COLLAGENEX PHARMACEUTICALS CORPORATION
September , 1997
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Dear Stockholder:
Your Board of Directors has adopted a Shareholder Protection Rights
Agreement (the "Plan"). The Plan is designed to protect the Company and you, its
stockholders, in the event of an unsolicited offer to acquire control of the
Company on terms that the Board of Directors determines to be not in the best
interests of the Company because the offer is abusive, coercive or otherwise
unfair. Such offers may include, for example, attempts to acquire control
without offering adequate consideration to all stockholders. The Plan is not
intended to prevent and will not prevent a takeover of the Company that the
Board determines to be in the best interests of the Company. Neither is the
Rights Plan intended to adversely affect the ability of a person to obtain
representation on the Company's Board by means of the proxy process. Under
Delaware law, the Board is charged with responding to a takeover offer in the
first instance, in a manner it determines to be in the best interests of the
Company. The Plan should assist the Board in carrying out this obligation.
As explained in greater detail in the attached Summary, the Rights will
become exercisable only if and when a situation that they were designed to
address does, in fact, arise. RIGHTS CERTIFICATES WILL NOT BE SENT TO YOU UNLESS
AND UNTIL THEY BECOME EXERCISABLE. The issuance of the Rights does not dilute
share value and does not affect earnings per share. The Rights are not presently
taxable to you or the Company under federal income tax law and they will not
change the manner in which you can presently trade shares of the Company's
common stock.
The Plan provides, among other things, that upon the earlier of ten
business days after a public announcement that a person has become a beneficial
owner of twenty percent or more of the voting power of all the Company's shares
or ten business days after a person announces an offer to acquire Company shares
that would give it twenty percent or more of the voting power, each Right will
become exercisable to purchase 1/100 of a share of the Company's Series A
Participating Preferred Stock.
After the Rights become exercisable, if the Company is acquired in a merger
in which the Company survives, or if a person or group acquires beneficial
ownership of shares representing twenty percent or more of the voting power of
the Company, then each Right, not previously exercised, would entitle the holder
(other than the acquiror) to purchase Company common stock at a fifty percent
discount to its market price. Alternatively, if the Company is acquired in a
merger or other business combination, the Rights permit holders to purchase the
common stock of the acquiror at a fifty percent discount to its market price.
The Rights will expire on September 26, 2007, unless further extended, and
will be subject to redemption by the Board of Directors at $0.01 per right at
any time prior to the first date on which they become exercisable.
A copy of the Rights Agreement is available to any stockholder upon
request to CollaGenex Pharmaceuticals, Inc., Attn: Corporate Secretary, or by
telephone at (▇▇▇) ▇▇▇-▇▇▇▇.
Sincerely,
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Ph.D.
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President and Chief Executive Officer
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SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
The Board of Directors of CollaGenex Pharmaceuticals, Inc. (the "Company")
declared a distribution of one Right for each outstanding share of Common Stock
of the Company to stockholders of record at the close of business on September
26, 1997 and to each share of Common Stock that may be issued by the Company
prior to the "Separation Date" (or the earlier redemption or expiration of the
Rights) described below.
Operation of the Rights
-----------------------
Upon the occurrence of certain events described below, each Right would
entitle its holder to purchase from the Company one one-hundredth (1/100) of a
share of Series A Participating Preferred Stock, no par value (the "Preferred
Stock"), at a purchase price of $65.00 (the "Purchase Price"). Until the Rights
separate from the Common Stock, they cannot be exercised.
The Rights will separate from the Common Stock upon the earlier to occur of
(i) ten business days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of shares of the Company's capital stock representing
twenty percent or more of the voting power of all outstanding shares of capital
stock of the Company or (ii) ten business days following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning outstanding shares of the Company's capital stock
representing twenty percent or more of the voting power of all outstanding
shares of capital stock of the Company (in each case, this person or group is
referenced as an "Acquiring Person"). The date upon which the Rights separate
from the Common Stock, and are thereby freely tradable, is called the
"Separation Date." The Separation Date can be delayed by an action of the Board
of Directors.
