<PAGE>

Exhibit 10.47


                      AMENDED AND RESTATED PROMISSORY NOTE



         A.B. WATLEY GROUP INC., a Delaware  corporation (the  "BORROWER"),  for
value received, promises and agrees to pay to PENSON FINANCIAL SERVICES, INC., a
North Carolina  corporation (the "LENDER"),  or order, at the Payment Office (as
such term is  hereinafter  defined) the aggregate  principal sum of the Loan (as
such term is hereinafter defined) outstanding from time to time under this Note,
which aggregate principal sum shall not exceed the maximum amount of TWO MILLION
ONE  HUNDRED  FIFTY  THOUSAND  NINE  HUNDREW  NINETY  FOUR  AND  NO/100  DOLLARS
($2,150,994.00),  in  lawful  money  of the  United  States  of  America  and in
immediately  available funds, on the dates and in the principal amounts provided
for herein,  and to pay interest on the unpaid principal amount of the Loan made
by the Lender to the Borrower  hereunder,  at such Payment Office, in like money
and funds,  for the time period  commencing  on the date hereof  until such Loan
shall be finally and  indefeasibly  paid in full,  at the rates per annum and on
the dates provided for herein.

         The Lender is hereby  authorized by the Borrower to endorse on Schedule
1(a) (or continuation thereof) attached to this Note the date such Loan is made,
the amount of any  payments or  prepayments,  the dates of any such  payments or
prepayments,  and the  principal  balance of the Note  outstanding  from time to
time.  The  entries  made by the Lender on  Schedule  1(a) (or any  continuation
thereof)  shall be prima  facie  evidence  of the  existence  and amounts of the
obligations  recorded  therein,  provided that any failure by the Lender to make
any such endorsement shall not affect the obligations of the Borrower under this
Note in respect of the Loan or otherwise.

         By  accepting   this  Note,  the  Lender  agrees  to  comply  with  the
obligations of the Lender that are expressly and specifically set forth herein.

         Section 1. TERMS GENERALLY;  ACCOUNTING TERMS; GAAP; DEFINED TERMS. The
definitions of terms herein shall apply equally to the singular and plural forms
of the terms  defined.  Whenever  the context  may  require,  any pronoun  shall
include  the  corresponding  masculine,  feminine  and neuter  forms.  The words
"include",  "includes"  and  "including"  shall be deemed to be  followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall".  Unless the context  requires  otherwise
(a) any  definition  of or  reference  to any  agreement,  instrument  or  other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended,  supplemented or otherwise modified
(subject to any  restrictions on such  amendments,  supplements or modifications
set forth herein),  (b) any reference herein to any Person shall be construed to
include such Person`s successors and assigns,  (c) the words "herein",  "hereof"
and  "hereunder",  and words of similar  import,  shall be construed to refer to
this Note in its entirety and not to any particular  provision  hereof,  (d) all
references  herein to Sections  and  Schedules  shall be  construed  to refer to
Sections  of,  and  Schedules  to,  this  Note  and (e) the  words  "asset"  and
"property"  shall be  construed to have the same meaning and effect and to refer
to any and all tangible and intangible  assets and  properties,  including cash,
securities, accounts and contract rights.


<PAGE>

         Except  as  otherwise  expressly  provided  herein,  all  terms  of  an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time;  provided  that,  if the Borrower  notifies the Lender
that the Borrower requests an amendment to any provision hereof to eliminate the
effect  of any  change  occurring  after  the  date  hereof  in  GAAP  or in the
application  thereof  on the  operation  of  such  provision  (or if the  Lender
notifies the  Borrower  that the Lender  requests an amendment to any  provision
hereof for such purpose),  regardless of whether any such notice is given before
or after such change in GAAP or in the application thereof,  then such provision
shall be interpreted  on the basis of GAAP as in effect and applied  immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

         As used in this Note,  the following  terms shall have the meanings set
forth below:

         "AFFILIATE"  means, with respect to a specified Person,  another Person
that directly, or indirectly through one or more intermediaries,  Controls or is
Controlled by or is under common Control with the Person specified.

         "ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement, dated as
of July 31, 2002, by and among the Borrower, Inc. and Integrated.

         "ASSUMED  LIABILITIES" has the meaning  specified in the Asset Purchase
Agreement.

         "BORROWER"  has the  meaning set forth in the first  paragraph  of this
Note.

         "BUSINESS  DAY" means any day that is not a  Saturday,  Sunday or other
day on which commercial  banks in New York City, New York or Houston,  Texas are
authorized or required by law to remain closed.

         "CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other  amounts  under  any lease of (or other  arrangement
conveying the right to use) real or personal property, or a combination thereof,
which  obligations  are required to be  classified  and accounted for as capital
leases on a balance  sheet of such  Person  under  GAAP,  and the amount of such
obligations  shall be the  capitalized  amount thereof  determined in accordance
with GAAP.

         "CLOSING  DATE"  has  the  meaning  specified  in  the  Asset  Purchase
Agreement.

         "COMMITMENt"  means  the  commitment  of the  Lender  prior to the date
hereof to make Loan  hereunder,  as such  commitment may be reduced from time to
time in  accordance  with the  provisions  hereof.  The  amount of the  Lender`s
Commitment  as of the date  hereof  (subject to the effect of Section 9.3 of the
Asset Purchase Agreement) is $2,169,009.00.

         "CONSENT AGREEMENT" has the meaning set forth in Section 4(c).

         "CONTROL"  means the  direct or  indirect  power to direct or cause the
direction  of the  management  or  policies  of an entity,  whether  through the
ability to exercise  voting power, by contract or otherwise.  "CONTROLLING"  and
"CONTROLLED" have meanings correlative thereto.

                                       2
<PAGE>

         "CONVERSION" means the conversion or cancellation of all of the Insider
Debt at a rate not less than $1.50 per share of the Borrower`s  common stock and
otherwise on terms acceptable to Lender.

         "DEFAULT"  means any event or condition  which  constitutes an Event of
Default or which  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

        "DOLLARS" or "$" refers to lawful money of the United States of America.

         "DMG GROUP" has the meaning set forth in the Consent Agreement.

         "DMG NOTE" means that certain  promissory note of even date herewith in
the original principal amount of $900,000.00 executed by the Borrower payable to
the  order of the DMG  Entities  (without  giving  effect to any  amendments  or
waivers thereof after the date hereof).

         "DMG ENTITIES" means, collectively,  DMG Legacy International Ltd., DMG
Legacy Institutional Fund LLC and DMG Legacy Fund LLC.

         "EQUITY   INTERESTS"   means  shares  of  capital  stock,   partnership
interests,  membership  interests  in a limited  liability  company,  beneficial
interests in a trust or other equity  ownership  interests in a Person,  and any
warrants,  options or other rights  entitling the holder  thereof to purchase or
acquire any such equity interest.

         "E*TRADE LICENSE  AGREEMENT" means the Software License  Agreement (the
"License  Agreement")  dated November 2000, as supplemented and amended,  by and
among Borrower and E*TRADE Group, Inc.

          "E*TRADE  STOCK"  means the shares of  E*TRADE  common  stock  E*TRADE
Group,  Inc.  will  issue  to  the  Borrower  pursuant  to the  E*TRADE  License
Agreement.

         "EVENT OF DEFAULT" has the meaning assigned to such term in Section 10.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of America.

         "GENERAL  SECURITY  AGREEMENT" has the meaning assigned to such term in
the Master Agreement.

         "GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation,
contingent or otherwise,  of the guarantor  guaranteeing  or having the economic
effect of guaranteeing  any Indebtedness or other obligation of any other Person
(the  "PRIMARY  OBLIGOR") in any manner,  whether  directly or  indirectly,  and
including any obligation of the guarantor,  direct or indirect,  (a) to purchase
or pay (or  advance  or  supply  funds  for the  purchase  or  payment  of) such
Indebtedness  or other  obligation or to purchase (or to advance or supply funds
for the purchase of) any  security for the payment  thereof,  (b) to purchase or
lease property,  securities or services for the purpose of assuring the owner of
such  Indebtedness or other obligation of the payment  thereof,  (c) to maintain
working capital,  equity capital or any other financial  statement  condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness  or other  obligation  or (d) as an account party in respect of any


                                       3
<PAGE>

letter of credit or letter of guaranty  issued to support such  Indebtedness  or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.

         "INC." means A.B. Watley, Inc.

         "INDEBTEDNESS"  of any  Person  means,  without  duplication,  (a)  all
obligations  of such Person for  borrowed  money or with  respect to deposits or
advances of any kind,  (b) all  obligations  of such Person  evidenced by bonds,
debentures,  notes or similar  instruments,  (c) all  obligations of such Person
upon which interest  charges are  customarily  paid, (d) all obligations of such
Person under  conditional sale or other title retention  agreements  relating to
property acquired by such Person,  (e) all obligations of such Person in respect
of the  deferred  purchase  price of  property or  services  (excluding  current
accounts  payable  incurred  in  the  ordinary  course  of  business),  (f)  all
Indebtedness of others secured by (or for which the holder of such  Indebtedness
has an existing  right,  contingent or otherwise,  to be secured by) any Lien on
property  owned or  acquired  by such  Person,  whether or not the  Indebtedness
secured  thereby  has  been  assumed,  (g)  all  Guarantees  by such  Person  of
Indebtedness of others,  (h) all Capital Lease  Obligations of such Person,  (i)
all obligations,  contingent or otherwise, of such Person as an account party in
respect of letters of credit and  letters of guaranty  and (j) all  obligations,
contingent or otherwise, of such Person in respect of bankers` acceptances.  The
Indebtedness  of any Person shall include the  Indebtedness  of any other entity
(including  any  partnership  in which such Person is a general  partner) to the
extent such Person is liable  therefor  as a result of such  Person`s  ownership
interest in or other  relationship  with such  entity,  except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.

         "INDEMNITEE" has the meaning specified in Section 13(b).

         "INSIDER DEBT" means all  Indebtedness  of LAN/WAN,  Atlantic Group and
Steven Malin referred to in Section 1.3 of the Asset Purchase Agreement.

         "INTEGRATED" means Integrated Trading Solutions,  Inc., an affiliate of
the Lender.

         "LENDER" has the meaning specified in the first paragraph of this Note.

         "LIEN"  means,  with respect to any asset,  (a) any  mortgage,  deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such  asset,  (b) the  interest  of a  vendor  or a  lessor  under  any
conditional sale agreement,  capital lease or title retention  agreement (or any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing)  relating  to such  asset  and (c) in the  case  of  securities,  any
purchase  option,  call or similar  right of a third party with  respect to such
securities.

         "LOAN"  means the loan made by the Lender to the  Borrower  pursuant to
this Note (which  represents the aggregate of several previous loans made by the
Lender to the Borrower on various dates).

         "MASTER  AGREEMENT"  means that certain Master  Subordination,  Waiver,
Release and Indemnification  Agreement dated of even date herewith,  executed by
and among the  Borrower,  the Lender,  SDS Merchant  Fund,  L.P.,  and the other
parties thereto, as amended.



                                       4
<PAGE>

         "MATERIAL  ADVERSE  EFFECT" means a material  adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the  Borrower  and the  Subsidiaries  taken as a whole,  (b) the  ability of the
Borrower  to perform  any of its  obligations  under this Note or the  documents
executed  by the  Borrower  in  connection  herewith,  or (c) the  rights  of or
benefits available to the Lender under this Note.

         "MATERIAL  INDEBTEDNESS"  means Indebtedness  (other than the Loan), or
obligations in respect of one or more Swap Agreements, of any one or more of the
Borrower  and  its  Subsidiaries  in an  aggregate  principal  amount  exceeding
$500,000.  For purposes of  determining  Material  Indebtedness,  the "PRINCIPAL
AMOUNT" of the  obligations  of the Borrower or any Subsidiary in respect of any
Swap Agreement at any time shall be the maximum  aggregate amount (giving effect
to any  netting  agreements)  that  the  Borrower  or such  Subsidiary  would be
required to pay if such Swap Agreement were terminated at such time.

         "MATURITY  DATE"  means the  earlier  of (a) July 31,  2005 and (b) the
occurrence of an Event of Default.

         "MOODY`S" means Moody`s Investors Service, Inc.

         "NOTE"  means this Amended and Restated  Promissory  Note,  as amended,
supplemented or modified from time to time.

         "PAYMENT OFFICE" has the meaning specified in Section 6.

         "PAYMENT SHARES" has the meaning specified in Section 4.

         "PERMITTED ENCUMBRANCES" means:

         (a) Liens  imposed  by law for taxes  that are not yet due or are being
contested  so long as (i) the validity or amount  thereof is being  contested in
good faith by appropriate proceedings,  (ii) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (iii) the  failure  to make  payment  pending  such  contest  could not
reasonably be expected to result in a Material Adverse Effect;

         (b) carriers`, warehousemen`s,  mechanics`, materialmen`s, repairmen`s,
Liens related to margin loans,  and other like Liens imposed by law,  arising in
the ordinary course of business and securing obligations that are not overdue by
more than 30 days or are being  contested  so long as (i) the validity or amount
thereof is being  contested in good faith by appropriate  proceedings,  (ii) the
Borrower or such  Subsidiary has set aside on its books  adequate  reserves with
respect  thereto in  accordance  with GAAP and (iii) the failure to make payment
pending such contest  could not  reasonably  be expected to result in a Material
Adverse Effect;

         (c) pledges and  deposits  made in the  ordinary  course of business in
compliance with workers`  compensation,  unemployment insurance and other social
security laws or regulations;

         (d)  deposits  to secure  the  performance  of bids,  trade  contracts,
leases,  statutory obligations,  surety and appeal bonds,  performance bonds and
other  obligations  of a like  nature,  in each case in the  ordinary  course of
business;

         (e) judgment  liens in respect of judgments  that do not  constitute an


                                       5
<PAGE>

         Event of Default under clause (f) of Section 10; (f) easements,  zoning
         restrictions,  rights-of-way and similar  encumbrances on real property
         imposed by law or arising in the
ordinary  course of business that do not secure any monetary  obligations and do
not materially detract from the value of the affected property or interfere with
the ordinary conduct of business of the Borrower or any Subsidiary;

         (g) Liens securing the amounts outstanding under this Note; and

         (h) Liens  granted under the General  Security  Agreement to secure the
DMG Note.

PROVIDED that, except with respect to clause (b) as it concerns Liens related to
margin loans and except with respect to clauses (g) and (h), the term "Permitted
Encumbrances" shall not include any Lien securing Indebtedness.

         "PERMITTED INVESTMENTS" means:

         (a) direct obligations of, or obligations the principal of and interest
on which are unconditionally  guaranteed by, the United States of America (or by
any agency thereof to the extent such  obligations  are backed by the full faith
and credit of the United States of America),  in each case  maturing  within one
year from the date of acquisition thereof;

         (b)  investments in commercial  paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or from Moody`s;

         (c) investments in certificates  of deposit,  banker`s  acceptances and
time  deposits  maturing  within 180 days from the date of  acquisition  thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic  office of any commercial  bank organized  under the
laws of the United  States of America or any State  thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;

         (d) fully collateralized  repurchase agreements with a term of not more
than 30 days for securities  described in clause (a) above and entered into with
a financial  institution  satisfying the criteria described in clause (c) above;
and

         (e) money  market  funds that (i) comply with the criteria set forth in
Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of
1940,  (ii) are rated AAA by S&P and Aaa by  Moody`s  and (iii)  have  portfolio
assets of at least $5,000,000,000.

         "PERSON"  means any  natural  person,  corporation,  limited  liability
company, trust, joint venture, association,  company, partnership,  governmental
authority or other entity.

         "RELATED  DOCUMENT"  has the meaning  specified  in the Asset  Purchase
Agreement.

         "RESTRICTED PAYMENT" means any dividend or other distribution  (whether
in cash,  securities or other property) with respect to any Equity  Interests in
the Borrower or any Subsidiary,  or any payment (whether in cash,  securities or
other property),  including any sinking fund or similar  deposit,  on account of
the purchase, redemption, retirement,  acquisition,  cancellation or termination
of any such Equity  Interests in the Borrower or any  Subsidiary  or any option,
warrant or other right to acquire any such Equity  Interests  in the Borrower or
any Subsidiary.



                                       6
<PAGE>

         "SECURITY DOCUMENTS" means the agreements and instruments  described in
Schedule  1(b)  hereto,  as  amended  from  time to time,  and any and all other
agreements  or  instruments  now or  hereafter  executed  and  delivered  by the
Borrower or any other Person as security for the payment or  performance  of the
obligations  of  the  Borrower  hereunder,  including  any  guarantees  of  such
obligations.

