PRELIMINARY OPPOSITION PROXY MATERIAL
ASSET VALUE FUND LIMITED PARTNERSHIP
376 MAIN STREET, P.O. BOX 74
BEDMINSTER, NJ 07921
(908) 234-1881
May__, 1998
Dear Fellow Cortech Stockholder:
We and two other investors ("Asset Value") own approximately 15% of the
ourstanding shares of Cortech, Inc. ("Cortech"), which makes us by far Cortech's
largest stockholders. In connection with the upcoming Annual Meeting, Asset
Value is seeking your vote to elect its four nominees, who would then constitute
a majority of the Cortech Board.1 Asset Value seeks to gain control of Cortech
because it believes that Cortech's Board has repeatedly exercised poor judgment.
As you know, Cortech lost over $77 million through the end of fiscal 1996
attempting to exploit its technology. Finally in April of 1997, the Board
announced that Cortech would cease operations and pursue strategic alternatives
to use its remaining cash which as of December 31, 1997 was $15.4 million.
Mirror, Mirror on the Wall, Who's the Fairest of Them All?
Kenneth Lynn, CEO of Cortech, and the Board would have us believe that once
they determined 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. 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). After the Board
announced in December of 1997 that Cortech would merge with BioStar, Asset Value
warned the Board that Asset Value believed the Merger was not in the interests
of stockholders who, Asset Value said, would never approve such a transaction.
Notwithstanding this warning, the Board proceeded, in Asset Value's opinion, to
waste a substantial portion of Cortech's remaining resources on the Merger,
which just as Asset Value predicted, failed, in our opinion, for lack of
stockholder support.
We ask you. What will this Board do next?
Don't take a chance. Vote for a change. Vote for Asset Value's nominees!
Now it is time for the Annual Meeting; time for the stockholders to
re-evaluate the past leadership of Cortech and time to consider a change. We
believe that Asset Value has the same interests as all other stockholders which
it believes will be a change from this management - a substantial change.
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1 Cortech has a staggered board which means under the current by-laws
that only two of the five directors must seek election this year. Asset Value
seeks to amend the by-laws to increase the size of the board from five to seven
and to elect its four nominees as directors to the four vacancies (the two
available under the current by-laws and the two vacancies created by the
proposed amendment). If successful, Asset Value's nominees would constitute a
majority of the board.
MORE RED INK!
Cortech's Form 10-Q filed for the first quarter of 1998 reported that
Cortech's losses not only continued but increased compared to last year
($1,399,000 in 1998; $897,000 in 1997). In a quarter with No research and
development activities and No revenues, Cortech still had approximately 15
full-time2 employees and general and administrative expenses of $1,522,000, of
which, according to Cortech, merger expense only accounted for approximately
$673,000. In the aggregate, Cortech has lost over $86 million as of March 31,
1998. In the face of these unabated losses, Asset Value believes that the Board
still appears bent on maintaining the status quo. In our view, it was this same
vacillating decision making that failed to staunch the hemorrhaging of Cortech's
stockholders equity in the past and we believe that we should not allow this
past to become the future. Vote for Change: Send in the White Proxy Card and
Vote for Asset Value's Nominees.
WARNING: "Those who cannot remember the past are condemned to repeat
it."3
In our opinion, several individuals and entities, other then Cortech
stockholders would have reaped the benefits of the Merger with BioStar. We
believe that Mr. Lynn stood to benefit from the Merger because it would have
triggered his golden parachute ($1,300,000 for him and others with severance
agreements) and enabled him (and other Board members and executive officers) to
exercise 623,535 options. BioStar's management would have received additional
compensation and options in connection with the Merger. In fact, it seems to
Asset Value, that every participant was to profit from the Merger except the
public stockholders of Cortech, who would have suffered a dilution in book value
per Cortech share of 64% (from an historical $.83 to a pro forma $.30) while
BioStar stockholders would have enjoyed an improvement in book value from an
historical negative ($2.86) to a positive $.17 per share.
