FORM OF
                          CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS

                                       OF

                 SERIES C CUMULATIVE CONVERTIBLE 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  by unanimous  written  consent dated
June 26, 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 23,000 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).


<PAGE>
                                    ARTICLE 1
                             DESIGNATION AND AMOUNT

                  The shares of such  series  shall be  designated  as "Series C
Cumulative Convertible Preferred Stock" (the "Series C Preferred Stock") and the
authorized number of shares constituting such series shall be 23,000 shares. The
par value of the Series C Preferred  Stock  shall be $.01 per share.  The stated
value of the Series C Preferred Stock shall be One Thousand Dollars ($1,000) per
share (the "Stated Value").


                                    ARTICLE 2
                                   DEFINITIONS

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

                  (a)      "AMEX" means the American Stock Exchange.

                  (b) "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.

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

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

                  (e)  "CONVERSION  NOTICE" has the meaning set forth in Section
6.1.

                  (f)  "CONVERSION  PRICE" has the  meaning set forth in Section
6.1.

                  (g)  "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.

                  (h) "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 average of
the closing bid and ask prices 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

                                       -2-

<PAGE>
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.

                  (i)  "DIVIDEND  PAYMENT  DATE"  has the  meaning  set forth in
Section 4.1.

                  (j)  "DIVIDEND  PERIOD"  has the  meaning set forth in Section
4.1.

                  (k)  "DIVIDEND  SHARES" means the shares of Series C Preferred
Stock issued as dividends on outstanding  shares of Series C Preferred  stock in
accordance with Article 4 hereof.

                  (l)  "DOLLARS" or "$" means  currency of the United  States of
America.

                  (m) "EXCHANGE DATE" has the meaning set forth in Article 7.

                  (n) "EXCHANGE NOTICE" has the meaning set forth in Article 7.

                  (o) "HOLDER" OR "HOLDERS" means Elan  International  Services,
Ltd., a Bermuda corporation, any successor thereto, or any Person(s) to whom the
Series C 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 C Preferred Stock.

                  (q) "JUNIOR  SECURITIES"  has the meaning set forth in Article
3.

                  (r)  "LIQUIDATION  PREFERENCE"  has the  meaning  set forth in
Section 5.1(b).

                  (s) "MANDATORY  CONVERSION  DATE" has the meaning set forth in
Section 6.3.

                  (t)  "PARI  PASSU  SECURITIES"  has the  meaning  set forth in
Article 3.

                  (u)  "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.

                  (v) "RIGHTS" has the meaning set forth in Section 6.2(e).

                  (w) "SERIES C PREFERRED  STOCK"  means the Series C Cumulative
Convertible  Preferred Stock of the Corporation  created by this  Certificate of
Designations.

                  (x)  "SPD"  Systemic  Pulmonary  Delivery,   Ltd.,  a  Bermuda
corporation.

                                       -3-

<PAGE>
                  (y) "STATED VALUE" has the meaning set forth in Article 1.

                  (z) "TRADING  DAY" means any day on which  purchases and sales
of securities  authorized for quotation on the AMEX are reported  thereon 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.


                                    ARTICLE 3
                                      RANK

                  The  Series C  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 B Cumulative  Convertible  Redeemable Preferred Stock (the
"Series B  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 C  Preferred  Stock  (collectively,  with the  Series B
Preferred Stock, "Pari Passu Securities").


                                    ARTICLE 4
                                    DIVIDENDS

         SECTION 4.1

                  (a) (i) Subject to Article 6, the Holder  shall be entitled to
receive, out of funds legally available for the payment of dividends,  dividends
at the rate of 7.0% per annum  (computed  on the basis of a 360-day  year)  (the
"Dividend  Rate")  on the  Stated  Value of each  outstanding  share of Series C
Preferred Stock payable on and as of the most recent Dividend  Payment Date with
respect to each Dividend Period. Dividends on the Series C Preferred Stock shall
be cumulative  from the date of issue or the most recent  Dividend  Payment Date
upon  which  dividends  have been paid on the  Series C  Preferred  Stock by the
Corporation.


