<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-81079
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
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:
<TABLE>
<S> <C>
JEFFREY M. MARKS, ESQ. ALAN L. BELLER, ESQ.
WARREN J. NIMETZ, ESQ. WILLIAM F. GORIN, ESQ.
FULBRIGHT & JAWORSKI L.L.P. CLEARY, GOTTLIEB, STEEN & HAMILTON
666 FIFTH AVENUE ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10103 NEW YORK, NEW YORK 10006
(212) 318-3000 (212) 225-2000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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, please 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 462(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 IT 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 AUGUST 16, 1999
PROSPECTUS
11,500,000 SHARES
[LOGO]
COMMON STOCK
---------------
We are selling 11,500,000 shares of our common stock. The underwriters named
in this prospectus may purchase up to 1,725,000 additional shares of common
stock from us under certain circumstances.
This is an initial public offering of common stock. We currently expect the
initial public offering price to be between $15.00 and $17.00 per share. The
common stock has been approved for listing on the New York Stock Exchange under
the symbol "LAB."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------
<S> <C> <C>
Public Offering Price.................................................. $ $
Underwriting Discount.................................................. $ $
Proceeds to LaBranche & Co Inc. (before expenses)...................... $ $
</TABLE>
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
<PAGE>
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary........................................................................................ 1
Risk Factors.............................................................................................. 8
Use of Proceeds........................................................................................... 19
Dividend Policy........................................................................................... 19
Capitalization............................................................................................ 20
Dilution.................................................................................................. 21
Selected Historical Consolidated Financial Data........................................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................................... 24
Business.................................................................................................. 35
Management................................................................................................ 50
Employment Agreements and Noncompetition Agreements....................................................... 52
Incentive Awards to Our Employees......................................................................... 54
Principal Stockholders.................................................................................... 57
Certain Transactions...................................................................................... 58
Description of Capital Stock.............................................................................. 60
Shares Eligible for Future Sale........................................................................... 63
Underwriting.............................................................................................. 65
Legal Matters............................................................................................. 67
Experts................................................................................................... 67
Where You Can Find Additional Information................................................................. 67
Index to Financial Statements............................................................................. F-1
</TABLE>
------------------------
Until 1999, all dealers that buy, sell or trade the common
stock, 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.
<PAGE>
PROSPECTUS SUMMARY
THE INFORMATION BELOW IS ONLY A SUMMARY OF MORE DETAILED INFORMATION
INCLUDED IN OTHER SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS
IMPORTANT, SO PLEASE READ THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS STATED
OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE 1,725,000 SHARES OF OUR COMMON
STOCK HAS NOT BEEN EXERCISED AND THAT WE HAVE COMPLETED THE REORGANIZATION OF
OUR FIRM FROM PARTNERSHIP TO CORPORATE FORM.
LABRANCHE & CO INC.
Founded in 1924, we are 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.
All trading of securities on the NYSE is conducted through an auction
process managed by the specialist for each security. The specialist is a
broker-dealer who is granted the franchise by the NYSE to conduct the auction in
particular stocks and is assigned the role to maintain a fair and orderly market
in its specialist stocks. As of June 30, 1999, there were 29 specialist units as
compared with 39 at December 31, 1994. The substantial majority of trades in
NYSE-listed stocks takes place on the floor of the NYSE and is handled by
specialist firms. Specialist firms generate revenues by executing trades, either
as agent or principal, in their specialist stocks.
Our business has grown considerably during the past five years. The total
annual share volume on the NYSE of stocks for which we act as specialist has
increased from approximately 3.4 billion in 1994 to nearly 20.0 billion in 1998,
representing a compound annual growth rate of 55.4%. During the same period, our
annual revenues increased from $29.9 million to $126.4 million, representing a
compound annual growth rate of 43.4%. We have accomplished our growth both
internally and through selective acquisitions. Since the March 1997
implementation of a new NYSE allocation process which allows listing companies
to make the final selection of their specialist, we have added 42 new common
stock listings to our firm. In addition, we have acquired three specialist
operations since 1997, adding 131 new common stock listings to our firm.
Our revenues are primarily driven by the volume of trading on 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 at December 31, 1998 was
approximately $10.9 trillion, representing approximately 80% of the market
capitalization of all shares publicly traded on U.S. national markets. The
NYSE's average daily trading volume increased from 291.4 million shares in 1994,
to 673.6 million shares in 1998, representing a compound annual growth rate of
23.3%. We believe that this increase in NYSE trading volume is due to a number
of factors including:
- an increase in the amount of funds invested in equity securities;
- an increase in the number of NYSE-listed stocks; and
- an increase in the use of computerized trading strategies.
We believe that several changes under consideration by the NYSE, including
longer trading days and trading in decimals, if enacted, will likely contribute
to additional growth in NYSE trading volume.
1
<PAGE>
We believe our success is due to our:
- leading position in the specialist market;
- diverse and high quality specialist stocks;
- strong market-making skills;
- innovative customer-oriented services; and
- recent acquisitions.
Our strategies for growing our revenues and profits are to:
- aggressively pursue new listings;
- actively participate in the consolidation of the specialist industry by
making selective acquisitions; and
- increase our capital base and our access to capital.
Our revenues in 1998 were $126.4 million on an actual basis and $137.9
million on a pro forma basis, while our net income for the same period was $2.7
million on an actual basis and $31.9 million on a pro forma basis. Our revenues
for the first six months of 1999 were $103.5 million on both an actual and pro
forma basis, while our net income for the same period was $6.3 million on an
actual basis and $27.7 million on a pro forma basis. Pro forma revenues and net
income give effect to (1) our July 1998 acquisition of substantially all the
assets of Fowler, Rosenau and Geary, LLC and (2) the reorganization of our firm
from partnership to corporate form and related transactions.
2
<PAGE>
REORGANIZATION AND RELATED TRANSACTIONS
LaBranche & Co Inc. is a newly formed holding corporation, and after giving
effect to a number of transactions to be effected concurrently with this
offering and a concurrent note offering, our assets will 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, will be effected
through the transactions summarized below:
[GRAPHIC]
- The members of LaB Investing Co. L.L.C. have agreed, subject to the
completion of this offering, to exchange their membership interests in LaB
Investing Co. L.L.C. for an aggregate of 34,750,000 shares of our common
stock. In addition to receiving a portion of those shares, three members
of LaB Investing Co. L.L.C. will also receive an aggregate of $10.0
million in cash as part of the exchange. We thus will become the sole
member of LaB Investing Co. L.L.C., and LaB Investing Co. L.L.C. will
continue to be the general partner of LaBranche & Co.
- The limited partners of LaBranche & Co., other than Mill Bridge, Inc.,
have agreed, subject to the completion of this offering, to exchange their
limited partnership interests in LaBranche & Co. for an aggregate of $68.1
million in cash, 625,000 shares of our common stock and subordinated
indebtedness of $350,000.
- Mill Bridge, Inc., a subsidiary of Van der Moolen Holding NV, will receive
$90.0 million from us in exchange for its limited partnership interest in
LaBranche & Co., including $74.0 million in cash after this offering and
our note offering and a subordinated note for $16.0 million. In addition,
we will repay $5.0 million of subordinated debt to an affiliate of Van der
Moolen upon the closing of this offering and our note offering.
- As a result of the above transactions, we will become the sole limited
partner of LaBranche & Co., which will continue to operate as a
broker-dealer and a NYSE specialist firm.
- We will grant (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
3
<PAGE>
common stock to employees who are not managing directors, in each case
under the Equity Incentive Plan.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................ 11,500,000 shares
Common stock to be outstanding after the
offering.................................. 46,875,000 shares
Use of proceeds............................. The estimated net proceeds from this offering
will be approximately $169.5 million. We intend
to use the majority of the net proceeds for
general corporate purposes to support the growth
of our business, including working capital and
future acquisitions. In addition, we will use
approximately $60.1 million to redeem some of
the limited partnership interests of our
subsidiary, LaBranche & Co., as part of the
reorganization of our firm from partnership to
corporate form. There is no specific allocation
for a substantial portion of the net proceeds,
and there can be no assurance that management
will be able to use the unallocated proceeds
effectively to continue to grow our business.
See the risk factor entitled "We may not
effectively use the unallocated proceeds of this
offering to continue to grow our business."
Proposed New York Stock Exchange symbol..... LAB
</TABLE>
At approximately the same time as this offering, we will incur indebtedness
of approximately $116.4 million. This indebtedness will consist of (1) an
offering of an aggregate principal amount of $100.0 million of senior notes due
2004 under Rule 144A of the Securities Act, which we refer to as our note
offering, and (2) the issuance of an aggregate principal amount of $16.4 million
of subordinated indebtedness. Of this indebtedness:
- $98.4 million will be used to redeem limited partnership interests in
LaBranche & Co.;
- $10.0 million will be used to redeem membership interests in LaB Investing
Co. L.L.C.; and
- $5.0 million will be used to repay subordinated indebtedness as part of
our reorganization.
- ------------------------
The above information excludes (1) 1,200,000 shares of common stock subject
to options with an exercise price equal to the initial public offering price
and (2) restricted stock units for 1,059,000 shares of common stock.
4
<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 ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ ------------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT OTHER DATA)
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
</TABLE>
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. Concurrently with this offering and our note
offering, we will reorganize our firm from partnership to corporate form and in
connection with the reorganization, will redeem limited partnership and
membership interests. As a corporation, we will 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 this offering and our note offering. See "--Reorganization
and Related Transactions" and "--Summary Pro Forma Consolidated Financial Data."
As a partnership, we generally have 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 will be subject to U.S. federal,
state and local income taxes.
5
<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 gives
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 effect to (1) the reorganization and related
transactions as if they occurred on June 30, 1999, (2) our note offering, (3)
the application of the net proceeds of our note offering, (4) the sale by us of
11,500,000 shares of common stock in this offering at an assumed initial
offering price of $16.00 per share, after deducting the underwriting discount
and estimated offering expenses payable by us, and (5) the application of the
net proceeds from this offering.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE 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 40,538(A) 11,299 33,047(A)
Lease of exchange memberships...................... 6,568 7,064 4,165 4,165
Interest........................................... 3,577 13,955(B) 2,195 7,179(B)
Exchange, clearing and brokerage fees.............. 2,898 3,233 1,997 1,997
Amortization of intangibles........................ 2,526 7,132( (D) 1,693 3,566(D)
Other operating expenses........................... 5,286 6,281 2,795 2,795
----------- ----------- ----------- -----------
Total operating expenses......................... 34,776 78,203 24,144 52,749
----------- ----------- ----------- -----------
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary and provision for income taxes.......... 91,635 59,647 79,349 50,744
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 59,647 31,135 50,744
Limited partners' interest in earnings of
subsidiary......................................... 26,292 -- (F) 21,054 -- (F)
----------- ----------- ----------- -----------
Income before provision for income taxes............. 6,560 59,647 10,081 50,744
Provision for income taxes........................... 3,900 27,735(G) 3,789 23,072(G)
----------- ----------- ----------- -----------
Net income........................................... $ 2,660 $ 31,912 $ 6,292 $ 27,672
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted net income per share............... $ 0.68(H) $ 0.59(H)
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
HISTORICAL PRO FORMA
---------- -----------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and short-term investments.................................................. $ 38,063 $ 147,513(J)(K)
Working capital.................................................................. 123,698 233,148(J)(K)
Total assets..................................................................... 346,101 589,857(J)(K)
Total long-term indebtedness (I)................................................. 51,158 162,508(B)
Limited partners' interest in subsidiary......................................... 37,094 -- (J)
Members' capital/stockholders' equity............................................ 95,569 265,069(J)(K)
</TABLE>
- ------------------------
(A) Employee compensation and benefits was adjusted to reflect managing
directors' compensation based on authorized revised compensation policies
which will be 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 note offering of $100.0 million and the issuance of a $16.0
million subordinated note and the incurrence of $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) Based on 46,875,000 weighted average shares outstanding. 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.
(I) Excludes subordinated liabilities related to contributed exchange
memberships.
(J) Reflects the redemption of limited partnership interests for $168.4 million,
comprised of $142.1 million in cash, a $16.0 million subordinated note, the
incurrence of $350,000 of subordinated indebtedness and $10.0 million in
common stock. Reflects redemption of membership interests for $10.0 million.
(K) Reflects net proceeds of $169.5 million to be received upon completion of
this offering.
7
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES THAT OUR COMPANY FACES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US MAY ALSO ADVERSELY IMPACT OUR BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING
RESULTS COULD BE ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID
TO PURCHASE OUR COMMON STOCK.
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 THIS SECTION 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.
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 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 REVENUES.
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,
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<PAGE>
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 AND THE MARKET PRICE OF OUR
COMMON STOCK COULD DECREASE.
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.
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.
If our operating results fall below the expectations of securities analysts
and investors, the market price of our common stock could decrease.
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
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<PAGE>
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."
WE WILL INCUR A SUBSTANTIAL AMOUNT OF INDEBTEDNESS SIMULTANEOUSLY WITH THIS
OFFERING, THE AMOUNT AND TERMS OF WHICH MAY ADVERSELY AFFECT OUR ABILITY TO
GROW, COMPETE AND RESPOND TO CHANGING MARKETS.
We will have a substantial amount of indebtedness after the consummation of
our note offering. Our indebtedness and the related covenant restrictions could
have important consequences to you, including the following:
- our ability to obtain additional financing and to fund our operations and
our growth strategy may be impaired;
- our ability to use operating cash flow in other areas of our business will
be limited because we will have to make principal and interest payments;
- we may not be able to compete with others firms that are not as leveraged;
and
- our substantial degree of leverage and our covenant restrictions may limit
our ability to adjust to changing market conditions, changes in our
industry and economic downturns.
In addition, 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.
We may also need to incur additional debt in the future for working capital
or to complete acquisitions, even though covenants in our existing debt
agreements and the indenture governing our notes may limit our ability to do so.
In addition, if we breach any of these covenants, we may default under our
indebtedness.
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 cases, other distributions by, the broker-dealer.
These regulations could prevent us from obtaining funds necessary to satisfy our
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<PAGE>
obligations to pay interest on or repay our indebtedness, including our notes.
See "Business--Regulatory Matters" for a discussion of our net capital
requirements.
WE MAY HAVE INSUFFICENT 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 this offering and our 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.
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 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 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 communications 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
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<PAGE>
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 affect 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 and
chief executive officer. The loss of 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 this offering and the reorganization of our firm from
partnership to corporate form, our managing directors will receive substantial
amounts of our common stock in exchange for their current interests in LaB
Investing Co. L.L.C. Because the shares of common stock will be received in
exchange for membership interests, ownership of these shares will not be
dependent upon the continued employment of those managing directors. In
addition, employees who are not managing directors will receive grants of stock
options and restricted stock units. The steps we have taken to encourage the
continued service of these individuals after this offering, who include key
senior personnel in our specialist activities, may not be effective. For a
description of the compensation plan for our employees to be implemented after
this offering, see "Management--Executive Compensation" and "Incentive Awards to
Our Employees."
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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 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.
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
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<PAGE>
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
DATA 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 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, 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
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<PAGE>
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 has recently 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 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.
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<PAGE>
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.
Immediately following this offering, our managing directors who will be
continuing as managing directors after this closing will own approximately 73.8%
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 and
chief executive officer, James G. Gallagher and Alfred O. Hayward, Jr., each an
executive officer and director. Accordingly, these individuals will 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 will be able to 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 that might otherwise give you the
opportunity to realize a premium over the then-prevailing market price for your
shares of our common stock.
THE MARKET PRICE OF OUR COMMON STOCK MAY DECREASE BECAUSE AN ACTIVE AND
SUSTAINED TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP.
Prior to this offering, there has been no public market for our common
stock. Although we will make application for listing our common stock on the
NYSE, there can be no assurance that an active trading market will be created or
sustained. Due to the absence of any prior public market for the shares of our
common stock, there can be no assurance that the initial public offering price
will correspond to the price at which the shares of common stock will trade in
the public market subsequent to the offering. The initial public offering price
will be determined by negotiations among ourselves and representatives of the
underwriters based on several factors and will not necessarily reflect the
market price of our common stock following the offering.
FUTURE SALES BY EXISTING STOCKHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. After
this offering, we will have outstanding 46,875,000 shares of common stock. In
connection with the
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<PAGE>
reorganization of our firm from partnership to corporate form, our managing
directors and limited partners who are exchanging their interests for 35,375,000
restricted shares of our common stock have contractually agreed that they will
not sell their common stock for various time periods after this offering. Under
these contractual restrictions, these restricted shares are eligible for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
374,975............................................... One year after the closing of this offering.
749,950............................................... Two years after the closing of this offering.
12,333,283.............................................. Three years after the closing of this offering.
23,916,617.............................................. Four years after the closing of this offering.
35,375,000.............................................. Five years after the closing of this offering.
</TABLE>
Under SEC rules, the shares eligible for sale in the public market are as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
11,500,000 shares sold in this offering................. After the closing of this offering.
35,375,000 restricted shares............................ After one year from the closing of this offering
(subject to volume limitations which expire after the
second year other than in the case of affiliates).
</TABLE>
In addition:
- each of our managing directors who will be continuing as a managing
director after this offering must retain 25% of his or her common stock,
currently totaling 8,656,263 shares in the aggregate, for the duration of
his or her employment; and
- an employee may not sell shares of our common stock that are subject to a
pledge agreement, unless the requirements of the pledge agreement are
waived by us.
Our directors, officers and stockholders have agreed that they will not
sell, directly or indirectly, any common stock without the prior written consent
of Salomon Smith Barney Inc. for a period of 180 days from the date of this
prospectus.
We intend to file a Form S-8 registration statement under the Securities Act
to register shares of common stock issuable under our Equity Incentive
Plan. The registration statement will become effective immediately on filing.
Shares covered by that registration statement are eligible for resale in the
public markets, subject to Rule 144 limitations applicable to affiliates.
WE MAY NOT EFFECTIVELY USE THE UNALLOCATED PROCEEDS OF THIS OFFERING TO CONTINUE
TO GROW OUR BUSINESS.
The principal purpose of this offering is to provide more permanent capital
to support the growth of our specialist business. There is no specific
allocation for a substantial portion of the net proceeds, and our management
retains the right to utilize the net proceeds as it determines, including to
pursue selective acquisitions of other specialist firms. There can be no
assurance that management will be able to use the proceeds to effectively
continue the growth of our business.
THE TANGIBLE BOOK VALUE OF THE COMMON STOCK WILL BE SUBSTANTIALLY LOWER THAN THE
OFFERING PRICE.
The initial public offering price will be substantially higher than the pro
forma tangible book value per share of our outstanding common stock. If you
purchase our common stock in this offering, the shares you buy will experience
an immediate and substantial dilution in tangible book value per share.
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<PAGE>
The shares of common stock owned by existing stockholders will receive a
material increase in the tangible book value per share. The dilution to
investors in this offering will be approximately $14.12 per share. As a result,
if we were to distribute our tangible assets to our stockholders immediately
following this offering, purchasers of shares of common stock in this offering
would receive less than the amount they will have paid for such shares. See
"Dilution."
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD ENABLE OUR BOARD OF DIRECTORS TO
PREVENT OR DELAY A CHANGE OF CONTROL OF OUR COMPANY.
Some of the provisions of our certificate of incorporation, our bylaws and
Delaware law could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
In particular, our board of directors may issue up to 10,000,000 shares of
preferred stock with rights and privileges that might be senior to our common
stock, without the consent of the holders of the common stock. Our certificate
of incorporation and bylaws will provide, among other things, that our board of
directors will be divided into three classes which will serve staggered three
year terms, that stockholders may not take actions by written consent and that
special meetings of stockholders may only be called by our board of directors or
our chairman. We are also subject to Section 203 of the Delaware General
Corporation Law which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested stockholder
for a period of three years following the date on which the stockholder became
an interested stockholder.
18
<PAGE>
USE OF PROCEEDS
The principal purpose of this offering and our note offering is to provide
more permanent capital to support the growth of our business. The estimated net
proceeds from this offering, our note offering and our issuance of $16.4 million
of subordinated indebtedness, and the uses of those proceeds are set forth in
the tables below.
<TABLE>
<S> <C>
THIS OFFERING:
Net proceeds (1).......................... $169.5 million ($195.2 million if the
underwriters' over-allotment option is
exercised in full)
Uses...................................... $60.1 million to redeem some limited
partnership interests in LaBranche & Co. as
part of the reorganization of our firm from
partnership to corporate form
Remaining Proceeds........................ $109.4 million
</TABLE>
- ------------------------
(1) Assumes we sell 11,500,000 shares of common stock at an assumed offering
price of $16.00 per share and deducts underwriting discounts and commissions
and other estimated offering expenses.
We will use the remaining $109.4 million of net proceeds of this offering
for general corporate purposes which may include selective acquisitions of other
specialist firms. We do not have any commitments or agreements with respect to
any acquisitions. Our management will retain broad discretion in the allocation
of the remaining net proceeds of this offering. Pending such uses, we intend to
invest these proceeds in short-term, investment grade, interest-bearing
securities.
<TABLE>
<S> <C>
NOTE OFFERING AND ISSUANCE OF $16.4 MILLION
OF SUBORDINATED INDEBTEDNESS:
Net proceeds (1).......................... $113.4 million
Uses of proceeds.......................... $98.4 million to redeem some limited
partnership interests in LaBranche & Co.
$10.0 million to redeem membership interests
in LaB Investing Co. L.L.C.
$5.0 million to repay subordinated
indebtedness
Remaining proceeds........................ $0
</TABLE>
- ------------------------
(1) Assumes net proceeds from our note offering of $97.0 million after deducting
the discount to the initial purchasers, commissions and other estimated
offering expenses.
DIVIDEND POLICY
We currently anticipate that we will retain any future earnings for the
development and operations of our specialist business. Accordingly, we do not
anticipate paying cash dividends on our capital stock in the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
(1) on an actual basis;
(2) on a pro forma basis to give effect to:
- the reorganization of our firm from partnership to corporate form and
the related transactions described under "Certain
Transactions--Reorganization and Related Transactions," as if they had
occurred on June 30, 1999;
- our note offering;
- the sale by us of 11,500,000 shares of common stock in this offering at
an assumed initial offering price of $16.00 per share, after deducting
the underwriting discount and estimated offering expenses payable by
us; and
- the application of the proceeds from this offering.
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Senior notes.............................................................................. $ -- $ 100,000
Subordinated indebtedness(1).............................................................. 51,158 62,508
---------- -----------
Total long-term indebtedness, including current portion................................... 51,158 162,508
---------- -----------
Limited partners' interest in subsidiary.................................................. 37,094 --
Members' capital for LaB Investing Co. L.L.C.............................................. 95,569 --
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and
outstanding historical, pro forma and pro forma as adjusted........................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized; 35,375,000 shares issued
and outstanding, pro forma; 46,875,000 shares issued and outstanding, pro forma as
adjusted(2)........................................................................... -- 469
Additional paid-in-capital.............................................................. -- 264,600
Retained earnings....................................................................... -- --
---------- -----------
Total stockholders' equity................................................................ -- 265,069
---------- -----------
Total capitalization...................................................................... $ 183,821 $ 427,577
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes subordinated liabilities related to contributed exchange
memberships of $20.0 million.
(2) The above information excludes (1) 1,200,000 shares of common stock subject
to options with an exercise price equal to the initial public offering price
and (2) restricted stock units for 1,059,000 shares of common stock, in each
case under the Equity Incentive Plan.
20
<PAGE>
DILUTION
The pro forma net tangible book value of LaBranche & Co Inc. as of June 30,
1999, was approximately $(81,575,000), or $(2.31) per share of common stock. Pro
forma net tangible book value per share is equal to the amount of tangible net
assets of LaBranche & Co Inc., less total liabilities, divided by the pro forma
number of shares of common stock outstanding as of June 30, 1999. Assuming the
sale by LaBranche & Co Inc. of the shares of common stock offered hereby
(assuming an initial public offering price of $16.00 per share) and the
application of the net proceeds from this offering, the pro forma net tangible
adjusted book value of LaBranche & Co Inc. at June 30, 1999 would have been
approximately $87,925,000 or $1.88 per share of common stock. This amount
represents an immediate increase in pro forma net tangible book value of $4.19
per share to existing stockholders and an immediate dilution in net tangible
book value of $14.12 per share to new investors in the common stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $ 16.00
Pro forma net tangible book value per share at June 30, 1999........... $ (2.31)
Increase per share attributable to new investors....................... $ 4.19
---------
Pro forma net tangible book value per share after the offering......... 1.88
---------
Dilution per share to new investors.................................... $ 14.12
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the total number of shares of common stock purchased from LaBranche & Co Inc.,
the total consideration paid to LaBranche & Co Inc., and the average price per
share paid by existing stockholders of LaBranche & Co Inc. and by new investors
purchasing shares from LaBranche & Co Inc. in this offering, at an assumed
initial public offering price of $16.00 per share, before deducting underwriting
discounts and commissions and the estimated offering expenses payable by
LaBranche & Co Inc.:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 35,375,000 75.5% $ 95,569,000 36.0% $ 2.70
New investors....................................... 11,500,000 24.5 169,500,000 64.0 14.74
------------- ----- -------------- -----
Total............................................... 46,875,000 100.0% $ 265,069,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to 72.8%
of the total number of shares of common stock to be outstanding after this
offering, and will increase the number of shares of common stock held by the new
investors to 27.2% of the total number of shares of common stock to be
outstanding immediately after this offering.
21
<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.
STATEMENT OF OPERATIONS DATA:
<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>
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
</TABLE>
22
<PAGE>
<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>
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
--------- --------- --------- ---------- ---------- ----------- ----------
--------- --------- --------- ---------- ---------- ----------- ----------
<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.
23
<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, we are 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 among our managing directors based on their respective percentage
interests in the profits of LaB
24
<PAGE>
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 this offering.
REORGANIZATION
Simultaneously with this offering, we will incur indebtedness of
approximately $116.4 million 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 this offering will be higher than historical levels.
The redemption of the limited partners' interests is accounted for as a step
acquisition under the purchase method of accounting. The excess of purchase
price over the limited partners' capital accounts of $131.3 million is allocated
to intangible assets. Accordingly, amortization of intangible assets is expected
to increase in the future.
INCOME TAXES
As a partnership, we have generally not been 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 will be 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.
25
<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
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
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 21.2 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 due primarily to the Fowler, Rosenau
acquisition, by which we became the specialist for 76 additional common stock
listings, and was due also to increased share volume as principal in our
existing specialist stocks traded on the NYSE. Our share volume as principal
increased
26
<PAGE>
97.0% 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 to $51.2
million at June 30, 1999, from $48.1 million at 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 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.
27
<PAGE>
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 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
listings 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.
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.
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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 43, 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 from $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 for 1997.
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.
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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 an increase 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 was $300,000 in 1997 and $5.4 million in 1996 as a result
of 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.
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.
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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
We have 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. 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 extend the
maturities for an additional year, unless the lender provides notice at least
seven months prior to maturity. Concurrently with this offering, we will repay
$5.0 million of the junior subordinated debt as part of the reorganization of
our firm from partnership to corporate form.
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Concurrently with this offering, we will pay $152.1 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. Additionally, the proceeds of our note offering
and the issuance of $16.4 million of subordinated indebtedness will be used to
acquire some limited partnership interests in LaBranche & Co.
Under our note offering, we will issue $100.0 million aggregate principal
amount of senior notes. The notes will bear interest at a rate of % annually
and mature in , 2004. The indenture covering the notes will include
certain covenants that, among other things, limit our ability to:
- borrow money;
- pay dividends on our stock or purchase our stock;
- make investments;
- engage in transactions with stockholders and affiliates;
- create liens on our assets; and
- sell assets or engage in mergers and consolidations.
We will issue a subordinated note in an aggregate principal amount of $16.0
million 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 will bear interest at the annual rate
of %. We will also enter into a $350,000 cash subordinated loan agreement,
bearing interest at an annual rate of %, as payment for the acquisition of a
limited partnership interest. In addition, we will repay $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
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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 this offering, our note
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.
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, 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 21(st) century
dates and 20(th) 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
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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.
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
- 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, we are 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 42 new listed companies, resulting from 66 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
- 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 78 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.
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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:
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> <C>
1984 91.2
1985 109.2
1986 141.0
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 412.0
1997 526.9
1998 673.6
</TABLE>
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.
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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.
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
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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;
- 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 84.2% 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
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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 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 82.1% to 84.2% 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. Founded in
1924, 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.
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- 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
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 66 selection pools for listed
companies and were chosen by management of the listed companies in 42 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
this offering and our note offering, we will 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
this offering and our note offering, our working capital will increase
from $123.7 million to $233.1 million. In selecting a specialist firm,
listed companies often focus on the capital resources of the specialist,
especially more recently as trading volumes have increased. We
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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. L.L.C, 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 $7.5 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 chief executive officer.
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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 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>
<C> <S>
Lucent Technologies
Exxon
AT&T
Merck
SBC Communications
Glaxo Wellcome
Tyco International
SmithKline Beecham
Chevron
ING Groep
Medtronic
MediaOne Group
The Gap
Taiwan Semiconductor
Manufacturing
Compaq
TOTAL Fina
Minnesota Mining & Manufacturing
Schlumberger
Koninklijke Philips Electronics
ABN AMRO Holding
The News Corporation
Viacom
US West
Atlantic Richfield
National Australia Bank
Royal PTT Nederland
Kroger
Household International
Suntrust Banks
Lowes Companies
CVS
Istituto Bancario San Paolo di Torino Istituto Mobiliare Italiano
Equant
Firstar
Fox Entertainment Group
Bestfoods
Australia & New Zealand Banking Group
TNT Post Group
Computer Sciences Corporation
Capital One Financial
Tribune Company
PPG Industries
Conseco
Circuit City Stores
Comerica
Archer-Daniels Midland
Bank of Ireland Group
Public Service Enterprise Group
Entergy
Dollar General
</TABLE>
For a complete listing of our listed companies, please see the inside back
cover of this prospectus.
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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.
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 the
SEC, 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
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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.
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
48
<PAGE>
- 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.
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 this offering and our
note offering, three of our managing directors will retire 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.
49
<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> <C>
Michael LaBranche..................... 44 Chairman and Chief Executive Officer
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 operating committee since our inception in June 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 operating 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 operating 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 following the closing of this offering and our note offering 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
50
<PAGE>
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.
The compensation committee of our board of directors will be established as
soon as practicable after the closing of this offering and our note offering 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 after
the completion of this offering and our note offering. It is anticipated that
non-employee directors will receive an annual retainer, attendance fees for
board and/or 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 this
offering and our note offering, we will 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 this offering and our
note offering.
The following table sets forth the annual salary we intend to pay during
fiscal 1999 to 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 and Chief Executive Officer
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.
51
<PAGE>
The following table sets forth the number of shares issuable upon the
exercise of options to be granted to our executive officers under our Equity
Incentive Plan upon completion of this offering. These options have an exercise
price equal to the initial public offering price and are not currently
exercisable.
<TABLE>
<CAPTION>
SHARES UNDERLYING
NAME 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., will exchange 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 will continue as managing directors after this 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 reasonably 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 this
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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<PAGE>
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 sercurities 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 this
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 this 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 this 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.
53
<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 will become effective prior to the closing of
this offering. You should, however, refer to the exhibits that are a part of the
registration statement for a copy of the Equity Incentive Plan. See "Available
Information."
Immediately prior to the closing of this offering, we will grant (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 some of our employees who are not
managing directors. Subject to continuing service with us and 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 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 our 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 will be administered by the
compensation committee of our board of directors. 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.
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
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<PAGE>
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.
