LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands, except per share amounts, unless otherwise noted)

The accompanying unaudited condensed consolidated financial statements of Lazard Group LLC (formerly known as Lazard LLC and collectively referred to with its subsidiaries as “Lazard Group”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Ltd’s Registration Statement on Form S-1 declared effective by the SEC on May 4, 2005 (the “Registration Statement”) for the initial public offering of shares of Class A common stock, par value $0.01 per share (“Class A Common Stock”). The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that Lazard Group may undertake in the future, actual results may be different than the estimates. The consolidated results of operations for the three month period ended March 31, 2005 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

Lazard Group is a Delaware limited liability company, and is governed by its Amended and Restated Operating Agreement, which was amended and restated in its entirety on May 10, 2005 (the “Operating Agreement”).

Lazard Group’s principal activities are divided into three business segments:

In addition, Lazard Group records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the commercial banking activities of Lazard Group’s Paris-based Lazard Frères Banque SA (“LFB”). LFB is a registered bank regulated by the Banque de France. LFB’s primary operations include the management of the treasury positions of Lazard Group’s Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of Lazard Frères Gestion SAS (“LFG”) and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. Lazard Group also allocates outstanding indebtedness to Corporate.

The condensed consolidated financial statements include Lazard Group’s principal operating subsidiaries, Lazard Frères & Co. LLC (“LFNY”), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as “LAM”); Lazard Frères SAS and Maison Lazard SAS, French limited liability companies, along with their respective subsidiaries, including LFB and LFG (collectively referred to as “LFP”); and Lazard & Co., Limited (“LCL”), through Lazard & Co., Holdings Limited, an English private limited company (“LCH”); together with their jointly-owned affiliates and subsidiaries.

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Lazard Group’s December 31, 2004 condensed consolidated statement of financial condition includes a reclassification of $44,171 from cash and securities segregated for regulatory purposes to cash and cash equivalents and other investments of $40,270 and $3,901, respectively. Such reclassification was made to conform to the presentation at March 31, 2005.

See Note 9 for information regarding the initial public offering, the additional financing transactions and certain separated businesses (each as defined in Note 9). The separated businesses became a part of LFCM Holdings, effective as of May 10, 2005.

In September 2002, Lazard Group and Banca Intesa S.p.A. (“Intesa”) announced an agreement to form a strategic alliance (the “Strategic Alliance”), pursuant to which, in January 2003, Intesa effectively became a 40% partner in Lazard Group’s business in Italy. Pursuant to the terms of the Strategic Alliance, Intesa made a $100,000 investment in Lazard Group’s business in Italy, and purchased a $50,000 subordinated promissory note issued by Lazard Group’s business in Italy. The subordinated promissory note has a scheduled maturity in 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum.

From time to time, Lazard Group has considered appropriate modifications to its relationship with Intesa. Lazard Group has held various discussions with Intesa in connection with the separation and recapitalization transactions, and Intesa has notified Lazard Group of its intention not to extend the term of the joint venture relationship beyond the expiration date of December 31, 2007. As a result, under the terms of the Strategic Alliance, unless Lazard Group and Intesa otherwise agree, Lazard Group will repurchase Intesa’s 40% interest in Lazard Group’s business in Italy and repay the $50,000 subordinated promissory note for an aggregate amount not to exceed $150,000, less certain distributions received by Intesa in connection with the joint venture, on or prior to February 4, 2008. Based on the current performance of the joint venture, Lazard Group does not currently expect the expiration of the joint venture to have a material adverse effect on its operating results.

Lazard Group, through its subsidiaries, provides certain retirement and other post-employment benefits to certain of its employees through defined contribution and defined benefit pension plans and other post-retirement benefit plans. Expenses incurred related to the defined benefit pension plans, the defined benefit pension plan supplement and the post-retirement health care plans for the three month periods ended March 31, 2004 and 2005 are shown in the table below.

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Lazard Group has the right to amend or terminate its benefit plans at any time, subject to the terms of such plans and applicable law. Recent amendments and terminations are described below.

