**Exhibit 99.1**

 

**RISK FACTORS**

 

*Thefollowing risk factors should be carefully considered in evaluating our companyand our business because they have a significant impact on our business,operating results, financial condition, and cash flows. If any of these risksactually occurs, our business, financial condition, operating results and/orcash flows could be harmed.*

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**Ourrevenues may decrease due to changes affecting the economy, such as increasesin interest rates or inflation, or changes affecting the securities markets,such as decreased volume or liquidity.**

 

An adverse change affecting the economy or thesecurities markets could result in a decline in market volume or liquidity.This would result in lower revenues from our specialist and execution and clearingactivities. Historically, increases in our revenues have resulted primarilyfrom significant increases in the volume of trading on the NYSE and favorableconditions in the securities markets. More recently, however, the economy hasslowed and financial markets have become less prosperous in comparison to theimmediately preceding several years. If this causes a decline in market volume,or if market liquidity becomes compromised, our revenues could decline and ourresults of operations could be adversely affected.

 

**Continuedglobal and U.S. economic downturn and declines in price levels of securitiescould cause us to incur losses.**

 

The difficult global market and economic conditionsthat existed during 2001 deteriorated further throughout 2002. Although 2002began with increased expectations of improved economic performance, weakcorporate earnings, continuing uncertainty about the strength and pace of theglobal economic recovery and continued reports of corporate accounting andgovernance irregularities have undermined investor confidence, and the equitymarkets in which we operate experienced sharp declines during 2002. Uncertaintysurrounding lingering terrorist threats and increased geopolitical tensionsalso have contributed to investors becoming increasingly risk-averse.

 

These conditions affected our 2002 results ofoperations and may adversely affect our operations in the future. U.S. equitymarkets declined for the third consecutive year and adverse changes in theeconomy and the securities markets have led to lower price levels ofsecurities. Continued declines in these price levels have resulted in and couldcontinue to result in:

 

•                                          lossesfrom declines in the market value of securities held in our accounts;

 

•                                          thefailure of buyers and sellers of securities to fulfill their settlementobligations; and

 

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•                                          increasesin claims and litigation.

 

It currently is uncertain when these market andeconomic conditions will improve or whether we will be able to adequatelyprotect our interests or maintain revenues throughout this period.

 

**Ourresults may fluctuate significantly.**

 

Our revenues mayfluctuate significantly based on factors relating to the securities markets.These factors include:

 

•                                          asignificant decrease in trading volume on the NYSE and the AMEX;

 

•                                          volatilityin the equity securities markets; and

 

•                                          changesin the value of our securities positions.

 

Many elements of our cost structure do not decline ifwe experience reductions in our revenues. As a result, if market conditionscause our revenues to decline, we may be unable to adjust our cost structure ona timely basis and we could suffer losses.

 

**Risksassociated with our trading transactions could result in trading losses.**

 

A majority of our specialist-related revenues arederived from trading by us as principal. We may incur trading losses relatingto these activities since each such trade primarily involves the purchase, saleor short sale of securities for our own account. In any period, we may incurtrading losses in a significant number of our specialist stocks for a varietyof reasons, including price declines of our specialist stocks, lack of tradingvolume in our specialist stocks and the required performance of our specialistobligations. From time to time, we have large position concentrations insecurities of a single issuer or issuers engaged in a specific industry. Ingeneral, because our inventory of securities is marked to market on a dailybasis, any downward price movement in these securities will result in a reductionof our revenues and operating profits. We also operate a proprietary tradingdesk separately from our specialist operations, which represented 0.3% of ourtotal revenues in 2001 and less than 0.1% of our total revenues in 2002. We mayincur trading losses as a result of these trading activities.

 

Although we have adopted risk management policies, wecannot be sure that these policies have been formulated properly to identify orcompletely limit our risks. Even if these policies are formulated properly, we cannotbe sure that we will successfully implement these policies. As a result, we maynot be able to manage our risks successfully or avoid trading losses.

