AMENDED AND RESTATED

                         CERTIFICATE OF INCORPORATION OF

                            HARVEY ELECTRONICS, INC.

                         PURSUANT TO SECTION 805 OF THE
                            BUSINESS CORPORATION LAW

     The  undersigned,  Franklin  C.  Karp and  Joseph J.  Calabrese,  being the
President  and  Secretary,   respectively,   of  Harvey  Electronics,   Inc.,  a
corporation  organized  and  existing  under  the laws of the State of New York,
pursuant to Section 805 of the Business  Corporation  Law of New York, do hereby
certify:

     1.  The  name  of  the  corporation  is  Harvey   Electronics,   Inc.  (the
"Corporation").

     2. The Certificate of Incorporation of Harvey  Electronics,  Inc. was filed
by the Department of State on the 10th day of January,  1946,  under the name of
Harvey Radio Company,  Inc. A restated Certificate of Incorporation was filed in
the Department of State on December 8, 1967.

     3. The  Corporation  is  authorized  to issue  10,010,000  shares  of stock
consisting of 10,000 shares of eight and one-half  (8.5%)  percent of cumulative
convertible  preferred  stock,  of the par  value of  $1,000  per  share  ("8.5%
Cumulative Convertible Preferred Stock") and 10,000,000 common shares of the par
value of $.01 per share ("Common Stock").

     4. The Certificate of Incorporation is hereby amended to:

     (a)  Increase  the  total  authorized   capital  of  the  Corporation  from
10,010,000  shares  of stock  consisting  of 10,000  shares  of 8.5%  Cumulative
Convertible  Preferred  Stock  and  10,000,000  shares  of  Common  Stock  to an
aggregate of 30,014,350 shares, par value $.01 per share, consisting of:

          (i)  30,000,000 shares of Common Stock

          (ii) 10,000 shares of 8.5% Cumulative Convertible Preferred Stock; and

          (iii) 4,350 shares of Series B 8% Convertible Preferred Stock.

     (b) Add a  provision  stating  the number,  designation,  relative  rights,
preferences  and  limitations  of  preferred  shares  Series  B  8%  Convertible
Preferred Stock;

     (c) Modify the purpose for which the  Corporation  was formed to state that
the Corporation may engage in any lawful activity for which  corporations may be
organized  under  the BCL and  that it is not  formed  to  engage  in any act or
activity requiring consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.

     (d) Modify the location of the office of the Corporation;

     (e) Add a  provision  stating  that the  Company's  Board of  Directors  is
authorized to adopt and implement such anti-takeover  provisions as the Board of
Directors deems in the exercise of its fiduciary duties, under the circumstances
existing at the time,  in the best  interests of Company's  shareholders,  which
provision  shall  not be  amended  by the  shareholders  absent  the vote of the
holders of at least sixty-six and two-thirds (66 2/3%) percent of the issued and
outstanding common stock. If an anti-takeover  provision is adopted by the Board
of Directors  without prior shareholder  approval,  such provision shall provide
that it will  expire  unless  ratified  by the  shareholders  within one year of
adoption.

     5. The amendments to the  Certificate of  Incorporation  of the Corporation
set forth in Section 4 above were  authorized in accordance  with Section 803(a)
of the BCL, by unanimous  written consent of the Board of Directors  pursuant to
Section  708(b) of the BCL,  and by the vote of a  majority  of all  outstanding
shares entitled to vote thereon at a meeting of the shareholders duly called.

     6. The text of the Certificate of Incorporation as amended  heretofore,  is
hereby restated as further amended to read as herein set forth in full:

     FIRST: The name of the Corporation shall be Harvey Electronics, Inc.

     SECOND:  The  Corporation is formed to engage in any lawful act or activity
for which  corporations  may be organized  under the Business  Corporation  Law,
provided  that it is not formed to engage in any act or activity  requiring  the
consent or approval of any state official,  department,  board, agency, or other
body, without such consent first being obtained.

     THIRD:

     (a) The total number of shares which the Corporation is authorized to issue
is 30,014,350,  consisting of 10,000 shares of eight and one-half (8.5%) percent
cumulative  convertible  preferred  stock,  of the par value of $1,000 per share
("8.5% Cumulative  Convertible Preferred Stock"), 4,350 shares of Series B Eight
(8%) percent convertible preferred stock, of the par value of $.01 per share and
a stated value of $1,000 per share ("Series B 8% Convertible  Preferred  Stock")
and  10,000,000  common  shares  of the par  value  of $.01 per  share  ("Common
Stock").

     (b) The designation, relative rights, preferences and limitations of shares
of each class shall be as follows:

                   I. SERIES B 8% CONVERTIBLE PREFERRED STOCK

     Section 1.  Definitions.  Capitalized  terms used and not otherwise defined
herein that are defined in the Purchase  Agreement shall have the meanings given
such terms in the Purchase  Agreement.  For the purposes  hereof,  the following
terms shall have the following meanings:

     "Alternate Consideration" shall have the meaning set forth in Section 7(e).

     "Bankruptcy  Event" means any of the following events:  (a) the Corporation
or any  Significant  Subsidiary  (as such term is  defined  in Rule  1-02(w)  of
Regulation  S-X)  thereof  commences  a  case  or  other  proceeding  under  any
bankruptcy, reorganization,  arrangement, adjustment of debt, relief of debtors,
dissolution,  insolvency  or  liquidation  or  similar  law of any  jurisdiction
relating to the Corporation or any Significant  Subsidiary thereof; (b) there is
commenced against the Corporation or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement;  (c)
the Corporation or any Significant  Subsidiary thereof is adjudicated  insolvent
or  bankrupt or any order of relief or other  order  approving  any such case or
proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof
suffers any  appointment of any custodian or the like for it or any  substantial
part of its property  that is not  discharged  or stayed within 60 calendar days
after  such  appointment;  (e) the  Corporation  or any  Significant  Subsidiary
thereof  makes a  general  assignment  for the  benefit  of  creditors;  (f) the
Corporation  or any  Significant  Subsidiary  thereof  calls  a  meeting  of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or (g) the Corporation or any Significant  Subsidiary thereof, by any
act or failure to act,  expressly  indicates  its  consent  to,  approval  of or
acquiescence  in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.

     "Base Conversion Price" shall have the meaning set forth in Section 7(b).

     "Business Day" means any day except Saturday,  Sunday,  any day which shall
be a federal  legal  holiday  in the United  States or any day on which  banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

     "Buy-In" shall have the meaning set forth in Section 6(e)(iii).

     "Change of Control  Transaction" means the occurrence after the date hereof
of any of (i) an  acquisition  after  the date  hereof by an  individual,  legal
entity or  "group"  (as  described  in Rule  13d-5(b)(1)  promulgated  under the
Exchange  Act)  of  effective  control  (whether  through  legal  or  beneficial
ownership of capital stock of the  Corporation,  by contract or otherwise) of in
excess of 33% of the voting  securities of the Corporation  (other than by means
of conversion or exercise of Preferred Stock and the Securities  issued together
with the Preferred Stock),  or (ii) the Corporation  merges into or consolidates
with any other  Person,  or any  Person  merges  into or  consolidates  with the
Corporation  and, after giving effect to such  transaction,  the shareholders of
the Corporation  immediately  prior to such transaction own less than 68% of the
aggregate  voting  power of the  Corporation  or the  successor  entity  of such
transaction,  or (iii) the Corporation  sells or transfers all or  substantially
all of its assets to  another  Person and the  shareholders  of the  Corporation
immediately  prior to such transaction own less than 68% of the aggregate voting
power of the  acquiring  entity  immediately  after the  transaction,  or (iv) a
replacement at one time or within a one year period of more than one-half of the
members of the  Corporation's  board of  directors  which is not  approved  by a
majority of those  individuals  who are members of the board of directors on the
date hereof (or by those  individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors  who are members on the date
hereof),  or (v) the execution by the  Corporation  of an agreement to which the
Corporation is a party or by which it is bound,  providing for any of the events
set forth in clauses (i) through (iv) above.

     "Closing Date" means the Trading Day when all of the Transaction  Documents
have been  executed and  delivered  by the  applicable  parties  thereto and all
conditions  precedent to (i) the Holders'  obligations  to pay the  Subscription
Amount and (ii) the  Corporation's  obligations to deliver the  Securities  have
been satisfied or waived.

     "Commission" means the Securities and Exchange Commission.

     "Common  Stock" means the  Corporation's  common stock,  par value $.01 per
share, and stock of any other class of securities into which such securities may
hereafter be reclassified or changed into.

     "Common Stock  Equivalents"  means any securities of the Corporation or the
Subsidiaries  which  would  entitle  the  holder  thereof to acquire at any time
Common Stock, including,  without limitation, any debt, preferred stock, rights,
options,  warrants or other  instrument that is at any time  convertible into or
exchangeable  for, or otherwise  entitles the holder thereof to receive,  Common
Stock.

     "Conversion Amount" means the sum of the Stated Value at issue.

     "Conversion Date" shall have the meaning set forth in Section 6(a).

     "Conversion Price" shall have the meaning set forth in Section 6(b).

     "Conversion  Shares"  means,  collectively,  the  shares  of  Common  Stock
issuable upon conversion of the shares of Preferred Stock in accordance with the
terms hereof.

     "Conversion Shares Registration  Statement" means a registration  statement
that registers the resale of all Conversion  Shares of the Holder,  who shall be
named as a  "selling  shareholder"  therein  and meets the  requirements  of the
Registration Rights Agreement.

     "Dilutive Issuance" shall have the meaning set forth in Section 7(b).

     "Dilutive  Issuance  Notice"  shall have the  meaning  set forth in Section
7(b).

     "Dividend Payment Date" shall have the meaning set forth in Section 3(a).

