CERTIFICATE OF INCORPORATION

                                       OF

                              SHEFFIELD MERGER CO.

                  The  undersigned,   a  natural  person,  for  the  purpose  of
organizing a corporation  for conducting the business and promoting the purposes
hereinafter  stated,  under the provisions of subject to the requirements of the
laws of the State of Delaware  (particularly  Chapter 1, Title 8 of the Delaware
Code and the acts  amendatory  thereof  and  supplemental  thereto,  and  known,
identified  and  referred  to as the  "General  Corporation  Law of the State of
Delaware"), hereby certifies that:

                  FIRST:  The  name of the  corporation  (hereinafter  sometimes
called the "Corporation") is Sheffield Merger Co.

                  SECOND: The address, including street, number, city and county
of the  registered  office of the  Corporation  in the State of  Delaware  is 32
Loockerman  Square,  Suite L-100,  City of Dover 19901,  County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.

                  THIRD:  The  purpose  of the  Corporation  is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.

                  FOURTH:  The  total  number  of  shares  of  stock  which  the
Corporation shall have the authority to issue is (i) 15,000,000 shares of Common
Stock,  $.01 par value ("Common  Stock") and (ii) 1,000,000  shares of Preferred
Stock, $.01 par value ("Preferred Stock").

                  A.       COMMON STOCK.
                           -------------

                           1.       GENERAL.    The   voting,    dividend    and
liquidation  rights of the holders of Common Stock are subject to and  qualified
by the  rights of the  holders  of the  Preferred  Stock of any series as may be
designated by the Board of Directors upon any issuance of the Preferred Stock of
any series.

                           2.       VOTING.  The  holders  of  Common  Stock are
entitled to one vote for each share held at all  meetings of  stockholders  (and
written actions in lieu of meetings). There shall be no cumulative voting.

                           3.       DIVIDENDS.  Dividends  may be  declared  and
paid on the Common  Stock from funds  lawfully  available  therefor  as and when
determined by the Board of Directors and subject to any



<PAGE>



preferential dividend rights of any then outstanding Preferred Stock.

                           4.       LIQUIDATION.   Upon   the   dissolution   or
liquidation of the  Corporation,  whether  voluntary or involuntary,  holders of
Common Stock will be entitled to receive all assets of the Corporation available
for distribution to its  stockholders  after payment of creditors and subject to
any preferential and/or participating  rights of any then outstanding  Preferred
Stock.

                  B.       PREFERRED STOCK.
                           ----------------

                           Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred  Stock in one or more series,
and in  connection  with the  creation  of any such  series,  by  resolution  or
resolutions  providing for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers, and such designations,
preferences  and relative,  participating,  optional or other special rights and
qualifications,   limitations  or  restrictions   thereof,   including   without
limitation thereof,  dividend rights,  conversion rights,  redemption privileges
and  liquidation  preferences,   as  shall  be  stated  and  expressed  in  such
resolutions,  all to the full extent not or  hereafter  permitted by the General
Corporation Law of Delaware.  Without  limiting the generality of the foregoing,
the  resolutions  providing  for issuance of any series of  Preferred  Stock may
provide  that such series  shall be  superior  or rank  equally or junior to the
Preferred  Stock of any other series to the extent  permitted by law.  Except as
expressly  provided  elsewhere in this Article FOURTH, no vote of the holders of
the  Preferred  Stock or Common Stock shall be required in  connection  with the
designation  or the issuance of any shares of any series of any Preferred  Stock
authorized by and complying with the conditions  herein,  the right to have such
being vote  being  expressly  waived by all  present  and future  holders of the
capital stock of the Corporation.


                  FIFTH: The name and the mailing address of the incorporator is
as follows:

                           Gary Weston
                           Olshan Grundman Frome & Rosenzweig
                           505 Park Avenue
                           New York, New York 10022

                  SIXTH:  The Corporation is to have perpetual existence.

                  SEVENTH:  Whenever a  compromise  or  arrangement  is proposed
between the  Corporation  and its creditors or any class of them and/or  between
the  Corporation  and its  stockholders  or any  class  of  them,  any  court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the


                                       -2-

<PAGE>
Corporation or of any creditor or stockholder  thereof or on the  application of
any receiver or receivers  appointed for the Corporation under the provisions of
Section291 of Title 8 of the Delaware Code or on the  application of trustees in
dissolution or of any receiver or receivers  appointed for the Corporation under
the  provisions of Section279 of Title 8 of the Delaware Code order a meeting of
the  creditors  or class  of  creditors,  and/or  the  stockholders  or class of
stockholders  of the  Corporation,  as the case may be, to be  summoned  in such
manner as the said court  directs.  If a majority in number  representing  three
fourths  in  value  of the  creditors  or  class  of  creditors,  and/or  of the
stockholders or class of stockholders  of the  Corporation,  as the case may be,
agree  to  any  compromise  or  arrangement  and to  any  reorganization  of the
Corporation  as  consequence  of  such  compromise  or  arrangement,   the  said
compromise or arrangement  and the said  reorganization  shall, if sanctioned by
the court to which the said  application  has been  made,  be binding on all the
creditors  or class of  creditors,  and/or on all the  stockholders  or class of
stockholders,  of  the  Corporation,  as  the  case  may  be,  and  also  on the
Corporation.

                  EIGHTH: For the management of the business and for the conduct
of the affairs of the  Corporation,  and in further  definition,  limitation and
regulation  of the  powers  of the  Corporation  and of its  directors  and  its
stockholders or any class thereof, as the case may be, it is further provided:

                           1. The  management of the business and the conduct of
                           the affairs of the Corporation shall be vested in its
                           Board of  Directors.  The number of  directors  which
                           shall  constitute the whole Board of Directors  shall
                           be  fixed  by,  or in the  manner  provided  in,  the
                           By-Laws.  The  phrase  "whole  Board"  and the phrase
                           "total number of  directors"  shall be deemed to have
                           the  same  meaning,  to  wit,  the  total  number  of
                           directors which the  Corporation  would have if there
                           were no vacancies.  No election of directors  need be
                           by written ballot.

                           2.  After  the  original  or  other  By-laws  of  the
                           Corporation have been adopted,  amended, or repealed,
                           as the case may be, in accordance with the provisions
                           of Section109 of the General  Corporation  Law of the
                           State of Delaware,  and,  after the  Corporation  has
                           received any payment for any of its stock,  the power
                           to  adopt,  amend,  or  repeal  the  By-laws  of  the
                           Corporation   may  be   exercised  by  the  Board  of
                           Directors of the Corporation; provided, however, that
                           any provision for the  classification of directors of
                           the  Corporation  for staggered terms pursuant to the
                           provisions  of  subsection  (d) of  Section141 of the
                           General  Corporation  Law of the  State  of  Delaware
                           shall be set forth in an initial By-law or


                                       -3-

<PAGE>



                           in a By-law adopted by the  stockholders  entitled to
                           vote of the  Corporation  unless  provisions for such
                           classification shall be set forth in this Certificate
                           of Incorporation.

                           3.  Whenever the  Corporation  shall be authorized to
                           issue only one class of stock, each outstanding share
                           shall  entitle  the holder  thereof to notice of, and
                           the right to vote at, any  meeting  of  stockholders.
                           Whenever the Corporation shall be authorized to issue
                           more than one class of stock, no outstanding share of
                           any class of stock which is denied voting power under
                           the provisions of the  Certificate  of  Incorporation
                           shall entitle the holder thereof to the right to vote
                           at  any  meeting  of   stockholders   except  as  the
                           provisions  of  paragraph  (2) of  subsection  (b) of
                           Section242  of  the  General  Corporation  Law of the
                           State of Delaware shall otherwise require;  provided,
                           that no share of any such  class  which is  otherwise
                           denied voting power shall entitle the holder  thereof
                           to vote upon the  increase  or decrease in the number
                           of authorized shares of said class.

                  NINTH:  The  personal   liability  of  the  directors  of  the
Corporation is hereby  eliminated to the fullest  extent  permitted by paragraph
(7) of subsection (b) of Section102 of the General  Corporation Law of the State
of Delaware, as same may be amended and supplemented.

                  TENTH: The Corporation  shall, to the fullest extent permitted
by Section145 of the General  Corporation  Law of the State of Delaware,  as the
same may be amended and  supplemented,  indemnify  any and all  persons  whom it
shall have power to indemnify under said section from and against any and all of
the expenses,  liabilities  or other  matters  referred to in or covered by said
section,  and the  indemnification  provided  for  herein  shall  not be  deemed
exclusive of any other rights to which those  indemnified  may be entitled under
any By-Law,  agreement,  vote of  stockholders  or  disinterested  directors  or
otherwise,  both as to  action  in his  official  capacity  and as to  action in
another  capacity  while holding such office,  and shall continue as to a person
who has ceased to be a director,  officer,  employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.

