<PAGE>

Exhibit 10.1 - June 02 10-QSB



                          MASTER SUBORDINATION, WAIVER,
                           RELEASE AND INDEMNIFICATION
                                    AGREEMENT



                                 MARCH 27, 2002



<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


<S>                   <C>                                                                                        <C>
ARTICLE I             Incorporation of Recitals...................................................................4
ARTICLE II            Penson Loan; DMG Loan; Security.............................................................4
   Section 2.01.      Loans to Watley.............................................................................4
   Section 2.02.      Security....................................................................................4
ARTICLE III           Subordination...............................................................................5
   Section 3.01.      Malin Group Loans Subordinated to Senior Indebtedness.......................................5
   Section 3.02.      No Payments with Respect to Subordinated Obligations........................................5
   Section 3.03.      Subordinated Obligations Subordinated to Prior Payment of All Senior Indebtedness on
                      Dissolution, Liquidation or Reorganization for the Benefit of Creditors of Watley...........6
   Section 3.04.      Subordination Rights Not Impaired by Acts or Omissions of Watley or Holders of Senior
                      Indebtedness................................................................................7
   Section 3.05.      Subordinated Obligations Subordinated to the DMG Loan and the Preferred Stock...............7
   Section 3.06.      Preferred Stock and DMG Loan................................................................8
ARTICLE IV            Waiver of Subrogation.......................................................................8
   Section 4.01.      Waiver......................................................................................8
   Section 4.02.      Consideration...............................................................................9
ARTICLE V             Release.....................................................................................9
   Section 5.01.      Release of Penson, et al....................................................................9
   Section 5.02.      Covenant Not To Sue Released Parties........................................................9
   Section 5.03.      Release of SDS and the DMG Group...........................................................10
   Section 5.04.      Covenant Not To Sue Section 5.03 Released Parties..........................................10
ARTICLE VI            Indemnity..................................................................................10
ARTICLE VII           Forebearance Not Forgiveness...............................................................10
ARTICLE VIII          Miscellaneous..............................................................................10
   Section 8.01.      Non-petition...............................................................................10
   Section 8.02.      Margin Loans...............................................................................11
   Section 8.03.      Chief Executive Office.....................................................................11
   Section 8.04.      Governing Law, Jurisdiction, Consent to Service of Process.................................11
   Section 8.05.      Waiver of Jury Trial.......................................................................11
   Section 8.06.      Notices....................................................................................12
   Section 8.07.      Representations............................................................................13
   Section 8.08.      Further Assurances.........................................................................13
   Section 8.09.      Successors and Assigns.....................................................................14
   Section 8.10.      Severability...............................................................................14
   Section 8.11.      Counterparts...............................................................................14
</TABLE>


<PAGE>


EXHIBITS:

         Exhibit A         -        Malin Group Loans
         Exhibit B         -        Related Party Stock Ownership
         Exhibit C         -        Penson Note
         Exhibit D         -        Preferred Stock Details
         Exhibit E         -        Preferred Shareholder Note
         Exhibit F         -        Amendment to Preferred Stock
         Exhibit G         -        Loan Details
         Exhibit H         -        Intercreditor Agreement
         Exhibit I         -        Software Security Agreement
         Exhibit J         -        General Security Agreement
         Exhibit K         -        Warrant
         Exhibit L         -        Registration Rights Agreement
         Exhibit M         -        Source Code Escrow Agreement
         Exhibit N         -        Consulting Agreement
         Exhibit O         -        Existing Liens Schedule



<PAGE>



                                                             V&E DRAFT 4/04/02

                          MASTER SUBORDINATION, WAIVER,
                           RELEASE AND INDEMNIFICATION
                                    AGREEMENT


         This  Master  Subordination,   Waiver,   Release,  and  Indemnification
Agreement ("AGREEMENT") is entered into as of March 27, 2002 by and among Penson
Financial Services, Inc., a North Carolina corporation ("PENSON"),  SDS Merchant
Fund, L.P., a Delaware limited  partnership  ("SDS"),  DMG Legacy  International
Ltd.,  a  British  Virgin  Islands  corporation  ("INTERNATIONAL"),  DMG  Legacy
Institutional  Fund LLC, a Delaware limited  liability  company  ("INSTITUTIONAL
FUND"), DMG Legacy Fund LLC, a Delaware limited liability company ("FUND"),  and
together with  International  and  Institutional  Fund, the "DMG GROUP"),  A. B.
Watley Group Inc., a Delaware corporation  ("Watley"),  A.B. Watley, Inc., a New
York corporation  ("WATLEY,  INC."),  Robert Malin ("RM"),  Steven Malin ("SM"),
Linda Malin ("LM"),  Eric Steinberg  ("ES"),  Leon Ferguson  ("LF"),  Anthony G.
Huston   ("AH"),   Marilyn   Waldorf  ("MW")  and  Leonard  Malin  ("MALIN"  and
collectively with RM, SM, LM, ES, LF, AH and MW the "RELATED PARTIES"),  and the
members of the Malin Group, as defined in Recital A below.

                                    RECITALS

         A.The  corporations  controlled  by SM,  RM, and LM listed on EXHIBIT A
attached  hereto,  and AH, ES,  and SM  individually  (collectively,  the "MALIN
GROUP")  have each  advanced  funds to Watley,  and Watley is  obligated to such
person or entity for the principal amount,  and for the accrued interest on such
principal  amount,  as set forth  opposite  such  person`s or  entity`s  name on
EXHIBIT A attached  hereto.  The  obligations  of Watley to the Malin  Group are
herein referred to collectively, as the "MALIN GROUP LOANS".

         B. Each Related  Party owns,  directly or  beneficially,  the number of
shares of stock of Watley  set  forth  opposite  such  Related  Party`s  name on
EXHIBIT B attached hereto.

         C.Penson  acts as clearing  broker under that certain  Fully  Disclosed
Clearing Agreement, dated October 3, 1996, as amended by Amendment dated June 8,
1998 (the "CLEARING AGREEMENT") for Watley, Inc.

         D.Prior to the date hereof, Penson made a loan to Watley,  evidenced by
that certain  promissory note dated January 31, 2002, in the original  principal
amount of $500,000,  which,  together  with  interest  thereon  through the date
hereof in the amount of  $6,041.67,  has  matured  and is now due and owing (the
"ORIGINAL  PENSON LOAN").  Watley  contributed  such funds to its  broker-dealer
subsidiary,  Watley,  Inc., to meet certain reserve requirements of the National
Association of Securities Dealers.

         E.In  consideration  of the  undertakings  and  agreements of the other
parties  hereto,  Penson has agreed (i) to forebear from exercising its remedies
in respect of the Original  Penson Loan and to extend the maturity  date thereof
until June 18, 2002, and (ii) to lend Watley up to an additional $1,600,000 (the
"PENSON LOAN"),  which will be applied in the manner set forth in the promissory
note  evidencing  the Penson Loan (the  "PENSON  NOTE") in the form of EXHIBIT C
attached hereto. The maturity date of the Penson Note shall be the later of June
18, 2002, and the date of demand by the holder thereof.