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
55
<PAGE>
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 a 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 will adopt, effective upon the closing of this
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 this 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 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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information about the beneficial ownership of
our common stock following this offering 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 July 23, 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>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
SHARES ------------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
- -------------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Michael LaBranche............................................................... 3,494,807 9.9% 7.5%
James G. Gallagher.............................................................. 2,283,059 6.5 4.9
Alfred O. Hayward, Jr........................................................... 1,904,696 5.4 4.1
S. Lawrence Prendergast......................................................... -0- 0.0 0.0
Vincent J. Flaherty............................................................. 2,084,235 5.9 4.5
Michael J. Naughton............................................................. 1,954,606 5.5 4.2
All executive officers and directors as a group................................. 11,721,403 33.1 25.0
</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." As a result of the stockholders'
agreement, Messrs. LaBranche, Gallagher and Hayward may be deemed to share
the beneficial ownership of the shares of our common stock subject to the
stockholders' agreement. Each of Messrs. LaBranche, Gallagher and Hayward in
his individual capacity disclaims such beneficial ownership in respect of
the shares not directly owned by him.
57
<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION AND RELATED TRANSACTIONS
REORGANIZATION
Concurrently with this offering and our note offering, we will complete 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. have agreed, subject to the
completion of this offering, to exchange 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 34,750,000 shares of our common stock.
In addition to a portion of those shares, three members of LaB Investing
Co. L.L.C. will also receive an aggregate of $10.0 million in cash as part
of their exchange. All the members of LaB Investing Co. L.L.C. are
managing directors, and all members who will remain employed by us
following this offering are only receiving shares of our common stock, and
no cash, in the reorganization. We thus will become the sole member of LaB
Investing Co. L.L.C., and LaB Investing Co. L.L.C. will continue to be the
general partner of LaBranche & Co. Our common stock to be received by the
members of LaB Investing Co. L.L.C. will be 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 will
receive upon the closing of this offering:
<TABLE>
<CAPTION>
PERCENTAGE INTEREST IN NUMBER OF SHARES OF
PROFITS OF OUR COMMON STOCK
NAMED EXECUTIVE OFFICER LABRANCHE & CO. TO BE RECEIVED
- ------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Michael LaBranche.......................... 5.3% 3,494,807
James G. Gallagher......................... 3.6 2,283,059
Alfred O. Hayward, Jr...................... 3.6 1,904,696
Vincent J. Flaherty........................ 5.0 2,084,235
Michael J. Naughton........................ 3.6 1,954,606
</TABLE>
- The 19 limited partners of LaBranche & Co., other than Mill Bridge, Inc.,
have agreed, subject to the completion of this offering and our note
offering, to exchange their limited partnership interests in LaBranche &
Co. which represented a 16.4% interest in the profits of LaBranche & Co.
to us in exchange for an aggregate of $68.1 million in cash, 625,000
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 will be subject to lock-up restrictions which
will prohibit the transfer of 50% of those shares for a period of one year
and the remaining 50% for a period of two years following this offering.
- Mill Bridge, Inc., a subsidiary of Van der Moolen Holding NV, will receive
$90.0 million from us, including $74.0 million in cash upon the closing of
this offering and our note offering and a subordinated 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 will repay $5.0 million of subordinated debt to an
affiliate of Van der Moolen upon the closing of this offering and our note
offering.
- As a result of the above transactions, we will become 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 this offering, we will grant options
under the Equity Incentive Plan to purchase an aggregate of 1,200,000
shares of our common stock to our
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<PAGE>
executive officers. These options have an exercise price equal to the
initial offering price and are not currently exercisable.
- Immediately prior to the closing of this offering, we will grant
restricted stock units under the Equity Incentive Plan for 1,059,000
shares of our common stock to employees who are not managing directors.
These restricted stock units are not vested.
- Prior to the closing of this offering, we will completely discharge 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 will be 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 intend to enter into a stockholders' agreement with all 36 members of LaB
Investing Co. L.L.C. who will be receiving our common stock in the
reorganization, 33 of whom will remain managing directors following this
offering, and with the employees who will receive options and restricted stock
or restricted stock unit awards in connection with the reorganization. This
stockholders' agreement will contain various restrictions on the transfer of our
stock by the parties to such agreement and a voting agreement.
TRANSFER RESTRICTIONS. The stockholders' agreement will prohibit the
transfer of our shares by the former members of LaB Investing Co. L.L.C. who
will remain managing directors following this offering for a period of three
years. Beginning on the third anniversary of this 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 will not be continuing as
managing directors after this offering will be restricted from transferring
shares as follows:
- 50% of the shares will be transferable after the first anniversary of this
offering; and
- all of the shares will be transferable after the second anniversary of
this 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
59
<PAGE>
Officers listed below earned interest income on their capital contributions in
the amounts set forth opposite their names:
<TABLE>
<CAPTION>
CAPITAL INTEREST
NAMED EXECUTIVE OFFICER 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, 1999, and Mr. LaBranche's spouse holds $1.3 million of
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.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering and the filing of the amendment to our
certificate of incorporation referred to below, our authorized capital stock
will consist of 200,000,000 shares of common stock, $.01 par value, and
10,000,000 shares of preferred stock, $.01 par value. Upon the closing of this
offering, and after giving effect to the issuance of 11,500,000 shares of common
stock offered by us hereby, there will be 46,875,000 shares of common stock and
no shares of preferred stock issued and outstanding. See "--Preferred Stock."
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors from time to time may
determine. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon our
liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders shall be distributed ratably among the holders of
our common stock after payment of liquidation preferences, if any, on any
outstanding
60
<PAGE>
shares of preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, to be outstanding upon completion of this
offering will be upon payment therefor, duly and validly issued, fully paid and
nonassessable.
There is currently no active trading market for our common stock.
Application will be made to have our common stock approved for listing on the
NYSE under the symbol "LAB."
PREFERRED STOCK
The 10,000,000 authorized shares of preferred stock may by issued in one or
more series without further stockholder authorization, and the board of
directors is authorized to fix and determine the terms, limitations and relative
rights and preferences of the preferred stock, to establish series of preferred
stock and to fix and determine the variations as among series. If we issue
preferred stock, it would have priority over our common stock with respect to
dividends and to other distributions, including the distribution of assets upon
liquidation, and we may be obligated to repurchase or redeem it. The board of
directors can issue preferred stock without the approval of our common
stockholders. Preferred stock may have voting and conversion rights (including
multiple voting rights) which could adversely affect the rights of holders of
common stock. In addition to having a preference with respect to dividends or
liquidation proceeds, if preferred stock is issued, it may be entitled to the
allocation of capital gains from the sale of our assets. We do not have any
present plans to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by more
than 2,000 stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless
- the corporation has elected in its certificate of incorporation or bylaws
not to be governed by the Delaware anti-takeover law (we have not made
such an election);
- the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not
have a right to determine confidentially whether to tender or vote stock
held by the plan); or
- the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock which the
interested stockholder did not own. The three-year prohibition does not
apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had
not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes beneficial
owner of 15% or more of a Delaware corporation's voting
61
<PAGE>
stock. Section 203 could have the effect of delaying, deferring or
preventing a change in control of LaBranche & Co Inc.
In addition, provisions of our certificate of incorporation and bylaws which
will take effect upon the closing of the offering and which are summarized in
the following paragraphs, may have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by our stockholders.
CLASSIFIED BOARD OF DIRECTORS
Following this offering, our board of directors will be divided into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
These provisions, when coupled with the provision of our certificate of
incorporation authorizing the board of directors to fill vacant directorships or
increase the size of the board of directors, may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by such removal with its own
nominees.
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS
Our bylaws provide that our stockholders may not take action by written
consent, but only at an annual or special meeting of stockholders. Our by-laws
further provide that special meetings of our stockholders may be called only by
the chairman of the board of directors or a majority of the board of directors.
SUPERMAJORITY VOTING PROVISIONS
Our certificate of incorporation provides that the affirmative vote of at
least two-thirds of our stockholders is required to amend the provisions of our
certificate and by-laws relating to the classification of the board of
directors, stockholder action by written consent and the calling of special
meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized by unissued common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of LaBranche & Co Inc. by means of a proxy contest, tender offer, merger
or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We will enter into indemnification agreements with our current directors and
executive officers. These provisions and agreements may have the practical
effect in some cases of eliminating our stockholders' ability to collect
monetary damages from our directors. We believe that these contractual
agreements and the provisions in our certificate of incorporation and by-laws
are necessary to attract and retain qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Firstar Bank, N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares or
the availability of any shares for sale will have on the market price of the
common stock prevailing from time to time. Sales of substantial amounts of
common stock, or the perception that such sales could occur, could adversely
affect the market price of our common stock and our ability to raise capital
through a sale of our securities.
Upon completion of this offering, we will have 46,875,000 shares of common
stock outstanding (or 48,600,000 shares if the underwriters over-allotment
option is exercised in full).
In connection with the reorganization of our firm from partnership to
corporate form, our managing directors and limited partners who are exchanging
their interests for 35,375,000 restricted shares of our common stock have
contractually agreed that they will not sell their common stock for various time
periods after this offering. Under these contractual restrictions, these
restricted shares are eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF SHARES DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
374,975............................................... One year after the closing of this offering.
749,950............................................... Two years after the closing of this offering.
12,333,283.............................................. Three years after the closing of this offering.
23,916,617.............................................. Four years after the closing of this offering.
35,375,000.............................................. Five years after the closing of this offering.
</TABLE>
Under SEC rules, the shares eligible for sale in the public market are as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
11,500,000 shares sold in this offering................. After the closing of this offering.
35,375,000 restricted shares............................ After one year from the closing of this offering
(subject to volume limitations which expire after the
second year other than in the case of affiliates).
</TABLE>
In addition:
- each of our managing directors who will be continuing as a managing
director after this offering must retain 25% of his or her common stock,
currently totaling 8,656,263 shares in the aggregate, for the duration of
his or her employment; and
- an employee may not sell shares of our common stock that are subject to a
pledge agreement, unless the requirements of the pledge agreement are
waived by us.
The 11,500,000 shares (or up to 13,225,000 shares if the underwriters'
over-allotment option is exercised in full) of common stock sold in this
offering will be freely tradable without further restriction or further
registration under the Securities Act, except for shares purchased by any of our
affiliates (as this term is defined in the Securities Act), which will be
subject to the limitations of Rule 144 under the Securities Act. Subject to
certain contractual limitations, holders of restricted shares generally will be
entitled to sell these shares in the public securities market without
registration either pursuant to Rule 144 or any other applicable exemption under
the Securities Act.
In general, under Rule 144 under the Securities Act, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
within the meaning of Rule 144 for at least one year, and including the holding
period of any prior owner except an affiliate, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
one percent of the then outstanding shares of common stock or the average weekly
trading volume of the common
63
<PAGE>
stock on the NYSE during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about LaBranche
& Co Inc. Any person (or persons whose shares are aggregated) who is not deemed
to have been our affiliate at any time during the three months preceding a sale,
and who has beneficially owned shares for at least two years (including any
period of ownership of preceding non-affiliated holders), would be entitled to
sell such shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements. An "affiliate" is a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or under common
control with, such issuer.
We intend to file one or more registration statements under the Securities
Act to register 4,687,500 shares of common stock subject to outstanding stock
options or reserved for issuance under our equity compensation plans. Upon
completion of this offering, options to purchase approximately 1,200,000 shares
and 1,059,000 restricted stock units will be outstanding under our equity
compensation plans.
Our directors and officers and our stockholders who hold 35,375,000 shares
in the aggregate have entered into lock-up agreements. Pursuant to these
agreements, they have agreed not to sell, directly or indirectly, any shares of
common stock without the prior written consent of Salomon Smith Barney Inc. for
a period of 180 days from the date of this prospectus. However, they may gift or
transfer shares so long as the donee or transferee agrees to be bound by the
terms of the lock-up agreement.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Salomon Smith Barney Inc.......................................................
Donaldson, Lufkin & Jenrette Securities Corporation............................
ABN AMRO Incorporated..........................................................
-------------
Total...................................................................... 11,500,000
-------------
-------------
</TABLE>
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and ABN AMRO Incorporated are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on
sales to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms. The representatives have advised us that the underwriters
do not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 1,725,000 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent such
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, some of the underwriters have reserved up to 5% of the
shares of our common stock offering being offered to the public, otherwise
referred to as the directed shares, for sale at the initial public offering
price to persons who are our directors, officers or employees, or who are
otherwise associated with us and our affiliates, and who have advised us of
their desire to purchase such shares. The number of shares of our common stock
available for sale to the general public will be reduced by the amount of sales
of these directed shares to any of the persons for whom they have been reserved.
The underwriters will offer any directed shares that are not purchased on the
same basis as all other shares of our common stock. We have agreed to indemnify
the underwriters against some liabilities and expenses, including liabilities
under the Securities Act, in connection with the sales of the directed shares.
We and our officers, directors and stockholders have agreed that, for a
period of 180 days from the date of this prospectus, they will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge any
shares of our common stock or any securities convertible into or exchangeable
for our common stock. Salomon Smith Barney Inc. in its sole discretion may
release any of the securities subject to these lock-up agreements at any time
without notice.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us and the representatives for the
underwriters. Among the factors considered in determining the initial public
offering price were our record of operations, our current financial condition,
our future prospects, our
65
<PAGE>
markets, the economic conditions in and future prospects for the industry in
which we compete, our management, and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the common stock will
develop and continue after this offering.
The common stock has been approved for listing on the NYSE under the symbol
"LAB."
In connection with the listing of the common stock on the NYSE, the
underwriters will undertake to sell round lots of 100 shares or more to a
minimum of 2,000 beneficial owners.
The following table shows the underwriting fees to be paid to the
underwriters by us, in connection with this offering. The underwriting fee is
equal to the public offering price per share of common stock less the amount
paid by the underwriters to us per share of common stock. The underwriting fees
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of our common stock. The underwriters will
not receive any additional compensation in connection with this offering.
<TABLE>
<CAPTION>
PAID BY LABRANCHE & CO
INC.
----------------------
NO FULL
EXERCISE EXERCISE
---------- ----------
<S> <C> <C>
Per share.............................................................. $ $
Total..................................................................
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price of
the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be higher
than the price that otherwise would exist in the open market in the absence of
such transactions. These transactions may be effected on the NYSE or in the
over-the-counter market, or otherwise and, if commenced, may be discontinued at
any time.
We estimate that our total offering expenses will be approximately $1.6
million. Offering expenses are expenses incurred by us in connection with this
offering and include filing fees, NYSE listing fees, printing expenses and legal
and accounting expenses. We will pay all these offering expenses.
The representatives may, from time to time, engage in transactions with and
perform services for us in the ordinary course of their business. Certain of the
underwriters are acting as the initial purchasers in our note offering. In
addition, we act as specialist for ABN AMRO Holding N.V. ADRs listed on the
NYSE. Therefore, we may be obligated at times to buy or sell these ADRs to
counter short-term imbalances in the prevailing market. At other times we may
trade these ADRs at our own election.
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<PAGE>
We have agreed to indemnify the underwriters against civil liabilities,
including liabilities under the Securities Act of 1933 for any losses arising
out of any material misstatements or omissions by us in this prospectus or any
misrepresentation by us in the underwriting ageement. In addition, we have
agreed to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for LaBranche & Co Inc. by Fulbright & Jaworski L.L.P., New York, New York,
and for the underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The financials statements and schedule of LaB Investing Co. L.L.C. and
Subsidiary and the financial statements of LaBranche & Co. included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The financials statements of Fowler, Rosenau & Geary, LLC included in this
prospectus and elsewhere in the registration statement have been auditied by
Sugarman & Thrope, P.C., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, of which this
prospectus constitutes a part, on Form S-1 under the Securities Act (herein,
together with all amendments and exhibits referred to herein as the
"Registration Statement") with respect to the common stock being sold in this
offering. This prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules to the Registration
Statement, because some parts have been omitted in accordance with rules and
regulations of the SEC. For further information with respect to LaBranche & Co
Inc. and the common stock being sold in this offering, 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 or 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.
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and quarterly reports containing
unaudited financial information.
67
<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. Following
the Reorganization Transactions, LaBranche & Co Inc., on a consolidated basis,
will be subject to federal, state and local income taxes. Concurrently with the
closing of the offering, the Partnership will complete the following
Reorganization Transactions:
- The limited partners of LaBranche & Co. will redeem their interests for
$142.1 million in cash, a $16.0 million subordinated note, $350,000 of
subordinated indebtedness and 625,000 shares of our common stock assumed
to have a value of $10.0 million, for a total purchase price of $168.4
million.
- The members of LaB Investing Co. L.L.C. will exchange their membership
interests in LaB Investing Co. L.L.C. for $10.0 million in cash and
34,750,000 shares of common stock of LaBranche & Co Inc.
- $5.0 million of subordinated debt at an interest rate of 10.0% is assumed
to be repaid.
In addition, simultaneously with the initial public offering, LaBranche & Co
Inc. will incur indebtedness of approximately $100.0 million. The proceeds of
the indebtedness, net of estimated issuance costs of approximately $3.0 million,
are assumed to be 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.................................................................. 11.1 million 15 years
----------------
$ 131.3 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 will become employees of the corporation. The Board of
Directors of LaBranche & Co Inc. will approve the LaBranche & Co Inc. Annual
Incentive Plan (the "Plan") upon completion of the offering. 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 this 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 $ 97,000(A) $ 169,500(H) $ 112,213
(142,050)(B)
(10,000)(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 subordinated indebtedness..................... 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..................................... 45,838 131,306(E) -- 177,144
OTHER ASSETS.......................................... 6,516 3,000(A) -- 9,516
----------- -------------- ----------- -----------
Total assets...................................... $ 346,101 $ 74,256 $ 169,500 $ 589,857
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
LIABILITIES AND MEMBERS' CAPITAL
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
----------- -------------- ----------- -----------
COMMITMENTS........................................... -- -- -- --
SUBORDINATED LIABILITIES:
Exchange memberships, at market value............... 20,000 -- -- 20,000
16,350(G) --
Subordinated indebtedness........................... 51,158 (5,000)(D) -- 62,508
----------- -------------- ----------- -----------
71,158 11,350 -- 82,508
----------- -------------- ----------- -----------
LIMITED PARTNERS' INTEREST IN SUBSIDIARY.............. 37,094 (37,094)(B) -- --
----------- -------------- ----------- -----------
10,000(B)
MEMBERS' CAPITAL/STOCKHOLDERS' EQUITY................. 95,569 (10,000)(C) 169,500 265,069
----------- -------------- ----------- -----------
Total liabilities and members'
capital/stockholders' equity.................... $ 346,101 $ 74,256 $ 169,500 $ 589,857
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
</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 21,748(I) 33,047
Lease of exchange memberships.................................. 4,165 -- 4,165
Interest....................................................... 2,195 4,984(D)(F)(G) 7,179
Exchange, clearing and brokerage fees.......................... 1,997 -- 1,997
Amortization of intangibles.................................... 1,693 1,873(J) 3,566
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 28,605 52,749
---------- ----------- -----------
Income before managing directors' compensation, limited
partners' interest in earnings of subsidiary and provision
for income taxes............................................. 79,349 (28,605) 50,744
MANAGING DIRECTORS' COMPENSATION................................. 48,214 (48,214)(K) --
---------- ----------- -----------
Income before limited partners' interest in earnings of
subsidiary and provision for income taxes.................... 31,135 19,609 50,744
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY............. 21,054 (21,054)(L) --
---------- ----------- -----------
Income before provision for income taxes....................... 10,081 40,663 50,744
PROVISION FOR INCOME TAXES....................................... 3,789 19,283(M) 23,072
---------- ----------- -----------
Net income..................................................... 6,292 21,380 27,672
---------- ----------- -----------
---------- ----------- -----------
Pro forma weighted average shares outstanding.................... 46,875,000(N)
-----------
-----------
Pro forma basic and diluted net income per share................. $ 0.59(N)
-----------
-----------
</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(O) 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 25,562(I) 40,538
Lease of exchange memberships........................ 6,568 496 -- 7,064
Interest............................................. 3,577 410 9,968(D)(F)(G) 13,955
Exchange, clearing and brokerage fees................ 2,898 335 -- 3,233
Amortization of intangibles.......................... 2,526 860(P) 3,746(J) 7,132
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 39,276 78,203
---------- ------- -------------- -----------
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary and provision for income taxes.......... 91,635 7,288 (39,276) 59,647
MANAGING DIRECTORS' COMPENSATION....................... 58,783 1,387 (60,170)(K) --
---------- ------- -------------- -----------
Income before limited partners' interest in earnings
of subsidiary and provision for income taxes....... 32,852 5,901 20,894 59,647
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY... 26,292 -- (26,292)(L) --
---------- ------- -------------- -----------
Income before provision for income taxes............. 6,560 5,901 47,186 59,647
PROVISION FOR INCOME TAXES............................. 3,900 200 23,635(M) 27,735
---------- ------- -------------- -----------
Net income........................................... $ 2,660 $ 5,701 $ 23,551 $ 31,912
---------- ------- -------------- -----------
---------- ------- -------------- -----------
Pro forma weighted average shares outstanding.......... 46,875,000(N)
-----------
-----------
Pro forma basic and diluted net income per share....... $ 0.68(N)
-----------
-----------
</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 long-term indebtedness. Debt
issuance costs are estimated to approximate $3.0 million.
(B) Reflects the redemption of limited partnership interests in exchange for
$168.4 million, comprised of $142.1 million in cash, a $16.0 million
subordinated note and $350,000 of subordinated indebtedness (see note (G))
and $10.0 million in common stock.
(C) Reflects redemption of members' interest for $10.0 million.
(D) Reflects pro forma repayment of $5.0 million of subordinated liabilities
owed to a limited partner and reverses the related interest expense.
(E) Reflects $131.3 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 assumed to
be used for redemption of limited partners' and members' interest and the
related interest expense.
(G) Reflects the issuance of a $16.0 million subordinated note and $350,000 of
subordinated indebtedness assumed to be used for redemption of limited
partners' interest and the related interest expense.
(H) Reflects net proceeds of $169.5 million to be received upon completion of
the initial public offering.
(I) 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), 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.
(J) Reflects pro forma amortization of intangibles related to redemption of
limited partners' interests.
(K) Managing directors' compensation was adjusted to reverse the actual amounts
previously recorded.
(L) Reflects reversal of limited partners' interest in earnings of subsidiary.
(M) Reflects federal, state and local income taxes at an estimated effective tax
rate of approximately 44%.
(N) Based on 46,875,000 weighted average shares outstanding. 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.
(O) Reflects the pro forma pre-acquisition results of operations of Fowler,
Rosenau for the six months ended June 30, 1998.
(P) 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
-------------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
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 YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
FOR THE SIX MONTHS ENDED --------- --------- ---------
JUNE 30,
------------------------
1999 1998
----------- -----------
(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 YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
FOR THE SIX MONTHS ENDED JUNE ---------- ---------- ----------
30,
------------------------------
1999 1998
-------------- --------------
(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 provisions as long as 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,
------------------------
ASSETS 1998 1997
- -------------------------------------------------------------------------- JUNE 30, ------------ ----------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
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 partners...................................................... 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
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
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, limited partners' interest in
earnings of subsidiary and unincorporated business
taxes............................................. 24,142 14,420 34,773 19,907 17,149
----------- --------- --------- --------- ---------
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary 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 limited partners' interest in earnings
of subsidiary and unincorporated business taxes... 31,137 13,994 32,855 17,715 9,526
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY.... 21,054 10,848 -- -- --
Income before unincorporated business taxes......... 10,083 3,146 -- -- --
UNINCORPORATED BUSINESS TAXES........................... 3,789 1,900 3,900 1,881 1,592
----------- --------- --------- --------- ---------
Net income.......................................... $ 6,294 $ 1,246 $ 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 PARTNER 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 2,355 6,294
Contributions to capital..................................................... 17,395 1,028 18,423
Distributions of capital..................................................... (2,861) (3,863) (6,724)
--------- ---------- ----------
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,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,294 $ 1,246 $ 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 2,758 1,648 206
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating activities... (15,371) (20,763) (8,690) (26,436) 21,863
--------- --------- --------- --------- ---------
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 16,750 28,004 1,769
Proceeds from contributions to capital.................... 18,423 8,029 28,840 12,147 5,013
Payments for distributions of capital..................... (6,724) (2,994) (33,618) (20,397) (19,857)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities... 13,483 21,335 11,972 19,754 (13,075)
--------- --------- --------- --------- ---------
(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 as long as 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 FOR THE
SEVEN MONTHS YEARS ENDED NOVEMBER
ENDED 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11,500,000 SHARES
[LOGO]
COMMON STOCK
---------
PROSPECTUS
, 1999
---------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO
INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by LaBranche & Co Inc. in
connection with the sale of the common stock being registered hereby. All the
amounts shown are estimated, except the SEC registration fee, the NASD filing
fee and the New York Stock Exchange listing fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................... $ 62,505.00
NASD Filing Fee............................... 22,982.50
New York Stock Exchange Listing Fee........... 256,100.00
Printing Expenses............................. 200,000.00
Legal Fees and Expenses....................... 600,000.00
Accounting Fees and Expenses.................. 300,000.00
Blue Sky Expenses and Counsel Fees............ 5,000.00
Transfer Agent and Registrar Fees............. 5,000.00
Miscellaneous................................. 168,412.50
------------
Total....................................... $1,620,000.00
------------
------------
</TABLE>
ITEM 14. 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
II-1
<PAGE>
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.
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 intends to enter into indemnification agreements with its
current directors and executive officers. The Company intends 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 Section of 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 form of
underwriting agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
As part of the Reorganization and Related Transactions, LaBranche & Co Inc.
will issue: (i) an aggregate of 35,375,000 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), to certain limited partners of
LaBranche & Co. and all of the members of LaB Investing Co. L.L.C. and (ii) a
$16.4 million of subordinated indebtedness (collectively, the "Reorganization
Securities"). Also immediately prior to this offering, the Company will make
awards of stock options and restricted stock units to certain of its employees.
Since 1996, the Company sold (i) $20.0 million aggregate principal amount of
8.17% subordinated notes; (ii) $15.0 million aggregate principal amount of 7.69%
subordinated notes; and (iii) $15.3 million aggregate principal amount of 10.0%
subordinated notes (collectively, the "Notes"). The offering and sale of the
Reorganization Securities will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), because they will have been offered and
sold in transactions exempt form registration under the Securities Act pursuant
to Section 4(2). The offering and sale of the Notes were not registered under
the Securities Act because they were offered and sold in transactions exempt
from registration under the Securities Act pursuant to Section 4(2). The
employee awards will not be registered under the Securities Act because the
awards will not involve an offer or sale for purposes of Section 2(a)(3) of the
Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Form of Plan of Incorporation of LaBranche & Co.*
2.2 Form of 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 Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Bylaws of the Company.*
4.1 Specimen Stock Certificate.*
5.1 Opinion of Fulbright & Jaworski L.L.P. re: legality.
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 Form of 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 Form of Subordinated Note.
10.12 Credit Agreement, dated as of June 26, 1998, by and among LaBranche & Co., and
The Bank of New York, as amended.*
10.13 Form of Indemnification Agreement.*
10.14 Form of Note Purchase Agreement.
10.15 Form of Amended and Restated Articles of Partnership of LaBranche & Co.
10.16 Form of LaB Investing Co., L.L.C. Amended and Restated Operating Agreement.
10.17 Form of Acquisition Agreement by and between Ernst & Company and LaBranche & Co.
10.18 Form of Acquisition Agreement by and between Mill Bridge Inc., LaB Investing Co.,
L.L.C., LaBranche & Co. Inc. and LaBranche & Co.
23.1 Consent of Fulbright & Jaworski L.L.P. (Included in Exhibit 5.1).
23.2 Consent of Arthur Andersen L.L.P.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.3 Consent of Sugarman & Thrope, P.C.
24.1 Power of attorney (included on signature page).*
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
*Previously filed
ITEM 17. 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 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 provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the 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 August 16, 1999.
LABRANCHE & CO INC.
BY: /S/ GEORGE M.L. LABRANCHE, IV
-----------------------------------------
George M.L. LaBranche, IV
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ GEORGE M.L. LABRANCHE, Chief Executive Officer and
IV Chairman of the Board
- ------------------------------ (Principal Executive August 16, 1999
George M.L. LaBranche, IV Officer)
/s/ TODD GRABER Controller (Principal
- ------------------------------ Accounting Officer) August 16, 1999
Todd Graber
* Director
- ------------------------------ August 16, 1999
James Gallagher
* Director
- ------------------------------ August 16, 1999
Alfred O. Hayward, Jr.
* Executive Vice President,
- ------------------------------ Finance and Director August 16, 1999
S. Lawrence Prendergast
/s/ GEORGE M. L. LABRANCHE, IV
----------------------------------------
George M. L. LaBranche, IV
*By: AS ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Form of Plan of Incorporation of LaBranche & Co.*
2.2 Form of 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 Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Bylaws of the Company.*
4.1 Specimen Stock Certificate.*
5.1 Opinion of Fulbright & Jaworski L.L.P. re: legality.
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 Form of 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 Form of Subordinated Note.
10.12 Credit Agreement, dated as of June 26, 1998, by and among LaBranche & Co., and The Bank of New York, as
amended.*
10.13 Form of Indemnification Agreement.*
10.14 Form of Note Purchase Agreement.
10.15 Form of Amended and Restated Articles of Partnership of LaBranche & Co.
10.16 Form of LaB Investing Co., L.L.C. Amended and Restated Operating Agreement.
10.17 Form of Acquisition Agreement by and between Ernst & Company and LaBranche & Co.
10.18 Form of Acquisition Agreement by and between Mill Bridge Inc., LaB Investing Co., L.L.C., LaBranche & Co.
Inc. and LaBranche & Co.
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 & Thrope, P.C.
24.1 Power of attorney (included on signature page).*
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LABRANCHE & CO INC.
(Under Sections 242 and 245 of the Delaware General Corporation Law)
It is hereby certified that:
1. The name of the Corporation is LaBranche & Co Inc. (the
"Corporation").
2. The Certificate of Incorporation of the Corporation originally
filed with the Secretary of State of the State of Delaware on
June 15, 1999 is hereby amended and restated in its entirety
to read as follows:
"FIRST: The name of the corporation is LaBRANCHE & CO INC. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is United Corporate Services, Inc., 15 East North Street, Dover, DE
19901. The name of the Corporation's registered agent at such address is United
Corporate Services.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: Section 1. CLASSES AND NUMBER OF SHARES. The total number of
shares of all classes of stock which the Corporation has authority to issue is
two hundred ten million (210,000,000) shares, consisting of two hundred million
(200,000,000) shares of Common Stock, par value $.01 per share (the "Common
Stock"), and ten million (10,000,000) shares of Preferred Stock, par value $.01
per share, which shall have such designations as may be authorized by the Board
of Directors from time to time (the "Preferred Stock").
Section 2. PREFERRED STOCK. The Board of Directors is hereby
authorized, subject to the provisions contained in this Article Fourth, to issue
the Preferred Stock from time to time in one or more series, which Preferred
Stock shall rank senior to the Common Stock as to dividends and distribution of
assets of the Corporation on dissolution, as hereinafter provided, and shall
have such
<PAGE>
distinctive designations as may be stated in the resolution or resolutions
providing for the issue of such stock adopted by the Board of Directors. In such
resolution or resolutions providing for the issuance of shares of a particular
series of Preferred Stock, the Board of Directors is hereby expressly authorized
and empowered to fix the number of shares constituting such series and to fix
the relative rights and preferences of the shares of the series so established
to the full extent allowable by law except insofar as such rights and
preferences are fixed herein. Such authorization of the Board of Directors shall
expressly include the authority to fix and determine the relative rights and
preferences of such shares in all respects including, without limitation, the
following:
1. the rate of dividend;
2. whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of
redemption or call;
3. the amount payable upon shares in the event of dissolution,
voluntary and involuntary liquidation or winding up of the
affairs of the Corporation;
4. purchase, retirement or sinking fund provisions, if any, for
the call, redemption or purchase of shares;
5. the terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
6. whether or not shares have voting rights, and the extent of
such voting rights, if any; and
7. whether shares shall be cumulative, noncumulative, or
partially cumulative as to dividends and the date from which
any cumulative dividends are to accumulate.
