SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Cortech, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
Cortech, Inc.
6850 N. Broadway, Suite G
Denver, Colorado 80221
(303) 650-1200
August __, 1998
Dear Stockholder:
You are cordially invited to attend Cortech, Inc.'s Annual Meeting of
Stockholders, which will begin at 9:00 a.m. local time, Friday, September 4,
1998 at The Renaissance Hotel, 3801 Quebec Street, Denver, Colorado.
Stockholders will vote on the proposals detailed in the attached proxy
statement, and we will present a brief status report on the Company's
operations.
Regardless of your plans to join us on September 4th, we hope you will
sign, date and return your WHITE-STRIPED proxy card in the envelope provided at
your earliest convenience. We look forward to your reply.
Sincerely yours,
Bert Fingerhut
Chairman
<PAGE>
CORTECH, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 4, 1998
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Cortech, Inc., a Delaware corporation ("Cortech" or the "Company"), will be held
on Friday, September 4, 1998 at 9:00 a.m. local time at The Renaissance Hotel,
3801 Quebec Street, Denver, Colorado for the following purposes:
1. To elect one Class I director to hold office until the 2001
annual meeting of stockholders or until his successor is elected
and has qualified and, if the stockholder proposal set forth in
item 4 below is approved, to elect two additional Class I
directors and one Class III director to hold office until,
respectively, the 2001 and 2000 annual meeting of stockholders
or until their successors are elected and have qualified.
2. To adopt and approve an amendment to the Company's Certificate
of Incorporation which provides for a one-for-four reverse stock
split of outstanding Cortech common stock.
3. To adopt and approve an amendment to the Company's Certificate
of Incorporation, which provides that the Board of Directors
shall fix the number of directors.
4. To consider and act upon a stockholder proposal concerning an
amendment to the Company's By-laws to increase the number of
directors, which proposal is opposed by the Board of Directors.
5. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31,
1998.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on July 10, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors,
Bert Fingerhut
Chairman
Denver, Colorado
August __, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED WHITE-STRIPED PROXY CARD AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE
PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED JULY 24, 1998
CORTECH, INC.
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PROXY STATEMENT
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General
The enclosed proxy is solicited on behalf of the Board of Directors of
Cortech, Inc., a Delaware corporation ("Cortech" or the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
September 4, 1998 at 9:00 a.m. local time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at The Renaissance Hotel, 3801
Quebec Street, Denver, Colorado. The Company intends to mail this proxy
statement and accompanying proxy card on or about August 10, 1998, to all
stockholders entitled to vote at the Annual Meeting.
You may have already received an opposition proxy statement (the
"Opposition Proxy") from Asset Value Fund Limited Partnership ("AVF"), a
dissident stockholder that is attempting a hostile takeover of the Company. In
connection with its hostile takeover attempts, AVF is soliciting proxies to,
among other things, amend the Company's Bylaws to increase the size of the Board
from four to seven members and, subject to the approval of such amendment, to
elect its four nominees to the Board (to fill the one vacancy currently
available plus the three vacancies created by the Bylaw amendment). In other
words, AVF is seeking to seize control of the Company by circumventing the
classified structure of the Board and electing a majority of the directors.
AVF is an investment vehicle led by Paul Koether, a notorious
greenmailer with a documented history of purchasing short-term positions in a
public company, threatening and waging costly and divisive proxy contests under
the ruse of protecting stockholder interests and then selling out when his
personal enrichment goals are achieved. The Board of Directors urges you not to
support AVF's hostile attempt to take over the Company, but to carefully review
the information contained in this proxy statement and sign, date and return the
BLUE proxy card today in the enclosed, postage pre-paid envelope.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on July
10, 1998 (the "Record Date") will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on the Record Date the Company had
outstanding and entitled to vote 18,523,918 shares of Common Stock. Each holder
of record of Common Stock on the Record Date will be entitled to one vote for
each share held on all matters to be voted upon at the Annual Meeting.
Under the By-laws of the Company, a quorum for the transaction of
business is constituted by the presence, in person or by proxy, of the holders
of a majority of the stock of the Company issued and outstanding and entitled to
vote at the meeting. A plurality of the votes of the shares present and entitled
to vote at the Annual Meeting is required to approve the election of directors
in Proposal 1. The affirmative vote of holders of a majority of the Company's
issued and outstanding shares entitled to vote at the Annual Meeting is required
to approve each of Proposals 2 and 3 and the affirmative vote of holders of a
majority of the shares present in person or by proxy and entitled to vote on the
matter at the Annual Meeting is required to approve each of Proposals 4 and 5.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE>
Revocability of Proxies
Any person giving a proxy in connection with the Annual Meeting has the
power to revoke such proxy at any time before it is voted at the Annual Meeting
(i) by delivering a written notice of revocation of such proxy to the Secretary
of the Company at the Company's principal executive office, 6850 N. Broadway,
Suite G, Denver, Colorado 80221, (ii) by executing and delivering a later dated
proxy to the Company or its solicitation agents, or (iii) by attending the
Annual Meeting and voting in person at the Annual Meeting. Attendance at the
Annual Meeting will not, by itself, revoke a proxy.
There is no limit on the number of times that a stockholder may revoke
his or her proxy prior to the Annual Meeting. Only the latest dated, properly
signed proxy card will be counted.
IF YOU ALREADY SENT A PROXY CARD TO AVF, A DISSIDENT STOCKHOLDER THAT IS
ATTEMPTING A HOSTILE TAKEOVER OF THE COMPANY, YOU MAY REVOKE THAT PROXY AND VOTE
IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS BY SIGNING,
DATING AND MAILING THE ENCLOSED WHITE-STRIPED PROXY CARD IN THE ENVELOPE
PROVIDED.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate and Bylaws, each as amended, currently provide
that the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term.
The Company currently has a total of four directors, consisting of one
Class I director, whose term expires in 1998, two Class II directors, whose
terms expire in 1999 and one Class III director, whose term expires in 2000.
Each of the current directors, with the exception of Bert Fingerhut, was
appointed to fill a vacancy on the Board created by the resignations of Charles
Cohen, Ph.D., Donald Kennedy, Ph.D. and Allen Misher, Ph.D. effective July 21,
1998. Such resignations were not the result of any disagreement with the Company
and had been contemplated by Drs. Cohen, Kennedy and Misher earlier this year in
connection with the Company's proposed merger with Biostar, Inc., which merger
was subsequently abandoned.