                                       1
<PAGE>

         F.Prior  to the date  hereof,  SDS and the DMG Group were the owners of
the number of shares of Series A Convertible Preferred Stock ("PREFERRED STOCK")
of Watley, as set forth on EXHIBIT D attached hereto.

         G.In  consideration  of the  undertakings  and  agreements of the other
parties  hereto,  (i) the DMG  Group  has  agreed  to  lend to  Watley  up to an
additional $900,000 (the "DMG LOAN") to be evidenced by a promissory note in the
form of  EXHIBIT E  attached  hereto  (the "DMG  NOTE"),  (ii) SDS has agreed to
transfer 70 shares of  Preferred  Stock to Penson  Worldwide,  Inc.,  a Delaware
corporation  and the owner of all of the capital stock of Penson  ("WORLDWIDE"),
and (iii) SDS and each member of the DMG Group have agreed to execute a Consent,
Waiver and Amendment to Series A Convertible Preferred Stock, a form of which is
attached as EXHIBIT F hereto (the  "AMENDMENT TO PREFERRED  STOCK") (A) to waive
certain breaches and defaults under the representations,  warranties, covenants,
terms and  conditions  of the  documents  entered  into in  connection  with the
issuance of the  Preferred  Stock,  and (B) to make  certain  amendments  to, or
waivers of, the  provisions of the  certificate  of designation of the Preferred
Stock, all as set forth in such amendment.

         H.Penson  and the  members of the DMG Group have  advanced  funds on or
before the date hereof (but in  reliance  on the  substantially  contemporaneous
execution  and delivery of this  Agreement  and the  Transaction  Documents,  as
defined below) in the amounts set forth in EXHIBIT G attached hereto. Penson and
the DMG Group will  hereafter  advance  funds  under the Penson Loan and the DMG
Loan on a pari passu basis, each in the proportion that its remaining commitment
as reflected on EXHIBIT G bears to the total unadvanced commitments as reflected
on EXHIBIT G.

         I.Penson  and the DMG Group have  agreed to  execute  an  intercreditor
agreement  in  the  form  of  EXHIBIT  H  attached  hereto  (the  "INTERCREDITOR
AGREEMENT"),  providing,  INTER ALIA,  (i) for the priority of  distribution  of
certain funds  received  from Watley in respect of the Penson Loan,  and the DMG
Loan,  and (ii) the exercise of remedies in respect of the  foregoing  loans and
under the General Security Agreement, as defined in Recital N below.

         J.Watley executed a software license agreement with E*TRADE Group, Inc.
("E*TRADE")  in November 2000, as more  particularly  described in Watley`s Form
10-K/A filed with the  Securities  and Exchange  Commission  for the fiscal year
ended  September 30, 2001, and has recently  agreed with E*TRADE on the terms of
an amendment thereto (as amended, the "SOFTWARE LICENSE AGREEMENT"). Pursuant to
the Software  License  Agreement,  Watley has granted  E*TRADE a  non-exclusive,
perpetual  license on the software  described in the Software License  Agreement
(the  "SOFTWARE")  and E*TRADE has agreed to pay Watley the  consideration  more
particularly  described in the Software License Agreement for such non-exclusive
license, including $2,000,000 cash upon acceptance of the Software by E*TRADE in
accordance with the Software License Agreement ("ACCEPTANCE").



                                       2
<PAGE>

         K. Watley borrowed $400,000 from New York Community  Investment Company
L.L.C.  ("NYCIC") in November,  1999,  and secured  such  borrowing  (the "NYCIC
LOAN") with substantially all of its assets and a negative pledge of assets.

         L.  Watley  has  agreed,  in order to  obtain  NYCIC`s  consent  to the
Software Security  Agreement and the General Security  Agreement,  as such terms
are defined below,  and to obtain  NYCIC`s waiver of its negative  pledge on the
assets of Watley,  (i) to apply $150,000 of the funds to be advanced pursuant to
the  Penson  Loan and the DMG Loan to repay a portion of the NYCIC Loan and (ii)
to grant NYCIC a security interest in the Software to secure the NYCIC Loan.

         M. Watley has agreed,  for the ratable  benefit of Penson and NYCIC, to
secure (i) all amounts now owed or hereafter to become owing by Watley,  Watley,
Inc. or any of their  subsidiaries  or  affiliates  to Penson or any of Penson`s
subsidiaries or affiliates  (collectively,  "PENSON DEBT"), including the Penson
Loan and the  Original  Penson  Loan,  and (ii) the  NYCIC  Loan  pursuant  to a
security  agreement  in the form of EXHIBIT I  attached  hereto  (the  "SOFTWARE
SECURITY AGREEMENT") covering,  INTER ALIA, all of Watley`s rights in and to the
Software, subject to the Software License Agreement.

         N.  Watley has  agreed,  for the  ratable  benefit of the DMG Group and
Penson,  to secure  (i) the DMG Loan and (ii) the  Penson  Loan,  pursuant  to a
security  agreement  in the form of  EXHIBIT J  attached  hereto  (the  "GENERAL
SECURITY AGREEMENT").

         O. The Malin Group and the Related  Parties  have agreed to support the
repayment  of the Penson  Loan and the  Original  Penson  Loan  pursuant  to the
subordination,  waiver and indemnification provisions set forth in Articles III,
IV and VI of this Agreement.

         P. The Malin Group has agreed (i) to support the  repayment  of the DMG
Loan and (ii) to grant  certain  superior  rights to  receive  distributions  in
respect of the Preferred Stock pursuant to the subordination  provisions of this
Agreement applicable to the DMG Loan and the Preferred Stock.

         Q. Watley,  the Related  Parties,  the Malin Group,  the DMG Group, and
Penson  have  agreed  that (a) all  amounts  received  in  respect of any of the
collateral  covered by the Software Security  Agreement shall be paid to Penson,
in respect of the Penson Debt (and shall not be paid to the DMG Group),  and (b)
all amounts received in respect of any of the collateral  covered by the General
Security  Agreement  shall be paid to Penson  and the DMG Group  ratably  in the
proportions that (x) any remaining  outstanding  aggregate balance of the Penson
Loan (in the case of Penson) or (y) any remaining outstanding balance of the DMG
Loan (in the case of the DMG Group) bears to the sum of the amounts described in
clauses (x) and (y).

         R. On the date  hereof  or  substantially  contemporaneously  herewith,
Watley  will  issue a warrant  in the form of  EXHIBIT K  attached  hereto  (the
"WARRANT"),  to Worldwide,  granting  Worldwide the right to purchase  1,000,000
shares of common stock of Watley, as more fully set forth in the Warrant. Watley
will also  execute a  registration  rights  agreement,  in the form of EXHIBIT L
attached  hereto,  to provide  for the  registration  of the common  stock to be
issued pursuant to the Warrant.



                                       3
<PAGE>

         S.  Watley  will  deliver  the source  code for the  Software to Penson
pursuant  to a Source Code  Escrow  Agreement  in the form of EXHIBIT M attached
hereto.

         T. LF will  provide  consulting  services  to Penson in  respect of the
source code for the Software pursuant to a Consulting  Services Agreement in the
form of EXHIBIT N attached hereto.

         U. Watley,  Watley, Inc., the Related Parties, and the Malin Group will
be benefited by (i) Penson`s  forebearance from accelerating the Original Penson
Loan and demanding  repayment thereof,  (ii) Penson`s advance of the Penson Loan
for the purposes described in the Penson Note, and (iii) the DMG Group`s advance
of the DMG Loan for the purposes described in the DMG Note.

         V.  SDS  and/or  the  DMG  Group  will  be  benefited  by (i)  Penson`s
forebearance from accelerating the Original Penson Loan and demanding  repayment
thereof,  (ii) Penson`s advance of the Penson Loan for the purposes described in
the  Penson  Note,  and (iii) the  subordination  provisions  of this  Agreement
relating to the DMG Loan and the Preferred Stock.

                                    AGREEMENT

         NOW,  THEREFORE,  in  consideration  of the foregoing  premises and the
agreements  and  undertakings  set  forth  herein  and in the  other  agreements
executed in  connection  herewith  (including  without  limitation  the Clearing
Agreement previously executed) (collectively,  the "TRANSACTION DOCUMENTS,") the
parties agree as follows:

                                   ARTICLE I.
                            INCORPORATION OF RECITALS

         The Recitals of this  Agreement  are  incorporated  herein as operative
provisions as if fully set forth in this Article I.

                                  ARTICLE II.
                         PENSON LOAN; DMG LOAN; SECURITY

         Section  2.01.LOANS  TO WATLEY.  Concurrently  herewith  (i) Watley has
executed the Penson Note, payable to the order of Penson,  evidencing the Penson
Loan, and (ii) Watley has executed the DMG Note, payable to the order of the DMG
Group, evidencing the DMG Loan.

         Section 2.02.SECURITY.

                  (a) Concurrently  herewith,  Watley shall execute the Software
Security  Agreement to secure (i) the Penson Loan, and (ii) the Original  Penson
Loan.

                  (b)  Concurrently  herewith,  Watley and  Watley,  Inc.  shall
execute the General  Security  Agreement to secure,  on a ratable basis, (i) the
DMG Loan and (ii) the Penson Loan.



                                       4
<PAGE>

                                  ARTICLE III.
                                  SUBORDINATION

         Section  3.01.MALIN  GROUP LOANS  SUBORDINATED TO SENIOR  INDEBTEDNESS.
Watley  and each  member of the Malin  Group  agrees  that the  payments  of the
indebtedness  and other  amounts  to be paid by Watley in  respect  of the Malin
Group  Loans   (collectively,   the   "SUBORDINATED   OBLIGATIONS")   are  fully
subordinated  to the prior  payment in full of all amounts owing to Penson under
the Original Penson Loan and the Penson Loan (the "SENIOR  INDEBTEDNESS").  This
Article is intended for the benefit of all persons or entities who hold,  or, in
reliance on the  provisions of this Article,  become  holders of, or continue to
hold, any portion of the Senior Indebtedness  ("HOLDERS"),  and each such person
or entity  shall be entitled to enforce  such  provision.  No amendment or other
modification  of the  provisions of this Article shall be effective  against any
Holder of Senior  Indebtedness  without the unanimous  prior written  consent of
such Holders.

         Section 3.02 NO PAYMENTS WITH RESPECT TO SUBORDINATED OBLIGATIONS.

                  (a) RESTRICTION.  Until the Senior Indebtedness is irrevocably
paid in full,  no  payment  (whether  of  principal,  interest,  fees,  or other
amounts) shall be made by Watley in respect of the Subordinated Obligations, and
no member of the Malin  Group  shall take any  action to  enforce  its rights in
respect  of, take any action  towards  the  collection  of, or  accelerate,  any
portion of the  Subordinated  Obligations,  nor cancel,  set off,  or  otherwise
discharge any part of the Subordinated Obligations.

                  (b) FUNDS  RECEIVED  HELD IN TRUST.  If,  notwithstanding  the
provisions of this Section 3.02,  Watley shall make any payment to any member of
the Malin Group on account of any part of the  Subordinated  Obligations,  or if
any member of the Malin  Group shall  receive or retain any such  payment at any
time when such payment is prohibited  pursuant to this Section 3.02,  then, such
payment shall be held by such member of the Malin Group in trust for the benefit
of,  and  shall be paid  forthwith  over  and  delivered  to,  the  Holders  for
application,  first,  to the payment of all  amounts  advanced in respect of the
Senior Indebtedness, until all Senior Indebtedness is paid in full in accordance
with its terms, after giving effect to any concurrent payment or distribution to
or for the Holders.

                  (c)  REINSTATEMENT.  Notwithstanding  anything to the contrary
herein contained, the provisions of this Article III and all obligations of each
member of the Malin Group  hereunder  shall continue to be effective or shall be
reinstated,  as applicable, if at any time, payment of all or any portion of the
Senior  Indebtedness or performance of any or all obligations to be performed by
Watley for any Holder are rescinded,  invalidated,  or otherwise  required to be
restored or returned by any of the  Holders  pursuant to any  bankruptcy  law or
upon the insolvency, bankruptcy or reorganization of Watley or any member of the
Malin Group (or  otherwise)  all as though such payment or  performance  had not
been made.  Without  limiting the generality of the  foregoing,  if prior to any
such  rescission,  invalidation,   declaration,  restoration,  or  return,  this
Agreement  shall have been  canceled or  surrendered,  this  Agreement  shall be
reinstated in full force and effect,  and such prior  cancellation  or surrender
shall  not  diminish,   release,  discharge,  impair  or  otherwise  affect  the
obligations  of any  member of the Malin  Group in  respect of the amount of the


                                       5
<PAGE>

affected payment or application of proceeds (or any lien or collateral  securing
such obligation).

                  (d) NOTICE.  Watley  shall give prompt  written  notice to the
members of the Malin Group of any default in respect of the Senior Indebtedness;
provided,  however  that the failure by Watley to provide  such notice shall not
affect the rights of the Holders in any manner.

