SCHEDULE 14A
                                 (Rule 14a-101)

                     Information Required in Proxy Statement

                            SCHEDULE 14A INFORMATION

                Proxy Statement Pursuant to Section 14(a) of the
                         Securities Exchange Act of 1934


Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X]  Preliminary Proxy Statement              [_]  Confidential, for Use of the
[_]  Definitive Proxy Statement                    Commission Only (as permitted
[_]  Definitive Additional Materials               by Rule 14a-6(e)(2))
[_]  Soliciting Material Pursuant
     to Rule 14a-11(c) or Rule 14a-12

                       MOTORCAR PARTS & ACCESSORIES, INC.
          -----------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)


          -----------------------------------------------------------
                   (Name of Person(s) Filing Proxy Statement,
                          if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]   No fee required.

[_]   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

      (1)   Title of each class of securities to which transaction applies:

      __________________________________________________________________________

      (2)   Aggregate number of securities to which transaction applies:

      __________________________________________________________________________





<PAGE>




      (3)   Per unit price or other  underlying  value of  transaction  computed
            pursuant  to  Exchange  Act Rule 0-11 (Set forth the amount on which
            the filing fee is calculated and state how it was determined):

      __________________________________________________________________________


      (4)   Proposed maximum aggregate value of transaction:

      __________________________________________________________________________


      (5)   Total fee paid:

      __________________________________________________________________________


[_]   Fee paid previously with preliminary materials.

[_]   Check box if any part of the fee is offset as  provided  by  Exchange  Act
      Rule  0-11(a)(2)  and identify the filing for which the offsetting fee was
      paid  previously.  Identify the previous filing by registration  statement
      number, or the Form or Schedule and the date of its filing.

      (1)   Amount Previously Paid:

      __________________________________________________________________________


      (2)   Form, Schedule or Registration Statement No.:

      __________________________________________________________________________


      (3)   Filing Party:

      __________________________________________________________________________


      (4)   Date Filed:

      __________________________________________________________________________




<PAGE>





                       MOTORCAR PARTS & ACCESSORIES, INC.
                              2727 MARICOPA STREET
                           TORRANCE, CALIFORNIA 90503


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON SEPTEMBER 9, 1998

To the Shareholders of Motorcar Parts & Accessories, Inc.:

            NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of  Shareholders
(the  "Meeting") of Motorcar Parts & Accessories,  Inc. (the  "Company") will be
held at The Penn Club,  30 West 44th Street,  New York,  New York, on Wednesday,
September  9, 1998 at 10:30 A.M.,  New York City time,  to consider and act upon
the following matters:

(1)   The election of seven directors;

(2)   The approval of a series of proposed  amendments to the Company's  By-Laws
      to:

      (a)   Classify the Board of Directors into three  classes,  each of which,
            after a transitional  arrangement,  will serve for three years, with
            one class being elected each year;

      (b)   Provide  that  directors  may be removed only for cause and only (i)
            with the  approval  of the holders of at least 66 2/3% of the voting
            power of the then outstanding shares of capital stock of the Company
            entitled to vote  generally  in the  election of  directors,  voting
            together as a single class,  or (ii) with the approval of a majority
            of the entire Board of Directors; and

      (c)   Provide that the  shareholder  vote  required to amend or repeal the
            foregoing  provisions  of the  By-Laws,  or to adopt  any  provision
            inconsistent therewith,  shall be 66 2/3% of the voting power of the
            Company entitled to vote generally in the election of directors;

(3)   The approval of an amendment to the Company's 1994 Stock Option Plan;

(4)   The  ratification  and approval of the  appointment of Richard A. Eisner &
      Company, LLP as the Company's  independent certified public accountant for
      the fiscal year ending March 31, 1999; and

(5)   The  transaction  of such other  business as may properly  come before the
      Meeting or any adjournment or postponement thereof.

            Information regarding the matters to be acted upon at the Meeting is
contained in the accompanying Proxy Statement.

            The close of  business on July 24, 1998 has been fixed as the record
date for the determination of shareholders  entitled to notice of and to vote at
the Meeting or any adjournment or postponement thereof.

                                           By Order of the Board of Directors,

                                                    GARY J. SIMON
                                                     Secretary

Torrance, California
July 29, 1998

- --------------------------------------------------------------------------------
It is important that your shares be represented at the Meeting. Each shareholder
is  urged to sign,  date and  return  the  enclosed  proxy  card  which is being
solicited  on behalf of the Board of  Directors.  An envelope  addressed  to the
Company's  transfer  agent is enclosed  for that purpose and needs no postage if
mailed in the United States.
- --------------------------------------------------------------------------------




<PAGE>



                       MOTORCAR PARTS & ACCESSORIES, INC.
                              2727 MARICOPA STREET
                           TORRANCE, CALIFORNIA 90503



                                 PROXY STATEMENT



            This Proxy  Statement is  furnished to the holders of Common  Stock,
par value $.01 per share ("Common Stock"), of Motorcar Parts & Accessories, Inc.
(the  "Company") in  connection  with the  solicitation  by and on behalf of its
Board of Directors of proxies  ("Proxy" or "Proxies") for use at the 1998 Annual
Meeting of Shareholders  (the  "Meeting") to be held on Wednesday,  September 9,
1998, at 10:30 A.M.,  New York City time, at The Penn Club, 30 West 44th Street,
New York,  New York and at any  adjournment  or  postponement  thereof,  for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
The cost of preparing,  assembling  and mailing the Notice of Annual  Meeting of
Shareholders,  this Proxy  Statement  and Proxies is to be borne by the Company.
The  Company  will also  reimburse  brokers  who are holders of record of Common
Stock for their expenses in forwarding Proxies and Proxy soliciting  material to
the  beneficial  owners of such  shares.  In  addition  to the use of the mails,
Proxies may be solicited without extra  compensation by directors,  officers and
employees  of  the  Company  by  telephone,   telecopy,  telegraph  or  personal
interview.  The  approximate  mailing  date of this Proxy  Statement is July 29,
1998.

            Unless otherwise specified, all Proxies, in proper form, received by
the time of the Meeting  will be voted for the  election of all  nominees  named
herein to serve as directors  and in favor of each of the proposals set forth in
the accompanying Notice of Annual Meeting of Shareholders and described below.

            A Proxy may be  revoked  by a  shareholder  at any time  before  its
exercise by filing with Gary J. Simon,  the  Secretary  of the  Company,  at the
address set forth above,  an instrument  of revocation or a duly executed  proxy
bearing a later date,  or by  attendance  at the Meeting and electing to vote in
person.  Attendance  at the  Meeting  will  not,  in and of  itself,  constitute
revocation of a Proxy.

            The close of  business  on July 24, 1998 has been fixed by the Board
of  Directors  as the  record  date  ("Record  Date") for the  determination  of
shareholders  entitled  to  notice  of,  and to vote  at,  the  Meeting  and any
adjournment thereof. As of the Record Date, there were [______] shares of Common
Stock  outstanding.  Each share of Common Stock  outstanding  on the Record Date
will be entitled to one vote on all matters to come before the Meeting.

            The holders of a majority of the votes of shares entitled to vote at
the Meeting shall  constitute a quorum for the transaction of business.  Proxies
submitted which contain abstentions or broker nonvotes will be deemed present at
the Meeting for determining the presence of a quorum.




<PAGE>



                                   PROPOSAL 1
                              ELECTION OF DIRECTORS

            At the Meeting,  shareholders will elect a total of seven directors.
Subject to adoption by the shareholders of Proposal 2, below, the By-Laws of the
Company  shall  provide that the Board of  Directors  will be divided into three
classes, with the term of office of the first class to expire at the 1999 Annual
Meeting of Shareholders, the term of office of the second class to expire at the
2000 Annual Meeting of Shareholders and the term of office of the third class to
expire at the 2001 Annual Meeting of Shareholders.  See "Proposal 2, Approval of
Proposed  Amendments to the Company's By-Laws Relating to the Board of Directors
and Other  Matters." If Proposal 2 is not adopted,  each of the seven  directors
elected shall serve until the next Annual Meeting of Shareholders  and until his
or her  respective  successor is elected and  qualified.  Shares  represented by
valid proxies in the accompanying  form will be voted for the election of all of
the  directors  and  nominees  named  below,  unless  a  contrary  direction  is
indicated.  Should any director or nominee  named below become  unavailable  for
election  to the Board of  Directors  for any reason,  the persons  named in the
Proxies  have  discretionary  authority  to  vote  the  Proxies  for one or more
alternative nominees who will be designated by the Board of Directors.

            Unless otherwise indicated, the persons named in the Proxy intend to
cast all Proxies  received for the election of Mel Marks,  Richard Marks,  Karen
Brenner,  Selwyn Joffe,  Mel Moskowitz,  Murray  Rosenzweig and Gary J. Simon to
serve  as  directors  upon  their  nomination  at  the  Meeting.   Each  of  the
aforementioned  individuals has advised the Company of his or her willingness to
serve as a director of the Company.

DIRECTORS AND EXECUTIVE OFFICERS

            The directors, nominees and executive officers of the Company, their
ages and present positions with the Company, are as follows:

      NAME                        AGE         POSITION WITH THE COMPANY         
                                              
      Mel Marks                   71          Chairman of the Board of Directors
                                              and Chief Executive Officer
                                              
      Richard Marks               46          President, Chief Operating Officer
                                              and Director
                                              
      Karen Brenner               42          Director
                                              
      Selwyn Joffe*               41          Director
                                              
      Mel Moskowitz*              65          Director
                                              
      Murray Rosenzweig*          74          Director
                                              
      Gary J. Simon               41          Secretary and Director
                                              
      Steven Kratz                43          Vice President - Operations
                                              
      Peter Bromberg              34          Chief Financial Officer and
                                              Assistant Secretary
- -----------                          
*     Member of Audit and Compensation Committees


                                       -2-


<PAGE>



INFORMATION ABOUT DIRECTORS AND NOMINEES

            The following is a brief summary of the  background of each director
and nominee:

            MEL MARKS  founded the Company in 1968.  Mr. Marks has served as the
Company's  Chairman of the Board of Directors and Chief Executive  Officer since
that time. Prior to founding the Company, Mr. Marks was employed for over twenty
years by Beck/Arnley-Worldparts,  a division of Echlin, Inc. (one of the largest
importers and distributors of parts for imported cars),  where he served as Vice
President. Mr. Marks is based in the Company's New York office. If Proposal 2 is
adopted  and he is elected  as  director,  he will be in the third  class of the
Board of  Directors  and his term of  office  shall  expire  at the 2001  Annual
Meeting of Shareholders.

            RICHARD  MARKS  joined the Company in 1979.  Mr. Marks has served as
the Company's  Vice  President of Sales and, since 1987, its President and Chief
Operating  Officer.  He has served as a director of the Company since 1979.  Mr.
Marks is based in the  Company's  Torrance  office.  Mr. Marks is the son of Mel
Marks. If Proposal 2 is adopted and he is elected as director, he will be in the
second  class of the Board of  Directors  and his term of office shall expire at
the 2000 Annual Meeting of Shareholders.

            KAREN BRENNER has served as director of the Company since  September
1997 and as Director of Financial  Planning of the Company  since  October 1997.
From 1991 to 1998,  Ms. Brenner was a Managing  Director of Noel Group,  Inc., a
company holding diversified  interests in various businesses,  including Lincoln
Snacks Company and Carlyle  Industries,  Inc., as discussed below.  From 1994 to
1998,  Ms.  Brenner  served as Chairman and Chief  Executive  Officer of Lincoln
Snacks, a manufacturer and marketer of snack foods, and had served as a director
of Lincoln Snacks from its inception to 1998. Ms. Brenner was formerly  Chairman
of the Board of Swiss Army  Brands.  From 1996 to 1998,  Ms.  Brenner  served as
Chairman of Carlyle which,  with its  subsidiaries,  distributes home sewing and
craft products.  Ms. Brenner  currently is a director of On Assignment,  Inc., a
nationwide  provider  of  science  professionals  on  temporary  assignments  to
laboratories in the biotechnology, environmental, chemical, pharmaceutical, food
and  beverage  and  petrochemical  industries,  and is a member  of the Board of
Trustees of Prep for Prep,  a  charitable  organization  dedicated  to providing
preparatory education to disadvantaged children. She also serves as a trustee of
the City Parks  Foundation  of New York.  If  Proposal  2 is adopted  and she is
elected as  director,  she will be in the third class of the Board of  Directors
and her term of office shall expire at the 2001 Annual Meeting of Shareholders.

            SELWYN  JOFFE has served as a  director  of the  Company  since June
1994.  Since  September  1995,  Mr. Joffe also has served as a consultant to the
Company.  From 1989 until June 1996,  Mr. Joffe  served as  President  and Chief
Executive  Officer of Wolfgang  Puck Food  Company,  LP, which owns and operates
restaurants.  Since June 1996, Mr. Joffe has been the Chief Executive Officer of
Eatertainment LLC, which is in the food and restaurant  business.  If Proposal 2
is adopted and he is elected as director,  he will be in the second class of the
Board of  Directors  and his term of  office  shall  expire  at the 2000  Annual
Meeting of Shareholders.


                                       -3-


<PAGE>



            MEL MOSKOWITZ has served as a director of the Company since February
1994.  In 1957,  he founded and,  until 1989,  served as the President and Chief
Executive Officer of Rodi Automotive,  Inc., a company engaged in the automotive
parts  distribution  business.  Since that time,  Mr.  Moskowitz  has acted as a
private  investor.  If Proposal 2 is adopted and he is elected as  director,  he
will be in the  first  class of the  Board of  Directors  and his term of office
shall expire at the 1999 Annual Meeting of Shareholders.

            MURRAY ROSENZWEIG,  a certified public  accountant,  has served as a
director of the Company since February 1994. Since 1973, Mr. Rosenzweig has been
the President and Chief Executive  Officer of Linden  Maintenance  Corp.,  which
operates a large fleet of  taxicabs  in New York City.  If Proposal 2 is adopted
and he is elected  as  director,  he will be in the first  class of the Board of
Directors  and his term of office  shall  expire at the 1999  Annual  Meeting of
Shareholders.

            GARY  J.  SIMON  has  served  as a  director  of the  Company  since
September  1997 and has been the Secretary of the Company since August 1995. Mr.
Simon has been a partner in the law firm of Parker Chapin Flattau & Klimpl, LLP,
since 1993.  If Proposal 2 is adopted and he is elected as director,  he will be
in the third class of the Board of Directors and his term of office shall expire
at the 2001 Annual Meeting of Shareholders.

INFORMATION ABOUT NON-DIRECTOR EXECUTIVE OFFICERS

            The following is a brief summary of the background of each executive
officer of the Company who is not also a director of the Company:

            STEVEN  KRATZ has been  employed by the Company  since 1988.  Before
joining the Company,  he was General Manager of GKN Products Company, a division
of  Beck/Arnley-Worldparts.  As Vice President - Operations, Mr. Kratz heads the
Company's  research and development  efforts and manages  production,  inventory
planning and engineering.

            PETER  BROMBERG,  a  certified  public  accountant,   has  been  the
Company's Chief  Financial  Officer since March 1994.  Prior thereto,  he was an
accountant  in the New York City firm of Kraft Haiken & Bell,  certified  public
accountants.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the  Securities  Act of 1934, as amended,  requires
the Company's  directors and executive  officers,  and persons who own more than
ten percent of the  Company's  Common  Stock,  to file with the  Securities  and
Exchange  Commission  (the "SEC")  initial  reports of ownership  and reports of
changes in ownership of Common Stock and other equity securities of the Company.
To the  Company's  knowledge,  based  solely on a review  of the  copies of such
reports  furnished  to the Company  during the fiscal year ended March 31, 1998,
there were no late or delinquent filings except that Steven Kratz  inadvertently
did not timely file two reports  concerning stock option exercises and Mel Marks
inadvertently  did not timely file one report  concerning a gift of Common Stock
in October 1996.


                                       -4-


<PAGE>



COMMITTEES

            During the fiscal year ended March 31, 1998, the Company's  Board of
Directors  held four  meetings  and took  action  by  written  consent  on three
occasions.  Each  incumbent  director  attended  each  meeting  of the  Board of
Directors that occurred during his directorship in fiscal 1998.

            The Company has an Audit  Committee of the Board of  Directors.  The
function of the Audit  Committee  is to oversee the auditing  procedures  of the
Company,  receive and accept the reports of the Company's  independent certified
public  accountants,  oversee the Company's  internal  systems of accounting and
management controls and make recommendations to the Board of Directors as to the
selection and  appointment of the auditors for the Company.  The Audit Committee
met once during fiscal 1998.  The Company also has a  Compensation  Committee of
the Board of Directors.  The function of the  Compensation  Committee is to make
relevant  compensation  decisions of the Company and address such other  matters
relating to  compensation  as may be prescribed  by the Board of Directors.  The
Compensation Committee took action by unanimous written consent on two occasions
during fiscal 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

            The members of the  Compensation  Committee  during fiscal 1998 were
Messrs. Joffe, Moskowitz and Rosenzweig. No member of the Compensation Committee
has a  relationship  that would  constitute an  interlocking  relationship  with
executive officers or directors of another entity.






                                       -5-


<PAGE>



PERFORMANCE GRAPH

            The following  graph  compares the  cumulative  return to holders of
Common Stock from the date of the Company's initial public offering on March 23,
1994 to March 31, 1994 and for the four  fiscal  years ended March 31, 1998 with
the National  Association of Securities Dealers Automated  Quotation  ("NASDAQ")
Market  Index and a peer group index of five  competing  companies  for the same
period.  The  comparison  assumes  $100 was invested at the close of business on
March 23, 1994 in the Common  Stock and in each of the  comparison  groups,  and
assumes  reinvestment  of  dividends.  The Company paid no dividends  during the
periods. 