The only director to be elected at the Annual Meeting will be a Class I
director. The Board of Directors has nominated Joachim von Roy as the Class I
director (term expiring 2001) to be elected at the Annual Meeting. However, AVF,
a dissident stockholder, is attempting to take control and circumvent the
Company's classified Board of Directors by proposing Proposal 4 (the "AVF
Proposal") which would add three new directors to the Board (two Class I
directors, with terms expiring 2001, and one Class III director, with a term
expiring 2000). The Board of Directors opposes the AVF Proposal and has proposed
Proposal 3, which would protect the Company's classified Board structure by
eliminating the possibility of AVF or future dissident stockholders from taking
control of the Company by proposals such as the AVF Proposal. However, if
Proposal 3 is defeated and the AVF Proposal is properly presented and approved,
then four directors will be elected at the Annual Meeting. The Board of
Directors has conditionally nominated John C. Cheronis, M.D., Ph.D., and
Diarmuid Boran (collectively, the "Additional Nominees") to fill two of the
three vacancies (for Class I director and Class III director, respectively)
created in the event the AVF Proposal is adopted and the Board is increased to
seven members.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed WHITE-STRIPED proxy card will be voted, if authority to do so is not
withheld, for the election of Mr. von Roy as Class I director and, in the event
the AVF Proposal is approved, also for the election of Dr. Cheronis, and Mr.
Boran as Class I and Class III directors, respectively.
The persons nominated for election have agreed to serve if elected, and
management has no reason to believe that such nominees will be unable to serve.
However, in the event that any of such nominees becomes unable or unwilling to
accept nomination or election as a result of an unexpected occurrence, the
shares represented by the enclosed proxy will be voted for the election of such
substitute nominee as management may propose.
Set forth below is biographical information for the persons (including
the Additional Nominees) nominated for election to the Board of Directors and
each other person whose term of office as a director will continue after the
Annual Meeting, including information furnished by them as to their principle
occupations at present and for the past five years, certain directorships held
by each, their ages as of July 15, 1998 and the year in which each continuing
director became a director of the Company.
The Board of Directors recommends a vote FOR each of the nominees listed
below.
Nominee for Election as Class I Director
Joachim von Roy Mr. von Roy, 51, has been a director of the Company since
July 1998. Mr. von Roy is a Principal of RvR Associates, a pharmaceutical
consulting firm. From 1993 to 1997, he served as President of Bristol-Myers
Squibb Pharmaceuticals, Europe and, from 1990 to 1993, he was President of
Bristol-Myers Squibb Pharmaceuticals, Central Europe. Mr. von Roy is Chairman of
Health Initiative Europe Institute for Bagonalistics and a member of Kuratorium,
the German Lipid League.
Additional Nominees for Election as Class I and Class III Directors
Class I Director:
John C. Cheronis, Ph.D., M.D. Dr. Cheronis, 47, has been Founding Scientist
of the Company since 1996 and served as Vice President, Research of the Company
from the Company's inception in 1982 to 1995. Dr. Cheronis was a director of the
Company from 1982 to 1995. He is a diplomat of the American Board of Internal
Medicine. Dr. Cheronis received his Ph.D. and M.D. from the Department of
Pharmacology and Physiology at the Pritzker School of Medicine of the University
of Chicago in 1978 and 1980, respectively.
Class III Director:
Diarmuid Boran. Mr. Boran, 38, has served as Chief Operating Officer and
Acting Chief Financial Officer of the Company since May 1998. He served as Vice
President, Corporate Development and Planning of the Company from August 1995 to
May 1998 and prior to that time as Senior Director, Commercial Development and
Planning. From 1988 to 1993, Mr. Boran worked for Marion Merrell Dow Inc. (now
Hoechst Marion Roussel, Inc. where he held various positions in marketing,
strategic planning and finance, most recently as Director of Corporate Business
Analysis.
Continuing Class II Director
Bert Fingerhut. Mr. Fingerhut, 54, has been a director of the Company
since 1988 and Chairman of the Board and Acting Chief Executive Officer since
May 1998. Mr. Fingerhut also served as Chairman of the Board from June 1991 to
April 1997. In addition to his service with the Company, Mr. Fingerhut presently
pursues private business and conservation interests. From 1984 to 1985, he was
Special Limited Partner and Senior Vice President of Odyssey Partners, a private
investment partnership. From 1965 to 1983, he was General Partner, Managing
Director, Executive Vice President and Director of Research of Oppenheimer &
Company, Inc., an investment banking and brokerage firm. Mr. Fingerhut is
Chairman of the Board of Directors of Toxics Targeting, a private company based
in Ithaca, N.Y. that tracks and provides information on toxic waste sites. He is
currently Chairman of the Governing Council of The Wilderness Society, a member
of the Board of Directors of the Southern Utah Wilderness Alliance, a director
of the Grand Canyon Trust and Trustee of the Alaska Conservation Foundation. Mr.
Fingerhut also serves as a director of the Wyss Foundation.
John E. Repine, M.D. Dr. Repine, 51, has been a director of the Company
since July 1998. Dr. Repine has been the President and Director of the
Webb-Waring Anti-Oxidant Institute for Biomedical Research. He is also the James
J. Waring Professor in the Department of Medicine and Pediatrics at the
University of Colorado Health Sciences Center. Dr. Repine was elected to the
American Society of Clinical Investigation and the Association of American
Physicians. He is also the recipient of an Established Investigator Award from
the American Heart Association, Basil O'Connor Research Award from the March of
Dimes and the Bonfils-Stanton Award for his outstanding contribution to medicine
and science. Dr. Repine serves on the scientific advisory boards of a number of
biotechnology companies. He currently holds 6 patents.
<PAGE>
Continuing Class III Directors
Edward Finkelstein. Mr. Finkelstein, 61, has been a director of the
Company since July 1998. Mr. Finkelstein has been a managing partner of REM, a
real estate holding company since 1986, and the President and Chief Executive
Officer of Edmark Development, a commercial real estate development and
management company, since 1990. He has also served as the President and Chief
Executive Officer of Central Motors, a holding company of Midwestern car
dealerships, since 1991, and the Chairman and Chief Executive Officer of
Rollabind, Inc., the largest manufacturer of patented disc binding systems
worldwide, since 1996. Between 1972 and 1991, Mr. Finkelstein was President and
Chief Executive Officer of Michigan Sporting Goods Distributors, Inc., the
parent company of MC Sports, one of the largest retail sporting good chains in
the world.
PROPOSAL 2
APPROVAL OF THE REVERSE SPLIT
The Board of Directors of the Company has unanimously approved an
amendment to its Certificate of Incorporation to effect a reverse split of the
Company's Common Stock and make a corresponding reduction in the authorized
number of shares of Common Stock which the Company may issue (such actions
collectively being referred to as the "Reverse Split"). The Reverse Split, if
approved by stockholders, would cause all issued and outstanding shares of the
Company's Common Stock to be split, on a reverse basis, one-for-four (i.e.,
stockholders would receive one share of Common Stock for every four shares held
by them prior to the Reverse Split). If the Reverse Split is approved at the
Annual Meeting, the Company intends to file the Reverse Split with the Secretary
of State of Delaware as soon as practicable thereafter, upon which filing it
will be effective. As described below, the primary objective of the Board in
effecting the Reverse Split is to increase the per share market price of the
Common Stock.
