<PAGE>



EXHIBIT 10.41

THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE  "SECURITIES  ACT"),  OR ANY  STATE  SECURITIES  LAW AND  MAY NOT BE  SOLD,
TRANSFERRED OR OTHERWISE  DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER  APPLICABLE STATE SECURITIES LAWS OR A.B. WATLEY GROUP INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT  REGISTRATION OF SUCH  SECURITIES  UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE  STATE SECURITIES LAWS
IS NOT REQUIRED.


                             A.B. WATLEY GROUP INC.
                             ----------------------


                   SENIOR SUBORDINATED DEMAND PROMISSORY NOTE
                   ------------------------------------------


U.S. $2,500,000                                             NEW YORK, NEW YORK

                                                             AUGUST 30, 2001


     FOR VALUE RECEIVED,  ON DEMAND, the undersigned,  A.B. Watley Group Inc., a
Delaware corporation (the "COMPANY"), hereby promises to pay to the order of SDS
Merchant Fund, L.P. or any future  permitted holder of this promissory note (the
"PAYEE"),  at the  principal  office of the Payee set forth  herein,  or at such
other place as the holder may designate in writing to the Company, the principal
sum of up to TWO MILLION FIVE HUNDRED  THOUSAND  DOLLARS (U.S.  $2,500,000),  or
such other amount as may be outstanding hereunder, together with all accrued but
unpaid interest,  in such coin or currency of the United States of America as at
the time shall be legal  tender for the payment of public and private  debts and
in immediately  available funds, as provided in this senior  subordinated demand
promissory note (the "NOTE").

     1. DEFINITION OF SENIOR DEBT. The term "SENIOR DEBT" shall mean and consist
of all present  indebtedness for borrowed money of the Company  (contingently or
otherwise), to banks, insurance companies and similar institutional lenders (all
such  lenders,   the  "LENDERS")  and  any  extension,   replacement,   removal,
restatement or refinancing thereof.

     2.   SUBORDINATION.

          (a) The payment of any and all of the principal amount of and interest
on  this  Note  (and  all  other  obligations  hereunder)  is  hereby  expressly
subordinated and made junior to the payment of the principal amount,  redemption
premium,  if any, all interest and any other  amounts due on the Senior Debt, to
the extent and in the manner set forth herein.

          (b) Until the Senior Debt shall have been  indefeasibly  paid in full,
the Company shall not make,  and the Payee shall not receive,  accept or retain,
any direct or indirect payment or reduction  (whether by way of loan, set-off or
otherwise) in respect of the  principal and interest of this Note,  whether this
Note shall have  become  payable at maturity or by  acceleration  or  otherwise;

<PAGE>

PROVIDED, HOWEVER, that, subject to the provisions of subsection (c) hereof, the
Company may make,  and the Payee may  receive,  accept and  retain,  payments of
principal and interest  permitted under Section 4 of this Note,  unless,  if, on
the date  such  payment  would  (but for the terms  hereof)  be  payable  to and
received by the Payee  pursuant to this Note,  (i) a default under the documents
evidencing  the Senior Debt shall have  occurred,  shall be continuing and shall
not have been  specifically  waived in writing by the  Lenders,  or the  Lenders
shall have  declared  the Senior Debt or any portion  thereof due and payable in
full on the basis of the occurrence of such default,  or (ii) such default shall
not be continuing on any such payment date,  but the Lenders shall have declared
all or any  portion of the Senior  Debt due and  payable in full on the basis of
the  occurrence  of such  default  and such  acceleration  shall  not have  been
specifically rescinded in writing by the Lenders.

          (c) In the  event  of (i) any  insolvency,  bankruptcy,  receivership,
custodianship,  liquidation, reorganization,  readjustment of debt, arrangement,
composition,   assignment  for  the  benefit  of  creditors,  or  other  similar
proceeding  relative  to the  Company,  or (ii)  any  proceeding  for  voluntary
liquidation, dissolution or other winding up or bankruptcy proceedings, then and
in any such event:

               (A) All of the Senior Debt shall first be paid in full before any
          payment or distribution of any character, whether in cash, securities,
          obligations or other property, shall be made in respect of this Note;

               (B) Any payment or  distribution  of any  character,  which would
          otherwise  (but for the terms  hereof) be payable  or  deliverable  in
          respect of this Note  (including  any payment or  distribution  of any
          other  indebtedness  of the Company being  subordinated to this Note),
          shall  be  paid  or  delivered   directly  to  the  Lenders  or  their
          representative,  until all of the Senior  Debt shall have been paid in
          full,  and the  Payee or any other  holder  of this  Note  irrevocably
          authorizes, empowers and directs all receivers,  custodians, trustees,
          liquidators,  conservators  and others having  authority to effect all
          such payments and deliveries;

               (C) The Payee or any other holder of this Note shall  execute and
          deliver  to the  Lenders  or their  representative  all  such  further
          instruments  confirming the authorization referred to in the foregoing
          clause (B), and shall take all such other  actions as may be requested
          by the Lenders or their  representative in order to enable the Lenders
          or their  representative  to  enforce  any and all  claims  upon or in
          respect of this Note and to collect  and give any and all  payments or
          distributions  which may be payable or deliverable at any time upon or
          with respect to this Note.

          (d) If,  notwithstanding  the  provisions of this Note, any payment or
distribution of any character (whether in cash, securities, obligations or other
property) or any security shall be received by the Payee in contravention of the
terms of this Note, and before all Senior Debt shall have been paid in full, and
PROVIDED  that the Payee has actual  knowledge of the  foregoing,  such payment,
distribution  or security  shall not be commingled  with any asset of the Payee,

                                       2
<PAGE>

shall be held in trust for the benefit  of, and shall be paid over or  delivered
and transferred to, the Lenders or their representative,  for application to the
payment of all Senior Debt remaining unpaid,  until all of the Senior Debt shall
have been paid in full.

          (e) This Note,  without  further  reference,  shall pass to and may be
relied on and  enforced by any  transferee  or  subsequent  holder of the Senior
Debt.

          (f) Except to the extent provided in this Note that the debt evidenced
by this Note may not  become  due and  payable  or be paid and the Payee may not
exercise rights with respect thereto,  nothing contained herein shall impair, as
between the Company and the Payee, the obligation of the Company to pay to Payee
the  principal of this Note,  and interest  thereon,  as and when the same shall
become due and payable in accordance with the terms hereof, or prevent the Payee
upon default with respect to this Note, from  exercising all rights,  powers and
remedies  otherwise  provided  herein or by  applicable  law, all subject to the
rights of the holders of Senior Debt hereunder.  Upon any distribution of assets
of the Company referred to in the provisions hereof, the Payee shall be entitled
to rely upon any order or decree made by any court of competent  jurisdiction in
which such dissolution,  winding up,  liquidation or reorganization  proceedings
are pending or a certificate of the liquidating trustee or agent or other person
making any  distribution  to the Payee,  for the  purpose  of  ascertaining  the
persons entitled to participate in such distribution,  the holders of the Senior
Debt and other  indebtedness  of the  Company,  the  amount  thereof  or payable
thereon,  the amount or amounts paid or distributed  thereon and all other facts
pertinent thereto or to the provisions hereof.

          (g) Notwithstanding any statute,  including,  without limitation,  the
U.S.  Federal  Bankruptcy  Code, as now or hereafter in effect (the  "BANKRUPTCY
CODE"), any rule of law or bankruptcy  procedures to the contrary,  the right of
the Lenders  hereunder to have all of the Senior Debt paid and satisfied in full
prior to the payment of any of the debt  evidenced  by this Note shall  include,
without  limitation,  the right of the  Lenders to be paid in full all  interest
accruing  on the Senior  Debt due to it after the filing of any  petition  by or
against the Company in connection  with any bankruptcy or similar  proceeding or
any other proceeding referred to in subsection 2(c) hereof, prior to the payment
of any  amounts  in respect of this Note,  including,  without  limitation,  any
interest due to the Payee accruing after such date.

          (h) No right of any  present or future  holders of any Senior  Debt to
enforce  subordination  as  herein  provided  shall  at any  time  in any way be
prejudiced  or  impaired by any act or failure to act on the part of the Company
or by any act or  failure to act in good  faith by any such  holders,  or by any
noncompliance  by the  Company  with the  terms  and  provisions  of this  Note,
regardless of any  knowledge  thereof with which any such holders may have or be
otherwise  charged.  The  holders  of the  Senior  Debt may,  without in any way
affecting the obligations of the Payee with respect thereto, at any time or from
time to time in their absolute discretion,  change the manner, place or terms of
payment  of,  change or extend  the time of payment  of, or renew or alter,  any
Senior  Debt,  or amend,  modify  or  supplement  any  agreement  or  instrument
governing  or  evidencing  such  Senior Debt or any other  document  referred to
therein,  or exercise or refrain from exercising any other of their rights under
the Senior Debt including,  without limitation, the waiver of default thereunder
and the release of any collateral  securing such Senior Debt, all without notice
to or assent from the Payee.


                                       3
<PAGE>

          (i) Subject to the prior payment in full of all Senior Debt, the Payee
shall be  subrogated  to the  rights of the  holders  of Senior  Debt to receive
payments or distributions of assets of the Company applicable to the Senior Debt
until all amounts owing on this Note shall be paid in full,  and for the purpose
of such  subrogation no payments or  distributions  to the holders of the Senior
Debt by or on behalf of the Company or by or on behalf of the Payee by virtue of
the provisions  hereof which  otherwise would have been made to the Payee shall,
as between the Company, its creditors other than the holders of Senior Debt, and
the Payee, be deemed to be payment by the Company to or on account of the Senior
Debt, it being understood that the provisions hereof are and are intended solely
for the purpose of defining the relative  rights of the Payee,  on the one hand,
and the holders of the Senior Debt, on the other hand.

     3. THIS NOTE SENIOR TO ALL  INDEBTEDNESS  OTHER THAN SENIOR DEBT. This Note
shall be  senior  to each  note,  bond and other  item of  indebtedness  that is
subordinated  in any manner  (whether in right of payment on  liquidation of the
Company,  or otherwise) to the Senior Debt (each of such items of  indebtedness,
the "JUNIOR SUBORDINATED DEBT"). It is the intent of the Company and the Lenders
that  this  note  shall be  subordinated  only to the  Senior  Debt and no other
indebtedness of any kind. The Company shall cause all of the Junior Subordinated
Debt to be subordinated to this Note on terms no less favorable to the holder of
this Note than the terms on which this Note is subordinated to the Senior Debt.

     4.   PRINCIPAL AND INTEREST PAYMENTS.

          (a) Subject to the subordination provisions in Section 2 of this Note,
the  Company  shall repay in full the entire  principal  balance and all accrued
interest  thereon  then  outstanding  under this Note on the first to occur (the
"MATURITY  DATE")  of:  (i) sixty (60) days after the demand by the Payee to the
Company for payment or (ii) upon the closing of any  Financing  Transaction  (as
defined below) by the Company.  Alternatively,  at the option of the Payee,  the
Payee  may  convert  this  Note into  equity  or debt  securities  issued in the
Financing Transaction.  For purposes of this Note, "Financing Transaction" means
the issuance to any third party of the Company`s  common stock,  par value $.001
per share (the "COMMON  STOCK") or any  securities  convertible,  exercisable or
exchangeable into Common Stock,  including debt securities.  If the Payee elects
to convert this Note into the equity or debt securities  issued in the Financing
Transaction,  the  consideration  for the Payee`s  interest in the new equity or
debt securities  shall be deemed to be 110% of the outstanding  principal amount
of  this  Note,   together  with  accrued  interest   hereon.   Subject  to  the
subordination  provisions in Section 2 of this Note,  the Company may prepay all
or any part of this Note,  in whole or in part at any time,  without  penalty or
premium, as set forth in Section 8(d) hereof.