                               [GRAPHIC OMITTED]








                                       -6-


<PAGE>



                TOTAL SHAREHOLDER RETURNS - DIVIDENDS REINVESTED


                            ANNUAL RETURN PERCENTAGE


                                                 YEAR ENDED MARCH 31,
                                     -------------------------------------------
COMPANY\INDEX                        1994(1)    1995     1996     1997     1998
- --------------                       -------   ------   ------   ------   ------

Motorcar Parts & Accessories, Inc...  41.67     14.71    61.54   -10.32    26.10
NASDAQ..............................  -6.84     11.27    35.74    10.92    63.25
Peer Group..........................  -6.93     -2.35    15.10    -1.47    68.10


                                 INDEXED RETURNS



<TABLE>
<CAPTION>
                                        Base Period             YEAR ENDED MARCH 31,
                                                         ------------------------------------
COMPANY\INDEX                         MARCH 23, 1994     1994    1995    1996    1997    1998
- -------------                         --------------     ----    ----    ----    ----    ----
<S>                                         <C>         <C>     <C>     <C>     <C>     <C>   
Motorcar Parts & Accessories, Inc.....      100         141.67  162.50  262.51  235.42  296.87
NASDAQ................................      100          93.16  103.66  140.71  156.08  254.80
Peer Group............................      100          93.07   90.88  104.61  103.07  173.26
</TABLE>



PEER GROUP POPULATION:
- ----------------------
Arrow Automotive Industries, Inc.
Dana Corporation
Echlin Inc.
The Standard Products Company
Superior Industries International, Inc.

- ------------------
(1)   From the date of the Company's  initial  public  offering,  at a price per
      share of $6.00, on March 23, 1994.

COMPENSATION COMMITTEE REPORT

            Overview and Philosophy
            -----------------------

            The Compensation  Committee of the Board of Directors is composed of
three  directors,  none of whom is an employee of the Company.  The Compensation
Committee is responsible for developing and making  recommendations to the Board
of Directors with respect to the Company's executive  compensation  policies. In
addition,  the Compensation  Committee,  pursuant to authority  delegated by the
Board  of  Directors,  determines  the  compensation  to be  paid  to the  Chief
Executive Officer and each of the other executive officers of the Company.


                                       -7-


<PAGE>



            The objectives of the Company's executive  compensation  program are
to:

                  *     Support the achievement of desired Company performance.
                  *     Provide   compensation  that  will  attract  and  retain
                        superior talent and reward performance.

            The  executive  compensation  program  provides an overall  level of
compensation that is competitive within the automotive remanufacturing industry,
as well as with a broader group of companies of comparable size and complexity.

            Executive Officer Compensation Program
            --------------------------------------

            The Company's executive officer compensation program is comprised of
base salary,  bonus and long-term  incentive  compensation  in the form of stock
options and various benefits,  including medical plans and deferred compensation
arrangements.

            Base Salary. Base salary levels for the Company's executive officers
are  competitively  set  relative  to  companies  in  comparable   manufacturing
industries.  In addition,  the Committee has reviewed an  independent  report in
assessing  comparable  executive  compensation   arrangements.   In  determining
salaries,  the  Committee  also takes into  account  individual  experience  and
performance  and  specific  issues  particular  to the  Company.  The  Committee
considered  each of  these  factors  in  fiscal  1998 in  approving  the  salary
increases for certain of the Company's executive officers,  including Mel Marks,
although Mel Marks' salary  increase was in conjunction  with the elimination in
his employment agreement of his entitlement to a discretionary bonus in the same
amount as such salary increase.

            Bonus.  Executive  officers,  including  Mel Marks,  and certain key
employees  participate  in the Executive and Key Employee  Incentive  Bonus Plan
under which bonuses may be awarded, provided earnings before interest and taxes,
exclusive of extraordinary  items, of a fiscal year exceed such earnings for the
prior  fiscal  year by at least  20%.  Under the bonus  plan,  participants  are
grouped into four  classes,  with each class  having a different  range of bonus
payments for achieving  specified  targets of such  earnings.  The maximum bonus
payments,  payable in the event that such earnings for a fiscal year exceed such
earnings  for the prior  fiscal year by 40%,  range among the groups from 27% to
50% of base salary.

            Stock  Option  Program.  The stock option  program is the  Company's
long-term incentive plan for providing an incentive to key employees  (including
directors and officers who are key employees), consultants and directors.

            Deferred  Compensation.  The Company  contributes  on behalf of each
participating  executive  officer $.50 on each dollar, up to six percent of such
executive  officer's  annual salary and bonus,  to the  Company's  non-qualified
deferred compensation plan.



                                       -8-


<PAGE>



            Benefits.   The  Company  provides  to  executive  officers  medical
benefits  that  generally  are  available  to Company  employees.  The amount of
perquisites,  as determined in accordance  with the rules of the  Securities and
Exchange  Commission  relating  to  executive  compensation,  did not exceed ten
percent of salary for fiscal 1998.

                                           Selwyn Joffe
                                           Mel Moskowitz
                                           Murray Rosenzweig

                                           Members of the Compensation Committee

COMPENSATION OF DIRECTORS

            Each  of  the  Company's   non-employee  directors  receives  annual
compensation  of $10,000,  is paid a fee of $2,000 for each meeting of the Board
of  Directors  attended and $500 for each meeting of a Committee of the Board of
Directors  attended and is reimbursed for reasonable  out-of-pocket  expenses in
connection therewith.

            The  Company's  1994  Non-Employee  Director  Stock Option Plan (the
"Non-Employee  Director Plan") provides that each  non-employee  director of the
Company will be granted thereunder  ten-year options to purchase 1,500 shares of
Common Stock upon his or her initial  election as a director,  which options are
fully  exercisable on the first  anniversary of the date of grant.  The exercise
price of the option will be equal to the fair market  value of the Common  Stock
on the date of grant. The Non-Employee Director Plan was adopted by the Board of
Directors on October 1, 1994, and by the  shareholders  in August 1995, in order
to attract,  retain and provide  incentive to directors who are not employees of
the Company. The Board of Directors does not have authority, discretion or power
to select  participants  who will receive options  pursuant to the  Non-Employee
Director Plan, to set the number of shares of Common Stock to be covered by each
option,  to set the  exercise  price or period  within  which the options may be
exercised  or to alter other terms and  conditions  specified  in such plan.  To
date,  options to purchase 4,500 shares of Common Stock, at an exercise price of
$8.125 per share,  and options to purchase  3,000 shares of Common Stock,  at an
exercise  price of $19.125 per share,  have been granted under the  Non-Employee
Director Plan, none of which has been exercised.

            In addition,  the Company's  1994 Stock Option Plan (the "1994 Stock
Option Plan")  provides that each  non-employee  director of the Company receive
formula grants of stock options as described below.  Each person who served as a
non-employee  director of the  Company  during all or part of a fiscal year (the
"Fiscal  Year") of the Company,  including  March 31 of that Fiscal  Year,  will
receive  on  the  immediately   following  April  30  (the  "Award  Date"),   as
compensation for services  rendered in that Fiscal Year, an award under the 1994
Stock Option Plan of immediately  exercisable ten-year options to purchase 1,500
shares of Common Stock (a "Full  Award") at an exercise  price equal to the fair
market value of the Common Stock on the Award Date. Each  non-employee  director
who served during less than all of the Fiscal Year is awarded  one-twelfth  of a
Full  Award  for each  month  or  portion  thereof  that he or she  served  as a
non-employee  director of the  Company.  As formula  grants under the 1994 Stock
Option Plan, the foregoing grants of options to directors are not subject to the
determinations of the Board of Directors or the Compensation Committee.

                                       -9-


<PAGE>



            In October 1997, Karen Brenner,  a director of the Company,  entered
into a two-year  employment  agreement  with the  Company  pursuant to which she
serves as  Director of  Financial  Planning.  The  agreement  provides  that Ms.
Brenner receive, as compensation for her services  thereunder,  an annual salary
of  $78,000,  ten-year  options  to  purchase  30,000  shares  of  Common  Stock
exercisable  as to  one-half of such  shares  commencing  on each of the date of
grant and the first  anniversary  thereof and having an exercise price per share
equal to the fair  market  value of the Common  Stock on the date of grant,  and
bonuses in the event of certain  acquisition or disposition  transactions by the
Company.












                                      -10-


<PAGE>



                          SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT


            The  following  table  sets  forth,  as of  July  3,  1998,  certain
information as to the Common Stock ownership of each of the Company's  directors
and  nominees  for  director,  each  of the  officers  included  in the  Summary
Compensation  Table below,  all executive  officers and directors as a group and
all persons known by the Company to be the  beneficial  owners of more than five
percent of the Company's Common Stock.


                                                  Amount and Nature
Name and Address                                    of Beneficial       Percent
of Beneficial Shareholder                           Ownership(1)        of Class
- -------------------------                           ------------        --------

Mel Marks                                              649,431            10.1%
   c/o Motorcar Parts & Accessories, Inc. 
   2727 Maricopa Street
   Torrance, CA 90503

Richard Marks                                          436,176(2)          6.7%
   c/o Motorcar Parts & Accessories, Inc. 
   2727 Maricopa Street
   Torrance, CA 90503

Gary J. Simon                                          256,089(3)          4.0%
   c/o Parker Chapin Flattau & Klimpl, LLP
   1211 Avenue of the Americas
   New York, NY 10036

Steven Kratz                                            55,000(4)          (12)
   c/o Motorcar Parts & Accessories, Inc. 
   2727 Maricopa Street
   Torrance,  CA 90503

Selwyn Joffe                                            42,250(5)          (12)
   c/o Eatertainment LLC
   8619 Sunset Boulevard
   Los Angeles, CA 90069

Peter Bromberg                                          33,400(6)          (12)
   c/o Motorcar Parts & Accessories, Inc. 
   2727 Maricopa Street
   Torrance,  CA 90503

Murray Rosenzweig                                       20,500(7)          (12)
   24 Northwood Lane
   Boynton Beach, FL 33436


                                      -11-


<PAGE>



                                                  Amount and Nature
Name and Address                                    of Beneficial       Percent
of Beneficial Shareholder                           Ownership(1)        of Class
- -------------------------                           ------------        --------

Karen Brenner                                           16,500(8)          (12)
   50 East 77th Street, Apt. 15A
   New York, NY 10021

Mel Moskowitz                                            9,500(7)          (12)
   6963 Queen Ferry Circle
   Boca Raton, FL 33496

Palisade Capital Management, L.L.C                     511,000(9)          7.9%
   One Bridge Plaza, Suite 695
   Fort Lee, NJ 07024

The Goldman Sachs Group, L.P.                          417,600(10)         6.5%
 Goldman, Sachs & Co. 
   85 Broad Street
   New York, NY 10004

Directors and executive                              1,375,989(11)        20.7%
   officers as a group (9 persons)

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

(1)   The listed  shareholders,  unless  otherwise  indicated  in the  footnotes
      below,  have direct  ownership over the amount of shares  indicated in the
      table.

(2)   Includes  50,000 shares  issuable  upon exercise of currently  exercisable
      options  granted under the 1994 Stock Option Plan,  142,857 shares held by
      The  Richard  Marks  Trust,  of which  Richard  Marks is a  Trustee  and a
      beneficiary,  4,750 shares held by Mr.  Marks' wife and 10,255 shares held
      by his son.

(3)   Gary J. Simon, by virtue of his shared voting and  dispositive  power as a
      Trustee over the shares held by both The Richard Marks Trust and The Debra
      Schwartz Trust,  may be deemed the beneficial  owner of a total of 250,714
      shares,  representing the aggregate share holdings of the trusts. Includes
      875 shares issuable upon exercise of currently exercisable options granted
      under the 1994 Stock Option Plan and 1,500 shares  issuable  upon exercise
      of options  exercisable  commencing  September 3, 1998  granted  under the
      Non-Employee Director Plan.

(4)   Represents  35,000 shares issuable upon exercise of currently  exercisable
      options and 20,000 shares  issuable  upon exercise of options  exercisable
      commencing September 1, 1998 granted under the 1994 Stock Option Plan.

(5)   Represents  25,750 shares issuable upon exercise of currently  exercisable
      options  granted under the 1994 Stock Option Plan,  15,000 shares issuable
      upon exercise of currently exercisable options granted under the Company's
      1996 Stock  Option Plan (the "1996 Stock  Option  Plan") and 1,500  shares
      issuable upon exercise of currently  exercisable options granted under the
      Non-Employee Director Plan.

(6)   Includes  32,500 shares  issuable  upon exercise of currently  exercisable
      options granted under the 1994 Stock Option Plan.



                                      -12-


<PAGE>



(7)   Includes  6,000 shares  issuable  upon  exercise of currently  exercisable
      options granted under the 1994 Stock Option Plan and 1,500 shares issuable
      upon  exercise  of  currently   exercisable   options  granted  under  the
      Non-Employee Director Plan.

(8)   Includes  15,000 shares  issuable  upon exercise of currently  exercisable
      options granted under the 1994 Stock Option Plan and 1,500 shares issuable
      upon exercise of options exercisable  commencing September 3, 1998 granted
      under the Non-Employee Director Plan.

(9)   The amount and nature of beneficial  ownership of these shares by Palisade
      Capital Management, L.L.C. is based solely on the Schedule 13G filings, as
      submitted to the  Company,  of Palisade  Capital  Management,  L.L.C.  The
      Company's Board of Directors has no independent  knowledge of the accuracy
      or completeness of the information set forth in such Schedule 13G filings,
      but has no reason to believe  that such  information  is not  complete  or
      accurate.

(10)  The amount  and  nature of  beneficial  ownership  of these  shares by The
      Goldman Sachs Group, L.P. and Goldman,  Sachs & Co. is based solely on the
      Schedule 13G filings,  as submitted to the Company, of each of The Goldman
      Sachs  Group,  L.P.  and  Goldman,  Sachs & Co.  The  Company's  Board  of
      Directors has no independent  knowledge of the accuracy or completeness of
      the information set forth in such Schedule 13G filings,  but has no reason
      to believe that such information is not complete or accurate.

(11)  Includes  171,125 shares  issuable upon exercise of currently  exercisable
      options  granted under the 1994 Stock Option Plan,  20,000 shares issuable
      upon exercise of options exercisable  commencing September 1, 1998 granted
      under the 1994 Stock Option Plan,  15,000 shares issuable upon exercise of
      currently  exercisable  options  granted under the 1996 Stock Option Plan,
      and 4,500 shares issuable upon exercise of currently  exercisable  options
      granted under the  Non-Employee  Director  Plan and 3,000 shares  issuable
      upon exercise of options exercisable  commencing September 3, 1998 granted
      under the Non-Employee Director Plan.

(12)  Less than 1%.






                                      -13-


<PAGE>



                             EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

            The following  table sets forth  information  concerning  the annual
compensation  of the  Company's  chief  executive  officer and other most highly
compensated executive officers, whose salary and bonus exceeded $100,000 for the
1998 fiscal  year,  for  services in all  capacities  to the Company  during the
Company's 1998, 1997 and 1996 fiscal years.



<TABLE>
<CAPTION>
                                                                         LONG-TERM
                                       ANNUAL COMPENSATION              COMPENSATION
                                 ------------------------------------    ----------
                                                                         SHARES
NAME AND PRINCIPAL                                     OTHER ANNUAL      UNDERLYING    ALL OTHER
POSITION                  YEAR    SALARY     BONUS    COMPENSATION(1)    OPTIONS       COMPENSATION(2)
- ---------------------     ----   --------   --------  ---------------    ----------    ---------------
<S>                       <C>    <C>        <C>          <C>              <C>             <C>
Mel Marks                 1998   $301,154   $ 78,000          --             --           $ 12,606
    Chairman of the       1997   $300,231   $150,000          --             --           $ 16,292
    Board and Chief       1996   $252,000   $175,000          --             --               --
    Executive Officer                                        

Richard Marks             1998   $402,039   $104,000      $ 11,942           --           $    135
    President and Chief   1997   $300,231   $150,000      $ 12,695        50,000          $    135
    Operating Officer     1996   $252,145   $175,000      $  9,060           --               --

Steven Kratz              1998   $234,772   $ 58,500      $  9,456           --
    Vice President -      1997   $175,214   $ 87,500      $  6,501        20,000
    Operations            1996   $152,395   $ 75,000      $  4,569        35,000
                                                            

Peter Bromberg            1998   $156,687   $ 28,275      $  6,076         5,000
    Chief Financial       1997   $119,711   $ 48,000      $  4,597        12,500
    Officer and           1996   $100,057   $ 40,000      $  3,180         5,000
    Assistant Secretary                                                     
</TABLE>

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

(1)   Represents  amounts  subject  to  the  Company's   non-qualified  deferred
      compensation  plan contributed on the executive  employee's  behalf by the
      Company.  
(2)   Consists of the dollar value of split-dollar life insurance benefits.




                                      -14-


<PAGE>



            The Company has obtained  individual  term life  insurance  policies
covering  each of Mel Marks,  Richard  Marks and  Steven  Kratz in the amount of
$1,400,000,  $1,650,000 and  $1,000,000,  respectively.  The Company is the sole
beneficiary  under  these  policies.  The  Company has  obtained  directors  and
officers  liability  insurance in the amount of $15,000,000.  The annual premium
for this insurance is $113,750.

            The Company has agreed to fund on a split dollar basis approximately
$6,000,000 of  survivorship  life  insurance on the joint lives of Mel Marks and
his wife. The aggregate annual premiums are approximately  $69,300.  The Company
also has agreed to fund on a split  dollar  basis  approximately  $4,500,000  of
survivorship  life  insurance on the joint lives of Richard  Marks and his wife.
The aggregate annual premiums are approximately  $24,200.  Under the agreements,
the  Company  will be  reimbursed  for its  premium  costs  either by  insurance
proceeds  upon the death of the insureds or out of the cash  surrender  value or
otherwise upon termination of the arrangement.



                        OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                                                                 POTENTIAL REALIZABLE   
                                                                                 VALUE AT ASSUMED       
                                                                                 ANNUAL RATES OF STOCK  
                 NUMBER OF        % OF TOTAL                                     PRICE APPRECIATION FOR 
                 SECURITIES       OPTIONS GRANTED                                OPTION TERMS           
                 UNDERLYING       TO EMPLOYEES        EXERCISE OR  EXPIRATION    -----------------------
NAME             OPTIONS GRANTED  IN FISCAL 1998      BASE PRICE   DATE           5%($)          10%($)
- ----             ---------------  -----------------   -----------  ----------     -----          ------
<S>                 <C>                <C>           <C>           <C>           <C>           <C>     
Peter Bromberg      5,000(1)           6.25%         $17.50/share  Feb. 9, 2008  $55,028       $139,452
</TABLE>


- ---------------
(1)   The options are currently  exercisable as to 2,500 shares and  exercisable
      as to 2,500 shares commencing February 10, 1999.


