<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Form 10-Q of Cortech, Inc. for the nine months ended September 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000728478
<NAME> CORTECH, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,632
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,764
<PP&E> 7,342
<DEPRECIATION> 7,246
<TOTAL-ASSETS> 11,860
<CURRENT-LIABILITIES> 777
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 11,079
<TOTAL-LIABILITY-AND-EQUITY> 11,860
<SALES> 0
<TOTAL-REVENUES> 800
<CGS> 0
<TOTAL-COSTS> 4,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,111)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (4,111)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,111)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> (2.22)
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-20726
Cortech, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0894091
- -------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6850 N. Broadway, Suite G, Denver, Colorado 80221
---------------------------------------------------
(Address of principal executive offices)
(303) 657-7102
----------------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: As of October 31, 1998, the issuer had 1,852,209 shares of its
common stock, par value $.002 per share, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
CORTECH, INC.
BALANCE SHEETS
($000 Omitted)
<CAPTION>
September 30, December 31,
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 11,632 $ 11,562
Short-term investments - 3,841
Prepaid expenses and other 132 308
-------- --------
Total current assets 11,764 15,711
-------- --------
Property and equipment, at cost
Leasehold improvements 5,046 8,026
Office furniture and equipment 2,296 2,300
-------- --------
7,342 10,326
Less-Accumulated depreciation
and amortization ( 7,246) ( 9,592)
-------- --------
Net property and equipment 96 734
-------- --------
Total assets $ 11,860 $ 16,445
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 145 $ 600
Accrued liabilities 632 426
Advances from corporate partners - 36
-------- --------
Total current liabilities 777 1,062
-------- --------
Stockholders' equity:
Preferred stock, $ .002 par value
2,000,000 shares authorized,
none issued - -
Common stock $.002 par value, 5,000,000
shares authorized, 1,852,209 shares
issued and outstanding 4 37
Warrants 1,077 1,077
Additional paid-in capital 98,752 98,909
Deferred compensation - ( 1)
Accumulated deficit ( 88,750) ( 84,639)
-------- --------
Total stockholders' equity 11,083 15,383
-------- --------
Total liabilities and
stockholders' equity $ 11,860 $ 16,445
======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CORTECH, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Three Months Ended
September 30,
----------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Sponsored research and development $ - $ 614
Interest income 171 224
------ ------
Total revenues 171 838
------ ------
Expenses:
Research and development - 1,381
General and administrative 1,452 629
Restructuring charge - 696
------ ------
Total expenses 1,452 2,706
------ ------
Net loss ($1,281) ($1,868)
====== ======
Basic net loss per share ($ .69) ($ 1.01)
====== ======
Weighted average shares outstanding 1,852 1,852
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CORTECH, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Sponsored research and development $ 22 $3,358
Interest income 550 732
Gain on disposition of property
and equipment 228 -
------ ------
Total revenues 800 4,090
------ ------
Expenses:
Research and development 436 5,421
General and administrative 4,475 2,041
Restructuring charge - 1,361
------ ------
Total expenses 4,911 8,823
------ ------
Net loss ($4,111) ($4,733)
====== ======
Basic net loss per share ($ 2.22) ($ 2.56)
====== ======
Weighted average shares outstanding 1,852 1,852
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
CORTECH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 4,111) ($ 4,733)
Adjustments:
Depreciation and amortization 527 1,312
Gains on disposition of equipment ( 228) -
Research and compensation expense
related to grant of options,
including amortization of deferred
compensation 1 34
Impairment of property and equipment - 580
Change in prepaid expenses and other assets 176 440
Change in accounts payable ( 455) ( 436)
Change in unearned income - ( 1,323)
Change in advances from corporate partner ( 36) ( 843)
Change in accrued liabilities and other 16 94
------- -------
Net cash used in operating
activities ( 4,110) ( 4,875)
------- -------
Cash flows from investing activities:
Purchases of property and equipment - ( 39)
Sales of property and equipment 339 65
Purchases of short-term investments ( 9) ( 15,922)
Sales and maturities of short-term investments 3,850 20,847
------- -------
Net cash provided by investing
activities 4,180 4,951
------- -------
Net increase in cash and cash equivalents 70 76
Cash and cash equivalents at beginning of period 11,562 7,792
------- -------
Cash and cash equivalents at end of period $11,632 $ 7,868
======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 and 1997
(Unaudited)
1. General
-------
The accompanying unaudited financial statements of Cortech, Inc. ("Cortech"
or the "Company") as of September 30, 1998 and for the three and nine month
periods ended September 30, 1998 and 1997 reflect all material adjustments
consisting of only normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods. Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the year-end financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Prior years' financial statements have been reclassified to conform to the
current year's presentation.
