THE MORGAN GROUP, INC.
                               2545 WILKENS AVENUE
                            BALTIMORE, MARYLAND 21223




                                                                January 12, 2000

Mr. Anthony T. Castor, III
2702 Hemmingway Lane
Mahwah, New Jersey 07430

                  Re:      Anthony T. Castor, III/
                           The Morgan Group, Inc.

Dear Tony:

         This  letter  will  serve to  confirm  our offer and  mutual  agreement
pursuant to which you will serve as President and Chief Executive Officer of The
Morgan Group, Inc.  ("Morgan")  reporting  directly to the Board of Directors of
Morgan  ("Board"),  and  responsible  to the Board for  carrying out its primary
directives.  You agree to devote  substantially  all of your  business  time and
energies  to the  business  of the Company  and to  faithfully,  diligently  and
competently perform your duties hereunder. Such mutual agreement shall encompass
the following principal terms and conditions:

                  1. Your annual base salary will be Two Hundred Fifty  Thousand
         ($250,000.00)  Dollars (the "Base Salary") which will be paid to you in
         accordance with Morgan's  standard  payment  policies.  The Base Salary
         shall be  reviewed  annually  by the  Board of  Directors  and shall be
         subject to (a)  increases  to reflect  inflation  and (b)  increases to
         reflect your performance,  as may be reasonably determined by the Board
         of Directors.

                  2. In  addition to your Base  Salary,  you will be eligible to
         receive   a   non-capped   annual   performance-related   bonus,   upon
         accomplishment of corporate goals and objectives, the identity of which
         shall be jointly  determined  by the Board and you.  The bonus equal to
         fifty (50%) percent of your base salary in the event that your targeted
         corporate goals and objectives are satisfied (the "Target Bonus").  For
         calendar  year  2000,  the  bonus  shall be not less  than One  Hundred
         Thousand (100,000.00) Dollars.

                  3. Om  addition  to your Base Salary and Bonus as set forth in
         Sections 1 and 2 hereof,  you shall  receive  options  allowing for the
         acquisition by you of 120,000 shares of Morgan stock in accordance with
         the  terms  of  the  Non-Qualified  Stock  Option  Plan  and  Agreement
         simultaneously entered into between you and Morgan.

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                  4.  Salary,  bonus,  options  and  benefits  shall be reviewed
         annually.  In the event that the 2000 EBITDA target is achieved,  it is
         anticipated  you will receive a favorable  review relative to increases
         in each of the foregoing.

                  5. In the event that your employment with Morgan shall, at any
         time, be terminated by Morgan without  "cause",  Morgan will pay to you
         (or, in the event of your medical disability or death subsequent to the
         termination of your  employment by Morgan without cause,  to your legal
         representative), an amount to be calculated as follows:

                  (a)      For the date of commencement of your employment
                           until your first anniversary date, one times your
                           "total compensation" (i.e. Base Salary plus your
                           Target Bonus);

                  (b)      From your first anniversary date until your second
                           anniversary date, one and one-half times your "total
                           compensation" (i.e. Base Salary plus your Target
                           Bonus); or

                  (c)      From and after  your  second  anniversary  date,  two
                           times your  "total  compensation"  (i.e.  Base Salary
                           plus your Target Bonus).