           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
                             YEAR END OPTION VALUES



<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                                          UNDERLYING UNEXERCISED      IN-THE-MONEY OPTIONS
                        SHARES ACQUIRED   VALUE           OPTIONS AT FISCAL YEAR END  AT FISCAL YEAR END
NAME                    ON EXERCISE (#)   REALIZED($)(1)  EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE(2)
- ----                    ---------------   --------------  --------------------------  ---------------------------
<S>                        <C>               <C>                 <C>    <C>               <C>      <C>
Richard Marks                   0            $      0            50,000/0                 $146,750/$0

Steven Kratz               25,000            $281,100            35,000/40,000            $337,425/$279,800

Peter Bromberg              2,500            $ 30,938            32,500/2,500             $268,038/$313
</TABLE>

- ---------------
(1)   Represents the fair market value of the underlying  shares of Common Stock
      on the date of exercise less the option exercise  price.  
(2)   Based on the fair  market  value per share of  $17.625  on the last day of
      fiscal 1998.

                                      -15-


<PAGE>



EMPLOYMENT AGREEMENTS

            The Company has entered into an employment agreement,  as amended to
date,  with Mr. Mel Marks  pursuant  to which he is  employed  full-time  as the
Company's  Chairman  of the Board and Chief  Executive  Officer.  The  agreement
expires in  September  2000 and  provides for an annual base salary of $300,000.
The  Company's  Board of Directors  also may grant  bonuses or increase the base
salary  payable to Mr. Marks.  In addition to his cash  compensation,  Mr. Marks
receives an automobile  allowance and other benefits,  including those generally
provided to other employees of the Company. The agreement further provides for a
severance  payment of one year's salary upon  termination  of  employment  under
certain  circumstances.  In  addition,  in  the  event  of  the  termination  of
employment  (including  termination  by Mr.  Marks  for "good  reason")  after a
"change in control" of the Company, Mr. Marks will (except if termination is for
cause) be entitled  to receive a lump sum payment  equal in amount to the sum of
(i) Mr. Marks' base salary and average  three-year bonus through the termination
date and (ii) three times the sum of such  salary and bonus.  In  addition,  the
Company must in such  circumstances  continue Mr.  Marks' then current  employee
benefits for five months after the date of termination. In no case, however, may
Mr. Marks receive any payment or benefit in connection  with a change in control
in excess of 2.99  times his "base  amount"  (as that term is defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code")).

            The Company has entered into an employment agreement,  as amended to
date,  with Mr. Richard Marks pursuant to which he is employed  full-time as the
Company's  President  and Chief  Operating  Officer.  The  agreement  expires in
September 1999 and provides for an annual base salary of $400,000. The Company's
Board of Directors also may grant bonuses or increase the base salary payable to
Mr.  Marks.  In  addition  to his  cash  compensation,  Mr.  Marks  receives  an
automobile  allowance and other benefits,  including those generally provided to
other employees of the Company.  The agreement  further provides for a severance
payment of one year's  salary  upon  termination  of  employment  under  certain
circumstances.  In  addition,  in the  event of the  termination  of  employment
(including  termination  by Mr.  Marks for  "good  reason")  after a "change  in
control" of the Company,  Mr. Marks will (except if termination is for cause) be
entitled  to  receive a lump-sum  payment  equal in amount to the sum of (i) Mr.
Marks' base salary and average three-year bonus through the termination date and
(ii) three times the sum of such salary and bonus. In addition, the Company must
in such  circumstances  continue Mr. Marks' then current  employee  benefits for
five months after the date of termination.  In no case,  however,  may Mr. Marks
receive any payment or benefit in connection  with a change in control in excess
of 2.99 times his "base  amount" (as that term is defined in Section 280G of the
Code).

            The Company has entered into an employment agreement,  as amended to
date,  with Mr. Steven Kratz  pursuant to which he is employed  full-time as the
Company's Vice President - Operations.  The agreement  expires in September 1999
and  provides  for an annual base salary of  $225,000.  The  Company's  Board of
Directors  also may grant  bonuses or increase  the base  salary  payable to Mr.
Kratz.  In addition to his cash  compensation,  Mr. Kratz has exclusive use of a
Company-owned  automobile and he receives additional  benefits,  including those
that are generally  provided to other employees of the Company.  Pursuant to the
agreement,  Mr. Kratz also has been granted  options under the 1994 Stock Option
Plan to purchase (i) 65,000 shares of Common Stock at an exercise price of $6.00
per

                                      -16-


<PAGE>



share,  45,000 of which have been exercised and the remainder of which are fully
vested,  and (ii) 35,000  shares of Common Stock at an exercise  price of $10.63
per share, all of which are fully vested.

            The Company has entered into an employment agreement,  as amended to
date, with Mr. Peter Bromberg pursuant to which he is employed  full-time as the
Company's Chief Financial  Officer.  The agreement expires in September 1998 and
provides  for an  annual  base  salary  of  $145,000.  In  addition  to his cash
compensation,  Mr.  Bromberg  receives an automobile  allowance  and  additional
benefits,  including those that are generally provided to other employees of the
Company.  Pursuant to the agreement,  Mr. Bromberg also has been granted options
under the 1994 Stock Option Plan to purchase  (i) 20,000  shares of Common Stock
at an exercise price of $6.00 per share,  7,500 of which have been exercised and
the remainder of which are fully  vested,  and (ii) 5,000 shares of Common Stock
at an exercise price of $10.63, all of which are fully vested.

            In conformity  with the Company's  policy,  all of its directors and
officers  execute   confidentiality   and  nondisclosure   agreements  upon  the
commencement of employment with the Company.  The agreements  generally  provide
that all  inventions  or  discoveries  by the employee  related to the Company's
business  and  all  confidential  information  developed  or made  known  to the
employee  during the term of employment  shall be the exclusive  property of the
Company and shall not be disclosed to third parties  without  prior  approval of
the Company. The Company's employment agreements with Messrs. Marks and Bromberg
also  contain  non-competition  provisions  that  preclude  each  employee  from
competing  with  the  Company  for a  period  of two  years  from  the  date  of
termination of his employment. The Company's employment agreement with Mr. Kratz
contains a non-competition provision which precludes him from competing with the
Company for a period of one year from the date of termination of his employment.
Public policy limitations and the difficulty of obtaining  injunctive relief may
impair the Company's  ability to enforce the  non-competition  and nondisclosure
covenants made by its employees.

EXECUTIVE AND KEY EMPLOYEE INCENTIVE BONUS PLAN

            In August 1995, the Board of Directors  approved the adoption of the
Company's  Executive and Key Employee  Incentive  Bonus Plan (the "Bonus Plan").
The purpose of the Bonus Plan is to provide an incentive for (i) each officer of
the  Company  elected  by  the  Board  of  Directors  and  not  excluded  by the
Compensation  Committee,  including the executive  officers named in the Summary
Compensation  Table,  and  (ii)  each key  employee  expressly  included  by the
Compensation Committee (collectively, the "Participants") to achieve substantial
increases in the  profitability  of the Company in  comparison  to the Company's
performance in the previous fiscal year by providing bonus  compensation tied to
such increases in profitability.

            The Bonus Plan is administered by the Compensation Committee,  which
has the power and  authority  to take all  actions  and make all  determinations
which it deems necessary or desirable to effectuate, administer or interpret the
Bonus  Plan,  including  the power and  authority  to extend,  amend,  modify or
terminate  the Bonus Plan at any time and to change award  periods and determine
the time or times for payment of bonuses. The Compensation Committee establishes
the bonus targets and  performance  goals and  establishes any other measures as
may be necessary to meet the objectives of the Bonus Plan.


                                      -17-


<PAGE>



            No bonuses will be awarded  under the Bonus Plan unless the earnings
before interest and taxes,  exclusive of  extraordinary  items, of a fiscal year
exceed such earnings for the prior fiscal year by at least 20%.  Under the Bonus
Plan,  Participants  are grouped  into four  classes,  with each class  having a
different  range of bonus  payments  for  achieving  specified  targets  of such
earnings.  The maximum bonus  payments,  payable in the event that such earnings
for a fiscal year exceed such  earnings for the prior fiscal year by 40%,  range
among the groups from 27% to 50% of base salary.











                                      -18-


<PAGE>



                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            In April 1997, the Company  acquired all of the outstanding  capital
stock of MVR Products Pte Limited  ("MVR") and Unijoh Sdn, Bhd  ("Unijoh")  from
its shareholders,  Mel Marks, Richard Marks and Vincent Quek (each of whom owned
one-third  of each  acquired  entity).  Each of  Messrs.  Marks  is a  director,
executive officer and more than five percent  shareholder of the Company.  Prior
to the acquisition, substantially all of the business of MVR and Unijoh had been
conducted  in  connection  with the  business  of the  Company.  MVR  operates a
shipping   warehouse  and  testing  facility  and  maintains  office  space  and
remanufacturing   capability   in   Singapore.   Unijoh   conducts  in  Malaysia
remanufacturing  operations  similar to those  conducted  by the  Company at its
remanufacturing  facilities in Torrance.  The aggregate  purchase price for both
acquired entities was 145,455 shares of Common Stock of the Company.  The shares
of Common Stock were not  registered  for sale pursuant to the Securities Act of
1933,  nor were any  registration  rights  granted by the Company to the selling
shareholders.  In addition,  the shares of Common Stock are subject to a lock-up
arrangement  with the Company  releasing  for public  resale  one-fourth of such
shares on each of the first four anniversaries of the acquisition.  The purchase
price  and  other  terms of the  acquisitions  were  determined  by the  Special
Committee of the Board of Directors of the Company  following  negotiations with
the  selling  shareholders.  In  connection  with,  and as a  condition  to, the
acquisitions,  the Special  Committee  received a fairness opinion from Houlihan
Lokey Howard & Zukin, a specialty investment banking firm. The Special Committee
approved the acquisitions on March 21, 1997, on which date the closing price per
share of the Common Stock of the Company on NASDAQ was $13.75.

            In September 1995, Selwyn Joffe, a director of the Company,  entered
into a three-year  consulting  agreement  with the Company  pursuant to which he
provides certain financial advisory and consulting services to the Company.  The
agreement provides that Mr. Joffe receive, as sole compensation for his services
thereunder,  a grant  on the  first  day of each  year  during  the  term of the
agreement of immediately exercisable options to purchase 15,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
that date.  Accordingly,  in each of September 1995,  October 1996 and September
1997, Mr. Joffe was granted options to purchase 15,000 shares of Common Stock at
a per share exercise price of $13.125, $13.44 and $19.0625, respectively.

            Gary J. Simon, a director and Secretary of the Company, is a partner
in the law firm of Parker Chapin Flattau & Klimpl,  LLP, which is counsel to the
Company.








                                      -19-


<PAGE>



                                   PROPOSAL 2
                APPROVAL OF PROPOSED AMENDMENTS TO THE COMPANY'S
                   BY-LAWS RELATING TO THE BOARD OF DIRECTORS
                                AND OTHER MATTERS

GENERAL

            The Board of Directors  unanimously  adopted and declared advisable,
and  directed  that there be submitted  to the  shareholders  of the Company for
adoption at the Meeting, a resolution that the Company's By-Laws (the "By-Laws")
be amended in several respects  relating to the  classification  of the Board of
Directors  into three classes  (together,  the "Director  Amendments").  As more
fully discussed below, the Board of Directors believes that the various elements
of the Director Amendments would, if adopted, effectively reduce the possibility
that a third  party  could  effect a sudden or  unexpected  change  in  majority
control  of the Board of  Directors  by making  it more  time-consuming  to gain
control  of the  Board  of  Directors  without  the  support  of  the  incumbent
directors. The Director Amendments are not intended to impede a transaction that
is  approved  by the  Board of  Directors.  However,  adoption  of the  Director
Amendments  may  have  significant   adverse  effects  on  the  ability  of  the
shareholders  of the Company to acquire and benefit  from  certain  transactions
which are opposed by the  incumbent  Board of Directors  even though they may be
favored by a majority of the  shareholders.  Accordingly,  before  voting on the
Director  Amendments,  shareholders  are urged to read  carefully  the following
sections of this Proxy Statement and Exhibit A hereto, which sets forth the full
text of the restated By-Laws, marked to reflect the Director Amendments and also
to  indicate  changes  adopted by the Board of  Directors  which did not require
shareholder  approval,  as described below. The Board of Directors determined to
present  the  Director  Amendments  to the  shareholders  at the Meeting for the
reasons described in greater detail below.

            It should be noted that the effect of the  proposed  amendments,  if
adopted, will be to make merger proposals and assumptions of control not favored
by the Board, as well as the replacement of management, more difficult.

SUMMARY OF PROPOSED AMENDMENTS

            The  proposed  amendments  to the By-Laws  included in the  Director
Amendments,  each of which  will be voted on as a separate  proposal,  would (1)
classify  the Board of  Directors  into three  classes,  each of which,  after a
transitional  arrangement,  will  serve for three  years,  with one class  being
elected each year;  (2) provide that directors may be removed only for cause and
only (i) with the  approval  of the  holders  of at least 66 2/3% of the  voting
power of the then outstanding shares of capital stock of the Company entitled to
vote  generally  in the  election of  directors  (the  "Voting  Stock"),  voting
together  as a single  class,  or (ii) with the  approval  of a majority  of the
entire Board of Directors; and (3) provide that the shareholder vote required to
amend or  repeal  the  foregoing  provisions  of the  By-Laws,  or to adopt  any
provision inconsistent  therewith,  shall be 66 2/3% of the Voting Stock, voting
together as a single class.

            Further,  the  Board  of  Directors  has  unanimously  approved  the
following  amendments to the By-Laws,  which do not require shareholder approval
and which are not being submitted to the




                                      -20-


<PAGE>



shareholders  for such  approval:  (i) to change the date by which a copy of the
notice of all meetings of  shareholders  must be given,  personally  or by mail,
from (A) not less than ten days nor more than fifty days before the date of such
meeting to (B) not less than ten days nor more than  sixty days  before the date
of  such  meeting,  in  accordance  with  revisions  to the  New  York  Business
Corporation Law (the "NYBCL"),  effective February 1998; (ii) to change the date
that can be fixed by the Board of  Directors  as the record date for purposes of
determining  shareholders eligible to vote at a meeting of shareholders from (A)
not more than fifty days nor less than ten days  before such  meeting,  nor more
than fifty days prior to any other  action,  to (B) not more than sixty days nor
less than ten days  before such  meeting,  nor more than sixty days prior to any
other action,  in accordance  with revisions to the NYBCL;  (iii) to change what
constitutes  a quorum from (A) the holders of record of a majority of the shares
of  stock  issued  and  outstanding  and  entitled  to  vote  at  a  meeting  of
shareholders  to (B) the  holders of a majority  of the votes of shares of stock
entitled to vote at such  meeting,  in accordance  with  revisions to the NYBCL;
(iv) to change  the vote  needed to  approve  any  corporate  action  taken at a
meeting of  shareholders,  other than the  election of  directors,  from (A) the
affirmative vote of the holders of a majority of the shares  represented at such
meeting,  in person or by proxy,  and entitled to vote on the specific matter to
(B) the affirmative  vote of a majority of the votes cast in favor of or against
such action at a meeting of  shareholders  by the holders of shares  entitled to
vote  thereon,  in  accordance  with  revisions  to the  NYBCL;  and (v) to make
conforming changes as indicated relating to the Director Amendments.

DESCRIPTION OF THE PROPOSED AMENDMENTS

Proposal 2(a) -- Classification of the Board of Directors

            The By-Laws  currently  provide that  directors are to be elected to
the Board of Directors  annually for a term of one year. The proposed  amendment
to Article II,  Section 2.2 of the By-Laws  provides that the Board of Directors
shall be divided into three classes of  directors,  as nearly equal in number as
possible.  If the Director Amendments are adopted,  the Company's directors will
be divided into three  classes,  with two directors  serving for an initial term
expiring at the 1999 Annual Meeting of Shareholders,  two directors  serving for
an initial term expiring at the 2000 Annual  Meeting of  Shareholders  and three
directors  serving for an initial  term  expiring at the 2001 Annual  Meeting of
Shareholders  (or, in all cases,  until  their  respective  successors  are duly
elected and qualified, or until prior resignation or removal). Starting with the
1999 Annual Meeting of Shareholders, one class of directors will be elected each
year for a  three-year  term.  See  "Election  of  Directors"  as to the initial
composition of each class of directors if the Director Amendments are adopted.

            Directors  of the  Company  are  now  elected  by the  holders  of a
plurality  of the votes cast.  The  classification  of  directors  will have the
effect of making it more  difficult  to change the  overall  composition  of the
Board of Directors. At least two shareholders' meetings, instead of one, will be
required  for  shareholders  to effect a change in the  majority of the Board of
Directors. Although there has been no problem in the past with its continuity or
stability,  the Board of  Directors  believes  that the longer time  required to
elect a majority  of a  classified  Board of  Directors  will help to assure the
continuity  and stability of the  Company's  affairs and policies in the future,
since a majority of the  directors at any given time will have prior  experience
as directors of the Company.  As described in greater detail below, the Board of
Directors has taken note of the fact that a classified Board of


                                      -21-


<PAGE>



Directors may discourage  potential bidders from making unsolicited bids for the
Company or from engaging in proxy contests,  thereby depriving some shareholders
of the opportunity to participate in and potentially benefit from these types of
transactions.  However,  the  Board  of  Directors  has  determined  that  these
potential benefits are outweighed by the potential  negative effects,  described
below,  that  these  types  of  transactions  may  have on the  Company  and the
shareholders as a whole.

Proposal 2(b) -- Resignation or Removal of Directors

            Currently,  the By-Laws  provide that  directors may be removed with
cause by the vote of a majority  of the entire  Board of  Directors  and with or
without cause by the holders of at least a majority of the outstanding shares of
capital  stock of the  Company  entitled  to vote at an  election  of  directors
(considered  for this purpose as one class).  The proposed  amendment to Article
II, Section 2.10 of the By-Laws provides that a director may be removed only for
cause  and  only  by the  majority  of  the  entire  Board  of  Directors  or by
affirmative  vote of the  holders  of at  least  66 2/3%  of the  Voting  Stock.
Similarly, the proposed amendment to Article II, Section 2.3 would eliminate the
ability  of the  shareholders  to fill a vacancy  created  by the  removal  of a
director without cause, since, under the Director Amendments,  directors may not
be removed  without  cause.  These sections also provide that no decrease in the
number of directors shall shorten the term of any incumbent.

            The  foregoing  proposed  amendments  to the By-Laws  will limit the
ability of shareholders controlling a majority, but not at least 66 2/3%, of the
voting power from taking certain  actions  designed to change the composition of
the  Board  of  Directors,  whether  or not  such  change  is  warranted.  These
amendments  also may have the effect of discouraging  accumulations  of stock or
unsolicited bids by shareholders  interested in effecting a change of control of
the Company.

