ARTICLE OF INCORPORATION

                                       OF

                           LOMAS MORTGAGE CORPORATION

 

                                    --------

 

                                    ARTICLE I

 

          The undersigned, William G. Strench, whose post-office address is 1000

Dallas Building, Dallas, Texas 75201, being at least eighteen years of age, as

incorporator, does hereby form a corporation under and by virtue of the General

Laws of the State of Maryland.

 

                                   ARTICLE II

                                      NAME

 

                  The name of the corporation (which is hereinafter called the

"Corporation") is:

 

                           LOMAS MORTGAGE CORPORATION

 

 

                                   ARTICLE III

                                     PURPOSE

 

          The purpose for which the Corporation is formed is to engage in any

lawful act or activity for which corporations may be organized under the General

Laws of the State of Maryland as now or hereafter in force.

 

 

                                   ARTICLE IV

                       PRINCIPAL OFFICE AND RESIDENT AGENT

 

          The post-office address or the principal office of the Corporation in

the State of Maryland is c/o The Corporation Trust Incorporated, 32 South

Street, Baltimore, Maryland 21202. The name and post-office address of the

resident agent of the Corporation in the State of Maryland are The Corporation

Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. Said resident

agent is a Maryland corporation.

 

 

                                    ARTICLE V

                                  CAPITAL STOCK

 

         1. The total number of shares of stock of all classes which the

Corporation has authority to issue is Fifty Five Million (55,000,000) shares,

having an aggregate par value of One Million Dollars ($1,000,000.00) of which

Fifty Million (50,000,000) shares of the par value of one cent

 

 

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($.01) per share, amounting in aggregate par value to Five Hundred Thousand

Dollars ($500,000.00) shall be Common Stock and Five Million (5,000,000) shares

of the par value of ten cents ($.10) per share, amounting in aggregate par value

to Five Hundred Thousand Dollars ($500,000.00) shall be Preferred Stock. The

Board of Directors may classify and reclassify any unissued shares of capital

stock by setting or changing in any one or more respects the preferences,

conversion or other rights, voting powers, restrictions, limitations as to

dividends, qualifications or terms or conditions of redemption of such shares of

stock.

 

         2. The following is a description of the preferences, conversion and

other rights, voting powers and limitations as to dividends of the Common Stock

of the Corporation.

 

                   (a) Each share of Common Stock shall have one vote, and,

          except as otherwise provided in respect of any class of stock

          hereafter classified or reclassified, the exclusive voting power for

          all purposes shall be vested in the holders of the Common Stock.

 

                   (b) Subject to the provisions of law and any preferences of

          any class of stock hereafter classified or reclassified, dividends may

          be paid on the Common Stock of the Corporation at such time and in

          such amounts as the Board of Directors may deem advisable.

 

                   (c) In the event of any liquidation, dissolution or winding

          up of the Corporation, whether voluntary or involuntary, the holders

          of the Common Stock shall be entitled, after payment or provision for

          payment of the debts and other liabilities of the Corporation and the

          amount to which the holders of any class of stock hereafter classified

          or reclassified having a preference on distributions in the

          liquidation, dissolution or winding up of the Corporation shall be

          entitled, together with the holders of any other class of stock

          hereafter classified or reclassified not having a preference on

          distributions in the liquidation, dissolution or winding up of the

          Corporation, to share ratably in the remaining net assets of the

          Corporation.

 

          3. Subject to the foregoing, the power of the Board of Directors to

classify and reclassify any of the shares of capital stock shall include,

without limitation, subject to the provisions of the Articles of Incorporation

and the By-Laws authority to classify or reclassify any unissued shares of such

stock into a class or classes of preferred stock, preference stock, special

stock or other stock, and to divide and classify shares of any class into one or

more series of such class, by determining, fixing, or altering one or more of

the following:

 

                  (a) The distinctive designation of such class or series and

         the number of shares to constitute such class or series; provided that,

         unless otherwise prohibited by the terms of such or any other class or

         series, the number of shares of any class or series may be decreased by

         the Board of Directors in connection with any classification or

         reclassification of unissued shares and the number of shares of such

         class or series may be increased by the Board of Directors in

         connection with any such classification or reclassification, and any

         shares of any class or series which have been redeemed,

 

 

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         purchased, otherwise acquired or converted into shares of Common Stock

         or any other class or series shall become part of the authorized

         capital stock and be subject to classification and reclassification as

         provided in this Section.

 

                   (b) Whether or not and, if so, the rates, amounts and times

          at which, and the conditions under which, dividends shall be payable

          on shares of such class or series, whether any such dividends shall

          rank senior or junior to or on a parity with dividends payable on any

          other class or series of stock, and the status of any such dividends

          as cumulative, cumulative to a limited extent or non-cumulative and as

          participating or non-participating.

 

                   (c) Whether or not shares of such class or series shall have

          voting rights, in addition to any voting rights provided by law and,

          if so, the terms of such voting rights.

 

                   (d) Whether or not shares of such class or series shall have

          conversion or exchange privileges and, if so, the terms and conditions

          thereof, including provision for adjustment of the conversion or

          exchange rate in such events or at such times as the Board of

          Directors shall determine.

 

                   (e) Whether or not shares of such class or series shall be

          subject to redemption and, if so, the terms and conditions of such

          redemption, including the date or dates upon or after which they shall

          be redeemable and the amount per share payable in case of redemption,

          which amount may vary under different conditions and at different

          redemption dates; and whether or not there shall be any sinking fund

          or purchase account in respect thereof, and if so, the terms thereof.

 

                   (f) The rights of the holders of shares of such class or

          series upon the liquidation, dissolution or winding up of the affairs

          of, or upon any distribution of the assets of, the Corporation, which

          rights may vary depending upon whether such liquidation, dissolution

          or winding up is voluntary or involuntary and, if voluntary, may vary

          at different dates, and whether such rights shall rank senior or

          junior to or on a parity with such rights of any other class or series

          of stock.

 

                   (g) Whether or not there shall be any limitations applicable,

          while shares of such class or series are outstanding, upon the payment

          of dividends or making of distributions on, or the acquisition of, or

          the use of moneys for purchase or redemption of, any stock of the

          Corporation, or upon any other action of the Corporation, including

          action under this Section, and, if so, the terms and conditions

          thereof.

 

                   (h) Any other preferences, rights, restrictions, including

          restrictions on transferability, and qualifications of shares of such

          class or series, not inconsistent with law and the Articles of

          Incorporation of the Corporation.

 

          4. For the purposes hereof and of any articles supplementary to the

Articles of Incorporation providing for the classification or reclassification

of any shares of capital stock or

 

 

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of any other charter document of the Corporation (unless otherwise provided in

any such articles or document), any class or series of stock of the Corporation

shall be deemed to rank:

 

                   (a) prior to another class or series either as to dividends

          or upon liquidation, if the holders of such class or series shall be

          entitled to the receipt of dividends or of amounts distributable on

          liquidation, dissolution or winding up, as the case may be, in

          preference or priority to holders of such other class or series;

 

                   (b) on a parity with another class or series either as to

          dividends or upon liquidation, whether or not the dividend rates,

          dividend payment dates or redemption or liquidation price per share

          thereof be different from those of such others, if the holders of such

          class or series of stock shall be entitled to receipt of dividends or

          amounts distributable upon liquidation, dissolution or winding up, as

          the case may be, in proportion to their respective dividend rates or

          redemption or liquidation prices, without preference or priority over

          the holders of such other class or series; and

 

                   (c) junior to another class or series either as to dividends

          or upon liquidation, if the rights of the holders of such class or

          series shall be subject or subordinate to the rights of the holders of

          such other class or series in respect of the receipt of dividends or

          the amounts distributable upon liquidation, dissolution or winding up,

          as the case may be.

 

          5. The Corporation shall not issue fractional shares of its stock. All

persons who shall acquire stock in the Corporation shall acquire the same

subject to the provisions of these Articles of Incorporation and the By-Laws of

the Corporation.

 

                                   ARTICLE VI

                                    DIRECTORS

 

          The number of directors of the Corporation shall be nine, which number

may be increased or decreased pursuant to the By-Laws of the Corporation, but

shall never be less than the minimum permitted by the General Laws of the State

of Maryland now or hereafter in force. The names of the directors who shall

serve until the first annual meeting or until their successors are duly elected

and qualify are as follows:

 

                                 John H. Dalton

                                    Ted Enloe

                                  David G. Fox

                                    Jess Hay

                              Kay Bailey Hutchison

                                   Paul M. Low

                               Lewis T. Sweet, Jr.

                                  Martin Tycher

                                 James M. Wooten

 

 

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                                   ARTICLE VII

 

         PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS

            OF THE CORPORATION AND OF THE DIRECTORS AND STOCKHOLDERS

 

         The following provisions are hereby adopted for the purpose of

defining, limiting and regulating the powers of the Corporation and of the

directors and stockholders:

 

         1. The Board of Directors of the Corporation is hereby empowered to

authorize the issuance from time to time of shares of its stock of any class,

whether now or hereafter authorized, or securities convertible into shares of

its stock of any class or classes, whether now or hereafter authorized, for such

consideration as may be deemed advisable by the Board of Directors and without

any action by the stockholders.

 

         2. No holder of any stock or any other securities of the Corporation,

whether now or hereafter authorized, shall have any preemptive right to

subscribe for or purchase any stock or any other securities of the Corporation

other than such, if any, as the Board of Directors, in its sole discretion, may

determine and at such price or prices and upon such other terms as the Board of

Directors, in its sole discretion, may fix; and any stock or other securities

which the Board of Directors may determine to offer for subscription may, as the

Board of Directors in its sole discretion shall determine, be offered to the

holders of any class, series or type of stock or other securities at the time

outstanding to the exclusion of the holders of any or all other classes, series

or types of stock or other securities at the time outstanding.

 

         3. The Board of Directors of the Corporation shall have the power to

make, adopt, alter, amend and repeal any of the By-Laws of the Corporation

except any particular By-Law which is specified as not subject to alteration or

repeal by the Board of Directors; provided that the stockholders may make,

adopt, alter, amend or repeal any of the By-Laws of the Corporation.

 

         4. The Board of Directors is hereby empowered to cause the redemption

by the Corporation of shares of its Common Stock and to restrict the transfer of

shares of Common Stock, in the manner provided for herein or the By-Laws.

 

         5. The Board of Directors of the Corporation shall have the power from

time to time and in its sole discretion to determine in accordance with sound

accounting practice, what constitutes annual or other net profits, earnings,

surplus, or net assets in excess of capital; to fix and vary from time to time

the amount to be reserved as working capital, or determine that retained

earnings or surplus shall remain in the hands of the Corporation; to set apart

out of any funds of the Corporation such reserve or reserves in such amount or

amounts and for such proper purpose or purposes as it shall determine and to

abolish any such reserve or any part thereof; to distribute and pay

distributions or dividends in stock, cash or other securities or property, out

of surplus or any other funds or amounts legally available therefor, at such

times and to the stockholders of record on such dates as it may, from time to

time, determine; and to determine whether and to what extent and at what times

and places and under what conditions and regulations the books, accounts and

documents of the Corporation, or any of them, shall be open to the inspection of

stockholders, except as otherwise provided by statute or by the By-Laws, and,

except as so provided, no stockholder shall have any right to inspect any book,

account or document of the Corporation unless authorized to do so by resolution

of the Board of Directors.

 

 

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         6. The Board of Directors of the Corporation is hereby empowered to

authorize, subject to such conditions, if any, as may be required by an

applicable statute, rule, regulation or By-Law of the Corporation, the execution

and performance by the Corporation of one or more agreements with any person,

corporation, firm, association, company, trust, partnership (limited or general)

or other organization whereby, subject to the supervision and control of the

Board of Directors, any such other person, corporation, firm, association,

company, trust, partnership (limited or general), or other organization shall

render or make available to the Corporation managerial, administrative and/or

related services, office space and other services and facilities (including, if

deemed advisable by the Board of Directors, the management or supervision of any

or all of the assets or investments of the Corporation) upon such terms and

conditions as may be provided in such agreement or agreements (including, if

deemed fair and equitable by the Board of Directors, the compensation payable

thereunder by the Corporation).

 

         7. The Board of Directors of the Corporation shall have the power to

authorize any agreement of the character described in Section 6 of this Article

VII or other agreement or transaction with any person, corporation, firm,

association, company, trust, partnership (limited or general), or other

organization, although one or more members of the Board of Directors or officers

of the Corporation may be the other party to any such agreement or transaction

or an officer, director, stockholder, or member of such other party, and no such

agreement or transaction shall be invalidated or rendered voidable solely by

reason of the existence of any such relationship if:

 

                  (a) the existence of the relationship is disclosed or known

         to: the Board of Directors and the Board authorizes, approves, or

         ratifies the agreement or transaction by the affirmative vote of a

         majority of disinterested directors, even if the disinterested

         directors constitute less than a quorum; or the stockholders entitled

         to vote, and the agreement or transaction is authorized, approved, or

         ratified by a majority of the votes cast by the stockholders entitled

         to vote other than the votes of shares owned of record or beneficially

         by any interested person, corporation, firm, association, company,

         trust, partnership (limited or general) or other organization; or

 

                  (b) the agreement or transaction is fair and reasonable to the

         Corporation.