                                       -4-

<PAGE>
                           (ii)  Dividend on the Series C Preferred  Stock 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  Date"),  commencing
September 30, 1998, to the holders of record of shares of the Series C 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 C  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 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.

                           (iii) Dividends on the outstanding shares of Series C
Preferred  Stock  shall  be  paid  through  the  issuance  of duly  and  validly
authorized and issued, fully paid and non-assessable additional shares of Series
C  Preferred  Stock  to be  issued  at the  rate of one (1)  share  of  Series C
Preferred  Stock for each  $1,000 of dividend  due and  payable.  No  fractional
shares of the  Series C  Preferred  Stock  shall be issued as  Dividend  Shares.
Instead  of any  fractional  shares  of Series C  Preferred  Stock  which  would
otherwise  be issuable  as Dividend  Shares,  the  Corporation  shall pay a cash
adjustment  in respect of such  fractional  interest in an amount equal to 1,000
times the fractional interest.

                  (b) The  Holder  shall not be  entitled  to any  dividends  in
excess  of the  cumulative  dividends,  as  herein  provided,  on the  Series  C
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 C Preferred Stock that may be in arrears.


                                    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

                                       -5-

<PAGE>
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 ninety (90)  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,  subject to Article  5, shall have  received  the
Liquidation  Preference  (as  defined in Article  5.1(b))  with  respect to each
share.  If upon the  occurrence  of a  Liquidation  Event,  the assets and funds
available for distribution among the Holders and holders of shares 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 C Preferred Stock
and the Pari Passu Securities shall be distributed  ratably among such shares in
proportion to the ratio that the preferential amounts payable on each such share
bears to the aggregate preferential amounts payable on all such shares.

                  (b) For purposes  hereof,  the  "Liquidation  Preference" with
respect to a share of the Series C Preferred Stock shall mean an amount equal to
(i) the Stated Value thereof,  plus (ii) the aggregate of all accrued and unpaid
stock  dividends on such share of Series C 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 stock dividends
to the actual date of such  liquidation,  dissolution or winding up, rather than
the applicable Dividend Payment Due Date referred to above.


                                    ARTICLE 6
                     CONVERSION OF SERIES C PREFERRED STOCK

         SECTION 6.1   CONVERSION.

                  (a)  Holders of shares of the Series C  Preferred  Stock shall
have the  right,  exercisable  at any time and  from  time to time  through  the
Mandatory  Conversion  Date,  to convert  all or any such shares of the Series C
Preferred  Stock  into  shares  of  the  Common  Stock  (calculated  as to  each
conversion to the nearest  1/100th of a share) at the conversion  price of $1.41
per share of the Common Stock  (equivalent to a conversion rate of 709.22 shares
of Common  Stock for each share of the Series C Preferred  Stock so  converted),
subject  to  adjustment  as  described  below  (the  "Conversion  Price").  Upon
conversion,  no  adjustment  or payment will be made for  dividends,  but if any
holder  surrenders a share of the Series C Preferred Stock for conversion  after
the close of business on the record date for the payment of a dividend and prior
to  the  opening  of  business  on  the  next  Dividend   Payment  Date,   then,
notwithstanding  such conversion,  the dividend payable on such Dividend Payment
Date will be paid to the registered holder of such share on such record date. In
such event, such share, when

                                       -6-

<PAGE>
surrendered  for  conversion  during the period between the close of business on
any  dividend   payment   record  date  and  the  opening  of  business  on  the
corresponding Dividend Payment Date, must be accompanied by payment of an amount
equal to the  dividend  payable on such  Dividend  Payment  Date on the share so
converted.