                  ELEVENTH:  From  time to time  any of the  provisions  of this
Certificate  of  Incorporation  may be amended,  altered or repealed,  and other
provisions  authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the


                                       -4-

<PAGE>



manner  and at the time  prescribed  by said  laws,  and all  rights at any time
conferred  upon the  stockholders  of the  Corporation  by this  Certificate  of
Incorporation are granted subject to the provisions of this Article ELEVENTH.

Signed on September 20, 1993

                                        /S/ Gary Weston
                                        ----------------------------------------
                                        Gary Weston, Incorporator



                                       -5-

<PAGE>
                            Certificate of Amendment

                                       of

                          Certificate of Incorporation

                                       of

                              SHEFFIELD MERGER CO.

                Under Section 242 of the General Corporation Law


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


         It is hereby certified that:

         1.  The  name  of  the   corporation  is  Sheffield   Merger  Co.  (the
"Corporation").


         2. The  certificate  of  incorporation  of the  Corporation  is  hereby
amended by striking out Article  FOURTH thereof and by  substituting  in lieu of
said Article the following new Article FOURTH:

                  "FOURTH:  The total  number of shares of stock which
                  the Corporation shall have the authority to issue is
                  (i)  twenty  million  (20,000,000)  shares of Common
                  Stock,  $.01 par  value  ("Common  Stock")  and (ii)
                  3,000,000 shares of Preferred Stock,  $.01 par value
                  ("Preferred Stock").

         COMMON STOCK.

                  GENERAL.  The voting,  dividend and liquidation  rights of the
holders  of Common  Stock are  subject  to and  qualified  by the  rights of the
holders of the  Preferred  Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.

                  VOTING.  The holders of Common  Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.

                  DIVIDENDS.  Dividends  may be declared  and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of  Directors  and  subject  to any  preferential  dividend  rights  of any then
outstanding Preferred Stock.

                  LIQUIDATION.  Upon  the  dissolution  or  liquidation  of  the
Corporation,  whether voluntary or involuntary,  holders of Common Stock will be
entitled to receive all assets of the Corporation



<PAGE>
available for  distribution to its  stockholders  after payment of creditors and
subject  to any  preferential  and/or  participating  rights of any  outstanding
Preferred Stock.

         PREFERRED STOCK.

         Authority is hereby  expressly  granted to the Board of Directors  from
time to  time to  issue  the  Preferred  Stock  in one or  more  series,  and in
connection  with the creation of any such series,  by resolution or  resolutions
providing for the issue of the shares thereof,  to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating,  option or other special rights and qualifications,
limitations or  restrictions  thereof,  including  without  limitation  thereof,
dividend  rights,  conversion  rights,  redemption  privileges  and  liquidation
preferences,  as shall be stated and expressed in such  resolutions,  all to the
full  extent  now or  hereafter  permitted  by the  General  Corporation  Law of
Delaware.  Without  limiting the  generality of the foregoing,  the  resolutions
providing  for issuance of any series of  Preferred  Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other  series to the  extent  permitted  by law.  Except as  expressly  provided
elsewhere in this Article  FOURTH no vote of the holders of the Preferred  Stock
or Common  Stock shall be required in  connection  with the  designation  or the
issuance of any shares of any series of any  Preferred  Stock  authorized by and
complying  with the  conditions  herein,  the  right  to have  such  vote  being
expressly  waived by all present and future  holders of the capital stock of the
Corporation."

         3. The amendment of the certificate of  incorporation  herein certified
has been duly adopted in accordance  with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.


Signed on January 25, 1995.                      SHEFFIELD MERGER CO.


                                                 By: /S/ Douglas R. Eger
                                                     -------------------------
                                                     Douglas R. Eger, Chairman

Attest:

/S/ Harvey L. Kellman
----------------------------
Harvey L. Kellman, Secretary



                                       -2-

<PAGE>
                              CERTIFICATE OF MERGER
                              ---------------------

                                       OF
                                       --

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.
                       -----------------------------------

                                      INTO
                                      ----

                              SHEFFIELD MERGER CO.
                              --------------------


                            (Under Section 252 of the
                General Corporation Law of the State of Delaware)

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


                  Sheffield Merger Co., a Delaware corporation, hereby certifies
as follows:

                  FIRST:  The name and  state  of  incorporation  of each of the
constituent corporations of the merger is as follows:

                  NAME                              STATE OF INCORPORATION
                  ----                              ----------------------

Sheffield Medical Technologies Inc.                    Wyoming
Sheffield Merger Co.                                   Delaware

                  SECOND:  An  Agreement of Merger has been  approved,  adopted,
certified,  executed and acknowledged by each of the constituent corporations in
accordance  with Section 252(c) of the General  Corporation  Law of the State of
Delaware.

                  THIRD:  The name of the surviving  corporation (the "Surviving
Corporation") is Sheffield Merger Co.

                  FOURTH:  The  Certificate  of  Incorporation  of the Surviving
Corporation  is hereby  amended by  striking  out Article  FIRST  thereof and by
substituting in lieu of said Article the following new Article FIRST as follows:

                           FIRST:  The  name  of  the  corporation  (hereinafter
                  sometimes  called  the  "Corporation")  is  Sheffield  Medical
                  Technologies Inc.

                  FIFTH:  An executed copy of the Agreement of Merger is on file
at the  principal  place of business  of the  Surviving  Corporation,  666 Fifth
Avenue,  New York, New York 10103, and a copy of the Agreement of Merger will be
furnished by the  Surviving  Corporation,  on request and without  cost,  to any
stockholder of either of the constituent corporations.

                  SIXTH:  The  authorized  capital  stock of  Sheffield  Medical
Technologies Inc., a Wyoming corporation, consists of



<PAGE>
50,000,000  shares of common  stock,  no par  value,  and  10,000,000  shares of
preferred stock, no par value.

                  SEVENTH:  This  Certificate  of Merger shall be effective upon
filing with the Secretary of State of the State of Delaware.

                  IN WITNESS  WHEREOF,  Sheffield  Merger  Co.  has caused  this
Certificate  of Merger to be executed in its  corporate  name by its Chairman of
the Board and attested by its Secretary this 12th day of June, 1995.

                                         SHEFFIELD MERGER CO.


                                         By:  /S/ Douglas R. Eger
                                              -------------------------------
                                                  Douglas R. Eger
                                                  Chairman of the Board

[SEAL]

Attest:


By:  /S/ Kathleen Rawlinson
        -------------------
         Kathleen Rawlinson
         Secretary


                                       -2-

<PAGE>
                            CERTIFICATE OF AMENDMENT

                                       of

                          CERTIFICATE OF INCORPORATION

                                       of

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.

                Under Section 242 of the General Corporation Law


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


         It is hereby certified that:

         1.  The name of the corporation is Sheffield Medical
Technologies Inc. (the "Corporation").

         2. The  certificate  of  incorporation  of the  Corporation  is  hereby
amended to increase the authorized  shares of common stock of the Corporation by
striking out Article FOURTH thereof and by  substituting in lieu of said Article
FOURTH the following new Article FOURTH:

                  "FOURTH:  The total  number of shares of stock  that
                  the Corporation shall have the authority to issue is
                  (i)  thirty  million  (30,000,000)  shares of Common
                  Stock,  $.01 par value  ("Common  Stock"),  and (ii)
                  three million (3,000,000) shares of Preferred Stock,
                  $.01 par value ("Preferred Stock").

         COMMON STOCK.

                  GENERAL.  The voting,  dividend and liquidation  rights of the
holders  of Common  Stock are  subject  to and  qualified  by the  rights of the
holders of the  Preferred  Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.

                  VOTING.  The holders of Common  Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.

                  DIVIDENDS.  Dividends  may be declared  and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of  Directors  and  subject  to any  preferential  dividend  rights  of any then
outstanding Preferred Stock.

                  LIQUIDATION.  Upon  the  dissolution  or  liquidation  of  the
Corporation,  whether voluntary or involuntary,  holders of Common Stock will be
entitled to receive all assets of the Corporation



<PAGE>
available for  distribution to its  stockholders  after payment of creditors and
subject  to any  preferential  and/or  participating  rights of any  outstanding
Preferred Stock.

         PREFERRED STOCK.

         Authority is hereby  expressly  granted to the Board of Directors  from
time to  time to  issue  the  Preferred  Stock  in one or  more  series,  and in
connection  with the creation of any such series,  by resolution or  resolutions
providing for the issue of the shares thereof,  to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating,  option or other special rights and qualifications,
limitations or  restrictions  thereof,  including  without  limitation  thereof,
dividend  rights,  conversion  rights,  redemption  privileges  and  liquidation
preferences,  as shall be stated and expressed in such  resolutions,  all to the
full  extent  now or  hereafter  permitted  by the  General  Corporation  Law of
Delaware.  Without  limiting the  generality of the foregoing,  the  resolutions
providing  for issuance of any series of  Preferred  Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other  series to the  extent  permitted  by law.  Except as  expressly  provided
elsewhere in this Article  FOURTH no vote of the holders of the Preferred  Stock
or Common  Stock shall be required in  connection  with the  designation  or the
issuance of any shares of any series of any  Preferred  Stock  authorized by and
complying  with the  conditions  herein,  the  right  to have  such  vote  being
expressly  waived by all present and future  holders of the capital stock of the
Corporation."

         3. The amendment of the certificate of  incorporation  herein certified
has been duly adopted in accordance  with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.


Signed on February 5, 1997                  SHEFFIELD MEDICAL TECHNOLOGIES INC.


                                            By:  /S/ George Lombardi
                                                     ---------------------------
                                                     George Lombardi
                                                     Vice President and Chief
                                                          Financial Officer

Attest:

/S/ Jacqueline Bova
-------------------
Jacqueline Bova
Assistant Secretary


                                       -2-

<PAGE>
                           CERTIFICATE OF DESIGNATION
                                       OF
                   SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
                                 PREFERRED STOCK
                                       OF
                       SHEFFIELD MEDICAL TECHNOLOGIES INC.

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

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


                  Sheffield Medical  Technologies Inc., a corporation  organized
and existing  under the General  Corporation  Law of the State of Delaware  (the
"Corporation"),  hereby  certifies that the following  resolution was adopted by
the Board of Directors of the Corporation:

                  RESOLVED,  that pursuant to the authority expressly granted to
and  vested  in the  Board  of  Directors  of the  Corporation  (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 40,800 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, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, set forth in the Certificate of Incorporation which are applicable
to the Preferred Stock).

                  Section 1.  DESIGNATION AND AMOUNT.  The shares of such series
shall be designated  as "Series A Cumulative  Convertible  Redeemable  Preferred
Stock" (the  "Series A Preferred  Stock")  and the  authorized  number of shares
constituting  such  series  shall  be  40,800.  The par  value  of the  Series A
Preferred Stock shall be
$.01 per share.

                  Section 2.  DIVIDENDS.

                  Subject to Section 4(d), the holders of shares of the Series A
Preferred  Stock will be entitled to  receive,  when,  as and if declared by the
Board of  Directors,  cumulative  stock  dividends on the shares of the Series A
Preferred Stock,  payable in shares of the Corporation's  common stock, $.01 par
value per share ("Common Stock"), at the rate per share of 7.0% per annum of the
original $100.00 purchase price per share of the Series A Preferred



<PAGE>
Stock,  and no more.  Such stock  dividends shall be cumulative from the date of
the initial  issuance of shares of Series A Preferred Stock (the "Closing Date")
or the most recent date on which the full amount of accrued stock dividends have
been  paid,  as the  case  may  be,  on the  Series  A  Preferred  Stock  by the
Corporation.  Subject to, and as provided in, Section 4, the  Corporation  shall
pay all  cumulative  stock  dividends on the shares of Series A Preferred  Stock
held by a holder on the  Conversion  Date (as defined  below) in respect of such
holder's  election to convert Series A Preferred  Stock. The number of shares of
Common Stock to be issued as cumulative  stock  dividends on any such Conversion
Date shall  equal the cash  value of such  cumulative  dividends  divided by the
current  market  price per share of Common  Stock  (determined  as  provided  in
Section 5) as of such Conversion Date. The cash value of stock dividends payable
on shares of Series A Preferred  Stock for any full annual dividend period shall
be computed by  multiplying  the original  $100.00  purchase  price per share by
7.0%.  The cash value of  dividends  payable on shares of the Series A Preferred
Stock for any period less than a full annual  dividend  period shall be computed
on the basis of a 360-day year of twelve  30-day months and the actual number of
days elapsed in the period for which payable.

                           If stock dividends are not paid in full, or declared
in full, upon the shares of the Series A Preferred Stock and shares of any other
preferred  stock ranking on a parity as to payment of stock  dividends  with the
Series A Preferred  Stock,  all  dividends  declared upon shares of the Series A
Preferred  Stock and any other preferred stock ranking on a parity as to payment
of  dividends  with the Series A Preferred  Stock shall be paid or declared  PRO
RATA so that in all cases the amount of dividends  paid or declared per share on
the Series A Preferred Stock and such other shares of preferred stock ranking on
a parity as to payment of dividends with the Series A Preferred Stock shall bear
to each  other the same  ratio  that  accumulated  stock  dividends  per  share,
including dividends accrued or in arrears, if any, on the shares of the Series A
Preferred  Stock and such other  shares of  preferred  stock bear to each other.
Except as provided in the  preceding  sentence,  unless  full  cumulative  stock
dividends  on the  shares  of the  Series A  Preferred  Stock  have been paid or
declared in full, no dividends  (other than dividends in shares of Common Stock,
or in shares of any other capital stock of the Corporation ranking junior to the
Series A Preferred  Stock as to payment of dividends and  distribution of assets
upon  liquidation)  shall be paid or declared and set aside for payment or other
distribution  upon the Common Stock or, except as provided  above,  on any other
capital  stock of the  Corporation  ranking  junior  to or on a parity  with the
Series A Preferred  Stock as to dividends,  nor shall any shares of Common Stock
or shares of any other capital stock of the Corporation  ranking junior to or on
a parity  with the  Series  A  Preferred  Stock  as to  dividends  be  redeemed,
purchased or otherwise acquired for any consideration (or any payment made to or
available  for a sinking  fund for the  redemption  of any such  shares)  by the
Corporation or any subsidiary of the  Corporation  (except by conversion into or
exchange for shares of capital stock of the


                                       -2-

<PAGE>
Corporation  ranking junior to the Series A Preferred  Stock as to dividends and
distribution  of assets  upon  liquidation).  Holders  of shares of the Series A
Preferred  Stock  shall not be  entitled to any  dividends,  whether  payable in
capital stock, cash or property,  in excess of full accrued and cumulative stock
dividends  as herein  provided.  No interest or sum of money in lieu of interest
shall be payable in respect of any stock  dividend  payment or  payments  on the
shares  of the  Series  A  Preferred  Stock  that may be in  arrears;  provided,
however,  that if, on an applicable  Conversion Date (as defined herein),  stock
dividends  that would have been  payable on such date are not paid solely due to
the failure of the  Corporation's  Board of Directors to declare such dividends,
then the rate of conversion  of the Series A Preferred  Stock to be converted on
such  Conversion  Date shall be adjusted so that the holders  would  receive the
same amount of shares of Common Stock on such  Conversation  Date as such holder
would have received if the Corporation's  Board of Directors had timely declared
such stock dividends.

                  The  terms  "accrued   dividends,"   "dividends  accrued"  and
"dividends  in  arrears,"  whenever  used  herein  with  reference  to shares of
preferred  stock  shall be  deemed  to mean an  amount  which  shall be equal to
dividends  thereon at the  applicable  annual  dividend  rates per share for the
respective  series  thereof  from the date or  dates  on  which  such  dividends
commence  to  accrue  to the  applicable  payment  date  less the  amount of all
dividends paid, or declared in full and sums set aside for the payment  thereof,
upon such shares of preferred stock.

                  Section 3.  LIQUIDATION RIGHTS.

                  (a) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or otherwise, after payment
or provision for payment of the debts and other  liabilities of the Corporation,
the  holders of shares of the Series A  Preferred  Stock  shall be  entitled  to
receive,  in cash, out of the remaining net assets of the  Corporation  (whether
from capital or from earnings  available for distribution to shareholders),  the
amount of One Hundred Dollars ($100.00) for each share of the Series A Preferred
Stock,  plus the cash value determined in accordance with Section 2 above of all
stock dividends  accrued and unpaid at the applicable rate on each such share up
to the date fixed for distribution, before any distribution shall be made to the
holders of shares of Common Stock or any other capital stock of the  Corporation
ranking (as to any such distribution) junior to the Series A Preferred Stock. If
upon any liquidation,  dissolution or winding up of the Corporation,  the assets
distributable  among the holders of shares of the Series A  Preferred  Stock and
all  other  classes  and  series  of  preferred  stock  ranking  (as to any such
distribution)  on a parity with the Series A Preferred Stock are insufficient to
permit the payment in full to the holders of all such shares of all preferential
amounts  payable to all such holders,  then the entire assets of the Corporation
thus distributable  shall be distributed ratably among the holders of the shares
of the Series A Preferred Stock and such other classes and


                                       -3-

<PAGE>
series of preferred stock ranking (as to any such distribution) on a parity with
the Series A Preferred Stock in proportion to the respective  amounts that would
be payable per share if such assets were sufficient to permit payment in full.