 

         Common or interested directors or the stock owned by them or by an

interested person, corporation, firm, association, company, trust, partnership

(limited or general) or other organization may be counted in determining the

presence of a quorum at a meeting of the Board of Directors or at a meeting of

the stockholders, as the case may be, at which the agreement or transaction is

authorized, approved, or ratified. If an agreement or transaction is not

authorized, approved, or ratified in one of the ways provided for in clause (a)

of the first sentence of this Section, the person asserting the validity of the

agreement or transaction bears the burden of proving that the agreement or

transaction was fair and reasonable to the Corporation at the time it was

authorized, approved, or ratified. If such a common or interested director votes

at or attends a meeting to approve or disapprove an agreement or transaction as

described in Section 6 or this Section 7 of this Article VII, such vote shall

not affect the validity of such an agreement or transaction provided the

provisions of this Section are otherwise satisfied. The procedures in this

Section do not apply to the fixing by the Board of Directors of reasonable

compensation for a director, whether as a director or in any other capacity.

 

 

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         8. Except for agreements, transactions or acts required to be approved

under the provisions of Section 6 of this Article, any contract, transaction, or

act of the Corporation or of the Board of Directors which shall be ratified by a

majority of a quorum of the stockholders having voting powers at any annual

meeting, or at any special meeting called for such purpose, shall so far as

permitted by law be as valid and as binding as though ratified by every

stockholder of the Corporation.

 

         9. Unless the By-Laws otherwise provide, any officer or employee of the

Corporation (other than a director) may be removed at any time with or without

cause by the Board of Directors or by any committee or superior officer upon

whom such power of removal may be conferred by the By-Laws or by authority of

the Board of Directors.

 

         10. Notwithstanding any provision of law requiring the authorization of

any action by a greater proportion than a majority of the total number of shares

of all classes of capital stock or of the total number of shares of any class of

capital stock, such action shall be valid and effective if authorized by the

affirmative vote of the holders of a majority of the total number of shares of

all classes outstanding and entitled to vote thereon, except as otherwise

provided in the Articles of Incorporation.

 

         11. Each holder of stock of the Corporation shall upon demand disclose

to the Board of Directors in writing such information with respect to direct and

indirect ownership of securities of the Corporation as the Board of Directors

deems necessary to comply with provisions of the Internal Revenue Code of 1954,

as amended, applicable to the Corporation, or to comply with the requirements of

any taxing authority.

 

         12. The Corporation shall indemnify (a) its directors to the full

extent provided by the general laws of the State of Maryland now or hereafter in

force, including the advance of expenses under the procedures provided by such

laws; (b) its officers to the same extent it shall indemnify its directors; and

(c) its officers who are not directors to such further extent as shall be

authorized by the Board of Directors and be consistent with law. The foregoing

shall not limit the authority of the Corporation to indemnify other employees

and agents consistent with law.

 

         13. The Corporation reserves the right from time to time to make any

amendments of its Articles of Incorporation which may now or hereafter be

authorized by law, including any amendments changing the terms or contract

rights, as expressly set forth in its Articles of Incorporation, of any of its

outstanding stock by classification, reclassification or otherwise but no such

amendment which changes such terms or contract rights of any of its outstanding

stock shall be valid unless such amendment shall have been authorized by not

less than a majority of the aggregate number of the votes entitled to be cast

thereon, by a vote at a meeting or in writing with or without a meeting.

 

                  The enumeration and definition of particular powers of the

Board of Directors included in the foregoing shall in no way be limited or

restricted by reference to or inference from the terms of any other clause of

this or any other Article of the Articles of Incorporation of the Corporation,

or construed as or deemed by inference or otherwise in any manner to exclude or

limit any powers conferred upon the Board of Directors under the General Laws of

the State of Maryland as now or hereafter in force.

 

 

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                                  ARTICLE VIII

                                   REDEMPTION

 

          If at any time the Board of Directors shall in good faith be of the

opinion that direct or indirect ownership of shares of stock of the Corporation

has or may become concentrated to an extent which would cause the Corporation to

fail to qualify or be disqualified as a real estate investment trust by virtue

of Sections 856(a)(5) or (6) of the Internal Revenue Code of 1954, as amended,

or similar provisions of successor statutes, pertaining to the qualification of

the Corporation as a real estate investment trust, the Board of Directors shall

have the power (i) by lot or other means deemed equitable by them to call for

purchase from any stockholder of the Corporation a number of shares sufficient

in the opinion of the Board of Directors to maintain or bring the direct or

indirect ownership of shares of stock of the Corporation into conformity with

the requirements of Sections 856 (a)(5) and (6) pertaining to the Corporation,

and (ii) to refuse to transfer or issue shares of the Corporation to any person

whose acquisition of such shares would, in the opinion of the Board of

Directors, result in the Corporation being unable to conform to the requirements

of Sections 856(a)(5) and (6). The purchase price for any shares of stock

purchased pursuant hereto shall be equal to the fair market value of the shares

as reflected in the closing sale price for the shares, if then listed on a

national securities exchange, or the average of the closing sales prices for the

shares if then listed on more than one national securities exchange, or if the

shares are not then listed on a national securities exchange, the latest bid

quotation for the shares if then traded over-the-counter, on the last business

day for which closing prices are available immediately preceding the day on

which notices of such acquisitions are sent, or, if no such closing sales prices

or quotations are available, then the purchase price shall be equal to the net

asset value of such stock as determined by the Board of Directors in accordance

with the provisions of applicable law. Payment of the purchase price shall be

made in cash by the Corporation to such stockholder for any shares of stock so

called for purchase. From and after the date fixed for purchase by the Board of

Directors, the holder of any shares of stock so called for purchase shall cease

to be entitled to distributions, voting rights and other benefits with respect

to such shares, excepting only the right to payment of the purchase price fixed

as aforesaid. Any transfer of shares that would prevent the Corporation from

continuing to be qualified as a real estate investment trust by virtue of the

application of Sections 856(a) (5) and (6) shall be deemed void ab initio and

the intended transferee shall be deemed never to have had an interest therein.

If the foregoing provision is determined to be void or invalid by virtue of any

legal decision, statute, rule or regulation, then the transferee of such shares

shall be deemed, at the option of the Corporation, to have acted as agent on

behalf of the Corporation in acquiring such shares and to hold such shares on

behalf of the Corporation.

 

 

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                                   ARTICLE IX

                               PERPETUAL EXISTENCE

 

         The duration of the Corporation shall be perpetual.

 

         IN WITNESS WHEREOF, I have signed these Articles of Incorporation and

acknowledge the same to be my act on this 11th day of April, 1985.

 

 

                                           By: /s/ William G.Strench

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

                                               William G. Strench

 

WITNESS:

 

 

By: /s/ Jeanette S. Powell

    ---------------------------------

    Jeannette S. Powell

 

 

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                            CERTIFICATE OF CHANGE OF

 

                           RESIDENT AGENT AND ADDRESS

 

                                       OF

 

 

                          CAPSTEAD MORTGAGE CORPORATION

 

 

The Board of  Directors of:

 

CAPSTEAD MORTGAGE CORPORATION

 

a corporation organized in Maryland on April 15, 1985 duly approved a resolution

as follows:

 

         Resolved:  That the resident agent and address are changed to:

 

                  CSC-Lawyers Incorporating Service Company

                  11 East Chase Street, Suite 9E

                  Baltimore, MD  21202

 

 

         I, Andrew F. Jacobs certify under the penalties of perjury that to the

best of my knowledge, information, and belief the foregoing resolution is true

in all material respects.

 

 

                                                Capstead Mortgage Corp.

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

                                                (NAME OF CORPORATION)

 

 

 

                                     By: /s/ Andrew F. Jacobs

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

                                         Title: Sr. V.P. Treasurer and Secretary

 

 

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                           LOMAS MORTGAGE CORPORATION

 

                      ARTICLES OF AMENDMENT AND RESTATEMENT

 

          Under Section 2-609 of Corporations and Associations Article

 

 

                  LOMAS MORTGAGE CORPORATION, a Maryland corporation having its

principal office at 32 South Street, Baltimore, Maryland 21202 and having THE

CORPORATION TRUST INCORPORATED as its resident agent located at 32 South Street,

Baltimore, Maryland 21202, (hereinafter called the Corporation), hereby

certifies to the State Department of Assessments and Taxation of Maryland that:

 

                  FIRST: The charter of the Corporation is hereby amended by

adding to the articles of incorporation a new Section to Article VIII which

shall be as follows:

 

                  2. (a) Whenever it is deemed by the Board of Directors to be

                  prudent in avoiding the imposition of a penalty on the

                  Corporation, the Board of Directors may require to be filed

                  with the Corporation a statement or affidavit from any holder

                  or proposed transferee of shares of capital stock stating

                  whether the holder or proposed transferee is a "Disqualified

                  Person." For purposes of this Section 2 of this Article, a

                  "Disqualified Person" means (i) the United States, any State

                  or political subdivision thereof, any foreign government, any

                  international organization, or any agency or instrumentality

                  of any of the foregoing, (ii) any person (other than a

                  cooperative described in section 521 of the Internal Revenue

                  Code, as amended ("Code")) which is exempt from tax imposed by

                  chapter 1 of the Code unless such person is subject to the tax

                  imposed by section 511 of the Code on its unrelated business

                  taxable income, (iii) any person that is a rural electrical or

                  telephone cooperative described in Code section 1381 (a) (2)

                  (C), and (iv) any other person that may cause the Corporation

                  to incur a penalty tax if that person were a holder of shares

                  of capital stock. For purposes of clause (i) of

 

 

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                  the previous sentence of this section 2(a) of this Article, a

                  corporation shall not be treated as an instrumentality of the

                  United States or of any State or political subdivision

                  thereof, if (i) all of the activities of such corporation are

                  subject to the tax imposed by Chapter 1 of the Code, and (ii)

                  a majority of the board of directors of such corporation is

                  not selected by the United States or any State or political

                  subdivision thereof (except that this clause (ii) shall not

                  apply to the Federal Home Loan Mortgage Corporation). Any

                  contract for the sale or other transfer of shares of capital

                  stock shall be subject to this provision. Furthermore, the

                  Board of Directors shall have the right, but shall not be

                  required, to refuse to transfer any shares of capital stock

                  purportedly transferred if a statement or affidavit requested

                  pursuant to this Section 2(a) of this Article has not been

                  received.

 

                  (b) A Disqualified Person may not hold shares of capital stock

                  of the Corporation. Any acquisition or purported acquisition

                  of shares of capital stock by a Disqualified Person or that

                  could or would result in the imposition of a penalty tax on

                  the Corporation shall be void ab initio to the fullest extent

                  permitted under applicable law and the intended transferee of

                  the subject shares of capital stock shall be deemed never to

                  have had an interest therein. If the foregoing provision is

                  determined to be void or invalid by virtue of any legal

                  decision, statute, rule or regulation, then the transferee of

                  those shares of capital stock shall be deemed, at the option

                  of the Corporation, to have acted as agent on behalf of the

                  Corporation in acquiring those shares and to hold those shares

                  on behalf of the Corporation.

 

                  (c) Whenever it is deemed by the Board of Directors to be

                  prudent in avoiding the imposition of a penalty tax on the

                  Corporation, the Corporation may redeem those shares of

                  capital stock as may be specified by the Board of Directors.

                  The purchase price for any shares of capital stock purchased

                  pursuant hereto shall be equal to the fair market value of the

                  shares as reflected in the closing sales price for the shares,

                  if then listed on a national securities exchange, or the

                  average of the closing sales prices for the shares if then

                  listed on more than one national securities exchange, or if

                  the shares are not then listed on a national securities

                  exchange, the latest bid quotation for the shares if then

                  traded over--the--counter, on the last business day for which

                  closing prices are available immediately preceding the day on

                  which notices of such acquisitions are sent, or, if no such

                  closing sales prices or quotations are available, then the

                  purchase price shall be equal to the net asset value of such

                  capital stock as determined by the Board of Directors in

                  accordance with the provisions of applicable law, Payment of

                  the purchase price shall be made in cash by the Corporation to

                  such stockholder for any shares of capital stock so called for

                  purchase. From and after the date fixed for purchase by the

                  Board of Directors, the holder of any shares of capital stock

                  so called for purchase shall cease to be

 

 

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<PAGE>   13

 

 

                  entitled to distributions, voting rights and other benefits

                  with respect to such shares, excepting only the right to

                  payment of the purchase price fixed as aforesaid.

 

                  (d) Nothing contained in this Section 2 of this Article or in

                  any other provision hereof shall limit the authority of the

                  Board of Directors to take any and all other action as it, in

                  its sole discretion, deems necessary or advisable to protect

                  the Corporation or the interest of its stockholders by

                  avoiding the imposition of a penalty tax on the Corporation.

