UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 2000

      or

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the transition period from       to        .

                        Commission file number: 001-15251

                               LaBRANCHE & CO INC.
             (Exact Name of Registrant as Specified in Its Charter)

            Delaware                                        13-4064735
            --------                                        ----------
  (State or Other Jurisdiction of                        (I.R.S. Employer
  Incorporation or Organization)                        Identification No.)

                  One Exchange Plaza, New York, New York 10006
                  --------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (212) 425-1144
                                 --------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to                 Common Stock, par value $0.01
Section 12(b) of the Act:                         New York Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act:                         None

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|


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      The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the last sale price of the Common Stock reported on
the New York Stock Exchange on March 23, 2001, was approximately $453,800,000.

      The number of shares of Common Stock outstanding as of March 23, 2001 was
57,363,060.

                       DOCUMENTS INCORPORATED BY REFERENCE

      As stated in Part III of this Annual Report on Form 10-K, portions of the
registrant's definitive proxy statement for the registrant's 2001 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual Report
on Form 10-K.


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<PAGE>

                                     PART I

      This Annual Report on Form 10-K and the documents incorporated by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations, estimates and
projections about the registrant's industry, management's beliefs and certain
assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Unless required by law, the
registrant undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the registrant files from time to time with the Securities
and Exchange Commission.

Item 1. BUSINESS.

Overview

      LaBranche & Co Inc. ("LaBranche") is a holding company that is the sole
member of LaBranche & Co. LLC and owns all the outstanding stock of Henderson
Brothers, Inc. Founded in 1924, LaBranche & Co. LLC is one of the oldest and
largest specialist firms on the NYSE. Our Henderson Brothers, Inc. subsidiary is
a clearing broker for customers of several introducing brokers and provides
direct access floor brokerage services to institutional customers.

      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 have increased from approximately $49.9 million in 1996 to $344.8
million in 2000, representing a compound annual growth rate of 62.1%. We have
accomplished our growth both internally and through acquisitions. For example,
since the NYSE implemented its new specialist allocation process in March 1997,
as described in "Industry Background-The Specialist," we have been selected by
67 new listed companies, resulting from 117 listing interviews. In addition, we
have acquired six specialist operations since 1997, adding over 400 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:


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      o     the annual dollar volume on the NYSE of stocks for which we acted as
            specialist increased to $2.2 trillion in 2000, from $201.4 billion
            in 1996. Based on these dollar volumes, we were the largest
            specialist firm in 2000 as compared to the sixth largest in 1996;

      o     the annual share volume on the NYSE of stocks for which we act as
            specialist increased to 52.7 billion in 2000, from 5.6 billion in
            1996. Based on these share volumes, we were the largest specialist
            firm in 2000 as compared to the fourth largest in 1996; and

      o     the total number of our common stock listings increased to 386 as of
            December 31, 2000, from 132 as of December 31, 1996. Based on the
            number of our common stock listings, we were the third largest
            specialist firm as of December 31, 2000 as compared to the fourth
            largest as of December 31, 1996. In addition, we acted as the
            specialist for 134 other NYSE-listed securities (e.g., preferred and
            convertible securities) and for the American Stock Exchange ("AMEX")
            listed options with respect to the common stock of 21 companies,
            including Electronic Data Systems, Global Crossing and Exodus
            Communications.

      As of December 31, 2000, our listed companies included:

      o     68 of the S&P 500 Index companies; and

      o     seven of the 30 companies comprising the Dow Jones Industrial
            Average. Our Dow stocks are American Express Company, AT&T, Exxon
            Mobil, JP Morgan Chase, Merck, Minnesota Mining & Manufacturing and
            SBC Communications.

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 $6.8 trillion at December 31, 1996 to approximately $11.5 trillion
at December 31, 2000, representing a compound annual growth rate of 14.0%. The
number of companies listed on the NYSE decreased from 2,907 at the end of 1996
to 2,862 at the end of 2000, primarily as a result of mergers and consolidations
of listed companies.

      The NYSE's average daily trading volume increased from 91.2 million shares
in 1984 to 1.04 billion shares in 2000, as illustrated by the following graph:


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               NYSE Average Daily Trading Volume from 1986 to 2000
                           (Share Volume in Millions)

                                   CAGR=15.7%

   [The following table was depicted as a bar chart in the printed material.]

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
1999            809.2
2000           1041.6


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      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 approximately $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 has decreased from
37 at December 31, 1996 to 18 at December 31, 2000. Of these, the three largest
specialist units as ranked by their number of specialist stocks were responsible
for approximately 56.0% of the average daily trading volume in 2000, as measured
by dollar volume.

      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.


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<PAGE>

      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:

      o     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;

      o     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;

      o     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

      o     a principal using its own capital to buy or sell stocks for its own
            account.

      The specialist firm's decision to buy or sell shares of its specialist
stocks as principal for its own account may be based on obligation or
inclination. For example, the specialist firm may be obligated to buy or sell
its specialist stock to counter short-term imbalances in the prevailing market,
thus helping to maintain a fair and orderly market in that stock. At other
times, the specialist firm may be inclined to buy or sell the stock as principal
based on attractive opportunities. The specialist firm may trade at its election
so long as the trade will contribute to a fair and orderly market. In
actively-traded stocks, the specialist firm continually buys and sells its
specialist stocks at varying prices throughout each trading day. The specialist
firm's goal and expectation is to profit from differences between the prices at
which it buys and sells these stocks. In fulfilling its specialist obligations,
however, the specialist firm may, at times, be obligated to trade against the
market, adversely impacting the profitability of the trade. In addition, the
specialist firm's trading practices are subject to a number of restrictions, as
described in "Operations--NYSE Rules Governing Our Specialist Activities."

Recent Trends in NYSE Trading and the Specialist's Role

      Specialist firms generate revenues by executing trades, either as agent or
principal, in their specialist stocks. Accordingly, the specialist firms'
revenues are primarily driven by the volume of trading on the NYSE. This volume
has increased significantly in recent years. The increase in trading volume has
resulted from a number of factors, including:

      o     an increase in the number of households investing in stocks;


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      o     an increase in the amount of assets managed through retirement
            plans, mutual funds, annuity and insurance products, index funds and
            other institutional investment vehicles;

      o     the increased popularity and use of computerized trading, hedging
            and other derivative strategies;

      o     higher equity portfolio turnover by individuals and institutional
            investors as a result of lower commission rates and other
            transaction costs;

      o     an increase in on-line trading;

      o     trading in smaller price increments;

      o     an increase in the market capitalization of growth stocks; and

      o     an increase in the amount of shares traded due to stock splits and
            stock dividends.

      These factors have, in turn, been influenced by a growing U.S. economy,
relatively low interest rates and low levels of inflation.

      The NYSE has commenced trading in decimals and has increased the window
for providing commission-free execution of a trade to five minutes from the
previous two minutes. The NYSE is also considering the following additional
changes:

      o     longer trading days; and

      o     trading of foreign stocks in ordinary form side by side with their
            American depository receipts (ADRs).

Trading in decimals and, if instituted, these additional 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 2000, specialist firms handled approximately 83.1% of
trades in NYSE-listed stocks. Trades in NYSE-listed stocks also are effected as
follows:

      o     some stocks are listed on multiple exchanges, such as regional
            exchanges, and trades take place on those exchanges;

      o     NYSE members may trade NYSE-listed stocks off the NYSE in the
            over-the-counter market; and

      o     non-NYSE members may trade NYSE-listed stocks off the NYSE in
            over-the-counter markets.


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<PAGE>

      Technological advances have contributed to increased trading through
alternative trading systems ("ATSs"), such as electronic communications networks
("ECNs") and crossing systems. While the first ECN was created in 1969, most of
the others currently in operation were started in the past few years. These
systems electronically facilitate the matching of buy and sell orders that are
entered by their network members. If a match does not occur, some ATSs will
forward unfilled orders to other ATSs or to exchanges such as the NYSE. Some of
these networks also allow limited negotiation between members to facilitate a
match. These ATSs generally limit trades over their systems to their members,
who are typically large financial institutions, well-capitalized traders or
brokerage firms. Additionally, some ATSs are being developed to facilitate
trading by retail investors. In April 1999, the SEC ruled that these networks
are allowed, and in specified cases are required, to register and become subject
to regulation as stock exchanges.

      The percentage of annual trading of NYSE listed stocks on the NYSE has
been approximately 83.0% 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. These
factors have led to a consolidation of specialist units in the past five years.
The specialist market is becoming increasingly dominated by a number of large,
better-capitalized 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:

      o     Leading Position in the Specialist Market. We have a long-standing
            reputation as one of the leading specialist firms on the NYSE. We
            have successfully grown our business and improved our services
            through widely varying market conditions. Trading in the stocks for
            which we acted as specialist during 2000 accounted for 21.8% of the
            dollar volume on the NYSE and 21.7% of the share volume. Based on
            these percentages, we were the largest specialist firm on the NYSE.
            We are continuing to develop our relationships with ATSs and to
            embrace new technologies in trading platforms.


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<PAGE>

      o     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.
            Acting as specialist in the stocks of industry leaders should
            benefit us as these leading companies continue to expand their
            businesses through internal growth and acquisitions.

      o     Strong Market-Making Skills. We utilize our strong market-making
            skills to actively trade as principal in our specialist stocks. We
            significantly improve liquidity in our specialist stocks,
            particularly during periods of market volatility. In 2000,
            approximately 31.6% of our trades were as principal as compared to
            an average of approximately 27.4% for all NYSE specialists.

      o     Innovative Customer-Oriented Services. In addition to our specialist
            functions on the trading floor, we are committed to providing our
            listed companies with a high level of service. We provide our listed
            companies with detailed reports on the trading activity of their
            stocks. We also maintain frequent verbal contact with a majority of
            our listed companies to discuss the trading in their stock. In
            addition, we were the first specialist firm to:

            o     host an annual listed company conference;

            o     publish a company newsletter; and

            o     commission customer satisfaction surveys from our listed
                  companies.

      o     Completed Acquisitions. Since 1997, we have acquired the following
            six specialist operations, solidifying our position as one of the
            leading NYSE specialist firms:

            o     a portion of the specialist operations of Stern Bros., LLC
                  (July 1997);

            o     Ernst, Homans, Ware & Keelips (August 1997);

            o     Fowler, Rosenau & Geary, LLC (July 1998);

            o     Henderson Brothers, Inc. (March 2000);

            o     Webco Securities, Inc. (March 2000);

            o     the assets and operations of an AMEX options specialist unit
                  that acted as the specialist in the options of 21 common
                  stocks (December 2000); and

            o     ROBB PECK McCOOEY Specialist Corporation, the specialist
                  subsidiary included in our acquisition of ROBB PECK McCOOEY
                  Financial Services, Inc. (March 2001).


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      Through 2000, we effectively employed our capital resources and skilled
personnel to maximize the synergies created through consolidation. In doing so,
we have the enhanced profitability of the acquired operations. This experience
will assist us in integrating the business operations of subsequent
acquisitions.

      Our strategy is to continue growing our revenues and profits by:

            o     Aggressively Pursuing 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 December 31, 2000, we
                  participated in 117 allocation pools for listed companies and
                  were selected by management of 67 companies.

            o     Capitalizing on Recent and Future Acquisitions. With the
                  acquisitions of Henderson Brothers Holdings, Inc. ("Henderson
                  Brothers") and Webco Securities, Inc. ("Webco") in March 2000,
                  we added 147 additional NYSE common stock listings, including
                  28 S&P 500 Index stocks and two included in the Dow Jones
                  Industrial Average. The acquisition of ROBB PECK McCOOEY
                  Financial Services, Inc. ("RPM") on March 15, 2001 has added
                  129 NYSE common stock listings to our specialist portfolio,
                  including three components of the Dow Jones Industrial Average
                  and 21 S&P 500 Index stocks, based on the number of RPM's
                  specialist stocks as of December 31, 2000. The RPM acquisition
                  also included RPM's 25% interest in a joint account with R.
                  Adrian & Co., LLC and Freedom Specialist Inc., which acted as
                  the specialist for 28 NYSE-listed companies, including four
                  S&P 500 Index stocks, at December 31, 2000. With the RPM
                  acquisition, we expect to be the largest specialist on the
                  NYSE based on number of common stock listings and annual
                  dollar and share volume traded. As of December 31, 2000, we
                  were the specialist for 386 listed companies, including 68 of
                  the S&P 500 Index and seven of the companies included in the
                  Dow Jones Industrial Average. We intend to continue taking
                  advantage of the consolidation trend in the specialist
                  industry by pursuing acquisitions of other specialist
                  operations.

Recent Acquisitions

Henderson Brothers

      On March 2, 2000, we acquired Henderson Brothers, which owned Henderson
Brothers, Inc., a specialist firm on the NYSE. Under the terms of the agreement,
we acquired all the outstanding capital stock of Henderson Brothers for
approximately $228.4 million in cash. As part of the Henderson Brothers
acquisition, we entered into employment agreements with 14 specialists and an
additional employee formerly employed by Henderson Brothers. We also entered
into consulting agreements with two former


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Henderson Brothers employees pursuant to which we are paying an aggregate of
$5.0 million over five years.

      In addition, as part of the Henderson Brothers acquisition, we acquired
and are continuing its clearing broker operations, which consisted of clearance
and settlement of transactions effected by either their own representatives or
introducing brokers.

Webco

      On March 9, 2000, we acquired, through a merger, Webco, another specialist
firm on the NYSE, for 2.8 million shares of our common stock, $11.0 million in
cash and senior promissory notes in the aggregate principal amount of $3.0
million, each bearing an interest rate of 10.0% per annum. As part of the
acquisition, we entered into employment agreements with three specialists
employed by Webco.

      Simultaneously with the acquisitions of Henderson Brothers and Webco, we
transferred the specialist operations of each of Henderson Brothers and Webco to
our subsidiary LaBranche & Co. LLC. The clearing operations of Henderson
Brothers are operated by us as a separate subsidiary.

AMEX Options Joint Account

      On December 21, 2000, we purchased the assets and operations of an AMEX
options specialist unit. We now run this business through LaBranche & Co. LLC.
This unit acts as the specialist in the options with respect to 21 common
stocks, including Electronic Data Systems, Global Crossing and Exodus
Communications.

Internet Trading Technologies, Inc.

      On March 15, 2001, we acquired all the outstanding capital stock of
Internet Trading Technologies, Inc. ("ITTI"), a company that provides front-end
order execution, analysis and reporting solutions for the wholesale securities
dealer market. We operate ITTI as a separate subsidiary.

RPM

      On March 15, 2001, we acquired RPM. Under the terms of the merger
agreement, for each share of RPM common stock they owned, RPM stockholders
received 98.778 shares of our common stock and shares of our Series A preferred
stock with an aggregate liquidation preference of $1,426.53. In the aggregate,
we issued approximately 6.9 million shares of our common stock and 100,000
shares of our Series A preferred stock. The shares of LaBranche Series A
preferred stock issued to the RPM stockholders are subject to the RPM
stockholders' indemnification obligations to us, and the RPM stockholders may be
obligated to return to us a portion of the shares of our Series A preferred
stock deliverable to them at the closing of the merger based on the final
calculation of the adjusted net book value of RPM as of the closing date of the
merger, which, pursuant to the merger agreement, must be completed within 60
business days after the closing of the merger. Each share of our Series A
preferred stock delivered to the former RPM stockholders entitles the holder
thereof to cumulative preferred cash dividends at an annual rate of 8% for the
first four years, 10% for the fifth year and 10.8% thereafter, certain voting
rights and preferred distributions upon liquidation. In addition, each former
RPM option holder's option agreement was amended to provide for the conversion
of each of his RPM options into an immediately exercisable option to purchase
98.778 shares of our common stock. We also succeeded to RPM's liabilities and
obligations under the RPM Deferred Compensation Plan which provides for the
payment on or before the date that is 81 months after the closing of the RPM
merger, of approximately $30.2 million, plus interest at 8% per year, to the
former RPM option holders. We also succeeded to


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RPM's liabilities and obligations under RPM's retention bonus pool, which
requires the payment of $9.0 million as bonus compensation on the third
anniversary of the closing date of the merger to as many as 31 former employees
of RPM, subject to certain service requirements.