Amendments to LFNY Employee Benefit Plans

Termination of LCH’s Post-Retirement Medical Plan— In April 2004, LCH announced a plan to terminate its Post-Retirement Medical Plan. As a result of such action, benefits available to eligible active employees and retirees will cease on February 28, 2007. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 106, Employers’ Accounting for Post-Retirement Benefits Other Than Pensions , Lazard Group is recognizing the effect of such termination, which resulted in a reduction in Lazard Group’s accumulated post-retirement benefit obligation of approximately $24,000, the effect of which will reduce employee compensation and benefits expense over the period ending February 2007. For the three month period ended March 31, 2005, employee compensation and benefits expense was reduced by approximately $2,300 related to the effect of such termination.

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Employer Contributions and Indemnities from LFCM Holdings— As reflected in Lazard Group’s December 31, 2004 consolidated financial statements included in the Registration Statement, Lazard Group’s principal U.K. pension plans had a combined deficit of approximately $95,000 (or approximately 49,200 British pounds). This deficit would ordinarily be funded over time. Lazard Group has been in discussions with the trustees of the pension plans aimed at reaching agreement regarding a deficit reduction plan. In May 2005, “Heads of Terms” have been agreed between Lazard Group and the trustees of the plans dealing with a plan for future funding of the deficit as well as with asset allocation. In June 2005, Lazard Group expects to execute a final agreement with the trustees. Irrespective of the terms in the final executed agreement, in considering their duties to beneficiaries, the trustees also have the power to change the asset allocation. Any changes in the asset allocation could change the unfunded liability that would be funded over time, depending on asset mix, any increase in liabilities and investment returns. It is also the case that the pensions regulator in the U.K. may have the power to require contributions to be made to plans, and to impose support in respect of the funding of plans by related companies other than the direct obligors. As part of the separation (see Note 9), Lazard Group made a contribution to LFCM Holdings of $55,000 in connection with the provision by LFCM Holdings of support relating to U.K. pension liabilities and other indemnities. Lazard Group anticipates that as part of the separation, LFCM Holdings will make payments of 30,000 British pounds in the aggregate to reimburse Lazard Group when Lazard Group or one of its subsidiaries makes payments to reduce the pension plan deficit.

Approximately $31,000 (or 16,400 British pounds) of contributions were made to Lazard Group’s defined benefit pension plans in 2005 in the U.K. Of such amount, approximately $1,600 was contributed during the three month period ended March 31, 2005 and the remainder was contributed on June 1, 2005 when LFCM Holdings also satisfied its obligation to reimburse 15,000 British pounds to Lazard Group.

Lazard Group will make further payments amounting to 16,400 British pounds on June 1, 2006, 8,200 British pounds on June 1, 2007 and 8,200 British pounds on June 1, 2008.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 46, which provides additional guidance on the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, for enterprises that have interests in entities that meet the definition of a Variable Interest Entity (“VIE”). On December 24, 2003, the FASB issued FIN 46R, Consolidation of Certain Variable Interest Entities—an interpretation of ARB No. 51, which requires that an entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.

Lazard Group is involved with various entities in the normal course of business that are VIEs and hold variable interests in such VIEs. Transactions associated with these entities primarily include investment management, real estate and private equity investments. Those VIEs for which Lazard Group is the primary beneficiary were consolidated beginning in 2004 in accordance with FIN 46R. Those VIEs include company sponsored venture capital investment vehicles established in connection with Lazard Group’s compensation plans.

Lazard Group’s merchant banking activities consist of making private equity, venture capital and real estate investments on behalf of customers. At March 31, 2005, in connection with its merchant banking activities, the net assets of entities for which Lazard Group has a significant variable interest was approximately $102,000. Lazard Group’s variable interests associated with these entities, consisting of investments, carried interest and management fees, were approximately $24,350, which represents the maximum exposure to loss, only if total

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

assets declined 100% at March 31, 2005. At March 31, 2005, the consolidated statement of financial condition included $22,552 of incremental assets relating to the consolidation of VIEs for such merchant banking activities in which Lazard Group was deemed to be the primary beneficiary.

