SHERWOOD GROUP INC, DEF 14A, 1995-09-19

SHERWOOD GROUP INC
DEF 14A, 1995-09-19
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant [X]

Filed by a party other than the registrant [_]

Check the appropriate box:

[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting materials pursuant to Rule 14a-11(c) or Rule 14a-12

THE SHERWOOD GROUP, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

THE SHERWOOD GROUP, INC.
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(Name of Person(s) Filing Proxy Statement

Payment of filing fee (Check the appropriate box):

[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rules
14a-6(i)(3)
[_] Fee computed on table per Exchange Act Rules 14a-6(i)(4) and 0-11

(1) Title of each class of securities to which transaction applies:
N.A.
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(2) Aggregate number of securities to which transaction applies:
N.A.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
N.A.
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(4) Proposed maximum aggregate value of transaction:
N.A.
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<PAGE>

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, or the form or
schedule and the date of its filing.

(1) Amount previously paid.
N.A.
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(2) Form, schedule or registration no.:
N.A.
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(3) Filing party:
N.A.
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(4) Date filed:
N.A.
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<PAGE>

THE SHERWOOD GROUP, INC.
One Exchange Plaza
New York, New York 10006

----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 24, 1995
----------------------------------------

The 1995 Annual Meeting of the Stockholders of The Sherwood Group, Inc. (the
"Company") will be held at the Company's offices at Ten Exchange Place, Jersey
City, New Jersey, 15th Floor, on October 24, 1995 at 4:00 p.m., New York City
time for the following purposes:

(1) To elect three Class II directors to hold office for a term of three
years or until their successors have been duly elected and qualified.

(2) To approve The Sherwood Group, Inc. 1995 Stock Option Plan.

(3) To ratify an employment agreement by and between the Company and
Arthur Kontos, the President and Chief Executive Officer of the
Company and Vice Chairman of the Board of Directors of the Company
including the performance goals adopted by the Employment Agreement
Committee of the Board of Directors with respect thereto.

(4) To ratify the appointment of KPMG Peat Marwick as the Company's
independent auditors for the fiscal year ending May 31, 1996.

(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on August 28, 1995, as
the record date for determining the stockholders entitled to notice of and to
vote at the meeting and any adjournment thereof.

Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.

ALL STOCKHOLDERS ARE ASKED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH DOES
NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.

By Order of the Board of Directors

Dennis Marino
Secretary

September 18, 1995
New York, New York
<PAGE>

THE SHERWOOD GROUP, INC.
One Exchange Plaza
New York, New York 10006

------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING
------------------------------------

This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors") of The Sherwood Group, Inc., a Delaware corporation (the "Company"),
in connection with the solicitation of proxies to be used at the Annual Meeting
of Stockholders (the "Meeting") to be held at the Company's offices at Ten
Exchange Place, Jersey City, New Jersey 07302, 15th Floor, on October 24, 1995
at 4:00 p.m. New York City time, and at any adjournment thereof. This Proxy
Statement and the accompanying Annual Report, Notice and Proxy are being mailed
to stockholders on or about September 18, 1995. The principal executive offices
of the Company are located at the address indicated above.

Only stockholders of record at the close of business on the record date, August
28, 1995, will be entitled to vote at the Meeting and at all adjournments
thereof.

On August 28, 1995, there were outstanding and entitled to vote 12,559,711
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"). Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Common Stock entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Holders of Common Stock have no cumulative voting rights.

VOTING OF PROXIES

If a proxy is properly signed by a stockholder and is not revoked, the shares
represented thereby will be voted at the Meeting in the manner specified on the
proxy, or if no manner is specified with respect to any matter therein, such
shares will be voted by the persons designated therein (with respect to the
matters as to which the stockholder is entitled to vote) (a) "FOR" the election
of each of Arthur Kontos, Richard J. Marino and Ralph N. Del Deo as Class II
directors of the Company ("Proposal Number 1"), (b) "FOR" the approval of The
Sherwood Group, Inc. 1995 Plan ("Proposal Number 2"), (c) "FOR" the ratification
of the New Employment Agreement dated as of September 12, 1995 between the
Company and Arthur Kontos, President and Chief Executive Officer and the
performance goals ("Proposal Number 3"), (d) "FOR" the ratification of the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
the fiscal year ending May 31, 1996 ("Proposal Number 4"), and (e) in connection
with the transaction of such other business as may properly be brought before
the Meeting, in accordance with the judgment of the person or persons voting the
proxy. If any of the nominees for director is unable to serve or for good cause
will not serve, an event that is not anticipated by the Company, the shares
represented by the accompanying proxy will be voted for a substitute nominee
designated by the Board of Directors or the Nominating Committee thereof or the
Board of Directors may determine to reduce the size of the Board of Directors.
Pursuant to the New York Stock Exchange stockholder approval policy the total
vote cast on Proposal Number 2 must represent over 50% of the Common Stock of
the Company outstanding.

A proxy may be revoked by the stockholder at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company, by duly executing and delivering to the Secretary of the Company a
proxy bearing a later date or by voting in person at the Meeting.

Directors of the Company will be elected by a plurality of the vote of the
outstanding shares of Common Stock present, in person or by proxy, and entitled
to vote at the Meeting. The affirmative vote of the
<PAGE>

holders of at least a majority of the outstanding shares of Common Stock
present, in person or by proxy, and entitled to vote at the Meeting is required
for the ratification and approval of, unless otherwise required by the Delaware
General Corporation Law or the Company's Restated Certificate of Incorporation,
any other matter which may be put to a stockholder vote at the Meeting. Except
for the election of directors, as to any particular proposal, abstentions will
have the same effect as a vote against that proposal, and broker non-votes will
not be counted as votes for or against the proposal, and will not be included in
counting the number of votes necessary for approval of the proposal. Votes cast,
either in person or by proxy, will be tabulated by The American Stock Transfer
Company, the Company's transfer agent.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information, as of August 28,
1995, regarding the beneficial ownership of the Common Stock by each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the Common Stock. The Company has been advised
that each stockholder listed below has sole voting and dispositive power with
respect to such shares unless otherwise noted in the footnotes following the
table.
<TABLE>
<CAPTION>
Name and Address Amount
of Beneficial Owner of Beneficial Ownership Percentage of Class
-------------------- ------------------------ --------------------
<S> <C> <C>
S.G.I Partners, L.P.
412 Harwood Building
Scarsdale, NY 10583 4,000,000 (1) 31.85%

Carl H. Hewitt
120 Broadway
New York, NY 10271 4,000,000 (1) 31.85%

Arthur Kontos
One Exchange Plaza
New York, NY 10006 2,881,100 (2) 21.81%

Peter R. Kellogg
120 Broadway
New York, NY 10271 1,000,000 (3) 7.96%

Richard J. Marino 675,335 (4) 5.37%
One Exchange Plaza
New York, NY 10006
</TABLE>

(1) Comprised of 4,000,000 shares of Common Stock held by S.G.I. Partners, L.P.
("S.G.I."). See "Certain Relationships and Related Transactions."

(2) Comprised of 885,241 shares of Common Stock held by Mr. Kontos and
650,000 shares of Common Stock underlying Mr. Kontos' currently exercisable
stock options. Also includes 125,000 shares of Common Stock held by
Arthur Kontos Foundation, 778,562 shares of Common Stock held by limited
partnerships of which Mr. Kontos is the general partner and Mr. Kontos'
children are sole limited partners and 442,297 shares over which he has
only sole voting power which are subject to a voting trust agreement with
his former wife.

2
<PAGE>

(3) Comprised of 675,000 shares of Common Stock held by Mr. Kellogg and
350,000 shares of Common Stock held by a corporation, all of whose voting
stock is held by Mr. Kellogg and of which Mr. Kellogg is president.

(4) Consists of 650,335 shares of Common Stock held by Mr. R. Marino and 25,000
shares of Common Stock underlying Mr. R. Marino's currently exercisable
stock options. Does not include 2,399 shares of Common Stock currently held
by the Employee Stock Ownership Trust (the "ESOP") with respect to which Mr.
R. Marino and two other officers of the Company are trustees. See "Employee
Stock Ownership Plan" for a description of how shares of the Common Stock
held by the ESOP are voted.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information, as of August 28,
1995, regarding the beneficial ownership of the Company's Common Stock by
each director and named executive officer (see "Compensation of Directors
and Executive Officers") of the Company and by all directors and
executive officers as a group. The Company has been advised that each
stockholder listed below has sole voting and dispositive power with respect to
such shares unless otherwise noted in the footnotes below. Sherwood
Securities Corp. ("Sherwood Securities") is a wholly-owned subsidiary of the
Company specializing in the wholesale market making of over-the-counter
securities.
<TABLE>
<CAPTION>

Amount
Name and Title of Beneficial Ownership(1) Percentage of Class
---------------------------- --------------------------- --------------------
<S> <C> <C>
Arthur Kontos,
Vice Chairman of the Board,
President
and Chief Executive Officer 2,881,100 (2) 21.81%
of the Company

James H. Lynch, Jr.,
Director 35,000 (3) *

John P. Duffy,
Director 32,000 (4) *

Carl H. Hewitt,
Director 4,000,000 (5) 31.85%

Dennis Marino,
Executive Vice President and
Chief Administrative Officer
of the Company; President of
Sherwood Securities 218,698 (6) 1.73%

Richard J. Marino,
Chairman of the Board
of Sherwood Securities;
Director of International
Equity Trading of
Sherwood Securities 675,335 (7) 5.37%
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
Amount
Name and Title of Beneficial Ownership(1) Percentage of Class
---------------------------- --------------------------- --------------------

Thomas Neumann,
Senior Vice President of
Sherwood Securities 213,810 (8) 1.68%

Michael Burke,
Senior Vice President of
Sherwood Securities 105,400 (9) *

James Romano
Senior Vice President of
Sherwood Securities 5,000

Ralph N. Del Deo,
Director 30,000 (10) *

Directors and Executive
Officers as a Group
(10 Persons) 8,196,343 60.57%

* Less than 1%
</TABLE>

(1) Does not include 2,399 shares of Common Stock held by the ESOP with respect
to which Messrs. R. Marino and D. Marino are trustees. See "Employee Stock
Ownership Plan" for a description of how shares of Common Stock held by the
ESOP are voted.

(2) Consists of 885,241 shares of Common Stock held by Mr. Kontos, 650,000
shares of Common Stock underlying Mr. Kontos' currently exercisable stock
options, 125,000 shares of Common Stock held by the Arthur Kontos
Foundation, 778,562 shares of Common Stock held by limited partnerships of
which Mr. Kontos is the general partner and Mr. Kontos' children are sole
limited partners and 442,297 shares over which he has only sole voting
power which are subject to a voting trust agreement with his former wife.

(3) Consists of 10,000 shares of Common Stock held by Mr. Lynch and 25,000
shares of Common Stock underlying Mr. Lynch's currently exercisable stock
options.

(4) Consists of 30,000 shares of Common Stock held by Mr. Duffy and 2,000
shares of Common Stock held in trust for Mr. Duffy's children.

(5) Consists of 4,000,000 shares of Common Stock held by S.G.I. Partners, L.P.
("S.G.I."). See "Certain Relationships and Related Transactions."

(6) Consists of 133,698 shares of Common Stock held by Mr. D. Marino and
85,000 shares of Common Stock underlying Mr. D. Marino's currently
exercisable stock options.

(7) Consists of 650,335 shares of Common Stock held by Mr. R. Marino and 25,000
shares of Common Stock underlying Mr. R. Marino's currently exercisable
stock options.

(8) Consists of 52,810 shares of Common Stock held by Mr. Neumann and 161,000
shares of Common Stock underlying Mr. Neumann's currently exercisable stock
options.

4
<PAGE>

(9) Consists of 30,400 shares of Common Stock held by Mr. Burke and 75,000
shares of Common Stock underlying Mr. Burke's currently exercisable stock
options.

(10) Consists of 20,000 shares of Common Stock held by Mr. Del Deo and 10,000
shares of Common Stock held by his wife.

5
<PAGE>

PROPOSAL 1. ELECTION OF DIRECTORS.

The Company's Restated Certificate of Incorporation, which became effective on
February 4, 1987, requires that the Board of Directors be divided into three
classes. In accordance with the Company's Restated Certificate of Incorporation,
at the 1987 annual meeting, Class I directors were initially elected for a term
that expired as of the 1988 annual meeting of the stockholders of the Company,
Class II directors were initially elected for a term that expired as of the 1989
annual meeting of stockholders and Class III directors were initially elected
for a term that expired as of the 1990 annual meeting of stockholders. At each
annual meeting, directors will be elected for a term of three years so that the
term of office of one class of directors shall expire each year.