 

**Specialistrules may require us to make unprofitable trades or to refrain from makingprofitable trades.**

 

When we trade as principal, we attempt to derive aprofit from the difference between the prices at which we buy and sellsecurities. Our role as a specialist, at times, requires us to make

 

 

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trades that adversely affect our profitability. In addition, as aspecialist, we are at times required to refrain from trading for our ownaccount in circumstances in which it may be to our advantage to trade. Forexample, we may be obligated to act as a principal when buyers or sellersoutnumber each other. In those instances, we may take a position counter to themarket, buying or selling shares to support an orderly market in the affectedstocks. In order to perform these obligations, we hold varying amounts ofsecurities in inventory. In addition, specialists generally may not trade fortheir own account when public buyers are meeting public sellers in an orderlyfashion and may not compete with public orders at the same price. By having tosupport an orderly market, maintain inventory positions and refrain fromtrading under some favorable conditions, we are subject to risk. Additionally,the NYSE and the AMEX periodically amend their rules and may make the rulesgoverning our activities as a specialist more stringent or may implementchanges which could adversely affect our trading revenues.

 

**Wedepend significantly on revenues from our NYSE specialist activities withrespect to a small group of listed companies, and the loss of any of them couldreduce our revenues.**

 

Historically, a relatively small number of listedcompanies have accounted for a significant portion of our revenues from ourNYSE specialist trading activities. The loss of any of these listed companiescould have an adverse effect on our revenues. For the years ended December 31,2000, 2001 and 2002, transactions in our 10 most actively traded NYSEspecialist stocks accounted for approximately 38.7%, 28.2% and 27.5% of ourtotal principal revenues, respectively. We cannot be certain that we will beable to retain these or other listed companies. We can lose these listedcompanies if they cease to be traded on the NYSE as a result of being acquiredor otherwise delisted. In addition, if the NYSE were to determine that we havefailed to fulfill our obligations as specialist for a listed company, ourregistration as the specialist for that listed company could be canceled orsuspended.

 

**Wedepend primarily on our specialist activities, and if they fail to grow asanticipated, it would harm our revenues.**

 

We derive the vast majority of our revenues fromspecialist activities. If demand for our specialist services fails to grow,grows more slowly than we currently anticipate or declines, our revenues wouldbe adversely affected. We expect our specialist activities to continue toaccount for the vast majority of our revenues for the foreseeable future. Ourfuture success will depend on:

 

•                                          continuedgrowth in the volume of trading and the number of listings on the NYSE and theAMEX;

 

•                                          ourability to be chosen as the specialist for additional listing companies;

 

•                                          ourability to respond to regulatory and technological changes; and

 

•                                          ourability to respond to changing demands in the marketplace.

 

 

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**We mayhave difficulty successfully managing our growth.**

 

Our business has grown significantly since 1997,primarily due to acquisitions we have made during this period. Our inability tosuccessfully and timely integrate the operations and personnel of thebusinesses we have acquired could have an adverse effect on our business,financial condition and/or operating results. If the benefits of theseacquisitions do not meet the expectations of investors or financial or industryanalysts or if we do not successfully manage our growth, the market price ofour common stock may decline. The growth of our business has increased thedemands upon our management and operations. This growth has required, and willcontinue to require, us to increase our investment in management personnel,financial and management systems and controls, and facilities. The scope of proceduresfor assuring compliance with applicable rules and regulations has changed asthe size and complexity of our business has increased. In response, we haveimplemented formal compliance procedures which are regularly updated. Ourfuture operating results will depend on our ability to continue:

 

•                                          toimprove our systems for operations, financial control, and communication andinformation management;

 

•                                          torefine our compliance procedures and enhance our compliance oversight;

 

•                                          tomaintain a relationship with the customers of the firms we recently acquired(i.e., the companies in whose stocks they made a market prior to theacquisitions), as well as our ability to maintain our customer base;

 

•                                          tosuccessfully integrate acquired firms’ technologies; and

 

•                                          toretain and incentivize our employees.

 

**Tradingthrough specialists could be replaced by alternative trading systems whichcould reduce our revenue.**

 

Alternative trading systems could reduce the levels oftrading of NYSE-listed and AMEX-listed securities executed through specialists.This, in turn, could have an adverse effect on our revenues. Over the past fewyears, a number of alternative trading systems have developed or emerged whichmay compete with specialists by increasing trading in NYSE-listed andAMEX-listed securities off the NYSE and AMEX trading floors and inover-the-counter markets. In the future, similar new systems may continue to bedeveloped and placed in operation.