As part of the Reverse Split, Article V, Section 1 of the Certificate
of Incorporation would be amended to decrease the authorized number of shares of
capital stock which the Company may issue from 52,000,000 shares to 14,500,000
shares, 12,500,000 of which shall be Common Stock, and 2,000,000 of which shall
be Preferred Stock.
By letter dated July 13, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
advised the Company that, as of the close of business on such date, the
Company's Common Stock would be delisted from the Nasdaq National Market as
result of the Company's failure to comply with Nasdaq's minimum $1.00 per share
bid price requirement. The Company is in the process of appealing the delisting
of its Common Stock and believes that if the Reverse Split is approved there is
a reasonable likelihood that Nasdaq will reinstate the Nasdaq National Market
listing of the Common Stock, although there can be no assurance that the
Company's appeal will be successful or, if successful, that the Company would be
able to maintain such listing (whether as a result of failure to meet the
minimum bid price requirement or other requirements imposed by Nasdaq).
The Board of Directors believes that the Reverse Split is beneficial to
the Company's future prospects since it will not have reasonable grounds for
appealing the delisting of its Common Stock from the Nasdaq National Market if
the Reverse Split does not take place and if the market price for the Common
Stock does not otherwise meet Nasdaq's $1.00 minimum bid price.
For the foregoing reasons, the Board of Directors has determined that a
recapitalization through the Reverse Split would be in the best interests of the
Company and its stockholders.
Effects of the Reverse Split
General Effects. The principal effect of the Reverse Split would be to
decrease the number of outstanding shares of the Company's Common Stock.
Specifically, the 18,523,918 shares of Common Stock issued and outstanding on
the Record Date would, as a result of the Reverse Split, be converted into
approximately 4,630,979 shares of Common Stock (with the precise number
depending upon the extent of fractional shares resulting from the Reverse Split,
which will be converted to cash based upon the market price for a share of
Common Stock on the trading day prior to implementation of the Reverse Split).
The number of shares of Common Stock authorized for issuance by the Company's
Certificate of Incorporation following the Reverse Split would be
proportionately adjusted from 50,000,000 shares to 12,500,000 shares.
Accordingly, after the Reverse Split, there would be approximately 7,869,021
"new" (or post-Reverse Split) shares of Common Stock ("New Shares") available
for issuance by the Company.
<PAGE>
Effect on Market for Common Stock. On July 23, 1998, the closing price
of the Company's Common Stock as quoted on the OTC Bulletin Board was $0.51 per
share. By decreasing the number of shares of Common Stock otherwise outstanding
without altering the aggregate economic interest in the Company represented by
such shares, the Board believes that the per share market price for the
Company's Common Stock will be increased in excess of the minimum $1.00 bid
price required for inclusion of shares on the Nasdaq National Market.
Effect on Stock Options and Warrants. The total number of shares of
Common Stock issuable upon the exercise of options and warrants to acquire such
shares, and the exercise price thereof, shall be proportionally adjusted to
reflect the Reverse Split.
Effect under the Company's Rights Plan. Following the implementation of
the Reverse Split, each share of Common Stock will continue to have one
preferred share purchase right (a "Right") associated with it; however, the
number of shares of Preferred Stock issuable upon the exercise of each Right
shall be proportionally adjusted to reflect the Reverse Split (i.e., following
the effectiveness of the Reverse Split, each Right, under certain circumstances,
would be eligible to purchase up to four one-hundredths of a share of Preferred
Stock).
Changes in Stockholders' Equity. The Reverse Split would reduce the
Company's stated capital, which consists of the par value per share of Common
Stock multiplied by the number of such shares outstanding, from the amount which
would otherwise exist (assuming the share amounts set forth above, the Reverse
Split would reduce the Company's stated capital by approximately $27,776.20).
Although the par value of Common Stock would remain at $0.002 per share
following the Reverse Split, stated capital would be decreased because the
number of shares outstanding would be reduced. Correspondingly, the Company's
additional paid-in capital, which consists of the difference between its stated
capital and the aggregate amount paid to the Company upon its issuance of all
then outstanding shares of Common Stock, would be increased.
Appraisal Rights. Pursuant to the Delaware General Corporate Law, the
Company's stockholders are not entitled to appraisal rights with respect to the
Reverse Split.
Federal Income Tax Consequences
The following summary of the federal income tax consequences of the
Reverse Split is based on current law, including the Internal Revenue Code of
1986, as amended, and is for general information only. The tax treatment for any
stockholder may vary depending upon the particular facts and circumstances of
such stockholder. Certain stockholders, including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, non-resident
aliens, foreign corporations and persons who do not hold Common Stock of the
Company as a capital asset, may be subject to special rules not discussed below.
Accordingly, each stockholder should consult his or her tax advisor to determine
the particular tax consequences to him or her of the Reverse Split, including
the application and effect of federal, state, local or foreign income taxes and
other laws.
The receipt of whole New Shares (excluding fractional New Shares) in
the Reverse Split should be non-taxable for federal income tax purposes.
Consequently, a stockholder receiving New Shares will not recognize either gain
or loss, or any other type of income, with respect to whole New Shares received
as a result of the Reverse Split. In addition, the tax basis of such
stockholder's shares of Common Stock prior to the Reverse Split will carry over
as the tax basis of the stockholder's New Shares. The holding period of the New
Shares should also include the stockholder's holding period of the Common Stock
prior to the Reverse Split, provided that such Common Stock was held by the
stockholder as a capital asset on the effective date of the Reverse Split.
Any stockholder who receives cash in lieu of a fractional New Share
pursuant to the Reverse Split will recognize gain or loss equal to the
difference between the amount of cash received and the portion of the aggregate
tax basis in his or her shares of Common Stock allocable to such fractional New
Share. If the shares of Common Stock were held as a capital asset on the
effective date of the Reverse Split, then the stockholder's gain or loss will be
a capital gain or loss. Such capital gain or loss will be a long-term capital
gain or loss if the stockholder's holding period for the shares of Common Stock
is longer than eighteen months, a short-term capital gain or loss if the
stockholder's holding period is twelve months or less and mid-term gain or loss
if the stockholder's holding period is longer than twelve months and less than
eighteen months.
<PAGE>
Based on certain exceptions contained in regulations issued by the
Internal Revenue Service, the Company does not believe that it or its
stockholders would be subject to backup withholding or informational reporting
with respect to cash distributed in lieu of fractional New Shares.
Exchange Of Shares
On or after the effective date of the Reverse Split, the Company will
mail to each stockholder of record a letter of transmittal. Stockholders will be
able to receive a certificate representing New Shares and, if applicable, cash
in lieu of a fractional New Share only by transmitting to the Exchange Agent
such stockholder's stock certificate(s) for shares of Common Stock outstanding
prior to the Reverse Split, together with the properly executed and completed
letter of transmittal, and such evidence of ownership of such shares as the
Company may require. Stockholders will not receive certificates for New Shares
unless and until the certificates representing their shares of Common Stock
outstanding prior to the Reverse Split are surrendered. Stockholders should not
forward their certificates to the Exchange Agent until the letter of transmittal
is received and should surrender their certificates only with such letter of
transmittal.
