LABRANCHE & CO INC, S-1/A, 1999-07-26

LABRANCHE & CO INC
S-1/A, 1999-07-26
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1999

REGISTRATION NO. 333-81079

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1
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. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) UNIT(2) PRICE (1)(2) REGISTRATION FEE (3)
<S> <C> <C> <C> <C>
Common stock, $.01 par value per
share......................... 13,225,000 $17 $224,825,000 $62,505
</TABLE>

(1) Includes shares subject to over-allotment options granted to the
underwriters.

(2) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.

(3) The Registrant previously paid $59,145 in connection with the original
filing of the registration statement. An additional $3,360 has been paid in
connection with the filing of this amendment.

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>

SUBJECT TO COMPLETION, DATED JULY , 1999

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>
PROSPECTUS

11,500,000 SHARES

LABRANCHE & CO INC.

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, and
will apply to have the common stock listed on the New York Stock Exchange under
the symbol "LAB."

------------------------

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.

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 are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.

------------------------

SALOMON SMITH BARNEY DONALDSON, LUFKIN & JENRETTE
<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.............................................................................................. 7
Use of Proceeds........................................................................................... 17
Dividend Policy........................................................................................... 17
Capitalization............................................................................................ 18
Dilution.................................................................................................. 19
Selected Historical Consolidated Financial Data........................................................... 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................................... 22
Business.................................................................................................. 33
Management................................................................................................ 48
Employment Agreements and Noncompetition Agreements....................................................... 50
Incentive Awards to Our Employees......................................................................... 52
Principal Stockholders.................................................................................... 54
Certain Transactions...................................................................................... 56
Description of Capital Stock.............................................................................. 58
Shares Eligible for Future Sale........................................................................... 60
Underwriting.............................................................................................. 62
Legal Matters............................................................................................. 63
Experts................................................................................................... 64
Where You Can Find Additional Information................................................................. 64
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 128 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.

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]

2
<PAGE>

- 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, three members of LaB Investing Co. L.L.C. will 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 $68.4
million in cash and 625,000 shares of our common stock.

- 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 and (2) restricted stock units for 1,059,000 shares of
common stock, in each case to employees who are not managing directors
under our 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 $60.4 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.
Proposed New York Stock Exchange
symbol.......................... LAB
</TABLE>

For a discussion of certain risk factors that should be considered by
prospective investors in connection with an investment in the common stock, see
"Risk Factors." In particular, you should read the risk factor entitled "A
significant amount of the proceeds of this offering will not be specifically
allocated, and we will have broad discretion in how to use these proceeds."

At approximately the same time as this offering, we will incur indebtedness
of approximately $116.0 million. This indebtedness will consist of (1) an
offering of an aggregate principal amount of $100.0 million of senior notes due
2006 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 $16.0 million
of subordinated indebtedness. Of this indebtedness:

- $98.0 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) 1,059,000 shares of common stock subject to restricted stock units.

3
<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.

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.

4
<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 gives effect to (1) the reorganization and
related transactions as if they occurred on June 30, 1999, (2) our note offering
and (3) the application of the net proceeds of our note offering. The pro forma
as adjusted consolidated balance sheet data as of June 30, 1999 gives further
effect to (1) 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 (2) 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)
<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 40,547(A) 11,299 33,051(A)
Lease of exchange memberships........................... 6,568 7,064 4,165 4,165
Interest................................................ 3,577 13,927(B) 2,195 7,165(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 78,184 24,144 52,739
----------- ----------- ----------- -----------
Income from operations.................................... 91,635 59,666 79,349 50,754
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 59,666 31,135 50,754
Limited partners' interest in earnings of subsidiary...... 26,292 -- (F) 21,054 -- (F)
----------- ----------- ----------- -----------
Income before provision for income taxes.................. 6,560 59,666 10,081 50,754
Provision for income taxes................................ 3,900 27,743(G) 3,789 23,077(G)
----------- ----------- ----------- -----------
Net income................................................ $ 2,660 $ 31,923 $ 6,292 $ 27,677
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted net income per share (H)................ $ 0.68 $ 0.59
----------- -----------
----------- -----------
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- -----------
------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and short-term investments...................................... $ 38,063 $ (22,337)(J) $ 147,163(K)
Working capital...................................................... 123,698 63,298(J) 232,798(K)
Total assets......................................................... 346,101 420,007(J) 589,507(K)
Total long-term indebtedness (I)..................................... 51,158 162,158(B) 162,158
Limited partners' interest in subsidiary............................. 37,094 -- (J) -- (J)
Members' capital/stockholders' equity................................ 95,569 95,569(J) 265,069(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 $16.0
million of subordinated long-term 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) 1,059,000 shares
of common stock subject to restricted stock units.

(I) Excludes subordinated liabilities related to contributed exchange
memberships.

(J) Reflects the redemption of limited partnership and membership interests for
$168.4 million, comprised of $142.4 million in cash, $16.0 million of
subordinated indebtedness and $10.0 million in common stock.

(K) Reflects net proceeds of $169.5 million to be received upon completion of
this offering.

6
<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."

7
<PAGE>

COMPETITION FROM NASDAQ FOR NEW LISTINGS COULD ADVERSELY AFFECT NYSE TRADING
VOLUME AND, IN TURN, REDUCE OUR REVENUES.

Nasdaq continues to grow and gain in popularity, attracting companies which
might otherwise have listed on the NYSE. If more companies decide to be quoted
on Nasdaq as opposed to listing their stocks on the NYSE, or if companies choose
to delist using recently relaxed delisting procedures, trading volume on the
NYSE could be adversely affected. This, in turn, could adversely affect our
trading revenue. In recent years, many high technology companies have opted to
be quoted on Nasdaq, even though many of them would have qualified for NYSE
listing. In addition, the SEC recently approved a revision to NYSE Rule 500
which makes it easier for a company to delist its shares from the NYSE. The
original rule required supermajority shareholder approval before a listed
company could delist from the NYSE. Under the recently approved amendment of
Rule 500, a company can delist from the NYSE if it obtains the approval of a
majority of the company's board of directors and the company's audit committee.
The company would then provide its 35 largest shareholders with written notice
of the proposed delisting and allow a 20-40 day waiting period to elapse.

OUR BUSINESS IS HIGHLY VOLATILE AND OUR QUARTERLY RESULTS MAY FLUCTUATE
SIGNIFICANTLY.

We recently experienced a significant increase in our annual revenues and
net income primarily as a result of significant increases in the volume of
trading on the NYSE and favorable conditions in the securities markets. We
cannot be sure, however, that we will continue to experience increases in our
revenues and net income. In addition, our operating results in future periods
may be below the expectations of securities analysts and investors. In that
event, the market price of our common stock could decrease.

Our quarterly operating results have fluctuated significantly in the past.
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. As a result of our specialist obligations, in some cases we were
required to continue buying our specialist stocks during these periods as their
prices declined, which adversely affected our revenues.

Our expense structure is based upon historical expense levels and the levels
of demand for our services. If our expenses increase or demand for our services
declines and we are unable to adjust our cost structure on a timely basis, we
could suffer losses. Due to these factors, period-to-period comparisons of our
revenues and operating results are not necessarily meaningful. You should not
rely on these comparisons as indicators of our future performance.

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.

8
<PAGE>

Although we have adopted risk management policies, we cannot be sure that
these policies have been formulated properly to identify or limit our risks.
Even if these policies are formulated properly, we cannot be sure that we will
successfully implement these policies. As a result, we may not be able to manage
our risks successfully or avoid trading losses.

NYSE SPECIALIST RULES MAY REQUIRE US TO MAKE UNPROFITABLE TRADES OR TO REFRAIN
FROM MAKING PROFITABLE TRADES.

When we trade as principal, we attempt to derive a profit from the
difference between the prices at which we buy and sell securities. Our role as a
specialist, at times, requires us to make trades that adversely affect our
profitability. In addition, as a specialist, we are at times required to refrain
from trading for our own account in circumstances in which it may be to our
advantage to trade. For example, we may be obligated to act as a principal when
buyers or sellers outnumber each other. In those instances, we may take a
position counter to the market, buying or selling shares to support an orderly
market in the affected stocks. In order to perform these obligations, we hold
varying amounts of securities in inventory. In addition, specialists generally
may not trade for their own account when public buyers are meeting public
sellers in an orderly fashion and may not compete with public orders at the same
price. By having to support an orderly market, maintain inventory positions and
refrain from trading under some favorable conditions, we are subjected to a high
degree of risk. Additionally, the NYSE periodically amends its rules and may
make the rules governing our activities as a specialist more stringent or may
implement changes which could adversely affect our trading revenues. For more
information regarding the rules which govern our activities as a specialist, see
"Business--Operations-- NYSE Rules Governing Our Specialist Activities."

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.

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
obligations to pay interest on or repay our indebtedness, including our notes.
See "Business--Regulatory Matters" for a discussion of our net capital
requirements.

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<PAGE>

WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING WHEN WE NEED IT.

Our business depends on the availability of adequate capital. We cannot be
sure 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;

- fire or other natural disaster;

- power or telecommunications failure; or

- war or terrorism.

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.

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<PAGE>
WE DEPEND ON THE NYSE AND CLEARING AND DEPOSITORY INSTITUTIONS TO EFFECT TRADES
AND THEIR FAILURE TO PERFORM COULD SUBJECT US TO LOSSES.

