<PAGE>

EXHIBIT 10.3



                                 PROMISSORY NOTE



         A.B. WATLEY GROUP INC., a Delaware  corporation (the  "BORROWER"),  for
value received, promises and agrees to pay to DMG Legacy Institutional Fund LLC,
and DMG Legacy  Fund LLC (such  entities  are  collectively  referred  to as the
"LENDER"), or order, at the Payment Office (as such term is hereinafter defined)
the aggregate  principal sum of all Loans (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 NINE HUNDRED  THOUSAND AND NO/100 DOLLARS
($900,000.00),  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 Loans 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 each Loan is made 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 principal amount of
each  Loan,  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 Loans
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.

         "AVAILABILITY  PERIOD"  means the time  period from and  including  the
Effective Date to but excluding the earlier of the Maturity Date and the date of
the termination of the Commitment.

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

         "BORROWING  REQUEST"  means a  request  by the  Borrower  for a Loan in
accordance with Section 3.

         "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.

         "CHANGE IN CONTROL" means (a) the acquisition of ownership, directly or
indirectly,  beneficially  or of  record,  by any  Person or group  (within  the
meaning of the  Securities  Exchange Act of 1934 and the rules of the Securities
and Exchange  Commission  thereunder as in effect on the date hereof), of Equity
Interests of the Borrower  representing more than 20% of the aggregate  ordinary
voting power  represented by all of the issued and outstanding  Equity Interests
of the  Borrower;  (b)  occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i)
nominated  by the board of  directors  of the  Borrower  nor (ii)  appointed  by
directors so nominated;  or (c) the acquisition of direct or indirect Control of
the Borrower by any Person or group.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.



                                       2
<PAGE>

         "COMMITMENt"   means  the  commitment  of  the  Lender  to  make  Loans
hereunder,  as such  commitment  may be reduced from time to time in  accordance
with the provisions  hereof.  The initial  amount of the Lender`s  Commitment is
$1,600,000.00.

         "CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through  the  ability to  exercise  voting  power,  by  contract  or  otherwise.
"CONTROLLING" and "CONTROLLED" have meanings correlative thereto.

         "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.


         "EFFECTIVE  DATE" means the date on which the  conditions  specified in
Section 8(a) are satisfied (or waived in accordance with Section 14).

         "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.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended from time to time.

         "ERISA   AFFILIATE"  means  any  trade  or  business  (whether  or  not
incorporated) that, together with the Borrower,  is treated as a single employer
under  Section  414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and  Section  412 of the Code,  is treated as a single  employer  under
Section 414 of the Code.

         "ERISA EVENT" means (a) any "reportable  event",  as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice  period is waived);  (b) the existence
with respect to any Plan of an "accumulated  funding  deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing  pursuant to Section  412(d) of the Code or Section 303(d) of ERISA of an
application  for a waiver of the minimum  funding  standard  with respect to any
Plan; (d) the  incurrence by the Borrower or any of its ERISA  Affiliates of any
liability  under Title IV of ERISA with respect to the  termination of any Plan;
(e) the receipt by the Borrower or any ERISA  Affiliate  from the PBGC or a plan
administrator  of any notice  relating to an intention to terminate  any Plan or
Plans or to appoint a trustee to administer  any Plan; (f) the incurrence by the
Borrower or any of its ERISA  Affiliates  of any  liability  with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice,  or the receipt by
any  Multiemployer  Plan from the Borrower or any ERISA Affiliate of any notice,
concerning  the  imposition of Withdrawal  Liability or a  determination  that a
Multiemployer  Plan is, or is expected to be,  insolvent  or in  reorganization,
within the meaning of Title IV of ERISA.

         "EVENT OF DEFAULT" has the meaning assigned to such term in Section 12.



                                       3
<PAGE>

         "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
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.

         "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 15(b).

         "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.


                                       4
<PAGE>

         "LOAN" means each loan made by the Lender to the  Borrower  pursuant to
Section 3 of this Note.

         "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.

         "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 Loans), 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
$75,000.  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 later of (a) June 18, 2002 and (b) the date
on which the Lender demands payment hereunder.

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

         "MULTIEMPLOYER  PLAN" means a multiemployer  plan as defined in Section
4001(a)(3) of ERISA.

         "NET  PROCEEDS"  means  with  respect  to  any  sale,  lease  or  other
disposition  of any  property of the Borrower or any  Subsidiary  (to the extent
that  the  same is  permitted  hereunder,  herein  referred  to as a  "PERMITTED
DISPOSITION"),  the  gross  amount  received  by  the  Borrower  or  any  of its
Subsidiaries from such Permitted  Disposition,  MINUS the sum of (a) the amount,
if any, of all taxes paid or payable by the Borrower or any of its  Subsidiaries
directly  resulting from such Permitted  Disposition  (including the amount,  if
any,  estimated  by the  Borrower  in good  faith at the time of such  Permitted
Disposition  for taxes payable by the Borrower or any of its  Subsidiaries on or
measured by net income or gain resulting from such Permitted  Disposition),  AND
(ii) the reasonable out-of-pocket costs and expenses incurred by the Borrower or
such  Subsidiary  in  connection  with  such  Permitted  Disposition  (including
reasonable  brokerage  fees paid to a Person other an Affiliate of the Borrower,
but excluding any fees or expenses paid to an Affiliate of the Borrower).

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


                                       5
<PAGE>

         "PAYMENT OFFICE" has the meaning specified in Section 7.

         "PBGC" means the Pension Benefit Guaranty  Corporation  referred to and
defined in ERISA and any successor entity performing similar functions.

         "PENSON NOTE" means that certain  promissory note of even date herewith
in the original principal amount of $1,600,000  executed by the Borrower payable
to the order of Penson Financial Services, Inc.

         "PERMITTED ENCUMBRANCES" means:
         (a) Liens  imposed  by law for taxes  that are not yet due or are being
contested in compliance with Section 10(d);

         (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 in compliance with Section 10(d);

         (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
Event of Default under clause (k) of Section 12;

         (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;

         (h) Liens granted under the General Security Agreement;

         (i) Liens granted under the Software Security Agreement;

         (j) Liens granted under the Source Code Escrow Agreement;

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

         "PERMITTED INVESTMENTS" means:


                                       6
<PAGE>

         (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.

         "PLAN"  means  any  employee   pension   benefit  plan  (other  than  a
Multiemployer  Plan)  subject to the  provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA  Affiliate is (or, if such plan were  terminated,  would under Section
4069 of ERISA be deemed to be) an  "employer"  as  defined  in  Section  3(5) of
ERISA.

         "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.

         "SECURITY DOCUMENTS" means the agreements and instruments  described in
Schedule  1(b) hereto 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.


                                       7
<PAGE>

         "SOURCE CODE ESCROW  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 A.B.
Watley, 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.

         "WITHDRAWAL  LIABILITY"  means liability to a  Multiemployer  Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.

         Section 2.  COMMITMENT.  Subject to the terms and  conditions set forth
herein, the Lender agrees to make Loans to the Borrower from time to time during
the Availability Period in an aggregate principal amount that will not result in
the aggregate principal amount of all Loans outstanding  hereunder exceeding the
Commitment.  Within the foregoing limits and subject to the terms and conditions
set forth  herein,  the Borrower may obtain Loans  hereunder  from time to time,
provided  that the Borrower may not  re-borrow the amount of any Loans that have
been  paid or  prepaid.  Unless  previously  terminated,  the  Commitment  shall
terminate on the Maturity Date.

         Section  3.  REQUESTS  FOR  LOANS.  To  request  the  funding of a Loan
hereunder, the Borrower shall notify the Lender of such request by telephone not
later than 11:00 a.m.,  New York City time,  one Business Day before the date of
the proposed Loan. Each such telephonic  Borrowing  Request shall be irrevocable
and shall be confirmed  promptly by hand delivery or telecopy to the Lender of a
written  Borrowing  Request in a form  approved  by the Lender and signed by the
Borrower.  Each such telephonic and written  Borrowing Request shall specify the
following information:

         (a) the aggregate amount of the requested Loan;

         (b) the  date on  which  such  Loan is to be  made,  which  shall  be a
Business Day; and


                                       8
<PAGE>

         (c) the location and number of the Borrower`s account to which the loan
funds are to be disbursed.

         Section 4. REPAYMENT OF LOANS;  INTEREST. (a) The Borrower shall pay to
the Lender the then unpaid aggregate  outstanding  principal amount of all Loans
on the Maturity Date.

         (b) Each Loan  shall  bear  interest  at a fixed  interest  rate of ten
percent  (10%) per annum  from the date  such  Loan is made  until  such Loan is
finally and  indefeasibly  paid in full.  Accrued interest on each 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
any 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).

         Section 5.  PREPAYMENTS OF THE LOANS;  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 or Loans 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
promptly  prepay an aggregate  principal  amount of the Loans (which  prepayment
shall be pro rata with any  contemporaneous  prepayment  of the loans  under the
Penson Note) equal to 36% of Net Proceeds in excess of $10,000.

         Section  6.  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 7.  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


                                       9
<PAGE>

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 One  Soundshore  Drive,  Greenwich,  Connecticut  (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 8.  CONDITIONS.  (a) CONDITIONS  PRECEDENT TO INITIAL LOAN. The
obligation  of the Lender to make its  initial  Loan shall not become  effective
until the date on which each of the following conditions is satisfied (or waived
in accordance with Section 14):

                  (i) the Lender shall have  received  this Note,  duly executed
and delivered by the Borrower; and

                  (ii) the Lender shall have received the Master Agreement, duly
executed and delivered by all parties thereto;

                  (iii) the Lender shall have  received the General  Security
 Agreement,  duly  executed and  delivered by all parties thereto;

                  (iv) the Lender shall have received financing  statements,  as
appropriate, sufficient to perfect the security interests created by the General
Security Agreement; and

                  (v) the Lender  shall have  received  certified  copies of the
Penson Note, and the original of the Penson Note shall have by duly executed and
delivered by the Borrower to Penson  Financial  Services Inc. and the conditions
precedent  for the funding of the initial  loan under the Penson Note shall have
been satisfied (or waived in accordance with Section 14 of the Penson Note);

                  (vi) the Lender shall have  received  certified  copies of the
resolutions of the Board of Directors of the Borrower  approving the Loans, this
Note, and the Security Documents, and all other documents executed in connection
herewith,  if any,  to which the  Borrower is a party and  evidencing  corporate
authorization with respect to such documents;

                  (vii) the Lender  shall have  received  a  certificate  of the
secretary or an assistant  secretary  of the Borrower  certifying  (A) the name,
title and true  signature of each officer of the Borrower  authorized to execute
this Note and the Security  Documents,  and (ii) that attached thereto is a true
and  complete  copy  of the  certificate  of  incorporation  and  bylaws  of the
Borrower, as amended to date, and a recent good standing certificate; and

                  (viii) the Lender  shall have  received  an opinion of counsel
addressed  to the Lender  covering  such  matters  as the Lender may  reasonably
request.

         (b) CONDITIONS  PRECEDENT TO EACH LOAN. The obligation of the Lender to
make each Loan  hereunder is also subject to the  satisfaction  of the following
conditions:


                                       10
<PAGE>

                  (i) the  representations  and  warranties  of the Borrower set
forth in this Note shall be true and  correct on and as of the date such Loan is
made;

                  (ii) at the time of and immediately after giving effect to the
making of such Loan, no Default shall have occurred and be continuing;

                  (iii)  contemporaneously with the funding of a Loan under this
Note, the Borrower  shall have satisfied the conditions for borrowing  under the
Penson  Note and  shall  obtain a pari  passu  loan  under  the  Penson  Note as
contemplated in Recital H of the Master Agreement; and

                  (iv) the Lender shall have  received  such other  documents as
the Lender may reasonably request, all in form and substance satisfactory to the
Lender.

Each   borrowing  of  a  Loan   hereunder   shall  be  deemed  to  constitute  a
representation  and  warranty by the Borrower on the date that such Loan is made
as to the matters  specified in the immediately  preceding clauses (i), (ii) and
(iii).

                  Section 9.        REPRESENTATIONS AND WARRANTIES.  The
Borrower represents and warrants to the Lender that:


         (a) ORGANIZATION;  POWERS. The Borrower and each of its Subsidiaries is
duly organized,  validly  existing and, except as set forth on Schedule 9(a), in
good standing under the laws of the  jurisdiction of its  organization,  has all
requisite  power and  authority to carry on its business as now  conducted  and,
except where the failure to do so,  individually or in the aggregate,  could not
reasonably be expected to result in a Material  Adverse Effect,  is qualified to
do  business  in, and is in good  standing  in,  every  jurisdiction  where such
qualification is required.

         (b)  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.

         (c) GOVERNMENTAL APPROVALS; NO CONFLICTS. 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.

                                       11
<PAGE>

         (d) FINANCIAL  CONDITION.  The Borrower has heretofore furnished to the
Lender its (i) Annual Report on Form 10-K/A for the fiscal year ended  September
30, 2001, and (ii) Quarterly  Reports on Form 10-Q for the period ended December
31, 2001. Such Reports present fairly, in all material  respects,  the financial
position  and  results  of  operations  and cash flows of the  Borrower  and its
consolidated  Subsidiaries  as of such dates and for such periods in  accordance
with GAAP, subject, with respect to the Form 10Q, to year-end audit adjustments.

         (e) PROPERTIES.  (i) Each of the Borrower and its Subsidiaries has good
title to, or valid  leasehold  interests in, all its real and personal  property
material  to its  business,  except  for  minor  defects  in  title  that do not
interfere with its ability to conduct its business as currently  conducted or to
utilize such properties for their intended purposes.

                  (ii) Each of the Borrower  and its  Subsidiaries  owns,  or is
licensed  to use,  all  trademarks,  tradenames,  copyrights,  patents and other
intellectual  property  material  to its  business,  and the use  thereof by the
Borrower and its  Subsidiaries  does not  infringe  upon the rights of any other
Person,  except  for  any  such  infringements  that,  individually  or  in  the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.

         (f) LITIGATION. 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 result in a Material Adverse Effect (other
than as disclosed on Schedule 9(f) hereto) or (ii) that involve this Note or the
transactions contemplated hereby.

         (g) COMPLIANCE WITH LAWS AND  AGREEMENTS.  Each of the Borrower and its
Subsidiaries  is in  compliance  with all laws,  regulations  and  orders of any
governmental  authority  applicable  to it or its property  and all  indentures,
agreements and other instruments  binding upon it or its property,  except where
the failure to do so, individually or in the aggregate,  could not reasonably be
expected to result in a Material Adverse Effect.  No Default has occurred and is
continuing.

         (h) INVESTMENT AND HOLDING COMPANY STATUS. Neither the Borrower nor any
of its Subsidiaries is (i) an "investment  company" as defined in, or subject to
regulation  under,  the  Investment  Company  Act of 1940,  as amended or (ii) a
"holding  company" as defined  in, or subject to  regulation  under,  the Public
Utility Holding Company Act of 1935, as amended.

         (i) TAXES.  Each of the Borrower and its  Subsidiaries has timely filed
or caused to be filed all tax returns  and  reports  required to have been filed
and has paid or caused to be paid all  taxes  required  to have been paid by it,
except  (i)  taxes  that  are  being  contested  in good  faith  by  appropriate
proceedings and for which the Borrower or such  Subsidiary,  as applicable,  has
set aside on its books adequate  reserves or (ii) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse Effect
or (iii) as disclosed on Schedule 9(a) hereto.

         (j) ERISA.  No ERISA Event has  occurred or is  reasonably  expected to
occur  that,  when taken  together  with all other  such ERISA  Events for which
liability  is  reasonably  expected to occur,  could  reasonably  be expected to
result in a  Material  Adverse  Effect.  The  present  value of all  accumulated
benefit  obligations under each Plan (based on the assumptions used for purposes


                                       12
<PAGE>

of Statement of Financial  Accounting  Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts,  exceed by more
than $50,000 the fair market  value of the assets of such Plan,  and the present
value of all accumulated  benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting Standards
No.  87)  did  not,  as of the  date of the  most  recent  financial  statements
reflecting  such  amounts,  exceed by more than $50,000 the fair market value of
the assets of all such underfunded Plans.

         (k)   DISCLOSURE.   The  Borrower  has  disclosed  to  the  Lender  all
agreements,  instruments and corporate or other  restrictions to which it or any
of its  Subsidiaries  is  subject,  and all  other  matters  known to it,  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or other information  furnished by or on behalf of the Borrower to the Lender in
connection with the negotiation of this Note or delivered hereunder (as modified
or  supplemented  by other  information  so  furnished)  contains  any  material
misstatement  of fact or omits to state any material fact  necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading;  provided  that,  with  respect to  projected  financial
information,  the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.

         (l)  SUBSIDIARIES.  As of  the  Effective  Date,  the  Borrower  has no
Subsidiaries except those shown on Schedule 9(l), which Schedule is complete and
accurate.

         Section 10. AFFIRMATIVE COVENANTS.  Until the Commitment has expired or
been  terminated  and the  principal  of and interest on the Loans 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.

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

                  (i) the occurrence of any Default;


                                       13
<PAGE>

                  (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;

                  (iii)  the  occurrence  of any  ERISA  Event  that,  alone  or
together  with any other ERISA Events that have  occurred,  could  reasonably be
expected to result in  liability  of the  Borrower  and its  Subsidiaries  in an
aggregate amount exceeding $50,000; and

                  (iv)  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) EXISTENCE;  CONDUCT OF BUSINESS.  The Borrower will, and will cause
each of its  Subsidiaries  to, do or cause to be done all  things  necessary  to
preserve,  renew and keep in full force and effect its legal  existence  and the
rights, licenses,  permits, privileges and franchises material to the conduct of
its business.

         (d) PAYMENT OF  OBLIGATIONS.  The Borrower will, and will cause each of
its Subsidiaries to, pay its  obligations,  including tax liabilities,  that, if
not paid, could result in a Material Adverse Effect before the same shall become
delinquent  or in default,  except where (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.

         (e) MAINTENANCE OF PROPERTIES;  INSURANCE.  The Borrower will, and will
cause each of it Subsidiaries to, (i) keep and maintain all property material to
the conduct of its business in good working order and  condition,  ordinary wear
and tear  excepted,  and (ii)  maintain,  with  financially  sound and reputable
insurance  companies,  insurance  in such  amounts and against such risks as are
customarily  maintained by companies  engaged in the same or similar  businesses
operating in the same or similar locations.

         (f) 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.

         (g) COMPLIANCE WITH LAWS. The Borrower will, and will cause each of its
Subsidiaries  to,  comply with all laws,  rules,  regulations  and orders of any
governmental  authority  applicable  to it or its  property,  except  where  the


                                       14
<PAGE>

failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

         (h) USE OF  PROCEEDS.  The  proceeds of the Loans will be used only for
(a) the payment of operating  expenses of the Borrower  incurred in the ordinary
course of its business,  and (b) loans or capital  contributions to A.B. Watley,
Inc. for use in the ordinary course of its business,  provided, that in no event
shall all or any part of the  proceeds  of the Loans be used to  acquire  Equity
Interests in any Person or to acquire  material assets from any Person.  No part
of the proceeds of any Loan will be used,  whether  directly or indirectly,  for
any purpose that entails a violation of any Federal, state or local law, rule or
regulation (including  investment  limitations) or any of the regulations of the
Board of Governors of the Federal Reserve System, including Regulations T, U and
X.

         Section 11.  NEGATIVE  COVENANTS.  Until the  Commitment has expired or
been  terminated  and the  principal  of and interest on the Loans 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 Penson Note;

                  (ii) Indebtedness existing on the date hereof and set forth in
Schedule 11(a) , but not any extensions,  renewals and  replacements of any such
Indebtedness; and

                  (iii) other unsecured  Indebtedness of the Borrower and/or any
of its Subsidiaries in an aggregate  principal amount not exceeding  $100,000 at
any time outstanding.

         (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; and

                  (ii) any Lien on any  property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 11(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.

         (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


                                       15
<PAGE>

Subsidiary,  such  property  is no longer  used or useful in the  conduct of its
business.

                           (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 thereto.

         (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;

                  (iii) loans or advances  made by the Borrower to A.B.  Watley,
                  Inc.; (iv) Guarantees  constituting  Indebtedness permitted by
                  Section 11(a); and

                  (v)  investments  that  exist on the date  hereof and that are
                  disclosed in Schedule 11(d) hereto.

         (e) SWAP AGREEMENTS.  The Borrower will not, and will not permit any of
its Subsidiaries  to, enter into any Swap Agreement,  except (i) Swap Agreements
entered into to hedge or mitigate  risks to which the Borrower or any Subsidiary
has actual  exposure  (other  than those in respect of Equity  Interests  of the
Borrower or any of its  Subsidiaries),  and (ii) Swap Agreements entered into in
order to  effectively  cap,  collar or  exchange  interest  rates (from fixed to
floating  rates,  from one floating rate to another  floating rate or otherwise)
with respect to any interest-bearing  liability or investment of the Borrower or
any Subsidiary.

         (f) 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 common 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.

         (g) 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


                                       16
<PAGE>

Affiliates, except (i) in the ordinary course of business at prices and 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,  and (ii) any
Restricted Payment permitted by Section 11(f).

         (h) RESTRICTIVE AGREEMENTS.  The Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly,  enter into, incur or permit
to exist any agreement or other arrangement that prohibits, restricts or imposes
any condition  upon (i) the ability of the Borrower or any Subsidiary to create,
incur or permit to exist any Lien upon any of its  property  or assets,  or (ii)
the ability of any  Subsidiary  to pay  dividends  or other  distributions  with
respect to any shares of its capital stock or make or repay loans or advances to
the  Borrower  or any  other  Subsidiary  or to  Guarantee  Indebtedness  of the
Borrower or any other  Subsidiary,  provided  that (A) the  foregoing  shall not
apply to  restrictions  and  conditions  imposed  by law or by this  Note or the
Penson Note, (B) the foregoing  shall not apply to  restrictions  and conditions
existing on the date hereof identified on Schedule 11(h) (but shall apply to any
extension or renewal of, or any  amendment or  modification  expanding the scope
of, any such  restriction  or condition),  (C) the foregoing  shall not apply to
restrictions  or  conditions  imposed  by  any  agreement  relating  to  secured
Indebtedness  permitted by this Note if such  restrictions  or conditions  apply
only to the property or assets securing such Indebtedness, and (D) the foregoing
shall  not  apply  to  customary   provisions  in  leases  and  other  contracts
restricting the assignment thereof.

         (i) STOCK.  The Borrow will not authorize or issue any capital stock to
any Person.

         Section 12. 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 any
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
9(b)) 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 when made or deemed made;

                                       17
<PAGE>

         (d) the  Borrower  shall  fail to  observe  or  perform  any  covenant,
condition or agreement contained in Sections 8(c), 10(b), 10(c) (with respect to
the Borrower`s existence), or 10(h) or in Section 11;

         (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) or (d) of this  Section),  and  such  failure  shall  continue
unremedied  for a period of 10 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 continues unremedied beyond the
expiration of any applicable  grace period which may be expressly  allowed under
such Security Document;

         (f) the  Borrower  or any  Subsidiary  shall  fail to make any  payment
(whether of principal or interest  and  regardless  of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable;

         (g)  any  event  or  condition  occurs  that  results  in any  Material
Indebtedness  becoming  due prior to its  scheduled  maturity or that enables or
permits  (with or without  the giving of notice,  the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity;  provided that this clause (g) 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;

         (h) 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  for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered;

         (i) 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 (h) 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;

         (j) the  Borrower  or any  Subsidiary  shall  become  unable,  admit in
writing its inability or fail generally to pay its debts as they become due;


                                       18
<PAGE>

         (k) one or more  judgments  for the  payment  of money in an  aggregate
amount in  excess  of  $75,000  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 action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Borrower or any  Subsidiary  to enforce
any such judgment;

         (l) an ERISA  Event  shall have  occurred  that,  in the opinion of the
Lender,  when taken  together  with all other ERISA  Events that have  occurred,
could reasonably be expected to result in a Material Adverse Effect; or

         (m) a Change in Control shall occur;

         then,  and in every such event (other than an event with respect to the
Borrower or any Subsidiary described in clause (h) or (i) of this Section),  and
at any time thereafter  during the continuance of such event, the Lender may, by
notice to the  Borrower,  take either or both of the following  actions,  as the
same time or different  times:  (i) terminate the Commitment,  and thereupon the
Commitment  shall  terminate  immediately,  and  (ii)  declare  the  Loans  then
outstanding  to be due and  payable  in  whole  (or in part,  in which  case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans 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 (h) or (i) of this Section,  the
Commitment  shall  automatically  terminate  and the principal of all Loans 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  13.  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 Leon Ferguson (Fax No. 212-422-1724); and

                  (ii)  if  to  the  Lender,  to  it at  One  Soundshore  Drive,
         Greenwich,   Connecticut,   Attention   of   Tom   McAuley   (Fax   No.
         203-629-0435).

         (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 14. 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


                                       19
<PAGE>

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 15. 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 preparation and 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 Loans made hereunder, including all such out-of-pocket
expenses  incurred during any workout,  restructuring or negotiations in respect
of any Loan.

         (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  Loans  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;
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 Loans, or
the use of the proceeds thereof.


                                       20
<PAGE>

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

         Section 16.  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 17. 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 each 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 6 and 15 shall
survive and remain in full force and effect  regardless of the  consummation  of
the  transactions  contemplated  hereby,  the  repayment  of the  Loans,  or the
termination of this Note or any provision hereof.

         Section 18. 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  19.  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
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 20. 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.

                                       21
<PAGE>

         Section 21. 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) The Borrower hereby irrevocably and  unconditionally  submits,  for
itself and its property, to the non-exclusive jurisdiction of the District Court
of the State of Texas sitting in Harris  County,  Texas and of the United States
District Court of the Southern  District of Texas,  and any appellate court from
any  thereof,  in any action or  proceeding  arising  out of or relating to this
Note, or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally  agrees that all claims in respect
of any such action or proceeding may be heard and determined in such Texas State
or, to the extent  permitted  by law, in such  Federal  court.  Such Texas State
court or federal court shall apply the substantive laws of the State of New York
in interpreting and construing this Note. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other  jurisdictions  by suit on the judgment or in any other manner
provided by law. Nothing in this Note shall affect any right that the Lender may
otherwise  have to bring any action or proceeding  relating to this Note against
the Borrower or its properties in the courts of any jurisdiction.

         (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  13.  Nothing in this
will  affect the right of the  Borrower  or the  Lender to serve  process in any
other manner permitted by law.

         Section 22.  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,
IN THE  EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE  FOREGOING  WAIVER  AND (B)
ACKNOWLEDGES  THAT IT HAS BEEN  INDUCED TO ENTER INTO THIS  AGREEMENT  BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                            [SIGNATURE PAGE FOLLOWS]

                                       22
<PAGE>



         IN WITNESS  WHEREOF,  the Borrower has executed this Promissory Note as
of the 27th day of March, 2002.



                            A.B. WATLEY GROUP INC.



                        By:_____________________________
                            Name:
                            Title:

                                    S-1
<PAGE>
                                  SCHEDULE 1(A)

                           INFORMATION REGARDING LOANS


         The foregoing Note evidences  Loans made by the Lender to the Borrower,
which Loans were in the principal amounts and were made and repaid or prepaid on
the dates set forth below:
<TABLE>
<CAPTION>
<S>                       <C>                       <C>                    <C>                   <C>


------------------------- ---------------------- ----------------------- ---------------------- ----------------------
PRINCIPAL AMOUNT OF       DATE EACH LOAN WAS     DATE OF PAYMENT OR      AMOUNT PAID OR         BALANCE OUTSTANDING
EACH LOAN                 MADE                   PREPAYMENT              PREPAID
------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------

------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>



<PAGE>



                                  SCHEDULE 1(B)

                               SECURITY DOCUMENTS


         1. Master Agreement

         2. General Security Agreement

         3. Software Security Agreement

         4. Source Code Escrow Agreement


<PAGE>



                                  SCHEDULE 9(A)

               EXCEPTION TO GOOD STANDING AND TAX REPRESENTATIONS


         The Borrower is delinquent in the payment of  approximately  $95,000 in
Delaware franchise taxes, which franchise taxes were due on March 1, 2002.


<PAGE>



                                  SCHEDULE 9(F)

                                   LITIGATION


<PAGE>



                                  SCHEDULE 9(L)

                                  SUBSIDIARIES


<PAGE>



                                 SCHEDULE 11(A)

                                  INDEBTEDNESS


<PAGE>



                                 SCHEDULE 11(B)

                                      LIENS


<PAGE>



                                 SCHEDULE 11(D)

                                   INVESTMENTS


<PAGE>



                                 SCHEDULE 11(H)

                             RESTRICTIVE AGREEMENTS


<PAGE>