Document:

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                                                                    EXHIBIT 10.7

                              JEFFERIES GROUP, INC.

                           DEFERRED COMPENSATION PLAN

     WHEREAS, in recognition of the success provided to the Company by certain
Employees, the Company desires to establish a deferred compensation plan to
enable those Employees to defer the payment of all or a portion of the
compensation otherwise payable in cash by the Company;

     NOW, THEREFORE, effective January 1, 2001, the Company adopts the Plan, as
follows:

                                   ARTICLE I
                                  DEFINITIONS

     1.1 Definitions: Whenever used in this Plan:

          (a) "Accounts" shall mean the separate bookkeeping accounts
established under the Plan for each Participant.

          (b) "Board" shall mean the Board of Directors of the Company.

          (c) "Change of Control" shall mean the first to occur of any of the
following events after the effective date of the Plan:

               (i) any "person," as defined in sections 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of Shares of the Company
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of securities representing more than 20% of the combined voting power of the
Company, or

               (ii) the shareholders of the Company (A) approve a definitive
agreement to merge or consolidate the Company with or into another corporation,
with the result that shareholders of the Company immediately prior to such
merger or consolidation own stock of the merged or consolidated corporation
immediately after such merger or consolidation that represents 50% or less of
the total combined voting power of all classes of stock of the merged or
consolidated corporation that are entitled to vote, or (B) approve a definitive
agreement to sell or otherwise dispose of all or substantially all of its
assets, or (C) adopt a plan of liquidation, or

               (iii) during any period of three or fewer consecutive years,
individuals who at the beginning of such period were members of the Board cease
for any reason to constitute at least a majority thereof (unless the election,
or the nomination for election by the Company's shareholders, of each new
director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of such period or whose
election or nomination was previously so approved).

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          (d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

          (e) "Committee" shall mean the Compensation Committee of the Board.

          (f) "Company" shall mean Jefferies Group, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.

          (g) "Compensation" shall mean all cash remuneration payable to an
Employee by the Company, including salary, bonus awards, commissions, and
sign-on bonus awards, but excluding payments made to any Employee for a period
during which the Employee is determined to have a Disability.

          (h) "Date of Grant" shall mean the date on which an Option is credited
to a Participant's Equity Subaccount pursuant to Section 3.4.

          (i) "Deferral Period" shall mean, with respect to each Account of a
Participant, the five-year period beginning on the first day of the Plan Year
with respect to which the Account was established; subject, however, to any
extension in accordance with Section 3.6.

          (j) "Deferred Shares" shall mean Shares or Restricted Shares during
the applicable Deferral Period.

          (k) "Disability" shall mean a physical or mental impairment that would
entitle the Participant to receive benefits under the Company's long term
disability program, as determined by the Committee in its sole discretion. The
Committee may, in its sole discretion, require a medical examination performed
by a physician at the expense of the Company, as a condition to any
determination of Disability.

          (l) "Employee" shall mean any individual employed by the Company,
Jefferies & Company, Inc., and any subsidiary designated by the Committee.

          (m) "Equity Subaccount" shall mean the portion of a Participant's
Account deemed to comprise Options, Restricted Shares and Deferred Shares.

          (n) "Equity Unit" shall mean three Restricted Shares and an Option for
one Share; provided, however, that if the number of Equity Units credited to
Participants in accordance with Section 3.4 exceeds the maximum number of
Options made available for the Plan by the Committee for that Plan Year, Equity
Units credited after such maximum number of Options has been exceeded shall
comprise three Restricted Shares for the remainder of the Plan Year.

          (o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.

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          (p) "Fair Market Value" shall mean the closing sale price of a Share
on the composite tape of New York Stock Exchange on the relevant valuation date
or Date of Grant, or if Shares are not traded on such date, on the last date on
which Shares are traded preceding such valuation date or Date of Grant.

          (q) "Investment Subaccount" shall mean the portion of the
Participant's Account that is not his or her Equity Subaccount.

          (r) "Option" shall mean an option to purchase Shares pursuant to
Article V.

          (s) "Participant" shall mean an Employee who has satisfied the
requirements of Section 2.1.

          (t) "Plan" shall mean the Jefferies Group, Inc. Deferred Compensation
Plan, as set forth herein and as amended from time to time.

          (u) "Plan Quarter" shall mean a calendar quarter ending on March 31,
June 30, September 30, or December 31.

          (v) "Plan Year" shall mean the calendar year.

          (w) "Restricted Period" shall mean the period ending on the last day
of the third consecutive Plan Year for which a Participant defers Compensation
pursuant to Section 3.1; provided, however, that if a Participant ceases to
defer Compensation by reason of Disability, the Participant shall be treated as
if such deferrals have not ceased for the duration of such Disability for
purposes of determining the end of the Restricted Period.

