TERMS AND CONDITIONS OF EMPLOYMENT

1.

Term . This Letter Agreement will govern the terms and conditions of your employment, and any termination thereof, from January 1, 2006 (the “Effective Date”) until December 31, 2008 (the “Term”). Until the Effective Date, the terms and conditions of your employment, and any termination thereof, shall be governed by the Letter Agreement between you and the Company, dated May 30, 2002, and upon the Effective Date, such Letter Agreement shall be of no further force and effect.

2.

Position; Duties . You will continue to be employed by the Company as its Chief Executive Officer, and continue to serve as Chairman of the Board of Directors of the Company (the “Board”). You will report to the Board, and shall perform such duties as are consistent with your position as Chief Executive Officer. You agree to use your best efforts to perform such duties faithfully, to devote all of your working time, attention and energies to the businesses of the Company, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company. You will also be employed as Chief Executive Officer of Knight Equity Markets, L.P. and as the senior executive officer of such other subsidiaries as designated by the Board and approved by the board of directors of such subsidiaries.

3.

Base Salary . While you are employed during the Term, you will be entitled to a Base Salary of $750,000, payable in accordance with the Company’s normal payroll practices.

4.

Annual Bonus . You will be entitled to a bonus (an “Annual Bonus”) for 2005 through 2008 as follows:

(a)

2005 Bonus . Provided that, pursuant to performance targets previously established by the Compensation Committee of the Board under the Company’s Executive Incentive Plan (“EIP”), you would be entitled to an Annual Bonus in respect of 2005 (“2005 Bonus”) of at least $1.5 million, the Compensation Committee will not exercise its discretion to reduce your 2005 Bonus below $1.5 million.

(b)

2006 Bonus . Your Annual Bonus for 2006 will be based upon the achievement of consolidated pre-tax income targets as set by the Compensation Committee.

(c)

2007 and 2008 Bonus . Your Annual Bonus in respect of each of 2007 and 2008 shall be based on achievement of performance targets established by the Compensation Committee no later than March 31 of each such year, after consultation with you. The Compensation Committee shall set the targets in a manner consistent with the manner in which the 2006 targets were established in terms of probability of achieving the targets and magnitude of potential payout, taking into account the budget presented by management for each such year.

(d)

Timing and Form of Payment . Each Annual Bonus will be paid by March 15 of the following year, unless administratively impracticable to do so. Sixty percent (60%) of each Annual Bonus shall be paid in cash, and 40% shall be paid in shares of restricted common stock of the Company (“Restricted Shares”), provided that the 2005 Annual Bonus shall be paid entirely in cash. The number of Restricted Shares awarded shall be based on the average of the high and low sales prices of a share on the trading date immediately preceding the date the Annual Bonus is paid. The Restricted Shares shall vest in three equal installments on each anniversary of the date they are awarded, subject to accelerated vesting upon a Change in Control. Except as set forth in paragraph 7, upon your termination of employment for any reason, any Restricted Shares that have not then vested shall be forfeited to the Company for no consideration. The Restricted Shares shall be granted under, and subject to such other terms and conditions of, one of the Company’s stockholder-approved stock plans as then in effect, provided that if no such plans are then in effect or the Restricted Shares cannot be granted pursuant to any such plan, then in lieu of Restricted Shares, you shall receive phantom shares that replicate the economics of the Restricted Shares, but are payable in cash on the vesting dates.

(e)

EIP . Your Annual Bonus awards for 2006 through 2008 shall be granted under, and subject to the terms and conditions of, the EIP.

5.

Stock Option . Upon the Effective Date, you will be granted an option to purchase 350,000 shares of the Company’s common stock. Such stock option (i) will have an exercise price per share equal to the average of the high and low sales prices on the last trading day in 2005, (ii) will expire upon the earliest of (a) the fifth anniversary of the date of grant, (b) as to unvested options (subject to paragraph 7 below), immediately upon your termination of employment for any reason, (c) as to vested options, the 91st day following termination of your employment for any reason, provided that if such termination is for “cause” (as defined below), vested options shall terminate immediately upon such termination of employment, (iii) for tax purposes, will be non-qualified, and (iv) will be granted under and subject to the terms of the Company’s 1998 Long-Term Incentive Plan, provided that neither the Committee thereunder nor the Board will exercise any discretion to cause the provisions of Sections 7(a) and (b) of such plan not to apply.

6.

Benefits . You will be provided with such retirement benefits, fringe benefits and insurance coverages as are made available to senior executives of the Company. In addition, the Company will provide you with a car and driver for your daily commute between your home and the office.

7.

Termination . Notwithstanding the Term, you will be free to resign from the Company at any time, and the Company will be free to terminate your employment at any time. Upon any such termination or resignation, you will be entitled to any amounts earned and payable but not yet paid. In addition, if, prior to the expiration of the Term, the Company terminates your employment other than for “cause” or other than by reason of your “disability”, or you resign for “good reason”, then, in lieu of any other severance benefits otherwise payable under any Company policy, or any other damages payable in connection with such termination, you will be entitled to (i) exercise the portion of the stock option granted pursuant to paragraph 5 that was not vested on the date of termination of your employment, during the 90-day period commencing on the first anniversary of the date of such termination, (ii) full vesting of any Restricted Shares previously granted to you, on the first anniversary of the date of termination of your employment, (iii) a cash payment equal to $5 million, payable in a lump sum on the date that is six months following such termination, and (iv) reimbursement of premiums you pay for continued health coverage under “COBRA” during the one year period following termination of your employment. Your right to such exercisability, vesting, payments, and benefits shall be conditional upon (i) your execution of a customary release of all claims against the Company and its affiliates and representatives in a form satisfactory to the Company, and (ii) your not, directly or indirectly, hiring or attempting to hire any person who is or was employed by the Company or its affiliates at any time after the date that is six months prior to the date of termination of your employment, or otherwise induce any such person to terminate his or her employment with the Company or its affiliates. You acknowledge that if your employment terminates (i) by reason of your death, (ii) by the Company on account of your “disability”, (iii) by you without “good reason”, or (iv) by the Company for “cause”, you will not be entitled to such exercisability, vesting, payments, and benefits. For purposes of this paragraph 7, the following terms shall have the meanings set forth below: