Document:

Exhibit
10.3

 

CONFIDENTIAL
TREATMENT

REQUESTED PURSUANT TO
RULE 24b-2

 

Republic Airways
Holdings, Inc.

 

United Contract No. 165982-1

 

July 7, 2004

 

Gregory P. Kaldahl

Director, United Express

United Air Lines, Inc.

1200 E. Algonquin Road

Elk Grove Township, IL  60007

Fax No.:  847-364-6728

 

 

Dear Greg:

 

When executed by both parties,
this letter agreement (this “Agreement”) shall amend and supersede the letter
agreement dated February 13, 2004 (the “Prior Agreement”) between Republic
Airways Holdings, Inc. (“RJET”) and United Air Lines, Inc. (“United”) pursuant
to which RJET agreed to provide United a [*] for United Express flights
operated by RJET’s subsidiary, Chautauqua Airlines, Inc. (“Chautauqua”).  Upon the execution of this Agreement, the
Prior Agreement shall be null and void and of no force or effect.

 

In consideration of United
entering into the United Express Agreements dated as of February 9, 2004 with
Republic Airline, Inc. (“Republic”) and dated as of February 13, 2004 with
Chautauqua, in each case as amended (collectively, the “United Express
Agreements”), and in consideration of United agreeing to amend and supersede
the Prior Agreement and to forego [*] to which it is or would have be entitled
thereunder, RJET shall provide United with [*] as provided herein.  The [*] shall be [*] for each aircraft [*]
aircraft that is operated during an [*] in revenue service (i.e. excluding
spares) by Chautauqua or Republic under a [*] under the United Express Agreements.  The [*] no later than the 10th
day of [*].  By way of example, if
during a [*], Chautauqua and Republic operated a total of [*] aircraft,
including [*] spare aircraft, under the United Express Agreements, RJET would
be required to [*] by the 10th day of [*].

 

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF
THE SECURITIES ACT OF 1933.  THE OMITTED
MATERIALS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.

 

* Confidential

 

 

Please confirm that the
foregoing accurately reflects our agreement by executing and returning to the
undersigned a copy of this letter.

 

	
  Sincerely,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Bryan K.
  Bedford

  	
   

  	
   

  	
   

  
	
  Bryan K.
  Bedford

  	
   

  	
   

  
	
  President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED
  & AGREED THIS

  	
   

  	
   

  
	
  7TH
  DAY OF JULY, 2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  UNITED AIR
  LINES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Gregory
  T. Taylor

  	
   

  
	
   

  	
  Name: 

  	
  Gregory T.
  Taylor

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice
  President - PlanningExhibit 10.4

 

United Contract No. 165974-1

 

July 6, 2004

 

 

Amendment No. 1 to

 

United Express®
Agreement

 

between

 

United Air Lines,
Inc.

 

and

 

Chautauqua Airlines,
Inc.

 

 

AMENDMENT NO. 1 TO

UNITED EXPRESSÒ
AGREEMENT

 

This Amendment No. 1 (the “Amendment”) dated July 6, 2004, amends the
United ExpressÒ Agreement, dated
as of February 13, 2004 (the “Agreement”), between UNITED AIR LINES, INC. (“United”),
and Chautauqua Airlines, Inc. (“Contractor”).

 

WHEREAS, United and Contractor entered into the Agreement; and

 

WHEREAS, United and Contractor seek to amend the Agreement as and to
the extent provided herein;

 

NOW, THEREFORE, in consideration of the foregoing premises, mutual
covenants and obligations hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:

 

1.             Defined Terms.  All capitalized terms used but not defined herein
shall have the meaning set forth in the Agreement.

 

2.             Appendix B.  Appendix B to the Agreement shall be deleted
and replaced with the Revised Appendix B attached hereto.

 

3.             Miscellaneous.

 

A.            This
Amendment constitutes the entire understanding of the parties with respect to
the subject matter hereof, and supersedes all previous agreements and
understandings, oral and written, with respect to such specific matter and will
not be modified, amended or terminated by mutual agreement or in any manner
except by an instrument in writing, executed by the parties hereto.

 

B.            This
Amendment may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which, taken together, shall constitute a
single instrument.

 

C.            Except
as expressly amended herein, the Agreement shall remain in full force and
effect.

 

IN WITNESS WHEREOF, the parties hereto have by their duly authorized
officers caused this Agreement to be entered into and signed as of the day and
year first above written.

 

	
  CHAUTAUQUA AIRLINES, INC.