         Section 3.03. SUBORDINATED OBLIGATIONS SUBORDINATED TO PRIOR PAYMENT OF
ALL SENIOR  INDEBTEDNESS ON DISSOLUTION,  LIQUIDATION OR REORGANIZATION  FOR THE
BENEFIT OF CREDITORS OF WATLEY. At any general meeting of creditors of Watley or
in the event of any proceeding,  voluntary or involuntary, for the distribution,
division,  or application of all or part of the assets of Watley or the proceeds
of such assets, whether such proceeding be for the liquidation,  dissolution, or
winding up of Watley or its business, a receivership,  insolvency, or bankruptcy
proceeding,  an  assignment  for the benefit of creditors or a proceeding  by or
against Watley for extension or otherwise,  if all the Senior  Indebtedness  has
not been paid in full at such time, the Holders of all Senior  Indebtedness will
be irrevocably  authorized at any such meeting or in any such  proceeding (x) to
enforce claims in respect of the Subordinated  Obligations in the name of Watley
by proof of debt, proof of claim, suit, or otherwise,  and (y) to vote claims in
respect of the Subordinated Obligations, to accept or reject any plan of partial
or complete liquidation, reorganization, arrangement, composition, or extension.
Upon any  distribution  of  assets of Watley  in any  dissolution,  winding  up,
liquidation or reorganization for the benefit of creditors of Watley (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the
benefit of creditors or otherwise):

                           (i) the  Holders  of all  Senior  Indebtedness  shall
                  first be  entitled  to receive  payments in full of all Senior
                  Indebtedness  (including without limitation  interest accruing
                  after  the  commencement  of any such  proceeding  at the rate
                  specified  in the  documentation  governing  the  terms of the
                  respective  Senior  Indebtedness)  in  cash  or  in  a  manner
                  satisfactory  to all of the Holders,  before any member of the
                  Malin  Group is  entitled to receive any payment on account of
                  the Subordinated Obligations;

                           (ii) any payment or  distribution of assets of Watley
                  of any  kind  or  character,  whether  in  cash,  property  or
                  securities,  to which any member of the Malin  Group  would be
                  entitled except for the provisions of this Article,  including
                  any such  payment  or  distribution  which may be  payable  or
                  deliverable by reason of the payment of any other indebtedness
                  of  Watley   being   subordinated   to  the   payment  of  the
                  Subordinated  Obligations,  shall  be paid by the  liquidating
                  trustee  or agent or  other  person  making  such  payment  or
                  distribution   directly   to  the   Holders   of  the   Senior
                  Indebtedness  for  application  to the  payment of such Senior
                  Indebtedness  (in the same  priority  as set forth in  Section
                  3.02(b)),  except  that a member of the Malin  Group  shall be
                  entitled to receive securities that are subordinated to Senior
                  Indebtedness remaining outstanding after such proceeding to at
                  least   the  same   extent  as  such   member`s   Subordinated
                  Obligations; and

                           (iii) in the event that notwithstanding the foregoing
                  provisions of this Section 3.03,  any payment or  distribution
                  of assets of Watley of any kind or character, whether in cash,

                                       6
<PAGE>
                  property  or   securities,   including  any  such  payment  or
                  distribution  which may be payable or deliverable by reason of
                  the  payment  of  any  other   indebtedness  of  Watley  being
                  subordinated to the payment of the  Subordinated  Obligations,
                  shall be  received by any member of the Malin Group on account
                  of the Subordinated Obligations before all Senior Indebtedness
                  is paid  in  full,  such  payment  or  distribution  shall  be
                  received  and held in trust for the  benefit  of, and shall be
                  paid over to, the Holders of the Senior Indebtedness remaining
                  unpaid or unprovided  for (for  application  to the payment of
                  such Senior  Indebtedness in the same priority as set forth in
                  Section 3.02(b)) until all such Senior Indebtedness shall have
                  been  paid in full,  after  giving  effect  to any  concurrent
                  payment or distribution  or provision  therefor to the holders
                  of such Senior Indebtedness, except that a member of the Malin
                  Group  shall  be  entitled  to  receive  securities  that  are
                  subordinated  to  Senior  Indebtedness  to at  least  the same
                  extent as such member`s Subordinated Obligations.

                           (iv) Watley shall give prompt  written  notice to the
                  Holders and to the Malin Group of any dissolution, winding up,
                  liquidation or reorganization of Watley.



         Section 3.04. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
WATLEY OR HOLDERS OF SENIOR  INDEBTEDNESS.  The right or interest of any present
or future Holders of any Senior Indebtedness, and all agreements and obligations
of the member of the Malin Group under this Article,  shall remain in full force
and  effect  irrespective  of:  (i) any  change in the time,  manner or place of
payment  of,  or in any  other  term in  respect  of,  all or any of the  Senior
Indebtedness,  or any amendment or waiver of any agreement or instrument related
thereto;  (ii) any exchange or release of, or  non-perfection  of any lien on or
security interest in, any collateral,  or any release from,  amendment or waiver
of or consent to departure from any guaranty or other obligation, for all or any
of the Senior  Indebtedness;  (iii) any other circumstance which might otherwise
constitute a defense  available to or discharge of the member of the Malin Group
in respect of the provisions of this Article;  or (iv) any act or failure to act
on the part of Watley or by any act or failure  to act,  in good  faith,  by any
Holder of the Senior  Indebtedness,  or by any  noncompliance by Watley with the
terms of the Agreement,  regardless of any knowledge thereof which any Holder of
Senior Indebtedness may have or be otherwise charged with.

         Section 3.05. SUBORDINATED OBLIGATIONS SUBORDINATED TO THE DMG LOAN AND
THE PREFERRED STOCK.

                  (a) DMG  LOAN.  Each of  Watley  and each  member of the Malin
Group agrees that the  Subordinated  Obligations  are  subordinated to the prior
payment  in full of all  amounts  owing to the DMG Group in  respect  of the DMG
Loan. The foregoing  subordination shall be to the same extent and with the same
waiver and reinstatement rights as the Subordinated  Obligations`  subordination
to the Senior Indebtedness described in Sections 3.01 through 3.04 hereof.

                  (b)  PREFERRED  STOCK.  Each of Watley and each  member of the
Malin  Group  agrees  that no  member  of the  Malin  Group  will,  directly  or
indirectly,  demand or accept payment, by Watley or any subsidiary of Watley, of
any  portion  of  the  Subordinated  Obligations,  owing  to  such  member,  its
affiliates  or  members of his or her  immediate  family  until all  outstanding


                                       7
<PAGE>

shares of the Preferred  Stock shall have been redeemed or converted into common
stock of Watley.  All payments or proceeds  received by any such member contrary
to the  provisions  of this Section  3.05(b)  shall be received in trust for the
benefit of the holders of the  Preferred  Stock,  and shall be  segregated  from
other funds of such member and shall  forthwith be paid over, at the election of
the holders of 51% or more of the Preferred Stock,  either (i) to the holders of
the  Preferred  Stock,  in  redemption  of such  Preferred  Stock  (or a portion
thereof),  on a pro rata  basis,  pursuant  to the terms of the  certificate  of
designation of the Preferred  Stock or (ii) to Watley,  in each case in the same
form received (with any necessary endorsements).  Each of Watley and each member
of  the  Malin  Group  further  agrees  that,  until  such  time  as  all of the
outstanding shares of Preferred Stock are redeemed or converted to common stock,
no member of the Malin Group  will,  without  the prior  written  consent of the
holders of 51% of the Preferred Stock,  directly or indirectly,  make any offer,
sale, assignment, transfer, pledge, hypothecation or other encumbrance, contract
to sell,  grant of an option to  purchase  or sell or other  disposition  of, or
enter into any transaction or device  designed to, or which could  reasonably be
expected  to result  in the  disposition  by any such  member at any time in the
future of, any capital stock,  indebtedness or other  securities of Watley or of
any securities  convertible  into or exercisable or exchangeable for any capital
stock, indebtedness, or other securities of Watley.