FIFTH: Meetings of the stockholders of the Corporation may be held
within or without the State of Delaware, as the Bylaws may provide. The books of
the Corporation may be kept (subject to any provisions contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation. Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SIXTH: In the furtherance and not in limitation of objects, purposes
and powers conferred by statute, the Board of Directors is expressly authorized
to make, alter or repeal the Bylaws of the Corporation. Notwithstanding anything
in this Amended and Restated Certificate of Incorporation to the contrary, Bylaw
Sections 2.04, 3.02, 3.03, and Article XII may not be repealed or amended in any
respect, and no provision inconsistent therewith may be adopted by the
-2-
<PAGE>
stockholders unless such action is approved by either (a) a majority of the
Continuing Directors (in addition to the vote otherwise required by the GCL) or
(b) the affirmative vote of the holders of (i) eighty percent (80%) of the
outstanding Voting Shares voting as a single class and (ii) if an Interested
Stockholder, either directly or indirectly, through agreement or any other
arrangement, proposes such amendment, sixty-six and two-thirds percent (662/3%)
of the outstanding Voting Shares which are not beneficially owned, directly or
indirectly, by such Interested Stockholder, voting as a single class.
SEVENTH: Subject to the rights of the holders of any series of
Preferred Stock:
(a) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing
of such stockholders and
(b) special meetings of stockholders of the Company may be called
only by (i) the Chairman of the Board or (ii) the Secretary of
the Corporation within 10 calendar days after receipt of the
written request of a majority of the total number of Directors
which the Corporation would have if there were no vacancies.
At any annual or special meeting of stockholders of the Corporation,
only such business will be conducted or considered as has been brought before
such meeting in the manner provided in the By Laws of the Corporation.
Notwithstanding anything in this Amended and Restated Certificate of
Incorporation to the contrary, the provisions set forth in this Article Seventh
may not be repealed or amended in any respect, unless such action is approved by
either (a) a majority of the Continuing Directors (in addition to the vote
otherwise required by the GCL) or (b) the affirmative vote of the holders of (i)
eighty percent (80%) of the Voting Shares voting as a single class, and (ii) if
an Interested Stockholder, either directly or indirectly, through agreement or
any or arrangement, proposes such amendment, sixty-six and two-thirds percent
(662/3%) of the Voting Shares which are not beneficially owned, directly or
indirectly, by such Interested Stockholder, voting as a single class.
EIGHTH: (a) CLASSIFICATION OF BOARD OF DIRECTORS. Upon the consummation
of the Corporation's initial public offering of its Common Stock, directors
shall be divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. Class I
directors shall serve until the 2000 Annual Meeting of Stockholders, Class II
directors shall serve until the 2001 Annual Meeting of Stockholders and Class
III directors shall serve until the 2002 Annual Meeting of Stockholders. At each
annual meeting of stockholders beginning in 2000, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible,
-3-
<PAGE>
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of the class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting for the year in which his or her term
expires and until his or her successor shall be elected and qualified. Any
vacancy on the Board of Directors for any reason, and any directorships
resulting from any increase in the number of directors of the Board of
Directors, may be filled by a majority of the Board of Directors then in office,
although less than a quorum, or a sole remaining director and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Amended and Restated Certificate of Incorporation applicable thereto, such
directors so elected shall not be divided into classes pursuant to this Article
Eighth, Section(a), and the number of such directors shall not be counted in
determining the maximum number of directors permitted under the foregoing
provision of this Article Eighth, Section (a), in each case unless expressly
provided by such terms.
(b) AMENDMENT OR REPEAL. Notwithstanding anything in this Amended and
Restated Certificate of Incorporation to the contrary, the provisions set forth
in this Article Eighth may not be repealed or amended in any respect, unless
such action is approved by either (a) a majority of the Continuing Directors (in
addition to the vote otherwise required by the GCL) or (b) the affirmative vote
of the holders of (i) eighty percent (80%) of the Voting Shares voting as a
single class, and (ii) if an Interested Stockholder, either directly or
indirectly, through agreement or any other arrangement, proposes such amendment,
sixty-six and two-thirds percent (662/3%) of the Voting Shares which are not
beneficially owned, directly or indirectly, by such Interested Stockholder,
voting as a single class.
(c) REMOVAL OF DIRECTORS. Notwithstanding anything in this Amended and
Restated Certificate of Incorporation to the contrary, the Corporation's
Certificate of Incorporation may not be amended to provide for removal of
directors without cause as permitted by the GCL, unless such action is approved
by either (a) a majority of the Continuing Directors (in addition to the vote
otherwise required by the GCL) or (b) the affirmative vote of the holders of (i)
eighty percent (80%) of the Voting Shares voting as a single class, and (ii) if
an Interested Stockholder, either directly or indirectly, through agreement or
any other arrangement, proposes such amendment, sixty-six and two-thirds percent
(662/3%) of the Voting Shares which are not beneficially owned, directly or
indirectly, by such Interested Stockholder, voting as a single class; PROVIDED,
HOWEVEr, whenever the holders of any class or series of the Corporation's
outstanding securities are entitled to elect one or more directors by this
Amended and Restated Certificate of Incorporation, this subsection shall apply,
in respect to the removal without cause of a director or directors so elected,
to the vote of the
-4-
<PAGE>
holders of the outstanding shares of that class or series and not to the vote of
the outstanding Voting Shares as a whole.
(d) DEFINITIONS. A majority of the Continuing Directors shall have the
power and duty to determine for purposes of Article Sixth through Article
Eighth, on the basis of information known to them, the applicability of certain
defined terms used in Article Sixth through Article Eighth, in addition to such
other matters with respect to which a determination is required under Article
Sixth through Article Eighth. Any such determination shall be conclusive and
binding for all purposes of Article Sixth through Article Eighth.
For purposes of Article Sixth through Article Eighth, the following
definitions shall apply:
"Affiliate" and "Associate" shall have the respective meanings ascribed
to them in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
A person shall be a "beneficial owner" of any Voting Shares:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates
has (1) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise
or (2) the right to vote or to direct the voting thereof pursuant to
any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any Voting
Shares.
A "Continuing Director" is any member of the Corporation's Board of
Directors who is unaffiliated with, and not a nominee of, an Interested
Stockholder, and any successor of a Continuing Director who is
unaffiliated with, and not a nominee of, an Interested Stockholder and
is approved to succeed a Continuing Director by a majority of
Continuing Directors then on the Board of Directors.
"Interested Stockholder" shall mean any Person (other than (i) the
Corporation, (ii) any Subsidiary (or any successor in interest to any
Subsidiary) of the Corporation, (iii) any member of the group of
stockholders (or any successor in interest to such
-5-
<PAGE>
group), including the Chief Executive Officer, who, pursuant to Article
II of the Stockholders' Agreement, has a power to direct the vote of
the stockholders who are or become parties thereto, (iv) any employee
benefit plan of the Corporation or any Subsidiary of the Corporation or
any entity holding shares of Common Stock for or pursuant to the terms
of any such plan or (v) any person who acquires more than 10% of the
outstanding Voting Shares with the prior approval of a majority of the
Continuing Directors), who or which:
(i) is the beneficial owner, directly or indirectly, of more
than 10% of the combined voting power of the then outstanding Voting
Shares; or
(ii) is an assignee of or has otherwise succeeded to the
beneficial ownership of any Voting Shares which were at any time within
the three-year period immediately prior to the date in question
beneficially owned by an Interested Stockholder.
For the purposes of determining whether a person is an Interested
Stockholder, the number of Voting Shares deemed to be outstanding shall
include shares deemed owned through application of the definition of
beneficial ownership provided above but shall not include any Voting
Shares beneficially owned by any person other than the Interested
Stockholder which may be issuable pursuant to any agreement,
arrangement or understanding or upon exercise of conversion rights,
warrants or options, or otherwise.
"Person" shall mean any individual, firm, trust, partnership,
association, corporation, unincorporated organization or other entity
(other than the Corporation, any Subsidiary of the Corporation for
itself or a trustee holding stock for the benefit of the employees of
the Corporation or its Subsidiaries, or any one of them, pursuant to
one or more employee benefit plans or arrangements), as well as two or
more persons acting as a partnership, limited partnership, syndicate,
association or other group for the purpose of acquiring, holding or
disposing of shares of stock.
"Subsidiary" shall mean any corporation, limited liability company,
partnership or other entity of which a majority of any class of equity
security (as defined in Rule 3a11-1 of the General Rules and
Regulations under the Exchange Act), is owned, directly or indirectly,
by the Corporation; provided, however, that for purposes of the
definition of Interested Stockholder set forth above, the term
"Subsidiary" shall mean only a corporation, limited liability company,
partnership or other entity of which a majority of each class of equity
security is beneficially owned, directly or indirectly, by the
Corporation.
"Voting Shares" shall mean shares of all classes and series of the
Corporation entitled to vote generally in the election of the
Corporation's directors.
-6-
<PAGE>
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: A director of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, this Article Tenth 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 GCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the Corporation,
in addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended GCL. Any repeal or
modification of this Article Tenth by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
ELEVENTH: The Corporation shall have the power to provide
indemnification to the fullest extent permitted by Section 145 of the GCL.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
3. This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242
and 245 of the GCL by written consent of a majority of the
stockholders outstanding and entitled to vote thereon in
accordance with Section 228 of the GCL.
-7-
<PAGE>
IN WITNESS WHEREOF, said LaBranche & Co Inc. has caused this
certificate to be signed by George M.L. LaBranche, IV, its Chairman and Chief
Executive Officer, this ___ day of June, 1999.
LaBRANCHE & CO INC.
By:
----------------------------------------
Name: George M.L. LaBranche, IV
Title: Chairman and Chief Executive Officer
-8-
<PAGE>
Exhibit 5.1
FULBRIGHT & JAWORSKI L.L.P.
A Registered Limited Liability Partnership
666 Fifth Avenue
New York, New York 10103-3198
houston
washington, d.c.
austin
san antonio
dallas
new york
los angeles
london
hong kong
August 12, 1999
LaBranche & Co Inc.
One Exchange Plaza
New York, NY 10006
Ladies and Gentlemen:
In connection with Amendment No. 3 to the Registration Statement on
Form S-1 (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 public offering by the Company of up to 13,225,000
shares (the "Shares") of its Common Stock ("Common Stock"), par value $.01 per
share (including up to 1,725,000 shares of Common Stock which will be purchased
by the underwriters if the underwriters exercise the option granted to them to
cover over-allotments), we, as counsel for the Company, have examined such
corporate records, other documents and questions of law as we have considered
necessary or appropriate for the purposes of this opinion. 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 and
sale of the Shares, to register and qualify the Shares for sale under all
applicable state securities or "blue sky" laws.
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, we advise you that, in our opinion, upon the
filing of the Company's Amended and Restated Certificate of Incorporation, which
has been validly authorized and approved by all necessary corporate actions, the
Shares will be duly and validly authorized and, when issued and sold in the
manner contemplated by the Underwriting Agreement, a form of which has been
filed as an exhibit to the Registration Statement (the "Underwriting
Agreement"), and upon receipt by the Company of payment therefor as provided in
the Underwriting Agreement, will be legally issued, fully paid and
non-assessable.
<PAGE>
August 12, 1999
Page 2
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.
The opinion expressed herein is solely for your benefit and may be
relied upon only by you.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE>
Exhibit 10.8
LaBRANCHE & Co Inc.
STOCKHOLDERS' AGREEMENT
DATED AS OF AUGUST __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I LIMITATIONS ON TRANSFER OF SECURITIES...........................................................1
Section 1.1. General Transfer Restrictions..........................................................1
Section 1.2. Compliance with Certain Restrictions...................................................2
Section 1.3. Transfers Following Death or Disability................................................3
Section 1.4. Transfers with the Consent of Board of Directors.......................................3
Section 1.5. Transfers to Permitted Transferees.....................................................3
Section 1.6. Compliance with Law and Regulations....................................................3
Section 1.7. Legend on Certificates; Entry of Stop Transfer Orders..................................3
Section 1.8. Certificates to be Held by Company.....................................................4
Section 1.9. Transfers in Violation of Agreement Void...............................................5
ARTICLE II VOTING AGREEMENT................................................................................5
Section 2.1. Voting by Stockholders.................................................................5
Section 2.2. Designation of Successors..............................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................................................5
Section 3.1. Representations and Warranties of the Stockholders.....................................5
ARTICLE IV DEFINITIONS.....................................................................................6
ARTICLE V MISCELLANEOUS...................................................................................9
Section 5.1. Standstill Provisions..................................................................9
Section 5.2. Expenses...............................................................................9
Section 5.3. Filing of Schedule 13D or 13G.........................................................10
Section 5.4. Notices...............................................................................10
Section 5.5. Term of the Agreement.................................................................11
Section 5.6. Amendments; Waivers...................................................................11
Section 5.7. Adjustment upon Changes in Capitalization; Adjustments upon
Changes of Control; Representatives, Successors and Assigns...........................12
Section 5.8. Disinterested Board Members to Make Determinations....................................12
Section 5.9. Severability..........................................................................12
Section 5.10. Representatives, Successors and Assigns...............................................13
Section 5.11. Governing Law.........................................................................13
Section 5.12. Specific Performance..................................................................13
Section 5.13. Arbitration...........................................................................13
Section 5.14. Submission to Jurisdiction; Waiver of Immunity........................................13
Section 5.15. Further Assurances....................................................................14
Section 5.16. Execution in Counterparts.............................................................14
Section 5.17. Entire Agreement......................................................................14
</TABLE>
i
<PAGE>
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "AGREEMENT"), dated as of August
___, 1999, is by and among (i) LaBranche & Co Inc., a Delaware corporation (the
"COMPANY"), (ii) the Exchanging Members (as defined below) listed on Schedule I
hereto and (iii) Steven C. Berger, Robert W. Keelips, III and Paul A. Redmond
(collectively, the "RETIRING MEMBERS"). The Exchanging Members and the Retiring
Members are collectively referred to herein as the "STOCKHOLDERS." Except as
otherwise provided herein, capitalized terms used herein have the respective
meanings ascribed thereto in Article IV of this Agreement.
W I T N E S S E T H :
WHEREAS, the Company, LaB Investing Co. L.L.C., a New York limited
liability company ("INVESTING"), and the Stockholders have entered into an
Exchange Agreement, dated as of June 15, 1999 (the "EXCHANGE AGREEMENT"),
pursuant to which (i) the Exchanging Members have agreed to contribute their
respective membership interests in Investing to the Company in exchange for
common stock, par value $.01 per share ("COMMON STOCK"), of the Company and (ii)
the Retiring Members have agreed to contribute their respective membership
interests in Investing to the Company in exchange for a combination of shares of
Common Stock and cash (the "LLC EXCHANGE") in connection with the Company's
proposed initial public offering of shares of Common Stock (the "IPO");
WHEREAS, the Company and the Stockholders desire to enter into certain
agreements with respect to the Transfer (as defined below) and voting of their
Common Stock and various other matters in order to continue harmonious
relationships among themselves with respect to the conduct of the business and
affairs of the Company and LaBranche & Co., a New York limited partnership of
which Investing is the sole general partner ("LaBRANCHE LP");
WHEREAS, it is a condition under the Exchange Agreement that the
parties hereto enter into this Agreement.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements, covenants and provisions herein contained and for good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
LIMITATIONS ON TRANSFER OF SECURITIES
Section 1.1. GENERAL TRANSFER RESTRICTIONS.
<PAGE>
(a) Each Stockholder agrees that he or she shall not Transfer
any Covered Securities beneficially owned by him or her, except in accordance
with all of the following: (i) the terms of this Agreement, (ii) the
restrictions on the transfer of the Company's securities contemplated by the
Plan of Incorporation of LaBranche LP, dated as of June 17, 1999, (iii) any
trading restrictions generally applicable to employees of the Company Group, for
so long as such Stockholder remains in the employ of the Company Group, (iv) the
terms of any "lock-up" agreement required by the underwriters of the IPO and (v)
the terms of any other contract or agreement with the Company or other
undertaking by which such Stockholder is bound and to which such Covered
Securities are subject.
(b) Each Exchanging Member agrees that he or she may Transfer
Covered Securities only as follows, subject to applicable securities laws:
(i) up to 33-1/3% of such Covered Securities at any
time after the third anniversary of the date of the consummation of the
IPO;
(ii) up to an additional 33-1/3% of such Covered
Securities at any time after the fourth anniversary of the date of the
consummation of the IPO; and
(iii) all of such Covered Securities at any time
after the fifth anniversary of the date of the consummation of the IPO.
(c) Notwithstanding the provisions set forth in Section 1.1(b)
above, each Exchanging Member agrees that for so long as such Exchanging Member
remains in the employ of any member of the Company Group, such Exchanging Member
shall at all times be the sole beneficial Owner of that number of Covered
Securities equal to 25% or more of the aggregate number of Covered Securities
(i) beneficially owned by such Exchanging Member immediately after the
consummation of the IPO and (ii) beneficial ownership of which is acquired by
such Exchanging Member thereafter, with no reduction in such aggregate number
for Covered Securities disposed of by such Exchanging Member.
(d) Each Retiring Member agrees that he may Transfer Covered
Securities only as follows, subject to applicable securities laws:
(i) up to 50% of such Covered Securities at any
time after the first anniversary of the IPO
Date; and
(ii) all of such Covered Securities at any time
after the second anniversary of the IPO
Date.
Section 1.2. COMPLIANCE WITH CERTAIN RESTRICTIONS.
2
<PAGE>
(a) Each Stockholder agrees that, with respect to all Covered
Securities beneficially owned by such Stockholder, he or she shall comply with
the restrictions on Transfer imposed by the underwriters of the IPO.
(b) Each Stockholder agrees that he or she shall, at the
request of the Company, comply with any future restrictions on Transfer imposed
by or with the consent of the Company from time to time in connection with any
future offerings of securities of the Company, whether by the Company or by any
securityholder of the Company and whether or not such restrictions on Transfer
refer to such Stockholder by name.
(c) Each Stockholder agrees that, with respect to all Covered
Securities beneficially owned by such Stockholder, he or she will comply with
any restrictions imposed by the Company from time to time to enable the Company
or any party to an agreement with the Company to account for a business
combination by the pooling of interests method.
Section 1.3. TRANSFERS FOLLOWING DEATH OR DISABILITY. Notwithstanding
any other provisions of this Agreement, upon the death or Disability of any
Stockholder, such Stockholder (or his or her estate) may Transfer his or her
Covered Securities free of any provisions of this Agreement, subject to the
provisions of any other agreement relating to this subject matter.
Section 1.4. TRANSFERS WITH THE CONSENT OF BOARD OF DIRECTORS.
Notwithstanding any other provisions of this Agreement, a Stockholder may
Transfer any number of Covered Securities at any time with the prior written
consent of the Board of Directors, which consent may be withheld or delayed, or
granted on such terms and conditions as the Board of Directors may determine, in
its sole discretion.
Section 1.5. TRANSFERS TO PERMITTED TRANSFEREES. Notwithstanding any
other provision of this Agreement, a Stockholder may Transfer any number of
Covered Securities to a Permitted Transferee at any time, provided that it shall
be a condition to any such Transfer that such Permitted Transferee agree in
writing to be bound by all the provisions of this Agreement as if such Permitted
Transferee were a Stockholder from and after the date of such Transfer for all
purposes of this Agreement.
Section 1.6. COMPLIANCE WITH LAW AND REGULATIONS. Each Stockholder
agrees that any Transfer of Covered Securities by such Stockholder shall be in
compliance with any applicable constitution, rule or regulation of, or any
applicable policy of, any of the exchanges or associations or other institutions
with which any member of the Company Group has membership or other privileges
(including, without limitation, the NYSE), federal and securities laws, and any
applicable law, rule or regulation of the Commission or any other governmental
agency having jurisdiction.
Section 1.7. LEGEND ON CERTIFICATES; ENTRY OF STOP TRANSFER ORDERS. (a)
Each Stockholder agrees that each outstanding certificate representing any
Covered Securities that are subject to this
3
<PAGE>
Agreement shall bear an endorsement noted conspicuously on each such certificate
reading substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or under any
state securities law and may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred in the absence of an effective
registration statement with respect thereto under the Act and any
applicable state securities law, or the receipt by the Company of an
opinion of counsel, reasonably satisfactory to the Company, that such
registration is not required.
The securities represented by this certificate are subject to the
provisions of a Stockholders' Agreement dated as of August __, 1999
among the Company and certain persons listed on Schedule I to such
agreement, a copy of which is on file at the principal executive office
of the Company, and such securities may be sold, assigned, pledged or
otherwise transferred only in accordance with such agreement."
(b) Each Stockholder agrees to the entry of stop transfer
orders against the Transfer of legended certificates representing securities of
the Company not in compliance with this Agreement.
Section 1.8. CERTIFICATES TO BE HELD BY COMPANY. (a) Each Exchanging
Member agrees that the certificates representing his or her Covered Securities
shall be issued in the name of a nominee holder to be designated by the Company
and shall be held in custody by the Company at its principal office. The Company
shall, upon the request of any such Exchanging Member or the estate of any
Exchanging Member, as the case may be, in writing addressed to the Secretary of
the Company or any officer designated by the Secretary (which request shall
include a representation by such Exchanging Member or his or her estate that he
or she is then permitted to Transfer a specified number of Covered Securities
under the provisions of this Agreement), promptly release from custody the
certificates representing such specified number of such Exchanging Member's
Covered Securities which are then intended and permitted to be Transferred under
the provisions of this Agreement.
(b) Subject to the Exchanging Members having provided
appropriate written direction to the Company, whenever the nominee holder shall
receive any cash dividend or other cash distribution upon any Covered Securities
deposited pursuant to Section 1.8(a), the Company shall cause the nominee holder
to distribute promptly such cash dividend or other distribution (by any other
manner that it may determine, net of its charges and expenses in effecting such
conversion), by checks drawn on a bank in the United States, to the Exchanging
Members in proportion to the number of Covered Securities Owned by each of them
respectively; provided that the Company shall cause the nominee holder to make
appropriate adjustments in the amounts so distributed in respect of any amounts
required to be withheld by the nominee holder from any distribution on account
of taxes. The nominee holder shall distribute only such amount as can be
distributed without distributing to any Exchanging Member a fraction of one
cent, and any balance not so distributable shall be held by the nominee holder
(without liability for interest thereon) and shall be
4
<PAGE>
added to and become part of the next sum received by the nominee holder for
distribution to the Exchanging Members.
Section 1.9. TRANSFERS IN VIOLATION OF AGREEMENT VOID. Any attempted
Transfer of Covered Securities not made in accordance with the provisions of
this Agreement shall be void, and the Company shall not register, or cause or
permit the registration, of Common Stock Transferred in violation of this
Agreement.
ARTICLE II
VOTING AGREEMENT
Section 2.1. VOTING BY STOCKHOLDERS. At any meeting of the stockholders
of the Company called to vote with respect to any corporate action or where
action by stockholders of the Company is taken by written consent, each
Stockholder agrees to vote or act by written consent with respect to all Covered
Securities then Owned by such Stockholder on all such matters in which action is
proposed to be taken as determined by a majority of George M.L. LaBranche, IV,
James G. Gallagher and Alfred O. Hayward, Jr. (or the successors designated in
accordance with Section 2.2 herein to replace them in the event of their death,
disability or resignation) (collectively, the "VOTING EXECUTIVES").
Notwithstanding any other provisions of this Agreement, the power to direct the
vote of each Stockholder with respect to the Covered Securities Owned by such
Stockholder shall remain in full effect until such Stockholder no longer Owns
such Covered Securities.
Section 2.2. DESIGNATION OF SUCCESSORS. In the event of the death,
disability or resignation of any of the Voting Executives, successors shall be
designated as follows:
(a) in the event of such death, disability or resignation of
any one Voting Executive, such Voting Executive's successor shall be designated
by mutual consent of the remaining Voting Executives;
(b) in the event of the simultaneous death, disability or
resignation of any two Voting Executives, such Voting Executives' successors
shall be designated by the sole remaining Voting Executive; or
(c) in the event of the simultaneous death, disability or
resignation of all three Voting Executives, such Voting Executives' successors
shall be designated by a majority in interest of the Stockholders who then Own
Covered Securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
5
<PAGE>
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
Stockholder severally represents and warrants to the Company and to each other
Stockholder that:
(a) he or she has (and with respect to Covered Securities to
be acquired, will have) good, valid and marketable title to the Covered
Securities, free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind, other than pursuant to this Agreement,
the Plan of Incorporation of LaBranche LP, the Exchange Agreement or another
agreement with the Company by which such Stockholder is bound and to which the
Covered Securities are subject; and
(b) (i) he or she is of sound mind and has full legal capacity
to enter into, execute and deliver this Agreement and perform his or her
obligations hereunder; (ii) this Agreement constitutes his or her legal, valid
and binding obligation, enforceable against him or her in accordance with its
terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles); (iii) neither his or her
execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein conflicts with or results in a breach of any of
the terms, conditions or provisions of any agreement or instrument to which he
or she is a party or by which his or her assets are bound, or constitutes a
default under any of the foregoing, or violates any law or regulation; (iv) he
or she has obtained all authorizations, consents, approvals and clearances of
all courts, governmental agencies and authorities, and any other person, if any
(including his or her spouse with respect to the interest of such spouse in his
or her Covered Securities if the consent of such spouse is required), required
to permit him or her to enter into this Agreement and to consummate the
transactions contemplated herein; (v) there are no actions, suits or proceedings
pending, or, to his or her knowledge, threatened against or affecting him or her
or his or her assets in any court or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality which, if adversely determined, would impair his or her ability
to perform this Agreement; (vi) the performance of this Agreement will not
violate any order, writ, injunction, decree or demand of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality to which he or she is subject; and (vii) no statement,
representation or warranty made by him or her in this Agreement, nor any
information provided by him or her for inclusion in a report filed pursuant to
Section 5.3 hereof or in a registration statement filed by the Company contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements, representations
or warranties contained herein or information provided therein not misleading.
ARTICLE IV
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
6
<PAGE>
"AGREEMENT" has the meaning set forth in the preamble to this
Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or, to
the extent expressly authorized by the Board of Directors to exercise the powers
of the Board of Directors under this Agreement, (i) any committee of such Board
of Directors or (ii) any board of directors or committee of any Subsidiary of
the Company.
"BUSINESS DAY" means a day on which the NYSE is open for the
transaction of business.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" has the meaning set forth in the recitals to this
Agreement.
"COMPANY" has the meaning set forth in the preamble to this Agreement
and any successors thereof, whether by operation of law or otherwise.
"COMPANY GROUP" means the group comprised of the Company and its
Subsidiaries, including Investing and LaBranche LP.
"COVERED SECURITIES" means, with respect to any Stockholder at the time
in question, subject to Section 5.7, the shares of Common Stock then owned by
such Stockholder which were received by such Stockholder as a result of the LLC
Exchange. Prior to or after the IPO, shares of the Common Stock may be excluded
from the definition of Covered Securities by action of the Board of Directors,
in its sole discretion.
"DISABILITY" means disability as that term is defined under the
Company's long-term disability plan in effect at the date of such determination,
or any other plan or definition designated by the Board of Directors for the
purpose of this provision.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGREEMENT" has the meaning set forth in the recitals to this
Agreement.
"EXCHANGING MEMBERS" mean the holders of membership interests in
Investing listed on Schedule I hereto.
"IPO" has the meaning set forth in the recitals to this Agreement.
"INVESTING" has the meaning set forth in the recitals to this
Agreement.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
7
<PAGE>
"LLC EXCHANGE" has the meaning set forth in the recitals to this
Agreement.
"LaBRANCHE LP" has the meaning set forth in the recitals to this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"OWN" means to own of record or beneficially, whether directly, through
a nominee designated by the Company pursuant to Section 1.8 or through any other
Person.
"PERMITTED TRANSFEREE" means any Person receiving Covered Securities
from a Stockholder that is: (i) a trust for the benefit of any spouse or lineal
descendant (or spouse of such lineal descendant) of such Stockholder, provided
that the controlling trustee of such trust is such Stockholder; (ii) any
organization to which contributions by such Stockholder of Covered Securities
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 Stockholder is a trustee or
a member of the board of directors or other governing body or group having the
ultimate authority, INTER ALIA, to vote, dispose or direct the voting or
disposition of such Covered Securities; or (iii) a corporation of which a
majority of the outstanding shares of capital stock entitled to vote generally
for the election of directors 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 such partnership or limited liability company are beneficially owned by, such
Stockholder.
"PERSON" means any natural person or any firm, partnership, limited
liability partnership, association, corporation, limited liability company,
trust, business trust, governmental authority or other entity.
"RESTRICTED PERSON" means any person that is not (i) a Stockholder or
(ii) a director, officer or employee of any member of the Company Group acting
in such person's capacity as a director, officer or employee.
"RETIRING MEMBERS" means Steven C. Berger, Robert W. Keelips, III and
Paul A. Redmond.
"STOCKHOLDERS" has the meaning set forth in the preamble to this
Agreement.
"SUBSIDIARY" means a corporation, limited liability company, limited
partnership or other entity of which the Company, directly or indirectly, has
the power, whether through the ownership of voting securities, equity interests,
contract or otherwise, (i) to elect at least a majority of the members of such
entity's board of directors or other governing body or (ii) in the absence of a
governing body, to control the business affairs of such entity.
8
<PAGE>
"TRANSFER" means, with respect to any Covered Securities, directly or
indirectly, (i) to sell, assign, transfer, pledge, convey, distribute, mortgage,
encumber, hypothecate or otherwise dispose, whether by gift, for consideration
or for no consideration, or (ii) to grant any right to vote, whether by voting
agreement, voting trust or otherwise. For purposes of this Agreement, Transfer
shall include any disposition and any other transaction that would constitute a
"constructive sale" within the meaning of Section 1259 of the Internal Revenue
Code of 1986, as amended, including, without limitation, a short-sale, forward
sale, equity swap or other derivative contract with respect to Common Stock or
substantially identical property, or other transaction having substantially the
same effect as the foregoing.
"VOTING EXECUTIVES" has the meaning set forth in Section 2.1.
ARTICLE V
MISCELLANEOUS
Section 5.1. STANDSTILL PROVISIONS. Each Stockholder agrees that he or
she shall not, directly or indirectly, alone or in concert with any other
person, (a) make, or in any way participate in, any "solicitation" of "proxies"
(as such terms are defined in Exchange Act Rule 14A-1) relating to any
securities of the Company to or with any Restricted Person; (b) except as
contemplated by this Agreement, deposit any Covered Securities in a voting trust
or subject any Covered Securities to any voting agreement or arrangement that
includes as a party any Restricted Person; (c) form, join or in any way
participate in a group (as contemplated by Exchange Act Rule 13d-5(b)) with
respect to any securities of the Company (or any securities the ownership of
which would make the owner thereof a beneficial owner of securities of the
Company (for this purpose as determined by Exchange Act Rule 13d-3 and Exchange
Act Rule 13d-5)) that includes as a party any Restricted Person; (d) make any
announcement subject to Exchange Act Rule 14a-1(1)(2)(iv) to any Restricted
Person; (e) initiate or propose any "shareholder proposal" subject to Exchange
Act Rule 14a-8; (f) together with any Restricted Person, make any offer or
proposal to acquire any securities or assets of any member of the Company Group
or solicit or propose to effect or negotiate any form of business combination,
restructuring, recapitalization or any extraordinary transaction involving, or
any change in control of, any member of the Company Group, any Subsidiaries or
any of its respective securities or assets; (g) together with any Restricted
Person, seek the removal of any directors or a change in the composition or size
of the Board of Directors; (h) together with any Restricted Person, in any way
participate in a call for any special meeting of the stockholders of the
Company; or (i) assist, advise or encourage any Person with respect to, or seek
to do, any of the foregoing.