      In connection with the RPM acquisition, we:

      o     acquired an additional 27 NYSE memberships, of which 10 were owned
            by RPM, pursuant to so-called A-B-C agreements, 15 were leased from
            third parties and two seats were owned by RPM employees and
            contributed to RPM for its use;

      o     hired an additional 215 employees, including 120 employees in RPM's
            clearing operations and 95 employees in RPM's specialist operations,
            of which 27 are specialists and 68 are trading assistants. In
            addition, nine former RPM employees became managing directors; and

      o     acquired an additional 42,300 square feet of office space.

      In addition, as part of the acquisition, we also acquired and are
continuing the ROBB PECK McCOOEY Clearing Corporation ("RPM Clearing
Corporation") operations. RPM Clearing Corporation provides clearing, execution
and other services to a variety of customers including NYSE specialist firms,
broker-dealers, financial institutions, traders and professional investors.

Operations

NYSE Rules Governing Our Specialist Activities

      Under 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.


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      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 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 $501/16
      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:

      o     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.

      o     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.


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<PAGE>

      o     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.

      o     The specialist does not charge commissions for trades in which it
            acts as a principal.

      o     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.

      o     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 may 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 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, Anthony M. Corso, Alfred O. Hayward, Jr., Michael
J. Naughton, James G. Gallagher. Mr Naughton is retiring as of March 31, 2001.
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. Corso, Hayward, Naughton, Gallagher and John 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


                                       15
<PAGE>

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 ten 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 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 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:

      o     our aggregate long and short positions;

      o     the various positions of each of our trading professionals;

      o     our overall position in a particular stock;

      o     capital and profit-and-loss information on an aggregate, per
            specialist or per issue basis; and

      o     average position size.

      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


                                       16
<PAGE>

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

      In addition to our specialist functions on the trading floor, we are
committed to providing our listed companies with a high level of service. We
have a Corporate Relations Department consisting of seven 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:

      o     daily reports on the trading results of their stock;

      o     real-time data regarding intra-day trading activity in their stock;
            and

      o     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 and participate in annual
educational conferences that review trends in the securities industry and NYSE
trading. 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 a NYSE membership. As of December 31, 2000, we had
73 specialists and owned


                                       17
<PAGE>

or leased 76 memberships. As of March 23, 2001 we had 101 specialists, including
27 specialists as a result of the RPM acquisition, each of whom owned or leased
a membership under the following arrangements:

      o     12 memberships were owned directly by 12 of our employees;

      o     35 were owned by specialists and financed by us pursuant to
            so-called A-B-C agreements; and

      o     54 were leased by 54 of our specialists from other individual
            members, and we pay and guarantee the lease payments.

      In addition, as of March 23, 2001, our Henderson Brothers and RPM cleaning
subsidiaries owned two seats that were used to conduct their clearing
businesses, and we owned another seat, which we leased to an unaffiliated third
party. Two additional seats were owned by two floor broker employees of our
Henderson Brothers subsidiary and are used in the conduct of Henderson Brothers'
business.

AMEX Options Specialist Account

      In December 2000, we purchased the assets and operations of an AMEX
options specialist unit and run this business through LaBranche & Co. LLC. This
unit acts as the specialist in the options with respect to 21 common stocks,
including Electronic Data Systems, Global Crossing and Exodus Communications.
This transaction enhances our commitment to the listed auction market and is an
important step in the implementation of our growth strategy. As of December 31,
2000, the two AMEX memberships utilized by this specialist unit were leased by
two specialist employees of that unit, and we pay and guarantee the rental
payments due under these leases.

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. As of December 31, 2000, we
cleared an average of approximately 60,000 principal trades per day. We also
conduct clearing operations involving trades for third parties through our
Henderson Brothers subsidiary and, since our recent acquisition of RPM, through
our RPM clearing subsidiary. 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.


                                       18
<PAGE>

      We have a back-up disaster recovery center in Hoboken, NJ. 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 the NYSE's computer system. 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 relevant market conditions and related listed company current
events. In addition, we monitor each of our specialist stocks intra-day to see
if there are any significant price and/or volume variances about which we should
alert the listed company. This has proven to be a valuable customer service
tool.

Clearing Business

      Our RPM clearing subsidiary provides services to individual and
institutional clients, including traders, professional investors, institutions
and broker-dealers. These services include clearing and custody services,
customer account maintenance and customized data processing services. The use of
emerging technologies at our RPM clearing subsidiary has enhanced its ability to
handle increasing volume of transactions. This technology allows our RPM
clearing subsidiary to provide customized, detailed account information and
implement straight-through processing solutions to better serve customers.
Before conducting business with a prospective customer, a variety of factors are
reviewed, some of which are: the prospective customer's experience in the
securities industry, financial condition and personal background.

      Our Henderson Brothers clearing subsidiary provides clearing services to
other members of the NYSE. This involves receiving, delivering and holding funds
and securities for its customers. Henderson Brothers reviews the credit standing
of each customer with which it conducts business.

      Our LaBranche & Co. LLC subsidiary acts as a self-clearing broker-dealer
for our specialist business. All trades made in connection with our specialist
business are cleared by LaBranche & Co. LLC.

Direct Access Business

      Our Henderson Brothers subsidiary places its customers in direct contact
with the NYSE. Utilizing easy-to-use web-based technology developed by our
recently acquired ITTI subsidiary, Henderson Brothers provides its institutional
customers with the choice of two conduits for sending their order flow directly
to the point of sale on the floor of the NYSE. Orders that require special
attention can be sent to one of Henderson Brothers' licensed floor brokers for
customized handling. Otherwise, customers can send their orders directly to the
specialist's order book using the NYSE's SUPERDOT system. Henderson Brothers'
brokers take advantage of the NYSE's advanced wireless technology to communicate
directly with its trading customers. By employing the advanced technology,
Henderson Brothers customers receive extremely fast trade executions and
confirmations. All customer orders are treated with strict confidentiality and
anonymity, allowing for the best execution with the least market impact. In
addition, Henderson Brothers' customers are given all the benefits of
straight-through, seamless trade processing. Henderson Brothers clears and
delivers the trades directly to its customers' depository accounts.


                                       19
<PAGE>

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. Our six traders focus
primarily on stocks listed on the NYSE. In 2000, we derived 0.5% of our revenues
from our proprietary trading. Our proprietary trading desk utilizes a Windows NT
based trade reporting system which captures all trades executed by the trading
desk and marks all positions to market. We are not permitted to trade in stocks
for which we act as specialist.

      We have taken the following actions to manage the risks associated with
our proprietary trading:

      o     for 2000, we have limited our capital commitment for our proprietary
            trading to an aggregate maximum of $21.5 million intra-day and
            overnight positions of up to $13.5 million per day;

      o     each of our non-executive proprietary traders has 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 has daily investment limits of $5.0
            million or less and overnight investment limits of $3.0 million or
            less, depending on their experience;

      o     one of our managing directors oversees all of our proprietary
            trading and has the authority to instruct the proprietary trading
            desk to liquidate positions or otherwise reduce risk. He reports
            directly to Michael LaBranche, our Chairman, Chief Executive Officer
            and President.

Specialist Companies

      As of December 31, 2000, we acted as specialist for 386 common stocks
listed on the NYSE. As of March 23, 2001, with the acquisition of RPM, we acted
as specialist for 512 common stock listings. Our listed companies operate in a
variety of industries including financial services, media, oil and gas, retail,
technology and telecommunications. They range in market capitalization from some
of the smallest on the NYSE to some of its largest and well-known corporations.
Included in our 386 common stock listings as of December 31, 2000 were 69
foreign listings on the NYSE. As of March 23, 2001, we represented 98 foreign
listings on the NYSE, including 30 as a result of our recent acquisition of RPM.
The following is a list of our top 50 listed companies in terms of market
capitalization as of March 23, 2001 in order of their respective global market
capitalizations (read in descending order from top to bottom, left to right):


                                       20
<PAGE>

<TABLE>
<S>                                           <C>
Exxon Mobil Corporation                       Taiwan Semiconductor Manufacturing Company
Merck & Co., Inc.                             American Express Company
GlaxoSmithKline plc                           AT&T Wireless Group, Inc.
Toyota Motor Corporation                      Du Pont (E.I.) de Nemours and Company
SBC Communications Inc.                       Federal Home Loan Mortgage Corp.
Nokia Corporation                             Banco Bilbao Vizcaya Argentaria S.A.
Bristol-Meyers Squibb Company                 Minnesota Mining & Manufacturing Company
HSBC Holdings plc                             Enel S.p.A.
Nippon Telegraph and Telephone Corporation    U.S. Bancorp
Berkshire Hathaway, Inc. Class A              Lucent Technologies Inc.
Novartis AG                                   Schlumberger Limited
Philip Morris Companies Inc.                  Koninklijke Philips Electronics N.V.
AT&T Corp.                                    Compaq Computer Corporation
Tyco International Ltd.                       Diageo plc
Wells Fargo & Company                         PetroChina Company Ltd
Viacom Inc.                                   First Union Corporation
United Parcel Service, Inc.                   The News Corporation Limited
Morgan Stanley Dean Witter & Co.              Clear Channel Communications, Inc.
ING Groep N.V.                                Household International, Inc.
Qwest Communications International            ABN Amro Holding N.V.
Chevron Corporation                           Emerson Electric Co.
Schering-Plough Corp.                         First Data Corp.
Medtronic, Inc.                               United Microelectronics Corporation
Ford Motor Corp.                              Lowes Companies, Inc.
TOTAL Fina Elf S.A.                           CVS Corporation
</TABLE>

Marketing

      It is a priority for our management to proactively identify potential
listing companies before the allocation process begins. We contact these
companies and commence our marketing efforts upon determining that they are
considering listing on the NYSE. Our marketing efforts typically consist of
members of our management group visiting with the companies that are considering
listing on the NYSE and describing our services. We also provide written
literature describing our operations, our listed companies, our 76-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 regulation under both federal and state laws. In
addition, the SEC and the NYSE require


                                       21
<PAGE>

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 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.

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 December 31, 2000, our net capital, as defined by
this rule, was $293.4 million and exceeded minimum requirements by $290.3
million.

      The NYSE generally requires members registered as specialists to maintain
a minimum dollar regulatory capital amount in order to establish that they can
meet, with their own net liquid assets, their position requirement. Effective
October 30, 2000, with SEC approval, the NYSE changed Rule 104, its minimum net
liquid asset requirements. Specialist units that exceed five percent in any of
the NYSE's four concentration measures must maintain minimum net liquid assets
based upon the securities for which they act as the specialist. The requirements
state that the net liquid assets must be equivalent to $4.0 million for each
stock in the Dow Jones Industrial Average, $2.0 million for each stock in the
S&P 100 Stock Price Index, excluding stocks included in the previous
classification, $1.0 million for each stock in the S&P 500 Stock Price Index,
excluding stock included in the previous classifications, $500,000 for each
common stock, excluding bond funds and stocks included in the previous
classifications, and $100,000 for each stock not included in any of the above
classifications. In addition, the NYSE requires any new specialist entities that
result from a merger, acquisition, consolidation or other combination of
specialist entities to maintain net liquid assets equivalent to the greater of
either: (1) the


                                       22
<PAGE>

aggregate net liquid assets of the specialist entities prior to their
combination or (2) the new capital requirements prescribed under Rule 104. 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 December 31, 2000, LaBranche & Co. LLC's
net liquid asset requirement was $284.3 million, and its actual net liquid
assets were approximately $305.0 million. As of March 23, 2001, LaBranche & Co.
LLC's net liquid asset requirement had increased to $405.0 million as a result
of the RPM acqusition, and its actual net liquid assets at that time exceeded
this requirement.

      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:

      o     the strength of our capital base;

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

      o     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 December 31,
2000, based on their number of common stock listings:

      o     Fleet Specialists, Inc.

      o     Spear, Leeds & Kellogg, L.P. (recently acquired by The Goldman Sachs
            Group, Inc.)

      o     LaBranche & Co. LLC

      o     Van Der Moolen Specialists USA, LLC

      o     Wagner, Stott, Mercator LLC (pending acquisition by Bear/Hunter
            Specialists, LLC)

      o     ROBB PECK McCOOEY Specialist Corporation (acquired by us in March
            2001)

      o     Bear/Hunter Specialists, LLC

      o     Performance Specialist Group LLC


                                       23
<PAGE>

      o     Benjamin Jacobson & Sons LLC (recently acquired by The Goldman Sachs
            Group, Inc.)

      o     Susquehanna Specialists, Inc.

      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 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. 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 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.

      o     NYSE-listed stocks may be traded:

      o     by NYSE members over-the-counter; and

      o     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.

Employees

      As of December 31, 2000, we had 267 full-time employees, including 44
managing directors. As of March 23, 2001, excluding employees acquired as a
result of recent acquisitions, we had 284 full time employees, including 51
managing directors with:


                                       24
<PAGE>

      o     77 specialists, including 47 managing directors and two AMEX options
            specialists;

      o     three two dollar floor brokers;

      o     six traders in our proprietary trading department;

      o     146 trading assistants;

      o     seven corporate relations department employees; and

      o     45 management, administration and finance staff, including four
            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. As a result of our RPM acquisition and other
recent acquisitions we now employ an additional 225 full time employees, which
includes 27 specialists and 10 managing directors.

Item 2. PROPERTIES.

      Our offices are located at One Exchange Plaza, New York, New York. We
lease approximately 36,000 square feet under four separate leases, expiring in
January 2008. In addition, we lease four trading posts on the floor of the NYSE.
As a result of our acquisition of RPM, we now lease an additional post on the
floor of the NYSE and approximately 42,300 square feet of office space located
at 20 Broad Street, 14 Wall Street and One Exchange Plaza in New York, New York.
In addition, as a result of our recent acquisition of ITTI, we lease
approximately 7,425 square feet of office space at 15 Maiden Lane, New York, New
York. We believe that our current leased space is suitable and adequate for the
operation of our business as presently conducted and as contemplated to be
conducted in the immediate future.

Item 3. LEGAL PROCEEDINGS.

      We are not a party to any material legal proceeding.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      There were no matters submitted to a vote of security holders during the
fourth quarter of our fiscal year ended December 31, 2000.


                                       25
<PAGE>

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information and Holders

      Our common stock is quoted on the NYSE under the symbol "LAB." The
following table sets forth the range of high and low closing sales prices for
our common stock on the NYSE for the periods indicated since our initial public
offering in August 19, 1999:

         Fiscal 1999                                         High          Low
         -----------                                         ----          ---

         Third Quarter
            (August 19, 1999  to  September 30, 1999)      $14.25       $11.19

         Fourth Quarter                                     13.38         9.38

         Fiscal 2000
         -----------

         First Quarter                                      15.38        11.31

         Second Quarter                                     17.63        11.13

         Third Quarter                                      36.25        15.44

         Fourth Quarter                                     39.63        22.19

         Fiscal 2001
         -----------

         First Quarter
            (through March 23, 2001)                        51.03        27.69

      As of March 23, 2001, we had 150 stockholders of record of our common
stock and an estimated 3,661 beneficial owners. The closing sale price of our
common stock on March 23, 2001 was $37.10 per share.

Dividend Policy

      We have never paid cash dividends on our common stock. We do not expect to
declare or pay any dividends on our common stock in the foreseeable future, but
instead intend to retain all earnings, if any, to invest in our operations. The
payment of future dividends is within the discretion of our board of directors
and will depend upon our future earnings, if any, our capital requirements,
financial condition and other relevant factors.

      Pursuant to the merger agreement with RPM, we issued 100,000 shares of our
Series A preferred stock. Each outstanding share of our Series A preferred stock
entitles the holder thereof


                                       26
<PAGE>

to cumulative preferred cash dividends at an annual rate of 8% of the
liquidation preference per share until the fourth anniversary of the closing of
the merger, 10% until the fifth anniversary of the closing, and 10.8%
thereafter. Dividends are payable on the first day of January and the first day
of July of each year (or if such date is not a regular business day, then the
next business day thereafter), commencing on July 1, 2001. Dividends on the
issued and outstanding shares of Series A preferred stock will be preferred and
cumulative and will accrue from day to day from the date on which they are
originally issued.

Recent Sales of Unregistered Securities

      As part of our acquisition of Webco on March 9, 2000, we issued an
aggregate of 2,799,984 shares of our stock, $11.0 million in cash and senior
promissory notes in the aggregate principal amount of $3.0 million, each bearing
an interest rate of 10.0% per annum.


                                       27
<PAGE>

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.