 

                  (e) For purposes of this Section 2 of this Article only, the

                  term "person" shall include, but not be limited to,

                  individuals, corporations, limited partnerships, general

                  partnerships, joint stock companies or associations, joint

                  ventures, associations, consortia, companies, trusts, banks,

                  trust companies, land trusts, common law trusts, business

                  trusts, or other entities and governments and agencies and

                  political subdivisions thereof.

 

                  (f) If any provision of this Section 2 of this Article or any

                  application of any such provision is determined to be invalid

                  by any federal or State court having jurisdiction over the

                  issue, the validity of the remaining provisions shall not be

                  affected and other applications of such provision shall be

                  affected only to the extent necessary to comply with the

                  determination of that court.

 

and the charter of the corporation is hereby restated to read as follows:

 

                                   ARTICLE II

                                      NAME

 

                  The name of the corporation (which is hereinafter called the

"Corporation") is:

 

                           LOMAS MORTGAGE CORPORATION

 

                                   ARTICLE III

                                     PURPOSE

 

                  The purpose for which the Corporation is formed is to engage

in any lawful act or activity for which corporations may be organized under the

General Laws of the State of Maryland as now or hereafter in force.

 

                                   ARTICLE IV

                       PRINCIPAL OFFICE AND RESIDENT AGENT

 

                  The post-office address of the principal office of the

Corporation in the State of Maryland is c/o THE CORPORATION TRUST INCORPORATED,

32 South Street, Baltimore, Maryland 21202. The name and post-office address of

the resident agent of the Corporation in the

 

 

                                       3

<PAGE>   14

 

 

State of Maryland are THE CORPORATION TRUST INCORPORATED, 32 South Street,

Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

 

                                    ARTICLE V

                                  CAPITAL STOCK

 

                  1. The total number of shares of stock of all classes which

the Corporation has authority to issue is Fifty Five Million (55,000,000)

shares, having an aggregate par value of One Million Dollars ($1,000,000.00) of

which Fifty Million (50,000,000) shares of the par value of one cent ($0.01) per

share, amounting in aggregate par value to Five Hundred Thousand Dollars

($500,000.00) shall be Common Stock and Five Million (5,000,000) shares of the

par value of ten cents ($0.10) per share, amounting in aggregate par value to

Five Hundred Thousand Dollars ($500,000.00) shall be Preferred Stock. The Board

of Directors may classify and reclassify any unissued shares of capital stock by

setting or changing in any one or more respects the preferences, conversion or

other rights, voting powers, restrictions, limitations as to dividends,

qualifications or terms or conditions of redemption of such shares of stock.

 

                  2. The following is a description of the preferences,

conversion and other rights, voting powers and limitations as to dividends of

the Common Stock of the Corporation.

 

                  (a) Each share of Common Stock shall have one vote, and,

                  except as otherwise provided in respect of any class of stock

                  hereafter classified or reclassified, the exclusive voting

                  power for all purposes shall be vested in the holders of the

                  Common Stock.

 

                  (b) Subject to the provisions of law and any preferences of

                  any class of stock hereafter classified or reclassified,

                  dividends may be paid on the Common Stock of the Corporation

                  at such time and in such amounts as the Board of Directors may

                  deem advisable.

 

                  (c) In the event of any liquidation, dissolution or winding up

                  of the Corporation, whether voluntary or involuntary, the

                  holders of the Common Stock shall be entitled, after payment

                  or provision for payment of the debts and other liabilities of

                  the Corporation and the amount to which the holders of any

                  class of stock hereafter classified or reclassified having a

                  preference on distributions in the liquidation, dissolution or

                  winding up of the Corporation shall be entitled, together with

                  the holders of any other class of stock hereafter classified

                  or reclassified not having a preference on distributions in

                  the liquidation, dissolution or winding up of the Corporation,

                  to share ratably in the remaining net assets of the

                  Corporation.

 

                  3. Subject to the foregoing, the power of the Board of

Directors to classify and reclassify any of the shares of capital stock shall

include, without limitation, subject to the provisions of the Articles of

Incorporation and the By-Laws authority to classify or reclassify any

 

 

                                       4

<PAGE>   15

 

 

unissued shares of such stock into a class or classes of preferred stock,

preference stock, special stock or other stock, and to divide and classify

shares of any class into one or more series of such class, by determining,

fixing, or altering one or more of the following:

 

                  (a) The distinctive designation of such class or series and

                  the number of shares to constitute such class or series;

                  provided that, unless otherwise prohibited by the terms of

                  such or any class or series, the number of shares of any class

                  or series may be decreased by the Board of Directors in

                  connection with any classification or reclassification of

                  unissued shares and the number of shares of such class or

                  series may be increased by the Board of Directors in

                  connection with any such classification or reclassification,

                  and any shares of any class or series which have been

                  redeemed, purchased, otherwise acquired or converted into

                  shares of Common Stock or any other class or series shall

                  become part of the authorized capital stock and be subject to

                  classification and reclassification as provided in this

                  Section.

 

                  (b) Whether or not and, if so, the rates, amounts and times at

                  which, and the conditions under which, dividends shall be

                  payable on shares of such class or series, whether any such

                  dividends shall rank senior or junior to or on a parity with

                  dividends payable on any other class or series of stock, and

                  the status of any such dividends as cumulative, cumulative to

                  a limited extent or non-cumulative and as participating or

                  non-participating.

 

                  (c) Whether or not shares of such class or series shall have

                  voting rights, in addition to any voting rights provided by

                  law and, if so, the terms of such voting rights.

 

                  (d) Whether or not shares of such class or series shall have

                  conversion or exchange privileges and, if so, the terms and

                  conditions thereof, including provision for adjustment of the

                  conversion or exchange rate in such events or at such times as

                  the Board of Directors shall determine.

 

                  (e) Whether or not shares of such class or series shall be

                  subject to redemption and, if so, the terms and conditions of

                  such redemption, including the date or dates upon or after

                  which they shall be redeemable and the amount per share

                  payable in case of redemption, which amount may vary under

                  different conditions and at different redemption dates; and

                  whether or not there shall be any sinking fund or purchase

                  account in respect thereof, and if so, the terms thereof.

 

                  (f) The rights of the holders of shares of such class or

                  series upon the liquidation, dissolution or winding up of the

                  affairs of, or upon any distribution of the assets of, the

                  Corporation, which rights may vary depending upon whether such

                  liquidation, dissolution or winding up is voluntary or

                  involuntary and, if

 

 

                                       5

<PAGE>   16

 

 

                  voluntary, may vary at different dates, and whether such

                  rights shall rank senior or junior to or on a parity with such

                  rights of any other class or series of stock.

 

                  (g) Whether or not there shall be any limitations applicable,

                  while shares of such class or series are outstanding, upon the

                  payment of dividends or making of distributions on, or the

                  acquisition of, or the use of moneys for purchase or

                  redemption of, any stock of the Corporation, or upon any other

                  action of the Corporation, including action under this

                  Section, and, if so, the terms and conditions thereof.

 

                  (h) Any other preferences, rights, restrictions, including

                  restrictions on transferability, and qualifications of shares

                  of such class or series, not inconsistent with law and the

                  Articles of Incorporation of the Corporation.

 

                  4. For the purposes hereof and of any articles supplementary

to the Articles of Incorporation providing for the classification or

reclassification of any shares of capital stock or of any other charter document

of the Corporation (unless otherwise provided in any such articles of document),

any class or series of stock of the Corporation shall be deemed to rank:

 

                  (a) prior to another class or series either as to dividends or

                  upon liquidation, if the holders of such class or series shall

                  be entitled to the receipt of dividends or of amounts

                  distributable on liquidation, dissolution or winding up, as

                  the case may be, in preference or priority to holders of such

                  other class or series;

 

                  (b) on a parity with another class or series either as to

                  dividends or upon liquidation, whether or not the dividend

                  rates, dividend payment dates or redemption or liquidation

                  price per share thereof be different from those of such

                  others, if the holders of such class or series of stock shall

                  be entitled to receipt of dividends or amounts distributable

                  upon liquidation, dissolution or winding up, as the case may

                  be, in proportion to their respective dividend rates or

                  redemption or liquidation prices, without preference or

                  priority over the holders of such other class or series; and

 

                  (c) junior to another class or series either as to dividends

                  or upon liquidation, if the rights of the holders of such

                  class or series shall be subject or subordinate to the rights

                  of the holders of such other class or series in respect of the

                  receipt of dividends or the amounts distributable upon

                  liquidation, dissolution or winding up, as the case may be.

 

                  5. The Corporation shall not issue fractional shares of its

stock. All persons who shall acquire stock in the Corporation shall acquire the

same subject to the provisions of these Articles of Incorporation and the

By-Laws of the Corporation.

 

 

                                       6

<PAGE>   17

 

 

                                   ARTICLE VI

                                    DIRECTORS

 

                  The number of directors of the Corporation shall be eleven

(11), which number may be increased or decreased pursuant to the By-Laws of the

Corporation, but shall never be less than the minimum permitted by the General

Laws of the State of Maryland now or hereafter in force. The names of the

directors who shall serve until the first annual meeting or until their

successors are duly elected and qualify are as follows:

 

                                 John H. Dalton

                                    Ted Enloe

                                  David G. Fox

                                    Jess Hay

                              Kay Bailey Hutchison

                                   Paul M. Low

                                  Ronn K. Lytle

                             Dr. Charles B. Mullins

                               Lewis T. Sweet, Jr.

                                  Martin Tycher

                                 James M. Wooten

 

 

                                       7

<PAGE>   18

 

 

                                   ARTICLE VII

            PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN

                            POWERS OF THE CORPORATION

                      AND OF THE DIRECTORS AND STOCKHOLDERS

 

                  The following provisions are hereby adopted for the purpose of

defining, limiting and regulating the powers of the Corporation and of the

directors and stockholders:

 

                  1. The Board of Directors of the Corporation is hereby

empowered to authorize the issuance from time to time of shares of its stock of

any class, whether now or hereafter authorized, or securities convertible into

shares of its stock of any class or classes, whether now or hereafter

authorized, for such consideration as may be deemed advisable by the Board of

Directors and without any action by the stockholders.

 

                  2. No holder of any stock or any other securities of the

Corporation, whether now or hereafter authorized, shall have any preemptive

right to subscribe for or purchase any stock or any other securities of the

Corporation other than such, if any, as the Board of Directors, in its sole

discretion, may determine and at such price or prices and upon such other terms

as the Board of Directors, in its sole discretion, may fix; and any stock or

other securities which the Board of Directors may determine to offer for

subscription may, as the Board of Directors in its sole discretion shall

determine, be offered to the holders of any class, series or type of stock or

other securities at the time outstanding to the exclusion of the holders of any

or all other classes, series or types of stock or other securities at the time

outstanding.

 

                  3. The Board of Directors of the Corporation shall have the

power to make, adopt, alter, amend and repeal any of the By-Laws of the

Corporation except any particular By-Law which is specified as not subject to

alteration or repeal by the Board of Directors; provided that the stockholders

may make, adopt, alter, amend or repeal any of the By-Laws of the Corporation.

 

                  4. The Board of Directors is hereby empowered to cause the

redemption by the Corporation of shares of its Common Stock and to restrict the

transfer of shares of Common Stock, in the manner provided for herein or the

By-Laws.

 

                  5. The Board of Directors of the Corporation shall have the

power from time to time and in its sole discretion to determine in accordance

with sound accounting practice, what constitutes annual or other net profits,

earnings, surplus, or net assets in excess of capital; to fix and vary from time

to time the amount to be reserved as working capital, or determine that retained

earnings or surplus shall remain in the hands of the Corporation; to set apart

out of any funds of the Corporation such reserve or reserves in such amount or

amounts and for such proper purpose or purposes as it shall determine and to

abolish any such reserve or any part thereof; to distribute and pay

distributions or dividends in stock, cash or other securities or property, out

of

 

 

                                       8

<PAGE>   19

 

 

surplus or any other funds or amounts legally available therefor, at such times

and to the stockholders of record on such dates as it may, from time to time,

determine; and to determine whether and to what extent and at what times and

places and under what conditions and regulations the books, accounts and

documents of the Corporation, or any of them, shall be open to the inspection of

stockholders, except as otherwise provided by statute or by the By-Laws, and,

except as so provided, no stockholder shall have any right to inspect any book,

account or document of the Corporation unless authorized to do so by resolution

of the Board of Directors.

 

                  6. The Board of Directors of the Corporation is hereby

empowered to authorize, subject to such conditions, if any, as may be required

by an applicable statute, rule, regulation or By-Law of the Corporation, the

execution and performance by the Corporation of one or more agreements with any

person, corporation, firm, association, company, trust, partnership (limited or

general) or other organization whereby, subject to the supervision and control

of the Board of Directors, any such other person, corporation, firm,

association, company, trust, partnership (limited or general), or other

organization shall render or make available to the Corporation managerial,

administrative and/or related services, office space and other services and

facilities (including, if deemed advisable by the Board of Directors, the

management or supervision of any or all of the assets or investments of the

Corporation) upon such terms and conditions as may be provided in such agreement

or agreements (including, if deemed fair and equitable by the Board of

Directors, the compensation payable thereunder by the Corporation).