Three individuals are being nominated for election at the Meeting to serve as
Class II directors for a term of three years or until the election and
qualification of their successors.

The affirmative vote of the holders of a plurality of the shares of Common Stock
voted in person or by proxy at the Meeting is required for the election of each
director. Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of Arthur Kontos, Richard J. Marino
and Ralph N. Del Deo. If Mr. Kontos, Mr. R. Marino or Mr. Del Deo becomes unable
to serve or for good cause will not serve, an event that is not anticipated by
the Company, (i) the shares represented by the proxies will be voted for a
substitute nominee or substitute nominees designated by the Board of Directors
or the Nominating Committee of the Board of Directors or (ii) the Board of
Directors may determine to reduce the size of the Board of Directors. At this
time, the Board of Directors knows of no reason why Mr. Kontos, Mr. R. Marino
and Mr. Del Deo may not be able to serve as directors if elected.

THE BOARD OF DIRECTORS RECOMMENDS THAT EACH OF THE ABOVE NOMINEES BE ELECTED AS
A DIRECTOR.

The name and age of each of the nominees and each of the incumbent directors
whose term will continue following the Meeting, their respective positions with
the Company and the period during which each such individual has served as a
director are set forth below. Additional biographical information concerning
each of the nominees and each of the incumbent directors and executive officers
of the Company follows the table.

Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C> <C>
CLASS I DIRECTORS

Dennis Marino 49 Director, Executive Vice 1981
President, Secretary
and Chief Administrative
Officer

James H. Lynch, Jr. 64 Chairman of the Board 1989

CLASS II DIRECTORS

Arthur Kontos 49 Director, Vice Chairman of 1988
the Board, President
and Chief Executive Officer

Richard J. Marino 51 Director, Senior Vice 1981
President, Chairman of
the Board of Sherwood
Securities
</TABLE>

6
<PAGE>

Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C> <C>
Ralph N. Del Deo 70 Director 1993

CLASS III DIRECTORS

Carl H. Hewitt 43 Director 1991

John. P. Duffy 54 Director 1992

Thomas Neumann 31 Director, Senior Vice President 1992

</TABLE>

CERTAIN BIOGRAPHICAL INFORMATION CONCERNING
INCUMBENT DIRECTORS AND EXECUTIVE OFFICERS

James H. Lynch, Jr. became Chairman of the Board of Directors in July 1989. He
is also an independent consultant to the securities industry. Mr. Lynch was a
general partner and member of the Executive Committee of Spear, Leeds & Kellogg,
L.P. a New York limited partnership ("S.L.K."), for more than five years prior
to his retirement from S.L.K. in June 1985. S.L.K. is a broker dealer and a
member of all major United States stock exchanges and acts as a specialist on
the New York and American Stock Exchanges. Mr. Lynch also served as president of
Spear, Leeds & Kellogg Securities, Inc. and as an officer and director of its
wholly-owned subsidiaries, First Options of Chicago and Troster Singer
Corporation. Mr. Lynch is a director of Consolidated Purchasing Services, Inc.
and Business Link Communications, Inc.

Arthur Kontos became Vice Chairman of the Board, President and Chief Executive
Officer of the Company in October 1988. Mr. Kontos was a managing director of
S.L.K. from June 1988 until October 1988, when he joined the Company. He became
a general partner of S.L.K. in 1982 and president of S.G.I. Capital Holdings,
Inc., a general partner of S.G.I. in 1988, from which positions he resigned in
December 1991. S.G.I. currently holds 31.68% of the Common Stock and has the
right to appoint two directors to the Company's Board of Directors pursuant to
the terms of an agreement between the Company and S.G.I. From July 1978 until
May 1988, Mr. Kontos served as a director and as President and Chief Executive
Officer of Troster Singer Corporation, currently a division of S.L.K.

Richard J. Marino is a founder of Sherwood Securities, a subsidiary of the
Company, and was Secretary of Sherwood Securities from its inception in 1968
until June 1988. In August 1987, Mr. Marino was elected Chairman of the Board of
Sherwood Securities. Mr. Marino has served as director of International Equity
Trading for Sherwood Securities since 1979. In January, 1988, he assumed the
responsibility of director of all equity trading. In April 1988, he ceased his
individual trading activity to serve full time as director of all equity
trading. In August 1988, Mr. Marino returned to trading a list of securities.
Mr. Richard J. Marino and Mr. Dennis Marino are brothers.

Dennis Marino has served as the Company's Chief Administrative Officer since
1986 and was appointed President of Sherwood Securities, a subsidiary of the
Company, in January 1988. He has been employed by Sherwood Securities since
February 1969. Mr. Marino has been an Executive Vice President of the Company
since 1977. Mr. Marino served as President of the Securities Traders Association
of New York for a term which expired in 1991 and served as Treasurer
of the Securities Traders Association for a term expiring in 1994. Presently,
Mr. Marino is Vice Chairman of the Securities Traders Association for a term
expiring in 1995. Mr. Marino is also a member of the Trading Committee, the
Quality of Markets Committee and the Bulletin Board Users' Committee of the
National Association of Securities Dealers ("NASD"). Mr. Marino also serves on
the Business Conduct Committee for District 10 of the NASD for a term which
expires in 1996.

7
<PAGE>

Thomas Neumann is also a senior vice president of Sherwood Securities in charge
of institutional sales. Mr. Neumann joined Sherwood Securities in October 1988
and held various trading positions with that company prior to being appointed a
senior vice president in 1990. From June 1986 until October 1988, Mr. Neumann
was an assistant trader with Troster Singer Corporation.

John P. Duffy retired from his position as a managing director of S.L.K. in
1991, a position he held from prior to September 1987 until his retirement. As a
managing director of S.L.K., Mr. Duffy acted as a specialist on the New York
Stock Exchange.

Carl Hewitt was appointed at the request of S.G.I. pursuant to the terms of an
agreement between the Company and S.G.I. pursuant to which S.G.I. has the right
to designate two directors. S.G.I. has not currently designated a second
director under the agreement. Mr. Hewitt became a member of the Board of
Directors in July 1991. Mr. Hewitt is also a managing director and the general
counsel of S.L.K. Mr. Hewitt joined S.L.K. in 1985 as an assistant general
counsel. He became the general counsel in June 1988 and became a managing
director in January 1991.

Ralph N. Del Deo is a senior partner of Crummy, Del Deo, Dolan, Griffinger &
Vecchione, a New Jersey law firm which provides legal services to the Company.
His practice areas include corporation law, patent, trademark and copyright law,
litigation and general practice. Mr. Del Deo is also on the National Board of
Trustees of the Foundation Fighting Blindness of Baltimore, Maryland.

James Romano, currently serves as senior vice president of Sherwood Securities
and as manager of its trading department. Mr. Romano joined Sherwood Securities
in June 1992 as vice president of trading and as a member of the Management
Committee. In January 1995, he assumed responsibility over the trading
department and was appointed to serve on the Company's Executive Committee. For
eleven years prior to joining the Company, Mr. Romano held various trading
positions at Troster Singer Corporation, including vice president of trading.

Michael Burke is a senior vice president of Sherwood Securities in institutional
sales, a position he has held since joining Sherwood Securities in August 1989.
From July 1985 until August 1989, Mr. Burke was a vice president in the trading
department of Troster Singer Corporation. Mr. Burke resigned from the Executive
Committee effective as of May 31, 1995.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(A) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Based solely on a review of
the copies of reports furnished to the Company and written representations from
the Company's executive officers, directors and persons who beneficially own
more than ten percent of the Company's equity securities, the Company believes
that, during the preceding year, all filing requirements applicable to its
officers, directors and ten percent beneficial owners were met, with the
exception that an initial report (Form 3) of beneficial ownership by James
Romano was filed late. In addition, John Duffy filed untimely one report of
change in beneficial ownership (Form 4) regarding one transaction.

8
<PAGE>

MEETINGS OF THE BOARD AND COMMITTEES

During fiscal year 1995, the Board of Directors held six meetings. Each of the
directors attended at least 75% of the aggregate of all meetings of the Board of
Directors and the total number of meetings held by all committees of the Board
of Directors of which each respective director was a member during the time he
was serving as such during the fiscal year ended May 31, 1995.

The Board of Directors has created an Executive Committee, a Compensation
Committee, an Audit Committee, an Employment Agreement Committee and a
Nominating Committee. The Executive Committee is comprised of James H. Lynch,
Jr., Arthur Kontos and Dennis Marino. The Compensation Committee is comprised of
John P. Duffy, Carl H. Hewitt and Ralph N. Del Deo. The Audit Committee is
comprised of Carl H. Hewitt, James H. Lynch, Jr. and Ralph N. Del Deo, who
replaced Dennis Marino during fiscal year 1995. The Nominating Committee is
comprised of Arthur Kontos, Carl H. Hewitt and Thomas Neumann and the Employment
Agreement Committee is comprised of John P. Duffy and Carl H. Hewitt.

The Executive Committee, which held four meetings during fiscal year 1995, is
authorized, among other things, to exercise such powers as may lawfully be
delegated to it by the Board of Directors including the appointment of officers,
the appointment of agents of the Company, and the determination of general
policy with regard to business of the Company. Action by the Executive Committee
is subject to review and revision by the Board of Directors.

The Compensation Committee, which held two meetings during fiscal year 1995, has
jurisdiction on behalf of the Company to approve, disapprove, modify or amend
all plans to compensate employees including bonuses, stock options, performance
achievement or other incentive plans unless such compensation is subject to the
jurisdiction of the Employment Agreement Committee. No member of the
Compensation Committee is eligible for an award or grant of stock options under
any such plans. Awards under such plans, if and to the extent they are approved
by the Compensation Committee, are in turn recommended to the Board of Directors
for appropriate action, other than option grants which are awarded by the
Compensation Committee. The Compensation Committee determines the salaries of
employees of the Company who are directors and also determines the salaries of
all other employees of the Company who are officers or who occupy such other
positions as may be designated by the Committee.

The Audit Committee, which held one meeting during fiscal year 1995, reviews and
monitors the Company's financial reports and accounting practices and, among
other things, makes recommendations to the Board with respect to audit policies
and procedures and the scope and extent of audits, reviews the Company's
unaudited quarterly financial results, and reviews the annual year end audit
with the Company's independent auditors.

The Nominating Committee was created by the Board of Directors in August 1993
for the purpose of nominating a slate of nominees for election to the Board of
Directors by the stockholders of the Company at each Annual Meeting of
Stockholders commencing with the annual meeting of stockholders held in 1994.
The Nominating Committee is also responsible for nominating candidates to fill
the position of each director, if any, whose term as director terminates prior
to the date of any annual meeting of stockholders and who is to be replaced by
the Board of Directors. The Nominating Committee does not consider nominees
recommended by stockholders in its deliberations. The Nominating Committee held
no meetings in fiscal year 1995.

The Employment Agreement Committee was created by the Board of Directors in
September 1993 for the purpose of ratifying and approving employment agreements
between the Company or its subsidiaries and officers of the Company or its
subsidiaries and for the purpose of determining or ratifying and approving the
criteria pursuant to which the Company or such subsidiaries will make certain
payments under employment

9
<PAGE>

agreements entered into between the Company and its officers. The Employment
Agreement Committee held no separate meetings in fiscal year 1995.

10
<PAGE>

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company and its subsidiaries
for each of the fiscal years ended May 31, 1995, 1994 and 1993 of those persons
who were, at May 31, 1995, (i) the chief executive officer and (ii) the other
four most highly compensated executive officers of the Company for the fiscal
year ended May 31, 1995 (the "named executive officers"):

Executive Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------
Name and
Principal Fiscal Other Annual Stock All Other
Position Year Salary Bonus Compensation(1) Options Compensation(1)
-------- ------ ------ ----- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Arthur Kontos, Vice Chairman 1995 $300,000 $3,131,745
of the Board and President 1994 300,000 2,836,069 $281,250(3)
and Chief Executive Officer 1993 300,000 2,226,310
of the Company

Dennis Marino 1995 150,000 175,000
Executive Vice President and 1994 150,000 185,965 84,375(3)
Chief Administrative 1993 150,000 125,000
Officer of the Company;
President of Sherwood
Securities

Thomas Neumann 1995 200,000 450,000
Senior Vice President of 1994 196,153 460,965 28,125(3)
Sherwood Securities 1993 151,356 300,000 66,000

James Romano 1995 148,077 972,000(2)
Senior Vice President of 1994 -- 307,000(2)
Sherwood Securities 1993 -- 38,380(2)

Michael Burke 1995 -- 782,000(2)
Senior Vice President of 1994 -- 588,964(2)
Sherwood Securities 1993 -- 572,710(2)
</TABLE>

No named executive officer received personal benefits or perquisites during the
fiscal year ended May 31, 1995 in excess of the lesser of $50,000 or 10% of his
aggregate salary and bonus.