In connection with its Capital Markets and Other segment activities, Lazard Group holds a significant variable interest in an entity with liabilities of $12,800 at March 31, 2005. Lazard Group’s variable interests associated with this entity, primarily paid-in-kind notes, were approximately $12,800 at March 31, 2005. As the noteholders have sole recourse only to the underlying assets, Lazard Group has no exposure to loss at March 31, 2005. Also, as Lazard Group is not the primary beneficiary, the entity has not been consolidated.

Commitments— Lazard Group has various leases and other contractual commitments arising in the ordinary course of business. In the opinion of management, the fulfillment of such commitments in accordance with their terms will not have a material adverse effect on Lazard Group’s consolidated financial position or results of operations.

In the three month period ended March 31, 2005, Lazard Group recorded a provision of approximately $6,300 for abandoned leased space. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities , this provision, recorded on the cease-use date, was determined based on the fair value of the liability for costs that will continue to be incurred for the remaining term of the lease without economic benefit to Lazard Group, based on the remaining lease rentals, reduced by estimated sublease rentals. Such amount was recorded as “premises and occupancy costs” on the condensed consolidated statement of income for the three month period ended March 31, 2005.

See Note 9 with regard to formation of new private equity fund, Corporate Partners II Limited.

Legal— Lazard Group’s businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. Lazard Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on Lazard Group’s financial condition but might be material to its operating results for any particular period, depending, in part, upon the operating results for such period.

Lazard Group has received a request for information from the NASD as part of what it understands to be an industry investigation relating to gifts and gratuities, which is focused primarily on the Capital Markets business that is part of the separated businesses now owned and operated by LFCM Holdings. In addition, Lazard Group has received requests for information from the SEC and the U.S. Attorney’s Office for the District of Massachusetts seeking information concerning gifts and entertainment involving an unaffiliated mutual fund company, which are also focused on the Capital Markets business that is part of the separated businesses. Lazard Group believes that other broker-dealers have also received requests for information. These investigations are continuing and Lazard Group cannot predict their potential outcomes, which outcomes, if any, could include regulatory consequences, nor can Lazard Group estimate any potential loss or range of losses related to them. Accordingly, Lazard Group has not recorded an accrual for losses related to any such judicial, regulatory or arbitration proceedings.

Pursuant to Lazard Group’s Operating Agreement as in effect on March 31, 2005 and prior to the amendment and restatement of such agreement on May 10, 2005, Lazard Group allocates and distributes to its

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

members a substantial portion of its distributable profits in three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February. In addition, other periodic distributions to members include, as applicable, capital withdrawals, fixed return on members’ equity and income tax advances made on behalf of members.

In connection with the consummation of the initial public offering (see Note 9), during the three month period ended March 31, 2005, members’ equity was reduced by approximately $18,000 for the repurchase of working member interests. Additional repurchases of working member interests and redemptions of working members’ capital made subsequent to March 31, 2005, in connection with the consummation of the initial public offering, approximated $126,000 with all such payments having been made by May 9, 2005.

LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under the alternative method permitted by this rule, the minimum required net capital, as defined, is 2% of aggregate debit items arising from customer transactions or $1,500, whichever is greater. LFNY’s regulatory net capital at March 31, 2005 was $70,982, which exceeded the minimum requirement by $69,482.

Certain U.K. subsidiaries of Lazard Group, namely LCL, Lazard Brothers & Co., Limited, Lazard Fund Managers Limited, Lazard Asset Management Limited, and Lazard European Private Equity Partners LLP (the “U.K. Subsidiaries”) are regulated by the Financial Services Authority (“FSA”). At March 31, 2005, the aggregate regulatory net capital of the U.K. subsidiaries was $181,741, which exceeded the minimum requirement by $76,078. As a result of the separation, Lazard European Private Equity Partners LLP is now owned by LFCM Holdings.

