NATIONAL
        HOLDING CORPORATION

      120
        Broadway, 27th
        Floor

      New
        York,
        NY
        10271

      July
        1,
        2008

      Leonard
        J. Sokolow

      3010
        North Military Trail, Suite 300

      Boca
        Raton, FL 33431

      


      Dear
        Lenny: 

      


      We
        are
        pleased to inform you that National Holdings Corporation (the “Company”), has
        granted you a nonqualified option (the “Option”) to purchase the 1,000,000
        shares of the Company’s common stock, par value $.02 per share (the “Common
        Stock”), at a purchase price of $1.64 per share (any of the underlying shares of
        Common Stock to be issued upon exercise of the Option are referred to
        hereinafter as the “Shares”). Capitalized terms used and not otherwise defined
        herein shall have the meanings ascribed to them in the employment agreement
        of
        even date herewith between you and the Company (“Employment
        Agreement”).

      


      1. Subject
        to the terms hereof, the Option may be exercised on or prior to June 30,
        2015
        (after which date the Option will, to the extent not previously exercised,
        expire). The Option shall vest and become exercisable as to 25% of the Shares
        on
        and after each of July 1, 2008, 2009, 2010 and 2011, provided you are then
        still
        employed by of the Company. 

      


      2. The
        Option, from and after the date it vests and becomes exercisable pursuant
        to
        Section 1 hereof, may be exercised in whole or in part by delivering to the
        Company a written notice of exercise in the form attached hereto as
        Exhibit 1 (or such other form approved by the Company), specifying the
        number of the Shares to be purchased and the purchase price therefor, together
        with payment of the purchase price of the Shares to be purchased. The purchase
        price is to be paid in cash or by delivering shares of Common Stock already
        owned by you for at least six months and having a Fair Market Value on the
        date
        of exercise equal to the purchase price of the Option being exercised, or
        a
        combination of such shares and cash. Fair Market Value, unless otherwise
        required by any applicable provision of the Internal Revenue Code of 1986,
        as
        amended from time to time, and any successor thereto and the regulations
        promulgated thereunder, means, as of any given date: (i) if the Common Stock
        is
        listed on a national securities exchange or quoted on the Nasdaq Global Select,
        Global or Capital Markets (collectively, the “Nasdaq Markets”), the last sale
        price of the Common Stock in the principal trading market for the Common
        Stock
        on the last trading day on or before such date, as reported by the exchange
        or
        Nasdaq, as the case may be; (ii) if the Common Stock is not listed on a national
        securities exchange or quoted on any of the Nasdaq Markets, but is traded
        in the
        over-the-counter market, the last sale price for the Common Stock on the
        last
        trading day on or before such date for which such quotations are reported
        by the
        OTC Bulletin Board or the National Quotation Bureau, Incorporated or similar
        publisher of such quotations; and (iii) if the fair market value of the Common
        Stock cannot be determined pursuant to clause (i) or (ii) above, such price
        as
        the Compensation Committee of the Company shall determine, in good
        faith.


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      In
        addition, payment of the purchase price of the Shares to be purchased may
        also
        be made by delivering a properly executed notice to the Company, together
        with a
        copy of the irrevocable instructions to a broker to deliver promptly to the
        Company the amount of sale or loan proceeds necessary to pay the purchase
        price,
        and, if required, the amount of any federal, state or local withholding taxes.
        

      


      No
        Shares
        shall be issued until full payment therefor has been made. You shall have
        all of
        the rights of a shareholder of the Company holding the Common Stock that
        is
        subject to the Option (including, if applicable, the right to vote the Shares
        and the right to receive dividends thereon), when you have given written
        notice
        of exercise, have paid in full for such Shares and, if requested, have given
        the
        certificate described in Section 9 hereof. 

      


      3.
        The
        Option shall immediately vest and become exercisable as to all of the Shares
        pursuant to the terms and conditions of the Employment Agreement. 