 

                  7. The Board of Directors of the Corporation shall have the

power to authorize any agreement of the character described in Section 6 of this

Article VII or other agreement or transaction with any person, corporation,

firm, association, company, trust, partnership (limited or general), or other

organization, although one or more members of the Board of Directors or officers

of the Corporation may be the other party to any such agreement or transaction

or an officer, director, stockholder, or member of such other party, and no such

agreement or transaction shall be invalidated or rendered voidable solely by

reason of the existence of any such relationship if:

 

                  (a) the existence of the relationship is disclosed or known

                  to: the Board of Directors and the Board authorizes, approves,

                  or ratifies the agreement or transaction by the affirmative

                  vote of a majority of disinterested directors, even if the

                  disinterested directors constitute less than a quorum; or the

                  stockholders entitled to vote, and the agreement or

                  transaction is authorized, approved, or ratified by a majority

                  of the votes cast by the stockholders entitled to vote other

                  than the votes of shares owned of record or beneficially by

                  any interested person, corporation, firm, association,

                  company, trust, partnership (limited or general) or other

                  organization; or

 

                  (b) the agreement or transaction is fair and reasonable to the

                  Corporation.

 

 

                                       9

<PAGE>   20

 

 

                  Common or interested directors or the stock owned by them or

by an interested person, corporation, firm, association, company, trust,

partnership (limited or general) or other organization may be counted in

determining the presence of a quorum at a meeting of the Board of Directors or

at a meeting of the stockholders, as the case may be, at which the agreement or

transaction is authorized, approved, or ratified. If an agreement or transaction

is not authorized, approved, or ratified in one of the ways provided for in

clause (a) of the first sentence of this Section, the person asserting the

validity of the agreement or transaction bears the burden of proving that the

agreement or transaction was fair and reasonable to the Corporation at the time

it was authorized, approved, or ratified. If such a common or interested

director votes at or attends a meeting to approve or disapprove an agreement or

transaction as described in Section 6 or this Section 7 of this Article VII,

such vote shall not affect the validity of such an agreement or transaction

provided the provisions of this Section are otherwise satisfied. The procedures

in this Section do not apply to the fixing by the Board of Directors of

reasonable compensation for a director, whether as a director or in any other

capacity.

 

                  8. Except for agreements, transactions or acts required to be

approved under the provisions of Section 6 of this Article, any contract,

transaction, or act of the Corporation or of the Board of Directors which shall

be ratified by a majority of a quorum of the stockholders having voting powers

at any annual meeting, or at any special meeting called for such purpose, shall

so far as permitted by law be as valid and as binding as though ratified by

every stockholder of the Corporation.

 

                  9. Unless the By-Laws otherwise provide, any officer or

employee of the Corporation (other than a director) may be removed at any time

with or without cause by the Board of Directors or by any committee or superior

officer upon whom such power of removal may be conferred by the By-Laws or by

authority of the Board of Directors.

 

                  10. Notwithstanding any provision of law requiring the

authorization of any action by a greater proportion than a majority of the total

number of shares of all classes of capital stock or of the total number of

shares of any class of capital stock, such action shall be valid and effective

if authorized by the affirmative vote of the holders of a majority of the total

number of shares of all classes outstanding and entitled to vote thereon, except

as otherwise provided in the Articles of Incorporation.

 

                  11. Each holder of stock of the Corporation shall upon demand

disclose to the Board of Directors in writing such information with respect to

direct and indirect ownership of securities of the Corporation as the Board of

Directors deems necessary to comply with provisions of the Internal Revenue Code

of 1954, as amended, applicable to the Corporation, or to comply with the

requirements of any taxing authority.

 

                  12. The Corporation shall indemnify (a) its directors to the

full extent provided by the general laws of the State of Maryland now or

hereafter in force, including the advance of expenses under the procedures

provided by such laws; (b) its officers to the same extent it shall indemnify

its directors; and (c) its officers who are not directors to such further extent

as shall be

 

 

                                       10

<PAGE>   21

 

 

authorized by the Board of Directors and be consistent with law. The foregoing

shall not limit the authority of the Corporation to indemnify other employees

and agents consistent with law.

 

                  13. The Corporation reserves the right from time to time to

make any amendments of its Articles of Incorporation which may now or hereafter

be authorized by law, including any amendments changing the terms or contract

rights, as expressly set forth in its Articles of Incorporation, of any of its

outstanding stock by classification, reclassification or otherwise but not such

amendment which changes such terms or contract rights of any of its outstanding

stock shall be valid unless such amendment shall have been authorized by not

less than a majority of the aggregate number of the votes entitled to be cast

thereon, by a vote at a meeting or in writing with or without a meeting.

 

                  The enumeration and definition of particular powers of the

Board of Directors included in the foregoing shall in no way be limited or

restricted by reference to or inference from the terms of any other clause of

this or any other Article of the Articles of Incorporation of the Corporation,

or construed as or deemed by inference or otherwise in any manner to exclude or

limit any powers conferred upon the Board of Directors under the General Laws of

the State of Maryland as now or hereafter in force.

 

                                  ARTICLE VIII

                                   REDEMPTION

 

                  1. If at any time the Board of Directors shall in good faith

be of the opinion that direct or indirect ownership of shares of stock of the

Corporation has or may become concentrated to an extent which would cause the

Corporation to fail to qualify or be disqualified as a real estate investment

trust by virtue of Sections 856 (a)(5) or (6) of the Internal Revenue Code of

1954, as amended, or similar provisions of successor statutes, pertaining to the

qualification of the Corporation as a real estate investment trust, the Board of

Directors shall have the power (i) by lot or other means deemed equitable by

them to call for purchase from any stockholder of the Corporation a number of

shares sufficient in the opinion of the Board of Directors to maintain or bring

the direct or indirect ownership of shares of stock of the Corporation into

conformity with the requirements of Sections 856 (a)(5) and (6) pertaining to

the Corporation, and (ii) to refuse to transfer or issue shares of the

Corporation to any person whose acquisition of such shares would, in the opinion

of the Board of Directors, result in the Corporation being unable to conform to

the requirements of Sections 856 (a)(5) and (6). The purchase price for any

shares of stock purchased pursuant hereto shall be equal to the fair market

value of the shares as reflected in the closing sale price for the shares, if

then listed on a national securities exchange, or the average of the closing

sales prices for the shares if then listed on more than one national securities

exchange, or if the shares are not then listed on a national securities

exchange, the latest bid quotation for the shares if then traded over-the-

counter, on the last business day for which closing prices are available

immediately preceding the day on which notices of such acquisitions are sent,

or, if no such closing sales prices or quotations are available, then the

purchase price shall be equal to the net asset value of such stock as

 

 

                                       11

<PAGE>   22

 

 

determined by the Board of Directors in accordance with the provisions of

applicable law. Payment of the purchase price shall be made in cash by the

Corporation to such stockholder for any shares of stock so called for purchase.

From and after the date fixed for purchase by the Board of Directors, the holder

of any shares of stock so called for purchase shall cease to be entitled to

distributions, voting rights and other benefits with respect to such shares,

excepting only the right to payment of the purchase price fixed as aforesaid.

Any transfer of shares that would prevent the Corporation from continuing to be

qualified as a real estate investment trust by virtue of the application of

Sections 856 (a)(5) and (6) shall be deemed void ab initio and the intended

transferee shall be deemed never to have had an interest therein. If the

foregoing provision is determined to be void or invalid by virtue of any legal

decision, statute, rule or regulation, then the transferee of such shares shall

be deemed, at the option of the Corporation, to have acted as agent on behalf of

the Corporation in acquiring such shares and to hold such shares on behalf of

the Corporation.

 

                  2. (a) Whenever it is deemed by the Board of Directors to be

                  prudent in avoiding the imposition of a penalty on the

                  Corporation, the Board of Directors may require to be filed

                  with the Corporation a statement or affidavit from any holder

                  or proposed transferee of shares of capital stock stating

                  whether the holder or proposed transferee is a "Disqualified

                  Person." For purposes of this Section 2 of this Article, a

                  "Disqualified Person" means (i) the United States, any State

                  or political subdivision thereof, any foreign government, any

                  international organization, or any agency or instrumentality

                  of any of the foregoing, (ii) any person (other than a

                  cooperative described in section 521 of the Internal Revenue

                  Code, as amended ("Code")) which is exempt from tax imposed by

                  chapter 1 of the Code unless such person is subject to the tax

                  imposed by section 511 of the Code on its unrelated business

                  taxable income, (iii) any person that is a rural electrical or

                  telephone cooperative described in Code section 1381 (a) (2)

                  (C), and (iv) any other person that may cause the Corporation

                  to incur a penalty tax if that person were a holder of shares

                  of capital stock. For purposes of clause (i) of the previous

                  sentence of this section 2(a) of this Article, a corporation

                  shall not be treated as an instrumentality of the United

                  States or of any State or political subdivision thereof, if

                  (i) all of the activities of such corporation are subject to

                  the tax imposed by Chapter 1 of the Code, and (ii) a majority

                  of the board of directors of such corporation is not selected

                  by the United States or any State or political subdivision

                  thereof (except that this clause (ii) shall not apply to the

                  Federal Home Loan Mortgage Corporation). Any contract for the

                  sale or other transfer of shares of capital stock shall be

                  subject to this provision. Furthermore, the Board of Directors

                  shall have the right, but shall not be required, to refuse to

                  transfer any shares of capital stock purportedly transferred

                  if a statement or affidavit requested pursuant to this Section

                  2(a) of this Article has not been received.

 

 

                                       12

<PAGE>   23

 

 

                  (b) A Disqualified Person may not hold shares of capital stock

                  of the Corporation. Any acquisition or purported acquisition

                  of shares of capital stock by a Disqualified Person or that

                  could or would result in the imposition of a penalty tax on

                  the Corporation shall be void ab initio to the fullest extent

                  permitted under applicable law and the intended transferee of

                  the subject shares of capital stock shall be deemed never to

                  have had an interest therein. If the foregoing provision is

                  determined to be void or invalid by virtue of any legal

                  decision, statute, rule or regulation, then the transferee of

                  those shares of capital stock shall be deemed, at the option

                  of the Corporation, to have acted as agent on behalf of the

                  Corporation in acquiring those shares and to hold those shares

                  on behalf of the Corporation.

 

                  (c) Whenever it is deemed by the Board of Directors to be

                  prudent in avoiding the imposition of a penalty tax on the

                  Corporation, the Corporation may redeem those shares of

                  capital stock as may be specified by the Board of Directors.

                  The purchase price for any shares of capital stock purchased

                  pursuant hereto shall be equal to the fair market value of the

                  shares as reflected in the closing sales price for the shares,

                  if then listed on a national securities exchange, or the

                  average of the closing sales prices for the shares if then

                  listed on more than one national securities exchange, or if

                  the shares are not then listed on a national securities

                  exchange, the latest bid quotation for the shares if then

                  traded over-the-counter, on the last business day for which

                  closing prices are available immediately preceding the day on

                  which notices of such acquisitions are sent, or, if no such

                  closing sales prices or quotations are available, then the

                  purchase price shall be equal to the net asset value of such

                  capital stock as determined by the Board of Directors in

                  accordance with the provisions of applicable law. Payment of

                  the purchase price shall be made in cash by the Corporation to

                  such stockholder for any shares of capital stock so called for

                  purchase. From and after the date fixed for purchase by the

                  Board of Directors, the holder of any shares of capital stock

                  so called for purchase shall cease to be entitled to

                  distributions, voting rights and other benefits with respect

                  to such shares, excepting only the right to payment of the

                  purchase price fixed as aforesaid.

 

                  (d) Nothing contained in this Section 2 of this Article or in

                  any other provision hereof shall limit the authority of the

                  Board of Directors to take any and all other action as it, in

                  its sole discretion, deems necessary or advisable to protect

                  the Corporation or the interest of its stockholders by

                  avoiding the imposition of a penalty tax on the Corporation.

 

                  (e) For purposes of this Section 2 of this Article only, the

                  term "person" shall include, but not be limited to,

                  individuals, corporations, limited partnerships, general

                  partnerships, joint stock companies or associations, joint

                  ventures, associations, consortia, companies, trusts, banks,

                  trust companies, land trusts, common law trusts, business

                  trusts, or other entities and governments and agencies and

                  political subdivisions thereof.

 

 

                                       13

<PAGE>   24

 

 

                  (f) If any provision of this Section 2 of this Article or any

                  application of any such provision is determined to be invalid

                  by any federal or State court having jurisdiction over the

                  issue, the validity of the remaining provisions shall not be

                  affected and other applications of such provision shall be

                  affected only to the extent necessary to comply with the

                  determination of that court.

