September 3, 1997



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

           Re:  The Sherwood Group, Inc. -Definitive Proxy Statement for 1997
                ---------------------------------------------------------------

Dear Sir/Madam:

Enclosed  for  filing is the  Definitive  Proxy  Statement  for the 1997  Annual
Meeting of Stockholders of The Sherwood Group, Inc. pursuant to Rule 14a-6(b) of
the Securities Exchange Act of 1934, as amended. The release date for this Proxy
Statement is September 3, 1997.  The Sherwood  Group,  Inc.  intends to register
shares of  common  stock to be issued  under its stock  option  plan on Form S-8
promptly after the approval of the plan by its stockholders.

If you have any questions or comments  regarding this filing,  please call me at
(201) 946-4413 or Frank E. Lawatsch, Jr. at (201) 596-4637.

                                Very truly yours,



                               Laura Singer, Esq.

Enclosures





                                                            25
                                                                             
                                                                               
                            SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant x
Filed by a Party other than the Registrant o

Check the appropriate box:

o Preliminary Proxy Statement
oConfidential,   for  Use  of  the   Commission   Only  (as  permitted  by  Rule
 14a-6(e)(2)) Definitive Proxy Statement
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12

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

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


Payment of Filing Fee (Check the appropriate box):

x $125 per Exchange Act Rules  O-11(c)(1)(ii),  14a-6(i)(1),  14a6(i)(2) or Item
22(a)(2) of Schedule 14A. o $500 per each party to the  controversy  pursuant to
Exchange  Act Rule  14a-6(i)(3).  o Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and O-11.

     1) Title of each class of securities to which transaction applies:

                                      N.A.

     2) Aggregate number of securities to which transaction applies:

                                      N.A.

     3) Per unit  price  or  other  underlying  value  of  transaction  computed
        pursuant to Exchange  Act Rule O-11:  (Set forth the amount on which the
        filing fee is calculated and state how it was determined):

                                      N.A.

     4) Proposed maximum aggregate value of transaction:

                                      N.A.

     5) Total fee paid:

                                      N.A.

     o Check box if any part of the fee is offset as provided  by  Exchange  Act
     Rule  O-11(a)(2)  and identify the filing for which the  offsetting fee was
     paid  previously.  Identify the previous filing by  registration  statement
     number, or the Form or Schedule and the date of its filing.

     1)  Amount Previously Paid:
     2)  Form, Schedule or Registration Statement No.:
     3)  Filing Party:
     4)   Date Filed:


<PAGE>


                                                                               
                                                                              
                                           

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

--------------------------------------------------------------------
         Notice Of Annual Meeting Of Stockholders
               To Be Held October 21, 1997
--------------------------------------------------------------------


The 1997 Annual Meeting of the  Stockholders  of The Sherwood  Group,  Inc. (the
"Company") will be held at the Company's  offices at 10 Exchange  Place,  Jersey
City, New Jersey 07302, 15th Floor, on October 21, 1997 at 4:00 p.m., New Jersey
time for the following purposes:

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

                  (2)  To  approve  an  amendment  to  the  Company's   Restated
                  Certificate  of   Incorporation  to  decrease  the  number  of
                  authorized   shares  of  the  Company's   capital  stock  from
                  101,000,000 to 51,000,000  shares and to eliminate  provisions
                  related to Class A Common Stock.

                  (3)  To approve an amendment of The Sherwood Group, Inc. 1995
                  Stock Option Plan.

                  (4) To ratify the  appointment of KPMG Peat Marwick LLP as the
                  Company's  independent auditors for the fiscal year ending May
                  31, 1998.

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

The Board of Directors  has fixed the close of business on August 25,  1997,  as
the record date for  determining the  stockholders  entitled to notice of and to
vote at the meeting and any adjournment thereof.

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

All  stockholders  are asked to complete,  sign and date the enclosed  proxy and
return it promptly by mail in the enclosed self-addressed  envelope,  which does
not require postage if mailed in the United States.

                                             By Order of the Board of Directors


                                             Dennis Marino
                                             Secretary

September 2, 1997
New York, New York



<PAGE>


                                            

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

 ------------------------------------------------------------------
            Proxy Statement For Annual Meeting
 ------------------------------------------------------------------

This Proxy  Statement  is  furnished  by the Board of  Directors  (the "Board of
Directors") of The Sherwood Group, Inc., a Delaware corporation (the "Company"),
in connection with the  solicitation of proxies to be used at the Annual Meeting
of  Stockholders  (the  "Meeting")  to be held at the  Company's  offices  at 10
Exchange Place Centre, Jersey City, New Jersey 07302, 15th Floor, on October 21,
1997 at 4:00 p.m. New Jersey time, and at any  adjournment  thereof.  This Proxy
Statement and the accompanying Annual Report,  Notice and Proxy are being mailed
to stockholders on or about September 2, 1997. The principal  executive  offices
of the Company are located at the address indicated above.

Only  stockholders of record at the close of business on the record date, August
25, 1997 (the "Record Date"), will be entitled to vote at the Meeting and at all
adjournments thereof.

On August 25,  1997,  there were  outstanding  and  entitled to vote  12,694,665
shares of the  Company's  common  stock,  $.01 par value per share (the  "Common
Stock").  Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon.  A majority of the shares of Common  Stock  entitled to
vote at the Meeting will  constitute a quorum for the  transaction  of business.
Holders of Common Stock have no cumulative voting rights.


                                                 Voting Of Proxies

If a proxy is properly  signed by a stockholder  and is not revoked,  the shares
represented  thereby will be voted at the Meeting in the manner specified on the
proxy,  or if no manner is specified  with respect to any matter  therein,  such
shares  will be voted by the persons  designated  therein  (with  respect to the
matters as to which the  stockholder is entitled to vote) (a) "FOR" the election
of each of Dennis Marino, James H. Lynch, Jr. and Stephen J. DiLascio as Class 1
directors  of the  Company,  (b)  "FOR"  the  approval  of an  amendment  to the
Company's  Restated  Certificate  of  Incorporation  to  decrease  the number of
authorized  shares of the Company's capital stock from 101,000,000 to 51,000,000
shares  and  to  eliminate  all  provisions  in  the  Restated   Certificate  of
Incorporation  related to Class A Common  Stock,  (c) "FOR" the  approval  of an
amendment  to The Sherwood  Group,  Inc.  1995 Stock Option Plan,  (d) "FOR" the
ratification  of the  appointment  of KPMG  Peat  Marwick  LLP as the  Company's
independent  auditors  for the  fiscal  year  ending  May 31,  1998,  and (e) in
connection  with the  transaction  of such other  business  as may  properly  be
brought  before the Meeting,  in  accordance  with the judgment of the person or
persons voting the proxy. If any of the nominees for director is unable to serve
or for good  cause  will not  serve,  an event  that is not  anticipated  by the
Company,  the shares  represented by the accompanying  proxy will be voted for a
substitute  nominee  designated  by the  Board of  Directors  or the  Nominating
Committee  thereof or the Board of Directors may determine to reduce the size of
the Board of Directors.

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

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


                 Voting Securities and Principal Holders Thereof

Security Ownership Of Certain Beneficial Owners
<TABLE>

The  following  table sets forth  certain  information,  as of August 25,  1997,
regarding the  beneficial  ownership of the Common Stock by each person known by
the  Company  to be the  beneficial  owner  of more  than  five  percent  of the
outstanding  shares of the Common Stock.  The Company has been advised that each
stockholder  listed below has sole voting and dispositive  power with respect to
such shares unless otherwise noted in the footnotes following the table.
<CAPTION>

                      Name and Address                      Amount
                      of Beneficial Owner           Of Beneficial Ownership            Percentage of Class
                  <S>                                   <C>                                   <C>                               
                  S.G.I. Partners, L.P.
                  412 Harwood Building
                  Scarsdale, NY 10583                   4,000,000 (1)                         31.51%

                  Carl H. Hewitt
                  120 Broadway
                  New York, NY 10006                    4,000,000 (1)                         31.51%

                  Arthur Kontos
                  10 Exchange Place
                  Jersey City, NJ 07302                 2,881,100 (2)                         22.31%

                  Peter A. Kellogg
                  120 Broadway
                  New York, NY 10006                    1,021,500 (3)                          8.05%

<FN>

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

(2)   Comprised  of  1,315,708  shares of Common  Stock  held by Mr.  Kontos and
      219,533  shares  of  Common  Stock   underlying   Mr.  Kontos'   currently
      exercisable  stock options.  Also includes  125,000 shares of Common Stock
      held by the Arthur Kontos Foundation,  778,562 shares of Common Stock held
      by limited partnerships of which Mr. Kontos is the general partner and Mr.
      Kontos' children are sole limited partners,  and 442,297 shares over which
      he has only  sole  voting  power  which  are  subject  to a  voting  trust
      agreement with his former wife.
</FN>
<FN>