We are dependent on the proper and timely function of complex information
and communications systems maintained and operated by or for the NYSE and
clearing and depository institutions. Failures or inadequate or slow performance
of any of those systems could adversely affect our ability to operate and
complete trades. The failure to complete trades on a timely basis could subject
us to losses and claims for losses of brokers and their customers.

OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO UPGRADE OUR INFORMATION AND
COMMUNICATIONS SYSTEMS, AND ANY FAILURE TO DO SO COULD HARM OUR BUSINESS AND
PROFITABILITY.

The development of complex communications and new technologies, including
Internet-based technologies, may render our existing information and
communications systems outdated. In addition, our information and communications
systems must be compatible with those of the NYSE. As a result, if the NYSE
upgrades its systems, we will need to make corresponding upgrades. Our future
success will depend on our ability to respond to changing technologies on a
timely and cost-effective basis. We cannot be sure that we will be successful in
upgrading our information and communications systems on a timely or
cost-effective basis. Our failure to do so could have an adverse effect on our
business, financial condition and/or operating results.

The NYSE's ability to develop information and communications systems and
complex computer and other technology systems has been instrumental in its
recent growth and success. We are dependent on the continuing development of
technological advances by the NYSE, a process over which we have no control. If
the NYSE for any reason is unable to continue its recent history of
computer-related and other technological developments and advances, it could
have an adverse 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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<PAGE>

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

12
<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 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 employees being required to pay a substantial fine or
settlement. It could also result in the suspension

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<PAGE>

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.

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 will own
approximately 74.1% 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 BE VOLATILE 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>
312,500............................................... One year after the closing of this offering.
625,000............................................... Two years after the closing of this offering.
12,208,333.............................................. Three years after the closing of this offering.
23,791,667.............................................. 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:

In addition:

- each of our managing directors must retain 25% of his or her common stock,
currently totaling 8,687,500 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.

A SIGNIFICANT AMOUNT OF THE PROCEEDS OF THIS OFFERING WILL NOT BE SPECIFICALLY
ALLOCATED, AND WE WILL HAVE BROAD DISCRETION IN HOW TO USE THESE PROCEEDS.

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. The
shares of common stock owned by existing stockholders will receive a material
increase in the

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<PAGE>

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 INHIBIT THE ACQUISITION OF OUR
COMPANY.

Some of the provisions of our certificate of incorporation, our by-laws 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 by-laws 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.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the 11,500,000 shares of
common stock offered by us, at an assumed initial public offering price of
$16.00 per share, and after deducting underwriting discounts and commissions and
other estimated offering expenses, will be approximately $169.5 million ($195.2
million if the underwriters' over-allotment option is exercised in full).

The estimated net proceeds from our note offering, after deducting the
discount to the initial purchasers, commissions and other estimated offering
expenses, will be approximately $97.0 million.

The principal purpose of these offerings is to provide more permanent
capital to support the growth of our specialist business. Approximately $60.4
million of the net proceeds of this offering will be used to redeem some limited
partnership interests in LaBranche & Co. as part of the reorganization of our
firm from partnership to corporate form.

All the net proceeds of our note offering and the issuance of a subordinated
note in the aggregate principal amount of $16.0 million will be used as follows:

- $98.0 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.

We will use the remaining $109.1 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.

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.

17
<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; and

(3) on a pro forma as adjusted basis to give further effect to:

- 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;

- our note offering; and

- the application of the proceeds from this offering and our note 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> <C>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- ----------- -----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Senior notes............................................................. $ -- $ 100,000 $ 100,000
Subordinated indebtedness(1)............................................. 51,158 62,158 62,158
---------- ----------- -----------
Total long-term indebtedness, including current portion.................. 51,158 162,158 162,158
---------- ----------- -----------
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)............................ -- 354 469
Additional paid-in-capital............................................. -- 95,215 264,600
Retained earnings...................................................... -- -- --
---------- ----------- -----------
Total stockholders' equity............................................... -- 95,569 265,069
---------- ----------- -----------
Total capitalization..................................................... $ 183,821 $ 257,727 $ 427,227
---------- ----------- -----------
---------- ----------- -----------
</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) 1,059,000 shares of common stock subject to restricted stock units.

18
<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.

19
<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>

20
<PAGE>

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
Member's capital........................... 20,123 18,270 13,735 37,658 77,093 95,569
</TABLE>

- ------------------------

(1) Excludes subordinated liabilities related to contributed exchange
memberships.

21
<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

22
<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 $116.0 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.

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.

23
<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

24
<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 55.0% to
1.8 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 102 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
31 to 43, 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.

25
<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 decreased 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 special
stocks increased 70.3% to 916.9 million shares for 1998, from 538.5 million
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.