Payment in lieu of a fractional New Share will be made to any
stockholder entitled thereto promptly after receipt by the Company or its
Exchange Agent of a properly completed letter of transmittal and stock
certificate(s) for all of his or her shares of Common Stock outstanding prior to
the Reverse Split. There will be no service charge payable by stockholders in
connection with the exchange of certificates or in connection with the payment
of cash in lieu of the issuance of a fractional New Share. These costs will be
borne by the Company.
Required Vote
The affirmative vote of the holders of a majority of the issued and
outstanding shares entitled to vote on the matter at the Annual Meeting will be
required to approve the Reverse Split described in this Proposal 2.
The Board of Directors recommends a vote FOR Proposal 2.
PROPOSAL 3
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION UPHOLDING
BOARD'S AUTHORITY TO FIX THE NUMBER OF DIRECTORS
Article IX, Section 1 of the Company's Certificate of Incorporation
currently provides that the number of directors of the Company shall be fixed
from time to time in the manner provided in the Bylaws and may be increased or
decreased from time to time in the manner provided in the Bylaws. Article 3,
Section 3.1 of the Company's Bylaws provides, in pertinent part, that the number
of directors shall be one or more, as fixed from time to time by resolution of
the Board of Directors. The Board of Directors has unanimously approved an
amendment to the Company's Certificate of Incorporation to restate Article IX,
Section 1 in its entirety as follows: "The exact number of directors of the
Company shall be determined from time to time by resolution of the Board of
Directors."
The proposed amendment is designed to resolve the question of whether
dissident stockholders can circumvent the Company's classified Board of
Directors by amending the Bylaws to increase the number of directors and then
nominating directors to fill the vacancies created by the Bylaw amendment. The
Board of Directors believes that it is in the best interests of the Company and
its stockholders to defeat cheap efforts, such as those currently being employed
by AVF through the AVF Proposal (described under Proposal 4), to take control of
the Board.
<PAGE>
The Company has had a classified Board structure since 1992. The Board
of Directors believes that a classified Board continues to serve the Company,
its stockholders and those with whom the Company is seeking to do business by
permitting all to rely on the consistency and continuity of corporate policy.
This is particularly important to a research-based organization such as the
Company, where product development often requires many years. At the same time,
annual elections in which approximately one-third of the Board is elected each
year offer stockholders a regular opportunity to renew and reinvigorate
corporate decision-making while maintaining the basic integrity of corporate
policy from year-to-year.
In addition, in the event of any unfriendly or unsolicited proposal to
take over or restructure the Company, such as the hostile takeover by proxy
contest currently being undertaken by AVF, a classified board structure permits
the Company to negotiate with the sponsor, to consider alternative proposals and
to assure that stockholder value is maximized.
The Board of Directors believe that the approval of the amendment set
forth in this Proposal 3 is important in order to uphold the Board's current
authority to fix the number of directors and, more importantly, to eliminate the
possibility of AVF or future dissident stockholders from taking control of the
Company by proposals, such as the AVF Proposal, to circumvent the Company's
classified Board structure.
The affirmative vote of the holders of a majority of the issued and
outstanding shares entitled to vote on the matter at the Annual Meeting will be
required for the adoption of the amendment contained in this Proposal 3.
The Board of Directors recommends a vote FOR Proposal 3.
PROPOSAL 4
SOLICITATION IN OPPOSITION TO AVF PROPOSAL TO INCREASE SIZE OF THE BOARD
Article 3, Section 3.1 of the Company's Bylaws currently provides, in
pertinent part, that the number of directors shall be one or more, as fixed from
time to time by resolution of the Board of Directors. According to the
Opposition Proxy, AVF proposes to amend Article 3, Section 3.1 of the Bylaws to
fix the number of directors to serve on the Board of Directors at seven. As
asserted by AVF in the Opposition Proxy, the AVF Proposal is designed to
circumvent the Company's classified Board of Directors and enable AVF to elect a
majority of the Board, thereby seizing control of the Company.
The Board of Directors believes that the AVF Proposal is not in the
best interests of the Company and its stockholders and has unanimously adopted
Proposal 3, which would amend the Company's Certificate of Incorporation to
prevent AVF or other dissident stockholders from attempting to seize control of
the Company by proposing such a Bylaw amendment. In addition to helping assure
continuity and stability of the Company's corporate policies and strategies, a
classified board structure permits the Company, in the face of a hostile
takeover attempt or unsolicited proposal, time to negotiate with the sponsor, to
consider alternative proposals and to assure that stockholder value is
maximized--in other words, the classified board is designed to protect the
Company and stockholders precisely against corporate raiders such as Mr.
Koether. Given Mr. Koether's documented history of greenmail, hostile takeovers
and contentious litigation, the Board of Directors urges you to carefully
consider the Board's reasons for opposing Proposal 4.
AVF presently owns approximately 10.8% of the Company's outstanding
Common Stock (approximately 15% when combined with the holdings of Mark and Fred
Jaindl who are participating in the Opposition Proxy solicitation), acquiring
its interest in the fall of 1997 with the announced intention of seeking
representation on the Board through a proxy contest or otherwise. In recent
months the Board of Directors has worked hard to try to negotiate a fair
settlement with Mr. Koether, but he appears to want nothing less than control of
the Company for his (and the Jaindl's) 15% interest. The Board urges holders of
the remaining 85% of the Company's outstanding Common Stock to look beyond Mr.
Koether's rhetoric about restoring corporate democracy to his hostile actions
over the past twenty years that have frequently been in pursuit of personal
enrichment at the expense of the target company and its other stockholders.
<PAGE>
The affirmative vote of the holders of a majority of the issued and
outstanding shares present in person or represented by proxy and entitled to
vote at the Annual Meeting will be required to approve the Bylaw amendment
described in this Proposal 4.
In order to defeat the hostile takeover attempt by Mr. Koether and
ensure that the interests of all the Company's stockholders are taken into
account, the Board of Directors recommends a vote AGAINST Proposal 4.
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Arthur
Andersen LLP has audited the Company's financial statements since 1989.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Arthur Andersen LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such a
change would be in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to approve Proposal 5 ratifying the selection of Arthur
Andersen LLP.
The Board Of Directors recommends a vote FOR Proposal 5.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of July 24, 1998 by: (i) each
director and nominee for director; (ii) each of the executive officers named in
the Summary Compensation Table under the caption "Compensation of Executive
Officers" below; (iii) all executive officers and directors of the Company as a
group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
Beneficial Ownership (1)
Name of Beneficial Owner Number of Shares Percent of Total
Asset Value Fund Limited Partnership(2) 2,000,000 10.80%
P.O. Box 74
Bedminister, NJ
BVF Partners, L.P.(3) 1,180,752 6.37%
333 West Wacker Drive, Suite 1600
Chicago, IL
Bert Fingerhut(4) 563,205 3.02%
John E. Repine (5) -- --
Joachim von Roy -- --
Edward Finkelstein 444,025 2.40%
Diarmuid Boran(6) 107,225 *
Joseph L. Turner(7) 140,984 *
Kenneth R. Lynn 3,433 *
All executive officers
and directors as a group (7 persons)(8) 1,662,164 8.78%
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* Less than one percent.