                  (c) CONVERSION OF MALIN GROUP LOAN.  Nothing contained in this
Section  3.05 shall be deemed to prohibit  or  restrict  any member of the Malin
Group from (i) its or his  converting its or his portion of the Malin Group Loan
into common stock of Watley or (ii) transferring its or his portion of the Malin
Group Loan to Penson or Penson`s designee.

         Section 3.06. PREFERRED STOCK AND DMG LOAN.

                  (a)  SUBORDINATION OF PREFERRED STOCK TO SENIOR  INDEBTEDNESS.
SDS and the DMG Group  agree  that their  rights in  respect of their  Preferred
Stock are  subordinated to the prior payment in full of all amounts owing (i) to
Penson  in  respect  of the  Senior  Indebtedness,  and (ii) to the DMG Group in
respect  of the DMG Loan.  The  foregoing  subordinations,  shall be to the same
extent and with the same waiver and  reinstatement  rights as the  subordination
described in Sections 3.01 through 3.04 hereof,  as if SDS`s and the DMG Group`s
Preferred Stock were the "Subordinated Obligations."

                  (b) DMG LOAN AND SENIOR INDEBTEDNESS. Penson and the DMG Group
agree  that,  subject to the  Software  Security  Agreement,  the  Intercreditor
Agreement,  and Recital Q above, the Senior  Indebtedness and the DMG Loan shall
rank pari passu in priority payment.

                                  ARTICLE IV.
                              WAIVER OF SUBROGATION

         Section 4.01  .WAIVER.  Each of the Related  Parties and each member of
the Malin Group (each, a "POTENTIAL  SUBROGEE")  hereby  irrevocably  waives any
claim or other  right  such  Potential  Subrogee  may now or  hereafter  acquire
against  Watley  that  arises  from  the  existence,   payment,  performance  or
enforcement obligation of such Potential Subrogee under any guaranty,  indemnity
or other surety  agreement for any obligation of Watley.  Such waiver includes a
waiver   of  any   right  of   subrogation,   reimbursement,   exoneration,   or


                                       8
<PAGE>

indemnification, any right to participate in the claims or remedies of Penson or
the DMG Group against Watley or any collateral  that Penson or the DMG Group now
has or  hereafter  acquires to secure the Senior  Indebtedness  and the DMG Loan
regardless of whether such claim,  remedy,  or right arises in equity,  or under
contract,  statute or common law. If any amount  shall be paid to any  Potential
Subrogee in violation  of the  preceding  sentence  and the Senior  Indebtedness
shall not have been paid in cash in full,  such  amount  shall be deemed to have
been paid to such Potential Subrogee, for the benefit of, and held in trust for,
the Holders and the DMG Group,  and shall  forthwith  be paid to the Holders and
the DMG Group, to be credited and applied to the Senior Indebtedness and the DMG
Loan, whether matured or unmatured,  in the order of priority  established under
this Agreement and the Intercreditor Agreement.

         Section 4.02. CONSIDERATION.  Each Potential Subrogee acknowledges that
it will  each  receive  benefits  from  the  financing  and  other  arrangements
contemplated  by the  Transaction  Documents  and that the  waiver  set forth in
Section 4.01 and the release and covenants of Article V are  knowingly  made and
entered into in contemplation of such benefits. In furtherance of the foregoing,
until all of the  Senior  Indebtedness  and the DMG Loan shall have been paid in
full, each Potential Subrogee shall refrain from taking any action or commencing
any  proceeding  against  Watley (or their  respective  successors  or  assigns,
whether in connection with a bankruptcy  proceeding or otherwise) to recover any
amounts  paid to Penson,  SDS,  or any member of the DMG Group in respect of the
Original Penson Loan, the Penson Loan, the DMG Loan, or the Preferred Stock.

                                   ARTICLE V
                                     RELEASE

         Section 5.01 RELEASE OF PENSON,  ET AL. Each of Watley,  Watley,  Inc.,
the Related Parties, the members of the Malin Group, SDS (in SDS`s capacity as a
holder of Preferred  Stock),  and the members of the DMG Group (in such members`
capacity as holders of Preferred Stock), for itself, its successors and assigns,
and such individuals`  heirs, legal  representatives  and assigns, as applicable
(collectively,   the  "RELEASING  PARTIES"),  does  hereby  unconditionally  and
irrevocably  compromise,  settle,  remise, acquit, and fully and forever release
and discharge  Penson,  its  affiliates  and  subsidiaries  and their  officers,
servants, employees, agents, attorneys,  principals, directors and shareholders,
and their  respective  heirs,  legal  representatives,  successors,  and assigns
(collectively,  the "RELEASED PARTIES") from any and all claims, demands, causes
of action, obligations, remedies, suits, damages, and liabilities (collectively,
the "CLAIMS") of any nature whatsoever, whether now known, suspected or claimed,
whether  arising  under  common  law,  in equity,  or under  statute,  which the
Releasing Parties ever had, now have, or in the future may claim to have against
the Released  Parties  which may have arisen at any time on or prior to the date
hereof in any manner related to the Clearing Agreement and Penson`s  obligations
thereunder,  the Original  Penson Loan, the Penson Loan,  the other  Transaction
Documents,  or the enforcement or attempted enforcement by Penson of its rights,
remedies or recourses related thereto.

         Section 5.02 COVENANT NOT TO SUE RELEASED PARTIES. Each Releasing Party
forever  covenants  and agrees  never to commence,  voluntarily  aid in any way,
prosecute,  or cause to be commenced or prosecuted  against the Released Parties
any action or other proceeding  based on any of the Claims released  pursuant to
Section 5.01.



                                       9
<PAGE>

         Section 5.03 RELEASE OF SDS AND THE DMG GROUP. Each of Watley,  Watley,
Inc.,  the  Related  Parties,  the  members of the Malin  Group,  and Penson (in
Penson`s capacity as a holder of Preferred Stock) for itself, its successors and
assigns and such individuals`  heirs,  legal  representatives,  and assigns,  as
applicable  (collectively,  the "SECTION 5.03 RELEASING  PARTIES"),  does hereby
unconditionally and irrevocably  compromise,  settle,  remise, acquit, and fully
and forever  release  and  discharge  SDS and each member of the DMG Group,  its
affiliates and subsidiaries  and their officers,  servants,  employees,  agents,
attorneys,  principals,  directors and shareholders, and their respective heirs,
legal representatives,  successors, and assigns (collectively, the "SECTION 5.03
RELEASED PARTIES") from any and all Claims of any nature whatsoever, whether now
known,  suspected or claimed,  whether  arising under common law, in equity,  or
under statute,  which the Section 5.03 Releasing  Parties ever had, now have, or
in the future may claim to have against the Section 5.03 Released  Parties which
may have arisen at any time on or prior to the date hereof in any manner related
to (i) SDS`s or any member of the DMG  Group`s  status as an owner of  Preferred
Stock, or (ii) the DMG Loan.

         Section 5.04  COVENANT NOT TO SUE SECTION 5.03 RELEASED  PARTIES.  Each
Section 5.03  Releasing  Party  forever  covenants and agrees never to commence,
voluntarily  aid in any way,  prosecute,  or cause to be commenced or prosecuted
against the Section 5.03 Released  Parties any action or other  proceeding based
on any of the Claims released pursuant to Section 5.03.