  	
   

  	
  UNITED AIR LINES, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Bryan K.
  Bedford

  	
   

  	
  By:

  	
   

  	
  /s/ Gregory
  T. Taylor

  	
   

  
	
  Name:

  	
  Bryan K.
  Bedford

  	
  Name:

  	
  Gregory T.
  Taylor

  
	
  Title:

  	
  Chief
  Executive Officer

  	
  Title:

  	
  Senior Vice
  President Planning

  
									

 

 

APPENDIX B – Revised

RJ – 145FLEET PLAN

 

	
   

  	
   

  	
  Deliveries

  
	
   

  	
   

  	
   

  
	
  6/1/04

  	
   

  	
  2

  
	
  7/1/04

  	
   

  	
  2

  
	
  8/1/04

  	
   

  	
  2

  
	
  9/1/04

  	
   

  	
  2

  
	
  10/1/04

  	
   

  	
  0

  
	
  11/1/04

  	
   

  	
  1

  
	
  12/1/04

  	
   

  	
  0

  
	
  Total

  	
   

  	
  9

  

 

Note: 
Contractor will provide one additional, temporary EMB 145 (49 seat
configuration) from 9-8-04 to 10-31-04.

 

Contractor shall not be liable
for any delays resulting from verifiable aircraft delivery delays.  If Contractor is unable to deliver any
Aircraft on or before the last day of the month after the month that such
aircraft is scheduled to be delivered as set forth herein, Contractor shall
provide written notice to United and United shall have the option, which shall
be exercisable by providing written notice to Contractor within 10 business
days after the receipt of such notice from Contractor, but in no event sooner
than the end of the month when the aircraft was originally scheduled to be
delivered, to delete such aircraft from this agreement without liability to
either party and the Agreement shall remain in effect only with respect to the
remaining aircraft.EXHIBIT 10.1

                              SETTLEMENT AGREEMENT

      This Settlement Agreement (the "Agreement") is entered into this ____ day
of July, 2004, by and among Penson Financial Services, Inc., a North Carolina
corporation, with an address at 1700 Pacific Avenue, Suite 1400, Dallas, TX
75021 ("Penson"), Penson Worldwide, Inc., a Delaware corporation, with an
address at 1700 Pacific Avenue, Suite 1400, Dallas, TX 75021 ("PWI"), Integrated
Trading Solutions, Inc., a Delaware corporation and an affiliate of Penson, with
an address at 1700 Pacific Avenue, Suite 1400, Dallas, TX 75021 (" Integrated"),
A.B. Watley Group, Inc., a Delaware corporation, with an address of 40 Wall
Street, New York, NY 10005 (the "Company"), A.B. Watley, Inc., a New York
corporation and the Company's wholly owned subsidiary, with an address of 40
Wall Street, New York, NY 10005 (the "Sub"), A.B. Watley Direct, Inc., a New
York corporation and the Company's wholly owned subsidiary, with an address at
40 Wall Street, New York, NY 10005 (f/k/a Integrated Clearing Solutions, Inc.)
("Direct"), and Gottbetter and Partners LLP with an address at 488 Madison
Avenue, New York, NY 10022 ("Escrow Agent"), for mutual consideration and the
purposes expressed herein. (Penson, PWI, Integrated, the Company, the Sub,
Direct and Escrow Agent are referred to herein severally as a "Party", or
collectively as the "Parties").

                                    PREAMBLE

      WHEREAS, Direct entered into a Fully Disclosed Clearing Agreement dated
July 15, 2002 with Penson (the "2002 Clearing Agreement").

      WHEREAS, the Company issued PWI a Common Stock Purchase Warrant entitling
Penson to purchase up to 1,000,000 shares of the Company's common stock at an
exercise price of $.918 (the "$.918 Warrant"), which $.918 Warrant is subject to
that certain Registration Rights Agreement dated March 27, 2002, by and between
the Company and Penson (the "Initial Registration Rights Agreement").

      WHEREAS, the Company entered in (i) a Security Agreement dated March 27,
2002 with Penson, among others (the "Security Agreement"), and (ii) a General
Security Agreement dated March 27, 2002 with Penson, among others (the "General
Security Agreement").

      WHEREAS, PWI is the owner of 70 shares of the Company's Series A
Convertible Preferred Stock which it acquired from SDS Merchant Fund, L.P. (the
"Series A Stock") pursuant to that certain Assignment dated April 30, 2002.

      WHEREAS, as of the date of this Agreement, the Series A Stock is valued at
Seven Hundred Fifty One Thousand Seventy Eight Dollars ($751,078), including
interest and dividends.

<PAGE>

      WHEREAS, pursuant to that certain Asset Purchase Agreement dated July 31,
2002 among Integrated, the Company and Sub (i) the Company, the Sub and
Integrated entered into a Software License Agreement dated July 31, 2002 (the
"Software License Agreement"), and (ii) the Company's trademarks more fully
described on Schedule A attached hereto were assigned and transferred to
Integrated (the "Intellectual Property").

