<PAGE>
Execution Copy
SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
AMONG
BRIAN P. FRIEDMAN
2055 PARTNERS L.P.
JAMES L. LUIKART
AND
JEFFERIES GROUP, INC.
DATED AS OF JULY 18, 2005
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TABLE OF CONTENTS
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ARTICLE I
PURCHASE AND SALE OF PURCHASED
INTERESTS..................................................
4
1.1.
Assignment of Manager Purchased
Interests.....................................................
4
1.2.
Assignment of GP Purchased
Interests..........................................................
4
1.3.
Assignment of Institutional Fund Purchased
Interests.......................................... 5
1.4.
Jefferies
Shares..............................................................................
5
1.5.
Earnout
Shares................................................................................
6
1.6.
Payment of Previously Funded Capital
Contributions............................................
6
ARTICLE II
MANAGEMENT
FEE............................................................................
7
2.1.
Interim Management
Fee........................................................................
7
ARTICLE III
CLOSING...................................................................................
7
3.1.
Closing.......................................................................................
7
3.2.
Closing
Deliveries............................................................................
8
ARTICLE IV
RESTRICTIONS ON TRANSFER OF JEFFERIES
SHARES.............................................. 9
4.1.
Restrictions on Transfer of Jefferies
Shares..................................................
9
4.2.
Permitted
Disposition.........................................................................
10
ARTICLE V
SUBSEQUENT FUNDS; OTHER
COVENANTS.........................................................
11
5.1.
Commitment to Future
Funds....................................................................
11
5.2.
Jefferies Forfeiture of
Rights................................................................
13
5.3.
Managing Members Failure to Organize Future
Fund.............................................. 13
5.4.
Restriction on Participation in Other
Funds...................................................
14
5.5.
Services and Expenses relating to Funds I-IV and to Future
Funds.............................. 15
ARTICLE VI
EARNOUT
SHARES............................................................................
15
6.1.
Forfeiture of Earnout
Shares..................................................................
15
6.2.
Deemed Earning of Earnout Shares in Certain
Cases............................................. 16
6.3.
Tax
Treatment.................................................................................
17
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE SELLING MEMBERS, THE MANAGER AND
THE GP............ 17
7.1.
Organization, Good Standing and
Qualification.................................................
18
7.2.
Capitalization and Voting
Rights..............................................................
18
7.3.
Subsidiaries..................................................................................
19
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7.4.
Authorization.................................................................................
19
7.5. Valid
Issuance of
Interests...................................................................
20
7.6.
Governmental
Consents.........................................................................
20
7.7.
Offering......................................................................................
20
7.8.
Litigation....................................................................................
20
7.9. No
Violation..................................................................................
21
7.10.
Agreements;
Action............................................................................
22
7.11.
Related-Party
Transactions....................................................................
22
ARTICLE VIII
ADDITIONAL REPRESENTATIONS OF MANAGING
MEMBERS............................................ 23
8.1.
Purchase Entirely for Own
Account.............................................................
23
8.2.
Investigation.................................................................................
24
8.3.
Investment
Experience.........................................................................
24
8.4.
Accredited
Investor...........................................................................
24
8.5.
Restricted
Securities.........................................................................
24
8.6.
Further Limitations on
Disposition............................................................
25
8.7.
Legends.......................................................................................
25
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF
JEFFERIES...............................................
27
9.1.
Organization..................................................................................
27
9.2.
Authorization.................................................................................
28
9.3.
Purchase Entirely for Own
Account.............................................................
28
9.4.
Investigation.................................................................................
29
9.5.
Investment
Experience.........................................................................
29
9.6.
Accredited
Investor...........................................................................
29
9.7.
Restricted
Securities.........................................................................
29
9.8.
Capitalization;
Title.........................................................................
30
9.9. SEC
Documents.................................................................................
30
9.10.
Governmental
Consents.........................................................................
32
9.11.
Offering......................................................................................
32
9.12.
Litigation....................................................................................
32
9.13. No
Violation..................................................................................
33
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9.14.
Changes.......................................................................................
34
ARTICLE X
COVENANTS OF THE
PARTIES..................................................................
34
10.1.
Inspection; Audited Financial
Statements......................................................
34
10.2.
Business of
Companies.........................................................................
34
10.3.
Section 754
Election..........................................................................
35
10.4.
Removal of
Legends............................................................................
35
ARTICLE XI
CONDITIONS OF JEFFERIES' OBLIGATIONS AT
CLOSING........................................... 36
11.1.
Representations and
Warranties................................................................
36
11.2.
Performance...................................................................................
36
11.3.
Closing
Documents.............................................................................
36
ARTICLE XII
CONDITIONS OF THE SELLING MEMBERS' OBLIGATIONS AT
CLOSING................................. 37
12.1.
Representations and
Warranties................................................................
37
12.2.
Performance...................................................................................
37
12.3.
Closing
Documents.............................................................................
38
12.4.
Qualifications;
Listing.......................................................................
39
12.5.
Delivery
of
Consideration.....................................................................
39
ARTICLE XIII
MISCELLANEOUS.............................................................................
39
13.1.
Survival......................................................................................
39
13.2.
Successors and
Assigns........................................................................
40
13.3.
Governing
Law.................................................................................
40
13.4.
Titles and Subtitles: Knowledge
Definition....................................................
40
13.5.
Notices.......................................................................................
41
13.6.
Finder's
Fee..................................................................................
41
13.7.
Expenses......................................................................................
41
13.8.
Amendments and
Waivers........................................................................
42
13.9.
Severability..................................................................................
42
13.10. Entire
Agreement..............................................................................
42
13.11.
Indemnification...............................................................................
43
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13.12.
Counterparts..................................................................................
45
13.13.
Arbitration...................................................................................
45
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TABLE OF CONTENTS
(continued)
LIST OF SCHEDULES AND EXHIBITS
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Schedule A
- Schedule of
Exceptions
Schedule B
- Jefferies
Schedule of Exceptions
Schedule C
- Institutional
Fund Purchased Interests
Schedule 1.4
- Jefferies
Shares
Schedule 1.5
- Earnout Shares
Percentage
Schedule 2.1
- Interim
Management Fee
Schedule 5.1
Future Funds
Schedule 6.1
Forfeiture of Earnout Shares
Exhibit A
- Manager
Operating Agreement
Exhibit A-1
- Pre-Closing
Schedule A to Manager Operating Agreement
Exhibit A-2
-
Pro Forma
Schedule A to Manager Operating Agreement
Exhibit B
- GP Operating
Agreement
Exhibit B-1
- Pre-Closing
Schedule A to GP Operating Agreement
Exhibit B-2
- Pro Forma
Schedule A to GP Operating Agreement
Exhibit C
- Assignment and
Assumption Agreement
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[Note: The schedules and exhibits omitted
from this document will be furnished
supplementally to the Commission upon
request.]
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<PAGE>
SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS SHARE
AND MEMBERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement")
is made as of the 18th day of July, 2005,
by and among Brian P. Friedman, an
individual, James L. Luikart, an individual
(Messrs. Friedman and Luikart are
each a "Managing Member" and together are
the "Managing Members"), 2055 Partners
L.P., a Delaware limited partnership ("2055
Partners" and, together with the
Managing Members, the "Selling Members"),
Jefferies Capital Partners IV LLC (the
"Manager"), a Delaware limited liability
company, JCP IV LLC (the "GP" and,
together with the Manager, the
"Companies"), a Delaware limited liability
company, and Jefferies Group Inc.
("Jefferies"), a Delaware corporation.
Capitalized terms used but not otherwise
defined herein shall have the
respective meanings set forth in the
Limited Liability Company Agreement of
Jefferies Capital Partners IV LLC, dated as
of May 9, 2005, a copy of which is
attached as Exhibit A (the "Manager
Operating Agreement").