(1) Amounts do not include for fiscal year 1994, $165,016 paid to Mr. Kontos for
the purchase of Triak Services Corp. See "Certain Relationships and Related
Transactions".

(2) Cash bonuses for Mr. Burke and Mr. Romano include commissions, representing
a percentage of gross commissions on sales/trades and discretionary
incentive bonuses. Commissions for Messrs. Burke and Romano, respectively,
for the fiscal year ended May 31, 1995 equaled $607,000 and $972,000, for
the fiscal year ended May 31, 1994 equaled $402,999 and $257,000 and for the
fiscal year ended May 31, 1993 equaled $447,710 and $38,380. Discretionary
incentive bonuses for Messrs. Burke and Romano, respectively, for the fiscal
year ended May 31, 1995 equaled $175,000 and $42,000, for the fiscal year

11
<PAGE>

ended May 31, 1994, equaled $185,965 and $50,000 and for the fiscal year
ended May 31, 1993 equaled $125,000 and $0.

(3) Represents gain recognized upon exercise of options.

COMPENSATION ARRANGEMENTS

Mr. Kontos was during the Company's fiscal year ended May 31, 1993 compensated
pursuant to the terms of an employment agreement as of January 1, 1992 (the
"Previous Employment Agreement"). The Previous Employment Agreement has been
terminated effective as of May 31, 1995. In addition, the two options which Mr.
Kontos held which permitted him to enter into additional employment agreements,
each Employment Agreement having a term of one year and otherwise on the same
terms and conditions as the Previous Employment Agreement have been terminated.
Currently, Mr. Kontos is being compensated based on the terms of an employment
agreement dated as of September 12, 1995 (the "New Employment Agreement"). See
"Ratification and Approval of New Employment Agreement" for a description of the
New Employment Agreement. In the event the Stockholders do not approve the terms
of the New Employment Agreement it is likely that the Board of Directors will
attempt to negotiate another employment arrangement with Mr. Kontos.

COMPENSATION OF DIRECTORS

Independent directors are paid at a rate of $18,000 annually plus $1,000 for
each committee meeting attended.

12
<PAGE>

OPTION EXERCISES AND FISCAL YEAR-END VALUES

Shown below is information with respect to the exercise of options to
purchase Common Stock by the named executive officers and unexercised options to
purchase shares of Common Stock for the named executive officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND MAY 31, 1995 OPTION VALUE
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Number Options at In-the-money Options
of Shares Fiscal Year-End at Fiscal Year-End(1)
Acquired --------------------- ---------------------
on Value ------------ -------------- ------------ --------------
Name Exercise Realized Exerciseable Unexerciseable Exerciseable Unexerciseable
--------------------------- --------- --------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Arthur Kontos Vice 0 0 900,000 0 $5,287,500 0
Chairman of the Board,
President and Chief
Executive Officer of the
Company

Dennis Marino 0 0 85,000 0 $ 499,375 0
Executive Vice President
and Chief Administrative
Officer of the Company;
President of Sherwood
Securities

Thomas Neumann 0 0 161,000 0 $ 772,625 0
Senior Vice President of
Sherwood Securities

James Romano 0 0 0 0 0 0
Senior Vice President of
Sherwood Securities

Michael Burke 0 0 75,000 0 $ 440,625 0
Senior Vice President of
Sherwood Securities

</TABLE>
(1) Based on the difference between the exercise price of the options and the
closing price of the Common Stock on the New York Stock Exchange on May 31,
1995.

13
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

GENERAL

The Compensation Committee of the Board of Directors reviews the Company's
existing and proposed executive compensation plans and makes recommendations to
the Board of Directors regarding such plans and the awards to be made
thereunder.

Set forth below is a discussion of the Company's compensation philosophy,
together with a discussion of the factors considered by the Committee in
determining the compensation of the Company's Vice Chairman of the Board and
Chief Executive Officer and other executive officers named in this Proxy
Statement for the fiscal year ended May 31, 1995.

Members of the Compensation Committee during the fiscal year ended May 31, 1995
were John P. Duffy, Ralph N. Del Deo and Carl H. Hewitt. During the fiscal year
ended May 31, 1995, entities with which Messrs. Hewitt and Del Deo are
associated received payments from the Company.

Each of Sherwood Securities and Equitrade Partners, L.P., a New York limited
partnership in which the Company holds a 60% limited partnership interest, clear
certain of their securities transactions through Spear, Leeds & Kellogg, L.P., a
New York limited partnership ("S.L.K."). Each of Mr. Hewitt and Mr. Peter R.
Kellogg are managing directors of S.L.K. During the Company's 1995 fiscal year,
the Company and its subsidiaries paid fees in the amount of $270,494 to S.L.K.
in connection with clearing activities performed by S.L.K.

During the fiscal year ended May 31, 1995, Crummy, Del Deo, Dolan, Griffinger &
Vecchione, a law firm of which Mr. Del Deo is a partner, rendered legal services
to the Company and its subsidiaries and received payments from the Company and
its subsidiaries for such services.

COMPENSATION PHILOSOPHY

The Company's compensation philosophy focuses on providing executives with
annual compensation that rewards individual performance during the year, and
provides incentives to executives to improve the long-term performance of the
Company. By paying relatively modest base salaries to executive officers, and
making a significant portion of their compensation contingent on their
performance during the year, the Company seeks to provide executives with
significant incentives to promote the interests of the Company and its
stockholders.

As discussed in more detail in Proposal 3, "Ratification And Approval of
Employment Agreement", Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code" or "IRC") limits the tax deductions publicly-traded
corporations (such as the Company) for compensation in excess of $1 million per
annum paid to the chief executive officer and any of the four other highest
compensated officers. The Company's present intention is to meet the
requirements of Section 162(m) unless the Company determines that such a course
of action would not be in the best interests of the Company or its stockholders.

COMPENSATION DECISIONS FOR FISCAL YEAR ENDED MAY 31, 1995

Salaries. Consistent with its compensation philosophy, the Company has paid
relatively modest base salaries to its salaried officers and has supplemented
these salaries with performance-based bonuses. Traders generally receive no
base salaries, and are compensated on a commission basis. In making decisions
with respect to the

14
<PAGE>

base salaries of executive officers for the fiscal year ended May 31, 1995, the
committee considered the performance of each of the individuals in question
during the prior year, the Company's results of operations for the fiscal year
ended May 31, 1994 and the responsibilities of the executive officers. In
keeping with its desire to base much of the compensation of the Company's
executives on performance during the year, the committee generally determined to
make only modest changes in the base salaries of certain executives, and to
maintain salaries for most executive officers at the same level as the prior
year.

Bonuses. The bonuses paid to the Company's executive officers with respect to
the fiscal year ended May 31, 1995 were determined in accordance with the
Company's previously enumerated policy. Performance of officers is measured by
reference to the volume of business generated by them or under their direction
during the fiscal year. The performance of the Company's Vice Chairman of the
Board and Chief Executive Officer is measured primarily by reference to the
Company's financial performance for the fiscal year.

CHIEF EXECUTIVE OFFICER COMPENSATION

The compensation arrangements for Mr. Kontos with respect to the fiscal year
ended May 31, 1995 were based on the Company's compensation philosophy. The
committee determined not to make any adjustments to Mr. Kontos' base salary for
the year, in an effort to provide Mr. Kontos with additional incentives to
continue to improve the Company's performance. Mr. Kontos' bonus with respect
to the fiscal year ended May 31, 1995 was determined in accordance with the
provisions of the Previous Employment Agreement.

THE COMPENSATION COMMITTEE

John P. Duffy
Ralph N. Del Deo
Carl H. Hewitt

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company has entered into indemnification agreements with its directors and
executive officers which obligate the Company to indemnify the directors or
executive officers for all expenses (including attorney fees) and costs,
judgments, fines and settlement amounts paid or incurred by them in connection
with claims, actions and proceedings in which they are parties, witnesses and
subjects as a result of their activities on behalf of the Company, including,
but not limited to, their activities as directors and executive officers of the
Company and its subsidiaries. Pursuant to the agreements, the directors and
executive officers will be indemnified to the extent permitted under Delaware
law. The agreements cover all indemnified claims and proceedings brought within
ten years after the resignation of the director or officers from all positions
held as a director, officer or otherwise on behalf of the Company. The
agreements may provide indemnity to or limit liability of directors or executive
officers for events which occurred prior to the date of the agreement. However,
the enforceability of these retroactive provisions has not been determined under
Delaware law. In addition, the Company's Certificate of Incorporation requires
the Company to indemnify any director, officer, employee or agent of the Company
who is or was a party to any legal action as a result of such person's position
if such indemnification is permissible under Delaware law.

15
<PAGE>

EMPLOYEE STOCK OWNERSHIP PLAN

In 1976, the Company adopted a Profit Sharing Plan which was subsequently
replaced by an Employee Stock Ownership Plan (the "ESOP"). On July 15, 1992,
the Board of Directors resolved to discontinue the ESOP. Under the provisions
of the ESOP, all employees over 21 years of age who had completed six months of
service were eligible to participate. On July 12, 1993, prior to the final
distribution of shares from the ESOP, the Company offered to buy those shares
from the ESOP participants at $3.875 per share. 192,795 shares out of 567,819
of such shares held by ESOP participants were accepted for payment and 372,625
shares were rolled over to the Sherwood Securities Corp. 401(k) Plan (the
"401(k) Plan"). Participants representing 2,399 shares have not yet responded.

Vesting terms provided for complete vesting of contributions by the Company
after five years of service with the Company or its subsidiaries. Annual
contributions were made at the discretion of the Board of Directors, not to
exceed 15% of eligible compensation. During the ESOP plan year ended April 30,
1995, the Company made no contributions to the ESOP and made no payments
pursuant to the ESOP to the named individuals in the foregoing Executive
Compensation Table. Of the 372,625 shares rolled over into the 401(k) Plan,
31,154 shares and 112,235 shares were for the benefit of Mr. Dennis Marino and
Mr. Richard J. Marino, respectively. Shares of Common Stock held in the ESOP
are voted by the trustees of the ESOP in the manner directed by the Compensation
Committee of the Board of Directors.

STOCK OPTIONS

STOCK OPTION PLAN. Certain directors and officers of the Company hold options
to purchase shares of Common Stock under the Company's 1983 Stock Option Plan,
which was adopted in August 1983 and amended and restated in January 1987 (the
"Option Plan"). The Board of Directors voted on August 5, 1993 to allow the
Option Plan to expire as of August 9, 1993. Accordingly, while stock options
previously issued pursuant to the Option Plan will remain in effect in
accordance with their respective terms, no additional stock options will be
issued pursuant to the terms of the Option Plan.

The Option Plan provided for the issuance of incentive stock options (as
defined in Section 422 of the Code) and nonqualified stock options
covering a maximum of 10,000,000 shares of the Common Stock and was
administered by the Compensation Committee with approval of the Board
of Directors. Stock options were granted for terms of up to ten years. The
Option Plan provided that the exercise price of an incentive stock option would
be not less than the fair market value of the shares of Common Stock on the date
the option was granted. Generally, options granted under the Option Plan remain
exercisable only if the optionee is an officer, director or employee of the
Company or its subsidiaries on the day the options vest.

STOCK OPTION INFORMATION. No options were granted by the Company during the
fiscal year ended May 31, 1995.

401(K) PLAN

In April 1992, the Company formed the 401(k) Plan which is a profit
sharing plan qualified under Section 401(k) of the Code. Under the terms
of the 401(k) Plan, all employees employed on February 1, 1992 were immediately
eligible to participate. All other employees are eligible to participate in the
401(k) Plan after completing six months of service and attaining age 21.
Employees may elect to have deductions made from

16
<PAGE>

their salaries and contributed to the 401(k) Plan. In addition, the Company may
make matching contributions to the 401(k) Plan in such amounts as may be
determined in the discretion of the Board of Directors. No discretionary
contributions were made to the 401(k) Plan by the Company during the fiscal year
ended May 31, 1995.