(1) This table is based upon information supplied by the Company's officers,
directors and principal stockholders and Schedules 13D and 13G filed with
the Securities and Exchange Commission (the "SEC"). Unless otherwise
indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 18,523,918 shares outstanding on July 15, 1998,
adjusted as required by rules promulgated by the SEC.
(2) According to Amendment No. 12 to the Schedule 13D filed with the SEC on
July 17, 1998 by Asset Value. The sole general partner of Asset Value is
Asset Value Management, Inc., a Delaware corporation and wholly owned
subsidiary of Kent Financial Services, Inc., a Delaware corporation. On
February 10, 1998, Mark W. Jaindl and Frederick J. Jaindl acquired,
respectively, 250,000 shares and 520,000 shares of Company Common Stock
from Asset Value in a privately negotiated transaction. Mark Jaindl is
the son of Fred Jaindl and a director of a company which might be deemed
to be under the common control of Asset Value by virtue of common stock
ownership. Although Asset Value and the Jaindls file jointly, Asset
Value disclaims membership in a group with the Jaindls and disclaims
beneficial ownership of the shares owned by the Jaindls.
(3) According to Schedule 13D filed with the SEC on May 16, 1997 by
Biotechnology Value Fund, L.P. ("BVF"). Includes 638,796 Shares BVF
beneficially owns and has shared dispositive and voting power with BVF
Partners, L.P. ("Partners"). Partners and BVF Inc. share voting and
dispositive power over the 1,180,752 shares they own with, in addition
to BVF, the managed accounts on whose behalf Partners, as investment
manager, purchased such shares.
(4) Includes options to purchase 153,010 shares, which are exercisable
within 60 days of the date of this table. Also includes 3,000 shares
held by Mr. Fingerhut's wife and 17,000 shares by Mr. Fingerhut's minor
daughter.
(5) Includes options to purchase 16,500 shares, which are exercisable within
60 days of this table.
(6) Includes options to purchase 105,716 shares, which are exercisable
within 60 days of the date of this table.
(7) Includes options to purchase 128,066 shares, which are exercisable
within 60 days of the date of this table.
(8) Includes options to purchase a total of 403,292 shares, which are
exercisable within 60 days of the date of this table by executive
officers and directors.
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1997, the Board of Directors held
nine meetings. Each incumbent director then in office attended at least 75% of
the aggregate number of meetings of the Board and of the Committees on which
such director served. The Board has an Audit Committee, a Compensation
Committee, an Equity Committee and a Nominating Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee, which during 1997 was
composed of Mr. Fingerhut and Dr. Cohen, met once during 1997.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to officers, employees and
consultants under the Company's stock option plans and otherwise determines
compensation levels and performs such other functions regarding compensation as
the Board may delegate. The Compensation Committee, which during 1997 was
composed of Mr. Fingerhut and Drs. Kennedy and Misher, met once during 1997.
The Equity Committee administers the Company's stock option plans for
non-officer employees only and makes stock option grants to such employees not
in excess of 20,000 shares. All option grants in excess of this limit and all
option grants to officers must be approved by the Compensation Committee. The
Equity Committee, which during 1997 was composed of Mr. Lynn, did not take any
action during 1997.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Board of Directors and committees of the
Board, and for election as officers of the Company, and, in connection with such
duties, monitors and makes recommendations with respect to compensation of
directors. No procedure has been established for the consideration of nominees
recommended by the stockholders. In addition, the Nominating Committee reviews
certain matters of Board governance, including evaluation of committee structure
and function and Board performance. The Nominating Committee, which during 1997
was composed of Drs.
Kennedy and Misher, did not meet during 1997.
EXECUTIVE COMPENSATION
Compensation of Directors
Under the 1992 Amended and Restated Non-Employee Directors' Stock Option
Plan (the "1992 Directors' Plan"), which expired by its terms on December 31,
1997, each non-employee director received options to purchase Common Stock of
the Company as compensation for his or her services as a director and received
additional options under such Plan for service on certain committees of the
Board. In addition, options were, and continue to be, granted to non-employee
directors outside of such Plan. To date, no plan has replaced the 1992
Directors' Plan. Outside directors receive $1,000 per Board meeting attended and
$1,000 per committee meeting attended if held on a non-Board meeting occasion
and an additional $6,000 annually.
Option grants under the 1992 Directors' Plan were automatic and
non-discretionary. Each person who was a non-employee director of the Company as
of the adoption date of the 1992 Directors' Plan was granted options generally
covering 25,000 shares, with adjustments to equalize the directors' overall
options in light of options previously granted to them. Such options generally
become exercisable ("vest") in year-end installments of 5,000 shares. Each
member of the Compensation and Audit Committees received options covering an
additional 500 shares for each committee on which he served. In addition, (a)
each person subsequently elected for the first time as a non-employee director
is granted an option on the date of his or her initial election as a director to
purchase a pro rata portion of 25,000 shares, depending upon when he or she is
elected, which options generally vest in year-end installments of 5,000 shares;
(b) each person subsequently elected for the first time to the Audit or
Compensation Committee is granted an option to purchase 500 shares if elected
before July 1, or a portion thereof, prorated on a quarterly basis, if elected
after such date, vesting in full on December 31; (c) each non-employee director
receives an annual option to purchase an additional number of shares, determined
by multiplying 5,000 by a fraction, the numerator of which is $20 and the
denominator of which is the fair market value per share of the Common Stock on
the grant date, subject to minimum and maximum limits of 2,500 and 5,000 shares,
respectively, vesting quarterly over five years; and (d) each non-employee
director who is a member of the Company's Audit or Compensation Committee
receives an annual option to purchase 500 shares, vesting in full on December
31. Vesting of all options is subject to continued service as a non-employee
director or employee of the Company during the vesting period and, in the case
of options granted for service on a committee, to continued service on the
applicable committee. As of July 15, 1998, 1,650 options had been exercised
under the 1992 Directors' Plan.
All non-employee directors are reimbursed for their expenses incurred in
attending Board of Directors meetings. Directors who are employees of the
Company do not receive separate compensation for their services as directors.
During the fiscal year ended December 31, 1997, Mr. Fingerhut and Drs.
Cohen, Misher and Kennedy received options pursuant to the 1992 Directors' Plan
covering 6,000 shares, 5,000 shares, 5,500 shares and 5,500 shares,
respectively, each at an exercise price of $1.47 per share.
