The Sherwood Group, Inc.
                            10 Exchange Place Centre
                             Jersey City, NJ 07302





August 8, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: The Sherwood Group, Inc.
      Report on Form 10-K for the Year Ended May 31, 1997

Gentlemen:

Enclosed please find the following  material submitted on behalf of The Sherwood
Group, Inc. ("Company"):

         One  complete  copy of the  Company's  report on Form 10-K for the year
ended May 31, 1997 including financial statements and exhibits.

Thank you for your attention to this matter./

Very truly yours,

Denise Isaac
Denise Isaac
Chief Financial Officer
And Principal Accounting Officer








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                     Securities And Exchange Commission
                           Washington, D.C. 20549

                                Form 10-K
              [X] Annual Report Pursuant To Section 13 Or 15(d)
                    Of The Securities Exchange Act Of 1934
                    For the fiscal year ended May 31, 1997
                                    Or
            [ ] Transition Report Pursuant To Section 13 Or 15(d)
                    Of The Securities Exchange Act Of 1934
                       For the Transition Period from to

                          Commission File No. 1-9480
                            The Sherwood Group, Inc.
            (Exact name of registrant as specified in its charter)

                Delaware                           22-2394480
    (State or other jurisdiction of            (I.R.S. Employer
     incorporation or organization)           Identification Number)

 10 Exchange Place Centre, Jersey City, New Jersey       07302
  (Address of principal executive offices)             (Zip Code)

    Registrant's telephone number, including area code (201) 946-2200

        Securities  registered  pursuant to Section 12(b)of the Act:

                                                 Name of each exchange
       Title of each class                        on which registered
    Common Stock, .01 par value                 New York Stock Exchange

       Securities  registered  pursuant to Section 12(g) of the Act:

                                  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of  July  31,  1997,  12,694,665  common  shares  were  outstanding,  and the
aggregate market value of the common shares of The Sherwood Group,  Inc. held by
non-affiliates was approximately $75,739,000.

                   Documents Incorporated By Reference

           Document Incorporated                            Part of Report
               By Reference                             Into Which Incorporated
Proxy Statement for Annual Meeting to be held October 21, 1997    Part III

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<PAGE>


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                                                      - 81 -
Item 1.     Business


Introduction

The Sherwood  Group,  Inc. (the  "Company") is a holding company whose principal
wholly owned subsidiaries are Sherwood Securities Corp. ("Sherwood  Securities")
and Triak Services Corp. ("Triak"), whose primary operating division is National
Discount Brokers ("NDB").

Sherwood  Securities was formed in 1968 and  specializes in the market making of
NASDAQ and Small-Cap securities on a wholesale basis. As a national trading firm
with  offices  in Jersey  City,  New  Jersey;  Chicago,  Illinois;  Minneapolis,
Minnesota; Denver, Colorado; Los Angeles, California; and Boston, Massachusetts,
Sherwood Securities trades  approximately 3,400 NASDAQ and Small-Cap  securities
as market maker and principal for its own account. Sherwood Securities also acts
as a Specialist in 20 equity  securities on the American Stock Exchange ("AMEX")
and provides limited retail brokerage services.

NDB,  another  registered  broker-dealer,  is a  deep  discount  brokerage  firm
specializing in trade execution for individual investors.

The  Company  and  its  wholly  owned  subsidiary,  SHD  Corporation,   formerly
Dresdner-NY  Incorporated  ("DNY"),  also own limited  partnership  interests in
Equitrade Partners, a New York limited partnership  ("Equitrade").  Such limited
partnership  interests aggregate  approximately 75% of Equitrade's capital as of
July 31,  1997.  Equitrade  is a  registered  specialist  on the New York  Stock
Exchange  ("NYSE")  and, as of July 31,  1997,  was a  specialist  in 153 equity
securities.

MXNet Inc., a wholly owned  subsidiary  of the Company,  delivers  comprehensive
technical solutions to trading organizations.

On January 24, 1997, the Company acquired,  from its joint venture partner,  the
remaining  51%  of  Anvil  Institutional  Services  Company  (the  "Anvil  Joint
Venture") that it did not  previously  own. The Company,  therefore,  became the
100% owner of Anvil  Institutional  Services,  Inc.  ("Anvil"),  a broker-dealer
previously  owned by the Anvil Joint  Venture.  Anvil is registered in New York,
California and Ohio.

On May 2, 1997, the Company  completed the  acquisition of all the stock of DNY,
which was  engaged in the  specialist  business  on the NYSE.  The  shares  were
acquired from Dresdner Bank AG for $15,261,493 in cash. Upon consummation of the
acquisition of DNY, DNY  transferred the assets (except cash) and liabilities of
DNY to Equitrade. The name of DNY was subsequently changed to SHD Corporation.

On January 24, 1997, the Company acquired,  from its joint venture partner,  the
remaining  51%  of  Anvil  Institutional  Services  Company  (the  "Anvil  Joint
Venture") that it did not  previously  own. The Company,  therefore,  became the
100% owner of Anvil  Institutional  Services,  Inc.  ("Anvil"),  a broker-dealer
previously owned by the Anvil Joint Venture.

On December 22, 1992, the Board of Directors approved a program to repurchase up
to  1,500,000  shares  of the  Company's  common  stock.  The  shares  are to be
purchased  from  time to time in the  open  market  or in  privately  negotiated
transactions.  The shares will be held as treasury shares. Through May 31, 1997,
1,351,482 shares had been  repurchased as part of this program  excluding shares
received by the Company as consideration  for the exercise of options to acquire
common stock of the Company or to pay withholding  taxes related  thereto.  From
June 1, 1997 to July 31, 1997, no additional  shares were repurchased  under the
program.

On December 31, 1996,  the Company  divested  itself of its  investment in Stock
Market Index, Inc. ("SMI"), a wholly owned subsidiary.

The Company was  incorporated  under the laws of Delaware in December 1981 under
the name The  Sherwood  Equity  Group Ltd. It changed  its name to The  Sherwood
Capital Group,  Inc. in 1983 and in 1987 adopted its present name. The Company's
common stock is listed on the NYSE under the symbol "SHD".

The  Company's  principal  executive  offices are  located at 10 Exchange  Place
Centre, Jersey City, New Jersey and its telephone number is (201) 946-2200.
<TABLE>

Revenue by Source

The  following  table  sets  forth  sources  of  the  Company's  revenues  on  a
comparative basis for the periods indicated:
<CAPTION>

                                                          Fiscal Year Ended May 31,
                                          1997                           1996                          1995 (a)
                                     Amount            %            Amount           %            Amount           %
<S>                            <C>                <C>         <C>               <C>         <C>   
Firm securities
     transactions (net)        $122,658,577        67.74      $129,788,217       72.03       $77,998,126       75.74
Commission income                32,638,949        18.03        30,723,379       17.05        14,412,331       14.00
Floor brokerage
     income                      14,588,057         8.06        11,419,504        6.34         2,389,616        2.33
Equity income (loss) in
     partnerships                  (26,176)       (0.01)            40,106         .02         3,597,096        3.49
Investment securities
     gain                                 -            -                 -           -            76,375         .07
Interest and dividend
     income                       7,774,806         4.29         5,907,779        3.28         3,465,614        3.37
Fee income                        2,521,713         1.39         1,353,686         .75           395,417         .38
Other                               913,051         0.50           952,537         .53           640,804         .62
                                    -------   ----------  -------- -------  ----------  -------- -------  ---------
income
               
Total revenue                  $181,068,977       100.00      $180,185,208      100.00      $102,975,379      100.00
                               ============       ======      ============      ======      ============      ======
<FN>

(a)  For the period June 1994 through  February  1995, the results of operations
     for Equitrade  were  accounted for using the equity method and are included
     in equity income in partnerships. Thereafter, the results of operations for
     Equitrade  were  consolidated  with those of the  Company.  See "Results of
     Operations".
</FN>

</TABLE>

Market Making and Specialist Activities of Sherwood Securities

General.  A  significant  portion of the  Company's  revenues  (see  "Revenue by
Source")  is  directly  related  to the market  making  activities  of  Sherwood
Securities.  As a  national  market  maker in NASDAQ and  Small-Cap  securities,
Sherwood Securities acts as a wholesale dealer in the execution of transactions.
In "making a market" in approximately 3,400 NASDAQ and Small-Cap securities,  as
of July 31, 1997,  Sherwood  Securities acts as a principal,  and on occasion as
agent, in transactions  through buying,  selling and maintaining an inventory in
the securities in which it makes a market.

Sherwood Securities is prepared to buy or sell any of the securities in which it
has elected to be a market maker. Approximately 2,600 of the securities in which
Sherwood  Securities is a market maker,  as of July 1997,  were displayed in the
electronic  quotation  medium  referred  to by the  acronym  "NASDAQ"  (National
Association of Securities Dealers Automated  Quotation System).  The firms which
have elected to make a market in a security  quoted on NASDAQ  display the price
at which  they are  willing  to buy (bid) or sell (ask)  these  securities.  The
market  maker  adjusts its bid and ask prices in response to supply,  demand and
other factors affecting the market for each security. Approximately 2,100 of the
securities  displayed on NASDAQ in which Sherwood  Securities makes a market are
listed  on  the  national  market  system  list  of  NASDAQ.  Approximately  500
securities  in which  Sherwood  Securities  makes a  market  are  quoted  on the
National  Association  of Securities  Dealers,  Inc.  ("NASD") list of Small-Cap
Issues.

Special relations with brokers.  A significant  portion of Sherwood  Securities'
trading volume is transacted over a dedicated  communications  network.  Private
telephone lines connect  Sherwood  Securities'  trading  operations to the order
entry  departments  of  approximately  300  brokerage  firms  and  institutional
customers.  This private  communications  network  provides  these  parties with
immediate access to Sherwood  Securities' trading operations and facilitates the
handling of their customer orders.

As part of this system,  Sherwood Securities has direct communication lines with
40 regional  brokerage firms across the country.  In addition to providing these
firms  with  direct  access to  Sherwood  Securities'  trading  operations,  the
dedicated  private  lines allow these firms to offer this direct access to other
brokerage  firms in their  geographic  regions.  Firms  that are  interested  in
dealing  with  Sherwood  Securities  in a  particular  security can utilize this
service to allow them quick  access to the  market  place.  Sherwood  Securities
offers direct  access  through the  dedicated  private lines to those  brokerage
firms acting as market makers in the geographic regions of Sherwood  Securities'
branch offices.

Sherwood Securities has a correspondent  department to handle order flow for the
NASDAQ and Small-Cap  transactions of participating  retail brokers and dealers.
Through  its  correspondent  department,  it executes  the NASDAQ and  Small-Cap
orders for these firms.  These orders  include orders  electronically  routed to
Sherwood Securities by these firms for certain of their clearing accounts.

Specialist  activities.  As of July 31, 1997,  Sherwood  Securities  served as a
specialist in 20 equity securities on the AMEX. This activity is cleared through
Spear Leeds & Kellogg ("SLK"). The Company and SHD also hold limited partnership
interests  aggregating  approximately  75% of the  capital of  Equitrade,  whose
activity is also cleared through SLK. As of July 31, 1997, Equitrade served as a
specialist in 153 equity securities on the NYSE.

Securities positions. Sherwood Securities and Equitrade take both long and short
positions  in  securities  in which  they make a  market.  The  following  table
illustrates,  for the fiscal years  indicated,  the highest,  lowest and average
month-end  inventory  at market  value  (based on the  aggregate of the long and
short  position  of trading  securities).  The  following  securities  positions
include  positions held by Equitrade  subsequent to February 1995. See Note 4 of
Notes to Consolidated Financial Statements.





<TABLE>

<CAPTION>



   Fiscal Year                  Highest             Lowest             Average
   Ended May 31               Month End          Month End           Month End
   ------------               ---------          ---------           ---------

   <S>                      <C>                 <C>                 <C>       
   1995*                    $69,158,382         25,653,178          47,079,105
   1996**                   $83,622,273         58,791,795          71,981,880
   1997***                  $99,440,731         60,363,793          76,123,209

<FN>

   *     Includes  Highest Month End, Lowest Month End and Average Month End for
         positions  held as a  specialist  on AMEX of  $1,806,318,  $333,902 and
         $1,187,637,  respectively. Includes Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $18,846,852, $11,492,129 and
         $14,109,605, respectively.
</FN>
<FN>

   **    Includes  Highest Month End, Lowest Month End and Average Month End for
         positions  held as a  specialist  on AMEX of  $1,239,808,  $555,261 and
         $890,693,  respectively.  Includes  Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $33,016,783, $19,440,618 and
         $24,893,510, respectively.
</FN>
<FN>

   ***Includes  Highest  Month End,  Lowest Month End and Average  Month End for
         positions  held as a  specialist  on AMEX of  $1,550,693,  $486,011 and
         $952,960,  respectively.  Includes  Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $38,349,683, $19,732,920 and
         $26,225,460, respectively.
</FN>
</TABLE>

The  securities  positions  on any  one day  may  not be  representative  of the
exposure on any other day because  securities  positions may vary  substantially
with economic and market  conditions,  allocations and  availability of capital,
and trading volume.


Investments

Venture  capital  investments.  The Company and its  subsidiaries,  from time to
time, make and continue to hold investments in developing companies or companies
in need of additional  financing.  Some of these  investments  are in restricted
securities  and, as such, may only be sold pursuant to a registration  statement
under  the  federal  Securities  Act of 1933,  as  amended,  or  pursuant  to an
exemption from registration thereunder.

The Company, for financial reporting purposes, generally carries venture capital
investments at fair value as determined by the Board of Directors.  Although the
securities of certain of the companies in which the Company and its subsidiaries
invested may be publicly traded, the Company's valuation of such holdings may be
discounted  significantly  from the public market price due to  restrictions  on
transfer,  the size of the  holdings or other  legal,  contractual  or practical
restrictions on disposition.

On October 4, 1993,  the Company paid  $400,000 for 8,000 shares of common stock
of Emmett A. Larkin Company, Inc., a minority owned broker-dealer.  This holding
represents,  as of May 31, 1997,  approximately  15% of the  outstanding  common
shares of Emmett A. Larkin Company, Inc.

On August 13, 1996, the Company  purchased  100,000  restricted shares of Synxis
Corp. common stock from Intra Serve Corp. for $100,000.

Investment  in  property.  The  Company,  through its wholly  owned  subsidiary,
Sherwood Properties Corp., is an investor in a real estate limited  partnership.
This investment is estimated to have a nominal value.


Other Business

Institutional  business.   Sherwood  Securities  primarily  executes  securities
transactions  for  institutional  investors such as banks,  mutual funds,  money
managers and insurance  companies.  Such  investors  normally  purchase and sell
securities  in large  quantities,  which require  special  marketing and trading
expertise  provided  by  a  staff  of  55  institutional   sales  people.   Most
transactions with  institutional  customers involve securities in which Sherwood
Securities is a market maker and are executed as principal transactions.

Retail securities  business.  NDB is a deep discount brokerage firm specializing
in  trade   execution  for  individual   investors   through  IVR  and  internet
distribution  channels.  NDB's strategy is to provide low cost transactions with
quick  execution  and a higher  level of  service  than that  provided  by other
discount  brokers.  In addition,  NDB was created as part of a plan to capture a
greater  share of NASDAQ  activity.  This  vertical  integration  allows  NDB to
receive  fees from  customers  to  execute  orders  and then pass the  orders to
Sherwood Securities for market-making opportunities.  As of July 31, 1997, NDB's
activities  were conducted  through five offices  located  throughout the United
States and NDB had over 102,000 customers.


Interest Revenue

Sherwood  Securities,  NDB and Equitrade receive interest  primarily from credit
balances that may exist from time to time in the clearance  accounts  maintained
with their clearing brokers.  NDB also receives interest based on debit balances
maintained by its customers in their accounts held by NDB's clearing broker.  In
addition,  the Company  received  interest from  short-term  investments in U.S.
Treasury securities.


Clearing Arrangements

Sherwood  Securities,  NDB and Equitrade  maintain  relationships  with clearing
brokers who effect  clearance and settlement of their  securities  transactions.
The clearing  brokers  maintain custody of cash and securities and provide other
services.  Sherwood  Securities,  NDB  and  Equitrade  are  dependent  upon  the
operational  capacity  and  ability of their  clearing  brokers  for the orderly
processing of their transactions.

Sherwood  Securities  clears its wholesale  market-making  transactions  through
National Financial Services Corporation ("NFSC"). Broadcort Capital Corporation,
a  wholly  owned  subsidiary  of  Merrill  Lynch & Co.,  Inc.,  clears  Sherwood
Securities'  and,  through  December  31,  1996,  SMI's  customer  transactions.
Equitrade's NYSE and Sherwood  Securities' AMEX transactions are cleared through
SLK. The Sherwood  Securities  clearing agreement with NFSC is for a term of one
year and may be terminated  by either party upon 180 days prior written  notice.
Without such prior written notice, the agreement  automatically renews annually.
The Sherwood  Securities clearing agreement and the Equitrade clearing agreement
with SLK are for an indefinite period of time and may be terminated upon 35 days
prior written notice by either party. The Sherwood Securities clearing agreement
with Broadcort Capital Corporation  ("Broadcort") is for an indefinite period of
time and may be terminated upon 180 days prior written notice by either party.

NDB's  transactions  are cleared  through the  Pershing  Division of  Donaldson,
Lufkin  &  Jenrette  Securities  Corporation  ("Pershing").   The  NDB  clearing
agreement  with  Pershing  is  for an  indefinite  period  of  time  and  may be
terminated upon 90 days prior written notice by either party.

Anvil's  transactions  are  cleared  through  Pershing  and  Broadcort.  Anvil's
clearing  agreement with Pershing is for an indefinite period of time and may be
terminated upon 90 days prior written notice by either party.  Anvil's  clearing
agreement  with  Broadcort  is for an  indefinite  period  of  time  and  may be
terminated upon 60 days prior written notice by either party.



Personnel

As of July 31, 1997,  the Company had 564  full-time  employees of which 365 are
salespeople,  traders and trading assistants. Included in the preceding employee
counts are NDB's 236  full-time  employees of which 134 are sales  personnel and
Equitrade's 52 full-time  employees of which 46 are trading  personnel.  None of
the Company's personnel are covered by a collective  bargaining  agreement.  The
Company considers its relations with its personnel to be satisfactory.

Sherwood  Securities'  sales and trading  personnel,  NDB's sales  personnel and
Equitrade's  trading  personnel,  and  certain  members  of  management  of such
activities  are  required  to take  examinations  given by the NASD.  In certain
circumstances,  additional  examinations  are  required  in order  for sales and
trading  personnel to be qualified  to do business in various  states.  Sherwood
Securities'  traders  receive a percentage of trading  profits as  compensation.
They do not receive  salaries.  NDB's sales  personnel  work on a salary  basis.
Except  for  Equitrade's  general  partners  who  are  paid  on  a  draw  basis,
Equitrade's trading personnel work on a salary basis.

Effective  April 6, 1993,  the  Executive  Committee  of the Board of  Directors
mandated that in addition to whatever  normal vacation time to which an employee
is entitled,  all full-time  employees  (except  Equitrade's) who have completed
five years of employment (three years for traders and institutional salespeople)
are required to take a one-month paid sabbatical.  Such sabbatical must be taken
within one year after the employee's fifth  anniversary  (third  anniversary for
traders and  institutional  sales people).  Sabbaticals may also be required for
each subsequent five or three year period of employment completed.  In addition,
Sherwood  Securities  has  usually  assumed  any  trading  losses  incurred in a
trader's account during a trader's sabbatical.


Competition

While  Sherwood  Securities  is one of several  broker-dealers  whose  principal
activity  has been  making  markets  in a broad  range of NASDAQ  and  Small-Cap
securities  for its own  account,  there are many  other  broker-dealers  making
markets  in these  securities.  Sherwood  Securities  generally  has one or more
competing  market makers for each security in which it makes a market.  Sherwood
Securities  competes  primarily on the basis of price,  its experience in market
making,  its relationship with its customers,  the availability of its dedicated
private communications system and its ability to effect large transactions in an
orderly manner.

The  deep  discount  retail  brokerage  business  engaged  in by NDB  is  highly
competitive.  Many  discount  firms  compete  on  price.  NDB's  ability  to  be
competitive  will  depend on its ability to deliver a low price  product  with a
higher level of service.

NYSE specialist  firms,  such as Equitrade,  compete for new listings based upon
depth of the markets  that the firms make,  capital  risk and the quality of the
firms' personnel. Based upon these three criteria, allocations of new issues are
awarded.  Additional  competition  has arisen from third market activity and the
internalization  and regionalization of trading activity in securities listed on
the NYSE.

Numerous  mergers among firms in the securities  industry have resulted in firms
with strengthened financial resources. In addition, companies not engaged in the
securities business,  but having substantial financial resources,  have acquired
securities firms. These developments have increased  competition from securities
firms with  substantially  greater  capital  resources  than  those of  Sherwood
Securities.  Ultimately, these developments,  as well as other developments that
could result in greater  involvement  by banks in the securities  industry,  may
lead to the creation of large integrated  financial  services firms which may be
able to compete more effectively than Sherwood  Securities by offering a greater
range of financial services.


Regulation

The securities industry in the United States is subject to extensive  regulation
under federal and state laws. The Securities and Exchange  Commission ("SEC") is
the federal agency charged with  administration of the federal  securities laws.
However,  certain  regulatory  matters have been  delegated  to  self-regulatory
organizations, such as the NASD. The designated SRO for Sherwood Securities, NDB
and Anvil is the NASD, while the designated SRO for Equitrade is the NYSE. These
self-regulatory  organizations adopt rules (which are subject to approval by the
SEC) governing certain aspects of the industry and conduct periodic examinations
of member  broker-dealers.  Securities  firms are also subject to  regulation by
state securities  commissions in the states in which they are registered.  As of
July 31, 1997,  Sherwood  Securities was registered with the SEC, the NASD, AMEX
and in 20 states and  Washington,  D.C. As of July 31, 1997,  NDB was registered
with the SEC, the NASD and in all 50 states and Washington,  D.C. As of July 31,
1997,  Equitrade was registered  with the SEC and the NYSE. As of July 31, 1997,
Anvil was  registered  with the SEC,  the NASD and in 3  states.  As of July 31,
1997, SHD was registered with the SEC and in 1 state.

The legal and compliance  departments of Sherwood Securities,  NDB and Equitrade
are responsible  for ensuring the Company's  compliance with the applicable laws
and  regulations.  The  legal  and  compliance  departments  work  with  trading
personnel in implementing  new regulatory  procedures,  maintaining the required
trading records, maintaining appropriate files, and monitoring trading activity,
among other  activities.  The legal and compliance  departments  also handle all
contacts with the various regulatory agencies, on both state and federal levels.
These duties are diverse and range from giving comments on proposed  legislation
to responding to requests for  information  regarding  trading  activity.  Other
areas  in  which  the  legal  and  compliance  departments  are  active  are the
registration of associated persons and responding to customer inquiries.

The  regulations  to which  broker-dealers  are subject cover all aspects of the
securities   business,   including   sales  methods,   trade   practices   among
broker-dealers,  capital structure of securities firms,  recordkeeping,  and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and self-regulatory  authorities, or changes in the
interpretation  of enforcement of existing laws and rules,  may directly  affect
the  mode  of  operation  and   profitability   of   broker-dealers.   The  SEC,
self-regulatory  organizations  and state  securities  commissions  may  conduct
administrative  proceedings,  which can result in censure,  fines, suspension or
expulsion of a broker-dealer,  its officers or employees.  The principal purpose
of regulation  and discipline of  broker-dealers  is the protection of customers
and securities  markets rather than protection of creditors and  stockholders of
broker-dealers.

During  1994,  the  Department  of  Justice  (the  "DOJ"),  the SEC and the NASD
embarked on investigations and regulatory  initiatives  involving the activities
of many  market  makers in  securities  traded on NASDAQ.  The DOJ and  Sherwood
Securities, along with several other broker-dealers,  entered into a Stipulation
and Order on July 16,  1996 which  resolved,  subject to  approval by the United
States  District Court of the Southern  District of New York, a civil  complaint
filed by the DOJ as a  result  of its  investigation.  On April  22,  1997,  the
District  Court  approved the  Stipulation  and Order but a notice of appeal was
filed on May 21, 1997 by the Intervenors,  plaintiffs in the multidistrict civil
antitrust action entitled In re NASDAQ  Market-Makers  Antitrust Litigation (MDL
1023).  The case is pending  before the United  States  Court of Appeals for the
Second Circuit. See Item 3, Legal Proceedings".

Changes  in  regulations  pertaining  to NASDAQ  may have a  material  effect on
Sherwood Securities'  over-the-counter  trading activities.  In August 1996, the
SEC adopted  certain new rules  known as the limit  order  handling  rules which
alter the manner in which orders for NASDAQ and listed  securities  are handled.
These  rules   became   effective   on  January  20,   1997,   with  respect  to
exchange-listed  stocks and certain NASDAQ  securities,  and have been phased in
for additional NASDAQ stocks during 1997. These rules, and other rules that have
been proposed,  regulatory  actions and changes in market  practices may have an
adverse impact on Sherwood Securities'  transaction revenues,  profit margin and
on the manner in which it conducts its business.


Customer Protection and Insurance

Sherwood  Securities,  NDB and Equitrade are members of the Securities  Investor
Protection  Corporation  ("SIPC") which provides protection for customers in the
event of the  liquidation of the firm.  Customers'  accounts are protected up to
$500,000 for each customer, as defined in the Securities Investor Protection Act
of 1970, as amended, with a limitation of $100,000 for claims for cash balances.
In addition, each of Sherwood Securities', NDB's and Equitrade's clearing agents
is a member of SIPC and carries private protection which provides,  in the event
of the liquidation of such clearing agents,  additional  coverage (in some cases
up to $25,000,000)  for securities  positions for each of Sherwood  Securities',
NDB's and Equitrade's customers.

The Company carries brokers' blanket bonds covering Sherwood Securities, NDB and
Anvil  for  loss  or  theft  of  securities,   forgery  of  checks  and  drafts,
embezzlement,  certain employee misconduct and misplacement of securities.  Such
bonds provide total coverage of $750,000 for Sherwood  Securities,  $500,000 for
NDB and $60,000 for Anvil. The bonds contain  deductibles ranging from $4,500 to
$10,000.


Risk Assessments

Sherwood  Securities' and  Equitrade's  trading,  market making,  specialist and
brokerage  activities expose the Company's capital to significant  risks.  These
risks  include  absolute and relative  price  movements,  price  volatility  and
changes  in  financial  instrument  liquidity  or the  markets in which they are
traded, over which Sherwood Securities and Equitrade have virtually no control.

Sherwood  Securities  and Equitrade  monitor  their risks by constant  review of
their trading positions.  The management of trading positions is enhanced by the
review of mark-to-market  valuations and/or position summaries on a daily basis.
To this end, Sherwood  Securities employs an automated  proprietary  trading and
risk  management  system which provides real time,  on-line risk  management and
inventory  control.  Any trades that  exceed  pre-determined  parameters  can be
monitored by upper  management as can individual and aggregate  dollar  position
totals and real time profits and losses.

In addition, Equitrade, as a specialist on the NYSE, and Sherwood Securities, to
the extent it is a specialist on the AMEX, are subject to  regulations  pursuant
to which  each of them may be  required  to  stabilize,  or  participate  in the
stabilization  of certain  securities  on those  exchanges.  In the event either
Equitrade  or  Sherwood  Securities  is  required  to  stabilize  the  price  of
securities  which are  declining  in value,  whether as a result of a  declining
market or otherwise, either or both of them could suffer substantial losses.


Net Capital and Customer Reserve Requirements

Every registered  broker-dealer doing business with the public is subject to the
Uniform Net Capital Rule 15c3-1 (the "Rule")  promulgated  by the SEC. The Rule,
which  is  designed  to  measure  the  financial   integrity  and  liquidity  of
broker-dealers, specifies minimum net capital requirements. Sherwood Securities,
NDB and Equitrade, Anvil and SHD are subject to the Rule.

The Rule provides that a broker-dealer  doing business with the public shall not
permit its net  capital to be less than the greater of a stated  minimum  dollar
requirement or one-fifteenth of its aggregate  indebtedness (the "basic method")
or,  alternatively,  that it not  permit  its net  capital  to be less  than the
greater of a stated  minimum  dollar  requirement  or 2% of its aggregate  debit
items computed in accordance with Rule 15c3-3 (the "alternative method").

The stated minimum dollar requirement for Sherwood Securities, which has elected
the alternative  method, is $1,000,000.  The stated minimum dollar  requirements
for NDB,  Equitrade,  Anvil and SHD, each of which has elected the basic method,
are $250,000, $250,000, $50,000 and $100,000, respectively.

In computing net capital  under the Rule,  various  adjustments  are made with a
view to  excluding  assets not  readily  convertible  into cash and to provide a
conservative  statement  of  other  assets,  such  as the  firm's  inventory  of
securities.  To that end,  a  deduction  is made  against  the  market  value of
securities  to  reflect  the  possibility  of a  market  decline  prior to their
disposition.  Thus,  net capital rules impose  financial  restrictions  upon the
Company's  businesses  that are more  severe  than those  imposed on concerns in
other types of business.

From time to time, the Company has needed to borrow funds in connection with its
trading  activities.  The Company currently has no committed lines of credit and
such borrowings were done on an "as needed" basis.

Compliance with the Rule may limit the operations of Sherwood  Securities,  NDB,
Equitrade, Anvil and SHD that require the use of significant amounts of capital,
such as market  making  activities.  Further,  assets of the Company,  which are
included in the Company's minimum net capital are not available for distribution
to the  shareholders  of the Company in the form of dividends or otherwise.  See
Note 13 of Notes to Consolidated Financial Statements. Sherwood Securities, NDB,
Equitrade,  Anvil  and SHD are  presently  in  compliance  with the net  capital
requirements.  Failure to  maintain  the  required  net  capital  may  subject a
broker-dealer  to  suspension  of  business  and  may  ultimately   require  its
liquidation.

Sherwood Securities, NDB, Anvil and SHD have been granted exemptions by the NASD
from  the   computation   for   determination   of  reserve   requirements   for
broker-dealers.  The exemptions were granted pursuant to Rule  15c3-3(k)(2)(ii).
During the period from June 1, 1996 through May 31, 1997,  Sherwood  Securities,
NDB, Anvil and SHD were in compliance with the condition of this exemption.



Item 2.     Properties


Sherwood  Securities'  and the Company's  office and trading  facilities  occupy
approximately  36,600 square feet of space at 10 Exchange  Place Centre,  Jersey
City,  New  Jersey  07302  under a lease  signed in  December  1994.  This lease
commenced  on  January  1,  1995 and  expires  on  January  31,  2007.  Sherwood
Securities'  obligation to pay base rent began on May 13, 1997.  The  obligation
for any operating escalations,  as defined in the lease agreement, was effective
as of January 1, 1995.  Commencing  May 13, 1997,  base rent on the new space is
approximately  $1,025,000 per annum to July 31, 2000 and $1,172,000  from August
1, 2000 to January 31, 2007.

In  December  1996,  NDB  relocated  its  office  and sales  facilities  from 50
Broadway, New York, New York 10004 to 7 Hanover Square, New York, New York 10004
under a lease signed in March 1996. This lease, for approximately  36,000 square
feet,  commenced  on April 1, 1996 and  expires on  September  29,  2008.  NDB's
obligation to pay base rent began on April 1, 1997.  The obligation for any real
estate tax and operating  escalations,  as defined in the lease  agreement,  was
effective as of April 1, 1996.  Commencing  April 1, 1997,  base rent on the new
space is  approximately  $718,000 per annum.  During fiscal 1996, in conjunction
with the terms of its leases at its former location, NDB paid a total of $60,000
in order to terminate those leases by October 31, 1996.

See Note 14 to the Company's  Consolidated  Financial  Statements for additional
information  concerning  other leases to which the Company,  its subsidiaries or
its divisions are parties.




Item 3.     Legal Proceedings

Many  aspects  of the  business  of the  Company  and its  subsidiaries  involve
substantial  risks of potential  liability.  In recent years,  there has been an
increasing incidence of litigation involving the securities industry,  including
class action suits that generally seek substantial damages. Companies engaged in
the  underwriting  and  distribution  of securities  are exposed to  substantial
liability  under  federal  and  state  securities  laws.  The  Company  and  its
subsidiaries  are,  from  time  to  time,  involved  in  proceedings  with,  and
investigations by, governmental and self-regulatory agencies.

The Company's  subsidiaries,  and in some cases the Company,  have been named as
defendants  in lawsuits that allege,  among other things,  violations of Federal
and state  securities and related laws. A substantial  settlement or judgment in
any of these cases could have a material adverse effect on the Company. Although
there can be no assurance  that such lawsuits and  investigations  involving the
Company  are not  likely to have a  material  adverse  effect on the  results of
operations of the Company in any future period, depending in part on the results
for such period,  based on information  currently  available,  management of the
Company  believes  that any such lawsuits and  investigations  are not likely to
have a material  adverse  effect on the  consolidated  financial  condition  and
results of operations or liquidity of the Company.

In May 1994, Sherwood Securities,  together with many other market-makers on the
NASDAQ,  was  named  as a  defendant  in a  series  of  purported  class  action
complaints  that have since been  consolidated  for  pre-trial  purposes  in the
United States District Court for the Southern District of New York (the "Court")
under the caption In Re: NASDAQ Market-Maker Antitrust Litigation,  94 Civ. 3996
(RWS).  An  Amended   Consolidated   Complaint  was  then  filed.   The  Amended
Consolidated Complaint alleged that the defendant firms engaged in activities as
market-makers  on the NASDAQ  over-the-counter  market that violated the federal
antitrust laws. The plaintiffs sought declaratory and injunctive relief, damages
in an amount to be  determined  and subject to trebling and  additional  relief.
Together with the other defendant market-makers,  the Company joined in a motion
to dismiss the Amended Consolidated Complaint, which was granted by the Court. A
Second Amended  Consolidated  Complaint was filed on August 22, 1995. The Second
Amended  Consolidated  Complaint repeated most of the allegations of the Amended
Consolidated  Complaint,  but plaintiffs  limited their claims to  approximately
1,659 stocks traded on NASDAQ. On December 18, 1995,  Sherwood  Securities filed
an answer to the Second Amended  Consolidated  Complaint  denying  liability and
asserting   certain   affirmative   defenses.   Plaintiffs'   motion  for  class
certification was argued and a decision was issued on November 26, 1996 granting
in part plaintiffs'  motion in this action for class  certification  pursuant to
Rules 23(b)(2) and 23(b)(3) of the Federal Rules of Civil Procedure. On April 9,
1997, Sherwood  Securities entered into a Settlement  Agreement with plaintiffs'
co-lead counsel on behalf of the class plaintiffs in this matter. The Settlement
Agreement  provided  for  payment  by  Sherwood  Securities  of  $4,375,000  per
percentage  point of its  market  share of the  "Defendants'  Market"  which was
defined as the 35 NASDAQ market-maker  defendants' total number of shares traded
as   market-makers  in  the  Class  Securities  (a  designated  list  of  NASDAQ
securities) during the period May 1, 1989 to May 27, 1994. Sherwood  Securities'
market share of the Defendants' Market was estimated in the Settlement Agreement
to be 2.10%,  which  estimate  would  result  in a total  principal  payment  of
$9,187,500.  The market share estimate,  however,  was subject to a verification
procedure and adjustment set forth in the Settlement  Agreement.  The Settlement
Agreement was later  replaced  with an Amended  Settlement  Agreement,  with the
effective date remaining April 19, 1997. The Amended Settlement  Agreement fixed
Sherwood  Securities'  principal payment at $9,187,500,  thereby eliminating the
need for any  further  proceedings  concerning  Sherwood  Securities'  estimated
market share. The Amended  Settlement  Agreement provides for the payment of the
$9,187,500  in two  installments,  50% ten days  after  the date of the  Amended
Settlement Agreement,  and the other 50%, plus accrued interest, 365 days later.
The first such  installment was, in fact, paid on April 23, 1997. There are also
non-monetary  covenants in the Amended Settlement  Agreement which do not become
effective  unless and until 23 or more future settling  defendants  agree to the
entry  of a  stipulation  and  order  containing  the  same  covenants.  In  the
non-monetary covenants,  Sherwood Securities has agreed to refrain from engaging
in certain types of activities in connection with its NASDAQ market making.  One
or more  of  these  non-monetary  covenants  are  subject  to  being  voided  in
circumstances  set  forth  in the  Amended  Settlement  Agreement.  The  Amended
Settlement  Agreement  provides  for a release by "Class  Members" of  "Released
Claims" against  Sherwood  Securities and certain related persons and affiliates
as such terms are  defined in the  Amended  Settlement  Agreement.  The  Amended
Settlement  Agreement  is subject to the  approval  of the  Court.  The  Amended
Settlement Agreement was submitted to the Court for Preliminary Approval on June
30, 1997. If Preliminary  Approval is granted,  the Amended Settlement Agreement
will remain subject to Final Approval after notice to the Class. There can be no
assurance  that the Court will  approve  the  Amended  Settlement  Agreement  as
submitted or that if the Court approves the Amended  Settlement  Agreement,  the
final judgment of the Court will not be appealed.  If appealed,  there can be no
assurance that the final judgment of the Court will be affirmed.  If the Amended
Settlement  Agreement  is not  approved  by the Court or,  if  appealed,  if the
judgment  of the  Court  is not  affirmed  on  appeal,  the  Amended  Settlement
Agreement  will be  terminated,  except to the extent  provided  in the  Amended
Settlement  Agreement.  The Amended  Settlement  Agreement  also  provides  that
Sherwood  Securities may terminate the Amended  Settlement  Agreement in certain
other  circumstances.  The  foregoing  description  of  the  Amended  Settlement
Agreement is a summary,  is not  complete,  and is qualified by reference to the
Amended Settlement Agreement, a copy of which has been filed as Exhibit 10.23 to
this Form 10-K.

On July 16,  1996,  Sherwood  Securities  entered into a  Stipulation  and Order
resolving a civil  complaint  filed in the United States  District Court for the
Southern  District of New York (the "Complaint") by the United States Department
of Justice ("DOJ") alleging that Sherwood  Securities and 23 other NASDAQ market
makers  violated  Section 1 of the Sherman Act in connection with certain market
making practices.  The Complaint alleges, among other things, that NASDAQ market
makers  reached  a common  understanding  to adhere  to a  "quoting  convention"
relating to the manner in which bids and asks would be displayed on NASDAQ.  The
relief  sought in the  Complaint  was a  declaration  that the  defendants  have
violated  Section 1 of the Sherman Act, as well as,  injunctive  relief and such
other relief as the court deemed  appropriate.  In entering into the Stipulation
and Order,  Sherwood  Securities did not admit that the DOJ's  allegations  were
correct,  but that it would  not  engage  in  certain  types  of  activities  in
connection  with its NASDAQ  market making and it undertook  specified  steps to
assure compliance with the agreement.  The Stipulation and Order was approved by
the United States District Court of the Southern  District of New York following
a public  hearing,  but the District  Court's  decision has been appealed to the
United States Court of Appeals for the Second Circuit. There can be no assurance
that that  United  States  Court of Appeals  will  affirm the  District  Court's
decision or even if affirmed,  whether the  determination  of the United  States
Court of Appeals will be further appealed.

Sherwood  Securities  has  also  received  subpoenas  from  the  SEC to  provide
information,  testimony and  documents  with respect to its NASDAQ market making
activities  which  appear to be part of the SEC's  investigation  of the  NASDAQ
market and market makers.  Sherwood Securities has been cooperating with the SEC
investigation.




Item 4.     Submission of Matters to a Vote of Security Holders.

There were no matters  submitted to a vote of security holders during the fourth
quarter of the year ended May 31, 1997.



                                                      PART II

Item 5.  Market for the  Company's  Common  Stock and  Related  Security  Holder
         Matters.

The Company's  common stock is traded on the New York Stock  Exchange  under the
symbol "SHD." There were approximately  4,000 holders of record of the Company's
common  stock at July 31,  1997.  As of such date,  the closing  sales price per
share for the Company's common stock was $15.25.

The  following  table sets forth the high and low sales  price per share for the
Company's  common  stock for each  quarterly  period  within the two most recent
fiscal years as reported by the New York Stock Exchange:

<TABLE>
<CAPTION>


                                              Sales Prices
 Quarter Ended                          High                 Low
 -------------                          ----                 ---

 <S>                                 <C>                  <C>   
 August 31, 1995                     10.7500              6.8750
 November 30, 1995                   10.5000              7.7500
 February 29, 1996                    9.7500              8.2500
 May 31, 1996                        11.3750              9.0000
 August 31, 1996                     12.0000             10.2500
 November 30, 1996                   11.0000              9.5000
 February 28, 1997                   10.7500              9.2500
 May 31, 1997                        12.3750              9.7500
</TABLE>

There were no cash dividends  declared on the common stock of the Company in the
two-year  period  ended  May 31,  1997.  Funds  available  for  distribution  to
shareholders  of the Company in the form of dividends  are limited to the extent
assets of the Company or its  subsidiaries  are utilized to meet the minimum net
capital requirements of Sherwood Securities, NDB and Equitrade under Rule 15c3-1
promulgated  by the SEC.  See  "Business  - Net  Capital  and  Customer  Reserve
Requirements".


Item 6.     Selected Consolidated Financial Data.

The following selected  consolidated  financial data for the Company for each of
the five years in the period  ended May 31, 1997  should be read in  conjunction
with the respective  financial  statements  and related notes  thereto,  and the
discussion under Management's Discussion and Analysis of Financial Condition and
Results of  Operations  included in this report.  All amounts are in  thousands,
except per share amounts.





<TABLE>
<CAPTION>




                                                                Year Ended May 31,

                                            1997            1996        1995 (b)            1994            1993
                                            ----            ----        --------            ----            ----
Operating Data:

<S>                                     <C>             <C>             <C>              <C>             <C>    
Revenues                                $181,069        $180,185        $102,975         $89,620         $58,933

Income before income taxes
   and extraordinary items                17,992          35,531          18,240          18,304          15,067

Income before
    extraordinary items                    9,280          20,132          14,615          16,597           8,939

Extraordinary Items:
Utilization of net operating
   loss carryforward                          --              --              --              --           5,024

Net income (a)                             9,280          20,132          14,615          16,597          13,963

Per Share Data (c):
Income before
   extraordinary item (a)                    .72            1.52            1.07            1.20             .64
Net income                                   .72            1.52            1.07            1.20            1.00

Balance Sheet Data:
Total assets                             160,161         143,255         113,031          77,616          60,027
Common stockholders'  equity              92,274          86,570          65,978          53,311          38,191
Book value per share (c)                    7.13            6.56            4.84            3.86            2.72
Dividends                                     --              --              --              --              --



<FN>

(a)  The results of operations for the years ended May 31, 1995 and 1994 include
     $4,687, or $.34 per share, and $6,034, or $.44 per share, respectively,  of
     benefit from net operating loss carryforward which would have been shown as
     an  extraordinary  item prior to the adoption of the  Financial  Accounting
     Standards Board issued Statement of Financial  Accounting Standard No. 109,
     Accounting for Income Taxes.
</FN>
<FN>

 (b) The  results of  operations  for the year ended May 31,  1995  include  the
     operations  of  Equitrade  on a  consolidated  basis for the  period  March
     through May 1995.  For prior  periods,  Equitrade  was accounted for on the
     equity method. The results of operations for years beginning  subsequent to
     May 31, 1995 also account for the operations of Equitrade on a consolidated
     basis.
</FN>
<FN>

(c)  Earnings  per share and book value per share are  computed by dividing  net
     income and  common  stockholders'  equity,  respectively,  by the  weighted
     average  number of common  shares  outstanding  (adjusted  for the  assumed
     conversion of outstanding  common stock options at average month-end market
     price) during each of the years.
</FN>
</TABLE>




Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

                                               Results of Operations

Fiscal 1997 Compared to Fiscal 1996

The results for the year ended May 31, 1997 reflect  primarily the activities of
Sherwood  Securities,  NDB and Equitrade.  Certain fiscal 1996 amounts have been
reclassified to conform with the fiscal 1997 presentation.