26
<PAGE>
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 31 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.

27
<PAGE>
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 52 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 60.7% to 538.5 million shares for 1997, from 335.1 million 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 64 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 31, 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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<PAGE>
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 increase 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 $200,000.

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<PAGE>

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. Of the $16.2 million of junior subordinated
debt, $1.3 million is collateralized by securities. This agreement has an
automatic rollover provision unless at least seven months notice is given by the
lender. 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.

Concurrently with this offering, we will pay $152.4 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. A portion of these payments will be funded with
the proceeds of our note offering and the issuance of a $16.0 million
subordinated note to one of the limited partners whose interest in LaBranche &
Co. is being acquired.

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 , 2006. 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 %. In addition, we will repay $1.4 million in indebtedness owed in
connection with our retirement plans.

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

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<PAGE>

restrict such transactions if the result is detrimental to the financial
integrity of the broker-dealer. At June 30, 1999, we had net capital of $100.0
million, which was $96.8 million in excess of our required net capital of $3.2
million.

The NYSE generally requires members registered as specialists to establish
that they can meet, with their own net liquid assets, a minimum dollar amount
which is the greater of $1,000,000 or 25% of their position requirement. As of
December 31, 1998, due to the market share represented by our specialist book,
the NYSE mandated that, notwithstanding the general rule, we maintain minimum
net liquid assets of the greater of $90.0 million or 120% of the position
requirement, adjusted by the amount of the position requirement for any new
stock allocated to us as specialist. The position requirement is the ability to
assume positions in our specialist stocks, of 30,000 shares of each S&P 500
common stock, 22,500 shares in all other common stocks, 4,500 shares in each
convertible preferred stock and 1,800 shares in each nonconvertible preferred
stock for which we act as a specialist. "Net liquid assets" for a specialist who
also engages in transactions other than specialist activities is based upon its
excess net capital as determined in accordance with SEC Rule 15c3-1. As of June
30, 1999, our NYSE minimum required dollar amount of net liquid assets was $91.5
million compared to actual net liquid assets of approximately $116.3 million.

Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.

We currently anticipate that net proceeds from 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."

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<PAGE>
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 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.

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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<PAGE>
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 128
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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<PAGE>
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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<PAGE>
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

35
<PAGE>
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

36
<PAGE>
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 $232.8 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 33 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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<PAGE>
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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<PAGE>
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
years. 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>
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 S.A.
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
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
UnumProvident
Allergan
</TABLE>

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For a complete listing of our listed companies, please see the inside back
cover of this prospectus.

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

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stock and 1,800 shares in each nonconvertible preferred stock in which we are a
specialist. "Net liquid assets" for a specialist firm that also engages in
transactions other than specialist activities is based upon its excess net
capital as determined in accordance with SEC Rule 15c3-1. As of June 30, 1999,
our NYSE minimum required dollar amount of net liquid assets was $91.5 million
compared to actual net liquid assets of approximately $116.3 million.

Failure to maintain the required net capital and net liquid assets may
subject us to suspension or revocation of SEC registration or suspension or
expulsion by the NYSE.

COMPETITION

We obtain each of our new listings on the NYSE by participating in an
allocation process. As part of this process, either the allocation committee of
the NYSE or the listing company chooses the specialist firm. We compete with
other specialist firms based on a number of factors, including:

- the strength of our capital base;

- our willingness to commit our own capital and trade for our own account
while conducting our specialist operations; and

- the ancillary services we offer our specialist companies, such as
providing information on the trading activities in their stocks.

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.

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NYSE listed stocks may be traded:

- by NYSE members over-the-counter as long as the stocks were listed after
April 26, 1979. Approximately 70.0% of the NYSE-listed stocks may be
traded by NYSE members over-the-counter; and

- by non-NYSE members over-the-counter.

Technological advances have also contributed to the recent emergence of
trading through alternative trading systems, such as electronic communication
networks and crossing systems. In April 1999, the SEC ruled that alternative
trading systems can apply and, in specified cases, are required to register as
stock exchanges, subject to regulation as a stock exchange. This would enable
NYSE members to trade all NYSE listed stocks on these networks, regardless of
when the stocks were originally listed. These networks may be developed,
organized and operated by large brokerage houses and investment banks with
greater capital, better access to technology and direct access to investors. As
a result, these parties may be well-positioned to direct trading to these
networks. These alternative trading systems may adversely affect the trading of
NYSE-listed stock through specialists on the NYSE. That, in turn, would have an
adverse effect on our business.

The NYSE faces competition from Nasdaq for new listings. Nasdaq continues to
grow and gain in popularity, attracting companies which might otherwise have
listed on the NYSE. In recent years in particular, many high technology
companies have opted to be quoted on Nasdaq, even though many of them would have
qualified for NYSE listing. If more companies decide to be quoted on Nasdaq as
opposed to listing their stocks on the NYSE, trading volume on the NYSE could be
adversely affected.

