CERTIFICATE OF DESIGNATIONS

                                       OF

                             ALLIANCE ENTERTAINMENT CORP.

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


     Pursuant  to  Section  151 of the  Delaware  General  Corporation  Law (the
"GCL"),    ALLIANCE   ENTERTAINMENT   CORP.,   a   Delaware   corporation   (the
"Corporation"), certifies as follows:

     FIRST:  Under the  authority  contained  in Article  FOURTH of the Restated
Certificate of Incorporation  of the Corporation,  the Board of Directors of the
Corporation has classified an aggregate of eight hundred eighty-six thousand two
hundred and forty  (886,240)  shares of the  authorized  but unissued  shares of
Preferred  Stock of the  Corporation  into a series  which  shall be  designated
Series A Convertible Preferred Stock.

     SECOND:  The following  resolution was adopted by the Board of Directors on
July 1, 1996 and such  resolution has not been modified and is in full force and
effect on the date hereof:

     RESOLVED,  that the Board of Directors hereby creates,  from the authorized
but  unissued  shares  of  Preferred  Stock  of the  Corporation,  a  series  of
convertible  preferred stock designated as Series A Convertible Preferred Stock,
par value $0.01 per share (the "Preferred Stock"),  and hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights,  and the  qualifications,  limitations or restrictions  thereof,  of the
shares of such series, as follows:

Section 1.    Preferred Stock Dividends.

     1.1 General Dividend  Obligation.  When, as and if declared by the Board of
Directors of the Corporation, the Corporation shall pay to the holders of record
of the Preferred Stock,  out of the assets of the Corporation  available for the
payment of dividends under the General Corporation Law of the State of Delaware,
preferential  dividends  at the times and in the  amounts  provided  for in this
Section 1.

     1.2 Payments of Dividends;  Payments in Additional Shares. When declared by
the Board of Directors of the  Corporation,  dividends  on the  Preferred  Stock
shall be payable on whole shares of  Preferred  Stock on each  Dividend  Payment
Date  (capitalized  terms  not  otherwise  defined  herein  being  used  in this
Certificate of Designations with the definitions set forth in Section 11).

     b)  Dividends  shall be paid only in  additional  whole shares of Preferred
Stock,  having a Liquidation  Value (exclusive of any accrued unpaid  dividends)
equal in amount to the  dividends  payable,  by  mailing  certificates  for such
shares to each holder of record of Preferred  Stock at such holder's  address as
it appears on the  Corporation's  stock register at least five days prior to the
due date of each  dividend  or  otherwise  delivering  such  shares  so as to be
received  by such holder on the due date of such  dividend.  If any portion of a
dividend  would  result in the  issuance of a fraction  of a share of  Preferred
Stock,  such  fraction  shall be  carried  forward  and  accumulated  with other
fractions  and shall be paid on a  subsequent  Dividend  Payment  Date when such
accumulated fractions equal at least one whole share of Preferred Stock.

     c) If at any time dividends on the outstanding  Preferred Stock at the rate
set forth  herein  shall not have been fully paid or declared  and set aside for
payment,  no dividends or other  distributions shall be declared or paid upon or
set apart for payment on the shares of any other class of Junior Securities.



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     1.3  Calculation of Dividends.  Dividends on each share of Preferred  Stock
shall be calculated cumulatively at the rate and in the manner prescribed herein
from and  including  the date of  issuance  of such  share of  Preferred  Stock,
whether or not such dividends  shall have been declared and whether or not there
shall be (at the time such  dividends are calculated or become payable or at any
other time) profits, surplus or other funds or assets of the Corporation legally
available  for the payment of  dividends.  For purposes of this Section 1.3, the
date on which the Corporation shall initially issue any share of Preferred Stock
shall be deemed to be its "date of issuance"  regardless  of the number of times
transfer of such share of  Preferred  Stock shall be made on the stock  register
maintained  by  or  for  the   Corporation  and  regardless  of  the  number  of
certificates  which may be issued to  evidence  such  share of  Preferred  Stock
(whether by reason of transfer of such share or for any other reason).

     1.4 Dividend Rates.  Dividends  shall be cumulative,  and shall accrue on a
daily basis on each  Outstanding  share of Preferred Stock at the rate per annum
(computed on the basis of a 360-day  year having  twelve  thirty-day  months) of
seven and seven-eighths  percent (7-7/8%) of the Liquidation Value of each share
of  Preferred  Stock.  To the extent not paid,  on a Dividend  Payment  Date all
unpaid  dividends  accrued on each share of Preferred Stock  Outstanding  during
such quarter (or from and  including the original date of issuance of such share
in the case of the initial  quarter-  end after the date of  issuance)  shall be
added to the  Liquidation  Value of such share and shall  remain a part  thereof
until such dividends are paid.

Section 2.   Liquidation Preferences.

     Subject to the holders'  conversion rights provided below herein,  upon any
liquidation (complete or partial), dissolution or winding up of the Corporation,
or any similar distribution of its assets to its stockholders which results in a
return  of  capital,  whether  voluntary  or  involuntary,  the  holders  of the
Preferred  Stock shall be entitled,  before any  distribution or payment is made
upon any Junior  Securities of the Corporation,  to be paid out of the assets of
the Corporation  available for  distribution to its  stockholders  (whether from
capital,  surplus  or  earnings)  an amount in cash  equal to the sum of (i) the
aggregate  Liquidation  Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other  distribution  of assets,  stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested,  not less than
60 days prior to the payment date stated  therein,  to each record holder of any
share of Preferred Stock entitled  thereto at the address for such record holder
shown on the Corporation's records.  Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations,  nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a  liquidation,  dissolution,  winding  up or  similar  distribution  of  the
Corporation within the meaning of any of the provisions of this Section 2.

Section 3.  Redemptions of Preferred Stock.

     3.1  Redemption  Price.  For each share of  Preferred  Stock which is to be
redeemed  by the  Corporation  at any time and for any  reason  in a  redemption
pursuant to this Section 3, the Corporation shall be obligated on the Redemption
Date,  regardless of whether the Corporation  shall be able or legally permitted
to make such payment on the Redemption  Date, to pay to the holder thereof (upon
surrender  by  such  holder  at  the  Corporation's   principal  office  of  the
certificate representing such share of Preferred Stock duly endorsed in blank or
accompanied by an appropriate  form of assignment) the Redemption Price for such
share of Preferred Stock, payable in cash.

     3.2 Redeemed or Otherwise Acquired Shares Not to be Reissued. Any shares of
Preferred Stock redeemed pursuant to this Section 3 or otherwise acquired by the
Corporation  shall not be reissued,  sold or transferred by the  Corporation and
shall be retired.

     3.3  Determination  of Number of Each Holder's  Shares to be Redeemed.  The
number of shares of Preferred  Stock to be redeemed from each holder  thereof in
each  redemption  under this Section 3 shall be  determined by  multiplying  the
total number of shares of Preferred  Stock to be redeemed times a fraction,  the
numerator of which shall be the total  number of shares of Preferred  Stock then
held by such holder and the  denominator  of which shall be the total  number of
shares of Preferred Stock then Outstanding,  rounded if the result is fractional
to the nearest whole number


<PAGE>



of shares.