The  Company  had a net profit for the year  ended May 31,  1997 of  $9,280,000,
compared  to a net  profit  of  $20,132,000  for the year  ended  May 31,  1996.
Sherwood  Securities  had a net  profit  for the  year  ended  May  31,  1997 of
$6,680,000,  compared  to a net  profit  for the  year  ended  May  31,  1996 of
$15,318,000.  Exclusive  of a litigation  settlement  charge of  $9,188,000  and
associated  professional fees, net of reduced bonus and tax expenses, net profit
for the  Company  and  Sherwood  Securities  would  have  been  $13,155,000  and
$11,458,000, respectively, for the year ended May 31, 1997. Triak had a net loss
for the year  ended  May 31,  1997 of  $300,000,  compared  to a net  profit  of
$3,089,000 for the year ended May 31, 1996. This decrease  reflects  significant
investments in technology and facilities, and an increase in personnel resulting
from the expansion of NDB's  activities.  Despite the negative  financial impact
these  investments  and personnel  expenses had on the current year's  earnings,
NDB's  investment in its  infrastructure  and personnel was necessary to service
and support NDB's future  growth.  Equitrade had a net profit for the year ended
May 31, 1997 of $10,587,000 (of which the Company's share was  $6,190,000).  For
the year ended May 31, 1996,  Equitrade had a net profit of $9,136,000 (of which
the Company's share was $5,507,000).

Revenue increased by approximately $884,000, or 1%, from $180,185,000 in 1996 to
$181,069,000 in 1997.

Most of the Company's income arises from firm securities transactions.  Sherwood
Securities' profits from firm securities  transactions decreased $5,475,000,  or
4%, from  $123,302,000  in 1996 to  $117,827,000  in 1997  although  its overall
trading volume increased  approximately 1% for the year ended May 31, 1997, when
compared  with the  year  ended  May 31,  1996 as  trading  profits  per  ticket
continued to decline.  Several factors contributed to this decrease.  Regulatory
changes  enacted by the  Securities  and  Exchange  Commission  ("SEC")  and the
National Association of Securities Dealers, such as limit order protection, have
resulted  in an  increase  in the number of  transactions  executed on an "even"
basis.  Tightened  spreads  between "bid" and "ask" prices,  the new limit order
display rules, increased volatility in the marketplace and increased Small Order
Execution  Systems  ("SOES")  activity have also been factors in the decrease in
trading  profits per ticket.  As previously  described in Item 1,  "Regulation",
these  changes  may have an  adverse  impact  on  Sherwood  Securities'  trading
profits.

The Company's commission income increased by $1,916,000, or 6%, from $30,723,000
in 1996 to  $32,639,000  in 1997.  This  modest  increase  is  primarily  due to
increases in trading  volume and  customer  accounts.  Offsetting  some of these
increases is a shift in the way customers  trade with NDB.  Throughout  the year
ended May 31, 1997, more customers traded through NDB's lower-priced,  automated
systems,   Power   Broker(TM)   and   Webstation(TM),   as   opposed   to   live
representatives.

Floor brokerage income increased by $3,168,000, or 28%, from $11,420,000 in 1996
to  $14,588,000  in 1997.  This increase was the result of increases in both the
volume of  Equitrade's  transactions  and an increase in the number of stocks in
which Equitrade is the  specialist.  The increase from 94 stocks at May 31, 1996
to 149 stocks at May 31, 1997 was due principally to the acquisition,  on May 2,
1997, of SHD  Corporation  (formerly  Dresdner-NY  Incorporated)  which added 54
stocks to Equitrade's specialist list.

For the years  ended May 31, 1997 and May 31,  1996,  the  principal  portion of
equity income in partnerships was equity income from the Anvil Joint Venture.

Interest and dividend income  increased by $1,867,000 from $5,908,000 in 1996 to
$7,775,000 in 1997.  The net increase is primarily due to a significant  rise in
NDB's customer debit and credit balances held with the Company's clearing broker
and an increase in the agreed-upon  rate used to compute interest earned on such
customer  balances.  Also  contributing to the increase were the availability of
larger amounts of cash for investment,  and higher average market interest rates
than in the prior year.

Fee income  increased by  $1,168,000  from  $1,354,000  in 1996 to $2,522,000 in
1997.  The increase is due to larger 12b-1 fees received from money market funds
as NDB's customers' balances in those funds have increased since the prior year.

Total  expenses  increased  $17,726,000,  or 13%, from  $141,025,000  in 1996 to
$158,751,000  in  1997.  Exclusive  of  the  litigation   settlement  charge  of
$9,188,000 and associated professional fees, net of reduced bonus expense, total
expenses  for the year  ended May 31,  1997  would  have been  $151,300,000,  an
increase of 7% from the prior year.
The reasons for the increase in expenses are set forth below.

Clearing and related charges increased by $1,651,000 from $55,631,000 in 1996 to
$57,282,000 in 1997.  This increase is principally  due to the operations of NDB
for which clearance  charges rose by approximately  $991,000 over the prior year
due to the increase in the volume of transactions.  In addition, there was a net
increase of  approximately  $631,000 in clearance,  correspondent  and execution
charges on Sherwood Securities' OTC market making activities.

Compensation  and benefits  increased  $1,863,000  from  $57,536,000  in 1996 to
$59,399,000  in 1997.  The increase  was  primarily  due to higher  salaries for
additional employees hired (principally due to the commencement of operations of
MXNet and the expansion of NDB) offset by decreases in both traders' commissions
and in executive and staff bonuses. The decrease in Sherwood Securities' trading
profits  led  to  the  reduction  in  commissions   while  the  overall  reduced
profitability of the Company accounted for the decrease in bonuses.

Communication  expenses  increased  by  $485,000  from  $10,768,000  in  1996 to
$11,253,000  in  1997.  The  increase  was  mainly  due  to an  increase  in the
activities of NDB,  primarily the expansion of its toll-free  customer quotation
service and an increase in trading volume.

Advertising costs increased  $1,078,000 from $1,724,000 in 1996 to $2,802,000 in
1997. During the second half of fiscal 1997, the Company incurred the costs of a
new ad campaign  which was launched by NDB and which  included  various forms of
media advertising.

Occupancy costs and equipment rental decreased  $485,000 from $3,166,000 in 1996
to $2,681,000 in 1997.  The decrease is  attributable  to a decline for Sherwood
Securities  which,  last year,  incurred  rent  concurrently  on two main office
locations  as it awaited its move from New York to New Jersey.  Offsetting  this
decrease was higher occupancy costs incurred as a result of the signing of a new
lease for the relocation of NDB's main offices.

Professional  fees increased by $1,291,000 from $2,243,000 in 1996 to $3,534,000
in 1997. During the year ended May 31, 1997, the Company incurred  approximately
$535,000 in legal, accounting and investment banker fees and expenses, financial
institution  commitment fees and  out-of-pocket  expenses in connection with the
Company's  review  of a  possible  acquisition  which was not  consummated.  The
Company also incurred  additional  legal fees in connection  with the litigation
settlement  negotiations and the entry into the settlement agreement in the case
entitled In Re: NASDAQ Market-Makers  Antitrust  Litigation,  94 Civ. 3996(RWS).
See Item 3, "Legal Proceedings".

Depreciation and  amortization  increased by $812,000 from $4,079,000 in 1996 to
$4,891,000  in  1997.  The  increase  was  primarily  due  to  depreciation  and
amortization  incurred on fixed asset and leasehold improvement additions by the
Company  aggregating  approximately  $11,000,000  during  the year ended May 31,
1997.

Travel and entertainment  expense increased  $356,000 from $1,502,000 in 1996 to
$1,858,000 in 1997. The increase is primarily due to the sales effort related to
MXNet's  operations  and  additional   entertaining  of  customers  by  Sherwood
Securities' institutional sales force.

Repairs and maintenance  expense  increased by $400,000 from $554,000 in 1996 to
$954,000 in 1997. The increase is primarily due to maintenance  service contract
fees paid in order to maintain Sherwood Securities' and NDB's infrastructures as
the original warranties on the various systems expire.

Interest  expense  increased  $108,000 from $321,000 in 1996 to $429,000 in 1997
and primarily represents an increase in interest on capital paid by Equitrade to
its minority partners and interest paid by Equitrade on its subordinated debt.

Litigation  settlement,  for the year ended May 31, 1997, represents a charge in
connection with the settlement agreement.

Other expenses increased $979,000 from $3,501,000 in 1996 to $4,480,000 in 1997.
The increase is primarily attributable to increases in public relations expenses
and in the cost of  research  associated  with soft  dollar  transactions.  Also
contributing to the increase is the assumption of costs related to the advent of
a debit card  program for  preferred  customers  of NDB.  The  remainder  of the
increase  is due to the  overall  increase  in the  volume of  business  and the
increase in staff size.

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company and its subsidiary, SHD, during the years ended May 31, 1997 and May 31,
1996.

The Company's  effective tax rate increased from  approximately 43% for the year
May 31,  1996  to  approximately  48%  for the  year  ended  May 31,  1997.  The
difference  in rates is due to  several  factors.  During the year ended May 31,
1996, the Company  recognized certain tax benefits primarily related to employee
compensation  arrangements,  which were not available  during the year ended May
31, 1997. In addition,  as a result of significant  capital additions during the
year ended May 31, 1997 for NDB,  the  Company's  consolidated  state income tax
rate increased.

In addition,  the Company recorded for financial statement purposes,  the unpaid
expense incurred in connection with the settlement  agreement in the fiscal year
ended May 31, 1997. Such unpaid is deemed by the Company to be nondeductible for
income tax  purposes  in the fiscal  year ended May 31,  1997,  as the  economic
performance  rules have not been met.  The Company  has,  therefore,  recorded a
deferred  tax benefit for the future tax  consequences  of events that have been
recognized in its financial  statements but not yet included in its tax returns,
based upon enacted tax laws and rates,  subject to  management's  judgment  that
realization  of the tax benefit is more likely than not.  For the year ended May
31, 1997,  deferred taxes principally relate to the future  deductibility of the
expense for the settlement  agreement that the Company has recorded and which is
expected to be paid. In conjunction  with the deferred tax asset the Company has
recorded, the Company has booked a valuation allowance of approximately $155,000
due to management's judgment of the likelihood of realization.


 Fiscal 1996 Compared to Fiscal 1995


The results for the year ended May 31, 1996 reflect  primarily the activities of
Sherwood  Securities,  NDB and Equitrade.  Certain fiscal 1995 amounts have been
reclassified to conform with the fiscal 1997 presentation.

The  Company  had a net profit for the year ended May 31,  1996 of  $20,132,000,
compared  to a net  profit  of  $14,615,000  for the year  ended  May 31,  1995.
Sherwood  Securities  had a net  profit  for the  year  ended  May  31,  1996 of
$15,318,000,  compared  to a net  profit  for the  year  ended  May 31,  1995 of
$15,161,000.  Triak  had a net  profit  for  the  year  ended  May  31,  1996 of
$3,089,000,  compared to a net profit of $8,000 for the year ended May 31, 1995.
Equitrade  had a net profit for the year ended May 31,  1996 of  $9,136,000  (of
which the  Company's  share was  $5,507,000).  For the  period  from  March 1995
through May 1995 for which the results of Equitrade are consolidated  with those
of the Company, Equitrade had a net profit of $2,092,000 (of which the Company's
share was $1,322,000). For the period June 1994 through February 1995, Equitrade
had a net profit of  $5,064,000 of which the Company's  share,  $3,521,000,  was
accounted  for  using  the  equity  method  and  included  in  equity  income in
partnerships.

Revenue  increased by approximately  $77,210,000,  or 75%, from  $102,975,000 in
1995 to $180,185,000 in 1996.

Most of the Company's income arises from firm securities transactions.  Sherwood
Securities' profits from firm securities transactions increased $46,941,000,  or
61%, from  $76,361,000 in 1995 to  $123,302,000  in 1996 and its overall trading
volume  increased  approximately  69% for the  year  ended  May 31,  1996,  when
compared with the year ended May 31, 1995.  However,  trading profits per ticket
continued to decline.  Several factors contributed to this decrease.  Regulatory
changes  enacted by the  Securities  and  Exchange  Commission  ("SEC")  and the
National Association of Securities Dealers have caused an increase in the number
of transactions executed on an "even" basis. Tightened spreads between "bid" and
"ask" prices, increased volatility in the marketplace,  capacity constraints and
increased Small Order Execution Systems ("SOES") activity have also been factors
in the decrease in trading profits per ticket.

The  Company's  commission  income  increased  by  $16,311,000,  or  113%,  from
$14,412,000 in 1995 to  $30,723,000 in 1996. The increase is principally  due to
the fact that NDB's volume of transactions  increased by 143% when compared with
the previous year.

Floor brokerage income increased by $9,030,000, or 378%, from $2,390,000 in 1995
to  $11,420,000  in 1996.  This  increase is due to a full year of operations of
Equitrade being  consolidated into the Company's  operations.  In addition,  the
number  of  stocks in which  Equitrade  is the  specialist  has  increased  when
compared to the prior year.

For the year ended May 31,  1996,  the  principal  portion  of equity  income in
partnerships was equity income from the Anvil Joint Venture. For the nine months
ended  February  28, 1995,  after which the  operations  of Equitrade  have been
consolidated  with those of the  Company,  the  Company's  share of  Equitrade's
investment income was $3,521,000.

Investment  securities gains for the year ended May 31, 1995 aggregated $76,000.
This gain resulted  entirely  from the sale of 11,600 shares of Network  Imaging
Corp.  (IMGX)  for  the  year  ended  May 31,  1995.  There  were no  investment
securities gains for the year ended May 31, 1996.

Interest and dividend income  increased by $2,442,000 from $3,466,000 in 1995 to
$5,908,000 in 1996.  The net increase is primarily due to a significant  rise in
NDB's customer debit and credit balances held with the Company's clearing broker
and an increase in the agreed upon rate used to compute  interest earned on such
customer  balances.  Also  contributing to the increase were the availability of
larger amounts of cash for investment,  and higher average market interest rates
than in the prior year.

Fee income  increased by $959,000  from  $395,000 in 1995 to $1,354,000 in 1996.
The  increase is due to larger  12b-1 fees  received  from mutual funds as NDB's
customers' balances in those funds have increased since the prior year.

Total  expenses  increased  $57,060,000,  or 68%,  from  $83,965,000  in 1995 to
$141,025,000  in 1996.  The reasons for the  increase in expenses  are set forth
below.

Clearing and related charges  increased by $20,866,000  from $34,765,000 in 1995
to $55,631,000 in 1996. This increase is principally due to the increased volume
of trades for both Sherwood Securities and NDB. This caused clearance charges to
increase  by  $5,609,000  and  $7,453,000  for  Sherwood   Securities  and  NDB,
respectively,  over the prior year.  Also,  payments by Sherwood  Securities  to
correspondents for order flow increased by $4,387,000 over the prior year.

Compensation  and benefits  increased  $26,161,000  from  $31,375,000 in 1995 to
$57,536,000 in 1996. The increase was primarily due to higher  commissions  paid
to Sherwood  Securities'  traders due to  increased  trading  profits and higher
bonuses  accrued  as a result of  greater  overall  profits  of the  Company  as
compared to the prior year.  Also,  there was an increase in office salaries and
related benefits due primarily to NDB's larger staff size.

Communication  expenses  increased  by  $4,397,000  from  $6,371,000  in 1995 to
$10,768,000  in  1996.  The  increase  was  mainly  due  to an  increase  in the
activities of NDB, namely toll-free  customer  telephone  service and quotations
expense.

Advertising  costs  decreased  $881,000 from $2,605,000 in 1995 to $1,724,000 in
1996. Subsequent to the initial,  extensive media campaign which accompanied the
commencement  of  operations of NDB, the  frequency of  advertising,  especially
television ads, continued to lessen.

Occupancy  costs and equipment  rental  increased  $1,310,000 from $1,856,000 in
1995 to  $3,166,000 in 1996  primarily due to a full year of expense  related to
the lease on Sherwood  Securities'  new office in Jersey City,  New Jersey.  The
results of operations  for the year ended May 31, 1995 only included five months
expense for this lease which commenced in January 1995.

Professional fees increased by $671,000 from $1,572,000 in 1995 to $2,243,000 in
1996.  The increase in  professional  fees is primarily due to additional  legal
services and technology consulting projects.

Depreciation and amortization increased by $2,281,000 from $1,798,000 in 1995 to
$4,079,000  in  1996.  The  increase  was  primarily  due  to  depreciation  and
amortization  incurred on fixed asset and  leasehold  improvement  additions  of
approximately  $10,000,000  and  $3,000,000  for  Sherwood  Securities  and NDB,
respectively,  during the year ended May 31, 1996.  In addition,  in  connection
with  Sherwood  Securities'  abandonment  of its  former  New York City  office,
$641,000 of fixed assets and leasehold improvements were written off.

Travel and entertainment  expense increased  $274,000 from $1,228,000 in 1995 to
$1,502,000 in 1996 and reflects  primarily the  entertaining of customers by the
institutional sales force.

Repairs and maintenance  expense  increased by $115,000 from $438,000 in 1995 to
$553,000 in 1996.  The increase is primarily due to the inclusion of a full year
of Equitrade's operations in the results for the year ended May 31, 1996.

Interest expense increased $270,000 from $51,000 in 1995 to $321,000 in 1996 and
represents  interest on capital paid by  Equitrade to its minority  partners and
interest paid by Equitrade on its subordinated debt.

Other expenses  increased  $1,595,000  from  $1,906,000 in 1995 to $3,501,000 in
1996.  The  increase  is  primarily  attributable  to an  increase  in the costs
associated  with  registering the sales staff of NDB with the various states and
regulatory  agencies.  Also,  during  the year  ended May 31,  1996 the  Company
incurred  increases  in public  relations  expenses  and in the cost of research
associated  with soft dollar deals.  The remainder of the increase is due to the
overall increase in the volume of business and the increase in staff size.

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company, during the year ended May 31, 1996 and the last quarter of fiscal 1995.

The increase in income tax expense is primarily due to the Company's utilization
of the remainder of its net operating loss carryforwards for Federal,  state and
local tax  purposes  during  the year ended May 31,  1995,  in  addition  to the
increase in income before taxes as compared to the prior year.


Fiscal 1995 Compared to Fiscal 1994

The results for the year ended May 31, 1995 reflect  primarily the activities of
Sherwood  Securities  and NDB and  the  Company's  interest  in the  profits  of
Equitrade  through  February 1995 after which the results of Equitrade have been
consolidated  with those of the Company.  Certain  fiscal 1994 amounts have been
reclassified to conform with the fiscal 1997 presentation.

The  Company  had a net profit for the year ended May 31,  1995 of  $14,615,000,
compared  to a net  profit  of  $16,597,000  for the year  ended  May 31,  1994.
Sherwood  Securities  had a net  profit  for the  year  ended  May  31,  1995 of
$15,161,000,  compared  to a net  profit  for the  year  ended  May 31,  1994 of
$23,558,000.  Triak had a net profit for the year ended May 31,  1995 of $8,000,
compared to a net loss of $4,776,000 for the 11 month period ended May 31, 1994.

Revenue increased by approximately $13,355,000, or 15%, from $89,620,000 in 1994
to $102,975,000 in 1995.

Most of the Company's income arises from firm securities transactions.  Sherwood
Securities' profits from firm securities  transactions decreased $3,440,000,  or
4%, from  $79,801,000  in 1994 to $76,361,000  in 1995.  Overall  trading volume
increased  approximately 11% for the year ended May 31, 1995, when compared with
the year ended May 31, 1994.  Regulatory changes enacted by the SEC and the NASD
have caused a significant increase in the number of transactions  executed on an
"even" basis.  This was the primary  reason for the decrease in trading  profits
per ticket for the fiscal year ended May 31, 1995.

The  Company's  commission  income  increased  by  $10,850,000,  or  305%,  from
$3,562,000  in 1994 to  $14,412,000  in 1995. A full year of  operations by NDB,
which did not commence  operations until January 1994,  accounted for all of the
increase.

Floor brokerage income  increased by $1,631,000,  or 215%, from $759,000 in 1994
to $2,390,000 in 1995. This increase is due to the  consolidation of the results
of Equitrade with those of the Company from March 1995 through May 1995.

The principal  portion of equity income in  partnerships  was equity income from
Equitrade.  For the nine  months  ended  February  28,  1995,  after  which  the
operations of Equitrade have been  consolidated  with those of the Company,  the
Company's  share of Equitrade's  investment  income was  $3,521,000  compared to
$3,092,000  for the year ended May 31, 1994. In addition,  the Company  absorbed
amortization of intangible assets of $349,000 for the year ended May 31, 1994.

Investment securities gains for the years ended May 31, 1995 and 1994 aggregated
$76,000 and $680,000,  respectively. These gains resulted entirely from the sale
of 11,600 and 84,400 shares of Network Imaging Corp.
(IMGX) for the years ended May 31, 1995 and 1994, respectively.

Interest and dividend income  increased by $2,020,000 from $1,446,000 in 1994 to
$3,466,000  in 1995.  The net increase is primarily due to the  availability  of
larger amounts of cash for investment,  increasing market interest rates and the
investment of certain funds at above market rates.

Fee income  increased by $388,000  from $7,000 in 1994 to $395,000 in 1995.  The
increase  is due to a full year of 12b-1  fees  received  by NDB during the year
ended May 31, 1995.

Total  expenses  increased  $12,649,000,  or 18%,  from  $71,316,000  in 1994 to
$83,965,000  in 1995.  The  reasons for the  increase in expenses  are set forth
below.

Clearing and related charges increased by $8,100,000 from $26,665,000 in 1994 to
$34,765,000  in 1995. A full year of activity for NDB accounted for a $6,797,000
increase in payments  to our  clearing  brokers.  Execution  fees were  $892,000
higher in 1995 due,  also, to higher  volume.  Payments made to "$2 brokers" for
execution of the Company's listed securities orders decreased by $603,000.

Compensation  and  benefits  increased  $168,000  from  $31,207,000  in  1994 to
$31,375,000  in  1995.  The  increase  was  primarily  due  to  an  increase  in
administrative  and office salaries and related benefits due primarily to a full
year  of  payroll  for NDB and  NDB's  hiring  of  approximately  90  additional
employees  during the year ended May 31, 1995.  Offsetting  this  increase  were
lower  commissions  paid to traders due to decreased  trading  profits and lower
bonuses  accrued as a result of lower overall profits of the Company as compared
to the prior year.

Communication  expenses  increased  by  $2,403,000  from  $3,968,000  in 1994 to
$6,371,000 in 1995. The increase was mainly due to the activities of NDB, namely
telephone and quotations expense.

Advertising  costs  decreased  $104,000 from $2,709,000 in 1994 to $2,605,000 in
1995. Corresponding to the commencement of operations of NDB, the Company ran an
extensive  media  campaign  through  September 1994 at which time the amount and
frequency of advertising lessened significantly.

Occupancy costs and equipment rental increased  $620,000 from $1,236,000 in 1994
to $1,856,000  in 1995  primarily due to a full year of leases for NDB's offices
in New York, New York; Los Angeles,  California;  Chicago,  Illinois;  West Palm
Beach,  Florida;  and  Dallas,  Texas.  In  addition,  the  lease  for  Sherwood
Securities' new office in Jersey City, New Jersey commenced in January 1995.

Professional  fees  increased by $699,000 from $873,000 in 1994 to $1,572,000 in
1995.  The increase in  professional  fees is primarily due to additional  legal
services.

Depreciation and  amortization  increased by $382,000 from $1,416,000 in 1994 to
$1,798,000  in  1995.  The  increase  was  primarily  due  to  a  full  year  of
depreciation of furniture,  fixtures and equipment  purchased in connection with
the commencement, and subsequent expansion, of the operations of NDB.

Travel and  entertainment  expense  increased $45,000 from $1,183,000 in 1994 to
$1,228,000 in 1995 and reflects  primarily the  entertaining of customers by the
institutional sales force.

Repairs and  maintenance  expense  decreased by $33,000 from $471,000 in 1994 to
$438,000 in 1995.

Interest expense increased $5,000 from $46,000 in 1994 to $51,000 in 1995.

Other expenses increased $364,000 from $1,542,000 in 1994 to $1,906,000 in 1995.
The  increase is  primarily  attributable  to  $128,000 in listing  fees paid in
connection with the Company's common stock becoming listed on the NYSE effective
December 21, 1994. The remainder of the increase is due to the overall  increase
in the volume of business and the increase in staff size.

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company, during the last quarter of fiscal 1995.

During  the  year  ended  May 31,  1995,  the  Company  utilized  the  remainder
(approximately $12,031,000) of its net operating loss carryforwards for Federal,
state and local tax purposes.





Liquidity and Capital Resources

The Company's  tangible  assets are highly  liquid,  but subject to market price
fluctuation, with more than 66% consisting of cash or assets readily convertible
into cash (principally firm securities  positions,  receivables from brokers and
cash).  The  Company's  operations  have  generally  been financed by internally
generated  funds.  In addition,  at May 31, 1997,  margin account  borrowings of
approximately  $122,000,000  were  available  to the Company  from its  clearing
brokers.

The Company's broker-dealer  subsidiaries,  Sherwood Securities, NDB, Equitrade,
Anvil and SHD are  subject to the minimum  net  capital  requirement  of the SEC
which is designed to measure the general  financial  soundness  and liquidity of
brokers. As of May 31, 1997, Sherwood Securities,  NDB, Equitrade, Anvil and SHD
had approximately $18,041,000,  $2,049,000, $28,130,000, $312,000 and $1,360,000
in  excess of the  minimum  required  net  capital  requirements,  respectively,
representing  decreases of $18,624,000 for Sherwood  Securities,  $3,576,000 for
NDB and  $4,081,000  for SHD, and  increases of  $5,544,000  for  Equitrade  and
$180,000 for Anvil,  from the prior year.  The decrease for Sherwood  Securities
resulted  primarily from loans to the parent company for the purchase of SHD and
to affiliates  for the  upgrading of their  technological  infrastructures.  The
decrease in NDB's excess net capital was  principally the result of purchases in
connection with its  technological  upgrade.  The decrease for SHD was primarily
due to the  contribution of securities  positions to Equitrade in exchange for a
limited  partnership  interest.  Equitrade's  excess net  capital  increase  was
principally due to fiscal year 1997 net income offset by  distributions  made to
partners.  The increase in Anvil's  excess net capital was  primarily  due to an
additional  capital infusion by the Company offset by losses incurred during the
year.  The  net  capital  rule  imposes  financial  restrictions  upon  Sherwood
Securities',  NDB's,  Equitrade's,  Anvil's and SHD's  businesses which are more
severe than those imposed on most other businesses.

Cash flows from operations  vary on a daily basis as the Company's  portfolio of
marketable  securities  changes.  The  Company's  ability to convert  marketable
securities  owned is  determined  by the depth of the market and the size of the
Company's security positions in relation to the market as a whole. The portfolio
mix also  affects  the  regulatory  capital  requirements  imposed  on  Sherwood
Securities,  NDB, Equitrade,  Anvil and SHD which directly affects the amount of
funds available for operating, investing and financing activities.

From time to time, the Company has needed to borrow funds in connection with its
trading  activities.  The Company currently has no committed lines of credit and
such borrowings were done on an "as needed" basis.

Fixed assets and computer  software of  approximately  $9,762,000 were purchased
and placed into service by NDB during the year ended May 31, 1997 in  connection
with the relocation of NDB's headquarters during December 1996. The Company also
made  deposits of  approximately  $726,000 on various  fixed assets and computer
software, accounting for the increase in other assets reflected on the statement
of financial  condition as of May 31, 1997. The Company anticipates that it will
spend an additional $1,300,000 over the next 6 months for the ongoing upgrade of
NDB's  technological  infrastructure  and intends to finance this upgrade out of
internally generated funds.

In connection with the commencement of operations of MXNet, the Company expended
approximately  $2,900,000  for  operating  costs and  purchases  of fixed assets
during the year ended May 31, 1997.  Such funds were  provided  from  internally
generated sources. No further capital expenditures are planned at this time.

Cash flows from the  Company's  investment  activities  are directly  related to
market conditions.

The Company anticipates that it will be able to generate sufficient cash flow to
meet the future demands of its specialist activities on the AMEX.

On October 4, 1993,  the Company paid  $400,000 for 8,000 shares of common stock
of Emmett A. Larkin Company, Inc., a minority owned broker-dealer.  This holding
represents,  as of May 31, 1997,  approximately  15% of the  outstanding  common
shares of Emmett A. Larkin Company, Inc.

During  July  1996,  Equitrade  purchased  an  additional  seat on the  NYSE for
$1,450,000.

On August 13, 1996, the Company  purchased  100,000  restricted shares of Synxis
Corp. common stock from Intra Serve Corp. for $100,000.

On November 21, 1996,  Equitrade  loaned RSF Partners,  a NYSE specialist  firm,
$500,000 under a subordination  agreement with interest  payable at 8% per annum
and a maturity date of November 30, 1997. As  additional  consideration  for the
loan, RSF Partners  granted to Equitrade the exclusive right of first refusal to
acquire RSF Partners'  specialist unit,  subject to NYSE approval.  During April
1997, the loan was repaid in full.

On November 22, 1996, the Company  loaned  $100,000 to Eurotech Ltd. In addition
to a promissory note bearing  interest at the rate of 12% per annum, the Company
received 75,000 shares of Eurotech Ltd. common stock.

As of  December  31,  1996,  the  Company  entered  into an  agreement  with the
president  of its  subsidiary,  SMI,  pursuant to which the Company sold all the
shares of SMI to the  president  of SMI in exchange  for a personal  note of the
president in the amount of  $132,187.  The note is secured by the shares of SMI.
The Company  recognized a loss,  after taxes, of  approximately  $65,000 on this
sale.

On January 24, 1997,  the Company  purchased from its partner in the Anvil Joint
Venture the partner's 51% joint  venture  interest for $188,780.  As part of the
agreement,  the  partner  signed a covenant  not to compete  for a period of one
year.

During the year ended May 31,  1997,  the Company  made two loans of  $3,000,000
each to NDB, in the form of subordination agreements and also made an additional
capital  contribution  to Anvil of $284,965.  These funds were expended in order
for NDB and Anvil to maintain adequate  regulatory  capital levels.  The Company
will make additional loans or contributions to its  broker-dealer  subsidiaries,
as necessary, to ensure regulatory compliance

On May 2, 1997, the Company purchased, from Dresdner Bank AG, 100% of the common
stock  of   Dresdner-NY,   Incorporated   ("DNY",   subsequently   renamed   SHD
Corporation), for a purchase price of $15,261,493. DNY served as a specialist in
54 securities on the NYSE. The  acquisition  included four seats on the NYSE and
DNY's  receivable for floor  brokerage.  The assets  including four seats on the
NYSE (excluding  cash) and liabilities of DNY were transferred by the Company to
Equitrade. Two employees of DNY retained a portion of the specialist book of DNY
and became limited  partners if Equitrade.  The balance of the  specialist  book
remained with Equitrade, and the Company is entitled to 38.4% of the net profits
and net losses from the  specialist  activities  of this  specialist  book.  The
transaction  was approved by the NYSE and reviewed  under the  Hart-Scott-Rodino
Antitrust  Improvement  Act of  1976.  The  funding  for  this  transaction  was
internally generated.

In December 1992, the Company announced it would buy back up to 1,500,000 shares
of the  Company's  common  stock from time to time in the open market or through
privately  negotiated  transactions.  Through May 31, 1997, 1,351,482 shares had
been  repurchased,  of which 340,907 were  repurchased  during fiscal 1997.  The
source of funds for these purchases was internally generated.

Sherwood Securities',  NDB's, Equitrade's,  Anvil's and SHD's excess net capital
are deemed  adequate by management  for their present  operations  and currently
anticipated future expansion.


Effects of Inflation

The Company's assets are not  significantly  affected by inflation  because they
are primarily monetary in nature.  Management believes that replacement costs of
furniture,  equipment  and leasehold  improvements  will not  materially  affect
operations.  However,  the rate of  inflation  affects the  Company's  principal
expenses such as employee  benefits and  compensation,  rent and  communication,
which may not be readily  recoverable  from  increased  revenues.  Due to market
forces and competitive  conditions in the securities  industry,  a broker-dealer
may be unable to  unilaterally  increase  spreads  and  commissions  in order to
recover  increased  costs related to inflation.  Consequently,  the Company must
rely on increased volume for this purpose.  However, the Company has significant
cash balances on deposit with its principal  clearing broker which, in the event
there are higher interest rates, would offset some of the costs.



Item 8.     Financial Statements and Supplementary Data.

The  response  to this item is  submitted  in a separate  section of this report
commencing on Page F-1.



Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

No change in  accountants  or  disagreement  requiring  disclosure  pursuant  to
applicable  regulations  took place within the  Company's two most recent fiscal
years or in any subsequent interim period.




                                                     PART III

Item 10.    Directors and Executive Officers of the Company.

The  material  contained  in  "Election  of  Directors"  and in  "Section  16(a)
Beneficial  Ownership  Reporting  Compliance" of the Company's  definitive proxy
statement  (to be filed  pursuant to the  Securities  Exchange  Act of 1934,  as
amended) for the annual meeting of  stockholders  to be held on October 21, 1997
is hereby incorporated by reference.




Item 11.    Executive Compensation.

The material  contained in "Compensation  of Directors and Executive  Officers",
"Compensation   Committee  Report  on  Executive   Compensation"   and  "Company
Performance" of the Company's  definitive  proxy statement (to be filed pursuant
to the  Securities  Exchange Act of 1934, as amended) for the annual  meeting of
stockholders to be held on October 21, 1997 is hereby incorporated by reference.



Item 12.    Security Ownership of Certain Beneficial Owners and Management.

The material  contained in "Voting  Securities and Principal Holders Thereof" of
the Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of  stockholders  to be
held on October 21, 1997 is hereby incorporated by reference.



Item 13.    Certain Relationships and Related Transactions.

The material  contained in "Certain  Relationships and Related  Transactions" of
the Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of  stockholders  to be
held on October 21, 1997 is hereby incorporated by reference.  See also, "Recent
Developments."





                                                      PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

            (a)      Financial Statements

                     Reference  is made to page F-1 for a list of all  financial
                     statements and schedules filed as part of this report.

            (b)      During the last quarter of the year ended May 31, 1997 the
                     Company filed one report on Form 8-K dated May 2, 1997.

            (c)      Exhibits

                     The exhibits  that are filed with this report,  or that are
                     incorporated  herein  by  reference,  are set  forth in the
                     Exhibit Index beginning on page E-1.


<PAGE>


                                          THE SHERWOOD GROUP, INC.
                                              AND SUBSIDIARIES

                                      Consolidated Financial Statements

                                         May 31, 1997, 1996 and 1995


                                 (With Independent Auditors' Report Thereon)



<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                    Index to Consolidated Financial Statements


<TABLE>
<CAPTION>


                                                                                                        Page
<S>                                                                                                <C>
Independent Auditors' Report                                                                            F-2


Consolidated Financial Statements and Notes:

      
      Consolidated Statements of Financial Condition -
         May 31, 1997 and 1996                                                                       F-3 to F-4

      Consolidated Statements of Income -
         Years ended May 31, 1997, 1996 and 1995                                                        F-5

      Consolidated Statements of Changes in Stockholders' Equity -
         Years ended May 31, 1997, 1996 and 1995                                                         F-6

      Consolidated Statements of Cash Flows -
         Years ended May 31, 1997, 1996 and 1995                                                     F-7 to F-9

      Notes to Consolidated Financial Statements                                                    F-10 to F-24


The following  financial  statement  schedule is submitted herein on the pages
      indicated below:

         Schedule I - Condensed Financial  Statements of the Registrant (Parent)
             - May 31, 1997 and 1996
             and Years ended May 31, 1997, 1996 and 1995                                             S-1 to S-6

</TABLE>

All other  financial  statement  schedules  and  supplementary  data are omitted
because  they  are  not  applicable,   not  required  or  because  the  required
information is included in the  consolidated  financial  statements or the notes
thereto.





F-1


<PAGE>



                                           Independent Auditors' Report


The Board of Directors and Stockholders of
The Sherwood Group, Inc.:


We have audited the accompanying  consolidated statements of financial condition
of The Sherwood  Group,  Inc. and  Subsidiaries as of May 31, 1997 and 1996, and
the related consolidated  statements of income,  changes in stockholders' equity
and cash  flows for each of the  years in the  three-year  period  ended May 31,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of The Sherwood Group,
Inc.  and  Subsidiaries  as of May 31,  1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended May 31, 1997 in conformity with generally accepted accounting principles.

In  connection  with our  audits of the  aforementioned  consolidated  financial
statements, we also have audited the related financial statement schedule listed
in answer to Item 14(d). This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the  basic  consolidated  financial  statements  taken as a  whole,  presents
fairly, in all material respects, the information set forth therein.


                                                                               
KPMG Peat Marwick LLP

July 22, 1997




F-2


<PAGE>


                                             THE SHERWOOD GROUP, INC.
<TABLE>
                                                 AND SUBSIDIARIES

                                  Consolidated Statements of Financial Condition

                                               May 31, 1997 and 1996
<CAPTION>





                                  Assets                                             1997               1996
                                                                                     ----               ----
<S>                                                                         <C>                        <C>
Cash                                                                        $         3,033,818            470,313
Funds segregated for customers                                                           29,203                 -
Receivables:
    Brokers and dealers                                                              58,047,183         78,628,199
    Other (note 11)                                                                     599,725            489,867

Securities owned, at market value (note 4)                                           45,696,436         32,181,980
Investment securities not readily marketable,
    at fair value                                                                       501,320            401,320
Investment in partnerships (note 3)                                                      12,984            261,286
Loans and notes receivable (note 11)                                                    830,589            697,258
Furniture, fixtures, equipment, and leasehold
    improvements - at cost, net of accumulated
    depreciation and amortization (note 6)                                           20,263,511         12,955,614
Computer software - at cost, net of accumulated
    amortization of $929,942 at May 31, 1997 and
    $493,936 at May 31, 1996                                                          1,853,693            766,256
Intangible assets, net of accumulated
    amortization of $535,853 at May 31, 1997
    and $1,245,176 at May 31, 1996 (note 3)                                           6,727,958          2,943,104
Exchange memberships (market value $7,957,750
    at May 31, 1997 and $2,827,500 at May 31, 1996) (note 7)                          7,416,496          1,166,496
Subordinated notes receivable (note 9)                                                3,000,000          3,250,000
U.S. Treasury obligations, held as collateral                                         7,815,254          7,782,514
Deferred tax asset, net of valuation allowance (note 8)                               2,220,472                 -
Other assets                                                                          2,112,083          1,260,822
                                                                                 --------------    ---------------

                                
                  Total assets                                              $       160,160,725        143,255,029
                                                                                 ==============    ===============

</TABLE>

                                             (Continued)

F-3


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                             Consolidated Statements of Financial Condition, Continued
<CAPTION>

              Liabilities and Stockholders' Equity                                   1997               1996
                                                                                     ----               ----
<S>                                                                          <C>                       <C>
Liabilities:
    Securities sold, not yet purchased, at market
       value (note 4)$                                                               25,129,290         18,827,302
    Accounts payable and accrued expenses,
       including  compensation payable to officers
       and employees of $11,831,551 at May 31, 1997
       and $15,553,291 at  May 31, 1996 (note 14)                                    31,734,213         24,212,338
    Secured demand notes payable (note 9)                                             3,000,000          3,250,000
    Income taxes payable (note 8)                                                       302,501          5,338,326
    Minority interest in Equitrade                                                    7,720,236          5,057,508
                                                                                 --------------    ---------------

                  Total liabilities                                                  67,886,240         56,685,474
                                                                                 --------------    ---------------

Commitments and contingencies (notes 14 and 15)

Stockholders' equity (notes 10, 12 and 13):
    Preferred stock - $.01 par value; 1,000,000 shares
       authorized, none issued                                                               -                  -
    Class A common stock - $.01 par value;
       50,000,000 shares authorized, none issued                                             -                  -
    Common stock - $.01 par value; 50,000,000 shares
       authorized, 14,343,201 shares issued at May 31,
       1997 and 1996                                                                    143,432            143,432
    Additional paid-in capital                                                       57,189,985         56,958,790
    Retained earnings                                                                47,215,833         37,936,140
                         ----------------------------------------------------------------------    --------------
                                                                                    104,549,250         95,038,362

    Less:  Treasury stock - at cost,
           1,648,536 shares at May 31, 1997 and
           1,313,469 shares at May 31, 1996                                         (12,274,765)        (8,468,807)
                                                                                 ---------------   ---------------

                  Total stockholders' equity                                         92,274,485         86,569,555
                                                                                 --------------    ---------------

        
                  Total liabilities and stockholders' equity                 $      160,160,725        143,255,029
                                                                                 ==============    ===============
</TABLE>


See accompanying notes to consolidated financial statements.

F-4


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                                         Consolidated Statements of Income
                                      Years ended May 31, 1997, 1996 and 1995
<CAPTION>

                                                                      1997              1996              1995
--------------------------------------------------------------------------------------------------------------

Revenue:
<S>                                                           <C>                  <C>               <C>       
    Firm securities transactions - net                        $  122,658,577       129,788,217       77,998,126
    Commission income                                             32,638,949        30,723,379        4,412,331
    Floor brokerage income                                        14,588,057        11,419,504        2,389,616
    Equity income (loss) in partnerships (note 3)                    (26,176)           40,106        3,597,096
    Investment securities gains realized                                -               -                76,375
    Interest and dividends                                         7,774,806         5,907,779        3,465,614
    Fee income                                                     2,521,713         1,353,686          395,417
    Other                                                            913,051           952,537          640,804
                            -----------------------------------------------------    ---------      ----------------

                  Total Revenue                                  181,068,977       180,185,208      102,975,379
                                                                 ---------------   ------------     -----------

Expenses:
    Clearing and related brokerage charges                        57,282,285        55,631,233       34,765,052
    Compensation and benefits
       (notes 10, 12 and 14)                                      59,398,845        57,536,289       31,375,322
    Communications   11,252,936                                   10,767,515         6,370,985
    Depreciation and amortization                                  4,891,324         4,079,015        1,797,575
    Advertising costs                                              2,801,700         1,724,117        2,605,167
    Occupancy costs and equipment rental (note 14)                 2,681,439         3,165,851        1,855,771
    Professional fees                                              3,533,937         2,243,338        1,571,828
    Travel and entertainment                                       1,858,191         1,502,228        1,228,287
    Repairs and maintenance                                          954,072           553,521          438,262
    Interest                                                         429,378           320,812           50,984
    Litigation settlement (note 15)                                9,187,500            -
-
    Other                                                          4,479,601         3,501,198        1,906,079
                          --------------------------------------------------    --------------    -------------

                  Total Expenses                                 158,751,208       141,025,117       83,965,312
                                                              ---------------   ---------------      ----------

                  Income before minority interest
                     and income taxes                             22,317,769        39,160,091       19,010,067

Income of Equitrade allocated to minority partners                (4,326,095)       (3,628,986)        (770,041)
                                                              ---------------   --------------     ------------

                  Income before income taxes                      17,991,674        35,531,105       18,240,026

Income taxes (note 8)                                              8,711,981        15,399,177        3,625,138
                                                              -------------     --------------    -------------

                  Net income                                  $    9,279,693        20,131,928       14,614,888
                                                                  =========     ==============   ==============
 
                  Net income per common share                 $          .72              1.52             1.07
                                                                         ===              ====             ====


Weighted average common shares outstanding:                      12,941,287         13,200,867       13,624,603
                                                              ==============         ==========       ==========
</TABLE>

See accompanying notes to consolidated financial statements.
F-5





                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                            Consolidated Statements of Changes in Stockholders' Equity

                                      Years ended May 31, 1997, 1996 and 1995
<CAPTION>



                                                                Additional
                                        Common         Common    paid-in      Retained      Treasury      Treasury
                                        shares          stock    capital      earnings       shares         stock          Total
                                        ------          -----    -------      --------       ------          -----          -----

<S>                                   <C>           <C>           <C>         <C>         <C>            <C>         <C>          
Balance at May 31, 1994               14,343,201    $    143,432  58,134,052   3,189,324   (1,694,790)    (8,156,069) $  53,310,739

Net income                                -                  -       -        14,614,888       -              -          14,614,888

Acquisition of treasury stock             -                  -       -             -         (338,700)    (1,948,126)    (1,948,126)
                                   -------------     -------------------------------------- ------------- -------------- ----------

Balance at May 31, 1995               14,343,201         143,432  58,134,052  17,804,212   (2,033,490)   (10,104,195)    65,977,501

Net income                                    -              -           -    20,131,928           -              -      20,131,928

Issuance of treasury stock upon exercise
   of options                                 -              -    (1,175,262)         -     1,346,000      7,184,518      6,009,256

Acquisition of treasury stock                 -              -           -            -      (625,979)    (5,549,130)    (5,549,130)
                                   -------------    ------------   -------------- ----------------------------------------- -------

Balance at May 31, 1996               14,343,201         143,432  56,958,790  37,936,140   (1,313,469)    (8,468,807)    86,569,555

Net income                                                                     9,279,693                                  9,279,693

Acquisition of treasury stock                                                                (429,094)    (4,462,830)    (4,462,830)

Issuance of treasury stock upon
     exercise of options                                             231,195                   94,027        656,872        888,067
                                  --------------   -------------------------  --------------  --------------------------- ---------

Balance at May 31, 1997               14,343,201    $    143,432  57,189,985  47,215,833   (1,648,536)   (12,274,765)$   92,274,485
                                   =============   =============  ======================== =============  ============== ==========

</TABLE>

See accompanying notes to consolidated financial statements.