 

**We havesignificant indebtedness and interest payment obligations.**

 

As of December 31, 2002, we had outstanding totalconsolidated debt in the principal amount of approximately $383.2 million.These calculations of debt exclude subordinated liabilities related tocontributed exchange memberships. LaBranche & Co. LLC also has the abilityto borrow $200.0 million under a revolving credit facility with a U.S.commercial bank. We also may need to incur additional debt in the future forworking capital or to complete

 

 

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acquisitions, even though our existing debt obligations impose somelimits on our ability to do so. Our significant level of debt could haveimportant consequences, including the following:

 

•                                          ourability to obtain additional financing to fund future growth, working capital,capital expenditures, debt service requirements or other purposes may beimpaired;

 

•                                          ourability to use operating cash flow in other areas of our business will belimited because we must dedicate a substantial portion of these funds to makeprincipal and interest payments;

 

•                                          wemay be hindered from competing with other firms in our industry; and

 

•                                          ouramount of debt may limit our flexibility to adjust to changing marketconditions, changes in our industry and economic downturns.

 

Our ability to satisfy our debt obligations willdepend upon our future operating performance and our ability to obtainadditional debt or equity financing. Prevailing economic conditions andfinancial, business and other factors, many of which are beyond our control,will affect our ability to make these payments. If in the future we cannotgenerate sufficient cash from operations to meet our debt obligations, we willneed to refinance our debt obligations, obtain additional financing or sellassets. We cannot be sure that our business will generate cash flow or that wewill be able to obtain funding sufficient to satisfy our debt servicerequirements.

 

Further, our LaBranche & Co. LLC and LFSIsubsidiaries are broker-dealers regulated by the SEC, the NYSE and the AMEX,and our LSP subsidiary also is a broker-dealer regulated by the SEC and theAMEX. Such regulations include strict rules regarding capital requirements andapproval for withdrawals of capital from, and in some cases, otherdistributions by, a broker-dealer. These regulations could prevent us from obtainingfunds necessary to satisfy our obligations to pay interest on or repay ourindebtedness.

 

**Ourability to take actions may be restricted by the terms of our indebtedness.**

 

The covenants in our existing debt agreements,including LaBranche & Co. LLC’s credit agreement with a U.S. commercialbank, the note purchase agreements relating to LaBranche & Co. LLC’sremaining senior subordinated indebtedness, the indentures governing our seniornotes and senior subordinated notes and any future financing agreements, mayadversely affect our ability to finance future operations or capital needs orto engage in other business activities. These covenants limit or restrict ourability and the ability of our subsidiaries to:

 

•                                          incuradditional debt;

 

•                                          paydividends and make distributions;

 

•                                          repurchaseour securities;

 

 

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•                                          makecertain investments;

 

•                                          createliens on our assets;

 

•                                          transferor sell assets;

 

•                                          enterinto transactions with affiliates;

 

•                                          issueor sell stock of subsidiaries; or

 

•                                          mergeor consolidate.

 

In addition, the credit agreement and the notepurchase agreements also require LaBranche & Co. LLC to comply with certainfinancial ratios. LaBranche & Co. LLC’s ability to comply with these ratiosmay be affected by events beyond our or its control. If any of the covenants inthe credit agreement, the note purchase agreements or the indentures relatingto our senior notes and senior subordinated notes is breached, or if LaBranche& Co. LLC is unable to comply with required financial ratios, it may be indefault under the credit agreement or the note purchase agreements and we maybe in default under the indentures relating to our senior notes and seniorsubordinated notes. A significant portion of our indebtedness then may becomeimmediately due and payable. We are not certain whether we would have, or beable to obtain, sufficient funds to make these accelerated payments. Compliancewith the covenants is also a condition to borrowings under the creditagreement.

 

**We arerequired to take actions upon the occurrence of a change of control.**

 

Upon the occurrence of a change of control, we will berequired to offer to repurchase all of our outstanding senior notes and seniorsubordinated notes at a price equal to 101% of their principal amount, togetherwith accrued and unpaid interest, if any, to the date of repurchase. Certainimportant corporate events, such as leveraged recapitalizations that wouldincrease our level of indebtedness, would not constitute a change of control.If a change of control were to occur, it is possible that we would not havesufficient funds to repurchase our outstanding senior notes and seniorsubordinated notes or that restrictions in LaBranche & Co. LLC’s creditagreement, the note purchase agreements relating to LaBranche & Co. LLC’ssenior subordinated indebtedness, the indentures governing our senior notes andsenior subordinated notes will not allow such repurchases. Furthermore, achange of control will most likely trigger a default under LaBranche & Co.LLC’s credit agreement, the note purchase agreements relating to LaBranche& Co. LLC’s senior subordinated indebtedness and the indentures governingour senior notes and senior subordinated notes. To the extent we do not havesufficient funds to meet our repurchase obligations and any other obligationsin respect of the credit agreement, the note purchase agreements and theindentures relating to our senior notes and senior subordinated notes, we wouldnecessarily seek third-party financing. However, it is possible that we willnot be able to obtain such financing.

