CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS

                                       OF

           SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK

                                       OF

                         SHEFFIELD PHARMACEUTICALS, INC.

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

                           Pursuant to Section 151 of
              the General Corporation Law of the State of Delaware

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


                  Sheffield  Pharmaceuticals,  Inc., a corporation organized and
existing  under  the  General  Corporation  Law of the  State of  Delaware  (the
"Corporation"),  hereby certifies that the following resolutions were adopted by
the  Board of  Directors  of the  Corporation  on April  13,  1998  pursuant  to
authority  of the Board of  Directors  as required by Section 151 of the General
Corporation Law of the State of Delaware:

                  RESOLVED,  that pursuant to the authority expressly granted to
and vested in the Board of  Directors  of the  Corporation  (the  "Board" or the
"Board of Directors") by the provisions of the Certificate of  Incorporation  of
the Corporation (the "Certificate of  Incorporation"),  there hereby is created,
out of the 3,000,000 shares of preferred stock of the Corporation  authorized in
Article FOURTH of the Certificate of Incorporation  (the "Preferred  Stock"),  a
series of Preferred  Stock  consisting of 1,250 shares,  which series shall have
the following  powers,  designations,  preferences and relative,  participating,
optional or other rights,  and the  following  qualifications,  limitations  and
restrictions  (in  addition  to  the  powers,  designations,   rights,  and  the
qualifications,  limitations and  restrictions,  set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock).


                                    ARTICLE 1
                             DESIGNATION AND AMOUNT

                  The shares of such  series  shall be  designated  as "Series B
Cumulative  Convertible  Redeemable  Preferred  Stock" (the  "Series B Preferred
Stock") and the authorized  number of shares  constituting  such series shall be
1,250 shares. The par value of the Series B Preferred



<PAGE>
Stock shall be $.01 per share.  The stated value of the Series B Preferred Stock
shall be One Thousand Dollars ($1,000) per share (the "Stated Value").


                                    ARTICLE 2
                                   DEFINITIONS

         SECTION 2.1  DEFINITIONS.  The terms  defined in this Article  whenever
used in this Certificate of Designations have the following respective meanings:

                  (a)  "ADDITIONAL  CAPITAL SHARES" has the meaning set forth in
Section 6.1(c).

                  (b) "AFFILIATE" has the meaning  ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.

                  (c) "BUSINESS DAY" means a day other than Saturday,  Sunday or
any day on which  banks  located  in the  State of New  York are  authorized  or
obligated to close.

                  (d)  "CAPITAL  SHARES"  means the Common  Shares and any other
shares of any other class or series of common  stock,  whether now or  hereafter
authorized  and however  designated,  which have the right to participate in the
distribution   of  earnings  and  assets  (upon   dissolution,   liquidation  or
winding-up) of the Corporation.

                  (e)  "CLOSING  DATE"  means the date of  issuance of the first
share of Series B Preferred Stock.

                  (f) "COMMON  SHARES" or "COMMON  STOCK" means shares of common
stock, $.01 par value, of the Corporation.

                  (g)  "COMMON  STOCK  ISSUED  AT  CONVERSION"  when  used  with
reference to the securities  issuable upon  conversion of the Series B Preferred
Stock,  means all Common Shares now or hereafter  Outstanding  and securities of
any other  class or series  into which the Series B  Preferred  Stock  hereafter
shall have been changed or  substituted,  whether now or  hereafter  created and
however designated.

                  (h)  "CONVERSION  DATE"  means  any  day on  which  all or any
portion of shares of the Series B Preferred  Stock is  converted  in  accordance
with the provisions hereof.

                  (i)  "CONVERSION  NOTICE" has the meaning set forth in Section
6.2.

                  (j) "CONVERSION  PRICE" means on any date of determination the
applicable  price for the conversion of shares of Series B Preferred  Stock into
Common Shares on such day as set forth in Section 6.1.



                                       -2-

<PAGE>
                  (k) "CONVERSION  RATIO" means on any date of determination the
applicable  percentage of the Market Price for  conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.

                  (l)  "CORPORATION"  means  Sheffield  Pharmaceuticals,  Inc. a
Delaware  corporation,  and any  successor  or resulting  corporation  by way of
merger,  consolidation,  sale or  exchange  of all or  substantially  all of the
Corporation's assets, or otherwise.

                  (m) "CURRENT MARKET PRICE" on any date of determination  means
the closing price of a Common Share on such day as reported on the AMEX,  or, if
such security is not listed or admitted to trading on the AMEX, on the principal
national  security exchange or quotation system on which such security is quoted
or listed or  admitted  to  trading,  or, if not quoted or listed or admitted to
trading on any national  securities  exchange or quotation  system,  the closing
price of such security on the over-the-counter  market on the day in question as
reported by the National Quotation Bureau  Incorporated,  or a similar generally
accepted reporting service, or if not so available,  in such manner as furnished
by any Nasdaq member firm of the National  Association  of  Securities  Dealers,
Inc. selected from time to time by the Board of Directors of the Corporation for
that purpose,  or a price  determined in good faith by the Board of Directors of
the Corporation as being equal to the fair market value thereof, as the case may
be.

                  (n) "DEFAULT  DIVIDEND  RATE" shall be equal to the  Preferred
Stock Dividend Rate plus an additional 4% per annum.

                  (o) "HOLDER" means The Shaar Fund Ltd., any successor thereto,
or any Person to whom the Series B Preferred Stock is  subsequently  transferred
in accordance with the provisions hereof.

                  (p) "ISSUE  DATE" means the date of  original  issuance of the
applicable share of Series B Preferred Stock.

                  (q) "MARKET  DISRUPTION EVENT" means any event that results in
a material suspension or limitation of trading of Common Shares on the AMEX.

                  (r) "MARKET  PRICE" per Common  Share means the average of the
closing prices of the Common Shares as reported on the AMEX for the five Trading
Days in any Valuation Period.