                  (b) For purposes of this Section 3, a  distribution  of assets
in any  dissolution,  winding  up or  liquidation  shall  not  include  (i)  any
consolidation or merger of the Corporation with or into any other corporation or
other entity, (ii) any dissolution, liquidation, winding up or reorganization of
the Corporation  immediately  followed by reincorporation of another corporation
or other entity or (iii) a sale or other disposition of all or substantially all
of the Corporation's  assets to another  corporation or other entity;  PROVIDED,
HOWEVER,  that, in each case,  effective provision is made in the certificate of
incorporation  of the resulting and surviving  corporation  or otherwise for the
protection  of the  relative  rights of the  holders  of shares of the  Series A
Preferred Stock.

                  (c)  After  the  payment  of  the  full  preferential  amounts
provided for herein to the holders of shares of the Series A Preferred  Stock or
funds  necessary  for such  payment have been set aside in trust for the holders
thereof,  such holders shall be entitled to no other or further participation in
the distribution of the assets of the Corporation.


                  Section 4.  CONVERSION AND REDEMPTION OF SERIES A
                              PREFERRED STOCK.

                  (a) Each  holder of Series A  Preferred  Stock  shall have the
right,  exercisable  at any  time  and  from  time to  time  during  the  period
commencing  on the date that is  ninety  (90) days  after the  Closing  Date and
ending on the date that is two years  after  the  Closing  Date (the  "Mandatory
Conversion  Date"),  to convert any or all of the Series A Preferred Stock owned
by such holder for shares of Common Stock,  at a conversion  rate  determined by
multiplying  the number of shares of Series A Preferred Stock to be converted by
a  fraction,  the  numerator  of which  shall  equal one  hundred  (100) and the
denominator of which (a "Denominator")  shall equal (i) the current market price
per share of the Common  Stock  (determined  as provided in Section 5) as of the
Closing Date (such current market price being referred to herein as the "Closing
Price"),  if the  applicable  Conversion  Date (as defined  below)  occurs on or
before the 119th day following the Closing Date,  (ii) the lessor of (A) 100% of
the Closing  Price or (B) the  current  market  price per share of Common  Stock
(determined as provided in Section 5) as of the applicable  Conversion  Date, if
the  applicable  Conversion  Date  occurs  on or after  the  120th day after the
Closing  Date and on or before the 179th day after the Closing Date or (iii) the
lesser of (A) 100% of the Closing Price and (ii) 85% of the current market price
per share of Common  Stock  (determined  as  provided  in  Section  5) as of the
applicable  Conversion  Date for any  Conversion  Date occurring on or after the
180th day after the  Closing  Date,  subject to  adjustment  and the  conditions
described herein.


                                       -4-

<PAGE>
                  (b) (i) Any holder of shares of the Series A  Preferred  Stock
         electing to convert shares  thereof  pursuant to Section 4(a) shall (A)
         transmit by facsimile,  for receipt on the proposed date of conversion,
         a copy of a fully completed and executed notice of conversion  ("Notice
         of  Conversion") to the Corporation at the office of the Corporation or
         its  designated  transfer  agent (the  "Transfer  Agent"),  in the form
         attached as Exhibit A hereto, and (B) surrender to a common carrier for
         delivery to the office of the  Corporation or the Transfer  Agent,  the
         original  certificates  representing the Series A Preferred Stock being
         converted  (the  "Preferred  Stock  Certificates"),  duly  endorsed for
         cancellation. The Corporation shall, upon the timely written request of
         a holder of shares of the Series A Preferred Stock, promptly provide in
         writing to such holder,  via facsimile  transmission,  the  appropriate
         numbers for the Corporation and the Transfer Agent to be used to effect
         an election in accordance with this subparagraph (i).

                           (ii) Upon receipt by the  Corporation of transmission
         of a facsimile copy of such Notice of Conversion, the Corporation shall
         as soon as  practicable  (but in no event  later than 12:00 noon on the
         next  business  day after  receipt  thereof)  send,  via  facsimile,  a
         confirmation  of receipt of such Notice of  Conversion  to such holder,
         which shall specify that the Notice of Conversion has been received and
         the name and telephone  number of a contact  person at the  Corporation
         whom the holder should contact  regarding  information  related to such
         conversion.  Upon receipt by the  Corporation  or the Transfer Agent of
         the certificate(s)  representing the shares of Series A Preferred Stock
         to  be  converted   pursuant  to  such  Notice  of  Conversion  (or  an
         indemnification   undertaking   in  form   and   substance   reasonably
         satisfactory to the Corporation with respect to such shares in the case
         of their  loss,  theft or  destruction)  together  with the  originally
         executed  and  completed   Notice  of  Conversion  (such  date  of  the
         Corporation's receipt of all such documents being referred to herein as
         the "Final  Receipt  Date"),  the  Corporation  or  Transfer  Agent (as
         applicable) shall, as soon as possible on or after the applicable Final
         Receipt  Date,  but in any event within two (2) business days after the
         applicable  Final Receipt Date, issue and surrender to a common carrier
         for either  overnight  delivery  (if  delivery is to be made inside the
         United  States)  or two (2) day  delivery  (if  delivery  is to be made
         outside the United  States) to such holder at the address  specified in
         the Notice of  Conversion,  a  certificate  for the number of shares of
         Common  Stock to which such  holder  shall be entitled as in respect of
         the related conversion.  In the event of a partial conversion of shares
         of Series A Preferred Stock represented by certificate(s)  delivered to
         the  Corporation in respect of any  conversion,  the  Corporation  will
         return  to  the  applicable  holder  a  certificate  representing  such
         holder's  remaining shares of Series A Preferred Stock that were not so
         converted.  In the case of any dispute between the Corporation and such
         holder as to the calculation of the applicable Conversion


                                       -5-

<PAGE>
         Price  evidenced  by a  notice  to such  effect  (a  "Dispute  Notice")
         delivered to the  Corporation by such holder prior to the Final Receipt
         Date, the Corporation shall promptly issue to such holder the number of
         shares of Common  Stock  that is not  disputed  and  shall  submit  the
         disputed calculations to its outside accountant within two (2) business
         days after the Final Receipt  Date.  The  Corporation  shall cause such
         accountant to perform the  calculations  and notify the Corporation and
         the holder of the results no later than two (2) business days after the
         date that such outside  accountant is delivered a copy of such holder's
         Dispute Notice by the Corporation  pursuant to the preceding  sentence.
         Such accountant's calculation shall be deemed conclusive and binding on
         the Corporation and such holder absent manifest error.

                           (iii) The effective  date of a particular  conversion
         (the  "Conversion  Date") other than  pursuant to Section 4(c) shall be
         deemed to be the date on which the advance  copy of the related  Notice
         of Conversion  in respect of such  conversion is received by either the
         Corporation or the Transfer Agent by facsimile transmission as provided
         in  paragraph  (ii) above,  provided  that (A) such advance copy of the
         Notice of Conversion is transmitted by facsimile to and received by the
         Corporation before 11:59 p.m., New York City time, on such date and (B)
         the original certificates  representing the Series A Preferred Stock to
         be converted (or an  indemnification  undertaking in form and substance
         reasonably  satisfactory to the Corporation with respect to such shares
         in the case of their loss,  theft or  destruction),  together  with the
         originally executed and completed Notice of Conversion, are surrendered
         by depositing such  certificates and Notice of Conversion with a common
         carrier,  as provided  above,  and received by the  Corporation  or the
         Transfer Agent on or before the second (2nd) business day following the
         date that the related  advance copy of the related Notice of Conversion
         is received by the Corporation or the Transfer Agent. In the event that
         all such documents are not received  within two (2) business days after
         such date, such Notice of Conversion  shall be deemed null and void and
         no conversion of Series A Preferred Stock shall be effected thereby.