Proposal 2(c) -- Supermajority Vote of Shareholders
for Amendment or Repeal of Proposed Amendments to the By-Laws

            Under the NYBCL,  provisions in the By-Laws requiring a greater vote
than otherwise  required by law for any corporate action require the approval of
shareholders.  Under the  Director  Amendments,  none of the  By-Law  provisions
specified therein may be amended or repealed, nor may any provision inconsistent
therewith be adopted, without the concurrence of the holders of at least 66 2/3%
of the Voting  Stock,  although  the  By-Laws  may be amended  or  repealed,  or
provisions  inconsistent therewith may be adopted, in the future by the Board of
Directors without the requirement of shareholder approval.

            The requirement of a supermajority  shareholder  vote is designed to
prevent  shareholders  controlling  less than 66 2/3% of the voting power of the
Company from avoiding the  requirements  of the various  Director  Amendments by
simply repealing them. The increased voting  requirements  enable the holders of
shares  representing more than 20% of the voting power of the Company to prevent
certain  amendments to the By-Laws,  even if such amendments were desired by the
holders of a majority of the  outstanding  voting power.  


                                      -22-


<PAGE>



PURPOSE AND EFFECTS OF THE DIRECTOR AMENDMENTS

            The purpose of the  Director  Amendments  is to  discourage  certain
types of transactions,  described  below,  which involve an actual or threatened
change of control of the Company.  The Director  Amendments are designed to make
it more difficult and  time-consuming to change majority control of the Board of
Directors  and thus to reduce  the  Company's  vulnerability  to an  unsolicited
proposal for a takeover of the Company that does not contemplate the acquisition
of all of the Company's  outstanding shares, or an unsolicited  proposal for the
restructuring  or sale  of all or  part  of the  Company.  While  the  Board  of
Directors  recognizes  that  such  takeovers  might  in  some  circumstances  be
beneficial to shareholders,  it believes that, as a general rule, such takeovers
are not in the best  interests  of the Company and its  shareholders  insofar as
they do not permit the Board of Directors  the  strongest  possible  negotiating
position.  The Board of Directors  considered  the level and intensity of recent
merger and  acquisition  activity and, in light of its approval in February 1998
of a Rights Agreement between the Company and Continental Stock Transfer & Trust
Company,  as Rights Agent (the "Rights  Agreement"),  determined  that it was an
appropriate  time to review  the  Company's  vulnerability  to,  and  ability to
discourage,  certain types of unsolicited transactions that could interfere with
the  continuity  of the Board of  Directors  and  management  while not offering
maximum value to shareholders. The Board of Directors is not considering, and is
not aware of, any such proposed transactions.

            Since the 1980s there have been many  examples of  accumulations  of
substantial stock positions in public companies by third parties as a prelude to
proposing a takeover,  restructuring or sale of all or part of such companies or
other similar extraordinary corporate action. Such actions were often undertaken
by a third party without advance notice to, or consultation with,  management of
the company. In many cases, the purchaser sought representation on the company's
board of directors in order to increase the  likelihood  that its proposal would
be  implemented  by the  company.  If the  company  resisted  the efforts of the
purchaser to obtain  representation  on the company's board, the purchaser would
commence a proxy  contest to have its nominees  elected to the board in place of
certain directors or the entire board. The Company's Board of Directors believes
that the imminent  threat of removal of incumbent  directors  and the  Company's
management would severely curtail its ability to negotiate effectively with such
purchasers.  The Board of Directors and management would be deprived of the time
and information  necessary to evaluate a takeover proposal, to study alternative
proposals and to help ensure that the best price is obtained in any  transaction
which the Company may ultimately  undertake.  The Director  Amendments will help
ensure that the Board of  Directors,  if  confronted  by a proposal from a third
party  which  has  acquired  a  significant  block of  Common  Stock,  will have
sufficient time to review the proposal and any appropriate alternatives.

            Takeovers or changes in the Board of Directors or  management  which
are proposed and effected without prior  negotiation with the Board of Directors
are not necessarily  detrimental to the Company and its shareholders.  Moreover,
the proposed Director  Amendments will make a proxy contest or the assumption of
control by a holder of a substantial block of the Company's stock or the removal
of the incumbent  Board of Directors  more difficult and could thus increase the
likelihood that incumbent  directors will retain their  positions.  The Board of
Directors  believes,  however,  that the benefits of  protecting  its ability to
exercise its discretion to negotiate with or to resist an unfriendly or

                                      -23-


<PAGE>



unsolicited  proposal  to take over or  restructure  the Company and to seek out
appropriate alternatives, if desirable, outweigh these disadvantages.

            Moreover,  while it is  impossible  to  predict  with any  degree of
certainty  what impact  adoption  of the  Director  Amendments  will have on the
potential realizable value of a shareholder's investment,  particularly in light
of the myriad  factors  that can and will impact  value,  the Board of Directors
does  not  believe  that  implementation  of  these  proposals  ultimately  will
negatively  impact  shareholder  value.  It is conceivable  that adoption of the
Director  Amendments will discourage  potential acquirers from launching certain
types of  unsolicited  transactions  aimed at  taking  control  of the  Company,
thereby denying  shareholders the opportunity to sell their shares,  potentially
at a premium to current market prices, to these potential bidders.  However, the
Board of  Directors  has noted  that many large U.S.  public  corporations  have
adopted similar classified board structures which have not deterred acquisitions
of these  corporations  through negotiated  transactions.  In fact, as discussed
above, the Board of Directors' purpose in recommending  adoption of the Director
Amendments  is to  encourage  those who seek control of the Company to negotiate
with the Board of Directors,  thereby giving  directors an opportunity to resist
abusive  takeover  tactics  that might  permit a change of control that does not
offer the most value to shareholders and to structure a transaction in which all
shareholders  are  permitted  to  participate.  As such,  the Board of Directors
believes that adoption of the Director  Amendments  may  ultimately  enhance the
potential realizable value of a shareholder's investment.

            The Company's Restated  Certificate of Incorporation,  as amended to
date (the "Certificate of Incorporation"),  does not currently permit cumulative
voting in the election of directors and the By-Laws  provide that a plurality of
the votes cast in any election of directors shall elect directors.  Accordingly,
the holders of a majority of the Voting Stock can now elect all of the directors
being elected at any annual or special meeting of the Company's shareholders. It
should be noted that the  amendments  included in the  Director  Amendments,  if
adopted at the Meeting, will be in effect at all times and will be applicable to
all  elections  of directors  of the  Company.  Therefore,  removal of incumbent
directors  (even if favored by a majority of shareholders or for reasons such as
poor performance) will be considerably more difficult, if not impossible, if the
Director Amendments are adopted.

            On February 24, 1998,  the Board of Directors  adopted a shareholder
rights plan,  providing that one Right shall be attached to each share of Common
Stock.  Each Right entitles the  registered  holder to purchase from the Company
one one-thousandth of a share of Series A Junior Participating  Preferred Stock,
par value $.01 per share (the "Series A Preferred  Stock"),  at a purchase price
of $65.00 per one  one-thousandth  of a share of Series A Preferred  Stock.  The
description and terms of the Rights are set forth in the Rights  Agreement.  The
Rights are  exercisable  only if certain persons or groups become the beneficial
owner of 20% or more of the  outstanding  shares of Common  Stock or  commence a
tender or  exchange  offer for 20% or more of the  outstanding  shares of Common
Stock.  The Company will generally be entitled to redeem the Rights at $.001 per
Right at any time up to ten days  following the date such an ownership  position
has been  acquired.  In the event that  certain  acquiring  persons or  entities
become the beneficial  owner of 20% or more of the outstanding  shares of Common
Stock,  each  holder of a Right will have the right to receive,  upon  exercise,
shares of Common Stock  having a value equal to two times the exercise  price of
the Right. In the event that,

                                      -24-


<PAGE>



following the Stock Acquisition Date (as defined in the Rights  Agreement),  the
Company  engages  in a merger  or  business  combination  in which it is not the
surviving  company or in which it is the surviving  company but the Common Stock
is changed or exchanged,  or if more than 50% of the Company's assets or earning
power is sold or transferred,  each holder of a Right shall  thereafter have the
right to receive, upon exercise,  common stock of the acquirer having a value of
two times the exercise price of the Right. Generally,  Rights beneficially owned
by such acquiror are null and void.  The Rights Plan will not prevent a takeover
of the  Company,  but is intended  to  encourage  anyone  seeking to acquire the
Company to negotiate with the Board of Directors.

            Except as described  above,  the  Certificate of  Incorporation  and
By-Laws  do  not  contain  provisions   intended  by  the  Company  to  have  an
anti-takeover  effect.  The Board  has no  current  intention  of  soliciting  a
shareholder  vote on any  other  proposals  which  could  have  such an  effect.
However,  the Company  does have  authorized  and unissued  5,000,000  shares of
Preferred  Stock,  including  the 20,000  shares  designated  Series A Preferred
Stock,  which, in the case of the Series A Preferred Stock, has been, and in the
case of the remaining  preferred  stock,  could be, issued with voting power and
other  rights  fixed by the Board of  Directors  without  shareholder  approval,
except  as  required  by law or by the  rules  of the  National  Association  of
Securities  Dealers.  Although the Board of Directors presently has no intention
of doing so, the remaining unissued shares of preferred stock could be issued in
a manner (e.g. by giving holders  disproportionate or class voting rights) which
could  have the  effect of  discouraging  takeover  attempts  and making it more
difficult  (particularly if the Director Amendments are approved at the Meeting)
to obtain the vote required for approval of matters submitted to shareholders.

            THE BOARD OF DIRECTORS  RECOMMENDS THAT  SHAREHOLDERS  VOTE FOR THIS
PROPOSAL.




                                      -25-


<PAGE>



                                   PROPOSAL 3
        APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLAN

            The Company's  1994 Stock Option Plan (the "1994 Stock Option Plan")
was adopted by the  Company's  Board of Directors  and approved by the Company's
shareholders  in  January  1994 and  amended  from  time to time by the Board of
Directors and the shareholders. On June 1, 1998, the Board of Directors approved
an amendment to the 1994 Stock  Option Plan and directed  that the  amendment be
submitted  to the  Company's  shareholders  for  approval  at the  Meeting.  The
amendment provides for an increase of 240,000,  from 720,000 to 960,000,  in the
number of shares of Common Stock for which options may be granted under the 1994
Stock Option Plan. The Board of Directors  adopted the amendment upon evaluating
the Company's existing  compensation programs and the Company's long-range goals
and expansion plans.

            The Board  concluded  that the  increase  in the number of shares of
Common Stock covered by the 1994 Stock Option Plan was necessary for the Company
to continue to attract,  motivate and retain qualified  employees and directors.
Within six months of the date of the  Meeting,  if Proposal 3 is  approved,  the
Company  intends to include the  additional  shares  covered by Proposal 3 in an
amendment to the Company's  registration statement on Form S-8 pertaining to the
1994 Stock Option Plan.

THE 1994 STOCK OPTION PLAN

            The  following  is a discussion  of certain  terms of the 1994 Stock
Option Plan, as amended:

            Types of Grants and Eligibility
            -------------------------------

            The 1994 Stock  Option Plan is designed to provide an  incentive  to
key  employees  (including  officers  and  directors  who  are  key  employees),
non-employee directors and consultants of the Company and its present and future
subsidiaries and to offer an additional  inducement in obtaining the services of
such  individuals.  The  1994  Stock  Option  Plan  provides  for the  grant  of
"incentive  stock  options"  ("ISOs")  within the  meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"),  and nonqualified  stock
options ("NQSOs").

            Shares Subject to the 1994 Stock Option Plan
            --------------------------------------------

            The aggregate number of shares of Common Stock for which options may
be granted  under the 1994 Stock Option Plan may not exceed  960,000;  provided,
however, that the maximum number of shares of Common Stock with respect to which
options  may be granted  to any  individual  in any  fiscal  year may not exceed
100,000.  Such shares of Common Stock may consist  either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock held in
the treasury of the Company.  Shares of Common Stock  subject to an option which
for any reason expires, is canceled or is terminated unexercised or which ceases
for any reason to be exercisable may again become  available for the granting of
options under the 1994 Stock Option Plan.


                                      -26-


<PAGE>



            Administration of the 1994 Stock Option Plan
            --------------------------------------------

            The 1994 Stock Option Plan is administered by the Board of Directors
which, to the extent it shall determine, may delegate its powers with respect to
the  administration of the 1994 Stock Option Plan to a committee of the Board of
Directors (the "Committee")  consisting of not less than two directors,  each of
whom  shall be a  "non-employee  director"  within  the  meaning  of  rules  and
regulations promulgated by the Securities and Exchange Commission. References in
the 1994 Stock Option Plan to  determinations  or actions by the Committee shall
be deemed to include determinations and actions by the Board of Directors.

            Subject to the express provisions of the 1994 Stock Option Plan, the
Committee has the  authority,  in its sole  discretion,  with respect to options
other than Director Options (as defined below) to determine, among other things:
the key employees and  consultants  who are to receive  options;  the times when
they may receive  options;  whether an option granted to an employee is to be an
ISO or a NQSO;  the  number  of shares of  Common  Stock to be  subject  to each
option; the term of each option; the date each option is to become  exercisable;
whether an option is to be  exercisable  in whole,  in part or in  installments,
and, if in  installments,  the number of shares of Common Stock to be subject to
each installment;  whether the installments are to be cumulative;  the date each
installment is to become  exercisable and the term of each installment;  whether
to accelerate the date of exercise of any installment;  whether shares of Common
Stock may be issued on  exercise  of an option as partly  paid,  and, if so, the
dates when future  installments  of the exercise price are to become due and the
amounts of such  installments;  the exercise  price of each option;  the form of
payment of the exercise price; whether to restrict the sale or other disposition
of the shares of Common  Stock  acquired  upon the  exercise of an option and to
waive any such  restriction;  and whether to subject the  exercise of all or any
portion of an option to the  fulfillment  of  contingencies  as  specified in an
applicable stock option contract. With respect to all options, the Committee has
such  discretion  to  determine  the amount,  if any,  necessary  to satisfy the
Company's  obligation to withhold  taxes;  with the consent of the optionee,  to
cancel or modify an option,  provided such option as modified would be permitted
to be granted on such date under the terms of the 1994  Stock  Option  Plan;  to
prescribe,  amend and rescind rules and  regulations  relating to the 1994 Stock
Option Plan;  and to make all other  determinations  necessary or advisable  for
administering the 1994 Stock Option Plan.

            Director Options
            ----------------

            On each April 30 during the term of the 1994 Stock Option Plan, each
person who is a non-employee director of the Company ("Outside Director") on the
immediately preceding March 31 will be granted an option ("Director Options") to
purchase 125 shares of Common Stock for each month or portion thereof during the
12-month  period  ended on such March 31 that such  person  served as an Outside
Director.  In the event the remaining  shares available for grant under the 1994
Stock Option Plan are not sufficient to grant the Director  Options to each such
Outside  Director  in any year,  the number of shares  subject  to the  Director
Options for such year is to be reduced  proportionately.  The Committee does not
have any  discretion  with  respect to the  selection  of  Directors  to receive
Director Options or the amount, the price or the timing with respect thereto.


                                      -27-


<PAGE>



            Exercise Price
            --------------

            The  exercise  price of the shares of Common Stock under each option
other than  Director  Options is to be determined  by the  Committee;  provided,
however,  that the exercise price is not to be less than 100% of the fair market
value of the  Common  Stock  subject  to such  option on the date of grant;  and
further  provided,  that if, at the time an ISO is granted,  the  optionee  owns
shares  possessing  more  than 10% of the  total  combined  voting  power of all
classes of stock of the Company,  of any of its subsidiaries or of a parent, the
exercise price of such ISO may not be less than 110% of the fair market value of
the Common Stock subject to such ISO on the date of grant. The exercise price of
the  shares of Common  Stock  under  each  Director  Option is equal to the fair
market value of the Common Stock subject to the option on the date of grant.

            Term
            ----

            The term of each employee or consultant  option granted  pursuant to
the  1994  Stock  Option  Plan is  established  by the  Committee,  in its  sole
discretion,  at or before the time such  option is granted;  provided,  however,
that the term of each ISO granted  pursuant to the 1994 Stock  Option Plan is to
be for a period  not  exceeding  ten years from the date of grant  thereof,  and
further  provided,  that if, at the time an ISO is granted,  the  optionee  owns
shares  possessing  more  than 10% of the  total  combined  voting  power of all
classes of stock of the Company,  of any of its subsidiaries or of a parent, the
term of the ISO is to be for a period not exceeding  five years from the date of
grant.  Each  Director  Option  is to be  exercisable  for a term  of ten  years
commencing on the date of grant.

            Exercise
            --------

            An option (or any part or installment  thereof),  to the extent then
exercisable,  is to be exercised by giving  written notice to the Company at its
principal  office.  Payment in full of the aggregate  exercise price may be made
(a) in cash or by certified  check, or (b) in the case of an option other than a
Director Option, if the applicable stock option contract at the time of grant so
permits,  with the  authorization  of the Committee,  with  previously  acquired
shares of Common  Stock having an aggregate  fair market  value,  on the date of
exercise,  equal to the aggregate exercise price of all options being exercised,
or (c) with any combination of cash, certified check or shares of Common Stock.

            The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly  executed  exercise
notice,  together  with  a copy  of his  irrevocable  instructions  to a  broker
acceptable  to the  Committee  to deliver  promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price.




                                      -28-


<PAGE>



            Termination of Relationship
            ---------------------------

            Any employee  holder of an option whose  employment with the Company
(and its parent and  subsidiaries)  has terminated for any reason other than his
death or disability may exercise such option,  to the extent  exercisable on the
date of such  termination,  at any time within  three  months  after the date of
termination,  but not thereafter and in no event after the date the option would
otherwise have expired; provided,  however, that if his employment is terminated
either (a) for cause,  or (b) without the  consent of the  Company,  said option
terminates immediately. Options granted to employees under the 1994 Stock Option
Plan are not affected by any change in the status of the holder so long as he or
she  continues to be a full-time  employee of the Company,  its parent or any of
its subsidiaries  (regardless of having been transferred from one corporation to
another).

            The termination of an optionee's relationship as a consultant of the
Company or of a subsidiary  of the Company will not affect the option  except as
may otherwise be provided in the applicable  stock option  contract.  A Director
Option may be  exercised  at any time  during its ten year  term.  The  Director
Option  will not be  affected  by the holder  ceasing  to be a  director  of the
Company or  becoming  an  employee  or  consultant  of the Company or any of its
subsidiaries.