 

 

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**We mayhave insufficient capital in the future and may be unable to secure additionalfinancing when we need it.**

 

Our business depends on the availability of adequatecapital. We cannot be sure that we will have sufficient capital in the futureor that additional financing will be available on a timely basis, or on termsfavorable to us. Historically, we have satisfied these needs with internallygenerated funds and the issuance of subordinated debt by our operatingsubsidiaries and the issuance of senior notes, senior subordinated notes andcommon stock. We currently anticipate that our available cash resources andcredit facilities will be sufficient to meet our anticipated working capital,regulatory capital and capital expenditure requirements for the foreseeablefuture. We may, however, need to raise additional funds to:

 

•                                          increasethe capital available to us for our inventory positions;

 

•                                          supportmore rapid expansion;

 

•                                          acquirecomplementary businesses; or

 

•                                          respondto unanticipated capital requirements.

 

We may be required to obtain this additional financingon short notice as a result of rapid, unanticipated developments, such as asteep market decline.

 

**Oursuccess depends on our ability to accurately process and record ourtransactions, and any failure to do so could subject us to losses.**

 

Our specialist activities require us to accuratelyrecord and process a very large number of transactions on a daily basis. Anyfailure or delay in recording or processing transactions could causesubstantial losses for brokers, their customers and/or us and could subject usto claims for losses. We rely on our staff to operate and maintain ourinformation and communications systems properly, and we depend on the integrityand performance of those systems. Our recording and processing of trades issubject to human and processing errors. Moreover, extraordinary trading volumeor other events could cause our information and communications systems tooperate at an unacceptably low speed or even fail. Any significant degradationor failure of our information systems or any other systems in the tradingprocess could cause us to fail to complete transactions or could cause brokerswho place trades through us to suffer delays in trading.

 

**Recentterrorist attacks have contributed to economic instability in the unitedstates; continued terrorist attacks, war or other civil disturbances could leadto further economic instability and depress our stock price.**

 

On September 11, 2001, the United States was thetarget of terrorist attacks of unprecedented scope, with the attacks in NewYork City particularly affecting our operations. These attacks may causelong-term instability in the global financial markets. The United States is alsocurrently conducting military operations in response to the terrorist attacksand is also currently

 

 

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contemplating military operations against Iraq. These attacks and theUnited States military campaign may lead to substantial armed hostilities, war orfurther acts of terrorism and civil disturbances in the United States orelsewhere, which may contribute further to economic instability in the UnitedStates and could have a material adverse effect on our business, financialcondition and operating results.

 

Our offices are located in close proximity to theterrorist attacks on the World Trade Center on September 11, 2001. Theaftermath of the attacks on the World Trade Center required us to close ouroperations and temporarily operate from our disaster recovery site. The NYSEalso was forced to stop operating for four consecutive trading days, whichcaused our operations to halt and could have compromised the liquidity of thatmarket during closure. If additional terrorist attacks occur in close proximityto our offices, or upon our office buildings, the NYSE or the AMEX, we could beforced to relocate for a longer period of time, or permanently. Furthermore,additional terrorist attacks in New York City, or on our buildings, the NYSE orthe AMEX, or additional armed hostilities within the United States, could causesignificant delays or stoppages in our business activities, which wouldsignificantly harm our revenues and profits.

 

**Ourinformation or communication systems may fail and interrupt our business.**

 

Any information or communication systems failure ordecrease in information or communications systems performance that causesinterruptions in our operations could have an adverse effect on our business,financial condition and/or operating results. Our systems may fail as a resultof:

 

•                                          hardwareor software failure; or

 

•                                          poweror telecommunications failure.