Section 5.2. EXPENSES.
(a) The Company shall be responsible for all expenses incurred
in the operation and administration of this Agreement, including expenses
incurred in preparing appropriate filings and correspondence with the Commission
or NYSE, lawyers', accountants', agents', consultants', experts', investment
banking and other professionals' fees, expenses incurred in enforcing the
provisions of this
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Agreement, expenses incurred in maintaining any necessary or appropriate books
and records relating to this Agreement and expenses incurred in the preparation
of amendments to and waivers of provisions of this Agreement.
(b) Each Stockholder shall be responsible for all of his or
her expenses incurred in connection with his or her compliance with his or her
obligations under this Agreement, including expenses incurred by the Company in
enforcing the provisions of this Agreement relating to such obligations.
Section 5.3. FILING OF SCHEDULE 13D OR 13G.
(a) In the event that a Stockholder is required to file a
report of beneficial ownership on Schedule 13D or 13G (or any successor forms
thereto) with respect to the Covered Securities beneficially owned by such
Stockholder (for this purpose as determined by Exchange Act Rule 13d-3 and
Exchange Act Rule 13d-5), he or she agrees that, unless otherwise directed by
the Company, he or she will not separately file such a report, but will file a
report together with the other Stockholders, containing the information required
by the Exchange Act, and such Stockholder understands and agrees that such
report shall be filed on his or her behalf by the Company. Such Stockholder
shall cooperate fully with the other Stockholders and the Company to achieve the
timely filing of any such report and any amendments thereto as may be required,
and such Stockholder agrees that any information concerning such Stockholder
which such Stockholder furnishes in connection with the preparation and filing
of such report will be complete and accurate.
(b) Each Stockholder hereby irrevocably makes, constitutes and
appoints each of George M.L. LaBranche, IV, James G. Gallagher, Alfred O.
Hayward, Jr. and any other officer(s) of the Company designated in writing by
George M.L. LaBranche, IV, each with full power of substitution, his or her true
attorney-in-fact and agent, for and in his or her name, place and stead, to
execute a report of beneficial ownership on Schedule 13D or 13G (or any
successor forms thereto) and any and all amendments thereto and to file such
reports with all exhibits thereto and other documents in connection therewith
with the Commission, granting to such attorneys, and each of them, full power
and authority to do and perform each and every act and thing whatsoever that
such attorney or attorneys may deem necessary, advisable or appropriate to carry
out fully the intent of this Section 5.3 as such Stockholder might or could do
personally, hereby ratifying and confirming all acts and things that such
attorney or attorneys may do or cause to be done by virtue of this power of
attorney. Each Stockholder hereby further designates such attorneys as such
Stockholder's agents authorized to receive notices and communications with
respect to such reports and any amendments thereto. It is understood and agreed
by each such Stockholder that this appointment, empowerment and authorization
may be exercised by the aforementioned Persons for the period beginning on the
date hereof and ending on the date such Stockholder is no longer subject to the
provisions of this Agreement (and shall extend thereafter for such time as is
required to reflect that such Stockholder is no longer a party to this
Agreement).
Section 5.4. NOTICES.
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(a) All notices, requests, demands, waivers and other
communications to be given by any party hereunder shall be in writing and shall
be (i) mailed by first-class, registered or certified mail, postage prepaid,
(ii) sent by hand delivery or reputable overnight delivery service or (iii)
transmitted by telecopy (provided that a copy is also sent by reputable
overnight delivery service) addressed, in the case of any Stockholder, to him or
her at his or her last address appearing in the Company Group's employment
records or, in the case of the Company, to One Exchange Plaza, New York, NY
10006, Attention: Secretary, or, in each case, to such other address as may be
specified in writing to the other parties hereto.
(b) All such notices, requests, demands, waivers and other
communications shall be deemed to have been given and received (i) if by
personal delivery or telecopy, on the day of such delivery, (ii) if by
first-class, registered or certified mail, on the fifth Business Day after the
mailing thereof or (iii) if by reputable overnight delivery service, on the day
delivered.
Section 5.5. TERM OF THE AGREEMENT.
(a) This Agreement shall become effective upon the occurrence
of the consummation of the IPO and shall terminate on the earlier to occur of
(i) the first date on which there are no Stockholders who remain bound by its
terms and (ii) the date on which the Company and the Stockholders who Own a
majority of the Covered Securities subject to this Agreement as of such date
agree to terminate this Agreement.
(b) Unless this Agreement is theretofore terminated pursuant
to Section 5.5(a) hereof, a Stockholder shall be bound by its terms until all
Covered Securities owned by such Stockholder are free of the provisions of
Articles I and II hereof.
Section 5.6. AMENDMENTS; WAIVERS.
(a) This Agreement may be amended or modified, and any
provision in this Agreement may be waived, if such amendment, modification or
waiver is approved by the Board of Directors, provided that any amendment that
would materially adversely affect any Stockholder (other than an amendment that,
in the good faith judgment of the Board of Directors, is intended to cure any
ambiguity or correct or supplement any provisions of this Agreement that may be
incomplete or inconsistent with any other provision contained herein) must be
approved by the Stockholders that Own a majority of the Covered Securities
subject to this Agreement as of the date of such amendment or modification,
provided, further, that, without the consent of any Person, the Board of
Directors may permit any Person who executes and delivers a counterpart of this
Agreement to become a party to this Agreement by amending Schedule I or II
hereto, as the case may be.
(b) The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
rights at a later time to enforce the same. No waiver by any
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party of the breach of any term contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach or the breach of any other
term of this Agreement.
Section 5.7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; ADJUSTMENTS
UPON CHANGES OF CONTROL; REPRESENTATIVES, SUCCESSORS AND ASSIGNS.
(a) In the event of any change in the outstanding Common Stock
by reason of stock dividends, stock splits, reverse stock splits, spin-offs,
split-ups, recapitalizations, combinations, exchanges of shares and the like,
the term "Covered Securities" shall refer to and include the securities received
or resulting therefrom, but only to the extent such securities are received in
exchange for or in respect of Covered Securities. Upon the occurrence of any
event described in the immediately preceding sentence, the Board of Directors
shall make such adjustments to or interpretations of the restrictions of Section
1.1 (and, if it so determines, any other provisions hereof) as it shall deem
necessary or desirable to carry out the intent of such provision(s). If the
Board of Directors deems it desirable, any such adjustments may take effect from
the record date, the "when issued trading date," the "ex dividend date" or
another appropriate date.
(b) In the event of any business combination, restructuring,
recapitalization or other extraordinary transaction involving any member of the
Company Group or any of its respective securities or assets as a result of which
the Stockholders shall hold voting securities of a Person other than the
Company, the Stockholders agree that this Agreement shall also continue in full
force and effect with respect to such voting securities of such other Person
formerly representing or distributed in respect of Covered Securities, and the
terms "Covered Securities," "Common Stock," "Voting Interests," and "Company,"
shall refer to such voting securities formerly representing or distributed in
respect of Covered Securities and such Person, respectively. Upon the occurrence
of any event described in the immediately preceding sentence, the Board of
Directors shall make such adjustments to or interpretations of the restrictions
of Section 1.1 (and, if it so determines, any other provisions hereof) as it
shall deem necessary or desirable to carry out the intent of such provisions(s).
If the Board of Directors deems it desirable, any such adjustments may take
effect from the record date or another appropriate date.
Section 5.8. DISINTERESTED BOARD MEMBERS TO MAKE DETERMINATIONS. In the
event that any Stockholder breaches its obligations under this Agreement, then
the Board of Directors shall have the exclusive right to make (on behalf of the
Company) any and all determinations that may be necessary or appropriate under
this Agreement, including without limitation, determinations relating to the
exercise and enforcement of remedies hereunder. If a Stockholder who is also a
member of the Board of Directors breaches his or her obligations under this
Agreement, such Stockholder must refrain from exercising his or her vote at
meetings of the Board of Directors and general meetings of the Company to give
effect to this Section 5.8.
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Section 5.9. SEVERABILITY. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid or unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.
Section 5.10. REPRESENTATIVES, SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of the respective parties hereto
and their respective legatees, legal representatives, successors and assigns;
provided that Stockholders may not assign, delegate or otherwise Transfer any of
their rights or obligations under this Agreement except with the prior written
consent of the Board of Directors, and any assignment without such consent by
the Board of Directors shall be void.
Section 5.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES OR RULES THEREOF).
Section 5.12. SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges that it will be impossible to measure in money the damage to the
Company or the Stockholders if any party hereto fails to comply with the
provisions of Article I or II and each party hereto agrees that in the event of
any such failure, neither the Company nor any Stockholder will have an adequate
remedy at law. Therefore, the Company and each Stockholder, in addition to all
of the other remedies which may be available, shall have the right to equitable
relief, including, without limitation, the right to enforce specifically the
provisions of Article I and II by obtaining injunctive relief against any
violation thereof, or otherwise. All claims for specific performance of one or
more provisions of this Agreement shall be resolved exclusively by litigation
before a court of competent jurisdiction located in the State of New York.
Section 5.13. ARBITRATION. Except for claims for specific performance
brought in accordance with Section 5.12, all disputes, differences, and
controversies arising out of or in any way related to this Agreement shall be
submitted:
(a) to the NYSE to be heard and decided under the terms of
this Agreement and the then applicable rules of the NYSE or, if those rules as
interpreted by the NYSE do not permit the disputes, differences and
controversies to be submitted to the NYSE for arbitration; then
(b) to the American Arbitration Association in New York, New
York;
to be heard and decided under the terms of this Agreement and in accordance with
the then applicable rules of the hearing body by a panel of three arbitrators
(unless the rules of the hearing body shall require a different number of
arbitrators) chosen in accordance with the then applicable rules of the hearing
body.
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The decision of the arbitrators shall be final and binding upon the parties, and
an order may be entered upon the award of the arbitrators in any court of
competent jurisdiction.
Section 5.14. SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITY. Each
Stockholder, for himself or herself and his or her successors and assigns,
hereby irrevocably waives (a) any objection, and agrees not to assert, as a
defense in any arbitration or legal or equitable action, suit or proceeding
against such Stockholder arising out of or relating to this Agreement or any
transaction contemplated hereby or the subject matter of any of the foregoing,
that (i) he or she is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable before such arbitral body
or in said courts, (ii) the venue thereof may not be appropriate and (iii) the
internal laws of the State of Delaware do not govern the validity,
interpretation or effect of this Agreement, (b) any immunity from jurisdiction
to which he or she might otherwise be entitled in any such arbitration, action,
suit or proceeding which may be instituted before any state or federal court in
the State of New York in accordance with Section 5.12 or before any arbitral
body in accordance with Section 5.13 and (c) any immunity from the maintaining
of an action against him or her to enforce any judgment for money obtained in
any such arbitration, action, suit or proceeding and, to the extent permitted by
applicable law, any immunity from execution.
Section 5.15. FURTHER ASSURANCES. Each Stockholder agrees to execute
such additional documents and take such further action as may be requested by
the Company to effect the provisions of this Agreement.
Section 5.16. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute but one and the same instrument.
Section 5.17. ENTIRE AGREEMENT. This Agreement, including the Schedules
hereto, contains the entire understanding of the parties with respect to the
subject matter hereof.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LaBRANCHE & CO INC.
By:
-------------------------------------------
Name: George M.L. LaBranche, IV
Title: Chairman and Chief Executive Officer
- ----------------------------------- -----------------------------------------
George M.L. LaBranche, IV Vincent J. Flaherty
- ----------------------------------- -----------------------------------------
James G. Gallagher Alfred O. Hayward, Jr.
- ----------------------------------- -----------------------------------------
Michael J. Naughton John McGraner
- ----------------------------------- -----------------------------------------
Vincent Papandrea Anthony M. Corso
- ----------------------------------- -----------------------------------------
Eugene C. McCarthy John O. Pickett, III
- ----------------------------------- -----------------------------------------
Michael C. Ziebarth Anthony Giardina
<PAGE>
- ----------------------------------- -----------------------------------------
Sean M. McCooey Mark Soltz
- ----------------------------------- -----------------------------------------
Christopher M. Smith Joseph Corso, Jr.
- ----------------------------------- -----------------------------------------
Robert A. Conte Paul A. Redmond
- ----------------------------------- -----------------------------------------
Thomas G. McLaughlin Nicholas Caputo
- ----------------------------------- -----------------------------------------
Joseph R. Dewhurst, II Steven C. Berger
- ----------------------------------- -----------------------------------------
John L. McWilliams Thomas J. Shanley
- ----------------------------------- -----------------------------------------
Kevin R. McMahon Fred DeBoer
- ----------------------------------- -----------------------------------------
Robert W. Keelips, III Karin Gill
- ----------------------------------- -----------------------------------------
John M. Dempsey, III John N. Durante
<PAGE>
- ----------------------------------- -----------------------------------------
Gerard A. Competello William J. Burke, III
- ----------------------------------- -----------------------------------------
Christopher Connors Christopher Keelips
- ----------------------------------- -----------------------------------------
Vincent G. Quigley Anthony Picerni
<PAGE>
SCHEDULE I
EXCHANGING MEMBERS
George M.L. LaBranche, IV Thomas G. McLaughlin
Vincent J. Flaherty Nicholas Caputo
James G. Gallagher Joseph R. Dewhurst, II
Alfred O. Hayward, Jr. John L. McWilliams
Michael J. Naughton Thomas J. Shanley
John McGraner Kevin R. McMahon
Vincent Papandrea Fred DeBoer
Anthony M. Corso Karin Gill
Eugene C. McCarthy John M. Dempsey, III
John O. Pickett, III John N. Durante
Michael C. Ziebarth Gerard A. Competello
Anthony Giardina William J. Burke, III
Sean M. McCooey Christopher Connors
Mark Soltz Christopher Keelips
Christopher M. Smith Vincent G. Quigley
Joseph Corso, Jr. Anthony Picerni
Robert A. Conte
<PAGE>
Exhibit 10.11
NYSE CSA FORM 1 D
SUBORDINATED LOAN AGREEMENT - CASH
THIS AGREEMENT is entered into this ____ day of ___________ 199_, between
__________________________ (the "Lender") and ________________________ LaBranche
& Co. _____________________________, (the "Organization").
1. GENERAL - Subject to the terms and conditions hereinafter set forth,
the Organization promises to pay to the Lender or assigns, on __________________
(the "Scheduled Maturity Date) (the last day of the month at least 1 year and
not more than 10 years from the date thereof) at the principal office of the
Organization, $_________ and interest payable ______________________ at a rate
of ________% per annum from the date hereof. By written notice delivered to the
Organization at its principal office and to the New York Stock Exchange, Inc.
(the "Exchange") no sooner than 6 months from the date hereof, the Lender may
accelerate such payment date to the last business day of a calendar month not
less than 6 months after the receipt of such notice by both the Organization and
the Exchange, but the right of the Lender to receive payment of the principal
amount hereof and interest shall remain subordinate as hereinafter provided.
2. SUSPENDED REPAYMENT
The Organization's obligation to pay the principal amount hereof on the
Scheduled Maturity Date or any accelerated maturity date shall be suspended and
the obligation shall not mature for any period of time during which after giving
effect to such payment (together with (a) the payment of any other obligation of
the Organization payable at or prior to the payment hereof and (b) the return of
any Secured Demand Note and the Collateral therefor held by the Organization and
returnable at or prior to the payment hereof).
(i) in the event that the Organization is not operating pursuant
to the alterative net capital requirement provided for in
paragraph (a)(1)(ii) of Rule l5c3-1 (the "Rule") under the
Securities Exchange Act of 1934, as amended (the "Act"), the
aggregate indebtedness of the Organization would exceed 1200
percent of its net capital as those terms are defined in the
Rule or any successor rule as in effect at the time payment is
to be made, or such other percent as may be made applicable to
the Organization at the time of such payment by the New York
Stock Exchange, Inc. (the "Exchange") or the Securities and
Exchange Commission (the "SEC"), or
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(ii) in the event that the Organization is operating pursuant to
such alternative net capital requirement, the net capital of
the Organization would be less than 5 percent (or such other
percent as may be made applicable to the Organization at the
time of such payment by the Exchange or the SEC) of aggregate
debt items computed in accordance With Exhibit A to Rule
l5c3-3 under the Act or any successor rule as in effect at
such time, or
(iii) in the event that the Organization is registered as a futures
commission merchant under the Commodity Exchange Act (the
"CEA"), the net capital of the Organization (as defined in the
CEA or the regulations thereunder as in effect at the time of
such payment) would be less than 6 percent (or such other
percentum as may be made applicable to the Organization at the
time of such payment by the Commodity Futures Trading
Commission (the "CFTC") of the funds required to be segregated
pursuant to the CEA and the regulations thereunder, and the
foreign futures or foreign options secured amount less the
market value of commodity options purchased by customers on or
subject to the rules of a contract market or a foreign board
of trade (provided, however, the deduction for each customer
shall be limited to the amount of customer funds in such
customer's account(s) and foreign futures and foreign options
secured amounts), or the Organization's net capital would be
less than the minimum capital requirement as defined by the
DSRO, or
(iv) the Organization's net capital, as defined in the Rule or any
successor rule as in effect at the time of such payment would
be less than 120 percent (or such other percent as may be made
applicable to the Organization at the time of such payment by
the Exchange or the SEC) of the minimum dollar amount required
by the Rule as in effect at such time (or such other dollar
amount as may be made applicable to the Organization at the
time of such payment by the Exchange or the SEC), or
(v) in the event that the Organization is registered as a futures
commission merchant under the CEA and if its net capital, as
defined in the CEA or the regulations thereunder as in effect
at the time of such payment, would be less than 120 percent
(or such other percent as may be made applicable to the
Organization at the time of such payment by the CFTC) of the
minimum dollar amount required by the CEA or the regulations
thereunder as in effect at such time (or such other dollar
amount as may be made applicable to the Organization at the
time of such payment by the CFTC), or
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(vi) in the event that the Organization is subject to the
provisions of Paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule,
the net capital of the Organization would be less than the
amount required to satisfy the 1000 percent test (or such
other percentum test as may be made applicable to the
Organization at the time of such payment by the Exchange or
the SEC) stated in such applicable paragraph,
(the net capital necessary to enable the Organization to avoid such suspension
of its obligation to pay the principal amount hereof being hereinafter referred
to as the "Applicable Minimum Capital") and during any such suspension the
Organization shall, as promptly as consistent with the protection of its
customers, reduce its business to a condition whereby the principal amount
hereof with accrued interest thereon could be paid (together with (a) the
payment of any other obligation of the Organization payable at or prior to the
payment hereof and (b) the return of any Secured Demand Note and the Collateral
therefor held by the Organization and returnable at or prior to the payment
hereof) without the Organization's net capital being below the Applicable
Minimum Capital, at which time the Organization shall repay the principal amount
hereof plus accrued interest thereon on not less than five days' prior written
notice to the Exchange. The aggregate principal amount outstanding pursuant to
this Agreement shall mature on the first day at which under this paragraph the
Organization has an obligation to pay the principal amount hereof. If pursuant
to the terms hereof the Organization's obligation to pay the principal amount
hereof is suspended and does not mature, the Organization agrees (and the Lender
recognizes) that if its obligation to pay the principal amount hereof is ever
suspended for a period of six months or more, it will promptly take whatever
steps are necessary to effect a rapid and orderly complete liquidation of its
business. If payment is made of all or any part of the principal hereof on the
Scheduled Maturity Date or any accelerated maturity date and if immediately
after any such payment the Organization's net capital is less than the
Applicable Minimum Capital, the Lender agrees irrevocably (whether or not such
Lender had any knowledge or notice of such fact at the time of any such payment)
to repay to the Organization, its successors or assigns, the sum so paid, to be
held by the Organization pursuant to the provisions hereof as if such payment
had never been made; provided, however, that any suit for the recovery of any
such payment must be commenced within two years of the date of such payment.
3. SUBORDINATION OF OBLIGATIONS
The Lender irrevocably agrees that the obligations of the Organization
under this Agreement with respect to the payment of principal and interest are
and shall be fully and irrevocably subordinate in right of payment and subject
to the prior payment or provision for payment in full of all claims of all other
present and future creditors of the Organization whose claims are not similarly
subordinated (claims hereunder shall rank pari passu with claims similarly
subordinated) and to claims which are now or hereafter expressly stated in the
instruments creating such claims to be senior in right of payment to the claims
of the class of this claim arising out of any matter occurring prior to the date
on which the Organization's obligation to make such payment matures consistent
with the provisions hereof. In the event of the appointment of a receiver or
trustee of the
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Organization or in the event of its insolvency, liquidation pursuant to the
Securities Investor Protection Act of 1970 ("SIPA") or otherwise, its
bankruptcy, assignment for the benefit of creditors, reorganization whether or
not pursuant to bankruptcy laws, or any other marshalling of the assets and
liabilities of the Organization, the holder hereof shall not be entitled to
participate or share, ratably or otherwise, in the distribution of the assets of
the Organization until all claims of all other present and future creditors of
the Organization, whose claims are senior hereto, have been fully satisfied, or
adequate provision has been made therefor.
4. PERMISSIVE PREPAYMENT
With the prior written approval of the Exchange, the Organization may,
at its option, make Prepayment of all or any portion of the principal amount
hereof to the Lender prior to the Scheduled Maturity Date at any time subsequent
to one year from the effective date of this agreement No Prepayment shall be
made, however, if after giving effect thereto (and to all other payments of
principal of outstanding subordination agreements of the Organization, including
the return of any Secured Demand Note and the Collateral therefor held by the
Organization, the maturity or accelerated maturity of which are scheduled to
occur within six months after the date such Prepayment is to occur pursuant to
the provisions of this paragraph, or on or prior to the Scheduled Maturity Date
for payment of the principal amount hereof disregarding this paragraph,
whichever date is earlier) without reference to any projected profit or loss of
the Organization.
(i) in the event that the Organization is not operating pursuant
to the alternative net capital requirement provided for in
paragraph (a)(1)(ii) of the Rule, the aggregate indebtedness
of the Organization would exceed 1000 percent of its net
capital as those terms are defined in the Rule or any
successor rule as in effect at the time such Prepayment is to
be made (or such other percent as may be made applicable at
such time to the Organization by the Exchange or the SEC), or
(ii) in the event that the Organization is operating pursuant to
such alternative net capital requirement, the net capital of
the Organization would be less than 5 percent (or such other
percent as may be made applicable to the Organization at the
time of such Prepayment by the Exchange or the SEC) of
aggregate debit items computed in accordance with Exhibit A to
Rule 15c3-3 under the Act or any successor rule as in effect
at such time, or
(iii) in the event that the Organization is registered as a futures
commission merchant under the CEA, the net capital of the
Organization (as defined in the CEA or the regulations
thereunder as in effect at the time of such Prepayment) would
be less than 7 percent (or such other percent as may be made
applicable to the Organization
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<PAGE>
at the time of such Prepayment by the CFTC) of the funds
required to be segregated pursuant to the CEA and the
regulations thereunder, and the foreign futures or foreign
options secured amount less the market value of commodity
options purchased by customers of the Organization on or
subject to the rules of a contract market or a foreign board
of trade (provided, however, the deduction for each customer
shall be limited to the amount of customer funds in such
customer's account(s) and foreign futures and foreign options
secured amounts).or the Organization's not capital would be
less than the minimum capital requirements defined by the
DSRO, or
(iv) the Organization's net capital, as defined in the Rule or any
successor rule as in effect at the time of such Prepayment,
would be less than 120 percent (or such other percent as may
be made applicable to the Organization at the time of such
Prepayment by the Exchange or the SEC) of the minimum dollar
amount required by the Rule as in effect at such time (or such
other dollar amount as may be made applicable to the
Organization at the time of such Prepayment by the Exchange or
the SEC), or
(v) in the event that the Organization is registered as a futures
commission merchant under the CEA, its net capital, as defined
in the CEA or the regulations thereunder as in effect at the
time of such Prepayment would be less than 120 percent (or
such other percent as may be made applicable to the
Organization at the time of such Prepayment by the CFTC) of
the minimum dollar amount required by the CEA or the
regulations thereunder as in effect at such time or such other
dollar amount as may be made applicable to the Organization at
the time of such Prepayment by the CFTC, or
(vi) in the event that the Organization is subject to the
provisions of paragraph (a)(6)(v) or (c)(2)(x)(C) of the Rule,
the net capital of the Organization would be less than the
amount required to satisfy the 1000 percent test (or such
other percent test as may be made applicable to the
Organization at the time of such Prepayment by the Exchange or
the SEC) stated in such applicable paragraph, or
If Prepayment is made of all or any part of the principal hereof prior to the
Scheduled Maturity Date and if the Organization's net capital is less than the
amount required to permit such Prepayment pursuant to the foregoing provisions
of this Paragraph, the Lender agrees irrevocably (whether or not such Lender had
any knowledge or notice of such fact at the time of such Prepayment) to repay
the Organization, its successors or assigns, the sum so paid to be held by the
Organization pursuant to the provisions hereof as if such Prepayment had never
been made; provided, however, that any suit for the recovery of any such
Prepayment must be commenced within two years of the date of such Prepayment.
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<PAGE>
5. ACCELERATION IN EVENT OF INSOLVENCY
The Organization's obligation to pay the unpaid principal amount hereof
shall forthwith mature, together with interest accrued thereon, in the event of
any receivership, insolvency, liquidation pursuant to SIPA or otherwise,
bankruptcy, assignment for the benefit of creditors, reorganization whether or
not pursuant to bankruptcy laws, or any other marshalling of the assets and
liabilities of the Organization, but payment of the same shall remain
subordinate as hereinabove set forth.
6. EFFECT OF DEFAULT
Default in any payment hereunder, including the payment of interest,
shall not accelerate the maturity hereof except as herein specifically provided,
and the obligation to make payment shall remain subordinated as herein above set
forth.
7. NOTICE OF MATURITY OR ACCELERATED MATURITY
The organization shall immediately notify the Examining Authority for
such broker or dealer, if, after giving effect to all Payments of Payment
Obligations (as that term is defined in (a)(2)(iv) of Appendix D of the Rule)
under subordination agreements then outstanding that are then due or mature
within the following six months without reference to any projected profit or
loss of the broker or dealer either the aggregate indebtedness of the broker or
dealer would exceed 1200 percent of Its not capital or its net capital would be
less than 120 percent of the minimum dollar amount required by the Rule, or, in
the case of a broker or dealer operating pursuant to paragraph (a)(1)(ii) of the
Rule, its not capital would be less than 5 percent of aggregate debit items
computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any
successor rule as in effect at such time, or, ff registered as a futures
commission merchant, 6 percent of the funds required to be segregated pursuant
to the Commodity Exchange Act and the regulations thereunder (less the market
value of commodity options purchased by option customers on or subject to the
rules of a contract market, each such deduction not to exceed the amount of
funds in the option customer's account), if greater, or less than 120 percent of
the minimum dollar amount required by paragraphs (a)(1)(ii) of the Rule.
8. NON-LIABILITY OF EXCHANGE
The Lender irrevocably agrees that the loan evidenced hereby is not
being made in reliance upon the standing of the Organization as a member
organization of the Exchange or upon the Exchange's surveillance of the
Organization's financial position or its compliance with the Constitution, Rules
and practices of the Exchange. The Lender has made such investigation of the
Organization and its partners, officers, directors and stockholders as the
Lender deems necessary and appropriate under the circumstances. The Lender is
not relying upon the Exchange to provide any information concerning or relating
to the Organization and agrees that the Exchange has no responsibility to
disclose
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<PAGE>
to the Lender any information concerning or relating to the Organization which
it may now, or at any future time, have. The Lender agrees that neither the
Exchange, its Special Trust Fund, nor any director, officer, trustee nor
employee of the Exchange or said Trust Fund shall be liable to the Lender with
respect to this agreement or the repayment of the loan evidenced hereby or of
any interest thereon.
9. STATUS OF PROCEEDS
The proceeds hereof shall be dealt with in all respects as capital of
the Organization, shall be subject to the risks of its business, and may be
deposited in an account or accounts in the Organization's name in any bank or
trust company.
10. FUTURES COMMISSION MERCHANTS
If the Organization is a futures commission merchant, as that term is
defined in the CEA, the Organization agrees, consistent with the requirements of
Section 1.17(h) of the regulations of the CFTC (17 CFR 1.17(h)), that:
(a) whenever prior written notice by the Organization to the
Exchange is required pursuant to the provisions of this
agreement, the same prior written notice shall be given by the
Organization to (i) the CFTC at its principal office in
Washington, DC, Attention Chief Accountant of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated
self-regulatory organization (the "DSRO"), and
(b) whenever prior written consent, permission or approval of the
Exchange is required pursuant to the provisions of this
agreement, the Organization shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO, and
(c) whenever the Organization receives written notice of
acceleration of maturity pursuant to the provisions of this
agreement, the Organization shall promptly give written notice
thereof to the CFTC at the address stated and/or to the DSRO.
11. DEFINITION OF ORGANIZATION
The term "Organization" as used in this agreement shall include the
Organization, its heirs, executors, administrators, successors and assigns.
12. EFFECT OF EXCHANGE MEMBERSHIP TERMINATION
Upon termination of the Organization as a member organization of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
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<PAGE>
Examining Authority. The term "Examining Authority shall refer to the regulatory
body having responsibility for inspecting or examining the Organization for
compliance with financial responsibility requirements under Section 9(c) of SIPA
and Section 17(d) of the Act.
13. UPON WHOM BINDING
The provision of this agreement shall be binding upon the Lender, his
or its heirs, executors, administrators, successors and assigns and upon the
Organization.
14. ARBITRATION
Any controversy arising out of or relating to this agreement shall be
submitted to and settled by arbitration pursuant to the Constitution and Rules
of the Exchange. The Organization and the Lender shall be conclusively bound by
such arbitration.
15. EFFECTIVE DATE
This agreement shall be effective from the date on which it is approved
by the Exchange and shall not be modified or amended without the prior written
approval of the Exchange.
16. ENTIRE AGREEMENT
This instrument embodies the entire agreement between the Organization
and the Lender and no other evidence of such agreement has been or will be
executed without the prior written consent of the Exchange.
17. GOVERNING LAW
This agreement shall be deemed to have been made under, and shall be
governed by, the laws of the State of New York in all respects.
18. CANCELLATION
This agreement shall not be subject to cancellation by either party,
unless the New York Stock Exchange agrees in writing to such cancellation 30
days in advance.
19. NO RIGHT OF SET-OFF
The Lender agrees that n is not taking and will not take or assert as
security for the payment of the loan any security interest in or lien upon,
whether created by contract, statute or otherwise any property of the
Organization or any property in which the Organization may have an interest,
which is or at any time may be In the possession or subject to the control of
the Lender. The Lender hereby waives, and further agrees that ft will not seek
to obtain payment of the note in whole or in any part by exercising any right
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<PAGE>
of set-off it may assert or possess whether created by contract, statute or
otherwise. Any agreement between the organization and the Lender (whether in the
nature of a general loan and collateral agreement, a security or pledge
agreement or otherwise) shall be deemed amended hereby to the extent necessary
so as not to be inconsistent with the provision of this paragraph.
20. * /X/ Check this box if you wish to incorporate the following
optional provision:
The Scheduled Maturity Date hereof in each year, without further action
by either the lender or Organization shall be extended an additional year,
unless on or before the day SEVEN MONTHS preceding the Scheduled Maturity Date
then in effect, the lender shall notify the Organization in writing, with a
written copy to the New York Stock Exchange, Inc., that such Scheduled Maturity
Date shad not be extended.