            Death or Disability
            -------------------

            If an optionee  dies (a) while he is employed  by the  Company,  its
parent or any of its subsidiaries, (b) within three months after the termination
of his employment  (unless such termination was for cause or without the consent
of the  Company),  or (c)  within  one year  following  the  termination  of his
employment by reason of disability,  an employee's  option may be exercised,  to
the extent exercisable on the date of his death, by his executor,  administrator
or other person at the time entitled by law to his rights under such option,  at
any time within one year after death,  but not  thereafter and in no event after
the date the option would otherwise have expired.

            Any optionee whose employment has terminated by reason of disability
may exercise his option,  to the extent  exercisable  upon the effective date of
such  termination,  at any  time  within  one  year  after  such  date,  but not
thereafter  and in no event  after  the date the  option  would  otherwise  have
expired.

            The death or disability  of a consultant  optionee to whom an option
has been  granted  under the 1994 Stock  Option Plan will not effect the option,
except as may otherwise be provided in the applicable stock option contract. The
term of a Director Option will not be affected by the death or disability of the
optionee.  In such case, the option may be exercised at any time during its term
by his  executor,  administrator  or other person at the time entitled by law to
the optionee's rights under such option.

            Adjustments Upon Changes in Common Stock
            ----------------------------------------

            Notwithstanding  any other provisions of the 1994 Stock Option Plan,
in the event of any change in the outstanding  Common Stock by reason of a share
dividend, recapitalization,  merger or consolidation in which the Company is the
surviving corporation, split-up, combination or exchange


                                      -29-


<PAGE>



of shares or the like,  the aggregate  number and kind of shares  subject to the
1994 Stock Option Plan, the aggregate  number and kind of shares subject to each
outstanding option and the exercise price thereof will be appropriately adjusted
by the Board of Directors, whose determination will be conclusive.

            In the event of (a) the  liquidation  or dissolution of the Company,
(b) a  merger  or  consolidation  in  which  the  Company  is not the  surviving
corporation,   or  (c)  any  other   capital   reorganization   (other   than  a
recapitalization)  in which more than 50% of the  shares of Common  Stock of the
Company entitled to vote are exchanged,  any outstanding options will terminate,
unless other provision is made therefor in the transaction.

            Amendments and Termination of the 1994 Stock Option Plan
            --------------------------------------------------------

            No option may be  granted  under the 1994  Stock  Option  Plan after
January  27,  2004.  The Board of  Directors,  without  further  approval of the
Company's  shareholders,  may at any time  suspend or  terminate  the 1994 Stock
Option Plan, in whole or in part, or amend it from time to time in such respects
as it may deem  advisable,  including,  without  limitation,  in order that ISOs
granted thereunder meet the requirements for "incentive stock options" under the
Code  and to  comply  with the  provisions  of  certain  rules  and  regulations
promulgated  by the  Securities  and Exchange  Commission,  among other  things;
provided,  however,  that no amendment  may be effective  without the  requisite
prior or subsequent  shareholder approval which would (a) except as required for
anti-dilution adjustments, increase the maximum number of shares of Common Stock
for  which  options  may be  granted  under  the 1994  Stock  Option  Plan,  (b)
materially  increase  the benefits to  participants  under the 1994 Stock Option
Plan, or (c) change the eligibility  requirements  for  individuals  entitled to
receive options under the 1994 Stock Option Plan.

            Non-transferability of Options
            ------------------------------

            No  option   granted  under  the  1994  Stock  Option  Plan  may  be
transferable otherwise than by will or the laws of descent and distribution, and
options may be  exercised,  during the lifetime of the holder  thereof,  only by
such  holder  or such  holder's  legal  representatives.  Except  to the  extent
provided above, options may not be assigned, transferred,  pledged, hypothecated
or disposed of in any way (whether by operation of law or otherwise) and may not
be subject to execution, attachment or similar process.

            Withholding Taxes
            -----------------

            The Company may withhold cash and/or,  with the authorization of the
Committee,  shares of Common Stock to be issued having an aggregate  fair market
value  equal to the amount  which it  determines  is  necessary  to satisfy  its
obligation  to withhold  federal,  state and local  income  taxes or other taxes
incurred by reason of the grant or exercise of an option,  its  disposition,  or
the  disposition of the underlying  shares of Common Stock.  Alternatively,  the
Company  may  require the holder to pay to the  Company  such  amount,  in cash,
promptly  upon  demand.  The  Company may not be required to issue any shares of
Common Stock  pursuant to any such option until all required  payments have been
made.


                                      -30-


<PAGE>



            Federal Income Tax Treatment
            ----------------------------

            The  following  is a  general  summary  of the  federal  income  tax
consequences  under  current  tax law of ISOs and NQSOs.  It does not purport to
cover special rules  relating to, among other things,  the exercise of an option
with  previously  acquired  shares  nor  state or  local  income  or  other  tax
consequences  inherent in the  ownership  and exercise of stock  options and the
ownership and disposition of the underlying shares.

            Generally,  a holder does not recognize  taxable  income for federal
income tax purposes upon the grant of an ISO or NQSO.

            In the case of an ISO, no taxable income is recognized upon exercise
of the option.  If the optionee  disposes of the shares acquired pursuant to the
exercise of an ISO more than two years after the date of grant and more than one
year  after the  transfer  of the shares to him,  the  optionee  will  recognize
long-term  capital  gain or loss  and the  Company  will  not be  entitled  to a
deduction.  However, if the optionee disposes of such shares within the required
holding period (a  "disqualifying  disposition"),  a portion of his equal to the
excess of the fair market  value of the shares on the date of exercise  over the
exercise price (but not more than the gain realized on the disposition)  will be
treated as  ordinary  income and the  Company  will  generally  be entitled to a
deduction  for such  amount.  Any  additional  gain or loss will be treated as a
long-term  or  short-term  capital  gain  or  loss.  Long-term  capital  gain is
generally  taxed  at a  more  favorable  rate  than  ordinary  income.  Proposed
legislation  would  make such  treatment  even more  favorable.  There can be no
assurance, however, that such proposed legislation will be enacted.

            Upon the exercise of a NQSO, the holder  recognizes  ordinary income
in an amount equal to the excess, if any, of the fair market value of the shares
on the date of exercise over the exercise  price of the NQSO; the holder's basis
in the shares  acquired  is equal to the  amount,  if any,  paid upon  exercise,
increased by the amount of ordinary  income  required to be recognized;  and the
Company is generally  entitled to a deduction for the amount of ordinary  income
recognized  by the  holder.  If the  optionee  later  sells the shares  acquired
pursuant to the NQSO, he or she will recognize  long-term or short-term  capital
gain or loss depending upon the optionee's holding period for the stock.

            Pursuant to currently  applicable  rules under  Section 16(b) of the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act"), the grant of
an option (and not its exercise) to a person who is subject to the reporting and
short-swing  profit  provisions under Section 16 of the Exchange Act (a "Section
16 Person") begins the six-month period of potential short-swing liability.  The
taxable event for the exercise of a NQSO that has been  outstanding at least six
months  ordinarily  will be the date of  exercise.  If a NQSO is  exercised by a
Section 16 Person within six months after the date of grant,  however,  taxation
ordinarily will be deferred until the date which is six months after the date of
grant,  unless the person has filed a timely election  pursuant to Section 83(b)
of the Code to be taxed on the date of exercise.  Pursuant to a recent amendment
to the rules under  Section  16(b) of the Exchange  Act, the six month period of
potential  short-swing  liability  may be  eliminated if the option grant (i) is
approved in advance by the Company's board of directors (or a committee composed
solely of two or more  non-employee  directors) or (ii) approved in advance,  or
subsequently  ratified  by the  Company's  shareholders  no later  than the next
annual meeting of shareholders. Consequently, while


                                      -31-


<PAGE>



there can be no assurance that either of the conditions described in clauses (i)
or (ii) above will be satisfied with respect to awards made under the 1994 Stock
Option Plan, the taxable event for the exercise of a NQSO that satisfies  either
of the  conditions  described  in clauses  (i) or (ii) above will be the date of
exercise.

            In addition to the federal income tax consequences  described above,
an optionee who exercises an ISO may be subject to the alternative  minimum tax,
which is payable to the extent it exceeds the  optionee's  regular tax. For this
purpose, upon the exercise of an ISO, the excess of the fair market value of the
shares on the date of exercise over the exercise  price  therefor is an increase
to his alternative minimum taxable income. In addition,  the optionee's basis in
such shares is increased  by such amount for  purposes of computing  the gain or
loss on the disposition of the shares for alternative  minimum tax purposes.  If
an optionee is required to pay an  alternative  minimum  tax, the amount of such
tax which is attributable to deferral preferences (including the ISO adjustment)
is  allowed  as a  credit  against  the  optionee's  regular  tax  liability  in
subsequent years. To the extent the credit is not used, it is carried forward.

NEW PLAN BENEFITS

            Subject to  shareholder  approval of the amendment to the 1994 Stock
Option Plan, set forth below is the number of shares of Common Stock  underlying
options  currently  determined to be granted under the 1994 Stock Option Plan to
each of the persons indicated:


   Name and Position                     Dollar Value       Number of Options(1)

   Mel Marks (CEO)                          $  0                   0
   Richard Marks (President and COO)           0                   0
   Steven Kratz (VP-Operations)                0                   0
   Peter Bromberg (CFO)                        0                   0
   Executive Group                             0                   0
   Non-Executive Director Group                0                   0
   Non-Executive Officer Employee Group        0                   0
- ---------------

(1)   No grants of options  under the 1994 Stock Option Plan,  as amended,  have
      been determined,  except for the formula grant contained in the 1994 Stock
      Option Plan. See "Compensation of Directors."

            THE BOARD OF DIRECTORS  RECOMMENDS THAT  SHAREHOLDERS  VOTE FOR THIS
PROPOSAL.



                                      -32-


<PAGE>



                                   PROPOSAL 4
                           RATIFICATION OF APPOINTMENT
                                       OF
                        INDEPENDENT CERTIFIED ACCOUNTANTS


            The Board of  Directors  believes  it is  appropriate  to submit for
approval by its shareholders its appointment of Richard A. Eisner & Company, LLP
as the Company's  independent  certified  public  accountant for the fiscal year
ending March 31, 1999.

            Representatives of Richard A. Eisner & Company,  LLP are expected to
be present at the Meeting  with the  opportunity  to make a statement  and to be
available  to respond to  questions  regarding  these and any other  appropriate
matters.

            THE BOARD OF DIRECTORS  RECOMMENDS THAT  SHAREHOLDERS  VOTE FOR THIS
PROPOSAL.


                               VOTING REQUIREMENTS

            Directors  are  elected  by a  plurality  of the  votes  cast at the
Meeting  (Proposal 1). The  affirmative  vote of a majority of the votes cast in
favor of or against such action at the Meeting by the holders of shares entitled
to vote on such matter  will be required to approve:  (i) the series of proposed
amendments to the Company's  By-laws to (A) classify the Board of Directors into
three classes, each of which, after a transitional  arrangement,  will serve for
three years, with one class being elected each year (Proposal 2(a)), (B) provide
that  directors  may be removed only for cause and only (x) with the approval of
the  holders  of at least 66 2/3% of the  voting  power of the then  outstanding
shares  of  capital  stock of the  Company  entitled  to vote  generally  in the
election  of  directors,  voting  together  as a single  class,  or (y) with the
approval of a majority of the entire Board of Directors (Proposal 2(b)), and (C)
provide  that the  shareholder  vote  required to amend or repeal the  foregoing
provisions  of the By-Laws,  or to adopt any provision  inconsistent  therewith,
shall be 66 2/3% of the voting power of the Company  entitled to vote  generally
in the election of directors  (Proposal 2(c));  (ii) to approve the amendment to
the 1994 Stock Option Plan (Proposal 3); and (iii) to ratify the  appointment of
Richard A.  Eisner &  Company,  LLP as  independent  certified  accountants  and
auditors of the Company for the fiscal year ending March 31, 1999  (Proposal 4).
Abstentions  and broker  non-votes with respect to any matter are not considered
as votes cast with respect to that matter.

            THE BOARD OF DIRECTORS HAS  UNANIMOUSLY  RECOMMENDED A VOTE IN FAVOR
OF EACH NOMINEE NAMED IN THE PROXY AND FOR PROPOSALS 2(A), 2(B), 2(C), 3 AND 4.



                                      -33-


<PAGE>



                                  MISCELLANEOUS

SHAREHOLDER PROPOSALS

            Any  shareholder  proposal  intended to be included in the Company's
proxy statement and form of proxy for presentation at the 1999 Annual Meeting of
Shareholders  (the "1999  Meeting")  pursuant to Rule 14a-8 ("Rule  14a-8"),  as
promulgated  under the  Securities  Exchange  Act of 1934,  as amended,  must be
received  by the  Company  not later  than April 2,  1999.  For any  shareholder
proposal submitted for presentation at the 1999 Meeting outside the processes of
Rule 14a-8,  such  proposal  must be received by the Company not later than June
16, 1999.

OTHER MATTERS

            Management  does not intend to bring  before the  Meeting for action
any matters other than those specifically  referred to above and is not aware of
any other  matters  which are proposed to be  presented by others.  If any other
matters or motions should properly come before the Meeting, the persons named in
the Proxy  intend to vote  thereon in  accordance  with their  judgment  on such
matters or motions, including any matters or motions dealing with the conduct of
the Meeting.

PROXIES

            All  shareholders are urged to fill in their choices with respect to
the matters to be voted on, sign and promptly return the enclosed form of Proxy.

                                           By Order of the Board of Directors,

                                                 GARY J. SIMON
                                                   Secretary


July 29, 1998






                                      -34-


<PAGE>



                                   PROXY CARD


PROXY                                                                      PROXY

                       MOTORCAR PARTS & ACCESSORIES, INC.
                 (SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)


            The  undersigned   holder  of  Common  Stock  of  MOTORCAR  PARTS  &
ACCESSORIES, INC., revoking all proxies heretofore given, hereby constitutes and
appoints Mel Marks and Richard Marks and each of them, Proxies,  with full power
of  substitution,  for the undersigned  and in the name,  place and stead of the
undersigned, to vote all of the undersigned's shares of said stock, according to
the  number of votes and with all the powers the  undersigned  would  possess if
personally present, at the 1998 Annual Meeting of Shareholders of MOTORCAR PARTS
& ACCESSORIES, INC., to be held at The Penn Club, 30 West 44th Street, New York,
New York, on Wednesday, September 9, 1998 at 10:30 A.M., New York City time, and
at any adjournments or postponements thereof.

            The undersigned hereby acknowledges receipt of the Notice of Meeting
and Proxy  Statement  relating to the  meeting  and hereby  revokes any proxy or
proxies heretofore given.

            Each properly  executed  Proxy will be voted in accordance  with the
specifications  made  below and in the  discretion  of the  Proxies on any other
matter  that may come before the  meeting.  Where no choice is  specified,  this
Proxy will be voted FOR all listed  nominees to serve as directors  and FOR each
of the proposals set forth below.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES AND FOR EACH OF
PROPOSALS 2(A), 2(B), 2(C), 3 AND 4

1.    Election of seven Directors.  
            |_| FOR all nominees listed               |_| WITHHOLD AUTHORITY    
                (except as marked to the contrary)        to vote for all listed
                                                          nominees
        
                        Nominees:  Mel  Marks,  Richard  Marks,  Karen  Brenner,
                        Selwyn Joffe, Mel Moskowitz,  Murray Rosenzweig and Gary
                        J. Simon (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR
                        ANY  INDIVIDUAL  NOMINEE,  CIRCLE THAT NOMINEE'S NAME IN
                        THE LIST PROVIDED ABOVE.)


       PLEASE MARK, DATE AND SIGN THIS PROXY ON THIS AND THE REVERSE SIDE



                                      -35-


<PAGE>



2.    To act upon a series of proposed amendments to the Company's By-Laws to:

      (a)  Classify the Board of Directors  into three  classes,  each of which,
      after a  transitional  arrangement,  will serve for three years,  with one
      class being elected each year.

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN

      (b) Provide that directors may be removed only for cause and only with the
      approval  of the  holders of at least 66 2/3% of the  voting  power of the
      Company entitled to vote generally in the election of directors.

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN

      (c)  Provide  that the  shareholder  vote  required to amend or repeal the
      foregoing   provisions   of  the  By-Laws,   or  to  adopt  any  provision
      inconsistent  therewith,  shall  be 66 2/3%  of the  voting  power  of the
      Company entitled to vote generally in the election of directors.

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN

3.    Proposal to approve an amendment to the Company's 1994 Stock Option Plan.

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN

4.    Proposal to ratify the Board of Director's  selection of Richard A. Eisner
      & Company,  LLP as the Company's  independent  certified public accountant
      for the fiscal year ending March 31, 1999.

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN

5.    The proxies are  authorized  to vote in their  discretion  upon such other
      matters as may properly  come before the meeting.  

      |_|  FOR                     |_| AGAINST                       |_| ABSTAIN



                              The shares represented by this proxy will be voted
                        in the manner directed. In the absence of any direction,
                        the  shares  will be  voted  FOR each  nominee  named in
                        Proposal 1 and FOR each of Proposals  2(a), 2(b) 2(c), 3
                        and 4 and in  accordance  with their  discretion on such
                        other  matters as may properly  come before the Meeting.
                        Dated ____________________________________________, 1998
                        ________________________________________________________
                        ________________________________________________________
                                             Signature(s)
                        (Signature(s) should conform to names as registered. For
                        jointly  owned  shares,  each owner  should  sign.  When
                        signing as attorney, executor,  administrator,  trustee,
                        guardian or officer of a  corporation,  please give full
                        title). 

                              PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY









<PAGE>




                                                                       Exhibit A


                       MOTORCAR PARTS & ACCESSORIES, INC.

   
                                RESTATED BY-LAWS
    

                                    ARTICLE I

                                  SHAREHOLDERS


1.1         TIME OF SHAREHOLDER MEETINGS

            The annual meeting of  shareholders  of the Company for the election
of directors and for the transaction of such other business as may properly come
before  the  meeting  shall be held on such  date and at such  time and place as
designated  by the Board of  Directors,  or if no such  designation  is made, at
10:00 A.M. on the  fifteenth  day of the fifth month  following the close of the
Company's  fiscal  year  (or if  that  is a  legal  holiday,  then  on the  next
succeeding business day at 10:00 a.m.).