The Financial Advisory activities of Lazard Frères SAS (“LF”) and its wholly-owned subsidiaries, including LFB, are authorized by the Comité des Etablissements de Crédit et des Entreprises d’Investissement and are regulated by the Comité de la Réglementation Bancaire et Financière. Supervision is exercised by the Commission Bancaire, which is responsible, in liaison with the Banque de France, for ensuring compliance with the regulations. In this context LF has the status of a bank holding company (“Compagnie Financière”) and LFB is a registered bank (“Etablissement de Crédit”). In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries, primarily LFG (asset management) and Fonds Partenaires Gestion (private equity, merchant banking), are subject to regulation and supervision by the Autorité des Marchés Financiers. At March 31, 2005, the consolidated regulatory net capital of LF was $148,183, which exceeded the minimum requirement set for regulatory capital levels by $53,318.

Certain other U.S. and non-U.S. subsidiaries are subject to various other capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At March 31, 2005, for those subsidiaries with regulatory capital requirements, aggregate net capital of those subsidiaries were $35,787, which exceeded the minimum required capital by $25,137.

At March 31, 2005, each of these subsidiaries individually were in compliance with its regulatory capital requirements.

Lazard Group’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

segment is reviewed to determine the allocation of resources and to assess its performance. In reporting to management, Lazard Group’s business results are categorized into the following three segments: Financial Advisory, Asset Management and Capital Markets and Other. Financial Advisory includes providing advice on mergers, acquisitions, restructurings and other financial matters. Asset Management includes the management of equity and fixed income securities and merchant banking funds. Capital Markets and Other consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities. In addition, Lazard Group records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the commercial banking activities of LFB. Lazard Group also allocates outstanding indebtedness to Corporate.

Lazard Group’s segment information for the three month periods ended March 31, 2004 and 2005 is prepared using the following methodology:

Lazard Group allocates trading gains and losses, investment gains and losses, interest income and interest expense among the various segments based on the segment in which the underlying asset or liability is reported.

Each segment’s operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.

Lazard Group evaluates segment results based on net revenue and operating income.

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Management believes that the following information provides a reasonable representation of each segment’s contribution to net revenue, operating income and total assets:

Initial Public Offering, Separation, Additional Financing Transactions and Recapitalization— On May 10, 2005, Lazard Ltd completed its initial public offering of Class A common stock (the “initial public offering”) that involved substantially all of Lazard Group’s business and completed certain additional financing transactions. The historical consolidated financial statements reflect the historical results of operations and financial position of Lazard Group, including the separated businesses for all periods presented, including the results of operations and financial condition for certain businesses that Lazard Group no longer owns. Accordingly, the historical financial statements do not reflect what the results of operations and financial position of Lazard Ltd or Lazard Group would have been had these companies been stand-alone, public companies for the periods presented. Specifically, the historical results of operations do not give effect to the following matters:

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

As more fully described in the Registration Statement, the separated businesses were separated from Lazard Group in connection with Lazard Ltd’s initial public offering of Class A common stock and Lazard Ltd’s additional public offering of equity security units (the “ESU offering”), the private placement of senior unsecured notes of Lazard Group (the “debt offering”) and the investment agreement with IXIS—Corporate & Investment Bank (the “IXIS investment agreement,” together with the ESU offering and the debt offering, the “additional financing transactions,” together with the initial public offering, the “recapitalization”). The initial public offering, the ESU offering and the debt offering were each completed on May 10, 2005. The separated businesses became a part of LFCM Holdings LLC effective as of May 10, 2005.