                           (iv) As of any Conversion Date, the person or persons
         entitled to receive the shares of the Common  Stock  issuable  upon the
         related  conversion of shares of Series A Preferred  Stock  pursuant to
         this Section 4 shall be treated for all  purposes as the record  holder
         or holders of the shares of Common  Stock  issuable  in respect of such
         conversion on said date.  From and after the Conversion Date in respect
         of such shares of Series A Preferred Stock, all such shares of Series A
         Preferred  Stock shall be deemed to have been  converted into shares of
         Common Stock at the applicable  conversion rate, all stock dividends on
         such shares of the Series A Preferred Stock shall cease to accrue,  and
         all rights of the  holders  thereof  as  holders of Series A  Preferred
         Stock, except the right to


                                       -6-

<PAGE>
         receive all accrued and unpaid stock  dividends to such Conversion Date
         at the applicable  rate for such shares of Series A Preferred Stock and
         the right to receive  certificates  representing shares of Common Stock
         issuable upon conversion of such shares (including, without limitation,
         with respect to such stock dividends),  shall cease and terminate, such
         shares of Series A Preferred  Stock shall not thereafter be transferred
         (except  with  the  consent  of the  Corporation)  on the  books of the
         Corporation  and such shares shall not be deemed to be outstanding  for
         any  purpose  whatsoever.  The  rights of a holder to elect to  convert
         shares of Series A  Preferred  Stock under this  Section  4(a) and 4(b)
         shall cease and terminate  immediately  after the Mandatory  Conversion
         Date.

                  (c) Subject to Section  4(d), to the extent that any shares of
Series A  Preferred  Stock  held by a  holder  thereof  have not been  converted
pursuant to Sections 4(a) and 4(b) as of the  Mandatory  Conversion  Date,  such
holder  shall be deemed to have  elected to  convert  such  remaining  shares of
Series A Preferred Stock as of the Mandatory Conversion Date (without any action
required by such holder) and the Corporation  shall issue shares of Common Stock
to such holder and satisfy its other  obligations  under Section 4(a) and (b) as
if such  holder  had  elected  to  convert  such  remaining  shares  of Series A
Preferred  Stock  pursuant  to  Sections  4(a)  and  4(b)  as of  the  Mandatory
Conversion Date.

                  (d)  Notwithstanding  anything herein to the contrary,  in the
event that (i) a holder of Series A Preferred Stock elects (or is deemed to have
elected) to convert shares of Series A Preferred Stock pursuant to Sections 4(a)
and 4(b) or pursuant to Section 4(c) for which a  Denominator  that is less than
the Closing Price is utilized in the  calculation  (pursuant to Section 4(a)) of
the number of shares of Common  Stock to be issued in such  conversion  and (ii)
such  conversion  would  result in such  holder  receiving,  as a result of such
conversion,  a number of shares of Common Stock that, together with other shares
of Common Stock  issued to such holder (or any  affiliate of such holder) in any
prior conversion(s) of Series A Preferred Stock that utilized a Denominator that
was less than the Closing Price in the calculation (pursuant to Section 4(a)) of
the  number of shares of  Common  Stock to be issued in such  conversion,  would
equal or exceed  twenty  percent  (20%) of the  shares  of  Common  Stock of the
Corporation  outstanding  on the  Closing  Date (the  "Threshold  Amount"),  the
Corporation  shall (i) issue to such holder the number of shares of Common Stock
otherwise  required to be issued to such  holder as a result of such  conversion
(including any shares of Common Stock  representing  cumulative  stock dividends
accrued to the applicable Conversion Date pursuant to Section 2) LESS the number
of shares of Common  Stock  otherwise  issuable to such holder  pursuant to such
conversion  in excess of the  Threshold  Amount (the  "Excess  Shares") and (ii)
shall  remit to such  holder,  in lieu of the Excess  Shares,  an amount of cash
equal to the number of Excess Shares  multiplied by the current market price per
share of Common Stock  (determined  as provided in Section 5)  determined  as of
such  Conversion  Date.  Upon such  issuance of Common Stock and payment of such
cash to the holder in lieu of the


                                       -7-

<PAGE>
Excess Shares, the Corporation's  obligations to such holder arising as a result
of such  conversion  (including the  Corporation's  obligation to pay cumulative
stock dividends  through the applicable  Conversion  Date) shall be deemed fully
satisfied.

                  (e) No fractional shares of Common Stock or scrip representing
fractional  shares  shall be issued  upon  conversion  of shares of the Series A
Preferred Stock pursuant to this Section 4. If more than one share of the Series
A Preferred  Stock shall be surrendered  for conversion by the same holder,  the
number of full shares of Common  Stock which shall be issuable  upon  conversion
thereof shall be computed on the basis of the aggregate  number of shares of the
Series A Preferred  Stock so  surrendered.  Instead of any fractional  shares of
Common Stock which would  otherwise be issuable upon conversion of any shares of
the Series A Preferred  Stock,  the  Corporation  shall pay a cash adjustment in
respect of such  fraction in an amount equal to the same fraction of the closing
bid price for Common Stock  determined as of the last business day preceding the
Conversion  Date in respect of such  shares.  The closing bid price for such day
shall be the last  reported  bid price on the  American  Stock  Exchange,  or if
Common  Stock is not listed or  admitted  to trading  on such  exchange,  on the
principal  national  securities  exchange  on which  Common  Stock is  listed or
admitted to trading  or, if not listed or  admitted  to trading on any  national
securities  exchange,  the  closing  bid price of Common  Stock on NASDAQ or any
comparable  system.  If Common  Stock is not quoted on NASDAQ or any  comparable
system,  the Board of Directors of the Corporation shall in good faith determine
the current market price on such basis as it considers appropriate.

                  (f) When shares of Series A Preferred  Stock are converted (or
deemed  converted) by a holder pursuant to this Section 4, the Corporation shall
pay any documentary,  stamp or similar issue or transfer tax due on the issue of
Common Stock upon such conversion.

                  (g) The  Corporation  shall  reserve  at all  times out of the
Corporation's authorized but unissued shares of Common Stock a sufficient number
of shares  of Common  Stock to permit  the  conversion  of the then  outstanding
shares of the  Series A  Preferred  Stock  pursuant  to this  Section 4 and such
reserved  shares shall not be used for any other  purpose.  All shares of Common
Stock  which may be issued upon  conversion  of shares of the Series A Preferred
Stock  pursuant  to this  Section  4 shall be  validly  issued,  fully  paid and
nonassessable.  In  order  that  shares  of  Common  Stock  may be  issued  upon
conversion  of shares of the Series A Preferred  Stock,  the  Corporation  shall
comply with all applicable  Federal and State  securities  laws and use its best
efforts to list such shares of Common Stock to be issued upon conversion on each
securities exchange on which Common Stock is listed.

                  (h) The conversion rate (and the components thereof) in effect
at any time for  conversion  of  Series A  Preferred  Stock  into  Common  Stock
pursuant to this Section 4 shall be subject to  adjustment  from time to time as
follows:


                                       -8-

<PAGE>
                  (i) In the event that the Corporation shall (1) pay a dividend
         in shares of  Common  Stock to  holders  of  Common  Stock,  (2) make a
         distribution in shares of Common Stock to holders of Common Stock,  (3)
         subdivide the outstanding  shares of Common Stock into a greater number
         of shares of Common Stock, (4) combine the outstanding shares of Common
         Stock into a smaller  number of shares of Common Stock or (5) otherwise
         increase or decrease the number of  outstanding  shares of Common Stock
         through  reclassification  or any other  event  similar  to the  events
         described in clauses (1) through (4) above,  the  conversion  rate (and
         the  components   thereof)  in  effect   pursuant  to  this  Section  4
         immediately  prior to such  action  shall  be  adjusted  to the  extent
         required  to give  effect to the  impact of any such  event so that the
         holder  of any  shares  of the  Series  A  Preferred  Stock  thereafter
         surrendered for conversion pursuant to this Section 4 shall be entitled
         to  receive  the number of shares of Common  Stock  which he would have
         owned immediately following such action had such shares of the Series A
         Preferred  Stock  been  converted   immediately  prior  thereto.   Such
         adjustment  shall be made  whenever  any event listed above shall occur
         and shall become effective (A) immediately after the record date in the
         case of a dividend  or a  distribution  or other  applicable  event for
         which a record  date is used and (B)  immediately  after the  effective
         date in the case of a subdivision or  combination  or other  applicable
         event for which a record date is not used.

                           (ii) In case the Corporation  shall distribute to all
         holders of the Common Stock shares of any class of capital  stock other
         than Common  Stock,  evidences of  indebtedness  or other assets (other
         than  non-extraordinary  cash  dividends  out of  current  or  retained
         earnings),  or shall distribute to substantially  all holders of Common
         Stock rights or warrants to subscribe for securities, then in each such
         case the number of shares of the Common  Stock into which each share of
         the Series A Preferred  Stock shall be converted shall be adjusted (and
         appropriate  adjustments  shall be made to the  component  parts of the
         applicable  conversion rate) so that such number shall equal the number
         determined  by  multiplying  the number of shares of Common  Stock into
         which  such  share of the  Series A  Preferred  Stock  was  convertible
         immediately  prior to the date of such  distribution  by a fraction  of
         which the numerator  shall be the current  market price of Common Stock
         (determined  as  provided  in Section 5) on the record  date  mentioned
         below, and of which the denominator  shall be such current market price
         of Common Stock, less the then fair market value (as determined in good
         faith by the Board of Directors of the Corporation, whose determination
         shall be conclusive  evidence of such fair market value) of the portion
         of the assets so distributed or of such subscription rights or warrants
         applicable to one share of Common Stock.  Such adjustment  shall become
         effective  immediately  after the record date for the  determination of
         the holders of Common Stock entitled to receive such distribution.