            Special meetings of shareholders  shall be held on the date fixed by
the Board of  Directors  or the  Chairman of the Board or the  President  or the
shareholders of the Company calling the special meeting of shareholders pursuant
to Section 1.3.

1.2         PLACE OF SHAREHOLDER MEETINGS

            Annual meetings and special  meetings of shareholders  shall be held
at such  place,  within  or  without  the  State of New  York,  as the  Board of
Directors, or in the case of special meetings of shareholders,  at such place as
the  Board  of  Directors  or the  Chairman  of the  Board of  Directors  or the
President of the Company calling the special meeting of shareholders pursuant to
Section 1.3, may from time to time fix,  either by resolution or by inclusion in
notice of  meeting.  In the event of a failure to fix such  place,  the  meeting
shall be held at the office of the Company in the State of New York.







<PAGE>



1.3         CALLING OF SHAREHOLDER MEETINGS

            Annual  meetings  of  shareholders  will be  called  by the Board of
Directors,  by an officer  instructed by the Board of Directors to call meetings
or by the  Chairman  of the Board of  Directors  or  President  of the  Company.
Special  meetings of shareholders  may be called by the Board of Directors,  the
Chairman of the Board of Directors or President of the Company or at the request
in writing by  shareholders  owning a majority of the shares of capital stock of
the Company issued and outstanding and entitled to vote.

1.4         NOTICE OF SHAREHOLDER MEETINGS, WAIVER

   
            The notice of all meetings shall be written or printed,  shall state
the place,  date, and hour of the meeting,  and in case of a special  meeting of
shareholders,  shall  indicate  the purpose or purposes for which the meeting is
called.  A copy of the notice of all meetings  shall be given,  personally or by
mail,  not less than ten days nor more than ^ sixty days  before the date of the
meeting, to each shareholder of record entitled to vote at such meeting, and, if
mailed,  it shall be directed to such  shareholder  at his record  address or at
such other  address  which he may have  furnished in writing to the Secretary of
the Company.  If action is proposed to be taken that might entitle  shareholders
to payment  for their  shares,  the notice  shall  include a  statement  of that
purpose and to that effect.  If a meeting is adjourned to another time or place,
and, if any  announcement of the adjourned time or place is made at the meeting,
it shall not be necessary  to give notice of the  adjourned  meeting  unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
    

            Notice  of any  meeting  need not be given  to any  shareholder  who
submits a signed waiver of notice before or after the meeting. The attendance of
a shareholder at a meeting without protesting the lack of notice of such meeting
prior to the conclusion of the meeting,  shall  constitute a waiver of notice by
him.



                                       -2-


<PAGE>



1.5         RECORD DATE FOR SHAREHOLDERS

   
            For the purpose of determining the  shareholders  entitled to notice
of or to vote at any meeting of shareholders or any adjournment  thereof,  or to
express  consent to or dissent from any proposal  without a meeting,  or for the
purpose of determining  shareholders entitled to receive payment of any dividend
or the distribution or allotment of any rights or evidences of interests arising
out of any change,  conversion, or exchange of capital stock, or for the purpose
of any other action,  the Board of Directors may fix, in advance,  a date as the
record date for any such  determination of shareholders.  Such date shall not be
more than ^ sixty days nor less than ten days  before the date of such  meeting,
nor more than ^ sixty days prior to any other action.  When a  determination  of
shareholders  of record entitled to notice of or to vote at any meeting has been
made as provided in this  Section  1.5,  such  determination  shall apply to any
adjournment  thereof,  unless the Board of Directors fix a new record date under
this Section 1.5 for the adjourned  meeting.  Only  shareholders  of record on a
record date fixed for  determining  shareholders  entitled to receive payment of
any  dividend or the  distribution  or  allotment  of any rights or evidences of
interests arising out of any change,  conversion,  or exchange of capital stock,
shall be entitled to receive such dividend,  rights or interests. 
    

1.6   CONDUCT OF MEETINGS

            Meetings of the shareholders  shall be presided over by the Chairman
of  the  Board,  or in his  absence,  by the  President,  or in the  President's
absence,  by any Vice  President as directed by the Chairman of the Board or the
President.  The  Secretary of the  Company,  or in his  absence,  any  Assistant
Secretary selected by the chairman of the meeting, shall act as secretary of the
meeting.

1.7   PROXY REPRESENTATION

            Every shareholder may authorize another person or persons to act for
him by proxy in all matters in which a shareholder  is entitled to  participate,
whether by waiving notice of any meeting, voting


                                       -3-


<PAGE>



or  participating  at a meeting  or  expressing  consent  or  dissent  without a
meeting.  Every  proxy must be in writing and signed by the  shareholder  or his
attorney-in-fact.  No proxy shall be valid after the expiration of eleven months
from the date thereof unless otherwise  provided in the proxy. Every proxy shall
be  revocable  at the  pleasure  of the  shareholder  executing  it,  except  as
otherwise provided by the Business Corporation Law of the State of New York. 

1.8         QUORUM

   
            The holders of a majority  of the votes of shares of stock  entitled
to vote thereat shall  constitute a quorum at a meeting of shareholders  for the
transaction  of any  business,  except  as  otherwise  provided  by law,  by the
Certificate  of  Incorporation  or by  these  By-Laws;  provided  that,  when  a
specified item of business is required to be voted upon by a particular class or
series of shares,  voting as a class,  the  holders  of a  majority  of votes of
shares of such class or series shall  constitute a quorum for the transaction of
such  specified  item of  business.  When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.  The
shareholders present may adjourn the meeting despite the absence of a quorum. At
the meeting to which such adjourned  meeting is reconvened,  any business may be
transacted which might have been transacted at the meeting as first convened had
there been a quorum.
    

1.9         VOTING

   
            Each  shareholder  entitled  to vote  on any  action  proposed  at a
meeting of shareholders  shall be entitled to one vote in person or by proxy for
each share of voting stock held of record by him, unless  otherwise  provided in
the  Certificate of  Incorporation.  The vote for directors  shall be by vote of
shareholders  represented  either in person or by proxy at the meeting,  and the
election  of each  director  shall be decided  by a  plurality  vote.  Except as
otherwise  provided  by law,  by the  Certificate  of  Incorporation,  by  other
certificate  filed  pursuant  to law or by these  By-Laws,  any other  corporate
action to be taken
    

                                       -4-


<PAGE>




   
by vote of the  shareholders  shall be  authorized by a majority of the  votes
cast in favor of or  against  such  action at a meeting of  shareholders  by the
holders of shares entitled to vote  thereon.  Except as required by law, by the
Certificate of  Incorporation,  by other certificate filed pursuant to law or by
these By-Laws, the chairman presiding at any meeting of shareholders may rule on
questions  of order or  procedure  coming  before  the  meeting  or submit  such
questions to the vote of the meeting, with each shareholder entitled to one vote
in  person or by proxy for each  share of  voting  stock  held of record by him,
which vote may at the  direction  of the  chairman  at the meeting be by ballot.
    

1.10        WRITTEN CONSENT OF SHAREHOLDERS

            Any action that may be taken by vote may be taken  without a meeting
on written consent,  setting forth the action so taken, signed by the holders of
all the  outstanding  shares  entitled to vote  thereon or signed by such lesser
number of holders as may be provided for in the Certificate of Incorporation.

                                   ARTICLE II
                               BOARD OF DIRECTORS

2.1        QUALIFICATIONS AND NUMBER

            Each director shall be at least 21 years of age. A director need not
be a shareholder,  a citizen of the United States, or a resident of the State of
New York.  The number of  directors  constituting  the entire Board of Directors
shall  consist  of not less than  three (3) nor more  than  seven (7)  directors
(except  that where all of the shares  are owned  beneficially  and of record by
less than three (3) shareholders, the number of directors may be less than three
(3) but not less  than the  number  of  shareholders),  the  exact  number to be
determined from time to time by resolution of the Board of Directors;  provided,
however,  that the number of directors  shall be increased  beyond the foregoing
limit, to the extent required, in the event



                                       -5-


<PAGE>



that (and for so long as) the  holders of any  Preferred  Stock of the  Company,
voting as a separate class or series under any provisions of the  Certificate of
Incorporation, shall be entitled to elect any directors.

2.2         ELECTION AND TERM

   
            The Board of  Directors  shall be  divided  into three  classes,  as
nearly equal in number as possible with the term of office of the first class to
expire at the 1999  Annual  Meeting of  Shareholders,  the term of office of the
second class to expire at the 2000 Annual Meeting of  Shareholders  and the term
of  office  of  the  third  class  to  expire  at the  2001  Annual  Meeting  of
Shareholders. Each director shall hold office until his respective successor has
been duly  elected  and  qualified.  At each  annual  meeting  of  shareholders,
commencing  with the 1999 Annual  Meeting,  directors  elected to succeed  those
directors  whose  terms then  expire  shall be  elected  for a term of office to
expire at the third  succeeding  annual  meeting after their  election and until
their respective successors are duly elected and qualified. Any person receiving
a plurality of the votes cast at any election held at a meeting of  shareholders
shall  become a director in the class for which such person is a nominee.  Newly
created directorships or any decrease in directorships  resulting from increases
or  decreases  in the  number of  directors  shall be so  apportioned  among the
classes  as to make all the  classes  as nearly  equal in  number  as  possible;
provided that when the Board of Directors  increases the number of directors and
fills  vacancies  created  thereby,  there  shall  be no  classification  of the
additional directors until the next annual meeting of shareholders.

            Notwithstanding  anything herein to the contrary, the term of office
of any director  elected by holders of any Preferred  Stock voting as a separate
class or series shall terminate as provided in the Certificate of Incorporation,
notwithstanding  the fact  that the term of the  other  members  of any class in
which any such director is included has not yet expired.
    

                                       -6-


<PAGE>




   
            The  affirmative  vote of the  holders  of at  least  66 2/3% of the
voting  power of the then  outstanding  shares of capital  stock of the  Company
entitled to vote  generally in the election of directors,  voting  together as a
single class, shall be required to amend this Section 2.2.
    

2.3         VACANCIES

   
            Any  vacancy  in  the  Board  of   Directors,   whether   caused  by
resignation,  death,  increase in the number of directors,  disqualification  or
otherwise, may be filled by a majority of the directors then in office after the
vacancy has occurred, although less than a quorum (except that a vacancy created
by the  removal of a director by  shareholders  for cause ^ may be filled by the
shareholders  at the  meeting at which the  director  is  removed  or, if not so
filled,  then by the remaining  directors)  and provided that any vacancies with
respect to directors  elected by holders of any  Preferred  Stock of the Company
voting as a separate class or series under any provisions of the  Certificate of
Incorporation  shall be filled as provided in the provisions of the  Certificate
of  Incorporation  relating to any such Preferred Stock. Any director elected by
the  Board to fill a  vacancy  shall  hold  office  until  the next  meeting  of
shareholders  at which the  election of  directors  is in the  regular  order of
business,  and until his  successor  has been  elected  and  qualified.  At such
meeting,  if the term of the class in which such  director has been elected does
not then expire,  the shareholders  shall elect a director to fill the unexpired
term. No decrease in the number of authorized  directors  shall shorten the term
of any incumbent director.
    

2.4         TIME OF BOARD MEETINGS

            An  annual  meeting  of  the  Board  shall  be  held  in  each  year
immediately  following the annual meeting of  shareholders or if such meeting be
adjourned,  the final  adjournment  thereof at the same place as such meeting of
shareholders.  Regular  meetings of the Board may be held without notice at such
time and place as shall from time to time be  determined  by  resolution  of the
Board.

            Special  meetings  of  the  Board  may  be  called  pursuant  to the
provision of Section 2.6 hereof.

                                       -7-


<PAGE>



2.5         PLACE OF BOARD MEETINGS

            Regular  and  special  meetings  of the Board,  except as  otherwise
provided in the Company's  Certificate  of  Incorporation  or in these  By-laws,
shall be held at such place  within or without the State of New York as shall be
fixed by the Board. The annual meeting of a newly elected Board shall be held at
the same place where the meeting of the  shareholders  at which the  election of
the new Board is held.

2.6         CALLING OF BOARD MEETINGS

            No call shall be required for the annual or any regular  meetings of
the Board for which the time and place have been fixed.  Special meetings of the
Board may be called by the  Chairman  of the  Board,  the  President,  or by the
Secretary on written request of two directors.

2.7         NOTICE OF BOARD MEETINGS

            No  notice  shall be  required  for the  annual  meeting  of a newly
elected  Board and for regular  meetings  for which the time and place have been
fixed.  Except as otherwise  provided by law,  notice of each special meeting of
the Board shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five days before the day on which such meeting
is to be held,  or shall be sent  addressed  to him at such place by  telegraph,
cable or wireless, or be delivered personally or by telephone, not later than 48
hours  before  the time on which such  meeting is to be held.  The notice of any
meeting  need not  specify  the  purpose  of the  meeting.  Any  requirement  of
furnishing a notice shall be waived by any director who signs a waiver of notice
before or after the  meeting,  or who attends the  meeting  without  protesting,
prior thereto or at its commencement, the lack of notice to him.

2.8         QUORUM AND ACTION

            A majority of the entire Board shall constitute a quorum except when
a vacancy or  vacancies  prevent  such  majority,  whereupon  a majority  of the
directors then in office shall constitute a quorum, provided such majority shall
constitute at least one-third of the entire Board of Directors. A majority of



                                       -8-


<PAGE>



the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place.  Notice need not be given of any  adjourned  meeting.
Except as otherwise provided herein, the act of the Board shall be the act, at a
meeting duly  assembled,  by vote of a majority of the directors  present at the
time of the vote,  a quorum  being  present at such time.

2.9         CHAIRMAN OF THE MEETING

            The  Chairman of the Board or, in his absence or  inability  to act,
the  President of the Company or, in his absence or  inability  to act,  another
director chosen by a majority of the directors  present shall act as chairman of
meetings of the Board and preside at all such  meetings.  The  Secretary  of the
Company or, in his absence or  inability  to act,  any person  appointed  by the
chairman of the meeting, shall act as secretary of the meeting.

2.10        RESIGNATION OR REMOVAL OF DIRECTORS

   
            Any director may resign at any time and such resignation  shall take
effect upon receipt  thereof by the Chairman of the Board,  the President or the
Secretary  unless  otherwise  specified in the  resignation.  No director of the
Company  shall be  removed  from  office as a  director  except for cause by the
affirmative  vote of (i) the holders of at least 66 2/3% of the voting  power of
the then  outstanding  shares of capital  stock of the Company  entitled to vote
generally in the election of directors,  voting  together as a single class,  or
(ii) a majority of the entire Board of Directors,  provided that this  provision
shall not apply to any  directors  elected  by holders  of any  Preferred  Stock
voting as a separate class or series under any provisions of the  Certificate of
Incorporation, which directors may be removed only by the vote of the holders of
at least a majority of the outstanding shares of such Preferred Stock.
    

2.11        COMMITTEES

            By  resolution  adopted  by  a  majority  of  the  entire  Board  of
Directors,  the  directors  may  designate  from  their  number  three  or  more
directors, to constitute an Executive Committee and other


                                       -9-


<PAGE>



committees,  each of which, to the extent provided in the resolution designating
it, shall have the authority of the Board of Directors with the exception of any
authority  the  delegation  of which  is  prohibited  by the New  York  Business
Corporation  Law. All committees so appointed  shall keep regular minutes of the
business transacted at their meeting. Each committee established by the Board of
Directors shall serve at the pleasure of the Board of Directors,  which may fill
vacancies in any such committee.

2.12        ACTION IN LIEU OF MEETING

            Any action  required  or  permitted  to be taken by the Board or any
committee  thereof may be taken without a meeting if all members of the Board or
the committee consent in writing to the adoption of a resolution authorizing the
action.  The resolution and the written consents thereto shall be filed with the
minutes of the proceedings of the Board or committee.

2.13        TELEPHONE PARTICIPATION

            One or more  members  of the  Board  or any  committee  thereof  may
participate  in a meeting of the Board or  committee  by means of a telephone or
similar  communications  equipment  allowing  all persons  participating  in the
meeting to hear each other at the same time.  Participation  by such means shall
constitute presence in person at a meeting.



                                      -10-


<PAGE>



                                   ARTICLE III
                                    OFFICERS

3.1   ELECTION

            The Board of Directors at its first meeting after the annual meeting
of  shareholders,  or as soon as practicable  after the election of directors in
each year,  shall elect or appoint  from their number a Chairman of the Board of
Directors.  The  Board of  Directors  shall  elect or  appoint  a  President,  a
Secretary  and a Treasurer,  none of whom need be members of the Board,  and may
also elect or appoint  one or more Vice  Presidents  and such other  officers as
they may deem proper setting forth the powers and duties of said officers in the
resolution  by which they are  elected or  appointed.  Any two of the  aforesaid
offices,  except  those  of  President  and Vice  President,  or  President  and
Secretary, may be held by the same person.

3.2   TERM OF OFFICE

            Each  officer  shall hold office at the  pleasure of the Board.  The
Board of  Directors  may remove any  officer  for cause or  without  cause.  Any
officer may resign his office at any time, such  resignation to take effect upon
receipt of written notice thereof by the Company unless  otherwise  specified in
the resignation. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board.

3.3   THE CHAIRMAN OF THE BOARD

            The Chairman of the Board of Directors  shall be the chief executive
officer of the Company and shall have the  general  and active  supervision  and
direction over the other officers, agents and employees and shall see that their
duties are properly performed. He shall, if present,  preside at each meeting of
the  shareholders  and of the  Board and  shall be an ex  officio  member of all
committees of the Board.  He shall perform all duties  incident to the office of
Chairman of the Board and chief  executive  officer and such other duties as may
from time to time be assigned to him by the Board or these By-Laws.

                                      -11-


<PAGE>



3.4   THE PRESIDENT

            The President  shall be the chief  operating  officer of the Company
and shall have general and active  supervision  and direction  over the business
and affairs of the Company and over its several officers,  subject,  however, to
the control of the Board.  In the case of the absence or inability to act of the
Chairman of the Board, the President shall perform the duties of the Chairman of
the Board and when so acting shall have all the powers of, and be subject to all
the  restrictions  upon, the Chairman of the Board.  He shall perform all duties
incident to the office of  President  and such other duties as from time to time
may be assigned to him by the Board, the Chairman of the Board or these By-Laws.

3.5   VICE PRESIDENT

            Each Vice  President  shall have such powers and perform such duties
as from time to time may be assigned to him by the Board.