          (b) Interest on the outstanding  principal  balance of this Note shall
accrue at a rate of six  percent  (6%) per annum.  Interest  on the  outstanding
principal  balance  of the Note  shall be  computed  on the basis of the  actual
number of days  elapsed  and a year of three  hundred  and sixty  (360) days and
shall be payable by the Company in cash (i) on a quarterly basis,  commencing on
November ___, 2001 and on each three-month  anniversary  thereafter,  continuing
throughout the term of this Note, and (ii) in full on the Maturity Date.


                                       4
<PAGE>

     5. PAYMENT ON NON-BUSINESS  DAYS.  Whenever any payment to be made shall be
due on a Saturday, Sunday or a public holiday under the laws of the State of New
York, such payment may be due on the next succeeding  business day and such next
succeeding  day shall be  included in the  calculation  of the amount of accrued
interest payable on such date.

     6. EVENTS OF DEFAULT.  The occurrence of any of the following  events shall
be an "EVENT OF DEFAULT" under this Note:

          (a) the  Company  shall  fail to make the  payment  of any  amount due
hereunder within sixty (60) days after demand; or

          (b) the  Bankruptcy  of the Company;  as used herein,  the  Bankruptcy
shall be deemed to have  occurred  when the  Company  shall  have  admitted  its
insolvency  in  writing;  shall  have  made an  assignment  for the  benefit  of
creditors;  shall have made any composition or arrangement  with creditors while
insolvent; shall have filed a petition or complaint, or otherwise instituted any
proceeding,  under state or federal law, declaring or seeking an adjudication of
bankruptcy  or  insolvency,   an  arrangement  with  creditors,   an  insolvency
reorganization,  or the appointment of a receiver,  trustee or custodian for its
assets;  or shall have  suffered,  without its  consent,  the  appointment  of a
receiver,  trustee or  custodian  for its  assets,  by the order of any state or
federal court.

     7.  REMEDIES  UPON AN EVENT OF DEFAULT.  If an Event of Default  shall have
occurred and shall be continuing,  the Payee of this Note may at any time at its
option, subject to the subordination provisions of this Note, declare the entire
unpaid  principal  balance  of this Note,  together  with all  interest  accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable,  without presentment,  demand, protest, or notice, all of which are
hereby  expressly  unconditionally  and  irrevocably  waived by the Company.  No
remedy  conferred  hereby shall be  exclusive  of any other  remedy  referred to
herein or now or hereafter available at law, in equity, by statute or otherwise.

     8.   PREPAYMENT OPTIONS.

          (a)  PREPAYMENT.  Notwithstanding  anything to the contrary  contained
herein,  the Payee shall have the right, at such Payee`s option,  subject to the
subordination provisions of this Note, to require the Company to prepay all or a
portion of the sum of the outstanding  principal amount and any interest accrued
and outstanding under this Note (the "PREPAYMENT  PRICE"),  PROVIDED,  that such
prepayment is requested upon the occurrence of a Major  Transaction  (as defined
in Section 8(e) below) or a Triggering Event (as defined in Section 8(e) below).

          (b)  MECHANICS OF  PREPAYMENT  AT OPTION OF PAYEE.  Within one (1) day
after the occurrence of a Major  Transaction or a Triggering  Event, the Company
shall  deliver  written  notice  thereof via  facsimile  and  overnight  courier
("NOTICE  OF A  PREPAYMENT  EVENT")  to the  Payee.  At any time on or after the
earlier of the Payee`s  receipt of a Notice of a Prepayment  Event and the Payee
becoming  aware of a Major  Transaction  or a Triggering  Event,  the Payee may,
subject to the  subordination  provisions  of this Note,  require the Company to

                                       5
<PAGE>

prepay all or a portion of the  outstanding  principal  amount and any  interest
accrued and outstanding under this Note by delivering written notice thereof via
facsimile and overnight  courier  ("NOTICE OF PREPAYMENT AT OPTION OF PAYEE") to
the Company,  which Notice of Prepayment  at Option of Payee shall  indicate the
amount of principal and interest  accrued and  outstanding  under this Note that
the Payee is electing to have prepaid,  the sum of which shall be the Prepayment
Price.