The results of operations for the three and nine month periods ended
September 30, 1998 and 1997 are not necessarily indicative of the results to be
expected for the entire year or for any other period.
2. Organization
------------
In December 1997 Cortech announced that it had signed a definitive merger
agreement with BioStar, Inc., a privately held diagnostics company based in
Boulder, Colorado ("BioStar"). However, the merger agreement was mutually
terminated by BioStar and Cortech on May 7, 1998. Following its Annual Meeting
on September 4, 1998, the Company announced on September 18, 1998 that four
nominees of Asset Value Fund Limited Partnership, a Delaware limited
partnership, ("AVF") had been elected to the Company's board of directors. Then
on September 21, 1998, the Company announced three of AVF's elected nominees,
Paul O. Koether, Mark W. Jaindl and John W. Galuchie, Jr., had been elected to
the positions of chairman, vice chairman and president, respectively.
3. Significant Accounting Policies
-------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
the Company adopted beginning with the year ending December 31, 1998. SFAS No.
128 requires restatement of amounts previously reported as net loss per share.
Application of SFAS No. 128 did not have an impact on previously reported net
loss per share amounts. However, all share amounts and per share data have been
restated to reflect a one-for-ten reverse stock split, effective as of the close
of business on September 22, 1998.
<PAGE>
In March 1998, the Company adopted SFAS No. 130, "Reporting of
Comprehensive Income". SFAS No. 130 requires disclosure of comprehensive income
which includes all changes in stockholders' equity except those resulting from
transactions with owners. There were no significant differences between
comprehensive income and net loss for the three and nine month periods ended
September 30, 1998 and 1997.
4. Short Term Investments
----------------------
Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company's short-term investments held as of December 31, 1997,
which consisted entirely of government securities, were classified as
available-for-sale. These securities matured on various dates through August
1998.
5. Stockholders' Equity
--------------------
In the third quarter of 1998, the stockholders of the Company approved a
one-for-ten reverse stock split which was effective as of the close of business
on September 22, 1998. As a result of this reverse stock split, there was a
reclassification from common stock to additional paid-in capital of
approximately $33,000.
Also in the third quarter of 1998, the Board of Directors authorized the
redemption of all outstanding preferred share purchase rights issued pursuant to
the Rights Agreement. This redemption resulted in a charge to additional paid-in
capital of approximately $189,000, which was accrued at September 30, 1998. The
redemption was paid in October, 1998.
For more information about these transactions see Part II - OTHER
INFORMATION - Item 5. Other Information.
6. Research and Development Agreements
-----------------------------------
During the first quarter of 1997, the Company received $1.5 million from
Ono Pharmaceutical Co., Ltd. ("Ono") for work to be performed during the second
and third quarters of 1997 (under an agreement signed in March 1995 and amended
in April 1997) to develop an oral elastase inhibitor. Of the $1.5 million,
Cortech recognized $886,000 as revenue in the first and second quarters of 1997
and $614,000 in the third quarter of 1997. Under the terms of the amended
agreement, Ono assumed all responsibilities for research activities during the
final six-month period of the collaborative project, which terminated on March
14,1998. As a result of this reallocation of responsibilities, Ono was not
required to pay the Company $1.5 million in research funding to offset the cost
that the Company would otherwise have incurred, under the agreement, during such
final six month period.