IN WITNESS HEREOF the parties hereto have set their hands and seals
this day of , 199 .
By: LaB Investing Co. L.L.C.
By: By:
------------------------------- ----------------------------------
Name: Name:
------------------------------ ----------------------------------
Title: Title:
----------------------------- -------------------------------
(Organization) (Lender)
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<PAGE>
Exhibit 10.14
Draft of August 13, 1999
$100,000,000
LaBRANCHE & CO INC.
% SENIOR NOTES DUE 2004
PURCHASE AGREEMENT
August __, 1999
SALOMON SMITH BARNEY Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
As Representatives of the
Initial Purchasers
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
LaBranche & Co Inc., a Delaware corporation ("LABINC." or the
"ISSUER"), proposes, upon the terms and conditions set forth herein, to issue
and sell to the several parties named in SCHEDULE I hereto (the "INITIAL
PURCHASERS"), for whom you (the "REPRESENTATIVES") are acting as
representatives, $100,000,000 aggregate principal amount of its __% Senior Notes
due 2004 (the "NOTES"). The Notes are to be issued under an indenture, to be
dated as of August __, 1999 (the "INDENTURE"), by and between the Company and
Firstar Bank, N.A., as trustee (the "TRUSTEE"). The Notes have the benefit of a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), to be dated
as of August , 1999, among the Issuer and the Initial Purchasers, pursuant to
which the Issuer has agreed to register the Notes under the Securities Act
subject to the terms and conditions specified therein. To the extent there are
no additional parties listed on SCHEDULE I other than you, the term
"Representatives" and Initial Purchasers shall mean you as the Initial
Purchasers, and the terms shall mean either the singular or plural as the
context requires. The use of the neuter in this Agreement shall include the
feminine and masculine wherever appropriate.
For purposes of the representations and warranties set forth
in Section 5 and the conditions set forth in Section 7, unless the context
otherwise requires, prior to the consummation of the Reorganization Transactions
(as defined below), references to the "COMPANY" shall be deemed to be references
to LaBranche & Co., a New York limited partnership ("LABCO."), and after
consummation of the Reorganization Transactions, references to the "COMPANY"
shall be deemed to be references to LaBInc.
<PAGE>
It is understood and agreed to by all parties that in
connection with the reorganization of the business of LaBCo. from partnership to
corporate form, a series of transactions that are described in the Offering
Memorandum (as defined below) under the caption "Certain
Transactions--Reorganization and Related Transactions" in the Offering
Memorandum will occur not later than concurrent with the Closing Date (as
defined below). Such transactions are hereinafter referred to as the
"REORGANIZATION TRANSACTIONS"). The award of restricted stock units to
employees, the award of options for common stock to employees on a discretionary
basis and the issuance of common stock to certain individuals and entities in
exchange for their limited partnership interests in LaBCo. or their membership
interests in LaB Investing Co. L.L.C. ("LaBLLC"), as described in the Offering
Memorandum under the heading "Certain Transactions--Reorganization and Related
Transactions", the initial public offering of 11,500,000 shares of common stock
(the "COMMON STOCK") of the Company (with an over-allotment option for an
additional 1,725,000 additional shares), the issuance of $16.4 million of
subordinated indebtedness by LaBInc. and the repayment of $5.0 million of
subordinated indebtedness by LaBCo. are hereinafter referred to as the "RELATED
TRANSACTIONS."
The Company wishes to confirm as follows its agreement with
the Initial Purchasers in connection with the purchase and resale of the Notes.
1. PRELIMINARY OFFERING MEMORANDUM AND OFFERING MEMORANDUM.
The Notes will be offered and sold to the Initial Purchasers without
registration under the Securities Act of 1933, as amended (the "ACT"), in
reliance on an exemption pursuant to Section 4(2) under the Act and the rules
and regulations promulgated thereunder. The Company has prepared a preliminary
offering memorandum, dated July 30, 1999 (the "PRELIMINARY OFFERING
MEMORANDUM"), and an offering memorandum, dated August __, 1999 (the "OFFERING
MEMORANDUM"), setting forth information regarding the Company and the Notes.
Unless stated herein to the contrary, all references herein to the Offering
Memorandum are to the Offering Memorandum at the date thereof and are not meant
to include any supplement or amendment subsequent thereto. The Company hereby
confirms that it has authorized the use of the Preliminary Offering Memorandum
and Offering Memorandum in connection with the offering and resale of the Notes
by the Initial Purchasers on the terms and subject to the conditions set forth
herein.
The Company understands that the Initial Purchasers propose to
make offers and sales ("EXEMPT RESALES") of the Notes purchased by the Initial
Purchasers hereunder only on the terms and in the manner set forth in the
Offering Memorandum and Section 2 hereof, as soon as the Initial Purchasers deem
advisable after this Agreement has been executed and delivered, (i) to persons
in the United States who are, or whom the Initial Purchaser reasonably believe
to be qualified institutional buyers ("QUALIFIED INSTITUTIONAL BUYERS") as
defined in Rule 144A under the Act, as such rule may be amended from time to
time ("RULE 144A"), in transactions under Rule 144A and (ii) outside the United
States to persons other than U.S. persons in reliance upon and in compliance
with Regulation S under the Act, as such regulation may be amended from time to
time ("REGULATION S"). The persons specified in clauses (i) and (ii) are
referred to herein as the "ELIGIBLE PURCHASERS." As used herein, the terms
"UNITED STATES" and "U.S. PERSONS" have the respective meanings given them in
Regulation S.
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<PAGE>
It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Act, each of the Notes (and each note issued in
exchange therefor or in substitution thereof) shall bear the following legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT, WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE
OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN
U.S. PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE
904 UNDER REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO
EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
2. AGREEMENTS TO SELL, PURCHASE AND RESELL.
(a) Upon the basis of the representations, warranties and
agreements of the Initial Purchasers herein contained and subject to all the
terms and conditions set forth herein, the Company hereby agrees to issue and
sell its Notes to the Initial Purchasers and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, each Initial
Purchaser, severally and not jointly, agrees to purchase from the Company that
principal amount of Notes set forth opposite the name of such Initial Purchaser
on SCHEDULE I attached hereto at a purchase price of ___% of the principal
amount thereof.
(b) Each Initial Purchaser represents and warrants to the
Company that it is a Qualified Institutional Buyer with such knowledge and
experience in financial and business
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<PAGE>
matters as are necessary to evaluate the merits and risks of an investment in
the Notes, it believes it has received all of the information it considers
necessary or appropriate for deciding whether to make an investment in the
Notes, and has advised the Company that it proposes to offer the Notes for
resale upon the terms and conditions set forth in this Agreement and in the
Offering Memorandum in Exempt Resales. Each Initial Purchaser hereby represents
and warrants to, and agrees with, the Company that it (i) will not solicit
offers for, or offer to sell, the Notes by means of any form of general
solicitation or general advertising or in any manner involving a public offering
within the meaning of Section 4(2) of the Act (including, but not limited to,
(A) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(B) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising; PROVIDED, HOWEVER, that such limitation
shall not preclude the Initial Purchasers from placing any tombstone
announcement with respect to the resale by the Initial Purchasers of the Notes,
provided that such announcement is not prohibited by (and is in compliance with)
Regulation S), and (ii) will solicit offers for the Notes only from, and will
offer, sell or deliver the Notes as part of its initial offering, only to (A)
persons in the United States whom such Initial Purchaser reasonably believes to
be Qualified Institutional Buyers, or if any such person is buying for one or
more institutional accounts for which such person is acting as fiduciary or
agent, only when such person has represented to such Initial Purchaser that each
such account is a Qualified Institutional Buyer, to whom notice has been given
that such sale or delivery is being made in reliance on Rule 144A, in each case,
in transactions under Rule 144A and (B) outside the United States to persons
other than U.S. persons in reliance on Regulation S. Each Initial Purchaser has
advised the Company that it will offer the Notes to Eligible Purchasers at a
price initially equal to ___% of the principal amount thereof, plus accrued
interest, if any, from ____________.
(c) Each Initial Purchaser represents and warrants that (i) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
of the Notes in the United Kingdom by means of any document, other than to
persons whose ordinary business it is to buy or sell shares or debentures
whether as principal or agent (except in circumstances that do not constitute an
offer to the public within the meaning of the Companies Act 1985), (ii) it has
complied with and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by such Initial Purchaser in
relation to the Notes in, from or otherwise involving the United Kingdom and
(iii) it has only issued or passed on and will only issue or pass on in or from
the United Kingdom to any persons any document received by such Initial
Purchaser in connection with the issue of the Notes if the recipient is of a
kind described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988, as amended.
(d) Each Initial Purchaser represents and warrants that with
respect to Notes offered and sold or to be offered and sold pursuant to
Regulation S it has offered and sold the Notes and agrees that it will offer and
sell the Notes (i) as part of its initial distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering of
the Notes and the Closing Date (as defined in Section 3 below), only in
accordance with Rule 903 of Regulation S. Accordingly, each Initial Purchaser
represents, warrants and agrees that with respect to Notes offered and sold or
to be offered and sold pursuant to Regulation S none of it, its
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<PAGE>
affiliates or any persons acting on its behalf or on behalf of its affiliates
has engaged or will engage in any directed selling efforts in the United States
with respect to the Notes, and it and its affiliates have complied and will
comply with the offering restrictions requirements of Regulation S. Each Initial
Purchaser agrees that, at or prior to confirmation of any sale of Notes pursuant
to Regulation S, it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases such
Notes from it during the restricted period a confirmation or notice to
substantially the following effect:
The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "SECURITIES ACT"), and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their initial distribution
at any time or (ii) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, except in either
case in accordance with Regulation S or Rule 144A under the Securities
Act. Terms used above have the respective meanings given to them in
Regulation S under the Securities Act.
Each Initial Purchaser understands that the Company and, for
the purposes of the opinions to be delivered to the Initial Purchasers pursuant
to Section 7(d) and Section 7(e) hereof, counsel to the Company and counsel to
the Initial Purchasers will rely upon the accuracy and truth of the foregoing
representations and agreements and each Initial Purchaser hereby consents to
such reliance.
3. DELIVERY OF THE NOTES AND PAYMENT THEREFOR. Delivery to the
Initial Purchasers of and payment for the Notes shall be made at the office of
Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York, 10006
at 9:00 A.M., New York City time, on August __, 1999 (the "CLOSING DATE"). The
place of closing for the Notes and the Closing Date may be varied by agreement
between the Initial Purchasers and the Company.
The Notes will be delivered to the Initial Purchasers against
payment of the purchase price therefor by federal funds certified check or wire
transfer, in each case, of immediately available funds payable in accordance
with written instructions from the Company. The Notes will be evidenced by one
or more global notes (each, a "GLOBAL NOTE") and will be registered in the name
of Cede & Co. as nominee of The Depository Trust Company ("DTC"), and in the
other cases, in such names and in such denominations as the Initial Purchasers
shall request prior to 1:00 p.m., New York City time, on the business day
preceding the Closing Date. The Notes to be delivered to the Initial Purchasers
shall be made available to the Initial Purchasers in New York City for
inspection and packaging not later than 9:30 a.m., New York City time, on the
business day next preceding the Closing Date.
4. AGREEMENTS OF THE COMPANY. The Company agrees with the
Initial Purchasers as follows:
(a) Until the completion of the distribution of the Notes by
the Initial Purchasers to Eligible Purchasers, the Company will advise
the Initial Purchasers
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<PAGE>
promptly and, if requested, will confirm such advice in writing, of any
material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company, taken as a whole, or of the happening of any event or the
existence of any condition that requires any amendment or supplement to
the Offering Memorandum (as then amended or supplemented) so that the
Offering Memorandum (x) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (y)
will comply with applicable law.
(b) The Company will furnish to the Initial Purchasers,
without charge, such number of copies of the Offering Memorandum, as it
may then be amended or supplemented, as the Initial Purchasers may
reasonably request.
(c) The Company will not make any amendment or supplement to
the Preliminary Offering Memorandum or to the Offering Memorandum of
which the Initial Purchasers shall not previously have been advised or
to which they shall reasonably object in writing after being so advised
unless, in the opinion of counsel to the Company, such amendment or
supplement is necessary to comply with applicable law.
(d) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to the Initial Purchasers,
without charge, in such reasonable quantities as the Initial Purchasers
shall have requested or may hereafter request, copies of the
Preliminary Offering Memorandum. The Company consents to the use, in
accordance with the securities or Blue Sky laws of the jurisdictions in
which the Notes are offered by the Initial Purchasers and by dealers,
prior to the date of the Offering Memorandum, of each Preliminary
Offering Memorandum so furnished by the Company. The Company consents
to the use of the Offering Memorandum (and of any amendment or
supplement thereto prepared in accordance with Section 4(c)) in
accordance with the securities or Blue Sky laws of the jurisdictions in
which the Notes are offered by the Initial Purchasers and by all
dealers to whom Notes may be sold, in connection with the offering and
sale of the Notes.
(e) If, at any time prior to completion of the distribution of
the Notes by the Initial Purchasers to Eligible Purchasers, any event
shall occur or condition shall exist that in the judgment of the
Company or in the opinion of the Initial Purchasers based on advice of
counsel requires any amendment or supplement to the Offering Memorandum
(as then amended or supplemented) so that the Offering Memorandum (x)
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or (y) will comply with
applicable law, the Company will, in each such case subject to Section
4(c), forthwith prepare an appropriate supplement or amendment thereto,
and will expeditiously furnish to the Initial Purchasers that number of
copies thereof as they shall reasonably request.
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<PAGE>
(f) The Company will cooperate with the Initial Purchasers and
with their counsel in connection with the qualification of the Notes
for offering and sale by the Initial Purchasers and by dealers under
the securities or Blue Sky laws of such jurisdictions as the Initial
Purchasers may designate and will file such consents to service of
process or other documents necessary or appropriate in order to effect
such qualification; PROVIDED that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not
now so qualified or to take any action that would subject it to general
service of process in any jurisdiction where it is not now so subject.
(g) So long as any of the Notes are outstanding, the Company
will furnish to the Initial Purchasers (i) as soon as reasonably
practicable, a copy of each report of the Company filed with the
Securities and Exchange Commission (the "COMMISSION") and (ii) from
time to time such other information concerning the Company as the
Initial Purchasers may reasonably request.
(h) The Company will apply the proceeds from the sale of the
Notes to be sold by them hereunder in accordance with the description
set forth under "Use of Proceeds" in the Offering Memorandum.
(i) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected
to cause or result in stabilization or manipulation of the price of the
Notes to facilitate the sale or resale of the Notes. Except as
permitted by the Act, the Company will not distribute any offering
material in connection with the Exempt Resales. Except following the
effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement (each as defined in the Registration Rights
Agreement), the Company will not solicit any offers to buy and will not
offer to sell the Notes by means of any form of general solicitation or
general advertising (within the meaning of Regulation D under the Act)
or by means of any directed selling efforts (as defined under
Regulation S and the Commission's releases related thereto).
(j) The Company will assist the Initial Purchasers in causing
the Notes to be eligible for trading on the PORTAL market.
(k) From and after the Closing Date, so long as any of the
Notes are outstanding and are "restricted Notes" within the meaning of
Rule 144(a)(3) under the Act or, if earlier, until two years after the
Closing Date, and during any period in which the Company is not subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), the Company will furnish to holders of
the Notes and prospective purchasers of Notes designated by such
holders, upon request of such holders or such prospective purchasers,
the information required to be delivered pursuant to Rule 144A(d)(4)
under the Act to permit compliance with Rule 144A in connection with
resales of the Notes.
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<PAGE>
(l) The Company agrees not to sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as
defined in the Act) that would be integrated with the sale of the Notes
in a manner that would require the registration under the Act of the
sale by the Company to the Initial Purchasers or by the Initial
Purchasers to the Eligible Purchasers of the Notes.
(m) The Company agrees to comply with all of the terms and
conditions of the Registration Rights Agreement, and all agreements set
forth in the representation letters of the Company to DTC relating to
the approval of the Notes by DTC for "book entry" transfer.
(n) The Company agrees that not later than any registration of
the Notes pursuant to the Registration Rights Agreement, or at such
earlier time as may be so required, the Company shall use its best
efforts to cause the Indenture to be qualified under the Trust
Indenture Act of 1939 (the "1939 ACT") and will cause to be entered
into any necessary supplemental indentures in connection therewith.
(o) The Company shall not resell any Notes that have been
acquired by it.
(p) Prior to the Closing Date, the Company will furnish to the
Initial Purchasers, as soon as reasonably practicable after they have
been prepared, a copy of any unaudited interim consolidated financial
statements of the Company for any period subsequent to the period
covered by the most recent consolidated financial statements of the
Company appearing in the Offering Memorandum.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants to the Initial Purchasers that:
(a) No order or decree preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum or any amendment or
supplement thereto, or any order asserting that the transactions
contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued and no proceeding for any such
purpose has been commenced or is pending or, to the knowledge of the
Company, is threatened.
(b) The Preliminary Offering Memorandum and Offering
Memorandum, as of their respective dates, and the Offering Memorandum,
as of the Closing Date, did not or will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that this representation and warranty does not apply to
statements in the Preliminary Offering Memorandum and Offering
Memorandum made in reliance upon and in conformity with information
relating to the Initial Purchasers furnished to the Company in writing
by the Initial Purchasers through Salomon Smith Barney Inc. expressly
for use therein.
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(c) As of the Closing Date, the Indenture will have been duly
and validly authorized by the Company and, upon its execution and
delivery by the Company and assuming due authorization, execution and
delivery by the Trustee, will be a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally
and subject to the applicability of general principles of equity; the
Indenture conforms in all material respects to the description thereof
in the Offering Memorandum; and no qualification of the Indenture under
the 1939 Act is required in connection with the offer and sale of the
Notes contemplated hereby or in connection with the Exempt Resales.
(d) As of the Closing Date, the Notes will have been duly
authorized by the Company and, when executed by the Company and
authenticated by the Trustee in accordance with the Indenture and
delivered to the Initial Purchasers against payment therefor in
accordance with the terms hereof, will have been validly issued and
delivered, and will constitute valid and binding obligations of the
Company entitled to the benefits of the Indenture and enforceable in
accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to the
applicability of general principles of equity; and the Notes conform in
all material respects to the descriptions thereof in the Offering
Memorandum.
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized with full corporate
power and authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the Offering
Memorandum, and is duly registered and qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such registration or qualification, except
where the failure to so register or qualify could not reasonably be
expected to have a material adverse effect on the condition (financial
or other), business, prospects, properties, net worth or results of
operations of the Company and its Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT"); each of LaBCo. and LaBLLC has been duly
organized and is validly existing as a limited partnership and a
limited liability company, respectively, in good standing under the
laws of the jurisdiction in which it is organized with the power and
authority to own or lease, as the case may be, its properties and
conduct its business as described in the Offering Memorandum; LaBCo.
and LaBLLC are the only subsidiaries (the "SUBSIDIARIES") of the
Company;
(f) After giving effect to the Reorganization Transactions and
the Related Transactions, the Company has an authorized capitalization
as set forth in the Offering Memorandum, and all of the issued shares
of capital stock of the Company have been duly and validly authorized
and issued, are
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fully paid and non-assessable and conform to the description of the
capital stock contained in the Offering Memorandum; all of the
membership interests in LaBLLC have been duly and validly authorized
and issued, are fully paid and, are non-assessable and, after giving
effect to the Reorganization Transactions and the Related Transactions,
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims; and all of the partnership
interests in LaBCo. have been duly and validly created and, after
giving effect to the Reorganization Transactions and the Related
Transactions, are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(g) There are no legal or governmental proceedings pending
against the Company or, to the knowledge of the Company, threatened
against it or either of its Subsidiaries or to which the Company or its
Subsidiaries or to which any of the respective properties of the
Company or its Subsidiaries is subject that are not adequately
disclosed in the Offering Memorandum and that, if adversely decided,
would be expected to have a Material Adverse Effect or materially
adversely affect the issuance of the Notes or the consummation of any
of the transactions contemplated by this Agreement, the Indenture, the
Notes or the Registration Rights Agreement (collectively, the
"TRANSACTION DOCUMENTS") or the Reorganization Transactions or the
Related Transactions. There are no agreements, contracts, indentures,
leases or other instruments of the Company or either of its
Subsidiaries that are material to the Company and its Subsidiaries,
taken as a whole, that are not described in the Offering Memorandum.
Except as disclosed in the Offering Memorandum, neither the Company nor
either of its Subsidiaries is involved in any strike, job action or
labor dispute with any group of its employees that would reasonably be
expected to have a Material Adverse Effect, and, to the knowledge of
the Company, no such action or dispute is threatened.
(h) Neither the Company nor any Subsidiary is in violation or
default of, and none of (x) the issuance, offer, sale or delivery of
the Notes, (y) the execution, delivery or performance of the
Transaction Documents and the Related Agreements (as defined below) by
the Company to the extent a party thereto, or (z) the consummation by
the Company of the Transaction Documents, the Reorganization
Transactions, the Related Transactions or the transactions contemplated
hereby or thereby will conflict with or constitute a breach of any of
the terms or provisions of, or a default under, (i) the organizational
documents of the Company or any of its Subsidiaries, or (ii) any
agreement, indenture, lease or other instrument to which any of the
Company or its Subsidiaries is a party or by which any of them or any
of their respective properties may be bound, except as disclosed in the
Offering Memorandum or any such conflicts, breaches or defaults that
individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect, or (iii) any statute, law, regulation
or judgment, injunction, order or decree applicable to the Company or
either of its Subsidiaries or any of their respective properties,
except any such violations that in the aggregate could not reasonably
be expected to have a Material Adverse Effect; the consummation of the
transactions contemplated in this Agreement, the Reorganization
Transactions and the Related Transactions will not result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of any of the Company or its Subsidiaries pursuant
to the terms of any agreement or instrument to which any of
10
<PAGE>
them is a party or by which any of them may be bound or to which any of
their respective properties or assets is subject, other than liens,
charges and encumbrances disclosed in the Offering Memorandum or which
could not reasonably be expected to have a Material Adverse Effect.
(i) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated in the this Agreement or in the
Indenture or the Registration Rights Agreement, except such as will be
obtained under the Act and the Trust Indenture Act and such as may be
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Initial
Purchasers in the manner contemplated herein and in the Offering
Memorandum and the Registration Rights Agreement.
(j) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its consolidated Subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Offering Memorandum,
are independent public accountants with respect to the Company within
the meaning of the Act and the applicable published rules and
regulations thereunder.
(k) Sugarman & Thrope, P.C., who have certified certain
financial statements of Fowler, Rosenau & Geary LLC ("FOWLER")
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Offering Memorandum,
are independent public accountants with respect to Fowler within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(l) The consolidated historical financial statements and
schedules of the Company and its consolidated Subsidiaries included in
the Preliminary Offering Memorandum and Offering Memorandum present
fairly in all material respects the financial condition, results of
operations and cash flows of the Company as of the dates and for the
periods indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the captions
"Summary--Summary Historical Consolidated Financial Data" and "Selected
Historical Consolidated Financial Data" in the Preliminary Offering
Memorandum and Offering Memorandum fairly present, on the basis stated
in the Preliminary Offering Memorandum and Offering Memorandum, the
information included therein. The pro forma financial statements
included in the Preliminary Offering Memorandum and Offering Memorandum
are based on assumptions that provide a reasonable basis for presenting
the significant effects directly attributable to the transactions and
events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma adjustments
reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma financial statements
included in the Preliminary Offering Memorandum and Offering
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Memorandum. The pro forma financial statements included in the
Preliminary Offering Memorandum and Offering Memorandum comply as to
form in all material respects with the applicable accounting
requirements of Regulation S-X under the Act and the pro forma
adjustments have been properly applied to the historical amounts in the
compilation of those statements.
(m) The Company has all the requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and the Registration Rights Agreement; the execution and
delivery of, and the performance by the Company of its obligations
under, this Agreement and the Registration Rights Agreement have been
duly and validly authorized by the Company and each of this Agreement
and, as of the Closing Date, the Registration Rights Agreement will
have been duly executed and delivered by the Company and will
constitute a valid and legally binding agreement, enforceable against
the Company in accordance with its terms, except as the enforcement
hereof and thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally
and subject to the applicability of general principles of equity, and
except as rights to indemnity and contribution hereunder and thereunder
may be limited by Federal or state securities laws or principles of
public policy.
(n) Except as disclosed in the Offering Memorandum, subsequent
to the date as of which such information is given in the Offering
Memorandum, neither the Company nor either of its Subsidiaries has
incurred any liability or obligation, direct or contingent, or entered
into any transaction, not in the ordinary course of business, that is
material or will be material to the Company, taken as a whole, and
there has not been any material change in the capital stock, or
material increase in the short-term or long-term debt of the Company or
either Subsidiary.
(o) Each of the Company and its Subsidiaries owns or leases
all such properties as are materially necessary to the conduct of its
operations as presently conducted, and all of the property held under
lease by any of the Company or its Subsidiaries is held by it under
valid, subsisting and enforceable leases, except as the enforcement
thereof may be limited by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally and subject to
the applicability of general principles of equity.
(p) Except as permitted by the Act, the Company has not
distributed and, prior to the later to occur of the Closing Date and
completion of the distribution of the Notes, will not distribute any
offering material in connection with the offering and sale of the Notes
other than the Preliminary Offering Memorandum and Offering Memorandum
(and any amendment or supplement thereto in accordance with Section
4(c) hereof).
(q) The Company and its Subsidiaries (i) have such
concessions, permits, licenses, consents, exemptions, franchises,
authorizations, orders, registrations, qualifications and other
approvals (each, an "AUTHORIZATION") of and have made all
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<PAGE>
material filings with and notices to, all Federal, state and foreign
governments, governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, and (ii) are members
in good standing of each Federal, state or foreign exchange, board of
trade, clearing house or association and self-regulatory or similar
organization, in each case, as are necessary to consummate the
Reorganization Transactions and the Related Transactions and to conduct
their respective businesses as described in the Offering Memorandum.
Each such Authorization is valid and in full force and effect and the
Company and each of its Subsidiaries is in material compliance with all
of the terms and conditions thereof; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or
both, would result in any other limitation of the rights of the holder
of any such Authorization; and other than as disclosed in the Offering
Memorandum, such Authorizations do not contain net capital or other
requirements which are materially more burdensome than those imposed on
LaBCo. and LaBLLC immediately prior to the consummation of the
Reorganization Transactions and the Related Transactions
(r) All stockholder, partnership and limited liability company
member approvals necessary for the Company and each Subsidiary to
consummate the Reorganization Transactions and the Related Transactions
have been obtained and are in full force and effect.
(s) The Company's authorized equity capitalization is as set
forth in the Offering Memorandum under the heading "Capitalization.".
(t) Neither the Company nor, to the knowledge of the Company,
any employee or agent of the Company has made any payment of funds or
received or retained any funds in violation of any law, rule or
regulation, which violation could reasonably be expected to have a
Material Adverse Effect.
(u) No holder of any security of the Company (other than
holders of the Notes) has any right to request or demand registration
of any security of the Company because of the consummation of the
transactions contemplated by the Transaction Documents.
(v) The Company is not and, upon sale of the Notes to be
issued and sold hereby in accordance herewith and the application of
the net proceeds of such sale as described in the Offering Memorandum
under the caption "Use of Proceeds," will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(w) When the Notes are issued and delivered pursuant to this
Agreement, such Notes will not be of the same class (within the meaning
of Rule 144A(d)(3) under the Act) as any security of the Company that
is listed on a national securities exchange
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<PAGE>
registered under Section 6 of the Exchange Act or that is quoted in a
United States automated interdealer quotation system.
(x) Neither the Company nor any of its affiliates (as defined
in Rule 501(b) of Regulation D under the Act) has directly, or through
any agent (provided that no representation is made as to the Initial
Purchasers or any person acting on their behalf), (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Act) that is or will be integrated with
the offering and sale of the Notes in a manner that would require the
registration of the Notes under the Act or (ii) engaged in any form of
general solicitation or general advertising (within the meaning of
Regulation D under the Act) in connection with the offering of the
Notes.
(y) Assuming (i) the representations and warranties of the
Initial Purchasers in Section 2 hereof are true and correct in all
material respects, (ii) each Initial Purchaser complies with the
covenants set forth in Section 2 hereof, (iii) compliance by each
Initial Purchaser with the offering and transfer procedures and
restrictions described in the Offering Memorandum, (iv) the accuracy of
the representations and warranties deemed to be made in the Offering
Memorandum by purchasers to whom the Initial Purchasers initially
resell Notes and (v) purchasers to whom the Initial Purchasers
initially resell Notes receive a copy of the Offering Memorandum prior
to such sale, the purchase and sale of the Notes pursuant hereto
(including the Initial Purchasers' proposed offering of the Notes on
the terms and in the manner set forth in the Offering Memorandum and
Section 2 hereof) do not require registration under the Act.
(z) Each of the Company and its Subsidiaries and ERISA
Affiliates has fulfilled its obligations, if any, under the minimum
funding standards of Section 302 of the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and
Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations and published interpretations thereunder
with respect to each "plan" (as defined in Section 3(3) of ERISA) for
which the Company or any of its Subsidiaries or ERISA Affiliates have
or may have any liability (contingent or otherwise) and each such plan
is in compliance in all material respects with the applicable
provisions of ERISA and such regulations and published interpretations
thereunder. Neither the Company nor any of its Subsidiaries or ERISA
Affiliates have incurred any unpaid liability to the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of ERISA. Neither
the Company nor any of its Subsidiaries has engaged in any non-exempt
"prohibited transaction" under ERISA or the Code. The term "ERISA
AFFILIATE" means each trade or business (whether or not incorporated)
that would be treated as a single employer with the Company under Title
IV of ERISA or Section 412 of the Code.
(aa) Immediately after the consummation of the purchase and
sale of the Notes, the fair value and present fair saleable value of
the assets of the Company will exceed the sum of its stated liabilities
and identified contingent liabilities; the Company is not, nor will it
be, after giving effect to the consummation of such transactions, (i)
left with
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<PAGE>
unreasonably small capital with which to carry on its business as it is
proposed to be conducted, (ii) unable to pay its debts (contingent or
otherwise) as they mature or (iii) otherwise insolvent.
(bb) The statistical and market-related data included in the
Offering Memorandum are based on or derived from sources that the
Company believes to be reliable and accurate.
(cc) The statements set forth under the captions "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" and "Risk Factors--Year 2000 compliance problems
could cause our trading-related communications and data processing
systems to fail, which could result in losses" accurately and fairly
set forth the current state of the Company's efforts to address the
Year 2000 Problem and the risks and costs of the Company relating to
the Year 2000 Problem. The "YEAR 2000 PROBLEM" as used herein means any
significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
transmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
(dd) Each of the stockholders' agreement, each employment
agreement, each noncompetition agreement and each pledge agreement
(each as described in the Offering Memorandum, together the "RELATED
AGREEMENTS"), as of the Closing Date, will have been duly authorized,
executed and delivered and will as of the Closing Date constitute a
valid and legally binding agreement of the Company enforceable against
the Company in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and the
Company will have obtained as of the Closing Date the signature of each
other party to each of the Related Agreements, PROVIDED, HOWEVER, that
the Company, makes no representation or warranty as to the
authorization, execution or delivery of any such agreement by any other
party thereto.
(ee) The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
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(ff) The Company and its Subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "INTELLECTUAL PROPERTY") necessary for the conduct
of the Company's business as now conducted or as proposed in the
Offering Memorandum to be conducted, except to the extent a failure to
so own, possess, license or have rights to use Intellectual Property
could not reasonably be expected have a Material Adverse Effect.