      


      4. In
        the
        event your employment with the Company is terminated, the Option shall forthwith
        terminate, provided that you may exercise any then unexercised portion of
        the
        Option then vested and exercisable pursuant to Section 1 hereof at any time
        prior to the earlier of nine months after such date, or the expiration of
        the
        Option. 

      


      5. The
        Option is not transferable except (i) by will or the applicable laws of
        descent and distribution or (ii) for transfers to your family members or
        trusts or other entities whose beneficiaries are your family members, provided
        that such transfer is being made for estate, tax and/or personal planning
        purposes and will not have adverse tax consequences to the Company. In such
        event, the transferee shall remain subject to all the terms and conditions
        applicable to the Option prior to such transfer. 

      


      6. In
        the event of your death or Disability, the Option may be exercised by your
        personal representative or representatives, or by the person or persons to
        whom
        your rights under the Option shall pass by will or by the applicable laws
        of
        descent and distribution, within the nine-month period following termination
        due
        to death or Disability. 

      


      7. In
        the
        event of any change in the shares of Common Stock of the Company as a whole
        occurring as the result of a stock split, reverse stock split, stock dividend
        payable on shares of Common Stock, combination or exchange of shares, or
        other
        extraordinary or unusual event occurring after the date hereof, the Board
        of
        Directors of the Company (“Board”), or a committee thereof shall make
        appropriate adjustments in the terms of the Option to preserve the economic
        interest of the grant. Any such adjustments will be made by the Board, or
        a
        committee thereof, whose determination will be final, binding and conclusive.
        


      
        
          
          

        

        
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      8. 
        The
        grant of the Option does not confer on you any right to continue in the employ
        of the Company or any of its subsidiaries or affiliates or interfere in any
        way
        with the right of the Company or its subsidiaries or affiliates to terminate
        the
        term of your employment.

      


      9.
        The
        Company shall require as a condition to the exercise of any portion of the
        Option that you pay to the Company, or make other arrangements regarding
        the
        payment of, any federal state or local taxes required by law to be withheld
        as a
        result of such exercise. 

      


      10. Unless
        at
        the time of the exercise of any portion of the Option a registration statement
        under the Securities Act of 1933, as amended (the “Act”), is in effect as to the
        Shares, the Shares shall be acquired for investment and not for sale or
        distribution, and if the Company so requests, upon any exercise of the Option,
        in whole or in part, you agree to execute and deliver to the Company a
        reasonable certificate to such effect. 

      


      11.
        You
        understand and acknowledge that: (i) any Shares purchased by you upon
        exercise of the Option may be required to be held indefinitely unless such
        Shares are subsequently registered under the Act or an exemption from such
        registration is available; (ii) any sales of such Shares made in reliance
        upon Rule 144 promulgated under the Act may be made only in accordance with
        the terms and conditions of that Rule (which, under certain circumstances,
        restrict the number of shares which may be sold and the manner in which shares
        may be sold); (iii) certificates for Shares to be issued to you hereunder
        shall bear a legend to the effect that the Shares have not been registered
        under
        the Act and that the Shares may not be sold, hypothecated or otherwise
        transferred in the absence of an effective registration statement under the
        Act
        relating thereto or an opinion of counsel satisfactory to the Company that
        such
        registration is not required; (iv) the Company shall place an appropriate
“stop transfer” order with its transfer agent with respect to such Shares; and
        (v) you shall abide by all of the Company’s policies in effect at the time
        you acquire any Shares and thereafter, including the Company’s Insider Trading
        Policy, with respect to the ownership and trading of the Company’s securities.


       

      12. The
        Company shall use commercially reasonable to file and keep in effect a
        Registration Statement on Form S-8 registering under the Act the Shares issuable
        to you upon exercise of the Option. 