     "Dividend Share Amount" shall have the meaning set forth in Section 3(a).

     "Effective  Date" means the date that the  Conversion  Shares  Registration
Statement is declared effective by the Commission.

     "Equity  Conditions"  means,  during  the  period  in  question,   (i)  the
Corporation  shall  have duly  honored  all  conversions  scheduled  to occur or
occurring  by virtue of one or more  Notices of  Conversion  of the Holder on or
prior to the dates so requested or required,  if any, (ii) the Corporation shall
have paid all  liquidated  damages  and  other  amounts  owing to the  Holder in
respect of the Preferred Stock,  (iii) there is an effective  Conversion  Shares
Registration  Statement pursuant to which the Holder is permitted to utilize the
prospectus  thereunder  to resell  all of the  shares of Common  Stock  issuable
pursuant to the  Transaction  Documents (and the Corporation  believes,  in good
faith, that such effectiveness  will continue  uninterrupted for the foreseeable
future),  (iv) the Common  Stock is  trading on a Trading  Market and all of the
shares issuable pursuant to the Transaction  Documents are listed for trading on
such Trading Market (and the Corporation  believes,  in good faith, that trading
of the Common  Stock on a Trading  Market will  continue  uninterrupted  for the
foreseeable  future),  (v)  there is a  sufficient  number  of  authorized,  but
unissued and  otherwise  unreserved,  shares of Common Stock for the issuance of
all  of the  shares  of  Common  Stock  issuable  pursuant  to  the  Transaction
Documents,  (vi) RESERVED,  (vii) the issuance of the shares in question (or, in
the case of a redemption,  the shares  issuable  upon  conversion in full of the
redemption  amount) to the Holder would not violate the limitations set forth in
Section 6(c) herein,  (viii) there has been no public  announcement of a pending
or proposed  Fundamental  Transaction or Change of Control  Transaction that has
not been  consummated  and (ix) no Holder is in  possession  of any  information
furnished by the  Corporation  that  constitutes,  or may  constitute,  material
non-public information.

     "Exchange Act" means the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations promulgated thereunder.

     "Exempt  Issuance"  means the  issuance  of (a)  shares of Common  Stock or
options to employees,  officers or directors of the Corporation  pursuant to any
stock or option plan duly adopted by a majority of the  non-employee  members of
the Board of  Directors  of the  Corporation  or a majority  of the members of a
committee of non-employee directors established for such purpose, (b) securities
upon the exercise of or conversion of any  securities  issued  hereunder  and/or
other  securities  exercisable or exchangeable for or convertible into shares of
Common  Stock  issued and  outstanding  on the date of the  Purchase  Agreement,
provided  that  such  securities  have not been  amended  since  the date of the
Purchase  Agreement to increase the number of such securities or to decrease the
exercise or conversion price of any such securities,  (c) shares of Common Stock
or securities issued upon exercise of warrants or options issued pursuant to the
Consulting  Agreement and the  Employment  Agreement and (d)  securities  issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested  directors,  provided  that any such  issuance  shall only be to a
Person which is, itself or through its  subsidiaries,  an operating company in a
business  synergistic  with the business of the Corporation and shall provide to
the Corporation  additional benefits in addition to the investment of funds, but
shall not include a transaction in which the  Corporation is issuing  securities
primarily  for the  purpose of raising  capital  or to an entity  whose  primary
business is investing in securities.

     "Fundamental Transaction" shall have the meaning set forth in Section 7(e).

     "Holder" shall have the meaning given such term in Section 2.

     "Junior  Securities"  means the  Common  Stock and all other  Common  Stock
Equivalents of the Corporation  other than those securities which are explicitly
senior or pari passu to the Preferred  Stock in dividend  rights or  liquidation
preference.

     "Liquidation" shall have the meaning set forth in Section 5.

     "New York Courts" shall have the meaning set forth in Section 11(d).

     "Notice of Conversion" shall have the meaning set forth in Section 6(a).

     "Original Issue Date" means the date of the first issuance of any shares of
the  Preferred  Stock  regardless  of the number of transfers of any  particular
shares of Preferred Stock and regardless of the number of certificates which may
be issued to evidence such Preferred Stock.

     "Permitted  Indebtedness"  means  (a)  the  Indebtedness  existing  on  the
Original Issue Date and set forth on Schedule  3.1(aa)  attached to the Purchase
Agreement and (b) bank lines of credit,  lease  obligations  and purchase  money
indebtedness of up to $20,000,000, in the aggregate, incurred in connection with
the  acquisition of capital assets and lease  obligations  with respect to newly
acquired or leased assets.

     "Permitted  Lien" means the  individual  and  collective  reference  to the
following:  (a) Liens for taxes,  assessments and other governmental  charges or
levies  not yet due or Liens  for  taxes,  assessments  and  other  governmental
charges or levies being  contested in good faith and by appropriate  proceedings
for which adequate reserves (in the good faith judgment of the management of the
Corporation) have been established in accordance with GAAP; (b) Liens imposed by
law which were incurred in the ordinary  course of the  Corporation's  business,
such as carriers',  warehousemen's  and mechanics' Liens,  statutory  landlords'
Liens,   and  other  similar  Liens  arising  in  the  ordinary  course  of  the
Corporation's  business,  and which (x) do not  individually or in the aggregate
materially  detract  from the value of such  property  or  assets or  materially
impair the use thereof in the operation of the business of the  Corporation  and
its consolidated  Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the
foreseeable  future the  forfeiture  or sale of the property or asset subject to
such Lien and (c) Liens incurred in connection with Permitted Indebtedness under
clause (b) thereunder, provided that such Liens are not secured by assets of the
Corporation or its Subsidiaries other than the assets so acquired or leased.

     "Preferred Stock" shall have the meaning set forth in Section 2.

     "Purchase  Agreement" means the Securities Purchase Agreement,  dated as of
the Original Issue Date, to which the Corporation  and the original  Holders are
parties,  as amended,  modified or supplemented  from time to time in accordance
with its terms.

     "Registration  Rights  Agreement" means the Registration  Rights Agreement,
dated as of the date of the Purchase Agreement, to which the Corporation and the
original Holder are parties,  as amended,  modified or supplemented from time to
time in accordance with its terms.

     "Securities  Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations promulgated thereunder.

     "Share Delivery Date" shall have the meaning set forth in Section 6(e).

     "Stated Value" shall have the meaning set forth in Section 2.

     "Subscription  Amount" means,  as to each  Purchaser,  the amount in United
States Dollars and in immediately  available  funds to be paid for the Preferred
Stock  purchased  pursuant to the Purchase  Agreement  as  specified  below such
Purchaser's name on the signature page of the Purchase Agreement and next to the
heading "Subscription Amount."

     "Subsidiary" shall have the meaning set forth in the Purchase Agreement.

     "Trading Day" means a day on which the principal Trading Market is open for
business.

     "Trading  Market"  means the  following  markets or  exchanges on which the
Common  Stock is listed or  quoted  for  trading  on the date in  question:  the
American Stock Exchange,  the Nasdaq Capital Market,  the Nasdaq National Market
or the New York Stock Exchange.

     "Transaction  Documents"  shall have the meaning set forth in the  Purchase
Agreement.

     "VWAP"  means,  for any  date,  the  price  determined  by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg  L.P.
(based on a Trading  Day from 9:30 a.m.  (New York City time) to 4:02 p.m.  (New
York City time));  (b) if the OTC Bulletin  Board is not a Trading  Market,  the
volume weighted  average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin  Board;  (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin  Board and if prices for the Common Stock
are then  reported in the "Pink  Sheets"  published  by Pink  Sheets,  LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so  reported;  or (d) in
all other cases,  the fair market value of a share of Common Stock as determined
by an  independent  appraiser  selected  in good  faith  by the  Purchasers  and
reasonably acceptable to the Corporation.


     Section 2. Designation, Amount and Par Value. The series of preferred stock
shall  be  designated  as its  Series  B 8%  Convertible  Preferred  Stock  (the
"Preferred  Stock") and the number of shares so designated  shall be up to 4,350
(which  shall not be subject to increase  without the written  consent of all of
the holders of the  Preferred  Stock  (each,  a "Holder" and  collectively,  the
"Holders")).  Each share of  Preferred  Stock shall have a par value of $.01 per
share and a stated  value  equal to  $1,000,  subject to  increase  set forth in
Section 3(a) below (the "Stated Value").