(gg) LaBCo. is registered as a broker-dealer with the SEC
under the Exchange Act and is a member organization in good standing
with the NYSE. LaBCo. is not required to be registered with the
securities authority of any state.
(hh) LaBCo. is a broker-dealer subject to the provisions of
Regulation T (12 C.F.R. Section .220) of the Board of Governors of the
Federal Reserve System. LaBCo. maintains procedures and internal
controls designed to ensure that it does not extend or maintain credit
to or for its customers other than in accordance with the provisions of
Regulation T, and management officials of the Company regularly
supervise the activities of LaBCo., and the activities of its
employees, to ensure that LaBCo. does not extend or maintain credit to
or for its customers other than in accordance with the provisions of
said Regulation T.
(ii) There is no franchise, contract or other document of a
character that would be required to be described in an Offering
Memorandum under the Act, which is not described in the Offering
Memorandum; and the statements set forth in the Offering Memorandum
under the headings "Description of the Capital Stock,"
"Business--Regulatory Matters," "Certain Transactions," "Employment and
Noncompetition Agreements," "Incentive Awards to our Employees,"
"Description of Notes," "Description of Other Indebtedness" and
"Certain United States Federal Income Tax Consequences to Non-U.S.
Taxpayers" fairly summarize the matters described therein.
(jj) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; all policies of insurance and
fidelity or surety bonds insuring the Company or any of its
Subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and
its Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the
Company or any of its Subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect
whether
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<PAGE>
or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Offering Memorandum.
(kk) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from making any distribution in respect of its
membership or partnership interests, as the case may be, from repaying
to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company, except as
described in or contemplated by the Offering Memorandum.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Initial Purchaser and each person, if any, who controls an Initial Purchaser
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and
out-of-pocket expenses (including reasonable costs of investigation) incurred by
any such persons arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or Offering Memorandum or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to an
Initial Purchaser furnished in writing to the Company by an Initial Purchaser,
through Salomon Smith Barney Inc., expressly for use in connection therewith;
PROVIDED, HOWEVER, that the indemnification contained in this paragraph (a),
with respect to the Preliminary Offering Memorandum shall not inure to the
benefit of an Initial Purchaser on account of any such loss, claim, damage,
liability or expense arising from the sale of the Notes by such Initial
Purchaser to any person if the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in the Preliminary
Offering Memorandum was corrected in the Offering Memorandum and such Initial
Purchaser sold Notes to that person without sending or giving, at or prior to
the written confirmation of such sale, a copy of the Offering Memorandum (as
then amended or supplemented). The foregoing indemnity agreement shall be in
addition to any liability that the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against
an Initial Purchaser or any person who controls an Initial Purchaser in respect
of which indemnity may be sought against the Company in accordance with this
Section 6, such Initial Purchaser or any such person who controls such Initial
Purchaser shall promptly notify in writing the Company, and the Company shall
assume the defense thereof, including the employment of counsel reasonably
acceptable to such Initial Purchaser or such person who controls such Initial
Purchaser and payment of all fees and expenses relating to the assumption of the
defense by the Company. An Initial Purchaser or any person who controls an
Initial Purchaser shall have the right to employ
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<PAGE>
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Initial Purchaser or any such person who controls an Initial
Purchaser unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel
on a timely basis or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Initial Purchaser
or any such person who controls an Initial Purchaser and the Company and such
Initial Purchaser or any such person who controls an Initial Purchaser shall
have been advised by its counsel that representation of such indemnified party
and the Company by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the Company shall not have the right to assume the
defense of such action, suit or proceeding (a "CONFLICTED ACTION") on behalf of
such Initial Purchaser or any such person who controls an Initial Purchaser). It
is understood, however, that the Company shall, in connection with any such
Conflicted Action, be liable for the reasonable fees and expenses of a single
counsel (in addition to any local counsel) for the Initial Purchasers and each
such person who controls an Initial Purchaser, which firm shall be designated in
writing by Salomon Smith Barney Inc., and that all such reasonable fees and
expenses shall be reimbursed as incurred as provided in paragraph (a) hereof.
The Company shall not be liable for any settlement of any such action, suit or
proceeding effected without the written consent of the Company, but if settled
with such written consent, or if there be a final judgment for the plaintiff in
any such action, suit or proceeding, the Company agrees to indemnify and hold
harmless the Initial Purchasers, to the extent provided in paragraph (a), and
any person who controls an Initial Purchaser from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each Initial Purchaser, severally and not jointly, agrees
to indemnify and hold harmless the Company, their respective directors and
officers and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act to the same extent as the
indemnity from the Company to the Initial Purchasers set forth in paragraph (a)
hereof, but only with respect to information relating to such Initial Purchaser
furnished in writing by such Initial Purchaser through Salomon Smith Barney Inc.
expressly for use in the Preliminary Offering Memorandum or Offering Memorandum
or any amendment or supplement thereto. If any action, suit or proceeding shall
be brought against the Company, any of their respective directors or officers or
any such controlling person based on the Preliminary Offering Memorandum or
Offering Memorandum, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against an Initial Purchaser pursuant to this
paragraph (c), such Initial Purchaser shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof, such Initial Purchaser shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such Initial
Purchaser's expense), and the Company, its directors and officers and any such
controlling person shall have the rights and duties given to the Initial
Purchasers by paragraph (b) above. The foregoing indemnity agreement shall be in
addition to any liability that an Initial Purchaser may otherwise have.
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(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and an Initial Purchaser on the other hand from the
offering of the Notes or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and an Initial Purchaser on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and an Initial Purchaser on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by such Initial Purchaser, in each case as set forth in the table on
the cover page of the Offering Memorandum. The relative fault of the Company on
the one hand and an Initial Purchaser on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by such
Initial Purchaser on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 6 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other out-of-pocket expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this Section
6, no Initial Purchaser shall be required to contribute any amount in excess of
the amount by which the total price of the Notes purchased by it and distributed
to the public exceeds the amount of any damages that such Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 6 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of an Initial Purchaser or any person who
controls an Initial Purchaser, the Company, its directors
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or officers or any person controlling the Company, (ii) acceptance of any Notes
and payment therefor hereunder and (iii) any termination of this Agreement. A
successor to an Initial Purchaser or any person who controls an Initial
Purchaser, the Company, its directors or officers or any person controlling the
Company, shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 6.
(g) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
7. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The
obligations of each Initial Purchaser to purchase and pay for the Notes to be
purchased by it on the Closing Date hereunder are subject to the fulfillment, in
such Initial Purchaser's sole discretion, of the following conditions:
(a) At the time of execution of this Agreement and on the
Closing Date, no order or decree preventing the use of the Offering
Memorandum or any amendment or supplement thereto, or any order
asserting that the transactions contemplated by this Agreement are
subject to the registration requirements of the Act shall have been
issued and no proceedings for those purposes shall have been commenced
or shall be pending or, to the knowledge of the Company, threatened. No
order suspending the sale of the Notes in any jurisdiction shall have
been issued and no proceedings for that purpose shall have been
commenced or shall be pending or, to the knowledge of the Company,
threatened.
(b) At the Closing Date, the Reorganization Transactions and
the Related Transactions shall have been consummated; and the Company
shall have provided to the Initial Purchasers or counsel for the
Initial Purchasers copies of all closing documents delivered to the
parties to the Reorganization Transactions and the Related
Transactions.
(c) Subsequent to the date hereof, (i) except as disclosed or
contemplated in the Offering Memorandum, there shall not have occurred
any material adverse change in the condition (financial or other),
business, prospects, properties, assets, net worth or results of
operations of the Company, taken as a whole, which, in the opinion of
the Initial Purchasers, would materially adversely affect the market
for the Notes, or (ii) the Offering Memorandum shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, if amending or supplementing the Offering
Memorandum to correct any such misstatement or omission could, in the
sole judgment of the Initial Purchasers, materially adversely affect
the marketability of the Notes.
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(d) The Initial Purchasers shall have received on the Closing
Date an opinion of Fulbright & Jaworski LLP, counsel for the Company,
dated the Closing Date and addressed to the Initial Purchasers,
substantially in the form of EXHIBIT A hereto.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion of Cleary, Gottlieb, Steen & Hamilton, counsel for the
Initial Purchasers, dated the Closing Date and addressed to the Initial
Purchasers, with respect to such matters as the Initial Purchasers may
request.
(f) The Initial Purchasers shall have received a "cold
comfort" letter addressed to the Initial Purchasers, and dated the date
hereof and the Closing Date, from each of Arthur Andersen LLP and
Sugarman & Thrope, P.C., substantially to the effect set forth in
EXHIBIT B hereto.
(g) (i) There shall not have been any material change in the
capital stock of the Company or any Subsidiary nor any material
increase in the short-term or long-term debt of the Company or any
Subsidiary from that set forth or contemplated in the Offering
Memorandum; (ii) except as disclosed or contemplated by the Offering
Memorandum, the Company and the Subsidiaries shall not have any
liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole; (iii) all the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date;
and (iv) the Initial Purchasers shall have received a certificate,
dated the Closing Date and signed by the Chairman and Chief Executive
Officer and the chief accounting officer of the Company (or such other
officers as are reasonably acceptable to the Initial Purchasers), to
the effect set forth in this Section 7(g) and in Section 7(h) hereof.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of their respective
agreements herein contained and required to be performed or complied
with by them hereunder at or prior to the Closing Date.
(i) There shall not have been any announcement by any
"nationally recognized statistical rating organization," as defined for
purposes of Rule 436(g) under the Act, that (i) it is downgrading its
rating assigned to any class of Notes of the Company (including the
Notes), or (ii) it is reviewing its ratings assigned to any class of
Notes of the Company (including the Notes) with a view to possible
downgrading, with negative implications or direction not determined.
(j) The Notes shall have been approved for trading on PORTAL.
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(k) The Company shall have furnished or caused to be furnished
to the Initial Purchasers such further certificates and customary
closing documents as the Initial Purchasers shall have reasonably
requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchasers.
Any certificate or document signed by any officer of the
Company and delivered to the Initial Purchasers, or to counsel for the Initial
Purchasers, shall be deemed a representation and warranty by the Company to the
Initial Purchasers as to the statements made therein.
8. EXPENSES.
(a) Whether or not the purchase and sale of the Notes
hereunder is consummated or this Agreement is terminated pursuant to Section 9
hereof, the Company agrees to pay the following costs and expenses and all other
costs and expenses incident to the performance by them of their obligations
hereunder: (i) the printing or reproduction of the Preliminary Offering
Memorandum and Offering Memorandum (including financial statements thereto), and
each amendment or supplement to any of them, this Agreement, the Registration
Rights Agreement and the Indenture; (ii) the delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
Offering Memorandum, the Preliminary Offering Memorandum and all amendments or
supplements thereto as may be reasonably requested for use in connection with
the offering and sale of the Notes; (iii) the printing, authentication, issuance
and delivery of certificates for the Notes, including any stamp taxes in
connection with the original issuance and sale of the Notes; (iv) the printing
(or reproduction) and delivery of the preliminary and supplemental Blue Sky
Memoranda and all other agreements and documents printed (or reproduced) and
delivered in connection with the offering of the Notes; (v) the application for
quotation of the Notes on PORTAL; (vi) the qualification of the Notes for offer
and sale under the securities or Blue Sky laws of the several states as provided
in Section 4(f) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Initial Purchasers relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such qualification); and (vii) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company.
(b) If the purchase and sale of the Notes hereunder is not
consummated because any condition to the obligations of the Initial Purchaser
set forth in Section 7 hereof is not satisfied, because this Agreement is
terminated because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on their part to
be performed or satisfied hereunder other than by reason of a default by an
Initial Purchaser in payment for the Notes on the Closing Date, the Company
shall reimburse the Initial Purchasers promptly upon demand for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Notes and the other transactions contemplated hereby; PROVIDED
that the
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defaulting Initial Purchaser shall reimburse the Company upon demand for all
reasonable out-of-pocket expenses (including reasonable fees and expenses for
law and accounting services and printing costs) that shall have been incurred by
it in connection with the proposed purchase and sale of the Notes and the
transactions contemplated hereby.
9. TERMINATION OF AGREEMENT. (a) This Agreement shall be
subject to termination in the absolute discretion of the Initial Purchasers,
without liability on the part of the Initial Purchasers to the Company, by
notice to the Company, if prior to the Closing Date, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York state authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States or
the market for the Notes is such as to make it, in the sole judgment of the
Initial Purchasers, impracticable or inadvisable to commence or continue the
offering of the Notes on the terms set forth on the cover page of the Offering
Memorandum (or if not yet in existence then the Preliminary Offering Memorandum)
or to enforce contracts for the resale of the Notes by the Initial Purchasers.
Notice of such termination may be given to the Company by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
(b) If any Initial Purchaser shall fail to purchase and pay
for any of the Notes agreed to be purchased by such Initial Purchaser hereunder
and such failure to purchase shall constitute a default in the performance of
its obligations under this Agreement, the remaining Initial Purchaser shall be
obligated to take up and pay for the Notes which the defaulting Initial
Purchaser agreed but failed to purchase; PROVIDED, HOWEVER, that in the event
that the aggregate principal amount of Notes which the defaulting Initial
Purchaser agreed but failed to purchase shall exceed 10% of the aggregate
principal amount of Notes set forth in Schedule I hereto, the remaining Initial
Purchaser shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Notes, and if such non-defaulting Initial
Purchaser does not purchase all the Notes, this Agreement will terminate without
liability to the non-defaulting Initial Purchaser or the Company. In the event
of a default by any Initial Purchaser as set forth in this Section 9(b), the
Closing Date shall be postponed for such period, not exceeding seven days, as
the non-defaulting Initial Purchaser shall determine in order that the required
changes in the Offering Memorandum or in any other documents or arrangements may
be effected. Nothing contained in this Agreement shall relieve any defaulting
Initial Purchaser of its liability, if any, to the Company or the non-defaulting
Initial Purchaser for damages occasioned by its default hereunder.
10. INFORMATION FURNISHED BY THE INITIAL PURCHASERS. The
statements set forth in the stabilization legend on the inside front cover, the
last paragraph on the cover page and in the second paragraph under the caption
"Plan of Distribution" in the Preliminary Offering Memorandum and Offering
Memorandum, constitute the only information furnished by the Initial Purchasers
as such information is referred to in Sections 5(b) and 6 hereof.
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11. MISCELLANEOUS. Except as otherwise provided herein, notice
given pursuant to any provision of this Agreement shall be in writing and shall
be delivered (i) if to the Company, at LaBranche & Co Inc., One Exchange Plaza,
New York, New York, 10006, Attention: [ ] or (ii) if to the Initial Purchasers,
to Salomon Smith Barney Inc., 388 Greenwich Street, New York, NY 10013,
Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of
the Initial Purchasers, the Company, and its respective directors, officers and
the controlling persons referred to in Section 6 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the terms "successors and assigns" as used in this Agreement
shall include a purchaser from an Initial Purchaser of any of the Notes in its
status as such purchaser.
12. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York
without regard to principles of conflicts of law.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument.
[Rest of Page intentionally left blank]
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Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.
Very truly yours,
LaBRANCHE & CO INC.
By:
--------------------------------
Name:
Title:
Confirmed as of the date first above mentioned.
SALOMON SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: SALOMON SMITH BARNEY INC.
By:
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
Form of Opinion of Fulbright & Jaworski LLP
1. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Indenture; the
execution and delivery of, and the performance by the Company of its obligations
under the Indenture have been duly and validly authorized by the Company; and
the Indenture has been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery by the Trustee, constitutes the valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity.
2. No qualification of the Indenture under the 1939 Act is
required in connection with the offer and sale of the Notes as contemplated by
the Purchase Agreement.
3. The Notes have been duly authorized by the Company and,
when authenticated by the Trustee in accordance with the Indenture and delivered
to the Initial Purchasers against payment therefor in accordance with the terms
of the Purchase Agreement, will have been validly issued and delivered, and will
constitute valid and binding obligations of the Company entitled to the benefits
of the Indenture and enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and subject to the
applicability of general principles of equity.
4. All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable.
5. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Offering Memorandum, and is duly registered and qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such registration or qualification, except where the
failure to so register or qualify could not reasonably be expected to have a
Material Adverse Effect.
6. Each of LaBCo. and LaBLLC has been duly organized and is
validly existing as a limited partnership and a limited liability company,
respectively, in good standing under the laws of its jurisdiction of
organization; and the partnership interests in LaBCo. and the membership
interests in LaBLLC have been duly and validly authorized and issued and are
fully paid and nonassessable and are owned of record directly or indirectly by
the Company, to the knowledge of such counsel, to the knowledge of such counsel,
free and clear of all liens, encumbrances, equities or claims.
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7. The Company's authorized equity capitalization is as set
forth in the Offering Memorandum under the heading "Capitalization."
8. (x) The issuance, offer, sale or delivery of the Notes,
(y) the execution, delivery or performance of the Transaction Documents by the
Company, or (z) the consummation by the Company or any Subsidiary of any of the
transactions contemplated by the Transaction Documents, the Reorganization
Transactions or the Related Transactions, will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, (i) the
organizational documents of the Company or any Subsidiary, (ii) any agreement,
indenture, lease or other document described in the Offering Memorandum under
the headings "Certain Transactions--Reorganization and Related Transactions--
Reorganization" and "--Interest on Indebtedness" or filed as an Exhibit to the
Company's Registration Statement on Form S-1 (No. 333-80791) relating to the
initial public offering of its Common Stock (together with the amended and
restated limited partnership agreement of LaBCo., dated August __, 1999 and the
amended and restated limited liability company operating agreement of LaBLLC,
dated August __, 1999, to be hereinafter referred to as the "MATERIAL
Contracts"), or (iii) any statute, law, ordinance or administrative,
governmental or self-regulatory organization rule or regulation known to us to
be applicable to the Company or any Subsidiary or any of their respective
properties, or any filing or judgment, injunction, order or decree known to us
of any court or governmental agency or body as having jurisdiction over the
Company or any Subsidiary, except any which individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect; and the
consummation of the transactions contemplated by the Transaction Documents, the
Reorganization Transactions and the Related Transactions will not result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary pursuant to the terms of any Material
Contract, other than as disclosed in the Offering Memorandum; PROVIDED, HOWEVER,
that, for the purposes of this paragraph 8 insofar as the consummation of the
Reorganization Transactions and Related Transactions are concerned, such counsel
need not express any opinion with respect to Federal or state securities laws,
other antifraud laws, and fraudulent transfer laws, or as to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights.
9. No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection with the
transactions contemplated in the Purchase Agreement or in the Indenture or the
Registration Rights Agreement, except such as will be obtained under the Act and
the Trust Indenture Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of the
Securities by the Initial Purchasers in the manner contemplated herein and in
the Offering Memorandum and the Registration Rights Agreement.
10. The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Purchase
Agreement and the Registration Rights Agreement; the execution and delivery of,
and the performance by the Company of its obligations under, the Purchase
Agreement and the Registration Rights Agreement have been duly and validly
authorized by the Company, and each of the Purchase Agreement and the
Registration Rights Agreement has been duly executed and delivered by the
Company. The Registration Rights Agreement constitutes the valid and legally
binding agreement of the
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Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
subject to the applicability of general principles of equity, and except as
rights to indemnity and contribution thereunder may be limited by Federal or
state securities laws or principles of public policy.
11. Each of the Related Agreements has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
12. All stockholder, partnership and limited liability company
member approvals necessary for LaBInc., LaBCo. and LaBLLC to consummate the
Reorganization Transactions and the Related Transactions have been obtained and
are in full force and effect.
13. The Company and its Subsidiaries (i) have such
Authorizations of, and have made all filings with and notices to, the courts and
the governmental agencies or bodies of the United States of America and the
State of New York and all applicable self-regulatory organizations and (ii) are
members in good standing of each Federal, state or foreign exchange, board of
trade, clearing house or association and self-regulatory or similar
organization, in each case, as are necessary to consummate the Reorganization
Transactions and the Related Transactions. Each such Authorization is valid and
in full force and effect; and, to the best of such counsel's knowledge, no event
has occurred that would reasonably be expected to result in the revocation,
suspension or termination of any such Authorization; and other than as disclosed
in the Offering Memorandum, such Authorizations contain no net capital or other
requirements or conditions that are materially more burdensome than those
imposed on LaBCo. or LaBLLC immediately prior to the consummation of the
Reorganization Transactions.
14. Assuming (i) the representations and warranties of the
Company in Section 5 of the Purchase Agreement are true and correct, (ii) the
representations and warranties of the Initial Purchasers in Section 2 of the
Purchase Agreement are true and correct, (iii) the Company complies with the
covenants set forth in Section 4 of the Purchase Agreement, (iv) the Initial
Purchasers comply with the covenants set forth in Section 2 of the Purchase
Agreement, (v) the Initial Purchasers comply with the offering and transfer
procedures and restrictions described in the Offering Memorandum, (vi) the
representations and warranties deemed to be made in the Offering Memorandum by
purchasers to whom the Initial Purchasers initially resell Notes are true and
correct and (vii) purchasers to whom the Initial Purchasers initially resell
Notes receive a copy of the Offering Memorandum prior to such sale, the purchase
and sale of the Notes pursuant to the Purchase Agreement (including the Initial
Purchasers' offering and sale of the Notes on the terms and in the manner set
forth in the Offering Memorandum and Section 2 of the Purchase Agreement) do not
require registration under the Act.
15. The Indenture, the Notes and the Registration Rights
Agreement conform in all material respects to the descriptions thereof contained
in the Offering Memorandum.
16. To our knowledge, there is no pending or threatened
action, suit or
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proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of its Subsidiaries or its or their
property of a character which would be required to be disclosed in a prospectus
pursuant to the Act which is not adequately disclosed in the Offering
Memorandum, and there is no franchise, contract or other document of a character
which would be required to be described in a prospectus pursuant to the Act
which is not described in the Offering Memorandum. The statements included in
the Offering Memorandum under the headings "Description of Capital Stock,"
"Business--Regulatory Matters," "Certain Transactions," "Employment and
Noncompetition Agreements," Incentive Awards to Our Employees," "Description of
Notes," "Description of Certain Other Indebtedness" and "Certain United States
Federal Income Tax Consequences to Non-U.S. Persons" fairly summarize the
matters therein described.
17. The Company is not, nor immediately after the sale of the
Notes to be sold under the Purchase Agreement and the application of the
proceeds from such sale (as described in the Offering Memorandum under the
caption "Use of Proceeds") will it be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
18. The Material Contracts do not contain any provisions that
prohibit any Subsidiary of the Company, directly or indirectly, from making any
distribution in respect of its membership or partnership interests, as the case
may be, from repaying to the Company any loans or advances to such Subsidiary
from the Company or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company, except as
described in or contemplated by the Offering Memorandum.
19. It is not necessary in connection with the grant,
issuance, offer, sale and delivery of the securities to be issued by the Company
pursuant to the Reorganization Transactions and the Related Transactions, to
register any such securities under the Act, or to qualify any indenture under
the 1939 Act.
20. LaBCo. is registered as a broker-dealer with the SEC under
the Exchange Act and is a member organization in good standing with the NYSE.
LaBCo. is not required to be registered with the securities authority of any
state.
21. Neither the consummation of the transactions contemplated
by the Purchase Agreement nor the sale, issuance, execution or delivery of the
Notes will violate Regulation T, U or X of the Board of Governors of the Federal
Reserve system.
We have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, representatives of the Initial Purchasers and
counsel for the Initial Purchasers at which conferences the contents of the
Offering Memorandum and related matters were discussed, and, although we have
not independently verified and are not passing upon and assume no responsibility
for the accuracy, completeness or fairness of the statements contained in the
Offering Memorandum (except to the extent specified in paragraph 16), and that
our judgment as to materiality is, to the extent we deem proper, based in part
upon the views of appropriate officers and other representatives of the Company,
nothing has come to our attention that leads us to believe that the Offering
Memorandum, as of its date or as of the date hereof, contained or
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contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in the light of the circumstances under which they were made,
not misleading (it being understood that we express no opinion with respect to
the financial statements and related notes thereto and the other financial,
statistical and accounting data included in the Offering Memorandum).
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EXHIBIT B
ACCOUNTANTS' COMFORT LETTERS
1. The Company shall have requested and caused Arthur Andersen LLP to
have furnished to the Representatives, at the Execution Time and at the Closing
Date, letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the Representatives, confirming that
they are independent accountants within the meaning of the Act and the
applicable rules and regulations adopted by the Commission thereunder and that
they have performed a review of the unaudited interim financial information of
the Company for the six-month period ended June 30, 1999, and as at June 30,
1999, in accordance with Statement on Auditing Standards No. 71 and stating in
effect that:
(i) in their opinion the audited financial statements,
financial statement schedules and pro forma financial statements
included in the Offering Memorandum and reported on by them comply as
to form in all material respects with the applicable accounting
requirements of the Exchange Act and the related rules and regulations
adopted by the Commission;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
Subsidiaries; their limited review, in accordance with standards
established under Statement on Auditing Standards No. 71, of the
unaudited interim financial information for the six-month period
ended June 30, 1999, and as at June 30, 1999, as indicated in their
report dated , 1999; carrying out certain specified
procedures (but not an examination in accordance with generally
accepted auditing standards) which would not necessarily reveal
matters of significance with respect to the comments set forth in
such letter; a reading of the minutes of the meetings of the
stockholders, directors and the Managing Committee of LaBLLC; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company
and its Subsidiaries as to transactions and events subsequent to
June 30, 1999, nothing came to their attention which caused them to
believe that:
(A) any unaudited financial statements
included in the Offering Memorandum do not comply as
to form in all material respects with applicable
accounting requirements of the Exchange Act and with
the related rules and regulations adopted by the
Commission; and said unaudited financial statements
are not in conformity with generally accepted
accounting principles applied on a basis
substantially consistent with that of the audited
financial statements included in the Offering
Memorandum;
(B) with respect to the period subsequent to
June 30, 1999, there were any changes, at a specified
date not more than five days prior to the date of the
letter, in the long-term indebtedness of the Company
and its Subsidiaries or capital stock of the Company
or decreases in the members'
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capital/stockholders' equity of the Company as
compared with the amounts shown on the June 30, 1999
consolidated balance sheet included in the Offering
Memorandum, or for the period from July 1, 1999 to
such specified date there were any decreases, as
compared with the corresponding period for the prior
fiscal year in total revenues, income before managing
directors' compensation, limited partners' interest
in earnings of subsidiary and provision for income
taxes or income before limited partners' interest in
earnings of subsidiary and provision for income taxes
except in all instances for changes or decreases set
forth in such letter, in which case the letter shall
be accompanied by an explanation by the Company as to
the significance thereof unless said explanation is
not deemed necessary by the Representatives;
(C) the information included in the Offering
under the headings "Summary--Summary Historical
Consolidated Financial Data" and "Selected Historical
Consolidated Financial Data" is not in conformity
with the applicable disclosure requirements of
Regulation S-K; and
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Offering Memorandum, including the information set forth
under the captions "Summary--Summary Selected Historical Consolidated
Financial Data," "Capitalization," "Selected Historical Consolidated
Financial Data" and "Management Discussion and Analysis of Financial
Condition and Results of Operations" in the Offering Memorandum, agrees
with the accounting records of the Company and its Subsidiaries,
excluding any questions of legal interpretation.
References to the Offering Memorandum in this paragraph (1) include any
supplement thereto at the date of the letter.
The Company shall have received from Arthur Andersen LLP (and furnished
to the Representatives) a review report with respect to Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Company for
the three fiscal years ending December 31, 1998, and with respect to
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company for the six-month period ending June 30, 1999, in
respect of which a Statement on Auditing Standards No. 71 review has been
performed and the corresponding period for the prior fiscal year, each in
accordance with Statement on Standards for Attestation Engagements No. 8 issued
by the Auditing Standards Board of the American Institute of Certified Public
Accountants, and such report shall be included in the Offering Memorandum.
2. The Company shall have caused Sugarman & Thrope, P.C. to have
furnished to the Representatives letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance reasonably satisfactory
to the Representatives, confirming that they are independent accountants within
the meaning of the Act and the applicable published rules and
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<PAGE>
regulations adopted by the Commission thereunder and stating in effect that, in
their opinion, the audited financial statements and financial statement
schedules included in the Offering Memorandum and reported on by them comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations.
References to the Offering Memorandum in this paragraph 2 include any
supplement thereto at the date of the letter.
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<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Principal Amount
of Notes
Initial Purchasers To Be Purchased
- ------------------ ---------------
<S> <C>
Salomon Smith Barney Inc.................................. $[ ]
Donaldson, Lufkin & Jenrette Securities Corporation....... [ ]
------------
Total $[ ]
------------
------------
</TABLE>
<PAGE>
AMENDED AND RESTATED
ARTICLES OF PARTNERSHIP
OF
LABRANCHE & CO.
Amended and Restated Articles of Partnership of LaBranche & Co., a New York
limited partnership, made as of August __, 1999, by and among, LaB Investing Co.
L.L.C., a New York limited liability company, as the general partner (the
"GENERAL PARTNER"), and LaBranche & Co Inc., a Delaware corporation, as the
limited partner (the "LIMITED PARTNER") (the General Partner and the Limited
Partner being collectively referred to herein as the "PARTNERS").
W I T N E S S E T H
WHEREAS, LaBranche & Co. (the "PARTNERSHIP") has conducted business as a
New York limited partnership pursuant to Articles of Partnership dated as of
January 1, 1989, which were amended as of January 1, 1990, January 1, 1991,
January 1, 1992, July 1, 1992, January 1, 1993, January 1, 1994, January 1,
1995, April 1, 1995, January 1, 1996, July 1, 1996, January 1, 1997, July 1,
1997 and August 1, 1997, amended and restated as of January 1, 1998 and further
amended as of July 1, 1998 and January 1, 1999 (the Articles of Partnership, as
amended, are referred to as the "AGREEMENT");
WHEREAS, the General Partner, the Limited Partner and the former limited
partners of the Partnership entered into a Plan of Incorporation, dated as of
June 17, 1999 (the "PLAN OF INCORPORATION"), pursuant to which each of the
former limited partners exchanged his, her or its entire limited partnership
interest in the Partnership for cash and/or securities of the Limited Partner;
WHEREAS, the Limited Partner, as a result of the transactions contemplated
by the Plan of Incorporation, has become the sole limited partner of the
Partnership; and
WHEREAS, the Partners now wish to further amend and restate the Agreement
in order to reflect the foregoing and to reflect their agreement regarding
certain other matters pertaining to the operation of the Partnership;
NOW, THEREFORE, it is agreed that the Agreement is hereby amended and
restated in its entirety as follows:
ARTICLE I
ORGANIZATION
SECTION 1.1. The Partnership is organized pursuant to the provisions
of Article 8-A of the Partnership Law of the State of New York, and the rights
and liabilities of the Partners shall be as provided therein, except as
otherwise expressly provided in this Agreement.
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<PAGE>
ARTICLE II
NAME
SECTION 1.2. The Partnership shall conduct business under the name of
LaBranche & Co.
ARTICLE III
PURPOSES
SECTION 1.3. The purposes of the Partnership are to carry on and
transact the business of dealers and brokers, for the account of the Partnership
and on commission for others, in stocks, bonds and other securities, commodities
and options, including put and call options or any combination thereof written
by the Partnership or by others, in respect of securities and commodities, to
act as a specialist on the New York Stock Exchange (the "EXCHANGE"), to engage
in a general brokerage business and do all business necessary or incident
thereto as a member firm of the Exchange, to engage as principal or agent in any
other business or activity consistent with the Constitution and Rules of the
Exchange, and to engage in such other related business as may be determined by
the General Partner.