         "S&P" means Standard & Poor`s.

         "SOFTWARE  SECURITY  AGREEMENT" has the meaning specified in the Master
Agreement.

         "SUBSIDIARY"  means,  with respect to any Person (the  "PARENT") at any
date, any corporation,  limited liability company,  partnership,  association or
other  entity the  accounts  of which  would be  consolidated  with those of the
parent in the  parent`s  consolidated  financial  statements  if such  financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership,  association or other
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the equity or more than 50% of the ordinary  voting power or, in the
case of a partnership,  more than 50% of the general partnership  interests are,
as of such date,  owned,  controlled  or held,  or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.

         "SUBSIDIARY" means any subsidiary of the Borrower, including Inc.

         "SWAP AGREEMENT" means any agreement with respect to any swap, forward,
future or derivative  transaction or option or similar agreement  involving,  or
settled by reference to, one or more rates, currencies,  commodities,  equity or
debt  instruments or securities,  or economic,  financial or pricing  indices or
measures  of  economic,  financial  or  pricing  risk or  value  or any  similar
transaction or any combination of these  transactions;  provided that no phantom
stock or similar  plan  providing  for  payments  only on  account  of  services
provided by current or former directors,  officers,  employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.



         Section 2.  COMMITMENT.  Subject to the terms and  conditions set forth
herein, the Lender has made the Loan to the Borrower prior to the date hereof in
an aggregate  principal  amount that do not exceed the Commitment.  The Borrower
may not re-borrow  the amount of any Loan that has been paid or prepaid.  Unless
previously terminated, the Commitment shall terminate on the Maturity Date.



                                       7
<PAGE>

         Section 3.  REPAYMENT  OF LOAN;  INTEREST;  DEBT  FORGIVENESS.  (a) The
Borrower shall pay to the Lender the then unpaid aggregate outstanding principal
amount of the Loan on the Maturity Date.

         (b) The  Loan  shall  bear  interest  at a fixed  interest  rate of ten
percent  (10%)  per  annum  from the date it was made  until it is  finally  and
indefeasibly paid in full. Accrued interest on the Loan shall be due and payable
on the Maturity Date,  provided that any interest  accrued pursuant to paragraph
(c) of this Section shall be payable on demand.

         (c) Notwithstanding  the foregoing,  if any principal of or interest on
the Loan or any other amount payable by the Borrower  hereunder is not paid when
due, whether at stated maturity,  upon  acceleration or otherwise,  such overdue
amount  shall  bear  interest,  after  as well as  before  judgment,  at a fixed
interest rate of twelve percent (12%) per annum.

         (d) All interest  hereunder shall be computed on the basis of a year of
360 days,  and in each  case  shall be  payable  for the  actual  number of days
elapsed (including the first day but excluding the last day).

         (e) The Loan,  together with all accrued interest in relation  thereto,
shall no  longer be deemed by the  Lender  to be an  outstanding  obligation  of
Borrower in favor of the Lender on such date as the Lender has  received no less
than Five Million Dollars  ($5,000,000) in revenues,  from and after the Closing
Date but prior to the thirty-sixth month after the Closing Date, under the Fully
Disclosed  Clearing  Agreement dated as of October 3, 1996, as amended,  between
the Lender and Inc.  (for  purposes of this clause  "revenues"  means the amount
received by the Lender that equals the sum of (i) wholesale  ticket  charges for
transactions introduced by Inc. charged by the Lender to Inc. (i.e., any mark up
of such charges by Inc. to its  customers  and  regulatory  charges shall not be
included in the  calculation of revenues  received) and (ii) net interest income
earned by the Lender from Inc.`s customers to the extent such interest  payments
are for the  Lender`s  sole  benefit,  it being  understood  and agreed that the
Lender`s ordinary course records of such charges and amounts shall be conclusive
and binding evidence as to the total of such charges and amounts absent manifest
error);  provided,  further that (A)  notwithstanding  the above  provision (but
subject  to the  effect  of  Section  3(f)  hereof)  the  cancellation  of  debt
referenced  in the first line of this  Section  3(e) shall occur on such earlier
date on which the Borrower  provides written notice to the Lender (together with
all relevant  documentation (A) evidencing in the case of new equity investment,
compliance  with the  condition  regarding  redemption  and other  cash  payment
provisions  set forth below,  and (B) in other cases such evidence as Lender may
request, in each such case such evidence to be in form and substance  acceptable
to Lender),  and Lender confirms by written notice (such  confirmation by Lender
to be  delivered no later than 10 Business  Days after the date Lender  receives
appropriate  evidence  of the new  equity  investment  described  above and such
confirmation  to be  delivered  no later  than 30 days  after  the  date  Lender
receives other evidence referred to above, in each case assuming the appropriate
evidence and the terms of this  Agreement  and the Related  Documents  have been
complied  with) to Borrower  its  satisfaction  with the  applicable  supporting
documentation  therefor,  that at least Four Million Dollars ($4,000,000) in new
equity capital (with any equity not permitted to have any cash payment  pursuant
to mandatory redemption or other cash payment provisions affecting the principal
amount of the investment  made in obtaining such equity prior to 18 months after
the Closing  Date) is raised and  received by the  Borrower  and/or Inc.  (which


                                       8
<PAGE>

shall include  forgiveness of  outstanding  debt after the Closing Date (but not
any inchoate debt or payment  obligation  by the Borrower  and/or Inc. such as a
guaranty  by any such  party)  solely to the  extent  such debt is  forgiven  by
unaffiliated  third parties that are not  shareholders  of the Borrower and when
such  debt  forgiveness  does  not  occur  as a result  of  Integrated`s  or its
affiliates`  acceptance  of any  Assumed  Liabilities,  in  connection  with any
provision for debt forgiveness under the Asset Purchase Agreement or any Related
Document  or as a  result  of any  payment  or  reimbursement  by  Lender  or an
affiliate  in  respect  of any such  debt  forgiveness  ),  provided  that  such
cancellation  shall not in any event be effective prior to nine (9) months after
the  Closing  Date,  or (B) if the  Borrower  and/or  Inc.  raise less than Four
Million Dollars  ($4,000,000)  in such new equity  capital,  the Lender shall in
good faith consider a reduction in whole or in part of such  indebtedness.  When
the Loan is  repaid in full or  otherwise  forgiven  by the  Lender or no longer
deemed to be an  outstanding  obligation  of the Borrower in favor of the Lender
(whether at or prior to the Maturity  Date),  then the Security  Documents shall
terminate,  and the Borrower  shall have no further  obligations  thereunder  or
under this Note.  Upon the  termination  of the Security  Documents,  the Lender
shall  execute  such  documents  and take such  actions  as the  Borrower  shall
reasonably  request,  at the Borrower`s  expense, to evidence the release of the
Borrower`s  obligations  under  this  Note,  the  termination  of  the  Security
Documents and the Lender`s security  interest granted therein,  and shall return
all  collateral  then held by the Lender  (including  the Payment  Shares unless
retained by the Lender as repayment of the Loan in accordance  with Section 3(f)
and (4).