17
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

S.G.I. PARTNERS, L.P. On October 18, 1988, the Company closed a
transaction pursuant to a stock purchase agreement whereby the Company issued
and sold to S.G.I. Partners, L.P. ("S.G.I."), a Delaware limited partnership,
2,193,600 shares of Common Stock. In addition, the Company appointed Arthur
Kontos, then the president of the corporate general partner of S.G.I., as
director, Vice Chairman of the Board and Chief Executive Officer of the
Company effective as of October 18, 1988. Mr. Kontos resigned as president of
S.G.I. as of December 31, 1991. The Company also agreed to use its best efforts
to appoint up to two individuals designated by S.G.I. as directors of the
Company subsequent to October 18, 1988, provided that S.G.I. continued to own in
excess of one million shares of the Company's issued and outstanding Common
Stock. S.G.I. has designated Mr. Hewitt pursuant to such agreement. Mr. Hewitt
is the president and sole stockholder of SHD Capital, Inc., the sole
general partner of S.G.I.

TRIAK SERVICES CORP. On June 1, 1993, the Company acquired 100% of
the capital stock of Triak Services Corp. ("Triak") from Arthur Kontos for
$165,016 pursuant to the terms of an oral agreement between the Company and Mr.
Kontos. Triak is a broker-dealer currently registered with the
Securities and Exchange Commission and the National Association of Securities
Dealers, as well as in all 50 states and Washington, D.C. The purchase
price paid for Triak was equal to the sum of the book value of Triak plus all
amounts paid by Mr. Kontos on behalf of Triak.

THOMAS NEUMANN. On March 24, 1993, the Company loaned to Thomas
Neumann and his wife the sum of $600,000 pursuant to the terms of a Secured
Note, a Mortgage and Security Agreement and a Construction Loan Agreement. The
loan bears interest at the rate of 5% per annum, which interest accrues and
became payable commencing on August 15, 1993 and each anniversary thereof
until the loan is repaid in full. On or before August 15, 1994 and on each
August 15 thereafter during the term of the loan, Mr. Neumann is obliged to make
annual payments of principal and interest in the aggregate amount of
$40,000.

RICHARD J. MARINO. On December 14, 1993, Sherwood Securities agreed to make
available to Richard J. Marino a line of credit of up to $1,000,000. On
December 15, 1993, Richard J. Marino borrowed the sum of $768,000 pursuant to
the terms of a Secured Note. On June 22, 1994, Mr. Marino borrowed an
additional $100,000. The loan, which bore interest at the rate of 6% per annum,
was repaid in full on February 9, 1995. The loan was secured by a second
mortgage on Mr. R. Marino's residence.

SPEAR, LEEDS & KELLOGG. See "Compensation Committee Report on Executive
Compensation-General".

RALPH N. DEL DEO. See "Compensation Committee Report on Executive Compensation-
General".

COMPANY PERFORMANCE

Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Common Stock against the cumulative
total return of the S&P Composite-500 Stock Index and the Dow Jones
Securities Brokers Index ("D J Brokers Index"). The graph assumes
that the value of the investment in the Common Stock and each index was $100 at
May 31, 1990 and that all dividends, if any, were reinvested.

18
<PAGE>

TYPE BEGIN DIV DIV DIV ENDING CUM TOTAL
OF CLOSE NO. OF $ PER $.$$ SHARES NO.OF SHRHLDR
DATE* LINE PRICE** SHARES*** SHARE** PAID REINVD SHARES RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/31/90 BEGIN 0.875 114.286 114.286 100

05/31/91 YE 1.500 114.286 114.286 171

05/31/92 YE 3.375 114.286 114.286 386

05/31/93 YE 4.000 114.286 114.286 457

05/31/94 YE 7.125 114.286 114.286 814

05/31/95 YE 6.875 114.286 114.286 786

</TABLE>
* Fiscal year end and ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits.
*** Begin No. of Shares' based on $100 investment.

19
<PAGE>

PROPOSAL 2. APPROVAL OF 1995 STOCK OPTION PLAN

The Option Plan described under the caption "Stock Option" expired as of August
9, 1993. The Board of Directors adopted in August, 1995, The Sherwood Group,
Inc. 1995 Stock Option Plan (the "1995 Plan"), subject to stockholder approval
to replace the Option Plan. The Board of Directors adopted the 1995 Plan because
it continues to believe that stock-based incentives are important factors in
attracting, retaining, and rewarding officers of the Company and its
subsidiaries and other selected persons designated by the committee
administering the 1995 Stock Option Plan and closely aligning their interests
with those of stockholders.

If approved by the stockholders, the Board of Directors has authorized for
issuance under the 1995 Plan 767,200 shares of the Company's Common Stock
(subject to adjustment in certain circumstances provided for in the 1995 Plan)
for the granting of options and stock appreciation rights, which is
approximately 6.1% of the shares of Common Stock outstanding on August 28, 1995.
The closing price of a share of Common Stock on the New York Stock Exchange on
September 12, 1995 was $10.25. The maximum number of shares subject to stock
options which may be granted to any one optionee during any calendar year may
not exceed 300,000 shares.

The following brief description of the material provisions of the 1995 Plan is
not complete and is qualified in its entirety by reference to the 1995 Plan
which is attached as Appendix A to this Proxy Statement:

1. Administration. The 1995 Plan will be administered by a committee (the
"Committee") of at least three directors, presently the Compensation Committee,
none of whom is eligible to participate in the 1995 Plan and none of whom has
been granted or awarded options from the Company during the one year prior to
his appointment to the Committee. In administering the 1995 Plan, the Committee
has the power to interpret its provisions and to promulgate, amend, and rescind
rules and regulations for its administration, to select individuals to receive
grants, and to determine the terms and provisions of grants of options and stock
appreciation rights.

2. Option Grants. The 1995 Plan provides for the granting of both incentive
stock options (an "ISO") and nonqualified stock options (a "NQO") and in
connection with such options the granting of stock appreciation rights (an
"SAR") or additional stock options, progressive stock options, in the event the
grantee exercises such stock options by surrendering shares of Common Stock of
the Company (a "PSO"). NQO's and SAR's may be issued to any key employee or
officer of the Company or its subsidiaries, or any other person who is an
independent contractor, agent or consultant of the Company or its subsidiaries
but not any director of the Company who is not an employee of the Company.
ISO's may be issued to key employees and officers of the Company and its
subsidiaries, but not to any independent contractor, agent or consultant. The
Committee also determines the times at which options become exercisable, their
transferability and the dates, not more than ten years after the date of grant,
on which options will expire. In the event of a tender offer for more than 25%
of the Company's outstanding stock, or a "change in control" (as defined in the
1995 Plan) of the Company, all outstanding options become immediately
exercisable. The fair market value of the stock with respect to which ISO's
under the 1995 Plan or any other plan of the Company first become exercisable
may not exceed $100,000 in any year. The option price of an ISO is to be at
least 100% of the fair market value on the date of grant (110% in the case of
optionees holding more than ten percent of the combined voting power of all
classes of stock of the Company). The 1995 Plan, however, permits the Committee
to grant NQO's at any exercise price consistent with the purposes of the 1995
Plan, whether or not such exercise price is equal to the fair market value of
the stock on the date of grant of the NQO. NQO's with an exercise price of less
than fair market value on the date of grant will not qualify as performance-
based compensation under IRC Section 162(m) and so any compensation expense
generated by the exercise of such an option would not be deductible by the
Company if the optionee is a "covered employee" who is paid compensation from
the Company in an amount in excess of $1,000,000 in the

20
<PAGE>

year of exercise. Further discussion of the implication of IRC Section 162(m) to
the Company can be found in this Proxy Statement under Proposal Number 3.

Options may be exercised by the payment of the exercise price in cash, Common
Stock or a combination thereof. The Committee may make a loan for the purpose
of exercising any option granted under the 1995 Plan to an optionee in an amount
not to exceed 100% of the purchase price of the shares acquired upon exercise of
the options. The loan must be secured by a pledge of shares of the Company
having an aggregate purchase price equal to or greater than the amount of the
loan.

The Committee has not, as of the date hereof, awarded or granted any options
under the 1995 Plan. The Board of Directors, which is comprised in part of the
Committee, has recommended, however, that the aggregate of 418,500 options be
issued under the 1995 Plan to certain executive officers and other employees if,
and to the extent, such executive officers and employees exercise currently
outstanding options by payment of shares of the Company's Common Stock. If all
of the relevant employees and executive officers were to exercise such options
by payment of shares of the Company's Common Stock and the Committee were to
authorize the grant of options as expected by the Board of Directors, a maximum
of 220,000 options would be granted to Arthur Kontos, Chief Executive Officer of
the Company, 47,000 options would be granted to Dennis Marino, Executive Vice
President and Chief Administrative Officer of the Company and President of
Sherwood Securities, 96,500 options would be granted to Thomas Neumann and the
maximum aggregate amount of 55,000 options would be issued to other officers and
employees of the Company and its subsidiaries.

3. Stock Appreciation Rights. The 1995 Plan permits the Committee to grant
SAR's in connection with any option granted under the 1995 Plan. SAR's enable
an optionee to surrender an option and to receive a payment in cash or Common
Stock, as determined by the Committee, equal to the difference between the fair
market value of the Common Stock on the date of surrender of the related option
and the option price.

4. Progressive Stock Options. The 1995 Plan also permits the Committee to grant
PRO's in connection with any option granted under the 1995 Plan. PRO's enable
an optionee to receive additional stock options in the event the grantee
exercises a stock option, in whole or in part, by surrendering shares of Common
Stock of the Company. Any PRO granted will be for a number of shares equal to
the number of surrendered shares of Common Stock, shall not be exercisable for a
minimum of six months from the grant date of the option, shall have an option
price per share equal to 100% of the fair market value of share of stock on the
grant date and shall be subject to such other terms and conditions as the
Committee may determine.

5. Termination of Employment. Unless otherwise provided by the Committee, the
following rules will apply to all options granted under the 1995 Plan. Options
granted under the 1995 Plan expire immediately if an employee is terminated for
cause. If termination of employment is voluntary or involuntary, options
granted expire after a three month period. In the event of an employee's death
within such three-month period, the employee's estate may exercise the option
for the number of shares for which it is exercisable at the date of termination,
for one year after death but in no event beyond the expiration dates of the
option. An option outstanding at the time an employee retires under a Company
retirement plan or becomes disabled is exercisable within one year of
termination in the case of an ISO and in the case of a NQO may be exercisable at
any time to the extent that the optionee was otherwise entitled to exercise it
at the time of such cessation of employment with the Company or a subsidiary
thereof, but in no event after the expiration of the option period. If an
employee dies, whether before or after such retirement or disability, the
employee's estate may exercise the option exercisable at the date of termination
of employment for up to three years after death (one year in the case of
voluntary termination of employment), but in no event beyond the expiration
dates of the option.

21
<PAGE>

6. Income Tax Consequences. Under present law the federal income tax treatment
of stock options under the 1995 Plan is generally as follows:

Incentive Stock Options. For regular income tax purposes, an optionee will not
realize taxable income upon either the grant of an ISO or its exercise if the
optionee has been an employee of the Company or a subsidiary at all times from
the date of grant to a date not more than three months before the date of
exercise. The difference between the fair market value of the stock at the date
of exercise and the exercise price of an ISO, however, will be treated as an
item of tax preference in the year of exercise for purposes of the alternative
minimum tax.

If the shares acquired upon an exercise of an ISO are not disposed of by the
optionee within two years from the date of grant or within one year from the
date of exercise, any gain realized upon a subsequent sale of the shares will be
taxable as a capital gain. In that case, the Company will not be entitled to a
deduction in connection with the grant or the exercise of the ISO or the
subsequent disposition of the shares by the optionee. The amount of gain or
loss realized upon such a sale or other disposition will be measured by the
difference between the amount realized and the earlier exercise price of the ISO
(the optionee's basis in the stock).

If the optionee disposes of the shares within two years from the date of grant
of the ISO or within one year from the date of exercise of the ISO, the optionee
will realize ordinary income in an amount equal to the excess of the fair market
value of the shares at the date of exercise (or the amount realized on
disposition, if less) over the option price, and the Company will be allowed a
corresponding deduction. If the amount realized on the disposition exceeds the
fair market value of the shares at the date of exercise the gain on disposition
in excess of the amount treated as ordinary income will be treated as a capital
gain. Any such capital gain will be a long-term capital gain if the optionee
holds the shares for more than one year from the date of exercise.

Nonqualified Stock Options. An optionee will not realize income upon the grant
of a nonqualified option. Upon the exercise of a nonqualified option, an
optionee will be required to recognize ordinary income in an amount equal to the
excess of the fair market value at the date of exercise of the NQO over the
option price. Any compensation includable in the gross income of an employee
with respect to a NQO will be subject to appropriate federal income and
employment taxes. The Company will be entitled to a business expense deduction
in the same amount and at the same time as when the optionee recognizes
compensation income. Upon a subsequent sale of the stock, any amount realized
in excess of such fair market value will constitute a capital gain. Any such
capital gain will be a long-term capital gain if the optionee holds the shares
for more than one year from the date of exercise.

If an optionee exercises an option by tendering Company stock in payment of the
option price the optionee will be deemed to exchange the number of previously
owned shares (e.g. 50 shares) for an identical number of new shares (e.g. 50
shares). This deemed exchange of previously owned Company stock for new Company
stock should be eligible for nonrecognition treatment under IRC Section 1036 as
an exchange of common stock for common stock in the same corporation. With
regard to the additional number of new Company shares (e.g., the excess over 50
shares) that an optionee receives pursuant to the exercise of the option, an
optionee will be deemed to have acquired them without paying consideration. If
such extra shares are issued pursuant to a NQO, the fair market value of such
extra shares will be included in the optionees' income as compensation income
and the Company will be allowed a corresponding deduction. If such extra shares
are issued pursuant to an ISO, no income on the exercise of such options will be
recognized by the optionee, and the Company will not be allowed a compensation
deduction. The optionee's basis in the new shares deemed exchanged for old
shares will be equal to the optionee's basis in the surrendered old shares, and
the optionee's holding period in such new shares will include his or her holding
period in the old shares. The optionee's basis in the additional (or excess)
new shares received will equal the amount that the optionee included in income
with respect to those shares (their fair

22
<PAGE>

market value for stock issued pursuant to a NQO; zero for stock issued pursuant
to an ISO), and the optionee's holding period in such additional shares will
start as of the date of acquisition.

In the limited circumstances in which an officer who is subject to Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") exercises a
NQO, which exercise is not exempt under Section 16(b), no income is recognized
for federal income tax purposes at the time of exercise unless the optionee
makes an election under Section 83(b) of the Code within 30 days after the date
of exercise, in which case the rules described in the second preceding paragraph
would apply. Where such an election is not made, the optionee will recognize
ordinary income on the first date that sale of such shares would not create
liability under Section 16(b) of the 1934 Act (this is generally, but not
necessarily, six months after the date of exercise). The ordinary income
recognized to such an optionee will be the excess, if any, of the fair market
value of shares on such later date over the option exercise price.

Stock Appreciation Rights. SAR's will not result in taxable income upon grant.
Upon exercise, the optionee will realize ordinary income in an amount equal to
the cash and/or the fair market value of any shares received which amount will
be subject to appropriate income and employment taxes. The Company will be
entitled to a corresponding compensation deduction.

Progressive Stock Options. For federal income tax purposes, the issuance and
exercise of PSO's will not be treated differently than the issuance and exercise
of the originally granted NQO or ISO, as described above.

The foregoing discussion does not purport to be a complete analysis of all the
potential tax consequences relevant to recipients of options or SAR's or PSO's
or to the Company or its subsidiaries. The above discussion does not take into
account the effect of state and local tax laws. Moreover, no assurance can be
given that legislative, administrative, regulatory or judicial changes or
interpretations will not occur which could modify such analysis. In addition,
an individual's particular tax status and his other tax attributes may result in
different tax consequences from those described above. Therefore, any
participant in the 1995 Plan should consult with his own tax adviser concerning
the tax consequences of the grant, exercise and surrender of such options or
stock appreciation rights and the disposition of any stock acquired pursuant to
the exercise of such options or stock appreciation rights.

7. Amendments. The Board of Directors may amend the 1995 Plan at any time, but
may not, without prior shareholder approval, increase the aggregate number of
shares that may be issued thereunder; materially increase the benefits to
participants or materially modify the requirements as to eligibility for
participation in the 1995 Plan.

8. Termination. The 1995 Plan terminates by its terms on August 1, 2005.

THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE 1995 PLAN.

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<PAGE>

PROPOSAL 3. RATIFICATION AND APPROVAL OF EMPLOYMENT AGREEMENT.

The Company and Arthur Kontos, the Vice Chairman of the Board and President and
Chief Executive Officer of the Company were parties to an employment agreement
dated as of January 1, 1992 (the "Previous Employment Agreement"). The term of
the Previous Employment Agreement terminated on May 31, 1995. A new employment
agreement dated as of September 12, 1995 (the "New Employment Agreement"),
containing many of the same terms as the Previous Employment Agreement was
approved by the Board of Directors on September 18, 1995. The New Employment
Agreement covers the fiscal year ended May 31, 1996 and provides Mr. Kontos with
an option to extend its term to the fiscal year ended May 31, 1997.

In September, 1993, the Board of Directors which included all of the members of
the Employment Agreement Committee met and approved the grant to Mr. Kontos of
two options (the "Options") which permitted Mr. Kontos to enter into employment
agreements for the years ended May 31, 1996 and 1997, each having a term of one
year and otherwise containing substantially the same terms and conditions as the
Previous Employment Agreement, including the performance goals provided therein.
Mr. Kontos exercised the option in December, 1994 to enter into a new
employment agreement with a term ending on May 31, 1996 and otherwise having the
same terms as the Previous Employment Agreement. The Employment Agreement
Committee also met on September 18, 1995 and affirmed the action of the Board of
Directors (which included all the members of the Employment Agreement Committee)
with respect to the Option and the performance goals. The Employment Agreement
Committee also agreed to continue the Bonus at 18% on Income over $13,000,000
for fiscal year ended May 31, 1996. Further, the Employment Agreement Committee
approved the terms of the New Employment Agreement. For purposes of the
following discussion and for obtaining stockholder approval, "Performance Goals"
shall include the payment of a Bonus to Mr. Kontos at the rate of 10% of the
first $5,000,000 of Income, 15% of the next $8,000,000 of Income and 18% of
Income over $13,000,000.

Under the terms of the New Employment Agreement the Company agrees to pay Mr.
Kontos an annual base salary of $300,000. In addition, he is entitled to a
bonus ("Bonus") based on the Company's "Income". "Income" is defined as the
Company's consolidated pre-tax net income during any fiscal year in which the
New Employment Agreement is in effect without any deductions for amounts payable
as a Bonus under the New Employment Agreement or any related accruals. Mr.
Kontos' annual Bonus is calculated as a percentage of the Company's Income for
each fiscal year during the term of the New Employment Agreement. In each
fiscal year, Mr. Kontos is entitled to a Bonus based on the Performance Goals.
Under the terms of the New Employment Agreement, Income is determined within
seventy-five days after the end of each of the Company's fiscal years during
which the New Employment Agreement is in effect. Mr. Kontos is entitled to
receive, on a monthly basis, an advance against the Bonus, payable in the then
current fiscal year in an amount equal to one half of the aggregate Bonus
accrued for such fiscal year through the last day of the month immediately
preceding the month in which such payment is to be made, less all amounts
previously paid as Bonus advances to Mr. Kontos for the fiscal year. Mr. Kontos
is not entitled to receive any Bonus advance during any month if the Company's
Income through the end of the preceding month of the relevant fiscal year has
averaged less than $250,000 per month. Mr. Kontos is entitled to reimbursement
for expenses incurred by him in connection with his duties and responsibilities
under the New Employment Agreement and is generally entitled to participate in
benefit plans of the Company adopted for the benefit of employees or executives
of the Company.

The New Employment Agreement may be terminated (i) by Mr. Kontos either on
thirty (30) days prior written notice or at any time following a Change in
Control, as hereinafter defined, (ii) by the Company for Cause, as hereinafter
defined, and (iii) automatically upon the death or disability of Mr. Kontos.
The term Cause includes, and is limited to, Mr. Kontos engaging in fraudulent or
illegal activity or engaging in practices which constitute a substantial
disregard for his responsibilities as an employee, in each case to the material
detriment of the

24
<PAGE>

Company. If the Company terminates the New Employment Agreement without Cause,
Mr. Kontos is entitled to receive as liquidated damages the amount which he
would have been entitled to receive for a termination in connection with a
Change in Control. Generally, a Change in Control will be deemed to have
occurred under the New Employment Agreement if any person (other than Mr. Kontos
or persons under his control) or group acting in concert acquires beneficial
ownership of more than 50% of the outstanding voting stock of the Company or
securities or rights to acquire more than 50% of such voting stock and the
control so acquired is exercised in any manner. If a Change in Control occurs
during the term of the New Employment Agreement and in connection with the
Change in Control or within one year thereafter, Mr. Kontos' employment with the
Company is terminated either voluntarily or involuntarily, Mr. Kontos shall be
entitled to receive certain liquidated damages in an amount slightly less than
three times his average taxable compensation for the previous five calendar
years, but reduced so as not to constitute an excess parachute payment under
Section 280G of the Code. A parachute payment is generally defined as
compensation paid to certain officers, stockholders or highly compensated
individuals, payment of which is contingent on a change of ownership or
effective control of a corporation or in the ownership of a substantial portion
of the assets of the corporation. The terms of the New Employment Agreement may
be amended, modified, superseded, canceled, renewed or extended and the
covenants contained in the New Employment Agreement may be waived by a written
instrument executed by the Company and Mr. Kontos without the consent of the
stockholders of the Company.

Under the terms of the New Employment Agreement, Mr. Kontos has agreed not to
compete with the Company without the consent of the Board of Directors of the
Company during the term of the New Employment Agreement, provided that the
restrictions on competition will not be effective in the event that Mr. Kontos
is terminated without Cause or the New Employment Agreement is terminated in
connection with, or within one year after, a Change in Control of the Company.

REASONS FOR THE SOLICITATION

The Company desires to deduct from its corporate income for the purpose of
computing the Company's federal corporate income tax liability certain
compensation received by Mr. Kontos from the Company. Code Section 162
generally permits the deduction of ordinary and necessary expenses of a
business, including, among others, a "reasonable allowance for salaries or other
compensation for personal services actually rendered." The Board of Directors
believes that the salary, Bonus and other compensation paid and payable to Mr.
Kontos in connection with his services to the Company constitute a reasonable
allowance for the personal services actually rendered by Mr. Kontos.
Shareholder approval is being sought solely with respect to salary and Bonus
paid or payable to Mr. Kontos under the terms of the New Employment Agreement
(the "Kontos Compensation"). The discussion set forth in this section of the
Proxy Statement relates solely to such compensation and no conclusions with
respect to the deductibility or other federal tax effects of any other
compensation paid or payable to Mr. Kontos, including income realized by Mr.
Kontos on the exercise of options to purchase Common Stock granted by the
Company now or hereafter held by him, should be drawn from the discussion
contained herein.

In determining whether salaries and other compensation paid for personal
services actually rendered are reasonable, the Internal Revenue Service and
courts which have considered the matter have relied upon various factors. These
factors have included, but are not limited to, the intent of the board of
directors, the salary history of the employee, the dividend history of the
corporation, the salary scale for employees generally, the salary scale in the
industry, the qualifications of the employee, the employee's contribution to the
success of the business, the determination of the board of the directors of the
corporation as to the reasonableness of the compensation and the approval of the
salary and compensation by the corporation's shareholders. Whether or not a
court or the Internal Revenue Service will conclude that the Kontos Compensation
is reasonable cannot be determined with certainty. However, the Company
believes that the Kontos Compensation is reasonable. The Company is soliciting
shareholder approval of the New Employment Agreement for the purpose of
increasing the

25
<PAGE>

probability that the Internal Revenue Service and any court which considers the
matter will determine that the Kontos Compensation is reasonable and, therefore,
deductible by the Company. To be deductible, the Kontos Compensation paid must
satisfy the reasonableness requirements discussed above.

Under IRC Section 162(m), the deduction from corporate income for salaries or
other compensation, to the extent previously available to publicly-traded
corporations such as the Company, will generally be disallowed for compensation
in excess of $1,000,000 per annum paid to a "covered employee." A "covered
employee" is defined in Section 162(m) to include, among others, the chief
executive officer of a corporation, the securities of which are publicly traded.
The provisions of Section 162(m) apply to taxable years commencing on or after
January 1, 1994 and generally apply to written agreements entered into after
February 17, 1993. Section 162(m) may apply to compensation paid by the Company
to Mr. Kontos pursuant to the New Employment Agreement or otherwise for the tax
year ending April 30, 1996 and afterwards, and such compensation will therefore
not be deductible by the Company to the extent that (i) such compensation
exceeds $1,000,000 per annum, and (ii) such compensation is not deemed to be
"performance based compensation" under Section 162(m). The $1,000,000 cap is
reduced by excess parachute payments that are not deductible by the Company.

Performance-based compensation is not subject to the $1,000,000 cap on
deductibility if certain requirements are met. Performance-based compensation
payable to a "covered employee" may be deducted by a publicly traded corporation
where the payment is made solely upon the attainment by the covered employee of
certain performance goals, the performance goals are set by a committee of the
Board of Directors comprised solely of two or more outside directors and
disclosure of the performance goals and other material terms of the compensation
arrangement is made to the stockholders of the corporation who thereafter
approve the performance goals and the other material terms of the arrangement.
In addition, before any payments of performance-based compensation are made,
such committee must certify that the performance goals and other material terms
of the arrangement have been satisfied.

Section 162(m) is effective for the Company's tax years ended April 30, 1995 and
thereafter. Proposed Regulations which interpret the provisions of Section
162(m) have been promulgated but have not been finalized. Accordingly, the
effect of Section 162(m) on the deductibility of any compensation paid to Mr.
Kontos, including without limitation, the effect of the approval, if any, by the
stockholders at the Meeting of the proposal discussed herein, cannot be
ascertained with certainty. As a result, notwithstanding the foregoing
discussion, no assurance can be given as to the deductibility of Mr. Kontos'
compensation under any cases, rulings or the Proposed Regulations or any future
regulations.

EFFECT OF VOTE

In the event the stockholders of the Company ratify the New Employment Agreement
and the Performance Goals, the Company intends to deduct the Kontos Compensation
for purposes of determining the Company's corporate income tax liability for the
Company's tax years ending April 30, 1996 and thereafter. In the event the
stockholders of the Company do not ratify the New Employment Agreement and the
Performance Goals, the New Employment Agreement will terminate. There can be no
assurance that the Internal Revenue Service or any court considering the matter
will allow the Company to deduct all of the Kontos Compensation for purposes of
determining the Company's corporate income tax liability for any of the
Company's tax years. Whether or not the stockholders approve the New Employment
Agreement and the Performance Goals, the Board of Directors, and the
Compensation Committee and the Employment Agreement Committee will not be
restricted from causing the Company to pay additional compensation to Mr.
Kontos, whether in the form of discretionary bonuses, stock options or
otherwise.

26
<PAGE>

The affirmative vote of the holders of the majority of the shares of Common
Stock present, in person or by proxy, and entitled to vote at the Meeting is
required for the ratification and approval of the New Employment Agreement and
the Performance Goals. Approval of the New Employment Agreement includes
approval of the grant of the option to Mr. Kontos to extend the term of the New
Employment Agreement to the fiscal year ended May 31, 1997.

THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION AND APPROVAL OF THE NEW
EMPLOYMENT AGREEMENT.

27
<PAGE>

PROPOSAL 4. RATIFICATION AND APPROVAL OF THE APPOINTMENT
OF INDEPENDENT AUDITORS

The Company, subject to stockholder ratification, has selected KPMG Peat
Marwick, to serve as its independent auditors for the fiscal year ending May 31,
1996. If the stockholders do not ratify the appointment of KPMG Peat Marwick,
the Company may reconsider its selection.

A representative of KPMG Peat Marwick is expected to be present at the Meeting
to respond to appropriate questions and will be given the opportunity to make a
statement if he desires to do so.

The affirmative vote of the holders of a majority of the shares of Common Stock
of the Company present, in person or by proxy, and entitled to vote at the
Meeting is required for the ratification and approval of the appointment of
auditors.

THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION AND APPROVAL OF THE APPOINTMENT
OF KPMG PEAT MARWICK AS INDEPENDENT AUDITORS.

STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING

Any stockholder proposals intended to be presented at the Company's next annual
meeting of stockholders must be received by the Company at its offices at One
Exchange Plaza, New York, New York 10006, on or before May 20, 1996, for
consideration for inclusion in the proxy material for such annual meeting of
stockholders.

EXPENSES OF SOLICITATION

The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company
does not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.

OTHER MATTERS

The Board of Directors does not intend to bring any matters before the Meeting
other than as stated in this Proxy Statement, and is not aware that any other
matters will be presented for action at the Meeting. If any other matters come
before the Meeting, the persons named in the enclosed form of proxy will vote
the proxy with respect thereto in accordance with their best judgment, pursuant
to the discretionary authority granted by the proxy. Whether or not you plan
to attend the Meeting in person, please complete, sign, date and return the
enclosed proxy card promptly.

By Order of the Board of Directors

Dennis Marino
Secretary

Dated: September 18, 1995

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<PAGE>

APPENDIX A

THE SHERWOOD GROUP, INC.

1995 STOCK OPTION PLAN

SECTION 1. PURPOSE

The purpose of The Sherwood Group, Inc. Stock Option Plan (the "Plan")
is to provide an additional incentive to key employees, independent contractors,
agents and consultants of The Sherwood Group, Inc. (the "Company") and its
subsidiaries, to aid in attracting and retaining employees, independent
contractors, agents and consultants of outstanding ability, and to closely align
their interests with those of shareholders.

SECTION 2. DEFINITIONS

Unless the context clearly indicates otherwise, the following terms,
when used in this Plan, shall have the meanings set forth in this Section 2.

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Change in Control". A change in control of the Company shall be
deemed to have occurred if, over the initial opposition of the then-incumbent
Board (whether or not such Board ultimately acquiesces therein), (i) any person
or group of persons shall acquire, directly or indirectly, stock of the Company
having at least 25% of the combined voting power of the Company's then-
outstanding securities, or (ii) any shareholder or group of shareholders shall
elect a majority of the members of the Board in each case after January 1, 1995
(except persons or entities which as of January 1, 1995 are identified as
holders of 5% or more beneficial owners of the Company's securities in the
Company's filings under the Securities Exchange Act of 1934, as amended.

(c) "Code" shall mean the Internal Revenue Code of 1986 and the rules
and regulations thereunder, as it or they may be amended from time to time.

(d) "Committee" shall mean the Compensation Committee of the Board or
such other committee as may be designated by the Board. The Committee shall
consist of three or more members of the Board who are not eligible to
participate in the Plan and who, within one year prior to their appointment,
have not been eligible to participate in the Plan.

(e) "Date of Exercise" shall mean the earlier of the date on which
written notice of exercise, together with payment in full, is received at the
office of the Secretary of the Company or the date on which such notice and
payment are mailed to the Secretary of the Company at its principal office by
certified or registered mail.
<PAGE>

(f) "Employee" shall mean any employee or any officer of the Company
or any of its Subsidiaries, or any other person, who is an independent
contractor, agent or consultant of the Company or any of its Subsidiaries, and
excluding any director of the Company who is not otherwise an employee of the
Company. For the purposes of any provision of this Plan relating to Incentive
Stock Options, the term "Employee" shall be limited to mean any employee (as
that term is defined under Code Section 3401(c)) or officer of the Company or
any of its Subsidiaries, but not any person who is merely an independent
contractor, agent or consultant of the Company or any of its subsidiaries.

(g) "Fair Market Value" shall mean for any day the mean of the highest
and lowest selling prices of the Stock as reported on the Composite Tape for
securities traded on the New York Stock Exchange.

(h) "Grantee" shall mean an Employee granted a Stock Option.

(i) "Granting Date" shall mean the date on which the Committee
authorizes the issuance of a Stock Option for a specified number of shares of
Stock to a specified Employee.

(j) "Incentive Stock Option" shall mean a Stock Option granted under
the Plan which is properly qualified under the provisions of Section 422 of the
Code.

(k) "Nonqualified Stock Option" shall mean a Stock Option granted
within the Plan which is not an Incentive Stock Option or otherwise qualified
under similar tax provisions.

(l) "Progressive Stock Options" shall mean either Incentive Stock
Options or Nonqualified Stock Options granted pursuant to Section 5(j) of
this Plan.

(m) "Stock" shall mean the Common Stock, as par value $.01 per share,
of the Company.

(n) "Stock Appreciation Right" shall mean a right granted pursuant to
the Plan to receive Stock, cash, or a combination thereof, upon the surrender of
the right to purchase all or part of the shares of Stock covered by a Stock
Option.

(o) "Stock Option" shall mean an Incentive Stock Option or
Nonqualified Stock Option granted pursuant to the Plan to purchase shares of
Stock.

(p) "Subsidiary" shall mean any subsidiary corporation as defined in
Section 424(f) of the Code.

SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN

Subject to adjustment pursuant to Section 9, 767,200 shares of Stock
shall be reserved for issuance upon the exercise of Stock Options granted
pursuant to this Plan. Shares delivered under the Plan may be authorized and
unissued shares or issued shares held by the Company in its treasury. If any
Stock Options expire or terminate without having been exercised, the shares of
Stock covered by such Stock Option shall become available again for the grant of
Stock Options hereunder. Similarly, if any Stock Options are surrendered for
cash pursuant to the provisions of Section 7, the shares of Stock covered by
such Stock Options shall also become available again for the grant of Stock
Options
2
<PAGE>

hereunder. Shares of Stock covered by Stock Options surrendered for Stock
pursuant to Section 7, however, shall not become available again for the grant
of Stock Options hereunder.

SECTION 4. ADMINISTRATION OF THE PLAN

(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of Stock Option grants, and to make all
other determinations necessary or advisable for the administration of the Plan.

(b) It is intended that the Plan and any transaction hereunder meet
all of the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect or as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or other applicable laws, such provision or transaction
shall be construed or deemed amended to conform to Rule 16b-3 or such other
applicable laws or otherwise shall be deemed to be null and void, in each case
to the extent permitted by law and deemed advisable by the Committee.

(c) Any controversy or claim arising out of or related to this Plan
shall be determined unilaterally by and at the sole discretion of the Committee.

SECTION 5. GRANTING OF STOCK OPTIONS

(a) Only key Employees shall be eligible to receive Stock Options
under the Plan. Directors of the Company who are not also employees shall not
be eligible for Stock Options.

(b) The option price of each share of Stock subject to an Incentive
Stock Option shall be at least 100% of the Fair Market Value of a share of the
Stock on the Granting Date.

(c) The option price of each share of Stock subject to a Nonqualified
Stock Option shall be 100% of the Fair Market Value of a share of the Stock on
the Granting Date, or such other price either greater than or less than the Fair
Market Value (but in no event less than the par value of the Stock) as the
Committee shall determine appropriate to the purposes of the Plan and to the
Company's total compensation program.

(d) The Committee shall determine and designate from time to time
those key Employees who are to be granted Stock Options and whether the
particular Stock Options are to be Incentive Stock Options or Nonqualified Stock
Options, and shall also specify the number of shares covered by and the option
price per share of each Stock Option. Each Stock Option granted under the Plan
shall be clearly identified as to its status as a Nonqualified Stock Option or
an Incentive Stock Option.

(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000.

(f) A Stock Option shall be exercisable during such period or periods
and in such installments as shall be fixed by the Committee at the time the
Stock Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten years from the Granting Date.

3
<PAGE>

(g) The Committee shall have the authority to grant both transferable
Stock Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to provide for transferability. Each
nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and distribution and is exercisable, during the Grantee's
lifetime, only by the Grantee. Each transferable Stock Option may provide for
such limitations on transferability and exercisability as the Committee may
designate at the time a Stock Option is granted or is otherwise amended to
provide for transferability.

(h) Stock Options may be granted to an Employee who has previously
received Stock Options or other options whether such prior Stock Options or
other options are still outstanding, have previously been exercised or
surrendered in whole or in part, or are canceled in connection with the issuance
of new Stock Options.

(i) Subject to adjustment pursuant to Section 9, the aggregate number
of shares of Stock subject to Stock Options granted to an Employee under the
Plan during any calendar year shall not exceed 300,000 shares.

(j) Without in any way limiting the authority of the Committee to make
grants of Stock Options under the Plan, and in order to induce Employees to
retain ownership of Stock, the Committee shall have the authority (but not the
obligation) to include within any agreement reflecting a Stock Option a
provision entitling the Grantee of such a Stock Option to a further Stock Option
(a "Progressive Stock Option") in the event the Grantee exercises such Stock
Option evidenced by such agreement, in whole or in part, by surrendering other
shares of Stock in accordance with this Plan and the terms and conditions of
such agreement. Any such Progressive Stock Option shall be for a number of
shares of Stock equal to the number of surrendered shares, shall become
exerciseable no sooner than six months after the Granting Date of the Stock
Option or such longer period as the Committee may establish, shall have an
option price per share equal to one hundred percent (100%) of the Fair Market
Value of a share of Stock on the Granting Date of the Progressive Stock Option,
and shall be subject to such other terms and conditions as the Committee may
determine.

(k) Notwithstanding the foregoing, the option price of an Incentive
Stock Option in the case of a Grantee who owns more than ten percent of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair
Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five years
after the Granting Date.