WHEREAS,
the GP is the general partner of Jefferies Capital Partners IV
L.P. (the "Institutional Fund" and,
together with related parallel funds, "Fund
IV"); a copy of the Limited Liability
Company Agreement of the GP (the "GP
Operating Agreement") dated as of May 9,
2005, is attached as Exhibit B hereto;
WHEREAS,
the Manager is the managing member of the GP and is the manager
of the Institutional Fund and related
parallel funds;
WHEREAS,
Fund IV presently has an aggregate of approximately $385
million
in committed capital (including leverage)
from various investors;
<PAGE>
WHEREAS,
as of the date hereof, the Managing Members are members of the
Manager and, pursuant to the terms of the
Manager Operating Agreement, are (i)
entitled to the "Income Percentage" and
(ii) have the "Working Capital
Commitment" as set forth on Schedule A to
the Manager Operating Agreement, which
Schedule A is attached hereto as Exhibit
A-1;
WHEREAS,
as of the date hereof, the Selling Members are members of the
GP
and, pursuant to the terms of the GP
Manager Operating Agreement, are (i)
entitled to the "Incentive Percentage" and
(ii) have the "Capital Commitment" as
set forth on Schedule A to the GP Operating
Agreement, which Schedule A is
attached hereto as Exhibit B-1;
WHEREAS,
at the Closing referred to below, the Managing Members desire
to
assign to Jefferies, and Jefferies desires
to accept and assume from the
Managing Members, a portion of the Managing
Members' respective interests in the
Manager (such portion, the "Manager
Purchased Interests");
WHEREAS,
at the Closing referred to below, the Selling Members desire to
assign to Jefferies, and Jefferies desires
to accept and assume from the Selling
Members, a portion of the Selling Members'
respective interests in the GP (such
portion, the "GP Purchased Interests" and
together with the Manager Purchased
Interests, the "Purchased Interests");
WHEREAS,
after giving effect to the assignment and assumption of such
Purchased Interests, (x) the Income
Percentage, the Working Capital Commitment
and the Investment Capital Commitment of
the Managing Members and of Jefferies
shall be as set forth on Exhibit A-2 hereto
and (y) the Capital Commitment and
the Incentive Percentage of the Selling
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Members and of Jefferies shall be as set
forth on Exhibit B-2 hereto; and upon
such assignment and assumption of such
Purchased Interests, Jefferies will
assume and perform all of the liabilities
and obligations of the Managing
Members with respect to the Manager
Purchased Interests under the Manager
Operating Agreement and with respect to the
GP Purchased Interests under the GP
Operating Agreement.
WHEREAS,
in order to reflect the assignment and assumption of the
Purchased Interests, Jefferies and the
Managing Members will, at the Closing
referred to below, execute counterparts of
the Manager Operating Agreement and
the GP Operating Agreement, together with
Member Registers with respect to
Jefferies and the Managing Members for the
Manager, and with respect to
Jefferies and the Selling Members for the
GP, in the form of Exhibit A-2 and
Exhibit B-2 hereto, respectively (together,
the "Member Registers"), thereby
admitting Jefferies as a Non-Managing
Member of each of the Manager and the GP,
with the rights, preferences, privileges
and obligations set forth therein;
WHEREAS,
Jefferies & Company, Inc. ("Jefco") is a wholly-owned
subsidiary
of Jefferies;
WHEREAS,
Jefferies is a limited partner in the Institutional Fund, with
a
capital commitment to the Institutional
Fund in the amount of $30 million;
WHEREAS,
at the Closing referred to below, Jefferies will transfer to
the
Selling Members and the Selling Members
will assume and accept a portion of
Jefferies' limited partnership interest in
the Institutional Fund, including a
portion of Jefferies' capital
commitment
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thereto, in the respective amounts set
forth on Schedule C hereto (each, an
"Institutional Fund Purchased Interest");
and
WHEREAS,
Jefferies will issue to the Managing Members up to a specified
number of shares of the common stock, par
value .0001 per share, of Jefferies
(the "Group Shares"), as set forth
herein.
NOW,
THEREFORE, in consideration of the agreements and obligations
set
forth herein and for other good and
valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, the parties hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF PURCHASED INTERESTS
1.1.
Assignment of Manager Purchased Interests. At the Closing referred
to
in Article III below, the Managing Members
shall assign and transfer to
Jefferies and Jefferies shall accept and
assume all of the Managing Members'
rights, title and interest to and in the
Manager Purchased Interests and, to
reflect such purchase, the parties shall
execute and deliver the Manager
Operating Agreement, together with the
Member Register applicable thereto in the
form attached to this Agreement as Exhibit
A-2. The Managing Members' execution
of a counterpart of the Manager Operating
Agreement shall indicate their consent
to Jefferies becoming a Non-Managing Member
of Manager pursuant to Section 10.1
of the Manager Operating Agreement.