 

The September 11, 2001 terrorist attacks, particularlythe attacks on the World Trade Center, caused a temporary lapse in some of ourinformation and communications systems. It is possible that additionalterrorist attacks may occur in the future and that such attacks couldcompromise or disable our systems. Although we have established back-updisaster recovery centers in New Jersey and New York, they may not be effectivein preventing an interruption of our business. It is also possible that anyfuture terrorist activities or an act of war in retaliation against the currentUnited States military activities could harm our operations and/or disasterrecovery centers, which could significantly harm our business.

 

**Wedepend on the NYSE, the AMEX and clearing and depository institutions to effecttrades, and their failure to perform could subject us to losses.**

 

We are dependent on the proper and timely function ofcomplex information and communications systems maintained and operated by orfor the NYSE, the AMEX and clearing and depository institutions. Failures orinadequate or slow performance of any of those systems could adversely affectour ability to operate and complete trades. The chances of such failures orinadequacies would likely escalate if there are additional terrorist attacks inNew York City, the

 

 

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United States or elsewhere or if the current United States militarycampaign becomes a widespread war. The failure to complete trades on a timelybasis could subject us to losses and claims for losses of brokers and theircustomers.

 

**Ourfuture success will depend on our ability to upgrade our information andcommunications systems, and any failure to do so could harm our business andprofitability.**

 

The development of complex communications and newtechnologies, including Internet-based technologies, may render our existinginformation and communications systems outdated. In addition, our informationand communications systems must be compatible with those of the NYSE and theAMEX. As a result, if the NYSE or the AMEX upgrades its systems, we will needto make corresponding upgrades. Our future success will depend on our abilityto respond to changing technologies on a timely and cost-effective basis. Wecannot be sure that we will be successful in upgrading our information andcommunications systems on a timely or cost-effective basis. Our failure to doso could have an adverse effect on our business, financial condition and/oroperating results.

 

The NYSE’s ability to develop information andcommunications systems and complex computer and other technology systems hasbeen instrumental in its recent growth and success. We are dependent on thecontinuing development of technological advances by the NYSE and the AMEX, aprocess over which we have no control. If the NYSE for any reason is unable tocontinue its recent history of computer-related and other technologicaldevelopments and advances, it could have an adverse effect on the success ofthe NYSE, including its ability to grow, to manage its trading volumes and toattract new listings. Any such developments can be expected to adversely affectour operations, financial condition and operating results.

 

**If welose the services of our key personnel or cannot hire additional qualifiedpersonnel, our business will be harmed.**

 

Our future success depends on the continued service ofkey employees, particularly Michael LaBranche, our Chairman, Chief ExecutiveOfficer and President. The loss of the services of any of our key personnel orthe inability to identify, hire, train and retain other qualified personnel inthe future could have an adverse effect on our business, financial conditionand/or operating results. We have employment agreements with Mr. LaBranche andother key employees. We also maintain “key person” life insurance policies onMr. LaBranche and other key employees. Competition for key personnel and otherhighly qualified management, trading, compliance and technical personnel isintense. We cannot assure you that we will be able to attract new or retaincurrently employed highly qualified personnel in the future.

 

In connection with our 1999 reorganization frompartnership to corporate form and initial public offering of our common stock,a number of our current managing directors received substantial amounts of ourcommon stock in exchange for their partnership interests. Because the shares ofcommon stock were received in exchange for partnership interests, ownership ofthe shares is not dependent upon the continued employment of those managingdirectors. In addition, many of our employees who are not managing directorshave received grants of stock options

 

 

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and restricted stock units. The steps we have taken to encourage thecontinued service of these individuals, who include key senior personnel, maynot be effective.

 

**We aresubject to intense competition for new listings, and our profitability willsuffer if we do not compete effectively.**

 

We cannot be sure that we will be able to competeeffectively with current or future competitors. Our failure to competeeffectively would have an adverse effect on our profitability. We obtain allour new listings on the NYSE by going through an allocation process. In thisprocess, either a committee of the NYSE or the listing company chooses thespecialist. The competition for obtaining new listing companies is intense. Weexpect competition to continue and intensify in the future. Some of ourcompetitors may have significantly greater financial and other resources thanwe have and may have greater name recognition. These competitors may be able torespond more quickly to new or evolving opportunities and listing companyrequirements. They also may be able to undertake more extensive promotionalactivities to attract new listing companies. In addition, the specialistindustry has recently been consolidating. The combined companies resulting fromthis consolidation may have a stronger capital base. This trend has intensifiedthe competition in our industry. Finally, the NYSE retains the ability to namenew specialist firms.