 

                                   ARTICLE IX

                               PERPETUAL EXISTENCE

 

                  The duration of the Corporation shall be perpetual.

 

 

                                       14

<PAGE>   25

 

 

                  SECOND: The number of directors of the corporation is eleven

(11). The names of the directors are:

 

                                 John H. Dalton

                                    Ted Enloe

                                  David G. Fox

                                    Jess Hay

                              Kay Bailey Hutchison

                                   Paul M. Low

                                  Ronn K. Lytle

                             Dr. Charles B. Mullins

                               Lewis T. Sweet, Jr.

                                  Martin Tycher

                                 James M. Wooten

 

                  The board of directors of the corporation, at a meeting duly

convened and held on April 25, 1989, adopted a resolution in which was set forth

the foregoing amendment to the charter, declaring that the said amendment and

restatement of the charter was advisable and directing that it be submitted for

action thereon by the stockholders at the annual meeting to be held on April 25,

1989.

 

                  THIRD: Notice setting forth the said amendment of the charter

and that a restatement of the charter was advisable and stating that a purpose

of the meeting of the stockholders would be to take action thereon, was given,

as required by law, to all stockholders entitled to vote thereon; and like

notice was given to all stockholders of the corporation not entitled to vote

thereon, whose contract rights as expressly set forth in the charter would be

altered by the amendment.

 

                  FOURTH: The amendment of the charter of the Corporation as

hereinabove set forth and the restatement of the charter were approved by the

stockholders of the Corporation at said meeting by the affirmative vote of

two-thirds of the one class of stock entitled to vote thereon.

 

 

                                       15

<PAGE>   26

 

 

                  IN WITNESS WHEREOF, LOMAS MORTGAGE CORPORATION has caused

these presents to be signed in its name and on its behalf by its Vice President,

attested by its Assistant Secretary, on April 25, 1989.

 

                                          LOMAS MORTGAGE CORPORATION

 

                                          By: /s/ James N. Sabin

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

                                              James N. Sabin

                                              Vice President

 

Attest:

 

By: /s/ Angela Marrs

    ---------------------------------

    Angela Marrs

    Assistant Secretary

 

 

                                       16

<PAGE>   27

 

 

                  THE UNDERSIGNED, Vice President of LOMAS MORTGAGE CORPORATION,

who executed on behalf of said corporation the foregoing Articles of Amendment

and Restatement of Charter, of which this certificate is made a part, hereby

acknowledges, in the name and on behalf of said corporation, the foregoing

Articles of Amendment and Restatement of Charter to be the corporate act of said

corporation and further certifies that, to the best of his knowledge,

information and belief, the matters and facts set forth therein with respect to

the approval thereof are true in all material respects, under the penalties of

perjury.

 

 

                                          By: /s/ James N. Sabin

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

                                              James N. Sabin

                                              Vice President

 

 

                                       17

<PAGE>   28

 

 

                              ARTICLES OF AMENDMENT

                                       OF

                            ARTICLES OF INCORPORATION

                                    * * * * *

 

     LOMAS MORTGAGE CORPORATION (the "Corporation"), a corporation organized and

existing under and by virtue of the General Corporation Law of the State of

Maryland, DOES HEREBY CERTIFY to the State Department of Assessments and

Taxation of Maryland that:

 

     FIRST: Article II of the Charter of the Corporation is amended to read in

its entirety as follows:

 

                                      NAME

 

     The name of the corporation (which is hereinafter called the "Corporation")

is

 

                          CAPSTEAD MORTGAGE CORPORATION

 

     SECOND: Article V. Section 1 of the Charter of the Corporation is amended

to read in its entirety as follows:

 

          1. The total number of shares of capital stock which the Corporation

     shall have authority to issue is Seventy Million (70,000,000), having an

     aggregate par value of Two Million Five Hundred Thousand Dollars

     ($2,500,000.00), of which Fifty Million (50,000,000) shall be common stock

     with a par value of One Cent ($.01) per share, amounting in the aggregate

     to Five Hundred Thousand Dollars ($500,000.00), and Twenty Million

     (20,000,000) shall be preferred stock with a par value of Ten Cents ($.10)

     per share, amounting in the aggregate to Two Million Dollars

     ($2,000,000.00).

 

     THIRD: (a) The total number of shares of capital stock which the

Corporation had authority to issue immediately before the Amendment was Fifty

Five Million (55,000,000) shares, having an aggregate par value of One Million

dollars ($1,000,000.00), of which Fifty Million (50,000,000) shares of the par

value of One Cent ($.01) per share, amounting in aggregate par value to Five

Hundred Thousand Dollars ($500,000.00), was common stock and Five Million

(5,000,000) shares of the par value of Ten Cents ($.10) per share, amounting in

aggregate par value to Five Hundred Thousand Dollars ($500,000.00), was

preferred stock.

 

     (b) The total number of shares of capital stock which the Corporation has

authority to issue as amended is Seventy Million (70,000,000) shares, having an

aggregate par value of Two Million Five Hundred Thousand Dollars ($2,500,000.00)

of which Fifty Million (50,000,000) shares of par value of One Cent ($.01) per

share, amounting in aggregate par value to Five Hundred Thousand Dollars

($500,000.00) is common stock and Twenty Million (20,000,000) shares of the par

value of Ten Cents ($.10) per share, amounting in aggregate par value to Two

Million Dollars ($2,000,000.00) is preferred stock.

 

     (c) The descriptions of each class of stock of the Corporation are not

changed by the Amendment.

 

     FOURTH: The foregoing Amendments to the Charter of the Corporation have

been advised by the Board of Directors and approved by the stockholders of the

Corporation.

 

 

<PAGE>   29

 

 

     IN WITNESS WHEREOF, LOMAS MORTGAGE CORPORATION has caused this certificate

to be signed in its name and on its behalf by its President, and witnessed by

its Secretary on November 6, 1989.

 

WITNESS                                  LOMAS MORTGAGE CORPORATION

 

 

/s/ Patricia S. Koening                  By: /s/ Ronn K. Lytle

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

             Secretary                                   President

 

 

     THE UNDERSIGNED, President of LOMAS MORTGAGE CORPORATION who executed on

behalf of the Corporation the foregoing Articles of Amendment of which this

certificate is a part, hereby acknowledges in the name and on behalf of said

Corporation the foregoing Articles of Amendment to be the corporate act of said

Corporation and hereby certifies that to the best of his knowledge, information,

and belief the matters and facts set forth therein with respect to the

authorization and approval thereof are true in all material respects under the

penalties of perjury.

 

 

                                             /s/ Ronn K. Lytle

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

                                                           President

 

 

<PAGE>   30

                             ARTICLES SUPPLEMENTARY

 

                                $1.60 CUMULATIVE

 

                            PREFERRED STOCK, SERIES A

 

                      (CONVERTIBLE AFTER NOVEMBER 6, 1991)

 

                        OF CAPSTEAD MORTGAGE CORPORATION

 

 

         THE COMPANY, a Maryland corporation, having its principal office in

Baltimore City, Maryland (hereinafter called the "Corporation"), hereby

certifies to the State Department of Assessments and Taxation of Maryland that:

 

     Pursuant to authority conferred upon the Board of Directors by the Charter,

as amended, of the Corporation, the Board of Directors on June 26, 1989 adopted

a resolution, creating and authorizing the issuance of a series of 5,465,000

shares of $1.60 Cumulative Convertible Preferred Stock, Series A, and that the

powers, designations. preferences and relative, participating, optional or other

special rights, and the qualifications, limitations and restrictions thereof, of

the shares of such series are as follows:

 

         1. Designation and Number of Shares. 5,465,000 shares of Preferred

Stock of the Corporation, par value $.10 per share, are hereby designated as the

"$1.60 Cumulative Preferred Stock, Series A (Convertible after November 6,

1991)" (hereinafter called the "Series A Preferred Stock").

 

         2. Dividends. Holders of shares of Series A Preferred Stock shall be

entitled to receive, when, as and if declared by the Board of Directors, out of

funds of the Corporation legally available for payment thereof, cumulative

preferential cash dividends at the annual rate of $1.60 per share, and no more

(the "Preference Dividend"), payable in equal quarterly installments on each

March 31, June 30, September 30 and December 31 (each a "Dividend Payment Date")

(unless such day is not a business day, in which event on the next preceding

business day), to holders of record as they appear on the register for the

Series A Preferred Stock of the Corporation on such record dates, not more than

30 days (or in the case of the Initial Dividend (as defined below), not more

than 20 days) preceding the payment dates thereof (each, a "Preferred Record

Date"), as may be fixed by the Board of Directors, provided that the first

Preference Dividend payable per share of Series A Preferred Stock (the "Initial

Dividend") after the Effective Date (as defined below) shall be as follows:

 

         (i) if the Effective Date occurs on or prior to September 30, 1989, the

         first Dividend Payment Date shall be December 31, 1989 and the Initial

         Dividend shall be $.40, increased by an amount equal to 5.40 minus that

         number that results from multiplying 5.40 by a fraction, the numerator

         of which is the number of days between July 1, 1989 and the Effective

         Date and the denominator of which is 92;

 

         (ii) if the Effective Date occurs after September 30, 1989 but on or

         prior to December 10, 1989, the first Dividend Payment Date shall be

         December 31, 1989 and the Initial Dividend shall be $.40, minus that

         number that results from multiplying $.40 by a fraction, the numerator

         of which is the number of days between October 1,1989 and the Effective

         Date and the denominator of which is 92;

 

                                       1

 

<PAGE>   31

 

         (iii) if the Effective Date occurs after December 10, 1989 but on or

         prior to December 31, 1989, the first Dividend Payment Date shall be

         March 31, 1990 and the Initial Dividend shall be $.40, increased by an

         amount equal $.40 minus that number that results from multiplying $.40

         by a fraction, the numerator of which is the number of days between

         October 1,1989 and the Effective Date and the denominator of which is

         92; and

 

         (iv) if the Effective Date occurs after December 31,1989 but on or

         prior to February 28, 1990, the first Dividend Payment Date shall be

         March 31, 1990 and the Initial Dividend shall be $.40, minus that

         number that results from multiplying $.40 by a fraction, the numerator

         of which is the number of days between January 1, 1990 and the

         Effective Date and the denominator of which is 90.

 

Dividends shall be cumulative from the effective date of the merger (the

"Merger") of a wholly-owned subsidiary of the Corporation with and into

Strategic Mortgage Investments, Inc., a Maryland corporation (the "Effective

Date"). So long as any Series A Preferred Stock shall remain outstanding, no

dividend shall be declared or paid upon or set apart for payment for the Common

Stock of the Corporation, par value $.01 per share (the "Common Stock"), or any

other class or series of capital stock of the Corporation ranking junior the

Series A Preferred Stock in respect of dividends ("Junior Stock"), nor may any

Common Stock or any to other Junior Stock be redeemed, purchased or otherwise

acquired for any consideration (or any payment made to or available for a

sinking fund for the redemption of any shares of such stock), unless in each

instance full Preference Dividends on all outstanding shares of Series A

Preferred Stock for all past dividend periods required to be paid shall have

been paid at the rate fixed therefor and the then current quarterly dividend

shall have been paid or declared and sufficient funds set aside for payment

thereof. No dividends shall be declared on any other series or class or classes

of stock ranking on a parity with the Series A Preferred Stock as to dividends

in respect of any dividend period thereof unless there shall likewise be or have

been declared and sufficient funds set aside for payment thereof on all shares

of Series A Preferred Stock to the time outstanding dividends for all

quarter-yearly periods coinciding with or ending before the end of such other

period, ratably in proportion to the respective annual dividend rates per annum

fixed thereof. Accumulated and unpaid Preference Dividends required to be paid

on any shares of Series A Preferred Stock shall not bear interest.

 

     3. Liquidation. The shares of Series A Preferred Stock shall rank prior to

the shares of Common Stock and any other class of stock of the Corporation

ranking junior to the Series A Preferred Stock upon liquidation, so that in the

event of any liquidation, dissolution or winding up of the Corporation, whether

voluntary or involuntary, the holders of the Series A Preferred Stock shall be

entitled to receive out of the assets of the Corporation available for

distribution to its stockholders, whether from capital, surplus or earnings,

before any distribution is made to holders of shares of Common Stock or any

other such junior stock, an amount equal to $16.40 per share (the "Liquidation

Preference") of Series A Preferred Stock plus an amount equal to all Preference

Dividends (whether or not declared) accumulated and unpaid on the shares of

Series A Preferred Stock to the date of final distribution. If upon any

liquidation, dissolution or winding up of the Corporation, the assets of the

Corporation or proceeds thereof, distributable among the holders of shares of

Series A Preferred Stock and holders of any other class or series of stock of

the Corporation ranking on a parity with shares of Series A Preferred Stock as

to payments upon liquidation, shall be insufficient pay in full the respective

preferential amounts of shares of Series A Preferred Stock and any other such

class or series, then such assets, or the proceeds thereof, shall be distributed

among such holders ratably in accordance with the respective amounts which would

be payable on such shares if all amounts thereon were paid in full. For the

purposes hereof, neither a consolidation or merger of the Corporation with or to

any other corporation, nor transfer of all or any part of the Corporation's

assets for cash, property or securities shall be considered a liquidation,

dissolution or winding-up of the Corporation.

 

 

 

 

                                       2

<PAGE>   32

 

     4. Voting Rights. Except as hereinafter expressly provided in this Section

4 and as otherwise required under the laws of the State of Maryland, the holders

of shares of Series A Preferred Stock shall have no voting rights.

 

     (A) If and when ever at any time or times all or any portion of the

Preference Dividend on Series A Preferred Stock for any two or more quarterly

dividends (whether or not consecutive) shall be in arrears and unpaid then, and

in any such event, the number of directors constituting the Board of Directors

shall be increased by two, and the holders of Series A Preferred Stock, voting

separately as a class, shall be entitled at the next annual meeting of

stockholders, or at a special meeting of holders of Series A Preferred Stock

called as hereinafter provided, to elect two directors to fill such newly

created directorships. Each holder shall be entitled to one vote in such

election for each share of Series A Preferred Stock held. At such time as all

arrears in Preference Dividends on the Series A Preferred Stock shall have been

paid in full and Preference Dividends thereon for the current quarterly period

shall have been paid or declared and a sum sufficient for the payment thereof

set aside, then (i) the voting rights of holders of Series A Preferred Stock

described in this paragraph 4(A) shall cease (subject always to revesting of

such voting rights in the event of each and every similar future arrearages in

Preference Dividends), (ii) the term of the directors then in office as a result

of the voting rights described in this paragraph 4(A) shall terminate and (iii)

the number of directors shall be such number as may be provided for in the

bylaws respective of any increase made pursuant to this paragraph 4(A).

 

         (B) At any time when the voting right described in paragraph 4(A) shall

have vested and remained in the holders of Series A Preferred Stock, such voting

right may be exercised initially either at a special meeting of holders of

Series A Preferred Stock or at any annual or special stockholders' meeting

called for the purpose of electing directors, but thereafter it shall be

exercised only at annual stockholders' meetings. If such right shall no already

have been initially exercised, the Secretary of the Corporation may, and upon

the written request of the holders of record of at least 10% of the shares of

Series A Preferred Stock then outstanding shall, call a special meeting of the

holders of Series A Preferred Stock for the purpose of electing a director. Such

meeting shall be held at the earliest practicable date upon the notice required

for special meetings of stockholders of the Corporation, or, if none, at a time

and place designated by the Secretary of the Corporation.

 

         (C) At any meeting held for the purpose of electing directors at which

the holders of Series A Preferred Stock shall have the right to elect directors

as provided in paragraph 4(A) above, the presence in person or by proxy of the

holders of at least a majority of the then outstanding shares of Series A

Preferred Stock shall be required and be sufficient to constitute a quorum of

Series A Preferred Stock for the election of directors by Series A Preferred

Stock. At any such meeting or adjournment thereof, (i) the absence of a quorum

of the holders of Series A Preferred Stock shall not prevent the election of

directors other than the directors to be elected by the holders of Series A

Preferred Stock and (ii) in the case of Series A Preferred stock entitled to

vote for the election of directors, a majority of the holders present in person

or by proxy of such class shall have the power to adjourn the meeting for the

election of the directors that the holders of such class are entitled to elect,

from time to time, until a quorum shall be present, and notice of such adjourned

meeting need not be given unless otherwise required by law, provided that

nothing herein shall affect the conduct of the meeting with respect to

stockholders of any other class.

 

         (D) Any director who shall have been elected by holders of Series A

Preferred Stock as a class shall hold office for a term expiring (subject to the

earlier termination of the default in Preference Dividends) at the next annual

meeting of stockholders, and during such term may be removed at any time, either

with or without cause, only by the affirmative votes of holders of record of a

majority of the votes of the shares of Series A Preferred Stock then outstanding

at a special meeting of such stockholders called for such purpose. Any vacancy

created by such removal may also be filled at such meeting.

 

         (E) Any vacancy caused by the death, resignation, or expiration of the

term (except upon a

 

 

 

                                       3

<PAGE>   33

 

 

termination of the default in dividends) of a director who shall have been

elected by the holders of Series A Preferred Stock may be filled only by the

holders of Series A Preferred Stock at a meeting called for such purpose. Such

meeting shall be called by the Secretary of the Corporation at the earliest

practicable date after any such death, resignation or expiration of term and in

any event within ten days after receipt of a written request therefor, signed by

the holders of record of at least 25% of the votes of the then outstanding

shares of Series A Preferred Stock.

 

     5. Limitations on Certain Actions. So long as any shares of Series A

Preferred Stock remain outstanding, the Corporation shall not, without the

affirmative vote at a meeting of at least 66 2/3% in number of shares of

Preferred Stock then outstanding, directly or indirectly or through merger or

consolidation with any other corporation:

 

         (i) create any class or classes of stock ranking prior to Series A

Preferred Stock either as to dividends or as to amounts distributable upon

liquidation or increase the authorized number of shares of any class or classes

of stock ranking prior to Series A Preferred Stock either as to dividends or as

to amounts distributable upon liquidation;

 

         (ii) authorize any reclassification of Series A Preferred Stock;

 

         (iii) alter or repeal any of the provisions of the charter (including

the provisions of this Paragraph 5) so as to affect adversely the preferences,

special rights or powers of the Series A Preferred Stock; or

 

         (iv) from June 26, 1989 to sixty days after the second anniversary of

the Effective Date, repurchase or acquire an aggregate of 20% or more of (x) the

aggregate number of shares of Common Stock outstanding on June 26, 1989 or (y)

any class of Junior Stock that maybe issued on or after June 26, 1989.

 

Except as otherwise provided herein or otherwise required by law, no consent of

the holders of Series A Preferred Stock shall be required for (a) the creation

of any indebtedness of any kind of the Corporation, (b) the creation, or

increase or decrease in the amount, of any class or series of stock of the

Corporation ranking on a parity with the Series A Preferred Stock as to

dividends or as to amounts distributable upon liquidation, or any other class or

series of stock of the Corporation not ranking prior to the Series A Preferred

Stock as to dividends or as to amounts distributable upon liquidation, (c) any

increase or decrease in the amount of authorized Common Stock or any increase,

decrease or change in the par value thereof or in any other terms thereof or (d)

any other action by the Corporation.

 

     6. Redemption. Shares of Series A Preferred Stock will be redeemable at the

option of the Corporation by resolution of its Board of Directors, passed by at

least a majority of the members of the Board, at any time after the fifth

anniversary of the Effective Date, in whole or in part, for cash in an amount

per share so redeemed equal to the aggregate Liquidation Preference of such

shares plus all Preference Dividends on such shares (whether or not earned or

declared) accumulated and unpaid to the date of such redemption (the "Redemption

Date"). If less than all shares of Series A Preferred Stock are to be redeemed,

the shares of such series to be redeemed shall be determined by lot or in such

other equitable manner as the Board of Directors may determine.

 

     The Corporation shall mail to each holder of the Series A Preferred Stock

written notice of any redemption not less than 30 nor more than 60 days prior to

the Redemption Date. Such notice shall specify the Redemption Date, the place or

places where certificates for shares of Series A Preferred Stock are to be

 

 

 

 

                                       4

<PAGE>   34

 

surrendered, the serial number or numbers of the certificates for shares to be

redeemed (if less than all shares of Series A Preferred Stock are to be

redeemed), the aggregate amount of consideration to be received in exchange for

the shares to be redeemed, that shares of Series A Preferred Stock may be

convertible into Common Stock, and that dividends on Series A Preferred Stock to

be redeemed on the Redemption Date shall cease to accrue on the Redemption Date.

Upon surrender of Series A Preferred Stock in accordance with said notice

(properly endorsed or assigned for transfer if the Corporation shall so require

and the notice shall so state), such Series A Preferred Stock shall be redeemed

by the Corporation at the price and in the manner as aforesaid. The Corporation

shall not be required to register a transfer of any shares of Series A Preferred

Stock that have been redeemed after the Redemption Date in respect thereof.

 

     If, on the Redemption Date, the funds necessary for such redemption shall

have been set aside by the Corporation, separate and apart from its other funds,

in trust for the pro rata benefit of the holders of the shares so called for

redemption, then notwithstanding that any certificates for shares of Series A

Preferred Stock so called for redemption shall not have been surrendered for

redemption, the shares represented thereby shall no longer be deemed

outstanding, the right to receive dividends thereon shall cease to accrue from

and after the Redemption Date and all rights of holders of the shares of Series

A Preferred Stock so called for redemption shall forthwith, after such

Redemption Date, cease and terminate excepting only the right of the holders

thereof to receive the redemption price therefor but without interest. The

redemption price shall be delivered to the persons entitled thereto upon

surrender to the Corporation or its agent appointed for that purpose of the

certificates for the shares of Series A Preferred Stock being redeemed therefor.

Any moneys so set aside by the Corporation and unclaimed at the end of three

years from the date designated for such redemption shall revert to the general

funds of the Corporation, after which reversion the holders of such shares so

called for redemption shall look only to the Corporation for payment of the

redemption price. Any interest accrued on funds so deposited shall be paid to

the Corporation from time to time.

 

     If, after the giving of notice of redemption but before the Redemption Date

specified therein, the Corporation shall deposit with a bank or trust company in

The City of New York, having a capital surplus of at least $50,000,000, in trust

to be applied to the redemption of the shares of Series A Preferred Stock so

called for redemption the funds necessary for such redemption, then from and

after the date of such deposit all rights of the holders of the shares of Series

A Preferred Stock so called for redemption shall cease and terminate, excepting

only the right to receive the redemption price therefor, but without interest,

and the right to exercise on or before the Redemption Date privileges of

conversion, if any, not theretofore expired, and such shares shall not be deemed

to be outstanding. Any funds so deposited which shall not be required for such

redemption because of the exercise of any such right of conversion subsequent to

the date of such deposit shall be returned to the Corporation. In case the

holders of shares of Series A Preferred Stock that shall have been called for

redemption shall not, within three years after the date fixed for redemption,

claim the amount deposited with respect to the redemption thereof, any such bank

or trust company shall, upon demand, pay over to the Corporation such unclaimed

amounts and thereupon such bank or trust company shall be relieved of all

responsibility in respect thereof to such holder and such holder shall look only

to the Corporation for the payment thereof. Any interest accrued on funds so

deposited shall be paid to the Corporation from time to time.

 

     8. Conversion. The holders of shares of Series A Preferred Stock shall have

conversion rights as follows:

 

     (A) The shares of Series A Preferred Stock shall be convertible, at the

option of the respective

 

 

 

                                       5

<PAGE>   35

 

holders thereof, at any time after the second anniversary of the Effective Date,

at the office of the corporation or any transfer agent for such shares into

fully paid and non-assessable shares of Common Stock of the Corporation, at the

conversion raze, determined as hereinafter provided, in effect at the time of

conversion. The Corporation shall make no payment or adjustment on account of

any dividends accrued on shares of Series A Preferred Stock surrendered for

conversion. In case of any call for redemption of any shares of Series A

Preferred Stock, such right of conversion shall terminate, as to any shares

designated for redemption, at the close of business on the fifth business day

preceding the date fixed for redemption, unless default is made in the payment

of the redemption price.

 

     (B) Before any holder of Series A Preferred Stock shall be entitled to

convert the same into shares of Common Stock, he shall surrender (i) the

certificate or certificates therefor, duly endorsed or accompanied by proper

instruments of transfer, and (ii) if such surrender is made after a Preferred

Record Date and before the next succeeding record date for the payment of

quarterly dividends on the Common Stock (any such Preferred Record Date, an

"Intervening Preferred Date"), a cashiers check or other guaranteed funds in an

amount equal to the aggregate amount of Preference Dividends received or

receivable on the shares of Series A Preferred Stock to be converted on the

Dividend Payment Date to which such Intervening Preferred Date related, at the

office of the Corporation or of any transfer agent for the Series A Preferred

Stock, and shall give written notice to the Corporation at such office that he

elects to convert the same and shall state in writing therein the name or names

in which he wishes the certificate or certificates for shares of Common Stock to

be issued. The Corporation, as soon as practicable thereafter, shall issue and

deliver to such office to such holder or to his nominee or nominees,

certificates for the number of full shares of Common Stock to which he shall be

entitled as aforesaid, together with cash in lieu of any fraction of a share as

hereinafter provided. Such conversion shall be deemed to have been made as of

the date of such surrender of the certificate or certificates representing the

shares of Series A Preferred Stock to be converted, and the person or persons

entitled to receive the shares of Common Stock issuable upon such conversion

shall be treated for all purposes as the record holder or holders of such shares

of Common Stock on said date.