(3)   Comprised of 650,000 shares of Common Stock held by Mr.  Kellogg,  350,000
      shares of Common Stock held by a corporation, all of whose voting stock is
      held by Mr.  Kellogg  and of which Mr.  Kellogg is  president,  and 21,500
      shares of Common Stock held by the Cynthia and Peter  Kellogg  Foundation.
      Peter A. Kellogg is also a limited partner of S.G.I. Partners, L.P.
</FN>
</TABLE>



Security Ownership of Management
<TABLE>

The  following  table sets forth  certain  information,  as of August 25,  1997,
regarding  the  beneficial  ownership of the Common  Stock by each  director and
named executive officer (see "Compensation of Directors and Executive Officers")
of the Company  and by all  directors  and  executive  officers as a group.  The
Company has been advised that each stockholder  listed below has sole voting and
dispositive  power with  respect to such shares  unless  otherwise  noted in the
footnotes  below.  Sherwood  Securities  Corp.  ("Sherwood   Securities")  is  a
wholly-owned  subsidiary of the Company  specializing  in the  wholesale  market
making of over-the-counter  securities.  Equitrade Partners  ("Equitrade") is an
affiliate  of the  Company  which  acts as a  specialist  on The New York  Stock
Exchange. The Company and one of its wholly-owned  subsidiaries own an aggregate
of 75% of the capital of Equitrade.
<CAPTION>

                                                               Amount
               Name and Title                          of Beneficial Ownership        Percentage of Class
               <S>                                           <C>                                 <C>
               Arthur Kontos,                                2,881,100     (1)                   22.31%
               Vice Chairman of the Board and Chief
               Executive Officer of the Company

               James H. Lynch, Jr., Chairman of the             35,000                            *
               Board and Director

               John P. Duffy, Director                          44,000     (2)                    *

               Carl H. Hewitt, Director                      4,000,000     (3)                   31.51%

               Dennis Marino,                                  218,698     (4)                    1.72%
               Executive Vice President and Chief
               Administrative Officer of the
               Company; President of
               Sherwood Securities

               Richard J. Marino,                              627,635     (5)                    4.94%
               Chairman of the Board
               of Sherwood Securities

               Thomas Neumann,                                 223,810     (6)                    1.75%
               Executive Vice President of the
               Company; Head of Capital Markets of
               Sherwood Securities

               Ralph N. Del Deo, Director                       30,000     (7)                    *

               James Romano,                                     5,000                                       *
               Senior Vice President
               of Sherwood Securities

               William Karsh, Executive                         39,501     (8)                    *
               Vice President and Treasurer
               of the Company

               Stephen J. DiLascio                               1,000                            *
               Director, Managing General Partner
               of Equitrade

               All Directors and Executive Officers          8,108,544                           62.03%
               as a Group (13  persons) (9)
<FN>

                   * Less than 1%
</FN>

<FN>

         (1)  Consists of 1,315,708  shares of Common Stock held by Mr.  Kontos,
         219,533  shares  of  Common  Stock  underlying  Mr.  Kontos'  currently
         exercisable  stock options,  125,000 shares of Common Stock held by the
         Arthur  Kontos  Foundation,  778,562  shares  of Common  Stock  held by
         limited partnerships of which Mr. Kontos is the general partner and Mr.
         Kontos'  children  are sole limited  partners  and 442,297  shares over
         which he has only sole voting power which are subject to a voting trust
         agreement with his former wife.
</FN>
<FN>

         (2)  Consists of 40,000  shares of Common  Stock held by Mr.  Duffy and
         4,000 shares of Common Stock held in trust for Mr. Duffy's children.
</FN>
<FN>

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

         (4)  Consists of 173,508  shares of Common  Stock held by Mr. D. Marino
         and 45,190 shares of Common Stock underlying Mr. D. Marino's  currently
         exercisable stock options.
</FN>
<FN>

         (5)  Consists of 615,341  shares of Common  Stock held by Mr. R. Marino
         and 12,294 shares of Common Stock underlying Mr. R. Marino's  currently
         exercisable stock options.
</FN>
<FN>

         (6) Consists of 135,623  shares of Common Stock held by Mr. Neumann and
         88,187  shares of  Common  Stock  underlying  Mr.  Neumann's  currently
         exercisable stock options.
</FN>
<FN>

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

         (8)  Consists of 27,162  shares of Common  Stock held by Mr.  Karsh and
         12,339  shares  of  Common  Stock  underlying  Mr.  Karsh's   currently
         exercisable stock options.
</FN>
<FN>

         (9) Includes  377,543 shares of Common Stock  underlying  stock options
         exercisable within 60 days of August 25, 1997.
</FN>
</TABLE>


PROPOSAL 1.  ELECTION OF DIRECTORS

The Company's Restated  Certificate of Incorporation,  which became effective on
February 4, 1987,  requires  that the Board of  Directors  be divided into three
classes. In accordance with the Company's Restated Certificate of Incorporation,
at the 1987 annual meeting,  Class 1 directors were initially elected for a term
that expired as of the 1988 annual meeting of the  stockholders  of the Company,
Class 2 directors were initially  elected for a term that expired as of the 1989
annual meeting of stockholders and Class 3 directors were initially  elected for
a term that  expired  as of the 1990  annual  meeting of  stockholders.  At each
annual meeting,  directors will be elected for a term of three years so that the
term of office of one class of directors shall expire each year.

Three  individuals  are being  nominated for election at the Meeting to serve as
Class  1  directors  for a term  of  three  years  or  until  the  election  and
qualification of their successors.

The affirmative vote of the holders of a plurality of the shares of Common Stock
voted in person or by proxy at the Meeting is required  for the election of each
director.  Unless  otherwise  directed,  each proxy  executed  and returned by a
stockholder will be voted for the election of Dennis Marino, James H. Lynch, Jr.
and Stephen J. DiLascio. If Mr. Marino, Mr. Lynch or Mr. DiLascio becomes unable
to serve or for good cause will not serve,  an event that is not  anticipated by
the  Company,  (i) the shares  represented  by the  proxies  will be voted for a
substitute nominee or substitute  nominees  designated by the Board of Directors
or the  Nominating  Committee  of the  Board of  Directors  or (ii) the Board of
Directors may  determine to reduce the size of the Board of  Directors.  At this
time, the Board of Directors  knows of no reason why Mr.  Marino,  Mr. Lynch and
Mr.  DiLascio may not be able to serve as  directors if elected.  Pursuant to an
agreement  between the  Company  and S.G.I.,  S.G.I has the right to appoint two
directors to the Board of Directors.  S.G.I. has designated Mr. Hewitt as one of
its directors and has not requested that another  person be designated  pursuant
to this agreement.

The Board of Directors recommends a vote "FOR" the election of each of the above
nominees.


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


           Name                            Age       Position with the Company                 Director Since
           <S>                            <C>        <C>                                            <C>

           Class 1 Directors

           Dennis Marino                  51         Director, Executive Vice President,            1981
                                                     Secretary and Chief Administrative Officer

           James H. Lynch, Jr.            66         Chairman of the Board                          1989

           Stephen J. DiLascio            42         Director, Managing General Partner of          1995
                                                     Equitrade

           Class 2 Directors

           Arthur Kontos                  51         Director, Vice Chairman of the Board,          1988
                                                     Chief Executive Officer

           Richard J. Marino              53         Director, Senior Vice President, Chairman      1981
                                                     of the Board of Sherwood Securities

           Ralph N. Del Deo               72         Director                                      1993

           Class 3 Directors

           Carl H. Hewitt                 46         Director                                      1991

           John. P. Duffy                 56         Director                                      1992

           Thomas Neumann                 33         Director, Executive Vice President            1992



</TABLE>


Certain Biographical Information Concerning
Incumbent Directors and Executive Officers

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

Arthur Kontos became Vice Chairman of the Board and Chief  Executive  Officer of
the Company in October 1988. Mr. Kontos was a managing director of SLK from June
1988 until October 1988, when he joined the Company. He became a general partner
of SLK in 1982 and President of S.G.I. Capital Holdings, Inc., a general partner
of S.G.I.  in 1988, from which positions he resigned in December 1991. From July
1978 until May 1988,  Mr. Kontos served as a director and as President and Chief
Executive Officer of Troster Singer Corporation, currently a division of SLK.

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

Dennis Marino has served as the  Company's  Chief  Administrative  Officer since
1986 and was  appointed  President of Sherwood  Securities,  a subsidiary of the
Company,  in January  1988. He has been  employed by Sherwood  Securities  since
February  1969.  Mr. Marino has been an Executive  Vice President of the Company
since 1977. Mr. Marino served as President of the Securities Traders Association
of New York for a term that expired in 1991 and presently  serves as Chairman of
the Securities Traders  Association ("STA") for a term expiring in October 1997.
Mr.  Marino  will serve a two year term as  Governor  of the STA  following  his
tenure as Chairman.

