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                                                                     EXHIBIT 3.1

                          HOME INTERIORS & GIFTS, INC.

                     CERTIFICATE OF DESIGNATION, PREFERENCES
                    AND RELATIVE, PARTICIPATING, OPTIONAL AND
                     OTHER SPECIAL RIGHTS OF PREFERRED STOCK
                       AND QUALIFICATIONS, LIMITATIONS AND
                              RESTRICTIONS THEREOF

                                   ----------

                       Pursuant to Article 2.13(D) of the
                         Texas Business Corporation Act

                                   ----------

         Home Interiors & Gifts, Inc. (the "Company"), a corporation organized
and existing under the laws of the State of Texas, hereby certifies that
pursuant to the provisions of Article 2.13(D) of the Texas Business Corporation
Act, its Board of Directors adopted the following resolution at a meeting of
such Board of Directors on July 12, 2001, which resolution was duly adopted by
all necessary action on the part of the Company and remains in full force and
effect as of the date hereof:

         WHEREAS, the Board of Directors of the Company is authorized, within
the limitations and restrictions stated in the Restated Articles of
Incorporation, to fix by resolution or resolutions the designation of preferred
stock and the powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such provisions as
may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Texas Business Corporation Act; and

         WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to authorize and fix the terms of the
preferred stock to be designated the 12.5% Senior Convertible Preferred Stock of
the Company and the number of shares constituting such preferred stock.

         NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the
12.5% Senior Convertible Preferred Stock on the terms and with the provisions
herein set forth:

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                   TERMS, PREFERENCES, RIGHTS AND LIMITATIONS

                                       of

                    12.5% SENIOR CONVERTIBLE PREFERRED STOCK

                                       of

                          HOME INTERIORS & GIFTS, INC.

         The relative rights, preferences, powers, qualifications, limitations
and restrictions granted to or imposed upon the 12.5% Senior Convertible
Preferred Stock or the holders thereof are as follows:

         1. Definitions. For purposes of this Designation, the following
definitions shall apply:

         "Appraised Value" shall mean, in respect of any share of Common Stock
on any date herein specified, the value of the Company as of the last day of the
most recent fiscal quarter, as determined by an investment banking firm selected
by the Company and the Required Holders (which value shall assume the payment of
all consideration payable to the Company in respect of the exercise, conversion
and acquisition of all securities included in clause (iii) of the definition of
"Fully Diluted" below), divided by the number of Fully Diluted shares of Common
Stock.

         "Board" shall mean the Board of Directors of the Company.

         "Book Value" shall mean, in respect of any share of Common Stock on any
date herein specified, the consolidated book value of the Company (which value
shall assume the payment of all consideration payable to the Company in respect
of the exercise, conversion and acquisition of all securities included in clause
(iii) of the definition of "Fully Diluted" below), as determined in accordance
with GAAP by any firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Required Holders, as of the last day of the most recent fiscal quarter, divided
by the number of Fully Diluted shares of Common Stock.

         "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.

         "Common Stock" shall mean the Common Stock, $0.10 par value per share,
of the Company.

         "Company" shall mean Home Interiors & Gifts, Inc., a Texas corporation.

         "Conversion" has the meaning set forth in Section 6 hereof.

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         "Conversion Amount" has the meaning set forth in Section 6 hereof.

         "Conversion Price" shall mean, at any time, the amount computed by
dividing the Liquidation Preference for one Share of Senior Preferred Stock by
the Conversion Amount in effect at such time.

         "Current Market Price," when used with reference to shares of Common
Stock or other securities on any date, shall mean the higher of: (a) the
Conversion Price per share of Common Stock at such date; and (b) the Appraised
Value per share of Common Stock at such date, or if there shall be a public
market for the Common Stock, the higher of: (x) the Book Value per share of
Common Stock at such date; and (y) the average of the daily market prices for
any 30 consecutive Trading Days commencing no earlier than 45 days before such
date. The daily market price for each such Trading Day shall be: (i) the last
sale price on such day on the principal stock exchange or the NASDAQ National
Market on which such Common Stock is then listed or admitted to trading; or (ii)
if no sale takes place on such day on any such exchange or market, the average
of the last reported closing bid and asked prices on such day as officially
quoted on any such exchange or market.

         "Dividend Dilution Event" has the meaning set forth in Section 6(d)(iv)
hereof.

         "Dividend Rate" shall mean 12.5% per annum.

         "Fair Market Value" shall mean, with respect to any asset, the amount
that a willing buyer would pay an unaffiliated willing seller in an arm's-length
transaction to acquire ownership of such asset, with neither being under any
compulsion to buy or sell, as determined in good faith by the Board.

         "Fully Diluted" shall mean, with reference to shares of Common Stock,
at any date as of which the number of shares thereof is to be determined: (i)
all shares of Common Stock outstanding at such date; plus (ii) all shares of
Common Stock issuable upon the Conversion of the Senior Preferred Stock
outstanding on such date; plus (iii) all shares of Common Stock issuable upon
exercise or conversion of all options and warrants to purchase or otherwise
acquire, or securities convertible into or exercisable for, shares of Common
Stock outstanding on such date which would be deemed outstanding in accordance
with GAAP for purposes of determining book value or net income per share.

         "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time applied on a consistent
basis.

         "Issuance Dilution Event" has the meaning set forth in Section 6(d)(ii)
hereof.

         "Liquidation Preference" shall mean $1,000 per share.

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         "New Securities" has the meaning set forth in Section 7 hereof.

         "Original Issue Date" shall mean the date of the original issuance of
shares of Senior Preferred Stock.

         "Person" shall mean any individual, firm, corporation, partnership,
limited partnership, limited liability company or other entity, and shall
include any successor (by merger or otherwise) of such entity.

         "Required Holders" shall mean the holders of at least of a majority of
the outstanding shares of Senior Preferred Stock.

         "Senior Preferred Stock" shall refer to shares of 12.5% Senior
Convertible Preferred Stock, $0.01 par value per share, of the Company.

         "Stock Option Plan For Key Employees" shall mean the 1998 Stock Option
Plan For Key Employees entered into by the Company as of June 4, 1998, as
amended, supplemented or otherwise modified from time to time.

         "Stock Option Plan For Unit Directors" shall mean the 1998 Stock Option
Plan For Unit Directors, Branch Directors and Certain Other Independent
Contractors entered into by the Company as of June 4, 1998, as amended,
supplemented or otherwise modified from time to time.

         "Trading Day" shall mean a Business Day or, if the Common Stock is
listed or admitted to trading on any national securities exchange or NASDAQ
market, a day on which such exchange or market is open for the transaction of
business.

         2. Designation; Number of Shares; Ranking. The designation of the
preferred stock authorized by this resolution shall be "12.5% Senior Convertible
Preferred Stock" and the number of shares of Senior Preferred Stock authorized
hereby shall be 96,058.98 shares. The shares of Senior Preferred Stock rank: (i)
senior, with respect to the payment of dividends and with respect to
distributions upon liquidation, dissolution or winding up of the Company or
otherwise, to all shares of Common Stock and all other classes or series of
capital stock of the Company the terms of which do not expressly state that they
rank senior to or on a parity with the Senior Preferred Stock with respect
thereto (collectively, the "Junior Stock"); (ii) on a parity, with respect to
the payment of dividends and with respect to distributions upon liquidation,
dissolution or winding up of the Company or otherwise, to all other classes or
series of capital stock of the Company the terms of which expressly state that
they rank on a parity with the Senior Preferred Stock with respect thereto
(collectively, the "Parity Stock"); and (iii) junior, with respect to the
payment of dividends and with respect to distributions upon liquidation,
dissolution or winding up of the Company or otherwise, to all other classes or
series of preferred stock of the Company the terms of which expressly state that
they rank senior to the Senior Preferred Stock with respect thereto
(collectively, the "Senior

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Stock"); it being understood and agreed that the issuance of any such Parity
Stock or Senior Stock shall be subject to Section 5(b) hereof.