                  (b) Any holder of a share or shares of the Series C  Preferred
Stock  electing  to  convert  such share or shares  thereof  shall  deliver  the
certificate or certificates  therefor to the principal office of the Corporation
or any transfer agent for the Common Stock,  with the form of notice of election
to  convert  attached  to this  Certificate  of  Designations  (the  "Conversion
Notice"),  fully  completed  and  duly  executed  and (if such  required  by the
Corporation or any conversion  agent)  accompanied by instruments of transfer in
form  satisfactory to the Corporation and to any conversion agent, duly executed
by the registered Holder of his duly authorized  attorney.  The conversion right
with  respect to any such shares  shall be deemed to have been  exercised at the
date upon which the  certificates  therefore  accompanied  by such duly executed
notice of election and instruments of transfer and such taxes, stamps, funds, or
evidence  of  payment  shall have been so  delivered,  and the Person or Persons
entitled to receive the shares of the Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of the Common Stock upon said date.

                  (c) From and after the  delivery of the  Conversion  Notice in
respect of any conversion of shares of Series C Preferred Stock, all such shares
of Series C 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 C Preferred
Stock shall cease to accrue, and all rights of the Holders thereof as holders of
Series C  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 C 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 C  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.

                  (d)  No  fractional  shares  of  the  Common  Stock  or  scrip
representing  fractional shares shall be issued upon conversion of shares of the
Series C Preferred Stock. If more than one share of the Series C Preferred Stock
shall be surrendered  for conversion at one time by the same holder,  the number
of full  shares of the Common  Stock which  shall be  issuable  upon  conversion
thereof shall be computed on the basis of the aggregate  number of shares of the
Series C Preferred Stock so surrendered. Instead of any fractional shares of the
Common Stock which would  otherwise be issuable upon conversion of any shares of
the Series C Preferred  Stock,  the  Corporation  shall pay a cash adjustment in
respect of such  fraction in an amount equal to the same fraction of the Current
Market  Price  for the  Common  Stock  on the last  Trading  Day  preceding  the
applicable date of conversion.


                                       -7-

<PAGE>
                  (e) Each  Conversion  Notice  under  this  Section  6.1  shall
request the conversion of at least 500 shares of Series C Preferred Stock or the
remaining  balance of Series C Preferred  Stock held by the  converting  Holder,
whichever is less.

         SECTION 6.2 ADJUSTMENTS.  The Conversion Price and the number of shares
issuable  upon  conversion  of the  Series C  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 C 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 C 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  C
Preferred  Stock had been  converted  immediately  before  such  reorganization,
merger,  consolidation,  sale or transfer,  all subject to further adjustment as
provided in this Section 6.2(a). The foregoing provisions of this Section 6.2(a)
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 C Preferred Stock.

                  (b)  RECLASSIFICATION,  ETC. If the  Corporation,  at any time
while the Series C 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 C 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.

                                       -8-

<PAGE>
                  (c)  SPLIT,  SUBDIVISION  OR  COMBINATION  OF  SHARES.  If the
Corporation  at any time  while the Series C  Preferred  Stock,  or any  portion
thereof, remains outstanding shall split, subdivide or combine the securities as
to which conversion rights under this Certificate of 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 C 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 C
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  C  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 C 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 6.2.

                  (e) REPURCHASES OR REDEMPTIONS OF COMMON STOCK OR OPTIONS.  If
the  Corporation  at any time  while  shares  of  Series C  Preferred  Stock are
outstanding,  shall repurchase or redeem any outstanding  shares of Common Stock
or rights,  options or warrants granting the holder thereof the right to acquire
shares of Common Stock (collectively, the "Rights") in a single transaction or a
series of related  transactions  involving an aggregate repurchase or redemption
price in excess of $500,000 at a price (on a per share  basis)  which is greater
than 125% of the Current Market Price as of the day prior to such  repurchase or
redemption,  the Conversion Price shall thereupon be adjusted by multiplying the
Conversion  Price in effect  immediately  prior to the applicable  repurchase or
redemption  by a fraction  (i) the  numerator  of which shall be the  Conversion
Price in effect  immediately prior to such repurchase or redemption and (ii) the
denominator of which shall be the fair market value of the consideration paid by
the  Corporation  for each share of Common  Stock (or each share of Common Stock
issuable upon exercise of the Right(s) subject to such repurchase or redemption)
in such repurchase or redemption.

                  (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment  pursuant to this Section 6.2, 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.