         (f) Effective  upon the execution and delivery of this Note, the Lender
hereby  agrees  that it has no right to  possess,  or  otherwise  restrict,  the
Borrower`s  rights in the Payment Shares  (defined  below) or Proceeds  (defined
below) under the Security Documents other than to retain collateral comprised of
such  Payment  Shares  and/or   Proceeds  as  a  repayment  of  its  outstanding
Indebtedness,  subject  to the  terms of the  Security  Documents  and the other
provisions  of this clause  (f),  with a value  equal to Five  Hundred  Thousand
Dollars ($500,000).  So long as no Default is continuing or Event of Default has
occurred  hereunder,  for a period of the earlier to occur of (i)  September 13,
2002 or (ii) the occurrence of the Conversion after the Closing Date, the Lender
agrees not to sell, hypothecate or otherwise encumber the Payment Shares without
Borrower`s permission (although after the period noted in clause (i), so long as
the  Conversion  has not occurred  prior to the end of such period,  the Lender,
notwithstanding  anything to the contrary herein or in any Related Document, may
sell any or all of such  Payment  Shares  and treat  them or the  Proceeds  as a
permanent  repayment  of  Indebtedness  owing to Lender  (with such amount to be
first  applied to  interest  and fees owing and then to  principal  owing).  The
number of Payment  Shares the Lender may hold shall equal $500,000 in cash as of
the Closing  Date  valued at the lesser of (x) $4.00 per share of E*TRADE  Stock
and (y) the actual per share  value of E*TRADE  Stock on the  Closing  Date (the
"Closing Value Shares") plus a number of additional  Payment Shares equal to 25%
of the number of Closing  Value Shares to hedge against the risk of a decline in
the value of the Payment Shares from the Closing Date through the later to occur
of the date when the restriction on Lender`s ability to sell such Payment Shares
in accordance  with the immediately  preceding  sentence  expires  (assuming the
Payment  Shares are  registered  under the  Securities Act of 1933 prior to such
time) and such time as the Payment  Shares are  registered  under the Securities
Act of 1933 in Lender`s name. Upon the occurrence of the Conversion,  so long as
the Conversion occurs prior to the Maturity Date and there is no Default that is
continuing  or  Event  of  Default  hereunder  prior  to the  occurrence  of the


                                       9
<PAGE>

Conversion,  the  Lender  shall  release to the  Borrower,  as  directed  by the
Borrower in writing,  the  collateral it retains as directed by the Borrower or,
to the extent the Lender has received cash from the sale of such Payment Shares,
otherwise pay to the Borrower the amount of cash it has actually  received up to
a cap of $500,000 as directed by the Borrower.

         Section 4.        PREPAYMENTS OF THE LOAN; MANDATORY PREPAYMENTS.

         (a) The Borrower shall have the right at any time and from time to time
to prepay any Loan in whole or in part,  provided that the Borrower shall notify
the Lender by telephone (confirmed by fax) of any prepayment hereunder not later
than 11:00  a.m.  New York City time,  one  Business  Day before the date of the
prepayment.  Each  such  notice  shall be  irrevocable  and  shall  specify  the
prepayment  date and the principal  amount of the Loan to be prepaid.  Each such
prepayment  shall be  accompanied  by  accrued  unpaid  interest  on the  amount
prepaid. The Borrower shall have no right to re-borrow any amounts prepaid.

         (b) At any time that the Borrower and/or any of its Subsidiaries  sell,
lease,  or otherwise  dispose of any of their  property,  the Borrower  shall be
prohibited from using the proceeds thereof to prepay  Indebtedness  with respect
to the DMG Note except to the extent permitted by the Consent Agreement referred
to in Section 4(c)  (whether  directly or indirectly to any of the DMG Entities,
SDS Merchant  Fund,  L.P. or any of their  affiliates,  employees,  directors or
agents; provided,  however, that the Borrower and/or any of its Subsidiaries may
not sell, lease or otherwise dispose of any of their property if the Borrower is
in Default.

         (c) The Borrower  shall use  commercially  reasonable  efforts to cause
certificates  for shares of E*TRADE Stock with a market value of $500,000 (based
on the ten (10) day trading average ending three (3) days prior to the date when
such shares are received by the Borrower (the "Payment Shares") to be issued and
delivered  within fifteen (15) days of the Closing Date (as defined in the Asset
Purchase  Agreement) to the Lender.  The outstanding  Indebtedness  owing to the
Lender  shall be reduced by the  amount of any  proceeds  of the sale of Payment
Shares issued to the Lender (the "Proceeds").  After the Closing Date,  Borrower
shall use commercially  reasonable efforts to cause E*TRADE Group, Inc. to agree
within  fifteen  (15) days of the Closing Date to (i) make the Lender a party to
any registration  rights agreement  entered into regarding the E*TRADE Stock and
cause such agreement to cover the Payment Shares on at least as favorable  terms
as the E*TRADE  Stock to be received by the  Borrower,  and (ii) on the date the
Borrower`s  certificates  representing  its  portion  of the  E*TRADE  Stock are
registered  under the Securities Act of 1933,  register the Payment Shares under
the  Securities  Act of 1933 at the same  time and  with  the  same  rights  and
benefits as the E*TRADE  Stock.  In the event that the  Borrower  does not cause
E*TRADE  Group,  Inc.  to act as set  forth in the three  immediately  preceding
sentences or the Lender otherwise,  at any time, so requests, the Borrower shall
promptly take all actions  required by the Lender to sell any Payment  Shares on
behalf of the  Lender and to  deliver  all  Proceeds  therefrom  to the  Lender.
Notwithstanding  the  foregoing  provisions  of  Section  4(c),  in the  event a
Conversion occurs (but so long as there is no Default or Event of Default),  (A)
prior to the time when  Lender  has  sold,  or  caused  Borrower  to sell on its
behalf,  the  Payment  Shares to which it is  entitled,  Borrower  shall have no
further  obligation  to Lender  under the terms of Section 4(c) and Lender shall
return the Payment  Shares to Borrower  together with all  documents  reasonably
necessary to permit the Payment Shares to be issued in the name of Borrower, and


                                       10
<PAGE>

(B) after the time noted in clause (A) but prior to the  Maturity  Date,  Lender
shall cause its portion of the Payment Shares and/or  Proceeds to be returned to
Borrower and, subject to Lender`s  compliance with its obligations under Section
3(f) hereof,  the principal amount of the Note shall  automatically be increased
by $500,000 at such time.  In addition,  the Lender  agrees to accept on its own
behalf the terms of,  and to modify  Section  4(c) of this Note to  reflect  any
agreement it, in the exercise of its good faith judgment,  deems reasonable that
is reached  between the Borrower  and the DMG Group  pursuant to the Consent and
Agreement  dated as of the date  hereof  (the  "Consent  Agreement")  among  the
Borrower,  Inc.,  the Lender and the DMG Group) with  respect to the DMG Group`s
rights in and to the  registration  of the  E*TRADE  Stock as set forth above in
this Section 4(c). No provision in this Section 4(c),  when read in  conjunction
with Section 3(f), shall be interpreted to entitle Lender to two payments in the
amount of $500,000  sourced from the E*TRADE  Stock.  No provision of this Note,
notwithstanding  anything to the  contrary  herein,  shall be construed to limit
Lender`s  right to hold shares of E*TRADE  Stock  and/or  Proceeds as well as an
applicable  reserve (based on the same formula for determining the Closing Value
Shares and related  reserve) in an amount  sufficient  to  reimburse  Lender for
unpaid obligations of Borrower to reimburse Lender for legal fees to which it is
entitled under the terms of the Transaction  Documents and to reimburse Graylen,
Inc. for unpaid consulting  services.  The Lender and Borrower agree to promptly
resolve the amounts owing after the Closing and the Lender will provide or cause
to be  provided  copies  of  applicable  bills,  subject  to  its  right  not to
compromise  attorney  client  privilege with respect to Vinson & Elkins.  Lender
acknowledges that receipt of $125,000 pursuant to the Payment Instruction Letter
executed by Lender and the other parties thereto on the Closing Date will reduce
the amount of overall legal billings that Lender is owed by Borrower.

         Section  5.  TAXES.  Any  and  all  payments  by or on  account  of any
obligation  of  the  Borrower  hereunder  or  under  any  document  executed  in
connection  herewith  (including the Security  Documents) shall be made free and
clear of and without  deduction  for any taxes;  provided  that if the  Borrower
shall be  required  to deduct  any taxes  from such  payments,  then (a) the sum
payable  shall be  increased  as  necessary  so that after  making all  required
deductions  (including  deductions  applicable to additional  sums payable under
this  Section)  the  Lender  receives  an amount  equal to the sum it would have
received had no such  deductions  been made,  (b) the  Borrower  shall make such
deductions  and (c) the  Borrower  shall  pay the full  amount  deducted  to the
relevant governmental authority in accordance with applicable law.

         Section 6.  PAYMENTS  GENERALLY.  The Borrower  shall make each payment
required to be made by it hereunder  (whether of principal,  interest,  or other
amounts payable  hereunder) prior to 12:00 noon, New York City time, on the date
when due, in immediately  available funds, without set-off or counterclaim.  Any
amounts  received  after  such time on any date may,  in the  discretion  of the
Lender, be deemed to have been received on the next succeeding  Business Day for
purposes of calculating interest thereon. All such payments shall be made to the
Lender at its offices at 1700 Pacific Avenue,  Suite 1400,  Dallas,  Texas 75201
(the "PAYMENT OFFICE"), or such other office as the Lender may direct in writing
to the Borrower.  If any payment  hereunder  shall be due on a day that is not a
Business  Day,  the date for payment  shall be  extended to the next  succeeding
Business  Day,  and,  in the case of any  payment  accruing  interest,  interest
thereon  shall  be  payable  for the  period  of such  extension.  All  payments
hereunder shall be made in dollars.

         Section 7. REPRESENTATIONS AND WARRANTIES.  The Borrower represents and
warrants to the Lender as of the date hereof that:



                                       11
<PAGE>

         (a)  AUTHORIZATION;  ENFORCEABILITY.  The transactions  contemplated by
this  Note are  within  the  Borrower`s  corporate  powers  and have  been  duly
authorized by all necessary corporate and, if required, stockholder action. This
Note and the other  documents  executed in connection  herewith  (including  the
Security  Documents)  have been duly  executed and delivered by the Borrower and
constitute legal, valid and binding obligations of the Borrower,  enforceable in
accordance  with  their  respective  terms,  subject to  applicable  bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors` rights
generally  and subject to general  principles  of equity,  regardless of whether
considered in a proceeding in equity or at law.

         (b)  GOVERNMENTAL  APPROVALS;  NO  CONFLICTS.  Except  as set  forth on
Schedule  7(b),  the  transactions  contemplated  hereby (i) do not  require any
consent or approval of, registration or filing with, or any other action by, any
governmental  authority,  except  such as have been  obtained or made and are in
full force and effect, (ii) will not violate any applicable law or regulation or
the charter, by-laws or other organizational documents of the Borrower or any of
its  Subsidiaries  or any order of any  governmental  authority,  (iii) will not
violate  or  result  in a  default  under  any  indenture,  agreement  or  other
instrument  binding upon the Borrower or any of its  Subsidiaries or its assets,
or give rise to a right  thereunder  to  require  any  payment to be made by the
Borrower or any of its Subsidiaries, and (iv) will not result in the creation or
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.

         (c)  LITIGATION.  Except as set forth on  Schedule  7(c),  there are no
actions,  suits or  proceedings  by or before  any  arbitrator  or  governmental
authority  pending  against or, to the  knowledge  of the  Borrower,  threatened
against or  affecting  the Borrower or any of its  Subsidiaries  (i) as to which
there is a  reasonable  possibility  of an adverse  determination  and that,  if
adversely  determined,  could  reasonably  be expected,  individually  or in the
aggregate, to involve this Note or the transactions contemplated hereby.

         (d)  SUBSIDIARIES.   As  of  the  date  hereof,  the  Borrower  has  no
Subsidiaries except those shown on Schedule 7(d), which Schedule is complete and
accurate.

         Section 8. AFFIRMATIVE  COVENANTS.  Until the principal of and interest
on the Loan and all  other  amounts  payable  hereunder  have been  finally  and
indefeasibly  paid in full,  the Borrower  covenants  and agrees with the Lender
that:

         (a)  FINANCIAL  STATEMENTS  AND OTHER  INFORMATION.  The Borrower  will
furnish to the Lender:

                  (i) promptly after the same become publicly available,  copies
of all periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange  Commission,  or
any  governmental  authority  succeeding  to any or all of the functions of said
Commission,  or with any national  securities  exchange,  or  distributed by the
Borrower to its shareholders generally, as the case may be; and

                  (ii)  promptly  following  any  request  therefor,  such other
information  regarding the operations,  business affairs and financial condition
of the Borrower or any Subsidiary, or compliance with the terms of this Note, as
the Lender may reasonably request.



                                       12
<PAGE>

         (b) NOTICE OF MATERIAL EVENTS.  The Borrower will furnish to the Lender
prompt written notice of the following:

                  (i) the occurrence of any Default;

                  (ii)  the  filing  or  commencement  of any  action,  suit  or
proceeding by or before any  arbitrator  or  governmental  authority  against or
affecting the Borrower or any Affiliate  thereof that, if adversely  determined,
could  reasonably be expected to result in a Material Adverse Effect (if, and to
the extent,  monetary damages are claimed in such action, suit or proceeding,  a
claim for  damages  that might  result in a loss of $100,000 or more (or harm to
the  Borrower or an  Affiliate  of the Borrower in an amount equal to or greater
than such amount) shall be considered to result in a Material  Adverse  Effect);
and

                  (iii)  any  other   development  that  results  in,  or  could
reasonably be expected to result in, a Material Adverse Effect.

Each notice  delivered under this Section shall be accompanied by a statement of
the chief financial  officer or other executive  officer of the Borrower setting
forth the  details of the event or  development  requiring  such  notice and any
action taken or proposed to be taken with respect thereto.

         (c) BOOKS AND RECORDS;  INSPECTION  RIGHTS. The Borrower will, and will
cause each of its  Subsidiaries  to, keep proper  books of record and account in
which full, true and correct  entries are made of all dealings and  transactions
in relation to its business and  activities.  The Borrower  will, and will cause
each of its  Subsidiaries  to,  permit  any  representatives  designated  by the
Lender,  upon reasonable prior notice,  to visit and inspect its properties,  to
examine  and make  extracts  from its  books and  records,  and to  discuss  its
affairs,  finances and condition with its officers and independent  accountants,
all at such reasonable times and as often as reasonably requested.

                  Section 9. NEGATIVE COVENANTS. Until principal of and interest
on the Loan and all  other  amounts  payable  hereunder  have been  finally  and
indefeasibly  paid in full,  the Borrower  covenants  and agrees with the Lender
that:

         (a)  INDEBTEDNESS.  The  Borrower  will not,  and will not  permit  any
Subsidiary  to,  create,  incur,  assume or  permit  to exist any  Indebtedness,
except:

                  (i) Indebtedness created hereunder and under the DMG Note;

                  (ii) Indebtedness existing on the date hereof and set forth in
Schedule 9(a);

                  (iii) other  Indebtedness  of the  Borrower  and/or any of its
Subsidiaries in an aggregate  principal  amount not exceeding  $1,000,000 at any
time  outstanding  so long as no more  than  $500,000  of such  Indebtedness  is
unsecured  Indebtedness and any other  Indebtedness  permitted  pursuant to this
clause (iii)  constitutes a Capital Lease Obligation where any security interest
granted  does not  extend to any asset  other  than the  asset  actually  leased
pursuant to the documentation under which such Capital Lease Obligation actually
arose; and



                                       13
<PAGE>

                  (iv) ordinary course  unsecured  account and trade payables to
         unaffiliated  third- party vendors and to  Affiliates  with whom it may
         transact business in full compliance with clause (f) below (so long as,
         prior the occurrence of any such  transaction  with an Affiliate,  such
         Affiliate executes such additional security  documentation,  guaranties
         and loan  documentation  as Lender shall  request and which shall be in
         form and substance satisfactory to it).

         (b)  LIENS.  The  Borrower  will not,  and will not  permit  any of its
Subsidiaries  to,  create,  incur,  assume  or  permit  to exist any Lien on any
property or asset now owned or  hereafter  acquired by it, or assign or sell any
income or revenues (including  accounts  receivable) or rights in respect of any
thereof, except:

                  (i) Permitted Encumbrances;

                  (ii) any Lien on any  property or asset of the Borrower or any
Subsidiary  existing on the date hereof and set forth in Schedule 9(b); provided
that  (i) such  Lien  shall  not  apply to any  other  property  or asset of the
Borrower  or  any  Subsidiary  and  (ii)  such  Lien  shall  secure  only  those
obligations which it secures on the date hereof; and

                  (iii) any Lien on equipment or other tangible  assets acquired
after the Closing Date pursuant to a Capital Lease  Obligation but solely to the
extent such Lien extends only to such newly acquired equipment or assets.

         (c) FUNDAMENTAL CHANGES. (i) The Borrower will not, and will not permit
any Subsidiary to, merge into or  consolidate  with any other Person,  or permit
any other Person to merge into or consolidate with it, or sell, transfer,  lease
or otherwise  dispose of (in one transaction or in a series of transactions) all
or any  part of its  assets  (whether  now  owned  or  hereafter  acquired),  or
liquidate or dissolve,  except that the Borrower or any  Subsidiary may (A) sell
inventory or other  similar  assets in the ordinary  course of business,  and(B)
sell,  transfer or otherwise dispose of personal property in the ordinary course
of  business  or  when,  in the  reasonable  judgment  of the  Borrower  or such
Subsidiary,  such  sale,  transfer  or  other  disposition  that is in the  best
interest of the Borrower or such  Subsidiary so long as in any calendar year the
aggregate  value of such  sales,  transfers  and  dispositions  does not  exceed
$250,000 or the disposition involves  non-accredited accounts of Inc. located in
Canada.  The  Borrower  shall also be  permitted to make the payments to the DMG
Entities referred to in the Consent Agreement.

                           (ii) The  Borrower  will not, and will not permit any
of its Subsidiaries to, engage to any material extent
in any business other than  businesses of the type conducted by the Borrower and
its Subsidiaries on the date of execution of this Note and businesses reasonably
related or  incidental  thereto;  provided,  however,  that the Borrower and its
Subsidiaries  may engage in new lines of business within the financial  services
industry  so long as such  new  line or  lines  of  business  do not  materially
adversely  affect  the  ability  of the  Borrower  and its  Subsidiaries  to (x)
generate revenues under the Fully Disclosed  Clearing  Agreement with the Lender
(as amended) or (y) continue in a productive  manner the  Borrower`s  and/or its
Subsidiaries`  business  acting as an  introducing  broker within the securities
industry as conducted on the Closing Date.



                                       14
<PAGE>

         (d) INVESTMENTS,  LOANS,  ADVANCES,  GUARANTEES AND  ACQUISITIONS.  The
Borrower  will not, and will not permit any of its  Subsidiaries  to,  purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
wholly owned  Subsidiary  prior to such merger) any capital stock,  evidences of
indebtedness or other securities  (including any option,  warrant or other right
to  acquire  any of the  foregoing)  of,  make or  permit  to exist any loans or
advances  to,  Guarantee  any  obligations  of,  or make or  permit to exist any
investment or any other interest in, any other Person,  or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:

                  (i) Permitted Investments;

                  (ii)  investments by the Borrower  existing on the date hereof
in the capital stock of its  Subsidiaries  or after the date hereof in Inc. (and
in other  Subsidiaries if, prior the occurrence  thereof,  Borrower and any such
Subsidiary execute such additional security  documentation,  guaranties and loan
documentation  as Lender shall  request and which shall be in form and substance
satisfactory to it);

                  (iii) loans or advances  made by the Borrower to Inc.  (and to
other  Subsidiaries  if,  prior the  occurrence  thereof,  Borrower and any such
Subsidiary execute such additional security  documentation,  guaranties and loan
documentation  as Lender shall  request and which shall be in form and substance
satisfactory to it);

                  (iv) Guarantees  constituting  (x)  Indebtedness  permitted by
Section  9(a) and (y) in respect of Inc.  (and in respect of other  Subsidiaries
if, prior the occurrence thereof,  Borrower and any such Subsidiary execute such
additional security  documentation,  guaranties and loan documentation as Lender
shall request and which shall be in form and substance satisfactory to it); and

                  (v)  investments  that  exist on the date  hereof and that are
disclosed in Schedule 9(d) hereto.

          (e)  RESTRICTED  PAYMENTS.  The Borrower will not, and will not permit
any of its Subsidiaries  to, declare or make, or agree to pay or make,  directly
or indirectly,  any Restricted Payment,  except (i) the Borrower may declare and
pay dividends with respect to its Equity Interests  payable solely in additional
shares of its capital stock,  (ii) Subsidiaries may declare and pay dividends to
the Borrower,  and (iii) the Borrower may make Restricted  Payments  pursuant to
and in accordance  with stock option plans or other benefit plans for management
or employees of the  Borrower and its  Subsidiaries.  The Borrower may also make
the payment to the DMG Entities referred to in the Consent Agreement.

         (f) TRANSACTIONS  WITH AFFILIATES.  The Borrower will not, and will not
permit  any of its  Subsidiaries  to,  sell,  lease or  otherwise  transfer  any
property or assets to, or purchase,  lease or otherwise  acquire any property or
assets from,  or otherwise  engage in any other  transactions  with,  any of its
Affiliates (but such limitation  shall not apply to Inc. or any other Subsidiary
if, prior the occurrence of the foregoing actions in this clause (f), such other
Subsidiary executes such additional security documentation,  guaranties and loan
documentation  as Lender shall  request and which shall be in form and substance
satisfactory to it), except (i) in the ordinary course of business at prices and


                                       15
<PAGE>

on terms and conditions  not less  favorable to the Borrower or such  Subsidiary
than could be obtained on an  arm`s-length  basis from unrelated  third parties,
(ii) any Restricted Payment permitted by Section 9(e) and (iii) the Borrower may
pay, renew or extend any  Indebtedness it owes to ABW Trading LLC as of the date
hereof (without  increasing the principal amount of such  Indebtedness  owing or
the rate of interest  charge as of the Closing  Date in the case of any renewals
or  extensions,  which  amount is  $799,072.40,  in  addition  to  payment  of a
reasonable  settlement of  obligations  incurred by the Borrower  and/or Inc. in
connection  with the  acquisition  of the assets of ABW Trading LLC  pursuant to
acquisition  documents executed prior to the date hereof so long as the Borrower
obtains the Lender`s consent (such consent not to be unreasonably withheld)).

         Section 10. EVENTS OF DEFAULT.  If any of the following events ("EVENTS
OF DEFAULT") shall occur:

         (a) the Borrower  shall fail to pay any principal of or interest on the
Loan or any other  amount  payable  under this Note,  when and as the same shall
become due and  payable,  whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;

         (b) any material provision of this Note or the Security Documents after
delivery  thereof shall,  for any reason,  except to the extent permitted by the
terms  thereof,  cease to be in full force and effect  and  valid,  binding  and
enforceable  (except as such  enforceability may be limited as stated in Section
7(a)) in  accordance  with its terms,  or, in the case of any Security  Document
purporting to create a Lien,  cease to create a valid and perfected  Lien of the
priority  contemplated  thereby on any of the collateral purported to be covered
thereby,  or the Borrower (or any other Person who may have granted or purported
to grant such a Lien) shall so state in writing;

         (c) any  representation or warranty made or deemed made by or on behalf
of the  Borrower or any  Subsidiary  in or in  connection  with this Note or any
Security Document or any amendment or modification hereof or waiver hereunder or
thereunder, or in any report, certificate, financial statement or other document
furnished  pursuant to or in connection with this Note or any Security  Document
or any amendment or modification hereof or waiver hereunder or thereunder, shall
prove to have been incorrect in any material respect when made or deemed made;

         (d) the  Borrower  shall  fail to  observe  or  perform  any  covenant,
condition or agreement contained in Section 9;

         (e) (i) the  Borrower  shall fail to observe or perform  any  covenant,
condition  or agreement  contained  in this Note (other than those  specified in
clause (a),  (b),  (d), (f), (g), (h), (i) or (j) (in the case of clause (j) the
Borrower may seek to cure the applicable  breach solely to the extent the breach
is promptly capable of being cured and to Lender`s satisfaction, as Lender shall
determine in the exercise of its sole  discretion)  of this  Section),  and such
failure shall  continue  unremedied for a period of 30 days after notice thereof
from the Lender to the Borrower,  or (ii) default is made in the due  observance
or  performance  by the Borrower or any  Subsidiary  of any of the  covenants or
agreements  contained  in  any of  the  Security  Documents,  and  such  default


                                       16
<PAGE>

continues  unremedied beyond the expiration of any applicable grace period which
may be expressly allowed under such Security Document;

         (f) (i) any event or  condition  occurs  that  results in any  Material
Indebtedness  becoming  due prior to its  scheduled  maturity  or the  holder or
holders of any  Material  Indebtedness  or any  trustee or agent on its or their
behalf require the  prepayment,  repurchase,  redemption or defeasance  thereof,
prior to its scheduled maturity so long as the applicable holder of Indebtedness
(i) declares or  otherwise  takes action  either to  terminate  its  obligations
and/or the rights of the borrower under the applicable document or instrument or
(ii)  makes a  demand  for  the  early  prepayment,  repurchase,  redemption  or
defeasance of any of the applicable Indebtedness;  provided that this clause (f)
shall not apply to  secured  Indebtedness  that  becomes  due as a result of the
voluntary sale or transfer of the property or assets securing such  Indebtedness
or (ii) one or more judgments for the payment of money in an aggregate amount in
excess of $500,000 shall be rendered  against the Borrower,  any Subsidiary,  or
any combination  thereof, and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively  stayed,  or
any party enforcing such a judgment shall  successfully  attach or levy upon any
assets of the Borrower or any Subsidiary to enforce any such judgment; provided,
that Lender shall not terminate its obligations  under any Related Document as a
result of a Default  under this clause (ii) unless the  Borrower or a Subsidiary
pays any such  prohibited  judgment (it being  understood and agreed that Lender
shall not be  restricted  from taking any action to  terminate  its  obligations
under a Related  Document if it is relying on a provision other than this clause
(ii) to terminate such Related Document);