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.

47
<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

48
<PAGE>

directors with respect to various auditing and accounting matters, including the
recommendation of our auditors, the scope of our annual audits, fees to be paid
to our auditors, the performance of our independent auditors and our accounting
practices. The audit committee will be comprised solely of independent
directors.

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 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 "--Directors and Executive Officers" (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 bonus 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

49
<PAGE>
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.

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 with each
member who will continue as a managing director after this offering and pledge
agreements and agreements regarding noncompetition and other covenants with all
members, whether or not they continue to be employed with us following this
offering, including, in both cases, 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 and 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

50
<PAGE>

- 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.

For this purpose, a "competitive enterprise" is any business enterprise that
engages in activity, or owns 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 and 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 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
liquidated damages are in addition to the forfeiture of any future equity-based
awards that may occur as a result of the breach of noncompetition or
nonsolicitation conditions to which those awards may be subject. The
noncompetition agreement with our Executive Vice President, Finance does not
provide for the payment of liquidated damages.

THE PLEDGE AGREEMENTS

Under the pledge agreements, 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 earlier to occur of:

- the death of the managing director; and

- the fifth anniversary of the date of the completion of this offering.

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.

51
<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 to some of
our employees who are not managing directors (1) options to purchase an
aggregate of 1,200,000 shares of our common stock at the initial public offering
price and (2) restricted stock units with respect to 1,059,000 shares of common
stock.

TYPES OF AWARDS. The Equity Incentive Plan provides for grants of options
intended to qualify as incentive stock options ("ISOs") (within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended), options which do
not qualify as ISOs ("NQSOs"), restricted stock, restricted stock units or other
equity-based awards.

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 of shares
reserved is subject to equitable adjustment upon the occurrence of 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 exercise price of any option.

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 is administered by the
compensation committee of our board of directors. The compensation committee has
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 exercise price of an option granted under the Equity
Incentive Plan will not be less than the fair market value of our common stock
on the date of grant (as determined under the plan). Unless sooner terminated or
exercised, options will generally expire ten years from the date of grant.
Unless otherwise determined by the compensation committee, options will become
exercisable in three equal annual installments commencing on the first
anniversary of the date of grant (subject to acceleration upon an optionee's
death). 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

52
<PAGE>
payment as may be permitted under the option agreement, including, without
limitation, 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). 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
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 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 underlying the restricted stock units, if any, is delivered to
the recipient.

OTHER EQUITY-BASED AWARDS. The compensation committee may grant other types
of equity-based awards 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. In the event we undergo a "change in control" (as
defined in the Equity Incentive Plan), the compensation committee, in its sole
discretion, may determine at the time of a change in control that all
outstanding options, restricted stock and restricted stock units will become
fully vested and, if applicable, exercisable.

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 options
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 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.

53
<PAGE>

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 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. 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,
executive officers and other LaBranche & Co. 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 bonus 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 our employees will be
reviewed on an annual basis and will be dependent upon our operating results and
the overall performance of the employees, as determined by the compensation
committee. An award made by the compensation committee to any employee is
completely discretionary. The Annual Incentive Plan may be amended or terminated
at any time by our board of directors.

PRINCIPAL STOCKHOLDERS

The following table presents information about the beneficial ownership of
our common stock 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

54
<PAGE>

- 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............................................................... 3,220,392 9.1% 6.9%
James G. Gallagher.............................................................. 2,161,213 6.1 4.6
Alfred O. Hayward, Jr........................................................... 1,728,853 4.9 3.7
S. Lawrence Prendergast(2)...................................................... -0- 0.0 0.0
Vincent J. Flaherty............................................................. 2,072,768 5.9 4.4
Michael J. Naughton............................................................. 1,775,105 5.0 3.8
All executive officers and directors as a group................................. 10,958,331 31.0 23.4
</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
their individual capacities disclaims such beneficial ownership in respect
of the shares not directly owned by them.

(2) Does not include 200,000 shares issuable upon the exercise of options, which
options are not currently exercisable.

55
<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, three members of LaB Investing Co. L.L.C. will 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% 3,220,392
James G. Gallagher......................... 3.6 2,161,213
Alfred O. Hayward, Jr...................... 3.6 1,728,553
Vincent J. Flaherty........................ 5.0 2,072,768
Michael J. Naughton........................ 3.6 1,775,105
</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 16.0% interest in the profits of LaBranche & Co.
to us in exchange for an aggregate of $68.4 million in cash and 625,000
shares of our common stock. 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.

- 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.