          (x) "Restricted Share" shall mean a contingent right, credited
pursuant to Section 3.4, to receive delivery of a Share at the end of the
Deferral Period. A Participant credited with a Restricted Share has no rights of
a shareholder until delivery of a Share has been effected.

          (y) "Retirement Age" shall mean the age at which an Employee's age
plus his years of service equals 65. For this purpose, years of service shall be
credited for each twelve month period beginning on the date of the Participant's
commencement of employment with the Company and on each anniversary thereof
during which the Employee was in active employment with the Company.

          (z) "Shares" shall mean the common stock of the Company, $.01 par
value.

                                   ARTICLE II
                                  PARTICIPATION

     2.1 Eligibility to Participate. An Employee who has completed not less than
one year of full-time employment with the Company shall become a Participant
upon his designation by the Committee as eligible to participate in the Plan and
his election to defer Compensation in accordance with Article III.

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     2.2 Termination of Participation. Once an Employee becomes a Participant,
the Employee shall remain a Participant until termination of employment with the
Company and thereafter until all benefits to which the Participant or the
Participant's beneficiary is entitled under the Plan have been paid.

                                  ARTICLE III
                            DEFERRAL OF COMPENSATION

     3.1 Deferral Election. With respect to each Plan Year, a Participant may
elect to defer the receipt of Compensation otherwise payable to him. A
Participant's deferral election shall designate an annual dollar amount or
percentage for deferral separately with respect to each component of
Compensation (e.g., base salary, bonus, commissions), which percentage in each
case shall not be less than 5%, and which dollar amount in each case shall not
be less than 5% of the anticipated annual amount of such component of
Compensation. In the event that a designated dollar deferral amount for any
component of Compensation exceeds the actual annual amount of such component of
Compensation, 100% of such component of Compensation shall be deferred in lieu
of this designated dollar amount. The Committee may establish a maximum limit on
the aggregate amount of deferrals by any Participant during any Plan Year. Such
election must be made before the beginning of the Plan Year to which the
deferral relates, in the form and manner prescribed by the Committee.
Notwithstanding the foregoing, with respect to the Plan Year beginning January
1, 2001, deferral elections must be made before February 16, 2001, and such
elections will relate only to amounts not yet earned or not yet payable as of
that date, as specified by the Committee.

     3.2 Establishment of Account. With respect to each Plan Year, an Account
will be established for each Participant and the Compensation that the
Participant elects to defer under the Plan with respect to that Plan Year will
be credited to that Account. Each such credit will be made to the Account as of
the last day of the Plan Quarter during which such Compensation would have
otherwise been payable to the Participant in cash. Fifty percent of the amount
deferred for each Plan Quarter shall be allocated to the Investment Subaccount
portion of the Participant's Account in accordance with Section 3.3 and fifty
percent of the amount deferred for each Plan Quarter shall be allocated to the
Equity Subaccount portion of the Participant's Account in accordance with
Section 3.4; provided, however, that the Participant may instead elect, in the
form and manner prescribed by the Committee, to have twenty-five percent of the
amount deferred allocated to the Investment Subaccount portion of his or her
Account and seventy-five percent of the amount deferred allocated to the Equity
Subaccount portion of his or her Account.

     3.3 Investment Subaccount. Amounts allocated to the Investment Subaccount
portion of a Participant's Account shall be treated as if invested in the
investment vehicles selected by the Participant from among the investment
vehicles made available by the Committee, as follows:

          (a) The Participant shall select, in the form and manner prescribed by
the Committee, the investment vehicles in which the Investment Subaccount
portion of each Account shall be deemed to be invested. If one of the available
investment vehicles is a money market fund, the Participant shall be permitted
to elect once during each Plan Year, in the form and

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manner prescribed by the Committee, to treat any amounts deemed invested in the
money market fund as if they were thereafter invested in such other available
investment vehicles as the Participant shall designate.

          (b) The investment vehicles deemed to be made available to the
Participant, and any limitation on the maximum or minimum percentages of the
Participant's Investment Subaccount that may be invested in any particular
investment vehicle, shall be determined by the Committee from time to time, and
the Committee may add, change, or delete investment vehicles at any time.

          (c) As of the last day of each Plan Year, each of a Participant's
Investment Subaccounts shall be credited or debited with earnings and losses
(net of investment management fees and expenses) as if invested for such Plan
Year (or portion thereof from the date any deferred amount would otherwise have
been payable to the Participant in cash until the last day of the Plan Year) in
the investment vehicles selected by the Participant.

          (d) If a Participant does not furnish complete and clear investment
designation instructions, the undesignated portion of the Participant's
Investment Subaccount shall be deemed to be invested in the money market fund
made available under the Plan, until such time as complete and clear investment
designation instructions are provided by the Participant.

     3.4 Equity Subaccount.

          (a) As of the last day of each Plan Quarter the Equity Subaccount
portion of a Participant's Account shall be credited with a number of Equity
Units equal to the greatest whole number obtained by dividing (i) the amount of
Compensation deferred and allocated to the Participant's Equity Subaccount for
the Plan Quarter, by (ii) the sum of (A) 85% of the Fair Market Value of three
Shares on the last day of the Plan Quarter, and (B) the price of an Option for
the Plan Year as determined by the Committee based on the Black-Scholes option
pricing methodology (subject to such assumptions and adjustments as the
Committee deems appropriate). Any fractional remainder for the Plan Quarter
shall be allocated to the Participant's Investment Subaccount.

          (b) Restricted Shares and Options comprising Equity Units under the
Plan shall be subject to the provisions of Article IV and V, as applicable.

          (c) The maximum number of Shares which will be reserved for Restricted
Shares and Options under the Plan shall be ________ Shares, which number shall
be subject to adjustment as provided in Article VII. Such shares shall be
authorized and unissued shares or treasury shares (including shares reacquired
by the Company for purposes of the Plan), provided, however, that in the case of
Equity Units credited to persons who are directors or officers of the Company,
as the term "officer" is defined in Section 312.04 of the New York Stock
Exchange's Listed Company Manual as in effect at January 1, 2001 (the "Listed
Company Manual"), only such treasury shares will be deliverable unless the Plan
has qualified as a "broadly-based" plan under Section 312.04(h) of the Listed
Company Manual.

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          (d) If any Restricted Shares under the Plan are forfeited, or if any
Options terminate or expire unexercised, the Shares forfeited or subject to the
terminated or expired Options shall (unless the Plan shall have been terminated)
again become available for delivery under the Plan.

     3.5 Account Statements. Each Participant will receive a statement of the
balance in the Participant's Accounts as promptly as practicable after the end
of each Plan Quarter.

     3.6 Redeferral of Account. At least thirteen months prior to the end of the
Deferral Period with respect to each Account, a Participant who is an Employee
may elect to defer the amounts credited to that Account for an additional period
of five years beginning on the first day of the Plan Year immediately following
the last day of the Deferral Period. An election to extend the Deferral Period
shall be made in the form and manner prescribed by the Committee. Only one
election to extend the Deferral Period may be made with respect to any Account.
If a Participant is determined to have incurred a Disability, the election to
extend the Deferral Period otherwise permitted under this Section 3.6 shall not
be available to the Participant during such period of Disability.

                                   ARTICLE IV
                                RESTRICTED SHARES

     4.1 Terms of Restricted Shares. If a Participant's employment with the
Company terminates prior to the earliest of his death, his attainment of
Retirement Age, the occurrence of a Change of Control or the end of the
Restricted Period, fifteen percent of the number of Restricted Shares credited
to the Equity Subaccount portions of each of the Participant's Accounts (or the
greatest whole number of such Restricted Shares that, in each case, does not
exceed fifteen percent of the number of such Restricted Shares, if such
percentage would yield a fractional remainder), shall be forfeited, together
with any Deferred Shares credited under Section 4.2 that are attributable
(directly or indirectly) to such forfeited Restricted Shares.

     4.2 Dividend Equivalents. As of the last day of each Plan Quarter, each
Participant's Equity Subaccounts shall be credited with a number of whole and
fractional Deferred Shares equal to the quotient of (i) the product of (A) the
aggregate number of Restricted Shares credited to the Participant's Equity
Subaccounts, multiplied by (B) the cash value or Fair Market Value of any
dividend paid with respect to a Share during such Plan Quarter, determined as of
the payment date for such dividend, divided by (ii) the Fair Market Value of a
Share on the last day of such Plan Quarter; provided, however, that, in the case
of a non-cash dividend, the Committee may determine to make an equitable
adjustment under Article VII in lieu of crediting the Participant's Equity
Subaccounts under this Section 4.2.

                                   ARTICLE V
                                     OPTIONS

     5.1 Nonqualified Stock Options. Each Option credited to a Participant
pursuant to Section 3.4 shall be a non-qualified stock option and shall be
evidenced by a Share Option Certificate in such form as the Committee shall
approve, which Certificate shall be issued

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following the earliest of (i) the third anniversary of the first day of the Plan
Year that includes the Date of Grant, (ii) the Participant's death, or (iii) the
date following either the Participant's attainment of Retirement Age or the end
of the Restricted Period, as of which the Participant ceases to be an Employee.

     5.2 Option Price. The option exercise price of each Option granted under
the Plan shall be the Fair Market Value on the Date of Grant of the Shares
covered by the Option.

     5.3 Option Term; Vesting.

          (a) An Option may not be exercised prior to the issuance of a Share
Option Certificate with respect to such Option in accordance with Section 5.1,
and may not be exercised after the earlier of (i) the fifth anniversary of the
Date of Grant, or (ii) in the case of a Participant who ceases to be an Employee
other than by reason of the Participant's death, the sixtieth day following
termination of the Participant's employment. Any Option not exercised within the
foregoing Option term shall automatically terminate at the expiration of such
Option term.

          (b) Any option credited to the Equity Subaccount portions of a
Participant's Accounts shall automatically terminate and be forfeited if the
Participant's employment with the Company terminates before the earliest of (i)
the end of the Restricted Period, (ii) the Participant's attainment of
Retirement Age, (iii) the Participant's death, or (iv) the occurrence of a
Change of Control, or (v) the third anniversary of the first day of the Plan
Year that includes the Date of Grant.

     5.4 Exercise and Payment.

          (a) An exercisable Option may be exercised by notice (in the form
prescribed by the Committee) to the Company specifying the number of Shares to
be purchased. Payment for the number of Shares purchased upon the exercise of an
Option shall be made in full at the price provided for in the applicable Share
Option Agreement. Such purchase price shall be paid by the delivery to the
Company of cash (including check or similar draft) in United States dollars or
whole Shares (subject to any restrictions the Committee may impose), or a
combination thereof. Shares used in payment of the purchase price shall be
valued at their Fair Market Value as of the date the notice of exercise is
received by the Company. Any Shares delivered to the Company shall be in such
form as is acceptable to the Company.

          (b) The Company may defer making delivery of Shares under the Plan
until satisfactory arrangements have been made for the payment of any tax
attributable to exercise of the Option. The Committee may, in its sole
discretion, permit a Participant to elect, in such form and at such time as the
Committee may prescribe, to pay all or a portion of any taxes arising in
connection with the exercise of an Option by electing to (i) have the Company
withhold whole Shares, or (ii) deliver other whole Shares previously owned by
the Participant, in either case having a Fair Market Value not greater than the
minimum applicable withholding tax rate for federal (including FICA), state and
local tax withholding obligations associated with the transaction.

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          (c) If an Option is exercised, Shares shall be delivered at the time
of exercise, subject to subsection 5.4(b).

     5.5 Nontransferability. No Option or any rights with respect thereto shall
be subject to any debts or liabilities of a Participant, nor shall they be
assignable or transferable except by will or the laws of descent and
distribution; provided that, if the Committee deems it appropriate, an Option
may permit the Participant to transfer the Option without consideration to one
or more transferees during the Participant's lifetime, and such transferees may
exercise rights thereunder in accordance with the terms hereof but only if and
to the extent permitted by the Committee.

     5.6 Rights as a Shareholder. A Participant shall have no rights as a record
holder with respect to Shares covered by his or her Option until the exercise of
such Option and payment in full of the purchase price. No adjustment will be
made for cash dividends for which the record date is prior to the date of such
exercise.

                                   ARTICLE VI
                      DISTRIBUTION OF DEFERRED COMPENSATION

     6.1 Election of Distribution Form. At the time of each deferral election
described in Section 3.1, the Participant shall elect to receive the balance of
the Account with respect to which such deferral election is made, in the form of
a single sum, periodic distributions over a period of five years, or periodic
distributions over a period of ten years. At the time prescribed in Section 3.6
with respect to each of the Participant's Accounts, the Participant may make a
new election as to form for distribution of that Account. Elections made
pursuant to this Section 6.1 shall be made in the form and manner prescribed by
the Committee. If a Participant fails to make an election pursuant to this
Section 6.1 with respect to any Account, that Account will be distributed in a
single sum.

     6.2 Form of Distribution. Distribution shall be made in accordance with the
election made pursuant to Section 6.1, as in effect at the time of distribution.
Notwithstanding the preceding sentence, if the balance of a Participant's
Account at the time distribution is made in accordance with this Article VI has
a value of less than $50,000, the Committee may direct that such distribution
shall be made in a single sum. Distributions from the Investment Subaccount
portion of a Participant's Account shall be made in cash. Distributions from the
Equity Subaccount portion of a Participant's Account shall be made in the form
of Shares, with any fractional Shares distributed in cash. If a Participant's
Investment Subaccount is distributed in annual installments, the undistributed
portion of such Investment Subaccount shall continue to be credited with
earnings and losses in accordance with Section 3.3(c). As of the last day of
each Plan Year, the amount of each remaining installment shall be redetermined
by dividing the undistributed balance of the Investment Subaccount, as adjusted
in accordance with the preceding sentence, by the number of remaining
installments. The Committee may, in its sole discretion, accelerate
distributions to a Participant in the event of the Participant's Disability.

     6.3 Distribution Upon Expiration of Deferral Period. Unless distribution is
made at an earlier time pursuant to this Article VI, the balance of each Account
shall be distributed to the

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Participant in the manner prescribed under Section 6.2 in, or beginning in, the
January following the end of the Deferral Period applicable to that Account
(including any extension in accordance with Section 3.6). All installments shall
be distributed in January of the applicable year.

     6.4 Hardship Distribution. Notwithstanding any other provisions of this
Plan, if the Committee determines, after consideration of a Participant's
application, that the Participant has sustained a severe financial hardship
resulting from a sudden and unexpected illness or accident of the Participant or
the Participant's dependent (as defined in Section 152(a) of the Code), loss of
the Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances resulting from events beyond the Participant's
control, the Committee may, in its sole discretion, direct that all or a portion
of the balance of the Participant's Accounts be paid to the Participant;
provided, however, that during the Restricted Period applicable to any
Restricted Shares, no such Restricted Shares in excess of the number of such
Restricted Shares resulting from redetermination under Section 4.1 shall be
distributed under this Section 6.4. The payment will be made in the manner and
at the time specified by the Committee. No Participant who is also a member of
the Committee may in any way take part in any decision pertaining to a request
for payment made by that Participant under this Section 6.4.

     6.5 Penalty Withdrawals. Except as otherwise provided under Section 6.4,
prior to the end of the Deferral Period applicable to any Account, a Participant
may withdraw all or a portion of the balance of that Account; provided, however,
that if such withdrawal is made before the end of the Restricted Period
applicable to any Restricted Shares, no such Restricted Shares in excess of the
number of such Restricted Shares resulting from redetermination under Section
4.1 may be withdrawn under this Section 6.5. If any such withdrawal is made, the
Participant shall receive from his Account an amount equal to:

          (a) if the withdrawal is made before a Change in Control or more than
twenty-four months following a Change in Control, 90% of the amount requested,
and the remaining 10% of the amount requested shall be forfeited; or

          (b) if the withdrawal is made within the twenty-four month period
beginning on the date following a Change of Control, 95% of the amount
requested, and the remaining 5% of the amount requested shall be forfeited.

No request to withdraw less than 10% of the balance of any Account shall be
permitted under this Section 6.5. Any request to withdraw 75% or more of the
balance of any Account shall result in the withdrawal or forfeiture of the
entire balance of such Account.

     6.6 Death Benefit. In the event of a Participant's death before the balance
in the Participant's Account is fully paid out:

          (a) If the Participant's death occurs prior to the commencement of
payments from an Account as otherwise provided under this Article VI, payment of
the balance of the Account will be made to the beneficiary or beneficiaries
designated by the Participant or, if the Participant has made no such
designation or no beneficiary survives, to the Participant's estate. In

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either case, such payment will be made in a single sum in January following the
date of the Participant's death.

          (b) If a Participant's death occurs after periodic payments have begun
to be made from an Account but before all payments have been made, the remaining
payments shall be made to the beneficiary or beneficiaries designated by the
Participant or if there is no such designation or no beneficiary survives, to
the Participant's estate. Notwithstanding the foregoing, however, if the
remainder of the payments from an Account are to be paid to the estate of the
Participant, the Committee may, in its sole and absolute discretion and upon
receipt of an application therefor from the duly appointed administrator or
executor of such estate, direct that the sum of the remaining payments be paid
to the estate in a single payment in January following the date of the
Participant's death.

     6.7 Acceleration of Periodic Distributions. If a Participant's Account is
being paid to the Participant or a beneficiary of the Participant in the form of
periodic payments, such Participant or beneficiary may make an election to have
the remainder of the amount distributable to him or her distributed in a single
sum. In the event a Participant or beneficiary makes an election under this
Section 6.7, the remaining of the Participant's Account at the time of such
election shall be subject to the forfeiture provisions of Section 6.5. Elections
pursuant to this Section 6.7 shall be made in the form and manner prescribed by
the Committee.

     6.8 Tax Withholding; FICA/HI. The Company may defer making delivery of cash
or Shares under this Article VI until satisfactory arrangements have been made
for the payment of any withholding taxes attributable to the distribution or
withdrawal. The Committee may, in its sole discretion, permit a Participant to
elect, in such form and at such time as the Committee may prescribe, to pay all
or a portion of any taxes arising in connection with the distribution of Shares
in settlement of a Participant's Equity Subaccounts by electing to (i) have the
Company withhold whole Shares, or (ii) deliver other whole Shares previously
owned by the Participant, in either case having a Fair Market Value not greater
than the minimum applicable withholding tax rate for federal, state and local
tax withholding obligations associated with the transaction. By electing to
defer compensation under the Plan, each Participant will have agreed to pay any
FICA/HI or other taxes that may be applicable to the amounts deferred or upon
the vesting of Restricted Shares hereunder.

                                  ARTICLE VII
                            EFFECT OF CERTAIN CHANGES

In the event of any extraordinary dividend, share dividend, recapitalization,
merger, consolidation, share split, warrant or rights issuance, or combination
or exchange of such shares, or other similar transactions, the number and type
of Shares reserved under Section 3.4(c), the number and type of outstanding
Restricted Shares, Deferred Shares, and Options, the price of Options for the
Plan Year, the exercise price of outstanding Options, and other affected Plan
terms, shall be equitably adjusted by the Committee to reflect such event and
preserve the value of such Restricted Shares, Deferred Shares, and Options; and
the Committee may make such other adjustments to the terms of outstanding
Restricted Shares, Deferred Shares, and Options as it may deem equitable under
the circumstances; provided, however, that any Options for fractional Shares
resulting from such adjustment shall be eliminated.

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                                  ARTICLE VIII
                                     GENERAL

     8.1 Unsecured Claims. The right of any Participant, beneficiary or estate
to receive payment of any unpaid balance in the Participant's Account will be an
unsecured claim against the general assets of the Company.

     8.2 Anti-alienation and Assignment. During a Participant's lifetime, any
payment under the Plan will be made only to the Participant. No sum or other
interest under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt by a Participant or any beneficiary under the Plan to do so shall be
void. No interest under the Plan shall in any manner be liable for or subject to
the debts, contracts, liabilities, engagements or torts of a Participant or
beneficiary entitled thereto.

     8.3 No Rights to Continued Employment. Nothing in the Plan shall confer
upon any Participant the right to continue employment with the Company or to be
entitled to any remuneration or benefits not set forth in the Plan.

     8.4 Administration.

          (a) The Plan shall be administered by the Committee, except as
otherwise specifically provided in the Plan. The Committee shall have the full
authority and discretion to make such interpretations and constructions of the
Plan as are necessary to administer the Plan in accordance with, and subject to,
the Plan's provisions.

          (b) All decisions, determinations and interpretations of the Committee
shall be final and binding on all persons, including the Company, the
Participant (or any person claiming any rights under the Plan from or through
any Participant) and any shareholder. No member of the Committee shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any grant hereunder.

     8.5 Amendment and Termination of the Plan. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; provided,
however, that the Plan may not be suspended, terminated, modified, or amended
for a period of twenty-four months following a Change of Control, unless
approved by Participants whose Accounts represent not less than 50% of the
aggregate value of all Accounts under the Plan. Except as provided in Article
VII hereof, no suspension, termination, modification or amendment of the Plan
may materially and adversely affect any amount, Restricted Shares, Deferred
Shares, or Options previously credited, unless the written consent of the
Participant is obtained.

     8.6 Governing Law. The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Delaware without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by federal law.

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     IN WITNESS WHEREOF, and as evidence of its adoption of this Plan, the
Company has caused the same to be executed by its duly authorized officers and
its corporate seal to be affixed hereto as of the ___ day of January, 2001.

Attest:                             JEFFERIES GROUP, INC.

--------------------------          By:
Title:                                 --------------------------------
                                                      Title:<PAGE>   1
                                                                    EXHIBIT 4.3

                      FIRST AMENDMENT TO RIGHTS AGREEMENT

              FIRST AMENDMENT, dated as of October 13, 2000 ("First Amendment"),
to Rights Agreement dated as of August 14, 1998 (the "Rights Agreement"),
between Arden Realty, Inc., a Maryland corporation (the "Company"), and The Bank
of New York (the "Rights Agent"). Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Rights Agreement.

              WHEREAS, the Company and the Rights Agent previously entered into
the Rights Agreement; and

              WHEREAS, pursuant to Section 26 of the Rights Agreement, the
Company and the Rights Agent may from time to time supplement or amend any
provision of the Rights Agreement in accordance with the terms of such Section
26.

              NOW, THEREFORE, in consideration of the foregoing premises and
mutual agreements set forth in this Amendment, the parties hereby amend the
Rights Agreement as follows:

              1. Section 1.3(ii)(A)(z) of the Rights Agreement is hereby amended
and restated in its entirety to reads as follows:

              "(z) securities which such Person or any of such Person's
       Affiliates or Associates may acquire, does or do acquire or may be deemed
       to acquire or may be deemed to have the right to acquire, pursuant to any
       merger or other acquisition agreement between the Company and such Person
       (or one or more of such Person's Affiliates or Associates) if prior to
       such Person becoming an Acquiring Person the Board of Directors of the
       Company has approved such agreement and determined that such Person shall
       not be or be deemed to be the beneficial owner of such securities within
       the meaning of this Section 1.3; or."

              2. The following is hereby added as a new Section 1.9 of the
Rights Agreement and former Sections 1.9 through 1.13, respectively, are hereby
renumbered as Sections 1.10 through 1.14 respectively:

              "1.9. `Future Director' shall mean any director who is not a
       Continuing Director."

              3. The last sentence of Section 11.1.3 is hereby amended and
restated to read in its entirety as follows:

              "For a period of 180 days following a Trigger Event, actions by
       the Company pursuant to this Section 11.1.3 shall be approved by the vote
       of a majority of the Continuing Directors, and no Future Director shall
       be entitled to vote with respect to such action. Thereafter, such actions
       shall be approved by the vote of a majority of the Board of Directors."

<PAGE>   2

              4. The last sentence of Section 11.4.1 of the Rights Agreement is
hereby amended and restated in its entirety to read as follows:

              "If the Security is not publicly held or not so listed or traded,
       or if on any such date the Security is not so quoted and no such market
       maker is making a market in the Security, "current per share market
       price" shall mean the fair value per share as determined in good faith
       (i) by the Board of Directors of the Company if at the time of
       determination there is no Acquiring Person, (ii) if at the time of
       determination there is an Acquiring Person, for a period of 180 days
       following a Trigger Event, by a majority of the Continuing Directors, or
       (iii) if there are no Continuing Directors or if the 180 day period
       following a Trigger Event has expired, by a nationally recognized
       investment banking firm selected by the Board of Directors, which shall
       have the duty to make such determination in a reasonable and objective
       manner, whose determination shall be described in a statement filed with
       the Rights Agent and shall be conclusive for all purposes."

              5. The penultimate sentence of Section 11.4.2 of the Rights
Agreement is hereby amended and restated in its entirety to read as follows:

              "If on any such date neither the Common Shares nor the Preferred
       Shares are so quoted and no such market maker is making a market in
       either the Common Shares or the Preferred Shares, "current per share
       market price" of the Preferred Shares shall mean the fair value per share
       as determined in good faith (i) by the Board of Directors of the Company
       if at the time of determination there is no Acquiring Person, (ii) if at
       the time of determination there is an Acquiring Person, for a period of
       180 days following a Trigger Event, by a majority of the Continuing
       Directors, or (iii) if there are no Continuing Directors or if the 180
       day period following a Trigger Event has expired, by a nationally
       recognized investment banking firm selected by the Board of Directors of
       the Company, which shall have the duty to make such determination in a
       reasonable and objective manner, which determination shall be described
       in a statement filed with the Rights Agent and shall be conclusive for
       all purposes."

              6. Section 13.3 of the Rights Agreement is hereby amended and
restated to read in its entirety as follows:

              "Section 13.3 Approved Acquisitions. Notwithstanding anything
       contained herein to the contrary, upon the consummation of any merger or
       other acquisition transaction of the type described in clause (A), (B) or
       (C) of Section 13.1 involving the Company pursuant to a merger or other
       acquisition agreement between the Company and any Person (or one or more
       of such Person's Affiliates or Associates) which agreement has been
       approved by the Board of Directors of the Company prior to any Person
       becoming an Acquiring Person, this Agreement and the rights of holders of
       Rights hereunder shall be terminated in accordance with Section 7.1."

              7. The last sentence of Section 14.1 of the Rights Agreement is
hereby amended and restated in its entirety to read as follows:

                                       2
<PAGE>   3

              "If on any such date no such market maker is making a market in
       the Rights, the current market value of the Rights on such date shall be
       the fair value of the Rights as determined in good faith (i) by the Board
       of Directors of the Company if at the time of determination there is no
       Acquiring Person, (ii) if at the time of determination there is an
       Acquiring Person, for a period of 180 days following a Trigger Event, by
       a majority of the Continuing Directors, or (iii) if there are no
       Continuing Directors or if the 180 day period following a Trigger Event
       has expired, by a nationally recognized investment banking firm selected
       by the Board of Directors of the Company, which shall have the duty to
       make such determination in a reasonable and objective manner, which
       determination shall be described in a statement filed with the Rights
       Agent and shall be conclusive for all purposes."

              8. The second sentence of Section 22 of the Rights Agreement is
hereby amended and restated to read in its entirety as follows:

              "In addition, in connection with the issuance or sale of Common
       Shares following the Distribution Date and prior to the Expiration Date,
       the Company (a) shall, with respect to Common Shares so issued or sold
       pursuant to the exercise of stock options or under any employee plan or
       arrangements, granted or awarded as of the Distribution Date, or upon
       exercise, conversion or exchange of securities hereafter issued by the
       Company, and (b) may, in any other case, if deemed necessary or
       appropriate by the Board of Directors of the Company, issue Right
       Certificates representing the appropriate number of Rights in connection
       with such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right
       Certificate shall be issued if, and to the extent that, the Company shall
       be advised by counsel that such issuance would create a significant risk
       of material adverse tax consequences to the Company or the Person to whom
       such Right Certificate would be issued, (ii) no such Right Certificate
       shall be issued if, and to the extent that, appropriate adjustment shall
       otherwise have been made in lieu of the issuance thereof and (iii) at the
       time of a determination by the Board of Directors to cause the Company to
       issue a Right Certificate under clause (b) above, there must be
       Continuing Directors then in office and any such determination shall
       require the approval of at least a majority of such Continuing Directors;
       provided, however, that this clause (iii) shall be applicable only for
       the 180 day period following a Trigger Event."

              9. The last sentence of Section 26 of the Rights Agreement is
hereby amended and restated to read in its entirety as follows:

              "Any supplement or amendment to this Agreement pursuant to this
       Section 26 shall be approved by a majority of the Board of Directors;
       provided, however, that for a period 180 days following a Trigger Event,
       any supplement or amendment to this Agreement pursuant to this Section 26
       shall be approved by a vote of the majority of the Continuing Directors,
       and no Future Director shall be entitled to vote with respect to such
       supplement or amendment. Thereafter, any such supplement or amendment
       shall be approved by the vote of a majority of the Board of Directors."

                                       3
<PAGE>   4

              10. Section 30 of the Rights Agreement is hereby amended and
restated in its entirety as follows:

              "Section 30 Determination and Actions by the Board of Directors.
       The Board of Directors of the Company (in conjunction with the Continuing
       Directors as specifically provided in this Agreement) or, where
       applicable as specifically provided in this Agreement, the Continuing
       Directors, shall have the exclusive power and authority to administer
       this Agreement and to exercise the rights and powers specifically granted
       to the Board of Directors of the Company (in conjunction with the
       Continuing Directors, as applicable) or to the Continuing Directors or to
       the Company, or as may be necessary or advisable in the administration of
       this Agreement, including, without limitation, the right and power to (i)
       interpret the provisions of this Agreement and (ii) make all
       determinations deemed necessary or advisable for the administration of
       this Agreement (including, without limitation, a determination to redeem
       or not redeem the Rights or amend this Agreement). All such actions,
       calculations, interpretations and determinations (including, for purposes
       of clause (y) below, all omissions with respect to the foregoing) that
       are done or made by the Board of Directors of the Company or the
       Continuing Directors, as applicable, in good faith shall (x) be final,
       conclusive and binding on the Company, the Rights Agent, the holders of
       the Rights, as such, and all other parties, and (y) not subject the Board
       of Directors or the Continuing Directors, as applicable, to any liability
       to the holders of the Rights. Notwithstanding any provision in this
       Section 30 or any other provision of this Agreement, (i) any requirement
       that Continuing Directors vote for or approve any action shall be limited
       to the 180 day period following a Trigger Event, and (ii) no Future
       Director shall be entitled to vote for the redemption, modification or
       termination of the Rights for a period of 180 days following a Trigger
       Event."

       11. The fourth paragraph of Exhibit B to the Rights Plan ("Form of Right
Certificate) is hereby amended and restated in its entirety as follows:

              "Subject to the provisions of the Agreement, the Board of
       Directors may, at its option, (i) redeem the Rights represented by this
       Right Certificate at a redemption price of $.01 per Right at any time
       prior to the close of business on the tenth day after the Shares
       Acquisition Date or (ii) exchange Common Shares for the Rights
       represented by this Certificate, in whole or in part. The period during
       which redemption of the Rights is permitted may be extended by the Board
       of Directors of the Company; provided, however, that for a period of 180
       days following a Trigger Event, such an extension shall require the
       concurrence of a majority of the Continuing Directors. Unless otherwise
       provided in the Rights Agreement, no Future Director shall be entitled to
       vote for the redemption, modification or termination of the Rights for a
       period of 180 days following a Trigger Event."

       12. The tenth paragraph of Exhibit C to the Rights Plan (SUMMARY OF
RIGHTS TO PURCHASE PREFERRED SHARES), is hereby amended to (a) delete the words
"close of business on the tenth business day following the first date of public
announcement that

                                       4
<PAGE>   5

a Person has become an Acquiring Person" and replace them with the words "time
that an Acquiring Person has become such.

              13. This First Amendment shall be effective as of the date hereof
and, except as expressly set forth herein, the Rights Agreement shall remain in
full force and effect and be otherwise unaffected hereby.

              14. This First Amendment may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all such counterparts shall together constitute one and the same document.

              IN WITNESS WHEREOF, the parties have executed this First Amendment
as of the date first written above.

                                        ARDEN REALTY, INC.

                                        By: /s/ DAVID A. SWARTZ
                                            ------------------------------------
                                        Name:  David A. Swartz
                                        Title: Secretary

                                        THE BANK OF NEW YORK

                                        By: /s/ WILLIAM F. POWERS
                                            ------------------------------------
                                        Name:  William F. Powers
                                        Title: Assistant Vice President

                                       5

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