     3.4 Optional Redemption by Corporation Based on Market Price. The Preferred
Stock may be redeemed in whole (but not in part),  at the Redemption  Price,  at
the  Corporation's  option at any time after the fourth (4th) anniversary of the
date of original  issuance of the Preferred  Stock, on at least 30 days' notice;
provided,  however,  that  the  Corporation  may  not  exercise  such  right  of
redemption  unless (i) the Market  Price of the Common  Stock as reported in the
Wall Street  Journal for 20 out of any  consecutive 30 trading days prior to the
notice of  redemption  delivered  pursuant  to Section 3.8 shall  exceed  eleven
($11.00) per share (subject to adjustment for stock dividends,  stock splits and
reverse  stock  splits),  and (ii) the shares  issuable  upon  conversion of the
Preferred Stock are registered for resale by an effective registration statement
under the  Securities  Act or otherwise  may be sold under Rule 144(k) under the
Securities Act and the Corporation's  transfer agent has accepted an instruction
from the Corporation to that effect.

     b) If at the  Redemption  Date the  registration  conditions  specified  in
clause (ii) of Section  3.4(a) shall not be  satisfied,  then no shares shall be
redeemed and the notice of redemption  shall be deemed to be withdrawn.  In such
event,  any notice of conversion  given by a holder of Preferred Stock after the
redemption  notice  was  given  shall  be  deemed  to  be  withdrawn,   and  any
certificates  for Preferred Stock which have been  surrendered for conversion or
redemption  shall be returned to the persons  surrendering  the same;  provided,
however,  that if a holder  shall  have  received  shares of Common  Stock  upon
conversion of Preferred  Stock after the redemption  notice was given but before
the Redemption Date, such holder may elect either to retain such Common Stock or
rescind  such  conversion  by  tendering  such  shares  of  Common  Stock to the
Corporation.

     c) The  Corporation's  redemption  rights  under  this  Section  3.4  shall
terminate  as to any shares of Preferred  Stock upon the holder's  delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.

     3.5  Optional  Redemption  by  Corporation  Based on Other  Valuation.  The
Preferred  Stock may be redeemed in whole (but not in part),  at the  Redemption
Price (as determined pursuant to this Section 3.5), at the Corporation's  option
at any time after the fourth (4th)  anniversary of the date of original issuance
of the Preferred Stock, upon written notice to the holders thereof, if as of the
end of the most recent  complete  fiscal  quarter  ended prior to such notice of
redemption (the "Valuation Date"), the amount equal to

     (i) the sum of (A) the  Corporation's  EBITDA for the four fiscal  quarters
ended  on  the  Valuation  Date,  multiplied  by  ten  (10),  plus  (B)  without
duplication,  the cash, if any, that would be deemed received by the Corporation
in  connection  with  Options and  Convertible  Securities  deemed  exercised or
converted  pursuant to (ii)  following,  minus (C) the sum of the  Corporation's
Long-Term Debt on the Valuation Date,

divided by

     (ii) the number of shares of its Common Stock  outstanding on the Valuation
Date, determined on a fully-diluted basis in accordance with  generally-accepted
accounting  principles for financial reporting purposes (the so-called "treasury
method" of accounting for shares),  including  without  limitation  Common Stock
issuable upon  conversion of Preferred Stock if and to the extent that Preferred
Stock is not treated as Long-Term Debt, as defined below,

is greater than eleven dollars ($11.00).  Notice of any such redemption shall be
given concurrently with the delivery of the Corporation's  financial  statements
for the  fiscal  quarter  ending on the  Valuation  Date,  and  shall  specify a
redemption  date not less than 10 nor more  than 30 days  after the date of such
notice.  The  Redemption  Price  for each  holder's  shares of  Preferred  Stock
redeemed  pursuant to this Section 3.5 shall be the amount which,  on receipt by
the  holder,  will cause the holder to  realize  an  Internal  Rate of Return of
thirty-five percent (35%) with respect to its investment in such shares.

(b)  As used in this Certificate of Designations:

"Consolidated Interest Expense" means (without duplication), for any period, the
sum of:



<PAGE>



     (i) the interest  expense of the Corporation and its  Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP;

     (ii) all fees, commissions,  discounts and other charges of the Corporation
and its  Subsidiaries  for such period,  determined on a  consolidated  basis in
accordance with GAAP, with respect to letters of credit and bankers' acceptances
and the costs (net of benefits) associated with interest hedging obligations;

     (iii)  amortization  or write-off of debt  discount and deferred  financing
costs  (other than  deferred  financing  costs  incurred on or prior to the date
hereof)  in  connection  with  any Long  Term  Debt of the  Corporation  and its
Subsidiaries for such period,  determined on a consolidated  basis in accordance
with GAAP; and

     (iv) interest  capitalized by the Corporation and its  Subsidiaries  during
such period determined on a consolidated basis in accordance with GAAP.

     "Consolidated Net Income" means, with respect to any period,  the aggregate
net income for such period,  on a consolidated  basis,  determined in accordance
with GAAP ("Net Income"),  of the Corporation  and its  Subsidiaries;  provided,
however,  that (i) the Net Income (if  positive) of any person that is accounted
for by the equity method of  accounting  shall be included only to the extent of
the amount of dividends or  distributions  paid in cash to the  Corporation or a
Subsidiary by such person during such period,  (ii) the Net Income (if positive)
of any person  acquired  in a pooling of  interests  transaction  for any period
prior to the date of such  acquisition  shall be excluded,  (iii)  extraordinary
gains, losses and non-cash restructuring charges shall be excluded, (iv) the Net
Income (if positive) of any Subsidiary  shall be excluded to the extent that the
declaration or payment of dividends or similar  distributions by such Subsidiary
of such Net Income is not at the time of determination permitted by operation of
the terms of its charter or any agreement,  instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary,  (v) net
after tax gains (but not net after tax losses)  from sales of assets  other than
current  assets or from the  disposition of any property or assets other than in
the ordinary course of business shall be excluded, (vi) any after tax gains (but
not losses) from currency  exchange  transactions  not in the ordinary course of
business  consistent  with  past  practice  shall be  excluded,  and  (vii)  the
cumulative effect of any change in accounting principles shall be excluded.

     "EBITDA" shall mean, with respect to any period, Consolidated Net Income of
the  Corporation  for such period plus,  in each case to the extent  deducted in
computing such  Consolidated  Net Income,  the sum of (without  duplication) (i)
Consolidated  Interest  Expense for such period,  (ii) the  provision  for taxes
based on net income of the  Corporation  and its  Subsidiaries  for such  period
determined  on a  consolidated  basis in  accordance  with  GAAP,  and (iii) the
depreciation  and   amortization   expense  of  such  the  Corporation  and  its
Subsidiaries  for such period  determined on a consolidated  basis in accordance
with GAAP.

     "Internal  Rate of  Return"  means  the  annual  rate  (assuming  quarterly
compounding)  which if used to discount to present value the payments in cash or
cash equivalents  made or received by the holder of Preferred Stock,  during the
period from the date of calculation back to the initial issuance of such shares,
would cause the net  present  value (on such date) of such  investment  to equal
zero (0). In calculating an Internal Rate of Return:

     (A) each payment  received in cash or cash  equivalents by a holder (or its
predecessors  in  interest)  of shares  attributable  to such shares or any sale
thereof for cash shall be treated as a cash inflow  with a positive  value,  and
each cash  disbursement  made by the holder (or its  predecessors  in  interest)
directly  attributable  to such shares shall be treated as a cash outflow with a
negative value;

     (B) each such payment or  disbursement  shall be  discounted  from the date
actually made to the date of the holder's initial investment in shares; and

     (C) indemnity  payments,  financing fees and payments in  reimbursement  of
out-of-pocket expenses received by the holders of shares shall not be treated as
cash inflows and therefore shall be disregarded.



<PAGE>



     "Long-Term Debt" shall mean (without  duplication) (A) all indebtedness for
borrowed money or evidenced by notes, bonds,  debentures or similar evidences of
indebtedness,  all obligations for the deferred and unpaid purchase price of any
property,  service or business  (other than trade  accounts  payable and accrued
liabilities incurred in the ordinary course of business and constituting current
liabilities),  (B) all capitalized lease obligations,  (C) letters of credit and
all obligations of relating thereto,  (D) all obligations in respect of interest
rate swap  agreements,  currency swap  agreements  and other similar  agreements
designed to hedge against  fluctuations  in interest  rates or foreign  exchange
rates, and (E) all Preferred Stock (and convertible preferred stock of any other
class)  if and so long as the  Market  Price of  Common  Stock is less  than the
Conversion  Price (or  conversion  price of any such other class of  convertible
preferred  stock)  from time to time in  effect;  in each case  determined  on a
consolidated basis in accordance with GAAP.

     (c) The  Corporation's  redemption  rights  under  this  Section  3.5 shall
terminate  as to any shares of Preferred  Stock upon the holder's  delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.

     3.6 Redemptions or Purchase by  Corporation's  Designee(s).  In lieu of any
redemption  of  Preferred  Stock by the  Corporation  permitted  hereunder,  the
Corporation  may  designate  one or more  purchasers  who shall be  entitled  to
purchase  the  Preferred  Stock  from  the  holders  thereof  at the  applicable
Redemption  Price. Any such designee(s) shall have the rights and obligations of
the Corporation specified herein with respect to the redemption of such shares.

     3.7 Notice of Redemption.  Except as otherwise  expressly  provided herein,
notice of any  redemption of Preferred  Stock,  specifying the time and place of
redemption, the Redemption Price (in the case of a redemption under Section 3.5,
showing  the  computation  thereof in  reasonable  detail)  and the  Section and
paragraph  pursuant to which such  redemption is being made,  shall be mailed by
certified or registered mail, return receipt requested, to each holder of record
of shares of  Preferred  Stock to be  redeemed,  at the  address for such holder
shown on the  Corporation's  records,  not more  than  sixty  (60) nor less than
thirty (30) days prior to the date on which such  redemption is to be made.  The
notice  shall  also  specify  the  number of shares of  Preferred  Stock and the
certificate  numbers  thereof  which  are  to  be  redeemed.   With  respect  to
redemptions made pursuant to Section 3.4 or 3.5, upon mailing any such notice of
redemption  the  Corporation  shall  become  obligated  to redeem at the time of
redemption specified therein all shares of Preferred Stock therein specified. In
case less than all the shares of Preferred Stock  represented by any certificate
are redeemed, a new certificate  representing the unredeemed shares of Preferred
Stock shall be issued to the holder thereof without cost to such holder.

     3.8 Rights After  Redemption  Date.  Provided that the Redemption  Price is
paid in full on the  applicable  Redemption  Date,  no share of Preferred  Stock
shall be entitled to any dividends  accrued after its  Redemption  Date,  and on
such Redemption Date, except as otherwise  provided herein or by law, all rights
of the  holder  of  such  share  of  Preferred  Stock  as a  stockholder  of the
Corporation,  by reason of the ownership of such share, shall cease,  except the
right to  receive  the  Redemption  Price of such share  upon  presentation  and
surrender of the certificate  representing  such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.

     3.9 Other  Redemptions.  The Corporation shall neither redeem nor otherwise
acquire any shares of Preferred Stock except (i) as expressly authorized in this
Certificate of Designations, or (ii) pursuant to any offer of redemption made to
the holders of Preferred Stock pro rata according to the shares held by them.

     3.10 Deposit of  Redemption  Price.  If on or before the date of redemption
specified  in any notice of  redemption  of any share of  Preferred  Stock,  the
Corporation shall irrevocably deposit the amount of the Redemption Price thereof
with a bank  or  trust  company  having  an  office  in the  City  of New  York,
designated in such notice of redemption,  in trust for the benefit of the holder
of such share of Preferred Stock,  such share of Preferred Stock shall be deemed
to have been redeemed on the date so specified,  whether or not the  certificate
for such share shall be surrendered for redemption and canceled.

Section 4.  Conversion of Preferred Stock.




<PAGE>



4.1  Conversion Procedures.

     (a) A holder of shares of Preferred Stock may, at any time convert pursuant
to this  Section 4 all or any part (in  whole  numbers  of  shares  only) of the
shares of Preferred Stock held by such holder into such number of fully paid and
non-assessable  whole shares of Common Stock as is obtained by  multiplying  the
number of shares of Preferred Stock so to be converted by the Liquidation  Value
thereof and dividing  the result by the  Conversion  Price then in effect.  Such
right as to any particular share shall terminate at the close of business on the
day immediately  prior to the date fixed for payment on the Preferred Stock upon
any  liquidation,  dissolution,  winding  up  or  similar  distribution  of  the
Corporation.

     (b) Each  conversion of Preferred  Stock shall be effected by the surrender
of the  certificate or certificates  representing  the shares to be converted at
the principal  office of the  Corporation (or such other office or agency of the
Corporation as the  Corporation may designate by notice in writing to the holder
or holders of the Preferred  Stock) at any time during its usual business hours,
together  with  written  notice  by  the  holder  of  such  Preferred  Stock  (a
"Conversion  Notice") stating that such holder desires to convert the shares, or
a stated number of the shares,  represented by such  certificate or certificates
which  notice  shall  also  specify  the  name or  names  (with  addresses)  and
denominations in which the certificate or certificates for Common Stock shall be
issued and shall include  instructions  for delivery  thereof.  Such  conversion
shall  be  deemed  to have  been  effected  and the  Conversion  Price  shall be
determined as of the close of business on the date on which such  certificate or
certificates  shall  have  been  surrendered  and such  notice  shall  have been
received,  and as of such date (the "Conversion  Date") the rights of the holder
of such  Preferred  Stock (or  specified  portion  thereof) as such holder shall
cease and the  person or  persons  in whose  name or names  any  certificate  or
certificates  for shares of Common  Stock are to be issued upon such  conversion
shall be deemed to have  become the holder or holders of record of the shares of
Common Stock represented thereby.

     (c) As soon as  possible  after the  Conversion  Date (and in no event more
than 30 days after the Conversion Date), subject to Section 4.2(c), with respect
to the  certificate(s)  specified in (i) and (ii) below,  the Corporation  shall
deliver  to the  converting  holder  or,  with  respect  to  the  certificate(s)
specified in (i) below, as specified by such converting holder:

     (i) a  certificate  or  certificates  representing  the number of shares of
Common Stock  issuable by reason of such  conversion  registered in such name or
names and such denomination or denominations as the converting holder shall have
specified; and

     (ii) a certificate  representing  any shares of Preferred Stock which shall
have been  represented by the certificate or certificates  which shall have been
delivered to the  Corporation in connection with such conversion but which shall
not have been converted; and

     (iii) a payment of cash in an amount  equal to the value of any  fractional
share of Common Stock that  otherwise  would be issuable in connection  with the
Preferred Stock converted.

     4.2 Authorization  and Issuance of Common Stock. The Corporation  covenants
and agrees that:

     (a) The Corporation will at all times reserve and keep available out of its
authorized  but  unissued  shares of Common  Stock,  solely  for the  purpose of
issuing upon the  conversion of the Preferred  Stock as provided in this Section
4, such  number of shares of Common  Stock as shall  then be  issuable  upon the
conversion  of all  Outstanding  shares  of  Preferred  Stock.  The  Corporation
covenants that all shares of Common Stock which shall be so issuable shall, when
issued, be duly and validly issued,  fully paid and non-assessable and free from
all taxes, liens, and charges.  The Corporation will take all such action as may
be necessary to assure that all shares of Common Stock may be so issued  without
violation  of any  applicable  law or  regulation  or  any  requirements  of any
domestic stock exchange upon which any shares of Common Stock may be listed.

     (b)  The  Corporation  will  not  take  any  action  which  results  in any
adjustment of the number of shares of Common Stock acquirable upon conversion of
a share of Preferred Stock if after such action the total number of shares of


<PAGE>



Common Stock issuable upon conversion of the Preferred  Stock then  Outstanding,
together  with the total number of shares of Common Stock then  Outstanding  and
the total number of shares of Common Stock  reserved for any purpose  other than
issuance  upon  conversion  of Common  Stock,  would  exceed the total number of
shares of Common Stock then authorized by the Corporation's Restated Certificate
of Incorporation.

     (c) If any shares of Common  Stock  required to be reserved for purposes of
conversions of shares of Preferred Stock under this  Certificate of Designations
require registration with, or approval of, any governmental  authority under any
federal or state law (other than any  registration  under the  Securities Act of
1933, as then in effect,  or any similar  federal  statute then in force, or any
state  securities  law,  required  by reason of any  transfer  involved  in such
conversion),  or listing on any domestic securities exchange, before such shares
may be issued  upon  conversion,  the  Corporation  will,  at its expense and as
expeditiously as possible,  use its best efforts to cause such shares to be duly
registered  or  approved  for  listing  or  listed on such  domestic  securities
exchange, as the case may be.

     (d) The issuance of certificates for shares of Common Stock upon conversion
of shares of the Preferred  Stock shall be made without charge to the holders of
such shares for any issuance tax in respect  thereof,  or other cost incurred by
the Corporation in connection  with such conversion and the related  issuance of
shares of Common Stock,  provided that the Corporation  shall not be required to
pay any tax which may be  payable in respect  of any  transfer  involved  in the
issuance and delivery of any certificate in a name other than that of the holder
of the Preferred Stock converted.

     (e) The  Corporation  will not close its books  against the transfer of any
share of Preferred Stock or of any share of Common Stock issued or issuable upon
the  conversion  of such shares in any manner which  interferes  with the timely
conversion of such shares.

     4.3 Conversion  Price. The initial  Conversion Price shall be seven dollars
and twenty-five  cents ($7.25).  In order to prevent  dilution of the conversion
rights granted  hereunder,  the Conversion  Price shall be subject to adjustment
from time to time pursuant to this Section 4.

     (b) If and  whenever  the  Corporation  shall  issue or  sell,  or shall in
accordance  with  Section  4.4 be deemed to have  issued or sold,  any shares of
Common Stock for a consideration  per share that is less than (a) the Adjustment
Determination  Price in effect  immediately  prior to the time of such  issue or
sale,  or (b) 95% of the Market  Price on the date of such issue or sale,  then,
forthwith  upon such  issue or sale,  the  Conversion  Price  shall,  subject to
Section  4.4, be reduced to the lower of the prices  (calculated  to the nearest
$0.001) determined as follows:

(x) by  dividing  (i) an amount  equal to the sum of (a) the number of shares of
Common  Stock  Deemed  Outstanding  immediately  prior  to  such  issue  or sale
multiplied by the then existing Conversion Price, and (b) the consideration,  if
any,  received  by the  Corporation  upon  such  issue or sale by (ii) the total
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale; and

(y) by multiplying the Conversion Price in effect  immediately prior to the time
of such issue or sale by a fraction,  the numerator of which shall be the sum of
(i) the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale  multiplied  by the Market  Price  immediately  prior to such
issue or sale plus (ii) the consideration  received by the Corporation upon such
issue or sale,  and the  denominator  of which shall be the product of (iii) the
total number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale,  multiplied  by (iv) the Market Price  immediately  prior to such
issue or sale.

Notwithstanding  the foregoing,  no adjustment of the Conversion  Price shall be
made in an amount  less than $0.00l per share,  but any such  lesser  adjustment
shall be carried  forward and shall be made at the time of and together with the
next  subsequent  adjustment  which  together  with any  adjustments  so carried
forward shall amount to $0.00l per share or more.

     (c)  As  used  in  this  Certificate  of   Designations,   the  "Adjustment
Determination Price" means (i) $6.00, in the case of an issuance of Common Stock
governed by Section 4.3(b) or Options  governed by Section 4.4(a),  and (ii) the
Conversion Price, in the case of an issuance of Convertible  Securities governed
by Section 4.4(b), or any other


<PAGE>



deemed  issuance  or sale of Common  Stock under  Section  4.4.  The  Adjustment
Determination  Price shall be deemed  increased  or reduced  proportionately  in
connection  with any increase or reduction of the  Conversion  Price pursuant to
this Section 4.

     (d)  Notwithstanding the provisions of this Section 4.3 and Section 4.4, no
adjustment of the Conversion  Price shall be required as a result of the sale or
issuance of Common Stock, at prices less than the Adjustment Determination Price
then in effect or 95% of the Market Price then in effect, (i) upon conversion of
any of the Preferred Stock, or (ii) in connection with Excluded Securities.

     4.4  Effect  of  Certain  Events  on  Conversion  Price.  For  purposes  of
determining the adjusted Conversion Price under Section 4.3, the following shall
be applicable:

     (a)  Issuance  of Rights or  Options.  In case at any time the  Corporation
shall in any manner sell or grant (whether directly or by assumption in a merger
or otherwise) any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other  securities  convertible into or
exchangeable  for Common  Stock  (such  rights or options  being  herein  called
"Options" and such convertible or exchangeable  stock or securities being herein
called "Convertible  Securities"),  whether or not such Options or the rights to
convert or exchange such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
Options  or  upon  conversion  or  exchange  of  such   Convertible   Securities
(determined by dividing (i) the total amount,  if any, received or receivable by
the  Corporation  as  consideration  for the granting of such Options,  plus the
minimum aggregate amount of additional  consideration payable to the Corporation
upon the exercise of all such  Options,  plus, in the case of such Options which
relate to Convertible  Securities,  the minimum  aggregate  amount of additional
consideration,  if any,  payable  upon  the  issue  or sale of such  Convertible
Securities  and upon the  conversion  or  exchange  thereof,  by (ii) the  total
maximum  number of shares of Common  Stock  issuable  upon the  exercise of such
Options or upon the  conversion or exchange of all such  Convertible  Securities
issuable  upon the exercise of such Options)  shall be less than the  Adjustment
Determination  Price in effect  immediately prior to the time of the granting of
such Options (or less than 95% of the Market Price, determined as of the date of
granting  such Options,  as the case may be),  then the total maximum  number of
shares of Common  Stock  issuable  upon the  exercise  of such  Options  or upon
conversion  or  exchange  of  the  total  maximum  amount  of  such  Convertible
Securities  issuable  upon the exercise of such Options shall (as of the date of
grant of such Options) be deemed to be  outstanding  and to have been issued for
such price per share.  No adjustment of the Conversion  Price shall be made upon
the actual issue of such Common  Stock or of such  Convertible  Securities  upon
exercise  of such  Options or upon the actual  issue of such  Common  Stock upon
conversion  or  exchange of such  Convertible  Securities,  except as  otherwise
provided in Section 4.4(c).

     (b) Issuance of Convertible  Securities.  In case the Corporation  shall in
any manner issue (whether directly or by assumption in a merger or otherwise) or
sell any  Convertible  Securities,  whether  or not the  rights to  exchange  or
convert  thereunder  are  immediately  exercisable,  and the price per share for
which Common Stock is issuable upon such  conversion or exchange  (determined by
dividing (i) the total  amount  received or  receivable  by the  Corporation  as
consideration  for the issue or sale of such  Convertible  Securities,  plus the
minimum  aggregate  amount of additional  consideration,  if any, payable to the
Corporation upon the conversion or exchange  thereof,  by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such  Convertible  Securities)  shall be less than the Adjustment  Determination
Price in  effect  immediately  prior to the time of such  issue or sale (or less
than 95% of the Market Price, determined as of the date of such issue or sale of
such Convertible Securities,  as the case may be), then the total maximum number
of shares of Common  Stock  issuable  upon  conversion  or  exchange of all such
Convertible  Securities  shall  (as of the  date  of the  issue  or sale of such
Convertible  Securities) be deemed to be outstanding and to have been issued for
such  price per share.  Except as  otherwise  provided  in  Section  4.4(c),  no
adjustment of the  Conversion  Price shall be made upon the actual issue of such
Common stock upon conversion or exchange of such Convertible Securities,  and if
any such issue or sale of such  Convertible  Securities is made upon exercise of
any Options for which  adjustments of the Conversion Price have been made or are
to be made  pursuant  to  other  provisions  of this  Section  4.4,  no  further
adjustment  of the  Conversion  Price  shall be made by reason of such  issue or
sale.




<PAGE>



     (c) Change in Option or Conversion  Price.  If the purchase  price provided
for in any Option referred to in Section 4.4(a),  the additional  consideration,
if any,  payable  upon  conversion  or  exchange of any  Convertible  Securities
referred  to in  Section  4.4(a) or (b),  or the rate at which  any  Convertible
Securities  referred  to in  Section  4.4(a)  or (b)  are  convertible  into  or
exchangeable for Common Stock,  shall change at any time (other than under or by
reason of provisions  designed to protect against dilution of the type set forth
in this Section 4.4 or in Sections 4.3 and 4.5),  then the  Conversion  Price in
effect at the time of such change shall  forthwith be adjusted to the Conversion
Price  which  would  have  been in  effect  at such  time  had  such  Option  or
Convertible  Securities  still  outstanding  provided for such changed  purchase
price,  additional  consideration or conversion rate, as the case may be, at the
time  initially  granted,  issued or sold. If the purchase price provided for in
any Option referred to in Section 4.4(a), the additional consideration,  if any,
payable upon conversion or exchange of any Convertible Securities referred to in
Section 4.4(a) or (b), or the rate at which any Convertible  Securities referred
to in Section 4.4(a) or (b), are  convertible  into or  exchangeable  for Common
Stock,  shall be  reduced  at any time  under or by  reason of  provisions  with
respect thereto  designed to protect  against  dilution of the type set forth in
this Section 4.4 or Sections 4.3 and 4.5, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible  Security,  the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective  amount as would have been obtained had
such Option or  Convertible  Security  never been issued as to such Common Stock
and had  adjustments  been made upon the  issuance of the shares of Common Stock
delivered  as  aforesaid,  but  only  if as a  result  of  such  adjustment  the
Conversion Price then in effect hereunder would be reduced.

     (d) Treatment of Expired  Options and Unexercised  Convertible  Securities.
Upon the expiration of any Option or the  termination of any right to convert or
exchange  any  Convertible  Securities  (without  any exercise of such Option or
right),  the  Conversion  Price  then in effect  hereunder  shall  forthwith  be
adjusted to the Conversion  Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent  outstanding  immediately prior to such expiration or termination,  never
been issued, and the Common Stock issuable  thereunder shall no longer be deemed
to be outstanding.

     (e)  Calculation of  Consideration  Received.  In case any shares of Common
Stock,  Options or Convertible  Securities  shall be issued or sold or deemed to
have been issued or sold for cash, the consideration  received therefor shall be
deemed to be the aggregate proceeds payable to the Corporation  therefor,  prior
to  deduction  of any  expenses  incurred  and any  underwriting  commission  or
concessions paid or allowed by the Corporation in connection therewith.

     (ii) In case any shares of Common Stock, Options or Convertible  Securities
shall be issued or sold for a  consideration  other  than  cash,  the  amount of
consideration  other than cash received by the Corporation shall be deemed to be
the fair value, determined in good faith by the Board of Directors.

     (iii) In case any Options shall be issued in  connection  with the issue or
sale of other  securities of the Corporation,  together  comprising one integral
transaction in which no specific  consideration  is allocated to such Options by
the parties  thereto,  such Options shall be deemed to have been issued  without
consideration.


<PAGE>

     (iv) In case any shares of Common Stock, Options or Convertible  Securities
shall be issued in connection  with any merger in which the  Corporation  is the
surviving  corporation,  the amount of consideration therefor shall be deemed to
be the fair value,  determined in good faith by the Board of Directors,  of such
portion of the net assets and business of the non-surviving corporation as shall
be attributable to such Common Stock, Options or Convertible Securities,  as the
case may be.

     (v) In the event of any consolidation or merger of the Corporation in which
stock or other  securities of any  corporation are issued in exchange for Common
Stock of the Corporation or in the event of any sale of all or substantially all
of  the  assets  of  the  Corporation  for  stock  or  other  securities  of any
corporation,  the Corporation  shall be deemed to have issued a number of shares
of its Common Stock for stock or securities of the other corporation computed on
the basis of the actual  exchange ratio on which the  transaction was predicated
and for a  consideration  equal  to the  fair  market  value on the date of such
transaction  of such stock or  securities of the other  corporation,  and if any
such calculation results in adjustment of the Conversion Price the determination
of the  number of  shares of Common  Stock  receivable  upon  conversion  of the
Preferred Stock  immediately  prior to such merger,  consolidation  or sale, for
purposes of Section 4.7, shall be made after giving effect to such adjustment of
the Conversion Price.