     Section 3. Dividends.

     a) Dividends in Cash or in Kind. Holders shall be entitled to receive,  and
the  Corporation  shall pay,  cumulative  dividends  at the rate per share (as a
percentage  of the Stated Value per share) of 8% per annum  (subject to increase
pursuant to Section 9(b)),  payable annually on March 1 of each year,  beginning
on March 1, 2007 and on each Conversion Date (except that, if such date is not a
Trading Day, the payment  date shall be the next  succeeding  Trading Day) (each
such  date,  a  "Dividend  Payment  Date") in cash or duly  authorized,  validly
issued,  fully paid and  non-assessable  shares of Common  Stock as set forth in
this Section 3(a), or a combination  thereof (the amount to be paid in shares of
Common Stock,  the "Dividend  Share  Amount").  The Common Stock shall be valued
solely  for  such  purpose  at 90% of  the  average  of  the  VWAPs  for  the 20
consecutive  Trading Days ending on the Trading Day that is immediately prior to
the  Dividend  Payment  Date.  The  form of  dividend  payments  shall be at the
discretion  of the  Corporation,  provided  that the  Corporation  may  elect to
provide such dividend in Common Stock only if the Equity Conditions are met. The
Holders  shall have the same rights and remedies with respect to the delivery of
any such shares as if such shares  were being  issued  pursuant to Section 6. On
the Closing Date the Corporation  shall have notified the Holders whether or not
it may legally pay cash dividends as of the Closing Date. The Corporation  shall
promptly  notify the Holders at any time the  Corporation  shall  become able or
unable,  as the case may be, to legally pay cash  dividends.  If at any time the
Corporation  has  the  right  to pay  dividends  in cash or  Common  Stock,  the
Corporation must provide the Holder with at least 20 Trading Days' notice of its
election to pay a regularly  scheduled dividend in Common Stock (the Corporation
may  indicate in such notice that the  election  contained  in such notice shall
continue for later periods until revised by a subsequent  notice).  Dividends on
the Preferred  Stock shall be  calculated on the basis of a 360-day year,  shall
accrue  daily  commencing  on the  Original  Issue Date,  and shall be deemed to
accrue from such date whether or not earned or declared and whether or not there
are profits, surplus or other funds of the Corporation legally available for the
payment of dividends.  Except as otherwise  provided herein,  if at any time the
Corporation pays dividends  partially in cash and partially in shares, then such
payment shall be distributed  ratably among the Holders based upon the number of
shares of Preferred Stock held by each Holder on such Dividend Payment Date. Any
dividends,  whether  paid in cash or shares of Common  Stock,  that are not paid
within three Trading Days  following a Dividend  Payment Date shall  continue to
accrue and shall entail a late fee,  which must be paid in cash,  at the rate of
18% per annum or the  lesser  rate  permitted  by  applicable  law (such fees to
accrue daily,  from the Dividend  Payment Date through and including the date of
payment). If at any time the Corporation delivers a notice to the Holders of its
election to pay the dividends in shares of Common Stock,  the Corporation  shall
timely  file a  prospectus  supplement  pursuant  to Rule  424  disclosing  such
election.

     b) So long as any  Preferred  Stock shall remain  outstanding,  neither the
Corporation  nor any  Subsidiary  thereof  shall  redeem,  purchase or otherwise
acquire  directly  or  indirectly  any  Junior  Securities  except as  expressly
permitted by Section  9(a)(viii).  So long as any  Preferred  Stock shall remain
outstanding,  neither the Corporation nor any Subsidiary  thereof shall directly
or indirectly pay or declare any dividend or make any  distribution  upon (other
than a dividend or distribution described in Section 6 or dividends due and paid
in the ordinary  course on preferred stock of the Corporation at such times when
the  Corporation  is in  compliance  with  its  payment  and  other  obligations
hereunder),  nor  shall any  distribution  be made in  respect  of,  any  Junior
Securities as long as any dividends  due on the Preferred  Stock remain  unpaid,
nor shall any monies be set aside for or applied to the  purchase or  redemption
(through a sinking fund or  otherwise)  of any Junior  Securities or shares pari
passu with the Preferred Stock.

     Section  4.  Voting  Rights.  Except  as  otherwise  provided  herein or as
otherwise  required by law,  the  Preferred  Stock shall have no voting  rights.
However,  as  long  as any  shares  of  Preferred  Stock  are  outstanding,  the
Corporation shall not, without the affirmative vote of the Holders of a majority
of the then  outstanding  shares  of the  Preferred  Stock,  (a) alter or change
adversely  the powers,  preferences  or rights given to the  Preferred  Stock or
alter or amend this Restated  Certificate,  (b) authorize or create any class of
stock  ranking as to  dividends,  redemption  or  distribution  of assets upon a
Liquidation (as defined in Section 5) senior to or otherwise pari passu with the
Preferred  Stock,  (c) amend its certificate of  incorporation  or other charter
documents in any manner that  adversely  affects any rights of the Holders,  (d)
increase the authorized  number of shares of Preferred  Stock, or (e) enter into
any agreement with respect to any of the foregoing.

     Section 5. Liquidation. Upon any liquidation,  dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets,  whether capital or surplus,  of
the Corporation an amount equal to any accrued and unpaid dividends  thereon and
any other fees or liquidated damages owing thereon,  for each share of Preferred
Stock  before any  distribution  or payment  shall be made to the holders of any
Junior Securities,  and shall thereafter receive any distributions together with
the Common Stock on an as-converted  basis. A Fundamental  Transaction or Change
of Control Transaction shall not be deemed a Liquidation.  The Corporation shall
mail written notice of any such Liquidation,  not less than 45 days prior to the
payment date stated therein, to each Holder.

     Section 6. Conversion.

     a) Conversions at Option of Holder.  Each share of Preferred Stock shall be
convertible at the option of the Holder,  at any time and from time to time from
and after the  Original  Issue Date into that  number of shares of Common  Stock
(subject to the  limitations  set forth in Section 6(c))  determined by dividing
the  Stated  Value of such share of  Preferred  Stock by the  Conversion  Price.
Holders shall effect  conversions by providing the Corporation  with the form of
conversion  notice attached hereto as Annex A (a "Notice of  Conversion").  Each
Notice of Conversion shall specify the number of shares of Preferred Stock to be
converted, the number of shares of Preferred Stock owned prior to the conversion
at issue,  the  number of shares of  Preferred  Stock  owned  subsequent  to the
conversion  at issue and the date on which such  conversion  is to be  effected,
which date may not be prior to the date the Holder  delivers by  facsimile  such
Notice  of  Conversion  to  the  Corporation  (the  "Conversion  Date").  If  no
Conversion  Date is specified in a Notice of  Conversion,  the  Conversion  Date
shall be the date that such Notice of  Conversion to the  Corporation  is deemed
delivered  hereunder.  The  calculations  and entries set forth in the Notice of
Conversion  shall control in the absence of manifest or  mathematical  error. To
effect  conversions,  as the case may be, of shares of Preferred Stock, a Holder
shall not be required to surrender the  certificate(s)  representing such shares
of  Preferred  Stock to the  Corporation  unless all of the shares of  Preferred
Stock  represented  thereby  are so  converted,  in which case the Holder  shall
deliver the  certificate  representing  such shares of Preferred  Stock promptly
following the Conversion Date at issue. Shares of Preferred Stock converted into
Common Stock or redeemed in  accordance  with the terms hereof shall be canceled
and shall not be reissued.

     b) Conversion  Price.  The conversion  price for the Preferred  Stock shall
equal $.70, subject to adjustment herein (the "Conversion Price").

     c) Beneficial  Ownership  Limitation.  The Corporation shall not effect any
conversion  of the  Preferred  Stock,  and a Holder  shall not have the right to
convert any portion of the  Preferred  Stock,  to the extent that,  after giving
effect to the conversion set forth on the applicable Notice of Conversion,  such
Holder (together with such Holder's  Affiliates,  and any other person or entity
acting as a group together with such Holder or any of such Holder's  Affiliates)
would  beneficially  own in excess of the  Beneficial  Ownership  Limitation (as
defined below). For purposes of the foregoing sentence,  the number of shares of
Common Stock  beneficially owned by such Holder and its Affiliates shall include
the number of shares of Common Stock  issuable upon  conversion of the Preferred
Stock with respect to which such  determination is being made, but shall exclude
the number of shares of Common Stock which are issuable  upon (A)  conversion of
the remaining, unconverted Stated Value of Preferred Stock beneficially owned by
such  Holder or any of its  Affiliates  and (B)  exercise or  conversion  of the
unexercised or unconverted  portion of any other  securities of the  Corporation
subject to a limitation on conversion  or exercise  analogous to the  limitation
contained herein (including the Warrants)  beneficially  owned by such Holder or
any of its  Affiliates.  Except  as set  forth in the  preceding  sentence,  for
purposes of this Section  6(c),  beneficial  ownership  shall be  calculated  in
accordance  with Section 13(d) of the Exchange Act and the rules and regulations
promulgated  thereunder.  To the extent that the  limitation  contained  in this
Section  6(c)  applies,  the  determination  of whether the  Preferred  Stock is
convertible (in relation to other  securities owned by such Holder together with
any Affiliates) and of how many shares of Preferred Stock are convertible  shall
be in the sole  discretion  of such Holder,  and the  submission  of a Notice of
Conversion  shall be deemed to be such  Holder's  determination  of whether  the
shares of  Preferred  Stock may be converted  (in  relation to other  securities
owned by such Holder  together with any  Affiliates)  and how many shares of the
Preferred  Stock  are  convertible,  in each  case  subject  to  such  aggregate
percentage limitations. To ensure compliance with this restriction,  each Holder
will be deemed to represent to the Corporation each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the  restrictions set
forth in this paragraph and the  Corporation  shall have no obligation to verify
or confirm the accuracy of such determination.  In addition,  a determination as
to any group status as contemplated above shall be determined in accordance with
Section  13(d) of the  Exchange  Act and the rules and  regulations  promulgated
thereunder.  For purposes of this Section  6(c),  in  determining  the number of
outstanding  shares  of  Common  Stock,  a  Holder  may  rely on the  number  of
outstanding  shares  of  Common  Stock  as  stated  in the  most  recent  of the
following: (A) the Corporation's most recent Form 10-Q or Form 10-K, as the case
may be, (B) a more recent public  announcement  by the Corporation or (C) a more
recent notice by the  Corporation  or the  Corporation's  transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder,  the  Corporation  shall  within two Trading  Days  confirm
orally and in writing to such  Holder the number of shares of Common  Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Corporation, including the Preferred Stock, by such Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.  The "Beneficial Ownership Limitation" shall be 4.99% of the number of
shares of the Common Stock  outstanding  immediately  after giving effect to the
issuance of shares of Common Stock issuable upon  conversion of Preferred  Stock
held by the Holder.  The  Beneficial  Ownership  Limitation  provisions  of this
Section 6(c) may be waived by such Holder, at the election of such Holder,  upon
not less than 61 days' prior notice to the Corporation, to change the Beneficial
Ownership  Limitation  to 9.99% of the  number  of shares  of the  Common  Stock
outstanding  immediately after giving effect to the issuance of shares of Common
Stock upon  conversion of Preferred  Stock held by the Holder and the provisions
of this Section 6(c) shall continue to apply.  Upon such a change by a Holder of
the Beneficial  Ownership  Limitation  from such 4.99%  limitation to such 9.99%
limitation,  the Beneficial  Ownership Limitation shall not be further waived by
such Holder. The provisions of this paragraph shall be construed and implemented
in a manner  otherwise than in strict  conformity with the terms of this Section
6(c) to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial  Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of Preferred Stock.