3.6   THE TREASURER

            The Treasurer shall

            (a) have  charge and  custody of, and be  responsible  for,  all the
      funds and securities of the Company;

            (b) keep full and accurate accounts of receipts and disbursements in
      books belonging to the Company;

            (c) cause all  moneys and other  valuables  to be  deposited  to the
      credit of the Company in such  depositories  as may be  designated  by the
      Board;

            (d) receive,  and give receipts  for,  moneys due and payable to the
      Company from any source whatsoever;

            (e) disburse the funds of the Company and supervise  the  investment
      of its funds as ordered or authorized by the Board, taking proper vouchers
      therefor; and

                                      -12-


<PAGE>



            (f) in  general,  have all the  powers  and  perform  all the duties
      incident to the office of Treasurer  and such other duties as from time to
      time may be assigned to him by the Board, the Chairman of the Board or the
      President.

3.7   THE SECRETARY

            The Secretary shall

            (a) keep or cause to be kept, in one or more books  provided for the
      purpose,  the minutes of all meetings of the Board,  the committees of the
      Board and the shareholders;

            (b) see  that all  notices  are duly  given in  accordance  with the
      provisions of these By-Laws and as required by law;

            (c) be  custodian  of the  records  and the seal of the  Company and
      affix and attest the seal to all stock certificates of the Company (unless
      the seal of the  Company on such  certificates  shall be a  facsimile,  as
      hereinafter provided) and affix and attest the seal to all other documents
      to be executed on behalf of the Company under its seal;

            (d) see that the books, reports, statements,  certificates and other
      documents  and records  required by law to be kept and filed are  properly
      kept and filed; and

            (e) in  general,  have all the  powers  and  perform  all the duties
      incident to the office of Secretary  and such other duties as from time to
      time may be assigned to him by the Board, the Chairman of the Board or the
      President.

3.8   DUTIES OF OFFICERS MAY BE DELEGATED

            In the case of the absence of any  officer,  or for any other reason
that the Board may deem sufficient,  the Chairman of the Board, the President or
the Board may  delegate  for the time being the powers or duties of such officer
to any other officer or to any director.


                                      -13-


<PAGE>



                                   ARTICLE IV
                               STOCK CERTIFICATES

4.1   ISSUANCE OF STOCK CERTIFICATES

            The  capital   stock  of  the  Company  shall  be   represented   by
certificates  signed by the  Chairman  of the  Board,  the  President  or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or any
Assistant Treasurer and sealed with the seal of the Company.  Such seal may be a
facsimile,  engraved  or printed and where any such  certificate  is signed by a
transfer  agent or transfer  clerk and by a  registrar,  the  signatures  of any
officers appearing thereon may be facsimiles, engraved or printed.

4.2   LOST STOCK CERTIFICATES

            The  Board of  Directors  may  issue or  cause to be  issued  new or
duplicate  certificates for lost, stolen or destroyed stock  certificates of the
Company  upon  written  notification  of  the  facts  of  such  loss,  theft  or
destruction  and subject,  in the  discretion of the Board of Directors,  to the
deposit  of a bond  or  other  indemnity  by the  shareholder  seeking  the  new
certificate in such form and with such sureties and in such sum as the Board may
require. 

4.3   TRANSFERS OF STOCK

            Transfers of stock shall be made only on the stock transfer books of
the  Company,  and,  except in the case of any such  certificate  which has been
lost,  stolen or destroyed,  such transfer  shall only be made upon surrender to
the  Company of a  certificate  for shares for  cancellation  duly  endorsed  or
accompanied  by proper  evidence  of  succession,  assignment  or  authority  to
transfer.  Upon the issue of a new certificate to the person  entitled  thereto,
the Company shall cancel the old certificate and record the transaction upon its
books.



                                      -14-


<PAGE>



4.4   REGULATIONS

            Except  to the  extent  that the  exercise  of such  power  shall be
prohibited  or   circumscribed   by  these  By-Laws,   by  the   Certificate  of
Incorporation,  or other certificate  filed pursuant to law, or by statute,  the
Board  of  Directors  shall  have  power  to make  such  rules  and  regulations
concerning  the  issuance,  registration,  transfer  and  cancellation  of stock
certificates as it shall deem appropriate.

                                    ARTICLE V
                                      SEAL

            The seal of the Company  shall be  circular in form,  shall bear the
name of the  Company  and  shall  contain  in the  center  the year in which the
Company was incorporated and the words "Corporate Seal", "New York".

                                   ARTICLE VI
                                   FISCAL YEAR

            The  fiscal  year of the  Company  shall  end on such date and shall
consist of such accounting periods as may be fixed by the Board.

                                   ARTICLE VII
                                VOTING SECURITIES

            Unless  otherwise  directed by the Board, the Chairman of the Board,
or, in the case of his absence or inability to act,  the  President,  or, in the
case of the  President's  absence or inability to act, the Vice  Presidents,  in
order of their  seniority,  shall have full power and authority on behalf of the
Company to attend and to act and to vote, or to execute in the name or on behalf
of the Company a proxy authorizing

                                      -15-


<PAGE>



an agent or attorney-in-fact  for the Company to attend and vote at any meetings
of security  holders of corporations  in which the Company may hold  securities,
and at such meetings he or his duly authorized agent or  attorney-in-fact  shall
possess and may exercise any and all rights and powers incident to the ownership
of such  securities  and which,  as the owner  thereof,  the Company  might have
possessed  and exercised if present.  The Board by resolution  from time to time
may confer like power upon any other person or persons.

                                  ARTICLE VIII
                                BOOKS AND RECORDS

            The Company  shall keep  correct and  complete  books and records of
account and shall keep minutes of the proceedings of the shareholders, the Board
of Directors,  and any committee which the directors may appoint, and shall keep
at the  office of the  Company  in the State of New York or at the office of the
transfer  agent or registrar,  if any, in said State,  a record  containing  the
names and addresses of all shareholders,  the number of shares held by each, and
the dates when they respectively became the owners of record thereof. Any of the
foregoing books, minutes, or records may be in written form or in any other form
capable of being converted into written form within a reasonable time.






                                      -16-


<PAGE>



                                   ARTICLE IX
              INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

9.1   GENERAL

            The Company  shall  indemnify any officer or director of the Company
made,  or  threatened  to be made, a party to an action or  proceeding,  whether
civil,  criminal,  administrative or investigative and including an action by or
in the right of the  Company or by or in the right of any other  corporation  of
any type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise,  which any director or officer of the
Company served in any capacity at the request of the Company (any such action or
proceeding being hereinafter referred to as an "Action"),  by reason of the fact
that he, his testator or intestate was a director or officer of the Company,  or
served such other  corporation,  partnership,  joint  venture,  trust,  employee
benefit plan or other  enterprise in any  capacity,  against  judgments,  fines,
amounts paid in settlement and reasonable  expenses,  including  attorney's fees
incurred as a result of such Action,  or any appeal  therein,  provided  that no
indemnification  shall be made to or on behalf of any  director  or officer if a
judgment  or other  final  adjudication  adverse  to such  director  or  officer
establishes  that (i) his or her acts  were  committed  in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated,  or (ii) he or she personally gained in fact
a  financial  profit  or other  advantage  to  which  he or she was not  legally
entitled.  The Company may indemnify and advance expenses to any other person to
whom the Company is permitted to provide  indemnification  or the advancement of
expenses to the fullest extent  permitted by applicable law, whether pursuant to
rights  granted  pursuant to, or provided by, the New York Business  Corporation
Law or other law, or other rights create by an agreement  approved by the Board,
or  resolution  of  shareholders  or the  Board,  and the  adoption  of any such
resolution or the entering into of any such  agreement  approved by the Board is
hereby authorized.

                                      -17-


<PAGE>



9.2   EXPENSE ADVANCES

            The Company  shall,  from time to time,  advance to any  director or
officer  of  the  Company  expenses  (including  attorneys'  fees)  incurred  in
defending  any  Action in  advance  of the  final  disposition  of such  Action;
provided that no such advancement shall be made until receipt of any undertaking
by or on behalf of such  director  or officer to repay such amount as and to the
extent required by law.

9.3   PROCEDURE FOR INDEMNIFICATION

            Indemnification  and  advancement  of expenses under this Article IX
shall be made promptly and, in any event,  no later than thirty (30) days in the
case of indemnification and fifteen (15) days in the case of expense advancement
following  the  request  of the  person  entitled  to  such  indemnification  or
advancement of expenses hereunder,  as the case may be. The Board shall promptly
(but, in any event,  within such thirty (30) or fifteen (15) day period,  as the
case  may  be)  take  all  such  actions  (including,  without  limitation,  any
authorizations  and findings  required by law) as may be necessary to indemnify,
and advance  expenses to, each person entitled  thereto pursuant to this Article
IX.  If  the  Board  is  or  may  be  disqualified  by  law  from  granting  any
authorization,  making  any  finding  or taking any other  action  necessary  or
appropriate for such  indemnification  or advancement,  then the Board shall use
its best efforts to cause appropriate  person(s) to promptly so authorize,  find
or act.

9.4   INSURANCE

            The Company  shall be permitted  to purchase and maintain  insurance
for its own indemnification and that of its directors and officers and any other
proper persons to the maximum extent permitted by law.

9.5   NON-EXCLUSIVITY

            Nothing  contained  in this  Article  IX shall  limit  the  right to
indemnification  and  advancement  of  expenses  to which  any  person  would be
entitled by law in the absence of this Article IX, or shall be


                                      -18-


<PAGE>



deemed exclusive of any other rights to which those seeking  indemnification  or
advancement  of  expenses  may have or  hereafter  be  entitled  under  any law,
provision of the Certificate of Incorporation, By-Law, agreement approved by the
Board, or resolution of shareholders or directors;  and the adoption of any such
resolution  or  entering  into of any such  agreement  approved  by the Board is
hereby authorized. 

9.6   CONTINUITY OF RIGHTS

            The  indemnification  and  advancement  of expenses  provided by, or
granted  pursuant  to, this Article IX shall (i) continue as to a person who has
ceased to serve in a capacity which would entitle such person to indemnification
or advancement  of expenses  pursuant to this Article IX with respect to acts or
omissions  occurring prior to such  cessation,  (ii) inure to the benefit of the
heirs, executors and administrators of a person entitled to the benefits of this
Article IX, (iii) apply with respect to acts or omissions occurring prior to the
adoption of this  Article IX to the  fullest  extent  permitted  by law and (iv)
survive the full or partial repeal or restrictive  amendment hereof with respect
to events occurring prior thereto.

9.7   ENFORCEMENT

            The right to indemnification and advancement of expenses provided by
this Article IX shall be enforceable by any person  entitled to  indemnification
or advancement of expenses hereunder in any court of competent jurisdiction.  In
such an enforcement action, the burden shall be on the Company to prove that the
indemnification  and  advancement of expenses being sought are not  appropriate.
Neither the failure of the Company to determine whether  indemnification  or the
advancement  of  expenses  is  proper  in  the   circumstances   nor  an  actual
determination  by the  Company  thereon  adverse  to  the  person  seeking  such
indemnification  or  advancement  shall  constitute  a defense  to the action or
create a presumption  that such person is not so entitled.  Without limiting the
scope of  Section  9.1,  (a) a person who has been  successful  on the merits or
otherwise  in the defense of an Action shall be entitled to  indemnification  as
authorized in


                                      -19-


<PAGE>


Section  9.1 and (b) the  termination  of any  Action by  judgment,  settlement,
conviction  or plea of nolo  contendere  or its  equivalent  shall not in itself
create a  presumption  that such person has not met the  standard of conduct set
forth in Section 9.1. Such person's  reasonable  expenses incurred in connection
with  successfully  establishing  such  person's  right  to  indemnification  or
advancement or expenses,  in whole or in part, in any such proceeding shall also
be indemnified by the Company. 

9.8   SEVERABILITY

            If this Article IX or any portion hereof shall be invalidated on any
ground by any court of  competent  jurisdiction,  then the Company  nevertheless
shall indemnify and advance expenses to each person  otherwise  entitled thereto
to the fullest  extent  permitted by any  applicable  portion of this Article IX
that shall not have been invalidated.

                                    ARTICLE X
                                    AMENDMENT

   
            Except  as  otherwise  provided  in  the  Company's  Certificate  of
Incorporation  or Sections 2.2 and 2.10 of these  By-Laws,  these By-Laws may be
amended,  altered,  changed, added to or repealed by the affirmative vote of the
holders of a majority of the votes cast in favor of or against  such action at a
meeting of shareholders by the holders of shares entitled to vote thereon.
    
            Except  as  otherwise  provided  in  the  Company's  Certificate  of
Incorporation,  the Board of Directors,  at any regular or special meeting, by a
majority vote of the whole Board,  may amend,  alter,  change,  add to or repeal
these By-Laws,  provided that if any By-Law regulating an impending  election of
directors  is adopted or amended or  repealed  by the Board,  there shall be set
forth in the  notice  of the  next  shareholders  meeting  for the  election  of
directors,  the  By-Laws so adopted or  amended  or  repealed,  together  with a
concise statement of the changes made.

                                      -20-




<PAGE>



                                                                         ANNEX A
                                                                         -------

                             1994 STOCK OPTION PLAN

                                       of

                       MOTORCAR PARTS & ACCESSORIES, INC.

                          (AS AMENDED ON JUNE 1, 1998)



            1.    PURPOSES OF THE PLAN.  This stock  option plan (the "Plan") is
designed  to provide an  incentive  to key  employees  (including  officers  and
directors who are key employees), Outside Directors (as defined in Paragraph 19)
and  consultants of Motorcar Parts & Accessories,  Inc., a New York  corporation
(the "Company"), and its present and future subsidiary corporations,  as defined
in Paragraph  19  ("Subsidiaries"),  and to offer an  additional  inducement  in
obtaining the services of such  individuals.  The Plan provides for the grant of
"incentive  stock  options"  ("ISOs")  within the  meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"),  and nonqualified  stock
options ("NQSOs"),  but the Company makes no warranty as to the qualification of
any option as an "incentive stock option" under the Code.

            2.    STOCK  SUBJECT  TO THE  PLAN.  Subject  to the  provisions  of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share,  of the Company  ("Common  Stock") for which options may be granted under
the Plan shall not  exceed  960,000.  Such  shares of Common  Stock may,  in the
discretion of the Board of Directors of the Company (the "Board of  Directors"),
consist either in whole or in part of authorized  but unissued  shares of Common
Stock or shares of Common Stock held in the treasury of the Company. The Company
shall at all times during the term of the Plan reserve and keep  available  such
number  of  shares  of  Common  Stock  as  will be  sufficient  to  satisfy  the
requirements of the Plan.  Subject to the provisions of Paragraph 13, any shares
of Common Stock subject to an option which for any reason expires,  is cancelled
or is terminated  unexercised  or which ceases for any reason to be  exercisable
shall again become available for the granting of options under the Plan.

            3.    ADMINISTRATION  OF THE PLAN. The Plan shall be administered by
the Board of Directors which, to the extent it shall determine, may delegate its
powers with  respect to the  administration  of the Plan to a  committee  of the
Board of Directors (the "Com mittee")  consisting of not less than two Directors
(or  such  greater  number  as  required  by  law),  each  of  whom  shall  be a
"non-employee  director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). References in the Plan to determinations or actions by the
Committee shall be deemed to include  determinations and actions by the Board of
Directors. A majority of the members of the Committee shall constitute a quorum,
and the acts of a majority  of the  members  present  at any  meeting at which a
quorum is present,  and any acts  approved  in writing by all members  without a
meeting, shall be the acts of the Committee.




<PAGE>



            Subject to the express  provisions of the Plan, the Committee  shall
have the authority, in its sole discretion, with respect to Employee Options (as
defined in Paragraph 19) and Consultant Options (as defined in Paragraph 19): to
determine the key employees and consultants who shall receive options; the times
when they shall receive options; whether an Employee Option shall be an ISO or a
NQSO;  the number of shares of Common  Stock to be subject to each  option;  the
term of each option; the date each option shall become  exercisable;  whether an
option shall be exercisable  in whole,  in part or in  installments,  and, if in
installments,  the  number  of  shares of  Common  Stock to be  subject  to each
installment;  whether  the  installments  shall be  cumulative;  the  date  each
installment shall become  exercisable and the term of each installment;  whether
to accelerate the date of exercise of any installment;  whether shares of Common
Stock may be issued on  exercise  of an option as partly  paid,  and, if so, the
dates when future  installments  of the exercise  price shall become due and the
amounts of such  installments;  the exercise  price of each option;  the form of
payment of the exercise price; whether to restrict the sale or other disposition
of the shares of Common  Stock  acquired  upon the  exercise of an option and to
waive any such  restriction;  whether  to  subject  the  exercise  of all or any
portion of an option to the  fulfillment  of  contingencies  as specified in the
Contract  (as  described  in  Paragraph  11),  including  without   limitations,
contingencies  relating  to  entering  into a covenant  not to compete  with the
Company  and its  Parent  and  Subsidiaries,  to  financial  objectives  for the
Company, a Subsidiary, a division, a product line or other category,  and/or the
period  of  continued  employment  of  the  optionee  with  the  Company  or its
Subsidiaries,  and to determine whether such  contingencies  have been met; and,
with respect to Employee  Options,  Consultant  Options and Director Options (as
defined in Paragraph 19): to construe the respective  Contracts and the Plan; to
determine the amount, if any,  necessary to satisfy the Company's  obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option,
provided  such option as modified  would be permitted to be granted on such date
under  the  terms of the  Plan;  to  prescribe,  amend  and  rescind  rules  and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. The  determinations of the Committee on
the matters  referred to in this Paragraph 3 shall be  conclusive.  No member or
former member of the Committee  shall be liable for any action or  determination
made in good faith with respect to the Plan or any option granted hereunder.

            4.    ELIGIBILITY;  GRANTS.  The Committee may,  consistent with the
purposes of the Plan, grant Employee Options from time to time, to key employees
(including  officers and directors who are key employees) and Consultant Options
to consultants of the Company or any of its Subsidiaries.  Options granted shall
cover such  number of shares of Common  Stock as the  Committee  may  determine;
provided, however, that the maximum number of shares subject to options that may
be granted to any employee in any fiscal year of the Company under the Plan (the
"162(m)  Maximum")  may not exceed  100,000;  and  FURTHER,  PROVIDED,  that the
aggregate  market  value  (determined  at the time the option is granted) of the
shares of Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company,  which are  exercisable  for the first time by such optionee during any
calendar year shall not exceed  $100,000.  The $100,000 ISO limitation  shall be
applied by taking ISOs into account in the order in which


                                       -2-


<PAGE>



they were granted. Any option (or the portion thereof) granted in excess of such
amount shall be treated as a NQSO.

