<PAGE>

                                                                     Exhibit 3.4
                                                                  Execution Copy

                          CERTIFICATE OF DESIGNATIONS,

                           PREFERENCES AND RIGHTS OF

                     SERIES B CONVERTIBLE PREFERRED STOCK

             AND SERIES C CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

                                      OF

                      INCARA PHARMACEUTICALS CORPORATION

          We, Clayton I. Duncan and Richard W. Reichow, the Chief Executive
Officer and the Secretary, respectively, of Incara Pharmaceuticals Corporation,
a Delaware corporation (the "Corporation"), pursuant to the provisions of
                             -----------
Section 151 of the General Corporation Law of the State of Delaware, hereby
makes this Certificate of Designations, Preferences and Rights and hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation (the "Board of Directors") by the Certificate of
                                   ------------------
Incorporation of the Corporation, as amended (the "Certificate of
                                                   --------------
Incorporation"), the Board of Directors duly adopted the following resolutions:
-------------

          RESOLVED, that, pursuant to the Certificate of Incorporation,
which authorizes 3,000,000 shares of undesignated preferred stock, none of
which shares have been designated, issued or outstanding, the Board of
Directors is authorized, within the limitations and restrictions stated in
the Certificate of Incorporation, to fix by resolution or resolutions the
designation of each series of preferred stock and the powers, preferences
and relative participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof; and

          RESOLVED, that the Corporation hereby fixes the designations and
preferences and relative, participating, optional, and other special
rights, and qualifications, limitations, and restrictions of the preferred
stock consisting of six hundred thousand (600,000) shares to be designated
Series B Convertible Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), and twenty thousand (20,000) shares to be
 ------------------------
designated Series C Convertible Exchangeable Preferred Stock, par value
$0.01 per share (the "Series C Preferred Stock"); and
                      ------------------------

<PAGE>

          RESOLVED, that the Series B Preferred Stock and the Series C
Preferred Stock are hereby authorized on the terms and with the provisions
herein set forth:

                                  Article I.

                           Series B Preferred Stock
                           ------------------------

     1.   Rank. The Series B Preferred Stock shall, with respect to dividend
          ----
rights and with respect to rights upon liquidation, winding up or dissolution,
rank pari passu with each class of Common Stock (as defined in Article IV
below).

     2.   Dividends.
          ---------

          (a)  Subject to prior and superior rights of holders of any shares of
Series C Preferred Stock and any other series or class of capital stock ranking
prior and superior to the Series B Preferred Stock with respect to dividends,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
as, when and if declared by the Board of Directors, out of funds legally
available for the purpose, dividends or distributions in cash, stock or
otherwise.

          (b)  In addition to Section 2(a) above, from and after the date
hereof, when and if the Board of Directors of the Corporation shall declare a
dividend or distribution payable with respect to the then-outstanding shares of
Common Stock, the holders of Series B Preferred Stock shall be entitled to the
amount of dividends per share in the same form as such Common Stock dividends
that would be payable on the largest number of whole shares of Common Stock into
which a holder's aggregate shares of Series B Preferred Stock could then be
converted pursuant to Section 5 hereof (such number to be determined as of the
record date for the determination of holders of Common Stock entitled to receive
such dividend).

     3.   Liquidation. In any Liquidation Event (as defined in Article IV
          -----------
below), whether voluntary or involuntary, the holders of Common Stock and the
holders of Series B Preferred Stock shall receive, subject to the rights of the
holders of Series C Preferred Stock (or any other senior class or series of
capital stock of the Corporation), the assets of the Corporation in proportion
to the number of shares of Common Stock held by each such holder, with the
holders of Series B Preferred Stock deemed to hold that number of shares of
Common Stock equal to the number of shares of Common Stock into which such
shares of Series B Preferred Stock are then convertible.

     4.   Voting.
          ------

          (a)  Except as provided in Section 4(b) below, the holders of Series B
Preferred Stock shall not be entitled to vote on matters submitted to the
holders of the Common Stock or any other class of capital stock of the
Corporation.

          (b)  Subject to the rights of any series of preferred stock that may
from time to time come into existence, so long as any shares of Series B
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as

                                      -2-
<PAGE>

provided by law) of the holders of at least a majority of the then-outstanding
shares of Series B Preferred Stock, voting separately as a series:

               (i)   amend its Certificate of Incorporation so as to affect
adversely the shares of Series B Preferred Stock or any holder thereof
(including by creating any additional classes or series of senior and/or pari
passu capital stock of the Corporation);  or

               (ii)  change the rights of the holders of the Series B Preferred
Stock in any other respect.

     5.   Conversion of Series B Preferred Stock into Common Stock.
          --------------------------------------------------------

          (a)  Conversion Procedure.
               --------------------

               (i)   Subject to Article III below, from time to time after the
Issue Date (as defined in Article IV below), any holder of Series B Preferred
Stock may convert all or any portion of the Series B Preferred Stock held by
such holder into a number of validly issued, fully paid and non-assessable
shares of Conversion Stock (as defined in Article IV below) computed by
multiplying the number of shares to be converted by Series B Conversion Ratio
(as defined below) then in effect.

               (ii)  Each conversion of Series B Preferred Stock shall be deemed
to have been effected as of the close of business on the date on which notice of
election of such conversion is delivered to the Corporation by such holder.
Until the certificates representing the shares of Series B Preferred Stock that
are being converted have been surrendered and new certificates representing
shares of the Conversion Stock shall have been issued by the Corporation, such
certificate(s) evidencing the shares of Series B Preferred Stock being converted
shall be evidence of the issuance of such shares of Conversion Stock. At such
time as such conversion has been effected, the rights of the holder of such
Series B Preferred Stock as such holder shall cease and the Person or Persons in
whose name or names any certificate or certificates for shares of Conversion
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.

               (iii) As soon as practicable after a conversion has been effected
in accordance with clause (i) above, the Corporation shall deliver to the
converting holder: (A) a certificate or certificates representing, in the
aggregate, the number of shares of Conversion Stock issuable by reason of such
conversion, in the name or names and in such denomination or denominations as
the converting holder has specified; and (B) a certificate representing any
shares of Series B Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.

               (iv)  The issuance of certificates for shares of Conversion Stock
upon conversion of Series B Preferred Stock shall be made without charge to the
holders of such Series B Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of

                                      -3-
<PAGE>

Conversion Stock, except for any transfer or similar tax payable as a result of
issuance of a certificate to other than the registered holder of the shares
being converted.

               (v)   The Corporation shall not close its books against the
transfer of Series B Preferred Stock or of Conversion Stock issued or issuable
upon conversion of Series B Preferred Stock in any manner which interferes with
the timely conversion of Series B Preferred Stock. The Corporation shall assist
and cooperate with any holder of shares of Series B Preferred Stock required to
make any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of shares hereunder (including, without
limitation, making any filings reasonably required to be made by the
Corporation).

               (vi)  No fractional shares of Conversion Stock or scrip
representing fractional shares shall be issued upon conversion of shares of
Series B Preferred Stock. If more than one share of Series B Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Conversion Stock issuable upon the conversion thereof
shall be computed on the basis of the aggregate number of shares of Series B
Preferred Stock so surrendered by such record holder. Instead of any fractional
share of Conversion Stock otherwise issuable upon conversion of any shares of
Series B Preferred Stock, the number of shares of Conversion Stock to be issued
upon conversion of any shares of Series B Preferred Stock shall be rounded down
to the nearest whole share.

               (vii) The Corporation shall use its best efforts at all times to
reserve and keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the conversion of
Series B Preferred Stock, such number of shares of Conversion Stock as are
issuable upon the conversion of all outstanding Series B Preferred Stock.  All
shares of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges, other than those created or agreed to by the holder.  The Corporation
shall use its best efforts to take all such actions as may be necessary to
assure that all such shares of Conversion Stock may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange upon which shares of Conversion Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Corporation upon each such issuance).

          (b)  Conversion Ratio.
               ----------------

               (i)   "Series B Conversion Ratio" shall initially mean the
                      -------------------------
Initial Series B Conversion Ratio described in this Section 5, as the same may
be subsequently adjusted from time to time in accordance with this Section 5.

               (ii)  The "Initial Series B Conversion Ratio" shall be 10 shares
                          ---------------------------------
of Common Stock for each one share of Series B Preferred Stock.

          (c)  Subdivision or Combination of Common Stock. If the Corporation
               ------------------------------------------
at any time subdivides (by any stock split, stock dividend, recapitalization or
any similar

                                      -4-
<PAGE>

transaction) one or more classes of its outstanding shares of Common Stock into
a greater number of shares, or if the Corporation at any time combines (by
reverse stock split, reclassification or any similar transaction) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Series B Conversion Ratio in effect immediately prior to such
subdivision or combination shall be proportionately adjusted.

          (d)  Consolidation, Merger or Sale for Assets. Prior to the
               ----------------------------------------
consummation of any Significant Transaction (as defined in Article IV below),
and subject to applicable regulatory approvals the Corporation shall make
appropriate provisions to insure that each of the holders of Series B Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series B Preferred Stock, such assets as such holder would have received in
connection with such Significant Transaction if such holder had converted its
Series B Preferred Stock into Conversion Stock immediately prior to such
Significant Transaction.  The Corporation shall not effect any Significant
Transaction unless prior to the consummation thereof, the successor corporation
(if other than the Corporation) resulting from consolidation or merger or the
corporation purchasing such assets assumes by written instrument the obligation
to deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.

          (e)  Notices.
               -------

               (i)   Promptly upon any adjustment of the Series B Conversion
Ratio, the Corporation shall give written notice thereof to all holders of
Series B Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.

               (ii)  The Corporation shall give written notice to all holders of
Series B Preferred Stock at least 10 days prior to the date on which the
Corporation closes its books or takes a record (A) with respect to any dividend
or distribution upon Common Stock, (B) with respect to any pro rata subscription
offer to holders of Common Stock, or (C) for determining rights to vote with
respect to any Significant Transaction or Liquidation Event.

               (iii) The Corporation shall give written notice to the holders of
Series B Preferred Stock at least 10 days prior to the date on which any
Significant Transaction shall take place, which notice may be one and the same
as that required by (ii) above.


                                  Article II.

                           Series C Preferred Stock
                           ------------------------

     1.   Rank. The Series C Preferred Stock shall, with respect to dividend
          ----
rights and with respect to rights upon liquidation, winding up or dissolution,
rank senior and prior to (a) the Series B Preferred Stock, (b) the Common Stock,
(c) any series of preferred stock hereafter

                                      -5-
<PAGE>

created and (d) any other equity interests (including, without limitation,
warrants, stock appreciation rights, phantom stock rights, profit participation
rights in debt instruments or other rights with equity features, calls or
options exercisable for or convertible into such capital stock or equity
interests) in the Corporation that by its terms rank junior to the Series C
Preferred Stock.

     2.   Dividends.
          ---------

          (a)  Mandatory Dividends. The holders of Series C Preferred Stock
               -------------------
shall be entitled to receive a mandatory dividend equal to 7.0 % per year,
compounded annually on each succeeding 12 month anniversary of the first
issuance.  Such dividend shall be cumulative and shall be payable annually on
each succeeding 12 month anniversary of the Issue Date and shall be payable, at
the option of the Corporation by the issuance of additional shares of Series C
Preferred Stock at a price per share equal to the Series C Original Issue Price;
provided, that such dividend shall not be declared or paid to any holder without
--------
the consent of such holder.

          (b)  Discretionary Dividends. In addition to any mandatory dividends
               -----------------------
pursuant to Section 2(b) above, from and after the date hereof, when and if the
Board of Directors of the Corporation shall declare a dividend or distribution
payable with respect to the holders of either Series B Preferred Stock or Common
Stock, or both, the holders of Series C Preferred Stock shall be entitled to the
amount of dividends per share in the same form as such dividends or
distributions that would be payable on the largest number of whole shares of
Series B Preferred Stock (or, if such dividends are declared only with respect
to the holders of Common Stock, the largest number of whole shares of Common
Stock) into which a holder's aggregate shares of Series C Preferred Stock could
then be converted pursuant to Section 5 of this Article III (and, if such
dividends are declared only with respect to the holders of Common Stock,
subsequently pursuant to Section 5 of Article II), in either instance, such
number to be determined as of the record date for the determination of holders
of the Series B Preferred Stock or Common Stock entitled to receive such
dividend.

          (c)  Dividend Preference. From and after the date hereof, when and if
               -------------------
the Board of Directors of the Corporation shall declare a dividend or
distribution payable with respect to (i) the Common Stock, Series B Preferred
Stock, or any other capital stock or security issued by the Corporation which
shall be junior to the Series C Preferred Stock as to such dividends and
distributions, such dividend or distribution shall not be paid until the payment
of all Series C Preferred Stock dividends accrued or to be accrued through that
date, or (ii) the then-outstanding capital stock of the Corporation that is pari
passu to the Series C Preferred Stock as to such dividends or distributions,
such dividends shall not be paid unless an equivalent payment is made to the
holders of the Series C Preferred Stock, pro-rata, on the accrued and unpaid
dividends payable to the Series C Preferred Stock as of the date of such
payment.

     3.   Liquidation Preference.
          ----------------------

          (a)  In any Liquidation Event, whether voluntary or involuntary,
before any payment of cash or distribution of other property shall be made to
the holders of the Common Stock, the Corporation's Series B Preferred Stock or
any other class or series of stock subordinate in liquidation preference to the
Series C Preferred Stock, the holders of the Series C

                                      -6-
<PAGE>

Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its shareholders, the Original
Series C Issue Price (as defined below) as adjusted to reflect any and all
subdivisions (by stock split, stock dividend, recapitalization or any similar
transaction) or combination or consolidations (by reverse stock split,
reclassification or any similar transaction) (the "Series C Liquidation
                                                   --------------------
Preference").
----------

          (b)  If, upon any Liquidation Event, the assets of the Corporation
available for distribution to its shareholders shall be insufficient to pay the
holders of the Series C Preferred Stock the full amounts to which they shall be
entitled, the holders of the Series C Preferred Stock shall share ratably in any
distribution of assets in proportion to the aggregate liquidation preferential
amounts owed to such holders.

     4.   Voting.
          ------

          (a)  Except as provided in Section 4(b) below, the holders of Series C
Preferred Stock shall not be entitled to vote on matters submitted to the
holders of the Common Stock or any other class of capital stock of the
Corporation.

          (b)  Subject to the rights of any series of preferred stock that may
from time to time come into existence, so long as any shares of Series C
Preferred Stock are outstanding, 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 C
Preferred Stock, voting separately as a series:

               (i)   amend its Certificate of Incorporation so as to affect
adversely the shares of Series C Preferred Stock or any holder thereof
(including by creating any additional classes or series of senior and/or pari
passu capital stock of the Corporation); or

               (ii)  change the rights of the holders of the Series C Preferred
Stock in any other respect.

     5.   Conversion of Series C Preferred Stock into Series B Preferred Stock.
          --------------------------------------------------------------------

          (a)  Conversion at Election of Holders of Series C Preferred Stock.
               -------------------------------------------------------------

               (i)   Subject to Article III below, from time to time after the
second anniversary after the Issue Date, and subject to receipt of all
applicable regulatory approvals, any holder of Series C Preferred Stock may
convert all or any portion of the Series C Preferred Stock, including shares of
Series C Preferred Stock issuable as accrued and unpaid dividends, held by such
holder into a number of shares validly issued, fully paid and non-assessable
shares of Series B Conversion Stock (as defined in Article IV below) computed by
multiplying the number of shares to be converted by the Original Series C Issue
Price (as defined below) and dividing the result by the Series C Conversion
Price (as defined below) then in effect.

               (ii)  Each conversion of Series C Preferred Stock shall be deemed
to have been effected as of the close of business on the date on which notice of
election of such conversion is delivered to the Corporation by such holder.
Until the certificates representing

                                      -7-
<PAGE>

the shares of Series C Preferred Stock that are being converted have been
surrendered and new certificates representing shares of the Series B Conversion
Stock shall have been issued by the Corporation, such certificate(s) evidencing
the shares of Series C Preferred Stock being converted shall be evidence of the
issuance of such shares of Series B Conversion Stock. At such time as such
conversion has been effected, the rights of the holder of such Series C
Preferred Stock as such holder shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Series B Conversion
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Series B Conversion Stock
represented thereby.

               (iii) As soon as practicable after a conversion has been effected
in accordance with clause (i) above, the Corporation shall deliver to the
converting holder: (A) a certificate or certificates representing, in the
aggregate, the number of shares of Series B Conversion Stock issuable by reason
of such conversion, in the name or names and in such denomination or
denominations as the converting holder has specified; and (B) a certificate
representing any shares which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.

               (iv)  The issuance of certificates for shares of Series B
Conversion Stock upon conversion of Series C Preferred Stock shall be made
without charge to the holders of such Series C Preferred Stock for any issuance
tax in respect thereof or other cost incurred by the Corporation in connection
with such conversion and the related issuance of shares of Series B Conversion
Stock, except for any transfer or similar tax payable as a result of issuance of
a certificate to other than the registered holder of the shares being converted.

               (v)   The Corporation shall not close its books against the
transfer of Series C Preferred Stock or of Series B Conversion Stock issued or
issuable upon conversion of Series C Preferred Stock in any manner which
interferes with the timely conversion of Series C Preferred Stock. The
Corporation shall assist and cooperate with any holder of shares of Series C
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of shares
hereunder (including, without limitation, making any filings reasonably required
to be made by the Corporation).

               (vi)  No fractional shares of Series B Conversion Stock or scrip
representing fractional shares shall be issued upon conversion of shares of
Series C Preferred Stock.  If more than one share of Series C Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Series B Conversion Stock issuable upon the conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series C Preferred Stock so surrendered by such record holder.  Instead of any
fractional share of Series B Conversion Stock otherwise issuable upon conversion
of any shares of the Series C Preferred Stock, the number of shares of Series B
Conversion Stock upon conversion of Series C Preferred Stock to be issued shall
be rounded down to the nearest whole share.

                                      -8-
<PAGE>

               (vii) The Corporation shall use its best efforts at all times to
reserve and keep available out of its authorized but unissued shares of Series B
Conversion Stock, solely for the purpose of issuance upon the conversion of
Series C Preferred Stock, such number of shares of Series B Conversion Stock as
are issuable upon the conversion of all outstanding Series C Preferred Stock.
All shares of Series B Conversion Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges, other than those created or agreed to by the
holder.  The Corporation shall use its best efforts to take all such actions as
may be necessary to assure that all such shares of Series B Conversion Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Series B Conversion Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Corporation upon each such
issuance).

          (b)  Conversion Price.
               ----------------

               (i)   "Series C Conversion Price" for the Series C Preferred
                      -------------------------
Stock shall initially mean U.S.$64.90, as the same may be subsequently adjusted
from time to time in accordance with this Section 5.

               (ii)  The "Original Series C Issue Price" shall be
                          -----------------------------
U.S.$1,000.00 per share.

          (c)  Conversion upon Occurrence of Significant Transaction. Upon the
               -----------------------------------------------------
occurrence of a Significant Transaction, the Corporation and any holder of
Series C Preferred Stock may convert all or any portion of the Series C
Preferred Stock held by such holder into a number of shares of Series B
Conversion Stock in the same manner as provided in subsection (a) above, and
then, into a number of shares of Common Stock in the same manner as provided in
Article I, Section 5 hereof.

          (d)  Subdivision or Combination of Common Stock. If the Corporation
               ------------------------------------------
at any time (i) subdivides (by any stock split, stock dividend, recapitalization
or) one or more classes of its outstanding shares of Common Stock into a greater
number of shares, then the Series C Conversion Price in effect immediately prior
to such subdivision or combination shall be proportionately decreased, or (ii)
combines (by reverse stock split, reclassification or any similar transaction)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, then the Series C Conversion Price in effect immediately prior
to such subdivision or combination shall be proportionately increased.

          (e)  Consolidation, Merger or Sale for Assets. Subject to applicable
               ----------------------------------------
regulatory approvals, prior to the consummation of any Significant Transaction,
the Corporation shall make appropriate provisions to insure that each of the
holders of Series C Preferred Stock shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Series B Conversion Stock immediately theretofore acquirable and receivable upon
the conversion of such holder's Series C Preferred Stock, such assets as such
holder would have received in connection with such Significant Transaction if

                                      -9-
<PAGE>

such holder had converted its Series C Preferred Stock into Series B Conversion
Stock (and such holder had the opportunity to convert such Series B Preferred
Stock into Common Stock) immediately prior to such Significant Transaction. The
Corporation shall not effect any Significant Transaction unless prior to the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from consolidation or merger or the corporation purchasing such assets
assumes by written instrument the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.

          (f)  Notices.
               -------

               (i)   Promptly upon any adjustment of the Series C Conversion
Price, the Corporation shall give written notice thereof to all holders of
Series C Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.

               (ii)  The Corporation shall give written notice to all holders of
Series C Preferred Stock at least 10 days prior to the date on which the
Corporation closes its books or takes a record (A) with respect to any dividend
or distribution upon Series B Preferred Stock or Common Stock or (B) for
determining rights to vote with respect to any Significant Transaction or
Liquidation Event.

               (iii) The Corporation shall give written notice to the holders of
Series C Preferred Stock at least 10 days prior to the date on which any
Significant Transaction shall take place, which notice may be one and the same
as that required by (ii) above.

     6.   Redemption of Series C Preferred Stock.
          --------------------------------------

          (a)  Mandatory Redemption. On the sixth anniversary after the Issue
               --------------------
Date (the "Redemption Date"), the Corporation shall redeem all then issued and
           ---------------
outstanding shares of Series C Preferred Stock, including shares of Series C
Preferred Stock issuable as accrued and unpaid dividends (the "Series C
                                                               --------
Mandatory Redemption") in accordance with this Section 6.  The Corporation shall
--------------------
effect the Series C Mandatory Redemption on the Redemption Date, by paying, in
the sole discretion of the Corporation, either (i) cash in exchange for each
share of Series C Preferred Stock to be redeemed on the Redemption Date in an
amount equal to the Series C Outstanding Amount (as defined below), or (ii)
shares of either (A) Common Stock or, at the option of a majority of the holders
of Series C Preferred Stock or (B) Series B Preferred Stock (the "Redemption
                                                                  ----------
Shares"), each having a then Fair Market Value (as defined in Article IV below)
------
equal to the Series C Outstanding Amount (either, the "Series C Redemption
                                                       -------------------
Price"). Any redemption effected pursuant to this Section 6 shall be made pro
-----
rata on the basis of the number of shares then held by each holder of Series C
Preferred Stock. If any date fixed for redemption of shares pursuant to this
paragraph is a Saturday, Sunday or legal holiday, then such redemption shall
occur on the first business day thereafter.

          (b)  Mechanics of Redemption. Not less than 15 days nor more than 30
               -----------------------
days prior to the Redemption Date, the Corporation shall give written notice by
first class mail, postage prepaid, to each holder of record (at the close of
business on the business day next

                                      -10-
<PAGE>

preceding the day on which notice is given) of the Series C Preferred Stock, at
the address of such holder last shown on the records of the Corporation,
notifying such holder of the redemption to be effected, specifying the number of
shares to be redeemed from such holder on the Redemption Date, whether payment
will be made in cash or in Redemption Shares the place at which payment may be
obtained and calling upon such holder to surrender to the Corporation in the
manner and at the place designated, its certificate or certificates representing
the shares of Series C Preferred Stock to be redeemed on the Redemption Date. On
the Redemption Date, each holder of Series C Preferred Stock shall surrender to
the Corporation the certificate or certificates representing such shares, in the
manner and at the place designated in such notice, and thereupon the Series C
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled.

          (c)  Series C Outstanding Amount. The "Series C Outstanding Amount"
               ---------------------------       ---------------------------
shall be an amount equal to the aggregate Series C Liquidation Preference on the
Redemption Date, plus an amount equal to all accrued but unpaid dividends.

     7.   Exchange of Series C Preferred Stock.
          ------------------------------------

          (a)  The holder of all of the then issued and outstanding Series C
Preferred Stock, including shares of Series C Preferred Stock issuable as
accrued and unpaid dividends, which shall not be declared payable and shall not
be due, may exchange all, but only all, of the Series C Preferred Stock held by
such holder into a number of shares of IDL Conversion Stock (as defined in
Article IV below) equal to 30.1% of the aggregate shares of IDL (as defined in
Article IV below) issued on the Issue Date (as defined in Article IV below).

          (b)  The exchange of Series C Preferred Stock hereunder shall be
deemed to have been effected as of the close of business on the date on which
notice of election of such exchange is delivered to the Corporation by such
holder. Until the certificates representing the shares of Series C Preferred
Stock which are being exchanged have been surrendered and new certificates
representing shares of the IDL Conversion Stock shall have been issued by IDL,
such certificate(s) evidencing the shares of Series C Preferred Stock being
exchanged shall be evidence of the issuance of such shares of IDL Conversion
Stock. At such time as such exchange has been effected, the rights of the holder
of such Series C Preferred Stock as such holder shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares of IDL
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of IDL Conversion Stock
represented thereby. The Series C Preferred Stock so exchanged shall no longer
be redeemable or convertible into Series B Preferred Stock and all such rights
of conversion under Section 5 shall terminate upon the date of exchange.

          (c)  The right of exchange provided hereunder shall expire upon the
election by the holder of the Series C Preferred Stock to convert the Series C
Preferred Stock into Series B Preferred Stock pursuant to Section 5 above.

                                      -11-
<PAGE>

          (d)  The right of exchange provided hereunder shall also apply to all,
but only all, of the shares of the Series B Conversion Stock into which the
Series C Preferred Stock is to be converted pursuant to Section 5 above upon the
occurrence of a Significant Transaction, provided that the exchange must occur
on the date that the conversion would have occurred, and provided further that
the right of exchange under this subsection (d) shall expire simultaneously with
such conversion if this right of exchange is not exercised as provided in this
subsection (d).


                                 Article III.

               Limitations on Rights of Conversion and Exchange
               ------------------------------------------------

     1.   In the event that any exercise of the rights of conversion and
exchange under Articles I and II by the holders of the Series B Preferred Stock
or the Series C Preferred Stock would result in the holders owning, directly or
indirectly, in the aggregate more that 9.9% of the Common Stock on a fully
converted basis, then all or a portion of the Common Stock into which the Series
B Preferred Stock (both owned or issuable upon conversion of the Series C
Preferred Stock) would convert shall automatically be converted into shares of
Series B Preferred Stock to the extent that the holders of the Series B
Preferred Stock and the Series C Preferred Stock do not own more than 9.9% of
the then outstanding Common Stock, after such conversion.

     2.   The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance 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 hereof and in the taking of all such action as may be necessary or
appropriate in order to protect against impairment both the conversion rights of
the Series B Preferred Stock and the conversion, redemption and exchange rights
of the Series C Preferred Stock.


                                  Article IV.

                              Certain Definitions
                              -------------------

          The following terms, as used throughout Articles I through III of this
Certificate of Incorporation, shall have the meanings specified below:

                                      -12-
<PAGE>

     1.   Affiliate. The term "Affiliate" shall mean (i) any Person directly or
          ---------
indirectly controlling, controlled by or under direct or indirect common control
with the Corporation (or other specified Person), (ii) any Person who is a
beneficial owner of at least 10% of the then outstanding voting capital stock
(or options, warrants or other securities which, after giving effect to the
exercise thereof, would entitle the holder thereof to hold at least 10% of the
then outstanding voting capital stock) of the Corporation (or other specified
Person), (iii) any director or executive officer of the Corporation (or other
specified Person) or Person of which the Corporation (or other specified Person)
shall, directly or indirectly, either beneficially or of record, own at least
10% of the then outstanding equity securities of such Person, and (iv) in the
case of Persons specified above who are individuals, Family Members of such
Person; provided, however, that no holder of preferred stock nor any of their
designated members of the Board of Directors shall be an Affiliate of the
Corporation for purposes hereof.

     2.   Common Stock. The term "Common Stock" shall mean the common stock, par
          ------------
value $0.001 per share, of the Corporation.

     3.   Conversion Stock. The term "Conversion Stock" shall mean the shares of
          ----------------
Common Stock issuable upon conversion of shares of Series B Preferred Stock;
provided that if there is a change such that the securities issuable upon
conversion of the Series B Preferred Stock are issued by an entity other than
the Corporation or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean shares of the security issuable upon
conversion of the Series B Preferred Stock if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.

     4.   Fair Market Value. The "Fair Market Value" of any one share of Common
          -----------------
Stock or Series B Preferred Stock (on an as converted to Common Stock basis)
shall be deemed to be (i) the average of the closing sale price of the Common
Stock of the Corporation as traded on the Nasdaq National Market, the Nasdaq
SmallCap Market, or any other securities exchange (collectively, the "Exchange")
                                                                      --------
for the 10-day period (or such shorter period for which closing sale prices are
available if the Common Stock commenced trading during such period) ending three
(3) days prior to the date of exercise of redemption pursuant to Article III
hereof; provided, that, if the Common Stock ceases to be traded on the Exchange,
        --------
the Fair Market Value shall be reasonably determined by the Board of Directors
in good faith and certified in a board resolution (taking into account the most
recently or concurrently completed arm's length transaction between the
Corporation and an unaffiliated third party the closing of which occurs within
the six months preceding or on the date of such calculation, if any).

     5.   Family Members. The term "Family Members" shall mean, as applied to
          --------------
any individual, any spouse, child, grandchild, parent, brother or sister thereof
or any spouse of any of the foregoing, and each trust created for the benefit of
one or more of such Persons (other than any trust administered by an independent
trustee) and each custodian of property of one or more such Persons.

     6.   IDL. The term "IDL" shall mean Incara Development, Ltd., a Bermuda
          ---
corporation.

                                      -13-
<PAGE>

     7.   IDL Conversion Stock. The term "IDL Conversion Stock" shall mean the
          --------------------
shares of preferred stock of IDL issuable upon exchange of shares of Series C
Preferred Stock; provided that if there is a change such that the securities
issuable upon exchange of the Series C Preferred Stock are issued by an entity
other than the Corporation or there is a change in the class of securities so
issuable, then the term "IDL Conversion Stock" shall mean shares of the security
issuable upon exchange of the Series C Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.

     8.   Issue Date. The term "Issue Date" shall mean December 21, 2000, the
          ----------
date on which a share of Series C Preferred Stock was first issued by the
Corporation.

     9.   Liquidation Event. The term "Liquidation Event" means an event
          -----------------
occasioned by, and including, (i) the liquidation, dissolution, bankruptcy or
winding-up of the affairs of the Corporation, (ii) the Corporation's sale of all
or substantially all of its assets or stock, or (iii) any transaction or series
of related transactions (including, without limitation, any reorganization,
merger or consolidation) which will result in the holders of the outstanding
equity securities of the Corporation immediately prior to such transaction or
series of related transactions holding securities representing less than 25% of
the outstanding equity securities ( on an as converted to common stock basis) of
the surviving entity immediately following such transaction or series of related
transactions.

     10.  Person. The term "Person" shall mean an individual, corporation,
          ------
partnership, association, trust, joint venture or unincorporated organization or
any government, governmental department or any agency or political subdivision
thereof.

     11.  Public Offering. The term "Public Offering" shall mean any offering by
          ---------------
the Corporation of its equity securities to the public pursuant to an effective
registration statement under the Securities Act or any comparable statement
under any similar federal statute then in force, other than an offering in
connection with an employee benefit plan.

     12.  Securities Act. The term "Securities Act" shall mean the Securities
          --------------
Act of 1933, as amended, or any successor federal statute, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder,
all as the same shall be in effect from time to time.

     13.  Series B Conversion Stock. The term "Series B Conversion Stock" shall
          -------------------------
mean the shares of Series B Preferred Stock issuable upon conversion of shares
of Series C Preferred Stock; provided that if there is a change such that the
securities issuable upon conversion of the Series C Preferred Stock are issued
by an entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Series B Conversion Stock" shall mean
shares of the security issuable upon conversion of the Series C Preferred Stock
if such security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.

                                      -14-
<PAGE>

     14.  Significant Transaction. The term "Significant Transaction" shall mean
          -----------------------
any consolidation, merger, sale of all or substantially all of the Corporation's
assets to another Person or other transaction which is effected in such a manner
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) assets other than Conversion Stock with respect to or in
exchange for Common Stock.

     15.  Subsidiary. The term "Subsidiary" shall mean any Person of which the
          ----------
Corporation shall at the time own, directly or indirectly through another
Subsidiary, 50% or more of the outstanding voting capital stock (or other shares
of beneficial interest with voting rights), or which the Corporation shall
otherwise control.

          IN WITNESS WHEREOF, Incara Pharmaceuticals Corporation has caused this
certificate to be signed by its duly authorized officer as of the 18th day of
January, 2001.



                                        INCARA PHARMACEUTICALS CORPORATION


                                        By:  /s/ Clayton I. Duncan
                                             ---------------------

                                             Name:  Clayton I. Duncan

                                             Title: Chief Executive Officer


Attest:


By:  /s/ Richard W. Reichow
     -------------------------

     Name:  Richard W. Reichow

     Title: Secretary

                                      -15-