         3. Dividends.

         (a) So long as any shares of Senior Preferred Stock shall be
outstanding, the holders of such Senior Preferred Stock shall be entitled to
receive out of any funds legally available therefor, when, as and if declared by
the Board, preferential dividends in cash at the Dividend Rate on the
Liquidation Preference hereunder, payable quarterly on the first Business Day of
each calendar quarter commencing on October 1, 2001. Such dividends shall be
cumulative and begin to accrue on a daily basis from the Original Issue Date,
whether or not declared and whether or not there shall be net profits or net
assets of the Company legally available for the payment of those dividends.

         (b) So long as any shares of Senior Preferred Stock shall be
outstanding: (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on account of any class or series of Junior Stock or
Parity Stock (other than, with respect to Junior Stock, dividends paid or
distributions made solely in additional shares of such Junior Stock, and, with
respect to Parity Stock, a partial dividend paid pro rata on such Parity Stock
and the Senior Preferred Stock) unless (A) all dividends in respect of the
Senior Preferred Stock for all past and current dividend periods have been paid
in full and (B) such dividend or distribution consists only of cash and/or cash
equivalents; and (ii) no shares of Junior Stock or Parity Stock, or any option,
warrant or other right to acquire the Company's capital stock, shall be
purchased, redeemed, retired or acquired by the Company or any subsidiary of the
Company and no funds shall be paid into or set aside or made available for a
sinking fund for the purchase, redemption, retirement or acquisition thereof;
provided that, notwithstanding the foregoing, the Company may, from time to
time, repurchase any options or any other rights to acquire the Company's
capital stock, or any shares of Common Stock into which such options or other
rights to acquire the Company's capital stock may have been exercised, in each
case in accordance with the Stock Option Plan For Key Employees or the Stock
Option Plan For Unit Directors, as applicable.

         4. Liquidation Rights.

         (a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Senior Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its shareholders, whether such assets are capital,
surplus, earnings or otherwise, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of any shares of Junior
Stock, an amount with respect to each share of Senior Preferred Stock
outstanding equal to the Liquidation Preference for such share plus all declared
or accrued and unpaid dividends in respect thereof.

         (b) If upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets to be distributed among the holders
of Senior

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Preferred Stock and all other Parity Stock shall be insufficient to permit the
payment to such shareholders of the full preferential amounts thereof, then the
entire assets of the Company to be distributed shall be distributed ratably
among the holders of Senior Preferred Stock and such Parity Stock, based on the
full preferential amounts for the number of shares of Senior Preferred Stock or
Parity Stock held by each holder.

         (c) After payment to the holders of Senior Preferred Stock of the
amounts set forth in Section 4(a) hereof, the entire remaining assets and funds
of the Company legally available for distribution, if any, shall be distributed
among the holders of any Company capital stock entitled to a preference over the
Common Stock in accordance with the terms thereof and, thereafter, to the
holders of Common Stock.

         5. Voting Rights. In addition to any voting rights provided by law, the
holders of shares of Senior Preferred Stock shall have the following voting
rights:

         (a) From and after the expiration or termination of any waiting period
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, for acquisition by the holders of Senior Preferred Stock of the voting
rights described in this paragraph 5(a), each share of Senior Preferred Stock
shall entitle the holder thereof to vote on all matters voted on by the holders
of Common Stock, voting together as a single class with all other shares
entitled to vote, at all meetings of the stockholders of the Company. With
respect to any such vote, each share of Senior Preferred Stock shall entitle the
holder thereof to cast the number of votes equal to the number of shares of
Common Stock of the Company into which such share of Senior Preferred Stock is
convertible on the record date for such vote.

