THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Jefferies Group, Inc. (JEF)

4/12/2006 Proxy Information

Through Jefferies, our wholly owned broker-dealer subsidiary, we have extended credit to Mr. Handler, Mr. Schenk and Ms. Syrjamaki in margin accounts in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. We believe the foregoing transactions were on terms no less favorable to us than could have been obtained from unaffiliated parties.

Our executive officers and directors have been permitted to make direct and indirect investments in certain high yield funds we manage on the same basis as we have given our other employees and investors. Although we commonly refer to these vehicles as funds, they are registered with the Securities & Exchange Commission as broker-dealers. These funds are managed by Jefferies and invest on a pari passu basis in all trading and investment activities undertaken by Jefferies’ High Yield Division. Two of the funds, the Jefferies Partners Opportunity Funds (the “JPOFs”), are principally capitalized with equity contributions from institutional and high net worth investors. The third fund, Jefferies Employees Opportunity Fund (“JEOF” and, with the JPOFs, the “High Yield Funds”), is principally capitalized with equity investments from our employees. Jefferies and certain executive officers or other employees have direct investments in all three High Yield Funds on terms identical to other fund participants, and indirect investments under deferred compensation arrangements that track the financial returns of direct investments. As a result of their respective investments, Mr. Handler, Chairman of the Board, Chief Executive Officer and a nominee, has an aggregate interest of 2.92% in the total members’ equity in the High Yield Funds; Mr. Friedman, one of our Directors, Chairman of the Executive Committee and a nominee, has an aggregate interest through a family partnership he controls of 0.26% in such total members’ equity; Mr. Schenk, Executive Vice President and Chief Financial Officer, has an aggregate interest of 0.10% in such total member’s equity; Ms. Syrjamaki, our Controller, has an aggregate interest of .01% in such total members’ equity; Mr. Feller, Secretary, General Counsel and Executive Vice President, has an aggregate interest of .03% in such total members’ equity; and Mr. Campbell, one of our Directors and a nominee, has an aggregate interest of .02% in such total members’ equity. The High Yield Division and each of the High Yield Funds share gains or losses on all trading and investment activities of the High Yield Division on the basis of a pre-established sharing arrangement related to the amount of capital each has available for such transactions. We modify the sharing arrangement from time to time to reflect changes in the respective amounts of available capital. As of December 31, 2005, the High Yield Funds were being allocated an aggregate of 64% of such gains and losses and as of February 10, 2006, the High Yield Funds were being allocated an aggregate of 59% of such gains and losses. The High Yield Funds also reimburse Jefferies for their share of allocable trading expenses. At year end 2005, the High Yield Division had in excess of $945 million of combined pari passu capital available from the High Yield Funds (including unfunded commitments and availability under the High Yield Funds’ revolving credit facility) and Jefferies for use in the High Yield Division’s investment and trading strategy. The High Yield Funds have a revolving credit facility that is collateralized by their investments which is non-recourse to us. Jefferies receives a management fee from the JPOFs in an amount equal to 1% per annum of the market value of their investments and is entitled to a carried interest of 20% of all distributions once investors have received a specified threshold return. JEOF pays Jefferies a management fee of 3% per annum and there is no carried interest. Mr. Handler actively manages the High Yield Funds but does not receive any additional compensation from the High Yield Funds or as a direct result of his management of the High Yield Funds. Investors in the High Yield Funds would have the right to redeem their investment should Mr. Handler cease actively managing the High Yield Funds.