Initial Public Offering —On May 10, 2005, Lazard Ltd issued, at $25 per share, 34,183,162 shares of its Class A common stock in a registered public offering pursuant to the Registration Statement. The aggregate gross proceeds relating to the offering amounted to $854,579, and net proceeds to Lazard Ltd, after approximately $66,000 of expenses incurred by Lazard Ltd in connection with the issuance and distribution of the common stock (including underwriting discounts and commission, expenses paid to the underwriters and certain other expenses), was approximately $788,579. Lazard Ltd contributed all the net proceeds from this offering to Lazard Group in exchange for a controlling interest in Lazard Group.

Additional Financing Transactions —On May 10, 2005, Lazard also completed several additional financing transactions, which are described below.

ESU Offering —Concurrently with the initial public offering, Lazard Ltd issued, for $25 per unit, equity security units for an aggregate offering amount of $287,500 in the ESU offering. Each unit consists of (a) a contract which obligates holders to purchase, and Lazard Ltd to sell, on May 15, 2008, a number of newly-issued shares of Lazard Ltd Class A common stock equal to a settlement rate based on the trading price of Lazard Ltd Class A common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a senior note of an affiliate, Lazard Group Finance LLC (“Lazard Group Finance”), with a principal amount of $1 (the “senior notes”).

Lazard Ltd will make quarterly contract adjustment payments on the purchase contracts at an annual rate of 0.505% commencing August 15, 2005, subject to its right to defer these payments. In general, during any period in which it defers contract adjustment payments, Lazard Ltd cannot declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock.

The senior notes of Lazard Group Finance are senior obligations of Lazard Group Finance. The notes will mature on May 15, 2035, or on such earlier date as Lazard Ltd may elect in connection with the remarketing. In no event, however, will Lazard Ltd reset the maturity date to be prior to May 15, 2010. Lazard Group Finance used the net proceeds from the ESU offering to purchase senior notes from Lazard Group (the “Lazard Group notes”). The Lazard Group notes, which have substantially similar terms to the senior notes, are pledged to secure the obligations of Lazard Group Finance under the senior notes. The ability of Lazard Group Finance to pay its obligations under the senior notes depends on its ability to obtain interest and principal payments on the Lazard Group notes.

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, except per share amounts, unless otherwise noted)

Upon a remarketing of the senior notes, in which the applicable interest rate, payment dates and maturity date on the notes will be reset and the notes remarketed, the interest rate, payment dates and maturity date on the Lazard Group notes also will be reset on the same terms such that the interest rate, payment dates and maturity date on the Lazard Group notes are the same as those for the senior notes.

The equity security units will be reflected in Lazard Ltd’s diluted net income per share using the treasury stock method, and would be dilutive when the weighted-average market price of Lazard Ltd Class A common stock is greater than or equal to $30 per share, the threshold appreciation price.

IXIS Investment Agreement —Under the IXIS investment agreement, IXIS—Corporate & Investment Bank (“IXIS”), which is a subsidiary of Caisse Nationale des Caisses d’Epargne, purchased an aggregate of $200,000 of Lazard Ltd securities on May 10, 2005, $150,000 of which were equity security units (the “IXIS ESU placement”) and $50,000 of which were shares of Lazard Ltd Class A common stock. The terms of the equity security units issued in connection with the IXIS ESU placement are the same as the equity security units described above. The price per security paid by IXIS was equal, in the case of shares of Lazard Ltd Class A common stock, to the price per share in the initial public offering and, in the case of equity security units, the price per unit in the ESU offering. Lazard Group Finance used the net proceeds from the IXIS ESU placement to purchase Lazard Group notes. Lazard Ltd contributed the net proceeds from the sale of Lazard Ltd Class A Common Stock to Lazard Group.

Lazard Group Senior Notes —Concurrent with the initial public offering, Lazard Group issued, in a private placement, $550,000 aggregate principal amount of 7.125% senior notes due May 15, 2015. The notes were issued net of original issue discount of $435. Interest on the notes is due May 15 and November 15 of each year, commencing on November 15, 2005. The notes are unsecured.

The indenture governing the senior notes contains covenants that limit Lazard Group’s ability and that of its subsidiaries, subject to important exceptions and qualifications, to, among other things, create a lien on any shares of capital stock of any designated subsidiary, and consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries. The indenture governing the senior notes also contains a customary make-whole provision in the event of early redemption.