      The selected consolidated financial data set forth below for the years
ended December 31, 1998, 1999 and 2000 and as of December 31, 1999 and 2000 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 filing. The selected consolidated financial data set forth
below for the years ended December 31, 1996 and 1997 and as of December 31,
1996, 1997 and 1998 have been derived from our consolidated financial
statements, audited by Arthur Andersen LLP, independent public accountants,
which are not included elsewhere in this filing. 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 filing.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                          -----------------------
                                                              2000       1999       1998       1997       1996
                                                              ----       ----       ----       ----       ----
   STATEMENT OF OPERATIONS DATA:                                               (In thousands)
<S>                                                         <C>        <C>        <C>        <C>        <C>
   Revenues:
   Net gain on principal transactions ...................   $282,948   $150,971   $ 95,048   $ 47,817   $ 37,113
   Commissions ..........................................     45,381     37,222     26,576     15,186     10,180
   Other ................................................     16,480     12,844      4,787      4,637      2,643
                                                            --------   --------   --------   --------   --------
   Total revenues .......................................    344,809    201,037    126,411     67,640     49,936
                                                            --------   --------   --------   --------   --------
Expenses:
   Employee compensation and benefits ...................     88,759     34,268     13,921      8,108     11,098
   Lease of exchange memberships ........................     10,933      8,416      6,568      3,727      2,468
   Interest .............................................     41,893      8,286      3,577      1,566        331
   Depreciation and amortization of intangibles .........     18,476      5,144      3,020        737         --
   Exchange, clearing and brokerage fees ................      5,148      3,601      2,778      2,042      1,514
   Legal and professional fees ..........................      1,868      1,622        916        620        170
   Occupancy ............................................      1,310        998        747        465        435
   Communications .......................................      1,500      1,193        964        709        495
   Other ................................................      8,345      3,041      2,285      1,934        642
                                                            --------   --------   --------   --------   --------
   Total expenses before managing directors'
    compensation, limited partners' interest in earnings
    of subsidiary and provision for income taxes .........   178,232     66,569     34,776     19,908     17,153
                                                            --------   --------   --------   --------   --------
   Income before managing directors' compensation,
    limited partners' interest in earnings of subsidiary
    and provision for income taxes .......................   166,577    134,468     91,635     47,732     32,783
   Managing directors' compensation .....................         --     56,191     58,783     30,008     23,235
                                                            --------   --------   --------   --------   --------
   Income before limited partners' interest in earnings
    of subsidiary and provision for income taxes .........   166,577     78,277     32,852     17,724      9,548
   Limited partners' interest in earnings of subsidiary .         --     25,344     26,292     14,354      9,638
                                                            --------   --------   --------   --------   --------
   Income (loss) before provision for income taxes ......    166,577     52,933      6,560      3,370        (90)
   Provision for income taxes ...........................     84,654     23,899      3,900      1,881      1,602
                                                            --------   --------   --------   --------   --------
   Net income (loss) ....................................   $ 81,923   $ 29,034   $  2,660   $  1,489   $ (1,692)
                                                            ========   ========   ========   ========   ========
</TABLE>


                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                              As of December 31,
                                                              ------------------
                                           2000          1999        1998         1997         1996
                                           ----          ----        ----         ----         ----
BALANCE SHEET DATA:                                             (In thousands)
<S>                                     <C>          <C>          <C>          <C>          <C>
Cash and short term investments .....   $  289,941   $  109,196   $   25,822   $   17,989   $   16,479
Working capital .....................      366,527      229,454      104,250       62,562       27,694
Total assets ........................    1,004,122      505,896      272,201      157,754       78,918
Total long-term indebtedness (1) ....      397,828      162,330       48,073       31,423        2,919
Members' capital/stockholders' equity      370,901      251,972       77,093       37,658       13,735
</TABLE>

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

Item 7. 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 filing. 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 including, but not limited to those
discussed in "Risk Factors" attached hereto as Exhibit 99.1. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors. 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

      Organized in 1999 in connection with the reorganization of LaBranche & Co.
from partnership to corporate form and the related initial public offering of
our common stock, LaBranche & Co Inc. is the sole member of LaBranche & Co. LLC
and the sole stockholder of Henderson Brothers, Inc. ("Henderson Brothers"). Our
subsidiary LaBranche & Co. LLC is one of the oldest and largest specialist firms
on the New York Stock Exchange, Inc. Our Henderson Brothers subsidiary provides
securities clearing services to customers of several introducing brokers and
provides direct access floor brokerage services to institutional customers. Our
business has grown considerably during the past five years. We have accomplished
this growth both internally and through acquisitions. Our revenues increased
from $49.9 million in 1996 to $344.8 million in 2000, representing a compound
annual growth rate of 62.1%. During the same period, we increased the number of
our common stock listings from 125 to 386.

Revenues

      Our revenues consist primarily of net gain 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 is
earned by us when we act as principal buying and selling our specialist stocks
and options.


                                       29
<PAGE>

These revenues are primarily affected by changes in share volume and
fluctuations in price in our specialist stocks and options. Share volume for our
specialist stocks has historically been driven by general trends in NYSE trading
volume, as well as factors affecting listed companies, including merger and
acquisition activity, stock splits, greater frequency of company news releases
(e.g., earnings guidance and reports), heightened research analyst coverage and
investor sentiment. Commissions revenue consists primarily 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, fees from clearance operations, an
investment in a hedge fund and interest income. For the year ended December 31,
2000, net gain on principal transactions represented 82.1% of our total
revenues, commissions revenue represented 13.2% of our total revenues, and other
revenue represented 4.7% of our total revenues. The respective percentages for
the prior year were 75.1%, 18.5% and 6.4%.

Expenses

      Our largest operating expense is employee compensation and related
benefits, which 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.

      Prior to our reorganization from partnership to corporate form in August
1999, a large portion of the compensation payments to our managing directors had
not been presented as part of operating expenses. The aggregate amount of these
compensation payments generally approximated the interest of LaB Investing Co.
L.L.C., formerly the general partner of LaBranche & Co., in the income of
LaBranche & Co., before managing directors' compensation. Generally, these
payments of compensation were allocated among our managing directors based on
their respective percentage interests in the profits of LaB Investing Co. L.L.C.
Subsequent to the reorganization transactions, we include payments to managing
directors in employee compensation and related benefits expense. Therefore,
historical income before managing directors' compensation, limited partners'
interest in earnings of subsidiary and provision for income taxes for 1999 and
years prior, understates our operating costs when compared to our present
corporate structure.

Reorganization Transactions

      On August 24, 1999, we reorganized from partnership to corporate form.
Prior to the reorganization, we operated as LaBranche & Co., a limited
partnership and LaB Investing Co. L.L.C., a limited liability company and the
general partner of LaBranche & Co. As part of the reorganization, we redeemed
limited partnership interests in LaBranche & Co. and redeemed or purchased all
membership interests in LaB Investing Co. L.L.C. in exchange for a combination
of cash, indebtedness and common stock of LaBranche & Co Inc. The redemption of
the limited


                                       30
<PAGE>

partnership interests was accounted for as a step acquisition under the purchase
method of accounting. The excess of purchase price over the limited partners'
capital accounts of $127.4 million was allocated to intangible assets. Following
the reorganization, LaBranche & Co Inc. became a holding corporation whose
assets consisted primarily of ownership interests in LaBranche & Co. and LaB
Investing Co. L.L.C. As of June 30, 2000, LaB Investing Co. L.L.C. was merged
with and into LaBranche & Co. and on the same date, LaBranche & Co. converted
into a limited liability company and changed its name to LaBranche & Co. LLC. As
a result, LaBranche & Co Inc. became, and continues to be, the sole member of
our specialist subsidiary, LaBranche & Co. LLC.

      Simultaneously with the reorganization, we completed an initial public
offering of 10,500,000 shares of our common stock at a price of $14.00 per
share. In addition, we incurred indebtedness of approximately $100.0 million
through our 9 1/2% Senior Note offering and $16.0 million through the issuance
of other senior indebtedness to a former limited partner. In addition, LaBranche
& Co. incurred $350,000 of subordinated indebtedness.

Income Taxes

      As a partnership, we were not subject to U.S. federal, state and local
income taxes, apart from the 4% New York City unincorporated business tax. As
part of our restructuring to a corporation, we are subject to U.S. federal,
state and local income taxes.

Completed Acquisitions

      In the third quarter of 1998, we acquired substantially all the assets of
Fowler, Rosenau & Geary, LLC ( "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 March 2000, we completed the acquisition of Henderson Brothers in which
we acquired all their outstanding capital stock for approximately $228.4 million
in cash. In addition, on March 9, 2000, we acquired Webco Securities, Inc.
("Webco") through a merger for 2.8 million shares of our common stock, $11.0
million in cash and senior promissory notes in the aggregate principal amount of
$3.0 million, each bearing an interest rate of 10.0% per annum. These
acquisitions were accounted for under the purchase method and the excess of cost
over estimated fair value of the net assets acquired of $204.9 million for
Henderson Brothers and $28.8 million for Webco was allocated to intangible
assets. The results of specialist operations of each of these acquired companies
are included in our consolidated financial statements beginning on the date of
completion of its acquisition.

      In December 2000, we acquired an American Stock Exchange ("AMEX")
specialist unit from a joint venture of Midland Trading L.P., Pal-Bro Partners
L.L.C. and Cohen Specialists L.L.C. The acquisition was accounted for under the
purchase method of accounting. The results of the


                                       31
<PAGE>

AMEX specialist unit operations have been included in our consolidated financial
statements since December 21, 2000. The excess of purchase price over fair value
of approximately $3.8 million was allocated to goodwill.

      On March 15, 2001, we acquired ROBB PECK McCOOEY Financial Services, Inc.
("Robb Peck McCooey") for an aggregate of approximately 6.9 million shares of
our common stock and shares of nonconvertible preferred stock having an
aggregate face value of approximately $100.0 million and an estimated fair value
of approximately $89.1 million. In addition, all obligations under Robb Peck
McCooey's outstanding option agreements with employees were assumed, with each
option to purchase Robb Peck McCooey common stock having been replaced with an
immediately exercisable option to purchase 98.778 shares of our common stock.
The purchase price is estimated to approximate $434.1 million, the majority of
which will be allocated to intangible assets.

Results of Operations

      The following table sets forth the statement of operations data for the
years indicated as a percentage of total revenues:

<TABLE>
<CAPTION>
                                                                                   For the Years Ended December 31,
                                                                                        2000     1999     1998
                                                                                        ----     ----     ----
<S>                                                                                    <C>      <C>      <C>
 REVENUES:
Net gain on principal transactions .................................................    82.1%    75.1%    75.2%
Commissions ........................................................................    13.2     18.5     21.0
Other ..............................................................................     4.7      6.4      3.8
                                                                                       -----    -----    -----
  Total revenues ...................................................................   100.0    100.0    100.0
                                                                                       -----    -----    -----
 EXPENSES:
Employee compensation and related benefits .........................................    25.7     17.0     11.0
Interest ...........................................................................    12.2      4.1      2.8
Depreciation and amortization of intangibles .......................................     5.4      2.5      2.4
Lease of exchange memberships ......................................................     3.2      4.2      5.2
Exchange, clearing and brokerage fees ..............................................     1.5      1.8      2.2
Legal and professional fees ........................................................     0.6      0.8      0.7
Occupancy ..........................................................................     0.4      0.5      0.6
Communications .....................................................................     0.4      0.6      0.8
Other ..............................................................................     2.4      1.5      1.8
                                                                                       -----    -----    -----
  Total expenses before managing directors' compensation, limited partners'
 interest in earnings of subsidiary and provision for income taxes .................    51.8     33.0     27.5
                                                                                       -----    -----    -----
Income before managing directors' compensation, limited partners' interest in
 earnings of subsidiary and provision for income taxes .............................    48.2     67.0     72.5
MANAGING DIRECTORS' COMPENSATION ...................................................      --     28.0     46.5
                                                                                       -----    -----    -----
Income before limited partners' interest in earnings of subsidiary and provision for
 income taxes ......................................................................    48.2     39.0     26.0
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY ...............................      --     12.6     20.8
                                                                                       -----    -----    -----
Income before provision for income taxes ...........................................    48.2     26.4      5.2
PROVISION FOR INCOME TAXES .........................................................    24.6     11.9      3.1
                                                                                       -----    -----    -----
Net income .........................................................................    23.6%    14.5%     2.1%
                                                                                       =====    =====    =====
</TABLE>


                                       32
<PAGE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues

      Total revenues increased 71.5% to $344.8 million for 2000, from $201.0
million for 1999, principally due to the increase in revenue from net gain on
principal transactions. Net gain on principal transactions increased 87.4% to
$282.9 million for 2000, from $151.0 million for 1999. This increase was
primarily due to the Henderson Brothers and Webco acquisitions in March 2000, as
a result of which we became the specialist for 147 additional common stock
listings, as well as increased share volume in principal trading in our
specialist stocks traded on the NYSE. Our share volume as principal increased
87.5% to 18.0 billion shares for 2000, from 9.6 billion shares for 1999.

      Commissions revenue increased 22.0% to $45.4 million for 2000, from $37.2
million for 1999. This increase was primarily due to the increase in the number
of our common stock listings as a result of the Henderson Brothers and Webco
acquisitions and to increased share volume in our specialist stocks traded on
the NYSE in which we acted as agent. The share volume executed by us as agent in
our specialist stocks increased 36.6% to 5.6 billion shares for 2000, from 4.1
billion shares for 1999.

      Other revenue increased 28.9% to $16.5 million for 2000, from $12.8
million for 1999. This increase was primarily due to an increase in our interest
income, which was also offset by a decrease in our proprietary trading revenues
and other investments.

Expenses

      Total expenses before managing directors' compensation, limited partners'
interest in earnings of subsidiary and provision for income taxes increased
167.6% to $178.2 million for 2000 from $66.6 million for 1999.

      Employee compensation and related benefits increased 158.9% to $88.8
million for 2000, from $34.3 million for 1999. This increase was primarily due
to the inclusion of managing directors' salary, incentive-based compensation and
related benefits in employee compensation subsequent to our reorganization, and
due to the Henderson Brothers and Webco acquisitions that resulted in our
employment of 97 additional individuals as of the respective acquisition dates.
As a percentage of total revenues, employee compensation increased to 25.7% of
total revenues for 2000, from 17.0% of total revenues for 1999.

      Interest expense increased 404.8% to $41.9 million for 2000, from $8.3
million for 1999. This increase was primarily due to the issuance, in connection
with the Henderson Brothers and Webco acquisitions, of $250.0 million of
indebtedness that began accruing interest on March 2, 2000. In addition, the
increase was due to the issuance of $116.4 million of indebtedness, in
connection with our reorganization, that began accruing interest from August 24,
1999. As a


                                       33
<PAGE>

percentage of total revenues, interest increased to 12.2% of total revenues for
2000, from 4.1% of total revenues for 1999.

      Depreciation and amortization of intangibles expense increased 262.8% to
$18.5 million for 2000, from $5.1 million for 1999. Amortization of intangibles
increased as a result of the $233.7 million of intangible assets recorded as a
result of our acquisition of Henderson Brothers and Webco and incurring a full
year of amortization of intangibles in 2000 related to the redemption of limited
partnership interest in 1999. As a percentage of total revenues, depreciation
and amortization of intangibles increased to 5.4% of total revenues for 2000,
from 2.5% of total revenues for 1999.

      Lease of exchange memberships expense increased 29.8% to $10.9 million for
2000, from $8.4 million for 1999. This increase was due to the increase in the
number of leased memberships from 44 to 50, and was also due to an increase in
the average annual leasing cost of a membership from approximately $192,000 to
$276,000. As a percentage of total revenues, however, lease of exchange
memberships decreased to 3.2% of total revenues for 2000, from 4.2% of total
revenues for 1999.

      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
primarily include 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 41.7% to $5.1 million for 2000, from $3.6 million for
1999. This increase was primarily due to the increased trading volumes as a
result of the Henderson Brothers and Webco acquisitions.

      Legal and professional fees increased 18.8% to $1.9 million for 2000, from
$1.6 million for 1999. This increase was primarily the result of increased legal
and filing fees associated with various filings and acquisitions.

      Occupancy expense increased 30.0% to $1.3 million for 2000, from $1.0
million for 1999. This increase was primarily the result of the leasing of
additional office space due to the Henderson Brothers and Webco acquisitions.