In addition to the High Yield Funds, we have invested in private equity funds (“Private Equity Funds”) managed by companies (the “Fund Managers”) controlled in part by Mr. Friedman, one of our directors, Chairman of the Executive Committee of the Board of Directors of Jefferies and a nominee. The Fund Managers serve as the managers of the Private Equity Funds and have varying carried and other interests in those funds. Mr. Friedman has a substantial economic interest in the Fund Managers and, indirectly, in the income they generate from the Private Equity Funds. As of March 30, 2006, we had committed an aggregate of approximately $44.5 million to these funds, and had funded approximately $9.9 million. We have also guaranteed the obligations of two of these funds which may arise under a $20 million credit facility and a $4 million credit facility provided by a third party. We have also guaranteed a $30 million bank loan issued to a Jefferies employee fund related to Fund IV discussed below. As a result of those investments, commitments and guarantees, as of March 31, 2006, we have received distributions of approximately $10.6 million. Through our subsidiaries, we have performed investment banking and other services for companies in which the Private Equity Funds have invested. In some cases, the Private Equity Funds control those companies in which they have invested. From January 1, 2005, through March 31, 2006, we received approximately $16 million for investment banking and other services performed for companies in which the Private Equity Funds and other funds overseen by Mr. Friedman have investments.

We employ and provide office space for all of the Fund Managers’ employees under an arrangement we entered into with Mr. Friedman and Jefferies Capital Partners in 2005 and previously under an agreement entered into in 2001. Jefferies Capital Partners reimburses us on an annual basis for our direct employee costs, office space costs, other direct costs, as well as an agreed-upon estimate of indirect costs. In 2005, we billed and received approximately $4.3 million for such expenses.

On July 18, 2005, we entered into a Share and Membership Interest Purchase Agreement (the “Purchase Agreement”) with Mr. Friedman, a family partnership he controls, Mr. James L. Luikart, and certain of the Fund Managers. Jefferies Capital Partners IV L.P., together with its related parallel funds (“Fund IV”), is a private equity fund managed by a team led by Messrs. Friedman and Luikart. In the Purchase Agreement, we agreed to purchase a 49% interest in the manager of Fund IV and an amount, not less than 20% and not more than the percentage allocated to Mr. Friedman, of the carried interest attributed to Fund IV. In addition, we also acquired the right to receive similar interests from future private equity funds overseen by Mr. Friedman, subject to certain conditions including our commitment of capital to those future funds. We have mutually agreed with Mr. Friedman that, subject to certain permitted investments, neither party will sponsor or become a lead investor in any fund with substantially similar objectives to Fund IV or the future funds, or make any investment in a transaction meeting Fund IV or such future fund’s investment criteria. In exchange for those interests and future rights, we agreed to issue an aggregate of between 320,000 and 520,000 shares of common stock to Mr. Friedman. The actual number of shares of common stock to be issued will be based on the amount of capital committed at the final closing of Fund IV, which has not yet occurred. As of February 1, 2006, Mr. Friedman would have been entitled to receive approximately 320,000 shares based on capital committed at that time, a number that has increased to 400,000 as of March 7, 2006. Shares issued to Mr. Friedman under the Purchase Agreement are subject to clawback provisions based upon the size of a subsequent fund, as well as certain other conditions. The manager of Fund IV has agreed to pay us a pro rated annual management fee of $1.65 million for providing management services until the closing of the principal transactions contemplated by the Purchase Agreement. Through his interest in the manager of Fund IV, Mr. Friedman has an interest in the fees paid to the fund manager. A portion of the management fees are based on loans we guarantee, and on funds committed by an employee fund that has invested in Fund IV on both a leveraged and unleveraged basis.