Compensation of Executive Officers
The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995, compensation awarded or paid to, or earned by, each person who
served as (i) the Company's Chief Executive Officer during 1997 and (ii) the
Company's other most highly compensated executive officers at December 31, 1997
(collectively the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Awards
Name and OtherAnn. Sec.'s All Other
Principal Position Year Salary ($) Bonus ($) Comp($) Underlying Comp.
Options(#) ($)(1)
Kenneth R. Lynn (2) 1997 $265,513 $65,000 -- -- $1,141
President, Chief 1996 265,006 65,000 -- 75,000 1,174
Executive Officer and 1995 230,499 75,000 -- 275,000 1,099
Chairman of the Board
Joseph L. Turner (3) 1997 165,537 -- -- -- 2,165
Vice President, Finance 1996 154,533 25,000 -- 40,000 2,399
and Administration, 1995 155,349 30,000 -- 64,000 2,009
Chief Financial Officer
and Secretary
Diarmuid Boran (4) 1997 140,364 30,000 -- -- 1,708
Vice President, 1996 140,046 25,000 -- 40,000 1,707
Corporate Development 1995 112,493 30,000 -- 64,000 1,386
and Planning
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(1) Includes matching payments by the Company under its 401(k) Plan and
premiums paid by the Company for group term life insurance. For 1997,
the amounts were $631 and $510, respectively, for Mr. Lynn; $1,295 and
$870, respectively, for Mr. Turner; and $1,404 and $304, respectively,
for Mr. Boran.
(2) Mr. Lynn left all positions with the Company as of May 18, 1998. In
accordance with the Board's determination that Mr. Lynn's departure
constituted a Termination Event under the Executive Compensation and
Benefits Agreement dated as of October 14, 1997 between the Company
and Mr. Lynn, Mr. Lynn was entitled to receive the benefits provided
thereunder, subject to the modifications set forth in the letter
agreement dated May 18, 1998 between Mr. Lynn and the Board: (i) the
lump salary continuation payment was limited to 20 months salary or
$441,667, (ii) no pro rata bonus was paid and (iii) all outstanding
options held by Mr. Lynn were terminated and extinguished. Pursuant to
the letter agreement, Mr. Lynn agreed to make himself available as a
consultant to the Company through June 30, 1998 at a rate equal to
half of his former rate of compensation; consulting fees totaling
$15,726 were paid to Mr. Lynn during such period. In addition, the
Company entered into an indemnity agreement with Mr. Lynn whereby it
agreed to indemnify him against claims arising in connection with acts
or omissions arising out of his service as a director, executive,
employee, consultant and/or agent of the Company.
(3) Mr. Turner resigned as an officer and employee of the Company as of
December 1, 1997. At such time, Mr. Turner and the Company entered into
an agreement pursuant to which Mr. Turner served as a consultant and
continued to receive his former salary through June 30, 1998. Stock
options held by Mr. Turner at the time of his resignation continued to
vest until June 30, 1998.
(4) Mr. Boran became an executive officer in 1995. In May 1998, Mr. Boran
was appointed Chief Operating Officer and Acting Chief Financial
Officer of the Company.
Stock Option Grants and Exercises
The Company grants options to its executive officers under its 1993
Equity Incentive Plan. No options were granted to the Company's executive
officers in 1997. As of July 15, 1998, options to purchase a total of 632,483
shares were outstanding under the 1993 Equity Incentive Plan and options to
purchase 836,627 shares remained available for grant thereunder.
Aggregated Option Exercises in Fiscal 1997 and Value of Options
At End of Fiscal 1997
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at End of Options at End of
Shares Acquired Value Fiscal 1997 (#) Fiscal 1997($)(1)
Name On Exercise (#) Realized ($) Exercisable/Unexer.
Kenneth R. Lynn -- -- 275,009/174,991 $0/$0
Joseph L. Turner -- -- 101,305/62,695 0/0
Diarmuid Boran -- -- 79,940/66,560 0/0
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(1) Based on the closing price of the Company's Common Stock on December
31, 1997 ($0.594) minus the exercise price of the options.
Employment Contracts and Severance Plan
The Company adopted the Executive Officers' Severance Benefit Plan (the
"Severance Plan") on September 18, 1995, which was amended on December 13, 1996,
to encourage senior employees to work in the Company's best interests following
a change in control. In the event of an involuntary termination of employment
within 60 days prior and 30 months following a change in control, all employees
employed at the level of Vice President or above and such other management
employees as may be designated by the Chief Executive Officer will receive
compensation during the Benefit Period (defined below), a proportional bonus
payment if one was received the year preceding the year in which the termination
date occurs, and all outstanding unvested stock options will become fully vested
on the termination date. The "Benefit Period" for employees other than the Chief
Executive Officer is the period commencing on the termination date and (i)
continues for 18 months following such date if the date occurs within 60 days
prior or 12 months after a change in control, or (ii) continues for the period
following the date the employee becomes eligible determined by reducing 30
months by the number of months the eligible employee was employed by the Company
following a change in control. With respect to the Chief Executive Officer, the
"Benefit Period" is the Chief Executive Officer's termination date and (i)
continues for 24 months following such date if the date occurs within 60 days
prior or 12 months after a change in control, or (ii) continues for the period
following such termination date determined by reducing 36 months by the number
of months the Chief Executive Officer was employed by the Company following a
change in control.
The Company amended its Executive Compensation and Benefits Continuation
Agreement with Mr. Lynn (the "Employment Agreement") on October 14, 1997. As
amended, the agreement provided, upon the occurrence of a Termination Event
(defined below), for the payment of the equivalent of 24 months base salary, the
payment of health insurance policies for up to 18 months following the
Termination Event, immediate vesting of all stock options not already vested and
the payment of a bonus (equal to the fraction of the current year worked
multiplied by the bonus paid for the prior year). A "Termination Event" was
defined as the involuntary termination of Mr. Lynn by the Company without cause
or the termination of employment by Mr. Lynn on account of a material change in
the business of the Company or the duties of Mr. Lynn prior to or within 30
months after a change in control of Company. The Employment Agreement also
provided that, with respect to any Termination Event that was also covered by
the Severance Plan, Mr. Lynn would receive compensation and benefits pursuant to
the Employment Agreement only and not pursuant to the Severance Plan. In
connection with his departure from the Company on May 18, 1998, Mr. Lynn entered
into a letter agreement with the Company that modified the terms of the
Employment Agreement as described in footnote (2) to the Summary Compensation
Table above.
In connection with arrangements relating to the proposed agreement of
merger between Cortech and BioStar, Inc. (the "Merger"), which proposal has
since been terminated, Cortech entered into an agreement with Mr. Boran (the
"Boran Agreement") which provides that the cash benefits payable under the
Severance Plan would have been paid to Mr. Boran upon the effectiveness of the
Merger. The Boran Agreement further provides that benefits available under the
Severance Plan would also be paid to Mr. Boran (with cash payments made over the
course of six months) in the event of Mr. Boran's involuntary termination in the
absence of the Merger and that Cortech would have employed Mr. Boran at his
current salary as a full-time consultant for the six months following the
effectiveness of the Merger. The Boran Agreement continues to be in full force
and effect.