ARTICLE IV
PRINCIPAL PLACE OF BUSINESS; FISCAL YEAR
SECTION 1.4. The principal place of business of the Partnership shall
be at One Exchange Plaza, New York, New York 10006, or at such other location or
locations as may be designated by the General Partner.
SECTION 1.5. Unless changed by the General Partner, the fiscal and
taxable year of the Partnership shall be the calendar year.
ARTICLE V
TERM
SECTION 1.6. The Partnership shall continue until its termination or
dissolution in accordance with the provisions of this Article V or, if earlier,
as required by the laws of the State of New York.
SECTION 1.7. The General Partner may liquidate and dissolve the
Partnership at any time upon notice to the Limited Partner, and the assets of
the Partnership shall then be applied in accordance with Article XXII hereof.
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<PAGE>
SECTION 1.8. Upon the withdrawal of the General Partner from the
Partnership at any time, notwithstanding anything to the contrary contained in
this Agreement, the Partnership shall be liquidated and dissolved, and the
assets of the Partnership shall be applied in accordance with Article XXII.
ARTICLE VI
MANAGEMENT; LIABILITY
SECTION 1.9. The management of the Partnership business shall be the
full and complete responsibility of the General Partner alone, and the Limited
Partner as such shall take no part in or interfere in any manner with the
management, conduct or control of the Partnership business and shall have no
right or authority to act for or bind the Partnership. The management of the
General Partner shall be vested in a Managing Committee, as provided for in the
Amended and Restated Operating Agreement of the General Partner, dated as of the
date hereof, as it may be amended from time to time. The Managing Committee
shall designate two or more persons who are members or allied members of the
Exchange, and who are otherwise acceptable to the Exchange, to act on behalf of
the Partnership in connection with the Partnership's day-to-day dealings with
the Exchange.
SECTION 1.10. The Limited Partner shall have no liability for the
contractual obligations and other liabilities of the Partnership.
ARTICLE VII
CAPITAL CONTRIBUTIONS
SECTION 1.11. As of the date hereof, the Partners shall be credited
with having made the following contributions to the capital of the Partnership:
GENERAL PARTNER:
LaB Investing Co. L.L.C. $ ___________
LIMITED PARTNER:
LaBranche & Co Inc. $___________
SECTION 1.12. If the General Partner, at any time or from time to
time, determines, in its sole discretion, that the Partnership requires an
additional capital contribution of cash or securities to enable the Partnership
to conduct its business operations, then the Limited Partner shall make such
additional capital contribution at such time or times and in such amounts as
shall be specified by the General Partner.
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<PAGE>
SECTION 1.13. With the prior consent of the General Partner, the
Limited Partner may make an additional capital contribution to the Partnership.
Any additional contributions referred to in the preceding sentence may be made
in cash or in such securities as may be approved by the General Partner.
SECTION 1.14. No Partner may withdraw any portion of its capital
contribution, and no Partner shall be entitled to the return of its contribution
to capital, except as provided in this Agreement or upon dissolution.
SECTION 1.15. A capital account shall be maintained for each Partner
and shall be credited with such Partner's contributions of capital to the
Partnership and its allocable share of Partnership income and gain (or items
thereof), and shall be debited by the amount of money distributed to that
Partner by the Partnership, the fair market value of any property distributed to
it by the Partnership, and its allocable share of Partnership loss and deduction
(or items thereof), both as determined under Section 8.02 hereof.
SECTION 1.16. Notwithstanding anything to the contrary contained in
this Agreement, all withdrawals of capital shall be subject to the limitations
set forth in Section 14.01 hereof.
SECTION 1.17. The Partners shall not be paid interest on their capital
contributions.
ARTICLE VIII
PROFITS AND LOSSES
SECTION 1.18. Net profits or net losses of the Partnership shall be
determined in accordance with generally accepted accounting principles, and
shall be allocated to the Partners for each calendar quarter or for any shorter
period as the General Partner may determine from time to time. Allocated profits
shall be distributed to each of the Partners at such times as the General
Partner shall determine.
SECTION 1.19. Net profits and net losses of the Partnership for each
fiscal year or portion thereof shall be allocated among the Partners in the
following percentages:
GENERAL PARTNER:
LaB Investing Co. L.L.C. ______%
LIMITED PARTNER:
LaBranche & Co Inc. ______%
SECTION 1.20. Notwithstanding anything to the contrary contained in
this Agreement, if the Limited Partner unexpectedly receives an adjustment,
allocation or distribution described in Treas. Reg. Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) which creates or increases a deficit
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<PAGE>
balance in its capital account, it shall be allocated all income (gross
income if required by Treasury Regulations and net profits if not so
required) of the Partnership in proportion to its negative capital account
balance in an amount and manner sufficient to eliminate such deficit balance
as quickly as possible. Such allocation of net profits or income is herein
termed a "QUALIFIED INCOME OFFSET" within the meaning of Treas. Reg. Section
1.704-1(b)(2)(ii)(d), and shall comply with such provision in all respects.
In any such case, the General Partner shall be allocated in each subsequent
period all net profits otherwise allocable to the Limited Partner until the
aggregate amount of the net profits so allocated to the General Partner shall
equal the amount of net profits which would otherwise have been allocated to
the General Partner absent the allocation of net profits or gross income to
the Limited Partner pursuant to the Qualified Income Offset, after which
allocations of net profits and net losses of the Partnership shall be made in
accordance with Section 8.02 hereof.
SECTION 1.21. For Federal income tax purposes, net profits and net
losses, and any item of income, gain, loss, deduction or credit, including,
without limitation, net long-term capital gain, net long-term capital loss,
net short-term capital gain, net short-term capital loss, ordinary income and
ordinary loss shall be allocated so as to take account of the variation
between the adjusted tax basis and the book value of any property contributed
by the Partners to the Partnership in accordance with the principles of
Section 704(c) of the Internal Revenue Code of 1986, as amended (the "CODE"),
as prescribed by Treas. Reg. Section 1.704-1(b)(4)(i), and subject to the
limitations of Treas. Reg. Section 1.704-1(c)(2). All such allocations shall,
in addition, take account of each Partner's varying interest for any
particular fiscal year and withdrawals made under this Agreement in
accordance with Section 706 of the Code.
SECTION 1.22. The provisions of this Agreement are intended to
comply with Treas. Reg. Section 1.704-1(b) issued pursuant to Section 704(b)
of the Code and shall be interpreted in a manner consistent with such
Treasury Regulations. The General Partner may, without the consent of the
Limited Partner, amend the provisions of this Agreement and the manner in
which net profits and net losses (or other items) are allocated to the extent
(but only to the extent) necessary to comply with Treas. Reg. Section
1.704-1(b). In addition, the capital accounts of the Partners shall at all
times be adjusted and maintained in accordance with the requirements of
Treas. Reg. Section 1.704-1(b)(2)(iv), and the provisions of this Agreement
shall be construed in a manner consistent therewith, and shall be adjusted as
required by Treas. Reg. Section 1.704-1(b)(2)(iv)(g).
ARTICLE IX
ADMISSION OF ADDITIONAL PARTNERS
SECTION 1.23. Subject to compliance with the foregoing terms of
this Agreement, additional limited partners may be admitted to the
Partnership upon such terms and conditions as the General Partner shall
determine, such admission shall occur immediately upon the consent of the
General Partner, and no other consent of the Limited Partner shall be
required for the admission of additional limited partners. Upon the admission
of a new limited partner to the Partnership, the existing Partners'
respective percentage interests in the profits and losses of the Partnership,
as determined pursuant to Article VIII hereof, shall be adjusted
proportionately to reflect the admission of such new limited partner and the
dilution of the respective percentage interests of
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<PAGE>
all the other existing Partners. The admission of a new limited partner shall
not dissolve the Partnership, and the continuing Partnership shall be the same
firm for all purposes.
SECTION 1.24. The consent of the Limited Partner will be required for
the admission of a new or additional general partner, other than in accordance
with Article XVI hereof.
ARTICLE X
WITHDRAWAL
SECTION 1.25. With the prior written consent of the General Partner,
the Limited Partner may withdraw from the Partnership effective as of the end of
any calendar quarter, or effective as of such other date as the General Partner
and the Limited Partner may mutually agree, provided, however, that any
withdrawal of capital hereunder shall be subject to the limitations set forth in
Section 14.01 hereof.
SECTION 1.26. At any time, the General Partner may, by written notice
(a "WITHDRAWAL NOTICE") given to the Limited Partner, require the Limited
Partner to withdraw from the Partnership effective upon the close of business on
the date specified in the Withdrawal Notice.
SECTION 1.27. The term "INVENTORY DATE" shall mean the effective date
of the Limited Partner's withdrawal.
SECTION 1.28. The General Partner shall not withdraw from the
Partnership without the consent of the Limited Partner.
ARTICLE XI
FINAL PAYMENT
SECTION 1.29. In the event the Limited Partner withdraws from the
Partnership, a payment (the "FINAL PAYMENT") shall be made to the Limited
Partner in an amount representing the value of its interest in the Partnership.
The Final Payment shall be determined as of the Inventory Date applicable to the
Limited Partner and, subject to the provisions of Article XIV hereof, shall be
made ninety (90) days after the Inventory Date or on such earlier date as the
General Partner shall determine. The Final Payment shall be made without
interest, except that payment of the capital account of the Limited Partner
shall be made with interest from the Inventory Date at the broker's call rate,
as in effect from time to time. The Final Payment shall be made in cash, unless
the General Partner determines to make payment, in whole or in part, in kind.
SECTION 1.30. The amount of the Final Payment shall be determined by
the General Partner in accordance with generally accepted accounting principles
consistently applied and with such reserves for any obligations, claims, causes
of action, liabilities or other contingencies as the General Partner may deem
necessary or proper, subject to the following provisions: (i) each position in
listed securities, whether long or short, shall be marked to market on the
Inventory Date
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<PAGE>
at the closing price on the principal exchange on which such securities are
traded, but, if there were no sales in such securities on the Inventory Date,
then such securities shall be marked to either the mean between the bid and
asked prices thereof on such date or, in the sole discretion of the General
Partner, the last closing price of such securities on the principal exchange
on which such securities are traded; (ii) each position in over-the-counter
securities, whether long or short, shall be marked to the market on the
Inventory Date at the last sales price thereof as reported by the National
Association of Securities Dealers Automated Quotation System or, if not so
reported, to the mean between the high bid and low asked prices in the
quotations furnished by the National Association of Securities Dealers, Inc.,
where available, or in the quotations furnished by one or more of the
principal dealers in such securities; (iii) each position in securities which
are not readily marketable shall be valued as of the Inventory Date by the
General Partner in its sole, absolute and final discretion; (iv) although the
Partnership's fiscal year may not have closed for other purposes, the
Partnership's fiscal year shall be deemed to have closed on the Inventory
Date for the limited purpose of determining the value of the interest of the
Limited Partner; (v) allocation of unrealized gains or losses in securities
held by the Partnership shall be made on the basis that such securities were
sold on the Inventory Date at the market value thereof; (vi) no value will be
placed upon or will any allowance be made for or on account of the goodwill
or trade name of the Partnership; and (vii) all furniture, fixtures,
leasehold improvements, prepaid expenses and similar items capitalized on the
books of the Partnership and any memberships purchased by the Partnership
will be valued at the book value thereof, except that depreciation,
amortization or other allowances for exhaustion of such items between the
first day of the fiscal year in which the Inventory Date occurs and the
Inventory Date shall be taken into account at the rates then employed by the
Partnership for such items, whether or not the books of the Partnership
actually reflect such depreciation, amortization or other allowance on the
Inventory Date. No value will be placed upon nor will allowance be made for
or on account of printing and stationery and other consumable assets charged
as an expense by the Partnership upon acquisition.
SECTION 1.31. In determining the value of the interest in the
Partnership of the Limited Partner, the General Partner may establish such
reserves as it deems prudent to provide for items of expense and loss relating
to the portion of the fiscal year of the Partnership prior to the Inventory
Date, and for all liabilities, contingent or otherwise, attributable to such
period or to any or all prior periods during which the Limited Partner was a
Partner or the interest of the Limited Partner continued at the risk of the
business of the Partnership.
SECTION 1.32. A statement of the amount due from the Partnership in
respect of the Final Payment of the Limited Partner shall be promptly prepared.
A copy of the statement shall be furnished to the Limited Partner. In the event
any amount shall be due from the Limited Partner to the Partnership, the same
shall be remitted to the Partnership promptly.
SECTION 1.33. Reserve accounts shall be applied or liquidated with
all due expedition, as determined by the General Partner in conjunction with the
Partnership's accountants. To the extent that any reserve account shall exceed,
or shall be estimated by the General Partner to exceed, the amount of the
obligations, claims, causes of action or other contingencies for which it was
established, the Limited Partner shall be paid its share of any such excess
without interest. To the extent, if at all, that the reserve account proves
insufficient or no reserve account was established
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<PAGE>
therefor, the Limited Partner shall promptly remit to the Partnership its share
of such shortfall, without interest.
SECTION 1.34. Any dispute arising out of, or connected with,
determinations reflected in any statement furnished pursuant to this Article XI
shall, unless resolved by the parties, be submitted to the Partnership's
accountants, and any determination by such accountants shall be final, binding
and conclusive on the Partnership and the Limited Partner.
SECTION 1.35. In no event shall the Limited Partner be required to
remit to the Partnership any amount in excess of the Final Payment, or to remit
any amount to the Partnership after the expiration of the statute of limitations
applicable to any claim or potential claim with respect to an action, omission
to act, event or occurrence which took place prior to the Limited Partner's
withdrawal from the Partnership.
ARTICLE XII
ALLOCATION OF FORMER PARTNERS' PROFITS AND LOSSES
SECTION 1.36. At such time as the Limited Partner shall no longer be
entitled to participate in the profits and losses of the Partnership, its
interest in future profits and losses of the Partnership shall be allocated in
such manner and in such proportions as shall be determined by the General
Partner, provided, however, that no allocation shall be made to the Limited
Partner without its consent.
ARTICLE XIII
BOOKS OF ACCOUNT
SECTION 1.37. Complete and accurate books of account of the business
of the Partnership shall be kept by or under the supervision of the General
Partner at the principal place of business of the Partnership and shall be open
to inspection by the Limited Partner, or by its accredited representatives, at
any reasonable time during normal business hours.
ARTICLE XIV
POSTPONEMENT OF PAYMENT
SECTION 1.38. Notwithstanding any other provision of this
Agreement, any payment to be made by the Partnership pursuant to Article XI
hereof or otherwise hereunder to, or withdrawal of capital by, any Partner
shall be postponed if, but only to the extent that, after giving effect to
the payment or withdrawal, such payment or withdrawal, or any part thereof,
would be prohibited by the provisions of Securities and Exchange Commission
Rule 15c3-1 (or any successor Rule), or any Rule of the Exchange, or would
render the Partnership unable to meet its capital requirements as a
specialist firm on the Exchange. Any such postponement shall be until such
time as the payment or withdrawal could be made pursuant to the provisions of
said Rule 15c3-1 (or any
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<PAGE>
successor Rule) and any Rule of the Exchange and until the Partnership, after
giving effect to the payment or withdrawal, would be in compliance with its
capital requirements as a specialist firm on the Exchange. In addition, any
payment to be made by the Partnership pursuant to Article XI hereof or
otherwise hereunder to, or withdrawal of capital by, any Partner shall be
postponed if, but only to the extent that, after giving effect to the payment
or withdrawal, such payment or withdrawal, or any part thereof, would
contravene, result in any breach of, or constitute a default under, or result
in the creation of any lien in respect of the property of the Partnership
under, any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, organizational document, or any other agreement or
instrument to which the Partnership is bound or by which the Partnership or
any of its properties may be bound or affected. In accordance with Rule
313.11 of the Exchange, all withdrawals of capital hereunder shall be made
only with the prior written approval of the Exchange and upon six months
written notice to the Partnership given no sooner than six months after such
contribution was first made, unless a different period of notice is consented
to by the General Partner and approved by the Exchange.
SECTION 1.39. In determining for purposes of Section 14.01 hereof
whether any payment or withdrawal can be made and the extent thereof, any
amounts due from the Partnership to or in respect of any Partner which other
amounts are payable at or prior to the date on which such payment or withdrawal
was initially scheduled (disregarding any postponement of the Partnership's
obligation to make such payment), shall be deemed to have been paid and the net
capital of the Partnership appropriately reduced.
SECTION 1.40. Interest at the broker's call rate, as in effect from
time to time, shall be payable in respect of payments postponed pursuant to the
provisions of this Article XIV.
ARTICLE XV
COMPLIANCE WITH THE EXCHANGE
SECTION 1.41. This Agreement and all matters and things to be done
and performed in connection with the Partnership business shall be subject to
the Constitution, Rules, requirements and regulations, so far as applicable
thereto, of the Exchange and shall be conducted strictly in compliance
therewith. If any of the terms, covenants and conditions of this Agreement shall
be in conflict with any provision of the Constitution, Rules, requirements or
regulations of the Exchange, the same shall be deemed modified so as to conform
therewith.
ARTICLE XVI
INSOLVENCY OF GENERAL PARTNER
SECTION 1.42. Notwithstanding any other provision in this Agreement,
if at any time it shall be determined that the General Partner is insolvent (as
such term is used in Title 11 of the United States Code), the Partnership shall
be dissolved, unless the Limited Partner appoints another subsidiary of the
Limited Partner to serve as the general partner of the Partnership and such
subsidiary is admitted as the general partner of the Partnership.
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<PAGE>
USE OF NAME
SECTION 1.43. No person, other than the General Partner, the Limited
Partner or a subsidiary or affiliate of either of them shall have any rights to
the use of the name "LaBranche" or "LaBranche & Co." in any business other than
the business of the Partnership.
ARTICLE XVII
ASSIGNMENT
SECTION 1.44. No Partner may assign or encumber its interest in the
Partnership without the prior written consent of the Exchange and of the General
Partner.
ARTICLE XVIII
ARBITRATION
SECTION 1.45. In the event that any dispute or controversy arises
under or in connection with this Agreement, such dispute or controversy, except
as otherwise expressly provided herein, shall be submitted for binding
arbitration to the Exchange in accordance with the Rules and Procedures of the
Exchange then obtaining.
ARTICLE XIX
ADMINISTRATIVE CONVENIENCE
SECTION 1.46. The General Partner has full power and authority on
behalf of all the Partners, at any time and from time to time, in accordance
with the rules of any national securities exchange (a) to designate one or
more persons (i) to assign securities registered in the name of the
Partnership, (ii) to execute powers of substitution, (iii) to guarantee the
signatures of others to assignments of securities, and (iv) to make any
certification or guarantee of any signature on documents submitted in support
of the transfer of any securities, all with the same effect as if the name of
the Partnership had been signed under like circumstances by the General
Partner, (b) to adopt and authorize the use of a mechanically reproduced
facsimile signature of the Partnership in connection with (i) the assignment
of securities registered in the name of the Partnership, and (ii) the
execution of powers of substitution, (c) to designate one or more of the
employees of the Partnership to sign written contracts covering "seller
option", "when issued" and "when distributed" transactions in the name of the
Partnership with the same effect as if the name of the Partnership had been
signed under like circumstances by the General Partner, and (d) to execute
and file with any national securities exchange, in the name and on behalf of
the Partnership, and the Partners severally, any and all such powers of
attorney, agreements and other instruments (including agreements of
indemnification) as may by such exchange be required to evidence or support
action under Section 20.01(a), (b) or (c) hereof. The Limited Partner, by its
execution of this Agreement, specifically ratifies and approves all such
powers of attorney, agreements and other instruments
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<PAGE>
(including agreements of indemnification) as may heretofore have been executed
and filed on behalf of the Partnership with any national securities exchange and
which are still in force in connection with any matter described in Section
20.01(a), (b) or (c) hereof.
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<PAGE>
ARTICLE XX
PROXY AND POWER OF ATTORNEY
SECTION 1.47. Each of the parties to this Agreement does hereby
irrevocably constitute and appoint George M.L. LaBranche, IV and James G.
Gallagher, each acting singly, its true and lawful representative and
attorney-in-fact, in its name, place and stead, to execute and deliver any
certificate amending the Amended Certificate of Limited Partnership of the
Partnership and any amendments thereto required by law or necessary to reflect
this Agreement or any amendment of this Agreement and to execute and deliver
such other instruments, documents, certificates or other writings, which may
from time to time be necessary under the laws of the United Sates of America,
the State of New York or any other jurisdiction or under the rules of any
political subdivision or agency thereof, to effectuate, implement and continue
the valid and subsisting existence of the Partnership with the same force and
effect as if such instrument, document, certificate or other written instrument
had been personally executed by such party. Such representatives and
attorneys-in-fact shall not, however, have any right, power or authority
themselves to amend or modify this Agreement when acting in such capacities.
This power of attorney is coupled with an interest and shall continue in full
force and effect notwithstanding the subsequent bankruptcy of the Limited
Partner.
ARTICLE XXI
DISSOLUTION
SECTION 1.48. In the event of the dissolution of the Partnership, (i)
the Managing Committee shall select one or more of its members or one or more
others to act as liquidators; (ii) the liquidators shall promptly marshal the
Partnership assets and pay the Partnership debts; (iii) the respective interests
of the Partners shall be determined on the date of dissolution; (iv) the
proceeds of liquidation shall be distributed in the following order: (A) to
creditors of the Partnership, (B) to the Limited Partner in respect of its
contribution to the capital of the Partnership, (C) to the General Partner in
respect of its capital contribution to the Partnership, and (D) to each Partner
in accordance with its positive capital account balance; (v) any interest in the
Partnership of the Limited Partner held at the risk of the business pursuant to
Article XI hereof shall not be given the status of the Limited Partner's
contribution of capital for purposes of distribution of the proceeds of
liquidation; (vi) the liquidators shall pay or distribute to the Partners their
respective interests in the Partnership, less the aggregate of reserves which
have been established to pay or provide for creditors, as soon as possible and
shall have the right to make distributions of assets in cash or in kind; (vii)
the liquidators shall receive reasonable compensation and the necessary and
reasonable out-of-pocket expenses of dissolution and liquidation, all of which
shall be a charge against the Partnership assets in liquidation; and (viii) the
liquidators shall render an account to the Partnership.
SECTION 1.49. Notwithstanding anything to the contrary contained
herein, in the event of the dissolution of the Partnership upon the expiration
of the term of this Agreement, or any extension or renewal thereof, each Partner
agrees that any withdrawal of capital upon any such
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dissolution which would cause the Partnership's "aggregate indebtedness" to
exceed the percentages specified in Rules 326(a) and 326(b) of the Rules of the
Board of Directors of the Exchange during the six months immediately preceding
the date of the dissolution, may be postponed for a period of up to (6) six
months of the stated date of dissolution, as the General Partner may deem
necessary to ensure compliance with said rules, and any such capital so retained
by the Partnership after the date of dissolution shall continue to be subject to
all debts and obligations of the Partnership.
ARTICLE XXII
NOTICE
SECTION 1.50. All notices permitted or required hereunder shall be in
writing and shall be deemed duly given if (a) delivered personally to the person
for whom intended or (b) mailed to the person for whom intended, by registered
or certified mail, return receipt requested, addressed to the address shown on
the Partnership records to be the addressee's then current address. Such notice
shall be deemed to have been given when so delivered personally or upon mailing.
Notice given to any two members of the Managing Committee shall constitute
notice to the Partnership.
ARTICLE XXIII
MISCELLANEOUS
SECTION 1.51. ENTIRE AGREEMENT. This Agreement (i) reflects the
entire agreement among the parties and the breach by any party of any one of
such agreements shall constitute a breach of all such agreements, (ii) from and
after the effective date hereof, supersedes all prior partnership agreements
among the parties hereto, (iii) shall be construed in accordance with the laws
of the State of New York, and (iv) shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives, heirs,
executors and administrators and any continuing or successor partnerships or
corporation succeeding to substantially all the business of the Partnership.
Terms such as "herein", "hereof," "hereinafter" refer to this Agreement as a
whole and not to the particular sentence or paragraph where they appear, unless
the context otherwise requires. Terms used in the plural include the singular
and vice versa unless the context otherwise requires. The term "person" or
"persons" includes natural persons, corporations and other legal entities unless
the context otherwise requires. For purposes of this Agreement, the term
"affiliate" shall mean any person directly or indirectly controlling, controlled
by or under direct or indirect common control with any other person and shall
include any person who is a partner, officer or director of any other person,
and the term "control" shall have the meaning ascribed to it in Rule 405 under
the Securities Act of 1933.
SECTION 1.52. AMENDMENT. No provision of this Agreement shall be
amended without the written consent of each of the Partners.
SECTION 1.53. MEANINGS. As used herein, unless the context
otherwise requires, the singular shall include the plural, and the term legal
representatives shall include
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testamentary trustees or the curator, committee or other representative of an
incompetent or bankrupt Partner.
SECTION 1.54. EFFECTIVE DATE. This Agreement shall be and becomes
effective as of the date first above written, subject to approval by the
Exchange.
SECTION 1.55. COUNTERPARTS. This Agreement may be signed in any
number of counterparts, all of which taken together shall constitute but one and
the same agreement.
IN WITNESS WHEREOF, the General Partner and the Limited Partner have
executed this Agreement as of the date first set forth hereinabove.
LaB INVESTING CO. L.L.C., as general partner
By:
------------------------------------------
Name: George M.L. LaBranche, IV
Title: Managing Committee member
By:
------------------------------------------
Name: Alfred O. Hayward, Jr.
Title: Managing Committee member
By:
------------------------------------------
Name: James G. Gallagher
Title: Managing Committee member
LaBRANCHE & CO INC., as limited partner
By:
------------------------------------------
Name: George M.L. LaBranche, IV
Title: Chairman and Chief Executive Officer
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LAB INVESTING CO. L.L.C.
AMENDED AND RESTATED OPERATING AGREEMENT
Amended and Restated Operating Agreement of LaB Investing Co. L.L.C., made
as of August __, 1999, by LaBranche & Co Inc., a Delaware corporation located at
One Exchange Plaza, New York, New York 10006 (the "MEMBER"), and LaB Investing
Co. L.L.C., a New York limited liability company with an address at One Exchange
Plaza, New York, New York 10006 (the "COMPANY").
W I T N E S S E T H
WHEREAS, the Company has conducted business pursuant to an Operating
Agreement, dated as of January 1, 1995, which was amended as of January 1, 1996,
July 1, 1996, January 1, 1997, July 1, 1997 and August 1, 1997, amended and
restated as of January 1, 1998 and further amended as of January 1, 1999 (the
Operating Agreement, as thus amended, is referred to herein as the "AGREEMENT");
WHEREAS, the Member, the Company and the former members of the Company
entered into an Exchange Agreement, dated as of June 17, 1999 (the "EXCHANGE
AGREEMENT"), whereby each of the former members agreed to exchange his entire
membership interest in the Company for cash and/or securities of the Member;
WHEREAS, the Member, as a result of the completion of the transactions
contemplated by the Exchange Agreement, has become the sole member of the
Company; and
WHEREAS, the Member now wishes to further amend and restate the Agreement
in order to reflect the foregoing and to reflect its agreement regarding certain
other matters pertaining to the operation of the Company;
NOW, THEREFORE, the Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE I
NAME; OFFICE; PURPOSE; TERM
SECTION 1.1. NAME. The Company shall do business under the name "LaB
Investing Co. L.L.C." The Managing Committee (as defined below) may change the
name of the Company at any time or adopt such trade or fictitious names as it
may determine in its sole discretion. If the Company does business under a name
other than LaB Investing Co. L.L.C., then the Company shall file an assumed-name
certificate as required by Section 130 of the New York General Business Law.
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SECTION 1.2. OFFICE. The Company's principal office shall be located
at One Exchange Plaza, New York, New York 10006 or at such other place or places
as the Managing Committee shall designate from time to time.
SECTION 1.3. PURPOSE. The Company is organized for the following
purposes:
(1) to hold a general partnership interest in LaBranche & Co., a
New York limited partnership (the "FIRM"), or any successor partnership, or
shares of capital stock of any successor corporation, and to exercise all
rights, powers and privileges with respect thereto, including, without
limitation, acting as the General Partner of the Firm;
(2) to engage in such other activities and to have such other
objects and purposes, consistent with the Constitution, Rules and Regulations of
the New York Stock Exchange, Inc. (the "EXCHANGE"), as the Managing Committee
may from time to time determine; and
(3) to carry on any business designated by the Managing Committee
which may lawfully be carried on by an affiliate of a member firm of the
Exchange in accordance with the Rules of the Exchange.
SECTION 1.4. TERM. The term of the Company shall continue through the
earlier of the termination or dissolution of the Firm in accordance with the
provisions of the Firm Agreement (as hereinafter defined) or the termination or
dissolution of the Company pursuant to the laws of the State of New York, unless
its existence is sooner terminated pursuant to Article VII of this Agreement.
ARTICLE II
MEMBER; CAPITAL
SECTION 1.5. MEMBER. The name, present mailing address and taxpayer
identification number of the Member are as follows:
<TABLE>
<CAPTION>
Name Address Taxpayer Identification Number
- ---- ------- ------------------------------
<S> <C> <C>
LaBranche & Co Inc. One Exchange Plaza 13-4064735
New York, NY 10006
</TABLE>
SECTION 1.6. CAPITAL. As of the date hereof, the Member shall be
credited with a capital contribution to the Company in the amount of
$____________.
SECTION 1.7. CAPITAL CONTRIBUTION DEFINED. For purposes of this
Agreement, the term "CAPITAL CONTRIBUTION" shall mean any contribution of cash
or securities to the Company.
SECTION 1.8. ADDITIONAL CAPITAL CONTRIBUTIONS. With the prior consent
of the Managing Committee, the Member may make additional Capital Contributions.
If the Managing Committee, at any time or from time to time, determines, in its
sole discretion, that the Company
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requires an additional Capital Contribution to enable the Company or the Firm to
conduct its business operations, then the Member shall make such additional
Capital Contribution at such time or times as shall be specified by the Managing
Committee.
SECTION 1.9. NO INTEREST ON CAPITAL CONTRIBUTIONS. The Member shall
not be paid interest on its Capital Contribution.
SECTION 1.10. RETURN OF CAPITAL CONTRIBUTIONS. Except as otherwise
provided in this Agreement, the Member shall not have the right to receive any
return of its Capital Contribution.
SECTION 1.11. LOANS. The Member may make or cause a loan to be made to
the Company at such times, in such amounts and on such terms and conditions as
shall be approved by the Managing Committee.
ARTICLE III
PROFIT, LOSS AND DISTRIBUTION
SECTION 1.12. PROFIT AND LOSS. Net profit or net loss of the Company
shall be determined for each taxable year of the Company or for any shorter
period as the Managing Committee may determine from time to time, and shall be
equal to the Company's taxable income or loss for such year or period, as
determined pursuant to applicable tax laws, but as adjusted to (i) include
income exempt from income tax (and not otherwise taken into account in computing
net profit and net loss), (ii) include Company expenditures which are not
deductible under applicable tax laws and not properly chargeable to capital
accounts (and not otherwise taken into account in computing net profit or net
loss), (iii) take into account any adjustments to depreciation for such taxable
year or shorter period and any variation between the adjusted tax basis and the
book value of any property contributed by the Member to the Company in
accordance with the principles of applicable tax laws, and (iv) not include any
items which are specially allocated to the Member pursuant to applicable tax
laws.
SECTION 1.13. ALLOCATION AND DISTRIBUTION. 100% of the net profit and
net loss of the Company for each fiscal year of the Company or portion thereof
shall be allocated and distributed to the Member at such times and in such
amounts as shall be determined by the Managing Committee.
