EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DURECT CORPORATION
The undersigned, James E. Brown and Mark B. Weeks, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Durect Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 6, 1998 under the name
of "Durect Therapeutics Corporation."
3. The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as follows:
"ARTICLE I
The name of this corporation is Durect Corporation (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805, County of New Castle. The name of its registered agent at such address is
Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two
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classes of stock to be designated, respectively, "Common Stock" and "Preferred
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Stock." The total number of shares which the Corporation is authorized to issue
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is sixty-five million six hundred eight-three thousand seven hundred thirty-four
(65,683,734) shares, each with a par value of $0.0001 per share. Forty-one
million five hundred forty-one thousand eight hundred sixty-seven (41,541,867)
shares shall be Common Stock and twenty-four million one hundred and forty-one
thousand eight hundred and sixty-seven (24,141,867) shares shall be Preferred
Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock
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authorized by this Amended and Restated Certificate of Incorporation has been
designated herein in three series. The first series of Preferred Stock is
designated "Series A-1 Preferred Stock" and consists of five million six hundred
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thousand (5,600,000) shares. The second series of Preferred
Stock is designated "Series A-2 Preferred Stock" and consists of eight million
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six hundred and forty-one thousand eight hundred sixty-seven (8,641,867) shares.
The third series of Preferred Stock is designated "Series B Preferred Stock" and
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consists of nine million three hundred ninety-five thousand three hundred
forty-nine (9,378,140) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A-1, Series A-2 and Series B
Preferred Stock are as set forth below in this Article IV(B). The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Designations or the Corporation's
Certificate of Incorporation ("Protective Provisions"), but notwithstanding any
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other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
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provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class or series of Preferred or Common Stock.
Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than the Series A-1, Series A-2 and Series B Preferred Stock),
prior or subsequent to the issue of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
1. Dividend Provisions. Subject to the rights of the
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series of Preferred Stock that may from time to time come into existence:
(a) Series A-1 and Series A-2 Preferred. the holders
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of shares of Series A-1 or Series A-2 Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor prior and in
preference to any declaration or payment of any dividend on the Common Stock of
the Corporation, at the rate of $0.05 per share per annum on each outstanding
share of Series A-1 or Series A-2 Preferred Stock, payable quarterly when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative.
(b) Series B Preferred. the holders of shares of
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Series B Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor prior and in preference to any declaration or
payment of any dividend on the Common Stock of the Corporation, at the rate of
$0.13975 per share per annum on each outstanding share of Series B Preferred
Stock, payable quarterly when, as and if declared by the Board of Directors.
Such dividends shall accrue on each share from July 16, 1999, and shall accrue
from day to day, whether or not declared. Such dividends shall be cumulative so
that, except as provided below, if such dividends in respect of any previous or
current annual dividend period, at the annual rate specified above, shall not
have been paid the deficiency shall first be fully paid before any dividend or
other distribution shall be paid on or declared and set apart for the Common
Stock. Accumulation of dividends on the Series B Preferred Stock shall not bear
interest. Cumulative dividends with respect to a share of Series B Preferred
Stock which are accrued and/or in arrears
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shall be forgiven upon conversion (a "Specified Conversion") of such share to
Common Stock pursuant to either Section 4(a) below or Section 4(b) below so long
as any conversion pursuant to either section is in connection with a registered
offering of the Corporation's Common Stock under the Securities Act (defined
below). Cumulative dividends with respect to a share of Series B Preferred Stock
which are accrued and/or in arrears shall be paid upon any conversion of such
share into Common Stock other than a Specified Conversion either in cash or, at
the discretion of the Board of Directors, in Common Stock valued at the fair
market value of such Common Stock as determined in good faith by the Board of
Directors; provided, however, if the holders of a majority of the then
outstanding shares of the Series B Preferred Stock (the "Contesting Holders")
notify the Board of Directors of the Corporation within ten (10) days after
receiving written notification of such determination of the fair market value
that they disagree with such determination, then the fair market value of the
Common Stock shall be mutually agreed upon by the Board of Directors and the
holders of a majority of the Series B Preferred Stock within thirty (30) days
after the receipt of notice by the Board of Directors from the Contesting
Holders.
(c) Parity of Preferred Series Dividends. To the
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extent that dividends have been declared and are payable on the Series A-1 or
Series A-2 Preferred Stock, such dividends shall be paid on a pari passu basis
with the dividends of the Series B Preferred Stock pro rata in accordance with
the then unpaid amounts of the dividends then payable on the respective Series
of Preferred Stock. To the extent that assets are not legally available for the
payment of such dividends on the Series A-1, Series A-2 or Series B Preferred
Stock, such dividends shall be paid pro rata as provided in the immediately
preceding sentence at such time as assets become legally available for such
purpose. Any dividends on the Preferred Stock shall be paid before payment of
the Liquidation Preferences on the Preferred Stock provided for under Section 2
below.
2. Liquidation.
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(a) Preferred Stock. In the event of any liquidation,
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dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of any series of Preferred Stock that may from time to
time come into existence, the holders of the Series A-2 and Series B Preferred
Stock, unless such stock has been converted into Common Stock in accordance with
Section 4 below, shall be entitled to receive in addition to any dividends then
payable as provided under Section 1 above, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Series A-
1 Preferred Stock or Common Stock by reason of their ownership thereof, an
amount per share equal to (i) $1.087 per share for each share of Series A-2
Preferred Stock then held by them (the "Series A-2 Liquidation Preference") and
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(ii) $2.15 per share for each share of Series B Preferred Stock then held by
them (the "Series B Liquidation Preference"); provided, however, that in the
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event of any transaction described in Section 2(c)(i) below that (x) is not
approved (by vote or written consent, as provided by law) by the holders of a
majority of the Series B Preferred Stock then outstanding and (y) results in
aggregate consideration to be received by the stockholders of the Corporation of
less than $115 million (a "Non-Approved Merger"), the Series B Liquidation
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Preference shall instead be an amount per share ("Non-Approved Merger
Preference") calculated as follows:
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Non-Approved Merger Preference = $2.15 - ($0.1075) (Y )
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1,000,000
where Y is the amount equal to the excess, if any, of the aggregate
consideration to be received in the Non-Approved Merger over $95,000,000. If,
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A-2 and Series B Preferred Stock shall be insufficient
to permit the payment to such holders of the full aforesaid Liquidation
Preferences, then, subject to the rights of any series of Preferred Stock that
may from time to time come into existence, the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series A-2 and Series B Preferred Stock pro rata in proportion to
the Liquidation Preference each such holder is otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of
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the distribution required by Section 2(a) above and any other distribution that
may be required with respect to any series of Preferred Stock that come into
existence from time to time, if assets remain in the Corporation, the holders of
the Series A-1 Preferred Stock and the Common Stock of the Corporation shall
receive all of the remaining assets of the Corporation pro rata based on the
number of shares of Common Stock held by each (on an as-converted basis);
provided, however, that notwithstanding the foregoing, in the event of a Non-
Approved Merger, upon the completion of the distribution required by Section
2(a) above, if assets remain in the Corporation, the holders of the Series A-1
Preferred Stock and Series B Preferred Stock and the Common Stock of the
Corporation shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock that are or would be held by
each on an as-converted basis.
(c) Certain Acquisitions.
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(i) Deemed Liquidation. For purposes of
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this Section 2, a liquidation, dissolution or winding up of the Corporation
shall be deemed to occur if the Corporation (or a secured party receiver or
other person or entity legally entitled to act on behalf of the Corporation)
shall sell, convey, or otherwise dispose of all or substantially all of its
assets or business or if the Corporation shall merge into or consolidate with
any other corporation or effect any other transaction or series of related
transactions and the result thereof is that more than fifty percent (50%) of the
combined voting power of the Corporation is held by persons or entities that
were not stockholders immediately prior to such merger, consolidation or other
transaction.
(ii) Valuation of Consideration. In the
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event of a deemed liquidation as described in Section 2(c)(i) above, if the
consideration received by the Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to
"investment letter" restrictions (e.g., federal or state securities laws
restrictions) or other similar restrictions on free marketability:
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(1) If traded on a securities
exchange or the Nasdaq Stock Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-
counter, the value shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the thirty-day period ending three (3)
days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
in good faith by the Board of Directors and the holders of at least a majority
of all then outstanding shares of Series A-2 and Series B Preferred Stock,
voting together as a single class.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the fair market value determined as above in Section
2(c)(ii)(A) to reflect such restriction on marketability, as mutually determined
in good faith by the Board of Directors and the holders of at least a majority
of all then outstanding shares of Series A-2 and Series B Preferred Stock,
voting together as a single class.
(iii) Notice of Transaction. The
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Corporation shall give each holder of record of Series A-1, Series A-2 and
Series B Preferred Stock written notice of a deemed liquidation as described in
Section 2(c)(i) above not later than ten (10) days prior to the stockholders'
meeting called to approve such transaction, or ten (10) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than ten (10) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Series A-1, Series A-2 and Series B
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of all then outstanding shares of such
Preferred Stock.
(iv) Effect of Noncompliance. In the
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event the requirements of this Section 2(c) are not complied with, the
Corporation shall forthwith either cause the closing of the transaction to be
postponed until such requirements have been complied with, or cancel such
transaction, in which event the rights, preferences and privileges of the
holders of the Series A-1, Series A-2 and Series B Preferred Stock shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
2(c)(iii) hereof.
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3. Redemption. The Series A-1, Series A-2 and Series B
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Preferred Stock is not redeemable.
4. Conversion. The holders of the Series A-1, Series A-2
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and Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
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(a) Right to Convert. Subject to Section 4(c), each
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share of Series A-1, Series A-2 and Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) $1.00 in the case of the Series A-
1 Preferred Stock, (ii) $1.087 in the case of the Series A-2 Preferred Stock and
(iii) $2.15 in the case of Series B Preferred Stock by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share shall be $1.00 for shares of Series A-1 Preferred Stock, $1.087 for
shares of Series A-2 Preferred Stock and $2.15 for shares of Series B Preferred
Stock. Such initial Conversion Price shall be subject to adjustment as set forth
in Section 4(d) below.
(b) Automatic Conversion. Each share of Series A-1,
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Series A-2 or Series B Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the time in effect for such
share immediately upon the earlier of (i) except as provided below in Section
4(c), the date immediately prior to the consummation of the Corporation's sale
of its Common Stock in a firm commitment underwritten public offering pursuant
to a registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with a per share public offering price of at least $7.00 and
which results in gross proceeds to the Corporation of at least $25 million, (ii)
the date specified by vote or written consent, as provided by law, of the
holders of at least a majority of the then outstanding shares of Series A-1,
Series A-2 and Series B Preferred Stock, voting together as a single class;
provided, however, that any such conversion pursuant to this Section 4(b)(ii)
where the fair market value of the Corporation, as determined in good faith by
the Board of Directors, is less than $115 million shall require the vote or
written consent, as provided by law, of the holders of a majority of the Series
B Preferred Stock, unless: (A) such conversion is in connection with a
transaction described in Section 2(c)(i) above; and (B) the aggregate
consideration to be received by the stockholders of the Corporation as a result
of such transaction is less than $115 million, , in which event, the vote or
written consent of the holders of a majority of the Series B Preferred Stock
shall not be required provided that: (x) each holder of the Series B Preferred
Stock shall receive, prior and in preference to any distribution of any assets
of the Corporation to the holders of the Series A-1 Preferred Stock, Series A-2
Preferred Stock and Common Stock, any dividends then payable as provided under
Section 1(b) above plus the Non-Approved Merger Preference (as calculated in
accordance with Section 2(a) above) per share of Series B Preferred Stock then
held by such holder, and (y) the holders of the Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock and Common Stock shall
receive all of the remaining consideration received from such transaction pro
rata based on the number of shares of Common Stock that are or would be held by
each on an as-converted basis.
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(c) Mechanics of Conversion. Before any holder
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of Series A-1, Series A-2 or Series B Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for such series of Preferred Stock, and shall give written
notice to the Corporation at its principal corporate office of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of such series of 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 as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act the conversion shall (unless the
holder specifies otherwise) be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred
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Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion
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Price of each of the Series A-1, Series A-2 and Series B Preferred Stock shall
be subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below
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Conversion Price. If the Corporation shall issue, after the date upon which any
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shares of Series A-1, Series A-2 or Series B Preferred Stock were first issued
(the "Purchase Date" with respect to such series), any Additional Stock (as
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defined below) without consideration or for a consideration per share less than
the Conversion Price for such series in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall automatically be adjusted as set
forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Adjustment Formula. Whenever the
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Conversion Price is adjusted pursuant to this Section (4)(d)(i), the new
Conversion Price shall be determined by multiplying the Conversion Price then in
effect by a fraction, (x) the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance (the "Outstanding
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Common") plus the number of shares of Common Stock that the aggregate
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consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and (y) the denominator of which shall be the number of
shares of Outstanding Common plus the number of shares of such Additional Stock.
For purposes of the foregoing calculation, the term "Outstanding Common" shall
include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E)
below.
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(B) Definition of "Additional Stock".
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For purposes of this Section 4(d)(i), "Additional Stock" shall mean any shares
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of Common Stock issued (or deemed to have been issued pursuant to Section
4(d)(i)(E)) by the Corporation after the Purchase Date other than
(1) Common Stock issued pursuant
to a transaction described in Section 4(d)(ii) hereof,
(2) Not more than 2,000,000 shares
of Common Stock issuable or issued prior to, on or after the Purchase Date to
employees, consultants or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation,
(3) Not more than 500,000 shares
of capital stock, or options or warrants to purchase capital stock, issued to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions approved by the Board
of Directors,
(4) Capital stock or warrants or
options to purchase capital stock issued in connection with bona fide
acquisitions, mergers, partnering transactions or similar transactions
("Transactions"), the terms of which are approved by the Board of Directors,
unless the Director designated by the Series B Preferred Stock reasonably
determines in good faith, in his or her capacity as Director of the Corporation,
that the value of the assets, consideration or rights received by the
Corporation in such Transaction, when taken as a whole, would not contribute to
increasing the value of the Corporation so as to justify issuance of such
capital stock or warrants or options to purchase capital stock in such
Transaction,
(5) Shares of Common Stock issued
or issuable upon conversion of the Series A-1, Series A-2 or Series B Preferred
Stock, and
(6) Shares of Common Stock issued
or issuable in a public offering prior to or in connection with which all
outstanding shares of Series A-1, Series A-2 and Series B Preferred Stock will
be converted into shares of Common Stock.
(C) No Fractional Adjustments. No
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adjustment of the Conversion Price for the Series A-1, Series A-2 or Series B
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to the earlier of three years from the date
of the event giving rise to the adjustment being carried forward or the
conversion of such shares into Common Stock in accordance with the terms hereof,
or shall be made on the earlier of the end of three years from the date of the
event giving rise to the adjustment being carried forward or such conversion.
(D) Determination of Consideration.
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In the case of the issuance of Common Stock for cash, the consideration shall be
deemed to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses
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allowed, paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof. In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors; provided, however, if the
holders of a majority of the then outstanding shares of the Series A-1 Preferred
Stock, Series A-2 Preferred Stock and Series B Preferred Stock (the "Contesting
Holders") notify the Board of Directors of the Corporation within ten (10)
business days after receiving written notification of such determination of the
fair market value that they disagree with such determination, then the fair
market value of the consideration shall be mutually agreed upon by the Board of
Directors and the holders of a majority of the Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series B Preferred Stock within thirty (30) days
after the receipt of notice by the Board of Directors from the Contesting
Holders.
(E) Deemed Issuances of Common Stock.
--------------------------------
In the case of the issuance (whether before, on or after the applicable Purchase
Date) of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number
of shares of Common Stock deliverable upon conversion of or in exchange
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Section 4(d)(i)(D)).
(3) In the event of any change in
the number of shares of Common Stock deliverable or in the consideration payable
to the Corporation upon
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exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of each
of the Series A-1, Series A-2 and Series B Preferred Stock, to the extent in any
way affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of each of the Series A-1,
Series A-2 and Series B Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
Sections 4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
Section 4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price.
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Notwithstanding any other provisions of this Section (4)(d)(i), except to the
limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no
adjustment of the Conversion Price pursuant to this Section 4(d)(i) shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(ii) Stock Splits and Dividends. In
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the event the Corporation should at any time or from time to time after the
Purchase Date fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
------------
Equivalents") without payment of any consideration by such holder for the
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additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of each of the
Series A-1, Series A-2 and Series B Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series of Preferred Stock shall be increased in proportion to
such increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4(d)(i)(E).
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(iii) Reverse Stock Splits. In the event
--------------------
the number of shares of Common Stock outstanding at any time after the Purchase
Date is decreased by a combination of the outstanding shares of Common Stock,
then, immediately following the record date of such combination, the Conversion
Price of each of the Series A-1, Series A-2 and Series B Preferred Stock shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(e) Other Distributions. In the event the
-------------------
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in Section
4(d)(ii), then, in each such case for the purpose of this Section 4(e), the
holders of Series A-1, Series A-2 and Series B Preferred Stock shall be entitled
to a proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of the Corporation into which
their shares of Preferred Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from
-----------------
time to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A-1, Series A-2 and Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of such Preferred Stock the
kind and number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not,
-------------
by amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series A-1, Series A-2 and Series B
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to
------------------------------------------
Adjustments.
- -----------
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A-1, Series A-2 or
Series B Preferred Stock, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share with one-half being rounded upward.
The number of shares issuable upon such conversion shall be determined
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on the basis of the total number of shares of Series A-1, Series A-2 or Series B
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A-1, Series A-2 or Series B
Preferred Stock pursuant to this Section 4, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A-1, Series
A-2 or Series B Preferred Stock, furnish or cause to be furnished to such holder
a like certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
such series of Preferred Stock.
(i) Notices of Record Date. In the event
----------------------
of any taking by the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A-1, Series A-2 and Series B
Preferred Stock, at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
---------------------------------------------
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A-1, Series A-2 and Series
B Preferred Stock, such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of such
series of Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of such series of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions
-------
of this Section 4 to be given to the holders of shares of Series A-1, Series A-2
or Series B Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of the Corporation.
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5. Voting Rights. Except as provided in
-------------
Section 6, the holder of each share of Series A-1, Series A-2 or Series B
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted and shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the bylaws of the
Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A-1, Series A-2 or Series B Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
6. Protective Provisions.
---------------------
(a) Subject to the rights of any series of
Preferred Stock that may from time to time come into existence, so long as at
least three million five hundred thousand (3,500,000) shares of Series A-1,
Series A-2 and Series B Preferred Stock are outstanding (as adjusted for stock
splits, stock dividends or recapitalizations), the Corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Series A-1,
Series A-2 and Series B Preferred Stock, voting together as a single class:
(i) effect a transaction described in
Section 2(c)(i) above or, except pursuant to the terms of the Amended and
Restated Development and Commercialization Agreement between the Corporation and
Alza Corporation effective April 28, 1999 ("Alza Agreement"), effect, in any
transaction or series of related transactions, an irrevocable sale, transfer,
license or other disposition of: (x) all significant rights associated with the
CNS Field (as defined in the Alza Agreement), (y) all rights associated with
one-third or more of the total number of Durect Fields then in existence (as
defined in the Alza Agreement); or (z) more than 35% of the fair market value of
the consolidated assets of the Corporation;
(ii) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Preferred
Stock;
(iii) authorize or issue, or obligate itself
to issue, any other equity security, including any other security convertible
into or exercisable for any equity security, having a preference over, or being
on a parity with, the Series A-1, Series A-2 or Series B Preferred Stock with
respect to voting, dividends, conversion or upon liquidation;
(iv) amend the Bylaws or the Certificate of
Incorporation to increase or decrease the number of authorized directors above
or below eight (8);
(v) redeem, purchase or otherwise acquire
(or pay into or set aside for a sinking fund for such purpose) any share or
shares of Common Stock; provided, however, that this restriction shall not apply
-------- -------
to the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the
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option to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of employment, or through the exercise of any right of
first refusal;
(vi) declare or pay any dividend or other
distribution on Common Stock, provided that the Corporation shall not declare or
pay any dividend on Common Stock so long as any dividends on Series B Preferred
Stock pursuant to Section 1(b) above are accrued or declared and unpaid;
(vii) except for transactions which are
contemplated in the Alza Agreement, engage in any transactions with Alza
Corporation or its successors or any person or entity who directly or indirectly
controls the Corporation or directly or indirectly owns beneficially at least
10% of the outstanding capital stock of the Corporation.
(b) So long as at least two million (2,000,000)
shares of Series B Preferred Stock are outstanding (as adjusted for stock
splits, stock dividends or recapitalizations), the Corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least two-thirds of the then outstanding shares of Series B
Preferred Stock, voting together as a class: (i) alter or change the rights,
preferences or privileges of the shares of Series B Preferred Stock; (ii) amend
the Certificate of Incorporation or the Bylaw of the Corporation so as to affect
adversely the shares of Series B Preferred Stock; or (iii) authorize or issue,
or obligate itself to issue, any other equity security, including any other
security convertible into or exercisable for any equity security, having a
preference over the Series B Preferred Stock with respect to voting, dividends,
conversion or upon liquidation.
7. Status of Converted Stock. In the event any shares of
-------------------------
Series A-1, Series A-2 or Series B Preferred Stock shall be converted pursuant
to Section 4 hereof, the shares so converted shall be cancelled and shall not be
issuable by the Corporation. The Certificate of Incorporation of the Corporation
shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of
---------------
all classes of stock at the time outstanding having prior rights as to
dividends, and the provisions of Section 6(a)(vi), the holders of the Common
Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of any assets of the Corporation legally available therefor, such
dividends as may be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation,
------------------
dissolution or winding up of the Corporation, the assets of the Corporation
shall be distributed as provided in Section 2 of Article IV(B).
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock
-------------
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with
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the Bylaws of the Corporation, and shall be entitled to vote upon such matters
and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision."
* * *
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The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Cupertino, California, on July 15, 1999.
/s/ James E. Brown
----------------------------
James E. Brown, President
/s/ Mark B. Weeks
----------------------------
Mark B. Weeks, Secretary
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