Thomas  Neumann has served as an Executive  Vice  President of the Company since
1991  and  Head  of  Capital  Markets  of  Sherwood   Securities  in  charge  of
institutional  sales since 1995.  Mr.  Neumann  joined  Sherwood  Securities  in
October 1988 and held various trading positions with that company prior to being
appointed a senior vice  president in 1990.  From June 1986 until  October 1988,
Mr. Neumann was an employee of Troster Singer Corporation.

John P. Duffy retired from his position as a managing director of SLK in 1991, a
position  he held  from  prior to  September  1987  until his  retirement.  As a
managing  director of SLK, Mr. Duffy acted as a specialist on The New York Stock
Exchange ("NYSE").

Carl  Hewitt was  appointed  a director  of the Company at the request of S.G.I.
under the terms of an agreement between the Company and S.G.I. pursuant to which
S.G.I.  has the right to designate two directors.  Mr. Hewitt became a member of
the Board of Directors in July 1991.  Mr. Hewitt is a managing  director and the
general  counsel of SLK. Mr. Hewitt  joined SLK in 1985 as an assistant  general
counsel.  He became  the  general  counsel  in June 1988 and  became a  managing
director in January 1991. Mr. Hewitt is also the sole  shareholder  and director
and the  president of the  corporation  which  serves as the general  partner of
S.G.I.

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

James  Romano,  age 50,  currently  serves as Senior Vice  President of Sherwood
Securities and as manager of its trading department.  Mr. Romano joined Sherwood
Securities  in June 1992 as vice  president  of  trading  and as a member of the
Management  Committee.  In  January  1995,  he assumed  responsibility  over the
trading  department  and was  appointed  to  serve  on the  Company's  Executive
Committee.  For eleven  years  prior to joining  the  Company,  Mr.  Romano held
various  trading  positions  at  Troster  Singer  Corporation,   including  vice
president of trading.

William  Karsh,  age 44, has been  Treasurer and Executive Vice President of the
Company  since March 4, 1991. He also served as Chief  Financial  Officer of the
Company and of Sherwood  Securities  until October 1995. In addition,  Mr. Karsh
serves as  Chairman  of the Board of  National  Discount  Brokers.  Prior to his
employment with the Company,  Mr. Karsh was an independent  consultant providing
expert securities related testimony. He also worked on various other assignments
in the securities  industry.  In addition,  from March 1989 until November 1990,
Mr. Karsh was the chief financial officer of a derivative  products trading firm
in New York.  Prior to March 1989,  Mr. Karsh was the Chief  Financial  Officer,
Senior Vice  President,  Secretary  and Treasurer of Refco  Securities,  Inc., a
fully integrated broker dealer, a position held by him since 1983.

Stephen J. DiLascio is the managing partner of Equitrade. He began his career on
the trading floor in 1973 with Weiss, Peck & Greer's specialist  operation,  the
predecessor to Equitrade.  He became a specialist in 1978, a partner in 1980 and
the managing partner in 1989. As the managing partner, he is responsible for all
aspects of  Equitrade's  operations.  Mr.  DiLascio is a director of  Securities
Industry Automation  Corporation  ("SIAC"),  a governor of the NYSE, a member of
the  Alliance of Floor  Brokers  and a member of the  Technology,  Planning  and
Oversight Committee at the NYSE.

Laura R. Singer,  age 43, has been General  Counsel and Senior Vice President of
the Company since January 6, 1997.  Prior to that time, she served for six years
as an Assistant  Director in the Division of  Enforcement  of the Securities and
Exchange Commission in Washington,  D.C. Previously, Ms. Singer had been counsel
to Market Surveillance at the National  Association of Securities  Dealers.  Ms.
Singer  has  been  a  member  of  the  bar  since   September,   1978.  She  has
responsibility for the legal affairs of the Company.

Denise  Isaac,  age 30, has been Chief  Financial  Officer of the Company  since
October 1995.  Prior to her employment with the Company,  Ms. Isaac was a Senior
Manager in the financial  services  practice of KPMG Peat Marwick LLP. Ms. Isaac
was  employed  by KPMG Peat  Marwick  LLP since 1986 where she worked on various
assignments and instructed courses to the securities industry.


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the  Securities  Exchange Act of 1934, as amended  requires the
Company's  executive  officers and directors,  and persons who  beneficially own
more than ten percent of a registered class of the Company's  equity  securities
to file reports of ownership and changes in ownership  with the  Securities  and
Exchange Commission and The New York Stock Exchange. Based solely on a review of
the copies of reports furnished to the Company and written  representations from
the Company's  executive  officers,  directors and persons who  beneficially own
more than ten percent of the Company's equity  securities,  the Company believes
that,  during the  preceding  year,  all filing  requirements  applicable to its
officers,  directors  and ten  percent  beneficial  owners  were  met,  with the
exception  that an initial  report  (Form 3) of  beneficial  ownership by Denise
Isaac, the Company's Chief Financial Officer,  was filed late. In addition,  the
annual  statement of change in beneficial  ownership  (Form 5) was filed late by
each of Denise  Isaac,  James Romano and Laura  Singer.  Appropriate  corrective
actions has been taken by each of these individuals.


Meetings of the Board and Committees

During fiscal year 1997, the Board of Directors held eight meetings. Each of the
directors attended at least 75% of the aggregate of all meetings of the Board of
Directors and the total number of meetings  held by all  committees of the Board
of Directors of which each  respective  director was a member during the time he
was serving as such during the fiscal year ended May 31, 1997.

The Board of  Directors  has  created an  Executive  Committee,  a  Compensation
Committee,  an  Audit  Committee,  and a  Nominating  Committee.  The  Executive
Committee is comprised of James H. Lynch,  Jr., Arthur Kontos and Dennis Marino.
The  Compensation  Committee is comprised of James H. Lynch, Jr. and John Duffy.
The Audit  Committee is comprised  of Carl H.  Hewitt,  James H. Lynch,  Jr. and
Ralph N. Del Deo. The Nominating  Committee is comprised of Arthur Kontos,  Carl
H. Hewitt and John P. Duffy.

The  Executive  Committee,  which held two meetings  during fiscal year 1997, is
authorized,  among  other  things,  to exercise  such powers as may  lawfully be
delegated  to it by  the  Board  of  Directors,  including  the  appointment  of
officers,  the appointment of agents of the Company,  and the  determination  of
general  policy with regard to business of the Company.  Action by the Executive
Committee is subject to review and revision by the Board of Directors.

The Compensation Committee, which held two meetings during fiscal year 1997, has
jurisdiction  on behalf of the Company to approve,  disapprove,  modify or amend
all  plans  to  compensate   employees  including  bonuses.  No  member  of  the
Compensation  Committee is eligible for any award or any grant of stock  options
under any such plans.  The  Compensation  Committee  determines  the salaries of
employees of the Company who are directors and also  determines  the salaries of
all other  employees  of the Company  who are  officers or who occupy such other
positions as may be designated by the Compensation Committee.

The Audit Committee, which held one meeting during fiscal year 1997, reviews and
monitors the Company's  financial  reports and  accounting  practices and, among
other things, makes  recommendations to the Board with respect to audit policies
and  procedures  and the  scope and  extent of  audits,  reviews  the  Company's
unaudited  quarterly  financial  results,  and reviews the annual year end audit
with the Company's independent auditors.

The  Nominating  Committee  was created by the Board of Directors in August 1993
for the purpose of  nominating  a slate of nominees for election to the Board of
Directors  by  the  stockholders  of the  Company  at  each  Annual  Meeting  of
Shareholders  commencing with the annual meeting of  stockholders  held in 1994.
The Nominating  Committee is also responsible for nominating  candidates to fill
the position of each director,  if any, whose term as director  terminates prior
to the date of any annual meeting of  stockholders  and who is to be replaced by
the Board of Directors.  The  Nominating  Committee  does not consider  nominees
recommended by stockholders in its deliberations.
The Nominating Committee held no meetings in fiscal year 1997.