     (vi) In case the  Corporation  shall  declare a dividend  or make any other
distribution upon any stock of the Corporation payable in Common Stock,  Options
or Convertible Securities,  any Common Stock, Options or Convertible Securities,
as the case may be, issuable in payment of such dividend or  distribution  shall
be deemed to have been issued or sold without consideration.

     (f)  Record  Date.  For  purposes  of  Sections  4.3 and  4.4,  in case the
Corporation  shall  take a record of the  holders  of its  Common  Stock for the
purpose  of  entitling  them (i) to  receive a  dividend  or other  distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase  Common  Stock,  Options or  Convertible  Securities,  then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common  Stock  deemed to have been issued or sold upon the  declaration  of such
dividend  or the making of such other  distribution  or the date of  granting of
such right or subscription or purchase, as the case may be.

     4.5 Subdivisions and Combinations.  Except to the extent Section 4.4(e)(vi)
above applies, in the event that the Corporation shall at any time subdivide (by
any stock  split,  stock  dividend  or  otherwise)  one or more  classes  of its
outstanding  Common Stock into a greater  number of shares of Common Stock,  the
Conversion Price in effect immediately prior to such subdivision forthwith shall
be proportionately reduced.  Conversely,  in the event the outstanding shares of
one or more classes of the Common Stock shall be combined into a smaller  number
of shares (by reverse stock split or otherwise),  the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.

     4.6 Dividends. In the event that the Corporation declares a dividend (other
than a dividend payable in Common Stock, Options or Convertible Securities, or a
cash dividend payable out of earnings or earned surplus) upon Common Stock, then
at the  option  of the  holders  of a  majority  of the  outstanding  shares  of
Preferred Stock,

     (1) the Corporation  shall pay over to each holder, on the dividend payment
date, the cash,  stock or other  securities and other property which such holder
would have  received  if such holder had  converted  all of his or its shares of
Preferred  Stock into Common Stock and had been the record holder of such Common
Stock on the date on which a record is taken for the  purpose of such  dividend,
or, if a record is not taken,  the date as of which the holders of Common  Stock
of record entitled to such dividend are to be determined, or


<PAGE>

     (2) the Conversion Price in effect  immediately prior to the declaration of
such dividend shall be reduced by an amount equal to the amount of such dividend
payable per share of Common  Stock,  in the case of a cash  dividend,  or by the
fair value of such dividend per share (as reasonably  determined by the Board of
Directors of the Corporation), in the case of any other dividend, such reduction
to be  effective  on the date as of which a record is taken for purposes of such
dividend, or if a record is not taken, the date as of which holders of record of
Common Stock entitled to such dividend are determined, or

     (3) in the case of a dividend consisting of stock or securities (other than
Common Stock, Options or Convertible Securities) or other property distributable
to holders of Common  Stock,  the holder of Preferred  Stock may elect that,  in
lieu  of (1) or  (2)  above,  lawful  and  adequate  provisions  shall  be  made
(including without  limitation any necessary  reduction in the Conversion Price)
whereby  such  holder of  Preferred  Stock  shall  thereafter  have the right to
purchase  and/or  receive,  on  the  terms  and  conditions  specified  in  this
Certificate  of  Designations  and in  addition  to the  shares of Common  Stock
receivable immediately prior to the declaration of such dividend upon conversion
of his or its shares of Preferred  Stock,  such shares of stock,  securities  or
property as are distributable with respect to outstanding shares of Common Stock
equal to the number of shares of Common Stock  receivable  immediately  prior to
such declaration upon conversion of his or its shares of Preferred Stock, to the
end that the provisions  hereof  (including  without  limitation  provisions for
adjustments of the Conversion Price and of the number of shares  receivable upon
such  conversion)  shall  thereafter  be  applicable,  as  nearly  as may be, in
relation to such shares of stock, securities or property.

     For  the  purposes  of  this  Section  4.6,   "dividend"   shall  mean  any
distribution  to the holders of Common  Stock as such,  and a dividend  shall be
considered  payable out of earnings or earned surplus (other than revaluation or
paid-in  surplus)  only to the extent that such  earnings or earned  surplus are
charged  an  amount  equal to the  fair  value of such  dividend  as  reasonably
determined by the Board of Directors of the Corporation.

     4.7 Reorganization, Reclassification, Consolidation, Merger or Sale. If any
capital   reorganization  or  reclassification  of  the  capital  stock  of  the
Corporation,  or any  consolidation  or merger of the  Corporation  with or into
another   corporation,   or  any  sale  of  all  or  substantially  all  of  the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common  Stock shall be entitled to receive  (either  directly or upon
subsequent  liquidation)  stock,  securities  or assets  with  respect  to or in
exchange  for  Common  Stock,  then,  as a  condition  of  such  reorganization,
reclassification,  consolidation,  merger or sale, lawful and adequate provision
(as  determined  reasonably  and in good faith by the Board of  Directors of the
Corporation)  shall be made whereby each of the holders of the  Preferred  Stock
shall  thereafter  have the right to acquire and receive upon the basis and upon
the terms and  conditions  specified  herein and in lieu of the shares of Common
Stock of the Corporation  immediately theretofore acquirable and receivable upon
the  conversion of such  holder's  shares,  such shares of stock,  securities or
assets as may be issued or payable  with  respect to or in exchange for a number
of  outstanding  shares of Common  Stock equal to the number of shares of Common
Stock immediately  theretofore acquirable and receivable upon conversion of such
shares had such reorganization, reclassification,  consolidation, merger or sale
not taken place, and in any such case  appropriate  provision shall be made with
respect to such holder's  rights and interests to the end that the provisions of
this Section 4 (including without  limitation  provisions for adjustments of the
Conversion  Price and of the  number of shares of Common  Stock  acquirable  and
receivable upon the exercise of the conversion rights granted in this Section 4)
shall thereafter be applicable in relation to any shares of stock, securities or
assets  thereafter  deliverable  upon the  conversion  of such  holder's  shares
(including,  in the case of any such consolidation,  merger or sale in which the
successor  corporation or purchasing  corporation is other than the Corporation,
an  immediate  adjustment  of the  Conversion  Price to the value for the Common
Stock reflected by the terms of such consolidation,  merger or sale if the value
so reflected is less than the Conversion  Price in effect  immediately  prior to
such  consolidation,  merger or sale).  The  Corporation  shall not  effect  any
consolidation,  merger or sale, unless the successor  corporation (if other than
the Corporation)  resulting from such consolidation or merger or the corporation
purchasing  such  assets  shall  assume the  obligation  to deliver to each such
holder such shares of stock,  securities  or assets as, in  accordance  with the
foregoing provisions, such holder may be entitled to acquire or receive.

<PAGE>

     4.8 Notice of Adjustment. Immediately upon any adjustment of the Conversion
Price,  the  Corporation  shall send  written  notice  thereof to all holders of
Preferred  Stock,  which notice shall state the Conversion  Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common  Stock  acquirable  and  receivable  upon  conversions  of all  shares of
Preferred Stock held by each such holder, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.

     4.9 Other Adjustment-Related Notices. In the event that at any time:

     (a) the  Corporation  shall declare a dividend (or any other  distribution)
upon its Common Stock payable  otherwise  than in cash out of earnings or earned
surplus;

     (b) the Corporation shall offer for subscription pro rata to the holders of
any class of its  Common  Stock any  additional  shares of stock of any class or
other rights;

     (c) there shall be any capital  reorganization,  or reclassification of the
capital stock of the Corporation,  or consolidation or merger of the Corporation
with, or sale of all or substantially all of its assets to, another corporation;
or

     (d) there shall be any voluntary or involuntary  dissolution,  liquidation,
winding up or similar distribution of the Corporation;

then, in connection  with any such event,  the  Corporation  shall give by first
class mail, postage prepaid,  addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:

     (i) at least 30 days' prior  written  notice of the date on which the books
of the  Corporation  shall close or a record  shall be taken for such  dividend,
distribution  or  subscription  rights  (and  specifying  the date on which  the
holders of Common Stock shall be entitled thereto) or for determining  rights to
vote in respect of such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding up or similar distribution; and

     (ii)  in  the   case   of  any   such   reorganization,   reclassification,
consolidation,  merger, sale,  dissolution,  liquidation,  winding up or similar
distribution,  at least 30 days' prior written  notice of the date when the same
shall take place (and  specifying  the date on which the holders of Common Stock
shall be  entitled  to  exchange  their  Common  Stock for  securities  or other
property deliverable upon such reorganization, reclassification,  consolidation,
merger, sale, dissolution, liquidation, winding up or similar distribution).

     4.10 Certain Events.  If any event occurs as to which the other  provisions
of this Section 4 are not strictly  applicable or if strictly  applicable  would
not fairly  protect the conversion  rights of the Preferred  Stock in accordance
with the essential intent and principles of such  provisions,  then the Board of
Directors  shall make an adjustment in the  application of such  provisions,  in
accordance  with such  essential  intent and  principles,  so as to protect such
conversion rights as aforesaid.

     4.11  Disputes.  In the  event  that  there  is any  dispute  as to (a) the
computation  of the price or the number of shares of Common Stock required to be
issued  upon  conversion  of  Preferred  Stock,  or (b) the  computation  of the
Redemption Price under Section 3.4 or 3.5, in either case in which holders of 50
percent  or  more  of the  Preferred  Stock  shall  join,  the  holders  and the
Corporation will retain an independent and nationally recognized accounting firm
to  conduct  at the  expense  of the  Corporation  an audit of the  computations
pursuant to the terms hereof  involved in such dispute,  including the financial
statements or other  information  upon which such  computations  were based. The
determination  of such  nationally  recognized  accounting  firm  shall,  in the
absence of manifest  error,  be binding upon the holders of the Preferred  Stock
and the  Corporation.  If there shall be a dispute as to the  selection  of such
nationally  recognized  accounting  firm,  such firm shall be  appointed  by the
American  Institute  of  Certified  Public  Accountants  ("AICPA")  if  willing,
otherwise the American Arbitration Association,  ("AAA") upon application by the
Corporation  or any holder or holders of at least 50 percent of the  outstanding
Preferred  Stock with  notice to the others.  If the price,  number of shares of
Common Stock or Redemption  Price as determined by such  accounting firm is five
percent (5%) or more higher or lower than the price,  number of shares of Common
Stock or  Redemption  Price  computed by the  Corporation,  the expenses of such
accounting  firm and, if any,  AICPA and AAA,  shall be borne  completely by the
Corporation. In all other cases, they shall be borne by the disputing holders of
Preferred Stock.


<PAGE>

     Section 5. Purchase Rights.

     If at any time or from time to time the Corporation  shall grant,  issue or
sell any Options,  Convertible  Securities  or rights to purchase  property (any
"Purchase  Rights")  pro rata to the  record  holders  of Common  Stock and such
grant, issuance or sale does not result in an adjustment of the Conversion Price
under  Section  4.4,  then each holder of  Preferred  Stock shall be entitled to
acquire,  upon the terms  applicable  to such  Purchase  Rights,  the  aggregate
Purchase  Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable and receivable (directly or upon subsequent
conversion,  assuming unrestricted  convertibility) upon conversion  immediately
prior to the time or times at which the Corporation, granted issued or sold such
Purchase Rights.

     Section 6. Voting Rights of Preferred Stock.

     (a) Unless otherwise  specially provided for in this Section 6, the holders
of shares of  Preferred  Stock  shall  have the  voting  rights of the number of
shares of Common Stock of the  Corporation  into which their shares of Preferred
Stock are convertible  pursuant to the terms of this Certificate of Designations
(without  regard to partial  shares),  and shall have the same voting rights and
the same rights  pertaining to the exercise of such voting right as those of the
holders of the Common Stock of the  Corporation at any Annual or Special Meeting
of Stockholders  of the  Corporation  with the holders of Preferred Stock voting
together with the holders of Common Stock as a single class.

     (b) In addition to any other  approvals  or consents  required by law,  the
Company shall not take amend its Certificate of Incorporation or the Certificate
of  Designation  of any  Series  of  preferred  stock  of the  Company  so as to
adversely  affect the rights,  powers,  or  preferences  of the Preferred  Stock
without  the  unanimous  written  consent or  affirmative  vote of a majority of
holders  of shares of  Preferred  Stock,  at the  Annual or  Special  Meeting of
Shareholders  of the  Corporation  at  which  the  corresponding  resolution  is
proposed.

     Section 7. Registration of Transfer.

     The Corporation  shall keep at its principal office (or such other place as
the Corporation reasonably designates) a register for the registration of shares
of Preferred Stock. Upon the surrender of any certificate representing Preferred
Stock at such place,  the  Corporation  shall,  at the request of the registered
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor  representing the aggregate
number of shares  represented  by the  surrendered  certificate,  subject to the
requirements of applicable  securities laws. Each such new certificate  shall be
registered  in such name and shall  represent  such number of shares as shall be
requested by the holder of the surrendered  certificate,  shall be substantially
identical in form to the surrendered certificate,  and the holders of the shares
represented by such new certificate shall be entitled to receive all theretofore
payable  but unpaid  dividends  on the  shares  represented  by the  surrendered
certificate.

<PAGE>

     Section 8. Replacement.

     Upon receipt of evidence  reasonably  satisfactory  to the  Corporation (an
affidavit of the registered  holder shall be  satisfactory) of the ownership and
the loss, theft,  destruction or mutilation of any certificate evidencing one or
more shares of the Preferred  Stock and, in the case of any such loss,  theft or
destruction,   upon  receipt  of  indemnity   reasonably   satisfactory  to  the
Corporation (provided that if the registered holder is an institutional investor
its own agreement of indemnity, without bond, shall be satisfactory), or, in the
case of any such mutilation, upon surrender of such certificate, the Corporation
shall (at its  expense)  execute and deliver in lieu of such  certificate  a new
certificate of like kind  representing the number of shares  represented by such
lost, stolen, destroyed or mutilated certificate,  and the shares represented by
such new  certificate  shall be  entitled,  among other  things,  to receive all
theretofore  payable but unpaid dividends on the shares represented by the lost,
stolen, destroyed or mutilated certificate.

     Section 9. Closing Books.