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation Committee during 1997 were
Drs. Kennedy and Misher and Mr. Fingerhut. There were no interlocks or other
relationships among the Company's executive officers and directors that are
required to be disclosed under applicable executive compensation disclosure
regulations.
REPORT TO STOCKHOLDERS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
consisted during 1997 of Drs. Kennedy and Misher, each of whom resigned from the
Board effective July 21, 1998, and Mr. Fingerhut. The Committee is responsible
for recommending and administering the Company's policies governing employee
compensation and for administering the Company's employee benefit plans,
including its stock plans. The Committee evaluates the performance of
management, recommends compensation policies and levels, and makes
recommendations concerning salaries and incentive compensation. The full Board
of Directors reviews the Committee's recommendations regarding the compensation
of the executive officers of the Company.
It is the Company's policy generally to qualify compensation paid to
executive officers for deductibility under Section 162(m) of the Internal
Revenue Code (the "Code"). Section 162(m) limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based" compensation within the meaning of the
Code. The Compensation Committee has determined that stock options granted under
the Company's 1993 Equity Incentive Plan with an exercise price equal to at
least the fair market value of the Company's Common Stock on the date of grant
shall be treated as "performance-based compensation," to the extent the
requirements of Section 162(m) are otherwise satisfied and consistent with the
best interests of the Company. All options granted to executive officers under
such plan after January 1, 1996 are eligible for treatment as "performance-based
compensation."
Key Elements of Executive Compensation
The Company's executive compensation program is designed to attract and
retain executives capable of leading the Company to meet its business objectives
and to motivate them to enhance long-term stockholder value. The key elements of
the program are competitive pay and equity incentives. Annual compensation for
the Company's executive officers consists of three elements: a base salary, an
incentive bonus and stock option grants.
The Committee makes compensation determinations based upon a subjective
assessment of a variety of factors, both personal and corporate, in evaluating
the performance of the Company's executive officers and making compensation
decisions. These factors include, in order of importance, the progress of the
Company toward its long-term objectives, the individual contributions of each
officer to the Company, and the compensation paid by selected biotechnology
companies to individuals in comparable positions. The Committee's weighing of
these factors in determining the compensation of an individual executive officer
may vary. In awarding stock options, the Committee considers the number and
value of an executive officer's outstanding stock options.
In light of the Company's disappointing test results and the loss of
collaborative partner support, the measures presently used by the Committee in
evaluating the Company's progress are management's ability to effectively
implement the Board of Director's restructuring and cost-saving policies, which
include (i) reducing the Company's work force, (ii) decommissioning the
Company's laboratories, and (iii) selling the Company's scientific and technical
equipment, as well as management's ability to efficiently use corporate
resources. Historically, the Committee has considered, and where appropriate
will continue to consider, (w) the achievement and management of appropriate
collaborative arrangements with larger pharmaceutical and biotechnology
companies relating to the discovery and development of commercializable
products, (x) progress of products under development in pre-clinical (animal)
testing, (y) the effectiveness with which management identifies new strategic
alternatives and its responses to new information such as the results of
research programs and clinical trials in the context of the identified strategic
alternatives, and (z) the hiring and retention of subordinate officers and other
key employees best capable of accomplishing the foregoing.
Base Salary. When utilizing comparative data, the Committee attempts to
set compensation levels in the mid-range of management compensation at the
companies examined. In December 1996, the Compensation Committee set annual
salaries for 1997. The Compensation Committee reviews salaries on an annual
basis, with the annual review for 1998 having occurred in December 1997. At an
annual review, the Compensation Committee may increase each executive officer's
salary based on the individual's contributions and responsibilities over the
prior 12 months and expectations for the next 12 months.
Bonus. The Committee may award bonuses at the end of the fiscal year
based on the Company's ability to meet its corporate and strategic goals and the
individual's contributions to those goals, if it deems such an award to be
appropriate. Based on management's ability to effectively implement the Board's
restructuring policies within a relatively short period of time, the Committee
decided to award cash bonuses for 1997 to certain officers and key employees.
[consider providing details, e.g., number of employees terminated or amount of
assets sold in 1997.)
Stock Options. Long-term incentives are provided by means of periodic
grants of stock options. The Company's 1993 Equity Incentive Plan is
administered by the Compensation Committee. The Committee believes that by
granting executive officers an opportunity to obtain and increase their personal
ownership of Company stock, the best interests of stockholders and executives
will be more closely integrated. The vesting provisions of the option plan serve
to retain qualified employees, providing continuing benefits to the Company
beyond those achieved in the year of grant.
Chief Executive Officer Compensation
Compensation paid during 1997 to Kenneth R. Lynn, the Company's former
Chief Executive Officer, was determined based on a subjective analysis of the
criteria described above and reflected the Company's strategic challenges for
the coming year, including its need to significantly reduce costs and conserve
cash, while at the same time pursuing new collaborative relationships with
larger biotechnology and pharmaceutical companies, and the desire to compensate
the chief executive officer in the mid-range of comparable biotechnology
companies, based upon an industry survey covering 107 biotechnology and
biopharmaceutical firms with between 51 and 149 employees.
The foregoing report has been furnished by the Compensation Committee
of the Board of Directors and shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this report by
reference and shall not otherwise be deemed filed under such Acts.
Respectfully submitted,
Bert Fingerhut
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of the
Company's Common Stock with the Nasdaq Stock Market (US) (the "Nasdaq US Index")
and the Hambrecht & Quist "Biotechnology Index" (the "H&Q Biotechnology Index").
The comparisons in the graph are required by the SEC and are not intended to
forecast or be indicative of possible future performance of the Company's Common
Stock.
[Stock Performance Graph]
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
Cortech, Inc. $100.00 127.91 25.29 23.83 13.67 5.53
Nasdaq US Index 100.00 114.80 112.21 158.70 195.19 239.53
H & Q Biotechnology
Index 100.00 86.21 81.89 139.30 128.53 130.10
Assumes a $100 investment on December 31, 1992 in each of the Company's
Common Stock, the securities comprising the Nasdaq US Index, and the securities
comprising the H&Q Biotechnology Index.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1992, Cortech entered into a series of agreements with
CP-0127 Development Corporation ("CDC") that govern the development of products
utilizing Bradycor. The agreements grant CDC the right to utilize Bradycor in
the United States, Canada and Europe for certain indications, while Cortech
retained rights to such products in other parts of the world. Cortech has the
right to market, sell and license the technology licensed to CDC or to sell
products derived therefrom and is subject to a royalty obligation in favor of
CDC.
Cortech is not currently developing any compounds covered by the license.
The Company believes that the foregoing transactions and relationships
are in its best interests. As a matter of policy these transactions were, and
all future transactions between the Company and its officers, directors or
principal stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and in
connection with bona fide business purposes of the Company.