SECTION 6. EXERCISE OF STOCK OPTIONS

(a) Except as provided in Section 8, no Stock Option may be exercised
at any time unless the Grantee is an Employee on the Date of Exercise and, in
the case of holders of Incentive Stock Options, has been an Employee at all
times during the period beginning on the Granting Date and ending on the day 3
months before the date of such exercise.

(b) The Grantee shall pay the option price in full on the Date of
Exercise of a Stock Option in cash, by check, or by delivery of full shares of
Stock of the Company, duly endorsed for transfer to the Company with signature
guaranteed, or by any combination thereof. Stock will be accepted at its Fair
Market Value on the Date of Exercise.

4
<PAGE>

(c) Subject to the approval of the Committee, or of such person to
whom the Committee may delegate such authority ("its designee"), the Company may
loan to the Grantee a sum equal to an amount which is not in excess of 100% of
the purchase price of the shares of Stock acquired upon exercise of a Stock
Option, such loan to be evidenced by the execution and delivery of a promissory
note. Interest shall be paid on the unpaid balance of the promissory note at
such times and at such rate as shall be determined by the Committee or its
designee. Such promissory note shall be secured by the pledge to the Company of
shares of Stock having an aggregate purchase price on the date of purchase equal
to or greater than the amount of such note. A Grantee shall have, as to such
pledged shares of Stock, all rights of ownership including the right to vote
such shares of Stock and to receive dividends paid on such shares of Stock,
subject to the security interest of the Company. Such shares of Stock shall not
be released by the Company from the pledge unless the proportionate amount of
the note secured thereby has been repaid to the Company; provided, however that
shares of Stock subject to a pledge may be used to pay all or part of the
purchase price of any other option granted hereunder or under any other stock
incentive plan of the Company under the terms of which the purchase price of an
option may be paid by the surrender of shares of Stock, subject to the terms and
conditions of this Plan relating to the surrender of shares of Stock in payment
of the exercise price of an option. In such event, that number of the newly
purchased shares of Stock equal to the shares of Stock previously pledged shall
be immediately pledged as substitute security for the pre-existing debt of the
Grantee to the Company, and thereupon shall be subject to the provisions hereof
relating to pledged shares of Stock. All notes executed hereunder shall be
payable at such times and in such amounts and shall contain such other terms as
shall be specified by the Committee or its designee or stated in the option
agreement; provided, however, that such terms shall conform to requirements
contained in any applicable regulations which are issued by any governmental
authority.

SECTION 7. STOCK APPRECIATION RIGHTS

(a) The Committee may grant to any Employee, Stock Appreciation Rights
in connection with any Stock Option. Stock Appreciation Rights may be granted
at the time the related Stock Option is granted or at any time thereafter up to
six months prior to the expiration of the related Stock Option.

(b) Stock Appreciation Rights shall be exercisable at such times and
to the extent that the related Stock Option shall be exercisable and only to the
extent the Stock Appreciation Right has a positive value, unless the Committee
specifies a more restrictive period.

(c) Upon the exercise of a Stock Appreciation Right, the Grantee shall
surrender the related Stock Option or a portion thereof and shall be entitled to
receive payment of an amount determined by multiplying the number of shares as
to which the Stock Option rights are surrendered by the difference obtained by
subtracting the exercise price per share of the related Stock Option from the
Fair Market Value of a share of Stock on the Date of Exercise of the Stock
Appreciation Right.

(d) Payment of the amount determined under Section 7(c) shall be made
in Stock, in cash, or partly in cash and partly in Stock as the Committee shall
determine in its sole discretion.

(e) Except as provided in Section 10(b), the exercise of a Stock
Appreciation Right for cash may be made only during the period beginning on the
third business day following the release of quarterly or annual financial data
and ending on the twelfth business day following such date.

5
<PAGE>

SECTION 8. TERMINATION OF EMPLOYMENT

Except as otherwise provided by the Committee at the time the Stock
Option is granted or any amendment thereto, if a Grantee ceases to be an
Employee then:

(a) if termination of employment is voluntary or involuntary without
cause, the Grantee may exercise each Stock Option held by the Grantee within
three months after such termination (but not after the expiration date of the
Stock Option) to the extent of the number of shares subject to the Stock Option
which are purchasable pursuant to its terms at the date of termination;

(b) if termination is for cause, all Stock Options held by the Grantee
shall be canceled as of the date of termination;

(c) subject to the provisions of Section 8(d), if termination is (i)
by reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company or any
Subsidiary, or (ii) by reason of disability, each Stock Option held by the
Grantee may be exercised by the Grantee at any time (but not after the
expiration date of the Stock Option) (within one year of termination in the case
of Incentive Stock Options) to the extent of the number of shares subject to the
Stock Option which were purchasable pursuant to its terms at the date of
termination;

(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 8(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three years after death (but not
after the expiration date of the Stock Option) to the extent of the total number
of shares subject to the Stock Option which were purchasable pursuant to its
terms at the date of termination; or

(e) if the Grantee should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 8(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
year after death (but not after the expiration date of the Stock Option) to the
extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination.

SECTION 9. ADJUSTMENTS

In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Board in the number and kind of shares that may be
granted in the aggregate and to individual Employees under the Plan, the number
and kind of shares subject to each outstanding Stock Option and Stock
Appreciation Right and the option prices.

SECTION 10. TENDER OFFER; CHANGE IN CONTROL

(a) A Stock Option shall become immediately exercisable to the extent
of the total number of shares subject to the Stock Option in the event of (i) a
tender offer by a person or persons other than the Company for all or any part
of the outstanding Stock if, upon consummation of the purchases

6
<PAGE>

contemplated, the offeror or offerors would own, beneficially or of record, an
aggregate of more than 25% of the outstanding Stock, or (ii) a Change in Control
of the Company.

(b) The Committee may authorize the payment of cash upon the exercise
of a Stock Appreciation Right during a period (i) beginning on the date on which
a tender offer as described in (a), above, is first published or sent or given
to holders of Stock and ending on the date which is seven days after its
termination or expiration, or (ii) beginning on the date on which a Change in
Control of the Company occurs and ending on the twelfth business day following
such date.

SECTION 11. GENERAL PROVISIONS

(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee shall approve.

(b) The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any right to be retained
in the employ of the Company or any Subsidiary or interfere in any way with the
right of the Company or such Subsidiary to terminate an Employee's employment at
any time.

(c) Notwithstanding any other provision of the Plan, the Company shall
not be required to issue or deliver any certificate or certificates for shares
of Stock under the Plan prior to fulfillment of all of the following conditions:

(i) The listing, or approval for listing upon notice of
issuance, of such shares on the New York Stock Exchange;

(ii) Any registration or other qualification of such shares under
any state or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Committee may, in its discretion
upon the advice of counsel, deem necessary or advisable; and

(iii) The obtaining of any other consent, approval or permit from
any state or federal governmental agency which the Committee may, in its
discretion upon the advice of counsel, determine to be necessary or advisable.

(d) The Company shall have the right to deduct from any payment or
distribution under the Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary to satisfy all obligations for the payment of
such taxes. In case distributions are made in shares of Stock, the Company
shall have the right to retain the value of sufficient shares of Stock to equal
the amount of tax to be withheld for such distributions or require a recipient
to pay the Company for any such taxes required to be withheld on such terms and
conditions prescribed by the Committee.

(e) No Grantee shall have any of the rights of a shareholder by reason
of a Stock Option until it is exercised.

(f) This Plan shall be construed and enforced in accordance with the
laws of the State of Delaware (without regard to the legislative or judicial
conflict of laws rules of any state), except to the extent superseded by federal
law.

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<PAGE>

SECTION 12. AMENDMENT AND TERMINATION

(a) The Plan shall terminate on August 1, 2005 and no Stock Option
shall be granted hereunder after that date, provided that the Board may
terminate the Plan at any time prior thereto.

(b) The Board may amend the Plan at any time without notice, provided
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted (except as contemplated by the provisions of Section 9), (ii) materially
increase the benefits accruing to participants under the Plan or (iii)
materially modify the requirements as to eligibility for participation in the
Plan.

(c) No termination or amendment of the Plan may, without the consent
of a Grantee to whom a Stock Option shall theretofore have been granted,
adversely affect the rights of such Grantee under such Stock Option.

SECTION 13. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL

The Plan shall become effective as of August 30, 1995, subject to upon
its approval by the affirmative votes of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote thereon
at the Annual Meeting of Shareholders of the Company or any adjournment or
postponement thereof.

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<PAGE>

APPENDIX B

THE SHERWOOD GROUP, INC.

The undersigned hereby appoints James H. Lynch, Jr. and Dennis Marino and each
of them, with full power of substitution, as proxies for the undersigned, to
attend the annual meeting of stockholders of The Sherwood Group, Inc. (the
"Company"), to be held at the Company's offices at Ten Exchange Place, Jersey
City, New Jersey, 15th Floor on October 24, 1995, at 4:00 p.m., New York City
time, or any adjournment thereof, and to vote the number of shares of common
stock of the Company that the undersigned would be entitled to vote, and with
all the power the undersigned would possess, if personally present, as follows:

1. / / FOR or / / WITHHOLD AUTHORITY to vote for the following nominees for
--- ---
election as Class II directors:

Arthur Kontos
Richard J. Marino
Ralph N. Del Deo

(Instruction: To withhold authority to vote for any individual nominee, write
the nominee's name on the line provided below.)

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

2. Approval of The Sherwood Group, Inc. 1995 Stock Option Plan

/ / FOR or / / AGAINST, or / / ABSTAIN_______________
--- --- ---

3. Ratification of the employment agreement by and between the Company and
Arthur Kontos, the President, Chief Executive Officer of the Company and Vice
Chairman of the Board of Directors of the Company including the performance
goals adopted by the Employment Agreement Committee of the Board of Directors
with respect thereto.

/ / FOR or / / AGAINST, or / / ABSTAIN_______________
--- --- ---

4. Approval of the appointment of KPMG Peat Marwick as the Company's
independent auditors for the fiscal year ending May 31, 1996.

/ / FOR or / / AGAINST, or / / ABSTAIN_______________
--- --- ---

5. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>

THE PROXIES WILL VOTE AS SPECIFIED HEREIN OR, IF A CHOICE IS NOT SPECIFIED,
THEY WILL VOTE "FOR" THE NOMINEES LISTED IN ITEM 1 AND "FOR" THE PROPOSALS SET
FORTH IN ITEMS 2, 3 AND 4.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.

Receipt of the Notice of Annual Meeting of
Stockholders, Proxy Statement dated
September 18, 1995 and Annual Report
to Stockholders is hereby acknowledged:

Date:_____________________________, 1995

____________________________________________

_____________________________
(Signatures)
(Please sign exactly as your names appear
hereon, indicating, where proper, official
position or representative capacity.)

<PAGE>

APPENDIX C

EMPLOYMENT AGREEMENT
--------------------

EMPLOYMENT AGREEMENT, dated September 12, 1995, between THE SHERWOOD GROUP,
INC., a Delaware corporation ("the Company"), having its principal office at One
Exchange Plaza, New York, New York, and Arthur Kontos (the "Executive"),
residing at 715 Park Avenue, Apt. 18-B, New York, New York 10021.

The Company desires to obtain the services of the Executive, and the
Executive desires to be employed by the Company, as Vice Chairman of the
Board, President and Chief Executive Officer of the Company and certain of its
subsidiaries.

In consideration of the premises and of the mutual covenants and agreements
herein contained, the parties hereto do hereby agree as follows:

1. Term of Employment.
------------------

1.1. The Executive's "term of employment", as this phrase is used
throughout this Agreement, shall be for a period beginning as of June 1, 1995
and ending on May 31, 1996.

1.2. The Executive shall have the option to extend the term of
employment under this Agreement for one additional year from June 1, 1996 until
May 31, 1997. The following conditions shall apply to the Executive's right
to extend the term of employment pursuant to this Paragraph 1.2:

1
<PAGE>

(i) the option to extend the terms of employment may be exercised at
any time prior to January 1, 1996 by delivering to the Company a written notice
which refers to this Agreement and states that the Executive, by his delivery of
such notice, is exercising his right to extend the term of employment under this
Agreement. The delivery of such notice shall constitute an irrevocable exercise
of this extension, which exercise cannot be revoked without the prior written
consent of the Board of Directors of the Company.

(ii) In no event shall the Company be required to extend the term of
employment pursuant to this Paragraph 1.2 unless as of May 31, 1996, this
Agreement shall be in full force and effect and the Company shall not have the
right to terminate this Agreement in accordance with its terms.

(iii) In no event shall the Company be required to extend the term of
employment under this Agreement if as of May 31, 1996, the Executive shall have
exercised any right he may have to terminate this Agreement or the Executive
shall have received or be entitled to receive any payments as a result of a
Change in Control.

