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 Asset Value's nominees
would provide better leadership for Cortech and that is why we are seeking
control of the Board by electing our nominees to the Board.1
Effective July 21, 1998, three members of the old Board (the "Old Board")
resigned after appointing their replacements (the "Appointed Board"). Cortech
has stated that the departures did not result from disagreements with the
Company. There has been no explanation of why the incumbents did not wait until
their successors were chosen by the stockholders on September 4 which would have
permitted stockholders an opportunity to elect the new Directors.
WARNING: "Those who cannot remember the past are condemned to repeat it."2
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 Old 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 Old Board from the start that the Merger was not in the
interests of stockholders3 who, Asset
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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 four to seven creating
a total of four vacancies (the "Board Amendment"). If these four vacancies are
filled with Asset Value's nominees, control of Cortech will transfer to Asset
Value. If the Board is not increased, Asset Value will seek to elect nominee
Paul Koether, to fill the vacancy which would then be available. Management
opposes the Board Amendment and instead proposes to amend the Certificate of
Incorporation so that only directors have a right to set the number of directors
(the "Elimination of Stockholders Right"). Asset value opposes the Elimination
of Stockholders Right.
2 The Life of Reason, (1905) George Santayana
3 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.
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 any incumbent Director or
any other nominee connected to this past?
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-time4 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 did the Old Board do next?
Well one thing it did 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.
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4 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.
Ask yourself why would the Old Board spend Cortech's limited resources to
defend against a demand to hold an annual meeting as required by law? And why
would the Appointed Board spend Cortech's limited resources on this proxy
contest?
We think one reason is because management does 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
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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 Old
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 management would not embrace the necessary changes. Asset Value thought that
the Old Board's offer to meet, in and of itself, was too little too late.
MANAGEMENT'S VERSION OF STOCKHOLDER DEMOCRACY
Management called this Meeting only after Asset Value filed to have the
Delaware courts compel Cortech to hold the Meeting. We ask you: Why would
management fail to call a meeting within the time required by law? Why is
management 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
promised not to seek to merge Cortech with any affiliate or entity in which
Asset Value is an investor. Nor will Asset Value consider selling its Cortech
Stock before a transaction is consummated which Asset Value believes is in the
interests of all stockholders. 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.
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
Old Board members of their responsibility for these losses? We think the answer
is a resounding No!
Will you vote for the nominees appointed by the Old Board members who led us to
where we are today? We hope the answer is a resounding No!
PICTURE OF HOUR GLASS WITH CONTENTS READING
CASH REMAINING AT
MARCH 31, 1998
$14.3 million
ACCUMULATED
DEFICIT
$86 million!!!
THE SHAPE OF THINGS TO COME 5
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.
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5 H.G. Wells
The principal standards for seeking a candidate would be balance sheet
quality, positive earnings and good growth potential. 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. Nor will Asset Value consider selling its Cortech
Stock before a transaction is consummated which Asset Value believes is in the
interests of all stockholders. 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
WERE PART OF MANAGEMENT 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 GREEN PROXY BALLOT TO ASSET VALUE AND
VOTE TO INCREASE THE BOARD AND TO ELECT ASSET VALUE'S
NOMINEES.
IT'S TIME FOR A CHANGE; VOTE FOR CHANGE;
VOTE FOR ASSET VALUE.
SEND IN THE GREEN PROXY BALLOT VOTE
YES TO INCREASE THE BOARD BUT IN ANY EVENT:
VOTE FOR ALL OF ASSET VALUE'S NOMINEES!
VOTE AGAINST THE ELIMINATION OF A STOCKHOLDERS RIGHT!
Very truly yours,
Paul O. Koether
Asset Value Fund Limited Partnership
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 Green
Proxy Ballot 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