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Company prior to 5:00 P.M., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to Firstar Bank,
N.A., (the "Exchange Agent") as set forth below. In addition, in order to
utilize the guaranteed delivery procedure to tender Initial Notes pursuant to
the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof ) must also be received by the Exchange Agent prior to 5:00
P.M., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
TO FIRSTAR BANK, N.A.
(THE "EXCHANGE AGENT")
BY MAIL: BY HAND:
Firstar Bank, N.A. Firstar Bank, N.A.
425 Walnut Street 425 Walnut Street
Corporate Trust Services, 6th Floor Corporate Trust Services, 6th Floor
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
ATTN: Keith Maurmeier ATTN: Keith Maurmeier
Telephone: (513) 632-4843
Facsimile: (513) 632-5511
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Initial Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Terms of the
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL AMOUNT OF INITIAL NOTES TENDERED: NAME(S) OF RECORD HOLDERS:
$
__________________________________________ _____________________________________
_____________________________________
CERTIFICATE NOS. (IF AVAILABLE): ADDRESS(ES):
__________________________________________ _____________________________________
__________________________________________ _____________________________________
If Initial Notes will be delivered by AREA CODE AND TELEPHONE NUMBER(S):
transfer to The Depository Trust Company,
provide account number.
_____________________________________
Account Number:_____________________________
SIGNATURE(S):
_____________________________________
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office correspondent in the United
States or any "eligible guarantor" institution within the meaning of Rule
17Ad-15 of the Exchange Act of 1934, as amended, hereby (a) guarantees to
deliver to the Exchange Agent, at one of its addresses set forth above, the
certificates representing all tendered Initial Notes, in proper form for
transfer, or a Book-Entry Confirmation, together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
Name of Firm: _______________________________ _____________________________
(Authorized Signature)
Address: _____________________________
_____________________________
Area Code and
Telephone Number: _____________________
Title: _______________________________________
Name: _______________________________________
Date: _______________________________________