                                       -9-

<PAGE>
                  (g)  CUMULATIVE  ADJUSTMENTS.  No adjustment in the Conversion
Price shall be required  until  cumulative  adjustments  result in a concomitant
change  of 1% or more of the  Conversion  Price as in  effect  prior to the last
adjustment of the Conversion  Price;  PROVIDED,  HOWEVER,  that any  adjustments
which by reason of this Section 6.2 are not required to be made shall be carried
forward and taken into account in any subsequent  adjustment.  All  calculations
under  this  Section  6.2 shall be made to the  nearest  cent or to the  nearest
one-hundredth  of a share,  as the case may be. No adjustment to the  Conversion
Price shall be made for cash dividends.

         SECTION 6.3 MANDATORY CONVERSION. On the tenth anniversary of the Issue
Date (the "Mandatory Conversion Date"), all Series C Preferred Stock outstanding
on such date shall be automatically  converted at the Conversion Price in effect
as of the  Mandatory  Conversion  Date.  For purposes of such  conversion,  each
Holder  shall  be  deemed  to have  delivered  a  Notice  of  Conversion  to the
Corporation in accordance with Section 6.1, with the applicable  Conversion Date
being the Mandatory Conversion Date.

                                    ARTICLE 7
                                 EXCHANGE RIGHTS

                  Holders of at least a majority of the then outstanding  shares
of Series C Preferred Stock shall have the right, by written notice delivered to
the  Corporation in the form of notice of election to exchange  attached to this
Certificate of Designations  (the "Exchange  Notice"),  fully completed and duly
executed by the requisite  Holders,  to require the  Corporation to exchange all
outstanding  shares of Series C Preferred Stock as of any Dividend  Payment Date
(such  date  being the  "Exchange  Date")  for fifty  percent  (50%) of the then
outstanding  capital  stock of SPD owned by the  Corporation  as of the Exchange
Date, with such capital stock to be delivered to all Holders on a pro rata basis
based on their  respective  holdings of Series C Preferred Stock on the Exchange
Date.  The  Exchange  Notice  shall be  delivered  at least 30 days prior to the
Exchange  Date.  Upon  receipt of the Exchange  Notice,  the  Corporation  shall
promptly  notify all  Holders of its  receipt of thereof  and all  Holders  will
promptly  deliver the  certificate  or  certificates  therefor to the  principal
office  of the  Corporation  or any  transfer  agent  for the  Common  Stock for
cancellation.

                  From and after the delivery of the Exchange Notice, all shares
of Series C Preferred Stock (other than Dividend Shares) shall be deemed to have
been exchanged for fifty percent (50%) of the then outstanding  capital stock of
SPD (in the aggregate) as of Exchange  Date, all stock  dividends on such shares
of the Series C Preferred  Stock  shall  cease to accrue,  and all rights of the
Holders  thereof  as holders of Series C  Preferred  Stock,  except the right to
receive all accrued  and unpaid  stock  dividends  to the  Exchange  Date at the
applicable  rate for such shares of such shares of Series C Preferred  Stock and
the right to receive  certificates  representing  the  applicable  shares of SPD
capital stock  issuable in respect of the exchange,  shall cease and  terminate,
such shares of Series C  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.

                                      -10-

<PAGE>
                  The Rights of Holders under this Article 7 shall terminate and
such  Holders  shall not be entitled  to  exchange  shares of Series C Preferred
Stock under this Article 7 after a Conversion  Notice has been  delivered to the
Corporation  pursuant  to this  Section  6.1.  Notwithstanding  anything  to the
contrary in this Article 7, the delivery of the exchange notice shall not effect
any Holder's  rights to convert  Dividend Shares held by such holder pursuant to
Section 6.2 hereof,  except that any  conversion  of Dividend  Shares must occur
within thirty months from the Exchange Date.


                                    ARTICLE 8
                                  VOTING RIGHTS

                  The  holders  of the Series C  Preferred  Stock have no voting
power,  except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 8, and in Article 9 below.