- We will grant options to purchase an aggregate of 1,200,000 shares of our
common stock to employees who are not managing directors. The options
vest, subject to continuing service and other conditions, in three equal
annual installments on the first, second and third anniversaries of this
offering.

- We will grant restricted stock units with respect to 1,059,000 shares of
our common stock to employees who are not managing directors. The
restricted stock units vest, subject to continuing service and other
conditions, in three equal annual installments on the third, fourth and
fifth anniversaries of this offering.

56
<PAGE>
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. and our
employees who receive our common stock in the reorganization for a period of
three years following this offering. 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. 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 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>

57
<PAGE>
INTEREST ON INDEBTEDNESS

Mr. Flaherty's spouse holds $600,000 of subordinated debt due August 31,
1999 and Mr. LaBranche's spouse holds $1.3 million of secured subordinated
indebtedness due March 2, 2000. This debt bears interest at an annual rate of
10.0% payable on a quarterly basis. The agreements relating to this debt have
automatic rollover provisions which extend the maturities for an additional
year, unless the lender provides notice at least seven months prior to maturity.
The interest income in 1998 for Mr. Flaherty's spouse 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 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.

58
<PAGE>
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 by-laws
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 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 by-laws
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

Our board of directors is 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 by-laws 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.

59
<PAGE>
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 .

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>
312,500............................................... One year after the closing of this offering.
625,000............................................... Two years after the closing of this offering.
12,208,333.............................................. Three years after the closing of this offering.
23,791,667.............................................. Four years after the closing of this offering.
35,375,000.............................................. Five years after the closing of this offering.
</TABLE>

60
<PAGE>

Under SEC rules, the shares eligible for sale in the public market are as
follows:

In addition:

- each of our managing directors must retain 25% of his or her common stock,
currently totaling 8,687,500 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 (Restricted Securities) 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 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.

61
<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............................
-------------
Total...................................................................... 11,500,000
-------------
-------------
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
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. and Donaldson, Lufkin &
Jenrette Securities Corporation 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.

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 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.

LaBranche & Co Inc. will apply to have the common stock listed on the NYSE
under the symbol "LAB."

62
<PAGE>

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..................................................................
Percentage of public offering price(1)................................. % %
</TABLE>

- ------------------------

(1) Assumes a public offering price equal to $ per share of common stock.

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.

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.

63
<PAGE>
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.

64
<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 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, L.L.C. 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 of 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. The pro forma as adjusted consolidated statement
of financial condition as of June 30, 1999 further 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
$142.4 million in cash, a $16.0 million subordinated note 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.

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
bonus pool of up to 30.0% of pre-tax income, which is assumed to include related
employee benefits, will be set aside for managing directors and employees.

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 OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................. $ 2,763 $ 97,000(A) $ (57,637) $ 169,500(H) $ 111,863
(142,400)(B)
(10,000)(C)
(5,000)(D)
SECURITIES PURCHASED UNDER AGREEMENTS TO
RESELL.................................. 35,300 -- 35,300 -- 35,300
RECEIVABLE FROM BROKERS AND DEALERS....... 115,467 -- 115,467 -- 115,467
SECURITIES OWNED, at market value:
Corporate equities...................... 106,247 -- 106,247 -- 106,247
United States Government obligations.... 1,436 -- 1,436 -- 1,436
Other................................... 1,500 -- 1,500 -- 1,500
COMMISSIONS RECEIVABLE.................... 3,265 -- 3,265 -- 3,265
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE,
at market value......................... 20,000 -- 20,000 -- 20,000
EXCHANGE MEMBERSHIPS OWNED, at cost
(market value of $8,000)................ 6,300 -- 6,300 -- 6,300
OFFICE EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, at cost, less accumulated
depreciation and amortization........... 1,469 -- 1,469 -- 1,469
INTANGIBLE ASSETS......................... 45,838 131,306(E) 177,144 -- 177,144
OTHER ASSETS.............................. 6,516 3,000(A) 9,516 -- 9,516
----------- ----------- --------- ----------- -----------
Total assets.......................... $ 346,101 $ 73,906 $ 420,007 $ 169,500 $ 589,507
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------