Michael Handler, brother of our Chief Executive Officer, continues to manage a private investment fund on behalf of Jefferies Asset Management, one of our subsidiaries. As of April 1, 2006, Jefferies had an 11.92% interest in the fund, Richard Handler had a 3.56% interest in the fund, Mr. Friedman had a 1.09% interest in the fund, Mr. Schenk had a .04% interest in the fund, and Michael Handler had a 2.89% interest in the fund. Interests of Richard and Michael Handler in the fund include direct investments and indirect investments through our deferred compensation plans. Pursuant to his employment agreement, Michael Handler received an annual salary of $200,000. In addition, pursuant to his employment agreement, Michael Handler and his portfolio management team participate in a bonus pool based upon an agreed percentage of the management, administration and incentive fees received by Jefferies Asset Management from the fund, including the Jefferies investment. The distribution of the bonus pool among the fund’s portfolio management team is based upon the recommendation of Michael Handler for so long as Michael Handler remains employed as a portfolio manager of the fund and is subject to the prior approval of senior management of Jefferies Asset Management. For 2005, Michael Handler’s share of this bonus pool was $1,876,562 in cash, and 11,036 RSUs. In addition, during 2005, Mr. Handler received a residual bonus payment of $83,854 relating to adjustments to the 2004 bonus pool. Mr. Handler is also entitled to receive an additional 8,875 RSUs in 2006 based on the net assets of the fund as of January 1, 2006. Michael Handler’s relationship with Jefferies, his employment contract, which was based on the recommendation of the management of Jefferies Asset Management, and the compensation structure for the members of his group were reviewed and approved by the Governance and Nominating Committee of the Board of Directors. In reviewing Michael Handler’s contract, the Corporate Governance and Nominating Committee took into consideration management’s statements that the contract was the result of an arm’s length negotiation and that the contract was comparable to a contract that Jefferies Asset Management would enter into with an unrelated person having the same background and skills as Michael Handler. The Chief Executive Officer has recused himself from all direct or indirect supervision of the fund or Michael Handler’s activities. Jefferies Asset Management is responsible for the supervision of Michael Handler’s activities and has put in place a supervisory structure designed to provide reasonable assurances that any conflicts of interest created by the relationship between Richard and Michael Handler will be appropriately addressed. In addition to the regular review of the fund’s activities by the compliance group at Jefferies Asset Management, KPMG, our independent auditors, have audited the fund’s 2005 year end financial statements. In addition, as part of its ongoing risk based audit program, Internal Audit periodically reviews the activities of the asset management business.

We also continue to employ Thomas E. Tarrant, the brother-in-law of our Chief Executive Officer, as the Director of Marketing. For his services during 2005 he was paid $345,000 in a combination of cash and restricted stock.

4/15/2005 Proxy Information

Through Jefferies, our wholly owned broker-dealer subsidiary, we have extended credit to Messrs. Handler, Shaw and Schenk in margin accounts in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. We believe the foregoing transactions were on terms no less favorable to us than could have been obtained from unaffiliated parties.

Our executive officers and directors have been permitted to make direct and indirect investments in certain funds we manage on the same basis as we have given our other employees and investors. Although we commonly refer to these vehicles as funds, they are registered with the Securities & Exchange Commission as broker-dealers. These funds are managed by Jefferies and invest on a pari passu basis in all trading and investment activities undertaken by Jefferies’ High Yield Division. Two of the funds, the Jefferies Partners Opportunity Funds (the “JPOFs”), are principally capitalized with equity contributions from institutional and high net worth investors. The third fund, Jefferies Employees Opportunity Fund (“JEOF” and, with the JPOFs, the “High Yield Funds”), is principally capitalized with equity investments from our employees. Jefferies and certain executive officers or other employees have direct investments in all three High Yield Funds on terms identical to other fund participants, and indirect investments under deferred compensation arrangements that track the financial returns of direct investments. Mr. Handler, Chairman of the Board and Chief Executive Officer, has an aggregate interest of 2.92% in the total members’ equity in the High Yield Funds; Mr. Shaw, President and Chief Operating Officer, has an aggregate interest of 0.22% in such total members’ equity; Mr. Schenk, Executive Vice President and Chief Financial Officer, has an aggregate interest of 0.10% in such total member’s equity; Ms. Syrjamaki, Chief Financial Officer of Jefferies, has an aggregate interest of .01% in such total members’ equity; Mr. Feller, Secretary, General Counsel and Executive Vice President, has an aggregate interest of .03% in such total members’ equity; and Mr. Campbell, one of our Directors, has an aggregate interest of .02% in such total members’ equity. The High Yield Division and each of the High Yield Funds share gains or losses on all trading and investment activities of the High Yield Division on the basis of a pre-established sharing arrangement related to the amount of capital each has available for such transactions. We modify the sharing arrangement from time to time to reflect changes in the respective amounts of available capital. As of December 31, 2004, the High Yield Funds were being allocated an aggregate of 64% of such gains and losses. The High Yield Funds also reimburse Jefferies for their share of allocable trading expenses. At year end 2004, the High Yield Division had in excess of $945 million of combined pari passu capital available from the High Yield Funds (including unfunded commitments and availability under the High Yield Funds’ revolving credit facility) and Jefferies for use in the High Yield Division’s investment and trading strategy. The High Yield Funds have a revolving credit facility that is collateralized by their investments which is non-recourse to us. Jefferies receives a management fee from the JPOFs in an amount equal to 1% per annum of the market value of their investments and is entitled to a carried interest of 20% of all distributions once investors have received a specified threshold return. JEOF pays Jefferies a management fee of 3% per annum and there is no carried interest. Mr. Handler actively manages the High Yield Funds but does not receive any additional compensation from the High Yield Funds or as a direct result of his management of the High Yield Funds. Investors in the High Yield Funds would have the right to redeem their investment should Mr. Handler cease actively managing the High Yield Funds.