     d) [RESERVED].

     e) Mechanics of Conversion

          i.  Delivery  of  Certificate  Upon  Conversion.  Not later than three
     Trading Days after each Conversion Date (the "Share  Delivery  Date"),  the
     Corporation  shall deliver,  or cause to be delivered,  to the Holder (A) a
     certificate or certificates which, on or after the Effective Date, shall be
     free of  restrictive  legends  and trading  restrictions  (other than those
     which may then be  required by the  Purchase  Agreement)  representing  the
     number of shares of Common  Stock being  acquired  upon the  conversion  of
     shares of  Preferred  Stock,  and (B) a bank check in the amount of accrued
     and unpaid  dividends (if the Corporation has elected or is required to pay
     accrued dividends in cash). On or after the Effective Date, the Corporation
     shall,  upon  request of the  Holder,  use its best  efforts to deliver any
     certificate  or  certificates  required to be delivered by the  Corporation
     under this Section 6 electronically through the Depository Trust Company or
     another established clearing corporation  performing similar functions.  If
     in the case of any Notice of Conversion  such  certificate or  certificates
     are not delivered to or as directed by the  applicable  Holder by the third
     Trading  Day after the  Conversion  Date,  the Holder  shall be entitled to
     elect by  written  notice to the  Corporation  at any time on or before its
     receipt of such  certificate or  certificates,  to rescind such  Conversion
     Notice by written notice to the Corporation, in which event the Corporation
     shall  promptly   return  to  the  Holder  any  original   Preferred  Stock
     certificate  delivered to the  Corporation  and the Holder  shall  promptly
     return any Common Stock  certificates  representing the shares of Preferred
     Stock tendered for conversion to the Corporation.

          ii. Obligation Absolute; Partial Liquidated Damages. The Corporation's
     obligation to issue and deliver the  Conversion  Shares upon  conversion of
     Preferred  Stock in  accordance  with the terms  hereof  are  absolute  and
     unconditional,  irrespective  of any  action or  inaction  by the Holder to
     enforce  the same,  any waiver or  consent  with  respect to any  provision
     hereof,  the recovery of any  judgment  against any Person or any action to
     enforce the same, or any setoff,  counterclaim,  recoupment,  limitation or
     termination,  or any  breach or  alleged  breach by the Holder or any other
     Person of any  obligation  to the  Corporation  or any violation or alleged
     violation of law by the Holder or any other person, and irrespective of any
     other  circumstance  which might  otherwise  limit such  obligation  of the
     Corporation  to  the  Holder  in  connection  with  the  issuance  of  such
     Conversion Shares; provided,  however, that such delivery shall not operate
     as a waiver by the  Corporation of any such action that the Corporation may
     have  against the Holder.  In the event a Holder shall elect to convert any
     or all of the Stated Value of its Preferred  Stock, the Corporation may not
     refuse conversion based on any claim that such Holder or any one associated
     or  affiliated  with the Holder has been  engaged in any  violation of law,
     agreement or for any other reason,  unless an injunction  from a court,  on
     notice to Holder, restraining and/or enjoining conversion of all or part of
     the Preferred  Stock of the Holder shall have been sought and obtained.  If
     the  Corporation  fails  to  deliver  to the  Holder  such  certificate  or
     certificates  pursuant to Section  6(e)(i) on the second  Trading Day after
     the Share  Delivery Date  applicable to such  conversion,  the  Corporation
     shall pay to such  Holder,  in cash,  as  liquidated  damages  and not as a
     penalty,  for  each  $5,000  of  Stated  Value  of  Preferred  Stock  being
     converted,  $50 per Trading Day  (increasing to $100 per Trading Day on the
     third  Trading  Day and  increasing  to $200 per  Trading  Day on the sixth
     Trading Day after such damages  begin to accrue) for each Trading Day after
     such  second   Trading  Day  after  the  Share  Delivery  Date  until  such
     certificates are delivered.  Nothing herein shall limit a Holder's right to
     pursue actual damages for the Corporation's  failure to deliver  Conversion
     Shares  within the period  specified  herein and such Holder shall have the
     right to pursue all remedies available to it hereunder, at law or in equity
     including,  without  limitation,  a decree of specific  performance  and/or
     injunctive  relief.  The Exercise of any such rights shall not prohibit the
     Holder from seeking to enforce damages pursuant to any other Section hereof
     or under applicable law.

          iii. Compensation for Buy-In on Failure to Timely Deliver Certificates
     Upon  Conversion.  If the  Corporation  fails to deliver to the Holder such
     certificate or  certificates by the Share Delivery Date pursuant to Section
     6(e)(i),  and if after such Share  Delivery  Date the Holder is required by
     its brokerage firm to purchase (in an open market transaction or otherwise)
     shares of Common Stock to deliver in  satisfaction of a sale by such Holder
     of the Conversion  Shares which the Holder was entitled to receive upon the
     conversion  relating to such Share  Delivery  Date (a  "Buy-In"),  then the
     Corporation  shall (A) pay in cash to the Holder (in  addition to any other
     remedies available to or elected by the Holder) the amount by which (x) the
     Holder's total purchase price (including any brokerage commissions) for the
     shares of Common  Stock so  purchased  exceeds  (y) the  product of (1) the
     aggregate number of shares of Common Stock that such Holder was entitled to
     receive  from the  conversion  at issue  multiplied  by (2) the actual sale
     price at which the sell order giving rise to such purchase  obligation  was
     executed (including any brokerage commissions) and (B) at the option of the
     Holder, either reissue (if surrendered) the shares of Preferred Stock equal
     to the number of shares of Preferred  Stock  submitted  for  conversion  or
     deliver to the Holder the number of shares of Common  Stock that would have
     been  issued if the  Corporation  had  timely  complied  with its  delivery
     requirements  under Section 6(e)(i).  For example,  if the Holder purchases
     shares of Common Stock having a total  purchase price of $11,000 to cover a
     Buy-In with respect to an attempted conversion of shares of Preferred Stock
     with  respect  to which the  actual  sale price  (including  any  brokerage
     commissions) giving rise to such purchase obligation was a total of $10,000
     under clause (A) of the  immediately  preceding  sentence,  the Corporation
     shall be required to pay the Holder  $1,000.  The Holder shall  provide the
     Corporation  written notice indicating the amounts payable to the Holder in
     respect of the Buy-In and, upon request of the Corporation, evidence of the
     amount of such loss.  Nothing herein shall limit a Holder's right to pursue
     any  other  remedies  available  to it  hereunder,  at  law  or  in  equity
     including,  without  limitation,  a decree of specific  performance  and/or
     injunctive  relief  with  respect  to the  Corporation's  failure to timely
     deliver certificates representing shares of Common Stock upon conversion of
     the shares of Preferred Stock as required pursuant to the terms hereof.

          iv.  Reservation of Shares Issuable Upon  Conversion.  The Corporation
     covenants  that it will at all times reserve and keep  available out of its
     authorized  and  unissued  shares of Common  Stock for the sole  purpose of
     issuance upon conversion of the Preferred Stock and payment of dividends on
     the Preferred Stock,  each as herein provided,  free from preemptive rights
     or any other actual  contingent  purchase  rights of Persons other than the
     Holders of the  Preferred  Stock,  not less than such  aggregate  number of
     shares of the Common Stock as shall (subject to the terms and conditions in
     the Purchase  Agreement) be issuable  (taking into account the  adjustments
     and  restrictions  of Section  7) upon the  conversion  of all  outstanding
     shares  of  Preferred  Stock  and  payment  of  dividends  hereunder.   The
     Corporation  covenants  that all  shares of Common  Stock  that shall be so
     issuable shall, upon issue, be duly authorized,  validly issued, fully paid
     and nonassessable and, if the Conversion Shares  Registration  Statement is
     then  effective  under the  Securities  Act, shall be registered for public
     sale in accordance with such Conversion Shares Registration Statement.

          v. Fractional  Shares.  Upon a conversion  hereunder,  the Corporation
     shall not be required to issue stock certificates representing fractions of
     shares of Common Stock, but may if otherwise permitted, make a cash payment
     in respect of any final fraction of a share based on the VWAP at such time.
     If the Corporation  elects not, or is unable,  to make such a cash payment,
     the Holder shall be entitled to receive, in lieu of the final fraction of a
     share, one whole share of Common Stock.

          vi.  Transfer Taxes.  The issuance of  certificates  for shares of the
     Common Stock on  conversion of this  Preferred  Stock shall be made without
     charge to the Holder hereof for any documentary stamp or similar taxes that
     may be payable in respect of the issue or  delivery  of such  certificates,
     provided that the Corporation shall not be required to pay any tax that may
     be payable in respect of any transfer involved in the issuance and delivery
     of any such  certificate  upon  conversion in a name other than that of the
     Holder of such shares of Preferred  Stock so converted and the  Corporation
     shall not be required to issue or deliver such certificates unless or until
     the Person or Persons  requesting  the issuance  thereof shall have paid to
     the  Corporation  the amount of such tax or shall have  established  to the
     satisfaction of the Corporation that such tax has been paid.

     Section 7. Certain Adjustments.

     a) Stock Dividends and Stock Splits. If the Corporation,  at any time while
this  Preferred  Stock is  outstanding:  (A) pays a stock  dividend or otherwise
makes a  distribution  or  distributions  payable  in shares of Common  Stock on
shares of  Common  Stock or any  other  Common  Stock  Equivalents  (which,  for
avoidance  of doubt,  shall not include any shares of Common Stock issued by the
Corporation  upon  conversion  of, or payment of a dividend  on, this  Preferred
Stock);  (B) subdivides  outstanding shares of Common Stock into a larger number
of shares; (C) combines  (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller  number of shares;  or (D) issues,  in the
event of a reclassification of shares of the Common Stock, any shares of capital
stock of the  Corporation,  then the  Conversion  Price shall be multiplied by a
fraction of which the  numerator  shall be the number of shares of Common  Stock
(excluding  any  treasury  shares of the  Corporation)  outstanding  immediately
before such event and of which the denominator  shall be the number of shares of
Common Stock  outstanding  immediately  after such event.  Any  adjustment  made
pursuant to this  Section  7(a) shall  become  effective  immediately  after the
record date for the  determination  of  shareholders  entitled  to receive  such
dividend  or  distribution  and shall  become  effective  immediately  after the
effective date in the case of a subdivision, combination or re-classification.

     b) Subsequent  Equity Sales. If the Corporation or any Subsidiary  thereof,
at any time  while  this  Preferred  Stock is  outstanding,  sells or grants any
option to purchase or sells or grants any right to reprice  its  securities,  or
otherwise  disposes of or issues (or announces any sale,  grant or any option to
purchase or other  disposition)  any Common  Stock or Common  Stock  Equivalents
entitling any Person to acquire shares of Common Stock at an effective price per
share that is lower than the then Conversion  Price (such lower price, the "Base
Conversion Price" and such issuances  collectively,  a "Dilutive  Issuance") (if
the holder of the Common  Stock or Common Stock  Equivalents  so issued shall at
any time, whether by operation of purchase price adjustments,  reset provisions,
floating  conversion,  exercise  or  exchange  prices  or  otherwise,  or due to
warrants,  options or rights per share which are issued in connection  with such
issuance,  be entitled to receive  shares of Common Stock at an effective  price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance),  then the  Conversion  Price  shall  be  reduced  to  equal  the Base
Conversion  Price.  Notwithstanding  the foregoing,  no adjustment  will be made
under this Section 7(b) in respect of an Exempt Issuance.  The Corporation shall
notify the Holder in  writing,  no later than the  Business  Day  following  the
issuance of any Common Stock or Common Stock Equivalents subject to this Section
7(b),  indicating  therein the applicable  issuance price,  or applicable  reset
price,  exchange price,  conversion  price and other pricing terms (such notice,
the "Dilutive Issuance Notice").  For purposes of clarification,  whether or not
the  Corporation  provides a Dilutive  Issuance  Notice pursuant to this Section
7(b),  upon the occurrence of any Dilutive  Issuance,  the Holder is entitled to
receive a number of Conversion Shares based upon the Base Conversion Price on or
after the date of such  Dilutive  Issuance,  regardless  of  whether  the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion.

     c) Subsequent Rights Offerings. If the Corporation,  at any time while this
Preferred Stock is outstanding,  shall issue rights,  options or warrants to all
holders of Common Stock (and not to Holders)  entitling them to subscribe for or
purchase shares of Common Stock at a price per share that is lower than the VWAP
on the  record  date  referenced  below,  then  the  Conversion  Price  shall be
multiplied by a fraction of which the denominator  shall be the number of shares
of the  Common  Stock  outstanding  on the date of  issuance  of such  rights or
warrants  plus the  number of  additional  shares of Common  Stock  offered  for
subscription  or  purchase,  and of which the  numerator  shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or
warrants  plus the number of shares which the  aggregate  offering  price of the
total number of shares so offered (assuming  delivery to the Corporation in full
of all consideration payable upon exercise of such rights,  options or warrants)
would purchase at such VWAP. Such adjustment  shall be made whenever such rights
or warrants are issued, and shall become effective  immediately after the record
date for the  determination  of  shareholders  entitled to receive  such rights,
options or warrants.

     d) Pro Rata  Distributions.  If the  Corporation,  at any time  while  this
Preferred Stock is outstanding,  distributes to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets (including cash and cash
dividends)  or rights or warrants to  subscribe  for or  purchase  any  security
(other than Common Stock,  which shall be subject to Section 7(b)), then in each
such case the Conversion  Price shall be adjusted by multiplying such Conversion
Price in effect  immediately prior to the record date fixed for determination of
shareholders  entitled to receive such  distribution  by a fraction of which the
denominator  shall be the VWAP determined as of the record date mentioned above,
and of which the numerator  shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets, evidence of
indebtedness or rights or warrants so distributed  applicable to one outstanding
share of the  Common  Stock as  determined  by the  Board  of  Directors  of the
Corporation in good faith. In either case the adjustments  shall be described in
a  statement  delivered  to the  Holder  describing  the  portion  of  assets or
evidences of indebtedness so distributed or such subscription  rights applicable
to one share of Common Stock.  Such  adjustment  shall be made whenever any such
distribution  is made and shall become  effective  immediately  after the record
date mentioned above.

     e) Fundamental  Transaction.  If, at any time while this Preferred Stock is
outstanding,  (A) the  Corporation  effects any merger or  consolidation  of the
Corporation with or into another Person, (B) the Corporation effects any sale of
all or substantially all of its assets in one transaction or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Corporation
or another  Person) is completed  pursuant to which  holders of Common Stock are
permitted  to tender or  exchange  their  shares for other  securities,  cash or
property,  or (D) the  Corporation  effects any  reclassification  of the Common
Stock or any  compulsory  share  exchange  pursuant to which the Common Stock is
effectively  converted into or exchanged for other securities,  cash or property
(in any such case,  a  "Fundamental  Transaction"),  then,  upon any  subsequent
conversion of this Preferred  Stock, the Holder shall have the right to receive,
for each  Conversion  Share that would have been issuable  upon such  conversion
immediately  prior to the occurrence of such Fundamental  Transaction,  the same
kind and amount of  securities,  cash or property as it would have been entitled
to receive upon the occurrence of such  Fundamental  Transaction if it had been,
immediately  prior to such Fundamental  Transaction,  the holder of one share of
Common  Stock  (the  "Alternate  Consideration").   For  purposes  of  any  such
conversion,  the  determination  of the Conversion  Price shall be appropriately
adjusted  to apply  to such  Alternate  Consideration  based  on the  amount  of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental  Transaction,  and the  Corporation  shall  apportion the Conversion
Price among the Alternate  Consideration in a reasonable  manner  reflecting the
relative value of any different  components of the Alternate  Consideration.  If
holders  of Common  Stock are given  any  choice as to the  securities,  cash or
property to be received in a Fundamental  Transaction,  then the Holder shall be
given the same choice as to the  Alternate  Consideration  it receives  upon any
conversion of this Preferred Stock following such  Fundamental  Transaction.  To
the extent  necessary to effectuate the foregoing  provisions,  any successor to
the Corporation or surviving entity in such Fundamental Transaction shall file a
new Restated  Certificate  with the same terms and  conditions  and issue to the
Holder  new  preferred  stock  consistent  with  the  foregoing  provisions  and
evidencing  the Holder's  right to convert such  preferred  stock into Alternate
Consideration.  The  terms of any  agreement  pursuant  to  which a  Fundamental
Transaction  is effected  shall  include terms  requiring any such  successor or
surviving entity to comply with the provisions of this Section 7(e) and insuring
that this Preferred Stock (or any such  replacement  security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

     f) Calculations. All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this  Section 7, the number of shares of Common Stock deemed to be issued and
outstanding  as of a given  date  shall be the sum of the  number  of  shares of
Common Stock  (excluding  any  treasury  shares of the  Corporation)  issued and
outstanding.

     g) Notice to the Holders.

          i. Adjustment to Conversion  Price.  Whenever the Conversion  Price is
     adjusted pursuant to any provision of this Section 7, the Corporation shall
     promptly mail to each Holder a notice  setting forth the  Conversion  Price
     after such  adjustment  and setting  forth a brief  statement  of the facts
     requiring  such  adjustment.  If the  Corporation  issues a  variable  rate
     security,  despite the prohibition thereon in the Purchase  Agreement,  the
     Corporation  shall be deemed to have issued  Common  Stock or Common  Stock
     Equivalents  at the lowest  possible  conversion or exercise price at which
     such  securities  may be  converted  or exercised in the case of a Variable
     Rate Transaction (as defined in the Purchase Agreement).

          ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall
     declare a dividend  (or any other  distribution  in  whatever  form) on the
     Common Stock, (B) the Corporation shall declare a special nonrecurring cash
     dividend on or a redemption of the Common Stock, (C) the Corporation  shall
     authorize  the  granting  to all  holders of the Common  Stock of rights or
     warrants to subscribe  for or purchase  any shares of capital  stock of any
     class  or of any  rights,  (D)  the  approval  of any  shareholders  of the
     Corporation  shall be required in connection with any  reclassification  of
     the Common Stock, any consolidation or merger to which the Corporation is a
     party,  any sale or transfer of all or  substantially  all of the assets of
     the Corporation,  of any compulsory share exchange whereby the Common Stock
     is converted into other securities, cash or property or (E) the Corporation
     shall  authorize the voluntary or involuntary  dissolution,  liquidation or
     winding  up of the  affairs of the  Corporation,  then,  in each case,  the
     Corporation shall cause to be filed at each office or agency maintained for
     the purpose of conversion of this  Preferred  Stock,  and shall cause to be
     delivered  to the Holder at its last  address as it shall  appear  upon the
     stock  books of the  Corporation,  at least 10  calendar  days prior to the
     applicable record or effective date hereinafter specified, a notice stating
     (x) the date on  which a record  is to be  taken  for the  purpose  of such
     dividend,  distribution,  redemption, rights or warrants, or if a record is
     not to be taken,  the date as of which the  holders of the Common  Stock of
     record to be entitled to such dividend,  distributions,  redemption, rights
     or  warrants  are  to  be   determined  or  (y)  the  date  on  which  such
     reclassification,  consolidation,  merger, sale, transfer or share exchange
     is expected to become  effective  or close,  and the date as of which it is
     expected  that  holders of the Common  Stock of record shall be entitled to
     exchange  their  shares of the Common Stock for  securities,  cash or other
     property  deliverable upon such  reclassification,  consolidation,  merger,
     sale, transfer or share exchange, provided that the failure to deliver such
     notice or any defect  therein or in the delivery  thereof  shall not affect
     the  validity of the  corporate  action  required to be  specified  in such
     notice.  The Holder is entitled to convert  the  Conversion  Amount of this
     Preferred Stock (or any part hereof) during the 20-day period commencing on
     the date of such notice through the effective date of the event  triggering
     such notice.