         (b) Whether or not the voting rights set forth in paragraph 5(a) shall
be in effect, the affirmative vote of the Required Holders, in person or by
proxy, at a special or annual meeting of the holders of Senior Preferred Stock
called for the purpose, or pursuant to a written consent of the Required
Holders, shall be necessary for the Company to:

         (i) authorize, adopt or approve an amendment to the Articles of
     Incorporation of the Company (including by way of merger, consolidation or
     otherwise) that would increase or decrease the par value of the Senior
     Preferred Stock, grant any holder of bonds, debentures or other obligations
     voting rights, or otherwise alter or change in any manner the terms,
     powers, preferences or special rights of the Senior Preferred Stock or
     grant waivers thereof, or that would otherwise adversely affect the rights
     of the Senior Preferred Stock, provided that no such modification or
     amendment may, without the consent of each holder of Senior Preferred Stock
     affected thereby (A) increase the Conversion Price or decrease the
     Liquidation Preference or Dividend Rate of the Senior Preferred Stock, (B)
     adversely affect any of the Conversion features of the Senior Preferred
     Stock set forth in Section 6 hereof, or (C) decrease the percentage of
     outstanding Senior Preferred Stock necessary to modify or amend the terms
     thereof or to grant waivers thereof;

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         (ii) authorize or issue any shares of Senior Stock or Parity Stock
     (including, without limitation, additional shares of Senior Preferred
     Stock), or authorize or issue any securities convertible into, exchangeable
     for or evidencing the right to purchase such shares;

         (iii) directly or indirectly recapitalize or reclassify any shares of
     capital stock of the Company into Senior Preferred Stock or into any Senior
     Stock or Parity Stock, or exchange any capital stock of the Company for
     debt; or

         (iv) effect a voluntary liquidation, dissolution or winding up of the
     Company.

         6. Conversion. (a) Subject to the provisions for adjustment of the
Conversion Amount hereinafter set forth, each share of Senior Preferred Stock
shall be convertible at any time and from time to time, at the option of the
holder thereof (each, a "Conversion") into fully paid and nonassessable shares
of Common Stock. The number of shares of Common Stock deliverable upon a
Conversion of shares of Senior Preferred Stock (excluding accrued dividends
thereon, which are addressed by paragraph (b)(i) of this Section 6) shall be
determined by multiplying the number of such shares of Senior Preferred Stock by
the conversion amount at the time of Conversion (the "Conversion Amount"), which
shall initially be 51.49330587, and which Conversion Amount shall be subject to
adjustment from time to time pursuant to paragraph (d) of this Section 6. No
fractional shares shall be issued upon the Conversion of any shares of Senior
Preferred Stock unless the Company otherwise has fractional shares outstanding
at the time of such Conversion. All shares of Common Stock (including fractions
thereof) issuable upon Conversion of more than one share of Senior Preferred
Stock by a holder thereof shall be aggregated for purposes of determining
whether Conversion would result in the issuance of any fractional shares. If:
(i) the Company has no such fractional shares outstanding at the time of
Conversion; and (ii) after the aforementioned aggregation, the Conversion would
result in the issuance of a fraction of a share of Common Stock, the Company
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the Current Market Price of one
share of Common Stock on the date of Conversion multiplied by such fraction.

         (b) (i) A Conversion of Senior Preferred Stock may be effected by any
holder thereof upon the surrender to the Company at the principal office of the
Company of the certificate for such Senior Preferred Stock to be converted (the
"Surrendered Certificate") accompanied by a written notice (the "Conversion
Notice" and, together with the Surrendered Certificate, the "Conversion
Deliveries") stating that such holder elects to convert all or a specified
number of such holder's shares (which may be fractional shares) in accordance
with the provisions of this Section 6 and specifying the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. Upon any Conversion of shares of Senior Preferred Stock, any accrued
and unpaid dividends (through the date of Conversion) owing in respect of such
shares of Senior Preferred Stock to be converted shall be simultaneously
converted

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into a number of shares of Common Stock equal to the sum of such accrued and
unpaid dividends divided by the Conversion Price.

         (ii) In case the written notice specifying the name or names in which
     such holder wishes the certificate or certificates for shares of Common
     Stock to be issued shall specify a name or names other than that of such
     holder, such notice shall be accompanied by payment of all transfer taxes
     payable upon the issuance of shares of Common Stock in such name or names.
     Other than such taxes, the Company will pay any and all issue and other
     taxes (other than taxes based on income) that may be payable in respect of
     any issue or delivery of shares of Common Stock on Conversion of Senior
     Preferred Stock pursuant hereto. As promptly as practicable, and in any
     event within five Business Days after the surrender of such certificate or
     certificates and the receipt of such notice relating thereto and, if
     applicable, payment of all transfer taxes (or the demonstration to the
     satisfaction of the Company that such taxes have been paid), the Company
     shall deliver or cause to be delivered (A) certificates representing the
     number of validly issued, fully paid and nonassessable full shares of
     Common Stock to which the holder of shares of Senior Preferred Stock being
     converted shall be entitled, and (B) if less than the full number of shares
     of Senior Preferred Stock evidenced by the surrendered certificate or
     certificates is being converted, a new certificate or certificates, of like
     tenor, for the number of shares evidenced by such surrendered certificate
     or certificates less the number of shares being converted.

         (iii) Each Conversion shall be deemed to have been made at the close of
     business on the date of receipt by the Company of the Conversion Deliveries
     so that the rights of the holder thereof as to the shares being converted
     shall cease except for the right to receive shares of Common Stock and any
     cash in lieu of a fractional share thereof, in accordance herewith, and the
     Person entitled to receive the shares of Common Stock shall be treated for
     all purposes as having become the record holder of such shares of Common
     Stock at such time.

         (c) The Company shall at all times reserve, and keep available for
issuance upon the Conversion of the Senior Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the Conversion of all outstanding shares of Senior
Preferred Stock not theretofore converted, and shall take all action required to
increase the authorized number of shares of Common Stock if necessary to permit
the Conversion of all outstanding shares of Senior Preferred Stock not
theretofore converted.

         (d) The Conversion Amount shall be subject to adjustment from time to
time as follows:

         (i) In case the Company shall at any time or from time to time after
     the Original Issue Date (A) pay a dividend, or make a distribution, on the
     outstanding shares of Common Stock in shares of Common Stock, (B) subdivide

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     the outstanding shares of Common Stock, (C) combine the outstanding shares
     of Common Stock into a smaller number of shares, or (D) issue by
     reclassification of the shares of Common Stock any shares of capital stock
     of the Company, then, and in each such case, the Conversion Amount in
     effect immediately prior to such event or the record date therefor (if
     earlier) (the "Determination Date") shall be adjusted so that the holder of
     any shares of Senior Preferred Stock at any time thereafter surrendered for
     Conversion (without giving effect to any Conversion of dividends accrued
     thereon, which shall be addressed by paragraph (b)(i) of this Section 6)
     shall be entitled to receive the number of shares of Common Stock or other
     securities of the Company that such holder would have owned or have been
     entitled to receive after the happening of any of the events described
     above, had such shares of Senior Preferred Stock (without giving effect to
     any Conversion of dividends accrued thereon, which shall be addressed by
     paragraph (b)(i) of this Section 6) been surrendered for Conversion
     immediately prior to the Determination Date. An adjustment made pursuant to
     this clause (i) shall become effective: (x) in the case of any dividend or
     distribution described in clause (A), immediately after the close of
     business on the record date for the determination of holders of shares of
     Common Stock entitled to receive such dividend or distribution; or (y) in
     the case of any subdivision, reclassification or combination described in
     clause (B), (C) or (D), at the close of business on the day upon which such
     corporate action becomes effective.

         (ii) In case the Company shall issue shares of Common Stock (or rights,
     warrants or other securities convertible into or exchangeable for shares of
     Common Stock) after the Original Issue Date, other than issuances for which
     an adjustment has been made pursuant to clause (i) above, at a price per
     share (or having an exercise, conversion or exchange price per share) less
     than the Current Market Price per share of Common Stock, as of the date of
     issuance of such shares or of such rights, warrants or other convertible or
     exchangeable securities, or, if the Company shall offer or issue rights or
     warrants to all holders of its outstanding shares of Common Stock, as of
     the record date fixed for the determination of shareholders entitled to
     receive such rights or warrants (each, an "Issuance Dilution Event"), then,
     and in each such case, the Conversion Amount shall be adjusted upward so
     that the holder of each share of Senior Preferred Stock shall be entitled
     to receive, upon the Conversion thereof, the number of shares of Common
     Stock determined by multiplying (A) the applicable Conversion Amount
     immediately prior to such Issuance Dilution Event, by (B) a fraction, the
     numerator of which shall be the sum of (1) the number of shares of Common
     Stock outstanding immediately prior to such Issuance Dilution Event, and
     (2) the number of additional shares of Common Stock issued in connection
     with the Issuance Dilution Event (or into which the rights, warrants or
     other convertible or exchangeable securities may exercise or convert), and
     the denominator of which shall be the sum of (x) the number of shares of
     Common Stock outstanding immediately prior to such Issuance Dilution Event,
     and (y) the number of shares of Common Stock which the aggregate
     consideration received

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     by the Company for the total number of shares of Common Stock so issued or
     for the issuance of rights, warrants or other convertible or exchangeable
     securities (or which would be received upon the exercise, conversion or
     exchange of any rights, warrants or other exchangeable or convertible
     securities so issued) would purchase at such Current Market Price
     immediately prior to such Issuance Dilution Event.

         (iii) An adjustment made pursuant to clause (ii) above shall be made on
     the next Business Day following the date of the Issuance Dilution Event and
     shall be effective retroactively immediately after the close of business on
     such date. For purposes of clause (ii), the aggregate consideration
     received by the Company in connection with the issuance of shares of Common
     Stock or of rights, warrants or other securities exchangeable or
     convertible into shares of Common Stock shall be deemed to be equal to the
     sum of the aggregate offering price of all such Common Stock and such
     rights, warrants, or other exchangeable or convertible securities plus the
     minimum aggregate amount, if any, receivable upon exchange or conversion of
     any such exchangeable or convertible securities into shares of Common
     Stock.

         (iv) In case the Company shall at any time or from time to time after
     the Original Issue Date declare, order, pay or make a dividend or other
     distribution (including, without limitation, any distribution of capital
     stock or other securities or property or rights or warrants to subscribe
     for securities of the Company or any of its subsidiaries by way of dividend
     or spinoff), on its Common Stock (other than (A) dividends or distributions
     of shares of Common Stock for which an adjustment has been made pursuant to
     clause (i) of this paragraph (d) or (B) dividends and distributions
     consisting of cash and cash equivalents and made in compliance with Section
     3(b) hereof, not exceeding, in any 12-month period, 5% of the after-tax
     cash flow of the Company for the last 12-month period for which financial
     statements are available) (each, a "Dividend Dilution Event"), then, and in
     each such case, the Conversion Amount shall be adjusted upward so that the
     holder of each share of Senior Preferred Stock shall be entitled to
     receive, upon the Conversion thereof, the number of shares of Common Stock,
     determined by multiplying (1) the applicable Conversion Amount on the day
     immediately prior to the record date fixed for the determination of
     shareholders entitled to receive such dividend or distribution, by (2) a
     fraction, the numerator of which shall be the Current Market Price per
     share of Common Stock at such record date, and the denominator of which
     shall be such Current Market Price per share of Common Stock less the Fair
     Market Value of such dividend or distribution per share of Common Stock.

         (v) For purposes of this paragraph (d), the number of shares of Common
     Stock at any time outstanding shall not include any shares of Common Stock
     then owned or held by or for the account of the Company or any of its
     subsidiaries.

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         (vi) If the Company shall take a record of the holders of its Common
     Stock for the purpose of entitling them to receive a dividend or other
     distribution, and shall thereafter and before the distribution to
     shareholders thereof legally abandon its plan to pay or deliver such
     dividend or distribution, then thereafter no adjustment in the number of
     shares of Common Stock issuable upon exercise of the right of Conversion
     granted by this paragraph (d) or in the Conversion Amount then in effect
     shall be required by reason of the taking of such record.

         (vii) Anything in this paragraph (d) to the contrary notwithstanding,
     the Company shall not be required to give effect to any adjustment in the
     Conversion Amount unless and until the net effect of one or more
     adjustments (each of which shall be carried forward), determined as above
     provided, shall have resulted in a change of the Conversion Amount by at
     least one-tenth of one share of Common Stock, and when the cumulative net
     effect of more than one adjustment so determined shall be to change the
     Conversion Amount by at least one-tenth of one share of Common Stock, such
     change in Conversion Amount shall thereupon be given effect.

         (viii) If any option or warrant expires or is cancelled without having
     been exercised, then, for the purposes of the adjustments set forth above,
     such option or warrant shall have been deemed not to have been issued and
     the Conversion Amount shall be adjusted accordingly. No holder of Common
     Stock which was previously issued upon Conversion of Senior Preferred Stock
     shall have any obligation to redeem or cancel any such shares of Common
     Stock as a result of the operation of this paragraph (viii).

         7. Pre-Emptive Rights. Each holder of Senior Preferred Stock shall have
the right to purchase all or any part of New Securities (as hereinafter defined)
that the Company may, from time to time hereafter, propose to sell and issue. If
any New Securities are also being offered or sold to any purchaser or purchasers
other than such holders of Senior Preferred Stock, such New Securities shall be
offered to each holder of Senior Preferred Stock on the same terms and
conditions. Each such holder's pro rata share of New Securities, for purposes of
this right, is the ratio of (A) the number of shares of Common Stock into which
the shares of Senior Preferred Stock held by such holder are convertible at the
time the New Securities are offered to (B) the number of Fully Diluted shares of
Common Stock at the time the New Securities are offered. For purposes hereof,
"New Securities" shall mean Common Stock or any security exchangeable or
exercisable for, or convertible into, Common Stock; provided, however, that New
Securities shall not include any of the following issuances, provided that any
such issuance is or has been duly approved by the Board and shall be in
accordance with this Certificate:

         (i) public issuance and sale of Common Stock registered under
applicable securities laws;

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         (ii) the issuance of options, warrants or Common Stock to employees,
officers and/or directors of the Company under one or more plans approved by the
Board, including, without limitation, under the 1998 Stock Option Plan for Key
Employees or the 1998 Stock Option Plan for Unit Directors, Branch Directors and
certain other independent contractors; or

         (iii) the issuance of options, warrants or Common Stock at Fair Market
Value in exchange for assets or equipment to be used by the Company in the
normal course of business.

         8. Reports as to Adjustments. Upon any adjustment of the Conversion
Amount then in effect and any increase or decrease in the number of shares of
Common Stock issuable upon the operation of a Conversion set forth in Section 6,
then, and in each such case, the Company shall promptly deliver to each holder
of the Senior Preferred Stock, a certificate signed by the Chief Executive
Officer or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the Conversion Amount then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the Conversion right granted by Section 6, and shall set forth in
reasonable detail the method of calculation of each and a brief statement of the
facts requiring such adjustment. Where appropriate, such notice to holders of
the Senior Preferred Stock may be given in advance.

         9. No Reissuance of Senior Preferred Stock. No Senior Preferred Stock
acquired by the Company by reason of purchase, Conversion or otherwise shall be
reissued, and all such shares shall be cancelled, retired and eliminated from
the shares which the Company shall be authorized to issue.

         10. Notices. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid, addressed to
its principal office located at 1649 Frankford Road West, Carrollton, Texas
75007, Attention: Chief Executive Officer or to such other address at which its
principal office is located and as to which notice thereof is similarly given to
the holders of the Senior Preferred Stock at their addresses appearing on the
books of the Company.

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<PAGE>   13

         IN WITNESS WHEREOF, Home Interiors and Gifts, Inc. has caused this
Certificate to be signed by its Chief Executive Officer and Secretary,
respectively, on this 13th day of July, 2001.

                                       /s/ Donald J. Carter, Jr.
                                       ---------------------------
                                       Donald J. Carter, Jr.,
                                       Chief Executive Officer


                                       /s/ Kenneth Cichocki
                                       ---------------------------
                                       Kenneth Cichocki, Secretary

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