In February, 2004, Jefferies hired Michael Handler, brother of our Chief Executive Officer, to manage a private investment fund and certain managed accounts on behalf of Jefferies Asset Management, one of our affiliates. Shortly thereafter, we formed that fund and Jefferies and various employees of Jefferies and Jefferies Asset Management have invested in the fund. There are currently no managed accounts under Michael Handler’s management. As of April 1, 2005, Jefferies had an 8.91% interest in the fund, Richard Handler had a 2.52% interest in the fund, Mr. Shaw had a .25% interest in the fund, Mr. Schenk had a .03% interest in the fund, and Michael Handler had a 1.56% interest in the fund. Interests of Richard and Michael Handler in the fund include direct investments and indirect investments through our deferred compensation plans. Pursuant to his employment agreement, Michael Handler received an annual salary of $178,075, and a grant of 80,000 shares of restricted stock vesting over five years. In addition, pursuant to his employment agreement, Michael Handler and his portfolio management team participate in a bonus pool based upon an agreed percentage of the management and incentive fees received by Jefferies Asset Management from the fund, including the Jefferies investment. The distribution of the bonus pool among the fund’s portfolio management team is based upon the recommendation of Michael Handler for so long as Michael Handler remains employed as a portfolio manager of the fund and is subject to the prior approval of senior management of Jefferies Asset Management. For 2004, Michael Handler’s share of this bonus pool was $1,776,555. Depending on the size of the fund in 2006, Mr. Handler may also receive additional shares of restricted stock at that time. Michael Handler’s relationship with Jefferies, his employment contract, which was based on the recommendation of the management of Jefferies Asset Management, and the compensation structure for the members of his group were reviewed and approved by the Corporate Governance and Nominating Committee of the Board of Directors. In reviewing Michael Handler’s contract, the Corporate Governance and Nominating Committee took into consideration management’s statements that the contract was the result of an arm’s length negotiation and that the contract was comparable to a contract that Jefferies Asset Management would enter into with an unrelated person having the same background and skills as Michael Handler. The Chief Executive Officer has recused himself from all direct or indirect supervision of the fund or Michael Handler’s activities. Jefferies Asset Management is responsible for the supervision of Michael Handler’s activities and has put in place a supervisory structure designed to provide reasonable assurances that any conflicts of interest created by the relationship between Richard and Michael Handler will be appropriately addressed. In addition to the regular review of the fund’s activities by the compliance group at Jefferies Asset Management, KPMG, our independent auditors, have audited the fund’s 2004 year end financial statements and the Committee has requested that internal audit, which reports directly to the Audit Committee, periodically review the activities of the fund.