2. Employment. The Company shall employ the Executive as Vice Chairman
----------
of the Board, President and Chief Executive Officer of the Company and certain
of its subsidiaries as determined by the Board of Directors of the Company. The
Executive accepts such employment and agrees that through his term of employment
he will devote substantially all his business time, attention, knowledge, and
skills to the business of the Company and its subsidiaries. The services of the
Executive shall in all respects be subject to the reasonable direction of the
Board of Directors of the Company.

2
<PAGE>

3. Base Salary During Full-Time Employment. From and after the date
---------------------------------------
hereof, the Company shall pay or cause to be paid to the Executive during the
term of employment a base salary at a rate equal to $300,000 per year. Such
salary shall be paid in accordance with the Company's regular payroll practices

3
<PAGE>

4. Bonus
-----

4.1. The Executive shall receive as additional compensation a bonus (the
"Bonus") based on the Company's "Income" (as hereinafter defined) with respect
to each May 31 fiscal year of the Company during the term of employment. The
Bonus shall be calculated as follows: ten percent of the Company's first $5
million of Income during the fiscal year; 15 percent of the Company's next $8
million of Income during the fiscal year; and 18 percent of the Company's Income
over $13 million during the fiscal year. In the event that the Executive's
employment were to terminate prior to the end of a fiscal year, the Bonus to the
Executive for such partial fiscal year shall be calculated on a pro rata basis
as to the portion of the fiscal year in which the Executive was employed
hereunder; such pro rata portion to be calculated on the basis of the Company's
Income during the portion of the fiscal year prior to such termination with the
dollar amounts of the Company's Income to be adjusted on a pro rata basis. The
Company's obligation as to any unpaid Bonus shall survive termination of this
Agreement.

4.2. As used in this Agreement, "Income" shall refer to the Company's
consolidated pre-tax net income during any fiscal year in which this Agreement
is in effect without any deductions for amounts payable as Bonus hereunder or
related accruals.

4
<PAGE>

4.3. On or prior to the 75th day after the end of a fiscal year (or such
other date a determination of Bonus is to be made in the event of termination of
this Agreement prior to the end of a fiscal year), the Company's independent
public accountants shall deliver their written determination of the amount of
Income for such fiscal year to the Company. The public accountants'
determination of the foregoing shall be made in accordance with generally
accepted accounting principles consistently applied which, in the case of any
subsidiary of the Company engaged in the business as a broker-dealer shall be
such generally accepted accounting principles in common use in the securities
brokerage industry. The determination of the public accountants shall be
conclusive and shall be certified by the Employment Agreement Committee of
the Company's Board of Directors.

4.4. The Company shall each month of a fiscal year pay to the Executive as
an advance against the Bonus for such fiscal year an amount equal to one half of
the aggregate Bonus accrued for such fiscal year through the last day of the
month immediately preceding the month in which such payment is to be made less
all amounts previously paid as a Bonus advance to the Executive for such fiscal
year pursuant to this Paragraph 4.4; provided that the Company shall not be
obligated to pay a Bonus advance during any month if the Company's Income
through the end of the preceding month of the fiscal year has averaged less than
$250,000 per month. In determining the aggregate Bonus accrual, the dollar
amounts of the Company's Income shall be calculated on a pro rata basis.

5. Expenses. The Company shall also reimburse the Executive for all
--------
expenses incurred by the Executive in connection with the performance of his
duties and the discharge of his

5
<PAGE>

responsibilities hereunder, including all legal fees and other costs incurred by
the Executive in enforcing (whether by adjudication or settlement) his rights
hereunder in the event of a breach of this Agreement by the Company.

6. Termination.
------------

6.1. Voluntary. Executive may terminate this Agreement for any reason
upon 30 days prior written notice to the Company; provided, however, that such
30-day notice shall not be required for a voluntary termination by the Executive
in connection with, or within one year after, a Change in Control of the
Company, as defined in Paragraph 6.4 hereof.

6.2. Termination For Cause. The Company may terminate this Agreement, and
all of its obligations hereunder (other than payment obligations that have
accrued prior to such termination), for cause if and only if during the term of
employment (i) the Executive has engaged in fraudulent or illegal conduct to the
material detriment of the Company or (ii) the Executive has engaged in practices
to the material detriment of the Company, which constitute a substantial
disregard for his responsibilities as an employee of the Company. The Company
shall have the burden to establish by clear and preponderance of evidence that
cause exists. In the event the Company terminates this Agreement without cause
as described above, the Executive shall be entitled to receive as liquidated
damages an amount equal to the amount of liquidated damages he would have been
entitled to receive for a termination of employment in connection with a Change
in Control as provided in Paragraph 6.4 hereof.

6.3. Termination by Death or Disability. If the Executive dies during the
term of employment or if, during the term of employment, the Executive becomes
disabled so that he is

6
<PAGE>

unable substantially to perform his services hereunder (i) for a period of six
consecutive months, or (ii) for an aggregate of nine months within any period of
18 consecutive months, this Agreement and the Company's obligations hereunder
shall terminate. Prior to such termination, the Executive shall continue to
receive the compensation provided for in Paragraphs 3 and 4.

6.4. Termination by Reason of Change of Control. In the event that a
Change in Control of the Company occurs during the term of this Agreement, and
in connection with such Change in Control or within one year thereafter, the
Executive's employment with the Company is terminated either voluntarily or
involuntarily, the Executive shall be entitled to receive as liquidated damages
an amount equal to three times his average compensation (including base salary,
Bonus, and any other compensation) from the Company and its subsidiaries, as
reported for federal income tax purposes by the Executive, for the five calendar
year period preceding such termination (or such shorter period of time in the
event such employment with the Company and its subsidiaries has been less than
five years), less $1.00. A Change in Control shall be deemed to have occurred
in the event that any person (other than the Executive or persons under his
control) or group acting in concert acquires beneficial ownership of more than
50 percent of the outstanding voting stock of the Company or options or
convertible or exchangeable securities or other rights to acquire more than 50
percent of such voting stock, if the control so acquired is exercised in any
manner (including, but not limited to, any change in the composition of the
Company's Board of Directors or any attempt to influence or change the policies
of such Board). Notwithstanding the foregoing, the liquidated damages to be
paid to the Executive shall be

7
<PAGE>

reduced to the extent necessary so as not to constitute a parachute payment
under Section 280G(b)(2) of the Internal Revenue Code, as then in effect.

7. Additional Benefits. During the term of employment, the Executive, in
-------------------
addition to the compensation provided in Paragraphs 3 and 4 hereof, will be
entitled to participate in any insurance (other than key man insurance), health
plans, pension, profit-sharing, stock purchase, or other benefit plans of the
Company now existing or hereafter adopted for the benefit of its employees
generally or of the executives of the Company; provided, that where the
participation and the extent of participation by an employee or executive of the
Company in any such plans are dependent upon the discretion of the Company, then
the participation, if any, and the extent of such participation of the Executive
shall be subject in all respects to the reasonable determination of the Board of
Directors of the Company. Furthermore, the Executive shall be entitled to such
additional benefits as may be granted to him from time to time by the Board of
Directors of the Company. The Executive shall also be entitled to reasonable
vacations.

8. Restrictions.
-------------

8.1. The following provisions shall be applicable during the term of this
Agreement, irrespective of whether Executive is an employee of the Company,
except as provided in Paragraph 8.1.4. hereof:

8.1.1. Non-Competition. Executive will not, in any geographic area
within a 30-mile radius of any sales office operated by the Company at the time
of termination or within 24 months prior thereto, directly or indirectly, in any
capacity whatever, compete with the activities of the Company's sales offices or
otherwise engage in the retail brokerage industry as

8
<PAGE>

owner, financier, five percent stockholder, partner, sole proprietor, joint
venturer, or otherwise manage, operate, control, assist, participate in, be
connected with, or render any consultation or business advice with respect to,
any businesses engaged in the wholesale market-making of securities or any
businesses that compete with activities conducted by the sales offices of the
Company, except with the approval of the Company's Board of Directors. The
parties agree that the foregoing territorial and time limitations are
reasonable, and that in the event that any such territorial or time limitation
is deemed to be unreasonable by a court of competent jurisdiction, Executive
agrees and submits to the reduction of either said territorial or time
limitation, or both, to such an area or a period of time as said court shall
deem reasonable.

8.1.2. Confidentiality. Except as may be required by applicable law
or pursuant to a subpoena issued pursuant to a governmental investigation or
other legal process, Executive shall not divulge to any person who is not an
officer, director, shareholder, employee, or agent of the Company or any
subsidiary any information of a privileged or confidential nature not otherwise
disclosed which shall have come to his attention by virtue of his employment by
or association with the Company or any subsidiary.

8.1.3. No Solicitation. Except with the prior consent of the Company,
Executive will not, either for his own account or any other person directly or
in conjunction with or through any person, hire, solicit, or entice away from
the Company or any subsidiary any officer, manager, employee, consultant, or
registered account executive who is employed or rendering services to the
Company or any subsidiary or had been employed or rendered services within six

9
<PAGE>

months prior to such solicitation, whether or not such person would thereby
commit a breach of his contract of employment of services with the Company or
any subsidiary.

8.1.4. Inapplicability Restrictions. Paragraphs 8.1.1 and 8.1.3 hereof
shall not apply in the event that the employment of the Executive is terminated
without cause as set forth in Section 6.2 hereof or is terminated voluntarily or
involuntarily in connection with or within one year after a Change in Control of
the Company, as defined in Section 6.4 hereof.

8.1.5. Injunctive Relief. The parties do hereby acknowledge that money
damages alone would not adequately compensate the Company in the event of a
breach by the Executive of the foregoing provisions and, therefore, Executive
does hereby covenant and agree that, in addition to all other remedies
available to the Company at law or in equity, the Company shall be entitled to
injunctive relief for the enforcement thereof without the necessity of proving
actual damages.

8.1.6. NASD Arbitration. The parties agree to submit any dispute
concerning the terms of this Agreement, or the performance of their obligations
hereunder, to binding arbitration by the National Association of Securities
Dealers, Inc. The cost of such arbitration shall be paid equally by the Company
and the Executive unless otherwise allocated in the arbitration.

9. Notices. All notices, requests, consents, demands, and other
-------
communications, required or permitted to be given hereunder, shall be in writing
and shall be deemed to have been duly given on the date of personal delivery
thereof, or, if sent by prepaid, registered, overnight courier service, or
certified mail, on the date of deposit in the United States mail or delivery to
the courier service addressed to the parties hereto at the addresses set forth
at the beginning of

10
<PAGE>

this Agreement (or to such other or additional address or to the attention of
additional parties which any party shall designate by notice in writing to the
other in accordance herewith).

10. General
-------

10.1. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.

10.2. Captions. The paragraph headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

10.3. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements, and understandings, written or
oral, between the parties.

10.4. No Other Representations. No representation, promise or inducement
has been made by either party that is not embodied in this Agreement, and
neither party shall be bound by or liable for any alleged representation,
promise, or inducement not so set forth.

10.5. Amendments/Waivers. This Agreement may be amended, modified,
superseded, cancelled, renewed, or extended and the terms of covenants hereof
may be waived, only by a written instrument executed by both of the parties
hereto or in the case of a waiver, by the party waiving compliance. The failure
of either party at any time or times to require performance of any provision
hereto shall in no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term of covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to

11
<PAGE>

be, or construed as, a further or continuing waiver of any such breach, or a
waiver of a breach of any other term or covenant contained in this Agreement.

10.6. Effective Date;Condition to Effectiveness. This Agreement shall
not be effective and binding on the Company or the Executive unless it shall be
approved by the shareholders of the Company. The Company agrees to submit this
Agreement to the shareholders of the Company promptly after execution thereof.
If the shareholders do not approve this Agreement it shall be null and void. If
this Agreement is approved by shareholders this Agreement shall be deemed to be
in effect on June 1, 1995 for all purposes. By execution of this Agreement, the
Executive and the Company hereby terminate as of the date of the meeting of
shareholders to consider this Agreement, the First Employment Agreement as such
term is defined in that certain Letter Agreement between the Company and the
Executive dated September 15, 1993 and such Letter Agreement. In no event shall
the Executive be entitled to payments with respect to the period June 1, 1995
until the date of said meeting of shareholder's under both this Agreement and
the First Employment Agreement.

IN WITNESS WHEREOF, THE SHERWOOD GROUP, INC. and the Executive have duly
executed this Agreement as of the date first above written.

THE SHERWOOD GROUP, INC.

By:

Arthur Kontos Chairman