Employment Agreement

EMPLOYMENT AGREEMENT


This Employment Agreement (this "Agreement"), dated as of this 1st day of October, 2001, is made by and between A.B. Watley Group, Inc., a Delaware Corporation with offices located at 40 Wall Street, New York, New York 10005 (including any subsidiaries or affiliates thereof, the "Company") and Gary D. Mednick, an individual residing at 86 Stillwell Lane, Woodbury, New York 11797 (the "Executive").


WITNESSETH:


WHEREAS, the Company desires to employ the Executive and to enter into an agreement embodying the terms of such employment; and


WHEREAS, the Executive desires to accept such employment and to enter into such agreement;


NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (individually, each a "Party" and, together, the "Parties") agree as provided herein.


1. EMPLOYMENT.


Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ the Executive during the Term of Employment (as defined in Section 2 hereof) and the Executive accepts such employment.


2. TERM OF EMPLOYMENT.


The term of employment under this Agreement shall commence on the date hereof and, unless earlier terminated by the Company or the Executive pursuant to Section 5 hereof, or extended by operation of Section 5.1(c )(iv) hereof, shall continue until October 1, 2003 (the "Term of Employment"); provided, however, that if the aggregate Revenues (as that term is defined and used in Section 2.9 of the Asset Purchase Agreement dated as of October 1, 2001, between A.B. Watley Group, Inc., and On-Site Trading, Inc. (the "Asset Purchase Agreement")) for the first twenty-four (24) months of the Term of Employment equals or exceeds $24 million, then the Term of Employment shall continue until October 1, 2004.


3. POSITION, RESPONSIBILITIES AND DUTIES.


3.1 POSITION AND RESPONSIBILITIES. Under the terms and conditions herein set forth, the Company hereby employs the Executive, and the Executive hereby agrees to serve, during the Term of Employment, as Executive Vice President, Business


1


Development, of the Company. The Executive's duties shall be specified by the Board of Directors or the President of the Company, or their designee, provided that the Executive's duties shall be those of a senior executive focusing in the fields of strategic planning, marketing and business development.


3.2 ATTENTION TO RESPONSIBILITIES AND DUTIES. During the Term of Employment, The Executive shall devote his full time, energies, skills and attention to the performance of his duties and responsibilities hereunder, and shall perform them faithfully, diligently and competently. Nothing contained herein shall be construed to preclude the Executive from (a) serving on the board of directors of other corporations which do not directly or indirectly themselves or through a subsidiary or affiliated entity compete with the Company, (b) engaging in charitable and community affairs, (c) managing the Executive's personal affairs and investments, and (d) continuing to act as the president of On-Site Trading, Inc. ("OST") until such time as OST has finally and fully withdrawn from membership in the NASD.


3.3 PLACE OF PERFORMANCE.


(a) Unless otherwise mutually agreed by the Company and the Executive, in connection with the Executive's employment with the Company, the Executive shall be employed at the Company's offices in New York County and Great Neck, New York, except for required travel in relation to the Company's business.


(b) The Company agrees to purchase all furniture, computers and other office equipment reasonably necessary and proper for the Executive to undertake and perform the services contemplated by this Agreement. The Company shall provide Executive with a private office appropriate to his status as a senior executive.


4. COMPENSATION AND RELATED MATTERS. Subject to the provisions of this Agreement, the Executive shall receive the compensation and other benefits provided in this Section 4 as compensation for all the Executive's services provided hereunder.


4.1 SALARY. During the Term of Employment, the Executive shall receive from the Company an annual base salary ("Salary") at a rate of $250,000.00 to be paid in accordance with the Company payroll practices.


4.2. GUARANTEED BONUS COMPENSATION. Executive shall receive as bonus compensation the amount of $10,000 in each of the months of January, February, March, April and May 2002, payable not later than the 2nd payroll period of the month. In addition, if the aggregate Revenues generated during the thirteenth through the twenty-fourth months of the Term of Employment equal or exceed $15 million, then the Executive shall receive as additional bonus compensation the amount of $10,000 in each of the first five months of the third year of the Term of Employment, payable not later than the second payroll period of the month.


2


4.3 STOCK OPTION GRANTS.


(a) In addition to Salary, the Executive shall be eligible for incentive stock options to purchase shares of the Company (the "Stock Options"), as defined in and pursuant to and in accordance with the A.B. Watley Group Inc. 2000 Stock Option Plan, and particularly Section 6 thereof (annexed hereto as Exhibit A), or any successor Plan as the Board may designate (the "Stock Option Plan"). Within 30 days after the execution of this Agreement, Executive shall receive Stock Options to purchase 25,000 shares of the Company. Thereafter, Stock Options shall be granted after the end of each calendar month in a number to be determined by dividing the value of a single Option (as determined below) into a number equal to 10% of any such month's Excess Revenues, rounded to the nearest integer. As used herein, "Excess Revenues" shall mean the monthly Revenues minus $1 million.


(b) The value of a Stock Option for purposes of this section shall be determined by using the Black-Scholes valuation model for options, and adding thereto the option strike price. The assumptions to be used in calculating the Black-Scholes valuation will be:


(i) The stock price will be that closing price of ABWG on the last
business day of the month (the date of the grant);


(ii) The option strike price will be the same as the stock price on
the last business day of the month (the date of the grant);


(iii) The years to maturity is ten (10) years, the life of the option
grant;


(iv) The risk-free rate will be determined by calculating the average
interest rate from the last five (5) issues of the U.S Treasury
ten (10) year note;


(v) The volatility will be determined on the grant date and will be
determined from Bloomberg information.


(c) As an example only, if in any month the Revenues are $1.1 million, and the price of ABWG at the close of that month is $3.00, and the Black-Scholes model determines that the Stock Option should be valued at a 10% premium ($0.30 above the strike price), then the Executive shall be granted Stock Options to purchase 3,030 shares of ABWG, determined as follows:


$1.1 million - $1 million = $100,000 (the Excess Revenues)


$100,000 X 10% = $10,000


$10,000 / $3.30 = 3,030.3, rounded to 3,030.


(d)The Stock Options shall vest over three years from the date of issuance according to the following schedule: 25% upon the expiration of one (1) year from the date of issuance; an additional 30% upon the expiration of two (2) years from the date of issuance; and the balance of 45% upon the expiration of three (3) years from the date of issuance, and shall otherwise be exercisable in accordance with the Stock Option Plan. In the event the Executive's employment with the Company is terminated by the Company within one (1) year of the occurrence of a Change-in Control Event (as that term is defined in Section 10 of


3


the Stock Option Plan), all outstanding Stock Options held by Executive at the time of such termination shall become fully vested and exercisable.


4.4 VACATION AND OTHER BENEFITS. During the Term of Employment, the Executive shall be entitled to such paid vacation, fringe benefits and perquisites as are provided from time to time by the Company to similarly situated executives, including participation the qualified and non-qualified pension and welfare and health and hospitalization benefit plans and arrangements. The Company shall also provide the Executive reasonable reimbursement of out-of-pocket expenses incurred by him in connection with his duties hereunder and for his current auto lease and for a comparable auto lease following the expiration of the current lease, including insurance thereon. In lieu of Executive's participation in the Company's health insurance plan, the Company shall reimburse the Executive his out-of-pocket costs of the health and hospital insurance in which he is enrolled as of the date hereof.


4.5 DISCRETIONARY BONUS. The Executive may be eligible to receive additional bonus compensation at the sole and unreviewable discretion of the Board of Directors.


5. EARLY TERMINATION OF EXECUTIVE EMPLOYMENT.


This Agreement may be terminated by either Party before the expiration of the Term of Employment or any Subsequent Term of Employment (referred to in this Section 5 collectively as the "Term of Employment") for any reason, but subject to the terms, conditions and remedies set forth in this Section 5, which shall provide the sole and exclusive remedy for any such termination.


5.1 UNCOMPENSATED TERMINATIONS.


(a) If the Executive resigns from the Executive's employment hereunder without Cause, as hereinafter defined, or if the Company terminates the Executive for Cause, as hereinafter defined, then the Executive shall be entitled to receive only a cash lump sum payment of the portion of Salary or Bonus that has accrued up to and including the Date of Termination (as defined in Section 5.4(b) hereof). The amount payable to the Executive under this Section 5.1 shall be payable in accordance with the Company's normal payroll practices.


(b) "Cause," when used by the Executive as the basis for resigning from his employment hereunder, shall mean the Company's willful, material breach of any material obligation of the Executive under this Agreement, after giving the Company notice of such breach and thirty (30) days to cure such breach.


(c) "Cause," when used by the Company as a basis for terminating the Executive's employment hereunder, shall mean


4


(i) The Executive's willful, material breach of any material
obligation of the Executive under this Agreement, after giving
the Executive notice of such breach and thirty (30) days to cure
such breach;
...