THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Clayton Holdings, Inc. (CLAY)

6/23/2006 Proxy Information

General

Roger Kafker, one of our directors, is a Managing Director of TA Associates, and Todd Crockett, also one of our directors, is a Principal of TA Associates. During 2004, TA Associates and the investment funds affiliated with TA Associates invested separately in our predecessor, Clayton Services, and our subsidiary, Clayton Fixed Income Services (ÒCFISÓ), formerly The Murrayhill Company.

The Clayton Services and CFIS Transactions

In May 2004, TA Associates purchased 77% of the outstanding common stock of CFIS for an aggregate purchase price of $31.7 million. TA Associates acquired 88% of this common stock directly from the CFIS stockholders, Margaret Sue Ellis and Harvey Allon, Ms. EllisÕ husband, and the remaining 12% from new issuances by CFIS. TA Associates also purchased $10.0 million in principal amount of CFISÕs 12% senior subordinated convertible notes due May 24, 2010. The proceeds from this financing were used to redeem additional CFIS common stock owned by Ms. Ellis and Mr. Allon. As a result of these transactions, Ms. Ellis received aggregate net proceeds of $6.8 million and Mr. Allon received $30.9 million. Ms. Ellis currently serves as one of our directors. Immediately after the CFIS transaction, the shares purchased by TA Associates and the remaining shares held by Ms. Ellis and Mr. Allon were exchanged for shares of TMHC Holdings, Inc. (ÒTMHCÓ) convertible preferred stock and common stock, respectively. Ms. Ellis and Mr. Allon retained 21.7% and 1.6%, respectively, of TMHCÕs outstanding capital stock. The price paid in the purchase and redemption of CFIS common stock was determined by arms-length negotiations with TA Associates, and reflects CFISÕs pre-transaction capital structure, which did not include any indebtedness. Subsequently, in August 2004, the senior subordinated convertible notes held by TA Associates were converted into warrants to purchase 72,451 shares of common stock of TMHC, which were immediately exercised, and 12% senior subordinated notes in the principal amount of $10.0 million. In connection with the consummation of our new credit facility with BNP Paribas on December 8, 2005, all amounts outstanding under the senior subordinated notes were repaid, including principal of $10.0 million and applicable prepayment penalties of $0.5 million.

In August 2004, TA Associates, together with certain other investors, including Brian Libman, our director, consummated a transaction with the former Clayton Services and First Madison whereby a newly formed company organized by TA Associates (GRP Holdings, Inc. (ÒGRPÓ), our subsidiary and the holding company of the current Clayton Services) purchased substantially all of the assets of the former Clayton Services and the capital stock of First Madison for $120.0 million, plus up to an additional $40.0 million in contingent payments, as discussed below. The aggregate purchase price paid at closing included the purchase by TA Associates, Mr. Libman, Stephen M. Lamando, our director, and his related trusts, and another investor of GRPÕs convertible preferred stock for $70.0 million, and the purchase by TA Associates, Mr. Libman, Mr. Lamando, and his related trusts, and another investor of $20.0 million in principal amount of Clayton ServicesÕ 12% subordinated notes due August 2, 2010. Of the total amount of $130.0 million in aggregate cash proceeds, $120.0 million was ultimately paid at the closing to Stephen M. Lamando, our director, and his related trusts, Brian Kramer and Peter Krell (together, the ÒClayton FoundersÓ) pro rata in accordance with their respective historical interests in Clayton Services and First Madison, of which Mr. Lamando and his related trusts held a total interest of 81%. The remaining $10.0 million of the aggregate proceeds, plus an additional $10.0 million provided by the purchasers of the convertible preferred stock, were each placed in escrow in order to fund two of the four contingent earn-out payments to the Clayton Founders. In connection with the consummation of our new credit facility with BNP Paribas on December 8, 2005, all amounts outstanding under the subordinated notes were repaid, including principal of $20.0 million, accrued interest of $0.2 million and applicable prepayment penalties of $0.8 million.