7. Legal Proceedings
-----------------
BIOSTAR LITIGATION. On February 27, 1998, a complaint was filed in the
Court of Chancery of the State of Delaware, naming the Company, the Company's
then current 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 then current directors of the
Company breached their fiduciary duties to the Company's stockholders when they
unanimously approved the proposed combination with BioStar. The complaint
originally sought to enjoin the proposed combination with BioStar as well as the
operation of the Company's stockholder rights plan and sought
<PAGE>
an order rescinding the proposed combination with BioStar upon its consummation
as well as compensatory damages and costs. The complaint was amended following
termination of the proposed BioStar merger to seek to force an auction of the
Company's assets and other relief. Prior management of the Company believed that
the claims are without merit. Recently elected members of the Board of
Directors, who comprise a majority of the Board, have not determined the merits
of the claims nor whether they would have a material adverse effect on the
Company's financial position or results of operations.
ASSET VALUE FUND LITIGATION. Because the proposed combination with BioStar
was terminated on May 7, 1998, the annual meeting of the Company scheduled to be
held in conjunction with the stockholder vote on the BioStar transaction was not
held. Under Delaware law, any stockholder can seek a court action to require an
annual meeting if a company has not held an annual meeting for a period of 13
months. This period expired on June 28, 1998, and, on the following day, AVF
filed an action 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
stipulated order entered into by the Company and AVF, and approved by the Court
on July 16,1998, the Company and AVF agreed and the Court ordered that the
Company's annual meeting would be held on September 4, 1998 with the record date
set for July 10, 1998. This stipulated order ended this litigation. (See Part II
- - OTHER INFORMATION Item 4. - Submission of Matters to a Vote of Security
Holders.)
8. Subsequent Event
----------------
On November 4, 1998 the Company and United Therapeutics Corp., ("UT") a
privately held pharmaceutical company based in North Carolina, entered into an
exclusive, worldwide product development and license agreement for the Company's
elastase inhibitor, CE-1037, for the potential treatment of emphysema and other
diseases. Under the exclusive agreement, UT will make an up-front license
payment of $250,000 to the Company and pay the future costs of developing the
compound. The up-front license payment was received by the Company on
November 13, 1998. The agreement also provides for the Company to receive
milestone payments if the compound is successfully advanced in development and a
royalty on product sales should the compound be successfully commercialized. It
is not expected that the agreement will result in significant revenues in either
the current or next fiscal year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K AS WELL AS THE COMPANY'S FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-Q. WHEN USED IN THIS DISCUSSION, THE WORD "EXPECTS" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT
TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO, THE RISKS DISCUSSED BELOW AS WELL AS THE RISKS DISCUSSED IN THE SECTIONS
ENTITLED "RISK FACTORS" AND "BUSINESS" IN THE COMPANY'S 1997 ANNUAL REPORT ON
FORM 10-K. THE FORWARD- LOOKING STATEMENTS CONTAINED HEREIN SPEAK ONLY AS OF THE
DATE HEREOF. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD
THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH
STATEMENT IS BASED.
General
- -------
Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose research and development efforts have focused primarily on bradykinin
antagonists and protease inhibitors. These efforts have produced a technology
portfolio which may have potential therapeutic application across a broad range
of medical conditions. Cortech's strategy is to seek collaborative partners to
conduct and fund future research and development on the components of its
portfolio, although there can be no assurance that any particular agreement will
be completed. At the same time, the Company is seeking to redeploy its assets
into an operating business.
Results of Operations
- ---------------------
Revenues
--------
Revenues from research and development decreased from $614,000 in the third
quarter of 1997 to zero in the third quarter of 1998 and decreased from $3.4
million in the nine months ended September 30, 1997 to $22,000 in the nine
months ended September 30, 1998. The decrease in revenues resulted primarily
from an April 1997 amendment to the Ono Agreement (defined below), which
terminated the obligation of Ono Pharmaceutical Company, LTD. ("Ono") to make
further research payments to the Company, and the discontinuation, as of March
1997, of the Company's collaboration with SmithKline Beecham ("SB"). The Company
expects no further payments from Ono or SB.
In the third quarter of 1997, the Company recognized as revenue $614,000
from Ono for work performed in 1997 under a contract to develop an oral elastase
inhibitor (the "Ono Agreement"). Under the terms of the Ono Agreement, as
amended in April 1997, Ono assumed all responsibilities for research activities
which were conducted during the final six months of the collaborative project
(which terminated on March 14, 1998). As a result, Ono was not required to pay
the Company the last scheduled $1.5 million in research funding to offset
certain costs that the Company would otherwise have incurred.
<PAGE>
Interest income was $171,000 and $224,000 for the quarters ended September
30, 1998 and 1997, respectively and $550,000 and $732,000 for the nine months
ended September 30,1998 and 1997, respectively. Lower invested balances combined
with lower yields on investments accounted for the decreases.
Gains on disposition of property and equipment relating to the sale of
certain leasehold improvements were $228,000 and zero in the nine months ended
September 30, 1998 and 1997, respectively. No gains on disposition of property
and equipment were realized in the three months ended September 30, 1998 and
1997.
Research and Development
- ------------------------
Expenses for research and development decreased from $1.4 million in the
third quarter of 1997 to zero in the third quarter of 1998 and decreased from
$5.4 million in the nine months ended September 30, 1997 to $436,000 in the nine
months ended September 30, 1998. The decreases were due primarily to the
cessation of on-site research and development activities by the Company in late
1997.
General and Administrative
- --------------------------
General and administrative expenses increased from $629,000 in the third
quarter of 1997 to $1.5 million in the third quarter of 1998. This increase of
approximately $823,000 was primarily due to the following expenses incurred in
the three months ended September 30, 1998: Directors and Officers Liability
Run-Off Policy, approved by the prior board of directors, $198,000; legal fees,
$60,000; expenses, including additional legal fees of $100,000 for the
solicitation of proxies in connection with the Annual Meeting of Stockholders,
$228,000; expenses relating to decomposition activities in the Company's
laboratories, $96,000; and consulting fees and expenses paid to a former
director (see Part II - OTHER INFORMATION Item 5. - Other Information), $45,000.
For the nine months ended September 30, 1998, general and administrative
expenses increased to $4.5 million from $2.0 million in the nine months ended
September 30, 1997. This increase of approximately $2.4 million was due
primarily to the expenses described above, as well as the following: severance
payments made to former employees, including the Company's former chief
executive officer,$606,000; certain costs related to the proposed combination
with BioStar that was terminated on May 7, 1998,$328,000; and costs related to
stockholder litigation $185,000, with the remainder of the increase attributable
to certain overhead costs that would otherwise have been allocated to research
and development expenses had the Company's on-site research and development
efforts not been ceased in late 1997.
Net Loss
- --------
The net loss for the quarter ended September 30, 1998 decreased to $1.3
million from $1.9 million for the quarter ended September 30, 1997 and decreased
from $4.7 million in the nine months ended September 30, 1997 to $4.1 million in
the nine months ended September 30, 1998. The decrease was due principally to a
decrease in research and development expenses offset in part by decreased
revenues and increased general and administrative expenses. Cortech expects to
continue to report losses in the foreseeable future.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At September 30, 1998 and December 31, 1997, the Company had cash and cash
equivalents of $11.6 million. Cash equivalents consist of debt instruments with
an original maturity of less than three months and include government
obligations or investments collateralized by government obligations. At
September 30, 1998 the Company had no short-term investments compared to $3.9
million at December 31, 1997. Net cash used in operating activities was $4.1
million and $4.9 million in the nine months ended September 30, 1998 and 1997,
respectively. In 1998, the net use of cash was attributable primarily to the net
loss and change in accounts payable, offset by depreciation and amortization. In
1997, the net use of cash resulted primarily from the net loss and changes in
unearned income and advances from the corporate partner, offset by depreciation
and amortization. The Company's expenditures are decreasing due to the cessation
of on-site research and development activities by the Company in late 1997 and
the effects of restructurings implemented in May and November of 1997.
Cash provided by investing activities was $4.2 million and $5.0 million for
the nine months ended September 30, 1998 and 1997, respectively. In January
1998, the Company sold certain leasehold improvements for $150,000 in cash and a
note receivable of $125,000 payable and collected in July 1998 which resulted in
a gain of $215,000. In addition, various other assets were sold in the nine
months ended September 30, 1998. Total cash received from the sale of all assets
in this period was $339,000 and these sales resulted in gains of $228,000.
Although the Company is seeking to sell additional assets, there can be no
assurances that any of the Company's remaining assets can be sold for book
value, if at all.
From its inception through September 30, 1998, the Company raised cash
totaling $97.1 million from the sale of equity securities, including $33.6
million in net proceeds from its November 1992 initial public offering and $37.7
million in net proceeds from its October 1993 follow-on public offering.
The Company has experienced net losses and negative cash flows from
operations each year since inception and has incurred an accumulated deficit of
$88.8 million through September 30, 1998. These expenditures have produced a
technology portfolio which may have potential therapeutic application across a
broad range of medical conditions. Cortech continues to seek collaborative
partners to conduct and fund future research and development on the components
of its portfolio, although there can be no assurance that any particular
agreement will be completed. At the same time, the Company is seeking to
redeploy its assets into an operating business.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
No information is presented for this Item (the Company is not presently
required to prepare or provide this information pursuant to Instructions to Item
305 of Regulation S-K).
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
BIOSTAR LITIGATION. On February 27, 1998, a complaint was filed in the
Court of Chancery of the State of Delaware, naming the Company, the Company's
then current 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 then current directors of the
Company breached their fiduciary duties to the Company's stockholders when they
unanimously approved the proposed combination with BioStar. The complaint
originally sought to enjoin the proposed combination with BioStar as well as the
operation of the company's stockholder rights plan and sought an order
rescinding the proposed combination with BioStar upon its consummation as well
as compensatory damages and costs. The complaint was amended following
termination of the proposed BioStar merger to seek to force an auction of the
company's assets and other relief. Prior management of the Company believed that
the claims are without merit. Recently elected members of the Board of
Directors, who comprise a majority of the board, have not determined the merits
of the claims nor whether they would have a material adverse effect on the
Company's financial position or results of operations.
AVF LITIGATION. Because the proposed combination with BioStar was
terminated on May 7, 1998, the annual meeting of the Company scheduled to be
held in conjunction with the stockholder vote on the BioStar transaction was not
held. Under Delaware law, any stockholder can seek a court action to require an
annual meeting if a company has not held an annual meeting for a period of 13
months. This period expired on June 28, 1998, and, on the following day, Asset
Value Fund Limited Partnership, a Delaware limited partnership ("AVF") filed an
action 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 stipulated
order entered into by the Company and AVF, and approved by the Court on July 16,
1998, the Company and AVF agreed and the Court ordered that the Company's annual
meeting would be held on September 4, 1998 with the record date set for July 10,
1998. This stipulated order ended this litigation. (See Item 4 below.)
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on September 4, 1998.
The following is a tabulation of the voting results for each item submitted to
the stockholders:
1. Votes cast for the election of four Directors:
<TABLE>
<CAPTION>
In Favor Withheld
---------- ----------
<S> <C> <C>
Paul O. Koether 7,086,990 40,174
Mark W. Jaindl 7,086,990 40,174
James L. Bicksler 7,085,990 41,174
John W. Galuchie, Jr. 7,086,990 40,174
Lawrence M. Gold 7,025,146 702,025
Joachim von Roy 7,028,894 698,277
John P. Papp 7,008,894 718,277
John C. Cheronis 7,028,471 698,700
</TABLE>
<PAGE>
2. To approve an amendment to the Company's Certificate of Incorporation
to provide for a one-for-ten reverse stock split:
FOR AGAINST ABSTAIN
--- ------- -------
14,172,905 608,610 72,820
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:
FOR AGAINST ABSTAIN
--- ------- -------
7,047,681 7,755,714 50,940
4. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the year ended December 31, 1998:
FOR AGAINST ABSTAIN
--- ------- -------
14,630,719 176,666 46,950
5. To amend Article 3, Section 3.1 of the Company's Bylaws to set the
number of directors to serve on the Board of Directors at seven:
FOR AGAINST ABSTAIN
--- ------- -------
9,008,512 5,823,981 21,842
Item 5. Other Information
- ------ -----------------
On July 13, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") Listing
Qualifications Panel (the "Panel") notified the Company that, as of the close of
business on such date, the Company's Common Stock ("Common Stock") would be
delisted from the Nasdaq National Market. Nasdaq's maintenance standards
require, among other things, that the common stock of companies listed on the
Nasdaq National Market must have a bid price of at least $1.00 per share, and
the basis for the Panel's decision was that the bid price of the common Stock
was less than $1.00 per share. As a result of the delisting, the Common Stock
currently trades on the Over-the-Counter Bulletin Board.
Nasdaq's delisting of the Common Stock will have a number of adverse
effects on the Company's stockholders. Availability of current market price
information for the Common Stock and news coverage of the Company will be
limited. Delisting may have the effect of restricting investors' interest in and
prices for the Common Stock as well as the Company's ability to issue additional
securities or to secure additional financing. Because of the adverse impact on
the trading market of the Common Stock and the potential loss of effective
trading markets, the volatility of the Common Stock may be increased.
With respect to the minimum bid price of $1.00 per share of the Company's
Common Stock, the Company's stockholders approved a one-for-ten reverse split of
the Company's Common Stock at the 1998 Annual Stockholder Meeting (the "Annual
Meeting") on September 4, 1998.
<PAGE>
On July 23, 1998, the Company appealed Nasdaq's decision to delist the
Common Stock to the Nasdaq Listing and Hearing Review Council (the "Review
Council"). The basis for the Company's appeal was that the Company believed that
the failure of the Common Stock to comply with Nasdaq's minimum $1.00 per share
bid price requirement would be cured by stockholder approval of the reverse
split at the Annual Meeting. However, even though the reverse split was
approved, there can be no assurance that the Company's appeal to the Review
Council will be successful. In addition, while the Company believes it currently
meets the continued listing criteria for the Nasdaq National Market even if the
decision of the Review council is favorable, there can be no assurance that the
Company will meet Nasdaq's continued listing criteria in the future (whether as
a result of failure to meet the minimum bid price requirement or other
requirements imposed by Nasdaq).
On July 29, 1998, Nasdaq informed the Company that the Company would be
permitted to submit information to the Review Council in connection with the
Company's appeal until the close of business on September 23, 1998. Nasdaq
further indicated in its July 29, 1998 letter that the Review Council would
issue a decision after the National Association of Securities Dealers Board of
Governors had an opportunity to consider the delisting decision pursuant to NASD
Rule 4880. Nasdaq indicated this review would likely occur at the December NASD
Board of Governors meeting. The Company submitted the required information to
the Review Council in a timely fashion.
On July 24, 1998 Cortech announced that Joachim von Roy, John E. Repine,
M.D., and Edward Finkelstein had been appointed to the Company's Board of
Directors. The appointments filled the vacancies created by the resignations of
three Directors, Charles Cohen, Ph.D., Donald Kennedy, Ph.D., and Allen Misher,
Ph.D., who had planned to leave the Board upon consummation of the merger
agreement with BioStar. In August of 1998 Larry Gold, Ph.D. was also appointed
to Cortech's board of Directors.
On September 2, 1998, the Company announced retaining Joachim von Roy, a
director of the Company at that time, and the former president of Bristol-Myers
Squibb, Europe, to establish a new company in Germany, based on the Company's
protease inhibitor technology. The Company has paid $45,000 in connection with
this arrangement. On November 11, 1998, all activities relating to this
agreement were suspended.
On September 20, 1998, the Company announced the election of Paul O.
Koether, Mark W. Jaindl and John W. Galuchie, Jr. as chairman, vice chairman and
president, respectively. The Company also announced that it would implement a
one-for-ten reverse stock split previously approved by the stockholders as of
the close of business on September 22, 1998 and that the Company's shareholder
rights plan would be eliminated effective immediately.
On September 29, 1998, the Board of Directors authorized the redemption of
all outstanding preferred share purchase rights issued pursuant to the Rights
Agreement, dated as of June 13, 1995, between the Company and American
Securities Transfer, Inc., as Rights Agent, effective as of the close of
business on October 13, 1998, with the redemption price of $.01 ($.10 on a split
adjusted basis) per right to be paid in cash on October 14, 1998 to the holders
of record of Common Stock of the Company as of the close of business on October
13, 1998.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
a. Exhibits
27. Financial Data Schedule for the nine months ended September
30, 1998.
b. Reports on Form 8-K
On July 15, 1998, the Company filed a report on Form 8-K stating that on
July 13, 1998, the Company received a letter from The Nasdaq Stock Market, Inc.
("Nasdaq") stating that, effective as of the close of business on July 13, 1998,
Cortech Common Stock had been delisted from the Nasdaq National Market. A copy
of the Company's press release announcing the delisting of Cortech Common Stock
from the Nasdaq National Market was attached as Exhibit 99.1.
On September 2, 1998, the Company filed a report on Form 8-K which
announced retaining Joachim von Roy, a director of the Company and the former
president of Bristol-Myers Squibb, Europe, to establish a new company in
Germany, based on the Company's protease inhibitor technology and included as
Exhibit 99.1, was a copy of the press release discussing the arrangement.
On September 18, 1998, the Company filed a report on Form 8-K which
announced that four nominees of Asset Value Fund Limited Partnership had been
elected to the Company's board of directors. In addition, the Company announced
that a proposal to effect a one-for-ten reverse stock split had been approved by
the stockholders and that implementation of the split would be considered by the
new Board of Directors. Stockholders also approved a stockholder proposal to
increase the size of the Board of Directors from five to seven, defeated a
proposal to empower the Board of Directors to set the size of the Board, and
approved the appointment of Arthur Andersen LLP as the Company's auditors.
Attached as Exhibit 99.1 was the Company's press release dated September 17,
1998.
On September 21, 1998, the Company filed a report on Form 8-K which
announced the election of Paul O. Koether, Mark W. Jaindl and John W. Galuchie,
Jr. as chairman, vice chairman and president, respectively. The Company also
announced that it would implement a one-for-ten reverse stock split previously
approved by stockholders as of the close of business on September 22, 1998 and
that the Company's shareholder rights plan would be eliminated effective
immediately, resulting in a payment of $.01 ($.10 on a split adjusted basis) to
stockholders. Attached as Exhibit 99.1 was the Company's press release dated
September 20, 1998.
On October 5, 1998, the Company filed a report on Form 8-K stating that on
September 29, 1998, the Board of Directors of the Company authorized the
redemption of all outstanding preferred share purchase rights issued pursuant to
the Rights Agreement, dated as of June 13, 1995, between the Company and
American Securities Transfer, Inc., as Rights Agent, effective as of the close
of business on October 13, 1998, with the redemption price of $.01 ($.10 on a
split adjusted basis) per right to be paid in cash on October 14, 1998 to the
holders of record of Common Stock of the Company as of the close of business on
October 13, 1998. A copy of the letter that was to be sent to Stockholders,
dated October 14, 1998, relating to the redemption of preferred share purchase
rights was attached as an exhibit.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORTECH, INC.
Date: November 16, 1998 /s/ Paul O. Koether
------------------------- -------------------------
Paul O. Koether
Chairman of the Board
and Chief Executive Officer
Date: November 16, 1998 /s/ Sue Ann Itzel
------------------------- -------------------------
Sue Ann Itzel
Treasurer
(Principal Accounting and
Financial Officer)