          (c)  PAYMENT OF  PREPAYMENT  PRICE.  Upon the  Company`s  receipt of a
 Notice of  Prepayment  at Option of Payee  from the  Payee, the  Company  shall
immediately  notify the Payee by facsimile of the Company`s  receipt of a Notice
of  Prepayment  at Option  of Payee  and the Payee  which has sent such a notice
shall  promptly  submit to the Company this Note which Payee has elected to have
prepaid.  The Company  shall pay the  Prepayment  Price to Payee within five (5)
business days after the Company`s receipt of a Notice of Prepayment at Option of
Payee;  PROVIDED that this Note shall have been so delivered to the Company.  If
the  Company  shall  fail to prepay  all of the  Prepayment  Price  (other  than
pursuant to a dispute as to the arithmetic calculation of the Prepayment Price),
in addition to any remedy the Payee may have under this Note and a certain  Note
and Warrant Purchase  Agreement  between the Company and the Payee,  dated as of
the date hereof (the  "PURCHASE  AGREEMENT"),  the  Prepayment  Price payable in
respect of such  unprepaid  Notes shall bear interest at the rate of two percent
(2.0%) per each period of thirty (30) consecutive days, pro rated for any period
of less than  thirty (30) days until paid in full.  Until the Company  pays such
unpaid  Prepayment  Price in full to the Payee,  the Payee shall have the option
(the "VOID OPTIONAL PREPAYMENT  OPTION") to, in lieu of prepayment,  require the
Company  to  promptly  return to the Payee  this  Note  that was  submitted  for
prepayment by Payee under this Section 8(c) and for which the  Prepayment  Price
has not been  paid,  by  sending  written  notice  thereof  to the  Company  via
facsimile (the "VOID OPTIONAL PREPAYMENT NOTICE"). Upon the Company`s receipt of
such  Void  Optional  Prepayment  Notice(s)  and  prior to  payment  of the full
Prepayment  Price to Payee,  (i) the  Notice(s) of Prepayment at Option of Payee
shall be null and void with respect to this Note  submitted for  prepayment  and
for which the  Prepayment  Price  has not been paid and (ii) the  Company  shall
immediately  return  this  Note  submitted  to  the  Company  by the  Payee  for
prepayment  under this Section 8(c) and for which the  Prepayment  Price has not
been paid. A Payee`s delivery of a Void Optional  Prepayment Notice and exercise
of its rights  following such notice shall not affect the Company`s  obligations
to make any payments which have accrued prior to the date of such notice.

          (d) COMPANY`S PREPAYMENT OPTION. The Company may prepay, at the option
of its Board of Directors, subject to the subordination provisions of this Note,
all or any  portion  of the  outstanding  principal  amount of this Note and the
accrued and unpaid  interest  thereon upon five (5) business  days prior written
notice to the Payee (the "COMPANY  PREPAYMENT  NOTICE") at a cash price equal to
sum of the outstanding principal amount and any interest accrued and outstanding
(the  "COMPANY  PREPAYMENT  PRICE").  The  Company  may not  deliver  a  Company
Prepayment Notice to the Payee unless the Company has clear and good funds for a
minimum of the amount it intends to prepay in a bank account  controlled  by the
Company.  The Company  Prepayment Notice shall state the date of prepayment (the
"COMPANY PREPAYMENT DATE"), the Company Prepayment Price, the amount of the Note
of such Payee to be prepaid,  the amount of accrued and unpaid interest  through
the Company  Prepayment  Date and shall call upon the Payee to  surrender to the
Company on the Company  Prepayment  Date at the place  designated in the Company
Prepayment  Notice such Payee`s Note.  The Company  Prepayment  Date shall be no
more than five (5) trading days after the date on which the Payee is notified of