                                       -9-

<PAGE>
                           (iii)  The  Corporation  shall  provide  at  least 10
         business days advance notice to holders of Series A Preferred  Stock of
         any record date or other  applicable date for determining  shareholders
         entitled to participate in any of the events  described in this Section
         4(h) or other  similar  events not described in this Section 4(h) which
         would have a dilutive  effect on the  Series A  Preferred  Stock or the
         Common Stock into which the Series A Preferred Stock is convertible.

                  (i) No  adjustment  in the  conversion  rate (or its component
parts)  under this  Section 4 shall be  required  until  cumulative  adjustments
result in a concomitant change of 1% or more of the conversion rate as in effect
prior to the last adjustment of the conversion rate; PROVIDED, HOWEVER, that any
adjustments  which by reason of this  Section  4(i) are not  required to be made
shall be carried  forward and taken into account in any  subsequent  adjustment.
All  calculations  under this  Section 4 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 rate shall be made for non-extraordinary cash dividends.

                  (j) In the  event  that,  as a result  of an  adjustment  made
pursuant  to Section  4(h),  the  holder of any share of the Series A  Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of capital  stock of the  Corporation  other than shares of Common Stock,
thereafter the number of such other shares so receivable  upon conversion of any
shares of the Series A Preferred  Stock shall be subject to adjustment from time
to time in a manner  and on terms as nearly  equivalent  as  practicable  to the
provisions with respect to the Common Stock contained in this Section 4.

                  (k) The  Corporation may make such increases in the conversion
rate,  in  addition  to those  required  by  Sections  4(h)(i)  and (ii),  as it
considers to be advisable in order that any event treated for Federal income tax
purposes  as a  dividend  of stock or stock  rights  shall not be taxable to the
recipients thereof.

                  (l) Whenever the conversion  rate (or any components  thereof)
is adjusted  pursuant to this Section 4, the Corporation  shall promptly mail to
all holders of record of shares of the Series A Preferred  Stock a notice of the
adjustment  and shall  cause to be  prepared a  certificate  signed by the chief
financial officer of the Corporation or, if requested in writing by holders of a
majority  of the  shares of  Series A  Preferred  Stock  then  outstanding,  the
Corporation's  outside  accountants  or  a  reputable  investment  banking  firm
selected by the Corporation  setting forth the adjusted conversion rate (and the
component  parts  thereof)  and a brief  statement of the facts  requiring  such
adjustment and the  computation  thereof.  Such  certificate  shall forthwith be
filed with each transfer agent for the shares of the Series A Preferred Stock.

                  (m)  If  any  of  the   following   shall   occur:   (i)   any
reclassification or change of outstanding shares of Common Stock


                                      -10-

<PAGE>
issuable upon conversion of shares of the Series A Preferred Stock (other than a
change in par value,  or from par value to no par value, or from no par value to
par  value,  or  as  a  result  of  a  subdivision  or  combination),  (ii)  any
consolidation  or merger to which the Corporation is a party other than a merger
in which the Corporation is the continuing corporation and which does not result
in any  reclassification  of, or  change  (other  than a change in name,  or par
value,  or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination)  in,  outstanding  shares of Common
Stock  or  (iii)  any  sale or  conveyance  of all or  substantially  all of the
property or business of the Corporation as an entirety, then the Corporation, or
such  successor  or  purchasing  corporation,  as the case may be,  shall,  as a
condition precedent to such  reclassification,  change,  consolidation,  merger,
sale or conveyance, provide in its certificate of incorporation or other charter
document  that each share of the Series A Preferred  Stock shall be  convertible
under this  Section 4 into the kind and  amount of shares of  capital  stock and
other   securities  and  property   (including   cash)   receivable   upon  such
reclassification,  change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common  Stock  deliverable  upon  conversion  of such
share   of  the   Series   A   Preferred   Stock   immediately   prior  to  such
reclassification,  change,  consolidation,  merger,  sale  or  conveyance.  Such
certificate  of  incorporation  or other  charter  document  shall  provide  for
adjustments  and  protection  which  shall  be as  nearly  equivalent  as may be
practicable to the  adjustments  provided for in this Section 4. If, in the case
of any  such  consolidation,  merger,  sale or  conveyance,  the  stock or other
securities and property  (including  cash)  receivable  thereupon by a holder of
Common Stock includes  shares of capital stock or other  securities and property
of a corporation other than the successor  purchasing  corporation,  as the case
may be, in such consolidation,  merger, sale or conveyance, then the certificate
of  incorporation  or other  charter  document of such other  corporation  shall
contain such  additional  provisions  to protect the interests of the holders of
shares  of the  Series A  Preferred  Stock  as the  Board  of  Directors  of the
Corporation shall reasonably consider necessary by reason of the foregoing.  The
provision   of  this   Section  4(m)  shall   similarly   apply  to   successive
consolidations, mergers, sales or conveyances.

                  (n) No sooner than fifteen (15)  business  days nor later than
five (5) business days prior to the consummation of a transaction referred to in
clauses (ii) or (iii) of Section 4(m) (a "Major Transaction"),  but not prior to
the public announcement of such Major Transaction, the Corporation shall deliver
written  notice (a "Notice  of Major  Transaction")  to each  holder of Series A
Preferred Stock,  which Notice of Major Transaction shall be deemed to have been
delivered to the holder one (1) business day after the Corporation's  sending of
such notice (for overnight delivery) by a common carrier, if such delivery is to
be made in the United States,  or two (2) business days after the  Corporation's
sending of such notice (for two (2) day  delivery)  by common  carrier,  if such
notice is to be  delivered  outside  the  United  States.  Such  Notice of Major
Transaction shall indicate the amount


                                      -11-

<PAGE>
and type(s) of consideration (the "Major Transaction Consideration") the holders
of Series A Preferred Stock would receive for their shares of Series A Preferred
Stock in the related Major Transaction. Such holder may elect to redeem all or a
portion of such  holder's  shares of Series A  Preferred  Stock for an amount in
cash equal to $125 per share of Series A Preferred  Stock held by such holder to
be so  redeemed  in  lieu  of  the  Major  Transaction  Consideration  or  other
securities  and/or  property  that would  otherwise  be  payable to such  holder
pursuant to Section  4(m). A holder may  exercise  such  election by  delivering
written notice of such election to the Corporation,  together with  certificates
for the shares of Series A Preferred  Stock to be redeemed  in  connection  with
such  election,  within five (5) business  days of the  holder's  receipt of the
related Notice of Major Transaction,  which notice shall be deemed given one (1)
business   day  after  the  holder  sends  such  notice   (together   with  such
certificates) from the United States by common carrier for overnight delivery or
two (2)  business  days after the holder sends such notice  (together  with such
certificates)  from outside the United States by common  carrier for two (2) day
delivery.  In the event  that such Major  Transaction  is not  completed  within
fifteen (15) business  days after the  Corporation  is given a holder's  related
notice of election  pursuant to the prior sentence,  such election shall be null
and  void  and  the  Corporation   shall  promptly  return  the   certificate(s)
representing  the Series A  Preferred  Stock  delivered  by such  holder to such
holder; provided, that the Corporation will comply with the notice provisions of
this  Section  4(n)  with  respect  to any  later  consummation  of  such  Major
Transaction.  This  Section  4(n)  shall  not  apply  in  respect  of any  Major
Transaction that occurs after the second anniversary of the Closing Date.

                  (o) (i)  After  the  occurrence  of a Change  in  Control  (as
         defined below), other than in connection with a Major Transaction, each
         holder  of Series A  Preferred  Stock  shall  have the  right,  at such
         holder's option,  to require the Corporation to redeem all or a portion
         of such  holder's  Series A Preferred  Stock for an amount per share in
         cash  equal  to the  greater  of (A) $125  and (B) the  product  of the
         aggregate number of shares of Common Stock into which a share of Series
         A Preferred  Stock is  convertible  (assuming such  conversion  were to
         occur on the last day preceding  the  effective  date for the Change of
         Control)  multiplied  by the current  market  price per share of Common
         Stock  (determined  as  provided  in  Section  5) as of the  last  date
         preceding the effective date of such Change of Control. As used in this
         Section 4(o), a "Change in Control" shall be deemed to have occurred at
         such time as either Douglas R. Eger or Thomas M. Fitzgerald cease to be
         either a director or officer of the Corporation.  The rights of holders
         of Series A Preferred  Stock under this Section 4(o) shall not apply in
         respect  of  any  Change  of  Control   that  occurs  after  the  first
         anniversary of the Closing Date.