      WHEREAS, the Company issued an amended and restated promissory note dated
July 31, 2002 to Penson in the principal amount of $2,150,994 (the "$2,150,994
Note").

      WHEREAS, the Company, the Sub and/or Direct are parties to other
agreements with Penson and/or Integrated not discussed herein.

      NOW, THEREFORE, in consideration of the premises, and of the promises,
covenants and conditions contained herein, the Parties intending to be legally
bound, hereby agree as follows:

      SECTION 1. TERMS OF SETTLEMENT.

      (i) Amendment to Software License Agreement. The Parties hereto that are
also parties to the Software License Agreement agree to hereby amend the
Software License Agreement by adding Direct as a party thereto, provided,
however, that Direct shall have no more rights or obligations than the Sub has
thereunder;

      (ii) Vendor of Record of Ultimate Trader and Watley Trader. Penson agrees
to cause an affiliate to act as vendor of record (the "Vendor") (with respect to
exchange source data) in connection with data currently provided by Integrated
with respect to the Omni Pro and Omni Retail software provided by Integrated.
The Company shall contribute $200 per month towards the costs associated with a
Penson affiliate's acting as Vendor (the "Company Contribution"). The Company
Contribution shall be delivered to Penson on the 1st day of every month at its
address first written above, which obligation shall not commence until the 1st
day of the month following the satisfaction of the Post-Closing Condition
(defined herein).

      (iii) Transfer and Assignment of the Intellectual Property. Integrated
shall transfer and assign the Intellectual Property to the Company. All expenses
associated with such transfers and assignments shall be bourn by the Company.

      (iv) Exchange of Series A Preferred for Warrants/Additional Warrant. The
Company agrees to provide to PWI a warrant representing 682,798 shares of the
Company's common stock in the form attached hereto as Exhibit 1-A, in exchange
for PWI's Series A Stock. The Company agrees to provide to PWI a new warrant
representing 1,000,000 shares of the Company's common stock in the form attached
hereto as Exhibit 1-B.

      (v) Amendment to $.918 Warrant. The Company shall issue PWI an amended and
restated $.918 Warrant in the form attached hereto as Exhibit 2.

                                       2
<PAGE>

      (vi) Registration Rights Agreement. The Company shall execute the Amended
and Restated Registration Rights Agreement in the form attached hereto as
Exhibit 3;

      (vii) Amendment to the 2002 Clearing Agreement. Direct and Penson shall
enter into an amendment to the 2002 Clearing Agreement in the form attached
hereto as Exhibit 4.

      (viii) Guaranty. The Company shall execute the Guaranty in the form
attached hereto as Exhibit 5.

      (ix) Mutual Releases.

            (a) Except with regard to the provisions of this Agreement, each of
the Parties (other than the Escrow Agent) hereby fully and forever release,
acquit, and discharge the others together with their respective partners,
employees, agents, parents, subsidiaries, affiliates or other representatives,
heirs, executors, successors and assigns, as the case may be, of and from any
and all claims, causes of action, demands, rights, liabilities, charges,
obligations, costs, expenses, and attorney's fees of every kind, nature and
description, whether legal or equitable, liquidated or unliquidated, known or
unknown, which such Parties now have, ever had, now have or hereafter can, shall
or may have for, upon, or by reason of their dealings with each other with
respect solely to the Security Agreement, the General Security Agreement, the
Series A Stock and the $2,150,994 Note (collectively, the "Released Documents").

            (b) Except to enforce the terms of this Agreement, each of the
Parties (other than the Escrow Agent) agree not to initiate or voluntarily
participate in any legal action, charge or complaint against the others that
arises solely in connection with the Released Documents (it being understood and
agreed that any action, charge or complaint that relates to matters other than
or in addition to the Released Documents shall not be affected by the terms of
this sentence). If any such Party voluntarily participates in any such action,
charge, or complaint, the others shall be entitled to recover their attorney's
fees incurred in defending such action, charge or complaint.

      SECTION 2. CLOSING. The closing of the transactions contemplated hereunder
(the "Closing") shall take place by courier of the Closing Materials (defined
herein) delivered to the Escrow Agent at its address noted above, on such date
and time as the Parties (other than the Escrow Agent) may mutually agree upon
(the "Closing Date"), but in no event shall the Closing be later than five (5)
business days from the date of this Agreement, unless such Parties mutually
agree to extend the closing deadline to a later date.