                                  ARTICLE VI.
                                    INDEMNITY

         Watley and Watley, Inc. shall indemnify,  defend, and hold Penson, SDS,
and the DMG Group  harmless  from and  against  any and all  Claims of  whatever
nature arising from or related to (i) the failure of Watley,  Watley,  Inc., any
Related Party or any member of the Malin Group to perform in accordance with its
agreements  in the  Transaction  Documents  or (ii) the  assertion  of any Claim
released by Watley,  Watley,  Inc., any Related Party or any member of the Malin
Group pursuant to Article V.

                                  ARTICLE VII
                          FOREBEARANCE NOT FORGIVENESS

         Each Releasing Party agrees that Penson`s  forebearance from exercising
its rights in respect of the Original  Penson Loan shall not be construed as the
forgiveness of any obligation or indebtedness owed to Penson nor as an agreement
to forebear from enforcing Penson`s  remedies,  in respect of the Penson Loan or
any other  obligation or indebtedness  owing or to become owing to Penson.  Each
Releasing  Party  agrees,  for the  benefit of  Penson,  and each  Section  5.03
Releasing Party agrees,  for the benefit of the DMG Group, that Penson`s and the
DMG Group`s advance of additional funds pursuant to the Pension Loan and the DMG
Loan,  respectively,  shall not be  construed  as an  agreement  to advance  any
additional funds to Watley in the future.

                                  ARTICLE VIII.
                                  MISCELLANEOUS

         Section 8.01 NON-PETITION.  Each of the Related Parties, the members of
the Malin Group, the members of the DMG Group, and SDS covenants and agrees that
he, she, or it will not institute against, or join any other person or entity in


                                       10
<PAGE>

instituting  against,  Watley or Watley,  Inc. any  bankruptcy,  reorganization,
arrangement,  insolvency,  or liquidation  petition or similar proceedings under
the laws of the United States or any state of the United States.

         Section  8.02 MARGIN  LOANS.  Watley  hereby  represents,  warrants and
covenants  for the  benefit of Penson and the DMG Group,  that no portion of the
funds advanced in respect of the Original  Penson Loan were used, and no portion
of the Penson  Loan or the DMG Loan will be used,  to  purchase  "margin  stock"
within the meaning of Regulation U promulgated  by the Board of Governors of the
Federal Reserve System.

         Section  8.03.  CHIEF  EXECUTIVE  OFFICE.   Watley  hereby  represents,
warrants,  and covenants  that  Watley`s  chief  executive  office is, and shall
remain, in New York.

         Section  8.04  GOVERNING  LAW,  JURISDICTION,  CONSENT  TO  SERVICE  OF
PROCESS.

                  (a) This Agreement  shall be construed in accordance  with and
governed by the law of the State of New York.

                  (b) Each party hereto hereby  irrevocably and  unconditionally
submits,  for  such  party  and  such  party`s  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 Agreement,  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  shall 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  Agreement.  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.

                  (c) Each party hereto hereby  irrevocably and  unconditionally
waives,  to the fullest extent such party may legally and effectively do so, any
objection  which such party may now or hereafter  have to the laying of venue of
any suit,  action or  proceeding  arising out of or relating to the  Transaction
Documents in any court referred to in paragraph (b) of this Section. Each of the
parties hereto 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) Each  party  hereto  irrevocably  consents  to  service of
process in the manner provided for notices in Section 8.06. Nothing in this will
affect the right of Penson or the DMG Group to serve process in any other manner
permitted by law.

         Section 8.05 WAIVER OF JURY TRIAL.  EACH OF THE PARTIES  HERETO  HEREBY
WAIVE,  TO THE FULLEST EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY
MAY HAVE TO A TRIAL  BY JURY IN ANY  LEGAL  PROCEEDING  DIRECTLY  OR  INDIRECTLY
ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY  (WHETHER  BASED ON  CONTRACT,  TORT OR ANY  OTHER  THEORY).  EACH OF THE


                                       11
<PAGE>

PARTIES  HERETO (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)
ACKNOWLEDGE  THAT THEY HAVE BEEN INDUCED TO ENTER INTO THIS  AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

         Section 8.06 .NOTICES. Any notice, demand, consent, approval,  request,
or other  communication  or document to be provided under any of the Transaction
Documents  shall be (a) in writing and (b) deemed to have been  provided  (i) 48
hours  after  being sent by  certified  or  registered  mail in the U.S.  mails,
postage prepaid,  return receipt  requested,  to the address of such parties set
forth  below or to such other  address  in the United  States of America as such
party may designate from time to time by notice to the other parties hereto,  or
(ii) upon  giving by hand or other  actual  delivery  (including  delivery  by a
nationally recognized overnight courier) to such party. Notices shall be sent to
the parties at the following addresses:

         PENSON:

              Penson Financial Services, Inc.
              1700 Pacific Avenue
              Suite 1400
              Dallas, Texas  75201
              Attention:  Phil Pendergraft
              Telephone No. (214) 765-1102
              Fax No:       (214) 765-1164

         SDS:

              SDS Merchant Fund, L.P.
              One Soundshore Drive
              Greenwich, Connecticut  06830
              Attention:  Steve Derby
              Telephone No.:  (203) 629-1231
              Fax No.:  (203) 629-0345

         THE DMG GROUP:

              One Soundshore Drive
              Greenwich, Connecticut  06830
              Attention:  Tom McAuley
              Telephone No.:  (203) 629-8400
              Fax No.:  (203) 629-0345


                                       12
<PAGE>

         WATLEY, WATLEY, INC., THE RELATED PARTIES OR THE MALIN GROUP:

              c/o A.B. Watley Group Inc.
              40 Wall Street
              New York, New York 10005
              Attention:  Leon Ferguson
              Telephone No.: (212) 422-1664, Ext. 5811
              Fax No.:       (212) 422-1724

         Section   8.07.REPRESENTATIONS.   Watley,  Watley,  Inc.,  the  Related
Parties,  the members of the Malin Group,  and SDS each  represents and warrants
with  respect to itself,  but not with  respect to any other person or entity as
follows:

                  (a)  AUTHORITY.  It has all  requisite  power and authority to
execute each Transaction Document to be executed by it.

                  (b) DUE AUTHORIZATION, EXECUTION AND DELIVERY. This Agreement,
and each other Transaction  Document to be executed by it, has been or will have
been duly authorized, executed, and delivered by it.

                  (c)  ENFORCEABILITY.  This Agreement and the other Transaction
Documents  to be executed and  delivered by it, when so executed and  delivered,
will be  enforceable  against  it in  accordance  with  its  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.

                  (d) NO  ASSIGNMENT  OF CLAIMS.  It has not assigned any of its
Claims.

                  (e)  CONTEMPORANEOUS  EXCHANGE.  The  security  to be  granted
pursuant to the Software Security  Agreement and the General Security  Agreement
is intended to be a  contemporaneous  exchange for new value given to Watley and
shall be, in fact,  substantially  contemporaneous,  if such security agreements
are executed and delivered within 30 days after the date of this Agreement.