         (g) an  involuntary  proceeding  shall be commenced  or an  involuntary
petition shall be filed seeking (i) liquidation,  reorganization or other relief
in respect of the Borrower or any Subsidiary or their respective  debts, or of a
substantial part of their respective assets, under any Federal, state or foreign
bankruptcy,  insolvency,  receivership or similar law now or hereafter in effect
or  (ii)  the  appointment  of a  receiver,  trustee,  custodian,  sequestrator,
conservator  or similar  official  for the Borrower or any  Subsidiary  or for a
substantial  part of  their  respective  assets,  and,  in any such  case,  such
proceeding or petition shall continue  undismissed or unstayed for 45 days or an
order or decree approving or ordering any of the foregoing shall be entered;

         (h) the Borrower or any Subsidiary  shall (i) voluntarily  commence any
proceeding or file any petition  seeking  liquidation,  reorganization  or other
relief under any federal, state or foreign bankruptcy, insolvency,  receivership
or similar law now or hereafter in effect,  (ii) consent to the  institution of,
or fail to  contest  in a timely  and  appropriate  manner,  any  proceeding  or
petition described in clause (g) of this Section,  (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,  conservator or
similar  official for the Borrower or such Subsidiary or for a substantial  part
of  their  respective  assets,  (iv)  file  an  answer  admitting  the  material
allegations  of a petition filed against it in any such  proceeding,  (v) make a
general  assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;

         (i) the Borrower or any Subsidiary shall breach in any material respect
the terms of the Asset Purchase Agreement or any Related Document and shall fail
to cure such breach within the applicable cure period set forth therein; or



                                       17
<PAGE>

         (j) a change in control" involving the Borrower or any Subsidiary shall
occur ("control" means the direct or indirect power to direct or cause direction
of the  management  and  policies of an entity,  whether  through the ability to
exercise voting power,  by contract or otherwise,  as determined by Purchaser in
its  sole  discretion;  and  provided  further  that  a  transaction  shall  not
constitute  a change in control if (i) the  Borrower  shall  have  notified  the
Lender in writing (sent by telecopy marked conspicuously on the cover sheet with
"Urgent-Immediate  Reply  Needed" to each of Lender`s  CEO,  COO,  CFO,  General
Counsel and Chief  Compliance  Officer and to Andrew Koslow  (208-275-3940))  in
reasonable detail of the general terms of a proposed transaction and identity of
the applicable investor(s) and/or acquirer , and the Lender either confirms that
such  transaction does not constitute a change in control or does not notify the
Borrower  within six Business Days after the day on which it receives the notice
from the  Borrower  that the  Lender  deems  the  transaction  to be a change in
control and Borrower and/or its applicable Subsidiary completes a transaction on
terms no less favorable to the Borrower  and/or its applicable  Subsidiary  than
those provided in the notice or (ii) it involves the issuance by the Borrower or
a  Subsidiary  of common  stock or other  equivalent  equity  securities  (A) in
connection  with the conversion of existing  indebtedness  on the date hereof of
the Borrower or applicable  Subsidiary or (B) upon the conversion or exercise of
warrants,  preferred  stock or other  securities  existing on the date hereof or
issued  pursuant  to clause (A) above into common  stock of the  Borrower or the
applicable Subsidiary;

         then,  and in every such event (other than an event with respect to the
Borrower or any Subsidiary described in clause (g) or (h) of this Section),  and
at any time thereafter  during the continuance of such event, the Lender may, by
notice to the Borrower declare the principal amount of the Loan then outstanding
to be due and payable in whole (or in part, in which case any  principal  amount
not so declared to be due and payable may  thereafter  be declared to be due and
payable),  and thereupon the principal  amount of the Loan so declared to be due
and payable, together with accrued interest thereon and all other obligations of
the  Borrower  accrued  hereunder,  shall  become due and  payable  immediately,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby waived by the Borrower;  and in case of any event with respect to the
Borrower or any Subsidiary  described in clause (g) or (h) of this Section,  the
principal  amount of the Loan then  outstanding,  together with accrued interest
thereon and all other  obligations  of the  Borrower  accrued  hereunder,  shall
automatically become due and payable,  without presentment,  demand,  protest or
other notice of any kind, all of which are hereby waived by the Borrower.

         Section  11.  NOTICES.  (a)  Except  in the case of  notices  and other
communications  expressly  permitted to be given by  telephone,  all notices and
other  communications  provided  for  herein  shall be in  writing  and shall be
delivered  by  hand  or  overnight  courier  service,  mailed  by  certified  or
registered mail or sent by fax, as follows:

                  (i) if to the Borrower, to it at 40 Wall Street, New York, New
         York 10005, Attention of CEO (Fax No. 212-422-1724); and

                  (ii) if to the Lender,  to it at 1700  Pacific  Avenue,  Suite
         1400, Dallas, Texas, 75201, Attention of COO (Fax No. 214-765-1164).



                                       18
<PAGE>

         (b) Any party  hereto may change its  address or fax number for notices
and other  communications  hereunder by notice to the other parties hereto.  All
notices and other  communications  given to any party hereto in accordance  with
the  provisions  of this Note  shall be deemed to have been given on the date of
receipt.

         Section 12. WAIVERS;  AMENDMENTS. (a) No failure or delay by the Lender
in exercising any right or power  hereunder  shall operate as a waiver  thereof,
nor shall any single or  partial  exercise  of any such  right or power,  or any
abandonment  or  discontinuance  of steps  to  enforce  such a right  or  power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power.  The rights and remedies of the Lender  hereunder are cumulative
and are not exclusive of any rights or remedies that they would  otherwise have.
No waiver of any  provision  of this Note or  consent  to any  departure  by the
Borrower  therefrom  shall in any event be  effective  unless  the same shall be
permitted  by  paragraph  (b) of this  Section,  and then such waiver or consent
shall be effective  only in the specific  instance and for the purpose for which
given.

         (b) Neither this Note nor any provision  hereof may be waived,  amended
or modified  except  pursuant to an agreement or agreements  in writing  entered
into by the Borrower and the Lender.

         Section 13. EXPENSES;  INDEMNITY; DAMAGE WAVIER. (a) The Borrower shall
pay (i) all reasonable  out-of-pocket expenses incurred by the Lender, including
the reasonable fees,  charges and  disbursements  of counsel for the Lender,  in
connection with the  administration  of this Note and the Security  Documents or
any  amendments,  modifications  or waivers of the provisions  hereof or thereof
(whether  or not the  transactions  contemplated  hereby  or  thereby  shall  be
consummated),  and (ii)  all  out-of-pocket  expenses  incurred  by the  Lender,
including the fees,  charges and disbursements of any counsel for the Lender, in
connection  with the  enforcement or protection of its rights in connection with
this Note and the Security  Documents,  including its rights under this Section,
or in connection with the Loan made hereunder,  including all such out-of-pocket
expenses  incurred during any workout,  restructuring or negotiations in respect
of the Loan. For the avoidance of doubt,  the Lender shall pay all expenses (out
of pocket or otherwise) incurred by it, including those in respect of its legal,
financial or other advisers in connection  with the preparation of this Note but
the Borrower shall remain obligated to pay all of the Lender`s fees and expenses
incurred in connection  with the  preparation of the  Transaction  Documents (as
defined in the Master Agreement) that were executed prior to the date hereof.