      SECTION 3. OBLIGATIONS OF THE COMPANY AT CLOSING. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties and covenants contained herein, at Closing, the Company shall deliver
to the Escrow Agent, for the benefit of Penson:

      (i) executed Common Stock Purchase Warrants in the forms attached hereto
as Exhibit 1-A and Exhibit 1-B;

                                       3
<PAGE>

      (ii) an executed Amended and Restated Common Stock Purchase Warrant in the
form attached hereto as Exhibit 2;

      (iii) an executed Amended and Restated Registration Rights Agreement in
the form attached hereto as Exhibit 3;

      (iv) an executed Fully Disclosed Clearing Agreement Amendment in the form
attached hereto as Exhibit 4;

      (v) an executed Guaranty in the form attached hereto as Exhibit 5;

      (vi) the executed Warrant Agreement dated June 3, 2004 by and between the
Company and SDS Merchant Fund, L.P., DMG Legacy International LTD., DMG Legacy
Institutional Fund LLC, and DMG Legacy Fund LLC, and its related closing
materials; and

      (vii) the executed Warrant Agreement dated June 16, 2004 by and between
the Company and Rivera Enid Limited Partnership and Alan W. Steinberg Limited
Partnership, and its related closing materials;

      (The items to be delivered pursuant to Section 3 (i) through (vii) above
are referred to herein as the "Company Closing Materials").

      SECTION 4. OBLIGATIONS OF PENSON AT CLOSING. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties and covenants contained herein, at Closing, Penson shall deliver to
the Escrow Agent, for the benefit of Company:

      (i) the original Series A Stock certificate(s) in negotiable form, duly
endorsed in blank, or with stock transfer powers attached thereto;

      (ii) the original $.918 Warrant;

      (iii) the original $2,150,994 Note;

      (iv) releases to all financing statements filed by the Penson against the
Company, to be prepared and filed by the Company at its own expense;

      (v) an Assignment of Trademarks in the form attached hereto as Exhibit 6,
to be filed by the Company at its own expense;

      All securities transferred hereunder shall be transferred with good title,
free and clear of any and all liens, claims, encumbrances and adverse interests
of any kind. Penson and PWI may also deliver, in lieu of items (i)-(iii) above
in the event any of such items are not promptly located, a form of lost
certificate statement in a form reasonably acceptable to the Company.

                                       4
<PAGE>

      (The items to be delivered pursuant to Section 4 (i) through (v) above are
referred to herein as the "Penson Closing Materials").

      SECTION 5. POST CLOSING CONDITIONS. The obligation of the Escrow Agent to
deliver the Company Closing Materials and the Penson Closing Materials
(collectively, the "Closing Materials") to their respective recipients is
subject to the following condition (the "Post-Closing Condition"): the Company
shall delivery to the Escrow Agent, for the benefit of Penson, two executed
definitive agreements (the "Definitive Agreements"), each by and between the
Company and each of Kentan Ltd. and Yanzu Inc., pursuant to which the Company
shall sell 2,500,000 shares of its common stock at $.40 per share, or an
aggregate amount for both Definitive Agreements of $2,000,000 (the "Financing").
The Definitive Agreements shall be in form and substance satisfactory to Penson.
The Parties understand that the Financing is contingent upon the occurrence of
the Closing.

      SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE SUB AND
DIRECT. In order to induce Penson, PWI and Integrated to enter into this
Agreement, each of the Company, the Sub and Direct, hereby represent and warrant
to such Parties as follows:

      (i) The Company, the Sub and Direct have the full power and authority to
enter into this Agreement and to otherwise carry out their obligations
hereunder. The execution and delivery of this Agreement by each of the Company,
the Sub and Direct has been duly authorized by all necessary action on the part
of the Company, the Sub and Direct. This Agreement executed by the Company, the
Sub and Direct has been or will be duly executed by them, and when delivered in
accordance with the terms hereof, will constitute the valid and legally binding
obligations of the Company, the Sub, and Direct enforceable against each in
accordance with its terms.

      (ii) The execution, delivery and performance of this Agreement by the
Company, the Sub and Direct does not and will not (i) be subject to obtaining
any of the consents referred to in Section 6(iii), conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under any agreement to which the Company, the Sub and Direct are a
party, or (ii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which any of the Company, the Sub and Direct are subject.

      (iii) The Company, the Sub and Direct are not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other person or entity prior to the execution, delivery and performance by
the Company, the Sub and Direct of this Agreement.