                  (f)  SECURITY.   Watley  and  Watley,  Inc.  own  all  of  the
collateral described in the Software Security Agreement and the General Security
Agreement,  free and clear of any prior liens or security  interests,  except as
set forth on EXHIBIT O attached hereto.

                  (g) OWNERSHIP OF PREFERRED  STOCK. The ownership of all of the
Preferred  Stock,  immediately  prior to the  transfer of 70 shares of Preferred
Stock to Penson, and immediately after such transfer, is as reflected on EXHIBIT
D attached hereto.

         Section 8.08. FURTHER ASSURANCES.

                  (a) EXECUTION OF  TRANSACTION  DOCUMENTS.  The parties  hereto
recognize  that the  Transaction  Documents will be executed after the effective
date  hereof and after  initial  advances  of  amounts  have been made under the
Penson Note and the DMG Note.  Notwithstanding  such subsequent  execution,  the
execution  of  all  of the  Transaction  Documents  is a  material  part  of the


                                       13
<PAGE>

consideration  for Penson`s and the DMG Group`s agreement to fund advances under
their respective loans. The parties hereto covenant to use reasonable commercial
efforts to execute all the  Transaction  Documents as soon as practicable and in
any  event  within 5 days  after  the  date  hereof.  If all of the  Transaction
Documents are not executed within such 5 day period, the Penson Loan and the DMG
Loan shall be deemed to be in default,  and the holders thereof may exercise any
and all remedies thereunder. Neither Penson nor the DMG Group would have entered
into the Penson Loan or the DMG Loan absent the covenants of the parties in this
Section 8.08(a).

                  (b) SUBSEQUENT  ACTIONS.  The parties hereto agree to take all
other  actions  and execute all such other  documents  as Penson may  reasonably
request from time to time in order to effectuate the purposes of this Agreement.

         Section 8.09  SUCCESSORS AND ASSIGNS.  The provisions of this Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective  successors and assigns permitted hereby, except that none of Watley,
Watley,  Inc., the Related Parties,  or any member of the Malin Group may assign
or otherwise  transfer any of such  person`s or entity`s  rights or  obligations
hereunder  without  the  prior  written  consent  of Penson  (and any  attempted
assignment  or transfer by such person or entity  without such consent  shall be
null and void).  Nothing  in this  Agreement,  expressed  or  implied,  shall be
construed  to confer upon any person or entity  (other than the parties  hereto,
their respective successors and assigns permitted hereby) any legal or equitable
right,  remedy or claim under or by reason of this Agreement.  Penson may assign
to one or more  assignees all or a portion of its rights and  obligations  under
this Agreement without the consent of any other party hereto.

         Section 8.10  SEVERABILITY.  Any provision of this Agreement 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 8.11  COUNTERPARTS.  The parties may sign this Agreement in any
number of counterparts and on separate  counterparts,  each of which shall be an
original but all of which when taken together shall  constitute one and the same
instrument.




                                       14
<PAGE>



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

                  PENSON FINANCIAL SERVICES, INC., a
                  North Carolina corporation

                  By:
                      ----------------------------------------

                  Name:
                           -----------------------------------

                  Title:
                         -------------------------------------



                  SDS MERCHANT FUND, L.P., a Delaware limited partnership

                  By:
                      ---------------------------------------------------
                                                       , general partner


                  By:
                             --------------------------------------------

                  Name:
                        -------------------------------------------------

                  Title:
                         ------------------------------------------------



                  DMG  LEGACY  INTERNATIONAL  LTD.,  a
                  British  Virgin  Islands corporation

                  By:
                      ----------------------------------------

                  Name:
                           -----------------------------------

                  Title:
                         -------------------------------------



                  DMG  LEGACY   INSTITUTIONAL  FUND,
                  LLC,  a  Delaware  limited liability company

                  By:
                      -----------------------------------

                  Name:
                      -----------------------------------

                  Title:
                      -----------------------------------



                  DMG LEGACY FUND, LLC, a Delaware limited
                  liability company

                  By:
                      -----------------------------------

                  Name:
                       ----------------------------------

                  Title:
                       ----------------------------------



                                       15
<PAGE>

                  A. B. WATLEY  GROUP INC., a Delaware
                  corporation

                  By:
                      -------------------------------------------------

                  Name:
                           --------------------------------------------

                  Title:
                         ----------------------------------------------



                  A. B.  WATLEY,  INC., a New York corporation

                  By:
                      -------------------------------------------------

                  Name:
                           --------------------------------------------

                  Title:
                         ----------------------------------------------



                  RELATED PARTIES:



                  ----------------------------------------------------
                  ROBERT MALIN


                  ---------------------------------------------------
                  STEVEN MALIN


                  ---------------------------------------------------
                  LINDA MALIN


                                       16
<PAGE>

                  ---------------------------------------------------
                  ERIC STEINBERG


                  ---------------------------------------------------
                  LEON FERGUSON


                  ---------------------------------------------------
                  ANTHONY G. HUSTON


                  ---------------------------------------------------
                  MARILYN WALDORF


                  ---------------------------------------------------
                  LEONARD MALIN


                  MALIN GROUP MEMBERS:

                  LAN/WAN, INC.

                  By:
                      -------------------------------------------------
                                    ROBERT MALIN
                  Title:
                           --------------------------------------------


                  ATLANTIC GROUP, INC.

                  By:
                      -------------------------------------------------
                                    STEVEN MALIN
                  Title:
                           --------------------------------------------


                  KETER CORP.

                  By:
                      -------------------------------------------------
                                    LINDA MALIN
                  Title:
                           --------------------------------------------


                           --------------------------------------------
                                           STEVEN MALIN


                                       17
<PAGE>

                            -------------------------------------------
                                        ANTHONY G. HUSTON


                            -------------------------------------------
                                          ERIC STEINBERG



                                       18
<PAGE>

                                    EXHIBIT A

                                MALIN GROUP LOANS

                                MALIN GROUP LOANS
                                                          INTEREST AS OF
             MALIN GROUP                 PRINCIPAL        MARCH 27, 2002
               MEMBER                      BALANCE             ($)
               ------                      -------        --------------
                                             ($)

Lan/Wan, Inc.                            1,075,000             _______
Atlantic Group, Inc.                       875,000             _______
Keter Corp                                 950,000             _______
Steven Malin                               180,000             _______
Anthony G. Huston                          500,000             _______
Eric Steinberg                             950,000             _______
                                        ----------
         TOTAL                           4,530,000



                                       19
<PAGE>



                                    EXHIBIT B

                          RELATED PARTY STOCK OWNERSHIP



                                            STOCK OWNERSHIP
                RELATED PARTY                      SHARES
                -------------               ---------------

     Steven Malin                                 2,257,570
     Linda Malin                                  1,016,530
     Robert Malin                                   872,600
     Anthony G. Huston                              354,600
     Leon Ferguson                                  273,685
     Eric Steinberg                                      --
     Marilyn Waldorf                                _______
     Leonard Malin                                  _______