                Compensation Of Directors And Executive Officers


The following table sets forth  information  concerning the annual and long-term
compensation  for services in all capacities to the Company and its subsidiaries
for each of the fiscal years ended May 31, 1997,  1996 and 1995 of those persons
who were, at May 31, 1997,  (i) the Chief  Executive  Officer and (ii) the other
four most highly  compensated  executive  officers of the Company for the fiscal
year ended May 31, 1997 (the "named executive officers"):
<TABLE>
<CAPTION>


                          Executive Compensation Table

                                              Annual Compensation

                                           ----------- ---------------- ----------------- -------------------
Name and                                                                                  Securities
Principal                     Fiscal                                    All Other         Underlying
Position                      Year         Salary($)    Bonus($)       Compensation($)    Options (#)
                                    

<S>                           <C>           <C>         <C>               <C>                  <C>   

Arthur Kontos, Vice           1997          $300,000    $3,061,460
Chairman of the Board and     1996           300,000     6,137,012        $7,119,375(2)        219,533
Chief Executive Officer of    1995           300,000     3,131,745
the Company

Dennis Marino                 1997           150,000       286,728
Executive Vice President      1996           150,000       515,000           663,181(2)         45,190
and Chief Administrative      1995           150,000       175,000
Officer of the Company;
President of Sherwood
Securities
                                                                              84,375(3)

Thomas Neumann                1997           250,000       573,455           113,699(2)         88,187
Executive Vice President of   1996           248,939     1,015,000         1,093,376(2)         94,027
the Company                   1995           200,000       450,000

Richard J. Marino             1997                --       614,606(1)
Chairman of the Board of      1996                --       486,654(1)        196,875(2)         12,294
Sherwood Securities           1995                --       319,600(1)


William Karsh                 1997           150,000       286,728
Executive Vice President      1996           150,000       515,000           190,625(2)         12,339
and Treasurer of the          1995           129,000       175,000
Company and Sherwood
Securities


James Romano                  1997           350,000       235,000(1)                           15,000
Senior Vice President of      1996           350,000       274,091(1)
Sherwood Securities           1995           148,077       972,000(1)


No named executive officer received personal benefits or perquisites  during the
fiscal  year ended May 31, 1997 in excess of the lesser of $50,000 or 10% of his
aggregate salary and bonus.
<FN>

(1)     Cash  bonuses  for Mr. R.  Marino and Mr.  Romano  include  commissions,
        representing  a percentage  of gross  commissions  on  sales/trades  and
        discretionary  incentive bonuses.  Commissions for Mr. R. Marino for the
        fiscal year ended May 31,  1997  equaled  $614,606,  for the fiscal year
        ended May 31, 1996  equaled  $447,904  and for the fiscal year ended May
        31, 1995 equaled  $302,100.  Discretionary  incentive bonuses for Mr. R.
        Marino for the fiscal year ended May 31, 1997 equaled $0, for the fiscal
        year ended May 31, 1996 equaled $8,750 and for the fiscal year ended May
        31, 1995 equaled $17,500. Commissions for Mr. Romano for the fiscal year
        ended May 31,  1997  equaled  $0, for the fiscal year ended May 31, 1996
        equaled  $91,091  and for the  fiscal  year ended May 31,  1995  equaled
        $930,000.  Discretionary incentive bonuses for Mr. Romano for the fiscal
        year ended May 31, 1997 equaled $235,000,  for the fiscal year ended May
        31,  1996  equaled  $183,000  and for the fiscal year ended May 31, 1995
        equaled $42,000.
</FN>
<FN>

(2) Represents gain recognized upon exercise of options.
</FN>
</TABLE>


Compensation Arrangements

Through May 31, 1997, Mr. Kontos was  compensated by the Company  pursuant to an
Employment Agreement (the "Employment  Agreement") by and between Mr. Kontos and
the Company  dated as of September 12, 1995.  Under the terms of the  Employment
Agreement,  the  Company  had agreed to pay Mr.  Kontos an annual base salary of
$300,000. In addition, Mr. Kontos was entitled to a bonus ("Bonus") based on the
Company's "Income." "Income" is defined in the Employment  Agreement to mean the
Company's  consolidated  pre-tax net income  during any fiscal year in which the
Employment  Agreement is in effect without any deductions for amounts payable as
a Bonus under the Employment Agreement or any related accruals. For fiscal years
commencing  with the fiscal year ended May 31, 1996,  Mr. Kontos was entitled to
an annual Bonus based on performance goals,  therein defined as 10% of the first
$5,000,000 of Income, 15% of the next $8,000,000 of Income and 18% of the Income
over $13,000,000. In March 1996, Mr. Kontos signed a waiver wherein his Bonus on
any Income over  $19,746,019,  for the fiscal year ended May 31, 1996,  would be
paid at a rate of 15%, rather than 18%.

On May 31, 1997, the Board of Directors  approved,  and Mr. Kontos signed, a new
employment  agreement,  (the "New  Employment  Agreement").  The New  Employment
Agreement  provides for an initial term of  employment  from June 1, 1997 to May
31, 2000.  The Company has the option to extend the term from June 1, 2000 until
May 31, 2001.  Mr.  Kontos has the right to extend the term from June 1, 2001 to
May 31, 2002. The New Employment Agreement provides that Mr. Kontos will receive
an annual base salary of $300,000 and an annual cash bonus pursuant to the terms
of The Sherwood  Group 1996 CEO Bonus Plan (the "CEO Bonus  Plan").  Pursuant to
the CEO Bonus Plan, for fiscal years  commencing  with the fiscal year ended May
31, 1998,  the Chief  Executive  Officer of the Company is entitled to an annual
cash  bonus  equal  to 10% of the  first  $10,000,000  of  "Income,"  and 15% of
"Income" over $10,000,000. "Income" means the consolidated pre-tax net income of
the Company  without  deductions for the payment or accrual of a bonus under the
CEO Bonus Plan. The New Employment Agreement may be terminated (i) by Mr. Kontos
either on thirty  (30) days  prior  written  notice or at any time  following  a
Change in Control, as defined, (ii) by the Company for Cause, as defined,  (iii)
automatically upon the death or disability of Mr. Kontos, or (iv) by the Company
without Cause. If the Company  terminates the New Employment  Agreement  without
Cause,  or Mr. Kontos  terminates  his  employment  for Good Reason (as defined)
following  within one year after a Change of Control,  Mr. Kontos is entitled to
receive  as  liquidated  damages  an amount  equal to three  times  his  average
compensation  (including base salary, bonus and any other compensation) from the
Company and its subsidiaries as reported for federal income tax purposes for the
five  previous  calendar  years less $1.00  subject to the  limitation  that the
amount shall not  constitute an excess  parachute  payment under Section 280G of
the Internal  Revenue Code of 1986, as amended.  Generally,  a Change in Control
will be deemed to have occurred  under the New  Employment  Agreement (i) if any
person  (other than Mr.  Kontos or persons under his control) or group acting in
concert  acquires  beneficial  ownership of more than 50% of the voting stock of
the Company and the control so acquired is exercised in any manner,  (ii) during
a two year period  persons who at the beginning of the period who constitute the
Board of Directors and any new director  whose election was approved by at least
2/3 of the directors then still in office,  cease for any reason to constitute a
majority of the Board of Directors,  or (iii) the Company or a subsidiary of the
Company merges,  consolidates or engages in a similar transaction,  other than a
transaction  where voting  securities of the Company  outstanding  prior to this
Transaction continue to represent 75% of the combined voting power of the voting
securities of the Company or the surviving entity, or the stockholders approve a
plan of complete  liquidation or an agreement for the sale or disposition of all
or substantially all of the Company's assets.

The Sherwood Group, Inc. 1996 Executive  Incentive Award Plan ("Incentive Plan")
provides  for the payment of cash  bonuses to senior  executive  officers of the
Company.  Only three participants (other than the Chief Executive Officer of the
Company)  with the highest  base salary for an Award Period are eligible for the
receipt of an Incentive  Award.  Generally,  the Award  Period is the  Company's
fiscal year. The Incentive Plan is currently  administered  by the  Compensation
Committee  and was  effective  commencing  the fiscal  year ended May 31,  1997.
Participating  senior executives may not receive an Incentive Award in excess of
25% of the  Compensation  Pool (as  defined),  except the  participating  senior
executive  with the highest  base salary may not receive an  Incentive  Award in
excess of 50% of the Compensation  Pool. The Compensation  Pool is 4.25% of "Net
Income" for an Award Period where "Net Income"  means  consolidated  pre-tax net
income  of  the  Company  after   adjustment  to  exclude  or  include  unusual,
infrequently  occurring  or  extraordinary  items or the  cumulative  effects of
changes in  accounting  principles  and not taking  into  account the payment or
accrual of the  Incentive  Awards under the  Incentive  Plan.  Messrs.  Neumann,
Dennis Marino and Karsh were  participants  in the Incentive Plan for the fiscal
year ended May 31, 1997.

Compensation of Directors

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


Option Grants in Last Fiscal Year

Shown below is information  with respect to the options to purchase Common Stock
granted to the Chief Executive  Officer and the named executive  officers of the
Company.




<PAGE>


<TABLE>
                        Option Grants In Last Fiscal Year
<CAPTION>

                                                                                                Potential Realizable
                                                                                               Value at Assumed Annual
                                                                                                Rates of Stock Price
                                    Individual Grants                                          Appreciation for Option
                                                                                                        Term
------------------------------------------------------------------------------------------    --------------------------
                        Number of     % of Total
                       Securities       Options
                       Underlying     Granted to      Exercise or
                         Options     Employees in     Base Price          Expiration
        Name           Granted (#)    Fiscal Year       ($/Sh)               Date              5% ($)         10% ($)
        ----           -----------    -----------       ------               ----              ------         -------
<S>                      <C>             <C>          <C>                   <C>               <C>           <C>

Arthur Kontos                 0

Dennis Marino                 0

Thomas Neumann(1)        88,187          53.39%       $10.1250              2/24/07           $561,536      $1,423,042

Richard J. Marino             0

William Karsh                 0

James Romano(2)          15,000           9.08         11.3750              6/27/06            107,305         271,932

<FN>

(1) All options granted became exercisable on August 24, 1997.
</FN>
<FN>

(2) All options granted will become  exercisable  with respect to one-third
    of the shares on each of the first, second and third anniversary of the
    date of grant.
</FN>
</TABLE>





Option Exercises and Fiscal Year-End Values


Shown below is  information  with respect to the exercise of options to purchase
Common Stock by the Chief Executive Officer and the named executive officers and
unexercised  options to  purchase  shares of Common  Stock  granted to the Chief
Executive Officer and such named executive officers.



<PAGE>

<TABLE>
                                Aggregated Option Exercises In Fiscal Year Ended May 31, 1997
                                              And May 31, 1997 Option Value
<CAPTION>

                                                                Number of Unexercised           Value of Unexercised
                                                                      Options at                In-the-money Options
                          Number of Shares        Value            Fiscal Year-End             at Fiscal Year-End(1)
         Name           Acquired on Exercise     Realized    Exercisable   Unexercisable  Exercisable     Unexercisable
                                                                            
<S>                            <C>              <C>         <C>             <C>           <C>                <C>

Arthur Kontos, Vice               0                 0       219,533             0         $781,277                0         
Chairman of the Board                                                      
and Chief Executive                                                                     
Officer of the Company

Dennis Marino                     0                 0        45,190             0          160,954                0
Executive Vice                                               
President and Chief                                         
Administrative
Officer of the
Company; President of
Sherwood Securities

Thomas Neumann                 94,027           $113,699       0            88,187             0             $198,421
President of the
Executive Vice                                               
Company

Richard J. Marino                 0                 0        12,294             0          43,029                 0
Chairman of the Board                                        
and                                                         
Director of
International Equity
Trading of Sherwood
Securities

William Karsh                     0                 0        12,339             0          46,271                 0 
Executive Vice                                                                
President and                                                
Treasurer of the
Company and Sherwood
Securities

James Romano                      0                 0          0            15,000             0               15,000
Senior Vice President                                        
of Sherwood Securities                                       




<FN>

(1)      Based on the  difference  between the exercise price of the options and
         the closing price of the Common Stock on The New York Stock Exchange on
         May 31, 1997.
</FN>
</TABLE>


<PAGE>


               Compensation Committee Report On Executive Compensation

General

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

Set  forth  below is a  discussion  of the  Company's  compensation  philosophy,
together  with  a  discussion  of the  factors  considered  by the  Compensation
Committee in determining the  compensation of the Company's Vice Chairman of the
Board and Chief  Executive  Officer and other named  executive  officers in this
Proxy Statement for the fiscal year ended May 31, 1997.

Members of the Compensation  Committee during the fiscal year ended May 31, 1997
were John P. Duffy and James H. Lynch,  Jr. During the fiscal year ended May 31,
1997,  entities with which certain  members of the  Compensation  Committee were
associated received payments from the Company.

Each of Sherwood  Securities  and Equitrade  clear  certain of their  securities
transactions with SLK. Each of Messrs. Hewitt and Kellogg are managing directors
of SLK. Messrs.  Lynch and Duffy were formerly associated with SKL. See "Certain
Biographical Information Concerning Incumbent Directors and Executive Officers."
During the Company's  1997 fiscal year,  the Company and its  subsidiaries  paid
fees in the  aggregate  amount of $940,347 to SLK in  connection  with  clearing
activities performed by SLK.

Compensation Philosophy

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

Salaries.  Consistent  with its  compensation  philosophy,  the Company has paid
relatively  modest base salaries to its salaried  officers and has  supplemented
these salaries with performance-based bonuses. Traders generally receive no base
salaries,  and are compensated on a commission  basis. In making  decisions with
respect to the base salaries of executive officers for the fiscal year ended May
31, 1997, the committee considered the performance of each of the individuals in
question  during the prior year,  the Company's  results of  operations  for the
fiscal  year  ended  May 31,  1996  and the  responsibilities  of the  executive
officers.  In keeping  with its desire to base much of the  compensation  of the
Company's  executives on performance  during the year,  the committee  generally
determined  to  make  only  modest  changes  in the  base  salaries  of  certain
executives,  and to maintain  salaries for most  executive  officers at the same
level as the prior year.

Bonuses.  The bonuses paid to the Company's  executive  officers with respect to
the fiscal  year  ended May 31,  1997 were  determined  in  accordance  with the
Company's previously  enumerated policy.  Performance of officers is measured by
reference to the volume of business  generated by them or under their  direction
during the fiscal year.  The  performance  of the Company's Vice Chairman of the
Board and Chief  Executive  Officer is measured  primarily  by  reference to the
Company's financial performance for the fiscal year and is measured by a formula
contained  in his  Employment  Agreement.  Bonuses paid to  participants  in the
Incentive Plan were paid in accordance with that plan.


Chief Executive Officer Compensation

The  compensation  arrangements  for Mr.  Kontos with respect to the fiscal year
ended May 31,  1997 were based on the  Company's  compensation  philosophy.  The
Compensation  Committee  determined  not to make any  adjustments to Mr. Kontos'
base  salary for the year,  in an effort to provide Mr.  Kontos with  additional
incentives to continue to improve the Company's  performance.  Mr. Kontos' bonus
with respect to the fiscal year ended May 31, 1997 was  determined in accordance
with the provisions of the Employment Agreement.

                                                      THE COMPENSATION COMMITTEE


                                                      James H. Lynch, Jr.
                                                      John P. Duffy



Indemnification of Directors and Officers

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


Stock Option Plans.

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

The 1983 Option Plan  provided for the issuance of incentive  and  non-incentive
stock  options (as defined in Section 422 of the Internal  Revenue Code of 1986,
as amended,  and the rules and  regulations  of the  Department  of the Treasury
promulgated  thereunder (the "Code")) covering a maximum of 10,000,000 shares of
the  Common  Stock  and was  administered  by the  Compensation  Committee  with
approval of the Board of  Directors.  Stock options were granted for terms of up
to ten years.  The 1983  Option  Plan  provided  that the  exercise  price of an
incentive  stock  option  would be not less  than the fair  market  value of the
shares of Common  Stock on the date the option was granted.  Generally,  options
granted under the 1983 Option Plan remain exercisable only if the optionee is an
officer,  director or employee of the Company or its subsidiaries on the day the
options vest.

In August 1995,  the Board of Directors  adopted The Sherwood  Group,  Inc. 1995
Stock Option Plan (the "1995 Stock Option  Plan") which plan was approved by the
stockholders  at the 1995 Annual Meeting of  Stockholders.  Under the 1995 Stock
Option Plan,  767,200 shares Common Stock have been  authorized for issuance for
the granting of options and stock  appreciation  rights.  The maximum  number of
shares  subject to stock options that may be granted to any one optionee  during
any  calendar  year under the 1995  Stock  Option  Plan may not  exceed  300,000
shares.  The 1995 Stock Option Plan provides for the granting of both  incentive
and  non-incentive  stock  options and stock  appreciation  rights  which may be
issued in connection with a stock option.  At May 31, 1997,  207,316 shares were
available  for future grant under the 1995 Stock Option Plan.  Options  covering
165,187  shares of Common Stock were granted by the Company under the 1995 Stock
Option Plan during the fiscal year ended May 31,  1997.  The Board of  Directors
has proposed to amend the 1995 Stock Option Plan.  See  "Proposal 3. Approval of
Amendment of The Sherwood Group, Inc.
1995 Stock Option Plan."


401(k) Plan

In April 1992, the Company formed the Sherwood Securities Corp. 401(k) Plan (the
"401(k) Plan") which is a profit sharing plan qualified  under Section 401(k) of
the Code.  Under the terms of the 401(k) Plan,  all employees of the Company and
its  subsidiaries   (except  Equitrade)   employed  on  February  1,  1992  were
immediately  eligible  to  participate.  All other  employees  are  eligible  to
participate  in the 401(k)  Plan  after  completing  six  months of service  and
attaining  age 21.  Employees  may  elect to have  deductions  made  from  their
salaries and  contributed to the 401(k) Plan. In addition,  the Company may make
matching  contributions  to the 401(k) Plan in such amounts as may be determined
in the  discretion of the Board of  Directors.  During the fiscal year ended May
31, 1997, there was a discretionary  Company  contribution to the 401(k) Plan of
$63,699. Voting rights with respect to shares of Common Stock held in the 401(k)
Plan are voted at the  direction of the  Compensation  Committee of the Board of
Directors.

Equitrade sponsors,  for its eligible  employees,  the Equitrade Partners 401(k)
Savings Plan, which is a profit sharing plan,  qualified under Section 401(k) of
the Code. Equitrade contributes a matching contribution equal to one-half of the
first 4% of an employee's compensation.  For the fiscal year ended May 31, 1997,
Equitrade contributed $46,749 to the Equitrade Partners 401(k) Savings Plan.



                 Certain Relationships And Related Transactions

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

Thomas Neumann.  On March 24, 1993, the Company loaned to Thomas Neumann and his
wife the sum of $600,000 pursuant to the terms of a Secured Note, a Mortgage and
Security Agreement and a Construction Loan Agreement. The loan bears interest at
the rate of 5% per annum.  Interest accrued through August 15, 1993 was paid. On
or before  August 15, 1994 and on each August 15  thereafter  during the term of
the loan,  Mr.  Neumann is obliged to make  annual  payments  of  principal  and
interest in the  aggregate  amount of $40,000.  Such  payments have been made as
scheduled.  On July 23, 1997,  the foregoing  loan was converted  into a loan of
$378,544  secured by shares of Common  Stock owned by Mr.  Neumann and bearing a
rate of 5% per annum and containing the same amortization requirement.

Spear,  Leeds  &  Kellogg.  See  "Compensation  Committee  Report  on  Executive
Compensation-General".

Ralph N. Del Deo. Mr. Del Deo is a senior partner in the law firm of Crummy, Del
Deo, Dolan,  Griffinger & Vecchione,  P.C. which performs legal services for the
Company and certain of its subsidiaries.



<PAGE>


                               Company Performance


Set  forth  below  is a  line  graph  comparing  the  percentage  change  in the
cumulative total  stockholder  return on the Common Stock against the cumulative
total return of the S&P  Composite-500  Stock Index and the Dow Jones Securities
Brokers  Index ("D J Brokers  Index").  The graph  assumes that the value of the
investment  in the Common Stock and each index was $100 at May 31, 1992 and that
all dividends, if any, were reinvested.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE SHERWOOD GROUP, INC. THE S & P 500 INDEX
AND THE DOW JONES SECURITIES BROKERS INDEX
<CAPTION>


                                                                       Cumulative Total Return
                                               5/92          5/93          5/94          5/95          5/96          5/97
                                           ------------------------------------------------------------------------------------
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>

The Sherwood Group, Inc.                             100           119           211           204           319           367

S & P 500                                            100           112           116           140           180           232

Dow Jones Securities Brokers                         100           137           148           174           223           342

<FN>

*  $100  invested  on  5/31/92  in  stock  or index  including  reinvestment  of
   dividends.
   Fiscal year ending May 31.
</FN>


</TABLE>



<PAGE>


PROPOSAL 2.       APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
                  TO DECREASE THE AUTHORIZED SHARES OF CAPITAL STOCK AND 
                  ELIMINATE REFERENCES TO CLASS A COMMON STOCK

         The Board has adopted a resolution  amending Article 4 of the Company's
Restated  Certificate  of  Incorporation,  filed with the Delaware  Secretary of
State on February 4, 1987 (the  "Restated  Certificate  of  Incorporation"),  to
decrease the number of authorized shares of the Company's capital stock from the
current amount of 101,000,000 shares,  consisting of 50,000,000 shares of Common
Stock, par value $.01 per share,  50,000,000 shares of Class A Common Stock, par
value  $.01 per  share  ("Class  A  Common  Stock"),  and  1,000,000  shares of
Preferred Stock,  par value $.01 per share  ("Preferred  Stock"),  to 51,000,000
shares,  which would consist of 50,000,000  shares of Common Stock and 1,000,000
shares of Preferred Stock (the "Charter Amendment").  The Charter Amendment will
also eliminate all the provisions in the Restated  Certificate of  Incorporation
related to the Class A Common Stock.  Article 4 of the Restated  Certificate  of
Incorporation,  as amended by the Charter Amendment, is attached as Exhibit A to
this Proxy Statement. The description which follows is qualified in its entirety
by the exact language of the Charter Amendment.

         Article  4 of  the  Restated  Certificate  of  Incorporation  currently
authorizes a total of 50,000,000  shares of Common Stock,  50,000,000  shares of
Class A Common Stock and 1,000,000  shares of Preferred  Stock.  At the close of
business on May 31, 1997, the record date for the Meeting, there were 12,694,665
shares  of Common  Stock  outstanding  and no shares of Class A Common  Stock or
Preferred Stock outstanding, and as of May 31, 1997 there were 673,173 shares of
Common Stock  reserved for issuance  pursuant to the 1995 Stock Option Plan. The
decrease in the number of  authorized  shares is proposed in order to reduce the
annual  franchise  tax paid by the  Company to the State of  Delaware,  which is
required  by virtue of the  Company's  incorporation  under  Delaware  law.  The
Restated Certificate of Incorporation also authorizes the Company to issue up to
50,000,000 shares of Class A Common Stock. Each share of Class A Common Stock is
entitled to one-tenth (1/10th) vote on all matters submitted to the stockholders
of the Company and vote  together as one class with the Common  Stock;  provided
that if the  number of shares  of Class A Common  Stock is at least ten  percent
(10%) of the total of the  number of shares of Class A Common  Stock and  Common
Stock which is issued and outstanding,  the holders of the Class A Common Stock,
voting separately as a class, have the right to elect twenty-five  percent (25%)
of the Board of Directors. Each share of Common Stock issued and outstanding can
be  converted  into one share of Class A Common  Stock once the  Company  issues
Class A Common  Stock.  No cash dividend or dividend of property may be declared
or paid per share on the Common Stock,  unless a dividend of an equal amount has
been declared and paid per share on the Class A Common Stock, except in the case
of dividends  paid on shares of Common Stock or Class A Common Stock.  Shares of
either  class of common  stock may not be  divided,  subdivided  or  combined or
reclassified,  unless  shares of the other class of common  stock are  similarly
treated.  In the event of a  liquidation  or  dissolution  of the Company,  or a
winding up of its  affairs,  whether  voluntary or  involuntary,  or a merger or
consolidation  of the Company,  after  payment or  provision  for payment of the
debts or  liabilities  of the Company and the amounts to which holders of senior
securities may be entitled, holders of Class A Common Stock and Common Stock are
entitled to share ratably as one class in the  remaining  assets of the Company.
The Board believes the provisions in the Restated  Certificate of  Incorporation
regarding Class A Common Stock serve no useful purpose and should be eliminated.

         Other than  decreasing  the  number of  authorized  shares of capital
stock and eliminating  provisions  relating  to the  Class A  Common  Stock,  
the  Charter Amendment will not affect the rights, preferences or privileges of
the Company's stockholders.

         The Board has directed  that the Charter  Amendment  be  submitted  for
stockholder  approval.  The  affirmative  vote of a majority of the  outstanding
shares of Common  Stock  voted in person or by proxy at the  Meeting is required
for approval of the Charter Amendment. In the absence of approval, the number of
authorized  shares of the Company's capital stock will remain as described above
and the  provisions  regarding  the  Class A Common  Stock  will  remain  in the
Restated Certificate of Incorporation.

The Board of  Directors  recommends  a vote "FOR" the  amendment to the Restated
Certificate of Incorporation.


PROPOSAL 3.  APPROVAL OF AMENDMENT TO THE SHERWOOD GROUP, INC. 1995 STOCK 
             OPTION PLAN

         At the  Meeting,  the holders of the Common Stock will be asked to vote
upon a proposal to approve an amendment to The Sherwood  Group,  Inc. 1995 Stock
Option Plan (the "1995 Stock Option  Plan") to increase by 420,000 the number of
shares of Common Stock for which  options and stock  appreciation  rights may be
granted  thereunder  from  767,200  shares to 1,187,200  shares.  The 1995 Stock
Option Plan,  as proposed to be amended,  is attached as Exhibit B to this Proxy
Statement.

Reasons For The Proposal

         Under the 1995 Stock Option Plan as  currently  in effect,  options and
stock  appreciation  rights for up to 767,200  shares of the Common Stock may be
granted.  The Board of Directors has determined that it is advisable to continue
to provide  stock-based  incentive  compensation  to the Company's  officers and
employees,  thereby  continuing  to align the interests of such  employees  with
those of  stockholders,  and that awards under the 1995 Stock Option Plan are an
effective means of providing such compensation. In order to effectuate the grant
of the options and stock appreciation  rights by the Compensation  Committee set
forth herein and to continue to grant stock-based incentive  compensation in the
future,  it is  necessary  to  increase  the  number of  shares of Common  Stock
available  for grant under the 1995 Stock  Option  Plan.  The Board of Directors
also determined that the 1995 Stock Option Plan should be expanded to permit the
grant  of  stock  options  and  stock  appreciation  rights  to  all  employees,
independent contractors,  agents and consultants rather than only key employees,
independent contractors, agents and consultants of outstanding ability.

Description Of The 1995 Plan And The Proposed Amendments

         The  following  is a  summary  of the 1995  Stock  Option  Plan and the
proposed  amendments to it under Proposal 3. This summary does not purport to be
complete,  and is qualified in its entirety by reference to the text of the 1995
Stock Option Plan, which is attached as Exhibit B to this Proxy Statement.

Purpose.  The purpose of the 1995 Stock Option Plan is to provide an  additional
incentive to key employees,  independent contractors,  agents and consultants of
the Company and its subsidiaries,  to aid in attracting and retaining employees,
independent  contractors,  agents and consultants of outstanding ability, and to
closely align their interests with those of stockholders.  The 1995 Stock Option
Plan presently  authorizes the granting of options and stock appreciation rights
of up to  767,200  shares  of Common  Stock  (collectively,  "Options"),  and if
Proposal 3 is approved,  up to an  additional  420,000  shares of Common  Stock,
subject to adjustment in the event of mergers, consolidations,  reorganizations,
recapitalizations,  stock  dividends,  stock  splits  or  other  change  in  the
corporate  structure or  capitalization  affecting the  Company's  issued Common
Stock.  As indicated  above the  amendment  would expand the number of officers,
employees,  independent contractors, agents and consultants who perform services
for the Company or any of its  subsidiaries  who are eligible to receive  grants
under  the  1995  Stock  Option  Plan to  eliminate  the  requirement  that  the
recipients be key employees,  independent contractors, agents and consultants of
outstanding  ability.  The  Board of  Directors  believes  it is  beneficial  to
consider  making stock  option and stock  appreciation  right  grants  generally
available to employees rather than to a select group of key employees.

Administration.  If amended by  Proposal  3 the 1995 Stock  Option  Plan will be
administered by a committee (the  "Committee") of at least two directors who are
Non-Employee  Directors  as such term is defined  in Rule 16b-3 of the  Exchange
Act,  presently the  Compensation  Committee.  In  administering  the 1995 Stock
Option Plan,  the  Committee has the power to interpret  its  provisions  and to
promulgate, amend, and rescind rules and regulations for its administration,  to
select  individuals to receive grants, and to determine the terms and provisions
of grants of options and stock appreciation rights.

Option  Grants.  The 1995 Stock  Option Plan  provides  for the granting of both
incentive stock options (an "ISO") and nonqualified  stock options (a "NQO") and
in connection  with such options the granting of stock  appreciation  rights (an
"SAR") or additional stock options,  progressive  stock options in the event the
grantee  exercises such stock options by surrendering  shares of Common Stock (a
"PSO").  NQO's and SAR's may be issued to any employee or officer of the Company
or its subsidiaries, or any other person who is an independent contractor, agent
or  consultant  of the Company or its  subsidiaries  but not any director of the
Company who is not an employee of the Company.  ISO's may be issued to employees
and  officers of the Company and its  subsidiaries,  but not to any  independent
contractor,  agent or  consultant.  The Committee  also  determines the times at
which options become exercisable,  their transferability and the dates, not more
than ten years after the date of grant,  on which  options will  expire.  In the
event of a tender offer for more than 25% of the Company's outstanding stock, or
a "change in control" (as defined in the 1995 Stock Option Plan) of the Company,
all outstanding options become immediately exercisable. The fair market value of
the stock with  respect to which ISO's  under the 1995 Stock  Option Plan or any
other plan of the Company first become  exercisable  may not exceed  $100,000 in
any year.  The option  price of an ISO is to be at least 100% of the fair market
value on the date of grant (110% in the case of optionees  holding more than ten
percent of the combined  voting  power of all classes of stock of the  Company).
The 1995 Stock Option Plan, however, permits the Committee to grant NQO's at any
exercise  price  consistent  with the  purposes of the 1995 Stock  Option  Plan,
whether  or not such  exercise  price is equal to the fair  market  value of the
stock on the date of grant of the NQO. NQO's with an exercise price of less than
fair  market  value on the date of grant will not  qualify as  performance-based
compensation  under  Section  162(m) of the Internal  Revenue  Code of 1986,  as
amended (the "Code") and so any compensation  expense  generated by the exercise
of such an option  would not be  deductible  by the Company if the optionee is a
"covered  employee"  who is paid  compensation  from the Company in an amount in
excess of $1,000,000 in the year of exercise.

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

As of May 31, 1997 the Committee  has awarded or granted  options under the 1995
Stock  Option  Plan  to 13  persons.  The  following  persons  and  groups  were
recipients of these options:  Arthur  Kontos:  219,533;  Dennis Marino:  45,190;
Thomas Neumann:  182,214;  Richard Marino:  12,294; William Karsh: 12,339; James
Romano:  15,000; all current executive officers as a group: 508,570; all current
directors  who are not  executive  officers  as a group:  -0- and all  employees
including  all  current  officers  who are not  executive  officers  as a group:
51,314.  Of the options  granted as of May 31, 1997,  options  covering  482,884
shares were granted to employees  exercising  options under the 1983 Option Plan
and 1995 Stock Option Plan by delivering  Common Stock to the Company.  Such new
options  were for the  number of shares of Common  Stock  equal to the number of
shares of Common Stock used to exercise the option and to pay withholding  taxes
due upon such exercise.  Options  covering 77,000 shares were granted which were
not the result of the exercise of options  granted under the 1983 Option Plan or
the 1995 Stock Option Plan.  The Committee has not made any  determination  with
respect to grants of options or stock  appreciation  rights to  employees in the
future.  The Company has 8 executive  officers,  and approximately 500 employees
who are not  executive  officers  who could  potentially  qualify  for grants of
options  and stock  appreciation  rights  under the 1995  Stock  Option  Plan as
proposed to be amended.

If Proposal 3 is approved by stockholders  and based upon shares of Common Stock
utilized or reserved  under  existing or exercised  stock  options as of May 31,
1997 under the 1995 Stock Option Plan, up to 627,316 shares of Common Stock will
be  available  for granting of options and stock  appreciation  rights under the
1995 Stock Option Plan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Vote Required

Pursuant  to The New  York  Stock  Exchange  stockholder  approval  policy,  the
affirmative  vote of a majority of the outstanding  shares of Common Stock voted
in person or by proxy at the Meeting is required for  approval of the  amendment
to the 1995 Stock  Option  Plan to  increase  the  number of  options  and stock
appreciation  rights  which may be issued  under the 1995 Stock  Option  Plan to
1,187,200  and change the  persons  eligible  to  participate  in the 1995 Stock
Option Plan.

The Board of Directors  recommends a vote "FOR" the  amendment of the 1995 Stock
Option Plan.



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

The Company, subject to stockholder ratification, has selected KPMG Peat Marwick
LLP to serve as its  independent  auditors  for the fiscal  year  ending May 31,
1998. If the stockholders do not ratify the appointment of KPMG Peat Marwick LLP
the Company may reconsider its selection.

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

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

The Board of Directors  recommends a vote "FOR" ratification and approval of the
appointment of KPMG Peat Marwick LLP as independent auditors.



Stockholder Proposals For Next Annual Meeting

Any stockholder  proposals intended to be presented at the Company's next annual
meeting of  stockholders  must be  received  by the Company at its offices at 10
Exchange Place Centre, Jersey City, New Jersey 07302, on or before June 4, 1998,
for consideration for inclusion in the proxy material for such annual meeting of
stockholders.

Expenses Of Solicitation

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

Other Matters

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

                                              By Order of the Board of Directors


                                              Dennis Marino
                                              Secretary

Dated:  September 2, 1997


<PAGE>


                                                         9
                                                    EXHIBIT A1

                                                     Article 4
                                                        of
                                       Restated Certificate of Incorporation

   
         4. The  total  number  of  shares  of all  classes  of  stock  that the
Corporation  shall have  authority to issue is  51,000,000,  of which  1,000,000
shares shall be Preferred Stock, par value $.01 per share,  ("Preferred  Stock")
and of which  50,000,000  shares shall be Common Stock, par value $.01 per share
("Common Stock"), and the voting powers, designations, preferences and relative,
participating,   optional  or  other  special  qualifications,   limitations  or
restrictions thereof are set forth hereinafter:
    

         1.       Preferred Stock

         (a) The  Preferred  Stock may be issued in one or more series,  each of
which  shall be  distinctively  designated,  shall  rank  equally  and  shall be
identical in all respects  except as otherwise  provided in  subsection  1(b) of
this Section 4.