LIABILITIES AND MEMBERS' CAPITAL
LIABILITIES:
Payable to brokers and dealers.......... $ 3,347 $ -- $ 3,347 -- $ 3,347
Securities sold, but not yet purchased,
at market value....................... 90,578 -- 90,578 -- 90,578
Accrued compensation.................... 35,208 -- 35,208 -- 35,208
Accounts payable and other accrued
expenses.............................. 12,042 -- 12,042 -- 12,042
Other liabilities....................... 1,105 -- 1,105 -- 1,105
----------- ----------- --------- ----------- -----------
142,280 -- 142,280 -- 142,280
----------- ----------- --------- ----------- -----------
LONG TERM DEBT............................ -- 100,000(F) 100,000 -- 100,000
----------- ----------- --------- ----------- -----------
COMMITMENTS............................... -- -- -- -- --
16,000(G)
SUBORDINATED LIABILITIES.................. 71,158 (5,000)(D) 82,158 -- 82,158
----------- ----------- --------- ----------- -----------
LIMITED PARTNERS' INTEREST IN
SUBSIDIARY.............................. 37,094 (37,094)(B) -- -- --
----------- ----------- --------- ----------- -----------
10,000(B)
MEMBERS' CAPITAL/STOCKHOLDERS' EQUITY..... 95,569 (10,000)(C) 95,569 169,500 265,069
----------- ----------- --------- ----------- -----------
Total liabilities and members'
capital/ stockholders' equity....... $ 346,101 $ 73,906 $ 420,007 $ 169,500 $ 589,507
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</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 21,752(I) 33,051
Lease of exchange memberships....................................... 4,165 -- 4,165
Interest............................................................ 2,195 (250)(D)
4,500(F)
720(G) 7,165
Brokerage, clearing and exchange 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 28,595 52,739
----------- ----------- -------------
Income before managing directors' compensation, limited partners'
interest in earnings of subsidiary and provision for income
taxes............................................................. 79,349 (28,595) 50,754
MANAGING DIRECTORS' COMPENSATION...................................... 48,214 (48,214)(K) --
----------- ----------- -------------
Income before limited partners' interest in earnings of subsidiary
and provision for income taxes.................................... 31,135 19,619 50,754
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY.................. 21,054 (21,054)(L) --
----------- ----------- -------------
Income before provision for income taxes............................ 10,081 40,673 50,754
PROVISION FOR INCOME TAXES............................................ 3,789 19,288(M) 23,077
----------- ----------- -------------
Net income.......................................................... 6,292 21,385 27,677
----------- ----------- -------------
----------- ----------- -------------
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 25,571(I) 40,547
Lease of exchange memberships.................. 6,568 496 -- 7,064
Interest....................................... 3,577 410 (500)(D)
9,000(F)
1,440(G) 13,927
Brokerage, clearing and exchange 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 39,257 78,184
----------- ------------- -------------- -------------
Income before managing directors' compensation,
limited partners' interest in earnings of
subsidiary and provision for income taxes.... 91,635 7,288 (39,257) 59,666
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 20,913 59,666
LIMITED PARTNERS' INTEREST IN EARNINGS OF
SUBSIDIARY..................................... 26,292 -- (26,292)(L) --
----------- ------------- -------------- -------------
Income before provision for income taxes....... 6,560 5,901 47,205 59,666
PROVISION FOR INCOME TAXES....................... 3,900 200 23,643(M) 27,743
----------- ------------- -------------- -------------
Net income..................................... $ 2,660 $ 5,701 $ 23,562 $ 31,923
----------- ------------- -------------- -------------
----------- ------------- -------------- -------------
Pro forma weighted average shares outstanding.... 46,875,000
-------------
-------------
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 in exchange for $168.4
million, comprised of $142.4 million in cash, $16.0 million of subordinated
indebtedness (see note (G)) and $10.0 million in common stock.

(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 $16.0 million of subordinated debt 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 bonus pool of up to 30.0% of pre-tax income, which is assumed
to include related employee benefits, will be set aside for 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 44.0%.

(N) Based on 46,875,000 weighted average shares outstanding. Excludes (1)
1,200,000 shares of common stock subject to options and (2) 1,059,000 shares
of common stock subject to restricted stock units, in each case granted
under the Equity Incentive Plan.

(O) Reflects the pro forma pre-acquisition earnings 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)............. 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................................................. 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 tax............................. 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. ("LaBranche & Co."), a New York limited partnership
(collectively, the "Partnership"). LaB Investing is the general partner of
LaBranche 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 net capital to aggregate
indebtedness ratio was 4.8 to 1 and 4.2 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'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, L.L.C. ("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 STATEMENT 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 period....................................................... 15 45 76
---------- ---------- ---------
Cash, end of period............................................................. $ 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 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 and Subsidiary and the notes thereto contained
elsewhere in this prospectus.

F-23
<PAGE>
LAB INVESTING CO. L.L.C.
(PARENT COMPANY ONLY)

NOTE TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

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.