      SECTION 7. REPRESENTATIONS AND WARRANTIES OF PENSON, PWI AND INTEGRATED.
In order to induce the Company, the Sub and Direct to enter into this Agreement,
Penson, PWI and Integrated hereby represent and warrant to the Company, the Sub
and Direct as follows:

                                       5
<PAGE>

      (i) Penson, PWI and Integrated have the full power and authority to enter
into this Agreement and to otherwise carry out their obligations hereunder. The
execution and delivery of this Agreement by each of Penson, PWI and Integrated
has been duly authorized by all necessary action on the part of Penson, PWI and
Integrated. This Agreement executed by Penson, PWI and Integrated has been or
will be duly executed by them and when delivered in accordance with the terms
hereof, will constitute the valid and legally binding obligations of Penson, PWI
and Integrated enforceable against each in accordance with its terms.

      (ii) The execution, delivery and performance of this Agreement by Penson,
PWI and Integrated does not and will not (i) be subject to obtaining any of the
consents referred to in Section 7(iii), conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under any agreement to which Penson, PWI and Integrated is a party, or (ii)
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which
Penson, PWI and Integrated are subject.

      (iii) Penson, PWI and Integrated are not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
person or entity prior to the execution, delivery and performance by Penson, PWI
and Integrated of this Agreement.

      SECTION 8. TERMS OF ESCROW. The Parties (other than the Escrow Agent)
hereby appoint the Escrow Agent to act as "Escrow Agent" under this Agreement
and the Escrow Agent accepts such appointment and agrees to be bound by the
provisions of this Agreement applicable to it. At Closing, Escrow Agent shall
retain the Closing Materials in its escrow account. The obligation of the Escrow
Agent to deliver the Closing Materials to their respective recipients is subject
to the fulfillment of the Post-Closing Condition.

      SECTION 9. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT.

      (i) The Parties hereto agree that the duties and obligations of Escrow
Agent are only such as are herein specifically provided and no other. Escrow
Agent's duty is to manage the distribution of the Closing Materials in
accordance with the terms of this Agreement only, and Escrow Agent shall incur
no liability whatsoever, except as a result of its willful misconduct or gross
negligence.

      (ii) Escrow Agent shall not be bound in any way by the terms of any other
agreement to which the Parties (other than the Escrow Agent) are parties,
whether or not it has knowledge thereof, and Escrow Agent shall not in any way
be required to determine whether or not any other agreement has been complied
with by such Parties, or any other party thereto. Escrow Agent shall not be
bound by any modification, amendment, termination, cancellation, rescission or
supersession of this Agreement which would affect Escrow Agent's obligations
hereunder, unless the same shall be in writing and signed jointly by the Parties
hereto.

                                       6
<PAGE>

      (iii) If Escrow Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions, claims or demands which, in its
opinion, are in conflict with any of the provisions of this Agreement, it shall
be entitled to refrain from taking any action, other than to keep safely all
property held in escrow or to take certain action, until it shall be directed
otherwise in writing by all of the Parties hereto or by a final judgment of a
court of competent jurisdiction.

      (iv) Escrow Agent shall be fully protected in relying upon any written
notice, demand, certificate or document which it, in good faith, believes to be
genuine. Escrow Agent shall not be responsible for the sufficiency or accuracy
of the form, execution, validity or genuineness of documents or securities now
or hereafter deposited hereunder, or of any endorsement thereon, or for any lack
of endorsement thereon, or for any description therein; nor shall Escrow Agent
be responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any such document, security or endorsement.

      (v) Escrow Agent shall not be required to institute legal proceedings of
any kind and shall not be required to defend any legal proceedings which may be
instituted against it or in respect of the distribution of the Closing
Materials.

      (vi) If Escrow Agent at any time, in its sole discretion, deems it
necessary or advisable to relinquish custody of the Closing Materials, it may do
so by delivering the same to any other escrow agent agreeable to all of the
Parties and, if no such escrow agent shall be selected within three days of the
Escrow Agent's notification to the Parties of its desire to so relinquish
custody of the Closing Materials, then the Escrow Agent may do so by delivering
the Closing Materials to the clerk or other proper officer of a court of
competent jurisdiction as may be permitted by law. The fee of any court officer
shall be borne by the Parties equally. Upon such delivery, the Escrow Agent
shall be discharged from any and all responsibility or liability with respect to
the Closing Materials.

      (vii) This Agreement shall not disqualify Escrow Agent from representing
either party hereto in any dispute with the other, including any dispute with
respect to the Closing Materials.

      (viii) Escrow Agent represents that it is presently acting as counsel to
the Company. The Parties agree that the Escrow Agent's engagement as provided
for herein is not and shall not be objectionable for any reason other than to
the extent the Escrow Agent breaches the terms of this Agreement.

      (ix) Upon the full performance of this Agreement, Escrow Agent shall be
deemed released and discharged of any further obligations hereunder.