         (b) The Borrower shall  indemnify the Lender and its Affiliates and the
respective directors, officers, employees, agents and advisors of the Lender and
its Affiliates (each such Person being called an "INDEMNITEE") against, and hold
each Indemnitee harmless from, any and all losses, claims, damages,  liabilities
and related  expenses,  including  the fees,  charges and  disbursements  of any
counsel  for any  Indemnitee,  incurred by or  asserted  against any  Indemnitee
arising  out of, in  connection  with,  or as a result of (i) the  execution  or
delivery of this Note,  the Security  Documents or any  agreement or  instrument
contemplated  hereby or thereby,  or the  performance  by the parties  hereto of
their respective  obligations  hereunder or the consummation of the transactions
contemplated  hereby  or  thereby,  (ii)  the  Loan or the  use of the  proceeds
therefrom, or (iii) any actual or prospective claim,  litigation,  investigation
or proceeding relating to any of the foregoing,  whether based on contract, tort
or any other theory and regardless of whether any Indemnitee is a party thereto;


                                       19
<PAGE>

provided that such indemnity  shall not, as to any  Indemnitee,  be available to
the extent that such losses,  claims,  damages,  liabilities or related expenses
are determined by a court of competent  jurisdiction by final and  nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.

         (c) To the extent  permitted by applicable  law, the Borrower shall not
assert,  and hereby waives,  any claim against any Indemnitee,  on any theory of
liability, for special, indirect,  consequential or punitive damages (as opposed
to direct or actual damages)  arising out of, in connection with, or as a result
of, this Note or any agreement or instrument  contemplated  hereby, the Loan, or
the use of the proceeds thereof.

         (d) All amounts due under this Section shall be payable  promptly after
written demand therefor.

         Section 14.  SUCCESSORS AND ASSIGNS.  The provisions of this Note shall
be  binding  upon and  inure to the  benefit  of the  parties  hereto  and their
respective successors and assigns permitted hereby, except that the Borrower may
not assign or  otherwise  transfer  any of its rights or  obligations  hereunder
without the prior written consent of the Lender (and any attempted assignment or
transfer by the Borrower  without such consent shall be null and void).  Nothing
in this Note, expressed or implied, shall be construed to confer upon any Person
(other  than  the  parties  hereto,  their  respective  successors  and  assigns
permitted hereby,  and the Indemnitees) any legal or equitable right,  remedy or
claim  under or by reason of this  Note.  The  Lender  may assign to one or more
assignees  all or a  portion  of its  rights  and  obligations  under  this Note
(including  all or a portion  of any Loan at the time owing to it)  without  the
consent of the Borrower.

         Section 15. SURVIVAL.  All covenants,  agreements,  representations and
warranties  made  by  the  Borrower  herein  and in the  certificates  or  other
instruments  delivered  in  connection  with or  pursuant  to this Note shall be
considered  to have  been  relied  upon by the  Lender  and  shall  survive  the
execution  and delivery of this Note and the making of the Loan,  regardless  of
any   investigation   made  by  any  such  the  Lender  or  on  its  behalf  and
notwithstanding  that the Lender may have had notice or knowledge of any Default
or  incorrect  representation  or  warranty  at the time any credit is  extended
hereunder,  and shall continue in full force and effect as long as the principal
of or any accrued  interest on any Loan or any other amount  payable  under this
Note is  outstanding  and unpaid.  The  provisions of Sections 7 (as of the date
made),  13,  19, 20 and 21 shall  survive  and  remain in full  force and effect
regardless of the  consummation of the  transactions  contemplated  hereby,  the
repayment of the Loan, or the termination of this Note or any provision hereof.

         Section 16. INTEGRATION. This Note and the other agreements executed in
connection herewith constitute the entire contract among the parties relating to
the subject  matter  hereof and supersede  any and all previous  agreements  and
understandings, oral or written, relating to the subject matter hereof.

         Section  17.  SEVERABILITY.  Any  provision  of  this  Note  held to be
invalid,  illegal  or  unenforceable  in  any  jurisdiction  shall,  as to  such
jurisdiction,  be  ineffective to the extent of such  invalidity,  illegality or
unenforceability without affecting the validity,  legality and enforceability of


                                       20
<PAGE>

the remaining provisions hereof; and the invalidity of a particular provision in
a  particular  jurisdiction  shall not  invalidate  such  provision in any other
jurisdiction.

         Section 18. RIGHT OF SETOFF. If an Event of Default shall have occurred
and be continuing, the Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest  extent  permitted by law, to set
off and apply any obligations at any time owing by the Lender or Affiliate to or
for  the  credit  or the  account  of the  Borrower  against  any of and all the
obligations  of  the  Borrower  now  or  hereafter  existing  under  this  Note,
irrespective  of whether or not the Lender shall have made any demand under this
Note and although such  obligations  may be unmatured.  The rights of the Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which the Lender may have.

         Section 19. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) This Note shall be construed in  accordance  with and governed by the law of
the State of New York.

         (b) Any judicial  proceeding brought against any of the parties to this
Note on any dispute  arising out of this Note or any matter related hereto shall
be brought solely in the appropriate  state or Federal courts located in Dallas,
Texas (PROVIDED that Lender,  notwithstanding the foregoing, may elect to pursue
its rights and remedies in another forum if it so desires).  Each of the parties
hereby irrevocably and unconditionally  submits, for itself and its property, to
the in personam  jurisdiction  of the state and Federal courts sitting in Dallas
County, Texas, in each case with respect to any action or proceeding arising out
of or relating to this Note. Each party hereby  irrevocably and  unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this Note in any such court.
Each party hereby  irrevocably  waives,  to the fullest extent permitted by law,
the  defense  of an  inconvenient  forum to the  maintenance  of such  action or
proceeding in any such court.

         (c) The Borrower hereby irrevocably and unconditionally  waives, to the
fullest extent it may legally and  effectively do so, any objection which it may
now or hereafter  have to the laying of venue of any suit,  action or proceeding
arising out of or relating  to this Note in any court  referred to in  paragraph
(b) of this  Section.  Each of the  Borrower and the Lender  hereby  irrevocably
waives,  to the fullest extent  permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

         (d) The Borrower and the Lender hereto  irrevocably  consent to service
of process in the manner  provided  for notices in Section  11.  Nothing in this
will  affect the right of the  Borrower  or the  Lender to serve  process in any
other manner permitted by law.

         Section 20.  WAIVER OF JURY TRIAL.  EACH OF THE BORROWER AND THE LENDER
HEREBY WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL  BY JURY IN ANY  LEGAL  PROCEEDING  DIRECTLY  OR  INDIRECTLY
ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS  CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT,  TORT OR ANY OTHER THEORY). EACH OF THE BORROWER AND
THE LENDER (A) CERTIFIES THAT NO REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,


                                       21
<PAGE>

IN THE  EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE  FOREGOING  WAIVER  AND (B)
ACKNOWLEDGES  THAT IT HAS BEEN  INDUCED TO ENTER INTO THIS NOTE BY,  AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

         Section  21.   OPERATION   OF  ASSET   PURCHASE   AGREEMENT.   Borrower
acknowledges and agrees that,  notwithstanding  anything to the contrary herein,
the provisions of this Note shall be subject to the provisions of Section 9.3 of
the Asset Purchase Agreement.

         Section 22. AMENDMENT AND RESTATEMENT. This Note, subject to the effect
of Section 21 above,  amends and  restates  that certain  promissory  note dated
March 27,  2002 by  Borrower  in favor of Lender,  as amended  prior to the date
hereof.



                            [SIGNATURE PAGE FOLLOWS]



                                       22
<PAGE>


         IN WITNESS  WHEREOF,  the Borrower has executed  this Note as of the 31
day of July, 2002.



                                             A.B. WATLEY GROUP INC.



                                             By:_____________________________
                                                  Name:
                                                  Title:


         Agreed and Accepted this __
         Day of July 2002:


         PENSON FINANCIAL SERVICES, INC.



         By:_____________________________
         Name:
         Title:

                                       S-1

<PAGE>



                                  SCHEDULE 1(A)

                           INFORMATION REGARDING LOAN


         The  foregoing  Note  evidences  the  Loan  made by the  Lender  to the
Borrower,  which Loan was in the  principal  amounts  and was made and repaid or
prepaid on the dates set forth below:


<TABLE>
<CAPTION>
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
PRINCIPAL AMOUNT OF THE   DATE LOAN WAS MADE     DATE OF PAYMENT OR      AMOUNT PAID OR         BALANCE OUTSTANDING
LOAN                                             PREPAYMENT              PREPAID
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                    <C>                     <C>                    <C>
$2,150,994.00
------------------------- ---------------------- ----------------------- ---------------------- ----------------------

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</TABLE>





<PAGE>



                                  SCHEDULE 1(B)

                               SECURITY DOCUMENTS


         1. Master Agreement

         2. General Security Agreement

         3. Software Security Agreement



<PAGE>