We also employ John C. Shaw III, son of our President as a Senior Vice President in the Jefferies Program Trading Department and Thomas E. Tarrant, the brother-in-law of our Chief Executive Officer, as the Director of Marketing. For their services during 2004 they were paid $778,618, based on a variable compensation formula tied to the productivity of the Program Trading Desk, and $317,861 respectively. Payments were made in a combination of cash and restricted stock.

In October of 2004, we purchased the remainder of Bonds Direct Securities LLC that was not owned by us for cash and shares of our common stock having an aggregate value of approximately $20.6 million. We purchased this interest from the previous holders of Bonds Direct which included management of Bonds Direct, current and former employees of ours, including Ms. Syrjamaki, and an employee investment fund in which Messrs. Handler, Shaw and Schenk each directly or indirectly owns an interest. The acquisition price was paid to these holders pro-rata in accordance with their fully diluted ownership interests of Bonds Direct. On an aggregate basis, the named executive officers held an aggregate of .8% of the Bonds Direct ownership interests and received a proportionate amount of the acquisition price. The percentage interest of each executive officer was as follows: Ms. Syrjamaki, .08%; Mr. Handler, .47%; Mr. Shaw, .12%; and Mr. Schenk, .12%, resulting in an aggregate payments of $179,250 with each receiving $17,990, $107,506, $26,877 and $26,877 respectively. We may issue additional cash and shares of our common stock to the previous holders of Bonds Direct, including direct or indirect payments to Ms. Syrjamaki and Messrs. Handler, Shaw and Schenk, pursuant to the 5-year earn-out provision of the acquisition agreement. The terms of the acquisition were negotiated between the Co-Chief Executive Officers of Bonds Direct and Brian Friedman, Chairman of the Executive Committee of Jefferies. The acquisition, including the payments to Ms. Syrjamaki and Messrs. Handler, Shaw and Schenk, was reviewed and approved by the independent members of our Board of Directors

4/12/2004 Proxy Information

Frank E. Baxter served as Chairman of Jefferies Group, Inc. (Jefferies) from 1990 until February 2002, Chief Executive Officer from 1987 until 2000 and President from January 1986 until December 1996. Prior to 1986, he served as Executive Vice President, National Sales Manager and New York Branch Manager of Jefferies & Company, Inc., and as the Managing Director of Jefferies' UK Subsidiary.

Jefferies has extended credit to Messrs. Handler, Shaw and Schenk in margin accounts in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. The Company believes the foregoing transactions were on terms no less favorable to the Company than could have been obtained from unaffiliated parties.