      SECTION 10. ESCROW AGENT INDEMNIFICATION.

      (i) The Parties hereby agree to, jointly and severally, indemnify and hold
Escrow Agent harmless from and against any and all losses, damages, taxes,
liabilities and expenses that may be incurred by Escrow Agent, arising out of or
in connection with its acceptance of appointment as Escrow Agent hereunder
and/or the performance of its duties pursuant to this Agreement, including, but

                                       7
<PAGE>

not limited to, all reasonable legal costs and expenses of Escrow Agent incurred
defending itself against any claim or liability in connection with its
performance hereunder, provided that Escrow Agent shall not be entitled to any
indemnity for any losses, damages, taxes, liabilities or expenses that result
from its willful misconduct or gross negligence.

      (ii) In the event of any legal action between the Parties to enforce any
of its terms, the legal fees of the prevailing Party(ies) shall be paid by the
Party(ies) that did not prevail.

      SECTION 11. TERMINATION.

      (i) Termination by Mutual Agreement. This Agreement may be terminated at
any time by mutual consent of the Parties, provided that such consent to
terminate is in writing and is signed by each of the Parties.

      (ii) Termination by Operation of Law. This Agreement may be terminated by
any party hereto if there shall be any statute, rule or regulation that renders
consummation of the transactions contemplated herein illegal or otherwise
prohibited, or a court of competent jurisdiction or any government (or
governmental authority) shall have issued an order, decree or ruling, or has
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of such transactions and such order, decree, ruling or other action
shall have become final and non-appealable.

      (iii) Termination for Failure to Perform Conditions. This Agreement may be
terminated prior to the Closing Date:

            (A) by the Company, the Sub or Direct, if: (i) any of the
      representations and warranties made in this Agreement by Penson, PWI or
      Integrated shall not be true and correct, when made or at any time prior
      to consummation of the transactions contemplated herein as if made at and
      as of such time; (ii) Penson, PWI or Integrated shall have failed to
      observe or perform any of its obligations under this Agreement; or (iii)
      as otherwise set forth herein; or

            (B) by Penson, PWI or Integrated, if: (i) any of the representations
      and warranties made in this Agreement by the Company, the Sub or Direct
      shall not be true and correct, when made or at any time prior to
      consummation of the transactions contemplated herein as if made at and as
      of such time; (ii) the Company, the Sub or Direct shall have failed to
      observe or perform any of its obligations under this Agreement; or (iii)
      as otherwise set forth herein.

      (iv) Termination for Failure to Perform the Post-Closing Condition. This
Agreement may be terminated by any Party if the Post-Closing Condition has not
been satisfied on or before 30 days of the date of this Agreement.

      (v) Effect of Termination or Default; Remedies. In the event of
termination of this Agreement as set forth above, this Agreement shall forthwith
become void and there shall be no liability on the part of any Party, provided
that such Party is a Non-Defaulting Party (as defined below). The foregoing

                                       8
<PAGE>

shall not relieve any Party from liability for damages actually incurred as a
result of such Party's breach of any term or provision of this Agreement. In the
event that any Party shall fail or refuse to consummate the transactions
contemplated herein or if any default under or beach of any representation,
warranty, covenant or condition of this Agreement on the part of any party (the
"Defaulting Party") shall have occurred that results in the failure to
consummate the transactions contemplated herein, then in addition to the other
remedies provided herein and by law, the non defaulting party (the
"Non-Defaulting Party") shall be entitled to seek and obtain money damages from
the Defaulting Party. The Non- Defaulting Party shall be entitled to obtain from
the Defaulting Party court costs and reasonable attorneys' fees incurred in
connection with or in pursuit of enforcing the rights and remedies provided
hereunder.

      In the event this Agreement is terminated pursuant to this Section 11, the
Escrow Agent shall deliver any and all items then held in escrow back to the
respective depositing Party(ies).

      SECTION 12. INDEMNIFICATION.

      (i) Obligation of the Company, the Sub and Direct to Indemnify. The
Company, the Sub and Direct agree to jointly and severally indemnify, defend and
hold harmless Penson, PWI and/or Integrated (and their respective directors,
officers, employees, affiliates, stockholders, debenture holders, agents,
attorneys, successors and assigns) from and against all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties and
reasonable attorneys' and consultants' fees and disbursements) (collectively,
"Losses") based upon, arising out of or otherwise in respect of any (i)
inaccuracy in any representation or warranty of the Company, the Sub or Direct
contained in this Agreement or in the Exhibits hereto or (ii) breach by the
Company, the Sub or Direct of any covenant or agreement contained in this
Agreement.

