REVISED PRELIMINARY OPPOSITION PROXY MATERIAL
ASSET VALUE FUND LIMITED PARTNERSHIP
376 MAIN STREET, P.O. BOX 74
BEDMINSTER, NJ 07921
(908) 234-1881
July__, 1998
Dear Fellow Cortech Stockholder:
We and two other investors ("Asset Value") own approximately 15% of the
outstanding shares ("Cortech Shares") of Cortech, Inc. ("Cortech"), which makes
us by far Cortech's largest stockholders. We believe that the incumbent Board
has exercised poor judgment in governing Cortech and that Asset Value's nominees
would provide better leadership because they are not tied to what we think are
the failures of the past. That is why we are seeking control of the Board by
electing our nominees to the Board.1
At the end of fiscal 1997, Cortech had net assets of only $15.4 million
after losing over $70 million since 1993 in a failed attempt to exploit
Cortech's technology. The Board then proceeded to expend $673,000 of Cortech's
limited resources promoting a merger with BioStar, Inc. (the "Merger"), a
company with a $5.6 million negative net worth even though Asset Value warned
the Board from the start that the Merger was not in the interests of
stockholders2 who, Asset Value said, would never approve such a transaction. The
Merger was canceled on May 7, 1998. ONLY ASSET VALUE WAS WILLING TO SPEND ITS
TIME AND MONEY TO PUBLICLY OPPOSE THE MERGER!
We ask you. Do you want Cortech led into the future by an incumbent
Director or any other nominee connected to this past?
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1 Asset Value is also asking stockholders to approve an amendment to the
By-laws which would increase the number of directors from five to seven creating
a total of four vacancies. If these four vacancies are filled with Asset Value's
nominees, control of Cortech will transfer to Asset Value. Management has
indicated that it may propose to declassify the Board which, if approved, would
mean all five seats on the Board would be open. In this case, Asset Value would
seek to elect five nominees who, if elected, would comprise the entire Board. If
the Board is not declassified or increased, Asset Value will seek to elect two
of its nominees to fill the two vacancies which would then be available.
2 Asset Value has not retained an independent financial adviser and its
conclusions are solely based on the opinion of its manager, Asset Value
Management, Inc. which was reached after reviewing management's proxy material
for the Merger, including the opinion of management's financial adviser.
Don't take a chance.
Vote for a change.
Vote for Asset Value's nominees!
MORE RED INK !
After the termination of the Merger, Cortech's Form 10-Q for the first
quarter of 1998 revealed that Cortech's losses not only continued but increased
compared to last year. In a quarter with No research and development activities
and No revenues, Cortech still had approximately 15 full-time3 employees and
general and administrative expenses of $1,522,000, of which, according to
Cortech, merger expense only accounted for approximately $673,000. After the
Form10-Q was filed Kenneth Lynn, the former CEO, left Cortech, taking with him,
what we would call, a "departure bonus" of almost $500,000, another 3.5% of
Cortech's remaining cash of $14.3 million. The calculation of the $500,000
departure bonus was derived by adding 20 months of salary ($442,000), future
consulting fees of an undisclosed amount and health insurance coverage for 18
months estimated at $600 per month as reported in Cortech's Form 8-K filed on
May 18, 1998.
What would this Board do next?
Well one thing it would not do -at least not voluntarily- is call this
Annual Meeting within the 13 months required by Delaware law. Instead Asset
Value had to file a lawsuit to compel the Board to let stockholders decide who
will determine Cortech's future. THIS MEETING WAS ORDERED BY THE CHANCERY COURT
OF DELAWARE ONLY AFTER A LAWSUIT WAS FILED BY ASSET VALUE TO COMPEL A MEETING.
Ask yourself why the Cortech Board would spend Cortech's limited resources
to defend against a demand to hold an annual meeting as required by law?
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3 Cortech does not disclose whether there are additional part-time
employees and consultants still hanging on. Asset Value considers a shutdown of
Cortech an alternative which must be considered, particularly in view of the
continued losses reported in the first quarter of 1998. Such a course however,
has risks, including the possible further diminishment of Cortech's technology
and the possible cessation of Cortech as a going concern. The matter would be
further evaluated with current employees once Asset Value gained control,
therefore, there is no assurance that Cortech would be shut down.
We think one reason is because the Board and its nominees did not want you
to ask this question:
ARE YOU BETTER OFF NOW THAN YOU WERE FIVE YEARS
AGO?
In what we think is the biggest bull market in history, Cortech Stock
prices have declined from $18.25 per share in 1993 to $.50 per share in 1998,
making Cortech, by any comparison, in our view, one of the poorest stock market
performers during this period. --AND THAT'S NO BULL!
COMPARISON OF
CORTECH'S STOCK PERFORMANCE (NASDAQ SYMBOL-CRTQ)
TO
THE NASDAQ BIOTECHNOLOGY INDEX (IXBT)
AND THE
AMERICAN STOCK EXCHANGE BIOTECHNOLOGY INDEX (BTK)
[GRAPH THE ABOVE]
Cortech IXBT BTK
------ ----- ------
1993 $18.25 197.88 115.78
1994 14.25 161.40 82.06
1995 3.65625 304.30 133.77
1996 3.8125 314.48 144.56
1997 2.03125 304.89 163.28
7/17/1998 .50 335.15 144.16
NOT A PRETTY PICTURE!