1.2.
Assignment of GP Purchased Interests. At the Closing referred to
in
Article III below, the Selling Members
shall assign and transfer to Jefferies
and Jefferies shall accept and
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assume all of the Selling Members' rights,
title and interest to and in the GP
Purchased Interests and, to reflect such
purchase, the parties shall execute and
deliver the GP Operating Agreement,
together with the Member Register applicable
thereto in the form attached to this
Agreement as Exhibit B-2. The Managing
Members' execution of a counterpart of the
GP Operating Agreement shall indicate
their consent to Jefferies becoming a
Non-Managing Member of the GP pursuant to
Section 10.1 of the GP Operating
Agreement.
1.3.
Assignment of Institutional Fund Purchased Interests. At the
Closing
referred to in Article III below, Jefferies
shall assign and transfer to each
Selling Member, and each Selling Member
shall accept and assume, all of
Jefferies' rights, title and interest to
and in the Institutional Fund Purchased
Interests and, at the Closing, the GP shall
admit each of the Selling Members as
limited partners to the Institutional Fund,
with capital commitments equal to
the capital commitments assumed from
Jefferies pursuant hereto.
1.4.
Jefferies Shares. At the Closing referred to in Article III
below,
Jefferies shall issue and deliver to each
Managing Member the number of Group
Shares (such number, the "Jefferies
Shares") set forth on Schedule 1.4 hereto
opposite the name of such Managing Member
(it being understood that the number
of Jefferies Shares will depend on the
aggregate amount of capital (including
leverage) committed to Fund IV at the time
of its final closing (the "Fund IV
Final Closing") (the total of such
committed capital, including leverage, being
referred to as "Committed Capital")).
In the
event of any stock-split, dividend or similar transaction with
respect to Group Shares after June 30, 2005
(excluding normal quarterly cash
dividends in the ordinary course of
- 5 -
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business of up to $.20 per share per
quarter which are payable prior to the
Closing Date), the number of Jefferies
Shares shall be proportionately adjusted
and references herein to the Jefferies
Shares shall mean such adjusted number of
Group Shares. In the event the Committed
Capital of Fund IV at the time of the
Fund IV Final Closing is less than the
minimum amount set forth on Schedule 1.4
hereto, this Agreement shall terminate and
be of no further force or effect. In
the event the Closing hereunder occurs
before the Fund IV Final Closing, the
number of Group Shares issued at the
Closing shall be based on the amount of
Committed Capital of Fund IV at the time of
the Closing hereunder, and promptly
after the Fund IV Final Closing, Jefferies
shall issue to the Managing Members
(in the same ratio as originally issued)
the excess, if any, of the number of
Jefferies Shares that would have been
issued had the Fund IV Final Closing
occurred before the Closing hereunder over
the number of Jefferies Shares
actually issued at the Closing
hereunder.
1.5.
Earnout Shares. A portion of the Jefferies Shares issued to
each
Managing Member (such portion being set
forth on Schedule 1.5 hereto and such
shares being the "Earnout Shares") shall be
subject to forfeiture under the
circumstances described in Section 6.1
below.
1.6.
Payment of Previously Funded Capital Contributions. If, prior to
the
Closing Date, the Managing Members have
funded any of their respective Working
Capital Commitments to the Manager, or the
Selling Members have funded any of
their respective Capital Commitments to the
GP, Jefferies shall at the Closing
pay to each Managing Member or Selling
Member the amount of such funded Working
Capital Commitment or Capital Commitment,
as the case may be, multiplied by the
percentage of such Working Capital
- 6 -
<PAGE>
Commitment and Capital Commitment, as
applicable, assumed by Jefferies pursuant
hereto. If prior to the Closing Date,
Jefferies has funded any of its capital
commitment to the Institutional Fund, each
Selling Member shall at the Closing
pay to Jefferies the amount of such funded
capital commitment, multiplied by the
percentage of such capital commitment
assumed by such Selling Member pursuant
hereto. Each of the Selling Members and
Jefferies agree that, as a matter of
convenience only, the amounts to be paid at
Closing by Jefferies to the Selling
Members pursuant to this section may be
setoff off against the amounts to be
paid at Closing by the Selling Members to
Jefferies pursuant to this section.
ARTICLE II
MANAGEMENT FEE
2.1.
Interim Management Fee. In consideration for certain services to
be
rendered by Jefferies and/or Jefco to the
Manager from the date hereof until the
Closing Date, the Manager shall pay
Jefferies a management fee equal to the per
annum amount set forth on Schedule 2.1
hereto, payable quarterly in arrears at
the end of each calendar quarter between
the date hereof and Closing, and on the
Closing Date. For periods of less than a
full calendar quarter, such quarterly
fee shall be pro rated based on the number
of days in such period.
ARTICLE III
CLOSING
3.1.
Closing. The closing of the purchase and sale of the Purchased
Interests and the Institutional Fund
Purchased Interests (the "Closing") shall
take place at the offices of Jefferies
& Company, Inc., 520 Madison Avenue, New
York, New York, 10022, on the first
business day
- 7
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<PAGE>
after the date that is eighteen (18) months
after the Fund IV Final Closing, or
such earlier date as is specified in
writing by Mr. Friedman on at least ten
(10) days' prior written notice to
Jefferies, or at such other time and place as
the Managing Members and Jefferies mutually
agree upon in writing (the "Closing
Date").
3.2.
Closing Deliveries. At the Closing:
(a) Jefferies and the Managing Members shall execute and deliver
the
Manager Operating Agreement and the GP
Operating Agreement; Jefferies and the
Managing Members shall execute and deliver
the Member Register in the form of
Exhibit A-2 hereto; and Jefferies and the
Selling Members shall execute and
deliver the Member Register in the form of
Exhibit B-2 attached hereto;
(b) Jefferies shall deliver to the Managing Members
certificates
representing the Jefferies Shares, which
Shares shall be duly authorized, fully
paid and non-assessable, shall be listed
for trading on the New York Stock
Exchange and shall be free and clear of all
liens, claims, restrictions and
encumbrances (except for the restrictions
on transfer and sale contained in
Sections 4.1, 6.1, 6.2, 8.5 and 8.6
hereof); and
(c) Jefferies and the Selling Members shall execute and deliver
an
instrument of assignment and assumption
with respect to the Institutional Fund
Purchased Interests in the form of Exhibit
C hereto (the "Assignment and
Assumption Agreement"), the Selling Members
shall execute the limited
partnership agreement of the Institutional
Fund and the GP shall execute
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<PAGE>
and deliver to Jefferies and the Selling
Members its consent to such assignment
and assumption, and its admission of the
Selling Members as limited partners to
the Institutional Fund.
ARTICLE IV
RESTRICTIONS ON TRANSFER OF JEFFERIES SHARES
4.1.
Restrictions on Transfer of Jefferies Shares. The Managing
Members
agree that notwithstanding any other rights
that they may have, until the fifth
(5th) anniversary of the initial closing of
Fund IV (i.e., until May 9, 2010),
the Managing Members shall not, directly or
indirectly, offer, sell, contract to
sell, grant any option or interest with
respect to, transfer, assign, pledge, or
otherwise dispose of the Jefferies Shares
or engage in any hedging or other
similar transaction, including without
limitation any short sale or purchase,
sale or grant of any put or call option
with respect to the Jefferies Shares
(each, a "Transfer") (either pursuant to
Rule 144 ("Rule 144") promulgated under
the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise),
(such restrictions, the "Lock-Up");
provided, however, that notwithstanding the
foregoing, either Managing Member may
transfer the Jefferies Shares at any time
in a Permitted Disposition, and such
permitted transferee of the Jefferies
Shares may in turn Transfer the Jefferies
Shares in a Permitted Disposition,
provided that, except in connection with a
Change of Control, the transferee
agrees in writing to be bound by Article IV
and Sections 6.1, 8.6 and 8.7
hereof; and provided further that a
Transfer of Earnout Shares described in
paragraphs (a) and (d) of Section 4.2
hereof shall not be a Permitted
Disposition so long as such Earnout Shares
remain subject to forfeiture
hereunder.
- 9 -
<PAGE>
4.2.
Permitted Disposition. As used herein, a "Permitted
Disposition"
shall mean:
(a) A Transfer by any holder who is an individual to one or more
of
his or her Family Members. As used herein
the term "Family Member" shall mean a
spouse, parent, children (adopted or
natural) or other lineal descendants,
spouses of the holder's lineal descendants,
or a trust solely for the benefit
one or more of the holder's spouse, the
holder's minor or adult children
(adopted or natural) or other lineal
descendants or a charitable institution or
foundation;
(b) A Transfer to Jefferies or Jefco or an affiliate thereof;
(c) A Transfer, in the event of death of any holder who is an
individual, to his or her (i) executor or
personal representative (in their
capacities as such), (ii) estate and/or
(iii) named beneficiaries;
(d) A Transfer to a trust, limited partnership, corporation or
limited liability company, all the
beneficiaries, partners, shareholders or
members of which consist of one or more of
such holder or his or her Family
Members or trusts for their benefit;
(e) A Transfer by one Managing Member or his Family Members to
the
other Managing Member or his Family
Members;
(f) A Transfer in connection with any transaction which if
consummated results in a "Change of
Control." For purposes of this Agreement, a
"Change of Control" shall mean any of the
following events: (i) a "person" (as
such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or
"group" (as
- 10 -
<PAGE>
that term is used in Rule 13d-5 under the
Exchange Act) of persons is or becomes
the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act),
directly or indirectly, of securities of
Jefferies representing more than 50% of
the combined voting power of Jefferies'
then outstanding securities; or (ii)
Jefferies merges or consolidates with any
other corporation or entity and as a
result of such transaction the stockholders
of Jefferies immediately prior to
such transaction own less than 50% of the
combined voting power of the voting
securities of the surviving entity
outstanding immediately after such
transaction; or (iii) the stockholders of
Jefferies approve a plan of complete
liquidation or dissolution of Jefferies; or
(iv) Jefferies sells or otherwise
disposes of all or substantially all of
Jefferies' assets on a consolidated
basis.
ARTICLE V
SUBSEQUENT FUNDS; OTHER COVENANTS
5.1.
Commitment to Future Funds. In the future, the Manager and GP
may
organize additional private equity
investment funds (individually a "Fund" and
collectively the "Funds," and in each case
including all parallel funds) with
substantially similar investment objectives
as Fund IV. Each Fund will be
comprised of one or more limited
partnerships (the "Institutional Funds") open
for commitment by institutional and other
qualified investors, and one or more
additional entities (the "Employee Funds")
designed specifically for employees
of Jefferies or its affiliates. The
organizing agreements and other aspects of
each Fund (including with respect to the
provision of leverage to Jefferies'
employees and investment objectives) will
be substantially similar to those of
Fund IV, including a 20% carried interest
(the "Carried Interest") in favor of
the General Partner, which will act as the
general partner or managing member of
the entities comprising such Fund. Each
entity comprising a Fund will be managed
by the Manager on the
- 11 -
<PAGE>
same terms and conditions as the Manager
serves as the manager of the various
Fund IV entities. The Managing Members of
the Manager will continue to be Brian
P. Friedman and any other person he
designates also as a Managing Member. The
Managing Member of the General Partner will
continue to be the Manager. Any
commitment of Jefferies, its employees and
affiliates (other than employees who
are members of the Manager) to such Funds
shall be subject to the same carried
interest and management fees as the
commitment of institutional investors in
such Funds. Subject to the other provisions
of this Article V, with respect to
each successive Fund, (a) if (i) Jefferies,
its employees and affiliates (other
than employees who are members of the
Manager of such Fund) commit to invest at
least seventeen and one-half percent
(17.5%) of the initially targeted
investment capitalization (including
leverage) of such Fund prior to the time
marketing commences for such Fund (it being
understood that Jefferies will be
offered the opportunity to make such
commitments and that such investment
capitalization commitment will not exceed
seventeen and one-half percent (17.5%)
of the final capitalization (including
leverage) of such Fund if the final
capitalization is less than the targeted
capitalization) and (ii) Jefferies and
Group have complied with their obligations
hereunder and (b) if Mr. Friedman
commits to invest an amount equal to (i)
two and one-half percent (2.5%) of the
initially targeted investment
capitalization (including leverage) of such Fund
less (ii) the aggregate amount committed to
such Fund by all other members of
the Manager other than Jefferies, then
Jefferies and Mr. Friedman will be
entitled to share (as between themselves)
(in the ratio set forth in paragraph 1
of Schedule 5.1 hereto) in the profits and
distributions derived from the net
income attributable to fees and the carried
interest of such Fund; provided,
however, that so long as Jefferies has made
the commitment described in clause
(a) of this paragraph, Jefferies' interest
in
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<PAGE>
the carried interest of such Fund (whether
such carried interest is held by the
manager or the general partner of such
Fund) shall not be less than the
percentage set forth in paragraph 2 of
Schedule 5.1 hereto and, provided
further, that such net income attributable
to fees shall be determined after
payment of all salaries, expenses and
bonuses (other than bonuses payable to Mr.
Friedman) payable by the Manager of such
Fund, and provided that any interest in
net income attributable to fees thereafter
granted shall not reduce Jefferies'
share of such net income. In the event of
the formation of a Fund in which
Jefferies participates as set forth in
clause (a) of Section 5.1 (a "Successor
Fund"), a separate schedule to the Member
Register with respect to such
Successor Fund shall be appropriately
completed and signed by the appropriate
parties.
5.2.
Jefferies Forfeiture of Rights. If, having been offered the
opportunity to do so, Jefferies fails to
make the commitment described in clause
(a) of Section 5.1 above with respect to
any Fund or, having made such
commitment, fails to fully satisfy such
commitment, Mr. Friedman's obligations
under Sections 5.1 and 5.4 shall not apply
to such Fund or any future Funds and
Jefferies shall have no right to any
portion of the carried interest of such
Fund or any future Funds or the fee income
attributable thereto.
5.3.
Managing Members Failure to Organize Future Fund. If Jefferies
makes
the commitment described in clause (a) of
Section 5.1 above with respect to any
potential Fund, but Mr. Friedman declines
to make the commitment described in
clause (b) of Section 5.1 and such Fund is
therefore not organized, for a period
of five (5) years after Mr. Friedman
declines to make such commitment, Mr.
Friedman will not directly or indirectly
organize, work for, support, become a
lead investor in or sponsor another private
investment fund with substantially
similar
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<PAGE>
investment objectives as Fund IV, and
Sections 5.1 and 5.4 shall cease to apply
to such Fund and any future Funds.
5.4.
Restriction on Participation in Other Funds. With respect to
each
Fund with respect to which Jefferies shares
in any carried interest (including
the Incentive Percentage of Fund IV), until
the earlier of (a) such Fund being
seventy-five percent (75%) invested or (b)
five (5) years from the commencement
of the investment period of such Fund, none
of Jefferies, Jefco, the manager of
such Fund, any entity controlled by
Jefferies, Jefco or such manager, or, to the
knowledge of the relevant party, any person
employed by Jefferies, Jefco or such
manager, will organize, sponsor or become a
lead investor in another private
investment fund with substantially similar
objectives to such Fund, and none of
Jefferies, Jefco, Mr. Friedman or any
entity controlled by them will invest in
any transaction meeting such Fund's
investment objectives unless the transaction
has been turned down by such manager;
provided, however, that notwithstanding
the foregoing, this provision shall not
apply to (i) any private investment fund
or transaction that is entered into or
created by an entity at a time when such
entity is not owned or controlled by
Jefferies or Jefco but which subsequently
becomes owned or controlled by Jefferies or
Jefco during the periods referred to
(a) and (b) above, (ii) any direct or
indirect acquisition by Jefferies of a
business ancillary to its then existing
business, other than a private equity
acquisition or (iii) any direct or indirect
investment in a transaction made by
Jefferies in connection with the execution
of an investment banking engagement
by Jefferies, provided that Jefferies is
not the lead investor in such
transaction.
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<PAGE>
5.5.
Services and Expenses relating to Funds I-IV and to Future
Funds.
Jefferies will or will cause Jefco to
provide FS Private Investments LLC ("FS
I"), FS Private Investments II LLC ("FS
II"), FS Private Investments III LLC
("FS III"), the Manager and the manager of
any future Funds, with reasonable
space, phone and other services to the
extent reasonably requested by such
man