      (ii) Obligation of Penson, PWI and Integrated to Indemnify. Penson, PWI
and Integrated agree to jointly and severally indemnify, defend and hold
harmless the Company, the Sub and/or Direct (and their respective directors,
officers, employees, affiliates, stockholders, agents, attorneys, successors and
assigns) from and against any Losses based upon, arising out of or otherwise in
respect of any (i) inaccuracy in any representation or warranty of Penson, PWI
or Integrated contained in this Agreement or in the Exhibits hereto or (ii)
breach by Penson, PWI or Integrated of any covenant or agreement contained in
this Agreement.

      (iii) Notice and Opportunity to Defend. (a) Promptly after receipt by any
Party entitled to indemnity under this Agreement (an "Indemnitee") of notice of
any demand, claim or circumstances which, with the lapse of time, would or might
give rise to a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability") that may result in
a Loss, the Indemnitee shall give notice thereof (the "Claims Notice") to any
other party (or parties) who is or may be obligated to provide indemnification
pursuant to Section 12 (i) or 12 (ii) (the "Indemnifying Party"). The Claims

                                       9
<PAGE>

Notice shall describe the Asserted Liability in reasonable detail and shall
indicate the amount (estimated, if necessary and to the extent feasible) of the
Loss that has been or may be suffered by the Indemnitee.

      The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within 30
days after the date the Claims Notice is given (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to do so,
and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in
the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability and all reasonable expenses
incurred by the Indemnitee in defending or compromising such Asserted Liability,
all amounts required to be paid in connection with any such Asserted Liability
pursuant to the determination of any court, governmental or regulatory body or
arbitrator, and amounts required to be paid in connection with any compromise or
settlement consented to by the Indemnitee, shall be borne by the Indemnifying
Party. Except as otherwise provided in the immediately preceding sentence, the
Indemnitee may not settle or compromise any claim over the objection of the
Indemnifying Party. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in (but the Indemnitee may not control) the
defense of such Asserted Liability. If the Indemnifying Party chooses to defend
any claim, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense.

      SECTION 13. MISCELLANEOUS.

      (i) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under applicable law, then such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement.

      (ii) This Agreement may be executed in separate counterparts, each of
which is deemed to be an original hereof, and all of which taken together shall
constitute one and the same agreement.

      (iii) Descriptive headings in this Agreement are inserted for convenience
of reference only and are not intended to be part of or affect the meaning or
interpretation of this Agreement.

      (iv) The parties hereto acknowledge that the transactions contemplated by
this Agreement and the exhibits hereto bear a reasonable relation to the state
of Texas. This Agreement shall be enforced in accordance with, and all questions
regarding the construction, validity, interpretation and purpose of this
Agreement shall be governed by, the internal laws of the state of Texas, without
giving effect to provisions thereof regarding conflict of laws. Any action to
enforce the terms of this Agreement shall be brought exclusively in the state

                                       10
<PAGE>

and/or federal courts situate in the county and state of Texas. Service of
process in any action by either party to enforce the terms of this Agreement may
be made by serving a copy of the summons and complaint, in addition to any other
relevant documents, by commercial overnight courier to the other party at the
address set forth in this Agreement.

      (v) Notices. Any notice provided for in this Agreement must be in writing
and must be either (a) hand delivered, (b) mailed by registered or certified
first class mail, postage prepaid with return receipt requested, (c) sent by
reputable overnight courier service for next business morning delivery, or (d)
sent by telecopy to the recipient at the address/telecopy number below
indicated:

                           If to the Company, Sub or Direct:

                                  A.B. Watley Group Inc.
                                  40 Wall Street
                                  New York, New York 10005
                                  Attention: President
                                  Facsimile:_(212) 422-1625

                           with a copy to:

                                  Gottbetter & Partners, LLP
                                  488 Madison Avenue
                                  New York, New York 10022
                                  Attention: Adam S. Gottbetter, Esq.
                                  Facsimile: (212) 400-6901

                           If to Penson, PWI or Integrated:

                                  1700 Pacific Avenue, Suite 1400
                                  Dallas, TX 75021
                                  Attention: President
                                  Facsimile: (214) 765-1164

                           If to Escrow Agent:

                                  Gottbetter & Partners, LLP
                                  488 Madison Avenue
                                  New York, New York 10022
                                    Attention: Adam S. Gottbetter, Esq.
                                  Facsimile: (212) 400-6900

      or such other address/telecopy number or to the attention of such other
person as the recipient Party shall have specified by prior written notice to
the sending Party.

      Any notice under this Agreement shall be deemed to have been given (i) on
the date such notice is hand delivered, (ii) three (3) days after the date of

                                       11
<PAGE>

mailing if mailed by certified or registered mail, (iii) on the business day
next following the day notice is sent via overnight courier service, or (iv) as
of the beginning of the next day if such notice is sent by telecopy.