Pursuant to the terms of the agreement executed in connection with the acquisition by TA Associates of Clayton Services and First Madison, and as amended in connection with the March 2005 combination of Clayton Services and CFIS, the Clayton Founders, including Mr. Lamando, were entitled to up to an additional $40.0 million in accordance with an earn-out provision based upon ClaytonÕs performance in fiscal years 2004 and 2005. The earn-out provision provided that four separate $10.0 million contingent payments would be paid to the Clayton Founders, pro rata in accordance with their respective historical interests in Clayton Services, of which Mr. Lamando held 81%, upon the achievement of financial operating milestones. In August 2005, the Clayton Founders received a $10.0 million contingent payment for meeting the first financial milestone, and this contingent payment was funded through $10.0 million held in restricted cash on ClaytonÕs balance sheet. The $10.0 million used to fund this contingent payment was contributed by the purchasers of Clayton Services and First Madison.

The agreement concerning the earn-out provisions was further amended in November 2005. In accordance with the terms of this amendment, the second $10.0 million contingent payment was deemed earned based upon Clayton ServicesÕ fiscal 2005 performance to date, and was immediately paid to the Clayton Founders. The funds for this contingent payment were released from an escrow account funded at the closing of the August 2004 transaction. Additionally, in accordance with this amendment and in satisfaction of the third and fourth contingent payment, upon the completion of our recapitalization and new credit facility with BNP Paribas on December 8, 2005, the Clayton Founders were paid the $13.25 million and all obligations of Clayton with respect to the earn out provisions of the 2004 acquisition were satisfied and discharged in full. Mr. Lamando and his related trusts received approximately $10.7 million of this $13.25 million payment.

The Clayton Services/CFIS Combination

In March 2005, in connection with the combination of GRP, the holding company of Clayton Services, and TMHC, our subsidiary and the holding company of CFIS, formerly The Murrayhill Company, and the subsequent reorganization into Clayton Holdings, Inc., TA Associates and the existing stockholders of each of GRP and TMHC entered into a share exchange agreement with us, whereby shares of common stock and convertible preferred stock of each of GRP and TMHC were exchanged for our Common Stock, class B common stock, series A convertible preferred stock and series B convertible preferred stock. A special committee of the boards of directors of each of GRP and TMHC evaluated the exchange ratios and share exchange agreement and authorized the share exchange. The share exchange was also approved and authorized by the stockholders of each of GRP and TMHC.

In connection with the combination of Clayton Services and CFIS, TA Associates received 8,825,241 shares of series A convertible preferred stock. Upon the completion of our initial public offering, these shares of series A convertible preferred stock converted into 2,206,308 shares of our Common Stock and 8,825,241 shares of our series A redeemable preferred stock. Additionally, TA Associates received 23,413,615 shares of our series B convertible preferred stock in connection with the combination. Upon the completion of our initial public offering, these shares of series B convertible preferred stock converted into 5,853,402 shares of our Common Stock and 23,413,615 shares of our series B redeemable preferred stock.

Recapitalization and Preferred Stock Dividend

On December 8, 2005, we entered into a new senior credit facility with BNP Paribas, which included a term loan and a revolving credit facility. The initial term loan of $150.0 million was used to: (i) repay and retire all $45.6 million outstanding under our prior senior credit facility, (ii) repay all $31.5 million owed pursuant to our outstanding subordinated and senior subordinated notes, (iii) pay a $1.69 per share dividend to our holders of preferred stock, including investment funds affiliated with TA Associates and Mr. Libman, for an aggregate dividend payment of $55.85 million, and (iv) pay $13.25 million to the Clayton Founders, in satisfaction of the earn-out arrangement described above. As a result of the recapitalization and related transactions on December 8, 2005, investment funds affiliated with TA Associates received $79.3 million, Mr. Lamando and his related trusts received $17.0 million and Mr. Libman received $1.2 million.

Use of Proceeds from Initial Public Offering

Upon the closing of our initial public offering on March 29, 2006, we immediately paid approximately $51.4 million and $0.9 million to TA Associates and Mr. Libman, respectively, to redeem all of the shares of redeemable preferred stock that were issued and outstanding immediately following the conversion of our convertible preferred stock in conjunction with closing of our initial public offering.