 

     (C) The conversion rate shall be .9 share of Common Stock for each share of

Series A Preferred Stock converted, such rate being subject to adjustment from

time to time as follows:

 

         (i) If the Corporation shall at any time issue additional shares of

Common Stock as a dividend upon any outstanding stock of the corporation other

than the Series A Preferred Stock, or subdivide the outstanding shares of Common

Stock, or combine the outstanding shares of Common Stock, the conversion rate

theretofore in effect shall be proportionately increased or decreased, as the

case may be, effective immediately after the opening of business on the day

following the record date for the determination of stockholders entitled to such

dividend, or at the close of business on the date of such subdivision or

combination, as the case may be.

 

         (ii) If the Corporation shall at any time issue rights or warrants to

all holders of its outstanding Common Stock entitling them (for a period

expiring within 45 days after the record date referred to below) to subscribe

for or purchase shares of Common Stock at a price per share less than the

current market price per share of the Common Stock on the record date mentioned

below, the conversion rate theretofore in effect immediately prior to such

record date shall be adjusted by multiplying such conversion rate by a fraction,

of which the numerator shall be the number of shares of Common Stock outstanding

on the date of issuance of such rights or warrants plus the number of additional

shares of Common Stock offered for subscription or purchase, and of which the

denominator shall be the number of

 

 

 

 

                                       6

<PAGE>   36

 

 

shares of Common Stock outstanding on the date of issuance of such rights or

warrants plus the number of shares which the aggregate offering price of the

total number of shares of Common Stock so offered would purchase at such current

market price, such adjustment to become effective immediately after the opening

of business on the day following the record date for the determination of

stockholders entitled to receive such rights or warrants. For the purpose of any

computation under this subsection (ii) or subsection (iii) below, the current

market price per share of Common Stock at any record date shall be deemed to be

the average of the daily closing prices for the thirty (30) consecutive business

days preceding the day in question. The closing price per share of Common Stock

for each day shall be the last reported sale price regular way, or, in case no

such reported sale takes place on such day, the average of the reported closing

bid and asked prices regular way in either case on the New York Stock Exchange,

or, if the Common Stock is not listed or admitted to trading on such Exchange,

on the principal national securities exchange on which the Common Stock is

listed or admitted to trading, or if not listed or admitted to trading on any

national securities exchange, the average of the closing bid and asked prices as

furnished by the National Quotation Bureau, Incorporated or similar organization

if the National Quotation Bureau, Incorporated is no longer reporting such

information.

 

         (iii) If the Corporation distributes to all holders of its Common Stock

evidences of indebtedness or securities or assets (excluding cash dividends

payable out of consolidated earnings or earned surplus or dividends payable in

shares of Common Stock) or rights or warrants to subscribe or purchase

(excluding those referred to in clause (ii) above), the conversion rate in

effect immediately prior to the record date mentioned below shall be adjusted by

multiplying such conversion rate by a fraction, of which the numerator shall be

the current market price per share of Common Stock on the date of such

distribution and of which the denominator shall be such current market price per

share of the Common Stock, less the fair market value (as determined by the

Board of Directors, whose determination shall be conclusive) of the portion of

the assets or securities or evidences of indebtedness so distributed or of such

rights or warrants applicable to one share of Common Stock, such adjustment to

become effective immediately after the opening of business on the day following

the record date for the determination of stockholders entitled to receive such

distribution. For purposes of this clause (iii), consolidated earnings or earned

surplus shall be computed by adding thereto all charges against earned surplus

on account of dividends paid in shares of Common Stock in respect of which the

conversion rate has been adjusted, all as determined by the independent public

accountants then regularly auditing the accounts of the Corporation, whose

determination shall be conclusive.

 

         (iv) In the event of a declaration of a dividend by the Corporation

without the fixing of a record date for the determination of stockholders

entitled thereto, the first business day during which the stock transfer books

of the corporation shall be closed for the purpose of such determination shall

be deemed to be the record date.

 

     (D) No fractional shares of Common Stock shall be issued upon the

conversion of shares of Series A Preferred Stock. If any fractional interest in

a share of Common Stock would, except for the provisions of this paragraph 8(D),

be deliverable upon the conversion of any shares of Series A Preferred Stock,

the Corporation, in lieu of delivering a fractional share therefor, shall make a

payment to the holder of such surrendered share of Series A Preferred Stock of

an amount in cash equal (computed to the nearest cent) to such fraction

multiplied by the closing price per share of Common Stock (as such term is

defined in the final sentence of Section 8(C)(ii)) on the day of conversion.

 

     (E) Whenever the conversion rate is adjusted, as herein provided, the

Corporation shall

 

 

 

 

 

 

                                       7

<PAGE>   37

 

 

forthwith maintain at its office and file with the transfer agent or agents for

shares of Series A Preferred Stock and any securities exchange or exchanges on

which such shares are listed, a statement signed by the President or Vice

President of the Corporation and by its Treasurer or an Assistant Treasurer,

showing in detail the facts requiring such adjustment and the conversion rate

after such adjustment. Such transfer agent or agents and securities exchange or

exchanges shall be under no duty or responsibility with respect to any such

statement except to exhibit the same from time to time to any holder of shares

of Series A Preferred Stock desiring an inspection thereof.

 

     (F) In case of any capital reorganization or any reclassification of the

Common Stock of the Corporation or in case of a consolidation, merger or

statutory share exchange of the Corporation with or into another corporation or

the conveyance of all or substantially all of the assets of the Corporation to

another corporation, each share of Series A Preferred Stock shall thereafter be

convertible into the number of shares of stock or other securities or property

(including cash) to which a holder of the number of shares of Common Stock of

the Corporation deliverable upon conversion of such shares of Series A Preferred

Stock would have been entitled upon such reorganization, reclassification,

consolidation, merger or conveyance; and, in any such case, appropriate

adjustment (as determined by the Board of Directors) shall be made in the

application of the provisions herein set forth with respect to the rights and

interests thereafter of the holders of the shares of Series A Preferred Stock to

the end that the provisions set forth herein (including provisions with respect

to changes in and other adjustments of the conversion rate) shall thereafter be

applicable, as nearly as reasonably may be, in relation to any shares of stock

or other property thereafter deliverable upon the conversion of the shares of

Series A Preferred Stock.

 

     (G) In the event that:

 

         (i) the Corporation shall take a record of the holders of shares of its

Common Stock for the purpose of entitling them to receive a dividend, or any

other distribution, payable otherwise than in cash out of consolidated earnings

or earned surplus; or

 

         (ii) the Corporation shall take a record of the holders of shares of

its Common Stock for the purpose of entitling them to subscribe for or purchase

any shares of stock of any class or to receive any other rights or warrants; or

 

         (iii) there shall be any capital reorganization of the Corporation,

reclassification of the Common Stock of the Corporation (other than a

subdivision or combination thereof), consolidation or merger of the Corporation

with or into another corporation or the conveyance of all or substantially all

of the assets of the Corporation to another corporation; or

 

         (iv) of the voluntary or involuntary dissolution, liquidation or

winding up of the Corporation;

 

 then, and in any such case, the Corporation shall cause to be mailed to the

transfer agent or agents for Series A Preferred Stock, and to the holders of

record of the outstanding shares of Series A Preferred Stock, at least fifteen

(15) days prior to the date hereinafter specified, or if notice is given to

holders of Common Stock, no later than the date such notice is given, a notice

stating the date on which (x) a record is to be taken for the purpose of such

dividend, distribution or rights, or (y) such reclassification, reorganization,

consolidation, merger, conveyance, dissolution, liquidation or winding up is to

take place and the date, if any, that is to be fixed, as of which holders of

shares of Common Stock of record shall be entitled to

 

 

 

                                       8

<PAGE>   38

 

 

exchange their shares of Common Stock for securities or other property

deliverable upon such reclassification, reorganization, consolidation, merger,

conveyance, dissolution, liquidation or winding up.

 

     (H) The Corporation shall obtain and keep in force such permits or other

authorizations as may be required by law in order to enable the Corporation

validly to issue and deliver such number of shares of its Common Stock as shall

from time to time be sufficient to effect the conversion of all shares of Series

A Preferred Stock from time to time outstanding. The Corporation at all times

shall reserve and keep available, out of its authorized but unissued Common

Stock, solely for the purposes of effecting the conversion of the shares of

Series A Preferred Stock, the full number of shares of Common Stock deliverable

upon the conversion of all shares of Series A Preferred Stock from time to time

outstanding.

 

     (I) The Corporation shall pay any and all issue and other taxes that may be

payable in respect of any issue or delivery of shares of Common Stock on

conversion of shares of Series A Preferred Stock pursuant hereto. The

Corporation, however, shall not be required to pay any tax which may be payable

in respect of any transfer involved in the issue and delivery of shares of

Common Stock in a name other than that in which the shares of Series A Preferred

Stock so converted were registered, and no such issue or delivery shall be made

unless and until the person requesting such issue has paid to the corporation

the amount of any tax or has established, to the satisfaction of the

corporation, that such tax has been paid.

 

     9. Parity With Respect to Dividends and Distribution Upon Liquidation. The

Series A Preferred Stock shall rank on a parity with any other series of

Preferred Stock (not by its terms made junior or senior to the Series A

Preferred Stock) with respect to the payment of dividends and shall rank on a

parity with any and all series of Preferred Stock (not by its terms made junior

or senior to the Series A Preferred Stock) as to distribution of assets in

liquidation.

 

 

                                       9

<PAGE>   39

 

 

         IN WITNESS WHEREOF, the undersigned have caused the Articles to be

executed this 6th day of November, 1989.

 

WITNESS                                   CAPSTEAD MORTGAGE CORPORATION

 

 

 

/s/ Patricia S. Koening                   By: /s/ Ronn Lytle

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

Secretary                                         President

 

 

 

     THE UNDERSIGNED, President of the CORPORATION, who executed on behalf of

     the Corporation Articles Supplementary of which this Certificate is made a

     part, hereby acknowledges in the name and on behalf of said Corporation of

     foregoing Articles Supplementary to be the corporate act of said

     Corporation and hereby certifies that the matters and facts set forth

     herein with respect to the authorization and approval thereof are true in

     all material respects under the penalties of perjury.

 

 

                                             /s/  Ronn Lytle

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

                                                         President

 

 

                                       10

 

 

 

<PAGE>   40

 

 

                              ARTICLES OF AMENDMENT

                                       OF

                            ARTICLES OF INCORPORATION

 

     CAPSTEAD MORTGAGE CORPORATION (the "Corporation"), a corporation organized

and existing under and by virtue of the General Corporation Law of the State of

Maryland, DOES HEREBY CERTIFY to the State Department of Assessments and

Taxation of Maryland that:

 

     FIRST: Article V, Section 1 of the Charter of the Corporation is amended to

read in its entirety as follows:

 

          1. The total number of shares of capital stock which the Corporation

     shall have authority to issue is Two Hundred Million (200,000,000), having

     an aggregate par value of Eleven Million Dollars ($11,000,000.00), of which

     One Hundred Million (100,000,000) shall be common stock with a par value of

     One Cent ($.01) per share, amounting in the aggregate to One Million

     Dollars ($1,000,000.00), and One Hundred Million (100,000,000) shall be

     preferred stock with a par value of Ten Cents ($.10) per share, amounting

     in the aggregate to Ten Million Dollars ($10,000,000.00). The Board of

     Directors may classify and reclassify any unissued shares of capital stock

     by setting or changing in any one or more respects the preferences,

     conversion or other rights, voting powers, restrictions, limitations as to

     dividends, qualifications or terms or conditions of redemption of such

     shares of stock.

 

     SECOND: (a) The total number of shares of capital stock which the

Corporation had authority to issue immediately before the Amendment was Seventy

Million (70,000,000) shares, having an aggregate par value of Two Million Five

Hundred Thousand Dollars ($2,500,000.00), of which Fifty Million (50,000,000)

shares of the par value of One Cent ($.01) per share, amounting in aggregate par

value to Five Hundred Thousand Dollars ($500,000.00), was common stock and

Twenty Million (20,000,000) shares of the par value of Ten Cents ($.10) per

share, amounting in aggregate par value to Two Million Dollars ($2,000,000.00),

was preferred stock.

 

     (b) The total number of shares of capital stock which the Corporation has

authority to issue as amended is Two Hundred Million (200,000,000) shares,

having an aggregate par value of Eleven Million Dollars ($11,000,000.00), of

which One Hundred Million (100,000,000) shares of the par value of One Cent

($.01) per share, amounting in aggregate par value to One Million Dollars

($1,000,000.00), is common stock and One Hundred Million (100,000,000) shares of

the par value of Ten Cents ($. 10) per share, amounting in aggregate par value

to Ten Million Dollars ($10,000,000.00), is preferred stock.

 

     (c) The descriptions of each class of stock of the Corporation are not

changed by the Amendment.

 

     THIRD: The foregoing Amendments to the Charter of the Corporation have been

advised by the Board of Directors and approved by the stockholders of the

Corporation.

