ASSET VALUE FUND LIMITED PARTNERSHIP
376 MAIN STREET, P.O. BOX 74
BEDMINSTER, NJ 07921
(908) 234-1881
March __, 1998
Dear Fellow Cortech Stockholder:
We and two other investors ("Asset Value") own approximately 15% of the
outstanding shares of Cortech, Inc. ("Cortech"), which makes us by far Cortech's
largest stockholder. At the upcoming Special Meeting, Cortech proposes, among
other things, to merge with BioStar, Inc. ("BioStar"), a company located in
Boulder, Colorado, which is losing money and has an accumulated deficit of more
than ($25,000,000) (the "Merger"). We oppose the Merger because in our view:
(1) the terms of the Merger do not maximize Cortech's value and in fact the
terms are unfair to Cortech's public stockholders, and
(2) the Cortech Board misstates that liquidation is the only alternative to
the Merger when in fact if the poison pill were not in place, we believe that
Cortech would have had and still could have numerous suitors better placed to
use Cortech's cash and tax operating loss carryforwards ("NOLs").
We have read carefully the Joint Proxy Statement/Prospectus provided by
Cortech and BioStar, including the so called fairness opinion of its financial
adviser, Cowen & Company ("Cowen"). We ask the Cortech Board:
"PLEASE DISCLOSE WHAT YOU SEE IN THE HISTORY AND FINANCIAL
STATEMENTS OF BIOSTAR THAT CHANGES FROM WHAT IS (IN OUR VIEW)
AN UGLY DUCKLING INTO A BEAUTIFUL SWAN"
Kenneth Lynn, CEO of Cortech and his hand-picked Board would have us
believe that once they determined in April 1997 that Cortech could not succeed
as a stand-alone entity, they scoured the land for a merger partner and the only
prospective suitor was BioStar, a company which lost almost ($2,000,000) in
fiscal 1997 and by the end of 1997 had a negative net worth of ($5,600,000).
BioStar is so poor that without Cortech or another cash source, it has only six
months to live. At its fiscal year-end, BioStar lost $1,281 and had negative
working capital of ($3,100,000). According to Cowen, BioStar's earning prospects
are so scant that we believe one of Cortech's principal assets, approximately
$77.2 million in NOLs, are of little value to BioStar because it has its own
significant NOLs. The result, in our view, is a Merger that does not maximize
Cortech's stockholder value. So what is it about BioStar that impressed Mr. Lynn
sufficiently to merge it with Cortech when, in our view, the Cortech
stockholders do not gain from the Merger?
WARNING
In our opinion, several individuals and entities, other than Cortech
stockholders, reap the benefits of the Merger. We believe that Mr. Lynn stands
to benefit from the Merger because it triggers his golden parachute ($1,300,000
for him and his management team) and enables him (and other Board members and
executive officers) to exercise 623,535 options. Cortech's regular
attorneys, Cooley Goodward LLP, stand to gain, in our view, because they are
representing BioStar in the Merger and will remain counsel to the combined
entity. Cowen, Cortech's purportedly independent advisor, will benefit because
its fee of $250,000 soars to $400,000, an increase of 60%, if the Merger is
consummated. BioStar's management receives additional compensation and options
in connection with the Merger and BioStar's Board receives favorable treatment
in the vesting and exercise of its options. In fact, it seems to Asset Value,
that every participant will profit from the Merger except the public
stockholders of Cortech who will suffer a dilution in book value per Cortech
share of 64% (from an historical $.83 to a pro forma $.30) while BioStar
stockholders will enjoy an improvement in book value from an historical negative
($2.86) to a positive $.17.
WOULD THE GODS GIVE US THE GIFT TO SEE OURSELVES AS OTHERS SEE US(1)
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Lynn has described himself in this transaction as a "fiduciary". Far from
it in our view. Prior to the merger, Lynn owned Cortech Shares worth less than
$2,000 in the marketplace. As a result of the Merger, Lynn and his management
team will receive: (1) payments of $1,300,000; (2) payment of premiums for
health benefits for eighteen months; and (3) the immediate vesting of 623,535
options. Mr. Lynn will also continue as a director of the successor corporation
after the Merger.
We believe that Mr. Lynn negotiated the terms of the Merger with apparent
disregard for stockholders' interests much like, in our view, he has ignored the
growing disparity over the past several years between his interests and the
public stockholders' interests. The chart below reflects the difference between
Mr. Lynn's increasing compensation between 1993 and 1997 and the concomitant
decline of the market value of Cortech Shares.
GRAPH OF CORTECH'S HIGH STOCK PRICE AND LYNN'S
COMPENSATION.
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
Cortech's High Stock Price $18.25 $14.25 $3.65625 $3.8125 $2.03125
Lynn's Compensation $140,000 $181,744 $305,499 $330,006 $330,513
NOT A PRETTY PICTURE!
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(1) An anglicized version of a quotation from the poem "To a Louse" by
Scottish poet Robert Burns.
When Asset Value acquired its interest in Cortech in September 1997, we
asked the Cortech Board to elect a nominee of Asset Value to the Board (only one
on a five member Board). The Cortech Board, in effect, refused, then the
Directors approved a transaction which, in our view, will negatively affect all
stockholders. They did this without bothering to ask for, or permit, the
participation of Cortech's largest stockholder, Asset Value, whose interests,
clearly, in our opinion, are more matched with public stockholders than a Board
which collectively owns less than 2-1/2 % of Cortech Shares.
"WHO CARES WHAT OWNERS THINK? Who owns American companies?
The management, of course. Shareholders are tolerated, but managers rule.(2)"
There can be no justification for the expenditure of approximately
$3,000,000 (20% of Cortech's net worth) on what we believe is a self-serving
merger, without consulting with Asset Value, who, in our view, represents the
position of the public stockholders. Unfortunately, no matter what the outcome
we stockholders will pay the costs of what we consider the sheer arrogance of
Cortech's management and directors.
THIS BOARD ACTS LIKE THEIR VOICE IS THE ONLY CHOICE.
But we stockholders can demonstrate that they are wrong. We urge you to
read our enclosed Proxy Statement and join us in voting AGAINST the Merger and
FOR the removal of the Poison Pill. We also recommend voting FOR the Reverse
Stock Split.
Sincerely,
/s/ Paul O. Koether
-------------------------
Paul O. Koether
Asset Value Fund Limited Partnership
VOTE NO TO THE MERGER
VOTE YES TO REMOVE THE POISON PILL
VOTE YES FOR THE REVERSE STOCK SPLIT
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(2) Market Watch, New York Times 3/8/98, Floyd Norris. This quote has been
made without the permission of the New York Times or Mr. Norris.
IMPORTANT
If your shares are held in "Street Name" only your bank or broker can vote
your shares, and only upon receipt of your specific instructions. Please contact
the person responsible for your account and instruct them to execute a white
proxy card as soon as possible.
If you have any questions or need further assistance in voting, please call
John W. Galuchie, Jr., of Asset Value Fund Limited Partnership collect at (908)
234-1881, or our proxy solicitor:
BEACON HILL PARTNERS, INC.
90 BROAD STREET
NEW YORK, NEW YORK 10004
(800) 253-3814