      Communications expense increased 25.0% to $1.5 million for 2000, from $1.2
million for 1999. This increase was primarily the result of additional
telephone, data retrieval and informational services utilized due to the growth
of our business.

      Other expenses increased 176.7% to $8.3 million for 2000, from $3.0
million for 1999. This increase was primarily due to additional fees incurred in
connection with the increase and extension of our line-of-credit with a U.S.
commercial bank, increased charitable contributions, as well as an increase in
advertising and promotional costs.


                                       34
<PAGE>

Income before Managing Directors' Compensation, Limited Partners' Earnings in
Interest of Subsidiary and Provision for Income Taxes

      Income before managing directors' compensation, limited partners' interest
in earnings of subsidiary and before provision for income taxes increased 23.9%
to $166.6 million for 2000, from $134.5 million for the same period in 1999.
This increase was primarily due to the additional revenues generated by the
Henderson Brothers and Webco acquisitions which was offset by the inclusion of
managing directors' salary and incentive-based compensation in employee
compensation and related benefits and the additional interest and amortization
of intangibles expense as a result of the acquisitions.

Income Taxes

      Provision for income taxes increased 254.4% to $84.7 million for 2000,
from $23.9 million for 1999, as a result of a full year of federal, state and
local income taxes to which we are subject as a result of our reorganization
from partnership to corporate form in 1999 and our increased profitability.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Revenues

      Total revenues increased 59.0% to $201.0 million for 1999, from $126.4
million for 1998, principally due to the increase in revenue from net gain on
principal transactions. Net gain on principal transactions increased 58.9% to
$151.0 million for 1999, from $95.0 million for 1998. This increase was
primarily due to an increase in share volume for our specialist stocks traded on
the NYSE. This increase, in turn, was primarily due to the Fowler, Rosenau
acquisition on July 1, 1998 under which we became the specialist for 76
additional common stock listings, and to increased share volume as principal in
our existing specialist stocks traded on the NYSE. Our share volume as principal
increased 62.7% to 9.6 billion shares for 1999, from 5.9 billion shares for
1998.

      Commissions revenue increased 39.8% to $37.2 million for 1999 from $26.6
million for 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 as a result of the Fowler, Rosenau
acquisition on July 1, 1998 and 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 41.4% to 4.1 billion shares for 1999, from
2.9 billion shares for 1998.

      Other revenue increased 166.7% to $12.8 million for 1999, from $4.8
million for 1998. This increase was primarily due to net gains in proprietary
trading of non-specialist securities and realized gains from a limited
partnership investment in a hedge fund.


                                       35
<PAGE>

Expenses

      Total expenses before managing directors' compensation and limited
partners' interest in earnings of subsidiary and provision for income taxes
increased 91.4% to $66.6 million for 1999, from $34.8 million for 1998.

      Employee compensation and related benefits increased 146.8% to $34.3
million for 1999, from $13.9 million for 1998. This increase was due to the
Fowler, Rosenau acquisition on July 1, 1998, which resulted in our employment of
36 additional individuals, and to the inclusion of managing directors' salary,
incentive-based bonus and related benefits in employee compensation from the
date of our reorganization. As a percentage of total revenues, employee
compensation increased to 17.0% of total revenues for 1999, from 11.0% of total
revenues for 1998.

      Interest expense increased 130.6% to $8.3 million for 1999, from $3.6
million for 1998. This increase was primarily due to the issuance of $116.4
million of indebtedness which began accruing interest on August 24, 1999.

      Depreciation and amortization of intangibles increased 70.0% to $5.1
million for 1999, from $3.0 million for 1998. Amortization of intangibles
increased as a result of the Fowler, Rosenau acquisition, as well as the $127.4
million of intangible assets recorded as a result of our acquisition of all of
the limited partnership interests in LaBranche & Co. in connection with our
reorganization transactions.

      Lease of exchange memberships expense increased 27.3% to $8.4 million for
1999, from $6.6 million for 1998. This increase was due to the increase in the
number of leased memberships from 44 to 48, primarily as a result of the hiring
of additional specialists and 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
4.2% for 1999, from 5.2% for 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 28.6% to $3.6 million for 1999, from $2.8 million for
1998. This increase was primarily attributable to an increase in share volume.

      Legal and professional fees increased 74.7% to $1.6 million for 1999, from
$916,000 for 1998. This increase was primarily the result of increased legal and
accounting fees due to our reorganization transactions.

      Occupancy expense increased 33.9% to $1.0 million for 1999, from $747,000
for 1998. This increase was primarily the result of the leasing of additional
office space.


                                       36
<PAGE>

      Communications expense increased 20.0% to $1.2 million for 1999, from $1.0
million for 1998. This increase was primarily the result of additional
telephone, data retrieval and informational services utilized due to the growth
of our business.

      Other expenses increased 30.4% to $3.0 million for 1999, from $2.3 million
for 1998. The increase was primarily due to an increase in advertising and
promotional expenses.

Income before Managing Directors' Compensation, Limited Partners' Earnings in
Interest of Subsidiary and Provision for Income Taxes

      Income before managing directors' compensation, limited partners' interest
in earnings of subsidiary and provision for income taxes increased 46.8% to
$134.5 million for 1999, from $91.6 million for 1998.

      Managing directors' compensation decreased 4.4% to $56.2 million for 1999,
from $58.8 million for 1998 as a result of the inclusion of managing directors'
salary, incentive-based bonus and related benefits in employee compensation from
the date of our reorganization transactions.

      Limited partners' interest in earnings of subsidiary decreased 3.8% to
$25.3 million for 1999, from $26.3 million for 1998 as a result of our
reorganization, at which time we acquired all of the limited partnership
interests in LaBranche & Co.

Income Taxes

      Provision for income taxes increased 512.8% to $23.9 million for 1999,
from $3.9 million for 1998 as a result of an increase in our profitability and
the federal, state and local income taxes to which we are subject as a result of
our reorganization from partnership to corporate form.

Liquidity

      Prior to our initial public offering of common stock and the concurrent
offering of our 9 1/2% Senior Notes, we had financed our business primarily
through members' capital and the issuance of cash subordinated indebtedness. As
of December 31, 2000, we had $1,004.1 million in assets, of which $289.9 million
consisted of cash and short-term investments primarily in commercial paper
maturing within three months and overnight repurchase agreements. As of December
31, 1999, we had $505.9 million in assets, $109.2 million of which consisted of
cash and short-term investments, which primarily consist of commercial paper
maturing within seven days.

      In February 2000, we increased and extended our line-of-credit with a U.S.
commercial bank to $200.0 million from $100.0 million and extended it again in
January 2001 until February 1, 2002. Amounts outstanding under the U.S.
commercial bank credit facility would be secured by our inventory of specialist
stocks and bear interest at the U.S. commercial bank's broker loan rate. To
date, we have not utilized this facility.


                                       37
<PAGE>

      As of December 31, 2000 and December 31, 1999, the subordinated debt of
LaBranche & Co. LLC totaled $41.9 million and $46.5 million (excluding
subordinated liabilities related to contributed exchange memberships),
respectively. Of this amount, $35.0 million represented senior subordinated debt
privately placed pursuant to 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 8.17%, payable on a quarterly basis, and $15.0 million matures on
June 3, 2008 and bears interest at an annual rate of 7.69%, payable on a
quarterly basis. These notes are senior to all other subordinated notes of
LaBranche & Co. LLC. As of December 31, 2000 subordinated debt totaling $6.9
million represents junior subordinated debt of LaBranche & Co. LLC placed with
former limited partners, their family members and our employees. This debt has
maturities ranging from the second half of 2001 through the first half of 2002,
and bears interest at an annual rate between 8.0% and 10.0%, payable on a
quarterly basis. The agreements relating to the junior subordinated debt
generally have automatic rollover provisions, which extend the maturities for an
additional year, unless the lender provides notice at least seven months prior
to maturity.

      Concurrently with the initial public offering of our common stock and the
offering of our 9 1/2% Senior Notes and as part of the reorganization of our
firm from partnership to corporate form, we acquired all the limited partnership
interests in LaBranche & Co. and the entire membership interest in LaB Investing
Co. L.L.C. for shares of our common stock, cash in the aggregate amount of
$149.2 million and subordinated debt. As of June 30, 2000, LaB Investing Co.
L.L.C. was merged with and into LaBranche & Co. and on the same date, LaBranche
& Co. converted into a limited liability company.

      On August 24, 1999, we issued $100.0 million aggregate principal amount of
Senior Notes. The Senior Notes bear interest at a rate of 9 1/2% annually and
mature in August 2004. The indenture covering the Senior Notes includes 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, except in accordance with
certain specified conditions.

      At approximately the same time as our 9 1/2% Senior Note offering and the
initial public offering of our common stock, we issued a $16.0 million senior
note as partial payment for the acquisition of a certain limited partnership
interest in LaBranche & Co. The note is payable in three installments with $6.0
million of the aggregate principal amount already having been paid on the first
anniversary of issuance. The remaining principal amount is payable in $5.0
million installments on each of the second and third anniversaries of issuance
and bears interest at the annual rate of 9 1/2%. LaBranche & Co. also entered
into a $350,000 cash subordinated loan agreement, bearing interest at an annual
rate of 8.0%, in connection with the acquisition of a certain limited partner
interest.

      On March 2, 2000, we issued $250.0 million aggregate principal amount of
Senior Subordinated Notes. These Senior Subordinated Notes bear interest at a
rate of 12.0% annually


                                       38
<PAGE>

and mature in March 2007. The indenture covering the Senior Subordinated Notes
includes 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, except in
accordance with certain specified conditions.

      The Senior Subordinated Notes also require us, within 150 days after the
end of each fiscal year, to offer to redeem from all holders of the Senior
Subordinated Notes a principal amount equal to our Excess Cash Flow at a price
equal to 103.0% of the principal amount being offered for purchase plus accrued
and unpaid interest, if any, to the date of redemption. Each holder of Senior
Subordinated Notes is entitled to be offered a pro rata share of the amount
subject to redemption based upon his or her ownership percentage of the
outstanding Senior Subordinated Notes. Excess Cash Flow is defined for this
purpose as 40% of the amount by which our consolidated EBITDA exceeds the sum of
our interest expense, tax expense, increase in net capital or net liquid asset
requirements, capital expenditures, any cash amounts related to acquisitions of
NYSE specialists or any cash payments related to our payment at maturity of the
principal amount of our existing or certain other indebtedness. As of December
31, 2000 our Excess Cash Flow, as calculated, was approximately $9.9 million,
and accordingly $280,000 was accrued as additional interest expense during the
year ended 2000.

      In connection with the Webco acquisition, we issued $3.0 million in
aggregate principal amount of unsecured senior promissory notes to former
stockholders of Webco. The senior promissory notes bear interest at an annual
rate of 10.0%. Of the aggregate principal amount, $500,000 has already been
repaid. The remaining $2.5 million is due September 9, 2001 and will be subject
to set off for any amounts for which the former stockholders of Webco may be
obligated to indemnify us for any breaches of their or Webco's representations,
warranties and covenants under the Webco acquisition agreement.

      As a broker-dealer, LaBranche & Co. LLC is 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. LaBranche & Co. LLC is 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 its total net capital to less
than 150% of its required minimum capital. Moreover, broker-dealers are required
to notify the SEC prior to repaying subordinated borrowings, paying dividends
and making loans to any parent, affiliates or employees, or otherwise entering
into transactions which, if executed, would result in a reduction of 30% or more
of their excess net capital (net capital less minimum requirement). The SEC has
the ability to prohibit or restrict such transactions if the result is deemed
detrimental to the financial integrity of the broker-dealer.

      At December 31, 2000, LaBranche & Co. LLC had net capital of $293.4
million, which was $290.3 million in excess of its required net capital of $3.1
million. At December 31, 1999,


                                       39
<PAGE>

LaBranche & Co. LLC had net capital of $161.4 million, which was $159.9 million
in excess of its required net capital of $1.5 million.

      The NYSE generally requires members registered as specialists to maintain
a minimum dollar regulatory capital amount in order to establish that they can
meet, with their own net liquid assets, their position requirement. Effective
October 30, 2000, with SEC approval, the NYSE changed Rule 104, its minimum net
liquid asset requirements. Specialist units that exceed five percent in any of
the NYSE's four concentration measures must maintain minimum net liquid assets
based upon the securities for which they act as the specialist. The requirements
state that the net liquid assets must be equivalent to $4.0 million for each
stock in the Dow Jones Industrial Average, $2.0 million for each stock in the
S&P 100 Stock Price Index, excluding stocks included in the previous
classification, $1.0 million for each stock in the S&P 500 Stock Price Index,
excluding stock included in the previous classifications, $500,000 for each
common stock, excluding bond funds and stocks included in the previous
classifications, and $100,000 for each stock not included in any of the above
classifications. In addition, the NYSE requires any new specialist entities that
result from a merger, acquisition, consolidation or other combination of
specialist entities to maintain net liquid assets equivalent to the greater of
either: (1) the aggregate net liquid assets of the specialist entities prior to
their combination or (2) the new capital requirements prescribed under Rule 104.
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. Currently, LaBranche & Co. LLC's net liquid
asset requirement is $284.3 million. As of December 31, 2000, LaBranche & Co.
LLC's actual net liquid assets were approximately $305.0 million. As of December
31, 1999, LaBranche & Co. LLC's NYSE minimum required dollar amount of net
liquid assets was $93.6 million compared to actual net liquid assets of
approximately $175.9 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.

      During the year ended December 31, 2000, we contributed additional capital
to LaBranche & Co. LLC in a net aggregate amount of approximately $216.2
million. Of this amount, $266.0 million represented net assets of Henderson
Brothers and Webco, which we contributed to LaBranche & Co. LLC immediately upon
our acquisitions of those firms. During the fourth quarter of 1999, we
contributed additional capital to LaBranche & Co. LLC in a net aggregate amount
of approximately $30.1 million.

      As a clearing broker, our Henderson Brothers subsidiary is required to
maintain minimum net capital of $250,000 pursuant to SEC Rule 15c3-1. As of
December 31, 2000, Henderson Brothers had net capital of $8.5 million, which was
$8.2 million in excess of its required minimum net capital.

      Henderson Brothers has also elected to compute a reserve requirement for
Proprietary Accounts of Introducing Broker-Dealers ("PAIB Calculation"), as
defined. The PAIB Calculation is computed in order for correspondent firms to
classify their assets held by


                                       40
<PAGE>

Henderson Brothers as allowable assets in the correspondents' net capital
calculation. At December 31, 2000, Henderson Brothers had a reserve requirement
of approximately $343,383. Additionally, the firm had approximately $394,700 of
cash on deposit in a Special Reserve Bank Account as of January 3, 2001.

      We currently anticipate that 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 2001.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 and AMEX specialist operations, which generated 0.5% of our total revenues
for the year ended December 31, 2000 and 3.3% of our total revenues for the year
ended December 31, 1999. We may incur trading losses as a result of these
trading activities. 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 fluctuations 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 could
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 activities.

      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.

      Henderson Brothers' clearance activities involve settlement and financing
of various customer securities transactions on a cash or margin basis. These
activities may expose Henderson Brothers to off-balance sheet risk in the event
the customer or other broker is unable to fulfill its contractual obligations
and Henderson Brothers has to purchase or sell securities at a loss. For margin
transactions, Henderson Brothers may be exposed to significant off-balance sheet
risk in the event margin requirements are not sufficient to fully cover losses
that customers may incur in their accounts.


                                       41
<PAGE>

      Henderson Brothers seeks to control the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. Henderson Brothers monitors
margin levels daily and pursuant to such guidelines, requires customers to
deposit additional collateral or to reduce positions when necessary.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      Our consolidated financial statements and supplementary data required in
this item are set forth at the pages indicated in Item 14(a)(1).

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      There were no changes in or disagreements with accountants on accounting
and financial disclosure during the last two fiscal years.

                                    PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.

      The information set forth under the caption "Directors and Executive
Officers" in our definitive proxy statement to be used in connection with our
2001 Annual Meeting of Stockholders is incorporated by reference.

Item 11. EXECUTIVE COMPENSATION.

      The information set forth under the caption "Executive Compensation" in
our definitive proxy statement to be used in connection with our 2001 Annual
Meeting of Stockholders is incorporated by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information set forth under the caption "Beneficial Ownership of
Common Stock by Certain Stockholders and Management" in our definitive proxy
statement to be used in connection with our 2001 Annual Meeting of Stockholders
is incorporated by reference.


                                       42
<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information set forth under the caption "Certain Relationships and
Related Transactions" in our definitive proxy statement to be used in connection
with our 2001 Annual Meeting of Stockholders is incorporated by reference.

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)   (1) Financial Statements:

      The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.

      (2) Financial Statement Schedules:

      Schedules have been omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.

      (3) Exhibits:

      The following exhibits are filed as part of this report or incorporated
herein by reference.

2.1   Plan of Incorporation of LaBranche & Co.*
2.2   Exchange Agreement by and among LaBranche & Co Inc., LaB Investing Co.,
      L.L.C. and the members of LaB Investing Co. L.L.C. listed on Schedule A
      thereto.*
3.1   Amended and Restated Certificate of Incorporation of LaBranche & Co Inc.*
3.2   Amended and Restated Bylaws of LaBranche & Co Inc.*
4.1   Specimen Stock Certificate.*
4.2   Indenture, dated as of August 24, 1999, among LaBranche & Co Inc., as
      issuer, and Firstar Bank, N.A., as trustee, relating to the 91/2% Senior
      Notes due 2004.**
4.3   Form of 91/2% Senior Notes due 2004 of LaBranche & Co Inc. (included as
      Exhibit A to the Indenture filed as Exhibit 4.2).**
4.4   Registration Rights Agreement, dated as of August 24, 1999, by and among
      LaBranche & Co Inc., as issuer, and Salomon Smith Barney Inc. and
      Donaldson, Lufkin & Jenrette Securities Corporation, as initial
      purchasers.**
4.5   Indenture, dated as of March 2, 2000, among LaBranche & Co., as issuer,
      and Firstar Bank, N.A., as trustee, relating to the 12% Senior
      Subordinated Notes due 2007.


                                       43
<PAGE>

4.6   Form of 12% Senior Subordinated Notes due 2007 of LaBranche & Co Inc.
      (included as Exhibit A to the Indenture filed as Exhibit 4.5).
4.7   Registration Rights Agreement, dated as of March 2, 2000, by and among
      LaBranche & Co Inc., as issuer, and Donaldson, Lufkin & Jenrette
      Securities Corporation, Salomon Smith Barney Inc. and ABN AMRO
      Incorporated, as initial purchasers.
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  LaBranche & Co Inc. Equity Incentive Plan.*
10.4  LaBranche & Co Inc. Annual Incentive Plan.*
10.5  Form of Employment Letter between LaBranche & Co Inc. and its executive
      officers.*
10.6  Form of Agreement Relating to Noncompetition and Other Covenants.*
10.7  Form of Pledge Agreement.*
10.8  Stockholders' Agreement by and among LaBranche & Co Inc. and the
      Stockholders listed on Schedule I thereto.*
10.9  LaBranche & Co. Note Purchase Agreement, dated September 15, 1997,
      relating to the issuance of $20,000,000 aggregate principal amount of
      8.17% Subordinated Notes, as amended.*
10.10 LaBranche & Co. Note Purchase Agreement, dated June 3, 1998, relating to
      the issuance of $15,000,000 aggregate principal amount of 7.69%
      Subordinated Notes.*
10.11 Amendment to Note Purchase Agreements, dated as of August 23, 1999,
      relating to the issuance of $20,000,000 aggregate principal amount of
      8.17% Subordinated Notes and $15,000,000 aggregate principal amount of
      7.69% Subordinated Notes.**


                                       44
<PAGE>

10.12 Form of Subordinated Note.*
10.13 Credit Agreement, dated as of June 26, 1998, by and among LaBranche & Co.
      and The Bank of New York.*
10.14 Amendment No. 1 to Credit Agreement, dated as of June 23, 1999, by and
      among LaBranche & Co. and The Bank of New York.**
10.15 Amendment No. 2 to Credit Agreement, dated as of August 24, 1999, by and
      among LaBranche & Co. and The Bank of New York.**
10.16 Amendment No. 3 to Credit Agreement, dated as of February 4, 2000, by and
      among LaBranche & Co. and The Bank of New York.***
10.17 Form of Indemnification Agreement.*
10.18 Purchase Agreement, dated February 24, 2000, by and among LaBranche & Co
      Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
      Smith Barney Inc. and ABN AMRO Incorporated, as initial purchasers,
      relating to the issuance of $250,000,000 aggregate principal amount of 12%
      Senior Subordinated Notes due 2007.
10.19 Amended and Restated Articles of Partnership of LaBranche & Co.**
10.20 LaB Investing Co., L.L.C. Amended and Restated Operating Agreement.**
10.21 Acquisition Agreement, dated August 16, 1999, by and between Ernst &
      Company and LaBranche & Co.**
10.22 Acquisition Agreement, dated August 16, 1999, by and between Mill Bridge
      Inc., LaB Investing Co. L.L.C., LaBranche & Co Inc. and LaBranche & Co.**
10.23 Stock Purchase Agreement, dated as of December 23, 1999, among LaBranche &
      Co Inc., Henderson Brothers Holdings, Inc. and the stockholders listed on
      Schedule A thereto.****
10.24 Amendment to Stock Purchase Agreement, dated as of February 1, 2000, by
      and among LaBranche & Co Inc., Henderson Brothers Holdings, Inc., and the
      authorized representatives of the persons listed on Schedule A
      thereto.****
10.25 Agreement and Plan of Merger, dated as of January 18, 2001, by and between
      LaBranche & Co Inc. and ROBB PECK McCOOEY Financial Services, Inc.*****
10.26 Amendment No. 1, dated as of February 15, 2001, to Agreement and Plan of
      Merger by and between LaBranche & Co Inc. and and ROBB PECK McCOOEY
      Financial Services, Inc.*****
21    List of Subsidiaries.
23.1  Consent of Arthur Andersen LLP.
99.1  Risk to Factors

----------

*     Incorporated by reference to our Registration Statement on Form S-1
      (Registration No. 333-81079), as amended, effective August 18, 1999.
**    Incorporated by reference to our Registration Statement on Form S-4
      (Registration No. 333-88119), as amended, effective November 3, 1999.
***   Incorporated by reference to our Current Report on Form 8-K, filed
      February 8, 2000.
****  Incorporated by reference to our Current Report on Form 8-K, filed March
      17, 2000.
***** Incorporated by reference to our Current Report on Form 8-K, filed on
      March 22, 2001.


                                       45
<PAGE>

      (b) Reports on Form 8-K:

      No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.


                                       46
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

March 29, 2001                LaBRANCHE & CO INC.


                              By: /s/ George M.L. LaBranche, IV
                                 --------------------------------
                                 George M.L. LaBranche, IV
                                 Chairman, Chief Executive Officer and President

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                        Title                                                Date
---------                        -----                                                ----
<S>                              <C>                                                  <C>
/s/George M.L. LaBranche, IV     Chairman, Chief Executive Officer and President
----------------------------     (Principal Executive Officer)                        March 29, 2001
George M.L. LaBranche, IV

/s/S. Lawrence Prendergast       Executive Vice President, Finance and
--------------------------       Director                                             March 29, 2001
S. Lawrence Prendergast

/s/Harvey S. Traison             Senior Vice President, Chief Financial
--------------------             Officer and Director (Principal Financial
Harvey S. Traison                Officer)                                             March 29, 2001

/s/Thomas E. Dooley
-------------------
Thomas E. Dooley                 Director                                             March 29, 2001

/s/E. Margie Filter
-------------------
E. Margie Filter                 Director                                             March 29, 2001

/s/James G. Gallagher
---------------------
James G. Gallagher               Director                                             March 29, 2001

/s/Alfred O. Hayward, Jr.
-------------------------
Alfred O. Hayward, Jr.           Director                                             March 29, 2001

/s/ George E. Robb, Jr.
-----------------------
George E. Robb, Jr.              Director                                             March 29, 2001
</TABLE>


                                       47
<PAGE>

<TABLE>
<S>                              <C>                                                  <C>
/s/ Robert M. Murphy
--------------------
Robert M. Murphy                 Director                                             March 29, 2001

/s/Todd Graber
--------------
Todd Graber                      Controller (Principal Accounting Officer)            March 29, 2001
</TABLE>


                                       48
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

LaBRANCHE & CO INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS

     Report of Independent Public Accountants ..........................   F-2

     Consolidated Statements of Financial Condition as of
     December 31, 2000 and 1999 ........................................   F-3

     Consolidated Statements of Operations for the Years Ended
     December 31, 2000, 1999 and 1998 ..................................   F-4

     Consolidated Statements of Changes in Stockholders' Equity/Members'
     Capital for the Years Ended December 31, 2000, 1999 and 1998 ......   F-5

     Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2000, 1999 and 1998 ..................................   F-6

     Notes to Consolidated Financial Statements ........................   F-8

LaBRANCHE & CO INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS

     Condensed Statements of Financial Condition as of
     December 31, 2000 and 1999 ........................................   F-24

     Condensed Statements of Operations for the Years Ended
     December 31, 2000, 1999 and 1998 ..................................   F-25

     Condensed Statements of Changes in Stockholders' Equity/Members'
     Capital for the Years Ended December 31, 2000, 1999 and 1998 ......   F-26

     Condensed Statements of Cash Flows for the Years Ended
     December 31, 2000, 1999 and 1998 ..................................   F-27

     Note to Condensed Financial Statements ............................   F-28


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of LaBranche & Co Inc.:

We have audited the accompanying consolidated statements of financial condition
of LaBranche & Co Inc. (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
changes in stockholders' equity/members' capital and cash flows for each of the
three years in the period ended December 31, 2000. These 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 audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LaBranche & Co Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

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-24 through F-28 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 19, 2001


                                      F-2
<PAGE>

                      LaBRANCHE & CO INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                       (000's omitted, except share data)

<TABLE>
<CAPTION>
                                                                                                                 December 31,
                                                                                                                 ------------
                                                                                                              2000          1999
                                                                                                              ----          ----
<S>                                                                                                        <C>           <C>
                                                  ASSETS
CASH AND CASH EQUIVALENTS ..............................................................................   $  152,220    $   83,774
CASH SEGREGATED UNDER FEDERAL REGULATIONS ..............................................................        3,610            --
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL ........................................................      134,111        25,422
RECEIVABLE FROM BROKERS, DEALERS AND CLEARING ORGANIZATIONS ............................................       63,468        33,662
RECEIVABLE FROM CUSTOMERS ..............................................................................          912            --
SECURITIES OWNED, at market value:
  Corporate equities ...................................................................................      132,389       148,563
  United States Government obligations .................................................................           --         1,471
  Other ................................................................................................       12,543         2,515
COMMISSIONS RECEIVABLE .................................................................................        4,007         3,835
EXCHANGE MEMBERSHIPS CONTRIBUTED FOR USE, at market value ..............................................       24,000        20,700
EXCHANGE MEMBERSHIPS OWNED, at cost (market value of $52,000 and $9,200, respectively) .................       50,300         6,300
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost, less accumulated depreciation and
 amortization of $2,622 and $1,250, respectively .......................................................        3,371         1,355
INTANGIBLE ASSETS, net of accumulated amortization:
  Specialist Stock List ................................................................................      185,982        92,789
  Trade Name ...........................................................................................       25,676        26,340
  Goodwill .............................................................................................      191,235        51,212
OTHER ASSETS ...........................................................................................       20,298         7,958
                                                                                                           ----------    ----------
       Total assets ....................................................................................   $1,004,122    $  505,896
                                                                                                           ==========    ==========



                                  LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Payable to brokers and dealers .......................................................................        4,068    $    7,726
  Payable to customers .................................................................................        4,051            --
  Securities sold, but not yet purchased, at market value ..............................................       60,726        36,900
  Accrued compensation .................................................................................       29,240        12,016
  Accounts payable and other accrued expenses ..........................................................       28,319         5,522
  Income taxes payable .................................................................................       10,329         7,624
  Deferred tax liabilities .............................................................................       74,660         1,106
                                                                                                           ----------    ----------
                                                                                                              211,393        70,894
                                                                                                           ----------    ----------
LONG TERM DEBT .........................................................................................      355,893       115,822
                                                                                                           ----------    ----------
SUBORDINATED LIABILITIES:
  Exchange memberships, at market value ................................................................       24,000        20,700
  Other subordinated indebtedness ......................................................................       41,935        46,508
                                                                                                           ----------    ----------
                                                                                                               65,935        67,208
                                                                                                           ----------    ----------
PREFERRED STOCK, $.01 par value, 10,000,000 shares authorized; None issued and outstanding .............           --            --
COMMON STOCK, $.01 par value, 200,000,000 shares authorized;
     49,069,521 and 45,875,000 shares issued and outstanding at December 31, 2000 and December 31, 1999,
     respectively ......................................................................................          491           459
ADDITIONAL PAID-IN CAPITAL .............................................................................      273,347       228,771
RETAINED EARNINGS ......................................................................................      104,665        22,742
UNEARNED COMPENSATION ..................................................................................       (7,602)           --
                                                                                                           ----------    ----------
                                                                                                              370,901       251,972
                                                                                                           ----------    ----------
       Total liabilities and stockholders' equity ......................................................   $1,004,122    $  505,896
                                                                                                           ==========    ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                      F-3
<PAGE>

                      LaBRANCHE & CO INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (000's omitted, except per share data)

<TABLE>
<CAPTION>
                                                                                         For the Years Ended December 31,
                                                                                         --------------------------------
                                                                                            2000       1999       1998
                                                                                            ----       ----       ----
<S>                                                                                       <C>        <C>        <C>
 REVENUES:
Net gain on principal transactions ....................................................   $282,948   $150,971   $ 95,048
Commissions ...........................................................................     45,381     37,222     26,576
Other .................................................................................     16,480     12,844      4,787
                                                                                          --------   --------   --------
  Total revenues ......................................................................    344,809    201,037    126,411
                                                                                          --------   --------   --------
 EXPENSES:
Employee compensation and related benefits ............................................     88,759     34,268     13,921
Interest ..............................................................................     41,893      8,286      3,577
Depreciation and amortization of intangibles ..........................................     18,476      5,144      3,020
Lease of exchange memberships .........................................................     10,933      8,416      6,568
Exchange, clearing and brokerage fees .................................................      5,148      3,601      2,778
Legal and professional fees ...........................................................      1,868      1,622        916
Occupancy .............................................................................      1,310        998        747
Communications ........................................................................      1,500      1,193        964
Other .................................................................................      8,345      3,041      2,285
                                                                                          --------   --------   --------
  Total expenses before managing directors' compensation, limited partners' interest in
 earnings of subsidiary and provision for income taxes ................................    178,232     66,569     34,776
                                                                                          --------   --------   --------
Income before managing directors' compensation, limited partners' interest in
 earnings of subsidiary and provision for income taxes ................................    166,577    134,468     91,635
MANAGING DIRECTORS' COMPENSATION ......................................................         --     56,191     58,783
                                                                                          --------   --------   --------
Income before limited partners' interest in earnings of subsidiary and provision for
 income taxes .........................................................................    166,577     78,277     32,852
LIMITED PARTNERS' INTEREST IN EARNINGS OF SUBSIDIARY ..................................         --     25,344     26,292
                                                                                          --------   --------   --------
Income before provision for income taxes ..............................................    166,577     52,933      6,560
PROVISION FOR INCOME TAXES ............................................................     84,654     23,899      3,900
                                                                                          --------   --------   --------
Net income ............................................................................   $ 81,923   $ 29,034   $  2,660
                                                                                          ========   ========   ========

Weighted-average shares outstanding:
               Basic ..................................................................     48,167     40,443     24,318

               Diluted ................................................................     48,581     40,443     24,318
Earnings per share:
               Basic ..................................................................   $   1.70   $   0.72   $   0.11
               Diluted ................................................................   $   1.69   $   0.72   $   0.11
                                                                                          ========   ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                      F-4
<PAGE>

                      LaBRANCHE & CO INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
                             EQUITY/MEMBERS' CAPITAL
                                 (000's omitted)