 

 

<PAGE>   41

 

 

     IN WITNESS WHEREOF, CAPSTEAD MORTGAGE CORPORATION has caused this

certificate to be signed in its name and on its behalf by its President, and

witnessed by its Secretary on December 1, 1992.

 

WITNESS                                  CAPSTEAD MORTGAGE CORPORATION

 

 

   /s/ Andrew F. Jacobs                  By: /s/ Ronn K. Lytle

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

               Secretary                                 President

 

     THE UNDERSIGNED, President of CAPSTEAD MORTGAGE CORPORATION, who executed

on behalf of the Corporation the foregoing Articles of Amendment of which this

certificate is a part, hereby acknowledges in the name and on behalf of said

Corporation the foregoing Articles of Amendment to be the corporate act of said

Corporation and hereby certifies that to the best of his knowledge, information,

and belief the matters and facts set forth therein with respect to the

authorization and approval thereof are true in all material respects under the

penalties of perjury.

 

 

                                             /s/ Ronn K. Lytle

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

                                                         President

 

 

                                                       2

<PAGE>   42

                             ARTICLES SUPPLEMENTARY

 

                          $1.26 CUMULATIVE CONVERTIBLE

                            PREFERRED STOCK, SERIES B

                        OF CAPSTEAD MORTGAGE CORPORATION

 

     CAPSTEAD MORTGAGE CORPORATION, a Maryland corporation, having its principal

office in Baltimore City, Maryland (hereinafter called the "Corporation"),

hereby certifies to the State Department of Assessments and Taxation of Maryland

that:

 

     Pursuant to authority conferred upon the Board of Directors by the Charter,

as amended, of the Corporation, the Board of Directors on July 8, 1992 adopted a

resolution, creating and authorizing the issuance of a series of 31,000,000

shares of $1.26 Cumulative Convertible Preferred Stock, Series B, and that the

powers, designations, preferences and relative, participating, optional or other

special rights, and the qualifications, limitations and restrictions thereof, of

the shares of such series are as follows:

 

     1. Designation and Number of Shares. Thirty-one million (31,000,000) shares

of Preferred Stock of the Corporation, par value $.10 per share, are hereby

designated as the "$1.26 Cumulative Convertible Preferred Stock, Series B"

(hereinafter called the "Series B Preferred Stock").

 

     2. Dividends. Holders of shares of Series B Preferred Stock shall be

entitled to receive, when, as and if declared by the Board of Directors, out of

funds of the Corporation legally available for payment thereof, cumulative

preferential cash dividends at the annual rate of $1.26 per share, and no more

(the "Preference Dividend"), payable in equal monthly installments of $.105 in

arrears on the last trading day of each calendar month (each a "Dividend Payment

Date"), to holders of record as they appear on the register for the Series B

Preferred Stock of the Corporation on such record dates, not more than 10 days

preceding the payment dates thereof (each, a "Preferred Record Date"), as may be

fixed by the Board of Directors, provided that, the first Preference Dividend

payable per share of Series B Preferred Stock (the "Initial Dividend") after the

Effective Date (as defined below) shall be as follows:

 

         (i) if the Effective Date occurs during the month of October 1992, the

     first Dividend Payment Date shall be October 30, 1992 or the earliest

     practicable date thereafter, and the Initial Dividend shall be that amount

     by which $.105 exceeds the actual amount distributed per share on the

     common stock (the "TC Stock") of Tyler Cabot Mortgage Securities Fund, Inc.

     ("Tyler Cabot") during the month of October 1992; and

 

         (ii) if the Effective Date occurs after October 31, 1992, the first

     Dividend Payment Date shall be the last trading day of the month in which

     the Effective Date occurs or the earliest practicable date thereafter, and

     the Initial Dividend shall be that amount equal to the product of $.105

     multiplied by a fraction, the numerator of which shall be the number of

     days in the period commencing with and including the day immediately

     following the Effective Date up to and including the last day of the month

     in which the Effective Date occurs and the denominator of which shall be

     the total number of days in the month in which the Effective Date occurs.

 

Dividends shall be cumulative from the effective date of the merger (the

"Merger") of Tyler Cabot with and into the Corporation (the "Effective Date").

So long as any Series B Preferred Stock shall remain outstanding, no dividend

shall be declared or paid upon or set apart for payment for the Common Stock of

 

                                        1

 

 

<PAGE>   43

 

 

 

the Corporation, par value $.01 per share (the "Common Stock"), or any other

class or series of capital stock of the Corporation ranking junior to the Series

B Preferred Stock in respect of dividends ("Junior Stock"), nor may any Common

Stock or any other Junior Stock be redeemed, purchased or otherwise acquired for

any consideration (or any payment made to or available for a sinking fund for

the redemption of any shares of such stock), unless in each instance full

Preference Dividends on all outstanding shares of Series B Preferred Stock for

all past dividend periods required to be paid shall have been paid at the rate

fixed therefor and the then current monthly dividend shall have been paid or

declared and sufficient funds set aside for payment thereof. No dividends shall

be declared on any other series or class or classes of stock ranking on a parity

with the Series B Preferred Stock as to dividends (including, without

limitation, outstanding shares of the Corporation's $1.60 Cumulative Preferred

Stock, Series A (the "Series A Preferred Stock")) in respect of any dividend

period thereof unless there shall likewise be or have been declared and

sufficient funds set aside for payment thereof on all shares of Series B

Preferred Stock at the time outstanding dividends for all monthly periods

coinciding with or ending before the end of such other period, ratably in

proportion to the respective annual dividend rates per annum fixed therefor.

Accumulated and unpaid Preference Dividends required to be paid on any shares of

Series B Preferred Stock shall not bear interest. As used in these Articles

Supplementary, "trading day" shall mean a day that is neither a Saturday nor a

Sunday nor a day on which the New York Stock Exchange is closed.

 

     3. Liquidation. The shares of Series B Preferred Stock shall rank prior to

the shares of Common Stock and any other class of stock of the Corporation

ranking junior to the Series B Preferred Stock upon liquidation, so that in the

event of any liquidation, dissolution or winding up of the Corporation, whether

voluntary or involuntary, the holders of the Series B Preferred Stock shall be

entitled to receive out of the assets of the Corporation available for

distribution to its stockholders, whether from capital, surplus or earnings,

before any distribution is made to holders of shares of Common Stock or any

other such junior stock, an amount equal to $11.38 per share (the "Liquidation

Preference") of Series B Preferred Stock plus an amount equal to the Preference

Dividends (whether or not declared) accumulated and unpaid on the shares of

Series B Preferred Stock to the date of final distribution. If upon any

liquidation, dissolution or winding up of the Corporation, the assets of the

Corporation or proceeds thereof, distributable among the holders of shares of

Series B Preferred Stock and holders of any other class or series of stock of

the Corporation ranking on a parity with shares of Series B Preferred Stock as

to payments upon liquidation (including, without limitation, the Series A

Preferred Stock), shall be insufficient to pay in full the respective

preferential amounts of shares of Series B Preferred Stock and any other such

class or series, then such assets, or the proceeds thereof, shall be distributed

among such holders ratably in accordance with the respective amounts which would

be payable on such shares if all amounts thereon were paid in full. For the

purposes hereof, neither a consolidation or merger of the Corporation with or

into any other corporation, nor a transfer of all or any part of the

Corporation's assets for cash, property or securities shall be considered a

liquidation, dissolution or winding-up of the Corporation.

 

     4. Voting Rights. Except as hereinafter expressly provided in this Section

4 and Section 5 and as otherwise required under the laws of the State of

Maryland, the holders of shares of Series B Preferred Stock shall have no voting

rights.

 

          (A) If and whenever at any time or times all or any portion of the

     Preference Dividends on Series B Preferred Stock for any two monthly

     dividends, whether or not consecutive, shall be in arrears and unpaid then,

     and in any such event, the number of directors constituting the Board of

     Directors shall be increased by two, and the holders of Series B Preferred

     Stock, voting separately as a class, shall be entitled at the next annual

     meeting of stockholders, or at a special meeting of holders of Series B

     Preferred Stock called as hereinafter provided, to elect two directors to

     fill such newly created directorships. Each holder shall be entitled to one

     vote in such election for each share of Series B Preferred Stock held. At

     such time as all arrearages in Preference Dividends on the Series B

     Preferred

                                        2

 

<PAGE>   44

 

 

 

     Stock shall have been paid in full and Preference Dividends thereon for the

     current monthly period shall have been paid or declared and a sum

     sufficient for the payment thereof set aside, then (i) the voting rights of

     holders of Series B Preferred Stock described in this paragraph 4(A) shall

     cease (subject always to revesting of such voting rights in the event of

     each and every similar future arrearages in Preference Dividends), (ii) the

     term of the directors then in office as a result of the voting rights

     described in this paragraph 4(A) shall terminate and (iii) the number of

     directors shall be reduced by the number of Directors then in office

     elected pursuant to this paragraph 4(A). A vacancy in the class of

     directors elected pursuant to this paragraph 4(A) shall be filled by the

     remaining director of the class, unless such vacancy is filled pursuant to

     the final sentence of paragraph 4(D).

 

          (B) At any time when the voting right described in paragraph 4(A)

     shall have vested and shall remain in the holders of Series B Preferred

     Stock, such voting right may be exercised initially either at a special

     meeting of holders of Series B Preferred Stock or at any annual or special

     stockholders' meeting called for the purpose of electing directors, but

     thereafter it shall be exercised only at annual stockholders' meetings. If

     such voting right shall not already have been initially exercised, the

     Secretary of the Corporation may, and upon the written request of the

     holders of record of at least 10% of the shares of Series B Preferred Stock

     then outstanding shall, call a special meeting of the holders of Series B

     Preferred Stock for the purpose of electing two directors pursuant to

     paragraph 4(A), and notice thereof shall be given to the holders of Series

     B Preferred Stock in the same manner as that required to be given to

     holders of Common Stock for the annual meeting of stockholders. Such

     meeting shall be held at the earliest practicable date upon the notice

     required for special meetings of stockholders of the Corporation, or, if

     none, at a time and place designated by the Secretary of the Corporation.

 

           (C) At any meeting held for the purpose of electing directors at

     which the holders of Series B Preferred Stock shall have the right to elect

     directors as provided in paragraph 4(A) above, the presence in person or by

     proxy of the holders of at least thirty-five percent (35%) of the then

     outstanding shares of Series B Preferred Stock shall be required and be

     sufficient to constitute a quorum of Series B Preferred Stock for the

     election of directors by Series B Preferred Stock, and the vote of the

     holders of a majority of such shares so present in person or by proxy at

     any such meeting at which there shall be such a quorum shall be required

     and be sufficient to elect the members of the Board of Directors which the

     holders of Series B Preferred Stock are entitled to elect as hereinabove

     provided. At any such meeting or adjournment thereof, (i) the absence of a

     quorum of the holders of Series B Preferred Stock shall not prevent the

     election of directors other than the directors to be elected by the holders

     of Series B Preferred Stock and (ii) in the case of Series B Preferred

     Stock entitled to vote for the election of directors, a majority of the

     holders present in person or by proxy of such class, if constituting less

     than a quorum as hereinabove provided, shall have the power to adjourn the

     meeting for the election of the directors that the holders of such class

     are entitled to elect, from time to time, until a quorum shall be present,

     and notice of such adjourned meeting need not be given unless otherwise

     required by law, provided that nothing herein shall affect the conduct of

     the meeting with respect to stockholders of any other class.

 

           (D) Any director who shall have been elected or appointed pursuant to

     this Section 4 shall hold office for a term expiring (subject to the

     earlier termination of the default in Preference Dividends) at the next

     annual meeting of stockholders, and during such term may be removed at any

     time, either with or without cause, only by the affirmative vote of the

     holders of record of a majority of the shares of Series B Preferred Stock

     then outstanding at a special meeting of such stockholders called for such

     purpose. Any vacancy created by such removal may also be filled at such

     meeting.

 

     5. Limitations on Certain Actions. (A) So long as any shares of Series B

Preferred Stock remain outstanding, the Corporation shall not, without the

affirmative vote of the holders of at least 66 2/3% of the shares of Series B

Preferred Stock then outstanding, given in person or by proxy at a meeting

called for the purpose at which the holders of Series B Preferred Stock shall

vote separately as a class, directly or indirectly or through merger or

consolidation with any other corporation:

 

                                        3

<PAGE>   45

 

 

 

 

           (i) create any class or classes of stock ranking prior to Series B

     Preferred Stock either as to dividends or as to amounts distributable upon

     liquidation or increase the authorized number of shares of any class or

     classes of stock ranking prior to Series B Preferred Stock either as to

     dividends or as to amounts distributable upon liquidation;

 

           (ii) authorize any reclassification of Series B Preferred Stock; or

 

           (iii) amend, alter or repeal any of the provisions of the Charter of

     the Corporation (including the provisions of this paragraph 5) so as to

     affect adversely the preferences, special rights or voting powers of the

     Series B Preferred Stock.