         (b)  Authority is hereby vested in the Board of Directors to issue from
time to time the Preferred Stock of any series and to state in the resolution or
resolutions  providing  for the  issuance  of shares of any  series  the  voting
powers, if any, designations,  preferences and relative, participating, optional
or other special rights, and the qualifications,  limitations or restrictions of
such  series to the full  extent now or  hereafter  permitted  by the law of the
State of Delaware in respect of the matters set forth in the  following  clauses
(i) to (viii) inclusive;

                  (i)   the  number  of shares to  constitute  such  series,
         and the  distinctive  designations thereof;

                  (ii)  the voting powers, full or limited, if any, of such 
         series;

                  (iii) the rate of dividends  payable on shares of such series,
         the  conditions on which and the times when such dividends are payable,
         the  preference  to, or the relation  to, the payment of the  dividends
         payable  on any other  class,  classes  or  series  of  stock,  whether
         cumulative or  non-cumulative  and, if cumulative,  the date from which
         dividends on shares of such series shall be cumulative;

                  (iv) the redemption price or prices, if any, and the terms and
         conditions on which shares of such series shall be redeemable;

                  (v) the requirement of any sinking fund or funds to be applied
         to the purchase or  redemption of shares of such series and, if so, the
         amount of such fund or funds and the manner of application;

                  (vi) the rights of shares of such series upon the liquidation,
         dissolution  or winding up of, or upon any  distribution  of the assets
         of, the Corporation;

                  (vii) the  rights,  if any,  of the  holders of shares of such
         series to convert  such shares  into,  or to exchange  such shares for,
         shares of any other class,  classes or series of stock and the price or
         prices or the  rates of  exchange  and the  adjustments  at which  such
         shares shall be  convertible or  exchangeable,  and any other terms and
         conditions of such conversion or exchange;

                  (viii)  any other  preferences  and  relative,  participating,
         optional  or  other  special  rights  of  shares  of such  series,  and
         qualifications,   limitations  or   restrictions   including,   without
         limitation,  any  restriction on an increase in the number of shares of
         any series theretofore  authorized and any qualifications,  limitations
         or  restrictions  of rights or  powers  to which  shares of any  future
         series shall be subject.

         (c) The number of authorized shares of Preferred Stock may be increased
or decreased by the  affirmative  vote of the holders of a majority of the votes
of all classes of voting  securities of the Corporation  without a class vote of
the Preferred Stock, or any series thereof,  except as otherwise provided in the
resolution  or  resolutions  fixing  the  voting  rights  of any  series  of the
Preferred Stock.

         2.       Common Stock

   
         At  every  meeting  of the  stockholders  of the  Corporation  (or with
respect to any action by written consent in lieu of a meeting of  stockholders),
each share of Common Stock shall be entitled to one (1) vote  (whether  voted in
person by the holder  thereof or by proxy) on all matters  which may lawfully be
submitted to a vote of stockholders  (except to the extent otherwise required by
law).
    

         At the time at which this Restated Certificate of Incorporation becomes
effective,  the par value of each  share of  Common  Stock,  par value  $.10 per
share,  issued and  outstanding  as at such  time,  shall be reduced to $.01 per
share.


<PAGE>



                                                     EXHIBIT B

                                             THE SHERWOOD GROUP, INC.

                                              1995 STOCK OPTION PLAN

SECTION 1.  PURPOSE
   

         The purpose of The Sherwood Group,  Inc. Stock Option Plan (the "Plan")
is to provide an  additional  incentive to employees,  independent  contractors,
agents and  consultants  of The Sherwood  Group,  Inc. (the  "Company")  and its
subsidiaries,  to  aid  in  attracting  and  retaining  employees,   independent
contractors,  agents and consultants,  and to closely align their interests with
those of shareholders.
    
SECTION 2.  DEFINITIONS

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

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

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

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

         (d) "Committee"  shall mean the Compensation  Committee of the Board or
such other  committee as may be  designated by the Board.  The  Committee  shall
consist of two or more  members of the Board who are  Non-Employee  Directors as
such term is defined in Rule 16b-3 of the Exchange Act.

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

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

         (g) "Exchange Act" shall mean the  Securities  Exchange Act of 1934, as
amended.

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

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

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

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

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

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

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

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

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

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

SECTION 3.  SHARES OF STOCK SUBJECT TO THE PLAN

   
         Subject to adjustment  pursuant to Section 9, 1,187,200 shares of Stock
shall be  reserved  for  issuance  upon the  exercise of Stock  Options  granted
pursuant to this Plan.  Shares  delivered  under the Plan may be authorized  and
unissued  shares or issued  shares held by the Company in its  treasury.  If any
Stock Options expire or terminate  without having been exercised,  the shares of
Stock covered by such Stock Option shall become available again for the grant of
Stock Options  hereunder.  Similarly,  if any Stock Options are  surrendered for
cash  pursuant to the  provisions  of Section 7, the shares of Stock  covered by
such Stock  Options  shall also  become  available  again for the grant of Stock
Options  hereunder.  Shares of Stock  covered by Stock Options  surrendered  for
Stock pursuant to Section 7, however,  shall not become  available again for the
grant of Stock  Options  hereunder.  Shares of Stock  covered  by Stock  Options
surrendered for Stock pursuant to Section 7, however, shall not become available
again for the grant of Stock Options hereunder.
    

SECTION 4.  ADMINISTRATION OF THE PLAN

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

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

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

SECTION 5.  GRANTING OF STOCK OPTIONS

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

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

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

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

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

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

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

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

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

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

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

SECTION 6.  EXERCISE OF STOCK OPTIONS

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

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

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

SECTION 7.  STOCK APPRECIATION RIGHTS

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

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

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

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

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

SECTION 8.  TERMINATION OF EMPLOYMENT

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

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

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

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

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

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

SECTION 9.  ADJUSTMENTS

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

SECTION 10.  TENDER OFFER; CHANGE IN CONTROL

         (a) A Stock Option shall become  immediately  exercisable to the extent
of the total number of shares  subject to the Stock Option in the event of (i) a
tender  offer by a person or persons  other than the Company for all or any part
of the outstanding  Stock if, upon  consummation of the purchases  contemplated,
the offeror or offerors would own,  beneficially  or of record,  an aggregate of
more  than 25% of the  outstanding  Stock,  or (ii) a Change in  Control  of the
Company.

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

SECTION 11.  GENERAL PROVISIONS

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

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

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

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

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

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

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

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

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

SECTION 12.  AMENDMENT AND TERMINATION

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

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

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

SECTION 13.  EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL

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




                                             The Sherwood Group, Inc.

The undersigned  hereby appoints Dennis Marino,  James H. Lynch, Jr. and Stephen
J. DiLascio and each of them,  with full power of  substitution,  as proxies for
the  undersigned,  to attend the annual meeting of  stockholders of The Sherwood
Group, Inc. (the "Company"),  to be held at the Company's offices at 10 Exchange
Place Centre,  Jersey City, New Jersey 07302, 15th Floor on October 21, 1997, at
4:00  p.m.,  New York City time,  or any  adjournment  thereof,  and to vote the
number of shares of common  stock of the Company that the  undersigned  would be
entitled  to vote,  and with all the power the  undersigned  would  possess,  if
personally present, as follows:

1.       /  / For or /  / Withhold Authority to vote for the following nominees
        for election as Class 1 directors:
         
                                                   Dennis Marino
                                                James H. Lynch, Jr.
                                                Stephen J. DiLascio

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

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


2.       Approval of an  amendment  to the  Company's  Restated  Certificate  of
         Incorporation  to  decrease  the  number  of  authorized  shares of the
         Company's  capital stock from  101,000,000 to 51,000,000  shares and to
         eliminate provisions related to the Class A Common Stock.

                                       / / For or / / Against or / / Abstain

3.       Approval of amendments to The Sherwood Group, Inc. 1995 Stock Option
         Plan.

                                       / / For or / / Against or / / Abstain

4.       Approval of the  appointment  of KPMG Peat Marwick LLP as the Company's
         independent auditors for the fiscal year ending May 31, 1998.

                                       / / For or / / Against or / / Abstain

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



<PAGE>



         The  Proxies  will  vote as  specified  herein  or,  if a choice is not
specified,  they will vote For the  nominees  listed in Item 1, For the proposal
set forth in Item 2, For the  proposal set forth in Item 3, For the proposal set
forth in Item 4 and in their  discretion with respect to the matters referred to
in Item 5.

         This Proxy is solicited by the Board of Directors of the Company.


                   Receipt  of the  Notice of Annual  Meeting  of  Stockholders,
                   Proxy  Statement  dated  September 2, 1997 and Annual  Report
                   to Stockholders is hereby acknowledged:
                   Date:___________________________________, 1997
                   ----------------------------------------------
                   ----------------------------------------------
                   ----------------------------------------------
                                  (Signatures)
                   (Please sign exactly  as your names appear hereon,
                   indicating, where proper, official position or
                   representative capacity.)








1 Underscored  language  represents new language added to Article 4 and language
which is lined out is to be removed from Article 4.