January 11, 2000


                  NON-QUALIFIED STOCK OPTION PLAN AND AGREEMENT

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

Dear Mr. Castor:

         To induce you to agree to become  employed  by The Morgan  Group,  Inc.
("Morgan") as its Chief Executive Officer,  you are hereby granted the option to
purchase a total of 120,000 shares of Morgan's  Class A Common Stock,  $.015 par
value per share ("Class A Common  Stock").  This  agreement is a separate  stock
option plan and  agreement not made  pursuant to Morgan's  Incentive  Stock Plan
(the "Plan");  provided, that the terms and conditions of that Plan which govern
grants  thereunder  shall  nevertheless  govern  the  terms  of  this  plan  and
agreement, except as otherwise expressly provided herein, and, for such purpose,
the Plan is incorporated herein by reference.

         1. The term of this option (the "Option Term") shall be for a period of
ten  years  and one  day  from  the  date of this  letter,  subject  to  earlier
termination as provided in paragraphs 3 and 4 hereof. This option shall vest and
become exercisable in three installments with different prices as follows:

         INSTALLMENT ONE:

         For 40,000 shares shall have an exercise  price of $5.625,  exercisable
         after the date 6 months from the date of this agreement.

         INSTALLMENT TWO:

         For 40,000 shares shall have an exercise  price of $7.625,  exercisable
         after the date 18 months from the date of this agreement.

         INSTALLMENT THREE:

         For 40,000 shares shall have an exercise  price of $9.625,  exercisable
         after the date 30 months from the date of this agreement.

Notwithstanding the forgoing,  this option may not be exercised unless and until
this plan and agreement has been approved by Morgan's stockholders in the manner
and to the extent required by the rules of the American Stock  Exchange.  Except
as otherwise provided above, the option may be


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exercised  at any  time,  or from time to time,  in whole or in part,  until the
Option Term expires,  but in no case may fewer than 100 such shares be purchased
at any one time, except to purchase a residue of fewer than 100 shares.

         2. You must pay the  exercise  price in cash at the time this option is
exercised;  provided,  however that, with the approval of Morgan's  Compensation
Committee (the "Committee"), you may exercise your option by tendering to Morgan
whole shares of Morgan's  Class A Common Stock owned by you, or any  combination
of whole shares of Morgan's Class A Common Stock owned by you and cash, having a
fair market value equal to the cash exercise price of the shares with respect to
which the option is exercised by you. For this  purpose,  any shares so tendered
shall be deemed  to have a fair  market  value as  determined  by the  Committee
consistent with the requirements of Treas.  Reg.  ss.20.2031-2 and ss.422 of the
Internal  Revenue Code of 1986, as amended.  To exercise  this option,  you must
send written  notice to Morgan's  Secretary  at the address  noted in Section 10
hereof.  Such  notice  shall  state the number of shares in respect of which the
option  is  being   exercised,   shall  identify  the  option   exercised  as  a
non-qualified  stock  option,  and shall be signed by the  person or  persons so
exercising  the option.  Such notice shall be accompanied by payment of the full
cash option price for such shares or, if the Committee has authorized the use of
the stock swap feature provided for above, such notice shall be followed as soon
as practicable by the delivery of the option price for such shares. Certificates
evidencing  shares of Class A Common  Stock will not be  delivered  to you until
payment has been made.

         3. If you are no  longer an  employee  of  Morgan  (or its  subsidiary)
because of any reason  other than death or  permanent  disability,  this  option
shall automatically terminate on the date sixty (60) days after your termination
of employment.

         Any  installment  of this option that is not vested in accordance  with
paragraph 1 at the time of your termination of employment shall terminate and be
forfeited;  provided,  that if your  employment is terminated by Morgan  without
cause (as defined in your employment agreement with Morgan dated on or about the
date hereof ("Employment Letter")):

         (a)      prior to the date 6 months  after the date of this  agreement,
                  Installment One shall become and remain  exercisable until the
                  date sixty (60) days after your termination of employment;

         (b)      after  the date 12 months  after  the date of this  agreement,
                  Installment Two shall become and remain  exercisable until the
                  date sixty (60) days after your termination of employment;

         (c)      after  the date 24 months  after  the date of this  agreement,
                  Installment  Three shall become and remain  exercisable  until
                  the date sixty (60) days after your termination of employment.

         4.  If  you  die  while  serving  as an  employee  of  Morgan  (or  its
subsidiary),  this option, to the extent otherwise vested and exercisable at the
time of your  death,  may be  exercised  in whole  or in part by your  executor,
administrator, or estate beneficiaries at any time within one (1) year after


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the date of your death but not later than the date upon which this option  would
otherwise  expire.  If your employment  with Morgan (or its  subsidiary)  should
terminate by reason of permanent  disability  (as  determined by the  Committee)
this option,  to the extent otherwise vested and exercisable at the time of such
termination,  may be  exercised  in whole or in part at any time  within six (6)
months  after your date of  termination,  but not later than the date upon which
this option would otherwise expire.

         5. This option is  non-transferable  otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order.
It may be  exercised  only by you or your  guardian,  if any, or, if you die, by
your executor,  administrator,  or beneficiaries of your estate who are entitled
to your option.

         6. All rights to exercise  this option will expire,  in any event,  ten
years and one day from the date of this letter.

         7.  Certificates  evidencing shares issued upon exercise of this option
may bear a legend  setting  forth among other  things such  restrictions  on the
disposition  or transfer  of the shares of Morgan as Morgan may deem  consistent
with applicable federal and state laws.

         8. Nothing in this option plan and agreement  shall  restrict the right
of Morgan  (or its  subsidiary  by which you are  employed)  to  terminate  your
employment  at any time  with or  without  cause,  subject  to the terms of your
Employment Letter.

         9. This option plan and agreement is subject to such regulations as may
from time to time be adopted by the Committee.  A copy of The Morgan Group, Inc.
Incentive  Stock Plan has been  furnished to you and an  additional  copy may be
obtained from Morgan. No amendment to such Plan shall be deemed to apply to this
plan and  agreement if such  amendment  would  conflict  with the express  terms
hereof.

         10. All notices by you to Morgan and your exercise of the option herein
granted,  shall be  addressed  to The Morgan  Group,  Inc.,  28651 U.S. 20 West,
Elkhart,  Indiana 46514,  Attention:  Secretary, or such other address as Morgan
may, from time to time, specify.

                                           Very truly yours,

                                           THE MORGAN GROUP, INC.


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

Accepted as of the date above written



Anthony T. Castor, III