<TABLE>
<CAPTION>
                                                     Common Stock
                                                     ------------
                                                                        Additional
                                                                         Paid-in     Retained    Unearned     Members'
                                                   Shares     Amount     Capital     Earnings  Compensation   Capital       Total
                                                   ------     ------     -------     --------  ------------   -------       -----
<S>                                                <C>      <C>         <C>         <C>         <C>          <C>          <C>
BALANCE, December 31, 1997 ....................        --   $      --   $      --   $      --   $      --    $  37,658    $  37,658
Net income ....................................        --          --          --          --          --        2,660        2,660
Contributions to capital ......................        --          --          --          --          --       66,563       66,563
Distributions of capital ......................        --          --          --          --          --      (29,788)     (29,788)
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 1998 ....................        --          --          --          --          --       77,093       77,093
Net income through August 23, 1999 ............        --          --          --          --          --        6,292        6,292
Contributions to capital ......................        --          --          --          --          --       18,096       18,096
Distributions of capital ......................        --          --          --          --          --       (8,095)      (8,095)
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, pre-reorganization ...................        --          --          --          --          --       93,386       93,386
Exchange of membership interests for shares of
 common stock .................................    35,375         354      93,032          --          --      (93,386)          --
Initial public offering of common stock .......    10,500         105     134,689          --          --           --      134,794
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, post-reorganization and initial public
 offering .....................................    45,875         459     227,721          --          --           --      228,180
Net income (August 24, 1999 through
 December 31, 1999) ...........................        --          --          --      22,742          --           --       22,742
Compensation related to restricted stock units
 granted ......................................        --          --       1,050          --          --           --        1,050
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 1999 ....................    45,875         459     228,771      22,742          --           --      251,972
Net income ....................................        --          --          --      81,923          --           --       81,923
Issuance of shares to Webco ...................     2,800          28      32,284          --          --           --       32,312
Issuance of restricted stock, shares for option
  exercises and related compensation ..........       395           4      12,292          --      (7,602)          --        4,694
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 2000 ....................    49,070   $     491   $ 273,347   $ 104,665   $  (7,602)   $      --    $ 370,901
                                                   ======   =========   =========   =========   =========    =========    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                      F-5
<PAGE>

                      LaBRANCHE & CO INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (000's omitted)

<TABLE>
<CAPTION>
                                                                                               For the Years Ended December 31,
                                                                                               --------------------------------
                                                                                                 2000         1999         1998
                                                                                                 ----         ----         ----
<S>                                                                                            <C>          <C>          <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................   $  81,923    $  29,034    $   2,660
 Adjustments to reconcile net income to net cash provided by (used in) operating activities:
  Depreciation and amortization of intangibles .............................................      18,476        5,144        3,020
  Amortization of debt issuance costs and bond discount ....................................       2,911          204           --
  Undistributed limited partners interest in earnings of subsidiary ........................          --           --        3,646
  Compensation expense related to stock-based compensation .................................       4,343        1,050           --
  Tax benefit related to exercise of stock options .........................................         112           --           --
  Deferred tax provision (benefit) .........................................................      (4,097)         335           --
 Changes in assets and liabilities-
  Securities purchased under agreements to resell ..........................................    (108,689)      (4,322)      (6,100)
  Receivable from brokers, dealers and clearing organizations ..............................     (29,806)      21,146        3,366
  Receivable from customers ................................................................        (912)          --           --
  Corporate equities .......................................................................      16,174      (33,569)     (77,967)
  United States government obligations .....................................................       1,471           (3)         998
  Other securities owned ...................................................................     (10,028)      (1,155)          --
  Commissions receivable ...................................................................        (172)        (826)          --
  Other assets .............................................................................     (12,340)      (4,932)      (1,970)
  Payable to brokers and dealers ...........................................................      (3,658)       3,834        2,231
  Payable to customers .....................................................................       4,051           --           --
  Securities sold, but not yet purchased ...................................................      23,826      (30,996)      28,569
  Accrued compensation .....................................................................      17,224       (5,719)       8,891
  Accounts payable and other accrued expenses ..............................................      22,797       (2,166)       2,379
  Income taxes payables ....................................................................       5,025        8,395           --
                                                                                               ---------    ---------    ---------
  Net cash provided by (used in) operating activities ......................................      28,631      (14,546)     (30,277)
                                                                                               ---------    ---------    ---------
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Net cash paid for acquisitions ...........................................................    (189,269)          --           --
  Repayment of note payable ................................................................      (6,000)          --           --
  Payments for purchases of office equipment and leasehold improvements ....................      (2,754)        (228)      (1,550)
  Payments to limited partners for redemption of interests upon reorganization .............          --     (140,186)          --
                                                                                               ---------    ---------    ---------
  Net cash (used in) investing activities ..................................................    (198,023)    (140,414)      (1,550)
                                                                                               ---------    ---------    ---------
 CASH FLOWS FROM FINANCING ACTIVITIES:
  Net cash received from issuance of debt ..................................................     245,693        3,435       16,750
  Proceeds from stock issuance .............................................................         328           --           --
  Repayment of subordinated debt ...........................................................      (4,573)      (5,000)          --
  Net proceeds from initial public offering ................................................          --      134,794           --
  Net proceeds from long term debt .........................................................          --       99,807           --
  Payments to members upon reorganization ..................................................          --       (9,025)          --
  Proceeds from contributions of capital ...................................................          --       18,096       46,598
  Payments for distributions of capital ....................................................          --       (8,095)     (29,788)
                                                                                               ---------    ---------    ---------
  Net cash provided by financing activities ................................................     241,448      234,012       33,560
                                                                                               ---------    ---------    ---------
  Increase in cash and cash equivalents ....................................................      72,056       79,052        1,733
CASH AND CASH EQUIVALENTS, beginning of year ...............................................      83,774        4,722        2,989
                                                                                               ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, end of year .....................................................   $ 155,830    $  83,774    $   4,722
                                                                                               =========    =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR
 Interest ..................................................................................   $  29,609    $   4,557    $   8,788
 Income taxes ..............................................................................      88,443       17,989        2,244
</TABLE>


                                      F-6
<PAGE>

<TABLE>
<S>                                                                                            <C>          <C>          <C>
 SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES
     Acquisitions:
               Intangible assets ...........................................................   $ 171,936    $      --    $      --
               Fair value of tangible assets acquired, other than cash .....................      33,863           --           --
               Deferred tax liabilities related to intangible assets .......................      61,774           --           --
               Common stock issuance .......................................................      32,312           --           --
     Net increase in additional paid in capital related to stock based awards ..............       4,692        1,050           --
     Issuance of restricted stock to employees .............................................       8,313           --           --
Excess of purchase price over fair value of assets acquired for issuance of membership
 interest and limited partnership interests in subsidiary ..................................          --           --       25,815
Exchange of membership interests for shares of common stock ................................          --       93,386           --
Issuance of subordinated debt and shares of common stock for redemption of limited
 partner interests upon reorganization .....................................................          --       23,821           --
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                      F-7
<PAGE>

                      LaBRANCHE & CO INC. and SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

      The consolidated financial statements include the accounts of LaBranche &
Co Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries,
LaBranche & Co. LLC, a New York limited liability company ("LaBranche"), and
Henderson Brothers, Inc., a Delaware corporation ("Henderson Brothers" and,
collectively with the Holding Company and LaBranche, the "Company"). The Holding
Company is the sole member of LaBranche and 100% owner of Henderson Brothers.
LaBranche is a registered broker-dealer and operates primarily as a specialist
in certain equity securities listed on the New York Stock Exchange, Inc. (the
"NYSE"). Henderson Brothers is also a registered broker-dealer and a member of
the NYSE and primarily provides clearance services to customers of several
introducing brokers and provides direct access floor brokerage to institutional
customers.

      As of June 30, 2000, the Company completed a reorganization of its
subsidiaries. LaB Investing Co. L.L.C., a New York limited liability company of
which the Holding Company was the sole member ("LaB Investing"), was merged with
and into LaBranche & Co., with LaBranche & Co. being the survivor. On the date
the merger was effective, LaBranche & Co. was also converted into a limited
liability company, of which the Holding Company is the sole member, and changed
its name to LaBranche & Co. LLC. Henderson Brothers Holdings, Inc. was also
dissolved and in doing so distributed all of its assets, including the stock in
its wholly-owned subsidiary, Henderson Brothers, Inc., to the Holding Company.
The reorganization of entities under common control was accounted for on the
historical basis of accounting, and accordingly did not affect the carrying
value of assets, liabilities and stockholders' equity.

2. INITIAL PUBLIC OFFERING AND DEBT ISSUANCE

      On August 24, 1999, the Company reorganized from partnership to corporate
form, upon the members of LaB Investing exchanging their membership interests
for common stock in the Holding Company, and completed its initial public
offering. In that offering, the Company sold 10,500,000 shares of common stock
and received net proceeds of $134.8 million. Concurrently with the offering, the
Company issued $100.0 million aggregate principal amount of Senior Notes.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

      The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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. Certain prior period amounts have been reclassified to conform
with current presentation.


                                      F-8
<PAGE>

Basis of Consolidation

      The consolidated financial statements include the accounts of the Holding
Company and its wholly-owned subsidiaries. Significant intercompany balances and
transactions are eliminated in consolidation.

Intangible Assets

      Intangible assets are comprised of the Company's specialist stock lists,
trade name and goodwill from acquisitions and the limited partner buyout that
occurred in concurrence with our reorganization to corporate form. The
specialist stock lists and trade name are being amortized on a straight-line
basis over 36 to 40 years and the goodwill is being amortized on a straight-line
basis over 15 years. The allocation of purchase price and determination of
useful lives were based upon an independent appraisal. The useful life of the
specialist stock list was determined based upon analysis of historical turnover
characteristics of the specialist stocks.

      The Company continually evaluates whether 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 Company uses
an estimate of undiscounted net income over the remaining life in measuring
whether the assets are recoverable.

Exchange Memberships

      Exchange memberships owned by the Company are carried at cost.

      Certain members of the Company have contributed the use of 12 memberships
on the NYSE to the Company. 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 Company to
its managing directors and employees for the use of the exchange memberships at
a rate that is commensurate with the rent paid to nonaffiliated parties for the
use of their exchange memberships.

      The Company leases additional memberships on the NYSE from nonaffiliated
parties and makes lease payments to these parties at the prevailing market
rates.

Cash and Cash Equivalents

      Cash and cash equivalents consist of cash and highly liquid investments
with original maturities of less than three months.

Securities Transactions

      Principal securities transactions and the related revenues and expenses
are recorded on a trade date basis. Customer securities transactions and the
related revenues and expenses are recorded on a settlement date basis, which
does not differ materially from trade date basis. Receivables from and payables
to customers represent amounts due from or to customers of the Company in
connection with cash and margin securities transactions. Amounts receivable are


                                      F-9
<PAGE>

collateralized by customers' securities held by the Company and by others for
delivery to the Company, the value of which is not reflected in the accompanying
consolidated financial statements. 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 ("SEC") fees are also included in net gain on principal
transactions. Dividend income and expense are recognized on the record date,
which does not differ materially from the ex-date. In the normal course of
business, the Company is permitted to use client margin securities to finance
customer securities transactions, subject to certain regulatory guidelines.

Depreciation and Amortization

      Depreciation and amortization are calculated using the straight-line
method over the estimated useful lives of office equipment and the lesser of the
economic useful life of the leasehold improvement or the term of the lease.

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 plus accrued interest. It is the policy of the Company to
obtain possession of collateral with market value equal to or in excess of the
principal amount loaned under resale agreements. Collateral is valued daily, and
the Company may require counterparties to deposit additional collateral when
appropriate. The market value of securities received for securities purchased
under agreements to resell at December 31, 2000 approximates 102% of cash paid.
None of the securities received were subsequently repledged or resold.

Reportable Operating Segment

      The Company 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

      Prior to the reorganization on August 24, 1999, the managing directors of
LaBranche were the members of LaB Investing. LaBranche paid out substantially
all of its earnings as compensation expense to its managing directors.
Subsequent to August 24, 1999, the managing directors of the Company are
compensated based on an annual salary as well as an incentive-based compensation
pool, which is determined based upon a certain percentage of pre-tax income.

New Accounting Pronouncement

      The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities,"


                                      F-10
<PAGE>

which is effective for periods beginning after June 15, 2000. Management does
not believe the impact of the adoption of SFAS No. 133 on the Company's
financial position or results of operations will be material.

      In September of 2000, the Financial Accounting Standards Board issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("SFAS
140"). SFAS 140 amends the recognition and reclassification of collateral and
disclosures related to securitization transactions and collateral. These changes
are effective for fiscal years ending after December 15, 2000. SFAS 140 also
amends the accounting for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The impact of the
SFAS 140 provisions effective subsequent to March 31, 2001 is not anticipated to
have a material impact on the Company's consolidated financial statements.

4. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS

      The balances presented as receivables from and payables to brokers,
dealers and clearing organizations consists of the following (000's omitted):

<TABLE>
<CAPTION>
                                                                For the Years Ended
                                                                   December 31,
                                                                  2000      1999
                                                                  ----      ----
  <S>                                                            <C>       <C>
  Receivable from brokers, dealers and clearing organizations:
    Pending trades, net ......................................   $ 3,471   $    --
    Securities borrowed ......................................    49,436    26,230
    Receivable from clearing organizations ...................     2,102     3,373
    Securities failed to deliver .............................     1,654       827
    Other receivables from brokers and dealers ...............     6,805     3,232
                                                                 -------   -------
                                                                 $63,468   $33,662
                                                                 =======   =======

  Payable to brokers and dealers:
    Pending trades, net ......................................   $    --   $ 6,435
    Securities failed to receive .............................     3,938     1,264
    Other payables to brokers and dealers ....................       130        27
                                                                 -------   -------
                                                                 $ 4,068   $ 7,726
                                                                 =======   =======
</TABLE>

      Securities borrowed transactions require the Company to deposit cash with
the lender. With respect to securities loaned, the Company receives collateral
in the form of cash in an amount generally in excess of the market value of
securities loaned. The Company monitors the market value of securities borrowed
and loaned on a daily basis, with additional collateral obtained or refunded as
necessary. As of December 31, 2000, the Company has borrowed securities related
to securities sold, but not yet purchased, with a market value of $49.4 million.


                                      F-11
<PAGE>

      If the Company's counterparties to its securities loaned transactions have
the right by contract or custom to sell or repledge the Company's pledged
proprietary securities, then the Company will record these securities as
"Securities pledged to counterparties" on the Statement of Financial Condition.
As of December 31, 2000, the Company has not engaged in the lending of
securities.

5. INCOME TAXES

      The Company accounts for taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of tax benefits or
expenses on temporary differences between the financial reporting and tax bases
of its assets and liabilities. Deferred tax assets and liabilities relate to
stock-based compensation, amortization periods of certain intangibles and
differences between the financial and tax basis of assets acquired. The
Company's effective tax rate differs from the federal statutory rate primarily
due to its conversion to corporate form in the 1999 tax year and the
non-deductible amortization of intangible assets in 2000.

      The components of provision for income taxes reflected on the consolidated
statements of operations are set forth below (000's omitted):

                                          For the Years Ended December 31,
                                                  2000          1999
                                                  ----          ----
          Current Income Taxes:
              Federal                           $ 61,123      $ 18,267
              State and Local                     27,628         5,297
                                                --------      --------
          Total Current                           88,751        23,564
                                                --------      --------

          Deferred Income Taxes:
              Federal                             (2,822)          260
              State and Local                     (1,275)           75
                                                --------      --------
          Total Deferred                          (4,097)          335
                                                --------      --------

          Total Income Tax Expense              $ 84,654      $ 23,899
                                                ========      ========


                                      F-12
<PAGE>

      The following table presents the components of deferred tax asset and
liability balances (000's omitted):

                                                For the Years Ended December 31,
                                                      2000          1999
                                                     -------       -------

Deferred Tax Assets:
    Depreciation                                     $   434       $   235
    Stock-based compensation                           2,405           497
    Interest expense                                     142
    Other                                                100            39
                                                     -------       -------
Total Deferred Tax Assets                            $ 3,081       $   771

Deferred Tax Liabilities:
    Certain amortizable intangibles                  $ 1,243       $   811
    Acquisitions                                      72,472            --
    Gain on change from LIFO to market
    value for specialist stocks                          837            --
    Unrealized gain on investments                       108           295
                                                     -------       -------
Total Deferred Tax Liabilities                       $74,660       $ 1,106

      A reconciliation of the statutory U.S. Federal Income Tax Rate of 35% to
the Company's effective income tax rate is set forth below:

                                               For the Years Ended December 31,
                                                      2000           1999
                                                     ------         ------

U.S. Federal Income tax rate                           35.0%          35.0%
Increase(decrease) in taxes related to:
    State and local taxes                              11.6           14.4
    Nondeductible intangibles                           4.5            2.9
    Conversion to corporate form                         --           (7.6)
    Other                                              (0.3)           0.4
                                                     ------         ------
Effective tax rate                                     50.8%          45.1%
                                                     ======         ======

6. CAPITAL AND NET LIQUID ASSET REQUIREMENTS

      LaBranche, as a specialist and member of the NYSE, is subject to SEC Rule
15c3-1 as 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 December 31, 2000 and 1999, LaBranche's net capital, as defined
under SEC Rule 15c3-1, was $293.4 million and $161.4 million, respectively,
which exceeded minimum requirements by $290.3 million and $159.9 million,
respectively. LaBranche's aggregate indebtedness to net capital ratio was .16 to
1 and .13 to 1, respectively.