                                                        F-6



<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                                       Consolidated Statements of Cash Flows

                                      Years ended May 31, 1997, 1996 and 1995


<CAPTION>





                                                                      1997               1996               1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>                 <C>  
Cash flows from operating activities:                                                                              
    Net income                                                       $ 9,279,693        20,131,928          14,614,888

    Non-cash items included in net income:
       Equity (income) loss in partnerships                               26,176           (40,106)         (3,597,096)
       Depreciation and amortization                                   4,891,324         4,079,015           1,797,575
       Gain on sale of investment
          securities not readily marketable                                   -                 -              (76,375)
       Income of Equitrade allocated to
          minority partners                                            4,326,095         3,628,986             770,041
       Provision for deferred taxes                                   (2,220,472)               -                   -
       Loss on sale of subsidiary                                        123,006                -                   -
       Tax benefit related to employee compensation
          arrangements                                                        -          4,490,000                  -

    (Increase) decrease in operating assets:
       Funds segregated for customers                                    (29,203)               -                   -
       Receivables:
          Brokers and dealers                                         23,344,762       (30,825,770)          3,171,467
          Other                                                          (78,693)         (265,818)            154,406
       U.S. Treasury obligations held as collateral                      (32,740)           89,337          (3,062,677)
       Securities owned, at market value                              (9,733,796)        9,595,915         (23,974,582)
       Other assets (net of deposits on furniture,
          fixtures, equipment and leasehold
          improvements)                                                 (457,385)          138,418          (3,317,430)

    Increase (decrease) in operating liabilities:
       Securities sold, not yet purchased, at
          market value                                                 4,790,211        (5,797,653)         13,550,853
       Accounts payable and accrued expenses                           6,814,638         7,138,010           1,215,495
       Income taxes payable                                           (4,987,878)        3,972,470           1,126,949
                                                                 ----------------   --------------      --------------

                Net cash provided by operating
                   activities                                         36,055,738        16,334,732           2,373,514
                                                                 ---------------    --------------      --------------


</TABLE>
                                                    (Continued)
F-7


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                                 Consolidated Statements of Cash Flows, Continued
<CAPTION>


                                                                       1997                1996               1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>                  <C> 
Cash flows from investing activities:

    Distributions from partnerships                                  $     5,150            31,000           2,641,956
    Proceeds from sales of investment securities
       not readily marketable                                                 -                 -               99,575
    Payment for purchase of investment securities
       not readily marketable                                           (100,000)               -                   -
    Loans made and notes issued to employees and
       officers                                                         (237,652)       (1,738,840)           (242,500)
    Principal collected on notes receivable                              104,321         1,683,617           1,039,107
    Purchases of furniture, fixtures and
       
       equipment and leasehold improvements                          (11,429,602)      (12,556,959)         (1,887,179)
    Purchases of computer software                                    (1,413,233)         (537,136)            (28,019)
    Acquisition of intangible asset                                   (4,128,024)               -           (2,650,000)
    Payment for purchase of non-compete
       agreement                                                        (188,780)          -                  (250,000)
    Purchase of subsidiaries (net of cash,
       intangibles and exchange memberships
       acquired)                                                      (6,311,493)               -                   -
    Purchase of exchange memberships                                  (6,250,000)               -                   -
    Issuance of subordinated note                                       (500,000)               -                   -
    Principal collected on subordinated note                             500,000                -            1,000,000
                                                                 ---------------    --------------      --------------

          Net cash used in investing activities                      (29,949,313)      (13,118,318)           (277,060)
                                                                 ---------------    --------------      --------------

Cash flows from financing activities:
    Purchase of treasury stock                                        (3,569,937)       (2,061,876)         (1,948,126)
    Proceeds from exercise of options                                         -            635,000                  -
    Capital contribution by minority interest                            185,658            29,575             500,000
    Capital withdrawals by minority interest                          (1,849,025)       (1,942,273)           (647,143)
                                                                 ---------------    --------------      --------------

          Net cash used in financing activities                       (5,233,304)       (3,339,574)         (2,095,269)
                                                                 ---------------    --------------      --------------

          Net increase (decrease) in cash                                873,121          (123,160)              1,185

Cash acquired due to consolidation of:
    Equitrade as of March 1, 1995                                             -                 -              117,555
    Anvil as of January 24, 1997                                          22,740                -                   -
    SHD Corporation as of May 2, 1997                                  1,667,644                -                   -

Cash at beginning of year                                                470,313           593,473             474,733
                                                                 ---------------    --------------      --------------

Cash at end of year                                           $        3,033,818           470,313             593,473
                                                                 ===============    ==============      ==============
</TABLE>


                                                   (Continued)
F-8


<PAGE>


                                         THE SHERWOOD GROUP, INC.
                                             AND SUBSIDIARIES

                            Consolidated Statements of Cash Flows, Continued





Supplemental disclosures of cash flow information:
     Income tax payments totaled  $15,946,000,  $6,948,770 and $2,842,399 during
     the years ended May 31, 1997, 1996 and 1995, respectively.

     Interest  payments  totaled  $658,276,  $890,495  and $50,984 for the years
     ended May 31, 1997, 1996 and 1995, respectively.

Supplemental disclosures of non-cash investing and financing activities:

     As a result of the sale of its subsidiary, Stock Market Index, Inc., during
     December  1996,  the Company wrote off the remaining  book value of certain
     computer software and intangible assets aggregating  $255,193. In addition,
     as part of the sale,  the  Company  received  a note in the face  amount of
     $132,187 from the buyer, resulting in a net loss of $123,006.

     On January 24, 1997, the Company acquired,  from its joint venture partner,
     the remaining 51% of Anvil Institutional Services Company (the "Anvil Joint
     Venture") that it did not previously  own. The Company,  therefore,  became
     the  100%  owner  of  Anvil  Institutional   Services  Inc.  ("Anvil"),   a
     broker-dealer previously owned by the Anvil Joint Venture. Accordingly, the
     assets,   liabilities   and   stockholder's   equity  of  Anvil  have  been
     consolidated  with those of the  Company as of the  acquisition  date.  The
     increases or decreases in operating assets and liabilities reflected in the
     consolidated  statement  of cash  flows  for the year  ended  May 31,  1997
     exclude  amounts for the assets and liabilities of Anvil which were assumed
     as part of the acquisition.

     During February 1997, an executive of the Company exercised an aggregate of
     94,027  options for the purchase of 94,027 shares of the  Company's  common
     stock with  exercise  prices  ranging from $7.9375 per share to $9.1875 per
     share.  In order to pay for the exercise price  ($838,324) and to reimburse
     the Company for the personal  income taxes ($54,569) on the gain related to
     the transaction, the executive remitted to the Company 88,187 shares of the
     Company's common stock with a market value of $892,893.

     On  May  2,  1997,  the  Company  acquired  100%  of the  common  stock  of
     Dresdner-NY  Incorporated,  subsequently  renamed SHD Corporation  ("SHD").
     Accordingly,  the assets,  liabilities and stockholder's equity of SHD have
     been consolidated with those of the Company as of the acquisition date. The
     increases or decreases in operating assets and liabilities reflected in the
     consolidated  statement  of cash  flows  for the year  ended  May 31,  1997
     exclude amounts for the assets and liabilities of SHD which were assumed as
     part of the acquisition.


See accompanying notes to consolidated financial statements.

F-9


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                    Notes to Consolidated Financial Statements

                                            May 31, 1997, 1996 and 1995



(1)    Organization and Business

       The  Sherwood  Group,  Inc.  and its  subsidiaries  (the  "Company")  are
       primarily  engaged in the  securities  business and in providing  related
       financial services. The Company has a principal registered  broker-dealer
       wholly   owned   subsidiary,   Sherwood   Securities   Corp.   ("Sherwood
       Securities").  National  Discount  Brokers  ("NDB"),  another  registered
       broker-dealer,  is a division of the Company's  wholly owned  subsidiary,
       Triak Services Corp.  The Company has a 60% special  limited  partnership
       interest in Equitrade Partners  ("Equitrade"),  which is a specialist for
       securities  listed on The New York Stock Exchange  ("NYSE").  The company
       also acquired a further limited partnership  interest in Equitrade on May
       2,  1997  which  is  described  below.  Sherwood  Securities  is a also a
       specialist for securities  listed on the American Stock Exchange.  During
       May  1996,  the  Company  commenced  operations  of a  new  wholly  owned
       subsidiary,  MXNet Inc. ("MXNet"),  formerly Market Distribution Concepts
       Inc.  MXNet  delivers   comprehensive   technical  solutions  to  trading
       organizations.  As of December 31, 1996, the Company  divested  itself of
       its  investment in Stock Market Index,  Inc., a wholly owned  subsidiary.
       Finally,  on January  24,  1997,  the  Company  acquired,  from its joint
       venture partner the remaining 51% of Anvil Institutional Services Company
       (the "Anvil Joint  Venture") that it did not previously own. The Company,
       therefore,  became the 100% owner of Anvil  Institutional  Services  Inc.
       ("Anvil"), a broker-dealer previously owned by the Anvil Joint Venture.

       On May 2, 1997,  the Company  acquired  all the stock of SHD  Corporation
       (formerly Dresdner-NY  Incorporated),  which is engaged in the specialist
       business  on the NYSE.  The  assets,  including  four  seats on the NYSE,
       except  cash,  and  liabilities  of SHD  Corporation  ("SHD")  were  then
       contributed  by  SHD to  Equitrade  in  exchange  for a  limited  partner
       interest.  Two employees of SHD retained a portion of the specialist book
       of SHD and also became limited partners of Equitrade.  SHD is entitled to
       38.4% of the net  profits  and net  losses  from the  activities  of this
       specialist book.


(2)    Summary of Significant Accounting Policies

       (a)    The consolidated  financial statements include the accounts of the
              Company   and  its   subsidiaries.   Intercompany   accounts   and
              transactions have been eliminated in consolidation.

       (b)    Firm  securities  transactions  and related  revenues  and 
              expenses are recorded on a trade-date basis.

       (c)    Securities  owned and securities  sold,  not yet  purchased,  are
              carried at the last quoted "bid" and "ask" prices,  respectively.
              The resulting difference between cost and market value is included
              in firm securities  transactions  - net  in  the  consolidated  
              statements  of income. U.S. Treasury obligations are carried at 
              market value.

F-10


<PAGE>


                                    THE SHERWOOD GROUP, INC.
                                        AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements, Continued



(2),  Continued

       (d)    For  all  subsidiaries,  except  MXNet,  furniture,  fixtures  and
              equipment  are  depreciated  using the  straight-line  method over
              their  estimated  useful  lives  of  five to ten  years.  Computer
              software  is  amortized  using the  straight-line  method over its
              estimated useful life of three years.  Leasehold  improvements are
              amortized  using the  straight-line  method  over the terms of the
              leases or the useful lives of the improvements, whichever is less.
              MXNet depreciates all furniture,  fixtures, equipment and computer
              software over three years.

       (e)    Earnings  per share are  computed  by  dividing  net income by the
              weighted average number of common shares outstanding (adjusted for
              the assumed  conversion  of  outstanding  common stock  options at
              average month-end and year-end market prices, the  "treasury-stock
              method")  during  each of the years.  The  effect of common  stock
              equivalents is not material.

       (f)    Certain prior year amounts have been  reclassified to conform with
              the fiscal year ended May 31, 1997 presentation.

       (g)    Deferred   income  taxes  are   recognized   for  the  future  tax
              consequences  attributable  to  differences  between the financial
              statement  carrying amounts of existing assets and liabilities and
              their  respective tax bases.  Deferred tax assets and  liabilities
              are measured  using enacted tax rates expected to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected to be recovered or settled.  The effect on deferred taxes
              of a change in tax  rates is  recognized  in income in the  period
              that includes the enactment date.

       (h)    The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities and the disclosure of contingent assets and
              liabilities  at the  date  of the  financial  statements  and  the
              reported  amounts of revenues  and expenses  during the  reporting
              periods. Actual results could differ from those estimates.

       (i)    In  March  1995,  the  Financial  Accounting  Standards  Board  
              issued Statement of Financial  Accounting  Standards No. 121  
              "Accounting  for the Impairment of Long-Lived  Assets and for  
              Long-Lived  Assets to be Disposed of" ("SFAS No. 121"),  for 
              periods  beginning after December 15, 1995. SFAS No.  121  
              requires   that  long  lived  assets  and  certain   identifiable
              intangibles  to be held and used by an entity be  reviewed  for  
              impairment whenever  events  or  changes  in  circumstances  
              would  indicate  that the carrying  amount  of an asset  may not 
              be  recoverable.  Management  of the Company believes that there 
              were no events or changes in circumstances that would  indicate  
              that  the  carrying  amounts  as of May 31,  1997,  of its
              long-lived and intangible assets may not be recoverable. 

F-11


<PAGE>


                                   THE SHERWOOD GROUP, INC.
                                       AND SUBSIDIARIES

                     Notes to Consolidated Financial Statements, Continued



(2),  Continued

      (j) In October 1995,  the Financial  Accounting  Standards  Board
          issued Statement of Financial Accounting Standards No. 123 "Accounting
          for Stock-Based  Compensation" ("SFAS No. 123"), for periods beginning
          after  December 15, 1995.  SFAS No. 123 replaces the current  standard
          used to  calculate  compensation  expense  in  regard  to  stock-based
          compensation,  Accounting  Principles Board Opinion No. 25 ("APB 25").
          Under APB 25, compensation expense would be recorded on the date of an
          option grant only if the current market price of the underlying  stock
          exceeded  the  exercise  price.  SFAS No.  123  permits  an  entity to
          recognize as  compensation  expense  over the vesting  period the fair
          value of all stock-based  awards on the date of grant.  Alternatively,
          SFAS No. 123 also allows  entities to continue to apply the provisions
          of APB 25 and provide pro forma net income and pro forma  earnings per
          share  disclosures  for employee  stock option grants made in 1995 and
          future years as if the fair-value-based method defined in SFAS No. 123
          had been  applied.  The  Company  has elected to continue to apply the
          provisions of APB 25 and provide the pro forma  disclosure  provisions
          of SFAS No. 123.

      (k) In February 1997, the Financial  Accounting  Standards  Board
          issued Statement of Financial  Accounting Standards No. 128, "Earnings
          per Share"  ("Statement  128"),  for periods ending after December 15,
          1997.  Statement  128 replaces the current  standard used to calculate
          primary earnings per share, Accounting Principles Board Opinion No. 15
          ("APB 15"). Statement 128 requires a calculation of basic earnings per
          share, as well as a dual  presentation  of basic and diluted  earnings
          per share on the face of the statement of income.  Basic  earnings per
          share  differs  from  primary  earnings per share under APB 15 in that
          dilution for common stock equivalents is excluded.  Basic earnings per
          share under Statement 128 for the three years ended May 31, 1997 would
          not have been  materially  different  than primary  earnings per share
          under APB 15.


 (3)   Investment in Partnerships

       On May 2, 1997, SHD contributed to Equitrade all its assets,  except cash
       and broker receivables,  and liabilities to Equitrade for a 38.4% limited
       partnership  interest  in  the  net  profits  and  net  losses  from  the
       specialist  activities  associated with the contributed assets. Among the
       assets  contributed  was an intangible  asset for $4,150,000  paid by the
       Company as additional purchase price for the right to specialize in these
       securities.  The intangible  asset is being  amortized on a straight line
       basis over ten years.

       The Company is a 60% special limited partner in Equitrade.  In connection
       with  certain  transactions  which took  place in 1995 and are  discussed
       below,  the  Company  issued  Equitrade  an  additional   $10,000,000  in
       subordinated  debt.  This  transaction,  in conjunction  with  previously
       issued  subordinated  debt of  $2,000,000  and the  60%  special  limited
       partnership  interest,  led to the determination  that  consolidation was
       required commencing March 1995. Prior to this determination,  the Company
       accounted for Equitrade on an

F-12


<PAGE>


                                   THE SHERWOOD GROUP, INC.
                                      AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements, Continued



(3),  Continued

       equity basis.  The Company's share of Equitrade's  profits  subsequent to
       consolidation was  approximately  $1,322,000 for the period March 1995 to
       May 1995 and  $5,507,000  and $6,190,235 for the years ended May 31, 1996
       and May 31,  1997,  respectively.  In  accordance  with the  terms of the
       amended and restated partnership  agreement dated May 2, 1997, except for
       certain specialist positions, the net profits and losses of Equitrade are
       allocated  to its  partners  prior  to the  amortization  of  restrictive
       covenants and other  partnership  intangibles.  The first $800,000 of net
       profits,  or the pro rata  part  thereof  if less than a period of twelve
       months,  is  allocated  100% to the  Company.  Net  profits  in excess of
       $800,000,  or the pro rata part  thereof  if less than a period of twelve
       months, are allocated 60% to the Company.  The Company is entitled to 30%
       of the net  profits  and  net  losses  from a  portion  of the  Equitrade
       portfolio  acquired  in May 1995 and  38.4%  of the net  profits  and net
       losses of the  specialist  activities  of SHD which were  contributed  to
       Equitrade.

       On February 21, 1995, Equitrade purchased certain security positions from
       a NYSE specialist.  Equitrade paid additional consideration of $1,400,000
       for the right to specialize in these securities. This intangible asset is
       being amortized on a straight line basis over 15 years.

       On May 1, 1995,  Equitrade  purchased  certain security  positions from a
       NYSE  specialist.  Equitrade paid additional  consideration of $1,250,000
       for the  right to  specialize  in these  securities  and  $250,000  for a
       not-to-compete covenant. These intangible assets are being amortized on a
       straight line basis over 15 years.

       On April 1, 1993, the Company entered into a joint venture agreement with
       a minority  broker-dealer  wherein  the  Company  acquired a 49%  limited
       partnership interest in Anvil Institutional  Services Company (the "Anvil
       Joint  Venture") for $490.  The Anvil Joint Venture,  in turn,  purchased
       100% of the capital stock of Chouteau,  Gilmore & Sherriff, Inc. ("CGS"),
       a broker-dealer registered in New York and California.  Subsequently, CGS
       was renamed  Anvil  Institutional  Services Inc.  ("Anvil").  On July 29,
       1994,  the Company made an additional  contribution  of $246,562,  in the
       form of treasury  securities with a face value of $250,000,  to the Anvil
       Joint Venture. On January 24, 1997, the Company acquired,  from its joint
       venture partner, the remaining 51% of the Anvil Joint Venture that it did
       not  previously  own.  The Company,  therefore,  became the 100% owner of
       Anvil.


(4)    Financial Instruments and Concentration of Credit Risk

       The   Financial   Accounting   Standards   Board's   Statement  No.  107,
       "Disclosures  about Fair Value of Financial  Instruments,"  requires that
       all  entities  disclose  the fair  value  of  financial  instruments,  as
       defined, for both assets and liabilities recognized and not recognized in
       the  consolidated   statement  of  financial  condition.   The  Company's
       financial  instruments,  as defined,  are carried at or approximate  fair
       value.

F-13


<PAGE>


                                       THE SHERWOOD GROUP, INC.
                                           AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements, Continued


(4),  Continued
<TABLE>

       Marketable  securities  owned and sold,  not yet  purchased,  consist  of
securities as follows:
<CAPTION>

                  Securities owned                                               1997             1996
                  ----------------                                               ----             ----

                  <S>                                                    <C>                  <C>       
                  Corporate equities                                     $     40,183,144     32,181,980
                  U.S. Government obligations                                   5,513,292                -
                                                                            -------------     ------------
                           Total                                         $     45,696,436        32,181,980
                                                                            =============     =============

                  Securities sold, not yet purchased

                  Corporate equities                                           25,129,290        18,827,302
                                                                            -------------     -------------
                           Total                                         $     25,129,290        18,827,302
                                                                            =============     =============
</TABLE>

       In the normal course of business,  Sherwood  Securities,  NDB,  Anvil and
       Equitrade execute securities  transactions on behalf of customers through
       clearing  brokers.  In  connection  with these  activities,  a customer's
       unsettled trades may expose Sherwood Securities, NDB, Anvil and Equitrade
       to  off-balance-sheet  credit risk in the event the customer is unable to
       fulfill its contractual obligations.  Sherwood Securities, NDB, Anvil and
       Equitrade  seek to  control  the  risk  associated  with  their  customer
       activities  by  making  credit  inquiries  when   establishing   customer
       relationships and by monitoring customer trading activity.

       Sherwood  Securities  and  Equitrade  conduct   substantially  all  their
       principal trading activities through broker-dealers based in the New York
       Metropolitan area. At May 31, 1997, all principal security positions were
       in the possession or control of their clearing  brokers.  Credit exposure
       may result in the event that Sherwood Securities' or Equitrade's clearing
       brokers  are  unable  to  fulfill  their  contractual  obligations.   The
       subsequent  settlement of open  positions at May 31, 1997 had no material
       adverse  effect on the  financial  position  of  Sherwood  Securities  or
       Equitrade.

       During the normal course of business  Sherwood  Securities  and Equitrade
       may sell securities  which have not yet been  purchased,  which represent
       obligations of Sherwood Securities and Equitrade to deliver the specified
       security at a later date,  thereby  creating a liability  to purchase the
       security in the market at prevailing prices.  Such transactions result in
       off-balance-sheet  market risk as  Sherwood  Securities  and  Equitrade's
       ultimate  obligation to satisfy the sale of securities  sold, but not yet
       purchased,  may exceed the amount recorded in the consolidated  statement
       of financial condition. Sherwood Securities and Equitrade seek to control
       such market  risk  through  the use of  internal  monitoring  guidelines.
       Neither  Sherwood  Securities  nor  Equitrade  engage  in any  derivative
       activities.


(5)    Cash and Securities Segregated Under Federal and Other Regulations

       Sherwood  Securities,  NDB and Anvil have been granted  exemptions by the
       National  Association  of  Securities  Dealers,  Inc.  ("NASD")  from the
       computation for determination of reserve  requirements for broker-dealers
       under subparagraph (k)(2)(ii) of the Securities

F-14


<PAGE>


                                        THE SHERWOOD GROUP, INC.
                                            AND SUBSIDIARIES

                         Notes to Consolidated Financial Statements, Continued


(5),  Continued

       and  Exchange  Commission's  ("SEC") Rule  15c3-3.  Under the  (k)(2)(ii)
       exemption,  Sherwood  Securities,  NDB and  Anvil  execute  all  customer
       transactions  through a clearing  broker and do not  maintain  custody of
       customer funds or securities.  Sherwood Securities, NDB and Anvil were in
       compliance  with the conditions of this exemption  during the years ended
       May 31, 1997, 1996 and 1995.


 (6)   Furniture, Fixtures, Equipment and Leasehold Improvements
<TABLE>

       Furniture,  fixtures,  equipment and leasehold  improvements consisted of
the following:
<CAPTION>

                                                                                           May 31,
                                                                                1997              1996

                  <S>                                                    <C>                        <C>       
                  Furniture, fixtures and equipment                      $    24,890,286            19,019,267
                  Leasehold improvements                                       3,047,594             2,068,512
                                                                          --------------       ---------------
                                                                              27,937,880            21,087,779

                  Less accumulated depreciation
                      and amortization                                         7,674,370             8,132,165
                                                                          --------------       ---------------

                                                                         $    20,263,510            12,955,614
                                                                          ==============       ===============
</TABLE>

       During the fiscal  year ended May 31,  1996,  the Company  abandoned  its
       headquarters  in New York City and relocated to Jersey City,  New Jersey.
       Consequently,  the Company  accelerated the depreciation and amortization
       of all  assets  abandoned.  Such  excess  depreciation  and  amortization
       aggregated $592,480 for furniture, fixtures and equipment and $48,638 for
       leasehold improvements.


(7)    Acquisition of SHD Corporation (Formerly Dresdner-NY Incorporation)

       On May 2, 1997,  the Company  acquired  100% of the stock of  Dresdner-NY
       Incorporated  (subsequently  renamed SHD Corporation),  a NYSE specialist
       firm,  from Dresdner Bank AG for the purchase price of $15,261,493  which
       included four NYSE seats with a market value of $4,800,000.  The purchase
       price resulted in an intangible  asset  amounting to $4,150,000  which is
       being  amortized on a straight line basis over 10 years.  The acquisition
       was accounted for by the purchase method of accounting and,  accordingly,
       the  results  of  operations  of  SHD  Corporation  are  included  in the
       accompanying consolidated statement of income from the acquisition date.

       Presented below are unaudited pro forma combined results of operations of
       the Company and Dresdner-NY Incorporated. Amounts presented for the years
       ended May 31, 1997 and 1996 give effect to the acquisition of Dresdner-NY
       Incorporated  as if the  transaction  was consummated at the beginning of
       each of the periods presented.

F-15


<PAGE>


                                 THE SHERWOOD GROUP, INC.
                                      AND SUBSIDIARIES
                    Notes to Consolidated Financial Statements, Continued


(7), Continued
<TABLE>

                                                       (In thousands, except share data)
<CAPTION>

                                                                                 Years ended May 31,
                                                                               1997               1996

                <S>                                                      <C>                    <C>    
                Revenues                                                 $      182,891            187,071
                Net income                                                        8,406             20,512
                Net income per common share                              $         0.65               1.55

                Shares used in computation                                    2,941,287         13,200,867
                                                                              ---------         ----------
</TABLE>

       The unaudited pro forma  combined  results of operations is presented for
       comparative purposes only and is not necessarily indicative of the actual
       results that would have occurred if the acquisition had been  consummated
       at the beginning of the periods presented, or of future operations of the
       combined companies under the ownership and management of the Company.


(8)    Income Taxes

       The Company will file its  consolidated  Federal and  combined  state and
       local income tax returns (inclusive of all subsidiaries except Equitrade)
       based on a May 31, 1997 year end.

       The current Federal,  state and local income tax provisions for the years
       ended  May 31,  1997,  1996  and 1995  have  been  provided  based on the
       appropriate tax computation for each jurisdiction.

       Deferred   income  taxes   reflect  the  net  tax  effects  of  temporary
       differences  between the carrying  amounts of assets and  liabilities for
       financial  reporting  purposes  and  the  amounts  used  for  income  tax
       purposes.  At May 31, 1997, the Company had net deferred tax assets which
       are primarily  due to  differences  in reserves and  expenses,  primarily
       $4,593,750  of  remaining  payments  due  pursuant  to the  terms  of the
       Company's  settlement  agreement,  as amended, in the case entitled In re
       NASDAQ  Market-Makers  Antitrust  Litigation,  allowable for book and tax
       purposes.  Management of the Company established a valuation allowance of
       $154,615,  which  represents 100% of the net deferred tax asset of MXNet,
       because it concluded  that it was more likely than not that a significant
       portion of the benefit would not be realized.
<TABLE>

       The provisions for income taxes included in the accompanying consolidated
       statements of income are as follows:
<CAPTION>
                                                                            Years ended May 31,
                                                                1997              1996              1995
       <S>                                                <C>                   <C>                 <C>    
       Federal:
          Current                                         $     7,225,411       12,366,631          1,108,941
          Deferred benefit                                     (1,203,645)              -                  -
                                                             ------------     ------------       -----------

                                                                6,021,766       12,366,631          1,108,941
                                                             ------------     ------------       ------------
F-16


<PAGE>


                                       THE SHERWOOD GROUP, INC.
                                          AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued


 (8), Continued

       State and local:
          Current                                               3,707,042        3,032,546          2,516,197
          Deferred benefit                                     (1,016,827)              -                  -
                                                             ------------     ------------       -----------

                                                                2,690,215        3,032,546          2,516,197
                                                             ------------     ------------       ------------

                                                          $     8,711,981       15,399,177          3,625,138
                                                             ============     ============       ============
</TABLE>
<TABLE>

       A reconciliation of the differences between the income tax provisions and
       the amounts computed by applying the statutory Federal income tax rate is
       as follows:
<CAPTION>

                                                                            Years ended May 31,
                                                                1997               1996             1995

       <S>                                              <C>                     <C>               <C>      
       Statutory provision on pretax income             $       6,297,086       12,435,887        6,384,009

       State and local taxes, net of Federal tax                1,748,640        1,971,155        1,635,528

       Tax effect of meals and entertainment
           and club dues                                          242,785          193,967        160,475

       Tax effect of utilization of
           net operating loss carryforwards                            -                -         (4,687,406)

       Other - net                                                423,470          798,168        132,532
                                                             ------------       ----------      ---------

                  Income tax provision                  $       8,711,981       15,399,177        3,625,138
                                                             ============       ==========      ===========

</TABLE>

 (9)   Subordination Agreements

       On March 23, 1992, Equitrade entered into three subordination  agreements
       in the aggregate  amount of  $3,000,000.  Such notes are due on March 23,
       1998 and contain a yearly automatic  roll-over  provision.  In connection
       with these agreements,  the lenders pledged marketable  securities with a
       market value in excess of $3,000,000.


(10)   Common Stock and Stock Options

      (a) The Company  maintained  an  Employee  Stock  Ownership  Plan
          ("ESOP")  which  was  discontinued  by a  resolution  of the  Board of
          Directors  on July 15,  1993.  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 373,501 shares were  distributed to the  participants,
          of which  297,377  shares were rolled over to the Sherwood  Securities
          Corp.  401(k)  Plan  (see note 12).  Participants  representing  1,523
          shares did not respond.  Those shares were  remitted to various  state
          agencies as unclaimed property. F-17


<PAGE>


                                       THE SHERWOOD GROUP, INC.
                                            AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued

(10), Continued

      (b) The  Company  had an  employee  stock  option plan (the "1983
          Plan") which was amended and restated in January  1987, to provide for
          the issuance of up to a maximum of 10,000,000  shares of the Company's
          common stock to directors,  officers and key  employees.  Options were
          granted for terms of up to ten years.  On August 5, 1993, the Board of
          Directors voted to allow the 1983 Plan to expire as of August 9, 1993,
          thereby canceling 8,509,001  unoptioned shares previously reserved for
          the 1983 Plan. On October 24, 1995,  the  stockholders  of the Company
          approved The Sherwood Group, Inc. 1995 Stock Option ( the "1995 Plan")
          allowing  for the  issuance of up to 767,200  shares of the  Company's
          common stock  pursuant to stock options and permitting the issuance of
          stock  appreciation  rights in  connection  with the issuance of stock
          options.  The Compensation  Committee,  pursuant to the 1995 Plan, has
          issued to employees exercising options under the 1983 Plan new options
          (reload  options) in an amount equal to the number of shares of common
          stock of the  Company  used to  satisfy  the  exercise  price  and the
          withholding taxes due upon exercise of the options. Generally, options
          granted under the 1995 Plan have provided for vesting six months after
          the date of grant. At May 31, 1997,  207,316 shares were available for
          future  grant  under the 1995 Plan.  The  following  table  summarizes
          transactions in stock options granted under the 1983 Plan and the 1995
          Plan during the three years ended May 31, 1997:
<TABLE>
<CAPTION>
                                                                 Optioned shares
                                                      Number of             Exercise price
                                                       shares                  per share

         <S>                                          <C>               <C>                           
         Balance at May 31, 1994                      1,379,333         $1.00  -  $3.625
              Options canceled                          (33,333)              1.00
                                                          -----         ----------------
         Balance at May 31, 1995                      1,346,000            1.00 - 3.625
              Options exercised                      (1,346,000)           1.00 - 3.625
              Options granted - reload                  394,697           7.9375 - 9.1875
                                                       --------           ---------------
         Balance at May 31, 1996                        394,697           7.9375 - 9.1875
              Options exercised                         (94,027)          7.9375 - 9.1875
              Options granted - reload                   88,187             10.125
              Options granted - original                 77,000           11.000 - 11.375
                                                         ------          ---------------
         Balance at May 31, 1997                        465,857         $ 7.9375 - 11.375
                                                      =========           ===============
</TABLE>

       (c)    The Company  accounts for its stock option plan in accordance with
              the  provisions  of  APB  25,  "Accounting  for  Stock  Issued  to
              Employees",  and related  interpretations.  As such,  compensation
              expense would be recorded on the date of grant only if the current
              market price of the underlying  stock exceeded the exercise price.
              On June 1, 1996, the Company adopted SFAS No. 123, "Accounting for
              Stock-Based Compensation",  which permits entities to recognize as
              expense over the vesting period the fair value of all  stock-based
              awards  on the date of  grant.  Alternatively,  SFAS No.  123 also
              allows entities to continue to apply the provisions of APB 25 and

                                                       F-18
                                       THE SHERWOOD GROUP, INC.
                                           AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued


 (10), Continued

              provide  pro forma net  income  and pro forma  earnings  per share
              disclosures  for  employee  stock  option  grants made in 1995 and
              future years as if the fair-value-based method defined in SFAS No.
              123 had been applied. The Company has elected to continue to apply
              the  provisions  of APB 25 and  provide  the pro forma  disclosure
              provisions of SFAS No. 123

              The fair value of each option  grant is  estimated  on the date of
              grant  using  the  Black-Scholes  option  pricing  model  with the
              following  weighted-average  assumptions used for grants under the
              option   plan  in  the  years   ended  May  31,   1997  and  1996,
              respectively:  dividend yield of 0% and 0%, expected volatility of
              34.49% and 37.28%,  risk-free  interest rate ranging from 4.92% to
              6.50% and 4.92% to 5.54%, and expected lives of 3 years.

              The Black-Scholes  option valuation model was developed for use in
              estimating  the fair value of traded options which have no vesting
              restrictions  and are  fully  transferable.  In  addition,  option
              valuation   models   require   the  input  of  highly   subjective
              assumptions including the expected stock price volatility. Because
              the  Company's  stock options have  characteristics  significantly
              different from those of traded options, and because changes in the
              subjective input  assumptions can materially affect the fair value
              estimate,  in  management's  opinion,  the existing  models do not
              necessarily provide a reliable single measure of the fair value of
              its employee stock options.
<TABLE>

              For purposes of pro forma  disclosures the estimated fair value of
              stock-based  compensation  plans and other options is amortized to
              expense primarily over the vesting period. The Company's pro forma
              net income  and net  income per share is as follows  for the years
              ended May 31, 1997 and 1996:
<CAPTION>

                                                                                        Years Ended May 31
                                                                                     1997                1996
                  <S>                                                       <C>                 <C>    
                  Net income:
                     As reported                                            $       9,279,693   $       20,131,928
                     Fair value of options on grant date as
                         compensation expense                                        (346,631)            (362,666)
                                                                                 ------------       --------------


                     Pro forma                                              $       8,933,062   $       19,769,262
                                                                                    =========       ==============

                  Net income per common share:
                     As reported                                            $             .72       $         1.52
                     Fair value of options on grant date as
                         compensation expense                                            (.03)                (.02)
                                                                                 ------------       --------------

                     Pro forma                                              $             .69       $         1.50
                                                                                 ============        =============
</TABLE>

              The  effects  of  applying   SFAS  123  for  providing  pro  forma
              disclosures   during  the  initial  phase-in  period  may  not  be
              representative  of the effects on  reported  net income for future
              years.
F-19


<PAGE>


                                        THE SHERWOOD GROUP, INC.
                                            AND SUBSIDIARIES

                         Notes to Consolidated Financial Statements, Continued


 (10), Continued

       The  weighted-average  fair value of options  granted under the 1995 Plan
       during the year ended May 31,  1997 was  $10.69.  The  average  remaining
       contractual  life of the  options  outstanding  at May 31,  1997 was nine
       years.


(11)   Related Party Transactions and Principal Stockholders

       S.G.I.  Partners,  L.P. ("SGI"), whose general partner is controlled by a
       director of the Company, is a partnership formed to hold the stock of the
       Company.  As of May 31, 1997, SGI and the Chief Executive  Officer of the
       Company  are  the  beneficial   owners  of  approximately  32%  and  22%,
       respectively,  of the Company's common shares. Such beneficial  ownership
       includes shares of common stock underlying currently  exercisable options
       in the case of the Chief Executive Officer.

       Included in note  receivable  at May 31, 1997 and 1996 are notes due from
       officers of the Company amounting to approximately $379,000 and $419,000,
       respectively.

       Included in other receivables at May 31, 1996 is an amount due from Anvil
       and the Anvil Joint Venture  aggregating  approximately  $338,000.  As of
       January 24,  1997,  the  Company  acquired  from the Anvil Joint  Venture
       partner  the  remaining  51% of the Anvil Joint  Venture  that it did not
       previously own. Included in other receivables at May 31, 1997 and 1996 is
       interest  on  the  notes  receivable  from  the  Company's   officers  of
       approximately $15,000 and $17,000, respectively.

       The Company enters into short-term  borrowing facilities with Spear Leeds
       & Kellogg ("SLK") for the purpose of financing trading positions. Certain
       officers  and  directors  of SLK are also  partners of SGI. As of May 31,
       1997, no such borrowings are outstanding.


 (12)  Employee Benefit Plans

       On  April  20,  1992,  the  Board  of  Directors  voted  to form a 401(k)
       profit-sharing  plan  (the  "Plan").  Under the  provisions  of the Plan,
       employees of the Company  (except  Equitrade) are eligible to participate
       if they were  employed  on February 1, 1992;  otherwise,  employees  must
       complete six months of service and attain age 21. Annual contributions to
       the Plan  total  the  amount of salary  reduction  employees  elect and a
       discretionary  matching Company  contribution  determined by the Board of
       Directors  of The Sherwood  Group,  Inc. For the years ended May 31, 1997
       and 1996, there were discretionary  Company  contributions to the Plan of
       $63,699 and $48,029, respectively, which are included in compensation and
       benefits in the accompanying  consolidated  statements of income.  During
       the  year  ended  May  31,  1995,  there  was  no  discretionary  Company
       contribution to the Plan.

       Equitrade sponsors,  for its eligible  employees,  the Equitrade Partners
       401(k)   Savings   Plan,   wherein   Equitrade   contributes  a  matching
       contribution  equal  to  one-half  of  the  first  4%  of  an  employee's
       contribution.  For the years  ended May 31,  1997 and 1996 and the period
       from  March  1,  1995 to May 31,  1995,  Equitrade  contributed  $46,749,
       $43,011, and $5,587, respectively.
F-20


<PAGE>


                                      THE SHERWOOD GROUP, INC.
                                          AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued


(13)   Net Capital Requirements

       Sherwood Securities, NDB, Equitrade, Anvil and SHD are subject to the SEC
       Uniform  Net  Capital  Rule  15c3-1  (the  "Rule"),  which  requires  the
       maintenance  of  minimum  net  capital.  As of  May  31,  1997,  Sherwood
       Securities had regulatory net capital of  approximately  $19,041,000,  or
       approximately  $18,041,000  in excess of required  net  capital,  NDB had
       regulatory  net capital of  approximately  $2,429,000,  or  approximately
       $2,049,000 in excess of required net capital,  Equitrade  had  regulatory
       net capital of approximately $28,380,000, or approximately $28,130,000 in
       excess of  required  net  capital,  Anvil had  regulatory  net capital of
       approximately $362,000, or approximately $312,000 in excess of regulatory
       net  capital,  and  SHD  had  regulatory  net  capital  of  approximately
       $1,460,000,  or  approximately  $1,360,000  in excess of  regulatory  net
       capital.

       The Rule also provides  that equity  capital may not be withdrawn or cash
       dividends paid if the resulting net capital of a  broker-dealer  would be
       less than the amount required under the Rule.

       From time to time,  the Company has needed to borrow funds in  connection
       with its trading activities. The Company currently has no committed lines
       of credit and such borrowings were done on an "as needed" basis.

       The SEC may by order  restrict,  for a period of up to 20 business  days,
       any withdrawal by a broker-dealer of equity capital,  as defined, if such
       withdrawal,  when aggregated with all other withdrawals of equity capital
       on a net basis during a thirty  calendar  day period,  exceeds 30% of the
       broker-dealer's net capital or if the SEC determines that such withdrawal
       would be detrimental to the financial  integrity of the  broker-dealer or
       the financial community.


(14)   Commitments

       The  Company  has  non-cancelable  operating  leases for rental of office
       space at its various locations.  All leases are subject to escalation for
       increases in taxes, fuel and other costs.
<TABLE>

       Commitments  for minimum lease  payments under  non-cancelable  operating
       leases  as of May  31,  1997  are as  follows,  exclusive  of  escalation
       charges:
<CAPTION>

                    Fiscal year ending May 31,
                              <S>                                                 <C>
                              1998                                                $       2,091,000
                              1999                                                        2,030,000
                              2000                                                        1,953,000
                              2001                                                        2,013,000
                              2002                                                        3,048,000
       
                              Thereafter                                                 10,089,000
                                                                                      -------------

                                                                                  $      21,224,000
</TABLE>

The Company has free rent periods which are being amortized over the lives 
of the leases.
F-21


<PAGE>


                                       THE SHERWOOD GROUP, INC.
                                          AND SUBSIDIARIES

                      Notes to Consolidated Financial Statements, Continued



(14), Continued

       Included in  occupancy  costs and  equipment  rental  expenses are office
       rental expenses of  approximately  $2,535,000,  $2,729,000 and $1,585,000
       for the years ended May 31, 1997, 1996 and 1995, respectively.

       The  Company  has had  employment  contracts  with the  Chief  Executives
       Officer ("CEO")  commencing on January 1, 1993. During December 1995, the
       CEO  exercised his option to extend his then current  contract  until May
       31, 1997.  Remuneration under these contacts consisted of base salary and
       a cash bonus  based on the  Company's  Income ( defined  as  consolidated
       income  before  taxes and the payment or accrual of the CEO's annual cash
       bonus).  The annual cash bonus is equal to 10% of the first $5 million of
       Income, 15% on the next $8 million of Income, and 18% of Income in excess
       of $13,000,000.  During March 1996, the CEO agreed to amend his agreement
       so that he would receive additional compensation at 15%, rather than 18%,
       of Income on amounts in excess of  $19,746,019  for the fiscal year ended
       May 31, 1996.  Included in accounts  payable and accrued  liabilities  is
       approximately  $1,251,000  and  $3,897,000 due to the CEO at May 31, 1997
       and  1996,   respectively.   In   connection   with   these   agreements,
       approximately  $3,061,000,  $6,137,000  and  $3,132,000  is  reflected in
       compensation  and  benefits  for the years ended May 31,  1997,  1996 and
       1995, respectively.

       During the fiscal year ended May 31, 1997,  the Company  established  The
       Sherwood Group, Inc. 1996 Executive  Incentive Award Plan (the "Executive
       Plan"). The Executive Plan allows for the creation of a compensation pool
       at  an  amount  equal  to  4.25%  of  Net  Income  which  is  defined  as
       consolidated  pre-tax  income of the Company  subject to  adjustment  for
       unusual,  infrequent,  or extraordinary items and not taking into account
       payments  or  accruals  under the  Executive  Plan.  Included in accounts
       payable  and  accrued  liabilities  is  approximately  $1,147,000  due to
       participants  in the  Executive  Plan for the  fiscal  year ended May 31,
       1997.  In the  year  ended  May  31,  1997,  the  Compensation  Committee
       determined  not to reduce  Net Income for the  expenses  of a  litigation
       settlement,  including  associated  professional  fees paid,  (net of the
       reduction in the CEO bonus computation) in the case entitled In re NASDAQ
       Market-Makers Antitrust Litigation.


(15)   Contingencies and Legal Matters

       The  Company's  subsidiaries,  and in some cases the  Company,  have been
       named  as  defendants  in  lawsuits  that  allege,  among  other  things,
       violations  of  Federal  and  state   securities   and  related  laws.  A
       substantial  settlement  or  judgment  in any of these cases could have a
       material  adverse  effect  on  the  Company.  Although  there  can  be no
       assurance that such lawsuits and investigations involving the Company are
       not likely to have a material adverse effect on the results of operations
       of the Company in any future period, depending in part on the results for
       such period, based on information currently available,  management of the
       Company believes that any such lawsuits and investigations are not likely
       to have a material adverse effect on the consolidated financial condition
       and results of operations or liquidity of the Company.

F-22


<PAGE>


                                      THE SHERWOOD GROUP, INC.
                                          AND SUBSIDIARIES

                       Notes to Consolidated Financial Statements, Continued


(15), Continued

       On April 9, 1997, Sherwood Securities entered into a settlement agreement
       (the "Settlement  Agreement") with Plaintiffs'  Co-lead counsel on behalf
       of the  class  plaintiffs  in the  case  of In Re:  NASDAQ  Market-Makers
       Antitrust  Litigation,  94 Civ. 3996(RWS) currently pending in the United
       States  District  Court  for the  Southern  District  of New  York  ("the
       Court").  This case is described in the Company's Form 10-K under Item 3,
       Legal  Proceedings.  The  Settlement  Agreement  provides  for payment by
       Sherwood  Securities of  $4,375,000  per  percentage  point of its market
       share of the  "Defendants'  Market"  which is  defined  as the 35  NASDAQ
       market-maker  defendants'  total number of shares traded as market-makers
       in the Class Securities (a designated list of NASDAQ  securities)  during
       the period May 1, 1989 to May 27, 1994. Sherwood Securities' market share
       of the Defendants' Market is estimated in the Settlement  Agreement to be
       2.10%  which  estimate  would  result  in a total  principal  payment  of
       $9,187,500.  The  market  share  estimate,   however,  is  subject  to  a
       verification  procedure  and  adjustment  set  forth  in  the  Settlement
       Agreement.  The  Settlement  Agreement  provides  for the  payment of the
       verified  amount  in  two  installments.  On  April  23,  1997,  Sherwood
       Securities made an installment  payment in the amount of $4,593,750.  The
       remaining balance, plus accrued interest, will be paid 365 days later. As
       a result of the  Settlement  Agreement,  Sherwood  Securities  recognized
       $9,187,500  during  the year ended May 31,  1997,  which is  included  in
       litigation  settlement  in the  accompanying  consolidated  statements of
       income.  The  Settlement  Agreement  was later  replaced  with an Amended
       Settlement  Agreement,  with the effective date remaining April 19, 1997.
       The Amended  Settlement  Agreement fixed Sherwood  Securities'  principal
       payment  at  $9,187,500,  thereby  eliminating  the need for any  further
       proceedings  concerning Sherwood Securities'  estimated market share. The
       Amended  Settlement  Agreement provides for the payment of the $9,187,500
       in two  installments,  50%  ten  days  after  the  date  of  the  Amended
       Settlement  Agreement,  and the other 50%, plus accrued interest 365 days
       later.  There are also non-monetary  covenants in the Amended  Settlement
       Agreement  which do not  become  effective  unless  and  until 23 or more
       future settling  defendants agree to the entry of a stipulation and order
       containing the same covenants.  In the non-monetary  covenants,  Sherwood
       Securities  has  agreed to refrain  from  engaging  in  certain  types of
       activities in connection  with its NASDAQ market  making.  One or more of
       these non-monetary covenants are subject to being voided in circumstances
       set forth in the Amended  Settlement  Agreement.  The Amended  Settlement
       Agreement  provides for a release by "Class Members" of "Released Claims"
       against Sherwood Securities and certain related persons and affiliates as
       such terms are defined in the Amended Settlement  Agreement.  The Amended
       Settlement Agreement is subject to the approval of the Court. The Amended
       Settlement  Agreement was submitted to the Court for Preliminary Approval
       on June 30,  1997.  If  Preliminary  Approval  is  granted,  the  Amended
       Settlement  Agreement  will remain  subject to the Final  Approval  after
       notice to the  class.  There  can be no  assurance  that the  Court  will
       approve the Amended  Settlement  Agreement  as  submitted  or that if the
       Court approves the Amended  Settlement  Agreement,  the final judgment of
       the Court will be affirmed.  If the Amended  Settlement  Agreement is not
       approved by the Court or, if  appealed,  if the  judgment of the Court is
       not  affirmed  on  appeal,  the  Amended  Settlement  Agreement  will  be
       terminated,  except to the  extent  provided  in the  Amended  Settlement
       Agreement.  The Amended Settlement  Agreement also provides that Sherwood
       Securities  may  terminate  the Amended  Settlement  Agreement in certain
       other circumstances.  The foregoing description of the Amended Settlement
       Agreement is a summary, is not complete, and is qualified by reference to
       the Amended Settlement Agreement.

F-23


<PAGE>


                                        THE SHERWOOD GROUP, INC.
                                            AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued


<TABLE>

 (16)  Quarterly Financial Information (Unaudited)

       (In thousands, except per common share data)
<CAPTION>

           1997                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           <S>                                      <C>                <C>             <C>               <C>   
           Revenues                                 $  42,990          41,055          52,015            45,009
           Expenses                                    36,955          34,749          49,605            37,442
           Minority interest                              (14)           (739)         (2,114)           (1,459)
                                                       --------        ---------       ---------         --------

           Income before taxes                      $   6,021           5,567             296             6,108
                                                       ========        =========       =========         ========

           Net income$                                  3,003           3,295            (242)            3,224
                                                     ========     =============    ===========     ==============

           Net income per common
                     share                          $     .23            .25             (.02)              .25
                                                     =======       ===========  ===============      ==========


           1996                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           Revenues                                 $  39,748          35,119          47,196            58,122
           Expenses                                    31,773          30,960          37,999            40,293
           Minority interest                             (801)           (486)           (995)           (1,347)
                                                       --------        ---------      ---------         --------

           Income before taxes                      $   7,174           3,673           8,202            16,482
                                                       ========       =========       =========         ========

           Net income$                                  4,468           3,173           5,141             7,350
                                                     ========   =============    ============    ==============

           Net income per common                          .33             .24             .39               .56
                                                      =======  ==============  ==============      ============


           1995                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           Revenues                                 $  22,782          22,483          25,351           32,359
           Expenses                                    19,219          18,870          20,239           25,637
                     
           Minority interest                               -                -               -             (770)
                                                       --------        ---------       ---------        ---------

           Income before taxes                      $   3,563           3,613           5,112            5,952
                                                       ========        =========       =========      =========

           Net income                               $   3,058           2,934           4,269            4,353
                                                      ========   =============    ============    =============

           Net income per common
                     share                          $     .22             .21             .31              .33
                                                          ===             ===             ===              ===
</TABLE>

F-24


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                                    Schedule I

<TABLE>
                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                         Statements of Financial Condition

                                               May 31, 1997 and 1996
<CAPTION>


                           Assets                                                      1997              1996
                                                                                       ----              ----

<S>                                                                          <C>                       <C>   
Cash                                                                         $            86,323            60,833
Receivables:
    Brokers and dealers                                                                  332,043         4,675,000
    Other                                                                                305,177           260,708
Notes receivable                                                                         511,230           418,545
Investment securities not readily marketable                                             401,320           401,320
Investment in, less net amounts due to,
    subsidiaries and affiliates                                                       67,000,227        69,460,503
Investment in partnerships                                                            11,842,014         9,130,087
Equipment, furniture and leasehold
    improvements - net                                                                     -                 9,709
Intangible asset - net                                                                   130,873           198,042
Exchange memberships                                                                     351,496           351,496
Subordinated notes receivable                                                         16,250,000        10,250,000
U.S. Treasury Obligations, held as collateral                                          5,481,820         5,429,679
Other assets                                                                             272,689            14,260
                                                                                  --------------   ---------------

                  Total assets                                               $       102,965,212       100,660,182
                                                                                  ==============   ===============


                      Liabilities and
                  Stockholders' Equity

Accounts payable, accrued expenses and other
    liabilities                                                              $         5,113,478         8,840,627
Secured demand note payable                                                            5,250,000         5,250,000
                                                                                  --------------   ---------------

                                                                                      10,363,478        14,090,627

Stockholders' equity:
    Common stock                                                                         143,432           143,432
    Retained earnings and other equity                                                92,458,302        86,426,123
                                                                                  --------------   ---------------

                                                                                      92,601,734        86,569,555

                  Total liabilities and stockholders' equity                 $       102,965,212       100,660,182
                                                                                  ==============   ===============
</TABLE>


See accompanying notes to condensed financial statements.

S-1


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                               Schedule I, Continued
<TABLE>

                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                               Statements of Income

                                      Years ended May 31, 1997, 1996 and 1995

<CAPTION>


                                                                          1997               1996             1995
                                                                          ----               ----             ----
<S>                                                              <C>                       <C>               <C>    
Revenue:
    Equity income in partnerships                                $        6,163,136         5,546,428         4,917,494
    Interest                                                              1,446,341         1,101,129           256,910
    Service fees paid by subsidiaries eliminated
       in consolidation                                                   5,640,015         4,675,000                -
    Income from lease of exchange membership                                114,000           114,000           114,000
    Other                                                                  (119,346)              126                -
                                                                      -------------    --------------     ------------
                                                                         13,244,146        11,436,683         5,288,404
                                                                      -------------    --------------     -------------

Expenses:
    Compensation and benefits                                             4,675,853         7,408,107         4,307,077
    Interest                                                                     -                 -              1,292
    Other - net                                                           1,403,486           403,816           673,446
                                                                      -------------    --------------     -------------

                                                                          6,079,339         7,811,923         4,981,815
                                                                      -------------    --------------     -------------

                                                                          7,164,807         3,624,760           306,589

Equity in income of subsidiaries                                          5,650,335        18,471,286        13,739,245
                                                                      -------------    --------------     -------------

                  Income before income taxes                             12,815,142        22,096,046        14,045,834
                                                                      -------------    --------------     -------------

Income taxes:
    Currently payable (receivable):
       Federal                                                            2,730,836         2,108,345        (2,303,962)
       State and local                                                      477,363          (144,227)        1,734,908
                                                                      -------------    --------------     -------------

                                                                          3,208,199         1,964,118          (569,054)
                                                                      -------------    --------------     -------------

                  Net income                                    $         9,606,943        20,131,928        14,614,888
                                                                      =============    ==============     =============

</TABLE>

See accompanying notes to condensed financial statements.

S-2


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                               Schedule I, Continued
<TABLE>

                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                             Statements of Cash Flows

                                      Years ended May 31, 1997, 1996 and 1995


<CAPTION>

                                                                     1997             1996                 1995
                                                                     ----             ----                 ----

<S>                                                         <C>                       <C>                  <C>    
Cash flows from operating activities:
    Net income                                              $        9,606,943         20,131,928           14,614,888
    Non-cash items included in net income:
       Net equity in gain of subsidiaries                           (5,650,335)       (18,471,286)         (13,739,245)
       Equity income in partnerships                                (6,163,136)        (5,546,428)          (4,917,494)
       Loss on sale of subsidiary                                      123,006                 -                    -
       Depreciation and amortization                                   265,658            207,877              207,877
       Allocated tax benefit related to the
          exercise of options                                               -           4,490,000                   -

    Decrease (increase) in operating assets:
       Receivables:
          Brokers and dealers                                        4,342,957         (4,675,000)                  -
          Other                                                        (44,469)          (141,300)             (98,024)
       U.S. Treasury obligations, held as collateral                   (52,141)        (5,154,471)                  -
       Other assets                                                   (258,429)         4,879,003           (5,415,032)

    (Decrease) increase in operating liabilities:
       Accounts payable and accrued expenses                        (3,731,976)         1,344,002            1,231,947
                                                               ---------------    ---------------       --------------

                  Net cash used in
                     operating activities                           (1,561,922)        (2,935,675)          (8,115,083)
                                                               ---------------    ---------------       --------------

Cash flows from investing activities:
    Investment in partnerships                                        (320,437)          (242,790)                  -
    Distribution from partnerships                                   3,771,646          3,041,010            2,641,956
    Loans made to employees and officers                              (137,652)        (1,622,765)                  -
    Principal collected on notes receivable                             44,967          1,662,765              109,232
    Purchase of subsidiaries, net of cash acquired                 (15,763,434)                -                    -
    Return of capital from subsidiary                                2,409,659                 -                    -
    Payment for purchase of identified
       intangible asset                                               (188,780)                -                    -
    Additional capital contributed to subsidiaries                          -             (25,100)          (2,000,000)
    Issuance of subordinated notes                                  (6,000,000)                -            (5,000,000)
                  Net cash (used in) / provided by
                     investing activities                          (16,184,031)         2,813,120           (4,248,812)
                                                               ---------------    ---------------     ----------------


                                                                                                     (Continued)
</TABLE>

S-3


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES
<TABLE>

                                               Schedule I, Continued

                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                        Statements of Cash Flows, Continued

<CAPTION>


                                                                         1997              1996               1995
                                                                         ----              ----               ----

<S>                                                              <C>                      <C>                <C>   
Cash flows from financing activities:
    Purchase of treasury stock                                   $      (3,569,937)       (2,061,876)        (1,948,126)
    Proceeds from exercise of options                                           -            635,000                 -
    Net receipts on intercompany
       borrowings                                                       21,341,380        1,587,445          14,306,850
                                                                     --------------    -------------      --------------
                  Net cash provided by financing
                     activities                                         17,771,443           160,569         12,358,724
                                                                     -------------     -------------         ----------
                  Net increase (decrease) in cash                           25,490            38,014             (5,171)

Cash at beginning of year                                                   60,833            22,819             27,990
                                                                     -------------     -------------      -------------

Cash at end of year                                              $          86,323            60,833             22,819
                                                                        ==========       ===========       ============

</TABLE>

Supplemental disclosures of cash flow information:

    Income tax payments  aggregated  $14,077,485,  $5,732,131 and $1,882,724 for
    the years ended May 31, 1997, 1996 and 1995, respectively.

    Interest payments  aggregated $52,991, $0 and $1,292 for the years ended May
    31, 1997, 1996 and 1995, respectively.

    During July 1995,  the Company  contributed an additional  $250,000,  in the
    form of U.S. Treasury  securities with a face value of $246,562,  which were
    included in other  assets at May 31, 1997 and 1996,  to Anvil  Institutional
    Services Company (the "Anvil Joint Venture").

    During February 1995, the Company entered into a  collateralized  $5,000,000
    subordinated agreement with Equitrade (see note 3).

    During  the  period  from  November  1995  through  February  1996,  certain
    executives of the Company  exercised an aggregate of 670,000 options for the
    purchase of 670,000  shares of the  Company's  common stock with an exercise
    price of $1 per share and 66,000  options for the purchase of 66,000  shares
    with an exercise price of $3.625 per share. In order to pay for the exercise
    price and to reimburse the Company for the income taxes  ($2,602,997) on the
    gain  related to the  transaction,  the  executives  remitted to the Company
    394,697  shares  of the  Company's  common  stock  with a  market  value  of
    $3,487,247.

S-4


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                               Schedule I, Continued

                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                        Statements of Cash Flows, Continued



As a result of the sale of its  subsidiary,  Stock Market  Index,  Inc.,  during
December  1996,  the  Company  wrote off the  remaining  book  value of  certain
computer software and intangible assets aggregating  $225,193.  In addition,  as
part of the sale,  the  Company  received a note in the face  amount of $132,187
from the buyer, resulting in a net loss of $123,006.

On January 24, 1997, the Company acquired,  from its joint venture partner,  the
remaining  51% of the Anvil Joint  Venture that it did not  previously  own. The
Company,  therefore,  became the 100% owner of Anvil Institutional Services Inc.
("Anvil"),  a  broker-dealer  previously  owned  by  the  Anvil  Joint  Venture.
Accordingly, the assets, liabilities and stockholder's equity of Anvil have been
consolidated with those of the Company as of the acquisition date. The increases
or decreases in operating  assets and liabilities  reflected in the consolidated
statement of cash flows for the year ended May 31, 1997 exclude  amounts for the
assets and liabilities of Anvil which were assumed as part of the acquisition.

During  February  1997,  an executive  of the Company  exercised an aggregate of
94,027  options for the purchase of 94,027 shares of the Company's  common stock
with  exercise  prices  ranging from $7.9375 per share to $9.1875 per share.  In
order to pay for the exercise price  ($838,324) and to reimburse the Company for
the personal income taxes ($54,569) on the gain related to the transaction,  the
executive  remitted to the Company  88,187 shares of the Company's  common stock
with a market value of $892,893.


See accompanying notes to condensed financial statements.

S-5


<PAGE>


                                             THE SHERWOOD GROUP, INC.
                                                 AND SUBSIDIARIES

                                               Schedule I, Continued

                                          Condensed Financial Statements
                                            of the Registrant (Parent)

                                      Notes to Condensed Financial Statements

                                            May 31, 1997, 1996 and 1995





(1)      The condensed financial information of the registrant should be read in
         conjunction  with the  consolidated  financial  statements and notes to
         consolidated financial statements which are included elsewhere herein.

(2)      Investment  in, less net amounts due to,  subsidiaries  and  affiliates
         represents the Company's  investment in its subsidiary  companies after
         deducting net amounts owed to several subsidiaries primarily related to
         the  funding  of  the  Company's  cash  flow  needs  by  its  operating
         subsidiaries.

(3)      During  the year  ended May 31,  1995,  the  Company  entered  into two
         subordination  agreements with  Equitrade.  The first note has a stated
         interest  rate of 0% and matures on February  28, 1998.  In  connection
         with this agreement,  the Company has pledged U.S. Treasury  securities
         with a market  value in excess of  $5,000,000.  The  second  note has a
         stated  interest  rate of 8% and  matures  on  February  28,  1998.  In
         connection   with  this   agreement,   the  Company  loaned   Equitrade
         $5,000,000.

         During  the year  ended May 31,  1997,  the  Company  entered  into two
         subordination agreements with NDB. The first note has a stated interest
         rate of "broker call" and matures on December 31, 1999. The second note
         also has a stated  interest  rate of "broker call" and matures on March
         31, 2000. The broker call rate ranged  between  7%-7.25% for the period
         from  December 31, 1996 to May 31,  1997.  In  connection  with each of
         these subordination agreements, the Company loaned NDB $3,000,000.

(4)      No dividends were paid to the Company by its wholly owned subsidiaries
         during the years ended May 31, 1997, 1996 and 1995.

S-6



                                                            Signatures

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934 the  registrant  has duly  caused  this  report  to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:      August 7, 1997                              THE SHERWOOD GROUP, INC.
                                                         By:  /s/  Arthur Kontos
                                                              ------------------
                                                                   Arthur Kontos
                                                         Chief Executive Officer

                                                          By:  /s/  Denise Isaac
                                                               -----------------
                                                                    Denise Isaac
                                                         Chief Financial Officer
                                                and Principal Accounting Officer

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934,  this report has been signed  below by the  following  persons on
  behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
         Signature                                               Title                     Date

<S>                                                  <C>                                <C>
/s/ James H. Lynch, Jr.                              Chairman of the Board              August 7, 1997
-----------------------
James H. Lynch, Jr.

/s/ Arthur Kontos                                    Director and Chief                 August 7, 1997
-----------------
Arthur Kontos                                        Executive Officer

/s/ Richard J. Marino                                Director                           August 7, 1997
---------------------
Richard J. Marino

/s/ Dennis V. Marino                                 Director                           August 7, 1997
--------------------
Dennis V. Marino

/s/ Carl H. Hewitt                                   Director                           August 7, 1997
------------------
Carl H. Hewitt

/s/ Thomas Neumann                                   Director                           August 7, 1997
------------------
Thomas Neumann

/s/ John P. Duffy                                    Director                           August 7, 1997
-----------------
John P. Duffy

/s/ Ralph Del Deo                                    Director                           August 7, 1997
-----------------
Ralph Del Deo

/s/ Stephen DiLascio                                 Director                           August 7, 1997
--------------------
Stephen DiLascio
</TABLE>

<TABLE>

                                                   EXHIBIT INDEX
<CAPTION>


                         Description of Document                                  SEC Exhibit Document

<S>             <C>                                                 <C>                                                            
3.1             Restated Certificate of Incorporation of            Incorporated by reference to Exhibit No. 3.1 to
                 the Company.                                       the Company's Registration Statement No.
                                                                    33-12904 on Form S-1, effective May 29, 1987(the
                                                                    "Initial Registration Statement").
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    

3.2             By-Laws of the Company, as amended.                 Incorporated by reference to Exhibit No. 3.2 to
                                                                    the Initial Registration Statement

10.1            Clearing Agreement dated February 16, 1983          Incorporated by reference to Exhibit 10.7 to
                between Spear Leeds & Kellogg and Sherwood          the Initial Registration Statement.
                Securities.

10.2            Agreement of Lease dated December, 1985 between     Incorporated by reference to Exhibit 10.8 to
                Aetna Life Insurance Company and Sherwood           the Initial Registration Statement.
                Securities Corp.

10.3            The Company's Employee Stock Ownership Plan as      Incorporated by reference to Exhibit 10.9 to
                amended.                                            the Initial Registration Statement.

10.4            The Company's 1983 Stock Option Plan.               Incorporated by reference to Exhibit 10.10 to
                                                                    the Initial Registration Statement.

10.5            Amendment to 1983 Stock Option Plan.                Filed herewith.

10.6            The Company's 1995 Stock Option Plan.               Incorporated by reference to Appendix A to the
                                                                    Company's Proxy Statement dated September 18,
                                                                    1995.

10.7            Form of Option Agreement under the Company's 1995   Filed herewith.
                Stock Option Plan.



<PAGE>



10.8            Employment Agreement dated September 12, 1995 by    Incorporated by reference to Exhibit 10.1 of
                and between Arthur Kontos and the Company.          Form 10-Q for the quarter ended November 30,
                                                                    1995.
10.9            Employment Agreement dated as of May 31, 1997 by    Filed herewith.
                and between Arthur Kontos and the Company.

10.10           Letter of Arthur Kontos exercising his option       Incorporated by reference to Exhibit 10.2 to
                under the Employment Agreement dated September      Form 10-Q for the quarter ended November 30,
                12, 1995.                                           1995.

10.11           Waiver of Bonus by Arthur Kontos.                   Incorporated by reference to Exhibit 10.1 of
                                                                    Form 10-Q for the quarter ended February 29,
                                                                    1996.

10.12           Mortgage Loan Agreements dated March 24, 1993       Incorporated by reference to Exhibit 10.6 to
                among the Company, Thomas Neumann and Geralyn       the Form 10-K for Fiscal Year ended May 31,
                Neumann.                                            1993.

10.13           Secured Note and Pledge Agreement dated July 23,    Filed herewith.
                1997 among the Company, Thomas Neumann and
                Geralyn Neumann.

10.14           Voting Trust Agreement between Arthur Kontos and    Incorporated by reference to Exhibit 10.7 to
                Vicki Kontos dated May 11, 1993.                    Form 10-K for Fiscal Year ended May 31, 1994.

10.15           Lease Agreement dated December 20, 1993 between     Incorporated by reference to Exhibit 10.9 to 
                Connecticut  General Life Insurance                 Form 10-K for Fiscal Year ended May 31, 1994.
                Company and Triak  Services,  Corp.,  Guaranty by 
                The Sherwood  Group,  Inc. dated  December 6, 1993,  
                Modification  of Lease dated March 30, 1994 and 
                Modification of Lease dated July 11, 1994.



<PAGE>



10.16           Exhibit 10.13 Sublease Agreement between Johnson    Incorporated by reference to Exhibit 10.2 of
                & Higgins and Triak Services Corp.                  Form 10-Q for the quarter ended February 29,
                                                                    1996.
10.17           Guaranty  dated as of March 1, 1996 by and between  Incorporated by reference to Exhibit  10.14 to 
                Johnson & Higgins and NY Broad                      Form 10-K for Fiscal Year ended May 31, 1996.
                Holdings, Inc. 

10.18           Stock Purchase Agreement dated as of April 11,      Incorporated by reference to Exhibit (b) to
                1997 between Dresdner Bank A.G. and the Company.    Form 10-Q for the quarter ended February 28,
                                                                    1997.

10.19           Lease Agreement dated as of November 30, 1994       Incorporated by reference to Exhibit 10.2 to
                between S.P.N.W. Management Associates Limited      Form 10-Q for the quarter ended November 30,
                Partnership and Sherwood Securities Corp.           1994.

10.20           The Sherwood Group, Inc. 1996 Executive Incentive   Incorporated by reference to Exhibit B to The
                Award Plan.                                         Sherwood Group, Inc. Proxy Statement dated
                                                                    September 10, 1996.

10.21           The Sherwood Group, Inc. 1996 CEO Bonus Plan.       Incorporated by reference to Exhibit A to The
                                                                    Sherwood Group, Inc. Proxy Statement dated
                                                                    September 10, 1996.

10.22           Settlement Agreement.                               Incorporated by reference to Exhibit 10(a) of
                                                                    Form 10-Q for the quarter ended February 28,
                                                                    1997.

10.23           Amended Settlement Agreement.                       Filed herewith.

10.24           Equitrade Partners Amended and Restated             Filed herewith.
                Partnership Agreement Dated as of May 2, 1997.

11.             Statement re:  computation of per share earnings.   Filed herewith.

21.             Subsidiaries of the Company.                        Filed herewith.

23.             Consent of Independent Public Accountant.           Filed herewith.

27.             Financial Data Schedule.                            Filed herewith.




<PAGE>


99.1            Secured Demand Note Collateral Agreement and        Incorporated by reference to Exhibit 99.1 to
                Amendment to Secured Demand Note Collateral         Form 8-K dated February 28, 1995.
                Agreement.

99.2            Secured Demand in the principal amount of           Incorporated by reference to Exhibit 99.2 to
                $5,000,000.                                         Form 8-K dated February 28, 1995.

99.3            Roll-Over Equity Investment dated February 15,      Incorporated by reference to Exhibit 99.3 to
                1995 in the principal amount of $5,000,000          Form 8-K dated February 28, 1995.
                related to the Secured Demand Note.

99.4            Cash Subordination Agreement dated as of February   Incorporated by reference to Exhibit 99.4 to
                15, 1995 and Amendment to Cash Subordination        Form 8-K dated February 28, 1995.
                Agreement.

99.5            Roll-Over for Equity Investment dated February      Incorporated by reference to Exhibit 99.5 to
                15, 1995 in the principal amount of $5,000,000      Form 8-K dated February 28, 1995.
                related to the Cash Subordination Agreement.

99.6            Form of Indemnification Agreement to be entered     Incorporated by reference to Exhibit 99.1 to
                into between the Company and each of certain of     Form 8-K dated September 18, 1995.
                its executive officers and directors.

</TABLE>


                                                                               
                                                                               
                                  EXHIBIT 10.5

                                                     EXHIBIT D

                                                   AMENDMENT TO
                                         THE SHERWOOD CAPITAL GROUP, INC.
                                         1983 INCENTIVE STOCK OPTION PLAN


               The 1983  Incentive  Stock  Option Plan of The  Sherwood  Capital
          Group,  Inc., as amended (the "Plan"),  is hereby  further  amended as
          follows:  
                1.  Paragraph (l) of Section 7 of the Plan is amended in its
                    entirety to read as follows: 
          (l) Witholding  Taxes.Whenever  shares of
          Common Stock are to be issued in satisfaction of options granted under
          the Plan, the Company shall have the right to require the recipient to
          remit to the Company an amount  sufficient  to satisfy all  applicable
          withholding tax requirements  prior to the delivery of any certificate
          or certificates  for such shares.  Recipients are permitted to satisfy
          all such applicable  withholding tax  requirements by transferring and
          delivering  to the  Company  that  number of  shares of the  Company's
          common stock in an amount  sufficient  to pay any required  taxes. 
               2.  Except as  amended  hereby,  the plan  shall  remain in full
                   force and effect.




                                                                               
                                                                               
          THE SHERWOOD GROUP, INC. 1995 STOCK OPTION PLAN           EXHIBIT 10.7

           Nonstatutory Stock Option Terms And Conditions

         1. Plan  Incorporated  by Reference.  This Option is issued pursuant to
the terms of the Plan and may be amended as  provided  in the Plan.  Capitalized
terms used and not otherwise  defined in this  Agreement have the meanings given
to them in the  Plan.  This  Agreement  does not set  forth all of the terms and
conditions  of the  Plan,  which  are  incorporated  herein  by  reference.  The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding.  Copies of the Plan may be obtained upon written
request without charge from the President of the Corporation.

         2. Option  Price.  The price to be paid for each share of Common Stock
issued upon  exercise of the whole or any part of this Option is the Option 
Price set forth on the first page of this Agreement.

         3.  Exercisability  Schedule.  This Option may be exercised at any time
and from  time to time for the  number  of  shares  and in  accordance  with the
exercisability schedule set forth on the face of this certificate,  but only for
the purchase of whole shares;  provided  that, in no event,  shall any option be
exercisable  prior to six (6) months from the Date of Grant. This Option may not
be exercised as to any shares after the Expiration Date.

         4. Method of  Exercise.  To exercise  this Option,  the Optionee  shall
deliver written notice of exercise to the  Corporation  specifying the number of
shares  with  respect  to which the  Option is being  exercised  accompanied  by
payment of the  Option  Price for such  shares in cash,  by  certified  check or
shares of Common  Stock of the  Corporation  valued at 100% of their Fair Market
Value on the Date of Exercise or a combination thereof.  Promptly following such
notice, the Corporation will deliver to the Optionee a certificate  representing
the number of shares with respect to which the Option is being exercised.

         5. Rights as a Stockholder or Employee. The Optionee shall not have any
rights in respect of shares as to which the Option shall not have been exercised
and payment made as provided  above.  The Optionee  shall not have any rights to
continued employment by the Corporation or any Subsidiary by virtue of the grant
of this Option.

         6.  Recapitalization,  Mergers,  Etc. As  provided in the Plan,  in the
event of corporate transactions  affecting the Corporation's  outstanding Common
Stock,  the  Committee  shall  equitably  adjust  the  number and kind of shares
subject to this Option and the exercise  price  hereunder.  If such  transaction
involves a consolidation or merger of the Corporation  with another entity,  the
sale or exchange of all or substantially all of the assets of the Corporation or
a  reorganization  or  liquidation  of the  Corporation,  then  in  lieu  of the
foregoing,  the Committee may upon written notice,  to the Optionee provide that
this Option  shall  terminate  on a date not less than 20 days after the date of
such notice unless  theretofore  exercised.  In connection with such notice, the
Committee  may in its  discretion  accelerate  or waive  any  deferred  exercise
period.

         7.  Option Not  Transferable.  This Option is not  transferable  by the
Optionee otherwise than by will or the laws of descent and distribution,  and is
exercisable,  during the Optionee's lifetime,  only by the Optionee. This Option
may  not be  assigned,  transferred  (except  as  provided  above),  pledged  or
hypothecated  in any way, shall not be assignable by operation of law, and shall
not be subject to  execution,  attachment,  or similar  process.  Any  attempted
assignment, transfer, pledge, hypothecation, or other disposition of this Option
contrary to the provisions hereof, and the levy of any execution, attachment, or
similar process upon the Option, shall be null and void and without effect.

         8.  Exercise  of  Option  After  Termination  of  Employment.   If  the
Optionee's  status as an  employee  or officer of (a) the  Corporation  or (b) a
Subsidiary is terminated then,  depending upon the reason for such  termination,
this Option may be  cancelled  or the time in which the Optionee has to exercise
the  Option  may be  limited.  The terms of the Plan  should be  reviewed  for a
complete  description of the  consequences  of the termination of the Optionee's
employment.

         9.  Compliance  with  Securities  Laws.  It shall be a condition to the
Optionee's  right  to  purchase  shares  of  Common  Stock  hereunder  that  the
Corporation may, in its discretion,  require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon  official  notice of  issuance,  upon any national  securities  exchange or
automated  quotation system on which the Corporation's  Common Stock may then be
listed  or  quoted,  (b) that  either  (i) a  registration  statement  under the
Securities  Act of 1933, as amended (the "Act") with respect to the shares shall
be in  effect,  or (ii) in the  opinion  of  counsel  for the  Corporation,  the
proposed  purchase  shall be exempt  from  registration  under  that Act and the
Optionee shall have made such  undertakings  and agreements with the Corporation
as the  Corporation  may reasonably  require,  and (c) that such other steps, if
any, as counsel for the Corporation shall consider  necessary to comply with any
law  applicable to the issue of such shares by the  Corporation  shall have been
taken by the Corporation or the Optionee, or both. The certificates representing
the shares  purchased  under this Option may contain such legends as counsel for
the Corporation shall consider necessary to comply with any applicable law.

         10.  Payment of Taxes.  The Optionee shall pay to the  Corporation,  or
make  provision  satisfactory  to the  Corporation  for  payment  of,  any taxes
required by law to be withheld with respect to the exercise of this Option.  The
Committee  may,  in its  discretion,  require  any other  Federal or state taxes
imposed on the sale of the shares to be paid by the Optionee. In the Committee's
discretion,  such tax  obligations  may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their Fair Market  Value on the date of  exercise.  The  Corporation  and its
Subsidiaries  may,  to  the  extent  permitted  by  law,  deduct  any  such  tax
obligations from any payment of any kind otherwise due to the Optionee.



<PAGE>


                                                     EXHIBIT B

NSO                                                               _______ Shares
                                             THE SHERWOOD GROUP, INC.

                                              1995 Stock Option Plan
                                        Nonstatutory Stock Option Agreement

         The Sherwood Group,  Inc. a Delaware  corporation (the  "Corporation"),
hereby  grants to the person named below an option to purchase  shares of Common
Stock,  $.01 par value per share,  of the  Corporation  (the "Option") under and
subject to the Corporation's 1995 Stock Option Plan (the "Plan")  exercisable on
the following terms and conditions and those set forth on the attached terms and
conditions (the "Agreement") and the Plan:

Name of Optionee:                             __________________________________
Address:                                      __________________________________
                                              ----------------------------------
Social Security No.                           __________________________________

Number of Shares:                                      ____________________
                                                       --------------------
Option Price:                                          ____________________
                                                       --------------------
Date of Grant:                                         ____________________
                                                       --------------------

Exercisability Schedule:  After                       , 19   , as to all shares,

Expiration Date:                                       ____________________

         The Option  shall not be treated as an  Incentive  Stock  Option  under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

         By  acceptance  of this Option,  the  Optionee  agrees to the terms and
conditions hereof.

                                                THE SHERWOOD GROUP, INC.


                                                By:____________________________

ACCEPTED:

---------------------------
[Optionee]




16


                                                                               
                                         EMPLOYMENT AGREEMENT EXHIBIT 10.9

               EMPLOYMENT  AGREEMENT,  dated  as of May 31,  1997,  between  THE
          SHERWOOD GROUP, INC., a Delaware  corporation (the "Company"),  having
          its principal  office at Ten Exchange  Place Centre,  Jersey City, New
          Jersey, New Jersey,  and Arthur Kontos (the "Executive"),  care of The
          Sherwood  Group,  Inc.,  Ten Exchange  Place Centre,  Jersey City, New
          Jersey  07302.  The Company  desires to continue  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  chief   executive   officer  of  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  term
          "Employment  Year"  shall mean the  twelve  consecutive  month  period
          commencing  June 1st until the  following  May 31st.  The  Executive's
          "Term of  Employment," as this term is used throughout this Agreement,
          shall be for a period  beginning  as of June 1, 1997 and ending on May
          31, 2000 (the "Initial Term"), as the same may be extended pursuant to
          Section 1.2. 
                  1.2 The Company  shall have the option to extend the Term
          of Employment  under this Agreement for one additional  year from June
          1, 2000 until May 31, 2001 (the "Second Term").  If the Company elects
          to extend the Term of  Employment  for the Second Term,  the Executive
          shall  have  the  option  to  extend  the Term of  Employment  for one
          additional  year from June 1, 2001 to May 31, 2002 (the "Third  Term")
          (each of the Second  Term and the Third Term  being  referred  to as a
          "New Term"). The following  conditions shall apply to the Company's or
          the  Executive's  right to extend the Term of  Employment  pursuant to
          this Section 1. 
                     (i) The Company's  option to extend Term of Employment
          for the Second Term must be exercised on or prior to December 31, 1999
          and the  Executive's  option to extend the Term of Employment  for the
          Third  Term must be  exercised  after May 31,  2000 and on or prior to
          December 31, 2000. The party hereto entitled to exercise the option to
          extend the Employment Term (the "Sending  Party") shall deliver to the
          other party  hereto  (the  "Receiving  Party") a written  notice on or
          prior to the applicable date set forth  immediately above stating that
          the Sending Party has elected to exercise its right to extend the Term
          of  Employment.  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  Receiving  Party,
          which if the Receiving Party is the Company,  must be by action of its
          Board of  Directors.  
                    (ii) In no event shall the Term of Employment be
          extended by a New Term pursuant to this Section 1.2,  unless as of May
          31  immediately  preceding  the  commencement  of the New  Term,  this
          Agreement shall be in full force and effect and either (A) the Company
          shall not have the present  ability to  terminate  this  Agreement  in
          accordance  with its terms under Section 6.2 or 6.4 or (B) the Company
          shall have determined to terminate this Agreement  pursuant to Section
          6.3 and communicated this  determination to the Executive prior to the
          commencement  of the New Term in the event only if the  Executive  has
          the  authority  to extend  the Term of  Employment.  
                   (iii) In no event
          shall  a New  Term  extend  the  Term  of  Employment  if as of May 31
          immediately  prior to the commencement of such New Term, the Executive
          shall have exercised any right he may have to terminate this Agreement
          or the  Executive  shall have  received  or the  Executive  shall have
          notified  the  Company  that he is  claiming  a right to  receive  any
          payments as a result of a Change in Control of the Company (as defined
          below). 
               2. Employment.  The Company shall employ the Executive as Vice
          Chairman of the Board,  President and Chief  Executive  Officer of the
          Company and chief executive  officer of certain of its subsidiaries as
          determined  by the Board of Directors of the  Company.  The  Executive
          accepts such  employment and agrees that during the 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.  
               3. Base Salary During  Employment  Term.  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 for each  Employment  Year (the "Base  Salary").  The Base
          Salary shall be paid in accordance with the Company's  regular payroll
          practices.  
               4. Bonus 
                  4.1 With respect to each  Employment  Year during
          the Term of  Employment,  the  Executive  shall  receive as additional
          compensation  a cash  bonus  (the  "Bonus")  in  accordance  with  The
          Sherwood Group,  Inc. 1996 CEO Bonus Plan, as the same is in effect on
          the date hereof and as the same may be amended  from time to time with
          the prior written  approval of the Executive (the "Bonus  Plan").  The
          Bonus shall be paid to the Executive as provided in the Bonus Plan. 
               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  responsibilities  hereunder,
          including all legal fees and other costs  incurred by the Executive in
          enforcing  (whether by  adjudication  or settlement)  his rights under
          this  Agreement  in the  event of a breach  of this  Agreement  by the
          Company  except as  provided  in  Section  8.7.  
               6.  Termination.  
                   6.1 Voluntary.  The Executive may terminate  this Agreement 
          for any reason
          upon 30 days' prior  written  notice to the Company  stating  that the
          Executive has  determined to terminate  this Agreement and providing a
          Date of Termination (as defined below);  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  Section  6.5  hereof.  
                   6.2 Termination  by the Company for Cause.  The Company 
          may terminate this
          Agreement,   and  all  of  its  obligations   hereunder   (other  than
          obligations of the Company that have accrued or benefits  vested under
          any plan of the  Company  prior to such  termination  and  other  than
          rights to  indemnification  from the Company under law, the applicable
          governing  instruments  of the  Company,  contract  or pursuant to any
          applicable  insurance  policy),  for Cause (as defined  below).  Cause
          shall mean that if and only if while  employed  by the Company (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
          convincing  evidence  that  Cause  exists.  Determination  of Cause on
          behalf of the Company can only be made by the Board of Directors after
          the Executive has been given the opportunity to rebut allegations made
          against  him  as  the  basis  for  his  termination  for  Cause.   
                  6.3 Termination  by the Company  Without  Cause.  
          In the event the Company
          terminates this Agreement  without Cause and other than as a result of
          the death or  Disability  of the  Executive  under  Section  6.4,  the
          Executive  shall be paid as  provided  in  Section  6.5 as  liquidated
          damages an amount in cash 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 of the  Company  as  provided  in
          Section 6.5 hereof. 
                  6.4  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 as defined  below,  this
          Agreement and the Company's  obligations  under this  Agreement  shall
          terminate  upon the Date of  Termination.  Disability  for purposes of
          this  Agreement  shall mean that the  Executive is either  mentally or
          physically  disabled such that he is unable  substantially  to perform
          his duties under this  Agreement  (i) for a period of six  consecutive
          months,  or (ii) for an aggregate of nine months  within any period of
          eighteen  (18)   consecutive   months.   Determination  of  whether  a
          Disability  has occurred shall be made by an  appropriately  qualified
          physician selected by the Board of Directors.  The Executive agrees to
          make his medical records and himself available for examination by such
          physician.  
                  6.5 Termination by Reason of Change in Control. 
                      (a) In the
          event that a Change in  Control  of the  Company  (as  defined  below)
          occurs  during the Term of  Employment,  and in  connection  with such
          Change in Control of the  Company or within one year  thereafter,  the
          Executive's  employment  with the  Company is  terminated  pursuant to
          Section 6.3 or the Executive terminates his employment for Good Reason
          (as defined below),  the Executive shall be paid as liquidated damages
          on the  Termination  Date 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 the Date of Termination,  less $1.00, subject to
          the limitations in Sections  6.5(b) and 6.5(c) below.  The term Change
          in Control of the Company shall mean (i) any "person" (as such term is
          used in Sections  13(d) and 14(d) of the  Securities  Exchange  Act of
          1934, as amended (the "Exchange Act")),  other than a trustee or other
          fiduciary  holding  securities  under an employee  benefit plan of the
          Company or a  subsidiary  of the Company or the  Executive  or persons
          under his control,  or a person  engaging in a transaction of the type
          described  in  clause  (iii) of this  subsection  but  which  does not
          constitute a change in control  under such  clause,  is or becomes the
          "beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),
          directly or indirectly,  of securities of the Company representing 50%
          or more of the combined voting power of the Company's then outstanding
          securities;  or (ii) during any period of two consecutive years during
          the term of this  Agreement,  individuals who at the beginning of such
          period  constitute  the Board of  Directors of the Company and any new
          director (other than a director designated by a person who has entered
          into an agreement  with the Company to effect a transaction  described
          in clauses  (i) or (iii) of this  Subsection)  whose  election  by the
          Board of  Directors of the Company or  nomination  for election by the
          Company  shareholders  was  approved by a vote of at least  two-thirds
          (2/3) of the directors  then still in office who either were directors
          at the  beginning of the period or whose  election or  nomination  for
          election  was  previously  so  approved,   cease  for  any  reason  to
          constitute  a  majority  thereof;  or (iii)  the  shareholders  of the
          Company  approve  or,  if  no  shareholder  approval  is  required  or
          obtained,  the  Company or a  subsidiary  of the  Company  completes a
          merger,  consolidation  or  similar  transaction  of the  Company or a
          subsidiary  of the Company  with or into any other  corporation,  or a
          binding share exchange involving the Company's securities,  other than
          any such  transaction  which would result in the voting  securities of
          the  Company  outstanding  immediately  prior  thereto  continuing  to
          represent (either by remaining  outstanding or by being converted into
          voting  securities  of  the  surviving  entity)  at  least  75% of the
          combined voting power of the voting  securities of the Company or such
          surviving entity  outstanding  immediately after such transaction,  or
          the shareholders of the Company approve a plan of complete liquidation
          of the  Company or an  agreement  for the sale or  disposition  by the
          Company of all or substantially all the Company's assets. For purposes
          of this  Agreement the term Good Reason means that (i) the Company has
          breached this Agreement in some material  respect,  or (ii) there is a
          change  in the  duties  of  the  Executive  not  consistent  with  the
          Executive's  service as President and Chief  Executive  Officer of the
          Company,  and in either  event  after  written  notice to the Board of
          Directors  by the  Executive  specifying  the nature of such breach or
          change in duties,  the  Company  has failed to correct  such breach or
          change in duties;  within thirty days of the date of such notice.  
                      (b)
          In the event that any payment or benefit received or to be received by
          the Executive in connection  with the  termination of the  Executive's
          employment  pursuant to this Section or Section 6.3 (whether  pursuant
          to the terms of this  Agreement  or any  other  plan,  arrangement  or
          agreement  with the  Company or any  subsidiary  of the  Company,  any
          person whose actions result in a Change in Control of the Company,  or
          any  person   affiliated   with  the   Company  or  such   subsidiary)
          (collectively  with  the  payments  and  benefits  hereunder,   "Total
          Payments")  would not be deductible  (in whole or part) as a result of
          Section 280G of the Internal Revenue Code of 1986, as amended, and the
          rules and  regulations  thereunder  (the  "Code") by the  Company,  an
          affiliate  or other  person  making  such  payment or  providing  such
          benefit,  the payments and benefits  hereunder  shall be reduced until
          none or the entire  portion of the Total  Payments  is not  subject to
          disallowance  pursuant to Code Section  280G.  At the  Company's  sole
          discretion,  such  reduction may be effected by extending the date the
          payment  would  otherwise  be  due by  not  more  than  one  year  and
          thereafter  by  decreasing  the  amount  of  the  payment  or  benefit
          otherwise  due and  payable.  For purposes of this  limitation  (i) no
          portion of the Total  Payments  the receipt or  enjoyment of which the
          Executive  shall have  effectively  waived (within the meaning of Code
          Section  280G) in writing  prior to the date of payment shall be taken
          into  account,  (ii) no portion of the Total  Payments  shall be taken
          into  account  which,  in the opinion of tax  counsel  selected by the
          Executive  and  reasonably  acceptable  to the  Company's  independent
          auditors,  under a more likely than not standard does not constitute a
          "parachute  payment"  within the meaning of section  280G(b)(2) of the
          Code, (iii) the payments and benefits  hereunder shall be reduced only
          to the extent  necessary  so that,  in the  opinion of the tax counsel
          referred to in clause (ii) above, the Total Payments (other than those
          referred to in clauses (i) or (ii) above) in their entirety are likely
          to constitute  reasonable  compensation for services actually rendered
          within the meaning of Code Section 280G(b)(4) or are otherwise under a
          more  likely  than  not  standard  not  subject  to   disallowance  as
          deductions; and (iv) the value of any non-cash benefit or any deferred
          payment or benefit  included in the Total Payments shall be determined
          by  the  Company's   independent   auditors  in  accordance  with  the
          principles  of  Code  Sections  280G(d)(3)  and  (4).  
                  6.6  Notice  of Termination.  Any purported termination of 
          employment of the Executive
          by the Company by reason of Employee's  Disability or for Cause or not
          for Cause, or by the Executive for Good Reason or voluntarily shall be
          communicated  by  written  Notice of  Termination  to the other  party
          hereto.  For  purposes of this  Agreement,  a "Notice of  Termination"
          shall mean a notice given by the Executive or the Company, as the case
          may be, which shall state the specific basis for termination and shall
          set forth in reasonable detail the facts and circumstances  claimed to
          provide  a  basis  for   determination  of  any  payments  under  this
          Agreement.  
                 6.7 Date of  Termination.  For purposes of this Agreement,
          "Date of Termination" shall mean the date of termination of employment
          specified in the Notice of  Termination,  which shall not be more than
          ninety (90) days after such Notice of  Termination  is given,  as such
          date may be  modified  pursuant to the  following  two  sentences.  If
          within thirty (30) days after any Notice of Termination is given,  the
          party who receives such Notice of Termination notifies the other party
          that a Dispute exists (a "Notice of Dispute"), the Date of Termination
          shall be the date on which the Dispute is finally  determined,  either
          by mutual written  agreement of the parties,  or by a final  judgment,
          order or decree  of a court of  competent  jurisdiction  (the time for
          appeal  therefrom  having expired and no appeal having been perfected)
          or by arbitration  as provided in Section 8.6;  provided that the Date
          of  Termination  shall be extended by a Notice of Dispute only if such
          notice is given in good faith and the party giving such notice pursues
          the resolution of such Dispute with reasonable  diligence and provided
          further that pending the  resolution of any such Dispute,  the Company
          shall  continue  to pay the  Executive  the same  Base  Salary  and to
          provide  the  Executive  with  the  same or  substantially  comparable
          welfare  benefits  and  perquisites,  including  participation  in the
          Company's  retirement plans,  profit sharing plans, to the extent then
          so available at the date of such determination, stock option plans and
          stock  award  plans that the  Executive  was paid and  provided to the
          extent that such continued participation is possible under the general
          terms and  provisions of such plans,  programs and benefits.  Should a
          Dispute  ultimately be  determined  in favor of the Company,  then all
          sums (net of tax  withholdings  by the Company from such sums) paid by
          the Company to the Executive from the Date of Termination specified in
          the  Notice of  Termination  until  final  resolution  of the  Dispute
          pursuant to this subsection  shall be repaid promptly by the Executive
          to the Company,  all options,  rights and stock awards  granted to the
          Executive  during  such  period  shall be  canceled or returned to the
          Company,  and no  service  as an  employee  shall be  credited  to the
          Executive  for such period for  retirement  and deferred  compensation
          purposes. The Executive shall not be obligated to repay to the Company
          the  cost  of  providing  the  Executive  with  welfare  benefits  and
          perquisites for such period unless the final judgment, order or decree
          of a court or other body  resolving  the Dispute  determines  that the
          Executive  acted in bad faith in giving a Notice of Dispute.  Should a
          Dispute  ultimately be determined in favor of the Executive,  then the
          Executive  shall be entitled to retain all sums paid to the  Executive
          under this subsection  pending  resolution of the Dispute and shall be
          entitled to receive,  in addition,  the  payments  and other  benefits
          provided  for in  Section  6.5  to  the  extent  not  previously  paid
          hereunder  and the payment of the  Executive's  reasonable  legal fees
          incurred as a result of such Dispute upon submission to the Company of
          a detailed statement of fees from the Executive's attorneys.  The term
          Dispute shall mean (i) in the case of termination of employment of the
          Executive with the Company for Disability or Cause, that the Executive
          challenges  the existence of Disability or Cause,  (ii) in the case of
          termination  of employment  of the  Executive  with the Company by the
          Executive for Good Reason,  that the Company contests the existence of
          Good Reason, or (iii) either party hereto contests whether a Change in
          Control of the Company has occurred.  
               7. Additional  Benefits.  During
          the Term of Employment, the Executive, in addition to the compensation
          provided  in  Sections  3,  4  and  5  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 provisions
          in this Section 8 shall be  applicable  during the Initial  Term,  the
          Second Term or the Third Term, as applicable,  irrespective of whether
          the  Executive  is an employee of the  Company,  except as provided in
          Section 8.4 hereof.  
                 8.2  Non-Competition.  The Executive will not, in
          any  geographic  area  within a 30-mile  radius  of any  sales  office
          operated by the Company at the Date of  Termination  of this Agreement
          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 owner,
          financier, five percent stockholder, member, 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,  the  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.  
                 8.3 Confidentiality.  Except  as  may be  required  by  
          applicable  law or
          pursuant to a subpoena issued pursuant to a governmental investigation
          or other legal process,  the Executive shall not divulge to any person
          who is not an officer,  director,  shareholder,  employee, or agent of
          the Company or any  subsidiary  of the Company  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  such   subsidiary.   
                 8.4  No Solicitation.  Except with the prior  written  consent 
          of the Company,
          the 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 of the Company,  any
          officer,   manager,   employee,   consultant,  or  registered  account
          executive who is employed or rendering  services to the Company or any
          such  subsidiary or had been employed or rendered  services within six
          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 such subsidiary. 
                 8.5 Inapplicability  Restrictions.
          Sections  8.2 and 8.4  hereof  shall not  apply in the event  that the
          employment  of  the  Executive  is  terminated  without  Cause  or the
          Executive's  employment  is terminated by the Company or the Executive
          in connection with or within one year after a Change in Control of the
          Company. 
                 8.6 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,  the  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.
                 8.7 NASD  Arbitration.  Except as  provided in Section 8.6 
          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 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  Jersey
          applicable  to  agreements  made and to be  performed  entirely in New
          Jersey. 
                  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,  canceled, 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 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.  
          This Agreement  shall be deemed to be in effect on June 1, 1997
          for all purposes. 
                  10.7 Severability. The invalidity or
          unenforceability  of any provision of this  Agreement  shall in no way
          affect the validity or enforceability of any other provisions  hereof.
                  10.8 Assignment and Successors.  
          Neither this Agreement nor any of his
          rights  or  duties  hereunder  may be  assigned  or  delegated  by the
          Executive.  This  Agreement is not assignable by the Company except to
          any successor in interest which takes over all or substantially all of
          the  business of the  Company,  as it is conducted at the time of such
          assignment.  Any corporation  into or with which the Company is merged
          or  consolidated or which takes over all or  substantially  all of the
          business  of the  Company  shall be  deemed to be a  successor  of the
          Company for purposes hereof. This Agreement shall be binding upon and,
          except as  aforesaid,  shall  inure to the  benefit of the parties and
          their respective  successors and permitted assigns.  Any assignment by
          the Company shall be without  prejudice to the  Executive's  rights in
          connection  with a Change in  Control.  The Company  will  require any
          successor   (whether   direct  or  indirect,   by  purchase,   merger,
          consolidation  or  otherwise)  to  all  or  substantially  all  of the
          business  and/or assets of the Company,  by written  agreement in form
          and substance  satisfactory to the Executive,  to expressly assume and
          agree to perform  this  Agreement  in the same  manner and to the same
          extent  that the  Company  would be  required to perform it if no such
          succession had taken place.  
                  10.9  Integration.  Except as provided in
          this Agreement,  this Agreement  contains the entire  agreement of the
          parties  hereto on its  subject  matter and  supersedes  all  previous
          agreements  between the parties  hereto,  written or oral,  express or
          implied, covering the subject matter hereof. This Agreement may not be
          supplemented  or rescinded  except by instrument in writing  signed by
          all  of the  parties  hereto  after  the  date  hereof.  Neither  this
          Agreement nor any of the rights of any of the parties hereunder may be
          terminated  except  as  provided  herein.  
                 10.10  Obligations  of  the Company.   
          The   Company's   obligation   to  pay  the  Executive  the
          compensation  and to make the  arrangements  provided  herein shall be
          absolute  and   unconditional   and  shall  not  be  affected  by  any
          circumstance, including, without limitation, any setoff, counterclaim,
          recoupment,  defense or other right which the Company may have against
          the  Executive  or anyone  else.  All  amounts  payable by the Company
          hereunder shall be paid without notice or demand.  Except as expressly
          provided  herein,  the Company waives all rights which it may now have
          or may hereafter have  conferred upon it, by statute or otherwise,  to
          terminate,  cancel  or  rescind  this  Agreement  in whole or in part.
          Except as provided in Section 6.7 herein,  each and every payment made
          hereunder by the Company  shall be final and the Company will not seek
          to recover  for any reason  all or any part of such  payment  from the
          Executive or any person entitled  thereto.  The Executive shall not be
          required  to  mitigate  the  amount of any  payment  or other  benefit
          provided  for  in  this  Agreement  by  seeking  other  employment  or
          otherwise.  
                  10.11  Rights  of  Beneficiaries  of the  Executive.  This
          Agreement  shall inure to the benefit of, and be  enforceable  by, the
          Executive's    personal   or   legal    representatives,    executors,
          administrators,   successors,   heirs,   distributees,   devisees  and
          legatees.  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 of the Board



15


                                                                               
                              SECURED NOTE                         EXHIBIT 10.13

$378,544.00                                                     July 23, 1997


         FOR VALUE RECEIVED, THOMAS NEUMANN and GERALYN NEUMANN,
husband  and wife  (hereinafter  referred  to as the  "Borrower"),  jointly  and
severally, promise to pay to the order of THE SHERWOOD GROUP, INC., (hereinafter
referred to as the  "Lender") the sum of THREE  HUNDRED  SEVENTY-EIGHT  THOUSAND
FIVE HUNDRED  FORTY-FOUR  DOLLARS ($378,544) with interest on the unpaid balance
of such amount  from the date of the first  disbursement  of the loan  evidenced
hereby at the rate of interest  specified herein.  This Secured Note evidences a
loan made or to be made by the Lender to the  Borrower in the  principal  amount
hereof and is secured by a Pledge  Agreement  (the "Pledge  Agreement")  of even
date herewith which creates a security  interest in certain  Collateral owned by
the  Borrower  and  more   particularly   described  in  the  Pledge   Agreement
(hereinafter sometimes referred to as the "Collateral").
         Interest on the  outstanding  principal  balance of this  Secured  Note
shall  accrue from the date  hereof at the rate per annum equal to five  percent
(5%) and shall be due and payable on or before  August 15th of each year.  On or
before each August 15th during the term of this Secured Note, the Borrower shall
make a  payment  in the sum of  Forty  Thousand  Dollars  ($40,000),  which  sum
represents  the annual  installment  of principal,  including  accrued  interest
thereon.  Interest shall be computed on the basis of a fraction, the denominator
of which is 360 and the  numerator of which is the actual number of days elapsed
from the date of the preceding August 15th payment to the next August 15th date.
Unless  previously  paid,  all unpaid  principal  and interest  shall be due and
payable on the 13th day of August, 2007.

         This Secured Note  replaces the Secured Note from Borrower to Lender in
the original  principal  amount of $600,000,  dated March 24, 1993,  (the "Prior
Note") the principal of which has been paid down to the principal amount of this
Secured  Note,  and is intended  to  continue  as  evidence of the  indebtedness
evidenced thereby, but not as a novation or as additional debt. Interest accrued
but not yet paid under the Prior Note shall be payable  under this Secured Note,
without  duplication.  The Mortgage  Collateral  described in the Prior Note has
been or will be  released  by Lender  in  conjunction  with sale of the  subject
mortgaged  property by Borrower,  on condition that Collateral  under the Pledge
Agreement be substituted  therefor,  with a fair market value no less than twice
the  principal  amount of this Secured Note plus accrued  interest,  and no less
than the amount of  collateral as may be required to be held by Lender under any
applicable law or regulation, including without limitation,  Regulation G of the
Board of Governors of the Federal Reserve System, as may be applicable.
         All payments on this Secured Note are payable at the Lender's office at
10 Exchange Place Centre, 15th Floor, Jersey City, New Jersey 07302-3913 , or at
such other place as the Lender or other holder  hereof shall notify the Borrower
in writing.
         All  payments  received  by the  Lender on this  Secured  Note shall be
applied by the Lender as follows:  first, to accrued and unpaid interest due and
owing; second, to the reduction of principal;  and third, to the payment of Late
Charges,  if any or any other amounts  owing by Borrower to Lender  hereunder or
under the Pledge Agreement.
         At any time that the Lender  shall render a statement of the amount due
hereunder,  such  statement  shall be deemed to be an account stated and correct
and acceptable to and binding on the Borrower  unless the Lender shall receive a
corrected  statement of  exceptions  from the Borrower  within  thirty (30) days
thereof.
         In the event the Borrower  fails to pay any  installment of interest on
this Secured Note for fifteen (15) days after such payment becomes due,  whether
by  acceleration  or  otherwise,  the Lender may,  at its option,  impose a Late
Charge (the "Late Charge") equal to five percent (5%) per annum in excess of the
interest  rate on this Secured Note  computed from the original due date of such
payment  to the date of receipt  of such  payment  by the Lender in good  funds;
provided,  however,  that if any such Late  Charge  is in  excess of the  amount
permitted to be charged to the Borrower under  applicable  federal or state law,
the Lender  shall be entitled  only to collect a Late Charge at the highest rate
permitted  by such law.  Until any and all Late  Charges  are paid in full,  the
amount thereof shall be secured by the security  interest in the Collateral held
by the Lender to secure such  indebtedness.  The  Borrower  agrees that any such
Late  Charges  shall not be deemed to be  additional  interest  or a penalty but
shall be deemed to be liquidated  damages because of the difficulty in computing
the actual amount of damages in advance.
         The Borrower may make  prepayments  of the amount due  hereunder at any
time and from time to time from and after the date  hereof  without  penalty  or
premium.
         In the event the  Borrower  fails to pay any  installment  of principal
and/or  interest  on this  Secured  Note for five (5) days after  receipt by the
Borrower  of notice  that such  payment is due or past due;  or if the  Borrower
shall fail to duly observe or perform any covenant, condition, or agreement with
respect  to the  payment  of monies on the part of the  Borrower  other than the
payment of principal  and/or  interest  required to be performed by the Borrower
under this  Secured  Note or the Pledge  Agreement  for fifteen  (15) days after
notice;  or if the Borrower  shall fail to duly observe or perform any covenant,
condition,  or agreement  to be observed or  performed  pursuant to this Secured
Note or the Pledge  Agreement  other than the  payment of monies for a period of
thirty (30) days after notice; or if any  representation or warranty made by the
Borrower  in any  statement  or  certificate  furnished  by or on  behalf of the
Borrower in connection with this Secured Note of the Pledge Agreement shall have
been  incorrect,  in any material  respect,  when made; or if the  Collateral is
sold, transferred, or otherwise disposed of without the prior written consent of
the  Lender;  or if any  material  default  by the  Borrower  in any  payment of
principal of interest due or owing on any other  obligation  for borrowed  money
beyond any period of grace provided with respect thereto,  or in the performance
or  observance of the terms of the Pledge  Agreement or of any other  agreement,
term,  or condition  contained in any agreement  under which such  obligation is
created,  and such default permits the holder of such indebtedness to accelerate
the  maturity of such  indebtedness;  or upon the  dissolution,  termination  of
existence,  insolvency, business failure, appointment of a trustee, receiver, or
custodian of all or any part of the  properties or assets of the Borrower,  upon
an assignment for the benefit of creditors by, calling of a meeting of creditors
of, or the  commencement  of any  proceeding  under any bankruptcy or insolvency
laws of any state or of the United States by the Borrower or the commencement of
any proceeding  under any  bankruptcy or insolvency  laws of any state or of the
United States against the Borrower,  which in the case of any insolvency  action
is not dismissed within thirty (30) days of  commencement;  then and in any such
event the Lender may, at its option, declare the entire unpaid principal balance
of this  Secured  Note,  together  with all  interest  due  hereunder,  any Late
Charges,  and  other  sums  whatsoever  accrued  or  to  accrue  thereon  to  be
immediately  due and payable;  and the Lender may proceed to exercise any rights
or remedies  that it may have in the  Collateral  held by the Lender as security
for the payment of the  indebtedness  evidenced  hereby or such other rights and
remedies which the Lender may have at law, in equity, or otherwise.
         The Lender may proceed  against the  Borrower  under this  Secured Note
irrespective of and unaffected by (1) the genuineness,  validity,  irregularity,
or  enforceability  of its security  interest in the  Collateral;  (2) the loss,
destruction,  or unavailability of the Collateral; or (3) the existence,  value,
or condition of the Collateral.
         In the event this Secured Note is turned over to an attorney-at-law for
collection after default, in addition to principal,  interest, Late Charges, and
other amounts  provided for  hereunder,  the Lender shall be entitled to collect
all costs of collection,  including,  but not limited to, reasonable  attorneys'
fees,  incurred in  connection  with the  protection  of or  realization  of the
Collateral or in connection with any of the Lender's  collection efforts whether
or not suit on this Secured Note is filed; and all such costs and expenses shall
be payable on demand and until paid shall also be secured by the  Collateral  at
any time held by the Lender as security for the  Borrower's  obligations  to the
Lender.
         No failure on the part of the Lender or other holder hereof to exercise
any right or remedy  hereunder,  whether  before  or after  the  happening  of a
default,  shall  constitute a waiver thereof;  and no waiver of any past default
shall  constitute  waiver of any  future  default  or of any other  default.  No
failure to accelerate the debt evidenced hereby by reason of default  hereunder,
or acceptance of a past-due installment, or indulgence granted from time-to-time
shall be  construed  as a waiver  of the  right to insist  upon  prompt  payment
thereafter or to impose Late Charges  retroactively  or  prospectively  or to be
deemed to be a novation of this Secured Note or as a  reinstatement  of the debt
evidenced  hereby  or as a waiver  of such  right of  acceleration  or any other
right,  or to be construed so as to preclude the exercise of any right which the
Lender may have,  whether by the laws of the state  governing this Secured Note,
by agreement,  or otherwise.  This Secured Note may not be amended  orally,  but
only by an agreement in writing  signed by the party against whom such amendment
is sought to be enforced.
         The Borrower,  for itself,  and its  successors  and assigns,  and each
endorser of this Secured Note, for its heirs,  successors,  and assigns,  hereby
waives  presentment,  protest,  demand,  diligence,  notice of dishonor,  and of
non-payment.
         All notices,  requests, and demands to be made hereunder to the parties
hereto  shall be in writing and deemed to have been given or made three (3) days
after being  deposited  in the United  States mails to the  addresses  set forth
below or at such other addresses which the parties may provide to one another in
accordance  herewith.  Such  notices,  requests,  and  demands  shall be sent by
registered or certified mail, return receipt requested;  provided, however, that
any quarterly  statements  sent by the Lender to the Borrower  shall  constitute
notice for all purposes of this Secured Note,  notwithstanding the fact that the
same may not be sent by registered or certified mail, return receipt  requested.
To the Borrower: Thomas and Geralyn Neumann
                           823 Creek Court
                           Fair Lawn, New Jersey  07410


To the Lender:             The Sherwood Group, Inc.
                           10 Exchange Place Centre, 15th Floor
                           Jersey City, New Jersey  07302-3913

         This Secured Note shall be governed by and construed  under the laws of
the State of New Jersey without regard to principles of conflicts of laws.
         IN WITNESS WHEREOF, the Borrower has executed this Secured Note this 23
day of July, 1997.

WITNESS:

-----------------------                             ----------------------------
                                                                  THOMAS NEUMANN


-----------------------                             ----------------------------
                                                                 GERALYN NEUMANN




























                                                 PLEDGE AGREEMENT


                  This PLEDGE  AGREEMENT  is made as of July 23,  1997,  between
THOMAS  NEUMANN and  GERALYN  NEUMANN  (together,  "Pledgor")  individuals  with
residence  at 823 Creek  Court,  Fair Lawn,  New Jersey  07410 and THE  SHERWOOD
GROUP, INC., with offices at 10 Exchange Place Centre,  15th Floor, Jersey City,
New Jersey 07302-3913  ("Secured Party").  Capitalized terms used herein without
definition  shall have the  respective  meanings given such terms in the Secured
Note (the "Secured  Note") dated as of the date hereof from Pledgor to the order
of Secured Party.

            1. In order to induce Secured Party to make or continue a loan
or other  financial  accommodation  to Pledgor,  and in  consideration  thereof,
Pledgor hereby jointly and severally  grants a security  interest and pledges to
Secured  Party as  security  for the  prompt  payment  and  satisfaction  of all
obligations  (the "  Obligations")  of Pledgor  under the Secured  Note,  all of
Pledgor's right,  title and interest in and to the 60,000 shares of common stock
of Secured  Party (the "Stock")  described on Schedule A attached  hereto (as it
may be amended or supplemented from time to time). Such Stock, together with all
income, dividends, distributions,  additional shares, warrants, rights, proceeds
and other  property at any time and from time to time  receivable  or  otherwise
distributable  in respect of, in exchange for or in substitution  of, such Stock
is hereinafter  collectively referred to as the "Collateral".  Concurrently with
delivery  of this  Pledge  Agreement,  Pledgor is  delivering  to Secured  Party
certificates for all such Stock, together with stock powers executed in blank.

            2.Pledgor represents, warrants and covenants to Secured Party that:

              (i)   the Collateral is owned by Pledgor free and clear of any 
                    prior liens and encumbrances;

              (ii)  there are no restrictions upon the transfer of the 
                    Collateral;

              (iii) the   security   interest   hereunder  in  the
                    Collateral is a first,  prior and perfected  security
                    interest and lien upon all right,  title and interest of 
                    Pledgor in the Collateral;

             (iv) Pledgor has the right to pledge and to grant the
                  security  interest in the Collateral free of any encumbrances,
                  and  without the  consent of the  creditors  of Pledgor or any
                  other person or any governmental authority whatsoever;

              (v) there   is  no   material   pending   legal  or
                  governmental  proceeding  to  which  Pledgor  is a party or to
                  which any of its properties is subject,  which proceeding will
                  materially affect Pledgor's ability to perform its obligations
                  hereunder or the Collateral;

              (vi) the execution,  delivery and performance of this
                  Pledge Agreement and the pledge to Secured Party and the grant
                  to Secured Party of a security  interest in the Collateral (a)
                  will not violate,  or involve Secured Party in a violation of,
                  any  provision  of any law or  regulation  or any order of any
                  governmental authority or any judgment of any court applicable
                  to Pledgor or its properties and assets,  (b) will not violate
                  any  indenture,  any agreement for borrowed  money,  any bond,
                  note or other  similar  instrument  or any other  agreement to
                  which  Pledgor  is a party or by which  Pledgor  or any of its
                  property is bound, (d) will not be in conflict with, result in
                  a breach of or constitute (with due notice or lapse of time or
                  both) a  default  under  any  such  indenture,  agreement  for
                  borrowed  money,  bond,  note,  instrument  or other  material
                  agreement   and  (e)  will  not  result  in  the  creation  or
                  imposition of any lien,  charge or  encumbrance  of any nature
                  whatsoever  upon any property or assets of Pledgor  other than
                  pursuant to this Pledge Agreement;

             (vii)Pledgor  will  at  all  times   maintain  the
                  Collateral  at an amount  no less in fair  market  value  than
                  twice the amount of the  Obligations,  or such other amount as
                  may be required  by law,  and shall  deliver to Secured  Party
                  additional Collateral, or pay down the Obligations,  as may be
                  necessary to maintain such ratio of value to the Obligations;

            (viii)Pledgor has not, is not and will not apply any
                  portion  of the loan or any  related  credit or amounts in the
                  Obligations  to the  purchase  or carrying of the Stock or any
                  margin  securities,  as  contemplated  by  Regulation G of the
                  Board of Governors  of the Federal  Reserve  System,  and will
                  execute  a  purpose   statement  to  such  effect  for  filing
                  therewith.  ["carrying  credit" is defined in  Regulation G as
                  "credit that enables a customer to maintain, reduce, or retire
                  indebtedness originally incurred to purchase a stock [e.g. the
                  Stock] that is currently a margin stock."]; and

              (ix)this  Pledge  Agreement  constitutes  the legal,
                  valid  and  binding  obligation  of  Pledgor,  enforceable  in
                  accordance with its terms.

            3.  Pledgor  covenants  that,  until all  Obligations  secured
hereby have been fully and finally paid, it will keep the  Collateral  free from
any lien,  security  interest or encumbrance,  and will not sell or transfer the
Stock or any interest in Collateral, except for the interest granted hereby.

            4. So long as there is no Event of Default, Pledgor shall have
the right to (i) receive all cash dividends payable upon the Stock and (ii) vote
all shares of Stock.



            5. Upon the occurrence and during the continuation of an Event
of Default all the rights of Pledgor to receive  dividends  and to exercise  the
voting rights to which it is entitled  pursuant to Section 4 shall cease and all
such rights shall thereupon become vested in Secured Party, which shall have the
sole and exclusive right and authority to receive such dividends and to exercise
such voting rights upon the demand of Secured Party.

            6. (a) Occurrence of any of the following shall  constitute an
"Event of Default"  under this Pledge  Agreement:  (i) any default in payment of
principal or interest or any other  default  shall occur under the  Obligations,
(ii) Pledgor shall fail to pay or perform any of its  covenants or  undertakings
hereunder  or  any  documents  related  to the  Obligations  or to  this  Pledge
Agreement or (iii) any  representation  or warranty of Pledgor under this Pledge
Agreement  or any such  document  shall prove to be  inaccurate  in any material
respect.

               (b)   If an Event of Default shall have occurred and be 
continuing, subject to clause (c) below, Secured Party may sell the Collateral,
or any  part thereof, at public
or private  sale or at any broker's  board or on any  securities  exchange,  for
cash, upon credit or for future delivery as Secured Party shall deem appropriate
subject to the terms hereof or as otherwise  provided in the New Jersey  Uniform
Commercial  Code.  Any  purchaser at any such sale shall hold the property  sold
absolutely,  free  from any  claim or  right on the part of  Pledgor;  provided,
however,  that prior to the  consummation of such sale Pledgor shall be entitled
to redeem this pledge of Collateral by paying (i) all the  Obligations  and (ii)
any additional  costs or expenses  incurred by Secured Party in connection  with
the proposed sale of the Collateral.

               (c) Secured Party shall give Pledgor 10 days' written notice of 
its intention to
make any such public or private  sale,  or sale at any broker's  board or on any
such securities  exchange,  or of any other disposition of the Collateral.  Such
notice, in the case of public sale, shall state the time and place for such sale
and, in the case of sale at a broker's board or on a securities exchange,  shall
state  the  board or  exchange  at which  such sale is to be made and the day on
which the Collateral, or portion thereof, will first be offered for sale at such
board or  exchange.  Any such  public  sale  shall be held at such time or times
within ordinary  business hours and at such place or places as Secured Party may
fix and  shall  state  in the  notice  of  such  sale.  At any  such  sale,  the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in  separate  parcels,  as  Secured  Party  may (in  its  sole  and  absolute
discretion) determine.  Secured Party shall not be obligated to make any sale of
the Collateral if it shall  determine not to do so,  regardless of the fact that
notice of sale of the Collateral may have been given. Secured Party may, without
notice or  publication,  adjourn any public or private sale or cause the same to
be adjourned from time to time by  announcement  at the time and place fixed for
sale, and such sale may,  without further notice,  be made at the time and place
to which the

<PAGE>


same was so adjourned.  In case the sale of all or any part of the Collateral is
made on credit or for future delivery,  the Collateral so sold shall be retained
by Secured  Party until the sale price is paid by the  purchaser  or  purchasers
thereof,  but  Secured  Party  shall not incur  any  liability  in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure,  such  Collateral  may be sold again upon like
notice.  At any sale or sales made pursuant to this Section 6, Secured Party may
bid for or purchase,  free from any claim or right of whatever  kind,  including
any equity of redemption,  of Pledgor, any such demand,  notice, claim, right or
equity being hereby expressly waived and released,  any or all of the Collateral
offered for sale,  and may make any payment on the account  thereof by using any
claim for moneys  then due and  payable to Secured  Party by Pledgor as a credit
against the purchase price; and Secured Party, upon compliance with the terms of
sale,  may  hold,   retain  and  dispose  of  the  Collateral   without  further
accountability  therefor to Pledgor or any third party.  Secured  Party shall in
any  such  sale  make no  representations  or  warranties  with  respect  to the
Collateral  or any part  thereof,  and shall not be  chargeable  with any of the
obligations or liabilities of Pledgor with respect thereto. As an alternative to
exercising the power of sale herein conferred upon it, Secured Party may proceed
by a suit or suits at law or in equity to foreclose  upon the  Collateral  under
this  Pledge  Agreement  and to sell the  Collateral,  or any  portion  thereof,
pursuant  to a  judgment  or  decree  of a  court  or  courts  having  competent
jurisdiction.

               (d) Also, upon an Event of Default, Secured Party shall have any
and all rights
afforded to secured  parties  under the Uniform  Commercial  Code or  otherwise,
without  limitation.  Secured Party may at its option retain the  Collateral and
apply it to the  Obligations  at its fair  market  value.  In case of any  sale,
retention,  or other disposition of any of the Collateral,  Pledgor shall remain
liable for any deficiency regarding the Obligations.

            7. The proceeds of sale of the Collateral  sold or disposed of
pursuant to Section 6 hereof shall be applied by Secured Party (after  deduction
of costs incurred by Secured Party while  enforcing its rights  pursuant to this
Pledge  Agreement) to the  Obligations  in  accordance  with the Secured Note as
shall be applicable or as Secured Party, in its discretion, may determine.

            8. So long as the Obligations are outstanding and the security
interest  hereunder  shall not have  terminated  in  accordance  with  Section 9
hereof, Pledgor agrees to execute and deliver to Secured Party such documents or
instruments  and to give such  notices  as  Secured  Party may  reasonably  deem
necessary or desirable to perfect the lien of Secured  Party on the  Collateral.
If Pledgor does not execute and deliver to Secured  Party any such  amendment or
other  document or instrument or give such notice within 5 days after  requested
by Secured  Party,  then Secured  Party is hereby  authorized by Pledgor to file
such items or give such notice,  without the  signature of Pledgor or to execute
such items as attorney-in-fact for Pledgor.


<PAGE>


            9. So long as no Event of Default  shall have  occurred and be
continuing,  this  Pledge  Agreement  and the pledge  and grant of the  security
interest  hereunder  shall  terminate upon the earlier of (i) payment in full of
the  Obligations  under  the  Secured  Note  or  (ii)  payment  in  full  of the
Obligations.

            10. Notices and other communications provided for herein shall
be given in accordance  with the  provisions of the Secured Note or as agreed in
writing by Secured Party.

            11. This Pledge  Agreement,  the  Secured  Note and  documents
referred to therein are the only documents or agreements relative to the subject
matter of this Pledge Agreement. All covenants, agreements,  representations and
warranties  made herein and in any  documents  delivered  pursuant  hereto shall
survive the making  available or  continuation  by Secured  Party of the subject
loan or  financial  accommodation,  but shall  continue in full force and effect
only so long as the pledge and security  interest  hereunder shall not have been
terminated pursuant to the provisions of Section 9 hereof. No provisions of this
Pledge  Agreement  may be  changed  or waived  except in  writing  signed by all
parties.

            12.  Whenever  in this  Pledge  Agreement  any of the  parties
hereto is referred to such  reference  shall be deemed to include the successors
and assigns of such party,  and all covenants,  promises and agreements by or on
behalf of the parties  which are contained in this Pledge  Agreement  shall bind
and inure to the benefit of the successors and assigns of all other parties.

            13. PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF THE STATE  COURTS OF THE STATE OF NEW JERSEY AND TO THE  JURISDICTION  OF THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY,  FOR THE PURPOSE OF
ANY  SUIT,  ACTION  OR  OTHER  PROCEEDING  ARISING  OUT  OF OR  BASED  UPON  THE
OBLIGATIONS  OR THIS PLEDGE  AGREEMENT OR THE SUBJECT  MATTER HEREOF  BROUGHT BY
SECURED PARTY OR ITS SUCCESSORS OR ASSIGNS AND (B) HEREBY WAIVES, AND AGREES NOT
TO ASSERT,  BY WAY OF  MOTION,  AS A DEFENSE,  OR  OTHERWISE,  IN ANY SUCH SUIT,
ACTION  OR  PROCEEDING,  ANY  CLAIM  THAT IT IS NOT  SUBJECT  PERSONALLY  TO THE
JURISDICTION  OF THE ABOVE-NAMED  COURTS,  THAT ITS PROPERTY IS EXEMPT OR IMMUNE
FROM ATTACHMENT OR EXECUTION,  THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN  INCONVENIENT  FORUM,  THAT THE VENUE OF THE SUIT,  ACTION OR  PROCEEDING  IS
IMPROPER OR THAT THIS PLEDGE  AGREEMENT OR THE SUBJECT  MATTER HEREOF MAY NOT BE
ENFORCED IN OR BY SUCH COURT, AND (C) HEREBY WAIVES ANY OFFSETS OF COUNTERCLAIMS
IN ANY SUCH ACTION,  SUIT OR PROCEEDING  (OTHER THAN COMPULSORY  COUNTERCLAIMS).
PLEDGOR HEREBY  CONSENTS TO SERVICE OF PROCESS BY REGISTERED MAIL AT THE ADDRESS
TO WHICH NOTICES ARE TO BE

<PAGE>


GIVEN, WITH MAIL AND FAX COPY TO COUNSEL AT CRUMMY,  DEL DEO, DOLAN,  GRIFFINGER
AND VECCHIONE, P.C., ONE RIVERFRONT PLAZA, NEWARK, NEW JERSEY 07102, ATTN: FRANK
E.  LAWATSCH,  JR. FAX:  (201)  596-0545.  PLEDGOR AGREES THAT ITS SUBMISSION TO
JURISDICTION  AND ITS  CONSENT  TO  SERVICE  OF  PROCESS BY MAIL IS MADE FOR THE
EXPRESS  BENEFIT OF SECURED PARTY.  FINAL JUDGMENT  AGAINST  PLEDGOR IN ANY SUCH
ACTION,  SUIT OR PROCEEDING  SHALL BE  CONCLUSIVE,  AND MAY BE ENFORCED IN OTHER
JURISDICTIONS (A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT,  A CERTIFIED OR
TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF
ANY  INDEBTEDNESS OR LIABILITY OF PLEDGOR THEREIN  DESCRIBED OR (B) IN ANY OTHER
MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED,
HOWEVER,  THAT SECURED  PARTY MAY AT ITS OPTION BRING SUIT,  OR INSTITUTE  OTHER
JUDICIAL  PROCEEDINGS  AGAINST  PLEDGOR  OR ANY OF ITS  ASSETS  IN ANY  STATE OR
FEDERAL  COURT OF THE UNITED  STATES OR OF ANY COUNTRY OR PLACE WHERE PLEDGOR OR
SUCH ASSETS MAY BE FOUND.

            14. In the case any one or more of the provisions contained in
this  Pledge  Agreement  should be  invalid,  illegal  or  unenforceable  in any
respect,  the validity,  legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.

            15. TO THE  EXTENT  NOT  PROHIBITED  BY  APPLICABLE  LAW WHICH
CANNOT BE WAIVED,  PLEDGOR HEREBY WAIVES,  AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF,  DEFENDANT OR  OTHERWISE),  ANY RIGHT TO TRIAL BY JURY IN
ANY FORUM IN RESPECT OF ANY ISSUE,  CLAIM,  DEMAND,  ACTION,  OR CAUSE OF ACTION
ARISING  OUT OF OR BASED UPON THE  OBLIGATIONS,  THIS  PLEDGE  AGREEMENT  OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR
WHETHER IN CONTRACT OR TORT OR OTHERWISE.  PLEDGOR ACKNOWLEDGES THAT IT HAS BEEN
INFORMED BY SECURED  PARTY THAT THE  PROVISIONS  OF THIS SECTION 15 CONSTITUTE A
MATERIAL  INDUCEMENT  UPON WHICH SECURED  PARTY HAS RELIED,  IS RELYING AND WILL
RELY IN ENTERING INTO THE LETTER OF CREDIT AGREEMENT.  SECURED PARTY MAY FILE AN
ORIGINAL  COUNTERPART  OR A COPY OF THIS  SECTION  15 WITH ANY COURT AS  WRITTEN
EVIDENCE OF THE CONSENT OF PLEDGOR TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.

            16. Upon the occurrence and during the continuance of an Event
of Default,  Pledgor hereby appoints Secured Party its  attorney-in-fact for the
purpose of carrying out the  provisions of this Pledge  Agreement and the pledge
of, and the grant of a security interest in, the Collateral hereunder and taking
any action and executing any  instrument  which Secured Party may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest.  Without limiting the generality of the foregoing,
Secured Party shall have the right and power to receive, endorse and collect all
checks  and other  orders  for the  payment  of money  made  payable  to Pledgor
representing any interest,  dividend or other distribution payable in respect of
the Collateral or any part thereof and to give full discharge for the same.

            17. Pledgor  further  covenants and agrees that it will,  upon
the  request of  Secured  Party at any time and from time to time,  execute  and
deliver  such  further  documents  and do such  other acts and things as Secured
Party may reasonably require in order to effect the purposes hereof.

            18. Each and every right granted to Secured Party hereunder or
under any other  document  delivered  hereunder or in  connection  herewith,  or
allowed it by law or equity,  shall be cumulative and may be exercised from time
to time.  No failure on the part of Secured  Party to exercise,  and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single or
partial  exercise  by Secured  Party of any right  preclude  any other or future
exercise thereof of the exercise of any other right.

            19.    This Pledge Agreement shall be governed and construed in 
accordance with the laws of the State of New Jersey.

            20. Pledgor agrees to pay all reasonable  attorney's  fees and
costs  incurred by Secured  Party in enforcing and  protecting  its rights under
this Agreement.


*                                      *                                      *



<PAGE>


                  IN WITNESS  WHEREOF,  this Pledge  Agreement has been executed
and delivered as of the date first above written.




                                                     ---------------------------
                                                     Thomas Neumann
                                                     Pledgor


                                                     ---------------------------
                                                     Geralyn Neumann
                                                     Pledgor



                                                     THE SHERWOOD GROUP, INC.
                                                     Secured Party


                                                     By:
                                                          Name:
                                                          Title:



                                                                               
                                                   EXHIBIT 10.23
                                             UNITED STATES DISTRICT COURT
                                       FOR THE SOUTHERN DISTRICT OF NEW YORK

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

                                                            94 Civ. 3996 (RWS)
IN RE:

                                                            M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
                                                       This Document Relates To:
                                                            All Actions
-----------------------------------------------------------


                                           AMENDED SETTLEMENT AGREEMENT
   
         THIS AMENDED SETTLEMENT AGREEMENT ("Settlement Agreement") is made 
effective the 9th day of April, 1997, by defendant Sherwood Securities Corp. 
(the "Settling Defendant") and plaintiffs, through Plaintiffs' Co-Lead
Counsel in the In Re: Nasdaq Market-Makers Antitrust Litigation, 94 Civ. 
3996 (RWS), M.D.L. No. 1023, a multidistrict consolidated class action, acting 
on behalf of the Class defined herein (collectively, the "Class" or "class 
plaintiffs").
         WHEREAS,  Settling Defendant and Plaintiffs' Co-Lead Counsel previously
executed a Settlement Agreement on April 9, 1997 (the "Original Agreement");
         WHEREAS,  Settling  Defendant and Plaintiffs'  Co-Lead Counsel mutually
believe that certain  modifications  of the Original  Agreement  are in the best
interests of Settling Defendant and the Class;
    
         WHEREAS, plaintiffs have alleged, among other things, that the Settling
Defendant has acted unlawfully by, among other things,  engaging in a conspiracy
to inflate the bid-ask spread of certain  Nasdaq  securities in violation of the
Sherman Act, 15 U.S.C.  ss.1,  and  plaintiffs  contend that they have  suffered
damages,  including  damages  measured  by the  difference  between  the spreads
charged and the  spreads  that would have  prevailed  in a  competitive  market,
absent violations of the antitrust laws;
         WHEREAS, the Settling Defendant vigorously denies each and every one of
plaintiffs' allegations of unlawful conduct and has alleged a number of defenses
to plaintiffs' claims and disclaims any wrongdoing or liability whatsoever;
         WHEREAS,  plaintiffs and Settling  Defendant agree that this Settlement
Agreement shall not be deemed or construed to be an admission or evidence of any
violation of any statute or law or of any  liability or  wrongdoing  by Settling
Defendant  or of the truth of any of the  claims or  allegations  alleged in the
Class Action;
         WHEREAS, arm's length settlement  negotiations have taken place between
Plaintiffs'  Co-Lead  Counsel  and  Settling  Defendant,   and  this  Settlement
Agreement has been reached, subject to the final approval of the Court;
         WHEREAS,  Plaintiffs' Co-Lead Counsel have concluded, after substantial
discovery and  investigation  of the facts and after  carefully  considering the
circumstances  of the Class Action and the  applicable  law, that it would be in
the best interests of the Class to enter into this Settlement Agreement in order
to avoid the uncertainties of litigation,  particularly  complex litigation such
as this,  and to assure a benefit to the Class,  and further,  that  Plaintiff's
Co-Lead Counsel consider the settlement set forth herein to be fair, reasonable,
and adequate and in the best interests of  plaintiffs,  including all members of
the Class;
   
         WHEREAS, in determining the amount of monetary  compensation to be paid
by this Settling Defendant, Plaintiffs' Co-Lead Counsel have taken into account,
inter  alia,  (a)  the  Settling  Defendant's  position  as the  first  Settling
Defendant,  (b) the Settling  Defendant's net worth relative to the net worth of
Other Defendants;  (c) the fact that Plaintiffs' motion to include institutional
investors in the class was  undecided at the time of the entry into the Original
Agreement; and (d) Settling Defendant's estimated market share.
    
         WHEREAS,  Settling  Defendant  has  concluded,  despite  the  belief of
Settling  Defendant  that it is not liable for the claims  asserted and has good
defenses thereto, that it will enter into this Settlement Agreement to avoid the
further expense, inconvenience and burden of this protracted litigation, and the
distraction  and diversion of its personnel  and  resources,  and to put to rest
this controversy with valued business customers, and to avoid the risks inherent
in uncertain complex litigation,  and to avoid the expense and risks inherent in
any possible future litigation raising similar claims;
         NOW  THEREFORE,  it is  agreed  by the  undersigned,  on  behalf of the
Settling  Defendant  and the Class,  that the Class Action and all claims of the
class  plaintiffs be settled,  compromised  and dismissed on the merits and with
prejudice as to the Settling  Defendant,  and,  except as hereinafter  provided,
without costs as to plaintiffs or Settling Defendant, subject to the approval of
the Court, on the following terms and conditions:
         1.       Terms Used In This Agreement.
         The  words  and  terms  used in this  Settlement  Agreement  which  are
expressly  defined in Section 36  ("Definitions.")  of this Agreement shall have
the meaning ascribed to them in the said Section.
         2.       Class Definition.
         The      Class is defined for settlement  purposes  ("Settlement Class"
                  or "Class") as follows: All persons, firms, corporations,  and
                  other   entities   (excluding   Defendants  and  other  Nasdaq
                  market-makers,  and their respective affiliates) who purchased
                  or  sold  Class  Securities  on the  Nasdaq  National  Market,
                  trading  directly (or through  agents) with the  Defendants or
                  their  co-conspirators,  or with their respective  affiliates,
                  during  the  period  May 1,  1989  to  May  27,  1994  ("Class
                  Period"); and

                  A subclass consisting of those members of the class defined in
                  the immediately preceding clause, who at the time Class Notice
                  (as defined in the Refiled Consolidated Complaint) are current
                  brokerage  customers of defendants (or their  affiliates),  or
                  whose  brokerage  accounts are cleared by defendants (or their
                  affiliates), and to whom defendants (or their affiliates) send
                  periodic mailings.

         For  purposes of this  settlement,  all brokers are deemed  agents and,
therefore,  the Class  includes,  but is not  limited  to, all  persons,  firms,
corporations and other entities, as described above, who traded through brokers.
For purposes of this  settlement,  institutional  investors  (including  but not
limited to banks, savings and loan associations, insurance companies, registered
investment  companies,  investment  advisors and all private and public  mutual,
retirement,  pension,  profit  sharing  or other  types of  funds)  are  "firms,
corporations  and other entities"  included in the Class to the extent that they
purchased or sold Class Securities in the manner and during the period described
in the Class definition.  The inclusion of all such persons, firms, corporations
and  other  entities  who  traded  through  brokers  and all such  institutional
investors in the Court  approved  Settlement  Class is a condition  precedent to
this Settlement  Agreement  becoming final. The term "affiliates" as used in the
Class  definition  includes  parents,  subsidiaries  and other commonly owned or
commonly  controlled  affiliates.  If the definition of the Class or the list of
Class Securities is expanded,  by order of the Court for litigation purposes, or
in  connection  with any  Future  Settlement  (the  "Class  Redefinition"),  the
definition  of the  Class  or list of  Class  Securities  shall  be  identically
expanded  for  purposes  of this  settlement,  without  the need for  additional
consideration, as more specifically set forth as follows:
                  a.       If Class Redefinition  occurs prior to the mailing of
                           the Class  Notice and Notice of  Settlement  for this
                           settlement ("Sherwood  Settlement Notice"),  then the
                           corresponding  redefinition of the class for purposes
                           of this  settlement  shall occur at the time of Class
                           Redefinition,  and  the  Class  Notice  and  Sherwood
                           Settlement  Notice  shall be  given to the  redefined
                           class,  and  the  Sherwood  Settlement  Notice  shall
                           specifically  reflect  settlement  with the redefined
                           class.

                  b.       If the Class  Redefinition  occurs (i)  subsequent to
                           mailing  of  Class  Notice  and  Sherwood  Settlement
                           Notice,   but  (ii)  prior  to  the  time  that  this
                           settlement  becomes final in accordance  with Section
                           7(a)-(c), then the corresponding  redefinition of the
                           class for purposes of this settlement  shall occur at
                           the time of Class Redefinition, and if any subsequent
                           notice to the Class occurs, that notice shall include
                           notice of the  redefinition of the Class for purposes
                           of this  settlement,  without any additional  cost to
                           Sherwood.

                  c.       If Class Redefinition occurs subsequent to the time 
                           that this settlement becomes final in accordance with
                           Section 7, then the parties agree that said Class 
                           Redefinition shall constitute a reason justifying 
                           relief to Sherwood from the operation of the
                           judgment within the meaning of Fed. R. Civ. P. 60(b)
                           (6) to the extent necessary to effectuate the 
                           corresponding redefinition of the class for purposes
                           of this settlement.  The parties further agree that
                           they shall jointly ask the Court for such relief for
                           Sherwood and for such further relief as is necessary
                           to redefine the class for purposes of this settlement
                           and for the provision of such notice to the redefined
                           class, without additional cost to Sherwood, as the 
                           Court deems necessary in light of the Class 
                           Redefinition.  This subsection 2(c) shall be 
                           severable and subject to separate Court approval.

         3.       Best Efforts to Effectuate This Settlement.
         Counsel for the Settling  Defendant  and  Plaintiffs'  Co-Lead  Counsel
agree to  recommend  approval of this  Settlement  Agreement by the Court and to
undertake  their best efforts,  including all steps and efforts  contemplated by
this Settlement  Agreement and any other steps and efforts that may be necessary
or  appropriate,  by order of the Court or otherwise,  to carry out the terms of
this Settlement Agreement.


<PAGE>


         4.       Motion for Preliminary Approval.
         No later than July 3, 1997, Plaintiffs' Co-Lead Counsel shall submit to
the  Court  a  motion  for  preliminary  approval  of the  settlement  and  this
Settlement Agreement.  A proposed form of order is attached hereto as Exhibit A.
Plaintiffs' Co-Lead Counsel and counsel for the Settling Defendant shall request
that a decision be made promptly on the papers,  or that a hearing on the motion
for preliminary approval of the settlement be held within 30 days of the date of
such motion.
         5.       Combination of Class Notice and Settlement Notice.
   
         Counsel for the Settling Defendant and Plaintiffs' Co-Lead Counsel will
ask the Court to combine the notice of this  settlement with the class notice to
be given generally,  pursuant to Rule 23(c), (d) and (e) of the Federal Rules of
Civil Procedure.  Plaintiffs'  Co-Lead Counsel shall recommend to the Court, and
Settling  Defendant  shall  not  oppose,  a  program  and form of  notice to the
Settlement Class consistent with the goals of providing economical,  efficacious
and  expeditious  notice  consistent  with the  requirements  of Rule 23 and due
process.  After the Court  approves a program  and form of notice and finds that
the  program  and form of notice  satisfy  the  requirements  of Rule 23 and due
process,  up to one-half  of the  Settlement  Fund (as  adjusted  and  including
accrued  interest)  may be used to pay the costs of class  notice.  However,  if
prior to class notice Plaintiffs'  Co-Lead Counsel enter into Future Settlements
with one or more Future Settling Defendants, which are preliminarily approved by
the Court,  the amount of the Settlement  Fund that may be used to pay the costs
of class notice  shall not exceed the lesser of (a)  one-half of the  Settlement
Fund  or (b)  100% of the  costs  of  class  notice  divided  by the  number  of
defendants,  including the Settling Defendant,  who have settled,  regardless of
whether  or not the  Future  Settling  Defendants  are  required  by the  Future
Settlements  to  contribute  to the cost of class  notice.  (For  example,  if a
settlement with one Other Defendant is preliminarily approved, the amount of the
Settlement  Fund that may be used to pay the costs of class  notice shall be the
lesser of one-half of the Settlement Fund or 50% of the class notice costs,  and
if settlements with two Other Defendants are preliminarily  approved, the amount
of the  Settlement  Fund that may be used to pay the costs of class notice shall
be the lesser of one-half of the Settlement Fund or one-third of the total costs
of giving  notice.)  For  purposes of this  Settlement  Agreement,  the costs of
giving  notice  include  all costs and  expenses  associated  with notice to the
class,  including  but not  limited to the costs and  expenses  associated  with
identifying  class members,  providing mailed notice and published  notice,  and
providing any notice by means of the Internet,  toll-free  telephone  service or
otherwise.  The Settling  Defendant  shall provide all  information,  within its
possession, custody or control, relating to the identity of class members to the
same extent agreed to by nineteen (19) or more  defendants or, in the absence of
an agreement,  ordered by the Court.  The Settling  Defendant will not object to
the inclusion of notice in its periodic  mailings to class  members,  if any, to
the extent agreed to by nineteen (19) or more  defendants  or, in the absence of
an agreement, ordered by the Court.
    
          6. Motion for Entry of Final Judgment.  If, after notice to the Class,
     the Court approves this Settlement Agreement, then the parties hereto shall
     jointly seek entry of an order and final  judgment,  in  substantially  the
     form attached hereto as Exhibit B, 
                  a. finally approving this settlement and its terms as being a
                     fair,  reasonable  and adequate  settlement  as to the
                     Class  within  the  meaning  of  Rule  23 of the  Federal
                     Rules  of  Civil Procedure, and directing its consummation
                     pursuant to its terms;

                  b. directing that, as to the Settling Defendant, the Class 
                     Action be dismissed with prejudice and, except as provided
                     for herein, without costs in favor of the Settling
                     Defendant and against the members of the Class who did not 
                     timely request exclusion from the Class;

                  c. permanently  barring and enjoining all members of the
                     Class (other than those members of the Class who have
                     filed a valid request for  exclusion  from the Class)
                     from the  institution,  maintenance,  prosecution  or
                     enforcement,  either  directly or indirectly,  of any
                     Released Claim against any Released Party;

                  d. discharging and releasing each Released Party from the 
                     institution, maintenance, prosecution or enforcement, 
                     either directly or indirectly, of any Released Claim;

                  e. determining pursuant to Fed.R.Civ.P. 54(b) that there is no
                     just reason for delay and directing that the judgment of 
                     dismissal shall be final and appealable;

                  f. reserving continuing and exclusive jurisdiction over the 
                     settlement and this settlement agreement, including the 
                     administration and consummation of the settlement; and

                  g. directing that Plaintiffs' Co-Lead Counsel shall file
                     with the Clerk of the  Court a list of those  members
                     of the Class who have timely excluded themselves from
                     the Class and a copy of all  requests  for  exclusion
                     from the Class.


         7.  Finality.
         This Settlement Agreement shall become final upon the occurrence of all
         of the following three events:
                           (a)      approval in all respects by the Court as
                                    required by Rule 23(e) of the Federal
                                    Rules of Civil Procedure;

                           (b)      entry,  as provided for in Section 6 herein,
                                    is made of the  final  judgment  (Exhibit  B
                                    hereto) of  dismissal  with  prejudice as to
                                    the   Settling    Defendant    against   all
                                    plaintiffs and members of the Class who have
                                    not  timely  excluded  themselves  from  the
                                    Class; and

                           (c)      expiration  of the  time for  appeal  or the
                                    time to seek  permission  to appeal from the
                                    Court's    approval   of   this   Settlement
                                    Agreement  as  described  in (a)  hereof and
                                    entry of a final  judgment as  described  in
                                    (b) hereof or, if appealed, approval of this
                                    Settlement  Agreement and the final judgment
                                    have been affirmed in their  entirety by the
                                    court of last  resort to which  such  appeal
                                    has  been  taken  and  such  affirmance  has
                                    become no longer  subject to further  appeal
                                    or review.

   
It is  agreed  that  the  provisions  of Rule 60 of the  Federal  Rules of Civil
Procedure shall not be taken into account in determining the above-stated times.
Notwithstanding  the  foregoing,  nothing in this Section  shall  prejudice  the
ability of the  parties to make the joint  application  contemplated  by Section
2(c) above nor relieve the parties of their obligation to do so.
    

         8.       Monetary Terms.
   
         Subject  to the  provisions  hereof,  and in full,  complete  and final
settlement of the Class Action,  the Settling Defendant agrees that it shall pay
and  Plaintiffs  agree  to  accept  the  total  sum of  $9,187,500.00.  Settling
Defendant and Plaintiffs  mutually agree that a reasonable  estimate of Settling
Defendant's  market share is 2.1%.  (For this purpose,  "Defendants'  Market" is
defined as the 35 defendants'  total number of shares traded as market makers in
the class  securities  currently  set forth in, and within the time  periods set
forth in,  Exhibit A to the Refiled  Consolidated  Complaint,  excluding  trades
outside the Nasdaq National Market (e.g.,  Instinet or Posit),  excluding trades
between market makers,  and excluding  trades by  non-defendant  market makers.)
Using this estimate,  the parties have agreed to the total settlement payment of
$9,187,500.00  set forth above,  which represents  $4,375,000.00  per percentage
point for Settling Defendant's estimated market share of the Defendants' Market.
It is the mutual  understanding of the parties,  however,  that this estimate of
market  share  is  but  one  of  the  factors  considered  in  arriving  at  the
consideration to be paid by Settling Defendant. Plaintiffs' Co-Lead counsel also
took into account,  among other  things,  Settling  Defendant's  position as the
first  Defendant  agreeing  to  settle,  the  relative  net  worth  of  Settling
Defendant,  and the fact that Plaintiffs'  motion for inclusion of institutional
investors in the class was  undecided as of the date of the Original  Agreement.
Moreover,   the  parties  mutually   understand  that  the  calculation  of  any
defendant's  market share with  precision is difficult  given the available data
and  alternative  available  methods and  approaches  to  calculation.  Settling
Defendant's estimated market share is just that--a reasonable estimate.  Neither
party  believes  that the fairness or adequacy of this  Settlement  Agreement is
dependent upon the precision of that estimate. Rather, it is the joint belief of
the parties that the sum of $9,187,500.00 is fair, reasonable and adequate based
on the totality of the circumstances surrounding this settlement.
    
         The Settling  Defendant has agreed to pay this  consideration  with the
specific  contemplation  that it is adequate not only to compensate  the current
Class but also to compensate  potential  future additions to the Class by reason
of any Class Redefinition.  Plaintiffs' Co-Lead Counsel also consider the amount
of the  Settlement  Fund  together  with  the  other  terms  of this  Settlement
Agreement,  fair,  reasonable and adequate to  accommodate  the interests of any
such  potential  future  additions  to the Class.  Nonetheless,  the Class shall
retain the entire Settlement Fund, with no reversion to the Settling  Defendant,
even if no expansion of the Class ever occurs.
   
         The Settling  Defendant  agreed to pay and did, in fact,  pay the first
half of its  principal  obligation,  within  ten (10)  business  days  after the
Original Agreement, into an escrow account to be invested in instruments secured
by the full faith and credit of the United  States.  The escrow account shall be
established  and  administered  pursuant  to  an  escrow  agreement  in  a  form
satisfactory  to the  parties,  and held and  administered  by an  escrow  agent
satisfactory  to the parties.  Plaintiffs'  Co-Lead  Counsel and Counsel for the
Settling  Defendant  shall be  joint  trustees  of this  escrow  account.  It is
intended that any taxes due as a result of income earned by the Settlement  Fund
will be paid from the Settlement Fund. In the event federal income tax liability
is final,  assessed  against and paid by the  Settling  Defendant as a result of
income earned by the Settlement  Fund,  Settling  Defendant shall be entitled to
reimbursement of such payment from the Settlement Fund.  Settling Defendant will
notify  Plaintiffs'  Co-Lead  Counsel of any notice of assessment or payment and
will use its best efforts to resist any such assessment or payment.
         The  Settling  Defendant  shall pay the  second  half of its  principal
obligation  365 days after signing the Original  Agreement  into the same escrow
account set forth above,  to be invested in like manner (or, if applicable,  the
escrow  account  established  under  Section 11 of this  Settlement  Agreement).
Simple  interest  shall be earned over the 365 day period at the  Broker's  Call
Rate ("Call  Money") as published  in the Wall Street  Journal as of the date of
the signing of the Original Agreement, which was 7.25%.
    
         Nothing contained in this Settlement Agreement shall limit the Settling
Defendant's  right to prepay the second half of its  principal  obligation  with
interest  through the date of actual payment,  and without  prepayment  penalty,
which  right,  if  exercised,  will  fulfill the  Settling  Defendant's  payment
obligation hereunder in full.
   
         If the Settling  Defendant  fails to pay in full the second half of its
principal  obligation (as adjusted  above) with interest (as computed above) 365
days after the date of  signing  of the  Original  Agreement,  then  Plaintiffs'
Co-Lead  Counsel,  on 10 days written  notice to Settling  Defendant's  counsel,
during which 10-day period Settling Defendant shall have the opportunity to cure
the default  without  penalty,  may withdraw from this  Settlement  Agreement or
elect to enforce it, with the full expenses of any enforcement effort, including
legal fees, to be taxed against  Settling  Defendant.  The Settling  Defendant's
obligation to pay may be enforced by motion in this multidistrict litigation.
    
         9.       All Claims Satisfied by Settlement Fund.
         Plaintiffs and other members of the Class who have not timely  excluded
themselves  from  the  Class  shall  look  solely  to the  Settlement  Fund  for
settlement and  satisfaction  against the Settling  Defendant of all claims that
are released hereunder. Except as provided herein, or by subsequent order of the
Court,  no class member shall have any  interest in the  Settlement  Fund or any
portion thereof.
         10.      Expenses Paid From Settlement Fund.
         The Settling  Defendant  shall not be liable for any costs,  or fees or
expenses  of any of  plaintiffs'  respective  attorneys,  experts,  consultants,
agents and representatives, but all such costs, fees and expenses as approved by
the Court may be paid out of the Settlement Fund.
         11.      Establishment of Escrow Account.
         Ten  days  after  final  settlement   approval,   the  Settlement  Fund
(including the principal  obligation and interest)  shall be paid into a further
escrow account with  Plaintiffs'  Co-Lead  Counsel as sole  trustees.  Except as
provided in Sections 5 and 12A herein,  no  distribution  of the Settlement Fund
shall be made  until the  conditions  contained  in  Section  7 shall  have been
fulfilled.
   
         12.      Plan of Distribution.
    
         Plaintiffs' Co-Lead Counsel shall propose a plan of distribution to the
Court, either before or after final settlement approval.  The Settling Defendant
shall not directly or  indirectly  take any position with respect to any plan of
distribution  or  amount  of  distribution  to any  plaintiff  or class  member,
counsel,  expert or consultant,  or any other person  whatsoever,  except as set
forth in Section 27 hereof. In no event shall any portion of the Settlement Fund
(including  principal  or  interest)  be  distributed  or revert to the Settling
Defendant,  under any  circumstances,  after this Settlement  Agreement  becomes
final  pursuant to Section 7 herein.  After this  Settlement  Agreement  becomes
final pursuant to the provisions of Section 7 herein,  the Settlement Fund shall
be distributed as ordered by the Court.
         To facilitate  processing of claims and  distribution of the Settlement
Fund,  upon written  request by the Plaintiffs'  Co-Lead  Counsel,  the Settling
Defendant will, to the extent reasonably  available,  provide those computerized
records  which  reflect  trades  by class  members  and  which  are  within  its
possession,  custody or control to the Plaintiffs for the purposes of settlement
administration.
         Following final approval,  disbursements  for the costs and expenses of
administration   and  distribution  of  the  Settlement  Fund,  or  expenses  of
litigation, may be made from the Settlement Fund from time to time with approval
of the Court.  In no event shall the Settling  Defendant  have any  liability or
responsibility  with  respect  to the  distribution  and  administration  of the
Settlement Fund,  including,  but not limited to, the costs and expenses of such
distribution and administration.
   
         12A.     Attorneys' Fees and Expenses.
         Nothing in this  Settlement  Agreement  shall prohibit such  attorneys'
fees and  expenses  as are  awarded by the Court from the  Settlement  Fund from
being paid to Plaintiffs' Co-Lead Counsel (if consistent with the Court's award)
immediately upon such award,  notwithstanding  the existence of any timely filed
objections thereto,  or potential for appeal therefrom,  or collateral attack on
the  settlement or any part thereof,  subject to Plaintiffs'  Co-Lead  Counsel's
(and  other  recipient  counsel's)  obligation  to make  appropriate  refunds or
repayments  to the  Settlement  Fund plus accrued  interest,  if and when,  as a
result of any  appeal  and/or  further  proceedings  on  remand,  or  successful
collateral attack, the fee or cost award is reduced or reversed.
    
         13.      Non-Monetary Relief.
   
         The Settling Defendant, as a further term of this Settlement Agreement,
conditionally  agrees to the following  non-monetary  relief.  The parties shall
jointly move for entry of the Stipulation and Order,  appended hereto as Exhibit
C, at the same  time  that  they  move for  final  approval  of this  Settlement
Agreement. However, the Stipulation and Order appended hereto as Exhibit C shall
not become final and shall not become  effective  unless and until,  and only to
the same extent that, 23 or more Future Settling  Defendants  (other than Kidder
Peabody which is no longer in business)  agree to the entry of a Stipulation and
Order, of the same or longer  duration,  containing the same Negative  Covenants
contained  in Exhibit C, which  Stipulations  and Orders have  become  final and
effective. In addition,  effective upon final approval of this Settlement and of
Future Settlements by at least 23 Future Settling  Defendants (other than Kidder
Peabody which is no longer in business)  containing a like  provision,  Settling
Defendant  agrees that if the United States  Department of Justice requests that
some or all of the resources Settling Defendant is required, by the terms of any
finally approved  resolution of United States of America v. Alex. Brown, et al.,
96 Civ. 5313(RWS), in the United States District Court for the Southern District
of New York (the "DOJ  Action"),  to dedicate to the monitoring and recording of
telephone  conversations  be diverted instead to the recording and monitoring of
other  media of  trader  communications  (such  as,  for  example,  Instinet  or
SelectNet),  Settling  Defendant  shall comply with that  request.  In no event,
however,  shall  Settling  Defendant be required by operation of this Section to
agree to any such request  that would  increase  the  aggregate  time or expense
dedicated to monitoring trader communications.  Nothing in this Section shall be
construed to require  Settling  Defendant to enter into any settlement at all of
the DOJ Action or to agree to any monitoring of trader communications as part of
such a settlement.
         No provision of the  Stipulation and Order appended hereto as Exhibit C
or of this Section 13 shall be enforceable  against the Settling  Defendant if a
State orFederal government agency or authority commences an action or proceeding
in which it formally  asserts that such provision,  alone or in combination with
other provisions,  is a Statutory Disqualifier,  in which case such provision or
provisions  shall be deemed null and void ab initio.  Moreover,  nothing in this
Settlement Agreement is intended by the Parties to waive any rights the Settling
Defendant may have in connection  with the DOJ Action or in connection  with any
settlement  of the DOJ  Action;  nor is it  intended  to  waive  any  objections
Plaintiffs'  Co-Lead  Counsel  may  have  to  any  current  or  future  proposed
settlement of the DOJ Action.  In particular,  and without  limitations,  in the
event, as contemplated by this Section, Settling Defendant agrees at the request
of the DOJ to the  recording  or  monitoring  of forms of trader  communications
other than telephone calls, any such recordings or other evidentiary  by-product
of such  monitoring  shall not be  discoverable by persons other than the DOJ or
admissible in judicial or  administrative  proceedings  unless,  and only to the
extent that, tape recordings made pursuant to the terms of any finally  approved
settlement  by  Settling  Defendant  of  the  DOJ  Action  are  discoverable  or
admissible.  Nothing in this  Section  shall be  asserted  by the  parties to be
additional  grounds  for  either  approval  or  disapproval  by the Court of the
currently proposed  settlement of the DOJ Action, nor shall this Section operate
as  assent  by the Class to be bound by the  judgment  in the DOJ  Action to any
greater extent than the Class would otherwise be bound.
         It is agreed and understood that if the  Non-Monetary  Relief set forth
herein and in Exhibit C hereto does not become effective by its terms or becomes
effective  but is  later  rendered  void  by its  terms,  then  this  Settlement
Agreement shall still be enforceable and effective in all other respects and the
parties  agree  that the  monetary  consideration  is itself  fair and  adequate
consideration for the settlement embodied in this Settlement Agreement.
    
         14.      Release.
   
         As set forth in the final  judgment  to be entered in  accordance  with
this Settlement  Agreement,  upon this Settlement  Agreement becoming final, the
Released  Parties  shall be released and forever  discharged  from all manner of
claims,  demands,  actions,  suits,  and causes of action relating to all Nasdaq
Securities (including securities that are not Class Securities),  whether class,
individual, or otherwise in nature, damages,  whenever incurred,  liabilities of
any nature whatsoever, including costs, expenses, penalties and attorneys' fees,
known or unknown,  suspected or  unsuspected,  in law or equity,  that any class
plaintiff or members of the Class who have not timely  excluded  themselves from
the Class Action  (whether or not they make a claim upon or  participate  in the
Settlement Fund), ever had, now has or hereafter can, shall or may have, arising
from or  relating  in any way to (a) any  conduct  complained  of in the Refiled
Consolidated  Complaint or the constituent actions consolidated therein, (b) any
conduct involving any express or implied or tacit joint or coordinated  activity
between Settling  Defendant  (including any employee of Settling  Defendant) and
any other Nasdaq Market maker  (including any employee  thereof) with respect to
quotes, quote increments,  movements of quotes, prices, dealer spreads or inside
spreads of any  Nasdaq  Security,  (c) any  conduct  relating  in any way to the
fixing,  stabilizing,  maintaining or widening of bid-ask spreads (either dealer
spreads  or inside  spreads or both) for any Nasdaq  Security,  (d) any  conduct
relating in any way to the fixing of or movement (or  increments of movement) of
bid or ask  quotations for any Nasdaq  Security  (including  without  limitation
movements  of quotes at the  request of or pursuant to  agreement  with  another
Market  maker),  (e) any  conduct  relating in any way to the minimum or maximum
number of shares that Nasdaq  Market  makers,  or any of them,  were  willing to
trade at their quoted bid or quoted ask, (f) any conduct  relating in any way to
the subject  matter of any of the negative  covenants  set forth in the proposed
Stipulation  and Order annexed  hereto as Exhibit C (regardless  of whether said
Stipulation  and Order is ever entered or ever becomes  effective or is rendered
void ab initio), (g) any conduct relating in any way to any boycott, harassment,
refusal to deal or other  behavior  toward any person or entity  relating in any
way to the conduct described in (a) through (f); including,  without limitation,
any such claims  which have been  asserted  or could have been  asserted in this
litigation against the Released Parties or any one of them, or which arise under
or  relate  to any  federal  or  state  antitrust,  unfair  competition,  unfair
practices,  price  discrimination,   unitary  pricing  or  trade  practice  law,
securities  law, or other law or regulation,  or common law,  including  without
limitation,  the Sherman Antitrust Act, 15 U.S.C. ss.1 et seq.  (hereinafter and
as further  defined in Section 14, the "Released  Claims");  provided,  however,
that this  release  does not  include a release of any  claims  (i) for  alleged
churning of securities,  (ii) for alleged fraud relating to undisclosed  payment
for order flow,  (iii) for alleged fraud relating to material  misstatements  or
omissions bearing on the underlying value of specific  securities (and unrelated
to  market-making  activities,  such as, but not limited to, movement of quotes,
quote increments,  dealer spreads, inside spreads and agreements or arrangements
between  market  makers  relating  to such  market-making  activities),  or (iv)
enumerated in any Complaint  which was filed and served upon Settling  Defendant
prior to the date of the  Original  Agreement  (April 9,  1997)  except for this
Class  Action and  except for any  similar  State or  Federal  action  which was
voluntarily  dismissed prior to the date of this Settlement  Agreement.  Nothing
herein  shall be  construed  as  indicating  in any way  that  any  such  claims
enumerated  in (i)  through  (iv)  have any  validity  or could be or have  been
validly asserted against the Settling Defendant or any Other Defendant.
    
         The scope of this release to the Settling  Defendant  shall be expanded
commensurately to the extent that a broader or more protective  release is given
to any Other  Defendant  in any Future  Settlement.  Nothing in this  Settlement
Agreement is intended to release any claims against any Other Defendants.
         15.      Waiver of Rights.
   
         Upon this  Settlement  Agreement  becoming  final pursuant to Section 7
hereof,  each Settlement  Class Member does hereby and by operation of the Final
Judgment shall, expressly waive and relinquish,  to the fullest extent permitted
by law, the  provisions,  rights, and benefits of Section 1542 of the California
Civil Code, which provides:
                  A general release does not extend to claims which the creditor
                  does not know or  suspect to exist in his favor at the time of
                  executing  the  release,  which  if  known  by him  must  have
                  materially affected his settlement with the debtor.

and any and all provisions,  rights and benefits of any similar state or federal
law,  rule or  regulation  or the  common  law.  Each  member  of the  Class may
hereafter  discover facts other than or different from those which he, she or it
knows or  believes to be true with  respect to the claims  which are the subject
matter of the  provisions  of Section  14, but each  member of the Class  hereby
expressly waives and fully, finally and forever settles and releases,  upon this
Agreement  becoming  final,  any known or  unknown,  suspected  or  unsuspected,
contingent  or  noncontingent  claim with  respect to the subject  matter of the
provisions of Section 14, whether or not concealed or hidden,  without regard to
the subsequent discovery or existence of such different or additional facts.
    
         16.      Joint and Several Liability.
         This  Settlement  Agreement  shall not settle,  limit or discharge  any
liability or financial  responsibility  of any Other  Defendants,  or of alleged
co-conspirators,  except to the minimum extent required by law. It is the mutual
understanding  of  class  plaintiffs  and  the  Settling   Defendant  that  this
Settlement  Agreement  therefore  will not reduce the alleged  joint and several
treble  damage  liability of the other 34 defendants by any more than the amount
of the settlement  itself.  The Settling Defendant hereby represents that it has
not, and covenants that it will not, enter into any agreement that would entitle
any Other  Defendant (or any other market maker) to reduce its own alleged joint
and several  liability by any greater  amount,  including but not limited to any
Settlement   Agreement   requiring  a  reduction   of   liability  or  financial
responsibility  related to the Settling  Defendant's  market share. The Settling
Defendant  hereby  releases  any and all  possible  claims for  contribution  or
indemnity  arising  out  of any  Released  Claim  against  any  Future  Settling
Defendant  whose Future  Settlement  contains a reciprocal  provision  similarly
releasing this Settling Defendant.
         17.      Discovery Limitation.
         Neither Plaintiffs' Co-Lead Counsel, nor the Class, nor counsel for any
named Plaintiff or for any Class Member who has not timely  requested  exclusion
from the Class shall be entitled to any further  discovery of any kind from this
Settling  Defendant or any Released Party hereunder,  except as specifically set
forth in this Settlement Agreement.
         18.      Confidentiality Protection.
         All  discovery  materials  provided by the  Settling  Defendant  or any
Released  Party  hereunder  either  before or after the date of this  Settlement
Agreement including Documents, Answers to Interrogatories,  Deposition Testimony
and Audio-Tape  Recordings  shall be governed by all  Confidentiality/Protective
Orders  in  force  as of the  date  of  this  Settlement  Agreement  and by such
additional Confidentiality/Protective Orders as may be in effect on the date the
discovery takes place.
         19.      Document Production.
   
         The Parties agree that beginning on the date of the Original  Agreement
there shall be a six (6) month  moratorium  of document  discovery by plaintiffs
directed to the Settling Defendant or any Released Party hereunder,  except that
the  Settling  Defendant  will  provide to  Plaintiffs  the limited  category of
documents necessary to effectuate class certification notice, to the same extent
agreed to by nineteen  (19) or more Other  Defendants,  or, in the absence of an
agreement,  ordered  by the Court,  and except  that  Settling  Defendant  shall
promptly after the date of this  Settlement  Agreement  produce any  transcripts
(and  exhibits)  in its  possession,  custody or control of  testimony  given by
Settling  Defendant's  current or former  employees to the Department of Justice
("DOJ"), as well as Settling  Defendant's Answers to Interrogatories  previously
posed by the DOJ.
    
Furthermore:
                  a.       After the expiration of the six (6) month moratorium,
                           the Settling  Defendant  shall  produce to Plaintiffs
                           those categories of documents (but not including tape
                           recordings)  which the Court has  directed  the Other
                           Defendants to produce or that at least  nineteen (19)
                           of the Other  Defendants  have  consented to produce,
                           except that in no event shall the Settling  Defendant
                           be  required to produce any  document  not  currently
                           requested  in the  Plaintiffs'  outstanding  document
                           requests.

                  b.       After the expiration of the six (6) month moratorium,
                           the Settling Defendant shall produce all testimony 
                           transcripts within its possession, custody or
                           control and exhibits thereto within its possession, 
                           custody or control as of the date of this Settlement
                           Agreement from those depositions of Settling
                           Defendant's current or former employees which were 
                           conducted by the Securities and Exchange Commission
                           ("SEC") in connection with the investigation 
                           captioned In the Matter of Certain Market Making
                                     --------------------------------------    
                           Activities on Nasdaq (the "SEC Investigation").
                           --------------------   
                           If the Settling Defendant gains possession, custody 
                           or control of additional transcripts of testimony 
                           (or exhibits thereto) conducted in connection with 
                           the SEC Investigation after the date of this 
                           Settlement Agreement, said transcripts (and exhibits
                           thereto) shall be produced sixty (60) days after 
                           receipt of the transcripts (and exhibits thereto) by
                           the Settling Defendant's counsel.  The Settling 
                           Defendant further agrees that after the six (6) 
                           month moratorium, it shall produce all documents 
                           (other than audiotape) provided to the SEC in 
                           connection with the SEC Investigation.  Nothing 
                           herein shall be construed as indicating that the 
                           Settling Defendant has any SEC exhibits in its 
                           possession, custody or control.

                  c.       Nothing   contained  herein  shall  be  construed  as
                           affecting   any  right  of   reimbursement   Settling
                           Defendant  may have for the  reasonable  costs of any
                           such document  production,  nor as conceding that any
                           such right exists.

         20.      Answers to Interrogatories.
   
         The Parties agree that beginning on the date of the Original  Agreement
there shall be a six (6) month  moratorium on any requirement  that the Settling
Defendant provide answers to the plaintiffs' interrogatories.  The Parties agree
that  after  the  expiration  of the  six (6)  month  moratorium,  the  Settling
Defendant  shall produce to plaintiffs  answers to the following three (3) types
of questions only:
    
                  (a)      Identification of the Settling Defendant's Personnel
                           during the Class Period and their positions.

                  (b)      Identification  of those employees and, to the extent
                           known,  former employees who have provided  testimony
                           to the Department of Justice.

                  (c)      Identification  of those employees and, to the extent
                           known,  former employees who have provided  testimony
                           to the SEC in connection with the SEC Investigation.

         21.      Deposition Discovery.
   
         The Parties agree that beginning on the date of the Original  Agreement
there shall be a nine (9) month moratorium on deposition  discovery  directed to
the Settling Defendant or any Released Party hereunder.
    
                  a.       The Parties  agree that after the  expiration  of the
                           nine (9) month moratorium, plaintiffs shall use their
                           good  faith,   best   efforts  to  defer   deposition
                           discovery  directed at the Settling  Defendant  until
                           after completion of deposition  discovery directed at
                           the Other Defendants.

                  b.       The Parties  agree that after the  expiration  of the
                           nine (9) month  moratorium  the Settling  Defendant's
                           officers  and  employees   shall  remain  subject  to
                           deposition by notice; provided, however, that nothing
                           herein  shall be  construed  as a  limitation  on the
                           Settling  Defendant's  right to seek  (or  Plaintiffs
                           right to oppose)  any  appropriate  protective  order
                           limiting or preventing  such deposition in accordance
                           with the  Federal  Rules of  Civil  Procedure  or its
                           ability   to   advance   all   arguments    available
                           thereunder.

         22.      Audiotape Production.
   
         Except as provided in subsection  (a) and (b) below,  the Parties agree
that beginning on the date of the Original  Agreement  there shall be a nine (9)
month  moratorium  on  any  requirement  that  the  Settling  Defendant  provide
audiotape recordings of telephone conversations.
    
                  a.       The Settling  Defendant  agrees that thirty (30) days
                           after  preliminary  approval  of this  Settlement  it
                           shall make available for Plaintiffs' review copies of
                           all audiotape,  which was not previously  provided to
                           the Plaintiffs,  that was provided, prior to the date
                           of this  Settlement  Agreement,  to the Department of
                           Justice in connection  with its Nasdaq  investigation
                           or  to  the   SEC  in   connection   with   the   SEC
                           Investigation,  the total of which Settling Defendant
                           estimates  to be  approximately  30 Trader  Days (240
                           hours).

                  b.       The Parties agree that the Settling  Defendant  shall
                           make   available   to   Plaintiffs   for  review  any
                           additional   audiotape   provided   to  the   SEC  in
                           connection with the SEC Investigation  after the date
                           of this Settlement Agreement; provided, however, that
                           the  Settling  Defendant  is not required to make any
                           audiotape referred to in this subsection available to
                           Plaintiffs  until sixty (60) days after the date that
                           it is made available to the SEC.

                  c.       The Parties agree that after the expiration of the 
                           nine (9) month moratorium, the Settling Defendant 
                           shall make available for Plaintiffs' review no more
                           than twenty-five (25) additional Trader Days (a total
                           of approximately 200 hours) of audiotape to be 
                           selected by the Plaintiffs by way of an appropriate
                           letter demand.  For purposes of this provision, a 
                           "Trader Day" shall mean one complete eight-hour day 
                           of one trader's phone line.  Such trader days may be
                           selected by Plaintiffs' Co-Lead Counsel by 
                           identification of the trader's name or by 
                           identification of the name of a security.  In the 
                           event that the identification is made by the name of
                           a security, the burden will be on the Settling 
                           Defendant to identify the trader for the given 
                           security to the extent reasonably ascertainable.

                  d.       The  procedure by which the Settling  Defendant  will
                           copy and make audiotape available to Plaintiffs shall
                           be governed by the procedure  that has been in effect
                           to  date  in  this   Class   Action   and   which  is
                           incorporated    in    the    Stipulation     executed
                           simultaneously    herewith   between   the   Settling
                           Defendant and the Plaintiffs' Co-Lead Counsel (a copy
                           of which is attached as Exhibit D).

         23.      Return of Discovery Materials.
         The plaintiffs and the Settling  Defendant  acknowledge  and agree that
within  sixty  (60)  days  after  entry  of a final  judgment  terminating  this
litigation  in its  entirety,  all  materials  (including  but  not  limited  to
confidential,  non-confidential  and highly confidential  documents,  answers to
interrogatories,  testimony  transcripts,  privilege logs, audiotape recordings)
produced by or  discovered  of the  Settling  Defendant or its current or former
employees  shall be returned to the Settling  Defendant  upon its request at its
expense or destroyed.  However,  Plaintiffs' Co-Lead Counsel may retain, subject
to the  Stipulated  Confidentiality  Order,  the file  copies of any  pleadings,
motions, briefs or affidavits that have been filed with the Court.
         24.      Reservation of Rights and Privileges.
         Nothing in this  Settlement  Agreement  is intended  to waive  Settling
Defendant's  right to assert that any  material is protected  from  discovery by
reason of any individual or joint defense  privilege or work product  protection
or intended to waive  plaintiffs'  right to contest  any claim of  privilege  or
work-product protection.
         25.      Effect of Disapproval.
         If the Court refuses to approve this  Settlement  Agreement or any part
hereof,  or if such approval is modified or set aside on appeal, or if the Court
for any reason does not enter the Final  Judgment  provided for in Section 6, or
if the Court enters the Final  Judgment and appellate  review is sought,  and on
such review, such Final Judgment is not affirmed, then this Settlement Agreement
shall be terminated, and shall become null and void, except for those provisions
that are expressly and  specifically  identified  herein as being  severable and
susceptible to later,  separate approval. In that event, any release or covenant
not to sue shall be of no force or effect.
         26.      This Settlement is Not an Admission.
         In the event that the  settlement  does not become final in  accordance
with the terms hereof, then this Settlement Agreement, and the release set forth
herein,  shall be of no force or  effect.  The  parties  hereto  agree that this
Settlement  Agreement,  including its  exhibits,  whether or not it shall become
final, and any and all negotiations,  documents and discussions  associated with
it, shall be without  prejudice to the rights of any party,  shall not be deemed
or construed  to be an admission or evidence of any  violation of any statute or
law or of any liability or wrongdoing by the Settling Defendant, or of the truth
of any of the claims or allegations, nor of the truth of any alleged defense, or
of any absence of wrongdoing or of limitation of damage or injury,  and evidence
thereof shall not be  discoverable  or used directly or indirectly,  in any way,
whether in the Class Action or in any other action or  proceeding.  The Settling
Defendant and plaintiffs expressly reserve all of their rights if the settlement
does not become final in accordance with the terms of this Settlement Agreement.
         27.      Return of Settlement Fund.
         If the Settlement does not become final,  then within 30 days after the
last date on which it could become final  (including  expiration  of all appeals
from any decision denying approval) the Settlement Fund, including the principal
amount paid and accrued interest,  shall be returned to the Settling  Defendant,
less all funds expended pursuant to Section 5 of this Settlement  Agreement with
respect to Class notice.  If the  Settlement  does not become  final,  the funds
actually expended pursuant to Section 5 with respect to Class notice (the "Class
Notice Funds") shall not be refunded, under any circumstances,  except that: (a)
if the Class subsequently  obtains by settlement or final judgment an aggregate,
gross  recovery  against the Other  Defendants  totaling at least $100  million,
Plaintiffs'  Co-Lead  Counsel shall apply in good faith to the Court to have the
Class Notice Funds  refunded to the  Settling  Defendant as part of  plaintiffs'
costs of  litigation;  and (b)  regardless of the size of the Class'  aggregate,
gross recovery,  if the Class  subsequently  obtains a final judgment against or
settlement  with the  Settling  Defendant in this  litigation,  any Class Notice
Funds not refunded to Settling Defendant pursuant to (a) shall be credited, with
simple  interest at the rate  described in Section 8, against the judgment after
trebling or against the settlement. To the extent required,  plaintiffs' Co-Lead
Counsel agree in good faith to move the Court for such appropriate orders as may
be necessary to effectuate  the credit  against any judgment.  The provisions of
this Section relating to the refunding of the Class Notice Funds to the Settling
Defendant  shall, in the event this Settlement  Agreement does not become final,
be severable and subject to separate approval.
         28.      Binding Effect.
         This  Settlement  Agreement  shall be  binding  upon,  and inure to the
benefit of, the successors and assigns of the Settling  Defendant,  the Released
Parties,  class plaintiffs and class members who do not exclude  themselves from
the Class.
         29.      Integrated Agreement.
         This Settlement Agreement contains an entire,  complete, and integrated
statement  of each and  every  term and  provision  agreed  to by and  among the
parties and is not  subject to any  condition  not  provided  for  herein.  This
Settlement  Agreement  shall not be modified in any respect  except by a writing
executed by all the parties hereto.
         30.      No Conflict Intended.
         Any  inconsistency  between this Settlement  Agreement and the exhibits
attached  hereto shall be resolved in favor of this  Settlement  Agreement.  Any
inconsistency  between the headings  used in this  Settlement  Agreement and the
text of the Sections of this Settlement  Agreement shall be resolved in favor of
the text.
         31.      Neither Party is the Drafter.
         None of the parties  hereto  shall be  considered  to be the drafter of
this  Settlement  Agreement  or any  provision  hereof  for the  purpose  of any
statute, case law or rule of interpretation or construction that might cause any
provision to be construed against the drafter hereof.
         32.      Choice of Law.
         All terms of this Settlement Agreement and the exhibits hereto shall be
governed by and interpreted  according to the  substantive  laws of the State of
New York without regard to its choice of law or conflict of laws principles.
         33.      Submission to and Retention of Jurisdiction.
         The Settling Defendant and the Class to the fullest extent permitted by
law hereby irrevocably submit to the exclusive jurisdiction of the United States
District  Court for the  Southern  District of New York,  for any suit,  action,
proceeding or dispute arising out of or relating to this  Settlement  Agreement,
or to the applicability of this Settlement Agreement and exhibits hereto.
         34.      Opt-Out Provision.
         The Settling Defendant, in its sole and absolute discretion, shall have
the option to  terminate  this  Settlement  Agreement  and thus  prevent it from
becoming  final,  in  accordance  with the  procedures  set forth in a  separate
"Supplemental  Agreement," if Non-Individual Class Members,  whose market shares
(as determined in accordance with the  Supplemental  Agreement) of the volume of
Class Securities  traded from May 1, 1989 through May 31, 1994 (inclusive of all
dates in  between)  exceed  in the  aggregate  the  threshold  specified  in the
Supplemental  Agreement,  file with the Court timely requests for exclusion from
the Class in  accordance  with the  provisions  of the Class  Notice  procedures
approved by the Court.
         The Supplemental  Agreement will not be filed with the Court unless and
until either (a) a dispute among the parties  concerning its  interpretation  or
application  arises, and in that event it shall be filed and maintained with the
Court under seal, or (b) the Court otherwise orders the  Supplemental  Agreement
disclosed on motion by any person with standing to so move.
         35.      Execution in Counterparts.
   
         This Settlement  Agreement may be executed in  counterparts.  Facsimile
signatures  shall be  considered  as  valid  signatures  as of the date  hereof,
although  the  original  signature  pages shall  thereafter  be appended to this
Settlement Agreement. By signing this Settlement Agreement,  Plaintiffs' Co-Lead
Counsel  represent  that  they are  authorized  to enter  into  this  Settlement
Agreement  by  Pretrial  Order  Number 1 on  behalf  of  counsel  for all  named
plaintiffs in the Class Action.
    
         36.      Definitions.
         A.       "Any" means one or more.
         B.       "Ask" or "offer" means the price quoted on Nasdaq at which a 
market maker offers to sell a specific quantity of a particular Nasdaq Security.
         C.       "Bid" means the price quoted on Nasdaq at which a market maker
 offers to buy a specific quantity of a particular Nasdaq Security.
         D.       The "Class Action" means In Re: Nasdaq Market-Makers Antitrust
Litigation, 94 Civ. 3996 (RWS), M.D.L. No. 1023, including each and every 
individual action that has been consolidated as part of this multidistrict class
action.
         E.       "Class Securities" means the list of Nasdaq securities 
appended as Exhibit A to the Refiled Consolidated Complaint, or as expanded 
pursuant to Section 2 of this Settlement Agreement.
         F.       "Dealer spread" means the difference between a market maker's 
bid and ask on Nasdaq for a particular Nasdaq Security at any given time.
         G.       "Defendants" means the 35 companies that are now defendants 
in the above-captioned multidistrict litigation (or its constituent cases).
   
         H.  "Future  Settlement(s)"  means  settlement(s)  entered into between
Plaintiffs'  Co-Lead Counsel and any Other  Defendant in the Class Action.  This
expressly  includes,  without  limitation,  any  settlements  that may have been
executed after the date of the Original  Agreement,  but before the date of this
Settlement Agreement.
    
         I.       "Future Settling Defendant(s)" means any Other Defendant(s) 
who enters into a Future Settlement.
         J.       "Inside spread" means the difference between the highest bid 
and the lowest ask on Nasdaq of all market makers for a particular Nasdaq 
Security at any given time.
         K.       "Market maker" means an NASD member firm that qualifies as a 
market maker under Section 3(a)(38) of the Securities Exchange Act of 1934, as 
amended.
         L.       "Nasdaq" means the computerized stock quotation system 
operated by the Nasdaq Stock Market, Inc. that displays the quotes of market 
makers in Nasdaq Securities.
         M.       "Nasdaq Security" means any Nasdaq National Market System 
stock or any Nasdaq Small Cap Security stock quoted on Nasdaq, or, should these
terms be changed or amended, any successor group of stocks quoted on Nasdaq.
   
         N.       "Non-Individual Class Members" shall mean all Class Members 
who are not natural persons.
         O.       "Or" means and/or.
         P.       "Other Defendants" means the 34 defendants other than the 
Settling Defendant.
         Q.       "Price" means the price at which a Nasdaq Security is bought
or sold.
         R.       "Quote increment" means the difference between a market 
maker's bid or ask on Nasdaq and that
    
market maker's  immediately  preceding or  immediately  subsequent bid or ask on
Nasdaq for a particular Nasdaq Security.
         S.       "Quote" means a bid or an ask on Nasdaq.
         T.       "Released Claims" shall mean those claims identified in 
Section 14 of this Settlement Agreement.
         U.       "Released Parties" shall mean Settling Defendant Sherwood 
Securities Corp. and its predecessors
or successors and, in their respective capacity related to Sherwood,  but not in
any  capacity  related  to any Other  Defendant,  any of its  present  or former
members,  principals,   officers,   directors,   employees,  agents,  attorneys,
shareholders,  advisors, parents,  subsidiaries or affiliates (including but not
limited to National Discount Brokers, Equitrade, Triak Services Corp. and MXNet,
Inc.  and The  Sherwood  Group)  and  associates  (as  defined in SEC Rule 12b-2
promulgated  pursuant to the Securities  Exchange Act of 1934) and each of their
assigns,  representatives,  heirs,  executors and administrators (and present or
former members, principals,  officers, directors,  employees, agents, attorneys,
shareholders  or  advisors  of all such  parents,  subsidiaries,  affiliates  or
associates in any capacity  related to Sherwood but not in any capacity  related
to any Other Defendant).
         V.       "Settlement Fund" means the principal amount of the settlement
paid, or to be paid, by the Settling Defendant as set forth in Section 8 hereof,
plus any accrued interest as provided for herein.
         W.       "Settling Defendant" means Defendant Sherwood Securities Corp.
         X.       "Statutory Disqualifier" means any Court Order, or portion 
thereof, that would constitute a disqualifying event or grounds for suspension 
or revocation of registration, or membership disqualification, under any 
provisions of federal or state securities laws or regulations or any rule of 
any national securities association or of any securities exchange.
Dated Effective:  April 9, 1997
                                                         By
                                                          Arthur M. Kaplan, Esq.
                                                          FINE, KAPLAN AND BLACK
                                                  23rd Floor, 1845 Walnut Street
                                                          Philadelphia, PA 19103
                                                                  (215) 567-6565


                                                         By
                                                        Christopher Lovell, Esq.
                                                                  63 Wall Street
                                                       New York, New York  10005
                                                                  (212) 480-1600


                                                         By
                                                          Leonard B. Simon, Esq.
                                                          David J. Bershad, Esq.
                                            MILBERG WEISS BERSHAD HYNES & LERACH
                                                               600 West Broadway
                                                          1800 One America Plaza
                                                       San Diego, CA  92101-5050
                                                                 (619) 231-1058

                                                                          -and-

                                                          One Pennsylvania Plaza
                                                              New York, New York
                                                                 (212) 594-5300


                                                          By
                                                        Robert A. Skirnick, Esq.
   
                                     MEREDITH, COHEN, GREENFOGEL & SKIRNICK, PC.
                                                     63 Wall Street - 32nd Floor
                                                       New York, New York  10005
                                                                  (212) 480-1600
    

                              Plaintiffs' Co-Lead Counsel with authority to sign
                              pursuant to Pre-Trial Order No. 1 on behalf of
                              plaintiffs


                                                          By
                                                          Brian J. McMahon, Esq.
                                                          Guy V. Amoresano, Esq.
                                                         CRUMMY, DEL DEO, DOLAN,
                                                          GRIFFINGER & VECCHIONE
                                                            One Riverfront Plaza
                                                  Newark, New Jersey  07102-5497
                                                                  (201) 596-4500

                                           Counsel for Sherwood Securities Corp.




~;;;~;;











                                                                   EXHIBIT 10.24

                                                 EQUITRADE PARTNERS
                                                AMENDED AND RESTATED
                                                PARTNERSHIP AGREEMENT


                                               Dated as of May 2, 1997






<TABLE>



                                                  TABLE OF CONTENTS
<CAPTION>

<S>                        <C>                                                                   <C>    
Section                                     Subject                                            Page
-------                                     -------                                            ----
  1                        Name and Principal Office.......................................      1
  2                        Purposes............................................................. 1
  3                        Office................................................................2
  4                        Partners..............................................................2
  5                        Conduct of Business...............................................    2
  6                        Term..................................................................4
  7                        Compliance with Applicable Law and Rules..................            4
  8                        Books of Account..................................................    5
  9                        Availability of Books of Account...............................       5
 10                        Audit of Books......................................................  5
 11                        Annual Reports and Statements..................................       5
 12                        Capital Contribution of the Partners............................      5
 13                        Mandatory Additional Cash Contribution......................          5
 14                        Subordinated Loans................................................    5
 15                        Return of Capital Contribution..................................      6
 16                        Capital Accounts...................................................   6
 17                        Allocation of Net Profits and Net Losses......................        7
 18                        Allocations for Income Tax Purposes...........................        12
 19                        Valuation of Partnership Securities.............................      12


<PAGE>


                                             TABLE OF CONTENTS (cont'd)
Section                                     Subject                                    Page
-------                                     -------                                    ----
 20                        Distribution and Additional Capital Contributions...........          12
 21                        Salaries of the Partners............................................  12
 22                        Assignment of Interest............................................    13
 23                        Withdrawal, Death, Incompetency and Removal.............              13
 24                        Dissolution and Termination.....................................      20
 25                        Liability and Indemnification.....................................    21
 26                        Outside Activities..................................................  22
 27                        Goodwill and Use of Partnership Name.......................           22
 28                        Fiscal Year and Partnership Books.............................        22
 29                        Use of Partnership Facsimile Signature........................        22
 30                        Power of Attorney.................................................    23
 31                        Arbitration of Disputes............................................   23
 32                        Notice................................................................23
 33                        Binding Effect, Amendment......................................       23
 34                        Sale of the Assets of the Partnership...........................      24
 35                        Effective Date....................................................... 24
 36                        Applicable Law.....................................................   24
 37                        Entire Agreement..................................................    24
 38                        Counterparts......................................................... 25
 39                        Headings............................................................. 25
                                                      EXHIBITS

1.       Exhibit A         Names, Capital Contribution of Partners

2.       Exhibit B         Equitrade B Securities, Partners and Employees

3.       Exhibit C         Equitrade C Securities, Partners and Employees

4.       Exhibit D         Net Profit and Loss Allocation Between and Among General Partners

5.       Exhibit E         A-B-C Agreements

</TABLE>












<PAGE>








         AMENDED AND RESTATED PARTNERSHIP AGREEMENT (the "Agreement"),  dated as
of May 2, 1997, among Stephen DiLascio, John F. Nicolosi,  Gerard J. Dreyer, and
Philip J. Kopp, III, each  individually a "General Partner" and collectively the
"General Partners", The Sherwood Group, Inc., a Delaware corporation ("Sherwood"
or the "Special Limited Partner"),  Cynthia K. Kellogg, Harvey Silverman,  James
C. Emrich  ("Emrich"),  John W. Nick, Jr. ("Nick"),  David Green ("Green"),  and
Dresdner-NY  Incorporated,  a Delaware corporation  ("DNY"),  each individual or
entity a "Limited Partner" and collectively the "Limited Partners".  The General
Partners,   Special  Limited   Partner,   and  Limited  Partners  are  sometimes
hereinafter  referred to  individually  as a "Partner" and  collectively  as the
"Partners".

         WHEREAS,  the Partnership  has been  conducting  business as a New York
limited  partnership  organized under Article 8 of the New York  Partnership Law
(the "Partnership")  pursuant to an Amended and Restated  Partnership  Agreement
dated as of July 1, 1991, which was amended as of April 11, 1995;

         WHEREAS,  the Partners wish to further amend said Partnership  
Agreement to reflect:  (i) the admission of Nick, Green, and DNY as Limited 
Partners;

         WHEREAS, the Partners wish to restate in its entirety the Partnership 
Agreement, as so amended;

         NOW,  THEREFORE,  in  consideration  of the  foregoing,  of the  mutual
promises of the parties hereto and of other good and valuable consideration, the
receipt and  sufficiency of which is hereby  acknowledged,  the parties  hereto,
intending to be legally bound,  hereby agree that the Partnership  Agreement be,
and the same hereby is, amended and restated to read in its entirety as follows:

         A. Name and Principal  Office.The  parties  hereto hereby  continue the
Partnership as a limited  partnership which has been formed heretofore and which
shall continue to conduct  business  under the firm name of Equitrade  Partners.
The principal office of the Partnership shall continue to be in the County, City
and State of New York. The Partnership may transact business at such other place
or places within or without the State of New York or the United States as it may
determine from time to time.


<PAGE>





         2. Purposes.  The purposes of the  Partnership  are to act as a trader,
dealer,  specialist  and market maker in  securities,  options and  commodities,
including, without limitation,  buying, selling, holding, trading, investing and
dealing in such  securities,  options and commodities and in general  conducting
all such  businesses  as are usually  conducted by market  makers and dealers in
securities,  options and commodities  including without limitation,  acting as a
specialist on the New York Stock  Exchange,  Inc. (the "Exchange" or the "NYSE")
and all such  activities as are related or incidental to the foregoing.  Subject
to applicable provisions of the Securities and Exchange Act of 1934, as amended,
and the regulations  thereunder (the "Exchange Act") and to the Constitution and
rules of the Exchange  and such other  exchanges  on which the  Partnership  may
trade, the Partnership may engage in any  transactions  necessary or appropriate
to the accomplishment of its purposes, including, without limitation,  borrowing
money and engaging in margin or short sale transactions.

         3.       Office.  The principal  office of the  Partnership  shall be 
located at 50 Broadway,  17th Floor, New York, New York 10004 or at such other 
place as the Partners may determine.

         4.       Partners.         The names of the  Partners  in the  
Partnership  are as set forth on  Exhibit A attached hereto.

         5.       Conduct of Business.

                  (a) Except as otherwise hereinafter provided, Stephen DiLascio
("DiLascio") and the Sherwood Managing Partner, as hereinafter defined, shall be
the Managing Partners of the Partnership.

                  (b)  DiLascio,   as  Managing  Partner,   shall  have  primary
responsibility  for all  decisions  regarding the  day-to-day  management of the
trading  operations of the Partnership  (including all  interaction  between the
NYSE and the  Partnership  relating  to the  business  of the  Partnership,  the
activities of employees of the Partnership and specialist issues).  The Sherwood
Managing Partner shall be solely responsible for making all decisions concerning
the  management  and  business of the  partnership  with respect to matters upon
which DiLascio and a majority in interest of the other Partners shall not agree,
including without limitation,  all matters within the primary  responsibility of
DiLascio set forth above. Notwithstanding the preceding portions of this Section
5(b), (i) neither the Sherwood  Managing Partner nor the Special Limited Partner
shall be restricted from  communicating or dealing with the NYSE with respect to
its own  businesses  or the  business of the  Partnership,  and (ii) no increase
shall be made in the salary of any General  Partner other than in the normal and
usual  course of the  Partnership's  business,  no debt shall be incurred by the
Partnership  other  than in the  normal  and usual  course of the  Partnership's
business,  and  no  sale  of all  or  part  of the  business  or  assets  of the
Partnership shall be made without the consent of the Special Limited Partner.

                  (c)  Emrich  shall  act  as a  specialist  in  the  securities
identified  in  Exhibit  B  which  is  annexed  hereto  and  made a part  hereof
(hereinafter  referred to as the "Equitrade B  Securities")  and to perform such
services and duties  related  thereto,  as shall from time to time be reasonably
assigned to Emrich by DiLascio.

                  (d) Nick and Green shall act as  specialists in the securities
identified  in  Exhibit  C  which  is  annexed  hereto  and  made a part  hereof
(hereinafter  referred to as the  "Equitrade  C  Securities")  and perform  such
services and duties  related  thereto,  as shall from time to time be reasonably
assigned to Nick and Green by DiLascio.

                  (e) In each and every  event  that (i) the  Partnership  shall
incur Net Losses for 5  consecutive  calendar  quarters,  or (ii) the annual Net
Profits of the Partnership shall be less than $250,000, or pro rata part thereof
in the case of a period of less than twelve months,  then the Sherwood  Managing
Partner  shall,  for a period  of time  which  commences  on the  date  that the
Sherwood  Managing  Partner receives actual notice of the occurrence of an event
described in the preceding notice of the occurrence of an event described in the
preceding 5(c)(i) or (ii) (collectively, a "Trigger Event") and terminates as of
midnight  on the  forty-fifth  day  thereafter,  have the  right to  become  the
"Substitute  Managing Partner" by the giving of notice to the Partnership and to
the NYSE of his intention to become the Substitute  Managing  Partner.  Any such
exercise shall be permanent and the Sherwood  Managing  Partner shall thereafter
remain the  Substitute  Managing  Partner for the term of the  Partnership.  The
failure of the  Sherwood  Managing  Partner to exercise  the rights set forth in
this Section 5(e) upon the  occurrence of any Trigger Event shall not constitute
a waiver of his rights under this Section 5(e) with respect to any past,  future
or contemporaneous Trigger Event.

                  (f) The term "Sherwood  Managing  Partner" shall mean James H.
Lynch,  Jr. (or a corporation  wholly-owned  by him) ("Lynch")  unless and until
Lynch shall  cease to be an  officer,  director or employee of Sherwood or Lynch
shall resign as Sherwood  Managing Partner.  Thereafter,  upon the thirtieth day
following  notice to the NYSE (but in no event less than fifteen days  following
delivery  to the  NYSE of all  documents  reasonably  requested  by the  NYSE in
connection  with approval of such person or entity)  unless  disapproved  by the
NYSE, each of Arthur Kontos and Dennis V. Marino (or a corporation  wholly-owned
by such person) shall become Sherwood  Managing Partner in the consecutive order
set forth in this  sentence,  until such  person  shall  cease to be an officer,
director  or  employee  of  Sherwood  or such  person  shall  resign as Sherwood
Managing  Partner.  In the event that each of Lynch,  Arthur Kontos or Dennis V.
Marino  shall cease to be an officer,  director or employee of Sherwood or shall
resign as  Sherwood  Managing  Partner,  the  Sherwood  Managing  Partner  shall
thereafter be such successive  persons or entities as Sherwood shall  determine,
in its sole and absolute  discretion,  subject only to the rules and regulations
of the NYSE.

                  (g) The Special  Limited  Partner is hereby granted the right,
at any time or from time to time, to convert part or all of the Special  Limited
Partnership Interest held by it into one or more General Partnership  Interests.
Upon each such  conversion,  which shall be made upon delivery of written notice
to the  Partnership  or any of the  Managing  Partners,  (i) that portion of the
Special Limited Partnership interest so converted shall cease to exist and there
shall  arise  and  exist a  General  Partnership  Interest  which  bears  to the
aggregate of all Partnership  Interests the same ratio which the Special Limited
Partnership  Interest  bore  to  the  aggregate  of  all  Partnership  Interests
immediately  prior to such  conversion,  and (ii) the Special Limited  Partner's
Capital Account, in its capacity as Special Limited Partner, shall be decreased,
and the Special Limited  Partnership's  Capital Account as General Partner shall
be created or increased,  as the case may be, by the contribution  thereto of an
amount  which bears the same ratio to the  aggregate  of all sums in the Special
Limited  Partner  Capital  Account as the interest being  converted bears to all
Special  Limited  Partnership  Interests  held by the  Special  Limited  Partner
immediately  prior to such conversion.  In the event the Special Limited Partner
converts  all or part of its  interest  as provided in this  Section  5(g),  the
manner of allocating profits and losses under Section 17 of this Agreement shall
be adjusted so that the Special  Limited  Partner's  share of profits and losses
shall not be changed as a consequence of such conversion.

                  (h) Upon  exercise of (i) the rights set forth in Section 5(e)
above, the Substitute  Managing Partner shall succeed to all rights,  duties and
obligations of the Managing  Partners under this  Agreement in  substitution  of
such  Managing  Partners and each  reference  in this  Agreement to the Managing
Partners,  or any of them, shall refer to the Substitute  Managing Partner,  and
(ii) upon  exercise of the rights set forth in Section  5(e)  above,  or Section
5(g) above,  each Partner shall execute such documents and  instruments and take
such  other  actions  as  shall  be  necessary  or  appropriate  to grant to the
Substitute  Managing Partner or to the Special Limited Partner,  as the case may
be, the powers and rights set forth in this Section 5.

                  (i) No Managing  Partner shall,  solely by his  appointment as
Managing  Partner,  acquire any right in or to the income,  capital or assets of
the  Partnership.  Each respective  Managing Partner shall serve as agent of the
Partnership and shall receive such compensation,  payable by the Partnership, as
shall be determined pursuant to Section 21 hereof.

                  (j) In the event  DiLascio  shall resign from his position as,
be removed as or otherwise cease to be a Managing Partner, such person or entity
as Sherwood shall designate shall replace such Managing Partner,  provided, that
such  designation  shall be  effective  only upon the  approval of a majority in
interest of the Partners other than Sherwood and,  further  provided that in the
event and while  Sherwood shall fail to designate one or more  replacements  and
during  any  period  prior  to  the  date  upon  which   Sherwood's   designated
replacement,  if any, shall be approved by the other  Partners,  Sherwood and/or
the Sherwood  Managing  Partner shall  constitute the sole Managing  Partner and
shall succeed to the rights, duties and obligations of DiLascio unless and until
a Substitute Managing Partner, if any, shall be designated.

                  (k) Except as otherwise provided,  the Special Limited Partner
(in its capacity as Special Limited  Partner) and the Limited Partners shall not
take part in the operation, management or control of the Partnership business.

         6.       Term.    Unless sooner  terminated as provided herein,  the 
Partnership  shall continue until the 31st day of  December,  2025.  The term 
of the  Partnership  shall  be  deemed  to be  extended  from  year to year
thereafter, unless the Partnership is terminated as hereinafter provided.

         7.  Compliance with  Applicable Law and Rules.  The  Partnership  shall
comply at all times with all applicable laws and regulations,  including but not
limited to the federal  securities  laws, the Commodity  Exchange Act, the rules
and  regulations  of the  Securities  and Exchange  Commission  and those of the
Commodity  Futures Trading  Commission,  the constitution,  rules,  regulations,
by-laws,  decisions and practices of the Exchange or the  constitution and rules
of every other  association or governmental  body having  jurisdiction  over the
Partnership  and  its  activities.  If any of the  terms,  conditions  or  other
provisions of this Agreement shall be in conflict with any thereof,  such terms,
conditions  or  other  provisions  shall be  deemed  modified  so as to  conform
therewith.  Each  Partner  agrees to comply  with all such  laws,  constitution,
rules, regulations and by-laws.

         8.  Books of  Account.  At all  times  during  the  continuance  of the
Partnership,  the  General  Partners  shall  keep or cause to be kept,  true and
complete books of account,  including  true and correct  entries with respect to
each position of the Partnership, on the basis of the Partnership's fiscal year.

         9.  Availability  of  Books of  Account.  All of the  books of  account
referred to in Section 8, together  with an executed copy of this  Agreement and
any amendments thereto, shall at all times be maintained at the principal office
of the  Partnership,  and shall be open to the inspection and examination of any
Partner or his or its representatives during reasonable business hours.

         10.  Audit of Books.  Any Partner  may, in his or its sole  discretion,
cause the books and  records of the  Partnership  to be  audited by a  certified
public accounting firm at the end of any fiscal year, provided that such Partner
shall  bear  the  expense  of the  audit.  The  Partners,  for  the  purpose  of
determining the capital contributions and Capital Accounts of the Partners,  may
rely on the books and  records of the  Partnership  and shall not be required to
prepare or have prepared additional audits,  reports,  books or records for such
purposes.

         11. Annual Reports and Statements. The Managing Partners shall cause to
be  prepared,  within  ninety days after  expiration  of each fiscal year of the
Partnership,  or as soon thereafter as may be practicable, a balance sheet as of
the end of such year, a statement  of profit and loss for such year,  and a copy
of the Federal and State income tax returns for such period.

         12. Capital  Contribution of the Partners.  As of the date hereof, each
Partner has contributed the total amount of cash, marketable securities, or such
other  property  as shall be  acceptable  to the  Managing  Partners  set  forth
opposite  his,  her or its  name as set  forth in  Schedule  A  attached  hereto
(hereinafter sometimes referred to as the "Stated Capital" of such Partner).

         13.      Mandatory Additional Cash Contribution.       Each  Genera
Partner  and  the  Special  Limited Partner shall  contribute  one-half  (1/2) 
of his or its annual  allocation of Second Tier Profits (as  hereinafter
defined) as additional capital to the Partnership each year.

         14.  Subordinated  Loans.  The Managing  Partners  shall be entitled to
accept  cash or  securities  from the  Limited  Partners  or other  subordinated
creditors,  who  need  not  be  Partners,  in the  form  of  cash  subordination
agreements,  secured demand notes,  registered  subordinated debentures or other
instruments eligible under applicable regulatory provisions for inclusion in the
Net  Capital,  as defined in Section  19  hereof,  of the  Partnership,  in such
amounts, and on such terms and conditions consistent with the foregoing,  as the
Managing Partners may from time to time determine.



<PAGE>


         15.      Return of Capital Contribution.

                  (a) No  Partner  shall  have the right to demand the return of
his  contribution to the capital of the  Partnership  except as provided in this
Agreement  and no Partner  shall  have the right to demand or  receive  property
other than cash in return for his or its  contribution,  except as  provided  in
this Agreement.

                  (b)  Notwithstanding  any provision to the contrary  contained
herein, without the prior written approval of the NYSE, the capital contribution
of a Partner may not be withdrawn on less than six months written notice,  given
no sooner than six months after such  contribution  was first made. Such capital
contribution  may not be withdrawn nor may any unsecured loan or advance be made
by the firm to a Partner or employee at any time when such  withdrawal,  loan or
advance would be  prohibited by the  provisions of any rule or regulation of the
Exchange or the Securities and Exchange Commission to which the firm is subject,
including, without limitation, the provisions of SEC Rule 15c3-1.

                  (c) Further,  notwithstanding  anything to the contrary herein
contained, in the event of the termination of the Partnership, on the expiration
of the term of this agreement, or any extension or renewal thereof, each Partner
agrees that any withdrawal of capital on any such termination  which would cause
the Partnership's  `Aggregate  Indebtedness' to exceed the percentages specified
in Rules  326(a) and 326(b) of the Rules of the Board of  Directors  of the NYSE
during the six months  immediately  preceding  the date of  termination,  may be
postponed  for a  period  of up to six  (6)  months  after  the  stated  date of
termination,  as the General  Partners may deem  necessary to ensure  compliance
with said rules;  and any such capital so retained by the Partnership  after the
date of termination shall continue to be subject to all debts and obligations of
the Partnership.

         16.      Capital Accounts. The Capital  Account of each General  
Partner  shall be credited and charged as follows:

                  (a) Each Partner's  Capital Account shall be credited with (i)
the amount of the  Partner's  capital  contribution,  and (ii) the amount of Net
Profits to the Partners pursuant to Section 17 herein.

                  (b) Each Partner's  Capital  Account shall be charged with (i)
the amount of any  distribution to the Partner,  and (ii) the amount of Net Loss
allocated to the Partner pursuant to Section 17 herein.

                  (c) Each  Partner's  Capital  Account  shall be credited  with
interest each month at one-half the Prime Rate charged by the principal  bank of
the Partnership to its most favored customers,  plus 1%, except that the initial
capital  contribution  of the Special Limited Partner in its capacity as Special
Limited  Partner shall not be credited with any interest.  DNY shall be credited
with this interest on the first $2.4 million of contributed capital.

                  (d) DNY shall be  credited  with NYSE  membership  costs  each
year,  or pro rata  thereof if for a period of less than  twelve  months,  in an
amount based upon:  i) the average  yearly  rental fee of the five NYSE original
seat leases (of one year duration) executed prior to the date of this Agreement,
as published in the NYSE Weekly  Bulletin;  ii) multiplied by the number of NYSE
memberships  DNY  contributes to the  Partnership.  In  determining  the average
rental  fee,  the  highest  and lowest  rental  fees shall be omitted  from this
calculation.  Interest  payments  made under this Section shall be adjusted each
year based upon the average yearly rental fee for the five NYSE original  leases
(of one year duration)  executed prior to the Anniversary Date of this Agreement
multiplied by the number of NYSE memberships DNY contributes to the Partnership.
In determining  the average rental fee, the highest and lowest rental fees shall
be omitted from this  calculation.  DNY will be credited with interest at 8% (on
an  annualized  basis)  on the  additional  net  assets  in  excess  of its NYSE
memberships and contributed NYSE business.

         17.      Allocation of Net Profits and Net Losses.

                  (a) The Net Profits  and Net Losses  which may accrue from the
business  of the  Partnership,  with the  exception  of the Net  Profits and Net
Losses  which accrue from the business of  specializing  in the  Equitrade B and
Equitrade  C  securities,  shall be  determined  in  accordance  with  generally
accepted accounting principles consistently applied as soon as practicable after
the end of each month and after the close of each  fiscal year and at such other
time or times as such  determination  is required  pursuant to the terms of this
Agreement or is otherwise desirable.  Such calculation shall be made for purpose
of subparagraphs (b) and (c) hereof without regard or reduction or deduction for
restrictive covenant payments or other depreciation or amortization.

                  (b) The first $800,000, or pro rata thereof if for a period of
less than twelve months,  of Net Profits for each fiscal year of the Partnership
("First Tier Profits"), after payment of all expenses, including salaries of the
Partners as  hereinafter  set forth,  shall be allocated to the Special  Limited
Partner and the Net Profits for each fiscal year of the Partnership in excess of
$800,000,  or pro rata part  thereof if for a period of less than twelve  months
("Second Tier  Profits"),  shall be allocated 60% to the Special Limited Partner
and 40% to the  General  Partners  (with such 40%  referred to herein as the "GP
profits"). 85% of the GP Profits shall be divided among the General Partners, in
each  calendar  year  following  calendar  year 1996, in such manner as DiLascio
shall  determine  and 15% of the GP Profits shall be paid out as bonuses in such
manner as DiLascio  shall  determine.  The  determination  of the division of GP
Profits  and the  payment  of  bonuses  by  DiLascio  shall be  approved  by the
affirmative vote of a majority in Partnership interests of the General Partners.
If the General Partners shall not approve such division and payment,  GP Profits
shall be divided  for all  purposes  in such  manner as shall be approved by the
affirmative vote of a majority in Partnership interests of the General Partners.
If the  General  Partners  shall  not agree by  December  31 of any year upon an
allocation of the GP Profits for the next  following  year, all GP Profits shall
be allocated by the Sherwood  Managing  Partner (whether or not any rights under
Section 5 shall have been exercised) in his or its sole and absolute discretion,
which decision shall be final and unappealable and shall be binding upon all the
parties to this Agreement.  GP Profits for calendar year 1996 shall be allocated
as set forth on Exhibit D annexed to this Agreement.  DNY shall receive from the
Partnership  a  one  time  payment  of  $1.6  million  which  shall  be  charged
immediately  against DNY's capital account.  In addition,  DNY shall be credited
with interest of 8% on $1.6 million from the date of the closing of The Sherwood
Group, Inc.'s acquisition of DNY until such time as payment is made. The payment
shall only be made from the operating  cash flow of the  Partnership's  business
from the date of the closing of the DNY acquisition.

                  (c) Except as  otherwise  stated  herein,  Net Losses for each
fiscal year of the  Partnership  shall be allocated  60% to the Special  Limited
Partner and 40% to the General  Partners.  For each calendar year  following the
calendar year 1996, the General Partners' share of Net Losses shall be allocated
among the  General  Partners in such manner as  DiLascio  shall  determine.  The
determination of the division of Net Losses by DiLascio shall be approved by the
affirmative vote of a majority in Partnership interests of the General Partners.
If the General  Partners  shall not approve such  division,  Net Losses shall be
divided  among the  General  Partners in such manner as shall be approved by the
affirmative vote of a majority in Partnership interests of the General Partners.
If the  General  Partners  shall  not agree by  December  31 of any year upon an
allocation of the Net Losses for the next  following  year, all Net Losses shall
be  allocated  among the  general  Partners  by the  Sherwood  Managing  Partner
(whether or not any rights under Section 5 shall have been  exercised) in his or
its sole and absolute discretion, which decision shall be final and unappealable
and  shall be  binding  upon all the  parties  to this  Agreement.  The  General
Partners  shall  settle and pay to the  Partnership  their pro rata share of Net
Losses on a semi-annual  basis. Net Losses allocable to the General Partners for
calendar year 1996 shall be allocated  among them in the proportion set forth on
Exhibit D to this Agreement.

                  (d) Except as  otherwise  stated  herein,  no Limited  Partner
shall in any event be allocated or liable for or subject to any loss beyond such
Limited  Partner's  capital  account in the  Partnership  nor shall any  Limited
Partner be required to make any additional capital contribution as the result of
losses or otherwise.  Except as otherwise stated herein,  Limited Partners shall
not participate in profits or losses of the Partnership  except to the extent of
receiving interest on their capital contribution.

                  (e) In the event  that the  Special  Limited  Partner,  in its
capacity as Special Limited Partner or General Partner, is unable to participate
in profits or losses as hereinabove provided by reason of any rule,  regulation,
finding or determination by the Exchange,  then it may, in its sole and absolute
discretion,  be deemed to have withdrawn as Special  Limited  Partner or General
Partner,  and its respective  applicable capital accounts as of the date of such
rule,  regulation,  finding or determination (the "Determination Date") shall be
converted into a one (1) year subordinated note (the "Note").  The Note shall be
payable  on  the  last  day of  the  twelfth  month  immediately  following  the
Determination  Date,  together with  interest  thereon at 1% over the prime rate
announced  from time to time by the  principal  bank of the  Partnership  on the
Determination  date,  adjusted on and as of each date upon which such bank shall
announce a change in its prime rate.  Such note shall be subject to acceleration
upon the failure of the  Partnership to pay amount due thereunder  when due, the
bankruptcy of the  Partnership  and such other events as would cause an event of
default  under   subordinated  notes  issued  by  the  Partnership  or,  if  the
Partnership  has made no such notes,  by  Sherwood to third  parties in an arm's
length transaction.

                  (f) Net Profits and Net Losses originating from the specialist
activities  in the Equitrade B Securities  shall be allocated  between and among
Emrich,  the Special Limited  Partner and the General  Partners in the following
percentages:

<TABLE>
<CAPTION>
                                                               Net Profits         Net Losses
                           <S>                                    <C>                 <C>
                           Emrich                                 50%                 50%
                           The Special Limited Partner            30%                 30%
                           General Partners                       20%                 20%
</TABLE>

                  (g) General  Partners  Net Profits and Net Losses  originating
from  the  specialist   activities  in  the  Equitrade  B  Securities  shall  be
determined,  for each full calendar year, and for any partial year,  through and
including the effective date of Emrich's  withdrawal as a Limited Partner.  Such
determination  shall be made on an accrual basis,  in accordance  with generally
accepted  accounting  principles,  by (1)  aggregating all items of realized and
unrealized  gain and  loss  attributable  to the  specialist  activities  in the
Equitrade B Securities, and adding to that all dividends,  interest, short stock
rebates and commissions  earned on  transactions  effected in or attributable to
the  specialist  activities in the Equitrade B Securities  plus any other income
attributable  to the specialist  activities in the Equitrade B Securities,  plus
any amount  received as a result of Equitrade's  transfer of its interest to act
as  specialist in any Equitrade B Securities  and (2)  subtracting  all expenses
allocable to the specialist activities in the Equitrade B Securities,  including
but not limited to the following Expenses:

                           (i)  Salaries,   benefits,   and  other  expenses  of
                           partners  and  employees  involved in the  specialist
                           activities in the Equitrade B. As of the date of this
                           Agreement,  such partners and employees are set forth
                           in Exhibit B annexed hereto;

                           (ii) Dues,  fees and other  membership or Floor usage
                           charges  payable to the Exchange  attributable to the
                           specialist activities in the Equitrade B Securities;

                           (iii) Lease  payments  for NYSE  memberships  used by
                           specialists  actively  engaged in connection with the
                           specialist activities in the Equitrade B Securities;

                           (iv) Clearance  charges for  transactions  in the 
                           Equitrade B Securities, net of any rebates;

                           (v) Interest and dividend  expenses  related to  
                           transactions in the Equitrade B Securities;

                           (vi)   Charges  for   accounting,   legal  and  tax
                           services attributable  to  specialist  activities  
                           in the  Equitrade B Securities;

                           (vii)  the  cost  of  financing   positions  in  
                           Equitrade  B Securities;

                           (viii)   Taxes  or  fees  by  any   governmental   
                           or  taxing authority  attributable  to the specialist
                           activities in the Equitrade B Securities;

                           (ix) Fines and  penalties  relating  to or arising 
                           out of the specialist   activities   in  the   
                           Equitrade  B   Securities operation;

                           (x)  Any  other  incremental  expenses  attributable
                           to  the Equitrade B Securities.

                  (h) The expenses set forth in the foregoing Paragraph 6(a) may
be estimated by DiLascio,  charged to the specialist activities in the Equitrade
B Securities on a monthly  basis,  and  periodically  adjusted to reflect actual
expenditures  or changes in expense  accruals.  The  Partnership  may  establish
reasonable  reserves with respect to possible  future  expenses  relating to the
specialist activities in the Equitrade B securities.

                  (i)  Emrich  shall  receive a draw as an advance  against  his
share of Net Profits of $10,000 each month.  Such draw shall be charged  against
Emrich's Capital Account.

                  (j) Net Profits and Net Losses originating from the specialist
activities  in the Equitrade B securities  shall be allocated  between and among
the Special  Limited  Partner  and the General  Partners as set forth in Section
17(a), (b) and (c) herein.

                  (k) Net Profits and Net Losses originating from the specialist
activities  in the Equitrade C Securities  shall be allocated  between and among
Nick, Green, DNY, and the General Partners in the following percentages:

<TABLE>
<CAPTION>

                                                              Net Profits                  Net Losse
                  <S>                                             <C>                         <C> 
                  Nick                                            19%                         19%
                  Green                                           22%                         22%
                  DNY                                             38.4%                       38.4%
                  General Partners                                20.6%                       20.6%
</TABLE>

                  (l) Net Profits and Net Losses originating from the specialist
activities  in the  Equitrade C Securities  shall be  determined,  for each full
calendar  year,  and for any partial  year,  through and including the effective
date  of the  withdrawal  of  Nick  and/or  Green  as a  Limited  Partner.  Such
determination  shall be made on an accrual basis,  in accordance  with generally
accepted  accounting  principles,  by (1)  aggregating all items of realized and
unrealized  gain and  loss  attributable  to the  specialist  activities  in the
Equitrade C Securities, and adding to that all dividends,  interest, short stock
rebates and commissions  earned on  transactions  effected in or attributable to
the  specialist  activities in the Equitrade C Securities  plus any other income
attributable  to the specialist  activities in the Equitrade C Securities,  plus
any amount  received as a result of Equitrade's  transfer of its interest to act
as  specialist in any Equitrade C Securities  and (2)  subtracting  all expenses
allocable to the specialist activities in the Equitrade C Securities,  including
but not limited to the following Expenses:

                           (i)  Salaries,   benefits,   and  other  expenses  of
                           partners  and  employees  involved in the  specialist
                           activities in the Equitrade C securities.  As of this
                           Agreement,  such partners and employees are set forth
                           in Exhibit C annexed hereto;

                           (ii) Dues,  fees and other  membership or Floor usage
                           charges  payable to the Exchange  attributable to the
                           specialist activities in the Equitrade C Securities;

                           (iii)  The  cost of the use of all NYSE  regular  
                           memberships in  connection   with  the   specialist
                           activities  in  the  Equitrade C Securities;

                           (iv) Clearance  charges for  transactions  in the 
                           Equitrade C Securities, net of any rebates;

                           (v) Interest and dividend  expenses  related to  
                           transactions in the Equitrade C Securities;

                           (vi)   Charges  for   accounting,   legal  and  tax 
                           services attributable  to  specialist  activities  
                           in the  Equitrade C Securities;

                           (vii)  the  cost  of  financing   positions  in  
                           Equitrade  C Securities;

                           (viii)   Taxes  or  fees  by  any   governmental  or
                           taxing authority  attributable  to the specialist  
                           activities in the Equitrade C Securities;

                           (ix) Fines and  penalties  relating  to or arising
                           out of the specialist   activities   in  the   
                           Equitrade  C   Securities operation;

                           (x) Costs  related to the  transfer of positions in 
                           Equitrade C Securities from DNY to Equitrade; and

                           (xi) Any other incremental  expenses  attributable to
                           the   specialist   activities   in  the  Equitrade  C
                           Securities.

                  (m) The  expenses  set forth in the  foregoing  Section  17(l)
above may be estimated by DiLascio,  charged to the specialist activities in the
Equitrade C Securities on a monthly basis, and periodically  adjusted to reflect
actual  expenditures  or  changes  in  expense  accruals.  The  Partnership  may
establish reasonable reserves with respect to possible future expenses.

                  (n)  Twenty  Percent  (20%) of the  aggregate  of Net  Profits
allocable to Nick and Green  pursuant to Section 17(k) herein shall be set aside
as a bonus pool to be distributed  in such manner as DiLascio  shall  determine.
Such bonus pool percentage shall be reviewed on an annual basis.

                  (o)      Nick and Green shall hold their respective 
memberships pursuant to A-B-C Agreements with the Partnership  which A-B-C 
Agreements are annexed hereto
as Exhibit E and made a part hereof.

         18.  Allocations  for Income Tax Purposes.  Each item of income,  gain,
loss, deduction or credit for each accounting period of the Partnership shall be
allocated  for income  tax  purposes  among the  Partners  in such  manner as to
reflect,  as nearly  as  possible,  the  amounts  credited  or  charged  to each
Partner's Capital Account pursuant to this Agreement.

         19.      Valuation of Partnership Securities.        The  Partnership
shall  use  generally   acceptable accounting principles for purposes of 
determining the value of securities owned by the Partnership.

         20.  Distributions and Additional Capital  Contributions.  Each General
Partner and the Special Limited  Partner agrees to contribute  one-half (1/2) of
the Second Tier Profits  allocated to him or it to the Partnership as additional
capital,  which amounts shall be credited to such Partner's Capital Account. The
balance of such Second Tier Profits shall be distributed to each General Partner
and each  Special  Limited  Partner  as soon as  possible  after  the end of the
Partnership fiscal year to which such Net Profits are attributable.

         21. Salaries of the Partners.  The following persons shall receive, for
so long as they remain General Partners,  as an expense of the Partnership,  the
annual  salaries set opposite  their names,  which  salaries shall be payable in
such  installments as may be convenient and in keeping with the past practice of
the Partnership:
<TABLE>
<CAPTION>

         Beginning as of January 1, 1997:
                  <C>                                         <C>  
                  Stephen J. DiLascio                         $191,000
                  Gerard J. Dreyer                            $191,000
                  John F. Nicolosi                            $137,000
                  Philip Kopp, III                            $132,000
                  John Nick                                   $180,000
                  David Green                                 $180,000
</TABLE>

         22. Assignment of Interest.  No partner shall sell,  assign,  pledge or
otherwise  encumber  or  dispose  of all  or any  part  of his  interest  in the
Partnership  (including  any  beneficial  interest  therein)  without  the prior
written consent of all General Partners,  and any attempt to do so shall be null
and void,  except that Sherwood may, upon notice to the  Partnership and without
any required consent from the Partners,  including the General Partners,  assign
any of its Partnership  interests,  in which case such assignee shall succeed to
all rights and interests so assigned.

         23.      Withdrawal, Death, Incompetency and Removal.

                  (a) Except as set forth in Section 24 herein,  the  withdrawal
or expulsion from the  Partnership of any Partner or the death,  adjudication of
incompetency,  disability or  insolvency  (as  hereinafter  defined) of any such
Partner shall not dissolve the Partnership.

                  The term  "disability"  when  used with  respect  to a General
Partner  shall mean his failure by reason of physical  or mental  disability  to
devote full time to his duties as a General Partner for an aggregate of 180 days
in any period of 12 consecutive calendar months.

                  The term  "insolvency"  when  used with  respect  to a Partner
shall be deemed to occur if the Partner:  makes an assignment for the benefit of
creditors;  files a  voluntary  petition in  bankruptcy  court;  is  adjudicated
bankrupt  or  insolvent;  files a petition  or answer  seeking  for  himself any
reorganization,  arrangement, composition,  readjustment, liquidation or similar
relief under any statute, law, or regulation;  files an answer or other pleading
admitting or failing to contest the  material  allegations  of a petition  filed
against  him in any  proceeding  of this  nature;  or  seeks,  consents  to,  or
acquiesces  in the  appointment  of a trustee,  receiver,  or  liquidator of the
Partner  or of all or any  substantial  part of his  properties;  or if 120 days
after  the   commencement   of  any  proceeding   against  the  Partner  seeking
reorganization,  arrangement, composition, readjustment, liquidation, or similar
relief  under  any  statute,  law or  regulation,  the  proceeding  has not been
dismissed,  or if within 90 days after the  appointment  without  his consent or
acquiescence of a trustee,  receiver,  or liquidator of the Partner or of all or
any substantial part of his properties, the appointment is not vacated or stayed
or within 90 days after the expiration of any such stay, the  appointment is not
vacated.