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).............. 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.................................................. 71,158 60,323 43,673

PARTNERS' CAPITAL:
General partners...................................................... 37,094 77,072 37,630
Limited partners...................................................... 95,545 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 and unincorporated business taxes.... 24,142 14,420 34,773 19,907 17,149
----------- --------- --------- --------- ---------
Income before managing directors' compensation and
unincorporated business taxes..................... 79,351 37,719 91,638 47,723 32,761
MANAGING DIRECTORS' COMPENSATION........................ 48,214 23,725 58,783 30,008 23,235
----------- --------- --------- --------- ---------
Income before 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................................................................... (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)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents...... (1,962) (462) 1,727 (6,960) 8,339
CASH AND CASH EQUIVALENTS, beginning of year................ 4,701 2,974 2,974 9,934 1,595
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 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 tax............................... 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 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

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:

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 net capital to aggregate indebtedness ratio was 4.8 to
1 and 4.2 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 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.

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 for the years ended November 30, 1997 and 1996, and
for the seven months ended June 30, 1998 and the related statements of income,
changes in members' capital, and cash flow 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 statements made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits prove 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 flow 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
--------- --------- ---------
$ 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
--------- --------- ---------
$ 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, December 1................................................... $ 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

FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996

AND FOR THE SEVEN MONTHS ENDED JUNE 30, 1998
(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 year................................................... 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

LABRANCHE & CO INC.

COMMON STOCK

---------

PROSPECTUS

, 1999

---------

SALOMON SMITH BARNEY

DONALDSON, LUFKIN & JENRETTE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............................ $ 59,145
NASD Filing Fee................................. 21,775
New York Stock Exchange Listing Fee............. 112,000
Printing Expenses............................... 200,000
Legal Fees and Expenses......................... 600,000
Accounting Fees and Expenses.................... 300,000
Blue Sky Expenses and Counsel Fees.............. 5,000
Transfer Agent and Registrar Fees............... 5,000
Miscellaneous................................... 317,080
---------
Total......................................... $1,620,000
---------
---------
</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
$16.0 million subordinated note (collectively, the "Reorganization Securities").
Also immediately prior to this offering, the Company will make awards of stock
options, restricted stock 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 Underwriting Agreement.*

2.1 Plan of Incorporation of LaBranche & Co. dated as of , 1999.*

2.2 Exchange Agreement dated , by and among LaBranche & Co Inc., LaB
Investing Co., L.L.C. and the members of LaB Investing Co., L.L.C. listed on
Schedule A thereto.*

3.1 Amended and Restated Certificate of Incorporation of the Company.*

3.2 Amended and Restated Bylaws of the Company.*

4.1 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 Form of Employment Letter between the Company and its executive officers.*

10.5 Form of Agreement Relating to Noncompetition and Other Covenants.*

10.6 Form of Pledge Agreement.*

10.7 Stockholders' Agreement dated as of , 1999, by and among LaBranche & Co
Inc. and the Stockholders listed on Schedule I thereto.*

10.8 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.*

10.9 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.*

10.10 Form of Subordinated Note.*

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>

* To be filed by amendment

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

II-3
<PAGE>
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. 1 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 July 26, 1999.

LABRANCHE & CO INC.

BY: /S/ GEORGE M.L. LABRANCHE, IV
-----------------------------------------
George M.L. LaBranche, IV
Chairman and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints each of George M.L. LaBranche, IV and Todd Graber
as his true and lawful attorney-in-fact and agent, each acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, including post-effective amendments, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that any said attorney-in-fact and agent, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 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 July 26, 1999
George M.L. LaBranche, IV Officer)

/s/ TODD GRABER Controller (Principal
- ------------------------------ Accounting Officer) July 26, 1999
Todd Graber

* Director
- ------------------------------ July 26, 1999
James Gallagher

* Director
- ------------------------------ July 26, 1999
Alfred O. Hayward, Jr.

Executive Vice President,
- ------------------------------ Finance and Director
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 Underwriting Agreement.*

2.1 Plan of Incorporation of LaBranche & Co. dated as of , 1999.*

2.2 Exchange Agreement dated , by and among LaBranche & Co Inc., LaB Investing Co., L.L.C.
and the members of LaB Investing Co., L.L.C. listed on Schedule A thereto.*

3.1 Amended and Restated Certificate of Incorporation of the Company.*

3.2 Amended and Restated Bylaws of the Company.*

4.1 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 Form of Employment Letter between the Company and its executive officers.*

10.5 Form of Agreement Relating to Noncompetition and Other Covenants.*

10.6 Form of Pledge Agreement.*

10.7 Stockholders' Agreement dated as of , 1999, by and among LaBranche & Co Inc. and the
Stockholders listed on Schedule I thereto.*

10.8 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.*

10.9 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.*

10.10 Form of Subordinated Note.*

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>

- ------------------------

* To be filed by amendment

<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
July 23, 1999

<PAGE>
EXHIBIT 23.3

[Letterhead]

July 23, 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
July 23, 1999

<PAGE>
<ARTICLE> BD

<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> 0 0
<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> 17,855 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>