                                       6
<PAGE>

the Company`s intent to prepay the Note (the "COMPANY  PREPAYMENT NOTICE DATE").
If the  Company  fails to pay the  Company  Prepayment  Price by the sixth (6th)
trading day following the Company Prepayment Notice Date, the prepayment will be
declared null and void and the Company shall lose its right to deliver a Company
Prepayment Notice to the Payee in the future. On or after the Company Prepayment
Date,  the Payee shall  surrender the Notes called for prepayment to the Company
at the place designated in the Company  Prepayment Notice and shall thereupon be
entitled to receive payment of the Company Prepayment Price.

          (e) For  purposes  of this  Note,  (1) "MAJOR  TRANSACTION"  means the
consummation of any of the following transactions: (i) the consolidation, merger
or other  business  combination  of the Company  with or into a person or entity
(other than (A) pursuant to a migratory  merger  effected solely for the purpose
of  changing  the  jurisdiction  of  incorporation  of  the  Company,  or  (B) a
consolidation,  merger or other  business  combination  in which  holders of the
Company`s  or any of its  Subsidiaries  voting  power  immediately  prior to the
transaction continue after the transaction to hold, directly or indirectly,  the
voting power of the surviving  entity or entities  necessary to elect a majority
of the members of the board of directors  (or their  equivalent  if other than a
corporation)  of such entity or  entities);  (ii) the sale or transfer of all or
substantially all of the Company`s or any of its Subsidiaries`  assets; or (iii)
the consummation of a purchase,  tender or exchange offer made to the holders of
more than 30% of the outstanding  shares of the Company`s  common stock, and (2)
"TRIGGERING  EVENT"  means (i) the  failure  to have a  registration  statement,
registering the shares of common stock of the Company  issuable upon exercise of
the related warrants  delivered  herewith,  declared effective by the SEC within
one hundred  eighty (180) days  following  the date the Payee makes a demand for
registration   pursuant  to  Section   3(e)  of  the   Warrants;   or  (ii)  any
representation or warranty made by the Company in the Purchase  Agreement or any
of the  Transaction  Documents  shall prove to have been false or incorrect in a
material  respect at the time when made;  or (iii) the  Company  has  breached a
material  covenant or other term or condition  of the Purchase  Agreement or any
related agreement delivered therewith.

     9.  REPLACEMENT.  Upon receipt of a duly executed,  notarized and unsecured
written  statement from the Payee with respect to the loss, theft or destruction
of this Note (or any  replacement  hereof),  and without  requiring an indemnity
bond or other  security,  or, in the case of a  mutilation  of this  Note,  upon
surrender and  cancellation of such Note, the Company shall issue a new Note, of
like tenor and amount,  in lieu of such lost,  stolen,  destroyed  or  mutilated
Note.

     10. PARTIES IN INTEREST,  TRANSFERABILITY.  This Note shall be binding upon
the Company and its  successors  and assigns and the terms hereof shall inure to
the benefit of the Payee and its successors and permitted assigns. This Note may
be transferred or sold, subject to the provisions of Section 20 of this Note, or
pledged, hypothecated or otherwise granted as security by the Payee.

     11.  RELIANCE.  The Payee  acknowledges  and agrees that the  Lenders  have
relied upon and will continue to rely upon,  and are  third-party  beneficiaries
of,  the  subordination  provisions  set forth  herein  in  making  loans and in
otherwise extending credit to the Company.  The Payee hereby waives notice of or
proof of reliance hereon.


                                       7
<PAGE>

     12.  AMENDMENTS.  This note may not be  modified  or  amended in any manner
except in writing executed by the Company and the Payee; PROVIDED,  HOWEVER, the
subordination provisions contained herein are for the benefit of the Lenders and
may not be rescinded, canceled, amended or modified in any way without the prior
written  consent  thereto of the Lenders,  if the Lenders  shall then be holding
Senior Debt.