     Section 8. Reserved.

     Section 9. Reserved.

     Section 10. Negative  Covenants.  So long as 10% of the shares of Preferred
Stock are  outstanding,  without the consent of the Holders of a majority of the
Preferred  Stock then  outstanding,  the  Corporation  shall not,  and shall not
permit any of its Subsidiaries to, directly or indirectly:

     a)   other than Permitted Indebtedness,  enter into, create, incur, assume,
          guarantee or suffer to exist any  indebtedness  for borrowed  money of
          any  kind,  including  but not  limited  to, a  guarantee,  on or with
          respect  to any of its  property  or  assets  now  owned or  hereafter
          acquired or any interest therein or any income or profits therefrom;

     b)   other than  Permitted  Liens,  enter into,  create,  incur,  assume or
          suffer to exist any Liens of any kind,  on or with  respect  to any of
          its property or assets now owned or hereafter acquired or any interest
          therein or any income or profits therefrom;

     c)   amend  its  certificate  of  incorporation,  bylaws  or other  charter
          documents so as to materially  and adversely  affect any rights of any
          Holder;

     d)   repay,  repurchase or offer to repay,  repurchase or otherwise acquire
          more than a de minimis  number of shares of its Common  Stock,  Common
          Stock  Equivalents  or Junior  Securities,  except for the  Conversion
          Shares to the  extent  permitted  or  required  under the  Transaction
          Documents or as otherwise permitted by the Transaction Documents;

     e)   enter into any agreement or  understanding  with respect to any of the
          foregoing; or

     f)   pay cash  dividends  or  distributions  on  Junior  Securities  of the
          Corporation.

     Section 11. Miscellaneous.

     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder  including,  without limitation,  any Notice of
Conversion,  shall be in writing and delivered personally, by facsimile, or sent
by  a  nationally  recognized  overnight  courier  service,   addressed  to  the
Corporation,  at the following address; 205 Chubb Avenue,  Lyndhurst,  NJ 07071,
facsimile 201-842-0660, Attn: Joseph Calabrese or such other facsimile number or
address  as the  Corporation  may  specify  for such  purposes  by notice to the
Holders  delivered  in  accordance  with this Section 11. Any and all notices or
other  communications or deliveries to be provided by the Corporation  hereunder
shall  be in  writing  and  delivered  personally,  by  facsimile,  or sent by a
nationally  recognized overnight courier service addressed to each Holder at the
facsimile  number  or  address  of such  Holder  appearing  on the  books of the
Corporation,  or if no such facsimile  number or address appears on the books of
the Corporation, at the principal place of business of the Holder. Any notice or
other communication or deliveries  hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile  number specified in this Section 11
prior to 5:30 p.m. (New York City time) on any date,  (ii) the date  immediately
following the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile  number specified in this Section 11 between 5:30
p.m. and 11:59 p.m. (New York City time) on any date,  (iii) the second Business
Day following the date of mailing,  if sent by nationally  recognized  overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

     b) Absolute  Obligation.  Except as expressly provided herein, no provision
of this  Certificate of Designation  shall alter or impair the obligation of the
Corporation,  which is absolute and  unconditional,  to pay liquidated  damages,
accrued  dividends  and  accrued  interest,  as  applicable,  on the  shares  of
Preferred  Stock at the  time,  place,  and rate,  and in the coin or  currency,
herein prescribed.

     c) Transfer  Limitation.  The  Preferred  Stock  shall not be  transferred,
without the  approval  of the  Corporation,  to any Person who would own,  after
giving effect to the  conversion of the  Preferred  Stock,  more than 15% of the
Underlying Shares.

     d) Lost or Mutilated  Preferred Stock Certificate.  If a Holder's Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall  execute  and  deliver,   in  exchange  and   substitution  for  and  upon
cancellation of a mutilated certificate,  or in lieu of or in substitution for a
lost,  stolen or  destroyed  certificate,  a new  certificate  for the shares of
Preferred Stock so mutilated,  lost, stolen or destroyed,  but only upon receipt
of evidence of such loss, theft or destruction of such  certificate,  and of the
ownership hereof reasonably satisfactory to the Corporation.

     e) Governing  Law. All questions  concerning  the  construction,  validity,
enforcement  and  interpretation  of this  Certificate of  Designation  shall be
governed by and construed  and enforced in accordance  with the internal laws of
the State of New York,  without  regard to the  principles  of  conflict of laws
thereof.   Each  party  agrees  that  all  legal   proceedings   concerning  the
interpretation,  enforcement and defense of the transactions contemplated by any
of the  Transaction  Documents  (whether  brought  against a party hereto or its
respective Affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced in the state and federal  courts  sitting in the State of New
York,  County of New York (the "New York  Courts").  Each  party  hereto  hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication  of any dispute  hereunder  or in  connection  herewith or with any
transaction  contemplated  hereby or discussed herein (including with respect to
the enforcement of any of the  Transaction  Documents),  and hereby  irrevocably
waives,  and agrees not to assert in any suit,  action or proceeding,  any claim
that it is not personally  subject to the  jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient  venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to
process  being served in any such suit,  action or  proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery)  to such party at the  address in effect for  notices to it under this
Restated  Certificate  and agrees that such service  shall  constitute  good and
sufficient service of process and notice thereof. Nothing contained herein shall
be  deemed to limit in any way any right to serve  process  in any other  manner
permitted by applicable law. Each party hereto hereby irrevocably waives, to the
fullest extent  permitted by applicable  law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Restated  Certificate
or the  transactions  contemplated  hereby.  If either  party shall  commence an
action or  proceeding to enforce any  provisions  of this Restated  Certificate,
then the  prevailing  party in such action or proceeding  shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred in
the investigation, preparation and prosecution of such action or proceeding.

     f) Waiver.  Any waiver by the  Corporation or the Holder of a breach of any
provision of this Restated  Certificate  shall not operate as or be construed to
be a waiver of any other breach of such  provision or of any breach of any other
provision of this Restated  Certificate.  The failure of the  Corporation or the
Holder to insist upon strict adherence to any term of this Restated  Certificate
on one or more occasions  shall not be considered a waiver or deprive that party
of the right  thereafter  to insist  upon strict  adherence  to that term or any
other term of this Restated  Certificate.  Any waiver by the  Corporation or the
Holder must be in writing.

     g) Severability.  If any provision of this Restated Certificate is invalid,
illegal or unenforceable,  the balance of this Restated Certificate shall remain
in effect,  and if any provision is inapplicable to any Person or  circumstance,
it shall nevertheless  remain applicable to all other Persons and circumstances.
If it shall be found that any  interest  or other  amount  deemed  interest  due
hereunder  violates the applicable law governing  usury,  the applicable rate of
interest due hereunder shall  automatically be lowered to equal the maximum rate
of interest permitted under applicable law.

     h) Next Business Day.  Whenever any payment or other  obligation  hereunder
shall be due on a day other than a Business  Day,  such payment shall be made on
the next succeeding Business Day.

     i) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Restated  Certificate and shall not be deemed to limit
or affect any of the provisions hereof.

     j) Status of Converted  or Redeemed  Preferred  Stock.  Shares of Preferred
Stock may only be issued  pursuant to the Purchase  Agreement.  If any shares of
Preferred Stock shall be converted,  redeemed or reacquired by the  Corporation,
such  shares  shall  resume  the status of  authorized  but  unissued  shares of
preferred  stock and shall no longer be  designated  as Series B 8%  Convertible
Preferred Stock.

                II. 8.5% CUMULATIVE CONVERTIBLE PREFERRED STOCK.

     Section 1. DIVIDEND RIGHTS. The holders of the 8.5% Cumulative  Convertible
Preferred Stock shall be entitled to receive,  when and as declared by the Board
of Directors in its  discretion,  but only out of funds  lawfully  available for
dividends under the laws of the State of New York,  semiannual  dividends at the
rate (the  "Preference  Rate") of Eighty-Five  and 00/100  ($85.00)  Dollars per
share,  and no  more,  payable  in cash on the  last  business  day of June  and
December in each year,  commencing  on the last  business day in June 1997.  The
dividends on the 8.5% Cumulative Convertible Preferred Stock shall be cumulative
from and after the date of  original  issue of the 8.5%  Cumulative  Convertible
Preferred Stock, whether or not earned or declared. If the Corporation elects to
accrue  dividends   otherwise  payable  with  respect  to  the  8.5%  Cumulative
Convertible  Preferred Stock during the period (the "First Year") commencing the
date of  issuance  and ending on the last  business  day in December  1997,  the
Preference  Rate for the First Year shall be  increased  to One Hundred Five and
00/100 ($105.00)  Dollars per share and shall be payable,  out of funds lawfully
available  for  dividends  under the laws of the State of New York, in three (3)
equal  installments,  with  interest at the rate of eight and  one-half  percent
(8.5%)  per annum  commencing  January  1,  1998,  on the last  business  day of
December 1998, December 1999 and December 2000. No dividend shall at any time be
paid or declared or set apart for payment upon, and no other  distribution shall
at any time be declared or made in respect of, any shares of Common Stock, other
than a dividend  payable solely in, or a distribution  of, Common Stock,  unless
full cumulative dividends on the 8.5% Cumulative Convertible Preferred Stock for
all past  dividend  periods and for the then current  dividend  period have been
paid or have been declared and a sum sufficient for the payment thereof has been
set apart.