ARTICLE IV
MANAGEMENT
SECTION 1.14. MANAGEMENT. The management of the Company shall be
vested in a Managing Committee (the "MANAGING COMMITTEE") which shall be
responsible for the determination of all questions of business, policy and
operation of the Company. The duties of the Managing Committee shall include,
but not be limited to, the management of the Firm on behalf of the Company, as
provided in Article VI of the Amended and Restated Articles of Partnership of
the Firm, dated as of the date hereof, and as subsequently amended (the "FIRM
AGREEMENT"), and the
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designation of two or more persons who are members or allied members of the
Exchange, and who are otherwise acceptable to the Exchange, to act on behalf of
the Firm in connection with the Firm's day-to-day dealings with the Exchange.
Without limiting the foregoing, the Managing Committee shall have full power and
authority on behalf of the Member, at any time and from time to time, in
accordance with the rules of any national securities exchange, to determine in
good faith the value of Company and Firm assets in those cases where such assets
do not have readily ascertainable market values, and to review and determine
salaries of employees of the Company and the Firm. Decisions of the Managing
Committee shall be presumed to be within its scope of authority and shall be
binding upon the Company and the Member. The Managing Committee shall be
composed of George M.L. LaBranche, IV, Alfred O. Hayward, Jr. and James G.
Gallagher. The Member may remove one or more members of the Managing Committee
at such time or times as it shall determine in its sole discretion or increase
the membership thereof by designating one or more additional persons for
membership on the Managing Committee for such terms as it may specify. Whenever,
by the terms of this Agreement, any matter is subject to action or determination
by the Managing Committee, such action or determination shall by approved or
made by a majority of the persons constituting the Managing Committee.
SECTION 1.15. LIABILITY AND INDEMNIFICATION.
(1) Except as otherwise provided by law, no member of the
Managing Committee shall be liable, responsible or accountable in any way for
damages or otherwise to the Company or to the Member for any act or failure to
act pursuant to this Agreement unless there is a judicial determination that (i)
such person acted in bad faith, (ii) the conduct of such person constituted
intentional misconduct or a knowing violation of law, (iii) such person gained a
financial benefit to which he or she was not legally entitled or (iv) such
person failed to perform his or her duties, specifically with respect to
distributions under Section 508(a) of the New York Limited Liability Company
Law, in good faith and with that degree of care that an ordinarily prudent
person in a like position would use under similar circumstances.
(2) The Company shall indemnify, defend and hold harmless each
member of the Managing Committee (severally, an "INDEMNITEE" and collectively,
the "INDEMNITEES"), from and against any claims, losses, liabilities, damages,
fines, penalties, costs and expenses (including, without limitation, reasonable
fees and disbursements of counsel and other professionals) arising out of or in
connection with any act or failure to act by an Indemnitee pursuant to this
Agreement, or the business and affairs of the Company, to the fullest extent
permitted by law; provided, however, that an Indemnitee shall not be entitled to
indemnification hereunder if there is a judicial determination that (i) such
Indemnitee's actions or omissions to act were made in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or (ii) such Indemnitee personally gained a financial
benefit to which the Indemnitee was not legally entitled.
SECTION 1.16. ACTIONS OF MEMBER REQUIRING MANAGING COMMITTEE CONSENT.
The Member shall not, without the prior written consent of the Managing
Committee, (i) assign, transfer or pledge any of the claims of, or debts due to,
the Company or the Firm, except upon payment in full; (ii) make, execute or
deliver any assignment for the benefit of creditors or any bond, confession of
judgment, or indemnity bond (except pursuant to Section 8.04) (iii) make,
execute or deliver in the name of the Company or the Firm any chattel mortgage,
security agreement or
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financing statement; (iv) become a surety, guarantor or accommodation party to
any obligations in the name or in the credit of the Company or the Firm; (v)
lend any money of the Company or the Firm or extend any credit of the Company or
the Firm except in the regular course of business; and (vi) without being
limited by the foregoing, do any act or enter into transactions on behalf of the
Company or the Firm except in the regular course of business and consistent with
the terms of this Agreement.
ARTICLE V
TRANSFERS OF INTEREST; WITHDRAWAL OF MEMBER
SECTION 1.17. TRANSFER OF INTEREST. The Member may not Transfer in
whole or in part its interest in the Company without the prior written consent
of the Managing Committee. For purposes of this Agreement, the term "TRANSFER"
means, - when used as a noun - any sale, hypothecation, pledge, assignment,
gift, bequest, attachment, or other transfer, including transfers by operation
of law, and - when used as a verb - means to sell, hypothecate, pledge, assign,
give, bequeath, or otherwise transfer.
SECTION 1.18. WITHDRAWAL OF MEMBER. The Member may not withdraw any
portion of its interest in the Company without the prior written consent of the
Managing Committee.
ARTICLE VI
ADMISSION OF ADDITIONAL MEMBERS
SECTION 1.19. ADMISSION OF NEW MEMBERS. New members may be admitted to
the Company upon such terms and conditions as the Managing Committee shall
determine. The admission of a new member or members shall not dissolve the
Company, and the Company shall be the same firm for all purposes.
ARTICLE VII
DISSOLUTION
SECTION 1.20. EVENT OF DISSOLUTION OF THE COMPANY. The Company shall
be dissolved upon the happening of the earlier of the following events:
(1) when the period fixed for its duration in Section 1.04 has
expired; or
(2) upon the determination of the Managing Committee, in its sole
discretion, to dissolve the Company, by giving written notice to the Member
specifying the date upon which the Company shall dissolve.
SECTION 1.21. BANKRUPTCY. Any bankruptcy of the Member shall not
dissolve the Company.
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<PAGE>
SECTION 1.22. EVENT OF DISSOLUTION OF THE FIRM. Notwithstanding
anything to the contrary contained herein, in the event of the dissolution of
the Firm upon the expiration of the term of the Firm Agreement, or any extension
or renewal thereof, the Member agrees that any withdrawal of capital upon any
such dissolution which would cause the Firm's "aggregate indebtedness" to exceed
the percentages specified in Rules 326(a) and 326(b) of the Rules of the Board
of Directors of the Exchange during the six months immediately preceding the
date of the dissolution, may be postponed for a period of up to (6) six months
of the stated date of dissolution, as the Managing Committee may deem necessary
to ensure compliance with said rules, and any such capital so retained by the
Firm after the date of dissolution shall continue to be subject to all debts and
obligations of the Firm.
ARTICLE VIII
MISCELLANEOUS
SECTION 1.23. Conformity OF COMPANY AGREEMENT TO EXCHANGE
REQUIREMENTS. This Agreement and all matters and things to be done and performed
in connection with the Company business shall be subject to the Constitution,
Rules, Regulations and requirements, so far as applicable thereto, of the
Exchange and shall be conducted strictly in compliance therewith. If any of the
terms, covenants and conditions of this Agreement shall be in conflict with any
provision of the Constitution, Rules, Regulations or requirements of the
Exchange, the same shall be deemed modified so as to conform therewith.
SECTION 1.24. NO ASSIGNMENT. The Member may not assign or encumber its
interest in the Company without the prior written consent of the Exchange and of
the Managing Committee.
SECTION 1.25. ARBITRATION. In the event that any dispute or
controversy arises under or in connection with this Agreement, such dispute or
controversy, except as otherwise expressly provided herein, shall be submitted
for binding arbitration to the Exchange in accordance with the Rules and
procedures of the Exchange then obtaining.
SECTION 1.26. PROVISIONS FOR ADMINISTRATIVE CONVENIENCE. The members
of the Managing Committee shall have full power and authority on behalf of the
Member, at any time and from time to time, in accordance with the rules of any
national securities exchange (a) to designate one or more persons (i) to assign
securities registered in the name of the Company, (ii) to execute powers of
substitution, (iii) to guarantee the signatures of others to assignments of
securities, and (iv) to make any certification or guarantee of any signature on
documents submitted in support of the transfer of any securities, all with the
same effect as if the name of the Company had been signed under like
circumstances by the Managing Committee, (b) to adopt and authorize the use of a
mechanically reproduced facsimile signature of the Company in connection with
(i) the assignment of securities registered in the name of the Company, and (ii)
the execution of powers of substitution, (c) to designate one or more of the
employees of the Member or the Firm to sign written contracts covering "seller
option", "when issued" and "when distributed" transactions in the name of the
Company with the same effect as if the name of the Company had been signed under
like circumstances by the Managing Committee, and (d) to execute and file with
any national securities exchange, in the name and on behalf of the Company, and
the Member, any and all such powers of
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attorney, agreements and other instruments (including agreements of
indemnification) as may by such exchange be required to evidence or support
action under subsection (a), (b) or (c) of this Section 8.04.
SECTION 1.27. PUBLIC FILINGS. The Member hereby irrevocably
constitutes and appoints George M.L. LaBranche, IV and James G. Gallagher, each
acting singly, as its true and lawful representatives and attorneys-in-fact, in
its name, place and stead to execute and deliver such instruments, documents,
certificates or other writings, which may from time to time be necessary under
the laws of the United States of America, the State of New York or any other
jurisdiction or under the rules of any political subdivision or agency thereof,
to effectuate, implement and continue the valid and subsisting existence of the
Company with the same force and effect as if such instrument, document,
certificate or other written instrument had been personally executed by such
party. Such representatives and attorneys-in-fact shall not, however, have any
right, power or authority themselves to amend or modify this Agreement when
acting in such capacity. This power of attorney is coupled with an interest and
shall continue in full force and effect notwithstanding the subsequent
bankruptcy of the Member.
SECTION 1.28. NOTICES. All notices permitted or required hereunder
shall be in writing and shall be deemed duly given if (a) delivered personally
to the person for whom intended or (b) mailed to the person for whom intended,
by registered or certified mail, return receipt requested, addressed to the
Member's address set forth in this Agreement. Such notice shall be deemed to
have been given when so delivered personally or upon mailing. Notice given to
any two members of the Managing Committee shall constitute notice to the
Company.
SECTION 1.29. GENERAL PROVISIONS. This Agreement (a) reflects the
entire agreement among the parties, (b) from and after the effective date
hereof, supersedes all prior partnership or limited liability company operating
agreements among the parties hereto, (c) shall be construed in accordance with
the internal law, not the law of conflicts, of the State of New York, and (d)
shall be binding upon and inure to the benefit of the parties hereto, their
respective legal representatives, heirs, executors and administrators and any
continuing or successor partnership, corporation, limited liability company or
other entity succeeding to substantially all the business of the Company.
SECTION 1.30. ARTICLE AND SECTION TITLES. The headings used herein are
for convenience only and shall not be resorted to for interpretation of this
Agreement.
SECTION 1.31. SEPARABILITY OF PROVISIONS. Each provision of this
Agreement shall be considered separable, and if, for any reason, any provision
or provisions herein are determined to be invalid and contrary to any existing
or future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid.
SECTION 1.32. EFFECTIVE DATE. This Agreement shall be and becomes
effective as of the date first above written, subject to approval by the
Exchange.
SECTION 1.33. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, all of which taken together shall constitute but one and the
same agreement.
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IN WITNESS WHEREOF, the Member and the Company have executed this Agreement
as of the date set forth hereinabove.
LaBRANCHE & CO INC.
By:
------------------------------------------------
Name: George M.L. LaBranche, IV
Title: Chairman and Chief Executive Officer
LaB INVESTING CO. L.L.C.
By:
------------------------------------------------
Name: George M.L. LaBranche, IV
Title: Managing Committee member
By:
------------------------------------------------
Name: Alfred O. Hayward, Jr.
Title: Managing Committee member
By:
------------------------------------------------
Name: James G. Gallagher
Title: Managing Committee member
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<PAGE>
ACQUISITION AGREEMENT
AGREEMENT, dated this ___ day of August, 1999, by and between Ernst &
Company, a Delaware corporation ("Seller"), and LaBranche & Co., a New York
limited partnership ("Purchaser").
WHEREAS, Purchaser has taken steps to complete an ownership restructuring
(the "Restructuring") involving the organization of LaBranche & Co Inc., a
Delaware corporation which will hold 100% of the equity interest in Purchaser
("Newco"), and an initial public offering of the shares of stock of Newco (the
"IPO") to occur simultaneously with the Restructuring;
WHEREAS, Seller is a limited partner of Purchaser and owns an interest in
capital and a 5.3685% interest in the profits of Purchaser (the "LP Interest"),
but does not intend to participate in the IPO and become a stockholder of Newco;
WHEREAS, Seller has previously agreed to sell, and Purchaser has previously
agreed to acquire, the entire LP Interest (including the balance in Seller's
capital account with Purchaser); and
WHEREAS, Seller and Purchaser wish to formalize the terms and conditions of
their agreement by hereinafter setting forth such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows (with all capitalized
terms used herein and not otherwise defined herein having the respective
meanings ascribed thereto in the Amended and Restated Articles of Partnership of
Purchaser, as amended to the date hereof (the "Partnership Agreement")):
1. PURCHASE AND SALE OF THE LP INTEREST. Subject to the terms and
conditions hereof, Seller shall sell, assign, transfer, convey and deliver to
Purchaser, and Purchaser will acquire from Seller, the LP Interest for a
purchase price of $28,176,000 (the "Purchase Price"), payable by wire transfer
of immediately available funds to the order of Seller immediately after the
closing of the IPO.
2. PRE-CLOSING CONDITIONS. Purchaser's and Seller's mutual obligations to
consummate the transactions contemplated hereby will be subject to the
conditions that (i) the IPO shall have been consummated on or before December
31, 1999, and (ii) no injunction or order shall be in effect prohibiting
consummation of the transactions contemplated hereby or which would make the
consummation of such transactions unlawful, and no action or proceeding shall
have been instituted and remain pending before a court, governmental body or
regulatory authority or shall be threatened to restrain or prohibit such
transactions.
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3. CAPITAL CONTRIBUTIONS. Notwithstanding the provisions of Section 4(b) of
the Partnership Agreement, Seller will not be required to make any additional
capital contributions to Purchaser pursuant to such provision prior to the
consummation of the IPO and the transactions contemplated hereby; PROVIDED,
HOWEVER, that if the IPO has not been consummated on or before December 31,
1999, unless otherwise agreed by the parties (i) Seller's obligation to make
such additional capital contributions to Purchaser shall be reinstated
immediately, retroactive to the date of this Agreement, and (ii) Purchaser shall
be entitled to retain that portion of Seller's share of the previously
undistributed profits of Purchaser for the fiscal year ended December 31, 1999
(as an additional capital contribution to Purchaser by Seller) which is equal to
the amounts which otherwise would have been retained by Purchaser pursuant to
Section 4(b) of the Partnership Agreement. Effective upon the consummation of
the transactions contemplated hereby, Seller shall have no further obligations
to Owen J. DeCoursey under the provisions of the Partnership Agreement.
4. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants to Purchaser as follows:
(a) upon the transfer of the LP Interest under this Agreement to
Purchaser, Purchaser will acquire good and marketable title to the LP Interest
free and clear of any pledge, security interest or other encumbrance, or any
restriction or claim;
(b) Seller has good and marketable title to the LP Interest, and there
are no options, warrants, calls, commitments or agreements of any type to which
Seller is a party or by which Seller may be bound under which any person or
entity has a right to purchase or acquire, own or maintain any rights in, of or
to any of the LP Interest;
(c) the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the compliance with the
provisions hereof by Seller will not (i) conflict with, result in the breach of,
or constitute a default under the certificate of incorporation, bylaws or other
organizational documents of Seller or any agreement or other instrument to which
Seller is a party or by which the property of Seller is bound or affected, (ii)
result in the creation of any lien, security interest, charge or encumbrance
upon the LP Interest, (iii) require any authorization, consent, approval,
exemption or other action by, or notice to, any third party, court or other
governmental or administrative body, or (iv) violate any laws, statutes,
regulations, orders or judgments applicable to Seller or the LP Interest;
(d) Seller has full, absolute and entire power and legal right to
execute, deliver and perform this Agreement;
(e) the execution, delivery and performance by Seller of this
Agreement have been duly and validly authorized by all necessary corporate
action on behalf of Seller;
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(f) this Agreement has been duly executed and delivered by Seller and
constitutes the valid and binding agreement of Seller, enforceable in accordance
with its terms, except as its enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws relating to or affecting creditors' rights
generally and the exercise of judicial discretion in accordance with general
equitable principles; and
(g) Seller has been afforded the opportunity to ask questions of, and
receive answers from, the management of Purchaser about the business and affairs
of Purchaser, LaB Investing Co. L.L.C., the general partner of Purchaser (the
"General Partner"), and Newco and the terms of the Restructuring and the IPO and
to obtain any additional information related thereto, to the extent available
and appropriate; Purchaser, the General Partner and Newco have furnished to
Seller all information which Seller considers necessary to form a decision
concerning the disposition of the LP Interest; and no valid request to
Purchaser, the General Partner or Newco by Seller for information of any kind
about Purchaser, the General Partner and Newco and the terms of the
Restructuring and the IPO has been refused or denied or remains unfulfilled as
of the date hereof.
5. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser hereby represents
and warrants to Seller as follows:
(a) Purchaser has full, absolute and entire power and legal right to
execute, deliver and perform this Agreement;
(b) the execution, delivery and performance by Purchaser of this
Agreement have been duly and validly authorized by all necessary action on
behalf of Purchaser;
(c) this Agreement has been duly executed and delivered by Purchaser
and constitutes the valid and binding agreement of Purchaser, enforceable in
accordance with its terms, except as its enforceability may be limited by
bankruptcy, insolvency, moratorium or other laws relating to our affecting
creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles; and
(d) the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the compliance with the
provisions hereof by Purchaser will not (i) conflict with, result in the breach
of, or constitute a default under the certificate of incorporation, bylaws or
other organizational documents of Purchaser or any agreement or other instrument
to which Purchaser is a party or by which the property of Purchaser is bound or
affected, (ii) require any authorization, consent, approval, exemption or other
action by, or notice to, any third party, court or other governmental or
administrative body, or (iii) violate any laws, statutes, regulations, orders or
judgments applicable to Purchaser.
-3-
<PAGE>
6. CONSENT OF GENERAL PARTNER. By signing below on behalf of Purchaser, the
General Partner consents to the sale of the LP Interest by Seller to Purchaser
pursuant to, and on the terms and conditions set forth in, this Agreement.
7. TERMINATION OF LIMITED PARTNER STATUS. Effective upon the consummation
of the transactions contemplated hereby, Seller shall cease to be a Limited
Partner of Purchaser.
8. RELEASES. Effective upon the consummation of the transactions
contemplated hereby, (i) Seller hereby releases Purchaser, Newco and the General
Partner, and any of their respective affiliates, partners, predecessors,
administrators, successors and assigns from any and all causes of action, suits,
debts, demands, covenants, contracts, agreements, damages, liabilities and
claims of any nature whatsoever (collectively, "Claims") that could ever be
asserted by Seller, whether presently known or unknown, accrued or unaccrued,
which pertain to Purchaser or Seller's acquisition, ownership and disposition of
the LP Interest, and (ii) Purchaser hereby releases Seller and any of its
affiliates, predecessors, administrators, successors and assigns from any and
all Claims that could ever be asserted by Purchaser, whether presently known or
unknown, accrued or unaccrued, which pertain to Purchaser or Seller's
acquisition ownership and disposition of the LP Interest. The foregoing releases
are not intended to affect the obligations of the parties under this Agreement.
9. ENTIRE AGREEMENT. This Agreement and that certain waiver letter, dated
June 11, 1999, from Purchaser to Seller state the entire agreement between the
parties with respect to the subject matter hereof (other than the Partnership
Agreement), and the provisions hereof may only be modified, waived or terminated
by a writing signed by the party or parties to be bound thereby.
10. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York, without regard to the principles of conflicts of laws
thereof.
11. BINDING EFFECT. This Agreement and all the terms and conditions hereof
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
12. FURTHER ASSURANCES. The parties hereto will execute, acknowledge and
deliver such further instruments and do such further acts and things as may be
required to carry out the intent and purpose of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
[The remainder of this page intentionally left blank.]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ERNST & COMPANY
By:
-----------------------------------------
Name:
Title:
LABRANCHE & CO.
By: LaB Investing Co. L.L.C.,
As General Partner
By:
-----------------------------------------
George M.L. LaBranche, IV, Member
-5-
<PAGE>
ACQUISITION AGREEMENT
AGREEMENT, dated this ___ day of August, 1999, by and between Mill Bridge,
Inc., a Delaware corporation ("Seller"), LaB Investing Co. L.L.C., a New York
limited liability company ("Purchaser"), LaBranche & Co Inc., a Delaware
corporation ("Newco"), and, for purposes of Section 6 hereof, LaBranche & Co., a
New York limited partnership ("LaBranche").
WHEREAS, Purchaser is the general partner of LaBranche;
WHEREAS, LaBranche has taken steps to complete an ownership restructuring
(the "Restructuring") involving the organization of Newco, which will hold 100%
of the equity interest in LaBranche ("Newco"), and an initial public offering of
the shares of stock of Newco (the "IPO") to occur simultaneously with the
Restructuring;
WHEREAS, Seller is a limited partner of LaBranche and owns an interest in
capital and an approximately 14.2% interest in the profits and losses of
LaBranche (the "LP Interest"), but does not intend to participate in the IPO and
become a stockholder of Newco;
WHEREAS, Seller has previously agreed to sell, and Purchaser has previously
agreed to acquire, the entire LP Interest (including the balance in Seller's
capital account with LaBranche, but excluding Seller's share of the
undistributed net profits of LaBranche for the portion of the 1999 fiscal year
ending on the date of the closing of the transactions contemplated hereby (the
"Closing")); and
WHEREAS, Seller and Purchaser wish to formalize the terms and conditions of
their agreement by hereinafter setting forth such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows (with all capitalized
terms used herein and not otherwise defined herein having the respective
meanings ascribed thereto in the Amended and Restated Articles of Partnership of
LaBranche, as amended to the date hereof (the "Partnership Agreement")):
1. PURCHASE AND SALE OF THE LP INTEREST.
(a) On the date of, and immediately after, the closing of the IPO (the
"Closing Date") and subject to the terms and conditions hereof, Seller shall
sell, assign, transfer, convey and deliver to Purchaser, and Purchaser will
acquire from Seller, the LP Interest for an aggregate purchase price of
$90,000,000, of which (i) $74,000,000 shall be payable by wire transfer of
immediately available funds to the order of Seller, and (ii) $16,000,000 shall
be payable by Purchaser's delivery to Seller of Newco's $16,000,000 note (the
"Note") substantially in the form attached as EXHIBIT A hereto (collectively,
the "Purchase Price"). The Note shall provide for the payment of interest at a
rate equal to the actual stated interest rate that is payable under, and shall
rank PARI PASSU with, the Senior Notes due 2004 in the aggregate principal
amount of up to $100,000,000 which Newco intends to issue as of the Closing
Date.
-1-
<PAGE>
(b) Within a reasonable period of time after the Closing Date,
Purchaser shall cause LaBranche to determine the amount of LaBranche's net
profit or net loss for the portion of its 1999 fiscal year ending on the Closing
Date and, within fifteen (15) days after such determination, shall cause
LaBranche to pay to Seller an amount equal to Seller's share of any previously
undistributed net profit of LaBranche for the portion of the 1999 fiscal year
ending on the Closing Date. On the Closing Date, Purchaser also shall cause
LaBranche to pay to Van der Moolen USA, Inc., an affiliate of Seller ("VDM"), by
wire transfer of immediately available funds, the sum of $5,000,000 plus the
amount of any accrued but unpaid interest in full satisfaction of LaBranche's
obligations under that certain Cash Subordination Agreement in the principal
amount of $5,000,000, dated as of December 30, 1996, between LaBranche and
Seller, which was assigned to VDM by Seller pursuant to an Assignment and
Assumption of Cash Subordination Agreement made as of December 31, 1997 between
Seller and VDM.
2. PRE-CLOSING CONDITIONS. Purchaser's and Seller's mutual obligations to
consummate the transactions contemplated hereby will be subject to the
conditions that (i) the IPO shall have been consummated on or before December
31, 1999, and (ii) no injunction or order shall be in effect prohibiting
consummation of the transactions contemplated hereby or which would make the
consummation of such transactions unlawful, and no action or proceeding shall
have been instituted and remain pending before a court, governmental body or
regulatory authority or shall be threatened to restrain or prohibit such
transactions.
3. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants to Purchaser as follows:
(a) except as otherwise provided in the Partnership Agreement, upon
the transfer of the LP Interest under this Agreement to Purchaser, Purchaser
will acquire good and marketable title to the LP Interest free and clear of any
pledge, security interest or other encumbrance, or any restriction or claim;
(b) Seller has good and marketable title to the LP Interest, and there
are no options, warrants, calls, commitments or agreements of any type to which
Seller is a party or by which Seller may be bound under which any person or
entity has a right to purchase or acquire, own or maintain any rights in, of or
to any of the LP Interest;
(c) the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the compliance with the
provisions hereof by Seller will not (i) conflict with, result in the breach of,
or constitute a default under the certificate of incorporation, bylaws or other
organizational documents of Seller or any agreement or other instrument to which
Seller is a party or by which the property of Seller is bound or affected, (ii)
result in the creation of any lien, security interest, charge or encumbrance
upon the LP Interest, (iii) require any authorization, consent, approval,
exemption or other action by, or notice to, any third party, court or other
governmental or administrative body, or (iv) violate any laws, statutes,
regulations, orders or judgments applicable to Seller or the LP Interest;
-2-
<PAGE>
(d) Seller is a duly organized and validly existing corporation under
the laws of the State of Delaware and has the full, absolute and entire power
and legal right to execute, deliver and perform this Agreement;
(e) the execution, delivery and performance by Seller of this
Agreement have been duly and validly authorized by all necessary corporate
action on behalf of Seller;
(f) this Agreement has been duly executed and delivered by Seller and
constitutes the valid and binding agreement of Seller, enforceable in accordance
with its terms, except as its enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws relating to or affecting creditors' rights
generally and the exercise of judicial discretion in accordance with general
equitable principles; and
(g) Seller has been afforded the opportunity to ask questions of, and
receive answers from, the management of LaBranche about the business and affairs
of Purchaser, LaBranche and Newco and the terms of the Restructuring and the IPO
and to obtain any additional information related thereto, to the extent
available and appropriate; Purchaser, LaBranche and Newco have furnished to
Seller all information which Seller considers necessary to form a decision
concerning the disposition of the LP Interest; and no valid request to
Purchaser, LaBranche or Newco by Seller for information of any kind about
Purchaser, LaBranche and Newco and the terms of the Restructuring and the IPO
has been refused or denied or remains unfulfilled as of the date hereof.
4. PURCHASER'S AND NEWCO'S REPRESENTATIONS AND WARRANTIES. Purchaser and
Newco, jointly and severally, hereby represent and warrant to Seller as follows:
(a) Purchaser is a duly organized and validly existing limited
liability company under the laws of the State of New York and Newco is a duly
organized and validly existing corporation under the laws of the State of
Delaware and each has the full, absolute and entire power and legal right to
execute, deliver and perform this Agreement, and Newco has the full, absolute
and entire power and legal right to execute, deliver and perform the Note;
(b) the execution, delivery and performance by Purchaser and Newco of
this Agreement and by Newco of the Note have been duly and validly authorized by
all necessary action on behalf of Purchaser and Newco;
(c) this Agreement has been duly executed and delivered by Purchaser
and Newco and constitutes the valid and binding agreement of Purchaser and
Newco, enforceable in accordance with its terms, except as its enforceability
may be limited by bankruptcy, insolvency, moratorium or other laws relating to
or affecting creditors' rights generally and the exercise of judicial discretion
in accordance with general equitable principles;
(d) upon its execution and delivery, the Note will constitute the
valid and binding agreement of Newco, enforceable in accordance with its terms,
except as its enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws relating to or affecting creditors' rights generally
and the exercise of judicial discretion in accordance with general equitable
principles; and
-3-
<PAGE>
(e) the execution, delivery and performance of this Agreement and the
Note, the consummation of the transactions contemplated hereby and the
compliance with the provisions hereof and the Note by Purchaser and Newco, as
the case may be, will not (i) conflict with, result in the breach of, or
constitute a default under the certificate of incorporation, bylaws or other
organizational documents of Purchaser or Newco or any agreement or other
instrument to which Purchaser or Newco is a party or by which the property of
Purchaser or Newco is bound or affected, (ii) require any authorization,
consent, approval, exemption or other action by or notice to any third party,
court or other governmental or administrative body which has not been obtained,
or (iii) violate any laws, statutes, regulations, orders or judgments applicable
to Purchaser or Newco.
5. TERMINATION OF LIMITED PARTNER STATUS. Effective upon the consummation
of the transactions contemplated hereby, Seller shall cease to be a Limited
Partner of LaBranche.
6. RELEASES. Effective upon the consummation of the transactions
contemplated hereby, (i) Seller hereby releases Purchaser, Newco and LaBranche,
and any of their respective affiliates, partners, predecessors, administrators,
successors and assigns from any and all causes of action, suits, debts, demands,
covenants, contracts, agreements, damages, liabilities and claims of any nature
whatsoever (collectively, "Claims") that could ever be asserted against
Purchaser, Newco or LaBranche by Seller, whether presently known or unknown,
accrued or unaccrued, which pertain to LaBranche or Seller's investment therein,
and (ii) Purchaser, LaBranche and Newco hereby release Seller and any of its
affiliates, predecessors, administrators, successors and assigns from any and
all Claims that could ever be asserted against Seller by Purchaser, LaBranche or
Newco, whether presently known or unknown, accrued or unaccrued, which pertain
to LaBranche or Seller's investment therein. The foregoing releases are not
intended to affect the obligations of the parties under this Agreement or of
Newco under the Note.
7. ENTIRE AGREEMENT. This Agreement, the Note and that certain waiver
letter, dated June 11, 1999, from LaBranche to Seller state the entire agreement
between the parties with respect to the subject matter hereof (other than the
Partnership Agreement), and the provisions hereof may only be modified, waived
or terminated by a writing signed by the party or parties to be bound thereby.
8. GOVERNING LAW. This Agreement shall be governed by the laws of the State
of New York, without regard to the principles of conflicts of laws thereof.
9. BINDING EFFECT. This Agreement and all the terms and conditions hereof
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
10. FURTHER ASSURANCES. The parties hereto will execute, acknowledge and
deliver such further instruments and do such further acts and things as may be
required to carry out the intent and purpose of this Agreement.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
-4-
<PAGE>
12. TERMINATION. This Agreement shall terminate and be of no further force
or effect in the event the Closing has not taken place by 11:59 p.m. on December
31, 1999.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MILL BRIDGE, INC.
By:
------------------------------------
Name:
Title:
LAB INVESTING CO. L.L.C.
By:
------------------------------------
Name:
Title:
LABRANCHE & CO INC.
By:
------------------------------------
Name:
Title:
For purposes of Section 6 hereof:
LABRANCHE & CO.
By:
------------------------------------
Name:
Title:
-5-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
New York, New York
August 16, 1999
<PAGE>
EXHIBIT 23.3
[Letterhead]
August 16, 1999
RE: LA BRANCHE & CO, INC.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
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
August 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 2,763 4,722
<RECEIVABLES> 115,467 54,808
<SECURITIES-RESALE> 35,300 21,100
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 109,183 117,822
<PP&E> 1,469 1,647
<TOTAL-ASSETS> 346,101 272,201
<SHORT-TERM> 1,105 1,341
<PAYABLES> 3,347 3,892
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 90,578 67,896
<LONG-TERM> 71,158 60,323
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 95,569 77,093
<TOTAL-LIABILITY-AND-EQUITY> 346,101 272,201
<TRADING-REVENUE> 78,666 95,048
<INTEREST-DIVIDENDS> 6,942 4,787
<COMMISSIONS> 17,885 26,576
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 2,195 3,577
<COMPENSATION> 11,299 13,921
<INCOME-PRETAX> 10,081 6,560
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,292 2,660
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