                  The  Corporation   shall  provide  each  Holder  of  Series  C
Preferred Stock with prior  notification  of any meeting of the  shareholders of
the  Corporation  (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 action is to be
taken for the purpose of such dividend,  distribution, right or 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  C  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 C 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 C
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 C  Preferred  Stock are  entitled  to vote on a
matter with Holders of Common Stock, voting together as one class, each share of
Series C  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 C  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

                                      -11-

<PAGE>
would be  entitled  as of right  under the DGCL which  notice  would be provided
pursuant to the Corporation's bylaws and the DGCL.


                                    ARTICLE 9
                              PROTECTIVE PROVISIONS

                  So long as shares of Series C 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 C Preferred Stock:

                           (a) create  any new class or series of capital  stock
having a  preference  over the Series C 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 C Preferred Stock; or

                           (b) amend or alter  whether by merger,  consolidation
or  otherwise,  any  of  the  provisions  of the  Certificate  of  Incorporation
(including this Certificate of Designations)  that would change the preferences,
rights or  privileges  with  respect  to the Series C  Preferred  Stock so as to
affect the Series C Preferred Stock adversely.

                  In the  event  holders  of at  least a  majority  of the  then
outstanding shares of Series C Preferred Stock agree to allow the Corporation to
amend or alter the  preferences,  rights or privileges of the shares of Series C
Preferred Stock, pursuant to subsection (b) above, so as to affect adversely the
Series C Preferred  Stock,  then the  Corporation  will  deliver  notice of such
approved  change to the  Holders  of the Series C  Preferred  Stock that did not
agree to such  amendment or change (the  "Dissenting  Holders")  and  Dissenting
Holders  shall  have the  right for a period  of  thirty  (30)  days to  convert
pursuant to Section 6.2 of this  Certificate of Designations as they exist prior
to such  alteration  or  change or  continue  to hold  their  shares of Series C
Preferred Stock.


                                   ARTICLE 10
                                  MISCELLANEOUS

         SECTION 10.1 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 C  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 C Preferred  Stock,  the  Corporation
shall  make,  issue and  deliver,  in lieu of such lost,  stolen,  destroyed  or
mutilated  shares of Series C Preferred  Stock, new shares of Series C Preferred
Stock of like date and tenor.


                                      -12-

<PAGE>
         SECTION 10.2 WHO DEEMED  ABSOLUTE  OWNER.  The Corporation may deem the
Person in whose name the Series C 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 C  Preferred  Stock  for the  purpose  of  receiving  payment  of
dividends on the Series C Preferred  Stock,  for the  conversion of the Series C
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  C  Preferred  Stock  to the  extent  of the  sum or  sums so paid or the
conversion so made.

         SECTION 10.3  REGISTER.  The  Corporation  shall keep at its  principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock.  Upon any transfer of the Series C Preferred Stock
in accordance with the provisions  hereof,  the Corporation  shall register such
transfer on the Series C Preferred Stock register.

         SECTION 10.4 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
C Preferred Stock.

         SECTION  10.5  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.

                                      -13-

<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 30th day of June, 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


                                      -14-

<PAGE>
                            FORM OF CONVERSION NOTICE


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


                  The  undersigned  owner  of  shares  of  Series  C  Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals,  Inc.  (the  "Corporation")  hereby  irrevocably  exercises its
option to convert  __________ shares of the Series C 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 C
Preferred Stock. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C 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 C 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 C Preferred Stock:

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




                                      -15-

<PAGE>
                             FORM OF EXCHANGE NOTICE

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


                  The  undersigned  owner(s)  of shares  of Series C  Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercise its option
to cause the  Corporation to exchange  11,500 shares of Series C Preferred Stock
for 50% of the outstanding capital stock Systemic Pulmonary Delivery, Ltd. ("SPD
Stock") in accordance  with the terms of the  Certificate of Designations of the
Series C Preferred  Stock.  The undersigned  hereby instructs the Corporation to
advise all other holders of Series C Preferred  Stock,  if any, of this exercise
by the undersigned owner(s).  The undersigned direct that the SPD Stock issuable
and certificates  therefor  deliverable to the undersigned upon such exchange 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 SPD Stock:

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




                                      -16-