      (vi) This Agreement embodies the complete agreement and understanding
between the Parties with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements and/or representations by or
between the Parties, written or oral, related to the subject matter hereof in
any way.

      (vii) No waiver of any of the provisions hereof shall be effective unless
in writing and signed by the Party to be charged with such waiver. No waiver
shall be deemed a continuing waiver or waiver in respect of any subsequent
breach or default, whether of similar or different nature, unless expressly so
stated in writing.

      (viii) Each Party hereto shall cooperate and shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other Party in order to carry out the provisions and purposes
of this Agreement.

      (ix) Notwithstanding any rule of law or custom to the contrary, neither
this Agreement nor any other agreement or document collateral to or otherwise
relating to this Agreement shall be interpreted or construed against any party
merely by reason of the fact that such agreement or document was prepared by or
at the direction of such Party or that such Party caused this Agreement to be
drafted.

      (x) Notwithstanding anything to the contrary contained in any warrant or
warrant agreement executed by the Company in favor of PWI (the "PWI Warrants")
that is referenced in this Agreement, in the event for any or no reason shares
of the Company's common stock to which the holders of the warrants referred to
in Section 3 (vi) and (vii) above may be entitled under the terms of such
warrants are transferred to a third party other than the original holder(s)
thereof (a "Third Party Warrant Transfer"), any restriction in Section 1 of the
PWI Warrants that restricts PWI from vesting or receiving shares of the
Company's common stock under the terms of the PWI Warrants shall lapse no later
than the date such Third Party Warrant Transfer occurs.

      SECTION 14. REQUEST FOR CONFIDENTIALITY/OTHER. If the Company shall file
the 2002 Clearing Agreement as an exhibit to any Securities and Exchange
Commission filing, whether as part of a registration statement of otherwise, the
Company shall request from the Securities and Exchange Commission
confidentiality treatment with respect to such 2002 Clearing Agreement. The
Company, Direct and Sub acknowledge that they are jointly and severally
obligated to promptly pay Penson an amount equal to $9,000 (with respect to an
amount actually charged to Penson or its affiliates by the NYSE with respect to
data usage) and $20,277.92 (with respect to an invoice the Company received from
AT&T prior to the date hereof with respect to the DCS MCN; Integrated will be
responsible for the $10,000 balance of such bill).

                            [SIGNATURE PAGE FOLLOWS]

                                       12
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year first above written.

A.B. WATLEY GROUP INC.

By: /s/ Robert Malin
    --------------------------------------
    Name:  Robert Malin
    Title: Vice-Chairman

A.B. WATLEY, INC.

By: /s/ Robert Malin
    --------------------------------------
    Name:  Robert Malin
    Title: President

A.B. WATLEY DIRECT, INC.

By: /s/ Robert Malin
    --------------------------------------
    Name:  Robert Malin
    Title: EVP

PENSON FINANCIAL SERVICES, INC.

By: /s/ Philip A. Pendergraft
    --------------------------------------
    Name:  Philip A. Pendergraft
    Title: EVP

PENSON WORLDWIDE, INC.

By: /s/ Philip A. Pendergraft
    --------------------------------------
    Name:  Philip A. Pendergraft
    Title: EVP/COO

INTEGRATED TRADING SOLUTIONS, INC.

By: /s/ Philip A. Pendergraft
    --------------------------------------
    Name:  Philip A. Pendergraft
    Title: EVP

GOTTBETTER AND PARTNERS, LLP

By: /s/ Adam Gottbetter
    --------------------------------------
    Name:  Adam Gottbetter
    Title: Managing Member

                                       13
<PAGE>

                                   SCHEDULE A

                               Trademark Ownership

                                 Ultimate Trader
                             Serial Number 75345364
                           Registration Number 2229727

                                       14
<PAGE>

                                   EXHIBIT 1-A

                          COMMON STOCK PURCHASE WARRANT

                                       15
<PAGE>

                                   EXHIBIT 1-B

                          COMMON STOCK PURCHASE WARRANT

                                       16
<PAGE>

                                    EXHIBIT 2

               AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT

                                       17
<PAGE>

                                    EXHIBIT 3

               AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

                                       18
<PAGE>

                                    EXHIBIT 4

                  FULLY DISCLOSED CLEARING AGREEMENT AMENDMENT

                                       19
<PAGE>

                                    EXHIBIT 5

                                    GUARANTY

                                       20
<PAGE>

                                    EXHIBIT 6

                            ASSIGNMENT OF TRADEMARKS

                                       21

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