     13. NOTICES.  Any notice,  demand,  request,  waiver or other communication
required or  permitted  to be given  hereunder  shall be in writing and shall be
effective  (a) upon hand  delivery,  by telecopy or  facsimile at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (b) on the second  business  day
following  the date of  mailing  by  express  courier  service,  fully  prepaid,
addressed to such address,  or upon actual  receipt of such  mailing,  whichever
shall first occur.  The Company  will give written  notice to the Payee at least
thirty  (30) days  prior to the date on which the  Company  closes  its books or
takes a record (x) with respect to any dividend or distribution  upon the common
stock of the  Company,  (y) with respect to any pro rata  subscription  offer to
holders of common  stock of the  Company or (z) for  determining  rights to vote
with  respect  to a  Major  Transaction  or  a  Triggering  Event,  dissolution,
liquidation  or winding-up and in no event shall such notice be provided to such
holder  prior to such  information  being made known to the public.  The Company
will also give  written  notice to the Payee at least  twenty (20) days prior to
the date on which dissolution,  liquidation or winding-up will take place and in
no event shall such  notice be  provided to the Payee prior to such  information
being made known to the public.

         Address of the Payee:              SDS Merchant Fund, L.P.
                                            c/o SDS Capital Partners
                                            One Sound Shore Drive
                                            Greenwich, CT 06830
                                            Attention: Steve Derby
                                            Telecopier: (203) 629-0345


         Address of the Company:            A.B. Watley Group Inc.
                                            40 Wall Street
                                            New York, New York 10005
                                            Attention: Joseph M. Ramos, Jr.
                                            Chief Financial Officer
                                            Telecopier: (212) 422-1724

     14.  GOVERNING  LAW.  This  Note  shall be  governed  by and  construed  in
accordance  with the  internal  laws of the  State of New York,  without  giving
effect to the choice of law  provisions.  This Note shall not be  interpreted or
construed  with any  presumption  against  the  party  causing  this  Note to be
drafted.


                                       8
<PAGE>

     15. HEADINGS. Article and section headings in this Note are included herein
for purposes of convenience of reference only and shall not constitute a part of
this Note for any other purpose.


     16. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF.  The remedies  provided in this Note shall be cumulative and in addition
to all other remedies available under this Note, at law or in equity (including,
without  limitation,  a decree of specific  performance  and/or other injunctive
relief),  no remedy contained herein shall be deemed a waiver of compliance with
the  provisions  giving  rise to such remedy and  nothing  herein  shall limit a
Payee`s right to pursue actual  damages for any failure by the Company to comply
with the terms of this Note.  Amounts  set forth or  provided  for  herein  with
respect to  payments  and the like (and the  computation  thereof)  shall be the
amounts to be received by the Payee and shall not, except as expressly  provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder  will cause  irreparable  and material  harm to the Payee and that the
remedy at law for any such  breach  may be  inadequate.  Therefore  the  Company
agrees that,  in the event of any such breach or  threatened  breach,  the Payee
shall be entitled,  in addition to all other available  rights and remedies,  at
law or in equity,  to seek and obtain such equitable  relief,  including but not
limited to an  injunction  restraining  any such  breach or  threatened  breach,
without the  necessity  of showing  economic  loss and without any bond or other
security being required.

     17.  FAILURE OR INDULGENCE  NOT WAIVER.  No failure or delay on the part of
the Payee in the  exercise  of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

     18. ENFORCEMENT EXPENSES.  The Company agrees to pay all costs and expenses
of  enforcement  of  this  Note,  including,   without  limitation,   reasonable
attorneys` fees and expenses.

     19. BINDING EFFECT.  The obligations of the Company and the Payee set forth
herein  shall be binding  upon the  successors  and  assigns of each such party,
whether or not such successors or assigns are permitted by the terms hereof.