 

**Thefailure by us or our employees to comply with applicable laws and regulationscould result in substantial fines and other penalties.**

 

The securities industry is subject to extensiveregulation under both federal and state laws. In addition, the SEC, the NYSE,the AMEX, other self-regulatory organizations, commonly referred to as SROs,and state securities commissions require strict compliance with theirrespective rules and regulations. Failure to comply with any of these laws,rules or regulations could result in serious adverse consequences. We and ourofficers and employees may be subject in the future to claims arising from actsin contravention of these laws, rules and regulations. An adverse rulingagainst us and/or our officers and other employees as a result of any of theseclaims could result in us and/or our officers and other employees beingrequired to pay a substantial fine or settlement. It could also result in thesuspension or revocation of our registration with the SEC as a broker-dealer orour suspension or expulsion as a member firm of the NYSE and the AMEX. If thisoccurred, we would be unable to operate our business. As a result of our recentacquisitions, the number of our employees has increased significantly, and ourlack of experience working with these employees increases the risk that we willnot detect or deter employee misconduct.

 

**Theregulatory environment in which we operate may change, making it difficult forus to remain in compliance.**

 

The regulatory environment in which we operate issubject to change which we cannot predict. It may be difficult for us to complywith new or revised legislation or regulations imposed by the SEC, other U.S.or foreign governmental regulatory authorities and SROs, including the NYSE andthe AMEX. Failure to comply would have an adverse effect on our business,financial condition and/or operating results. Changes in the interpretation or

 

 

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enforcement of existing laws and rules by the SEC, these governmentalauthorities, SROs, the NYSE and the AMEX also could have an adverse effect onour business, financial condition and/or operating results.

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**Failureto comply with net capital and net liquid asset requirements may result in therevocation of our registration with the sec or our expulsion from the NYSEand/or the AMEX.**

 

The SEC, the NYSE, the AMEX and various otherregulatory agencies have stringent rules with respect to the maintenance ofminimum levels of capital and net liquid assets by securities brokers-dealersas well as specialist firms.  LaBranche& Co. LLC currently is required to maintain minimum net liquid assets ofapproximately $446.0 million. The AMEX generally requires its equity specialistfirms to maintain a cash or liquid asset position of the greater of (a)$600,000, or (b) an amount sufficient to assume a position of sixty tradingunits of each security in which the specialist is registered.  Failure to maintain the required net capitaland net liquid assets may subject us to suspension or revocation of our SECregistration or suspension or expulsion by the NYSE and/or the AMEX. If thisoccurred, we would be unable to operate our business. In addition, a change inthese rules, the imposition of new rules or any unusually large requirement orcharge against our regulatory capital could limit any of our operations thatrequire the intensive use of capital. These rules could also restrict our abilityto withdraw capital from our broker-dealer. Any limitation on our ability towithdraw capital from subsidiaries could limit our ability to pay cashdividends, repay debt and repurchase shares of our outstanding stock. Asubstantial market decline, a significant operating loss or any unusually largerequirement or charge against regulatory capital could adversely affect ourability to expand or even maintain our present levels of business, which couldhave an adverse effect on our business, financial condition and/or operatingresults.

 

**Employeemisconduct is difficult to detect and deter and could result in losses.**

 

There have been a number of highly publicized casesinvolving fraud, stock manipulation or other misconduct by employees in thefinancial services industry in recent years, and we run the risk that employeemisconduct could occur. Misconduct by employees could include binding us totransactions that exceed authorized limits or present unacceptable risks, orhiding from us unauthorized or unsuccessful activities, which, in either case,may result in unknown and unmanaged risks or losses. Employee misconduct couldalso involve the improper use or disclosure of confidential information, whichcould result in regulatory sanctions and serious reputational or financialharm. It is not always possible to deter employee misconduct and theprecautions we take to prevent and detect this activity may not be effective inall cases.

 

**We aresubject to risk relating to litigation and potential securities laws liability.**

 

Many aspects of our business involve substantial risksof liability. A specialist is exposed to substantial risks of liability underfederal and state securities laws, other federal and state laws and courtdecisions, as well as rules and regulations promulgated by the SEC, the NYSEand the AMEX. We also are subject to the risk of litigation and claims that maybe without merit. In particular, certain of the business operations conductedby LFSI’s predecessor in interest, ROBB 

 

 

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PECK McCOOEY Clearing Corporation, have been the target, from time totime, of various claims and lawsuits incidental to the ordinary course of theirrespective businesses. It is possible that we could incur significant legalexpenses in defending ourselves against these and future lawsuits or claims. Anadverse resolution of any future lawsuits or claims against us could have anadverse effect on our business, financial condition and/or operating results.

 

**Counterpartiesmay fail to pay us.**

 

As a specialist in listed stocks, our securitiestransactions are conducted as principal with broker-dealer counterpartieslocated in the United States. The NYSE, the AMEX and the clearing housesmonitor the credit standing of the counterparties with which we conductbusiness. However, we cannot assure you that any of these counterparties willnot default on their obligations. If any do, our business, financial conditionand/or operating results could be adversely affected.

 

**Some ofour executive officers are in a position to control matters requiring astockholder vote.**

 

Certain of our managing directors who currently ownapproximately 54.3% of our outstanding common stock have entered into astockholders’ agreement under which they have agreed, among other things, thattheir shares of our common stock will be voted, for as long as they own theirshares, as directed by a majority vote of Michael LaBranche, our Chairman,Chief Executive Officer and President, Alfred O. Hayward, Jr., our executiveofficer and director, and James G. Gallagher, our former executive officer anddirector. Accordingly, these individuals have the ability to control mostmatters requiring approval by our common stockholders. These matters includethe election and removal of directors and the approval of any merger,consolidation or sale of all or substantially all our assets. In addition, theyare able to dictate the management of our business and affairs. Thisconcentration of ownership could have the effect of delaying, deferring orpreventing a change in control, a merger or consolidation, a takeover oranother business combination.

 

In addition, in our acquisition of ROBB PECK McCOOEYFinancial Services, Inc., we issued an aggregate of 100,000 shares of ourSeries A preferred stock to its former stockholders, of which approximately39,186 shares remain outstanding as of March 10, 2003. The holders of ourSeries A preferred stock have the opportunity to vote on certain matters thatwould affect their rights as holders of Series A preferred stock, any issuanceof our capital stock with rights greater than or equal to theirs, and anyproposal for our merger or consolidation, the sale of more than 50% of ourconsolidated assets or any similar transaction. As of March 10, 2003, George E.Robb, Jr., our former director, and Robert M. Murphy, one of our directors andthe Chief Executive Officer of our LaBranche & Co. LLC subsidiary,beneficially owned an aggregate of approximately 50.5% of our Series Apreferred stock. This concentration of ownership, therefore, also could havethe effect of delaying, deferring or preventing a change in control, a mergeror consolidation, a takeover or another business combination.

 

 

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**Futuresales by existing stockholders could depress the market price of our commonstock.**

 

If our stockholders sell substantial amounts of ourcommon stock in the public market, the market price of our common stock couldfall. Such sales also might make it more difficult for us to sell equitysecurities in the future at a time and price that we deem appropriate. As ofMarch 10, 2003, we had outstanding 59,528,433 shares of common stock. Certainof our current and former managing directors, who collectively own 31,634,451shares of common stock as of March 10, 2003, are party to a stockholders’agreement. Under the stockholders’ agreement, approximately one-third of theshares held by these current and former managing directors became eligible forsale in the public market.  Theremaining restricted shares held by these current and former managing directorswill be eligible for sale in the public market as follows:

 

•                                          11,562,114shares beginning August 24, 2003; and

 

•                                          11,562,114shares beginning August 24, 2004.

 

If large amounts of these shares are sold within ashort period of time, the market price of our common stock would likely fall.

 

In addition, subject to volume limitations under Rule144 and the trading restrictions prescribed in our Insider Trading Policy, ourdirectors and officers may be able to publicly sell shares of our commonstock.  If substantial, such sales coulddepress the market price for our common stock.

 

**Uncertaintiesassociated with our acquisitions may cause us to lose key personnel.**

 

Our current and prospective employees may experienceuncertainty about their future roles with us due to the integration of ournewly-acquired employees and businesses into ours. This uncertainty mayadversely affect our ability to attract and retain key personnel, which wouldadversely affect our business and results of operations.

 

 

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