PLEASE ASK YOURSELF:
DO YOU WANT THE BOARD MEMBERS WHO APPROVED THE BIOSTAR MERGER TO SELECT THE
NEXT MERGER CANDIDATE FOR CORTECH?
IF THE ANSWER IS NO THEN PLEASE SEND THE WHITE PROXY CARD TO ASSET VALUE
AND VOTE TO INCREASE THE BOARD AND TO ELECT ALL OF ASSET VALUE'S NOMINEES.
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2 Cortech does not disclose whether there are additional part-time
employees and consultants still hanging on.
3 The Life of Reason, (1905) George Santayana
WOULD THE GODS GIVE US THE GIFT TO SEE OURSELVES AS
OTHERS SEE US 4
In connection with his support of the BioStar transaction, Lynn described
himself as a "fiduciary". Far from it in our view. Prior to the Merger proposal,
Lynn owned Cortech Shares worth less than $2,000 in the marketplace. As a result
of the Merger, Lynn and others with severance agreements would have received:
(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 was
also to continue as a director of the successor corporation after the Merger.
Even before approving the ill-fated Merger with BioStar, we believe that
the Cortech Board and Mr. Lynn ignored the growing disparity over the past
several years between the interests of Cortech's management 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!
After Asset Value acquired its interest in Cortech in the fall of 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 Cortech Directors approved a transaction which, in our view, would have
negatively affected 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
Common Stock.
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4 An anglicized version of a quotation from the poem "To a Louse" by
Scottish poet Robert Burns.
THE SHAPE OF THINGS TO COME5
Asset Value has only considered possible alternatives for the future of
Cortech in a preliminary way and therefore it does not know with certainty that
there are potential acquisitions or Mergers that would be attractive for
Cortech.
Asset Value has stated and restates here that it has no specific Merger
partner in mind. So, what will Asset Value do if it obtains control of the
Cortech Board? As we stated, we believe that once the Cortech Board determined
to change control of Cortech, it should have sought competitive transactions
more aggressively, by advertising in the financial media, by engaging an
investment banker from the outset to solicit Merger partners in the investment
community and by publicly stating that the Board was conducting an open bidding
process for control of Cortech. If elected Asset Value's nominees will take
these steps. But as stated above, there can be no assurance that taking these
steps will produce a transaction that will be favorable for Cortech and its
stockholders.
STOP THE RED INK !
Paul Koether of Asset Value has suggested publicly that a shutdown of
Cortech is an appropriate alternative which would leave Cortech with cash and
future tax benefits from past losses plus the enticement of publicly traded
shares that could be a vehicle for a private company to become public. He
recognizes that there would be risks associated with such an action,
particularly that Cortech would no longer be an "ongoing" business and the
possible reduction in the value of the technology because of the loss of
experienced personnel. In any event, Asset Value would evaluate the matter
further with current employees if it gained control, therefore, there is no
assurance that Cortech would be shut down.
Asset Value can only give stockholders the assurance that its nominees will
try to further reduce Cortech's expenses and will move as quickly as possible to
secure a Merger partner, which they believe maximizes stockholder values.
Remember Asset Value has promised not to seek to merge Cortech with any
affiliate or entity in which Asset Value is an investor. Asset Value intends to
benefit from its Cortech investment only to the same extent other stockholders
benefit. Asset Value's nominees have pledged not to accept any fees for serving
as directors.
IT'S TIME FOR A CHANGE.
VOTE FOR CHANGE.
VOTE FOR ASSET VALUE.
"WHO CARES WHAT OWNERS THINK? Who owns American companies?
The management, of course. Shareholders are tolerated, but managers rule.6"
THE CORTECH BOARD ACTS LIKE ITS VOICE IS THE ONLY
CHOICE.
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5 H.G. Wells
6 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.
But we stockholders can demonstrate that they are wrong. We urge you to
read our enclosed Proxy Statement and vote YES to increasing the Board and FOR
Asset Value's nominees.
Sincerely,
Paul O. Koether
Asset Value Fund Limited Partnership
SEND IN THE WHITE PROXY CARD
VOTE YES TO INCREASE THE BOARD
VOTE FOR ALL OF ASSET VALUE'S NOMINEES
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