Employment Offer Letter – Legg Mason, Inc.

December 13, 2010

Mr. Peter Nachtwey

3303 Water Street NW

Unit 7-L

Washington, DC 20007

Dear Pete,

This letter will confirm the offer of employment that Legg Mason & Co.,
LLC has made to you. We have offered to employ you as the Chief Financial
Officer in the Baltimore, Maryland corporate office at a semi-monthly salary of
$14,583.34 ($350,000 annually). You will receive a one time sign-on cash award
in the amount of $500,000, less applicable taxes that will be included in your
first paycheck. If within thirty-six (36) months of your date of hire, your
employment is terminated by the Company, or by its successors or affiliates, for
cause (as defined in the attached “Explanation of Incentive Compensation
Awards”), you will be responsible for repaying a pro-rated amount of the sign-on
award, plus all collection costs (including attorneys153 fees) incurred in
connection therewith. The pro-rated amount will be based on months worked.

You will be granted Legg Mason restricted stock in the amount of $250,000 and
stock options in the amount of $250,000. The expected date of this grant is the
first of the month following your hire date. The terms and conditions of this
award will be in accordance with the relevant plan documents.

For performance year ending March 31st, 2011, subject to the terms set forth
above, the total value of your incentive compensation award will be $325,000
cash, less applicable taxes and other required deductions, $125,000 of
restricted stock, and $125,000 in stock options. Guaranteed bonus awards are
null and void if prior to the normal payment date for the bonus you are
terminated “For Cause” as defined on the Explanation of Incentive Compensation
Awards document attached to this letter or you voluntarily resign. In addition,
for future performance cyles, you are eligible for an annual cash target of
$1,300,000 and an annual equity target of $1,000,000. This targeted bonus award
is discretionary and contingent upon Company performance and, of course
dependent upon your continued employment at the time of payment, as permitted by
all State and Federal laws. Any incentive compensation will be awarded pursuant
to the incentive and restricted stock or other deferred compensation program(s)
in effect at the time of payment, and may consist of a cash bonus, or a
combination of cash and shares of restricted stock or other deferred
compensation.

i.

A general overview of incentive compensation awards is attached to this
letter. The compensation package including deferred and future payments is
dependent upon your continued employment at the time of payment unless State or
Federal laws specifically provide otherwise.

ii.

Legg Mason employees are paid on the 15^th and the last day of the
month. If the 15^th or the last day of the month falls on a weekend
day or a holiday, you will be paid on the last work day before the designated
pay day.

iii.

You will be eligible for all Company benefits generally available to
full-time regular employees and be subject to all policies and practices of the
Company as articulated in the Legg Mason employee handbook (available
electronically on the Company153s intranet site and updated from time to time,
with or without notice, for which you are responsible for understanding), and
other communications. One benefit includes Paid Time Off (PTO). It is important
to note that there are cases where accrued but unused PTO is not paid at the
time of separation. The full PTO policy is enclosed here.

iv.

While you are employed by Legg Mason, its successors and affiliates, and for
a twelve (12) month period following the termination of your employment for any
reason, you agree that you will not directly or indirectly solicit any business
from any client of the Company or its affiliates. During this period, you
further agree that you will not directly or indirectly encourage the termination
or reduction of any business that the Company or its affiliates has with any
such client. Your agreement not to solicit means that for twelve (12) months
following your termination date, you will not initiate contact or communication
of any kind for the purpose of inviting, encouraging or requesting any such
client to (a) transfer an existing account from the Company or its affiliates to
you or any third party, (b) open a new account with you or any third party, or
(c) surrender, redeem or terminate any product, service or relationship with the
Company or its affiliates. Additionally, while you are employed by Legg Mason,
its successors and affiliates, and for a twelve (12) month period following the
termination of your employment for any reason, you agree that you will not
directly or indirectly solicit or encourage any employee of the Company or its
affiliates to terminate his/her employment and become employed elsewhere. Your
signature below constitutes your acknowledgement of, and agreement with, these
terms.

v.

It is important to note that due to regulatory considerations, Legg Mason
monitors the personal trading activities of its employees to ensure that all
such employees act in a manner consistent with the best interests of the clients
of Legg Mason and its affiliates. As a Legg Mason employee, you will receive
training during Orientation regarding the requirements applicable to you under
Legg Mason Code of Ethics. In particular, one requirement of which you should be
aware before accepting employment with Legg Mason is that, with few exceptions,
any brokerage accounts through which you trade must be maintained with one of
the following firms: Ameriprise Financial, Charles Schwab, E*Trade, Fidelity
Investments, Janney Montgomery Scott, Merrill Lynch, Morgan Stanley, Robert W.
Baird & Co., Scottrade, Smith Barney, T. Rowe Price, TD Ameritrade, UBS,
Wachovia, or directly held Legg Mason Funds and Legg Mason Partner Fund
Accounts. These firms have established the required electronic trade feeds into
the Legg Mason Compliance Department needed for monitoring purposes under the
Legg Mason Code of Ethics.

This offer is contingent upon the following:

*

A satisfactory reference check

*

Proof of right to work; satisfaction of (I-9) requirements

*

Verification of the information you have provided

*

A satisfactory background check (including but not limited to criminal,
education,credit, and employment verification)

*

Eligibility to be employed by Legg Mason as defined by applicable securities
laws and regulations promulgated thereunder.

If any of these contingencies are not met, the offer of employment may be
rescinded or, if you already have started working, your employment may be
terminated immediately.

While it is our hope and expectation that you will have a long and rewarding
career at Legg Mason, you should understand that this constitutes an offer of
“employment at will,” which means that, at any time after the commencement of
your employment and for any reason or for no reason at all, you may voluntarily
terminate your employment, and Legg Mason may terminate your employment without
further obligations to you. Any oral statements or representations to the
contrary are expressly disavowed.

Pete, we are truly excited about the possibility of you joining Legg Mason.
Please let us know if you are accepting this offer within 5 business days; the
offer is withdrawn if not accepted within this time period. Should you have any
questions, please call me at 410-454-3245.

Sincerely,

Patricia Lattin

Head, Global Human Resources

ACKNOWLEDGED AND ACCEPTED BY: /s/ Peter H. Nachtwey DATE:
12/13/2010