Executive officers and directors of the Company have direct and indirect interests in funds managed by Jefferies that invest on a pari passu basis in all trading and investment activities undertaken by Jefferies’ High Yield Division. Two of the funds, the Jefferies Partners Opportunity Funds (the “JPOFs”), are principally capitalized with equity contributions from institutional and high net worth investors. The third fund, Jefferies Employees Opportunity Fund (“JEOF” and, with the JPOFs, the “High Yield Funds”), is principally capitalized with equity investments from employees of the Company. Jefferies and certain executive officers or other employees have direct investments in all three High Yield Funds on terms identical to other fund participants, and indirect investments under deferred compensation arrangements that track the financial returns of direct investments. Mr. Handler, Chairman of the Board and Chief Executive Officer, has an aggregate interest of 2.92% in the total members’ equity in the High Yield Funds; Mr. Shaw, President and Chief Operating Officer, has an aggregate interest of 0.22% in such total members’ equity; Mr. Schenk, Executive Vice President and Chief Financial Officer, has an aggregate interest of 0.10% in such total member’s equity; Ms. Syrjamaki, Chief Financial Officer of Jefferies, has an aggregate interest of .01% in such total members’ equity; Mr. Feller, Secretary, General Counsel and Executive Vice President, has an aggregate interest of .03% in such total members’ equity; and Mr. Campbell, a Director of the Company, has an aggregate interest of .02% in such total members’ equity. The High Yield Division and each of the High Yield Funds share gains or losses on all trading and investment activities of the High Yield Division on the basis of a pre-established sharing arrangement related to the amount of capital each has available for such transactions. The sharing arrangement is modified from time to time to reflect changes in the respective amounts of available capital. As of December 31, 2003, the High Yield Funds were being allocated an aggregate of 64% of such gains and losses. The High Yield Funds also reimburse Jefferies for their share of allocable trading expenses. At year end 2003, the High Yield Division had $945 million of combined pari passu capital available from the High Yield Funds (including unfunded commitments and availability under the High Yield Funds’ revolving credit facility) and Jefferies for use in the High Yield Division’s investment and trading strategy. The High Yield Funds have a revolving credit facility that is collateralized by their investments which is non-recourse to the Company. Jefferies receives a management fee from the JPOFs in an amount equal to 1% per annum of the market value of their investments and is entitled to a carried interest of 20% of all distributions once investors have received a specified threshold return. JEOF pays Jefferies a management fee of 3% per annum and there is no carried interest. Mr. Handler actively manages the High Yield Funds. Investors in the High Yield Funds would have the right to redeem their investment should Mr. Handler cease actively managing the High Yield Funds. In February, 2004, Jefferies hired Michael Handler, brother of the Company’s Chief Executive Officer, to manage a private investment fund and/or certain managed accounts (the “Fund”) on behalf of Jefferies Asset Management. Jefferies and various employees of Jefferies have agreed to make a significant investment in the Fund and Michael Handler and other employees working on the Fund have agreed to invest in the Fund. Pursuant to his employment agreement, Michael Handler will receive an annual salary of $200,000, a grant of 80,000 shares of restricted stock vesting over five years and will be eligible to participate in a bonus pool. The size of the bonus pool will be based on a percentage of the incentive and management fees that are paid by investors in the Fund, including the Company and its affiliates. In addition, depending on the size of the fund in 2006, Mr. Handler may receive additional shares of restricted stock at that time. Michael Handler’s relationship with Jefferies, his employment contract, which was based on the recommendation of the management of Jefferies Asset Management, and the compensation structure for the members of his group were reviewed and approved by the Governance and Nominating Committee of the Board of Directors. In reviewing Michael Handler’s contract, the Corporate Governance and Nominating Committee took into consideration management’s statements that the contract was the result of an arms length negotiation and that the contract was comparable to a contract that Jefferies Asset Management would enter into with an unrelated person having the same background and skills as Michael Handler. The Chief Executive Officer has recused himself from all direct or indirect supervision of the Fund or Michael Handler’s activities. Jefferies Asset Management is responsible for the supervision of Michael Handler’s activities and has put in place a supervisory structure designed to provide reasonable assurances that any conflicts of interest created by the relationship between Richard and Michael Handler will be appropriately addressed. In addition to the regular review of the Fund’s activities by the compliance group at Jefferies Asset Management, the Committee has requested that internal audit, which reports directly to the Audit Committee, periodically review the activities of the Fund.

In March 2003, the Company purchased two insurance policies through Shaw, Moses, Mendenhall & Associates, an insurance brokerage firm in which Ted R. Shaw, brother of the Company’s President, is a partner and acted as broker of record. In connection with the purchases, the brokerage firm will receive commissions of $58,940 over the next ten years as the broker of record in connection with the purchase of the policies.

Jefferies also employs John Shaw III, son of the Company’s President as a Senior Vice President in its Program Trading Department and Thomas E. Tarrant, the brother-in-law of the Company’s Chief Executive Officer, as the Director of Marketing.

Bonds Direct Securities LLC (“Bonds Direct”) is a provider of investment grade fixed income transaction execution for institutions acting as principal, which is majority owned by the Company. In addition to providing clearance, settlement and administrative support services to Bonds Direct, the Company and its affiliates routinely engage in principal transactions with Bonds Direct in the ordinary course of business. Previous funding for Bonds Direct operations had been provided in part by loans from an employee investment fund in which Mr. Handler, Mr. Shaw and Mr. Schenk each directly or indirectly own interests, and from a direct loan by Ms. Syrjamaki, who is also the Chief Financial Officer of Bonds Direct. All of the above loans matured and were repaid by Bonds Direct during 2003. Continuing capital requirements of Bonds Direct have been supported by new loans directly from the Company and Jefferies. Each of the participants still retains any interest in the warrants that were attached to the repaid loans. The warrants entitle the holders to acquire Class C Interests in Bonds Direct, which will participate in the equity of Bonds Direct, to the extent of ten percent of the net worth of Bonds Direct at the time they were issued in excess of $5 million. Holders may exercise the warrants by making a contribution equal to their pro rata portion of a $500,000 aggregate exercise price to Bonds Direct within ten business days of (a) a sale, (b) a merger, consolidation, exchange of shares or other extraordinary transaction that results in a change of control, (c) a conversion to a corporation, or (d) five years from the closing date of the investment. The warrants and Class C Interests are subject to dilution pro rata with the Class A and Class B Interests. The warrants are not transferable.

4/4/2003 Proxy Information

Jefferies has extended credit to Messrs. Handler, Shaw and Schenk in margin accounts in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. The Company believes the foregoing transactions were on terms no less favorable to the Company than could have been obtained from unaffiliated parties.

Executive officers and directors of the Company have direct and indirect interests in funds managed by Jefferies that invest on a pari passu basis in all trading and investment activities undertaken by Jefferies’ High Yield Division. Two of the funds, the Jefferies Partners Opportunity Funds (the “JPOFs”), are principally capitalized with equity contributions from institutional and high net worth investors. The third fund, Jefferies Employees Opportunity Fund (“JEOF” and, with the JPOFs, the “Funds”), is principally capitalized with equity investments from employees of the Company. Jefferies and certain executive officers and other employees have direct investments in all three Funds on terms identical to other fund participants, and indirect investments under deferred compensation arrangements that track the financial returns of direct investments. Mr. Handler, Chairman of the Board and Chief Executive Officer, has an aggregate interest of 2.92% in the total members’ equity in the Funds; Mr. Shaw, President and Chief Operating Officer, has an aggregate interest of 0.16% in such total members’ equity; Mr. Schenk, Executive Vice President and Chief Financial Officer, has an aggregate interest of 0.16% in such total member’s equity; Ms. Syrjamaki, Chief Financial Officer of Jefferies, has an aggregate interest of .01% in such total members’ equity; Mr. Feller, Secretary, General Counsel and Executive Vice President, has an aggregate interest of .03% in such total members’ equity; and Mr. Campbell, a Director of the Company, has an aggregate interest of .02% in such total members’ equity. The High Yield Division and each of the Funds share gains or losses on all trading and investment activities of the High Yield Division on the basis of a pre-established sharing arrangement related to the amount of capital each has available for such transactions. The sharing arrangement is modified from time to time to reflect changes in the respective amounts of available capital. As of December 31, 2002, the Funds were being allocated an aggregate of 64% of such gains and losses. The Funds also reimburse Jefferies for their share of allocable trading expenses. At year end 2002, the High Yield division had $945 million of combined pari passu capital available from the Funds (including unfunded commitments and availability under the Funds’ revolving credit facility) and Jefferies for use in the High Yield Division’s investment and trading strategy. The Funds have a revolving credit facility that is collateralized by their investments which is non-recourse to the Company. Jefferies receives a management fee from the JPOFs in an amount equal to 1% per annum of the market value of their investments and is entitled to a carried interest of 20% of all distributions once investors have received a specified threshold return. JEOF pays Jefferies a management fee of 3% per annum and there is no carried interest. The Funds are actively managed by Mr. Handler. Investors in the Funds would have the right to redeem their investment should Mr. Handler cease actively managing the Funds. In 2001, Jefferies advanced funds to Mr. Schenk to facilitate his investment in the Funds and other investment entities available to employees. On December 31, 2002, Mr. Schenk repaid all of the remaining $500,000 principal amount of the loan and repaid all accrued interest with amounts payable to him from his annual bonus and from cash balances in his margin account. Jefferies has charged Mr. Schenk the same rate of interest on the loans as it charges on outstanding balances in margin accounts generally.