      
        
          
          

        

        
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      13. The
        Company represents and warrants to you as follows: (i) this agreement and
        the grant of the Option hereunder have been authorized by all necessary
        corporate action by the Company and this agreement is a valid and binding
        agreement of the Company enforceable against the Company in accordance with
        its
        terms; (ii) the grant of the Option to you on the terms set forth herein
        will be exempt from the provisions of Section 16(b) of the Exchange Act pursuant
        to Rule 16b-3(d) thereunder; (iii) the Company will obtain, at its
        expense, any regulatory approvals necessary or advisable in connection with
        the
        grant of the Option or the issuance of the Shares; and (iv) the Company
        currently has reserved and available, and will continue to have reserved
        and
        available during the term of the Option, sufficient authorized and issued
        shares
        of its Common Stock for issuance upon exercise of the Option. 

      


      14.
        This
        agreement and the Employment Agreement contain all the understandings between
        the Company and you pertaining to the matters referred to herein, and supersedes
        all undertakings and agreements, whether oral or in writing, previously entered
        into by the Company and you with respect hereto. No provision of this agreement
        may be amended or waived unless such amendment or waiver is agreed to in
        writing
        signed by you and a duly authorized officer of the Company. No waiver by
        the
        Company or you of any breach by the other party hereto of any condition or
        provision of this agreement to be performed by such other party shall be
        deemed
        a waiver of a similar or dissimilar condition or provision at the same time,
        any
        prior time or any subsequent time. If any provision of this agreement or
        the
        application of any such provision to any party or circumstances shall be
        determined by any court of competent jurisdiction to be invalid and
        unenforceable to any extent, the remainder of this agreement or the application
        of such provision to such person or circumstances other than those to which
        it
        is so determined to be invalid and unenforceable, shall not be affected thereby,
        and each provision hereof shall be validated and shall be enforced to the
        fullest extent permitted by law. This agreement will be governed by and
        construed in accordance with the laws of the State of New York, without regard
        to its conflicts of laws principles. This agreement may be executed in
        counterparts, each of which shall be deemed an original, but all of which
        together shall constitute one and the same instrument. 


      
        
          
          

        

        
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      Would
        you
        kindly evidence your acceptance of the Option and your agreement to comply
        with
        the provisions hereof by executing this agreement in the space provided below.
        

      


      
        	 	
                Very
                  truly yours,

                 

                NATIONAL
                  HOLDINGS CORPORATION   

              
	 	 
	 	
                By:  

              	
                /S/
                  MARK GOLDWASSER

              
	 	
                 

              	
                Authorized
                  Representative 

              
	 	 	 
	
                AGREED
                  TO AND ACCEPTED:  

              	
                 

              	
                 

              
	 	 	 
	
                /S/
                  LEONARD J. SOKOLOW

              	 	 
	
                Leonard
                  J. Sokolow

              	 	 


      


      
        
          
          

        

        
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      EXHIBIT
        1 

      NATIONAL
        HOLDING CORPORATION

      120
        Broadway, 27th
        Floor

      New
        York,
        NY 10271


      


      Gentlemen:
        

      


      Notice
        is
        hereby given of my election to purchase ____________ shares of Common Stock,
        $.02 par value (the “Shares”), of National Holdings Corporation, at a price of
        $_________ per Share, pursuant to the provisions of the stock option granted
        to
        me on July 1, 2008. Enclosed in payment for the Shares is: 

      


      o     my
        check in the amount of $______. 

      o     ______
        Shares having a total value of $________, such value being based on the Fair
        Market Value of the Shares on the date of exercise. 

      


      The
        following information is supplied for use in issuing and registering the
        Shares
        purchased hereby: 

      


      
        	
                Number
                  of Certificates
and
                  Denominations 

              	
                 

              	
                 

              
	
                 

              	 	 
	
                Name
                  

              	
                 

              	
                 

              
	
                 

              	 	 
	
                Address
                  

              	
                 

              	
                 

              
	
                 

              	 	 
	
                 
                  

              	
                 

              	
                 

              
	
                 

              	 	 
	
                 
                  

              	
                 

              	
                 

              
	
                 

              	 	 
	
                Social
                  Security No. 

              	
                 

              	
                 

              


      

      Dated:
        

      


      
        	
                 
                  Very truly yours, 

              
	 
	
                 

              
	
                Leonard
                  J. Sokolow

              


      


      
        
          
          

        

        
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