If, after the Separation Date, (i) the Company is the surviving
corporation in a merger with an Acquiring Person and its Common Stock is not
changed or exchanged, or (ii) an Acquiring Person becomes the beneficial owner
of shares of the Company's capital stock representing twenty percent or more of
the voting power of all outstanding shares of capital stock of the Company, each
holder of a Right (instead of having the right to receive Preferred Stock) will
thereafter have the right to receive, upon exercise, Common Stock having a value
equal to two times the exercise price of the Right. This is known as a "Flip-In"
Event. However, any Rights held by an Acquiring Person would not receive these
benefits.
In the event that, at any time following the Separation Date, (i) the
Company is acquired in certain merger or other business combination transactions
(other than a merger described above) in which it does not survive, or (ii)
fifty percent or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (instead of having the right to purchase
Preferred Stock) will thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the Right. This is known as a "Flip-Over" Event. For example,
assuming an exercise price of $65.00 per Right, each Right not owned by an
Acquiring Person (or by certain related parties) following a "Flip-In" or
"Flip-Over" Event would entitle its holder to purchase $130.00 worth of Common
Stock (or other
consideration, as noted above) for $65.00. This would be Company Common
Stock if a "Flip-In" event occurred, and the Acquiring Person's common stock if
a "Flip-Over" event occurred.
Redemption of the Rights
------------------------
At any time until the Separation Date, the Board of Directors may
unilaterally redeem the Rights at a price of $0.01 per Right. This amount would
be paid to you and would mean that the Rights could no longer be exercised.
Under certain circumstances set forth in the Rights Agreement, the decision to
redeem would require the concurrence of a majority of the Disinterested
Directors (that is, a Board member who is unaffiliated with the Acquiring
Person). After the redemption period has expired, the Company's right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to twenty percent or less of the voting power of the capital stock of
the Company in a transaction not involving the Company. Immediately upon the
action of the Board of Directors ordering redemption of the Rights with the
concurrence of a majority of the Disinterested Directors, if required, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $0.01 redemption price.
The Board's Ability to Amend the Rights Plan
--------------------------------------------
Under the Rights Plan, the Board has broad powers to amend the Rights
Plan. Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board prior to the Separation Date. After the Separation Date, amendments may
not adversely affect Right holders' interests. Under certain circumstances, an
amendment would require the concurrence of the Disinterested Directors.
Other Miscellaneous Provisions Under the Rights Plan
----------------------------------------------------
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least one percent of the
Purchase Price.
Significance of the Rights Until Exercised
------------------------------------------
Until a Right is exercised, its holder has no claim as a stockholder of
the Company arising from the Right itself, including, without limitation, the
right to vote or to receive dividends. While the initial declaration and
distribution of the Rights will not be taxable to the stockholders or the
Company, stockholders may, depending upon the circumstances, recognize
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taxable income in the event that the Rights become exercisable for Common Stock
(or other consideration) of the Company or for common stock of an Acquiring
Person as set forth above.
Evidence of Ownership Of Rights
-------------------------------
Until the Separation Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred only with such Common Stock
certificates, (ii) new Common Stock certificates issued after September 26,
1997, will contain a notation incorporating the Rights Agreement by reference,
and (iii) the surrender for transfer of any certificates for Common Stock will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. TO REPEAT, NO SEPARATE RIGHTS CERTIFICATES WILL
BE DISTRIBUTED UNLESS AND UNTIL A SEPARATION DATE OCCURS. The Rights will expire
at the close of business on September 26, 2007, unless extended or earlier
redeemed by the Board as described below.
After the Separation Date (except as otherwise provided above), Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on a Separation Date and, thereafter, such separate Rights
Certificates alone will represent the Rights.
Other Information Available
---------------------------
This summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement that is
incorporated herein by reference. A copy of the Rights Agreement is available to
any stockholder upon request to CollaGenex Pharmaceuticals, Inc., Attn:
Corporate Secretary, or by telephone at (▇▇▇) ▇▇▇-▇▇▇▇.