                                       20
<PAGE>


                                    EXHIBIT D



                            PREFERRED STOCK DETAILS
                            -----------------------

<TABLE>
<CAPTION>
                                                                               LIQUIDATION PREFERENCE
                                             NUMBER OF SHARES                  ----------------------
                                                OF SERIES A
        PREFERRED SHAREHOLDER                   CONVERTIBLE                 PER SHARE                  TOTAL
        ---------------------                 PREFERRED STOCK               ---------                  -----
                                              ---------------
PRIOR TO MARCH 27, 2002:
------------------------
<S>                                                 <C>                      <C>                     <C>
SDS Merchant Fund, L.P.                             345                      $10,000                 $3,450,000

DMG Group                                           235                      $10,000                 $2,350,000

AFTER MARCH 27, 2002:
---------------------

SDS Merchant Fund, L.P.                             275                      $10,000                 $2,750,000

DMG Group                                           235                      $10,000                 $2,350,000

Penson Financial Services, Inc.                     70                       $10,000                  $700,000

</TABLE>


                                       21
<PAGE>



                                    EXHIBIT G


                                  LOAN DETAILS
                                  ------------
<TABLE>
<CAPTION>

                                                                  COMMITMENT                AMOUNT LENT
                                          LENDER                    AMOUNT                 AS OF 3/29/02
                                          ------                  ----------               -------------
A.  PENSON LOAN
    -----------
<S>                             <C>                                  <C>                           <C>
                                Penson Financial Services,           $1,600,000                    $970,000
                                Inc.

B.  DMG LOAN
    --------
                                DMG Legacy Fund LLC                   $ 38,304                     $ 18,300
                                DMG Legacy Institutional              $ 321,696                    $153,700
                                Fund LLC
                                DMG Legacy International              $ 540,000                    $ 258,000
                                Ltd.

</TABLE>



                                       22
<PAGE>

                                    EXHIBIT O

                             EXISTING LIENS SCHEDULE
                           FOR A.B. WATLEY GROUP INC.
<TABLE>
<CAPTION>


                  SECURED PARTY                           DESCRIPTION OF COLLATERAL               FILE NO., DATE AND JURISDICTION OF
                  -------------                           -------------------------                    ----------------------------
                                                                                                            FINANCING STATEMENT
                                                                                                            -------------------


<S>                                    <C>                                                             <C>
Dell Financial Services, L.P.          Computer equipment and peripherals leased pursuant to a Lease   No.   99-205232;   10/08/99;
                                       Agreement dated September 27, 1999                              Secretary of State of Texas

Dell Financial Services, L.P.          Computer equipment and peripherals leased pursuant to a Lease   No.   99-226008;   11/09/99;
                                       Agreement dated October 27, 1999                                Secretary of State of Texas


Dell Financial Services, L.P.          Computer equipment and peripherals leased pursuant to a Lease   No.   99-226495;   11/10/99;
(THIS COLLATERAL S THE SAME            Agreement dated October 27, 1999                                Secretary of State of Texas
AS THE FOREGOING)


General Electric Capital Corporation   Lease and sale leaseback of computer equipment and peripherals  No.   99-237197;   11/30/99;
                                                                                                       Secretary of State of Texas


Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 001, dated April 1,  No.   00-488281;   5/01/200;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary of State of Texas
                                       2000


PFF Bank and Trust                     Partial Assignment from Pentech Financial of equipment lease    No.  00-840034;   8/03/2000;
                                       pursuant to Supplement No. 001, dated April 1, 2000 to Master   Secretary of State of Texas
                                       Equipment Lease No. 300651, effective April 1, 2000
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>


                  SECURED PARTY                           DESCRIPTION OF COLLATERAL               FILE NO., DATE AND JURISDICTION OF
                  -------------                           -------------------------                    ----------------------------
                                                                                                            FINANCING STATEMENT
                                                                                                            -------------------


<S>                                    <C>                                                             <C>
Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 003, dated July 1,   No.  00-559119;   8/07/2000;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary of State of Texas
                                       2000


The Cit Group                          Partial Assignment from Pentech Financial of equipment lease    No.  01-639518;   4/02/2001;
                                       pursuant to Supplement No. 003, dated July 1, 2000 to Master    Secretary of State of Texas
                                       Equipment Lease No. 300651, effective April 1, 2000


Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 001, dated April 1,  No.   0028018;    5/03/2000;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary    of   State   of
                                       2000                                                            Delaware


PFF Bank and Trust                     Partial Assignment from Pentech Financial of equipment lease    No.   0045360;    7/14/2000;
                                       pursuant to Supplement No. 001, dated April 1, 2000 to Master   Secretary    of   State   of
                                       Equipment Lease No. 300651, effective April 1, 2000             Delaware


Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 002, dated July 1,   No.   0047346;    7/24/2000;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary    of   State   of
                                       2000                                                            Delaware


Imperial Bank                          Partial Assignment from Pentech Financial of equipment lease    No.   0056400;    8/24/2000;
                                       pursuant to Supplement No. 002, dated July 1, 2000 to Master    Secretary    of   State   of
                                       Equipment Lease No. 300651, effective April 1, 2000             Delaware


Imperial Bank  (THIS SEEMS             Partial Assignment from Pentech Financial of equipment lease    No.   0065458;    9/26/2000;
TO BE A DUPLICATE OF                   pursuant to Supplement No. 001, dated July 1, 2000 to Master    Secretary    of   State   of
THE FOREGOING)                         Equipment Lease No. 300651, effective April 1, 2000             Delaware

</TABLE>

                                       24
<PAGE>

<TABLE>
<CAPTION>


                  SECURED PARTY                           DESCRIPTION OF COLLATERAL               FILE NO., DATE AND JURISDICTION OF
                  -------------                           -------------------------                    ----------------------------
                                                                                                            FINANCING STATEMENT
                                                                                                            -------------------
<S>                                    <C>                                                             <C>
Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 003, dated July 1,   No.   0047347;    7/24/2000;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary    of   State   of
                                       2000                                                            Delaware


The Cit Group                          Partial Assignment from Pentech Financial of equipment lease    No.   10307244;   4/02/2001;
                                       pursuant to Supplement No. 003, dated July 1, 2000 to Master    Secretary    of   State   of
                                       Equipment Lease No. 300651, effective April 1, 2000             Delaware


Pentech Financial Services, Inc.       Equipment lease pursuant to Supplement No. 004, dated July 1,   No.   0048908;    7/28/2000;
                                       2000 to Master Equipment Lease No. 300651, effective April 1,   Secretary    of   State   of
                                       2000                                                            Delaware


Imperial Bank                          Partial Assignment from Pentech Financial of equipment lease   No.   0056400;    8/24/2000;
                                       pursuant to Supplement No. 003, dated July 1, 2000 to Master   Secretary    of   State   of
                                       Equipment Lease No. 300651, effective April 1, 2000            Delaware


New York Community Investment          All inventory, accounts receivable, contract rights,
Company L.L.C.                         instruments, machinery, and equipment
</TABLE>

                                       25


<PAGE>