     20.  COMPLIANCE WITH SECURITIES  LAWS. The Payee of this Note  acknowledges
that this Note is being acquired solely for the Payee`s own account and not as a
nominee for any other party,  and for  investment,  and that the Payee shall not
offer,  sell or otherwise dispose of this Note other than in compliance with the
laws of the United States of America and as guided by the rules of the SEC. This
Note and any Note  issued in  substitution  or  replacement  therefore  shall be
stamped or imprinted with a legend in substantially the following form:

          "THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
          1933, AS AMENDED (THE "SECURITIES  ACT"), OR ANY STATE SECURITIES
          LAW AND MAY NOT BE SOLD,  TRANSFERRED  OR  OTHERWISE  DISPOSED OF
          UNLESS  REGISTERED  UNDER THE SECURITIES ACT AND UNDER APPLICABLE
          STATE  SECURITIES  LAWS OR A.B.  WATLEY  GROUP  INC.  SHALL  HAVE
          RECEIVED  AN OPINION OF ITS  COUNSEL  THAT  REGISTRATION  OF SUCH
          SECURITIES  UNDER THE  SECURITIES ACT AND UNDER THE PROVISIONS OF
          APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."


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     21.  SEVERABILITY.  The provisions of this Note are  severable,  and if any
provision  shall be held  invalid  or  unenforceable  in whole or in part in any
jurisdiction,  then such invalidity or unenforceability  shall not in any manner
affect such provision in any other  jurisdiction  or any other provision of this
Note in any jurisdiction.

     22. CONSENT TO  JURISDICTION.  Each of the Company and the Payee (i) hereby
irrevocably  submits to the  jurisdiction  of the United States  District  Court
sitting in the Southern  District of New York and the courts of the State of New
York  located  in New York  county  for the  purposes  of any  suit,  action  or
proceeding  arising out of or relating to this Note and (ii) hereby waives,  and
agrees not to assert in any such suit,  action or proceeding,  any claim that it
is not  personally  subject to the  jurisdiction  of such court,  that the suit,
action or  proceeding is brought in an  inconvenient  forum or that the venue of
the suit,  action or proceeding  is improper.  Each of the Company and the Payee
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy  thereof to such party at the address in effect for notices to it
under the Purchase  Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section 22
shall affect or limit any right to serve  process in any other manner  permitted
by law.

     23. COMPANY WAIVERS.  Except as otherwise specifically provided herein, the
Company  and all  others  that  may  become  liable  for all or any  part of the
obligations evidenced by this Note, hereby waive presentment,  demand, notice of
nonpayment,  protest and all other  demands and notices in  connection  with the
delivery,  acceptance,  performance  and enforcement of this Note, and do hereby
consent to any number of renewals of  extensions  of the time or payment  hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon,  all without affecting the liability
of the other persons,  firms or Company liable for the payment of this Note, AND
DO HEREBY WAIVE TRIAL BY JURY.

          (a) No delay or  omission on the part of the Payee in  exercising  its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or any other  right of the Payee,  nor shall any waiver by
the Payee of any such right or rights on any one  occasion be deemed a waiver of
the same right or rights on any future occasion.

          (b) THE COMPANY  ACKNOWLEDGES  THAT THE TRANSACTION OF WHICH THIS NOTE
IS A PART IS A COMMERCIAL  TRANSACTION,  AND TO THE EXTENT ALLOWED BY APPLICABLE
LAW,  HEREBY  WAIVES  ITS  RIGHT TO  NOTICE  AND  HEARING  WITH  RESPECT  TO ANY
PREJUDGMENT  REMEDY WHICH THE PAYEE OR ITS  SUCCESSORS  OR ASSIGNS MAY DESIRE TO
USE.


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     IN WITNESS WHEREOF,  the Company has executed and delivered this Note as of
the date first written above.



                                      A.B. WATLEY GROUP INC.



                                      By:
                                          -------------------------------------
                                            Name:
                                            Title:


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