      Additionally, Henderson Brothers as a registered broker-dealer and member
firm of the NYSE is also subject to SEC Rule 15c3-1 as adopted and administered
by the NYSE and the SEC. Under the alternative method permitted by the rule, the
minimum required net capital shall be equal to the greater of $250,000 or 2% of
aggregate debit items as defined.

      As of December 31, 2000, Henderson Brothers' net capital as defined under
SEC Rule 15c3-1 was $8.5 million which exceeded minimum requirements by $8.2
million.

         As a clearing broker-dealer, Henderson Brothers has elected to compute
a reserve requirement for Proprietary Accounts of Introducing Broker-Dealers
("PAIB Calculation"), as defined. The PAIB Calculation is computed in order for
correspondent firms to classify their assets held by Henderson Brothers as
allowable assets in the correspondents' net capital calculation. At December 31,
2000, Henderson Brothers had a reserve requirement of


                                      F-13
<PAGE>

approximately $343,383. Additionally, the firm has approximately $394,700 of
cash on deposit in a Special Reserve Bank Account as of January 3, 2001.

      The NYSE generally requires members registered as specialists to maintain
a minimum dollar regulatory capital amount in order to establish that they can
meet, with their own net liquid assets, their position requirement. Effective
October 30, 2000, with SEC approval, the NYSE changed Rule 104, its minimum net
liquid asset requirements. Specialist units that exceed five percent in any of
the NYSE's four concentration measures must maintain minimum net liquid assets
based upon the securities for which they act as the specialist. The requirements
state that the net liquid assets must be equivalent to $4.0 million for each
stock in the Dow Jones Industrial Average, $2.0 million for each stock in the
S&P 100 Stock Price Index, excluding stocks included in the previous
classification, $1.0 million for each stock in the S&P 500 Stock Price Index,
excluding stock included in the previous classifications, $500,000 for each
common stock, excluding bond funds and stocks included in the previous
classifications, and $100,000 for each stock not included in any of the above
classifications. In addition, the NYSE requires any new specialist entities that
result from a merger, acquisition, consolidation or other combination of
specialist entities to maintain net liquid assets equivalent to the greater of
either: (1) the aggregate net liquid assets of the specialist entities prior to
their combination or (2) the new capital requirements prescribed under Rule 104.
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 December 31, 2000 and 1999, LaBranche's NYSE minimum required dollar
amount of net liquid assets, as defined, was $284.3 million and $93.6 million,
respectively, compared to actual net liquid assets, as defined, of $305.0
million and $175.9 million, respectively.

7. ACQUISITIONS

      Effective July 1, 1998, LaBranche 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 LaBranche. The excess purchase price over fair
value of net assets acquired was approximately $25.8 million.

      Effective August 24, 1999, the limited partnership interests of $37.1
million in LaBranche were acquired at an excess purchase price of $127.4 million
over the limited partners' capital balances. The redemption of the limited
partners' interests was accounted for as a step acquisition under the purchase
method of accounting. The excess of purchase price over the limited partners'
capital balances was allocated to intangible assets and assigned lives as
follows:

                                                 Original Amount    Life
                                                 ---------------    ----

 Specialist Stock List.....................      $ 93.6 million   40 years
 Trade Name................................        26.6 million   40 years
 Goodwill..................................         7.2 million   15 years
                                                 ------
                                                 $127.4 million
                                                 ======


                                      F-14
<PAGE>

      Effective March 2, 2000, the Holding Company acquired all the outstanding
capital stock of Henderson Brothers Holdings, Inc., which in turn wholly owned
Henderson Brothers, a specialist on the NYSE, for an aggregate purchase price of
approximately $228.4 million. The acquisition was accounted for under the
purchase method of accounting. The results of Henderson Brothers' operations
have been included in the Company's consolidated financial statements since
March 2, 2000. The excess of purchase price over fair value of approximately
$204.9 million was allocated to intangible assets with corresponding respective
lives as follows:

                                             Original Amount     Life
                                             ---------------     ----

 Specialist Stock List...................    $ 87.7 million    40 years
 Goodwill................................     117.2 million    15 years
                                             ------
                                             $204.9 million
                                             ======

      Effective March 9, 2000, the Holding Company acquired, through a merger,
Webco Securities, Inc. ("Webco"), a specialist on the NYSE, for an aggregate
purchase price of $11.0 million in cash, $3.0 million in senior promissory notes
and 2.8 million shares of the Company's common stock. The acquisition was
accounted for under the purchase method of accounting. The results of the
Webco's specialist operations have been included in the Company's consolidated
financial statements since March 9, 2000. The excess of purchase price over fair
value of approximately $28.8 million was allocated to intangible assets with
corresponding respective lives as follows:

                                               Original Amount     Life
                                               ---------------     ----

 Specialist Stock List.....................     $ 9.8 million    36 years
 Goodwill..................................      19.0 million    15 years
                                                -----
                                                $28.8 million
                                                =====

      Effective December 21, 2000, LaBranche acquired an American Stock Exchange
("AMEX") specialist unit from a joint venture of Midland Trading L.P., Pal-Bro
Partners L.L.C. and Cohen Specialists L.L.C. The acquisition was accounted for
under the purchase method of accounting. The results of the AMEX specialist unit
operations have been included in the Company's consolidated financial statements
since December 21, 2000. The excess of purchase price over fair value of
approximately $3.8 million was allocated to goodwill.

8. COMMITMENTS

      During 1999, the Company amended and extended its committed line-of-credit
with a U.S. commercial bank from $75.0 million to $100.0 million. During
February 2000, LaBranche increased and extended its committed line-of-credit to
$200.0 million through February 2, 2001.

      Minimum rental commitments under existing noncancellable leases for office
space and equipment are as follows:


                                      F-15
<PAGE>

            Year Ending December 31,

            2001....................................   $ 1,135,050
            2002....................................     1,165,050
            2003....................................     1,171,050
            2004....................................     1,188,350
            2005....................................     1,238,650
            Thereafter..............................     2,648,488

      These leases contain escalation clauses providing for increased rentals
based upon maintenance and tax increases.

9. SUBORDINATED LIABILITIES

      LaBranche is a party to subordinated loan agreements under which it has
indebtedness approved by the NYSE for inclusion as net capital, as defined.
Interest is payable quarterly at various annual rates. Five of the agreements
representing $2,650,000 mature within the last six months of 2001 and six
agreements representing $2,985,000 mature within the first six months of 2002.
These agreements all have automatic rollover provisions, and each scheduled
maturity date will be extended an additional year, unless the lender gives
LaBranche seven months' advance notice that the maturity date will not be
extended. Interest expense incurred for the years ended December 31, 2000, 1999
and 1998, on these agreements was approximately $1.0 million, $1.1 million and
$1.3 million, respectively. Two of the holders representing $850,000 of
subordinated loan agreements were repaid the principal and unpaid interest upon
maturity in November 2000 and five holders representing $3,723,000 of
subordinated loan agreements were repaid the principal and unpaid interest upon
maturity in December 2000.

      LaBranche also issued seven notes representing aggregate indebtedness of
$20,000,000 which mature on September 15, 2002, and bear interest at an annual
rate of 8.17% payable on a quarterly basis. LaBranche also issued five notes
representing aggregate indebtedness of $15,000,000 which mature on June 3, 2008
and bear interest at an annual rate of 7.69% payable on a quarterly basis. These
notes are senior to all other subordinated notes of LaBranche. Interest expense
incurred for the years ended December 31, 2000, 1999 and 1998, on these notes
was approximately $2.8 million, $2.8 million and $2.3 million, respectively. The
agreements covering these subordinated notes require LaBranche to comply with
certain covenants that, among other things, restrict the type of business in
which LaBranche may engage, set certain net capital levels and prohibits
restricted payments.

      LaBranche also issued a subordinated note for $1,300,000 due March 2, 2002
with an annual rate of 8.0%, payable on a quarterly basis. Interest expense
incurred for the years ended December 31, 2000, 1999 and 1998, on the note was
approximately $108,333, $123,333 and $0 respectively. This agreement has an
automatic rollover provision, and the scheduled maturity date will be extended
an additional year, unless the lender gives LaBranche seven months' advance
notice that the maturity date will not be extended.

10. EARNINGS PER SHARE

      Earnings per share ("EPS") are computed in accordance with SFAS No. 128,
"Earnings Per Share". Basic EPS is calculated by dividing net income by the
weighted-average number of


                                      F-16
<PAGE>

common shares outstanding. Diluted EPS includes the determinants of basic EPS
and, in addition, gives effect to dilutive potential common shares. For purposes
of determining weighted-average shares outstanding for periods prior to the
Company's reorganization from partnership to corporate form, the outstanding
shares were determined based on the conversion ratio of members' capital to
common stock issued to the members upon reorganization.

      The computations of basic and diluted EPS are set forth below, (000's
omitted, except per share data) anti-dilutive shares in 2000 and 1999 were 1,987
and 2,263, respectively:

                                                    Years Ended December 31,
                                                2000         1999         1998
Numerator for basic and
  diluted earnings per share
  - net income                                 $81,923      $29,034      $ 2,660
                                               =======      =======      =======
Denominator for basic
  earnings per share -
  weighted-average number
  of common shares                              48,167       40,443       24,318
Dilutive Shares
    Stock options                                  150           --           --
    Restricted stock                                14           --           --
    Restricted stock units                         250           --           --
                                               -------      -------      -------
Denominator for diluted
  earnings per share -
  weighted-average number
  of common shares                              48,581       40,443       24,318
                                               =======      =======      =======

Basic earnings per share                       $  1.70      $  0.72      $  0.11
Diluted earnings per share                     $  1.69      $  0.72      $  0.11

11. EMPLOYEE INCENTIVE PLANS

Equity Incentive Plan

      The Company has elected to account for stock-based employee compensation
plans in accordance with Accounting Principles Board Opinion ("APB") No. 25 as
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation". In
accordance with APB No. 25, compensation expense is not recognized for stock
options that have no intrinsic value on the date of grant.

      The Company sponsors an Equity Incentive Plan which provides for grants of
incentive stock options, nonqualified stock options, restricted shares of common
stock, restricted stock units, unrestricted shares and stock appreciation
rights.


                                      F-17
<PAGE>

      A maximum of 4,687,500 shares of common stock has been reserved for
issuance under the Equity Incentive Plan. The maximum number of shares of 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.

      On August 18, 1999, restricted stock units with respect to 1,059,000
shares of common stock were granted to employees who were not managing directors
with an issue cost of $0 to the employees and a fair market value of $14 per
share. In October 1999 and March 2000, respectively, restricted stock units for
an additional 3,600 and 2,055 shares of common stock were issued to two
different employees with an issue cost of $0 to the employees and a fair market
value of $9.50 and $13.69 per share, respectively. The restricted stock units,
which are subject to continuing service with the Company and other restrictions,
will generally vest in three annual installments commencing on the third
anniversary of the grant date. Compensation expense is being recognized over the
five-year vesting period on a straight-line basis. During 2000, 36,891 shares
were forfeited as a result of a failure to meet vesting requirements. In
addition, 77,502 shares vested as part of severance arrangements. For the years
ended December 31, 2000 and 1999, the Company recorded compensation expense and
a credit to additional paid-in capital of approximately $3.6 million and $1.1
million, respectively, related to these restricted stock units.

      During August and September 2000, the Company issued to certain newly
hired employees an aggregate of 200,000 and 100,000 shares of restricted stock,
respectively, each with an issue cost of $.01 and a fair market value of $26.50
and $30.13 per share, respectively. The restricted stock, which is subject to
continuing service with the Company, will vest in three annual installments on
each anniversary of the grant date. Compensation expense is being recognized
over the three year vesting period on a straight-line basis. For the year ended
December 31, 2000 the Company recorded compensation expense of approximately
$711,000.

Stock Options

      On August 18, 1999, options to purchase an aggregate of 1,200,000 shares
of common stock were granted to executive officers of the Company at market
value. Of these options, 416,667 options were exercisable as of December 31,
2000. Of the remaining options, 100,000 shares vested on January 7, 2000 and
will become exercisable on July 7, 2001. During 2000, options to purchase 33,333
shares were forfeited due to a failure to meet vesting requirements. In
addition, 16,667 shares were exercised at a price of $14. The options to
purchase the remaining 633,333 shares, which are subject to continuing service
with the Company and other restrictions, will become exercisable in two equal
annual installments on the anniversary of the date of grant. These options will
generally expire ten years from the date of grant, unless sooner terminated or
exercised. Pursuant to APB No. 25, no compensation expense was recognized since,
on the date of grant, these options had no intrinsic value. As of December 31,
2000, the outstanding options had an exercise price of $14 and a remaining life
of approximately nine years.

      The estimated fair value of options granted was $4.97 per option. Fair
value is estimated as of the grant date based on a binomial option pricing model
using the following assumptions:


                                      F-18
<PAGE>

                 Risk-free interest rate....     5.25%
                 Expected life..............     7 yrs
                 Volatility.................       40%
                 Dividend yield.............        0%

      In accordance with SFAS No. 123, compensation expense was not recognized
on the date of the grant of the options since these options had no intrinsic
value. If the Company were to recognize compensation expense under the
fair-value based method of SFAS No. 123, the net income would have decreased by
approximately $852,000 and $843,000 for the years ended December 31, 2000 and
1999, respectively, resulting in pro forma net income and earnings per share as
follows (000's omitted, except per share data):

                                                   Years Ended December 31,
                                                     2000           1999
                                                     ----           ----

Net income, as reported ........................   $81,923         $29,034
Pro forma net income ...........................    81,071          28,191
Diluted EPS, as reported .......................   $  1.69         $  0.72
Pro forma EPS ..................................      1.67            0.70

      The effect of applying SFAS No. 123 in the pro forma disclosure above may
not be representative of the potential pro forma effect on net income in future
periods.

Annual Incentive Plan

      The Company also sponsors an Annual Incentive Plan. Managing directors and
other employees designated by management will be eligible to participate. Under
this plan, a compensation pool of up to 30% of the Company's pre-tax income, or
such lesser percentage determined by the compensation committee, will be set
aside for managing directors and other employees selected by the compensation
committee to participate in this plan. In determining the compensation pool, the
compensation expense relating to the grant of restricted stock units and the
grant of restricted stock is deducted. Under the plan, no individual participant
may receive more than 25% of the compensation pool for any fiscal year.

12. LONG TERM DEBT

      Effective August 24, 1999, the Holding Company issued $100.0 million
aggregate principal amount of Senior Notes. The Senior Notes bear interest at a
rate of 9 1/2% annually and mature on August 15, 2004. The carrying value of the
Senior Notes as of December 31, 2000 is $99.9 million. The discount on the bond
is being amortized as an adjustment to interest expense over the life of the
Senior Notes. Debt issuance costs incurred as a result of the Senior Note
offering were approximately $2.5 million, which are also being amortized on a
straight-line basis as an adjustment to interest expense over the life of the
Senior Notes. Interest expense incurred for the years ended December 31, 2000
and 1999 was approximately $10.1 million and $3.5 million, respectively. The
indenture covering the Senior Notes includes certain covenants that, among other
things, limits the Company's ability to borrow money, pay dividends or


                                      F-19
<PAGE>

repurchase stock, make investments, engage in transactions with stockholders and
affiliates, create liens on assets, and sell assets or engage in mergers and
consolidations except in accordance with certain specified conditions.

      In addition, in connection with the reorganization of the Company from
partnership to corporate form on August 24, 1999, the Holding Company issued a
note in an aggregate principal amount of $16.0 million as partial payment for
the acquisition of a limited partner interest. The note is payable in three
annual installments, with $6.0 million of the aggregate principal amount already
having been paid on the first anniversary of issuance. The remaining principal
amount is payable in $5.0 million installments on each of the second and third
anniversaries of issuance. The note bears interest at the annual rate of 9 1/2%.
Interest expense incurred for the years ended December 31, 2000 and 1999 was
approximately $1.3 million and $538,000, respectively.

      In connection with the acquisitions of Henderson Brothers and Webco, the
Holding Company issued $250.0 million aggregate principal amount of Senior
Subordinated Notes (the "Notes") that bear interest at a rate of 12.0% annually
and mature on March 2, 2007. The carrying value of the Notes as of December 31,
2000 was $246.0 million. The discount on the Notes is being amortized as an
adjustment to interest expense over the life of the Notes. Debt issuance costs
incurred as a result of the Note offering were approximately $6.9 million, which
are also being amortized as an adjustment to interest expense over the life of
the Notes. Interest expense incurred for the year ended December 31, 2000 was
approximately $25.8 million. The indenture covering the Notes includes certain
covenants that, among other things, limit the Company's ability to borrow money,
pay dividends or repurchase stock, make investments, engage in transactions with
stockholders and affiliates, create liens on assets, and sell assets or engage
in mergers and consolidations except in accordance with certain specified
conditions.

      The Notes also require the Company, within 150 days after the end of each
fiscal year, to offer to redeem from all holders of the Notes a principal amount
equal to the Excess Cash Flow at a price equal to 103% of the principal amount
being offered for purchase plus accrued and unpaid interest, if any, to the date
of redemption. Each holder is entitled to be offered a pro rata share of the
amount subject to redemption based upon his or her ownership percentage of the
outstanding Notes. Excess Cash Flow is defined for this purpose as 40% of the
amount by which the Company's consolidated EBITDA exceeds the sum of the
Company's interest expense, tax expense, increase in net capital or net liquid
asset requirements, capital expenditures, any cash payments related to
acquisitions of NYSE specialists and any cash payments related to the Company's
principal payments of certain other indebtedness. As of December 31, 2000, the
Company's Excess Cash Flow, as calculated, was approximately $9.9 million, and
accordingly $280,000 was accrued as additional interest expense during the year
ended 2000.

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

      SFAS 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 Company's financial instruments
are short-term in nature or carry market interest rates and, accordingly,
approximate fair value.

      The fair value of the fixed rate debt, in millions, is as follows:


                                      F-20
<PAGE>

                                          For the Years Ended December 31,
                                               2000                1999
                                       Carrying    Fair    Carrying     Fair
                                         Value     Value    Value      Value
                                         -----     -----    -----      -----

Senior Debt .......................     $ 99.9    $102.3    $ 99.8    $ 97.0
Senior Subordinated Debt ..........     $246.0    $276.8    $   --    $   --
Fixed Rate Note ...................     $ 10.0    $ 10.0    $ 16.0    $ 15.9

      The fair value of the Senior Notes and the Notes was determined based upon
its market value as of December 31, 2000. The fair value of the fixed rate note
was determined using current market rates to discount its cash flows.

14. RETIREMENT PLAN

      The Company has a defined contribution retirement plan (the "Plan") that
is subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"). As of December 31, 1999, The Retirement Services Division of the
Bank of New York acted as recordkeeper, while LaBranche acted as custodian and
administrator. Effective April 1, 2000 the Plan was amended and restated and all
assets were transferred to Fidelity Management & Research Company's Advisor
Retirement Connection, which currently acts as custodian, recordkeeper and
trustee.

      All employees are eligible to participate in the Plan after they have
completed twelve months of service and have been credited with 1,000 hours of
service. The Company, acting in its sole discretion, can declare and contribute
to the Plan an employer matching contribution and an additional voluntary
contribution. As of December 31, 2000 and 1999, the Company contributed
approximately $590,000 and $423,000, respectively, as employer matching
contributions to the plan, and approximately $2.0 million and $1.1 million,
respectively, as an additional voluntary contributions.

      As of December 31, 2000, the Plan had approximately 230 participants
compared to 148 participants as of December 31, 1999.

15. 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.

         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


                                      F-21
<PAGE>

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.

      In addition, Henderson Brothers, through the normal course of business,
enters into various securities transactions as agent. The execution, settlement
and financing of those transactions can result in off-balance sheet risk and
concentration of credit risk.

      Henderson Brothers' clearance activities involve settlement and financing
of various customer securities transactions on a cash or margin basis. These
activities may expose Henderson Brothers to off-balance sheet risk in the event
the customer or other broker is unable to fulfill its contractual obligations
and Henderson Brothers has to purchase or sell securities at a loss. For margin
transactions Henderson Brothers may be exposed to significant off-balance sheet
risk in the event margin requirements are not sufficient to fully cover losses
that customers may incur in their accounts.

      Henderson Brothers seeks to control the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. Henderson Brothers monitors
margin levels daily and pursuant to such guidelines, requires customers to
deposit additional collateral or to reduce positions when necessary.

16. PRO FORMA FINANCIAL INFORMATION (Unaudited)

      The following 1999 pro forma consolidated results give effect to the
Company's August 1999 reorganization from partnership to corporate form and
related transactions, which include the acquisition of LaBranche's limited
partnership interests, and the application of the net proceeds from the
Company's August 1999 initial public offering and Senior Note offering (the
"Reorganization Transactions") as if the Reorganization Transactions occurred as
of January 1, 1999. In addition, the 1999 pro forma consolidated results give
effect to the acquisition of all the outstanding capital stock of Henderson
Brothers, the acquisition of Webco and the issuance of the Notes as if they
occurred as of January 1, 1999. The 2000 pro forma consolidated results give
effect to the March 2000 acquisitions of Henderson Brothers and Webco and the
issuance of the Notes as if they all occurred as of January 1, 2000. The pro
forma impact on revenues, pre-tax income and earnings are as follows (000's
omitted, except per share data):

                                                For the years ended December 31,
                                                      2000           1999
                                                      ----           ----
                                                   (Pro Forma)    (Pro Forma)

      Revenues                                      $357,451       $296,869
      Pre-Tax Income                                 148,611        109,966
      Net Income                                      72,089         51,800
      EPS                                           $   1.48       $   1.20


                                      F-22
<PAGE>

17. SUBSEQUENT EVENTS (Unaudited)

      Effective January 18, 2001, the Company entered into a merger agreement to
acquire ROBB PECK McCOOEY Financial Services, Inc. ("Robb Peck McCooey") for an
aggregate of approximately 6.9 million shares of the Company's common stock and
shares of the Company's nonconvertible preferred stock having an aggregate face
value of approximately $100.0 million and an estimated fair value of
approximately $89.1 million. In addition, the Company will assume Robb Peck
McCooey's obligations under the outstanding option agreements with Robb Peck
McCooey's employees. Thus, each option to purchase Robb Peck McCooey common
stock will be replaced with a vested option to purchase 98.778 shares of the
Company's common stock. The acquisition will be accounted for under the purchase
method and the results of Robb Peck McCooey operations will be included in the
Company's consolidated financial statements from the closing date of the
transaction.

      In January 2001, the Company extended its line-of-credit with a U.S.
commercial bank to February 1, 2002.


                                      F-23
<PAGE>

                               LaBRANCHE & CO INC.
                              (Parent Company Only)
                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                       (000's omitted, except share data)

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                               2000         1999
                                                                                               ----         ----
<S>                                                                                          <C>          <C>
                                                ASSETS
CASH AND CASH EQUIVALENTS ................................................................   $  57,191    $  46,872
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL ...........................................          --        1,422
INVESTMENT IN SUBSIDIARIES, AT EQUITY VALUE ..............................................     670,448      321,370
SUBORDINATED NOTE RECEIVABLE .............................................................       9,000           --
OTHER ....................................................................................      19,346       14,041
                                                                                             ---------    ---------
      Total Assets .......................................................................   $ 755,985    $ 383,705
                                                                                             =========    =========
                                 LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
    Interest payable .....................................................................   $  16,862    $      --
    Income taxes payable .................................................................       8,599        7,960
    Accounts payable and other liabilities ...............................................       3,730        7,951
                                                                                             ---------    ---------
                                                                                                29,121       15,911
                                                                                             ---------    ---------
LONG TERM DEBT ...........................................................................     355,893      115,822
                                                                                             ---------    ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized; None issued and outstanding                       --
Common stock, $.01 par value, 200,000,000 shares authorized;
     49,069,521 and 45,875,000 shares issued and outstanding at December 31, 2000 and
     December 31, 1999, respectively .....................................................         491          459
Additional paid-in-capital ...............................................................     273,347      228,771
Retained earnings ........................................................................     104,665       22,742
Unearned compensation ....................................................................      (7,602)          --
                                                                                             ---------    ---------
                                                                                               370,901      251,972
                                                                                             ---------    ---------
     Total liabilities and stockholders' equity ..........................................   $ 755,985    $ 383,705
                                                                                             =========    =========
</TABLE>

            See accompanying note to condensed financial statements.


                                      F-24
<PAGE>

                               LaBRANCHE & CO INC.
                              (Parent Company Only)
                       CONDENSED STATEMENTS OF OPERATIONS
                                 (000's omitted)

<TABLE>
<CAPTION>
                                                           For the Years Ended
                                                               December 31,
                                                     2000         1999         1998
                                                     ----         ----         ----
<S>                                               <C>          <C>          <C>
REVENUE:
     Earnings from investment in subsidiaries .   $ 104,044    $  31,476    $   2,663
     Investment income ........................       1,534          910           --
                                                  ---------    ---------    ---------
        Total revenue .........................     105,578       32,386        2,663
                                                  ---------    ---------    ---------
EXPENSES:
     Interest .................................      37,700        3,879           --
     Employee compensation and related benefits       3,633        1,050           --
     Other ....................................       2,337          504            3
                                                  ---------    ---------    ---------
        Total expenses ........................      43,670        5,433            3
                                                  ---------    ---------    ---------
     Income before income tax benefit .........      61,908       26,953        2,660
                                                  ---------    ---------    ---------
INCOME TAX BENEFIT ............................     (20,015)      (2,081)          --
                                                  ---------    ---------    ---------
     Net income ...............................   $  81,923    $  29,034    $   2,660
                                                  =========    =========    =========
</TABLE>

            See accompanying note to condensed financial statements.


                                      F-25
<PAGE>

                               LaBRANCHE & CO INC.
                              (Parent Company Only)
                CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS'
                             EQUITY/MEMBERS' CAPITAL
                                 (000's omitted)

<TABLE>
<CAPTION>
                                                    Common Stock
                                                    ------------
                                                                      Additional
                                                                        Paid-in     Retained    Unearned      Members'
                                                  Shares      Amount    Capital     Earnings  Compensation    Capital       Total
                                                  ------      ------    -------     --------  ------------    -------       -----
<S>                                                <C>      <C>         <C>         <C>         <C>          <C>          <C>
BALANCE, December 31, 1997 ....................        --   $      --   $      --   $      --   $      --    $  37,658    $  37,658
Net income ....................................        --          --          --          --          --        2,660        2,660
Contributions to capital ......................        --          --          --          --          --       66,563       66,563
Distributions of capital ......................        --          --          --          --          --      (29,788)     (29,788)
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 1998 ....................        --          --          --          --          --       77,093       77,093
Net income through August 23, 1999 ............        --          --          --          --          --        6,292        6,292
Contributions to capital ......................        --          --          --          --          --       18,096       18,096
Distributions of capital ......................        --          --          --          --          --       (8,095)      (8,095)
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, pre-reorganization ...................        --          --          --          --          --       93,386       93,386
Exchange of membership interests for shares of
 common stock .................................    35,375         354      93,032          --          --      (93,386)          --
Initial public offering of common stock .......    10,500         105     134,689          --          --           --      134,794
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, post-reorganization and initial public
 offering .....................................    45,875         459     227,721          --          --           --      228,180
Net income (August 24, 1999 through
 December 31, 1999) ...........................        --          --          --      22,742          --           --       22,742
Compensation related to restricted stock units
 granted ......................................        --          --       1,050          --          --           --        1,050
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 1999 ....................    45,875         459     228,771      22,742          --           --      251,972
Net income ....................................        --          --          --      81,923          --           --       81,923
Issuance of shares to Webco ...................     2,800          28      32,284          --          --           --       32,312
Issuance of restricted stock, shares for option
  exercises and related compensation ..........       395           4      12,292          --      (7,602)          --        4,694
                                                   ------   ---------   ---------   ---------   ---------    ---------    ---------
BALANCE, December 31, 2000 ....................    49,070   $     491   $ 273,347   $ 104,665   $  (7,602)   $      --    $ 370,901
                                                   ======   =========   =========   =========   =========    =========    =========
</TABLE>

            See accompanying note to condensed financial statements.


                                      F-26
<PAGE>

                               LaBRANCHE & CO INC.
                              (Parent Company Only)
                        CONDENSED STATEMENTS OF CASH FLOW
                                 (000's omitted)

<TABLE>
<CAPTION>
                                                                                        For the Years Ended
                                                                                             December 31,
                                                                                             ------------
                                                                                    2000         1999         1998
                                                                                    ----         ----         ----
<S>                                                                              <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income .................................................................   $  81,923    $  29,034    $   2,660
  Adjustments to reconcile net income to net cash used in operating activities
     Amortization of debt issuance costs and bond discount ...................       1,461          203           --
     Compensation expense related to stock based compensation ................       3,633        1,050           --
     Tax benefit related to exercise of stock options ........................         112           --           --
     Undistributed equity earnings from investment in subsidiaries ...........      (4,294)     (31,476)     (19,477)
     Deferred tax benefit ....................................................     (20,015)      (2,081)          --
Changes in assets and liabilities-
     Securities purchased under agreements to resell .........................       1,422       (1,422)          --
     Other assets ............................................................      (8,469)     (11,559)          13
     Accounts payable and other liabilities ..................................      13,280       13,911           --
                                                                                 ---------    ---------    ---------
Net cash provided by (used in) operating activities ..........................      69,053       (2,340)     (16,804)
                                                                                 ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net cash paid for acquisitions .............................................    (184,364)          --           --
  Return of capital from subsidiary ..........................................          --       20,000       46,598
  Payment for investment in subsidiary .......................................     (50,000)     (51,199)     (29,788)
  Payments to limited partners for redemption of interests upon reorganization          --     (140,186)          --
                                                                                 ---------    ---------    ---------
  Net cash provided by (used in) investing activities ........................    (234,364)    (171,385)      16,810
                                                                                 ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net cash received from the issuance of debt ................................     245,693       99,807           --
  Payments for interest, taxes and stock-based awards ........................     (70,063)          --           --
  Net proceeds from the initial public offering ..............................          --      134,794           --
  Repayment of subordinated debt .............................................          --       (5,000)          --
  Payments to members upon reorganization ....................................          --       (9,025)          --
                                                                                 ---------    ---------    ---------
  Net cash provided by financing activities ..................................     175,630      220,576           --
                                                                                 ---------    ---------    ---------
  Increase in cash and cash equivalents ......................................      10,319       46,851            6
CASH AND CASH EQUIVALENTS, beginning of year .................................      46,872           21           15
                                                                                 ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, end of year .......................................   $  57,191    $  46,872    $      21
                                                                                 =========    =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
  Income taxes ...............................................................   $  46,193    $  11,750    $       3
  Interest ...................................................................      24,179           --           --
SUPPLEMENTAL NONCASH  ACTIVITIES:
  Membership interests issued for acquisitions ...............................          --           --       19,965
  Exchange of membership interests for shares of common stock ................          --       93,386           --
  Issuance of subordinated debt and shares of common stock for redemption of
  Limited partner interests upon reorganization ..............................          --       23,821           --
  Increase in investment in subsidiaries for forgiveness of intercompany tax
  receviables ................................................................      20,015        2,081           --
</TABLE>

            See accompanying note to condensed financial statements.


                                      F-27
<PAGE>

                               LaBRANCHE & CO INC.
                              (Parent Company Only)
                     NOTE TO CONDENSED FINANCIAL STATEMENTS

1. NOTE TO CONDENSED FINANCIAL STATEMENTS

      The condensed financial statements of LaBranche & Co Inc. (Parent Company
Only) should be read in conjunction with the consolidated financial statements
of LaBranche & Co Inc. and Subsidiaries and the notes thereto contained
elsewhere in this filing.


                                      F-28