     Section 2. VOTING RIGHTS.  The holders of the 8.5%  Cumulative  Convertible
Preferred Stock shall not be entitled to vote except as required by law.

     Section 3. REDEMPTION OF 8.5% CUMULATIVE CONVERTIBLE PREFERRED STOCK.

     (a) Redemption Price. The 8.5% Cumulative Convertible Preferred Stock shall
be redeemable in whole,  or in part, as hereinafter  set forth,  upon payment in
cash  of the  Redemption  Price  in  respect  of the  shares  so  redeemed.  The
"Redemption  Price" per share shall be equal to the sum of (i) One  Thousand and
00/100  ($1,000.00)  Dollars and (ii) all dividends accrued on such share to the
date of redemption  and  theretofore  unpaid.  Not less than ten (10) days prior
written  notice  shall be given to the  holder or  holders of record of the 8.5%
Cumulative  Convertible  Preferred Stock to be redeemed, at the address as shown
in the records of the  Corporation.  Said notice  shall  specify the  redemption
price and the place at which,  and the  date,  which  date  shall not be a legal
holiday, on which the shares called for redemption will be redeemed.  Subject to
the provisions  hereof, the Board of Directors shall have authority from time to
time to prescribe the manner in which the 8.5% Cumulative  Convertible Preferred
Stock shall be redeemed. If notice of redemption is given as provided above, and
if on the  redemption  date the  Corporation  has set  apart,  in trust  for the
purpose,  sufficient  funds  for  such  redemption,  then  from  and  after  the
redemption  date,  notwithstanding  that any certificate for such shares has not
been surrendered for  cancellation,  the 8.5% Cumulative  Convertible  Preferred
Stock called for redemption shall be deemed to be no longer  outstanding and all
rights with respect to such shares shall forthwith  cease and terminate,  except
only the right of the holders  thereof to receive the redemption  price therefor
(without  interest)  upon  surrender of  certificates  for the shares called for
redemption.

     (b) Voluntary Redemption of 8.5% Cumulative Convertible Preferred Stock. To
the extent  permitted by law, the Corporation may at its option by resolution of
its Board of Directors redeem the 8.5% Cumulative Convertible Preferred Stock in
whole, or in part, at the Redemption  Price. If less than all of the outstanding
8.5% Cumulative  Convertible  Preferred Stock is to be redeemed,  the redemption
shall be in such  amount  and by such  method  (which  need not be by lot or pro
rata),  and  subject  to such  other  provisions,  as may  from  time to time be
determined by the Board of Directors.

     Section 4. RIGHTS ON LIQUIDATION. In the event of liquidation,  dissolution
or winding-up of the Corporation, whether voluntary or involuntary, resulting in
any  distribution  of its assets to its  shareholders,  the  holders of the 8.5%
Cumulative  Convertible Preferred Stock outstanding shall be entitled to receive
in respect of each such share an amount  which shall be equal to the  Redemption
Price,  and no more,  before any  payment or  distribution  of the assets of the
Corporation  is made to or set apart for the  holders  of  Common  Stock.  After
payment in full of the  preferential  amounts required to be paid to the holders
of the 8.5% Cumulative  Convertible Preferred Stock, the holders of Common Stock
shall be  entitled,  to the  exclusion  of the  holders  of the 8.5%  Cumulative
Convertible Preferred Stock, to share in all remaining assets of the Corporation
in accordance with their respective interests. For the purpose of this Paragraph
IV, a consolidation or merger of the Corporation  with any other  corporation or
corporations,  whether or not the Corporation  continues in existence  following
such consolidation or merger, shall not be deemed a liquidation,  dissolution or
winding-up of the Corporation.

     Section 5. CONVERSION OF 8.5% CUMULATIVE  CONVERTIBLE  PREFERRED STOCK. The
holders of 8.5%  Cumulative  Convertible  Preferred  Stock shall have conversion
rights as follows:

     (a) Right to Convert. The 8.5% Cumulative Convertible Preferred Stock shall
be convertible,  at the option of the registered holders thereof, in whole or in
part.  In  the  event  of a  conversion,  each  share  of  the  8.5%  Cumulative
Convertible Preferred Stock shall be converted into the number of fully paid and
non-assessable shares of Common Stock of the Corporation, which is determined by
dividing  $1,000 by a  conversion  price (the  "Conversion  Price")as  set forth
herein.  Before  January  1,  2001,  50% of the  shares  of the 8.5%  Cumulative
Convertible  Preferred Stock held by each registered holder shall be convertible
at the  Conversion  Price of $6.00 per share and 50% of such shares held by each
registered  holder shall be  convertible  at the  Conversion  Price of $7.50 per
share. Commencing January 1, 2001, each share of the 8.5% Cumulative Convertible
Preferred  Stock  shall  be  convertible  into  shares  of  Common  Stock of the
Corporation  at the  Conversion  Price  equal to the  average of the closing bid
price of one share of Common Stock over the 45 trading days preceding January 1,
2001,  if traded on the NASDAQ  Capital  Market or the OTC  Electronic  Bulletin
Board,  or the average of the last sales  price of the Common  Stock over the 45
trading days preceding  January 1, 2001, if traded on the NASDAQ National Market
System or a national stock exchange.

     (b)  Mechanics  of  Conversion.   Before  any  holder  of  8.5%  Cumulative
Convertible  Preferred  Stock  shall be entitled to convert the same into Common
Stock,  he shall  surrender  the  certificate  or  certificates  therefor,  duly
endorsed,  at such office as is  hereinabove  provided,  and shall give  written
notice to the  Corporation at said office that he elects to convert the same and
shall state the name or names in which he wishes the certificate or certificates
for  shares of Common  Stock to be issued.  The  Corporation  shall,  as soon as
practicable  thereafter,  issue and  deliver to such  holder of 8.5%  Cumulative
Convertible  Preferred  Stock,  or to his nominee or nominees,  a certificate or
certificates  for the  number of  shares  of  Common  Stock to which he shall be
entitled as aforesaid.  8.5%  Cumulative  Convertible  Preferred  Stock shall be
deemed to have been  converted  as of the date on which such  shares  shall have
been  surrendered to and such notice  received by the  Corporation as aforesaid,
and the person or persons in whose name or names any certificate or certificates
for Common Stock shall be issuable upon such conversion  shall be deemed to have
become on said date the  holder or holders  of record  for all  purposes  of the
shares represented thereby.

     (c) Redemption by the Corporation Prior to Conversion. If at any time prior
to the  exercise  of the  conversion  rights  afforded  the  holder  of the 8.5%
Cumulative   Convertible  Preferred  Stock,  the  8.5%  Cumulative   Convertible
Preferred Stock are redeemed by the  Corporation,  in whole or in part, then the
conversion  right as provided  herein,  shall be deemed canceled with respect to
such redeemed stock, as of the date of such redemption.

     (d) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available,  free from redemption  rights,  out of its
authorized  but unissued  Common Stock,  solely for the purpose of effecting the
conversion of the 8.5% Cumulative  Convertible  Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of the 8.5% Cumulative
Convertible Preferred Stock from time to time outstanding. The Corporation shall
from  time to  time,  in  accordance  with the  laws of the  State of New  York,
increase the authorized  amount of its Common Stock if at any time the number of
shares of Common Stock remaining  unissued shall not be sufficient to permit the
conversion of all of the 8.5% Cumulative Convertible Preferred Stock at the time
outstanding.

     (e) Issue Taxes. The Corporation will pay any and all issue and other taxes
that may be  payable in  respect  of any issue or  delivery  of shares of Common
Stock on conversion of the 8.5% Cumulative  Convertible Preferred Stock pursuant
hereto,  other than those on or measured by income.  The Corporation  shall not,
however,  be  required  to pay any tax which may be  payable  in  respect of any
transfer  involved in the issue and delivery of shares of Common Stock in a name
other  than that in which the 8.5%  Cumulative  Convertible  Preferred  Stock so
converted  were  registered,  and no such issue or delivery shall be made unless
and until the  person  requesting  such  issue has paid to the  Corporation  the
amount  of  any  such  tax,  or has  established,  to  the  satisfaction  of the
Corporation, that such tax has been paid.

     (f) Adjustments for  Reclassification  and  Reorganization.  In case of any
capital  reorganization or any  reclassification of the Common Stock, or in case
of the  consolidation  or  merger  of  the  Corporation  with  or  into  another
corporation,  or the conveyance of all or substantially all of the assets of the
Corporation to another  corporation,  each Preferred  Share shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
to which a holder of the  number of shares  of  Common  Stock  deliverable  upon
conversion of such 8.5% Cumulative  Convertible  Preferred Stock would have been
entitled upon such reorganization,  reclassification,  consolidation,  merger or
conveyance,  and, in any such case, appropriate adjustment (as determined by the
Board of Directors)  shall be made in the  application of the provisions  herein
set forth with respect to the rights and interests  thereafter of the holders of
the 8.5% Cumulative  Convertible Preferred Stock, to the end that the provisions
set forth  herein  (including  provisions  with  respect to changes in and other
adjustments of the conversion  price) shall thereafter be applicable,  as nearly
as  reasonably  may be, in  relation  to any  shares of stock or other  property
thereafter  deliverable  upon the conversion of the 8.5% Cumulative  Convertible
Preferred Stock.