TOO LITTLE, TOO LATE
Seven months after Asset Value first asked for representation on the Board;
long after the Board was sued for misfeasance; after Cortech had spent $673,000
on the failed Merger; after Cortech had lost another approximately $3.4 million
from operations (from September 30, 1997 through March 31, 1998), finally on May
11, 1998 the Cortech Board expressed an interest in meeting with Asset Value's
manager, Paul Koether. By this time, Asset Value had already spent or committed
significant amounts of its own funds (estimated to exceed $125,000 including
counsel fees and management time) in opposing the Merger and in securing control
of the Board because it believed that a change in course for Cortech was
absolutely essential and because it believed that a Board controlled by the
incumbents would not embrace the necessary changes. Asset Value thought that the
Board's offer to meet, in and of itself, was too little too late.
THE BOARD'S VERSION OF STOCKHOLDER DEMOCRACY
This Board called this Meeting only after Asset Value filed to have the
Delaware courts compel the Board to hold the Meeting. We ask you: Why would the
Board fail to call a meeting within the time required by law? Why is the Board
spending your money and our money to delay what we believe will be the day of
reckoning when the stockholders will finally be given a choice between what in
our view, is the failed past and what we think will be a better future. In
making this choice, we ask you to consider that Asset Value has committed 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. Moreover Asset Value's nominees do not
intend to take any fees for managing Cortech.
SAME OLD; SAME OLD
Bert Fingerhut, an incumbent Cortech director, replaced Kenneth Lynn as
CEO. Mr. Fingerhut responded to Asset Value's request for majority control of
the Board by offering to declassify the Board and to designate one Asset Value
nominee on a five member slate. In addition to himself and incumbent Charles
Cohen, Mr. Fingerhut's proposed slate would include stockholders Edward
Finkelstein and John Papp. Mr. Fingerhut described Messrs Finkelstein and Papp
as newcomers but we believe they are two cronies of management. As Mr.
Fingerhut, himself disclosed, "As you know, Mr. Finkelstein and his associates
have a significant ownership stake in Cortech" (although Mr. Finkelstein and his
unnamed associates presumably own less than 5% since no Schedule 13D has been
filed) and "Dr. Papp is familiar with Cortech's intellectual property from his
service as a Director of CDC, a research and development affiliate of Cortech."
(emphasis added).
TIME AND MONEY ARE RUNNING OUT!
On May 18, 1998, CEO Kenneth Lynn left Cortech. We believe that Mr Lynn was
made a scapegoat for what we think is Cortech's prior mismanagement. But in our
opinion, Mr. Lynn was a symptom of what is wrong with Cortech not the source, at
least, in our view, not the only source. In the past five years (including the
first quarter of 1998), Cortech has lost over $70 million, and as of March 31,
1998, had cash of only $14.3 million. We ask, does Lynn's departure absolve the
incumbent Board members of their responsibility for these losses? We think the
answer is a resounding No!
PICTURE OF HOUR GLASS WITH CONTENTS READING
CASH REMAINING AT
MARCH 31, 1998
$14.3 million
CASH LOSSES FROM
INCEPTION (1982) TO
DATE $86 million!!!
And we ask where were Mr. Fingerhut's recommended nominees, Mr. Finkelstein
and Dr. Papp while Cortech was losing all this money? Right behind the Board, we
think!
THE SHAPE OF THINGS TO COME 4
So, what will Asset Value do if it obtains control of the Cortech Board? 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 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. Asset Value has no specific merger partner in mind and has
considered possible alternatives for the future of Cortech only in a preliminary
way. In the course of its own business, however, Asset Value constantly reviews
investment opportunities and in connection with this process has seen companies
which might be attractive strategic partners for Cortech although additional
analysis would be required to determine whether any of these companies are a fit
with Cortech.
The principal standards for seeking a candidate would be balance sheet
quality and positive earnings. Asset Value also believes that a private company
which seeks a public market or a public company which needs Cortech's assets to
qualify for NASDAQ, would consider these attributes as well as cash in
calculating Cortech's value. As of March 31, 1998, Cortech's total assets were
$14.9 million of which cash and cash equivalents were $14.3 million. Asset Value
is not sure, however, that there are potential acquisitions or mergers that
would be attractive for Cortech. One thing is certain however, Asset Value will
not 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.
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.
PLEASE ASK YOURSELF:
DO YOU WANT A BOARD COMPRISED OF ANY DIRECTORS
WHO SERVED WHILE CORTECH WAS LOSING ALL THIS
MONEY?
DO YOU WANT FUTURE TRANSACTIONS SELECTED BY ANYONE
WHO EITHER APPROVED THE MERGER OR STOOD SILENT WHILE
THE MERGER MOVED FORWARD?
WE HOPE YOUR ANSWER WILL BE : CERTAINLY NOT!
PLEASE SEND THE WHITE PROXY CARD TO ASSET VALUE AND
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4H.G. Wells
VOTE TO DECLASSIFY THE BOARD(if it is proposed by
management); TO INCREASE THE BOARD (if the Board is
not declassified) AND TO
ELECT ASSET VALUE'S NOMINEES.
IT'S TIME FOR A CHANGE; VOTE FOR CHANGE;
VOTE FOR ASSET VALUE.
SEND IN THE WHITE PROXY CARD
VOTE YES TO DECLASSIFY THE BOARD (If it is proposed by
management) OR TO INCREASE THE BOARD (if declassification is
not proposed) BUT IN ANY EVENT:
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