            Beginning on April 30, 1995 and on each April 30  thereafter  during
the term of the Plan, each person who is an Outside  Director on the immediately
preceding  March 31 shall be granted an option to purchase  125 shares of Common
Stock for each month or portion thereof during the 12-month period ended on such
March 31 that  such  person  served  as an  Outside  Director.  In the event the
remaining  shares available for grant under the Plan are not sufficient to grant
the Director  Options to each such Outside  Director in any year,  the number of
shares  subject  to  the  Director  Options  for  such  year  shall  be  reduced
proportionately. The Committee shall not have any discretion with respect to the
selection of Directors to receive Director  Options or the amount,  the price or
the timing with respect thereto.

            5.    EXERCISE  PRICE.  The  exercise  price of the shares of Common
Stock under each Employee  Option and  Consultant  Option shall be determined by
the Committee; provided, however, that the exercise price shall not be less than
100% of the fair market value of the Common Stock  subject to such option on the
date of grant; and further provided, that if, at the time an ISO is granted, the
optionee  owns (or is  deemed  to own under  Section  424(d) of the Code)  stock
possessing  more than 10% of the total  combined  voting power of all classes of
stock of the Company,  of any of its  Subsidiaries or of a Parent,  the exercise
price of such ISO shall not be less  than 110% of the fair  market  value of the
Common Stock subject to such ISO on the date of grant. The exercise price of the
shares of Common  Stock under each  Director  Option  shall be equal to the fair
market value of the Common Stock subject to the option on the date of grant.

            The fair market value of a share of Common Stock on any day shall be
(a) if the  principal  market  for the  Common  Stock is a  national  securities
exchange,  the average  between  the high and low sales  prices per share of the
Common Stock on such day as reported by such exchange or on a consolidated  tape
reflecting  transactions on such exchange,  (b) if the principal  market for the
Common  Stock is not a national  securities  exchange  and the  Common  Stock is
quoted on the National  Association of Securities  Dealers Automated  Quotations
System  ("NASDAQ"),  and (i) if actual sales price information is available with
respect to the Common Stock,  the average  between the high and low sales prices
per share of the Common Stock on such day on NASDAQ, or (ii) if such information
is not  available,  the average  between  the  highest bid and the lowest  asked
prices  for the  Common  Stock on such day on  NASDAQ,  or (c) if the  principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on NASDAQ,  the  average  between the highest bid and lowest
asked  prices  per share for the  Common  Stock on such day as  reported  on the
NASDAQ OTC Bulletin Board Service, National Quotation Bureau,  Incorporated or a
comparable service;  provided that if clauses (a), (b) and (c) of this Paragraph
are all inapplicable,  or if no trades have been made or no quotes are available
for  such  day,  the fair  market  value of a share  of  Common  Stock  shall be
determined by the Committee by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.  The determination
of the Committee shall be conclusive in determining the fair market value of the
stock.


                                       -3-


<PAGE>



            6.    TERM. The term of each Employee  Option and Consultant  Option
granted  pursuant  to the  Plan  shall  be such  term as is  established  by the
Committee, in its sole discretion, at or before the time such option is granted;
provided,  however, that the term of each ISO granted pursuant to the Plan shall
be for a period  not  exceeding  10 years  from the date of grant  thereof,  and
further, provided, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section  424(d) of the Code) stock  possessing  more than
10% of the total  combined  voting power of all classes of stock of the Company,
of any of its  Subsidiaries  or of a Parent,  the term of the ISO shall be for a
period not  exceeding  five years from the date of grant.  Employee  Options and
Consultant  Options  shall be  subject  to earlier  termination  as  hereinafter
provided.  Each  Director  Option  shall be  exercisable  for a term of 10 years
commencing on the date of grant.

            7.    EXERCISE.  An option (or any part or installment  thereof), to
the extent then exercisable,  shall be exercised by giving written notice to the
Company at its  principal  office (at present 2727  Maricopa  Street,  Torrance,
California,  Attn:  Chairman of the Board),  stating  which ISO or NQSO is being
exercised,  specifying  the  number of shares of Common  Stock as to which  such
option is being  exercised and  accompanied  by payment in full of the aggregate
exercise price  therefor (or the amount due on exercise if the Contract  permits
installment payments) (a) in cash or by certified check or (b) in the case of an
Employee Option or a Consultant  Option, if the Contract at the time of grant so
permits,  with the  authorization  of the Committee,  with  previously  acquired
shares of Common  Stock having an aggregate  fair market  value,  on the date of
exercise,  equal to the aggregate exercise price of all options being exercised,
or with any combination of cash, certified check or shares of Common Stock.

            The Committee may, in its discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly  executed  exercise
notice,  together  with  a copy  of his  irrevocable  instructions  to a  broker
acceptable  to the  Committee  to deliver  promptly to the Company the amount of
sale or loan  proceeds  sufficient  to pay such  exercise  price.  In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.

            A person  entitled to receive  Common  Stock upon the exercise of an
option shall not have the rights of a shareholder with respect to such shares of
Common Stock until the date of issuance of a stock  certificate  to him for such
shares;  provided,  however,  that until such stock  certificate is issued,  any
option holder using previously  acquired shares of Common Stock in payment of an
option  exercise price shall  continue to have the rights of a shareholder  with
respect to such previously acquired shares.

            8.    TERMINATION OF RELATIONSHIP.  Any holder of an Employee Option
whose  employment  with  the  Company  (and its  Parent  and  Subsidiaries)  has
terminated  for any reason  other than his death or  Disability  (as  defined in
Paragraph 19) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would


                                       -4-


<PAGE>



otherwise  have expired;  provided,  however,  that if his  employment  shall be
terminated either (a) for cause, or (b) without the consent of the Company, said
option shall  terminate  immediately.  Employee  Options  granted under the Plan
shall not be  affected  by any  change in the status of the holder so long as he
continues to be a full-time  employee of the  Company,  its Parent or any of the
Subsidiaries  (regardless  of having been  transferred  from one  corporation to
another).

            For purposes of the Plan, an employment relationship shall be deemed
to  exist  between  an  individual  and a  corporation  if,  at the  time of the
determination,  the individual was an employee of such  corporation for purposes
of Section  422(a) of the Code. As a result,  an  individual  on military,  sick
leave or other bona fide leave of absence  shall  continue to be  considered  an
employee  for  purposes of the Plan during such leave if the period of the leave
does not exceed 90 days,  or, if longer,  so long as the  individual's  right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute  or by  contract.  If the  period  of  leave  exceeds  90  days  and the
individual's  right to reemployment is not guaranteed by statute or by contract,
the employment  relationship  shall be deemed to have terminated on the 91st day
of such leave. In addition,  for purposes of the Plan, an optionee's  employment
with a Subsidiary or Parent of the Company shall be deemed to have terminated on
the date such corporation ceases to be a Subsidiary or Parent of the Company.

            The termination of an optionee's relationship as a consultant of the
Company or of a Subsidiary  of the Company shall not affect the option except as
may otherwise be provided in the Contract. A Director Option may be exercised at
any time during its 10 year term.  The Director  Option shall not be affected by
the holder  ceasing to be a director  of the  Company or becoming an employee or
consultant of the Company or any of its subsidiaries.

            Nothing  in the Plan or in any option  granted  under the Plan shall
confer on any  individual any right to continue in the employ or as a consultant
or director of the Company, its Parent or any of its Subsidiaries,  or interfere
in any way with the right of the Company,  its Parent or any of its Subsidiaries
to terminate such  relationship  at any time for any reason  whatsoever  without
liability to the Company, its Parent or any of its Subsidiaries.

            9.    DEATH OR  DISABILITY  OF AN OPTIONEE.  If an optionee dies (a)
while he is employed by the Company, its Parent or any of its Subsidiaries,  (b)
within  three  months  after the  termination  of his  employment  (unless  such
termination  was for cause or without the consent of the  Company) or (c) within
one year following the termination of his employment by reason of Disability, an
Employee Option may be exercised,  to the extent  exercisable on the date of his
death,  by his executor,  administrator  or other person at the time entitled by
law to his rights  under such  option,  at any time within one year after death,
but not  thereafter  and in no event after the date the option  would  otherwise
have expired.

            Any optionee whose employment has terminated by reason of Disability
may exercise his Employee Option,  to the extent  exercisable upon the effective
date of such


                                       -5-


<PAGE>



termination, at any time within one year after such date, but not thereafter and
in no event after the date the option would otherwise have expired.

            The death or Disability  of an optionee to whom a Consultant  Option
has been  granted  under the Plan  shall not affect  the  option,  except as may
otherwise be provided in the Contract.  The term of a Director  Option shall not
be affected by the death or Disability of the optionee. In such case, the option
may be exercised at any time during its term by his executor,  administrator  or
other  person at the time  entitled by law to the  optionee's  rights under such
option.

            10.   COMPLIANCE  WITH  SECURITIES  LAW.  It is a  condition  to the
exercise  of any option  that  either  (a) a  Registration  Statement  under the
Securities Act of 1933, as amended (the "Securities  Act"),  with respect to the
shares of Common Stock to be issued upon such  exercise  shall be effective  and
current at the time of exercise,  or (b) there is an exemption from registration
under the  Securities  Act for the  issuance of shares of Common Stock upon such
exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act.

            The Committee may require the optionee to execute and deliver to the
Company his representations and warranties,  in form and substance  satisfactory
to the  Committee,  that (i) the  shares of Common  Stock to be issued  upon the
exercise of the option are being  acquired by the  optionee for his own account,
for investment only and not with a view to the resale or  distribution  thereof,
and (ii) any subsequent resale or distribution of shares of Common Stock by such
optionee will be made only pursuant to (a) a  Registration  Statement  under the
Securities  Act which is  effective  and current  with  respect to the shares of
Common  Stock  being sold,  or (b) a specific  exemption  from the  registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall prior to any offer of sale or sale of such shares of Common Stock  provide
the Company with a favorable  written opinion of counsel,  in form and substance
satisfactory to the Company,  as to the  applicability  of such exemption to the
proposed sale or distribution.

            In addition,  if at any time the  Committee  shall  determine in its
discretion  that the  listing or  qualification  of the  shares of Common  Stock
subject to such option on any securities  exchange or under any applicable  law,
or the consent or approval of any governmental  regulatory body, is necessary or
desirable as a condition of, or in connection  with,  the granting of an option,
or the  issuance of shares of Common  Stock  thereunder,  such option may not be
exercised  in whole or in part unless such  listing,  qualification,  consent or
approval  shall  have been  effected  or  obtained  free of any  conditions  not
acceptable to the Committee.

            11.   STOCK OPTION  CONTRACTS.  Each option shall be evidenced by an
appropriate  Contract  which  shall  be duly  executed  by the  Company  and the
optionee,  and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.


                                       -6-


<PAGE>



            12.   ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any
other  provisions  of the Plan,  in the event of any  change in the  outstanding
Common  Stock  by  reason  of a  stock  dividend,  recapitalization,  merger  or
consolidation  in which the  Company  is the  surviving  corporation,  split-up,
spin-off,  combination or exchange of shares or the like,  the aggregate  number
and kind of shares subject to the Plan, the aggregate  number and kind of shares
subject to each  outstanding  option and the exercise price thereof,  the number
and kind of shares  subject to future grants of Director  Options and the 162(m)
Maximum  shall  be  appropriately  adjusted  by the  Board of  Directors,  whose
determination shall be conclusive.

            In the event of (a) the  liquidation  or dissolution of the Company,
(b) a  merger  or  consolidation  in  which  the  Company  is not the  surviving
corporation,   or  (c)  any  other   capital   reorganization   (other   than  a
recapitalization)  in which more than 50% of the  shares of Common  Stock of the
Company entitled to vote are exchanged, any outstanding options shall terminate,
unless other provision is made therefor in the transaction.

            13.   AMENDMENTS  AND  TERMINATION OF THE PLAN. The Plan was adopted
by the Board of  Directors  on  January  28,  1994 and  amended  by the Board of
Directors on July 26, 1994, April 18, 1996, October 4, 1996 and June 1, 1998. No
option  may be granted  under the Plan  after  January  27,  2004.  The Board of
Directors,  without further approval of the Company's  shareholders,  may at any
time suspend or terminate  the Plan,  in whole or in part, or amend it from time
to  time  in  such  respects  as  it  may  deem  advisable,  including,  without
limitation,  in order  that ISO  granted  hereunder  meet the  requirements  for
"incentive  stock options" under the Code, to comply with the provisions of Rule
16b-3  promulgated  under the Exchange  Act,  Section  162(m) of the Code and to
conform  to any  change  in  applicable  law or to  regulations  or  rulings  of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent  shareholder  approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common  Stock for which  options  may be  granted  under the Plan or the  162(m)
Maximum,  (b) materially increase the benefits to participants under the Plan or
(c) change the  eligibility  requirements  for  individuals  entitled to receive
options hereunder.  Notwithstanding the foregoing,  the provisions regarding the
selection of Directors for  participation  in, and the amount,  the price or the
timing  of,  Director  Options  shall not be  amended  more than once  every six
months,  other than to comport with changes in the Code, the Employee Retirement
Income  Security Act or the rules  thereunder.  No  termination,  suspension  or
amendment  of the Plan  shall,  without the consent of the holder of an existing
option  affected  thereby,  adversely  affect his rights under such option.  The
power of the Committee to construe and administer any options  granted under the
Plan prior to the  termination  or  suspension  of the Plan  nevertheless  shall
continue after such termination or during such suspension.

            14.   NON-TRANSFERABILITY  OF OPTIONS.  No option  granted under the
Plan shall be  transferable  otherwise  than by will or the laws of descent  and
distribution,  and options may be  exercised,  during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred,


                                       -7-


<PAGE>



pledged,  hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.

            15.   WITHHOLDING TAXES. The Company may withhold cash and/or,  with
the  authorization  of the  Committee,  shares of Common Stock to be issued with
respect  thereto having an aggregate fair market value equal to the amount which
it determines is necessary to satisfy its obligation to withhold Federal,  state
and  local  income  taxes or other  taxes  incurred  by  reason  of the grant or
exercise of an option,  its  disposition,  or the  disposition of the underlying
shares of Common Stock. Alternatively, the Company may require the holder to pay
to the Company such amount, in cash, promptly upon demand. The Company shall not
be  required  to issue any shares of Common  Stock  pursuant  to any such option
until all required  payments have been made.  Fair market value of the shares of
Common Stock shall be determined in accordance with Paragraph 5.

            16.   LEGENDS;  PAYMENT OF  EXPENSES.  The Company may endorse  such
legend or legends upon the  certificates  for shares of Common Stock issued upon
exercise  of an  option  under  the  Plan and may  issue  such  "stop  transfer"
instructions  to its transfer  agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act, (b)  implement  the  provisions  of the Plan or any  agreement  between the
Company and the  optionee  with respect to such shares of Common  Stock,  or (c)
permit the Company to determine the occurrence of a "disqualifying disposition,"
as  described  in  Section  421(b) of the Code,  of the  shares of Common  Stock
transferred upon the exercise of an ISO granted under the Plan.

            The  Company  shall  pay all  issuance  taxes  with  respect  to the
issuance of shares of Common Stock upon the exercise of an option  granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.

            17.   USE OF PROCEEDS.  The cash proceeds from the sale of shares of
Common Stock  pursuant to the exercise of options  under the Plan shall be added
to the general funds of the Company and used for its general corporate  purposes
as the Board of Directors may determine.

            18.   SUBSTITUTIONS   AND   ASSUMPTIONS   OF  OPTIONS  OF  CER  TAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of  Directors  may,  without  further  approval  by the  shareholders,
substitute  new  options  for prior  options of a  Constituent  Corporation  (as
defined  in  Paragraph  19) or assume  the  prior  options  of such  Constituent
Corporation.


                                       -8-


<PAGE>



            19.   DEFINITIONS.

                  (a)   Subsidiary.  The term  "Subsidiary"  shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.

                  (b)   Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.

                  (c)   Constituent    Corporation.    The   term   "Constituent
Corporation"  shall mean any  corporation  which  engages with the Company,  its
Parent or any  Subsidiary in a transaction  to which Section  424(a) of the Code
applies (or would apply if the option  assumed or  substituted  were an ISO), or
any Parent or any Subsidiary of such corporation.

                  (d)   Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.

                  (e)   Outside Director. The term "Outside Director" shall mean
an individual  who, on the date of grant of a NQSO  hereunder,  is a director of
the  Company  but is not a common law  employee  of the Company or of any of its
Subsidiaries or its Parent.

                  (f)   Employee Option.  The term "Employee  Option" shall mean
an option  granted  pursuant  to the Plan to an  individual  who, on the date of
grant, is a key employee of the Company or a Subsidiary of the Company.

                  (g)   Consultant  Option.  The term "Consultant  Option" shall
mean a NQSO granted  pursuant to the Plan to a person who, on the date of grant,
is a consultant  to the Company or a Subsidiary of the Company and who is not an
employee of the Company or any of its Subsidiaries on such date.

                  (h)   Director Option. The term "Director Option" shall mean a
NQSO granted  pursuant to the Plan to a director of the Company who, on the date
of grant, is not an employee of the Company or a Subsidiary of the Company.

            20.   GOVERNING  LAW.  The  Plan,  such  options  as may be  granted
hereunder  and all  related  matters  shall be  governed  by, and  construed  in
accordance with, the laws of the State of New York.

            21.   PARTIAL  INVALIDITY.  The  invalidity  or  illegality  of  any
provision herein shall not affect the validity of any other provision.

            22.   SHAREHOLDER  APPROVAL.  The June 1, 1998 amendment to the Plan
shall be subject to  approval  by a majority  of the votes cast at the next duly
held meeting of the Company's  shareholders by the holders of shares entitled to
vote thereon. No options granted


                                       -9-


<PAGE>


pursuant to the amendment may be exercised prior to such approval, provided that
the date of grant of any options  granted  thereunder  shall be determined as if
the amendment to the Plan had not been subject to such approval. Notwithstanding
the  foregoing,  if the  amendment  to the Plan is not approved by a vote of the
shareholders  of the Company on or before May 31, 1999,  the  amendment  and any
options granted  thereunder shall terminate,  but the Plan as in effect prior to
the amendment and all options granted  thereunder shall remain in full force and
effect.















                                      -10-