                           (ii) The  Corporation  shall  provide  each holder of
         Series A Preferred  Stock with written  notice of the occurrence of any
         Change of Control (a "Change of Control Notice") within


                                      -12-

<PAGE>
         two (2) business  days after the  occurrence of such Change of Control.
         Each holder may require the  Corporation  to redeem all or a portion of
         such  holder's  shares of Series A  Preferred  Stock  pursuant  to this
         Section 4(o) by delivering  written  notice (a "Notice of Redemption at
         Option of Holder") to the  Corporation  to such effect  within ten (10)
         business days after receipt of the applicable Change of Control Notice,
         which Notice of  Redemption at Option of Holder shall be deemed to have
         been  delivered  one (1) business day after such holder's  sending,  if
         such notice is sent within the United States for overnight  delivery by
         a common carrier, or two (2) business days after such holder's sending,
         if such notice is sent from  outside  the United  States by two (2) day
         delivery by a common carrier.  Each such Notice of Redemption at Option
         of Holder  shall  indicate  the number of shares of Series A  Preferred
         Stock that have been selected by such holder for redemption.


                           (iii)   Each   holder    submitting    certificate(s)
         representing  shares of Series A Preferred  Stock for redemption  under
         this   Paragraph  4(o)  shall  send  such  holder's   Preferred   Stock
         Certificates  to be redeemed to the  Corporation  or its Transfer Agent
         and the Corporation  shall pay the applicable  redemption price to that
         holder within thirty (30) business days after the Corporation's receipt
         of such holder's  Notice of  Redemption  at Option of Holder;  provided
         that  such  holder's  certificate(s)  representing  shares  of Series A
         Preferred Stock to be redeemed (or an indemnification  undertaking with
         respect to such shares in the case of their loss, theft or destruction)
         shall have been so delivered to the Corporation or its Transfer Agent.

                  (p) As used herein,  "business day" means a day of the year on
which banks are not required or authorized to close in New York City, New York.

                  (q) It is  understood  that the  restrictions  on any holder's
ability to convert such holder's  shares of Series A Preferred  Stock  contained
herein may be supplemented by separate written agreement between such holder and
the Corporation.

                  Section  5.  CALCULATIONS  OF CURRENT  MARKET  PRICE OF COMMON
STOCK.  For purposes of  calculations  relating to the Series A Preferred  Stock
that refer to the current  market price per share of Common  Stock,  the current
market price per share of Common Stock on or as of any day shall be deemed to be
the average of the closing bid prices for the ten (10) consecutive  trading days
ending the last  trading day before the day in  question.  The closing bid price
for  each day  shall  be the last  reported  bid  price  on the  American  Stock
Exchange,  or if Common  Stock is not  listed or  admitted  to  trading  on such
exchange, on the principal national securities exchange on which Common Stock is
listed or  admitted  to trading  or, if not listed or admitted to trading on any
national securities exchange, the closing bid price of Common Stock on NASDAQ or
any comparable system, or if Common Stock is not quoted


                                      -13-

<PAGE>
on NASDAQ or any  comparable  system,  the closing bid price as furnished by any
two members of the National  Association of Securities  Dealers,  Inc.  selected
from time to time by the Corporation for that purpose. If Common Stock is not so
quoted  on NASDAQ  or any  comparable  system,  the  Board of  Directors  of the
Corporation  shall  reasonably  and in good faith  determine the current  market
price on such basis as it considers appropriate.  For example, in the event that
the current  market price per share of Common Stock is to be  determined as of a
Conversion  Date, the current market price per share of Common Stock shall equal
the average of the last  reported  bid price as reported by the  American  Stock
Exchange for the ten (10)  consecutive  trading days ending the last trading day
before  such  Conversion  Date  (assuming  that the  Common  Stock is listed and
admitted for trading on the American Stock Exchange and a reported bid price for
Common Stock is placed on the American Stock Exchange on each such trading day).

                  Section 6.  LIMITATIONS.  (a) In addition to any other  rights
provided  by  applicable  law,  so long as any shares of the Series A  Preferred
Stock are outstanding,  the Corporation shall not, without the affirmative vote,
or the written consent as provided by law, of the holders of at least two-thirds
(2/3) of the  outstanding  shares of the Series A Preferred  Stock,  voting as a
separate class,

                           (i) create, authorize or issue any class or series of
                  capital  stock,  or rights to subscribe to or acquire,  or any
                  security  convertible  into,  any class or  series of  capital
                  stock  ranking  as to payment of  dividends,  distribution  of
                  assets upon liquidation or voting rights,  prior to the Series
                  A Preferred Stock; or

                           (ii)  amend,  alter or  appeal,  whether  by  merger,
                  consolidation  or  otherwise,  any  of the  provisions  of the
                  Certificate of  Incorporation  (including this  Certificate of
                  Designation)  that  would  change the  preferences,  rights or
                  powers with  respect to the Series A Preferred  Stock so as to
                  affect the Series A Preferred Stock adversely.

                  (b) In addition  to any other  rights  provided by  applicable
law, so long as any shares of the Series A Preferred Stock are outstanding,  the
Corporation  shall not, without the affirmative  vote, or the written consent as
provided by law, of the holders of at least  two-thirds (2/3) of the outstanding
shares of the Series A Preferred  Stock,  voting as a separate  class,  issue or
agree  to issue  any  Common  Stock or any  security  convertible  or  otherwise
exchangeable,  directly or indirectly, for Common Stock if such shares of Common
Stock are to be issued, or such convertible securities are to be converted to or
exchanged for shares of Common Stock, at a price per share less than the current
market  price for the Common Stock  (determined  as provided in Section 5) as of
the day  immediately  preceding the date of the issuance of such Common Stock or
such  convertible  or  exchangeable  security  (as the case  may be);  provided,
however,  that the restrictions  contained in this paragraph (b) shall not apply
(i) to the issuance of any such


                                      -14-

<PAGE>
convertible or exchangeable securities that are convertible or exchangeable at a
fixed price (and not a floating  price) per share  equal to or greater  than the
current market price for the Common Stock  (determined as provided in Section 5)
as of the date of issuance of such convertible or exchangeable security, (ii) to
the issuance of 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,  (iii) to the
issuance  of  any  securities  to  officers,   directors  or  employees  of  the
Corporation or any of its  subsidiaries,  (iv) to the issuance of any securities
of the  Corporation  in an  underwritten  public  offering  or (v) to any  other
issuance of securities  after the date that is 90 days after the Closing Date if
the holders of Series A Preferred  Stock are first delivered a written notice (a
"Right of First Refusal Notice") from the Corporation offering such holders on a
PRO RATA basis the right to purchase all or a portion of the related  securities
at the same  price  (and on the same  terms  and  conditions,  offered  to other
proposed  investors  (which  notice  shall  set  forth  such  price,  terms  and
conditions). In the event that the Corporation delivers a Right of First Refusal
Notice to any holder of Series A Preferred  Stock, the failure by such holder to
commit in writing to purchase such  holder's pro rata portion of the  securities
identified in such Right of First  Refusal  Notice within five (5) business days
of delivery thereof may be deemed by the Corporation to constitute such holder's
determination  not to so purchase such securities and the Corporation shall then
be permitted to sell such  securities to other investors at the price and on the
terms and conditions set forth in such notice. The rights of holders of Series A
Preferred   Stock  under  this  paragraph  (b)  shall  terminate  on  the  first
anniversary of the Closing Date.

                  (c)  Notwithstanding   the  foregoing,   except  as  otherwise
required by applicable  law,  nothing herein  contained  shall require a vote or
consent  of the  holders  of Series A  Preferred  Stock in  connection  with any
increase in the total number of authorized  shares of Common Stock.  The holders
of Series A Preferred  Stock shall not be entitled to vote on any matter  except
(i) as provided in this Section 6 and (ii) as required by law.