         Such amount will be payable to you in equal monthly  installments  over
         the following  "Severance  Periods" (which for purposes of this Section
         shall  be  twelve  (12)  months  in the  event  that  the  term of your
         employment  is  governed  by the Section  5(a) of this  Agreement;  and
         twenty-four  (24) months in the event that the term of your  employment
         is governed by Section 5(c) of this Agreement. In addition,  during the
         applicable Severance Periods, Morgan will (i) continue to permit you to
         participate  in those  medical and other  insurance  benefit  plans the
         currently  provided  by Morgan to its  executive  officers  on the same
         terms and conditions  (including  employee  contributions)  as are made
         available to its  executive  officers and (ii)  continue to (a) provide
         you with the use of the  company  car  split  dollar  insurance  policy
         described  in  Section  9  (such  benefits  being  referred  to as  the
         "Continued  Benefits".  Notwithstanding the foregoing,  if continuation
         coverage under Morgan's  medical and other insurance  benefit plans for
         any portion of the  Severance  Periods is not permitted by such plants,
         in lieu of such continued  coverage,  Morgan shall pay you an amount in
         cash equal to the premium cost that would  otherwise have been incurred
         by Morgan in providing  you with such  coverage  during such  remaining
         portion of the  Severance  Periods.  Following  such a  termination  of
         employment,  you shall not be  entitled  to any other  compensation  or
         benefits  hereunder.  Any other  benefits  payable during the Severance
         Periods,  will be  determined  under  the  employee  benefit  plans and
         programs of Morgan as in effect from time to time.

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                  For the purposes of this  agreement,  termination  for "cause"
         shall be limited to the following:

                  (a)      The willful and continued failure by you to
                           substantially perform your duties hereunder;

                  (b)      Gross  misconduct  which  is or could  reasonably  be
                           expected to become  materially  injurious  to Morgan,
                           including,      without      limitation,       fraud,
                           misappropriation  of Morgan property,  or opportunity
                           or    unauthorized    disclosure   of    confidential
                           information;

                  (c)      Any act or acts of dishonesty constituting a felony
                           under the laws of the United States or any state
                           thereof;

                  (d)      Your  substantial  and material  breach of loyalty to
                           Morgan  including,  but not  limited  to,  dishonesty
                           resulting  or   intending  to  result,   directly  or
                           indirectly,  in personal  gain or  enrichment  at the
                           expense of Morgan;

                  (e)      A  final   adjudication   by  a  Court  of  competent
                           jurisdiction  that you are mentally  "incapacitated",
                           as that  term  is  defined  in  accordance  with  the
                           statute or case law of the State of New York.

                  (f)      Any  other   circumstances   which  would  constitute
                           termination  for cause under the laws of the State of
                           New York.

         Any  and all  other  circumstances  giving  rise  to a  termination  of
         employment shall be deemed termination "without cause".

                  In the event of the  termination of your employment for cause,
         or due to your voluntary resignation, or your death or disability, your
         entitlement to compensation hereunder will be limited to the payment of
         any  accrued  but unpaid  Base  Salary for the  period  preceding  your
         termination and any Bonus earned, but not yet paid, with respect to any
         previously  completed year. Any other benefits payable following such a
         termination of employment will be determined under the employee benefit
         plans and programs of Morgan as in effect from time to time.

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                  6.  Notwithstanding  the  foregoing,   in  the  event  of  the
         termination  of your  employment  by  Morgan or its  successor  without
         cause,  or due to your  "constructive  termination",  in  either  case,
         within the twelve  months next  subsequent  to a "change of control" of
         Morgan,  you will receive,  by way of lump sum payment,  in lieu of the
         cash  payments  described  in  Section  3,  upon  such  termination  or
         constructive termination, an amount equal to the greater of two times:

                           (i) your  then-current  Base  Salary  plus fifty (50%
                  percent of your then-current Base Salary; or

                           (ii) your total compensation (Base Salary plus bonus)
                  for  the  prior  calendar  year  preceding  the  date  of your
                  termination.

         In addition to the foregoing,  those options granted to you pursuant to
         Section  3 of this  Agreement  plus any  additional  options  which may
         hereafter be awarded to you, if not already vested,  shall  immediately
         vested and be exercisable by you.

         You shall  also  receive  during  the  twenty-four  (24)  month  period
         following the exercise by you of this "change of control" provision the
         Continued Benefits as described in Section 5 hereof.