     The Corporation  will not close its books against the transfer of any share
of Preferred Stock.

     Section 10. Definitions.

     As used in this  Certificate of Designations the following terms shall have
the  following  meanings,  which  meanings  shall be equally  applicable  to the
singular and plural forms of such terms:

     "Business  Day" means any day which is not a Saturday  or a Sunday or a day
on which banks are permitted to close in New York, New York.

     "Common Stock" means the Common Stock,  par value $0.0001 per share, of the
Corporation,  and any capital  stock of any class of the  Corporation  hereafter
authorized  which  shall not be limited to a fixed sum or  percentage  of par or
stated value in respect to the rights of the holders  thereof to  participate in
dividends or in the  distribution of assets upon any  liquidation,  dissolution,
winding up or similar distribution of the Corporation.

     "Common Stock Deemed  Outstanding" means, at any given time, the sum of (a)
the  number  of  shares  of  Common  Stock  actually  outstanding  at such  time
(exclusive  of any shares of Common Stock owned or held by or for the account of
the  Corporation),  plus (b) the  number of shares of Common  Stock  into  which
Outstanding shares of Preferred Stock are convertible at such time, plus (c) the
number of other shares of Common Stock deemed to be outstanding  under Section 4
at such time.

     "Conversion Price" means seven dollars and twenty-five  cents ($7.25),  as
such price may be adjusted from time to


<PAGE>



time pursuant to the provisions of Section 4.

     "Dividend  Payment Date" means,  with respect to Preferred  Stock, the last
day of March,  June,  September and December in each year (or if any such day is
not a Business Day the immediately preceding Business Day).

     "Excluded  Securities"  means (a) Options or Convertible  Securities issued
and  outstanding on the date of original  issuance of the Preferred  Stock,  and
Common Stock  issued upon  exercise or  conversion  thereof,  (b) Common  Stock,
Options  or  Common  Stock  issued  upon  exercise  of such  Options,  issued to
employees of the  Corporation or any of its  Subsidiaries  pursuant to the stock
option plans or other  incentive  plans  adopted by the Board of  Directors  and
submitted  for  approval by the  Corporation's  stockholders  at its 1996 annual
meeting of  stockholders,  and (c) any Common  Stock,  Options,  or Common Stock
issued upon exercise of such Options,  issued to employees of the Corporation or
any of its  Subsidiaries  pursuant to the provisions of any other stock bonus or
stock option or other incentive plan or plans subsequently  adopted by the Board
of  Directors,  except any Common  Stock,  Options,  or Common Stock issued upon
exercise of such Options, issued thereunder to Joseph J. Bianco.

     "GAAP"  means  generally-accepted  accounting  principles  set forth in the
opinions and  pronouncements of the Accounting  Principles Board of the American
Institute of Certified Public  Accountants and statements and  pronouncements of
the Financial Accounting Standards Board.

     "Junior Security" means the Corporation's Common Stock and any other equity
security of any kind which the  Corporation or any Subsidiary  shall at any time
issue  or be  authorized  to issue  other  than  Preferred  Stock  and  Series A
Convertible Preferred Stock.

     "Liquidation  Value" of any share of Preferred  Stock as of any  particular
date means an amount  equal to the sum of $100.00  plus any  accrued  and unpaid
dividends on such share of Preferred Stock.

     "Market  Price" means as to any security the average of the closing  prices
of such  security's  sales on such day on all  domestic  exchanges on which such
security may at the time be listed, or, if there shall have been no sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at the end of such  day,  or, if on such day such
security shall not be so listed or trading  thereon or on such exchange shall be
suspended,  the  closing  price on such day of any such  security  traded on the
NASDAQ System or, if no such closing price is available,  (i) the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time,  on such day, or (ii) if on such day such  security  shall not be
quoted  in the  NASDAQ  System,  the  average  of the high and low bid and asked
prices on such day in the  domestic  over-the-counter  market as reported by the
National Quotation Bureau, Incorporated,  or any similar successor organization,
in the case of (i) or (ii) averaged over a period of 21 business days consisting
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day (unless otherwise  provided  herein).  If at any
time such  security  is not  listed on any  domestic  exchange  or quoted in the
NASDAQ System or the domestic  over-the-counter market, the "Market Price" shall
be the fair market value per share of Common  Stock,  which shall be  reasonably
determined  by the Board of Directors of the  Corporation  as of a date which is
within 15 days of the date as of which the determination is to be made.

     "Outstanding"  when used with reference to shares of Preferred  Stock as of
any particular  time shall mean shares  thereof  issued and  outstanding at such
time and shall not  include any shares of  Preferred  Stock  represented  by any
certificate in lieu of which a new  certificate  has been executed and delivered
by the  Corporation in accordance with Section 7 or Section 8, but shall include
only those shares represented by such new certificate.

     "Person" means and includes an individual, a partnership,  a corporation, a
trust, a joint venture,  an unincorporated  organization and a government or any
department or agency thereof.

     "Redemption  Date" as to any share of Senior Preferred Stock means the date
specified  in the  notice of  redemption  delivered  pursuant  to  Section  3.8;
provided that for purposes of Section 3.9, the Redemption Date shall be the date
on which the applicable  Redemption Price is actually paid to the holder of such
share of Preferred Stock or deposited


<PAGE>



in trust for the benefit of such holder pursuant to Section 3.11.

     "Redemption  Price"  as to any  share  of  Preferred  Stock  means  (a) for
purposes of Section 3.5, the Redemption Price specified therein,  and (b) in all
other cases, the Liquidation Value of such share.

     "Subsidiary"  means any  corporation  at least 50% of the  Voting  Stock of
every  class of which  is, at the time as of which  any  determination  is being
made,  owned  by  the  Corporation  either  directly  or  through  one  or  more
Subsidiaries.

     "Voting  Stock"  means any shares of stock having  general  voting power in
electing  the board of  directors  (irrespective  of  whether or not at the time
stock of any other class or classes has or might have voting  power by reason of
the happening of any contingency).

     Section 11. Miscellaneous.

     (a) The  unenforceability  or  invalidity of any provision or provisions of
this Certificate of Designations  shall not render invalid or unenforceable  any
other provision or provisions herein contained.

     (b) Section and  paragraph  headings  herein are for  convenience  only and
shall not be construed as a part of this Certificate of Designations.

     (c) All  notices  to holders  of  Preferred  Stock  required  or  permitted
hereunder shall be sent by overnight courier service, prepaid, addressed to each
such  holder  at  the  address  for  such  holder  shown  on  the  books  of the
Corporation.


                                 * * * * * *


<PAGE>


     IN WITNESS  WHEREOF,  this  Certificate has been signed on this 16th day of
July,  1996,  and  the  signature  of  the  undersigned   shall  constitute  the
affirmation and  acknowledgment of the undersigned,  under penalties of perjury,
that this  Certificate is the act and deed of the undersigned and that the facts
stated in the Certificate are true.

                                     ALLIANCE ENTERTAINMENT CORP.


                                       By:/s/Joseph J. Bianco
                                         -----------------------------------
                                         Joseph J. Bianco, Chairman


                                     ATTEST:


                                       /s/ Christopher J. Joyce
                                      ------------------------------------------
                                      Christopher J. Joyce, Assistant Secretary