                  Section 7. LOST OR STOLEN  CERTIFICATES.  Upon (i)  receipt by
the Corporation from a holder of evidence satisfactory to the Corporation of the
loss, theft,  destruction of any certificate(s)  representing shares of Series A
Preferred  Stock  and of an  indemnification  undertaking  by the  holder to the
Corporation  that is reasonably  satisfactory  to the  Corporation  or (ii) upon
surrender and  cancellation of  certificate(s)  representing  shares of Series A
Preferred  Stock that have been  mutilated,  the  Corporation  shall execute and
deliver  to such  holder  new  certificate(s)  representing  shares  of Series A
Preferred Stock of like tenor and date.  However,  the Corporation  shall not be
obligated to re-issue such lost, stolen,  destroyed or mutilated  certificate(s)
representing shares of Series A Preferred Stock if such holder contemporaneously
requests the Corporation to convert such shares


                                      -15-

<PAGE>
of Series A Preferred Stock into shares of Common Stock or otherwise redeem such
shares pursuant to the terms hereof.

                  IN  WITNESS   WHEREOF,   the   Corporation   has  caused  this
Certificate  of  Designation  to be signed by Douglas R. Eger,  its Chairman and
Chief Executive Officer,  and attested by George Lombardi,  its Secretary,  this
28th day of February, 1997.


                              SHEFFIELD MEDICAL TECHNOLOGIES INC.


                              By:  /S/ Douglas R. Eger
                                  ----------------------------
                                  Douglas R. Eger
                                  Chairman and Chief Executive
                                      Officer




Attested:


By:  /S/ George Lombardi
     -------------------
         George Lombardi
         Secretary


                                      -16-

<PAGE>
                                                                EXHIBIT A
                                                                TO CERTIFICATE
                                                                OF DESIGNATION
                                                                --------------


                              NOTICE OF CONVERSION

                  (To be completed, executed and delivered upon
                conversion of shares of Series A Preferred Stock)




TO:  Sheffield Medical Technologies Inc.
     Attention:  Chief Financial Officer


                  The  undersigned  holder  of  shares  of  Series A  Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred Stock") of Sheffield
Medical  Technologies  Inc. (the "Company")  hereby converts  ________ shares of
Series A  Preferred  Stock into Common  Stock of the  Company at the  applicable
conversion  rate on the terms and  conditions  specified in the  Certificate  of
Designation  for the  Series  A  Preferred  Stock.  The  undersigned  surrenders
herewith certificate(s) representing such number of shares of Series A Preferred
Stock to be converted and all right,  title and interest  therein to the Company
and directs that the Common Stock deliverable upon the conversion of such shares
of  Series A  Preferred  Stock be  registered  or  placed in the name and at the
address specified below and delivered thereto.


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

                 [Insert Common Stock Registration Information]


                  In the event that the certificate(s)  surrendered  represent a
number of shares of Series A Preferred Stock in excess of the shares of Series A
Preferred Stock converted  pursuant to this notice, you are advised to issue and
deliver to the  undersigned  holder a  certificate  representing  the  remaining
balance of shares of Series A Preferred  Stock  represented  by the  surrendered
certificate(s) not so converted.

Date:  _____________________.


Your Signature:  ___________________________________________________
                 (Sign   exactly   as  your  name   appears  on  the
                 certificate  representing  the  Shares  of Series A
                 Preferred Stock being converted)


                                      -17-

<PAGE>
                            Certificate of Amendment

                                       of

                          Certificate of Incorporation

                                       of

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.

                Under Section 242 of the General Corporation Law

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



         It is hereby certified that:

         1. The certificate of incorporation of Sheffield  Medical  Technologies
Inc. (the "Corporation") is hereby amended by striking Article FIRST thereof and
by substituting in lieu of said Article the following new Article FIRST:

                  FIRST:  The name of the corporation (hereinafter
                  sometimes called the "Corporation") is Sheffield
                  Pharmaceuticals, Inc. (the "Corporation").

         2. The  certificate  of  incorporation  of the  Corporation  is  hereby
amended by striking out Article  FOURTH thereof and by  substituting  in lieu of
said Article the following new Article FOURTH:

                  "FOURTH:  The  total  number  of shares of stock
                  that the Corporation shall have the authority to
                  issue is (i) fifty million  (50,000,000)  shares
                  of  Common  Stock,   $.01  par  value   ("Common
                  Stock"),  and  (ii)  three  million  (3,000,000)
                  shares  of  Preferred  Stock,   $.01  par  value
                  ("Preferred Stock").

(a)      COMMON STOCK.

         (i) GENERAL. The voting, dividend and liquidation rights of the holders
of Common Stock are subject to and qualified by the rights of the holders of the
Preferred  Stock of any series as may be  designated  by the Board of  Directors
upon any issuance of the Preferred Stock of any series.

         (ii)  VOTING.  The holders of Common Stock are entitled to one vote for
each share held at all meetings of stockholders  (and written actions in lieu of
meetings). There shall be no cumulative voting.

         (iii) DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully  available  therefor as and when  determined by the Board of
Directors  and  subject  to  any  preferential   dividend  rights  of  any  then
outstanding Preferred Stock.




<PAGE>
         (iv)   LIQUIDATION.   Upon  the   dissolution  or  liquidation  of  the
Corporation,  whether voluntary or involuntary,  holders of Common Stock will be
entitled to receive all assets of the Corporation  available for distribution to
its  stockholders  after  payment of creditors  and subject to any  preferential
and/or participating rights of any outstanding Preferred Stock.

(b)      PREFERRED STOCK.

         Authority is hereby  expressly  granted to the Board of Directors  from
time to  time to  issue  the  Preferred  Stock  in one or  more  series,  and in
connection  with the creation of any such series,  by resolution or  resolutions
providing for the issue of the shares thereof,  to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating,  option or other special rights and qualifications,
limitations or  restrictions  thereof,  including  without  limitation  thereof,
dividend  rights,  conversion  rights,  redemption  privileges  and  liquidation
preferences,  as shall be stated and expressed in such  resolutions,  all to the
full  extent  now or  hereafter  permitted  by the  General  Corporation  Law of
Delaware.  Without  limiting the  generality of the foregoing,  the  resolutions
providing  for issuance of any series of  Preferred  Stock may provide that such
series shall be superior or rank equally or junior to the Preferred Stock of any
other  series to the  extent  permitted  by law.  Except as  expressly  provided
elsewhere in this Article  FOURTH no vote of the holders of the Preferred  Stock
or Common  Stock shall be required in  connection  with the  designation  or the
issuance of any shares of any series of any  Preferred  Stock  authorized by and
complying  with the  conditions  herein,  the  right  to have  such  vote  being
expressly  waived by all present and future  holders of the capital stock of the
Corporation."

         3. The amendment of the certificate of  incorporation  herein certified
has been duly adopted in accordance  with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.


Signed on June 26, 1997.                 SHEFFIELD MEDICAL TECHNOLOGIES
                                         INC.


                                         By: /S/ Loren G. Peterson
                                             -----------------------------
                                             Name:   Loren G. Peterson
                                             Title:  CEO
Attest:

/S/ George Lombardi
--------------------------
George Lombardi, Secretary



                                -2-

<PAGE>
                          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  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").


<PAGE>
                                    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.

                  (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


                                       -2-

<PAGE>
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.

                  (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.



                                       -3-

<PAGE>
                  (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.


                                    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").



                                       -4-

<PAGE>
                                    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.

                           (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.


                                       -5-

<PAGE>
                  (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.


                                    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


                                       -6-

<PAGE>
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.


                                    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


                                       -7-

<PAGE>
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 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;


                                       -8-

<PAGE>
                  (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
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


                                       -9-

<PAGE>
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 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


                                      -10-

<PAGE>
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.

         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


                                      -11-

<PAGE>
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 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


                                      -12-

<PAGE>
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 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


                                      -13-

<PAGE>
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.

         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


                                      -14-

<PAGE>
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 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.



                                      -15-

<PAGE>
                  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).

                  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


                                      -16-

<PAGE>
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) :


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

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



                                      -19-

<PAGE>
                                     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 by the Board


                                       -2-

<PAGE>
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).



                                       -3-

<PAGE>
         (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.

         (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


                                       -4-

<PAGE>
Dividend  Payment  Date upon  which  dividends  have  been paid on the  Series C
Preferred Stock by the Corporation.

                           (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


                                       -5-

<PAGE>
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 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


                                       -6-

<PAGE>
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  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.



                                       -7-

<PAGE>
                  (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.

                  (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


                                       -8-

<PAGE>
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.

                  (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.



                                       -9-

<PAGE>
                  (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.

                  (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.



                                      -10-

<PAGE>
                                    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.

                  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


                                      -11-

<PAGE>
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
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:



                                      -12-

<PAGE>
                  (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.

         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.



                                      -13-

<PAGE>
         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.


                                      -14-

<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



                                      -15-

<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) :



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                                      -16-

<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) :



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                                      -17-