                  For this purposes of this provision:

                  (i) a "change of control" shall be deemed to have occurred (a)
                  only on the date,  if any,  of any  event,  immediately  after
                  which any entity  has the right to  appoint a majority  of the
                  representatives  to  the  Board  of  Directors  of  Morgan  or
                  otherwise  direct or control  the  affairs of Morgan but shall
                  not include Morgan "going  private" or any change  pursuant to
                  which Mario J.  Gabelli,  or an entity  controlled by Mario J.
                  Gabelli,  remains in  control  of Morgan;  or (b) in the event
                  that an entity not controlled by Mario J. Gabelli changes your
                  reporting status so that you are no longer directly  reporting
                  to the Board and charged with the  responsibility for carrying
                  out its primary directives; or (c) in the event that an entity
                  controlled by Mario J. Gabelli  changes your reporting  status
                  so that you are no longer  directly  reporting to a Board of a
                  Gabelli-controlled  entity and charged with the responsibility
                  for carrying out its primary directives; and

                  (ii)  "constructive  termination"  shall mean your resignation
                  due  to (a) a  substantial  diminution  of  your  position  or
                  responsibilities with Morgan, including, without limitation, a
                  change  in your  reporting  status  so that you are no  longer
                  directly   reporting   to  the  Board  and  charged  with  the
                  responsibility  for carrying out its primary directives or (b)
                  Morgan's  failure to pay you any of the  compensation to which
                  you are entitled hereunder, in either case, which is not cured
                  within ten

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                  (10) days  following  Morgan's  receipt of written notice from
                  you detailing such diminution or failure.

                  7.       Certain Covenants.

                  You  acknowledge   that:  (i)  Morgan  conducts  its  business
         throughout  the United States and; (ii) your work for Morgan will bring
         you into close  contact  with many  confidential  affairs  not  readily
         available  to the  public;  and (iii)  Morgan  would not  execute  this
         agreement but for your agreements and covenants  contained  herein.  In
         order for Morgan to enter into this letter agreement,  you covenant and
         agree that:

                  7.1. Covenant Not to Compete. You hereby agree that during the
         term  of  this  Agreement,   and  following  the  termination  of  your
         employment for any reason (other than your death), you shall not, for a
         period of eighteen (18) months (the :"Restrictive Period"), directly or
         indirectly, as an officer, director,  stockholder,  partner, associate,
         employee, consultant, owner, agent, creditor, co-venturer or otherwise,
         become or be  interested  in or be  associated  with,  nor  accept  any
         gratuity from,  any other  corporation,  firm or business  engaged in a
         business which is competitive  with any material  business  operated by
         Morgan or any of its subsidiaries or affiliates in any region where, on
         the date on which your  employment is terminated,  Morgan or any of its
         subsidiaries  or affiliates is doing business or, to your knowledge has
         developed plans to do business.

                  7.2 Nonsolicitation.  Except with the prior written permission
         of Morgan,  you shall not,  directly or indirectly,  during the term of
         your employment and during the Restrictive Period (a) entice away or in
         any manner cause, persuade or attempt to cause or persuade any officer,
         employee or agent of Morgan,  or any of its subsidiaries or affiliates,
         to discontinue his or her relationship  with Morgan,  such subsidiaries
         or  affiliates,  or (b)  employ  any  person who is then or had been an
         employee of Morgan or any of its subsidiaries or affiliates at any time
         within  the  one-year  period  immediately  preceding  the  date of the
         termination  of your  employment.  In addition,  during that period you
         shall not  directly or  indirectly  approach or attempt to approach any
         customer or vendor of Morgan,  its  subsidiaries  or  affiliates  in an
         attempt to change the relationship  between Morgan, its subsidiaries or
         affiliates and any customer or vendor.

                  7.3  Confidentiality.  You  acknowledge  that any  information
         constituting  a trade secret or otherwise of a  proprietary,  secret or
         confidential  nature of or relating to the business of Morgan or any of
         its affiliates  acquired by you during your employment by Morgan is the
         exclusive property of and of great value to Morgan and its affiliates.