LEGAL PROCEEDINGS
Biostar Litigation. On February 27, 1998, a complaint was filed in the
New Castle County, Delaware Court of Chancery naming the Company, the Company's
directors and BioStar as defendants. The complaint, filed by a stockholder of
the Company, claims to be on behalf of a class of all the Company's stockholders
and contends that the directors of the Company breached their fiduciary duties
to the Company's stockholders when they unanimously approved the proposed
combination with BioStar. The complaint seeks to enjoin the proposed combination
with BioStar as well as the operation of the Company's stockholder rights plan
and seeks an order rescinding the proposed combination with BioStar upon its
consummation as well as compensatory damages and costs. The Company believes
that the claims are without merit and intends to vigorously defend against this
suit. Although there can be no assurances in this regard, the Company believes
that the suit will have no material adverse effect on the Company because the
Company (i) believes that the claimant will not prevail on the merits, (ii) has
insurance which it believes will cover the cost of defending this claim (except
for a $75,000 deductible amount) and (iii) has terminated the agreement which
provided for the proposed combination with BioStar.
AVF Litigation. AVF filed an action on June 29, 1998 in the Court of
Chancery of the State of Delaware to compel the Company to hold an annual
meeting of stockholders immediately. Pursuant to a stipulation order entered
into by the Company and AVF on July 16, 1998, and approved by the Court, the
Company and AVF agreed and stipulated that the Company's annual meeting would be
held on September 4, 1998 with the record date set for July 10, 1998.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement for presentation
at the Annual Meeting of Stockholders to be held in 1999, a stockholder proposal
must be received at the offices of the Company, 6850 N. Broadway, Suite G,
Denver, CO 80221 not later than April 10, 1999.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, D.F. King & Co., Inc., 77 Water Street, New York,
New York 10008-4495 ("D.F. King"). D.F. King has advised the Company that
approximately 25 D.F. King employees will provide assistance in connection with
the solicitation. No additional compensation will be paid to directors, officers
or other regular employees for such services, but D.F. King will be paid a fee,
estimated to be up to approximately $47,500 (of which $17,500 is contingent the
results of the proxy contest) plus reasonable expenses, to assist in the
solicitation of proxies. The Company estimates that the total amount of expenses
to be incurred by it in connection with this proxy solicitation will be
$135,000, $10,000 of which has been incurred to date.
INDEMNIFICATION
The Company's Certificate and Bylaws provide, among other things, that
the Company will indemnify each officer or director, under the circumstances and
to the extent provided for therein, for expenses, damages, judgments, fines and
settlements he may be required to pay in actions or proceedings to which he is
or may be made a party by reason of his position as a director, officer or other
agent of the Company, and otherwise to the full extent permitted under Delaware
law.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and any persons holding
more than 10% of the Company's Common Stock to file initial reports of ownership
and reports of change in ownership of the Company's Common Stock with the SEC.
Officers, directors and greater than ten percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented at the Annual Meeting. If any other matters are properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form will
be voted in accordance with the judgment of the persons voting the proxies.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Cortech, Inc., 6850 N. Broadway,
Suite G, Denver, CO 80221, (303) 650-1200. To provide the Company sufficient
time to arrange for reasonable assistance or accommodation, please submit all
requests by August 25, 1998.
If you have any questions concerning this proxy solicitation of the
procedures to execute and deliver a proxy, please contact D.F. King at:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005-4495
(212) 249-5550
Whether you intend to be present at the Annual Meeting or not, we urge
you to return your signed WHITE-STRIPED proxy card promptly.
By order of the Board of Directors
Bert Fingerhut
Chairman
<PAGE>
CORTECH, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 4, 1998
The undersigned hereby appoints Bert Fingerhut, Diarmuid Boran and John
Cheronis, M.D., and each of them, as attorneys and proxies of the undersigned,
with full power of substitution, to vote all of the shares of Common Stock of
Cortech, Inc. (the "Company") which the undersigned may be entitled to vote at
the Annual Meeting of Stockholders of the Company to be held at the Renaissance
Hotel, 3801 Quebec Street, Denver, Colorado on Friday, September 4, 1998, at
9:00 a.m., local time, and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSALS 2, 3 AND 5 AND AGAINST PROPOSAL
4, ALL AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors recommends a vote FOR the Nominee(s) listed
below.
o FOR the nominee(s) listed below o WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below). the nominee(s) listed below.
NOMINEE:
__________________________ (Class I Director)
__________________________ (Class I Director)*
__________________________ (Class I Director)*
__________________________ (Class III Director)*
- ----
* Nominated for election solely in the event Proposal 4 to increase the size of
the Board, which is opposed by the Board of Directors, is approved.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE WRITE SUCH NOMINEE'S NAME BELOW
- ---------------------------------------------------
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
PROPOSAL 2: To approve an amendment to the Company's Certificate of
Incorporation which provides for a one-for-[four] reverse stock split.
o FOR o AGAINST o ABSTAIN
The Board of Directors recommends a vote FOR Proposal 2.
PROPOSAL 3: To amend Article IX, Section 1 of the Company's Certificate of
Incorporation to provide that the number of directors shall be set by the Board
of Directors.
o FOR o AGAINST o ABSTAIN
The Board of Directors recommends a vote FOR Proposal 3.
PROPOSAL 4: To amend Article 3, Section 3.1 of the Company's By-laws to set the
number of directors to serve on the Board of Directors at seven.
o FOR o AGAINST o ABSTAIN
The Board of Directors recommends a vote AGAINST Proposal 4.
PROPOSAL 5: To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 1998.
o FOR o AGAINST o ABSTAIN
The Board of Directors recommends a vote FOR Proposal 5.
DATE: _________________________, 1998
------------------------------------
SIGNATURE(S)
------------------------------------
TITLE (IF APPLICABLE)
Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians and attorneys-in-fact
should add their titles. If signer is a corporation, please give full
corporate name and have a duly authorized officer sign, stating title.
If signer is a partnership, please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE>
BARTLIT BECK HERMAN PALENCHAR & SCOTT
The Kittredge Building
511 Sixteenth Street
Denver, CO 80202
July 24, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Cortech, Inc.
Dear Sir or Madam:
On behalf of Cortech, Inc., a Delaware corporation (the "Company"), we
hereby electronically transmit, pursuant to Regulation S-T promulgated by the
Securities and Exchange Commission, the preliminary Proxy Statement of the
Company in respect of its annual meeting to be held on September 4, 1998. Asset
Value Fund Limited Partnership, a stockholder of the Company, has filed a
preliminary proxy statement in opposition to the solicitation by the Company.
Please contact the undersigned at (303) 592-3175 or Thomas R. Stephens
of this firm at (303) 592-3144 should you require further information or have
any additional questions.
Very truly yours,
/s/ Polly S. Swartzfager
Polly S. Swartzfager
(Admitted in New York;
application pending in Colorado)
PSS/kmv