                  (s) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares  (collectively,  "Shares"),  means, on any date of determination,
all issued and  outstanding  Shares,  and includes  all such Shares  issuable in
respect  of  outstanding  scrip  or  any  certificates  representing  fractional
interests in such Shares;  PROVIDED,  HOWEVER,  that any such Shares directly or
indirectly  owned  or held  by or for  the  account  of the  Corporation  or any
Subsidiary of the  Corporation  shall not be deemed  "Outstanding"  for purposes
hereof.



                                       -3-

<PAGE>
                  (t)  "PERSON"   means  an   individual,   a   corporation,   a
partnership,  an association,  a limited  liability  company,  a  unincorporated
business  organization,  a  trust  or  other  entity  or  organization,  and any
government or political subdivision or any agency or instrumentality thereof.

                  (u) "SEC"  means the United  States  Securities  and  Exchange
Commission.

                  (v)  "SECURITIES  ACT" means the  Securities  Act of 1933,  as
amended,  and the rules and regulations of the SEC thereunder,  all as in effect
at the time.

                  (w) "SERIES B PREFERRED  STOCK"  means the Series B Cumulative
Convertible  Redeemable  Preferred  Stock  of the  Corporation  created  by this
Certificate of Designations or such other convertible  Preferred Stock exchanged
therefor as provided in Section 6.4.

                  (aa)  "STATED VALUE" has the meaning set forth in Article 1.

                  (bb)  "SUBSIDIARY"  means any  entity of which  securities  or
other  ownership  interests  having ordinary voting power to elect a majority of
the board of directors or other persons  performing  similar functions are owned
directly or indirectly by the Corporation.

                  (cc) "TRADING DAY" means any day on which  purchases and sales
of securities  authorized for quotation on the AMEX are reported  thereon and on
which no Market  Disruption  Event has  occurred  or, if the Common Stock is not
listed or admitted to trading on the AMEX, a day on which the principal national
securities  exchange on which the Common  Stock is listed or admitted to trading
is open for the  transaction  of  business,  or, if the  Common  Stock is not so
listed or  admitted to trading on any  national  securities  exchange,  a day on
which the Nasdaq National Market (or any successor thereto) or such other system
then in use is open for the transaction of business,  or, if the Common Stock is
not quoted by any such organization,  any day other than a Saturday, Sunday or a
day on which  banking  institutions  in the State of New York are  authorized or
obligated by law or executive order to close.

                  (dd)  "VALUATION  EVENT" has the  meaning set forth in Section
6.1.

                  (ee)  "VALUATION  PERIOD"  means the five  Trading  Day period
immediately preceding the applicable Conversion Date.

                  All  references to "cash" or "$" herein means  currency of the
United States of America.



                                       -4-

<PAGE>
                                    ARTICLE 3
                                      RANK

                  The  Series B  Preferred  Stock  shall  rank (i)  prior to the
Common  Stock;  (ii)  prior  to any  class or  series  of  capital  stock of the
Corporation hereafter created other than "Pari Passu Securities"  (collectively,
with  the  Common  Stock,  "Junior  Securities");  (iii)  pari  passu  with  the
Corporation's  Series A Cumulative  Convertible  Redeemable Preferred Stock (the
"Series A  Preferred  Stock");  and (iv) pari  passu with any class or series of
capital  stock of the  Corporation  hereafter  created  specifically  ranking on
parity  with the  Series B  Preferred  Stock  (collectively,  with the  Series A
Preferred Stock, "Pari Passu Securities").


                                    ARTICLE 4
                                    DIVIDENDS

         SECTION 4.1

                  (a) (i) Subject to Article 6, the Holder  shall be entitled to
receive,  when,  as and if  declared  by the  Board of  Directors,  out of funds
legally available for the payment of dividends,  dividends  (subject to Sections
4(a)(ii) hereof) at the rate of 6% per annum (computed on the basis of a 360-day
year) (the "Dividend Rate") on the Liquidation  Value (as defined below) of each
share of Series B Preferred Stock on and as of the most recent Dividend  Payment
Due Date (as defined  below) with  respect to each  Dividend  Period (as defined
below).  Dividends on the Series B Preferred  Stock shall be cumulative from the
date of  issue,  whether  or not  declared  for any  reason,  including  if such
declaration is prohibited  under any  outstanding  indebtedness or borrowings of
the Corporation or any of its Subsidiaries,  or any other contractual  provision
binding on the Corporation or any of its Subsidiaries,  and whether or not there
shall be funds legally available for the payment thereof.

                           (ii)  Each   dividend   shall  be  payable  in  equal
quarterly  amounts on each March 31, June 30,  September  30 and  December 31 of
each year (each, a "Dividend Payment Due Date"),  commencing September 30, 1998,
to the  holders of record of shares of the  Series B  Preferred  Stock,  as they
appear on the stock records of the  Corporation  at the close of business on any
record date,  not more than 60 days or less than 10 days  preceding  the payment
dates  thereof,  as shall be fixed by the Board of  Directors.  For the purposes
hereof,  "Dividend Period," in respect of any share of Series B Preferred Stock,
shall mean (i) the period  commencing  on and  including  the Issue Date of such
share and including  September 30, 1998 and,  thereafter,  the quarterly  period
commencing  on and including the day after the  immediately  preceding  Dividend
Payment Date and ending on and including  the  immediately  subsequent  Dividend
Payment Date.  Accrued and unpaid  dividends for any past Dividend Period may be
declared and paid at any time,  without  reference  to any Dividend  Payment Due
Date,  to holders of record on such date,  not more than 15 days  preceding  the
payment date thereof, as may be fixed by the Board of Directors.



                                       -5-

<PAGE>
                           (iii) At the option of the Corporation,  the dividend
shall be paid in cash or through the issuance of duly and validly authorized and
issued,  fully paid and non-assessable  shares of the Common Stock valued at the
Market Price.  Notwithstanding  the foregoing,  until the shares of Common Stock
issuable as dividends on the Series B Preferred  Stock have been  registered for
resale under a registration statement that has been declared effective under the
Securities Act by the SEC,  payment of dividends on the Series B Preferred Stock
shall be in cash.

                  (b) The  Holder  shall not be  entitled  to any  dividends  in
excess  of the  cumulative  dividends,  as  herein  provided,  on the  Series  B
Preferred  Stock.  Except as provided in this Article 4, no interest,  or sum of
money in lieu of interest,  shall be payable in respect of any dividend  payment
or payments on the Series B Preferred Stock that may be in arrears.

                  (c) So long as any shares of the Series B Preferred  Stock are
outstanding,  no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu  Securities for
any period  unless full  cumulative  dividends  required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the  payment  thereof  set apart for such  payment on the Series B Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu  Securities.  When  dividends
are not paid in full or a sum sufficient  for such payment is not set apart,  as
aforesaid,  all dividends  declared upon shares of the Series B Preferred  Stock
and all  dividends  declared  upon any  other  class  or  series  of Pari  Passu
Securities shall be declared ratably in proportion to the respective  amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.

                  (d) So long as any shares of the Series B Preferred  Stock are
outstanding,  no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities  be  redeemed,   purchased  or  otherwise   acquired  (other  than  a
redemption,  purchase or other  acquisition  of shares of Common  Stock made for
purposes of an employee  incentive  or benefit  plan  (including  a stock option
plan) of the Corporation or any Subsidiary, (all such dividends,  distributions,
redemptions or purchases being hereinafter  referred to as a "Junior  Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking  fund for the  redemption  of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends  required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu  Securities shall have been paid or set
apart for payment for all past  Dividend  Periods  with  respect to the Series B
Preferred  Stock and all past  dividend  periods with respect to such Pari Passu
Securities,  and (ii) sufficient funds shall have been paid or set apart for the
payment of the  dividend  for the current  Dividend  Period with  respect to the
Series B Preferred  Stock and the current  dividend  period with respect to such
Pari Passu Securities.



                                       -6-

<PAGE>
                                    ARTICLE 5
                             LIQUIDATION PREFERENCE

         SECTION 5.1

                  (a) If the  Corporation  shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency  or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver,  liquidator,
assignee,  custodian,  trustee,  sequestrator (or other similar official) of the
Corporation or of any  substantial  part of its property,  or make an assignment
for the benefit of its  creditors,  or admit in writing its inability to pay its
debts  generally  as they  become  due,  or if a decree or order  for  relief in
respect of the  Corporation  shall be entered by a court having  jurisdiction in
the premises in an  involuntary  case under the Federal  bankruptcy  laws or any
other  applicable  Federal  or  state  bankruptcy,  insolvency  or  similar  law
resulting in the  appointment of a receiver,  liquidator,  assignee,  custodian,
trustee,  sequestrator (or other similar  official) of the Corporation or of any
substantial  part of its property,  or ordering the winding up or liquidation of
its affairs,  and any such decree or order shall be unstayed and in effect for a
period of sixty (60)  consecutive  days and, on account of any such  event,  the
Corporation  shall liquidate,  dissolve or wind up, or if the Corporation  shall
otherwise  liquidate,  dissolve or wind up (each such event being  considered  a
"Liquidation Event"), no distribution shall be made to the holders of any Junior
Securities of the Corporation upon liquidation, dissolution or winding up unless
prior  thereto,  the holders of shares of Series B Preferred  Stock,  subject to
Article 5, shall have received the Liquidation Preference (as defined in Article
5(b)) with respect to each share. If upon the occurrence of a Liquidation Event,
the assets and funds available for distribution  among the holders of the Series
B Preferred Stock and holders of Pari Passu  Securities shall be insufficient to
permit the payment to such holders of the preferential  amounts payable thereon,
then the  entire  assets  and funds of the  Corporation  legally  available  for
distribution to the Series B Preferred Stock and the Pari Passu Securities shall
be  distributed  ratably  among such shares in  proportion to the ratio that the
Liquidation  Preference  payable  on each  such  share  bears  to the  aggregate
liquidation Preference payable on all such shares.

                  (b) For purposes  hereof,  the  "Liquidation  Preference" with
respect to a share of the Series B Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof,  plus (ii) the aggregate of all accrued
and unpaid  dividends  on such share of Series B Preferred  Stock until the most
recent  Dividend  Payment  Date;  PROVIDED  that,  in  the  event  of an  actual
liquidation,  dissolution or winding up of the Corporation,  the amount referred
to in clause (iii) above shall be  calculated  by  including  accrued and unpaid
dividends  to the actual date of such  liquidation,  dissolution  or winding up,
rather than the Dividend Payment Due Date referred to above.



                                       -7-

<PAGE>
                                    ARTICLE 6
                  CONVERSION AND REDEMPTION OF PREFERRED STOCK

         SECTION 6.1 CONVERSION;  CONVERSION PRICE. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share),  at any time,  and from time to time  after the 90th day  following  the
Issue Date at a  Conversion  Price equal to 75% of the Market  Price;  provided,
however,  that the Holder shall not have the right to convert any portion of the
Series B Preferred Stock to the extent that the issuance to the Holder of Common
Shares  upon  such  conversion  would  result in the  Holder  being  deemed  the
"beneficial  owner" of 5% or more of the then  outstanding  Common Shares within
the meaning of Rule 13d-3 of the  Securities  Exchange Act of 1934,  as amended,
provided,  however,  that the Corporation  shall have no obligation to determine
whether or not a Holder is a "beneficial owner" of 5% or more of the outstanding
Common Stock in connection  with any conversion of Series B Preferred  Stock. At
the Corporation's  option,  the amount of accrued and unpaid dividends as of the
Conversion  Date shall not be subject to  conversion  but instead may be paid in
cash as of the Conversion Date; if the Corporation  elects to convert the amount
of accrued and unpaid  dividends at the Conversion  Date into Common Stock,  the
Common Stock issued to the Holder shall be valued at the Conversion  Price as of
the applicable  Conversion Date.  Notwithstanding  the previous sentence,  in no
event  shall the Holder have the right to convert  that  portion of the Series B
Preferred  Stock to the  extent  that the  issuance  of Common  Shares  upon the
conversion of such Series B Preferred Stock, when combined with shares of Common
Stock received upon other  conversions of Series B Preferred  Stock and exercise
of the Warrants by such Holder and any other holders of Series B Preferred Stock
and the  Warrants,  would exceed 19.99% of the Common Stock  outstanding  on the
Closing Date.  Within ten (10) Business Days after the receipt of the Conversion
Notice which upon  conversion  would,  when combined with shares of Common Stock
received upon other  conversions of Series B Preferred Stock and exercise of the
Warrants  by such Holder and any other  holders of Series B Preferred  Stock and
Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date, the
Corporation shall redeem all remaining  outstanding shares of Series B Preferred
Stock at one hundred and fifteen  percent  (115%) of the Stated  Value  thereof,
together with all accrued and unpaid dividends thereon,  in cash, to the date of
such redemption.

                  The number of shares of Common  Stock due upon  conversion  of
Series B  Preferred  Stock in  respect of any  Conversion  Date shall be (i) the
number of shares of Series B Preferred Stock to be converted, multiplied by (ii)
the Stated Value and divided by (iii) the applicable  Conversion  Price for such
Conversion Date.

                  Within two (2) Business Days of the  occurrence of a Valuation
Event, the Corporation  shall send notice (the "Valuation Event Notice") of such
occurrence  to the Holder.  Notwithstanding  anything to the contrary  contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day  immediately  following the  occurrence of
such  Valuation  Event  and end on the  Conversion  Date;  PROVIDED  that,  if a
Valuation  Event  occurs  on the  fifth day of any  Valuation  Period,  then the
Conversion Price


                                       -8-

<PAGE>
shall be the  Current  Market  Price  of the  Common  Shares  on such  day;  and
PROVIDED,  FURTHER,  that the  Holder  may,  in its  discretion,  postpone  such
Conversion  Date to a Trading  Day which is no more than five (5)  Trading  Days
after the occurrence of the latest  Valuation Event by delivering a notification
to the Corporation  within two (2) Business Days of the receipt of the Valuation
Event  Notice.  In the event that the Holder  deems the  Valuation  Period to be
other than the five (5) Trading Days  immediately  prior to the Conversion Date,
the Holder  shall give  written  notice of such fact to the  Corporation  in the
related Conversion Notice at the time of conversion.

For purposes of this  Section  6.1, a  "VALUATION  EVENT" shall mean an event in
which the  Corporation  at any time during a Valuation  Period  takes any of the
following actions:

                  (a) subdivides or combines its Capital Shares;

                  (b) makes any distribution of its Capital Shares;

                  (c) issues any  additional  Capital  Shares  (the  "Additional
Capital  Shares"),  otherwise than as provided in the foregoing  Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other  consideration  lower,
than the Current Market Price in effect immediately prior to such issuances,  or
without  consideration,  except for the  issuance of (i) Common  Stock and other
securities  of the  Corporation  issuable  upon the  exercise or  conversion  of
options,  warrants or other  rights to purchase  securities  of the  Corporation
outstanding as of the date hereof and (ii) securities to officers,  directors or
employees of the Corporation or any of its Subsidiaries;

                  (d) issues any warrants,  options or other rights to subscribe
for or purchase any Additional  Capital Shares and the price per share for which
Additional  Capital  Shares may at any time  thereafter be issuable  pursuant to
such  warrants,  options or other rights  shall be less than the Current  Market
Price in effect  immediately prior to such issuance;  except for the issuance of
(i) Common  Stock and other  securities  of the  Corporation  issuable  upon the
exercise  or  conversion  of  options,  warrants  on other  rights  to  purchase
securities  of the  Corporation  outstanding  as of the  date  hereof  and  (ii)
securities to officers,  directors or employees of the Corporation or any of its
Subsidiaries;

                  (e) issues any securities  convertible into or exchangeable or
exercisable  for  Capital  Shares  and the  consideration  per  share  for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible,  exchangeable or exercisable securities shall be less
than the  Current  Market  Price in effect  immediately  prior to such  issuance
except  for the  issuance  of (i)  Common  Stock  and  other  securities  of the
Corporation  issuable upon the exercise or  conversion  of options,  warrants on
other rights to purchase  securities of the  Corporation  outstanding  as of the
date hereof and (ii)  securities  to  officers,  directors  or  employees of the
Corporation or any of its subsidiaries;

                  (f)  makes  a  distribution  of its  assets  or  evidences  of
indebtedness  to the holders of its Capital  Shares as a dividend in liquidation
or by way of  return of  capital  or other  than as a  dividend  payable  out of
earnings or surplus legally available for the payment of dividends under


                                       -9-

<PAGE>
applicable law or any  distribution  to such holders made in respect of the sale
of all or substantially  all of the  Corporation's  assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or

                  (g) takes  any  action  affecting  the  number of  Outstanding
Capital Shares,  other than an action described in any of the foregoing Sections
6.1(a)  through  6.1(f)  hereof,   inclusive,   which  in  the  opinion  of  the
Corporation's  Board  of  Directors,  determined  in good  faith,  would  have a
material  adverse  effect  upon  the  rights  of the  Holder  at the  time  of a
conversion of the Series B Preferred Stock.

         SECTION 6.2 EXERCISE OF  CONVERSION  PRIVILEGE.  (a)  Conversion of the
Series B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying  an executed and completed  notice of conversion in the form annexed
hereto as Annex I (the "Conversion  Notice") to the Corporation and delivering a
copy of the  Conversion  Notice  to the  Corporation  by  nationally  recognized
overnight  courier not later than five (5) Business Days next following the date
on  which  the  telecopied   Conversion  Notice  has  been  transmitted  to  the
Corporation.  Each  date on  which a  Conversion  Notice  is  telecopied  to and
received by the  Corporation  in accordance  with the provisions of this Section
6.2 shall be  deemed a  Conversion  Date.  The  Corporation  shall  convert  the
Preferred Stock and issue the Common Stock Issued at Conversion  effective as of
the Conversion  Date.  The Conversion  Notice also shall state the name or names
(with  addresses)  of the  persons  who are to become the  holders of the Common
Stock Issued at Conversion in connection  with such  conversion.  The applicable
Holder shall deliver the stock  certificate  representing the shares of Series B
Preferred  Stock  so  converted  to the  Corporation  by  nationally  recognized
overnight  courier  service  within  15 days  following  the date on  which  the
telecopied  Conversion  Notice has been  transmitted  to the  Corporation.  Upon
surrender for  conversion,  the Preferred Stock shall be accompanied by a proper
assignment  hereof to the  Corporation  or be endorsed in blank.  As promptly as
practicable  after the delivery to the Corporation of the applicable  Conversion
Notice as aforesaid, but in any event not more than five (5) Business Days after
the  Corporation's  delivery to the  Corporation  of the  applicable  Conversion
Notice, the Corporation shall (i) issue the Common Stock issued at Conversion in
accordance  with the  provisions  of this Article 6, and (ii) cause to be mailed
for  delivery  by  overnight   courier  to  the  Holder  (X)  a  certificate  or
certificate(s)  representing  the number of Common Shares to which the Holder is
entitled by virtue of such conversion,  (Y) cash, as provided in Section 6.3, in
respect of any fraction of a Share issuable upon such conversion and (Z) cash or
Common  Stock,  as  applicable  representing  the amount of  accrued  and unpaid
dividends as of the Conversion  Date.  Such  conversion  shall be deemed to have
been effected at the time at which the  Conversion  Notice  indicates so long as
the Corporation  shall have been delivered the applicable  Conversion  Notice in
accordance  with this  Section 6.2, and at such time the rights of the Holder of
the Preferred  Stock,  as such,  shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion  shall be issuable  shall be
deemed to have  become the  holder or  holders  of record of the  Common  Shares
represented  thereby.  The Conversion Notice shall constitute a contract between
the Holder and the Corporation,  whereby the Holder shall be deemed to subscribe
for the number of Common  Shares  which it will be entitled to receive upon such
conversion and, in consideration of such


                                      -10-

<PAGE>
conversion, to surrender the Preferred Stock and to release the Corporation from
all liability thereon.

                  (b) From and after the  delivery of the  Conversion  Notice in
respect of any conversion of shares of Series B Preferred Stock, all such shares
of Series B Preferred  Stock shall be deemed to have been  converted into shares
of  Common  Stock  as of  the  applicable  Conversion  Date  at  the  applicable
conversion  rate,  all stock  dividends on such shares of the Series B Preferred
Stock shall cease to accrue, and all rights of the holders thereof as holders of
Series B  Preferred  Stock,  except the right to receive  all accrued and unpaid
stock  dividends to such  Conversion Date at the applicable rate for such shares
of Series B Preferred Stock and the right to receive  certificates  representing
shares of Common Stock issuable upon the  conversion of such shares  (including,
without limitation, with respect to such stock dividends, as applicable),  shall
cease  and  terminate,  such  shares  of  Series B  Preferred  Stock  shall  not
thereafter be transferred  (except with the consent of the Corporation) and such
shares shall not be deemed to be outstanding for any purpose whatsoever.

                  (c) If, at any time (i) the Corporation  challenges,  disputes
or  denies  the right of the  Holder  hereof to  effect  the  conversion  of the
Preferred  Stock into  Common  Shares or  otherwise  dishonors  or  rejects  any
Conversion  Notice  delivered  in  accordance  with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate  of the Holder  commences
any lawsuit or  proceeding  or  otherwise  asserts any claim before any court or
public or governmental authority which seeks to challenge,  deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares, then the Holder shall have the right,
by written  notice to the  Corporation,  to require the  Corporation to promptly
redeem the Preferred  Stock for cash at a redemption  price equal to 125% of the
Stated Value  thereof  together with all accrued and unpaid  dividends  thereon.
Under  any of the  circumstances  set  forth  above,  the  Corporation  shall be
responsible  for the payment of all costs and expenses of the Holder,  including
reasonable  legal fees and expenses,  as and when incurred in disputing any such
action or pursuing its rights  hereunder (in addition to any other rights of the
Holder).

                  (d) Notwithstanding the preceeding paragraph (c), in the event
a  dispute  arises  over  whether  a  Conversion  Notice  was  delivered  to the
Corporation by the Holder pursuant to Section 6.2, the Holder purporting to have
telecopied  such  notice  shall have the burden of proving  that such notice was
telecopied to the Corporation.

         SECTION 6.3  FRACTIONAL  SHARES.  No fractional  Common Shares or scrip
representing  fractional  Common  Shares shall be issued upon  conversion of the
Series  B  Preferred  Stock.  Instead  of any  fractional  Common  Shares  which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.



                                      -11-

<PAGE>
         SECTION 6.4 ADJUSTMENTS.  The Conversion Price and the number of shares
issuable  upon  conversion  of the  Series B  Preferred  Stock  are  subject  to
adjustment from time to time as follows.

                  (a)  MERGER,  SALE OF  ASSETS,  ETC.  If at any time while the
Series B Preferred Stock, or any portion thereof,  is outstanding there shall be
(i) a reorganization  (other than a combination,  reclassification,  exchange or
subdivision  of  shares  otherwise  provided  for  herein),  (ii)  a  merger  or
consolidation of the Corporation  with or into another  corporation in which the
Corporation is the surviving entity but the shares of the Corporation's  capital
stock outstanding immediately prior to the merger are converted by virtue of the
merger  into  other  property,  whether  in the  form  of  securities,  cash  or
otherwise,  or (iii) a sale or  transfer  of the  Corporation's  properties  and
assets as, or substantially as, an entirety to any other person,  then as a part
of such reorganization, merger, consolidation, sale or transfer lawful provision
shall be made so that the Holder  shall  thereafter  be entitled to receive upon
conversion of the Series B Preferred Stock,  during the period specified herein,
the number of shares of stock or other  securities  or property of the successor
corporation resulting from such reorganization,  merger, consolidation,  sale or
transfer   that  the  Holder  would  have  been  entitled  to  receive  in  such
reorganization,  consolidation,  merger,  sale  or  transfer  if  the  Series  B
Preferred  Stock had been  converted  immediately  before  such  reorganization,
merger,  consolidation,  sale or transfer,  all subject to further adjustment as
provided in this Section 6.4. The foregoing provisions of this Section 6.4 shall
similarly  apply  to  successive  reclassification,   changes,   consolidations,
mergers,  mandatory  share  exchanges and sales and transfers.  If the per share
consideration  payable to the holder  hereof for shares in  connection  with any
such transaction is in a form other than cash or marketable securities, then the
value of such  consideration  shall be  determined in good faith by the Board of
Directors. In all events, appropriate adjustment (as determined in good faith by
the Board of Directors)  shall be made in the  application  of the provisions of
this Certificate of Designations with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Certificate
of Designations  shall be applicable after that event, as near as reasonably may
be, in relation  to any shares or other  property  deliverable  after that event
upon conversion of the Series B Preferred Stock.

                  (b)  RECLASSIFICATION,  ETC. If the  Corporation,  at any time
while the Series B Preferred Stock, or any portion thereof, remains outstanding,
shall  change any of the  securities  as to which  conversion  rights under this
Certificate  of  Designations  exist  into the  same or a  different  number  of
securities  of any other  class or classes,  the Series B Preferred  Stock shall
thereafter  represent the right to acquire such number and kind of securities as
would  have been  issuable  as the  result of such  change  with  respect to the
securities that were subject to the conversion  rights under this Certificate of
Designations  immediately prior to such reclassification or other change and the
Conversion  Price  therefor  shall be  appropriately  adjusted,  all  subject to
further adjustment as provided in this Certificate of Designations.

                  (c)  SPLIT,  SUBDIVISION  OR  COMBINATION  OF  SHARES.  If the
Corporation  at any time  while the Series B  Preferred  Stock,  or any  portion
thereof, remains outstanding shall split, subdivide or combine the securities as
to which conversion rights under this Certificate of


                                      -12-

<PAGE>
Designations exist, into a different number of securities of the same class, the
Conversion  Price shall be  proportionately  decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.

                  (d) ADJUSTMENTS FOR DIVIDENDS IN STOCK AND OTHER SECURITIES OR
PROPERTY. If while the Series B Preferred Stock, or any portion hereof,  remains
outstanding,  the holders of the securities as to which conversion  rights under
this Certificate of Designations  exist at the time shall have received,  or, on
or after the record date fixed for the determination of eligible stockholders of
the  Corporation,  shall  have  become  entitled  to  receive,  without  payment
therefor,  other or additional stock or other securities or property (other than
cash) of the Corporation by way of dividend, then and in each case, the Series B
Preferred  Stock shall  represent  the right to  acquire,  upon  conversion,  in
addition to the number of shares of the security  receivable  upon conversion of
the  Series  B  Preferred   Stock,   and  without   payment  of  any  additional
consideration  therefor,  the amount of such other or additional  stock or other
securities  or  property  (other than cash) of the  Corporation  that the Holder
would  hold on the date of such  conversion  had it been the holder of record of
the security  receivable  upon conversion of the Series B Preferred Stock on the
date  hereof and had  thereafter,  during the period from the date hereof to and
including the date of such  conversion,  retained such shares and/or  additional
stock  available by it as aforesaid  during such  period,  giving  effect to all
adjustments called for during such period by the provisions of this Section 6.4.

                  (e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment  pursuant to this Section 6.4, the Corporation at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment or readjustment is based.

         SECTION 6.5 MANDATORY REDEMPTION UNDER CERTAIN CIRCUMSTANCES. (a) If at
anytime  from the Closing  Date until the 90th day after the  Closing  Date (the
"Mandatory Redemption  Termination Date"), the Corporation shall be a party to a
transaction  or a series  of  transactions  involving  the  issuance  of  equity
securities,  the  incurrence of debt of the  Corporation,  the sale of licensing
rights,  the entering into of joint  ventures or any other  similar  infusion of
cash  (collectively,  a "Cash  Infusion")  as a result of which the  Corporation
shall  receive  funds  in  an  aggregate  amount  in  excess  of  $300,000,  the
Corporation  shall  immediately  upon receipt of such Cash  Infusion  redeem the
Series B  Preferred  Stock at the  applicable  Mandatory  Redemption  Price  (as
defined below),  together with all accrued and unpaid  dividends  thereon to the
date of the  Corporation's  receipt  of such funds  (the  "Mandatory  Redemption
Date") by the amount of such excess  funds;  provided,  however,  that any funds
received by the Corporation  from Zambon Group,  SpA (or any affiliate  thereof)
shall not be required to be aggregated to satisfy the $300,000  amount  provided
for in the preceding  clause but shall be used  immediately for redemption under
this Section 6.5; provided further,  however, should the amounts received by the
Corporation  from any of the  foregoing  transactions  be lower  than the amount
needed to redeem  the  Series B  Preferred  Stock in full,  then any  amounts so
received  shall be used to  redeem  shares  on a pro rata  basis.  The  proceeds
available for redemption under this Section 6.5


                                      -13-

<PAGE>
shall be applied  first to accrued and unpaid  dividends  thereon to the date of
redemption and second to the redemption of Series B Preferred Stock.

                  (b) For purposes  hereof,  the  "Mandatory  Redemption  Price"
shall mean as  follows:  (i) with  respect  to each share of Series B  Preferred
Stock redeemed during the period  beginning on the Issue Date of each such share
and ending on the 45th day after such Issue Date, an amount equal to 106% of the
Stated Value thereof;  and (ii) with respect to each share of Series B Preferred
Stock redeemed during the period  beginning on the 46th day after the Issue Date
of each such share and ending on or before the Mandatory Redemption  Termination
Date, an amount equal to the sum of (A) 106% of the Stated Value thereof for the
period  from the Issue  Date  until  the 45th day  after the Issue  Date and (B)
0.1334% of the Stated  Value of each such share for each day,  if any,  from the
46th day after the Issue Date through and  including  the  Mandatory  Redemption
Date.

                  (c) After  the  Mandatory  Redemption  Termination  Date,  the
Corporation  shall  cease to have any  obligation  to redeem  shares of Series B
Preferred Stock under this Section 6.5.

         SECTION 6.6 OPTIONAL  REDEMPTION  UNDER CERTAIN  CIRCUMSTANCES.  At any
time  after the date of  issuance  of the  Series B  Preferred  Stock  until the
Mandatory  Conversion  Date (as defined  below),  the  Corporation,  upon notice
delivered  to the Holder as  provided  in Section  6.7,  may redeem the Series B
Preferred Stock (but only with respect to such shares as to which the Holder has
not theretofore  furnished a Conversion  Notice in compliance with Section 6.2),
at 125% of the Stated Value thereof (the "Optional Redemption Price"),  together
with all accrued and unpaid  dividends  thereon to the date of  redemption  (the
"Redemption Date"); PROVIDED,  HOWEVER, that the Corporation may only redeem the
Series B Preferred  Stock under this Section 6.6 if the Current  Market Price on
the date the notice of redemption  pursuant to this Section 6.6 is less than the
Current  Market Price on the Closing  Date.  Except as set forth in Sections 6.5
and 6.6, the Corporation shall not have the right to prepay or redeem the Series
B Preferred Stock.

         SECTION 6.7 NOTICE OF REDEMPTION.  (a) Notice of redemption pursuant to
Sections  6.5 and 6.6 shall be  provided  by the  Corporation  to the  Holder in
writing (by  registered  mail or overnight  courier at the Holder's last address
appearing in the  Corporation's  security  registry)  not less than ten (10) nor
more than fifteen (15) days prior to the proposed  Mandatory  Redemption Date or
the Redemption Date, as the case may be, which notice shall specify the proposed
Mandatory  Redemption Date or the Redemption Date, as the case may be, and refer
to Section 6.5 or 6.6  (including,  with  respect to Section 6.6, a statement of
the Market Price) and this Section 6.7.

                  (b) Any notice of redemption  delivered by the  Corporation in
connection with a redemption under Section 6.5 may state that such redemption is
conditioned  on the  consummation  of  the  transactions  giving  rise  to  such
redemption and may be revoked by the  Corporation by notice to the Holder in the
event that such  transaction  is not  consummated,  whereupon the  Corporation's
obligation to redeem shares of Series B Preferred Stock in respect thereof shall
terminate.


                                      -14-

<PAGE>
         SECTION 6.8 SURRENDER OF PREFERRED  STOCK.  Upon any  redemption of the
Series B Preferred Stock pursuant to Sections 6.5 or 6.6, the Holder,  within 15
days of the date of any such  redemption,  shall  either  deliver  the  Series B
Preferred Stock by hand to the Corporation at its principal executive offices or
surrender  the same to the  Corporation  at such  address  by  express  courier.
Payment of the  Mandatory  Redemption  Price or the  Optional  Redemption  Price
specified  in  Section  6.5 or 6.6,  as the  case  may be,  shall be made by the
Corporation  to the Holder by wire transfer of  immediately  available  funds to
such  account(s) as the Holder shall specify to the  Corporation.  If payment of
such  redemption  price is not made in full by the Mandatory  Redemption Date or
the  Redemption  Date, as the case may be, the Holder shall again have the right
to convert the Series B Preferred Stock as provided in Article 6 hereof.

         SECTION 6.9 MANDATORY CONVERSION.  On the third anniversary of the date
of this Agreement (the  "Mandatory  Conversion  Date"),  the  Corporation  shall
convert  all Series B  Preferred  Stock  outstanding  at the  Conversion  Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series B Preferred  Stock to the extent that the issuance of
Common  Shares  upon the  conversion  of such  Series B  Preferred  Stock,  when
combined with shares of Common Stock received upon other conversions of Series B
Preferred  Stock and  exercise  of the  Warrants  by such  Holder  and any other
holders of Series B Preferred  Stock and  Warrants,  would exceed  19.99% of the
Common Stock  outstanding  on the Closing  Date.  Within ten (10)  Business Days
after the Mandatory  Conversion Date, the Corporation shall redeem all remaining
outstanding  Series B Preferred  Stock at one hundred  and  twenty-five  percent
(125%) of the  Stated  Value  thereof,  together  with all  accrued  and  unpaid
dividends thereon, in cash, to the date of redemption.


                                    ARTICLE 7
                                  VOTING RIGHTS

                  The  holders  of the Series B  Preferred  Stock have no voting
power,  except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 7, and in Article 8 below.

                  The  Corporation   shall  provide  each  holder  of  Series  B
Preferred Stock with prior  notification of any meeting of the shareholders (and
copies of proxy materials and other  information sent to  shareholders).  In the
event of any taking by the Corporation of a record of its  shareholders  for the
purpose of determining  shareholders  who are entitled to receive payment of any
dividend  or  other  distribution,  any  right to  subscribe  for,  purchase  or
otherwise   acquire   (including   by   way   of   merger,    consolidation   or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining  shareholders  who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding  up of the  Corporation,  the  Corporation  shall  mail a notice to each
holder,  at least thirty (30) days prior to the  consummation of the transaction
or event,  whichever is  earlier),  of the date on which any such actin is to be
taken for the purpose of such dividend, distribution, right or


                                      -15-

<PAGE>
other event,  and a brief  statement  regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.

                  To the extent  that under the DGCL the vote of the  holders of
the  Series  B  Preferred  Stock,  voting  separately  as a class or  series  as
applicable,  is required to  authorize a given  action of the  Corporation,  the
affirmative  vote or consent of the holders of at least a majority of the shares
of the Series B Preferred  Stock  represented  at a duly held meeting at which a
quorum is present or by written  consent of a majority of the shares of Series B
Preferred  Stock  (except as  otherwise  may be  required  under the DGCL) shall
constitute  the  approval of such action by the class.  To the extent that under
the DGCL  holders  of the Series B  Preferred  Stock are  entitled  to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series B  Preferred  Stock  shall be  entitled to a number of votes equal to the
number of shares of Common Stock into which  convertible the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is  calculated.  Holders of the Series B  Preferred  Stock  shall be entitled to
notice of all  shareholder  meetings  or written  consents  (and copies of proxy
materials and other infirmation sent to shareholders) with respect to which they
would be  entitled  as of right  under the DGCL which  notice  would be provided
pursuant to the Corporation's bylaws and the DGCL.


                                    ARTICLE 8
                              PROTECTIVE PROVISIONS

                  So long as shares of Series B Preferred Stock are outstanding,
the  Corporation  shall not,  without  first  obtaining the approval (by vote or
written consent,  as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series B Preferred Stock:

                           (a)  alter  or  change  the  rights,  preferences  or
privileges of the Series B Preferred Stock;

                           (b) create  any new class or series of capital  stock
having a  preference  over the Series B Preferred  Stock as to  distribution  of
assets upon liquidation,  dissolution or winding up of the Corporation  ("Senior
Securities")  or alter or change the rights,  preferences  or  privileges of any
Senior Securities so as to affect adversely the Series B Preferred Stock;

                           (c)  increase  the  authorized  number  of  shares of
Series B Preferred Stock; or

                           (d)  do  any  act  or   thing   not   authorized   or
contemplated by this  Certificate of Designation  which would result in taxation
of the  holders of shares of the Series B Preferred  Stock under  Section 305 of
the Internal  Revenue Code of 1986, as amended (or any  comparable  provision of
the Internal Revenue Code as hereafter from time to time amended).



                                      -16-

<PAGE>
                  In the  event  holders  of at  least a  majority  of the  then
outstanding shares of Series B Preferred Stock agree to allow the Corporation to
alter or change the rights,  preferences or privileges of the shares of Series B
Preferred Stock,  pursuant to subsection (a) above, so as to affect the Series B
Preferred  Stock,  then the  Corporation  will deliver  notice of such  approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the  "Dissenting  Holders") and  Dissenting  Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this  Certificate of  Designations  as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.


                                    ARTICLE 9
                                  MISCELLANEOUS

         SECTION 9.1 LOSS,  THEFT,  DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence  satisfactory to the Corporation of the loss, theft,  destruction or
mutilation  of shares of Series B  Preferred  Stock and, in the case of any such
loss,  theft or  destruction,  upon receipt of indemnity or security  reasonably
satisfactory to the Corporation,  or, in the case of any such  mutilation,  upon
surrender and  cancellation  of the Series B Preferred  Stock,  the  Corporation
shall  make,  issue and  deliver,  in lieu of such lost,  stolen,  destroyed  or
mutilated  shares of Series B Preferred  Stock, new shares of Series B Preferred
Stock of like date and tenor.

         SECTION 9.2 WHO DEEMED  ABSOLUTE  OWNER.  The  Corporation may deem the
Person in whose name the Series B Preferred  Stock shall be registered  upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the  Series B  Preferred  Stock  for the  purpose  of  receiving  payment  of
dividends on the Series B Preferred  Stock,  for the  conversion of the Series B
Preferred  Stock and for all other purposes,  and the  Corporation  shall not be
affected by any notice to the contrary.  All such  payments and such  conversion
shall be valid and effectual to satisfy and  discharge  the  liability  upon the
Series  B  Preferred  Stock  to the  extent  of the  sum or  sums so paid or the
conversion so made.

         SECTION  9.3  REGISTER.  The  Corporation  shall keep at its  principal
office a register in which the Corporation shall provide for the registration of
the Series B Preferred Stock.  Upon any transfer of the Series B Preferred Stock
in accordance with the provisions  hereof,  the Corporation  shall register such
transfer on the Series B Preferred Stock register.

         SECTION 9.4 WITHHOLDING.  To the extent required by applicable law, the
Corporation  may  withhold  amounts  for or on account  of any taxes  imposed or
levied by or on behalf of any  taxing  authority  in the  United  States  having
jurisdiction  over the Corporation from any payments made pursuant to the Series
B Preferred Stock.

         SECTION 9.5 HEADINGS. The headings of the Articles and Sections of this
Certificate  of  Designations  are  inserted  for  convenience  only  and do not
constitute a part of this Certificate of Designations.


                                      -17-

<PAGE>
         IN WITNESS  WHEREOF,  the  Corporation  has caused this  Certificate of
Designations,  Preferences  and  Rights to be signed by Loren G.  Peterson,  its
President and Chief Executive Officer,  and attested by Judy Roeske Bullock, its
Secretary, on this 15th day of April, 1998.

                                  SHEFFIELD PHARMACEUTICALS, INC.



                                  By:      /S/ Loren G. Peterson
                                           -------------------------------------
                                           Loren G. Peterson
                                           President and Chief Executive Officer


                                  Attested:

                                  By:      /S/ Judy Roeske Bullock
                                           -------------------------------------
                                           Judy Roeske Bullock
                                           Secretary




                                      -18-

<PAGE>
                            FORM OF CONVERSION NOTICE


TO:      Sheffield Pharmaceuticals, Inc.
         Attention: Chief Financial Officer


                  The  undersigned  owner  of  shares  of  Series  B  Cumulative
Convertible  Redeemable  Preferred Stock (the "Series B Preferred Stock") issued
by  Sheffield  Pharmaceuticals,  Inc.  (the  "Corporation")  hereby  irrevocably
exercises  its option to  convert  __________  shares of the Series B  Preferred
Stock  into  shares of the common  stock,  $.01 par  value,  of the  Corporation
("Common   Stock"),   in  accordance  with  the  terms  of  the  Certificate  of
Designations of the Series B Preferred Stock.  The undersigned  hereby instructs
the  Corporation to convert the number of shares of the Series B Preferred Stock
specified above into shares of Common Stock in accordance with the provisions of
Article 6 of such Certificate of Designations.  The undersigned directs that the
Common Stock issuable and certificates therefor deliverable upon conversion, the
Series B Preferred  Stock  recertificated,  if any,  not being  surrendered  for
conversion  hereby,  together  with any check in payment for  fractional  Common
Stock,  be  issued  in the name of and  delivered  to the  undersigned  unless a
different  name has been indicated  below.  All  capitalized  terms used and not
defined herein have the respective meanings assigned to them in such Certificate
of Designations.


Dated:__________


____________________________________________
                   Signature


                  Fill in for registration of Series B Preferred Stock:

Please print name and address 
(including zip code number) :



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                                      -19-