In connection with the issuance of the senior notes, on April 1, 2005, Lazard Group entered into an interest rate forward agreement with a bank for a notional amount of $650,000. By entering into this interest rate forward agreement, Lazard Group was able to ensure that the base rate (excluding market-driven credit spreads) on Lazard Group’s senior notes would be no greater than 4.5%. Lazard Group settled the interest rate forward agreement with the bank as of May 9, 2005, which required a payment by Lazard Group of approximately $13,000. Of this amount, approximately $11,000 was deemed to be the effective portion of the hedge and has been recorded as other comprehensive income and will be amortized as a charge to interest expense over the ten year term of the senior notes.

Recapitalization —In connection with the consummation of the initial public offering and additional financing transactions, Lazard Group used the net proceeds primarily to (a) redeem membership interests, including Lazard Group’s mandatorily redeemable preferred stock, held by the historical partners for $1,616,411, (b) capitalize the separated businesses in the amount of $150,000, (c) repay the $50,000, 7.53% Senior Notes due 2011 in aggregate principal amount of $50,000 as well as a related “make-whole” payment of $7,650 and (d) pay transaction fees and expenses.

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LAZARD GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(dollars in thousands, unless otherwise noted)

Lazard Alternative Investments —The business alliance agreement entered into between Lazard Group and LFCM Holdings, granted Lazard Group the option to acquire the North American and European fund management activities of Lazard Alternative Investments Holdings LLC (“LAI”), the subsidiary of LFCM Holdings that owns and operates LFCM Holdings’ merchant banking activities, exercisable at any time prior to the ninth anniversary of the consummation of the initial public offering, for a total price of $10,000. The option may be exercised by Lazard Group in two parts, consisting of an $8,000 option to purchase the North American merchant banking activities and a $2,000 option to purchase the European merchant banking activities. LAI’s merchant banking activities initially consist of the merchant banking management and general partner entities, together with Lazard Group’s direct investments in related funds that were transferred to LFCM Holdings pursuant to or in anticipation of the separation.

On February 25, 2005, Lazard Group formed a new private equity fund, Corporate Partners II Limited, with $1,000,000 of institutional capital commitments and a $100,000 capital commitment from Lazard Group through 2010. Pursuant to the master separation and business alliance agreements entered into between Lazard Group and LFCM Holdings, following the completion of the separation, this fund is managed by a subsidiary of LFCM Holdings, and Lazard Group retained a capital commitment to the fund and is entitled to receive the carried interest distributions made by the fund (other than the carried interest distributions made to investment professionals who manage the fund).

The business alliance agreement provides Lazard Group with certain governance rights with respect to LAI and provides for support by LFCM Holdings of the business of LAI. With respect to historic investments and funds transferred to LFCM Holdings as part of the separation, profits realized prior to the option exercise are for the account of LFCM Holdings, whereas profits realized after the exercise of the option are for the account of Lazard Group. Lazard Group intends to invest capital in future funds to be managed by LFCM Holdings’ subsidiaries and is entitled to receive incentive fee payments from such funds, as well as profits related to such investments, if any, irrespective of whether it exercises its purchase option.

Panmure Gordon— On April 26, 2005, Lazard Group completed the sale of Panmure Gordon & Co., Limited (“Panmure Gordon”) to Durlacher Corporation PLC, a U.K. broking firm (“Durlacher”). Panmure Gordon, acquired in 2004 by Lazard Group, operated as part of Lazard Group’s Capital Markets and Other segment in the U.K. As part of the April 2005 transaction, Lazard Group received an ownership interest of 32.8% in Durlacher, which was transferred to LFCM Holdings in connection with the separation. Lazard Group and LFCM Holdings have agreed to share any cash proceeds, to be derived prior to May 2013, from any subsequent sale by LFCM Holdings of the shares it owns in Durlacher.

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