                  You  agree  that you will not at any time  (whether  during or
         after your  employment with Morgan disclose or use for your own benefit
         or  purposes or the  benefit or  purposes  of any other  person,  firm,
         partnership, joint venture, association,  corporation or other business
         organization,  entity or  enterprise  other than  Morgan and any of its
         subsidiaries or

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         affiliates, any trade secrets, information, data, or other confidential
         information  relating  to  customers,   development  programs,   costs,
         marketing, trading, investment, sales activities, promotion, credit and
         financial data, manufacturing  processes,  financing methods, plans, or
         the business and affairs of Morgan  generally,  or of any subsidiary or
         affiliate of Morgan,  provided  that the  foregoing  shall not apply to
         information  which is not unique to Morgan or which is generally  known
         to the  industry or the public other than as a result of your breach of
         this covenant.  You agree that upon termination of your employment with
         Morgan  for any  reason,  you will  return  to Morgan  immediately  all
         memoranda,  books, papers, plans, information,  letters and other data,
         and  all  copies  thereof  or  therefrom,  in any way  relating  to the
         business  of Morgan  and its  affiliates,  except  that you may  retain
         personal notes, notebooks, and diaries. You further agree that you will
         not  retain  or use for  your  account  at any time  any  trade  names,
         trademark or other  proprietary  business  designation used or owned in
         connection with the business of Morgan or its affiliates.

                  7.4 In the event the Restrictive Period, as defined in Section
         7.1, is determined to be unenforceable, the Restrictive Period shall be
         for a period of nine (9) months.

                  8.  Upon the  Commencement  Date and  during  the term of your
         employment  hereunder,  Morgan will have you nominated for and will use
         its best efforts to have you elected to the Morgan Board of Directors.

                  9. You will be entitled to  participate  in all benefits  made
         available to Morgan executive officers as may be in effect from time to
         time.  In addition,  Morgan will  continue to maintain for your benefit
         the  Split-Dollar  Life  Insurance Plan ("Plan") in which you currently
         participate.  It is understood that Morgan's agreement to fund the Plan
         is governed by the following terms:

                  (a)      The  annual  premiums  to be paid by Morgan  shall be
                           equal to twelve and one half percent  (12.5%) of your
                           base  salary  and  cash  bonus  not to  exceed  Fifty
                           Thousand Dollars ($50,000) annually;

                  (b)      Six (6)  points of the  twelve  and one half  percent
                           (12.5%) are  understood  to be a Morgan  contribution
                           that will be matched by you on an annual basis;

                  (c)      The balance of the points  (six and one half  percent
                           (6.5%))  will  be  contributed  by  Morgan  with  the
                           understanding  that  such  amounts  will be repaid to
                           Morgan in accordance with the terms of the Plan;

                  (d)      In the event you contribute  less than six (6) points
                           of  the  twelve  and  one  half  percent  (12.5%)  as
                           provided in Section (b),  Morgan's  contribution will
                           be reduced to an amount equal thereto;  however, this
                           will not relieve Morgan's obligation in Section 9(c).

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                  (e)      Your failure to  contribute  two (2%) or more percent
                           to the Plan for  three  (3)  consecutive  years  will
                           relieve Morgan of any obligation to contribute to the
                           Plan.

                  10. During the term of your  employment,  you will be provided
         with the use of a Morgan  company car  appropriate to your position and
         consistent with Morgan's policy or, at your choosing, with an allowance
         of approximately One Thousand Dollars ($1,000) per month.

                  11.  During the term of your  employment,  all travel taken by
         you in connection  with the business and affairs of Morgan will be paid
         by Morgan or reimbursed to you in a manner appropriate to your position
         and consistent with Morgan's policy.

                  12.  As of the  date  of  execution  of  this  Agreement,  the
         Executive  Offices of Morgan  shall be located  in Rye,  New York.  You
         shall  be  provided  with  administrative  and  support  staff  at such
         location.  In  addition,  an office for you,  with  staffing,  shall be
         provided at Morgan's facility in Elkhart, Indiana.  Hereafter, you will
         be permitted to choose a location for the Executive  Offices of Morgan,
         with the reasonable approval of the Board.