                  The term "removal" when used with respect to a General Partner
or a Managing  Partner  shall mean his  removal  from the  Partnership  upon the
affirmative  vote of a majority in interest  of the  General  Partners  with the
written  approval of Sherwood.  The Partner whose removal is sought shall not be
entitled to vote,  provided that this sentence shall not negate the  requirement
of approval  by  Sherwood.  A vote for removal may be made at any time,  or from
time to time, upon the request of any General  Partner,  any Managing Partner or
the Special Limited Partner. In the event of an affirmative vote for the removal
of any Partner (with the approval of Sherwood),  such removal shall be effective
as of the  close of  business  on the date of such vote or, if such day is not a
business  day, the business day  immediately  preceding the date upon which such
vote occurred, unless a later date shall be agreed upon by the Partners entitled
to vote and by Sherwood.

                  (b) Each General Partner and the Special Limited Partner shall
have the right to withdraw as a Partner  from the  Partnership,  and to withdraw
all of such Partner's capital account in the Partnership,  only as of the end of
any fiscal year of the Partnership  upon not less than six months' prior written
notice to such effect to the  Partnership.  Each Limited  Partner shall have the
right to withdraw all of such Partner's capital account in the Partnership, only
as of the end of any  month  on or after  May 2,  1997,  upon not less  than six
months' prior written notice to such effect to the Partnership.

                  The interest in the Partnership of a Partner  withdrawing from
the  Partnership  pursuant to this paragraph (b) shall be  terminated,  and such
Partner  shall  cease to have any  interest  in the  profits  and  losses of the
Partnership arising after the date of withdrawal.

                  Payment  to  a  Partner,  including  his  estate  or  personal
representative,  whose  withdrawal shall be governed by paragraph (b) of Section
23 of the  amount  of his  capital  account  or  accounts  as of the  applicable
withdrawal date shall be made by the  Partnership  within ninety (90) days after
the applicable  withdrawal  date,  with interest  thereon at the same rate being
paid to General Partners on their Capital Accounts ("Partnership Rate") from the
date after the Withdrawal Date to the date of payment.

                  (c) In the  event  of  death,  adjudication  of  incompetency,
disability,  removal or insolvency of any Partner,  such  Partner's  Partnership
interest shall be terminated,  and such Partner shall cease to have any interest
in the profits and losses of the Partnership, as of the close of business on the
date of such  Partner's  death,  adjudication  of  incompetency,  disability  or
insolvency or the date upon which such Partner's  removal became  effective,  as
the case may be. Such Partner's  Capital  Account or Accounts in the Partnership
as of such date shall be  determined  and shall be paid to such  Partner or such
Partner's estate or personal representative, as the case may be, no earlier than
the last day of the sixth  month and no later  than the last day of the  seventh
month after the date of such  Partner's  death,  adjudication  of  incompetency,
disability,  removal or  insolvency  with interest on the amount of such payment
from the date such  Partner  shall cease to have any interest in the profits and
losses of the  Partnership  through  the date  immediately  prior to the date of
payment at the Partnership Rate.

                  (d) All assets  shall be valued as of the close of business on
each Valuation  Date, as hereinafter  defined,  for purposes of determining  the
amount of any  increase or decrease in value  thereof  resulting  since the last
preceding  valuation  thereof,  except  that no value  shall be placed  upon the
Partnership name, books, records, customers' lists, goodwill or other intangible
assets  except as otherwise  set forth in this  Agreement.  For purposes of such
valuation,  the value of all securities shall be determined  pursuant to Section
19 including,  if selected for use by the  Partnership,  the LIFO Method,  which
shall be used for computations  relating to the Partnership's  transactions as a
specialist in securities  listed on the Exchange  except to the extent and under
the  circumstances set forth below in this  subparagraph;  and the furniture and
fixtures  of  the  Partnership  shall  be  valued  for  all  purposes  at  their
depreciated  value on the  books of the  Partnership,  that is to say,  the cost
thereof,  less depreciation.  Each such increase or decrease in value applicable
to any period between  valuations shall be allocated to the persons and entities
who are Partners during such period in the proportions  such Partners shared net
profits or net losses of the  Partnership  as provided in this Agreement (as the
same may be amended from time to time) in effect during such period.

                  The term  "Valuation  Date",  for purposes of this  Agreement,
shall mean the last  business day  immediately  preceding the date as of which a
Partner  shall  cease to have any  interest  in the  profits  or  losses  of the
Partnership  pursuant  to this  Agreement,  the last  business  day  immediately
preceding  the day as of which a new Partner is admitted to the  Partnership  or
any additional capital contribution is made by an existing Partner, the last day
of each fiscal year, or the Date of Dissolution, as the case may be.

                  Notwithstanding  any other  provision of this Agreement to the
contrary,  upon the last business day immediately preceding the date as of which
any  partner  shall  cease to have any  interest in the profits or losses of the
Partnership  pursuant to this Section 23 and upon the Date of  Dissolution,  the
value of securities owned by the partnership as part of its specialist  business
shall be  marked  to  market  for  purposes  of  computing  (i) the  amount of a
Partner's  Capital  Account  or  accounts  which  is  payable  pursuant  to this
Agreement or (ii) the amount of all  Partners'  Capital  Accounts on the Date of
Dissolution,  respectively; provided, however, that for purposes of computations
undertaken  pursuant  to  clause  (i) or  clause  (ii)  of  this  sentence,  the
withdrawing   Partner's  Capital  Account  or  Accounts,  or  in  the  event  of
dissolution,  each Partner's  Capital Account or Accounts,  shall reflect his or
its  allocable  share  of the  difference  between  the LIFO  valuation  of such
securities and the valuation  resulting  from marking such  securities to market
which is attributable  only to the period during which such person or entity was
a Partner,  with such allocable share being based on his or its share of the Net
Profits and Net Losses of the Partnership  between the Valuation Dates occurring
during such period.

                  Any  Partner  entitled  to payment of the amount of his or its
Capital  Account  pursuant  to this  Agreement  shall  be  entitled  to have the
valuation of his or its Capital  Account made by the firm of independent  public
accountants generally engaged by the Partnership at such time.



<PAGE>


                  If any Partner  shall have  deficit in his Capital  Account at
the time of his withdrawal,  death,  adjudication of  incompetency,  disability,
removal,  or  insolvency,  such Partner  shall  contribute to the capital of the
Partnership  the amount  necessary to restore  such  deficit  balance to zero in
compliance    with    Internal    Regulations    Code,     Regulation    Section
1.704-1(b)(2)(ii)(3).

                  (e) If Emrich should voluntarily withdraw as a Limited Partner
of the  Partnership,  or if Emrich is  removed  as a Limited  Partner  for "just
cause",  as defined herein, he shall be entitled,  subject to NYSE approval,  to
become  registered  as a specialist  in 50% of the  Equitrade B  Securities  and
Equitrade  shall  withdraw  its  registration  in  such  securities.  If  Emrich
voluntarily  withdraws  as a  Limited  Partner  or is  removed  for just  cause,
Equitrade shall have the right to purchase  Emrich's option to become registered
as the  specialist in 50% of the  Equitrade B Securities  for fair market value;
such right must be exercised  within 30 days of the date that notice of Emrich's
withdrawal or removal is given. If Emrich and Equitrade are unable to agree upon
"fair market value", a representative, selected by both parties, shall make such
determination  which  shall be final and  binding.  If the parties are unable to
mutually agree upon a representative  to make such  determination,  the issue of
fair market value will be submitted for resolution to the NYSE arbitration.

         "Just cause" shall be defined as:

                           i)       A material breach of any provision of this
 Agreement;

                           ii)      insobriety due to drugs or alcohol during 
business hours on more than one occasion; and

                           iii)     any act of  dishonesty  or  falsification  
of reports,  records or  information submitted to Equitrade, the NYSE or any
other regulatory agency.

                  If Emrich is involuntarily  removed as a Limited Partner,  and
such  removal  is not  made for  "just  cause",  as  defined  herein,  or if the
Partnership  dissolves or a Petition is filed by or against the  Partnership  in
Bankruptcy,  Emrich,  at his election,  may: a) withdraw as a Limited Partner of
Equitrade and, subject to NYSE approval,  become registered as the specialist in
50% of Equitrade B Securities (and Equitrade shall withdraw its  registration in
such securities) or b) sell his option to become registered as the specialist in
50% of the  Equitrade  B  Securities  to  Equitrade  for fair market  value.  If
Equitrade elects to purchase Emrich's option but Emrich and Equitrade are unable
to agree upon "fair market value", a  representative,  selected by both parties,
shall make such determination  which shall be final and binding.  If the parties
are unable to mutually agree upon a representative  to make such  determination,
the  issue  of fair  market  value  will be  submitted  for  resolution  to NYSE
arbitration.

                  In the event of Emrich's withdrawal, he will not, for a period
commencing upon the date of such withdrawal and continuing until two years after
that date, engage in business as a specialist,  or apply for registration on any
exchange as a specialist,  in any securities in which  Equitrade is engaged as a
specialist  after  his  withdrawal;  nor  during  this  period  shall he  become
associated,  directly  or  indirectly,  with any other firm which is a member of
such  exchange  and which is engaged  in  specializing  in any such  securities,
except a firm that has succeeded to Equitrade's  interest in such specialization
as a  result  of a  sale  or  other  voluntary  transferral.  If a  transfer  of
registration to Emrich is required as a consequence of his withdrawal, Equitrade
will cooperate with Emrich to effect such transfer and if permitted by the rules
of the Exchange, Equitrade consents to the registration in the name of Emrich of
such securities  transferral  without action on Equitrade's part. Any securities
which shall be withdrawn  and/or  transferred by Emrich pursuant to this Section
shall be  determined by Equitrade and Emrich  subject to NYSE  approval.  If the
parties are unable to reach an  agreement as to the  securities  Emrich shall be
permitted to transfer,  a representative,  selected by both parties,  shall make
such determination which shall be final and binding upon the parties.
                  (f) If Emrich dies or becomes permanently disabled, as defined
herein, on or before April 13, 1997, Equitrade shall purchase Emrich's option to
become  registered as the  Specialist  in 50% of the Equitrade B Securities  for
$1.5 million within 60 days of his death or permanent disability. If Emrich dies
or  becomes  permanently  disabled  after  April 13,  1997,  Equitrade  shall be
required to purchase  Emrich's option to become  registered as the specialist in
50% of the Equitrade B Securities for fair market value. If Emrich or his estate
and  Equitrade  are unable to agree upon fair market  value,  a  representative,
selected by both parties, shall make such determination which shall be final and
binding.  If the parties are unable to mutually agree upon a  representative  to
make such  determination,  the issue of fair market value will be submitted  for
resolution to NYSE arbitration. If Equitrade purchases Emrich's option to become
registered  as the  specialist  in 50% of the  Equitrade B  Securities,  neither
Emrich nor Emrich's  estate  shall have any further  interest of any kind in the
Equitrade B Securities.

                  Emrich  shall be deemed to be  permanently  disabled  if he is
unable,  by reason of illness or injury,  for a period of 90 consecutive days to
perform his duties under the  Agreement,  or a doctor or insurance  company that
insures  his life or  against  disability  issues a  certificate  that  Emrich's
impairment will continue for a period of at least 90 days.

                  (g) If Nick should  voluntarily  withdraw as a Limited Partner
of the Partnership, or if Nick is removed as a Limited Partner for "just cause,"
as defined herein, Nick shall be entitled,  subject to NYSE approval,  to become
registered as a specialist  in 19% of the Equitrade C Securities,  and Equitrade
shall  withdraw  its  registration  in  such  securities.  If  Nick  voluntarily
withdraws as a Limited Partner or is removed for just cause,  then: a) Equitrade
shall  have the right to  purchase  Nick's  option to become  registered  as the
specialist  in 19% of the  Equitrade C  Securities  ("Nick's  Option")  for fair
market  value;  and b) Nick  shall  have the  right  to sell  Nick's  Option  to
Equitrade.  If Nick exercises his right to compel  Equitrade to purchase  Nick's
Option within two years of the date of this Agreement,  the purchase price shall
be  $1,187,500.  If Nick  exercises  his right to compel  Equitrade  to purchase
Nick's  Option after this  Agreement has been in effect for more than two years,
Equitrade  shall  pay Nick fair  market  value for  Nick's  Option.  If Nick and
Equitrade  are  unable to agree  upon  "fair  market  value," a  representative,
selected by both parties, shall make such determination which shall be final and
binding.  If the parties are unable to mutually agree upon a  representative  to
make such  determination,  the issue of fair market value will be submitted  for
resolution to the NYSE arbitration.

         If Green  should  voluntarily  withdraw  as a  Limited  Partner  of the
Partnership,  or if Green is removed as a Limited  Partner for "just  cause," as
defined  herein,  Green shall be entitled,  subject to NYSE approval,  to become
registered as a specialist  in 17% of the Equitrade C Securities,  and Equitrade
shall  withdraw  its  registration  in such  securities.  If  Green  voluntarily
withdraws as a Limited Partner or is removed for just cause,  then: a) Equitrade
shall have the right to  purchase  Green's  option to become  registered  as the
specialist  in 17% of the  Equitrade C  Securities  ("Green's  Option") for fair
market  value;  and b) Green  shall  have the  right to sell  Green's  Option to
Equitrade.  If Green exercises his right to compel Equitrade to purchase Green's
Option  within two years of the date of this  Agreement,  the purchase  price of
Green's  Option  shall be  $1,375,000.  If Green  exercises  his right to compel
Equitrade to purchase Green's Option after this Agreement has been in effect for
more than two years,  Equitrade  shall pay Green fair  market  value for Green's
Option.  If Green and Equitrade are unable to agree upon "fair market  value," a
representative,  selected by both parties,  shall make such determination  which
shall be final and binding.  If the parties are unable to mutually  agree upon a
representative to make such  determination,  the issue of fair market value will
be submitted for resolution to the NYSE arbitration.

         "Just cause" shall be defined as:

                           i)       A material breach of any provision of this 
Agreement;

                           ii)      insobriety  due to drugs or  alcohol  during
business  hours on more  than one occasion; and

                           iii)     any act of  dishonesty  or  falsification  
of reports,  records or  information submitted to Equitrade, the NYSE or any 
other regulatory agency.


                  If Nick is  involuntarily  removed as a Limited  Partner,  and
such  removal  is not  made for  "just  cause,"  as  defined  herein,  or if the
Partnership  dissolves or a petition is filed by or against the  Partnership  in
bankruptcy,  Nick at his  election,  may: a)  withdraw  as a Limited  Partner of
Equitrade and, subject to NYSE approval,  become registered as the specialist in
19% of Equitrade C Securities (and Equitrade shall withdraw its  registration in
such securities); or b) sell Nick's Option to Equitrade for fair market value.

                  If Nick and  Equitrade  are unable to agree upon "fair  market
value," of Nick's Option a representative,  selected by both parties, shall make
such determination  which shall be final and binding.  If the parties are unable
to mutually agree upon a representative to make such determination, the issue of
fair market value will be submitted for resolution to NYSE arbitration.

                  If Green is involuntarily  removed as a Limited  Partner,  and
such  removal  is not  made for  "just  cause,"  as  defined  herein,  or if the
Partnership  dissolves or a petition is filed by or against the  Partnership  in
bankruptcy,  Green at his  election,  may: a)  withdraw as a Limited  Partner of
Equitrade and, subject to NYSE approval,  become registered as the specialist in
17% of Equitrade C Securities (and Equitrade shall withdraw its  registration in
such securities); or b) sell Green's Option to Equitrade for fair market value.

                  If Green and  Equitrade  are unable to agree upon "fair market
value of Green's Option," a representative, selected by both parties, shall make
such determination  which shall be final and binding.  If the parties are unable
to mutually agree upon a representative to make such determination, the issue of
fair market value will be submitted for resolution to NYSE arbitration.

                  After Nick's withdrawal pursuant to this Section,  Net Profits
and Losses arising from the specialist  activities in the Equitrade C Securities
shall be allocated between and among the remaining  Partners as follows:  22% to
Green; 49.8% to DNY; and 28.2% to the General Partners.

                  After Green's withdrawal pursuant to this Section, Net Profits
and Losses arising from the specialist  activities in the Equitrade C Securities
shall be allocated between and among the remaining  Partners as follows:  19% to
Nick; 48.6% to DNY; and 32.4% to the General Partners.

         After the  withdrawal of both Nick and Green  pursuant to this Section,
Net Profits and Losses arising from the specialist activities is the Equitrade C
securities  shall be  allocated  between  and among the  remaining  Partners  as
follows: 60% to DNY; and 40% to the General Partners.

                  In the event of Nick and/or Green's withdrawal, they will not,
for a period  commencing upon the date of such  withdrawal and continuing  until
two years  after that date,  engage in  business  as  specialists,  or apply for
registration  as  specialists,  on any  exchange,  in any  securities  in  which
Equitrade is engaged as a  specialist  after their  withdrawal;  nor during this
period shall they become associated, directly or indirectly, with any other firm
which is a member of such exchange and which is engaged in  specializing  in any
such  securities,  except a firm that has succeeded to  Equitrade's  interest in
such specialization as a result of a sale or other voluntary  transferral.  If a
transfer of  registration  to Nick and/or Green is required as a consequence  of
their  withdrawal,  Equitrade  will cooperate with Nick and Green to effect such
transfer and if permitted by the rules of the  Exchange,  Equitrade  consents to
the  registration in the name of Nick and Green of such  securities  transferral
without  action on Equitrade's  part.  Any  securities  which shall be withdrawn
and/or  transferred  by Nick  and/or  Green  pursuant to this  Section  shall be
determined by Equitrade and Nick and/or Green subject to NYSE  approval.  If the
parties are unable to reach an agreement as to the securities  Nick and/or Green
shall be permitted  to transfer,  a  representative,  selected by both  parties,
shall make such determination which shall be final and binding upon the parties.

                  (j) If Nick dies or becomes permanently  disabled,  as defined
herein, within two years of the date of this Agreement (the "Anniversary Date"),
Equitrade shall purchase Nick's option to become registered as the Specialist in
19% of the Equitrade C Securities  ("Nick's  Option") for  $1,187,500  within 60
days of his  death or  declaration  of  permanent  disability.  If Nick  dies or
becomes  permanently  disabled  after the expiration of more than two years from
the Anniversary Date,  Equitrade shall be required to purchase Nick's Option for
fair market value.  If Nick or his estate and Equitrade are unable to agree upon
the fair  market  value of Nick's  Option,  a  representative,  selected by both
parties,  shall make such determination which shall be final and binding. If the
parties  are  unable  to  mutually  agree  upon a  representative  to make  such
determination,  the  issue of the fair  market  value of Nick's  Option  will be
submitted for  resolution to NYSE  arbitration.  If Equitrade  purchases  Nick's
Option,  neither Nick nor his estate shall have any further interest of any kind
in the Equitrade C Securities. If Equitrade purchases Nick's Option, Net Profits
and Losses  arising  from the  Specialist  C  activities  shall be  allocated as
follows: 22% to Green; 49.8% to DNY; and 28.2% to the General Partners.

                  If Green  dies or  becomes  permanently  disabled,  as defined
herein, within two years of the date of this Agreement (the "Anniversary Date"),
Equitrade shall purchase  Green's option to become  registered as the Specialist
in 17% of the Equitrade C Securities ("Green's Option") for $1,375,000 within 60
days of his death or  declaration  of  permanent  disability.  If Green  dies or
becomes  permanently  disabled  after the expiration of more than two years from
the Anniversary Date, Equitrade shall be required to purchase Green's Option for
fair market value. If Green or his estate and Equitrade are unable to agree upon
the fair market  value of Green's  Option,  a  representative,  selected by both
parties,  shall make such determination which shall be final and binding. If the
parties  are  unable  to  mutually  agree  upon a  representative  to make  such
determination,  the issue of the fair  market  value of Green's  Option  will be
submitted for resolution to NYSE  arbitration.  If Equitrade  purchases  Green's
Option, neither Green nor his estate shall have any further interest of any kind
in the  Equitrade C  Securities.  If Equitrade  purchases  Green's  Option,  Net
Profits and Losses arising from the  Specialist C activities  shall be allocated
as follows: 19% to Nick; 48.6% to DNY and 32.4% to the General Partners.

                  Nick and/or Green shall be deemed to be  permanently  disabled
if they are  unable,  by  reason  of  illness  or  injury,  for a period  of 180
consecutive  days to perform  their duties under the  Agreement,  or a doctor or
insurance  company that insures Nick and/or  Green's life or against  disability
issues a certificate  that Nick and/or  Green's  impairment  will continue for a
period of at least 180 days.

         24. Dissolution and Termination. The Partnership shall be dissolved and
terminated  upon the withdrawal or bankruptcy of the Special  Limited Partner or
upon the consent of a majority of the General  Partners  including  the Managing
Partners and the consent of Sherwood.  Upon  termination,  the Partnership shall
wind up its affairs and shall be  liquidated.  Upon any such  termination of the
Partnership, each of the following shall be accomplished:

                  (a) The Managing Partners,  or other Partners, as the case may
be,  shall  cause to be  prepared  a  statement  setting  forth the  assets  and
liabilities of the Partnership as of the date of termination, and such statement
shall be furnished to all of the Partners;

                  (b)      The property and assets of the  Partnership  shall b
liquidated as promptly as possible but in an orderly and businesslike manner so
 as not to involve undue sacrifice;

                  (c) The Managing  Partners or the other Partners,  as the case
may be,  shall  proceed  to wind up the  affairs  of the  Partnership  and in so
winding up may engage in such actions as it deems  prudent to preserve the value
of the assets of the Partnership,  and shall, after payment and discharge of the
claims of all  creditors  of the  Partnership  who are not Partners (or adequate
reserves for such claims having been established) out of the Partnership assets,
as promptly as  practicable  in accordance  with the then existing  rules of the
NYSE,  but in any  event  within  one  year of the  date of  termination  in the
following  order and priority:  (i) to the payment and discharge pro rata of the
claims of all  creditors  of the  Partnership  who are  Partners and (ii) to the
Partners  in the  proportion  that their  Capital  Accounts  bear to each other.
Subject to NYSE  approval,  the Managing  Partner shall return to DNY all of the
NYSE seats contributed by DNY to the Partnership.

                  (d) In the event the  Partnership is  "liquidated"  within the
meaning of Internal Revenue Code Regulations Section 1.704-1(b)(2)(ii)(g),  then
(a) distributions  shall be made pursuant to this Section 24 to the Partners who
have  positive  Capital   Accounts  in  compliance  with   Regulations   Section
1.704-1(b)(2)(ii)(b)(2),  and (b) if any Partner's Capital Account has a deficit
balance  (after  giving  effect  to  all   contributions,   distributions,   and
allocations  for all  taxable  years,  including  the  year  during  which  such
liquidation  occurs),  such  Partner  shall  contribute  to the  capital  of the
Partnership  the amount  necessary to restore  such  deficit  balance to zero in
compliance with Regulations Section 1.704-1(b)(2)(ii)(3).

         25. Liability and Indemnification.  None of the Partners,  any Sherwood
Managing  Partner nor any  Substitute  Managing  Partner  shall be liable to the
Partnership for any act or omission performed or omitted by them pursuant to the
authority  granted  to  them  by this  Agreement,  except  for  fraud  or  gross
negligence.  The Partnership  shall indemnify and save harmless the Partners and
each Sherwood Managing Partner and Substitute  Managing Partner and, in the sole
discretion of the Partners,  their employees,  agents,  independent advisers and
consultants,  or the Partnership's agents, employees or independent advisers and
consultants,  from any loss, damage, liability or costs incurred by them, or any
of them,  by reason of any act performed  pursuant to the  authority  granted by
this  Agreement,  by them,  or any of them on behalf of the  Partnership  or the
furtherance  of  the  Partnership's  interest.  Notwithstanding  the  foregoing,
neither the  Partners,  nor their  agents,  employees,  independent  advisers or
consultants nor any Sherwood  Managing  Partner or Substitute  Managing  Partner
shall be relieved from  liability for fraud or gross  negligence and there shall
be no indemnification  relating to matters as to which such parties are adjudged
to have so breached any duty owned by the Partnership.
         26. Outside  Activities.  The Partners,  each Sherwood Managing Partner
and each Substitute  Managing  Partner may engage in and hold interests in other
business  ventures of every kind and  description  for their own accounts and no
Partner,  Sherwood  Managing  Partner or Substitute  Managing  Partner shall, by
virtue of this Agreement or the operations of the Partnership, have any right to
participate  in any  manner in any  profits  or income  earned or derived by any
other Partner,  Sherwood Managing Partner or Substitute Managing Partner from or
in connection with any such other business  venture.  Nothing  contained in this
Agreement or arising by virtue of the operation of the Partnership shall prevent
any Partner,  Sherwood  Managing  Partner or  Substitute  Managing  Partner from
trading for his or her own account;  provided  that such trading by any Partner,
Sherwood  Managing  Partner or  Substitute  Managing  Partner shall be done only
through the member firm or firms of the Exchange  through which the  Partnership
officially and regularly clears transactions.

         27.  Goodwill  and  Use  of  Partnership  Name.  In  the  event  of the
withdrawal,  death,  adjudication  of  incompetency,   insolvency,   removal  or
disability  of any  Partner,  the  right  to use the  Partnership's  name or any
portion  thereof  shall be and remain the property of the remaining or surviving
Partners.  No value shall be  attributed to the use of the  Partnership  name or
goodwill for any purpose except as expressly provided in this Agreement.

         28.  Fiscal  Year  and  Partnership  Books.  The  fiscal  year  of  the
Partnership  shall  be the  period  ending  on  December  31 in each  year.  The
Partnership  shall keep and maintain  regular  books of account in the customary
manner and consistent with the provisions of this  Agreement,  which books shall
be open for inspection by any of the Partners during the term of the Partnership
and for a reasonable  time  thereafter.  The books of account shall be available
for inspection by the Withdrawing  Partners for period prior to their withdrawal
during normal business hours and upon reasonable  notice. As soon as practicable
after the end of each month, a statement  shall be prepared  showing the profits
and losses for such period of the Partnership.

         29. Use of Partnership Facsimile Signature. The Managing Partners shall
have  full  power  and  authority  on  behalf  of  all of  the  Partners  of the
Partnership,  at any time and from time to time, in accordance with the rules of
any national  securities  exchange of which the Partnership may be a member firm
(a) to designate one or more persons (i) to assign securities  registered in the
name of the Partnership, (ii) to execute powers of assignments of securities and
(iii) to make any  certification  or  guarantee  of any  signature  or  document
submitted in support of the transfer of any securities, all with the same effect
as if the name of the  Partnership had been signed under like  circumstances  by
one of the Partners of the Partnership;  (b) to adopt and authorize the use of a
mechanically  reproduced  facsimile  signature of the  Partnership in connection
with (i) the assignment of securities  registered in the name of the Partnership
and (ii) the execution of powers of  substitution;  (c) to designate one or more
of the employees of the Partnership to sign written contracts covering "seller's
option",  "when issued" and "when  distributed"  transactions in the name of the
Partnership  as if the same had been signed under like  circumstances  by one of
the Partners of the  Partnership;  and (d) to execute and file with any national
securities  exchange of which the  Partnership may be a member firm, in the name
and on behalf of the Partnership,  and the Partners,  any and all such powers of
attorney,   agreements   and  other   instruments   (including   agreements   of
indemnification)  as may be required by any such exchange to evidence or support
action under clauses (a), (b), and (c) above. Each Partner,  upon executing this
Agreement, or any amendment hereof,  specifically ratifies and approves all such
powers of attorney,  agreements and other instruments  (including  agreements of
indemnification) as may heretofore have been executed and filed on behalf of the
Partnership  with any such  exchange and which are still in force in  connection
with any matter described in clauses (a), (b), or (c) above.

         30.  Power of  Attorney.  Each party  hereby  designates  the  Managing
Partners  (and each  successor  Managing  Partner and each  Substitute  Managing
Partner, if applicable) as such Partner's irrevocable attorney-in-fact, with the
right to execute  for such  Partner and in such  Partner's  name and to file all
instruments,  documents and certificates  relating to the Partnership which may,
from time to time be required by law, or by any governmental,  administrative or
other  body,  including,   without  limitation,   the  Securities  and  Exchange
Commission, the National Association of Securities Dealers, Inc., any securities
exchange of which the Partnership is a member firm or associate  member firm and
any state agency  regulating  the  business of the  Partnership  to  effectuate,
implement  and continue the valid and  subsisting  evidence of the  Partnership,
including,  without  limitation,  any certificate of limited partnership and any
amendments  thereto which may be required to be filed with the State of New York
and any  document  necessary  to  cause  the  existing  certificate  of  limited
partnership to be amended to show the withdrawal of the  Withdrawing  Partner or
any other appropriate matters therein.

         31.  Arbitration of Disputes.  Any dispute arising between the Partners
either  during  the  period  of  the  Partnership  or  in  connection  with  its
dissolution, or thereafter arising in relation to the Partnership,  which cannot
be adjusted by mutual agreement, shall be submitted to arbitration in accordance
with the Constitution, By-Laws and Rules then obtaining of the Exchange.

         32.  Notice.  Any notice  required  hereunder  to be given to any party
hereto or to his legal representative(s) shall be in writing and shall either be
served personally upon him or upon any one of his legal representatives or shall
be sent by prepaid  registered or certified mail, return receipt  requested,  to
his last known post office address as shown on the records of the Partnership or
the last known post office  address of any one of his legal  representatives  as
shown on the records of the  Partnership.  Such  notice  shall be deemed to have
been given when served  personally  or upon mailing.  Notice of the  Partnership
shall be given at the address of its principal place of business.

         33.      Binding Effect, Amendment.

                  (a) This  Agreement  shall be binding upon, and shall inure to
the   benefit   of,  the  parties   hereto  and  their   respective   executors,
administrators, successors, assigns, heirs and legal representatives.

                  (b)      This  Agreement  may not be changed or  modified,  
except by an  Agreement  in  writing, signed by or on behalf of all the parties
hereto.

         34.      Sale of the Assets of the Partnership.      In the  event  of
the  sale  of all or  substantially all of the assets of the Partnership,  or 
of all or substantially  all of the partnership  interests  therein,  the
proceeds of such sale shall be applied as follows in the order indicated:

                  (a)  To  the  payment  in  full  of  all   creditors   of  the
Partnership,  including  contributors  of any  Secured  Demand  Note  Collateral
Assignment and cash subordinated loans.

                  (b) To return to Harvey  Silverman  and  Cynthia  Kellogg  the
amount of their Capital Accounts and accrued interest thereon.

                  (c)  To  return  to  DNY  all  NYSE   memberships   which  DNY
contributed to the Partnership plus accrued  interest  pursuant to Section 16(d)
of this Agreement which has not been distributed to DNY.

                  (d)      To Sherwood in the aggregate  amount of Sherwood's 
capital  contribution,  as set forth on Exhibit A annexed hereto.

                  (e)  To the  General  Partners  and  Limited  Partners  in the
aggregate amount of their capital contribution as set forth on Exhibit A annexed
hereto.

                  (f) 60% of the balance to Sherwood and the  remaining  balance
to the General Partners  allocable as Net Profits pursuant to Section 17 of this
Agreement, except as provided in Sections 34(g) and (h) of this Agreement.

                  (g) The proceeds of the sale of the specialist business in the
Equitrade B Securities  shall be  allocated  as Net Profits  pursuant to Section
17(f) of this Agreement.

                  (h) The  proceeds  of the sale of the  specialist  business in
Equitrade C Securities  shall be  allocated  as Net Profits  pursuant to Section
17(k) through (o) of this Agreement.

         35.      Effective Date.   This Agreement  shall be effective,  and
all rights,  duties,  liabilities  and obligations hereunder shall be in full 
force and effect as of April 11, 1997.

         36.      Applicable Law.   This  Agreement  shall be  construed  in  
accordance  with and  governed by the internal laws of the State of New York.

         37.      Entire Agreement. This  Agreement  constitutes  the entire  
agreement,  and  supersedes all other prior  agreements and  understandings,  
both written or oral,  among the Partners,  or any of them, with respect to
the subject matter hereof.



<PAGE>


         38.      Counterparts.     This  Agreement  may be executed in any 
number of  counterparts,  and each such counterpart shall for all purposes be
deemed an original,  and all such counterparts shall together  constitute but
one and the same agreement.

         39.      Headings.         The section  headings herein are for 
convenience  only and shall not affect the construction hereof.



<PAGE>


         IN WITNESS HEREOF, the parties hereto have hereunder set their hands as
of the 2nd day of May, 1997.





Stephen J. DiLascio                                        John F. Nicolosi





Gerard J. Dreyer                                           Philip J. Kopp, III





Cynthia K. Kellogg                                         Harvey J. Silverman





John W. Nick, Jr.                                          David Green




                                                        THE SHERWOOD GROUP, INC.
James C. Emrich



DRESDNER-NY INCORPORATED            By:




By:




STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the       day  of       , 1997, before me personally came
                     , to me known,  who being by me duly  sworn,  did depose 
and say that he/she is the
of The  Sherwood  Group,  Inc.,  the  corporation  described in and which
executed  the  foregoing  instrument;   that  he/she  knows  the  seal  of  said
corporation;  that the seal affixed to said  instrument is such corporate  seal;
that it was so affixed by order of the Board of Directors  of said  corporation;
and that he/she signed his/her name thereto by like order.




                                                              Notary Public



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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the       day of       , 1997, before me personally came
                    , to me known,  who being by me duly  sworn,  did depose 
and say that he/she is the
of  Dresdner-NY  Incorporated,  the  corporation  described  in and which
executed  the  foregoing  instrument;   that  he/she  knows  the  seal  of  said
corporation;  that the seal affixed to said  instrument is such corporate  seal;
that it was so affixed by order of the Board of Directors  of said  corporation;
and that he/she signed his/her name thereto by like order.




                                                              Notary Public



<PAGE>



STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came Stephen J. DiLascio, to
me known and known to me to be the individual  described in and who executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public





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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came Gerard J. Dreyer, to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public


<PAGE>



STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came Philip J. Kopp, III, to
me known and known to me to be the individual  described in and who executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.




                                                              Notary Public






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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came John F. Nicolosi, to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public


<PAGE>



STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came Cynthia K. Kellogg,  to
me known and known to me to be the individual  described in and who executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public





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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997, before me personally came Harvey Silverman, to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public


<PAGE>



STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997,  before me  personally  came David  Green,  to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public





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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997,  before me personally came James C. Emrich, to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public


<PAGE>



STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the   day of   , 1997, before me personally came John W. Nick, Jr. 
to me known and known to me to be the  individual  described in and who executed
the foregoing instrument,  and he duly acknowledged to me that he executed the 
same.





                                                              Notary Public





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

STATE OF NEW YORK          )
                                            )ss.:
COUNTY OF NEW YORK         )


         On the day of , 1997,  before me personally came James C. Emrich, to me
known and known to me to be the  individual  described  in and who  executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.





                                                              Notary Public


<PAGE>


                                                      EXHIBIT A


         The following  Partners have  contributed the amounts of Stated Capital
set  forth  opposite  their  respective  names,   either  in  cash,   marketable
securities,  or such  other  property  as shall be  acceptable  to the  Managing
Partners for capital purposes, as set forth below:
<TABLE>
<CAPTION>

<S>                                         <C>

General Partners                            Capital Contributions
Stephen J. DiLascio                         $ 2,645,497
Gerard J. Dreyer                            $ 1,445,058
John F. Nicolosi                            $ 1,091,001
Philip J. Kopp, III                         $ 1,004,437

Special Limited Partner
The Sherwood Group, Inc.                    $10,713,786


Limited Partners
James C. Emrich                             $   766,596
John W. Nick, Jr.                           $       100
David A. Green                              $       100
Cynthia K. Kellogg                          $     1,000
Harvey Silverman                            $     1,000

Dresdner-NY Incorporated                    $11,150,000*


Total Capital                               $28,818,575










<FN>

* Includes DNY's NYSE  Specialist  Business having a market value as of the date
of contribution  of $4,000,000;  and four (4) NYSE  memberships  having a market
value of  $4,800,000;  Estimated net long  positions  approximately  $2,000,000;
Estimated floor brokerage income approximately $350,000.
</FN>
</TABLE>

                                                      EXHIBIT B
<TABLE>

                                              EQUITRADE B SECURITIES
<CAPTION>


Ticker                     Issuer
<S>                        <C> 

ACO                        Acordia, Inc.
BLN                        Blackrock New York Insured Municipal 2008
                           Term Trust Inc.
FPL                        Florida Power and Light
FPL-PRA                    Florida Power and Light Preferred A Stock
FBS                        First Bank System
FBS-PRX                    First Bank System Preferred X Stock
KRG                        Quantum Restaurant Group, Inc.
MDA                        Mapco
MVJ                        Munivest New Jersey Fund, Inc.
NB                         Nationabank Corporation
NNN                        Commercial Net Lease Realty
SJK                        St. John Knits
SW                         Stone and Webster
TXU                        Texas Utilities
TUE-PR                     Texas Utilities Electric Company
TUE-PRA                    Texas Utilities Electric Company Preferred A Stock
TUE-PRE                    Texas Utilities Electric Company Preferred B Stock
VMO                        Van Kampen Merritt Municipal Opportunity Trust
WWP                        Washington Water and Power

</TABLE>



<PAGE>


                                                      EXHIBIT B

                                          EQUITRADE PARTNERS AND EMPLOYEES


                                                  Eustace deCordova
                                           Mr. Joseph J. McCarthy - Broker
                                                Mr. Robert L. Celenza
                                              Mrs. Aphrodite Amorgianos
                                                Mr. James Emrich, Jr.
                                                 Miss Gloria Pascale
                                              Mr. Daniel J. Mulholland
                                               Mr. Joseph J. Quaglieri
                                                 Mr. Daniel Harkins


<PAGE>


                                                     EXHIBIT C
<TABLE>

                                              EQUITRADE C SECURITIES
<CAPTION>


Ticker            Issuer
<S>               <C>  

CDS               Alliance Entertainment Corporation
ATR               Aptargroup, Inc.
ASL               Ashanti Goldfields Company Limited
BKUPRA            Bank United of Texas Noncumulative Preferred A
BKUPRB            Bank United of Texas Noncumulative Preferred B
BTZ               Berlitz International, Inc.
BTV               BET Holdings
CNIPP             Canadian National Railway Company
CIC               Carson Products, Inc.
ECP               Central Newspapers
CXE               Colonial High Income Municipal Trust
COP               Consolidated Products, Inc.
CON               Continental Home Holdings Corp.
DM                Dames and Moore
DY                Dycom Industries, Inc.
ELM               Empresa La Moderna S.A. de C.V.
EWB               E.W. Blanch Holdings, Inc.
FGP               Ferellgas Partners, L.P.
FLH               Fila Holdings, SPA
FBP               First Federal Savings Bank of Puerto Rico
FMS               Fresenius Medical Care AG
FMSPR             Fresenius Medical Care AG Preferred
GML               Global Directmail Corp.
IO                Input/Output, Inc.
JFI               Jardine Fleming India Fund, Inc.
LCI               LCI International, Inc.
MWT               McWhorter Technologies, Inc.
MIBRA             Midland Bank PLC Preferred A
MIBRB             Midland Bank PLC Preferred B
MIBRC             Midland Bank PLC Preferred C
MIBRD             Midland Bank PLC Preferred D
RLR               Rellia Star Financial
RLRPRA            Rellia Star Financial Preferred A
NCO               Nuveen California Municipal Market Opportunity Fund
PPR               Pilgrim Prime Rate Trust

</TABLE>

<PAGE>



                                                     EXHIBIT C
<TABLE>

                                          EQUITRADE C SECURITIES (CON'T)
<CAPTION>


Ticker            Issuer
<S>               <C> 

PI                Premdor, Inc.
RIT               Ritchoice Managed Care, Inc.
SQF               Seligman Quality Municipal Fund, Inc.
SEL               Seligman Select Municipal Fund, Inc.
SSW               Sterling Software, Inc.
TCB               T.C.F. Financial Corp.
TK                Teekay Shipping Corporation
TL                Telex Chile, S.A.
TCT               The Town and Country Trust
TMM               Transportacion Maritima ADS L
TMMA              Transportacion Maritima ADS Ordinary
VLY               Valley National Bancorp.
VAL               The Valspar Corporation
VCD               Value City Department Stores, Inc.
VPI               Vintage Petroleum, Inc.
WSO               Watsco, Inc.

</TABLE>


<PAGE>


                                                     EXHIBIT C

                                         EQUITRADE PARTNERS AND EMPLOYEES

                                                 John W. Nick, Jr.
                                                  David A. Green
                                                 Richard K. Green
                                                 James Fraschilla
                                                   Robert Poulos
                                                 Nicholas Abdinoor
                                                  Robert T. Hally
                                                   Gregory Kane
                                                   James Lancaro
                                                 Turlough Pollard
                                                    Eric Poscak


<PAGE>


                                                      EXHIBIT D

<TABLE>

         Net Profits and Net Losses  allocable to the General  Partners shall be
allocable between and among them according to the following schedule:
<CAPTION>
                           <S>              <C>
                             
                           DiLascio         40%
                           Dreyer           34%
                           Nicolosi         16%
                           Kopp             10%
</TABLE>

         Subject to the  allocation of 15% of all such  profits,  which shall be
set aside as a bonus pool to be  distributed  in such manner as  DiLascio  shall
determine  as set  forth  in the  Agreement  to  which  this  Exhibit  forms  an
attachment. Such percentage shall be reviewed on an annual basis.



                                                                     EXHIBIT 11


                                        THE SHERWOOD GROUP, INC.
                                            AND SUBSIDIARIES
<TABLE>

                                Computation of Earnings Per Common Share

                                 Years ended May 31, 1997, 1996 and 1995

<CAPTION>



                                                              1997                1996               1995
                                                              ----                ----               ----

<S>                                                   <C>                       <C>                 <C>       
Net income                                            $       9,279,693         20,131,928          14,614,888
                                                          =============     ==============      ==============

Primary:

   Net income per common share                                    $ .72               1.50                1.07
                                                                    ===               ====                ====

Fully diluted:

   Net income per common share                                    $ .72               1.52                1.07
                                                                    ===               ====                ====

Historical:
   Weighted average number of
      common stock and common stock
      equivalents outstanding:
         Primary                                             12,941,287         13,200,867          13,624,603
                                                         ===============    ==============      ==============

         Fully diluted                                       12,946,008         13,201,412          13,652,084
                                                          =============     ==============      ==============




</TABLE>


<PAGE>



EXHIBIT 21

SUBSIDIARIES OF THE SHERWOOD GROUP, INC.


A) SHERWOOD SECURITIES CORP., incorporated under the laws of the State 
                              of Delaware.

B) SHERWOOD CAPITAL, INC., incorporated under the laws of the State of New 
                           Jersey.

C) SHERWOOD PROPERTIES CORP., incorporated under the laws of the State 
                              of Delaware.

D) SHERWOOD NEWCO CORP., incorporated under the laws of the State of Delaware.

E) THE EBERCOM COMPANY., incorporated under the laws of the State of Delaware.

F) SIMCON CORPORATION, incorporated under the laws of the State of Delaware.

G) SHERWOOD MANAGEMENT CORP., incorporated under the laws of the State 
                              of Delaware.

H) TRIAK SERVICES CORP., incorporated under the laws of the State of New York.

I) MXNET INC., incorporated under the laws of the State of Delaware.

J) ANVIL INSTITUTIONAL SERVICES, INC., incorporated under the laws of the 
                                       State of California.

K) SHD CORPORATION, incorporated under the laws of the State of  Delaware.




                                                    EXHIBIT 23


                                           Independent Auditors' Consent


The Board of Directors and Stockholders of
The Sherwood Group, Inc.:


We  consent  to the use of our  report  dated  July  22,  1997  incorporated  by
reference  in  Registration  Statement  No.  33-72790 on Form S-8 filed with the
Securities and Exchange Commission on December 13, 1993.




KPMG Peat Marwick LLP



New York, New York
August 7, 1997