In December 2002, the Company acquired all the outstanding common and special common units of Quarterdeck Investment Partners LLC (“Quarterdeck”) not previously owned by Jefferies or entities controlled by Jefferies. In January 2002, Messrs. Handler, Shaw and Schenk acquired indirect interests in Quarterdeck through an employee investment fund which made an aggregate investment of $1.6 million in Quarterdeck, of which Messrs. Handler, Shaw and Schenk directly or indirectly contributed an aggregate of $300,000. From January 2002 through December 2002, cash distributions were paid to the employee fund in the ordinary course of Quarterdeck’s business, according to the terms of Quarterdeck’s operating agreement. Accrued distributions for the account of each investor, including Messrs. Handler, Shaw and Schenk, were paid to the investors when the Company bought all the remaining interests in Quarterdeck in December 2002. The Company also purchased the interests of the employee investment fund for an aggregate purchase price of approximately $1.6 million, and as a result of which, Messrs. Handler, Shaw and Schenk received a return of their initial capital contribution. The Board of Directors of the Company reviewed and approved the terms of the Quarterdeck acquisition and the independent members of the Board reviewed and approved the terms of the acquisition of interests from the employee investment fund.

Bonds Direct Securities LLC (“Bonds Direct”) is a provider of investment grade fixed income transaction execution for institutions acting as principal, which is majority owned by the Company. In addition to providing clearance, settlement and administrative support services to Bonds Direct, the Company and its affiliates routinely engage in principal transactions with Bonds Direct in the ordinary course of business. Mr. Handler, Mr. Shaw and Mr. Schenk each directly or indirectly own interests in an employee investment fund which has made subordinated loans to Bonds Direct. Ms. Syrjamaki and Mr. Gluck each have directly made a subordinated loan to Bonds Direct. Ms. Syrjamaki is also the Chief Financial Officer of Bonds Direct. The aggregate amount of Bonds Direct’s $5 million of aggregate indebtedness allocated to each of Mr. Handler, Mr. Shaw, Mr. Schenk, Ms. Syrjamaki and Mr. Gluck was 2.99%, .75%, .75%, .5% and 1.0% as of December 31, 2002. Holders of subordinated debt were also granted options to acquire Class C Interests in Bonds Direct, which will participate in the common equity of Bonds Direct, to the extent of ten percent of the net worth of Bonds Direct in excess of $5 million. Holders may exercise the options by making a contribution of $500,000 in the aggregate to Bonds Direct within ten business days of a sale, merger, conversion to a corporation, or five years from the closing date of the investment. The Class C Interests will be subject to dilution pro rata with the Class A and Class B Interests. The options are not transferable.

In August of 2002, Jefferies and the Funds purchased all the outstanding shares of the 8% Series A Redeemable Preferred Stock of Ascent Energy, Inc. (“Ascent”) held by an employee investment fund. Mr. Handler indirectly owned 15.08% of the equity interests in the employee investment fund immediately prior to the transaction. Jefferies purchased the Ascent equity interests from the employee investment fund at approximately the same time Ascent issued an additional $20 million of equity securities in a capital raising transaction involving third party investors. The aggregate purchase price paid by Jefferies and the Funds to the employee investment fund was approximately $6.9 million and was based on the same price per share as was paid by the third party investors. The interest was acquired by Jefferies and each of the Funds according to their pari passu sharing percentages as described above.