                  13. You will be reimbursed  the sum of Five  Thousand  Dollars
         ($5,000) for  attorneys'  fees and costs  incurred by you in connection
         with the negotiation and preparation of this Agreement.

                  14. Entire  Agreement/Amendments.  This Agreement contains the
         entire  understanding of the parties with respect to your employment by
         Morgan. There are no restrictions,  agreements,  promises,  warranties,
         covenants  or  undertakings  between  the parties  with  respect to the
         subject matter herein other than those expressly set forth herein. This
         agreement may not be altered,  modified,  or amended  except by written
         instrument signed by the parties hereto.

                  15. No Waiver.  The  failure of a party to insist  upon strict
         adherence to any term of this  Agreement  on any occasion  shall not be
         considered a waiver of such party's rights or deprive such party of the
         right  thereafter  to insist upon strict  adherence to that term or any
         other term of this Agreement.

                  16.  Notice.  For the purpose of this  Agreement,  notices and
         other communications  provided for in the Agreement shall be in writing
         and shall be deemed to have been duly given when delivered or mailed by
         United  States  registered  mail,  return  receipt  requested,  postage
         prepaid,  addressed  to (i)  with  respect  to you,  to  Wiss,  Cooke &
         Santomauro,  P.C.,  Attention  Raymond R. Wiss,  Esq., Three University
         Plaza, Suite 207,  Hackensack,  New Jersey 07601; and (ii) with respect
         to Morgan, to Morgan's principal Executive Offices, to the attention of
         the Corporate Secretary; or to such other address as

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         either party may have  furnished to the other in writing in  accordance
         herewith,  except that notice of change of address  shall be  effective
         only upon receipt.

                  17.  Withholding  Taxes.  Morgan may withhold from any amounts
         payable under this agreement such Federal, state and local taxes as may
         be  required  to  be  withheld   pursuant  to  any  applicable  law  or
         regulation.

                  18.  Governing  Law.  This  agreement  shall be  governed  and
         construed in accordance with the laws of the State of New York.

                  19.  Arbitration  of  Disputes.  The  parties  agree  that any
         controversy or claim arising out of or relating to this  Agreement,  or
         any dispute arising out of this interpretation of this Agreement, which
         the  parties  are  unable to  resolve,  shall be finally  resolved  and
         settled  exclusively by binding  arbitration in New York City, New York
         by a single arbitrator acting under the Commercial Arbitration Rules of
         the American  Arbitration  Association  ("AAA") then in effect.  If the
         parties cannot agree upon an arbitrator  from the panel provided by the
         AAA,  then each party shall choose its own  independent  representative
         and such representatives shall choose the arbitrator within thirty (30)
         days  of  the  date  of  the   selection   of  the  first   independent
         representative.

                  20.   Counterparts.   This   agreement   may  be   signed   in
         counterparts,  each of which shall be an original, with the same effect
         as if the signatures thereto and hereto were upon the same instrument.

         It is my  understanding  that it is your  intention  to  commence  your
employment with Morgan at a mutually  agreeable time, but in no event later than
January 15, 2000 (the "Commencement Date").

         I trust that this letter  accurately  reflects our discussions and that
the terms and conditions set forth herein are acceptable.  If you are agreeable,
please  execute  the copy of this  letter  where  indicated,  and send two fully
executed copies back to me acknowledging your acceptance of the offer.

                                             Very truly yours,

                                             THE MORGAN GROUP, INC.


                                             By: /s/ Charles C. Baum
                                                 ------------------------------
                                                      Charles C. Baum,
                                                      Chairman of the Board and
                                                      Chief Executive Officer

                                                        -8-

Accepted and Agreed this 12th day of January, 2000.

ANTHONY T. CASTOR, III



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