     (g) Fractional  Shares.  No cash will be paid nor distributions of any kind
made in lieu of the conversion  right. On any exercise of a conversion right, no
fractional shares of the Corporation's  Common Stock will be issued, and no cash
will be paid nor  distributions  of any kind made in lieu of whole or fractional
shares not issued pursuant to the terms and conditions hereof.

                               III. COMMON STOCK.

     Section 1.  Dividend  Rights.  Subject  to the  foregoing  provisions  with
respect to the 8.5% Cumulative  Convertible  Preferred Stock and with respect to
the Series B 8% Convertible  Preferred Stock and not otherwise,  such dividends,
payable  in cash,  stock or  otherwise,  as may be  determined  by the  Board of
Directors, may be declared and paid on the Common Stock from time to time out of
any funds  lawfully  available  therefor,  and the 8.5%  Cumulative  Convertible
Preferred Stock shall not be entitled to participate in such dividend.

     Section 2. Voting  Rights The holders of the Common Stock shall be entitled
to one vote per share.

     Section  3.  Rights  on  Liquidation.  In the  event  of  the  liquidation,
dissolution or winding-up of the Corporation,  whether  voluntary or involuntary
and  after  payment  in  full of the  amount  payable  in  respect  of the  8.5%
Cumulative  Convertible  Preferred  Stock, as provided above, the holders of the
shares of Series B 8% Convertible  Preferred Stock and the Common Stock shall be
entitled,  to the  exclusion of the holders of the 8.5%  Cumulative  Convertible
Preferred Stock, to share in all the remaining  assets of the  Corporation.  For
the purpose of this Paragraph III, a consolidation  or merger of the Corporation
with any corporation or corporations,  whether or not the Corporation  continues
in  existence  following  such  consolidation  or merger,  shall not be deemed a
liquidation, dissolution or winding-up of the Corporation.

     FOURTH: The office of the Corporation shall be located in the County of New
York,  New York or such other  location as the Board of Directors may determine.
The post office  address  within the State of New York to which the Secretary of
State shall mail a copy of any  process  against  the  Corporation  shall be c/o
Ruskin Moscou  Faltischek,  P.C.,  1425 Reckson Plaza,  East Tower,  15th Floor,
Uniondale, New York, Attention: Jeffrey A. Wurst, Esq.

     FIFTH: The duration of the Corporation shall be perpetual.

     SIXTH:  That the  directors  and officers of this  Corporation  need not be
Shareholders.

     SEVENTH:  The  Secretary of State is hereby  designated as the agent of the
Corporation  upon whom  process  in any action or  proceeding  against it may be
served.

     EIGHTH: Unless otherwise determined by the Board of Directors, no holder of
stock of the Corporation of any class shall,  as such holder,  have any right to
purchase,  or  subscribe  for:  (a) any  stock  of any  class  now or  hereafter
authorized, or any warrants, options or other instruments that shall confer upon
the holders  thereof the right to subscribe  for or purchase or receive from the
Corporation  any stock of any class  which  the  Corporation  may issue or sell,
whether or not the same shall be  exchangeable  for any stock of the Corporation
of any class; or (b) any obligation which the Corporation may issue or sell that
shall be convertible into or exchangeable for any shares of the capital stock of
the  Corporation of any class or to which shall be attached or  appurtenant  any
obligations,  warrants,  options or other instruments the right to subscribe for
or purchase or received for the  Corporation  any share of its capital  stock of
any call or classes now or hereafter authorized.

     NINTH: The following provisions are inserted for the regulation and conduct
of the affairs of the  Corporation;  and it is expressly  provided that they are
intended to be in  furtherance  and not in limitation or exclusion of the powers
conferred by statute.

     a.   Meetings of the  shareholders and directors of the Corporation for all
          purposes  may be held at its office or  elsewhere  in the State of New
          York,  and meetings of the  directors may be held outside of the State
          of New  York at such  place  or  places  as may  from  time to time be
          designate in the by-laws or by resolution of the Board of Directors.

     b.   All corporate  powers except those which by law expressly  require the
          consent  of the  shareholders  shall  be  exercised  by the  Board  of
          Directors.

     c.   The Board of  Directors  shall have power from time to time to fix and
          determine  and  vary  the  amount  of  the  working   capital  of  the
          Corporation and to direct and determine the use and disposition of any
          surplus  or  net  profits  over  and  above  its  capital,  and in its
          discretion,  the Board of Directors may use and apply any such surplus
          or  accumulated  profits in  purchasing  or  acquiring  bonds or other
          obligations of the Corporation or, subject to the rights of the Series
          B 8% Convertible  Preferred Stock, shares of its own capital stock, to
          such  extent  and in such  manner  and upon such terms as the Board of
          Directors shall deem  expedient,  but any shares of such capital stock
          so purchased  or acquired may be resold  unless such shares shall have
          been  retired  in the  manner  provided  by law  for  the  purpose  of
          decreasing the Corporation's capital.

     d.   No contract or other  transaction  between  this  Corporation  and any
          other  corporation  shall be affected or  invalidated by the fact that
          any director of this  Corporation is interested in or is an officer or
          director, of such other corporation and any director,  individually or
          jointly,  may be a party to, or may be interested  in, any contract or
          transaction  of this  Corporation,  or in which  this  Corporation  is
          interested,  and no contract or other  transaction of this Corporation
          with any person,  firm or corporation shall be affected or invalidated
          by the fact that any director of this Corporation is a party to, or is
          interested in such  contract,  or  transaction or in any way connected
          with such person, firm or corporation, and every person who may become
          a director of this  Corporation  is hereby  relieved of any  liability
          that may otherwise exist from contracting with the corporation for the
          benefit of himself or any firm, association or corporation in which he
          may be in any way interested.

     e.   Any person made a party to any action, suit or proceeding by reason of
          the fact that he, his  testator  or  intestate,  is or was a director,
          officer or employee of the Corporation or of any Corporation  which he
          served as such at the request of the Corporation, shall be indemnified
          by  the  Corporation  against  the  reasonable   expenses,   including
          attorneys'  fees,   actually  and  necessarily   incurred  by  him  in
          connection with the defense of such action, suit or proceeding,  or in
          connection with any appeal  therein,  except in relation to matters as
          to which it shall be adjudged in such action,  suit or proceeding that
          such  officer,  director  or  employee  is liable  for  negligence  or
          misconduct  in  the   performance   of  his  duties.   Such  right  of
          indemnification  shall not be deemed  exclusive of any other rights to
          which such  director,  officer or employee may be entitled  apart from
          this provision.

     f.   The Board of Directors is authorized and empowered to eliminate shares
          of Common Stock which have been reacquired by the Corporation from the
          authorized  capital stock or number of shares of the Corporation or to
          restore such shares to the status of  authorized  but unissued  shares
          which may be reissued  and to cause to be executed  and filed with the
          Secretary of State of New York, a  certificate  pursuant to Section 20
          of the Stock Corporation Law.

     g.   The Board of  Directors  is  authorized  to adopt and  implement  such
          anti-takeover  provisions  as the  Board  of  Directors  deems  in the
          exercise of its fiduciary duties, under the circumstances  existing at
          the time,  in the best  interests  of  Company's  shareholders,  which
          provision shall not be amended by the shareholders  absent the vote of
          the holders of at least  sixty-six and two-thirds (66 2/3%) percent of
          the issued and outstanding common stock. If an anti-takeover provision
          is  adopted  by the  Board  of  Directors  without  prior  shareholder
          approval,  such  provision  shall  provide that it will expire  unless
          ratified by the shareholders within one year of adoption.

     h.   The amendments of the Certificate of Incorporation and the restatement
          thereof were  authorized and approved by the Board of Directors of the
          Corporation.

     TENTH. No director shall be personally  liable to the Corporation or any of
its shareholders  for monetary damages for breach of duty as a director,  except
for  liability  if a  judgment  or  other  final  adjudication  adverse  to  him
establishes that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing  violation of law or that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled or that
his action violated  Section 719 of the New York Business  Corporation  Law. Any
repeal  or  modification  of  this  Article  TENTH  by the  shareholders  of the
Corporation  shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification with respect
to acts or omissions occurring prior to such repeal or modification.

<PAGE>

     Subscribed  and  affirmed by me as true under the  penalties  of perjury on
this ___ day of _____________, 2006.


                                      ------------------------------
                                      Franklin C. Karp, President



                                      ------------------------------
                                      Joseph J. Calabrese, Secretary


<PAGE>


                                     ANNEX A

                              NOTICE OF CONVERSION

      (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES
                              OF PREFERRED STOCK)


The  undersigned  hereby  elects to convert  the number of shares of Series B 8%
Convertible  Preferred Stock  indicated  below into shares of common stock,  par
value $.01 per share (the "Common Stock"),  of Harvey  Electronics,  Inc., a New
York corporation (the "Corporation"),  according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a Person other
than the  undersigned,  the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as may
be required by the Corporation in accordance with the Purchase Agreement. No fee
will be charged to the Holder for any  conversion,  except for any such transfer
taxes.

Conversion calculations:

       Date to Effect Conversion:---------------------------------------------

       Number of shares of Preferred Stock owned prior to Conversion: --------

       Number of shares of Preferred Stock to be Converted: ------------------

       Stated Value of shares of Preferred Stock to be Converted:-------------

       Number of shares of Common Stock to be Issued:-------------------------

       Applicable Conversion Price:-------------------------------------------

       Number of shares of Preferred Stock subsequent to Conversion: ---------


                                    [HOLDER]


                                    By:-------------------------------------
                                       Name:
                                       Title: