UNITED
STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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SCHEDULE 14A
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(RULE 14a-101)
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Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the
Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for
Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240
Rule 14a-12
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HESKA
CORPORATION
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the
appropriate box):
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x
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No fee required.
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Fee computed on table below per
Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to
which transaction applies:
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(2)
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Aggregate number of securities to
which transaction applies:
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(3)
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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):
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(4)
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Proposed maximum aggregate value of
transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary
materials:
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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.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration
Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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April 6, 2009
Dear Heska Stockholder:
I am pleased to invite
you to attend the Annual Meeting of Stockholders of Heska Corporation to be
held on Tuesday, May 5, 2009 at 9:00 a.m., local time, at 3760 Rocky
Mountain Avenue, Loveland, Colorado 80538.
Details regarding the
meeting and the business to be conducted are more fully described in the
accompanying Notice of Annual Meeting and Proxy Statement. This notice and all proxy materials in
connection with this Annual Meeting are also available on https://materials.proxyvote.com/42805E.
Your vote is
important. Whether or not you plan to
attend the 2009 Annual Meeting, I hope you will vote as soon as possible. You may vote by mailing a proxy or in person
at the annual meeting. Please review the
instructions in the proxy statement and on the proxy card regarding your voting
options.
Thank you for your
ongoing support of and continued interest in Heska.
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Sincerely,
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Robert B. Grieve
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Chairman
and Chief Executive Officer,
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Heska
Corporation
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Loveland, Colorado
YOUR VOTE IS IMPORTANT
In order to ensure your
representation at the meeting, please complete, sign and date the enclosed
proxy as promptly as possible and return it in the enclosed envelope (to which
no postage need be affixed if mailed in the United States).
NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS
TIME
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9:00 a.m.,
local time, on Tuesday, May 5, 2009
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PLACE
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Heska
Corporation
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3760 Rocky
Mountain Avenue
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Loveland,
Colorado 80538
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ITEMS
OF BUSINESS
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1.
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To elect two
Directors to a three-year term.
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2.
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To approve an
amendment to our 1997 Stock Incentive Plan (our 1997 Stock Plan), which
would reduce the number of shares which could be issued and allow for the
further issuance of incentive stock options under our 1997 Stock Plan.
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3.
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To ratify the
appointment of Ehrhardt Keefe Steiner & Hottman PC as Heska
Corporations independent registered public accountant.
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4.
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To consider such
other business as may properly come before the 2009 Annual Meeting.
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RECORD
DATE
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You can vote if
you were a stockholder of record at the close of business on March 26,
2009.
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ANNUAL
REPORT
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Our 2008 Annual
Report on Form 10-K, which is not a part of the proxy soliciting
material, is enclosed.
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VOTING
BY PROXY
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Please submit a
proxy as soon as possible so that your shares can be voted at the 2009 Annual
Meeting in accordance with your instructions. For specific instructions on
voting, please refer to the instructions on the proxy card.
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April 6,
2009
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By Order of the
Board of Directors
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Jason A.
Napolitano
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Executive
Vice President, Chief Financial Officer
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and
Secretary, Heska Corporation
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This proxy statement and accompanying proxy card
are being distributed on or about April 6, 2009.
IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 5,
2009
The Proxy Statement, the Proxy Card
and our 2008 Annual Report on Form 10-K are available at https://materials.proxyvote.com/42805E.
TABLE OF CONTENTS
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Page
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QUESTIONS
AND ANSWERS ABOUT THE PROXY MATERIALS AND THE 2009 ANNUAL MEETING
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1
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Why am I receiving these materials?
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1
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What information is contained in these materials?
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1
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What items of business will be voted on at the 2009
Annual Meeting?
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1
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How does the Board recommend I vote on the
proposals?
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1
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Who is entitled to vote?
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How do I vote?
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How can I change my vote or revoke my proxy?
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2
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Who can help answer my questions?
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2
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What does it mean if I get more than one proxy card?
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2
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Who will serve as inspector of elections?
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2
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What are the quorum and voting requirements for the
2009 Annual Meeting?
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2
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Who can attend the 2009 Annual Meeting?
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2
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What happens if additional matters are presented at
the 2009 Annual Meeting?
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3
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Where can I find the voting results of the meeting?
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3
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May I propose actions for consideration at next
years Annual Meeting or nominate individuals to serve as Directors?
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Who bears the costs of soliciting votes for the 2009
Annual Meeting?
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BOARD
STRUCTURE AND COMMITTEES
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Board Independence
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Audit Committee
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Compensation Committee
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Corporate Governance Committee
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Consideration of Director Nominees
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Stockholder Communication with our Board
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DIRECTOR
COMPENSATION
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PROPOSALS
TO BE VOTED ON
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PROPOSAL NO. 1: Election of Directors
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PROPOSAL NO. 2: Amendment to 1997 Stock Plan
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PROPOSAL NO. 3: Ratification of Independent
Registered Public Accountant
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COMMON
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
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EQUITY
COMPENSATION PLAN INFORMATION
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i
TABLE OF CONTENTS
(Continued)
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Page
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EXECUTIVE
COMPENSATION
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Compensation Discussion and Analysis
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Summary Compensation Table
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Grants of Plan-Based Awards in Last Fiscal Year
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Outstanding Equity Awards at Fiscal Year-End
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Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
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Potential
Payments Upon Termination or Change-in-Control
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Compensation Committee Report
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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AUDITOR
FEES AND SERVICES
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REPORT
OF OUR AUDIT COMMITTEE
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ADDITIONAL
INFORMATION: Householding of Proxy Materials
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OTHER MATTERS
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Appendix A: Proposed 1997 Stock Incentive Plan, as
amended
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A-1
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ii
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE 2009 ANNUAL MEETING
Q:
Why am I receiving these materials?
A:
The
Board of Directors (the Board) of Heska Corporation, a Delaware corporation (Heska
or the Company), is providing these proxy materials for you in connection
with Heskas Annual Meeting of Stockholders (the Annual Meeting). The 2009 Annual Meeting will take place on
Tuesday, May 5, 2009. As a
stockholder, you are invited to attend the 2009 Annual Meeting and are entitled
to and requested to vote on the items of business described in this proxy statement.
Q:
What information is
contained in these materials?
A:
The
information included in this proxy statement relates to the proposals to be
voted on at the 2009 Annual Meeting, the voting process, the compensation of
our Directors and most highly paid Executive Officers, and certain other
required information. Our 2008 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission
is also enclosed.
Q:
What items of business will be voted on at the 2009 Annual Meeting?
A:
The
items of business scheduled to be voted on at the 2009 Annual Meeting are:
(1)
The
election of two nominees to serve on our Board of Directors for a three-year
term;
(2)
The
approval of an amendment to our 1997 Stock Plan, which would reduce the number
of shares which could be issued and allow for the further issuance of incentive
stock options under our 1997 Stock Plan; and
(3)
The
ratification of our independent registered public accountant for fiscal 2009.
We will also consider other business that properly
comes before the 2009 Annual Meeting.
Q:
How does the Board recommend I vote on the proposals?
A:
The
Board recommends a vote FOR the election of each of the Director nominees, FOR
approval of the amendment to our 1997 Stock Plan and FOR the ratification of Ehrhardt Keefe Steiner &
Hottman PC (EKS&H) as the Companys independent registered public
accountant.
Q:
Who is entitled to vote?
A:
Stockholders
as of the close of business on March 26, 2009 (the Record Date) are
entitled to vote at the 2009 Annual Meeting.
As of the Record Date, 52,010,928 shares of our common stock were issued
and outstanding. Each stockholder is
entitled to one vote for each share of common stock held on the Record
Date. A list of stockholders entitled to
vote at the 2009 Annual Meeting will be available at the 2009 Annual Meeting
and for ten days prior to the meeting during normal business hours at our
offices at 3760 Rocky Mountain Avenue, Loveland, Colorado 80538, by contacting
our Secretary.
Q:
How do I vote?
A:
There
are two ways you can vote:
(1)
Sign
and date each proxy card you receive and return it in the prepaid envelope.
(2)
Vote
in-person at the 2009 Annual Meeting. If
your shares are held of record by a broker, bank or other nominee and you wish
to vote your shares at the 2009 Annual Meeting, you must contact your broker,
bank or other nominee to obtain the proper documentation and bring it with you
to the 2009 Annual Meeting.
1
Q:
How can I change my vote or revoke my proxy?
A:
You
have the right to revoke your proxy and change your vote at any time before the
meeting by notifying our Secretary, or returning a later-dated proxy card. You may also revoke your proxy and change
your vote by voting in person at the meeting.
Q:
Who can help answer my questions?
A:
If
you have any questions about the 2009 Annual Meeting or how to vote or revoke
your proxy, you should contact:
Heska Corporation
Attn: Secretary
3760 Rocky Mountain Avenue
Loveland, Colorado 80538
(970) 493-7272
If you need
additional copies of this proxy statement or voting materials, please contact
our Secretary as described above.
Q:
What does it mean if I get more than one proxy card?
A:
It
means that you hold shares registered in more than one account. Sign and return all proxies to ensure that
all of your shares are voted.
Q:
Who will serve as inspector of elections?
A:
The
inspector of elections will be a representative of Computershare Trust Company, Inc.,
our transfer agent.
Q:
What are the quorum and voting requirements for the 2009 Annual
Meeting?
A:
The
quorum requirement for holding the 2009 Annual Meeting and transacting business
is that holders of a majority of the outstanding shares of our common stock
entitled to vote must be present in person at the meeting or represented by
proxy. Both abstentions and non-votes
are counted for the purposes of determining the presence of a quorum, but not
in determining the matter at hand. We will consider an abstention or a non-vote
on a given matter to be a forfeiture of the right to vote on that matter and a
forfeiture of the voting power present at the 2009 Annual Meeting underlying
the forfeited votes regarding that matter.
Accordingly, if you abstain on a given matter, your shares will not be
voted for or against that matter and will not be considered as present and
entitled to vote on that matter.
However, you may abstain on a given matter for a certain portion of your
shares and vote on the same matter with the remaining portion of your shares
without forfeiting the votes underlying the shares you choose to vote. For example, a stockholder who owns 100
shares may choose to abstain on a proposal with 50 shares and vote for a
proposal with the other 50 shares. In
this case, the stockholder would forfeit his right to vote 50 shares on the
proposal and would have his other 50 votes count for the proposal. In addition, an abstention or a non-vote on
any matter will not affect your ability to vote on any other matter. If you hold shares in street name through
a broker or other nominee, your broker or nominee may not be permitted to
exercise voting discretion with respect to certain matters to be acted
upon. If you do not give your broker or
nominee specific instructions, your shares may not be voted on those matters
and, if so, will not be considered as present and entitled to vote with respect
to those matters.
The holders of a majority of the outstanding shares of our common
stock, present in person or by proxy, will constitute a quorum for the
transaction of business at the 2009 Annual Meeting. Election of Directors will be determined
by a plurality of the votes of the shares present in person or by proxy at the
2009 Annual Meeting and entitled to vote on the election of Directors. The other matters submitted for stockholder
approval at the 2009 Annual Meeting, including the approval of the amendment to
our 1997 Stock Plan, will be approved by the affirmative vote of a majority of
the shares having voting power present in person or by proxy at the 2009 Annual
Meeting and entitled to vote on the subject matter.
Q:
Who can attend the 2009 Annual Meeting?
A:
All
stockholders as of the Record Date can attend.
If you wish to vote your shares at the 2009 Annual Meeting and your
shares are held of record by a broker, bank or other nominee, you must contact
your broker, bank or other nominee to obtain the proper documentation
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and bring it with you to the 2009 Annual Meeting.
Q:
What happens if additional matters are presented at the 2009 Annual
Meeting?
A:
Other
than the three items of business described in this proxy statement, we are not
aware of any other business to be acted upon at the 2009 Annual Meeting. If you grant a proxy, the persons named as
proxyholders - Robert B. Grieve, Ph.D. our Chairman and Chief Executive
Officer, Jason A. Napolitano, our Executive Vice President, Chief Financial
Officer and Secretary and Michael A. Bent, our Vice President, Principal Accounting
Officer and Controller - will have the discretion to vote your shares on any
additional matters presented for a vote at the meeting. If for any unforeseen reason any of our
nominees is not available as a candidate for Director, the persons named as proxyholders,
Dr. Grieve, Mr. Napolitano and Mr. Bent, will vote your proxy
for such other candidate or candidates who may be nominated by the Board.
Q:
Where can I find the voting results of the meeting?
A:
We
intend to announce preliminary voting results at the 2009 Annual Meeting and
publish final results in our quarterly report on Form 10-Q for our second
fiscal quarter of 2009.
Q:
May I propose actions for consideration at next years Annual
Meeting or nominate individuals to serve as Directors?
A:
You
may submit proposals, including Director nominations, for consideration at
future stockholder meetings. All
proposals or nominations should be addressed to: Secretary, Heska Corporation, 3760 Rocky
Mountain Avenue, Loveland, Colorado 80538.
Stockholder Proposals:
For a stockholder proposal to be considered
for inclusion in our proxy statement for the annual meeting next year, the
written proposal must be received by our Secretary at our principal executive
offices under either (1) Rule 14a-8 under the Securities Exchange Act
of 1934, as amended (a Rule 14 Proposal) or (2) the bylaws of Heska
(a Bylaws Proposal). A Rule 14
Proposal must be received by our Secretary at our principal executive offices
no later than December 3, 2009. If
the date of next years annual meeting is moved more than 30 days before or
after the anniversary date of this years annual meeting, the deadline for
inclusion of proposals in our proxy statement is instead a reasonable period of
time before we begin to print and mail our proxy materials. Such proposals also will need to comply with Rule 14a-8
under the Securities Exchange Act of 1934, as amended, regarding the inclusion
of stockholder proposals in company-sponsored proxy materials. For a Bylaws Proposal, the stockholder must
deliver a written notice of intent to propose such action in accordance with
our bylaws, which in general require that the notice be received by us not less
than 60 days nor more than 90 days prior to the first anniversary of the date
on which notice of the prior years annual meeting was mailed to
stockholders. These proxy materials for
the 2009 Annual Meeting were mailed on April 6, 2009. This means that for the 2010 Annual Meeting,
that any such proposal must be received no earlier than January 6, 2010
and no later than February 5, 2010.
Director Nominees:
You may propose Director candidates for
consideration by the Boards Corporate Governance Committee. Any such recommendations should be directed
to our Secretary at our principal executive offices. In addition, you may nominate a Director for
consideration by Heskas stockholders if you give timely and adequate notice to
our Secretary of your intention to make such nomination in accordance with our
bylaws, which require that the notice be received by the Secretary within the
time periods described above under Stockholder Proposals and with the detail
regarding your nomination as is required by our bylaws.
Copy of Bylaw Provisions:
You may contact our Secretary at our
principal executive offices for a copy of the relevant bylaw provisions
regarding the requirements for making stockholder proposals and nominating
Director candidates. A copy of our bylaws
has also been filed with the Securities and Exchange Commission with our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. A copy of which is accessible at the website
of the Securities and Exchange Commission at www.sec.gov.
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Q:
Who bears the costs of soliciting votes for the 2009 Annual Meeting?
A:
Heska
is making this solicitation and will pay the entire cost of preparing,
printing, assembling and mailing these proxy materials. In addition to the mailing of these proxy
materials, certain of our Directors and employees may solicit proxies on our
behalf in person, by telephone, electronic transmission or facsimile. No additional compensation will be paid to
these people for such solicitation.
Upon request, we will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding proxy and solicitation materials to stockholders.
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BOARD
STRUCTURE AND COMMITTEES
Our Board is divided into
three classes serving staggered three-year terms. Our Board has three standing Committees, each
of which is chaired by an outside Director:
(1) Audit (the Audit Committee), (2) Compensation (the Compensation
Committee) and (3) Corporate Governance (the Corporate Governance
Committee). The membership during 2008
and the function of each Committee are described below. Our Board held four meetings during
2008. Our Board currently has six Directors: Robert B. Grieve, Ph.D., Chairman, William A.
Aylesworth, Peter Eio, G. Irwin Gordon, Louise L. McCormick and John F.
Sasen, Sr. A. Barr Dolan also
served as a Director in 2008; Mr. Dolan chose not to stand for re-election
to our Board and his service as a Director ended on May 6, 2008, which was
the day of our 2008 Annual Meeting. All
of our Directors in 2008, other than Mr. Dolan, attended our last annual
meeting of stockholders and all Board and applicable Committee meetings.
Board Independence
Our Board has determined that each of the Directors
standing for re-election has no material relationship with the Company (either
directly or as a partner, stockholder or officer of an organization that has a
relationship with the Company) and meets the requirements of independence as
set forth in the rules and regulations promulgated by the Securities and
Exchange Commission (the SEC) and the Nasdaq Stock Market listing standards
(the Nasdaq Listing Standards).
Furthermore, the Board has determined that, with the exception of Dr. Grieve,
Heskas Chairman and Chief Executive Officer, all current members of the Board
meet the requirements of independence as set forth in the rules and
regulations promulgated by the SEC and the Nasdaq Listing Standards.
Audit Committee
Our Audit Committee has the following
responsibilities:
·
appoint and replace our independent
auditors;
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compensate and oversee the work of our
independent auditors;
·
oversee and monitor the integrity of our
annual and quarterly financial statements;
·
review and discuss with management and
our independent auditors significant financial reporting issues and critical
accounting policies and practices;
·
oversee and monitor the qualifications,
independence and performance of our independent auditors;
·
oversee and monitor our internal
accounting and financial controls; and
·
provide the results of examinations and
recommendations derived therefrom to the Board.
During 2008, our Audit
Committee met five times. Our Audit
Committee consisted of Mr. Aylesworth, as Chairman, Mr. Eio and Mr. Gordon
prior to our 2008 Annual Meeting on May 6, 2008 and has consisted of Mr. Aylesworth,
as Chairman, Mr. Eio and Ms. McCormick since our 2008 Annual Meeting.
Our Board has determined that each of the current
members of our Audit Committee meets the requirements of independence as set
forth in Section 10A(m)(3) of the Securities Exchange Act of 1934,
the rules and regulations promulgated by the SEC and the Nasdaq Listing
Standards. Our Board has also determined
that William A. Aylesworth is an audit committee financial expert within the
meaning of the
5
rules and
regulations promulgated by the SEC and he has accounting and related financial
management expertise within the meaning of the Nasdaq Listing Standards.
Our Audit Committee has a written charter, which is
available on our website at www.heska.com
(under Investors Corporate Governance).
The
Companys website address provided above is not intended to function as a
hyperlink, and the information on the Companys website is not and should not
be considered part of this proxy statement and is not incorporated by reference
herein.
Compensation
Committee
Our Compensation Committee has the following
responsibilities:
·
discharge the Boards responsibilities
relating to compensation of our Executive Officers, including our Chief
Executive Officer;
·
oversee all compensation programs
involving the use of our stock; and
·
produce an annual report on executive
compensation for inclusion in our proxy statement for our annual meeting of
stockholders.
During 2008, our
Compensation Committee met five times.
Our Compensation Committee consisted of Mr. Eio, as Chairman, Mr. Dolan
and Mr. Gordon prior to our 2008 Annual Meeting and has consisted of Mr. Eio,
as Chairman, Mr. Gordon and Mr. Sasen since our 2008 Annual Meeting.
Our Board has determined that each of the current
members of our Compensation Committee meets the requirements of independence
as set forth in the rules and regulations promulgated by the SEC and the
Nasdaq Listing Standards.
Our Compensation Committee has a written charter,
which is available on our website at www.heska.com
(under Investors Corporate Governance).
The Companys website address
provided above is not intended to function as a hyperlink, and the information
on the Companys website is not and should not be considered part of this proxy
statement and is not incorporated by reference herein.
Corporate
Governance Committee
Our Corporate Governance Committee has the following
responsibilities:
·
assist our Board by identifying qualified
candidates for Director, and select the Director nominees for each annual
meeting of stockholders;
·
lead our Board in its annual review of
our Boards performance;
·
recommend Director nominees to our Board
for each Board Committee; and
·
develop and recommend to our Board the
corporate governance guidelines applicable to the Company.
During 2008, our Corporate
Governance Committee met four times. Our
Corporate Governance Committee has consisted of Mr. Sasen, as Chairman, Mr. Aylesworth
and Mr. Gordon since our 2006 Annual Meeting. Ms. McCormick is to replace Mr. Aylesworth
as a member of our Corporate Governance Committee, beginning at our 2009 Annual
Meeting.
6
Our Board has determined that each of the current
members of our Corporate Governance Committee meets the requirements of independence
as set forth in the rules and regulations promulgated by the SEC and the
Nasdaq Listing Standards.
Our Corporate Governance Committee has a written
charter, which is available on our website at www.heska.com (under Investors
Corporate Governance). In addition, our Corporate Governance
Committee prepared, and our full Board has approved, Corporate Governance
Guidelines outlining the qualifications, responsibilities and other issues
related to our Boards governance role and functions. The document is also available on our website
at www.heska.com (under Investors Corporate
Governance).
The
references to the Companys website address provided above is not intended to
function as a hyperlink, and the information on the Companys website is not
and should not be considered part of this proxy statement and is not
incorporated by reference herein.
Consideration
of Director Nominees
Our Corporate Governance
Committee considers candidates for Board membership suggested by its
members. Our Corporate Governance
Committee has also utilized a third-party executive search firm in the past to
identify candidates.
Our Corporate Governance
Committee does not have an established policy for minimum qualifications of
Director nominees. However, pursuant to
our Corporate Governance Guidelines, our Corporate Governance Committee will
consider, among other things, diversity, skills and experience in such areas as
operations, finance, marketing and sales, manufacturing, technology and the
general needs of our Board.
Our Corporate Governance
Committee will also consider nominees recommended by stockholders provided such
recommendations are made in accordance with our bylaws and the procedures
described in this proxy statement under Questions and Answers About the Proxy
Materials and the 2009 Annual Meeting.
Although to date no stockholder has presented any candidate for Board
membership to us, it is expected that recommendations from stockholders would
generally be considered in the same manner as recommendations by a Director or
an Officer of the Company.
Stockholder
Communication with our Board
Stockholders can contact
our Board, any Committee thereof, or any Director in particular, by writing to
them, c/o Heska Corporation, 3760 Rocky Mountain Avenue, Loveland, Colorado
80538, Attn: Secretary. We will forward
any correspondence sent in the foregoing manner to the appropriate addressee
without review by management.
7
DIRECTOR
COMPENSATION
The form and amount of
compensation paid to the non-employee Directors is reviewed from time to time
by our Corporate Governance Committee, which currently is reviewing the method
and level of Director compensation and may approve corresponding changes to
take effect prior to year end. Any
revisions to our Director Compensation policy have been recommended by our
Corporate Governance Committee and approved by our Board.
In 2008, our sole employee
Director did not receive any separate compensation for his Board
activities. Non-employee Directors
received the compensation described below.
On
each date of our Annual Meeting, each continuing
non-employee Director who was a Director immediately prior to the Annual
Meeting automatically receives options valued at $37,500 to purchase shares of
our common stock, subject to a maximum grant of options to purchase 50,000
shares of our common stock. These grants
are to be immediately exercisable and to vest in full on the earlier of (i) the
one year anniversary of the date of grant and (ii) the date immediately
preceding the date of the Annual Meeting for the year following the year of
grant for the award. Any new
non-employee Directors appointed or elected to our Board will be automatically
granted options valued at $37,500 to purchase shares of our common stock,
subject to a maximum grant of option to purchase 50,000 shares of our common
stock. Any such grant is to be
immediately exercisable and to vest over a period of four years in equal annual
installments. The value for options
granted pursuant to this paragraph is to be determined pursuant to our option
valuation policy at the time of issuance.
Each non-employee Director
is also entitled to an annual cash retainer in the amount of $20,000. The Company pays the annual retainer in
advance, in quarterly installments on the first business day of each calendar quarter,
subject to the non-employee Directors continued service to the Company as a
non-employee Director on such date.
In addition, each
non-employee Director who serves as Chairperson of a Board Committee is
entitled to an annual cash retainer in the amount of $5,000 (the Chair Retainer). The Chair Retainer is to be reduced from
$5,000 to $2,500, effective July 1, 2009.
The Company pays the Chair Retainer in advance, in quarterly
installments on the first business day of each calendar quarter, subject to the
non-employee Directors continued service as Chairperson of such
Committee. Each non-employee Director
who serves on a Board Committee will be entitled to an annual cash retainer of
$2,500 (the Committee Retainer). A
non-employee Director who is also the Chairperson of a Committee shall be
entitled to the Committee Retainer in addition to the Chair Retainer. The Company pays the Committee Retainer in
advance, in quarterly installments on the first business day of each calendar
quarter, subject to the non-employee Directors continued service as a member
of such Committee. Non-employee
Directors will also continue to be reimbursed for customary and usual travel
expenses.
8
The following tables provide
information for fiscal 2008 compensation for non-employee Directors who served
during fiscal 2008.
Director Compensation (1)
Name
|
|
Fees
Earned
Or
Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($) (2) (3)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
William A.
Aylesworth
|
|
30,000
|
|
|
|
27,250
|
|
|
|
|
|
|
|
57,250
|
|
A. Barr Dolan
|
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
|
Peter Eio
|
|
30,000
|
|
|
|
27,250
|
|
|
|
|
|
|
|
57,250
|
|
G. Irwin Gordon
|
|
26,250
|
|
|
|
27,250
|
|
|
|
|
|
|
|
53,500
|
|
Louise L. McCormick
|
|
21,250
|
|
|
|
27,250
|
|
|
|
|
|
|
|
48,500
|
|
John F.
Sasen, Sr.
|
|
27,500
|
|
|
|
27,250
|
|
|
|
|
|
|
|
54,750
|
|
2008 Equity Grants to Directors
Name
|
|
Grant Date
|
|
Number of
Securities
Underlying
Options
|
|
Exercise
Price
($)
|
|
Grant Date
Fair Value of
Option Award
($) (3)
|
|
William A.
Aylesworth
|
|
5/6/08
|
|
50,000
|
|
1.58
|
|
27,250
|
|
Peter Eio
|
|
5/6/08
|
|
50,000
|
|
1.58
|
|
27,250
|
|
G. Irwin Gordon
|
|
5/6/08
|
|
50,000
|
|
1.58
|
|
27,250
|
|
Louise L. McCormick
|
|
5/6/08
|
|
50,000
|
|
1.58
|
|
27,250
|
|
John F.
Sasen, Sr.
|
|
5/6/08
|
|
50,000
|
|
1.58
|
|
27,250
|
|
(1)
Reimbursed travel expenses incurred in connection with Board and Board
Committee meeting attendance are not included.
(2)
Represents cost recognized in 2008 for financial reporting purposes.
(3)
Grant date fair value of option awards are based on valuation techniques
required by Statement of Financial Accounting Standards No. 123 (revised
2004) Share-Based Payment and applicable guidance which we use in preparing
our financial statements (Option Accounting Rules). Like any estimate prepared in good faith, the
underlying assumptions we use under Option Accounting Rules may vary from
our actual future results. The option
valuations used for accounting and/or financial reporting purposes do not
necessarily represent the value any individual recipient would place on an
option award. In addition, Option
Accounting Rules prohibit some valuation techniques which may be useful in
certain circumstances. A more detailed
description of our option valuation techniques and assumptions can be found in
our Annual Report on Form 10-K for the year ended December 31, 2008
in our Note 7 of the Notes to Consolidated Financial Statements.
9
PROPOSALS
TO BE VOTED ON
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
Our Board is divided into three classes serving
staggered three-year terms. Our amended
and restated certificate of incorporation requires us to ensure each class is
as nearly equal in number as possible.
Directors for each class are elected at the Annual Meeting of
Stockholders held in the year in which the term for their class expires.
The terms for two continuing Directors will expire at
this 2009 Annual Meeting. Directors
elected at the 2009 Annual Meeting will hold office for a three-year term
expiring at our 2012 Annual Meeting (or until their respective successors are
elected and qualified, or until their earlier death, resignation or removal).
Nominees for
Three-Year Terms That Will Expire in 2012
William A. Aylesworth
,
age 66, has served us as a Director since June 2000. Mr. Aylesworth served as Senior Vice
President from 1988 to 2003 and Chief Financial Officer of Texas Instruments
Incorporated from 1984 to 2003. He
served as Treasurer of Texas Instruments from 1982 to 2002. From 1972 to 1982, he served in treasury
services, and from 1967 to 1972, he held numerous assignments in control,
manufacturing and marketing for Texas Instruments. He holds an M.S. in industrial administration
from Carnegie Mellon University and a B.E.E. in electrical engineering from
Cornell University.
Robert B. Grieve, Ph.D.
,
age 57, one of our founders, currently serves as Chief Executive Officer and
Chairman of the Board of Directors. Dr. Grieve
was named Chief Executive Officer effective January 1999, Vice Chairman
effective March 1992 and Chairman of the Board effective May 2000. Dr. Grieve also served as Chief
Scientific Officer from December 1994 to January 1999 and Vice
President, Research and Development, from March 1992 to December 1994. He has been a member of our Board of
Directors since 1990. He holds a Ph.D.
degree from the University of Florida and M.S. and B.S. degrees from the
University of Wyoming.
Vote Required;
Recommendation of our Board of Directors
The affirmative vote of a plurality of the votes of
the shares present in person or by proxy at the Annual Meeting and entitled to
vote on the election of Directors will be used to elect the nominees. Our Board of Directors unanimously recommends
a vote FOR the election of Mr. Aylesworth and Dr. Grieve as our
Directors.
Heskas Directors listed below whose terms are not
expiring this year will continue in office for the remainder of their terms in
accordance with our bylaws. Information
regarding the business experience and education of each of such Directors is
provided below.
Directors Whose
Terms Will Expire in 2011
Louise L. McCormick
,
age 66, has served us as a Director since January 2008. Ms. McCormick was with Aetna, Inc.
for over 25 years in various finance, strategic planning and legal positions,
including as Corporate Secretary and Securities Counsel, and Vice President,
Strategy, Finance and Administration. Ms. McCormick
retired from Aetna, Inc. in 2000.
Since June 2005, Ms. McCormick has served as an independent
Director, investment committee chair and member of the ethics and corporate
governance committee for Foresters, a Toronto-based insurance company. She also serves as a Director of a
wholly-owned Foresters subsidiary, several non-profit and educational
institutions. Ms. McCormick holds a
J.D. from the University of Connecticut Law School and a M.S.T. and B.A. from
the University of Florida.
10
John F. Sasen, Sr.
,
age 66, has served us as a Director since October 1998. Since April 1998, he has served as
Executive Vice President and Chief Marketing Officer of PSS/World Medical, Inc.
(PSS), a medical supply distributor, and has held various other senior
executive positions at PSS, including President and Chief Operating Officer,
since 1993. From July 1993 to April 1998,
Mr. Sasen served as a Director of PSS.
Prior to joining PSS, Mr. Sasen was Vice President Sales, Marketing
and Distributor Relations for a division of Becton Dickinson &
Company, a manufacturer of health care products. Mr. Sasen was with Becton Dickinson for
over 20 years. In addition, Mr. Sasen
serves as the Chairman of the Health Industry Distribution Association
Education Foundation, Executive Director of the Health Industry Distributor
Association, Director of Nova Vision, Inc. and Director of the Boys Home
Foundation.
Directors Whose
Terms Will Expire in 2010
Peter Eio
, age
67, has served us as a Director since October 2002. Mr. Eio served as the President of LEGO
Systems, Inc., from 1989 to 2001 and was Managing Director of LEGO UK from
1982 to 1989. He also held various positions with International Playtex, Inc.,
in Scandinavia and the UK from 1971 to 1981. His previous experience includes
marketing, sales and general management positions. Mr. Eio is also a Director of several
private companies and serves on the Board of several charitable and educational
organizations. Mr. Eio holds an
honorary degree from Rensselaer Polytechnic Institute (Doctor of laws-honoris
causa, 1996), attended the IMD Business School in Lausanne, Switzerland and
received the Prince Henrik Medal of Honor for services to Danish industry in
1992.
G. Irwin Gordon
,
age 58, has served us as a Director since May 2001. Mr. Gordon is the founder and Managing
Partner of The Trion Group LP, a consulting firm. From July 2000 until August 2001, Mr. Gordon
served as President and Chief Executive Officer of Gruma Corporation, a food
manufacturer. He also served as
President and Chief Operating Officer of Suiza Foods Corporation, a food
manufacturer and distributor, from February 1998 to October 1999. Mr. Gordon joined Suiza in August 1997
as its Executive Vice President and Chief Marketing Officer. Prior to joining Suiza, Mr. Gordon held
various positions with subsidiaries of PepsiCo, Inc. (PepsiCo),
including most recently as Senior Vice President Global Branding for Frito-Lay, Inc.,
from May 1996 to August 1997.
From 1983 to 1992, Mr. Gordon served as President and General
Manager of several international Frito-Lay companies before becoming Senior
Vice President Marketing, Sales and Technology for Frito-Lay International from
1992 to 1996. Prior to joining PepsiCo
in 1992, Mr. Gordon served in various capacities at the Kellogg
Company. Mr. Gordon holds an
Education degree from the University of British Columbia and a Management
Certificate from Stanford University.
11
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1997 STOCK PLAN
Our Board is submitting an amendment (the Amendment)
to our 1997 Stock Incentive Plan (our 1997 Stock Plan) for shareholder
approval.
Background
Our 1997 Stock Plan was originally adopted by our
Board and approved by our shareholders in 1997.
The stated purpose of the 1997 Stock Plan is to promote the long-term
success of the Company and the creation of stockholder value by
a) encouraging employees, outside Directors and consultants to focus on
critical long-range objectives, b) encouraging the attraction and retention of
employees, outside Directors and consultants with exceptional qualifications
and c) linking employees, outside Directors and consultants directly to
stockholder interests through increased stock ownership. The 1997 Stock Plan seeks to achieve this
purpose by providing for awards in the form of restricted shares or options
(which may constitute incentive stock options or nonstatutory stock options). We have not issued restricted shares under
the 1997 Stock Plan since 2001.
Shares
available under the 1997 Stock Plan are reduced by the Amendment
The number of shares which may be issued under the
1997 Stock Plan is limited. Shares
underlying options issued under the 1997 Stock Plan which are forfeited or
terminate for any other reason before being exercised may be used to underlie
the future grant of options or restricted shares under the 1997 Stock
Plan. As of the Record Date, there were
2,576,652 shares available under the 1997 Stock Plan. The Amendment, if it had been approved on the
Record Date, would have reduced the number of shares available under the 1997
Stock Plan on the Record Date by 250,000 to 2,326,652.
Further
incentive stock options may be issued under the 1997 Stock Plan due to the
Amendment
A stock option is the right to acquire shares at a
fixed exercise price for a fixed period of time. Incentive stock options are a type of option
designed to comply with certain provisions of the U.S. tax code which may offer
the recipient certain tax advantages depending on circumstances, as is
discussed in more detail below. An
individual must be an employee to receive an incentive stock option, so outside
Directors and consultants may not receive this type of option. The current 1997 Stock Plan does not allow
the issuance of any incentive stock options after March 14, 2007. All incentive stock options issued since that
date have been issued under our 2003 Equity Incentive Plan, as amended and
restated (our 2003 Stock Plan). Our
2003 Stock Plan is currently the only vehicle under which we may issue
incentive stock options and has 479,738 shares available for issuance as of the
Record Date. The 1997 Stock Plan allows
for the issuance of nonstatutory stock options after March 14, 2007 and as
outside Directors are not eligible for incentive stock options, all options
issued to our outside Directors have been issued under the 1997 Stock Plan
since that time. The Amendment will
allow the issuance of incentive stock options through May 4, 2019.
Certain
Federal Tax Aspects
The following paragraphs are a summary of the Companys
understanding of the general federal income tax consequences to U.S. taxpayers
and the Company of awards granted under the 1997 Stock Plan. Tax consequences
for any particular individual may be different.
Incentive Stock Options
No taxable income is reportable when an incentive
stock option is granted or exercised (except for purposes of the alternative
minimum tax, in which case taxable income is the same as for nonstatutory stock
options). If the participant exercises the option and then later sells or
otherwise disposes of the shares more
12
than two years after the
grant date and more than one year after the exercise date, the difference
between the sale price and the exercise price will be taxed as capital gain or
loss. If the participant exercises the
option and then later sells or otherwise disposes of the shares before the end
of the two- or one-year holding periods described above, he or she generally
will have ordinary income at the time of the sale equal to the fair market
value of the shares on the exercise date (or the sale price, if less) minus the
exercise price of the option.
Nonstatutory Stock Options
No taxable income is reportable when a nonstatutory
stock option, which also may be referred to as a nonqualified stock option, is
granted to a participant. Upon exercise, the participant will recognize
ordinary income in an amount equal to the excess of the fair market value (on
the exercise date) of the shares purchased over the exercise price of the
option. Any additional gain or loss
recognized upon any later disposition of the shares would be capital gain or
loss.
Restricted Stock
A participant will not have taxable income upon grant
unless he or she elects to be taxed at that time. Instead, he or she will
recognize ordinary income at the time of vesting equal to the fair market value
(on the vesting date) of the vested shares.
Tax Effect for the Company
The Company generally will be entitled to a tax
deduction in connection with an award under the 1997 Stock Plan in an amount
equal to the ordinary income realized by a participant and at the time the
participant recognizes such income (for example, the exercise of a nonstatutory
stock option). Special rules limit
the deductibility of compensation paid to our Chief Executive Officer and to
each of our four most highly compensated Executive Officers. Under Section 162(m) of the
Internal Revenue Code, the annual compensation paid to any of these specified
executives will be deductible only to the extent that it does not exceed
$1,000,000. However,
the
Company
can
preserve
the
deductibility
of
certain
compensation
in
excess
of
$1,000,000
if
the
conditions
of
Section 162(m)
are met. These conditions include
stockholder approval of the 1997 Stock Plan, setting limits on the number of
awards that any individual may receive and, for awards other than certain stock
options, establishing performance criteria that must be met before the award
actually will vest or be paid. The 1997
Stock Plan has been designed to permit the Company to grant awards that qualify
as performance-based for purposes of satisfying the conditions of Section 162(m),
thereby permitting the Company to continue to receive a federal income tax
deduction in connection with such awards.
The Company expects a minimal impact on cash taxes
paid resulting from deductions related to the 1997 Stock Plan due to the
Companys large domestic net operating loss position, which allows the Company
to offset current taxable income with losses from prior years for ordinary
income tax purposes.
Awards to be Granted to Certain Individuals and Groups
The number of awards that an employee or consultant
may receive under the Plan is at the discretion of our Compensation Committee
and therefore cannot be determined in advance.
The following table sets forth: a) the aggregate number of shares
subject to incentive stock options granted under our 2003 Stock Plan during
2008, b) the aggregate number of shares subject to nonstatutory stock options
granted under our 1997 Stock Plan during 2008 and c) the average per share
exercise price of all such options. Dr. Grieve
received both incentive stock options and nonstatutory stock options as federal
tax rules limit the value of incentive stock options which may become
exercisable in any given year.
13
Name
|
|
Number of Incentive
Stock Options Granted
(2003 Stock Plan)
|
|
Number of Nonstatutory
Stock Options Granted
(1997 Stock Plan)
|
|
Average
Exercise Price
Per Option
|
|
Robert B.
Grieve, Ph.D.
|
|
68,762
|
|
231,238
|
|
$
|
0.44
|
|
Michael J.
McGinley, Ph.D.
|
|
190,000
|
|
|
|
$
|
0.59
|
|
Jason A.
Napolitano
|
|
130,000
|
|
|
|
$
|
0.44
|
|
Michael A. Bent
|
|
50,000
|
|
|
|
$
|
0.44
|
|
G. Lynn
Snodgrass
|
|
50,000
|
|
|
|
$
|
0.44
|
|
All Executive
Officers, as a group
|
|
538,762
|
|
231,238
|
|
$
|
0.48
|
|
All outside
Directors, as a group
|
|
|
|
295,268
|
|
$
|
1.62
|
|
All others
|
|
490,000
|
|
20,000
|
|
$
|
0.72
|
|
Summary
Our Board believes incentive stock options are an
important tool to be used in attracting, retaining and providing the proper
long-term incentives to employees, and believes it is desirable to give the
Company the flexibility to issue incentive stock options under the 1997 Stock
Plan. Along with this change, our Board
is proposing to reduce the shares available for issuance under the 1997 Stock
Plan as an indication of the Companys commitment to using the 1997 Stock Plan
to maximize shareholder value while minimizing any corresponding dilution.
If approved, the impact of the Amendment is intended
only to: 1) reduce the number of shares we could issue under the 1997 Stock
Plan by 250,000 and 2) allow us to issue incentive stock options through May 4,
2019 under the 1997 Stock Plan, assuming we have the underling shares available
under the 1997 Stock Plan. The foregoing
is only a summary of the 1997 Stock Plan, as amended if approved, and is
qualified in its entirety by reference to its full text, a copy of which is
attached hereto as Appendix A.
Vote Required;
Recommendation of our Board of Directors
The
affirmative vote of a majority of the shares present in person or by proxy at
our Annual Meeting which are entitled to vote on the subject matter and have
voted and chosen not to abstain is required to approve the proposed amendment
to our 1997 Stock Incentive Plan. If the
amendment to our 1997 Stock Plan is not approved, the 1997 Stock Plan will
remain as is with no changes i.e. the Company would be able to issue at least
2,576,652 new shares from the Record Date under the 1997 Stock Plan, including
underlying nonstatutory stock options, although the Company could not issue
incentive stock options under the 1997 Stock Plan.
Our
Board unanimously recommends a vote FOR the approval of the Amendment to the
1997 Stock Plan.
14
PROPOSAL
NO. 3
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
Our Board of Directors is submitting the appointment
of Ehrhardt Keefe Steiner & Hottman PC (EKS&H) as the Companys
independent registered public accountant for stockholder ratification at the
2009 Annual Meeting. EKS&H has
served as our independent registered public accountant since March 31,
2006. A representative of EKS&H is
expected to be present at the Annual Meeting and will have an opportunity to
make a statement if the representative desires to do so. Such representative will also be available to
answer questions at the meeting.
Vote Required;
Recommendation of our Board of Directors
Stockholder
ratification of the appointment of EKS&H as our independent
registered
public accountant
is not required by our bylaws or otherwise. Our Board, however, is submitting the
appointment of EKS&H to the stockholders for ratification as a matter of
good corporate governance practice. The
affirmative vote of a majority of the shares present in person or by proxy at
our Annual Meeting which are entitled to vote on the subject matter and have
voted and chosen not to abstain is required to ratify the appointment of
EKS&H as our independent registered public accountant for fiscal
2009. If the stockholders fail to ratify
the appointment, our Audit Committee will reconsider whether or not to retain
that firm. Even if the appointment is
ratified, our Audit Committee in its discretion may direct the appointment of a
different independent registered public accountant at any
time during the year if it determines that such a change would be in the best
interests of the Company and its stockholders.
Our
Board unanimously recommends a vote FOR the ratification of EKS&H as our
independent
registered public accountant
for fiscal 2009.
15
COMMON
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables show the number of shares of our
common stock beneficially owned as of March 15, 2009 by each of the Named
Executive Officers listed in the Summary Compensation Table, each of our
Directors, all of our Directors and Named Executive Officers as a group, and
each person who is known by us to be the beneficial owner of more than 5% of
our common stock. We had 52,010,928
shares outstanding on March 15, 2009.
Ownership Table
Name and Address of Beneficial Owner
|
|
Shares
Beneficially
Owned (1)
|
|
Percentage
Beneficially
Owned (1)
|
|
State of
Wisconsin Investment Board (2)
P.O. Box 7842
Madison, WI 53707
|
|
9,310,600
|
|
17.9
|
%
|
Zesiger Capital
Group LLC (3)
320 Park Avenue, 30th Floor
New York, NY 10022
|
|
8,054,700
|
|
15.5
|
%
|
Pacific Coast
Investors Limited (4)
c/o Cha Enterprises Limited
Room 3703 Jardine House
1 Connaught Place
Central, Hong Kong
|
|
7,790,466
|
|
15.0
|
%
|
William A.
Aylesworth (5)
|
|
423,577
|
|
*
|
|
Peter Eio (5)
|
|
349,936
|
|
*
|
|
G. Irwin Gordon
(5)
|
|
391,605
|
|
*
|
|
Robert B.
Grieve, Ph.D. (5)(6)
|
|
2,915,529
|
|
5.4
|
%
|
Louise L.
McCormick (5)
|
|
155,268
|
|
*
|
|
John F.
Sasen, Sr. (5)
|
|
423,737
|
|
*
|
|
Michael A. Bent
(5)
|
|
463,319
|
|
*
|
|
Michael J.
McGinley, Ph.D. (5)
|
|
519,526
|
|
*
|
|
Jason A.
Napolitano (5)(7)
|
|
1,908,665
|
|
3.6
|
%
|
G. Lynn
Snodgrass (5)
|
|
149,887
|
|
*
|
|
All Directors
and Executive Officers as a group (10 persons)(5)(6)(7)
|
|
7,701,049
|
|
13.2
|
%
|
*
Amount represents less than 1% of our
common stock.
(1)
To our knowledge
and unless otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable
and the information contained in the footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting and investment
power with respect to securities. Shares
of common stock issuable upon exercise of stock options exercisable within 60
days of March 15, 2009 are deemed outstanding and beneficially owned by
the person holding such option for purposes of computing such persons
percentage ownership, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
(2)
Based upon
information derived from a Schedule 13G filed on January 30, 2009 for
holdings on December 31, 2008 by State of Wisconsin Investment Board
pursuant to Section 13G of the Securities Exchange Act of 1934 and the rules promulgated
thereunder (the Exchange Act), reporting its beneficial ownership of our
common stock. According to the Schedule
13G, State of Wisconsin Investment Board has sole power to vote and dispose of
9,310,600 shares.
(3)
Based upon
information derived from a Schedule 13G filed February 10, 2009 for
holdings on December 31, 2008 by Zesiger Capital Group LLC pursuant to Section 13G
of the Exchange Act reporting its beneficial ownership of our common
stock. According to the Schedule 13G,
Zesiger Capital Group LLC has the sole power to vote 5,439,700 shares and the
sole power to dispose of 8,054,700 shares.
(4)
Based upon
information derived from a Schedule 13G filed June 27, 2008 for holdings
on June 20, 2008 by Pacific Coast Investors Limited pursuant to Section 13G
of the Exchange Act reporting its beneficial ownership of our common
stock. According to the Schedule 13G,
Pacific Coast Investors Limited has sole power to vote and dispose of 7,790,466
shares.
(5)
Includes Shares Owned and Exercisable
Options from Exercisable Option Table below for each Director and Named
Executive Officer, as well as for all Directors and Executive Officers as a
group.
(6)
Includes 61,550 shares of common stock held
for the benefit of Dr. Grieves children and 15,649 shares of common stock
held by Dr. Grieves wife, all of with respect to which Dr. Grieve
disclaims beneficial ownership. Dr. Grieves
business address is c/o the Company at 3760 Rocky Mountain Avenue, Loveland,
Colorado 80538.
(7)
Includes 6,020 shares of common stock held by Mr. Napolitanos
wife, with respect to which Mr. Napolitano disclaims beneficial ownership.
16
Exercisable
Option Table
Name
|
|
Shares
Owned (1)
|
|
Exercisable
Options (2)
|
|
Exercisable
Option Price
Range (3)
|
|
Exercisable
Option
Average
Price (4)
|
|
Weighted
Average
Remaining
Contractual
Life (5)
|
|
Exercisable
In-the
money
Options (6)
|
|
Net Shares
from
Exercisable
Options (7)
|
|
William A.
Aylesworth
|
|
40,000
|
|
383,577
|
|
$0.38-4.12
|
|
$
|
1.38
|
|
5.45
|
|
|
|
|
|
Peter Eio
|
|
20,000
|
|
329,936
|
|
$0.48-2.73
|
|
$
|
1.37
|
|
6.21
|
|
|
|
|
|
G. Irwin Gordon
|
|
27,000
|
|
364,605
|
|
$0.38-2.687
|
|
$
|
1.35
|
|
5.61
|
|
|
|
|
|
Robert B.
Grieve, Ph.D. (8)
|
|
576,033
|
|
2,339,496
|
|
$0.34-3.69
|
|
$
|
1.56
|
|
4.81
|
|
|
|
|
|
Louise L.
McCormick
|
|
60,000
|
|
95,268
|
|
$1.58-1.83
|
|
$
|
1.70
|
|
8.98
|
|
|
|
|
|
John F.
Sasen, Sr.
|
|
34,923
|
|
388,814
|
|
$0.65-4.12
|
|
$
|
1.38
|
|
5.66
|
|
|
|
|
|
Michael A. Bent
|
|
37,069
|
|
426,250
|
|
$0.34-2.37
|
|
$
|
1.26
|
|
5.10
|
|
|
|
|
|
Michael J.
McGinley, Ph.D.
|
|
24,193
|
|
495,333
|
|
$0.34-3.06
|
|
$
|
1.24
|
|
5.76
|
|
|
|
|
|
Jason A.
Napolitano (9)
|
|
596,394
|
|
1,312,271
|
|
$0.44-2.30
|
|
$
|
1.10
|
|
5.04
|
|
|
|
|
|
G. Lynn
Snodgrass
|
|
4,404
|
|
145,483
|
|
$0.44-2.37
|
|
$
|
1.49
|
|
6.59
|
|
|
|
|
|
All Directors
and Executive Officers as a group (10 persons) (8)(9)
|
|
1,420,016
|
|
6,281,033
|
|
$0.34-4.12
|
|
$
|
1.38
|
|
5.27
|
|
|
|
|
|
(1)
To our knowledge and unless otherwise noted,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown in the column, subject to community
property laws where applicable and the information contained in the footnotes
of this table.
(2)
Represents shares of common stock issuable
upon exercise of stock options exercisable within 60 days of March 15,
2009.
(3)
Represents the lowest and highest strike price
for stock options exercisable within 60 days of March 15, 2009.
(4)
Represents the average strike price for stock
options exercisable within 60 days of March 15, 2009.
(5)
Represents the weighted average remaining
contractual life, in years, for stock options exercisable within 60 days of March 15,
2009.
(6)
Represents shares of common stock issuable
upon exercise of stock options exercisable within 60 days of March 15,
2009 that have a strike price less than $0.22, the last closing market price
per share of Heska stock available
on March 15, 2009.
(7)
Represents net shares under the Treasury Stock
method assuming a market price per share of $0.22, the last closing market
price per share of Heska stock available
on March 15, 2009, for
shares of common stock issuable upon exercise of stock options exercisable
within 60 days of March 15, 2009 that have a strike price less than $0.22.
(8)
Includes 61,550 shares of common stock held
for the benefit of Dr. Grieves children and 15,649 shares of common stock
held by Dr. Grieves wife, all of with respect to which Dr. Grieve
disclaims beneficial ownership.
(9)
Includes 6,020 shares of common stock held by Mr. Napolitanos
wife, with respect to which Mr. Napolitano disclaims beneficial ownership.
17
Outstanding Option Table
Name
|
|
Shares
Owned (1)
|
|
Outstanding
Options (2)
|
|
Outstanding
Option Price
Range (3)
|
|
Outstanding
Option
Average
Price (4)
|
|
Weighted
Average
Remaining
Contractual
Life (5)
|
|
Outstanding
In-the-
money
Options (6)
|
|
Net Shares
from
Outstanding
Options (7)
|
|
William A.
Aylesworth
|
|
40,000
|
|
383,577
|
|
$0.38-4.12
|
|
$
|
1.38
|
|
5.45
|
|
|
|
|
|
Peter Eio
|
|
20,000
|
|
329,936
|
|
$0.48-2.73
|
|
$
|
1.37
|
|
6.21
|
|
|
|
|
|
G. Irwin Gordon
|
|
27,000
|
|
364,605
|
|
$0.38-2.687
|
|
$
|
1.35
|
|
5.61
|
|
|
|
|
|
Robert B.
Grieve, Ph.D. (8)
|
|
576,033
|
|
2,801,996
|
|
$0.34-3.69
|
|
$
|
1.48
|
|
5.54
|
|
|
|
|
|
Louise L.
McCormick
|
|
60,000
|
|
95,268
|
|
$
1.58-1.83
|
|
$
|
1.70
|
|
8.98
|
|
|
|
|
|
John F.
Sasen, Sr.
|
|
34,923
|
|
388,814
|
|
$0.65-4.12
|
|
$
|
1.38
|
|
5.66
|
|
|
|
|
|
Michael A. Bent
|
|
37,069
|
|
490,000
|
|
$0.34-2.37
|
|
$
|
1.21
|
|
5.66
|
|
|
|
|
|
Michael J.
McGinley, Ph.D.
|
|
24,193
|
|
711,500
|
|
$0.34-3.06
|
|
$
|
1.15
|
|
6.77
|
|
|
|
|
|
Jason A.
Napolitano (9)
|
|
596,394
|
|
1,499,354
|
|
$0.44-2.30
|
|
$
|
1.09
|
|
5.57
|
|
|
|
|
|
G. Lynn
Snodgrass
|
|
4,404
|
|
215,900
|
|
$0.44-2.37
|
|
$
|
1.32
|
|
7.48
|
|
|
|
|
|
All Directors
and Executive Officers as a group (10 persons)(8)(9)
|
|
1,420,016
|
|
7,280,950
|
|
$0.34-4.12
|
|
$
|
1.32
|
|
5.81
|
|
|
|
|
|
(1)
To our knowledge and unless otherwise noted,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown in the column, subject to community
property laws where applicable and the information contained in the footnotes
of this table.
(2)
Represents shares of common stock issuable
upon exercise of stock options outstanding on March 15, 2009.
(3)
Represents the lowest and highest strike price
for stock options outstanding on March 15, 2009.
(4)
Represents the average strike price for stock
options outstanding on March 15, 2009.
(5)
Represents the weighted average remaining
contractual life, in years, for stock options outstanding on March 15,
2009.
(6)
Represents shares of common stock issuable
upon exercise of stock options outstanding on March 15, 2009 that have a
strike price less than $0.22, the last closing market price per share of Heska
stock available on March 15, 2009.
(7)
Represents net shares under the Treasury Stock
method assuming a market price per share of $0.22, the last closing market
price per share of Heska stock available on March 15, 2009, for shares of
common stock issuable upon exercise of stock options outstanding on March 15,
2009 that have a strike price less than $0.22.
(8)
Includes 61,550 shares of common stock held
for the benefit of Dr. Grieves children and 15,649 shares of common stock
held by Dr. Grieves wife, all of with respect to which Dr. Grieve
disclaims beneficial ownership.
(9)
Includes 6,020 shares of common stock held by Mr. Napolitanos
wife, with respect to which Mr. Napolitano disclaims beneficial ownership.
18
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Compliance with Section 16(a) of
the Securities Exchange Act of 1934 requires our Directors, Executive Officers
and persons who own more than 10% of a registered class of our equity
securities to file reports of holdings and transactions of Heska common stock
and other equity securities with the SEC.
Directors, Executive Officers and 10% or greater stockholders are
required by SEC regulations to furnish us with copies of all of the Section 16(a) reports
they file. Based solely upon a review of
the copies of the forms furnished to us and the representations made by the
reporting persons to us, we believe that during 2008 our Directors, Executive
Officers and 10% or greater stockholders complied with all filing requirements
under Section 16(a) of the Exchange Act.
EQUITY
COMPENSATION PLAN INFORMATION
The following table sets forth information about our
common stock that may be issued upon exercise of options and rights under all
of our equity compensation plans as of December 31, 2008, including the
1988 Stock Option Plan, the 1997 Stock Incentive Plan, the 1997 Employee Stock
Purchase Plan and the 2003 Equity Incentive Plan. Our stockholders have approved all of these
plans.
Plan Category
|
|
(a)
Number of Securities to be
Issued Upon Exercise of
Outstanding Options and
Rights
|
|
(b)
Weighted-Average Exercise
Price of Outstanding
Options and Rights
|
|
(c)
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans
(excluding securities reflected
in column (a))
|
|
Equity
Compensation Plans Approved by Stockholders
|
|
12,835,269
|
|
$
|
1.28
|
|
3,198,436
|
|
Equity
Compensation Plans Not Approved by Stockholders
|
|
None
|
|
None
|
|
None
|
|
Total
|
|
12,835,269
|
|
$
|
1.28
|
|
3,198,436
|
|
SIGNIFICANT RELATIONSHIPS AND TRANSACTIONS WITH
DIRECTORS, OFFICERS OR PRINCIPAL STOCKHOLDERS
Related Party Transactions
Pursuant
to our code of ethics for senior executives and financial officers, a copy of
which is available on Heskas website at www.heska.com, and our Corporate
Governance Committee charter, our Audit Committee or our Corporate Governance
Committee must review and approve any transaction that the Company proposes to
enter into that would be required to be disclosed under Item 404(a) of
Regulation S-K. Item 404(a) of Regulation S-K requires the Company to
disclose in its proxy statement any transaction involving more than $120,000 in
which the Company is a participant and in which any related person has or will
have a direct or indirect material interest. A related person for purposes of
this analysis is any executive officer, director, nominee for director, or
holder of 5% or more of the Companys common stock, or an immediate family
member of any of those persons.
Since
January 1, 2008, the Company has not been a participant in any transaction
with a related person other than the indemnification agreements described
below.
Indemnification agreements with officers and directors
Our
amended and restated certificate of incorporation and our bylaws provide that
we will indemnify each of our Directors and Executive Officers to the fullest
extent permitted by the Delaware General Corporation Law. Further, we have
entered into indemnification agreements with each of our Directors and
Executive Officers.
19
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Compensation Objective and Philosophy
The Compensation Committee of Heska Corporations Board of Directors
(the Committee) administers our executive compensation program and
establishes the salaries of our Executive Officers. The ultimate objective of our executive
compensation program is to attract, retain and reward executives who will
enhance the value and profitability of Heska Corporation (Heska or the Company)
and increase stockholder value. The
Committee strives to provide competitive compensation opportunities with the
ultimate amount of compensation received tied significantly to short-term and
long-term Company performance. Inherent
in our approach is the philosophy that compensation can align behavior and
actions with stockholder interests, attract and retain stronger executives and
thus create value for stockholders over time.
The Committees goal in executive compensation is to design and
administer programs that best serve these ends.
What is Heskas Executive Compensation Program Designed to Reward?
The Committee develops our executive compensation programs to reward
Executive Officers for their contribution to Heskas financial performance and
to recognize individual initiative, leadership, achievement and other
contributions. An effective compensation
program will reward executives for working well collectively as well as for
strong individual performance.
What are the Elements of Heskas Executive
Compensation?
Our compensation program is
designed to reward four interlocking aspects of executive performance:
·
Continued service to the Company; rewarded
primarily through base salary, equity award requirements and vesting and
competitive benefits levels;
·
Individual contribution: rewarded primarily
through the setting of base salary and annual Management Incentive Plan (MIP)
targets;
·
Annual financial performance: rewarded
primarily through the awards paid under the MIP; and
·
Long-term gains in stockholder value:
rewarded primarily through the equity incentive program.
Why
Does Heska Choose to Pay Each Element of Executive Compensation?
Base salary.
Base salaries are set on an annual or other
periodic basis and designed to reflect competitive market salaries for each
position. They are also used in
determining the basis for bonus targets in our Management Incentive Plan (MIP)
discussed below.
Performance-based incentive compensation.
This
form of compensation is based on the achievement of predetermined financial,
project, research or other designated objectives. This form of compensation is paid to reward
near-term performance (i.e., no longer than the coming year) and encourage
Executive Officers to optimize immediate opportunities. In recent years, an MIP has been offered to
Executive Officers and other managers to provide a performance-based incentive.
Long-term equity compensation.
This form of compensation is
designed to encourage the achievement of superior financial results over an
extended period of time and align the interests of stockholders and Executive
Officers. It is intended to ensure that
Executive Officers make thoughtful decisions about the Companys future and
long-term prospects.
20
Other benefits, compensation or arrangements.
Other
than broad-based programs open to all employees, such as participation in our
401(k) program and employee stock purchase plan, this category tends to be
used rarely. Most of our Executive
Officers have employment agreements. An
Executive Officers extraordinary performance or participation in an
unanticipated endeavor may occasionally trigger such an award in this category.
Perspective on Executive Compensation at Heska
Heska was founded in 1988 and completed its initial public offering in
1997 but only achieved its first profitable year in 2005. We believe the Companys historical liquidity
concerns and efforts to achieve profitability have influenced the Committees
decisions regarding executive compensation, as outlined below.
Profitability has been an important goal for Heska to ensure the
sustainability of the business.
Profitability has also been critical, not only for its own sake, but
also for employee morale, attracting talented individuals to join the Company
and commercial perceptions. At the
request of Heskas Executive Officers to help achieve profitability, the
Committee froze base salaries for all Executive Officers in 2005 and 2006. Similarly, the 2005 MIP called for a
performance in excess of the Companys internal budget before any bonus
payments were made and no payouts were ultimately made under the 2004 MIP or
the 2005 MIP (with the foregoing base salary and MIP information defined as Historical
Cash Compensation). Based on the
challenges the Company faced in 2008 and at the request of management, the
Committee has taken a similar approach to cash compensation in 2009. With limited circumstance-based exceptions
outlined below, in November 2008 the Committee froze base salaries for all
of our Executive Officers and also adopted a 2009 MIP that calls for a
performance in excess of the Companys internal budget before any bonus
payments are made.
Stock options have historically had the advantage of allowing the
Company to address both liquidity and profitability concerns
simultaneously. First, stock options
allowed the Committee to compensate employees without a corresponding cash
outlay, and, in fact, provided the Company with cash upon exercise in most
instances. Secondly, stock options
granted have not historically been required to be expensed for financial
reporting purposes. Accordingly, the
Committee tended to emphasize stock options as a tool for executive
compensation. Since 2006, the Company
has been required to recognize a cost for certain stock options in its
financial statements, as detailed in the Summary Compensation Table below;
the estimated fair value of stock options granted, rather than the
corresponding intrinsic value, is amortized ratably over the vesting periods of
the related options. After considering
the significant impact that the use of fair values, rather than intrinsic
values, would have on our future results of operations, as well as factors including
Historical Cash Compensation to Executive Officers and similar cash
compensation issues to other employees, the Company accelerated stock option
vesting in December 2004 and March 2005 as well as issuing all
options with immediate vesting on and between March 30, 2005 and December 31,
2005. This is why many options held by
Executive Officers are vested, and exercisable, as of December 31, 2008 in
the table labeled Outstanding Equity Awards at Fiscal Year-End below.
The Committee is also sensitive to, and tries to optimize, tax
implications. It is our policy generally
to qualify compensation paid to Executive Officers for deductibility under Section 162(m) of
the Internal Revenue Code. The Committee
has structured the Management Incentive Plan Master Document, the 2006 MIP, the
2007 MIP, the 2008 MIP and the 2009 MIP to qualify as awards under such plans
as performance-based compensation and to maximize the tax deductibility of such
awards. However, the Committee reserves
the discretion to pay compensation to its Executive Officers that may not be
tax deductible.
Determination of Compensation Elements
In reviewing the compensation of our Executive Officers, the Committee
reviews the nature and scope of each Executive Officers responsibilities as
well as his or her effectiveness in that role as well as in supporting the
Companys long-term goals. Heskas Board
of Directors (the Board) formally evaluates the Chief Executive Officer (our CEO). Our CEO communicates his view of the
performance of other Executive Officers to the Committee and makes
recommendations regarding salary, incentive-based
21
performance compensation and long-term compensation
grants for the Committees consideration.
The Company has a performance appraisal system it uses to evaluate its
employees, including Executive Officers, which Dr. Grieve considers,
potentially along with other information, such as third-party interviews of
Company employees who interact with the Companys Executive Officers. As more detailed oversight of items such as
short-term sales performance by product is considered more important, our CEO
has historically taken a more active role in determining the cash performance-based
incentive compensation of our Vice President of Sales than for our other
Executive Officers. Through the end of
2008, our CEO approved cash performance-based incentive compensation for our
Vice President of Sales and made the resulting compensation information
available to the Committee. Decisions
regarding base salary, long-term equity incentive compensation and other
benefits, compensation or arrangements are made in the same manner for our Vice
President of Sales as for our other Executive Officers. In the past few years, Heskas Vice President
of Human Resources has compiled and presented data discussed below for the
Committees consideration of the different compensation elements discussed
below. The Chief Financial Officer (our CFO)
has also met with the Committee to communicate on issues of interest to the
Committee, including the accounting implications of various compensation
alternatives and information on our financial plans, expectations and
historical results for the Committees consideration.
The Committee has considered it appropriate, and in the best interests
of Heskas stockholders, to endeavor to set our overall Executive Officer
compensation near the mid-point of the range of companies in the comparison
group it reviewed (Comparable Companies).
The Committee also reviews the relative mix of compensation paid by
Comparable Companies for use as a guideline.
It is the sense of the Committee that performance-based incentive
compensation has been relatively lower and long-term equity compensation
relatively higher than for Comparable Companies. We anticipate the Committee will continue to
exercise its discretion regarding the relative mix of compensation, although
the relative mix may become more similar to that of Comparable Companies over
time. The Committee views the difference
between the compensation of our CEO and our other Named Executive Officers as
largely a reflection of competitive market practices and the CEOs
responsibility for all Company operations and not any compensation philosophy
specific to Heska. In compensation
matters, the Committee reviews relevant information and makes a case-by-case
determination relying on its collective judgment and experience.
In 2005 and 2006, the process to determine executive compensation
culminated at our Board meeting held in the fourth quarter. At that time a Committee meeting was held and
final determinations were made regarding any base salary increases, MIP Plan
adoption and/or long-term compensation equity grants for the coming year. Accordingly, all option grants to Executive
Officers were granted after the market close on the day the Committee met
during the Companys fourth quarter Board meeting. We expect this to be our standard practice
going forward.
At our regularly scheduled Board meeting in November 2007, the
Committee met with an outside compensation consultant (the Consultant) and
decided to engage the Consultant for an assessment of executive compensation
strategy and programs and to provide data on competitive compensation
practices. Accordingly, the process to
determine executive compensation was delayed.
The Committee asked the Consultant to conduct a compensation survey of
companies similar to Heska and to review the current total and equity
compensation of the Companys Executive Officers. The Consultant reported to the Committee,
only, and was prohibited from doing any work for management unless it was
specifically requested by the Chairman of the Committee. The Committee viewed the Consultant as an
advisor only, and the Committee retained the discretion to implement or not
implement the Consultants suggestions.
In subsequent dialogue with the Consultant, alternative long-term
compensation approaches were discussed, including the use of restricted stock
and performance-based vesting. The
Committee held a series of meetings in December 2007 to review information
and suggestions from the Consultant and to debate, and ultimately approve, the
form and scale of long-term equity compensation for 2008. Base salaries and 2008 performance-based
incentive compensation were agreed upon at a Committee meeting during our
regularly scheduled Board meeting in February 2008.
The Committee considers compensation data from companies in medical,
biotechnology and general industry groups that have similar revenues,
veterinary focus and/or are in a similar stage of development to
22
Heska. In
2006, the Committee reviewed compensation data for the following companies as
part of its review of Executive Compensation: Abaxis, Abgenix, Arqule, Array
Biopharma, Digene, Embrex, Hi Tech Pharmaceuticals, IDEXX Laboratories,
Meridian Bioscience, MGI Pharma, Quidel and Savient Pharmaceuticals. In 2007, the Committee reviewed compensation
data for the following companies as part of its review of Executive
Compensation: Abaxis, Array Biopharma, Auxilium Pharmaceuticals, Cardiac
Science, Cyberonics, Hi Tech Pharmaceuticals, IDEXX Laboratories, Immucor,
Meridian Bioscience, MGI Pharma, Noven Pharmaceuticals, Quidel, Santarus,
Savient Pharmaceuticals and Zoll Medical.
The Committee also reviewed benchmark data resulting from a study of 120
life sciences companies carried out by the Consultant in 2007. In 2008, the Committee reviewed compensation
data for the following companies as part of its review of Executive
Compensation: Abaxis, Array Biopharma, Auxilium Pharmaceuticals, Cardiac
Science, Cyberonics, Hi Tech Pharmaceuticals, IDEXX Laboratories, Immucor,
Meridian Bioscience, MGI Pharma, Noven Pharmaceuticals, Quidel, Santarus,
Savient Pharmaceuticals and Zoll Medical.
The Committee also reviewed summary compensation data based on company
size for each year.
Base Salary.
The Committee reviews each Executive Officers
base salary annually. When reviewing
base salaries, the Committee considers compensation data from companies in
medical, biotechnology and general industry groups that have similar revenues,
veterinary focus and/or are in a similar stage of development to Heska. Consideration is also given to prior
performance, relevant experience, level of responsibility and skills, and
abilities of each Executive Officer. The
Committee believes that salary levels for our Executive Officers are set at a
level that, at the time such salary determinations were made, were reasonable
and necessary given the Companys financial resources and stage of
development. The Committee reviews
relevant information and makes a case-by-case determination relying on its
collective judgment and experience.
In 2006, the Committee was concerned regarding the effect of the three
year salary freeze on Executive Officer base salaries versus market
levels. The information in the base
salary table below was approved for the Named Executive Officers by the
Committee. The Committee also agreed to
consider a mid-2007 review of base salaries if necessary to bring them more in
line with desired rates.
Name
|
|
Annual Salary
|
|
Percent Increase
|
|
Robert B. Grieve
|
|
$
|
375,000
|
|
10.0
|
%
|
Jason A. Napolitano
|
|
$
|
232,575
|
|
5.0
|
%
|
G. Lynn Snodgrass
|
|
$
|
154,500
|
|
3.0
|
%
|
Michael J. McGinley
|
|
$
|
166,650
|
|
10.0
|
%
|
John R. Flanders
|
|
$
|
200,000
|
|
N/A
|
(1)
|
Michael A. Bent
|
|
$
|
165,635
|
|
3.8
|
%
|
(1)
Mr. Flanders joined the Company as of December 11,
2006.
In 2007, after reviewing and considering Comparable Company data and
the recent performance of both Dr. Grieve and the Company, our Board of
Directors decided to increase Dr. Grieves base salary by approximately
6.7% to $400,000 effective September 2007.
In February 2008, after reviewing and considering relevant data,
including input from Dr. Grieve, the Committee agreed to the following
base salaries, effective March 2008.
Dr. McGinleys salary increase was due in part, to his anticipated
promotion and increased responsibilities upon another Executive Officer leaving
the Company. Dr. McGinley was
promoted to Executive Vice President, Global Operations and General Manager,
Heska Des Moines in April 2008.
23
Name
|
|
Annual Salary
|
|
Percent Increase
|
|
Robert B. Grieve
|
|
$
|
420,000
|
|
5.0
|
%
|
Jason A. Napolitano
|
|
$
|
243,000
|
|
4.5
|
%
|
G. Lynn Snodgrass
|
|
$
|
158,000
|
|
2.3
|
%
|
Michael J. McGinley
|
|
$
|
195,000
|
|
17.0
|
%
|
John R. Flanders
|
|
$
|
206,000
|
|
3.0
|
%
|
Michael A. Bent
|
|
$
|
172,000
|
|
3.0
|
%
|
In November 2008, at the request of management based on the
challenges the Company faced in 2008 and expected to face in the near term, the
Committee froze base salaries for all Executive Officers, with the exception of
Dr. McGinley and Mr. Snodgrass.
Dr. Grieve proposed that, effective January 1, 2009, the
Committee formally include Mr. Snodgrass in the 2009 MIP in lieu of the
commission and bonus structure outlined below then in use for his
performance-based incentive compensation, as Dr. Grieve felt Mr. Snodgrass
had reached a level where this form of compensation was more appropriately
based on overall corporate results rather than shorter term sales results. Dr. Grieve also proposed that Mr. Snodgrasss
salary increase effective as of January 1, 2009 as historically it was
intended that, compared with managers and other officers outside of sales, Mr. Snodgrass
would receive a relatively lower proportion of his overall compensation in base
pay and a relatively higher proportion in performance-based incentive
compensation. The Committee accepted Dr. Grieves
recommendation, and increased Mr. Snodgrasss salary to $180,120 effective
January 1, 2009. In November 2008,
our Board of Directors appointed Dr. McGinley the Companys President and
Chief Operating Officer at a salary of $230,000, effective January 1,
2009.
Performance-Based Incentive Compensation.
The
Company first adopted an MIP in 1999 to provide incentives to our Executive
Officers, other managers and key employees to meet and exceed certain
predetermined annual goals. Target annual
incentives and specific performance criteria are established each year by the
Committee, with the actual payout based on the extent to which the specified
performance criteria are met. We believe
this approach provides a strong incentive for our management to achieve the
stated annual goals. An example of the
incentive can be seen when comparing the cash levels of the 2006 MIP Payouts to
the 2007 MIP Payouts in the Summary Compensation Table below. In late 2005, the Committee adopted the
Management Incentive Plan Master Document (the Master Document). A goal of the Master Document is self-funding
status for the MIP in any given year. A
given years MIP can be implemented by the Committee agreeing on four
parameters: 1) the percent of salary that is an individuals targeted bonus
compensation, 2) the relative weighting of company wide and individual
performance, 3) the key parameter(s) the MIP Payouts are to be based upon
and 4) the Payout Structure by which the MIP is funded. Typically there has been a cap on the MIP of
approximately 150% of target payout to all employees, although this is not
required in any given year. Each
individual has a targeted MIP Payout and this is intended as a
guideline. Our CEO will generally make
recommendations to the Committee regarding MIP Payouts to other MIP Plan
participants; all awards under the MIP Plan are at the discretion of the
Committee. Any MIP Payouts are to be
made in the first quarter of the following year. All Executive Officers are eligible for the
2009 MIP. All Executive Officers, with
the exception of Mr. Snodgrass, our Vice President of Sales, were eligible
for the MIP in 2006, 2007 and 2008. In
2006, 2007 and 2008, performance-based incentive compensation for Mr. Snodgrass
consisted of commissions earned based on achieving certain sales volume targets
(his Commissions) and, in 2007 and 2008, a bonus paid at the discretion of Dr. Grieve
based on Company financial performance and individual performance that is
similar to the MIP (his Bonus). Mr. Snodgrasss
performance-based incentive compensation in 2006, 2007 and 2008 is discussed
below.
In considering the 2006 MIP, the Committee was aware that the Executive
Officers were entering their third consecutive year with the same salary and that
the Executive Officers had not received any bonus payments in the prior two
years. The Committee adopted a plan with
relatively low payout thresholds, as detailed below. At the Committee meeting in the fourth
quarter of 2005, the Committee adopted the 2006 MIP with the following
parameters:
24
Parameter
|
|
Result
|
% Salary Target
|
|
Chief Executive Officer 50%
All other eligible Executive Officers 35%
|
Relative Weighting
|
|
75% Company Performance / 25% Individual Performance
|
Key Parameter
|
|
Pre-MIP Net Income Goal
|
Payout Structure
|
|
Funding starts at $1 of Pre-MIP Net Income Goal
50% Share of every $1 in additional Pre-MIP Net Income
MIP Capped at $1.5 million (150% of targeted payout)
|
As an example,
if Heska had $1.2 million in Pre-MIP Net Income, there would be $600 thousand
available for the MIP for the Committee to distribute among plan
participants. This represents a plan
funded at 60% of target. Dr. Grieves
2006 salary was $341,000 and his targeted payout was $170,500 (50% of
$341,000). In a 60% MIP-funded plan, his
funded targeted payout would be $102,300 (60% of $170,500). The Committee could then adjust his pay
upward for strong individual performance or downward for poor individual
performance using a 25% weighting as a guideline for the adjustment. This is a guideline only, however, as the
Committee retains discretion to adjust this number as circumstances dictate.
At a meeting
in March 2007, the Committee approved a recommendation that all plan
participants be paid an MIP Payout nearly 50% greater than target in accordance
with performance achievement in excess of the individual MIP cap. The Committee also decided Dr. Grieves
MIP Payout would similarly be nearly 50% greater than target. The MIP Payouts to MIP-eligible Named
Executive Officers are listed as Non-Equity Incentive Plan Compensation in
the Summary Compensation Table below.
In considering
the 2007 MIP, the Committee was aware that the Executive Officers were to
receive base salary increases in the coming year and were likely to receive
maximum MIP Payouts under the 2006 MIP as the 2006 MIP was expected to reach
its capped level due to the Companys financial performance. The Committee adopted a plan with more
aggressive payout thresholds than had been set for the 2006 MIP, as detailed
below. At the Committee meeting in the
fourth quarter of 2006, the Committee adopted the 2007 MIP with the following
parameters:
Parameter
|
|
Result
|
% Salary Target
|
|
Chief Executive Officer 50%
All other eligible Executive
Officers 35%
|
Relative Weighting
|
|
75% Company Performance / 25% Individual Performance
|
Key Parameter
|
|
Pre-MIP Operating Income Goal
|
Payout Structure
|
|
Funding starts at $4.5 million of Pre-MIP
Operating Income Goal, as defined
25.14% Share of every additional $1 in
Pre-MIP Operating Income Above Goal
MIP Capped at $1.65 million (150% of targeted payout)
|
At a Committee
meeting in February 2008, the Committee approved MIP plan participants
MIP Payouts recommendations and decided Dr. Grieves MIP Payout would be
equal to his individual funded target.
Each of the Named Executive Officers eligible for the MIP received an
MIP Payout in line with his individual funded target. The MIP Payouts to MIP-eligible Named
Executive Officers are listed as Non-Equity Incentive Plan Compensation in
the Summary Compensation Table below.
MIP Payouts were lower for 2007 than for 2006 due to a relatively lower
funded status (roughly 30% of target for 2007 versus 150% of target for 2006)
for 2007, which lowered the funded target MIP Payout for each MIP-eligible
Named Executive Officer. The 2007 MIP
achieved lower funded status than the 2006 MIP due to the more aggressive
payout thresholds in the 2007 MIP.
25
In considering
the 2008 MIP, the Committee considered the Companys 2007 performance and 2008
outlook in setting the payout structure.
At the Committee meeting in the first quarter of 2008, the Committee
adopted the 2008 MIP with the following parameters:
Parameter
|
|
Result
|
% Salary Target
|
|
Chief Executive Officer 50%
All other eligible Executive Officers 35%
|
Relative Weighting
|
|
75% Company Performance / 25% Individual Performance
|
Key Parameter
|
|
Pre-MIP Operating Income Goal
|
Payout Structure
|
|
Funding starts at $5.862 million of Pre-MIP
Operating Income Goal, as defined
32.22% Share of every additional $1 in
Pre-MIP Operating Income Above Goal
MIP Capped at $1.732 million (150% of targeted payout)
|
The Companys
financial performance was well below expectations in 2008. The Company failed to achieve pre-MIP Operating
Income at a level to fund the MIP.
Accordingly, no MIP Payouts were made under the 2008 MIP.
In considering
the 2009 MIP, the Committee considered the challenges facing the Company and
the importance of observing the MIPs self-funding goal, particularly in a
period with tight credit conditions.
Accordingly, the Committee approved an MIP with aggressive payout
thresholds which were in excess of the Companys internal budget levels before
any MIP Payouts were to be made. In November 2008,
the Committee adopted the 2009 MIP with the following parameters:
Parameter
|
|
Result
|
% Salary Target
|
|
Chief Executive Officer 50%
All other eligible Executive Officers 35%
|
Relative Weighting
|
|
75% Company Performance / 25% Individual Performance
|
Key Parameter
|
|
Pre-MIP Net Income, as defined in the Third Amended and Restated
Credit and Security Agreement by and between Heska Corporation, Diamond
Animal Health, Inc. and Wells Fargo Bank, National Association dated December 30,
2005.
|
Payout Structure
|
|
Funding starts at $2 million of Pre-MIP Net Income
30.0% Share of every additional $1 in Pre-MIP Net Income
MIP Capped at $1.855 million (150% of targeted payout)
|
All of Mr. Snodgrasss
performance-based incentive compensation for 2006 was from Commissions. For 2007, approximately $45 thousand of Mr. Snodgrasss
performance-based incentive compensation was from Commissions, with the balance
resulting from his Bonus. Relatively
lower performance versus target was the reason for the decline in Commissions
from 2006 to 2007. For 2008,
approximately $35 thousand of Mr. Snodgrasss performance-based incentive
compensation was from Commissions, with the balance resulting from his
Bonus. Relatively lower performance
versus target was the reason for the decline in Commissions from 2007 to
2008. Mr. Snodgrasss Bonus was
greater in 2008 than in 2007 due to the view that he had a greater contribution
to overall Company performance outside of his core sales responsibility in 2008
than in 2007. Mr. Snodgrasss
Commissions and Bonus are listed as Non-Equity Incentive Plan Compensation in
the Summary Compensation Table below.
In the table
named Grants of Plan-Based Awards below, we list potential payouts under the
2009 MIP to Named Executive Officers, under Estimated Future Payouts Under
Non-Equity Incentive Plan Awards. All Threshold
MIP Payouts are listed at $0 as the MIP Plan will not fund if Pre-MIP Net
Income, as defined in the table above, is at (or below) the threshold level of
$2.0 million. All Target MIP
Payouts are as defined above. The Maximum
MIP Payouts are 50% greater than the Target MIP Payouts to reflect
26
that the 2009 MIP Plan is capped
at 150% of its targeted funding level.
It is possible the Committee may decide to pay a Named Executive Officer
greater than this amount, although this did not occur in 2006 when the 2006 MIP
Plan reached its capped funding level.
Long-term
Equity Compensation
. Historically, we have used stock options to
provide long-term equity compensation to our Executive Officers. The Committee is responsible for determining
the number and terms of options, or other forms of long-term equity
compensation, to be granted to Executive Officers, taking into account such
factors as individual and Company performance, policies regarding cash
compensation and practices of Comparable Companies. Options granted to Executive Officers have
exercise prices equal to fair market value (closing price) at the time of grant
and expire within ten years from the time of grant. Any vesting ceases and the vested portion of
options must be exercised within a certain period should an Executive Officer
leave Heskas service (subject to any rights to partial acceleration of vesting
upon termination without cause under employment agreements). Accordingly, option grants will provide a
return to an Executive Officer only if said Executive Officer continues to work
for the benefit of the Company and only if Heskas market price per share appreciates
over the option term. We believe that
these provisions help both to retain qualified employees and to motivate them
to achieve long-term increases in stock value, providing continuing benefits to
the Company and its stockholders beyond those in the year of grant. The Committee had discussions regarding the
use of restricted stock and performance-based vesting in December 2007,
but decided not to pursue these alternatives.
This was due to potential tax implications for employees in using
restricted stock and the likely increase in complexity and administrative
costs, as well as potential duplicative incentives to the MIP, in using
performance-based vesting. While it
appears stock options will remain the core component of long-term equity
compensation in the near future, it is possible the Committee will choose to
use restricted stock, restricted stock units, some other form of long-term
equity compensation or some combination of the foregoing with or without stock
options in the future.
In the fourth quarter of
2006, after significant discussion and considering factors including the
Historical Compensation to Executive Officers, the fact that the 2006 MIP was
expected to be capped, our expected financial results in the fourth quarter
of 2006, the significant impact that the use of fair values for options granted
would have on our future results of operations and the total number of options
previously granted in 2006, the Committee decided to grant fully-vested stock
options in an amount approximately 60% of the size of the prior years grant
and approved a grant of fully-vested stock options to Mr. Flanders upon
his formally joining the Company. These
options were granted at the close of business on November 17, 2006 the
date of the Committee meeting, with the exception of options granted to Mr. Flanders
which were granted upon his joining the Company on December 11, 2006.
In December 2007, after
receiving input from the Consultant, reviewing relevant data, including data
requested to follow-up on certain questions, and engaging in significant
discussion and debate, the Committee approved a grant of stock options to
certain Officers of the Company. Due to
this process, including hiring and considering the input of the Consultant, the
option grant occurred on December 31, 2007 later in the year than in
2006. In contrast to recent stock option
grants, this stock option grant was subject to monthly vesting over a four year
period as a result of the concern of some of our Board members that fully-vested
options may not provide as great a retention incentive as desired. We anticipate granting stock options with
4-year monthly vesting will be our standard practice in the future. The Committee granted Dr. Grieve a
significantly larger stock option grant than in the prior year, reflective of
the Committees view of the market and the Committees evaluation of Dr. Grieves
performance. The Committee considered Dr. Grieves
input in addition to market data in determining stock option grants to the other
Named Executive Officers, all of which increased or were at the same level as
the prior year, except for Mr. Flanders who joined the Company in December 2006. Related option grants to Named Executive
Officers are reflected in the Grants of Plan-Based Awards table below in the
column labeled All Other Option Awards; Number of Securities Underlying
Options (#).
In November 2008, the
Committee considered the fact that 2009 salaries had been frozen for most
Executive Officers, that no 2008 MIP Payouts were to be made and that the
Companys 2009 MIP required a performance in excess of the Companys internal
budget before any MIP Payouts were to be made.
Accordingly, the Committee desired to provide Executive Officers with a
greater proportion of long-term
27
compensation
than in the recent past. In November 2008,
the Committee granted all of our Named Executive Officers a greater number of
shares underlying options than in 2007, with the exception of Dr. Grieve,
who received the same number of shares underlying options. Dr. McGinley received the largest
year-over-year increase in recognition of his pending promotion to President
and Chief Operating Officer and increased responsibilities.
Option Awards in the Summary
Compensation Table below represent the cost of options recognized for
financial reporting purposes for each of our Named Executive Officers. In 2006, the majority of the value for each
Named Executive Officer is related to the fully vested option grants in the
fourth quarter of 2006 discussed above.
For all other Named Executive Officers other than Mr. Napolitano
and Mr. Snodgrass, the only other option cost included is for options
granted with a four year vesting schedule in January 2003 with monthly
vesting in 2006 and January 2007.
In addition to such options granted in January 2003, Mr. Napolitanos
2006 total also includes option cost from his initial grant of options upon
joining the Company in May 2002, which vested monthly ending in May 2006
after an initial six-month cliff vest in November 2002. Mr. Snodgrasss 2006 total includes only
options granted in the fourth quarter of 2006.
Options granted on December 31, 2007 did not impact 2007 in the Summary
Compensation Table because the affiliated cost will be recognized over the
four year vesting period and these options were granted at year end. The significant decline in value in 2007
versus 2006 for each Named Executive Officer is due to the fact that 2007
includes at most one month of stock option vesting for each individual, as
discussed above. In 2008, option award
compensation increased for all Named Executive Officers due mostly to
recognition of stock options granted on December 31, 2007. We expect the value recognized under Option
Awards will increase in future years as the December 2007 and November 2008
option grants vest and future options are issued.
Other
Benefits, Compensation or Arrangements
All Other Compensation in
the Summary Compensation Table below represent matching funds received by
each of our Named Executive Officers under our 401(k) plan, which is open
to all employees, as well as life insurance and short-term and long-term
disability premiums.
All of our Named Executive
Officers, with the exception of Mr. Snodgrass, had employment contracts in
2006, 2007 and 2008. They entitle Named
Executive Officers to payments based on salary, continuing medical benefits for
a given period and immediate vesting of unvested options in certain
circumstances. Payments based on salary
are typically paid monthly. The
Committee believes these are common, in line with the experience of the
Committee for executives at other companies and are intended to provide
Executive Officers with additional resources to seek a comparable job, which is
unlikely to be a rapid process given the level of employment, in these certain
circumstances, such as an acquisition. Dr. Grieve
is also entitled to payout based on bonus targets in certain circumstances,
such as termination without cause, as well.
These employment contracts are intended to provide the Named Executive
Officers with protections appropriate for, and in line with, those received by
comparable executives at companies similar to Heska. Periodically, we review these agreements
versus market benchmarks.
In summary,
Heska Corporation currently faces a challenging environment. Heskas Executive Compensation is adjusting
to that environment along with the Company.
The Committee endeavors to find the proper level and balance of base
salary, performance-based incentive compensation, long-term equity incentive
compensation and other forms of compensation.
28
Summary Compensation Table
The following
table sets forth compensation for services rendered in all capacities to us
during 2006, 2007 and 2008 by Robert B. Grieve, our Chairman of the Board and
Chief Executive Officer, Jason A. Napolitano, our Chief Financial Officer, and
our three other most highly compensated Executive Officers for the fiscal year
ended December 31, 2008 (the Named Executive Officers).
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
|
|
|
Salary
|
|
|
|
Stock
|
|
($)
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
($) (1)
|
|
Bonus
|
|
Awards
|
|
(2)(3)
|
|
($) (4)
|
|
($)
|
|
($) (5)
|
|
($)
|
|
Robert B. Grieve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the
Board and
|
|
2008
|
|
416,666
|
|
|
|
|
|
61,696
|
|
|
|
|
|
11,277
|
|
489,639
|
|
Chief Executive
Officer
|
|
2007
|
|
377,667
|
|
|
|
|
|
1,126
|
|
60,242
|
|
|
|
10,077
|
|
449,112
|
|
|
|
2006
|
|
341,000
|
|
|
|
|
|
88,393
|
|
251,378
|
|
|
|
8,689
|
|
689,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason A.
Napolitano
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice
President,
|
|
2008
|
|
241,263
|
|
|
|
|
|
22,586
|
|
|
|
|
|
5,346
|
|
269,195
|
|
Chief Financial Officer
and
|
|
2007
|
|
230,729
|
|
|
|
|
|
239
|
|
24,519
|
|
|
|
4,146
|
|
259,633
|
|
Secretary
|
|
2006
|
|
221,500
|
|
|
|
|
|
95,123
|
|
114,300
|
|
|
|
927
|
|
431,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Lynn Snodgrass
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
Sales
|
|
2008
|
|
157,417
|
|
|
|
|
|
8,231
|
|
52,972
|
|
|
|
2,217
|
|
220,837
|
|
|
|
2007
|
|
153,750
|
|
|
|
|
|
|
|
52,119
|
|
|
|
1,113
|
|
206,982
|
|
|
|
2006
|
|
150,000
|
|
|
|
|
|
30,052
|
|
93,610
|
|
|
|
3,281
|
|
276,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J.
McGinley(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and
Chief Operating
|
|
2008
|
|
194,105
|
|
|
|
|
|
17,582
|
|
|
|
|
|
5,695
|
|
217,652
|
|
Officer
|
|
2007
|
|
163,737
|
|
|
|
|
|
568
|
|
20,000
|
|
|
|
4,833
|
|
189,138
|
|
|
|
2006
|
|
151,500
|
|
|
|
|
|
51,769
|
|
78,178
|
|
|
|
4,757
|
|
286,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R.
Flanders(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
General Counsel
|
|
2008
|
|
205,000
|
|
|
|
|
|
6,257
|
|
|
|
|
|
4,294
|
|
215,551
|
|
and Corporate Secretary
|
|
2007
|
|
200,000
|
|
|
|
|
|
|
|
21,000
|
|
|
|
3,730
|
|
224,730
|
|
|
|
2006
|
|
6,146
|
|
|
|
|
|
142,260
|
|
|
|
|
|
|
|
148,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Bent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
Principal
|
|
2008
|
|
170,939
|
|
|
|
|
|
6,257
|
|
|
|
|
|
6,431
|
|
183,627
|
|
Accounting
Officer and
|
|
2007
|
|
164,196
|
|
|
|
|
|
568
|
|
18,000
|
|
|
|
6,075
|
|
188,839
|
|
Controller
|
|
2006
|
|
157,000
|
|
|
|
|
|
29,230
|
|
81,016
|
|
|
|
3,235
|
|
270,481
|
|
(1)
Salary includes amounts, if any, deferred
pursuant to 401(k) arrangements.
(2)
Represents cost
recognized in each year for financial reporting purposes.
(3)
Grant date fair value of option awards are based on valuation techniques
required by Option Accounting Rules.
Like any estimate prepared in good faith, the underlying assumptions we
use under Option Accounting Rules may vary from our actual future
results. The option valuation used for
accounting and/or financial reporting purposes does not necessarily represent
the value any individual recipient would place on an option award. In addition, Option Accounting Rules prohibits
some valuation techniques which may be useful in certain circumstances. A more
detailed description of our option valuation techniques and assumptions can be
found in our Annual Report on Form 10-K for the year ended December 31,
2008 in our Note 7 of the Notes to Consolidated Financial Statements.
(4)
Amounts earned pursuant
to our Management Incentive Plans except for Mr. Snodgrass whose amounts
were Commissions earned based on achieving certain sales volume targets and a
Bonus earned based on Company financial performance and individual performance
that is similar to our Management Incentive Plans. Amounts indicated are for year in which
compensation was earned.
(5)
Includes life insurance premiums, short-term and long-term disability
premiums and 401(k) match.
(6)
Dr. McGinley was appointed President and Chief Operating Officer of
the Company at an annual salary of $230,000 effective as of January 1,
2009.
(7)
Mr. Flanders joined the Company as of December 11, 2006 and
left the Company as of January 31, 2009.
29
Grants of Plan-Based Awards in Last Fiscal Year
The
following table shows all grants of options to acquire shares of our common
stock granted in the fiscal year ended December 31, 2008 to the Named
Executive Officers.
Grants of Plan-Based Awards
|
|
|
|
|
|
|
|
All Other
Stock
Awards:
|
|
All Other
Option
Awards:
|
|
Exercise
|
|
Grant
Date
Fair
Value of
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards
|
|
Number
of Shares
of Stock
or Units
(#)
|
|
Number of
Securities
Underlying
Options
(#) (2)
|
|
or Base
Price of
Option
Awards
($/Sh)
|
|
Stock
and
Option
Awards
($) (3)
|
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($) (1)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
Robert B. Grieve
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
0.440
|
|
51,240
|
|
|
|
N/A
|
|
|
|
210,000
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason A.
Napolitano
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
0.440
|
|
22,204
|
|
|
|
N/A
|
|
|
|
85,050
|
|
127,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Lynn Snodgrass
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
0.440
|
|
8,540
|
|
|
|
N/A
|
|
|
|
63,042
|
|
94,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J.
McGinley
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
0.440
|
|
27,328
|
|
|
|
4/18/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
1.40
|
|
15,312
|
|
|
|
N/A
|
|
|
|
80,500
|
|
120,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R.
Flanders(4)
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
0.440
|
|
8,540
|
|
|
|
N/A
|
|
|
|
72,100
|
|
108,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Bent
|
|
11/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
0.440
|
|
8,540
|
|
|
|
N/A
|
|
|
|
60,200
|
|
90,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Based on targeted bonus multiplied by the percentage cap in our 2009
Management Incentive Plan (MIP) for Named Executive Officers. Our 2009 MIP is designed with a cap of
approximately $1.855 million on total payouts, or 150% of projected targeted
bonuses. Our 2009 MIP gives our
Compensation Committee discretion as to how any payouts will be distributed and
the ability to make total payouts above the cap level. Accordingly, although our Compensation
Committee has never awarded an MIP Payout to an employee greater than the
employees targeted bonus multiplied by the applicable percentage cap, our
Compensation Committee has the ability to make 2009 MIP Payouts to Executive
Officers in excess of that amount, which is reported as maximum in this
column.
(2)
One-forty-eighth (1/48
th
) of the total options granted become vested
and exercisable each month from the grant date until options granted have
vested in full on the four-year anniversary of the grant date. Each option was granted with an exercise
price equal to 100% of the fair market value of our stock on the date of grant
as determined by our Compensation Committee, and has a term of ten years,
subject to earlier termination in certain events related to termination of
employment.
(3)
Grant date fair value of option awards are
based on valuation techniques required by Option Accounting Rules. Like any estimate prepared in good faith, the
underlying assumptions we use under Option Accounting Rules may vary from
our actual future results. The option
valuations used for accounting and/or financial reporting purposes do not
necessarily represent the value any individual recipient would place on an
option award. In addition, Option
Accounting Rules prohibit some valuation techniques which may be useful in
certain circumstances. A more detailed
description of our option valuation techniques and assumptions can be found in
our Annual Report on Form 10-K for the year ended December 31, 2008
in our Note 7 of the Notes to Consolidated Financial Statements.
(4)
Mr. Flanders left the Company effective January 31,
2009.
30
Outstanding Equity Awards at Fiscal Year-End
The following table shows
unexercised stock options held at the end of fiscal year ended December 31,
2008 by the executive officers named in the Summary Compensation Table.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
(1)
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
|
Equity
Incentive
Plan Awards
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
|
|
Robert B. Grieve
|
|
6,250
|
|
293,750
|
|
|
|
0.440
|
|
11/04/2018
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
225,000
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
1.717
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
1.250
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
282,000
|
|
|
|
|
|
0.880
|
|
3/30/2015
|
|
|
|
|
|
|
|
|
|
|
|
475,000
|
|
|
|
|
|
2.300
|
|
1/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
275,000
|
|
|
|
|
|
0.700
|
|
1/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
69,996
|
|
|
|
|
|
0.340
|
|
1/6/2013
|
|
|
|
|
|
|
|
|
|
|
|
275,000
|
|
|
|
|
|
1.210
|
|
1/12/2012
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
1.250
|
|
2/5/2011
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
3.690
|
|
2/23/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason A.
Napolitano
|
|
2,708
|
|
127,292
|
|
|
|
0.440
|
|
11/04/2018
|
|
|
|
|
|
|
|
|
|
|
|
27,500
|
|
82,500
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
1.717
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
260,000
|
|
|
|
|
|
1.250
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
195,000
|
|
|
|
|
|
0.880
|
|
3/30/2015
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
|
|
2.300
|
|
1/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
29,166
|
|
|
|
|
|
0.700
|
|
1/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
476,086
|
|
|
|
|
|
0.700
|
|
5/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
70,802
|
|
|
|
|
|
0.810
|
|
4/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
431
|
|
|
|
|
|
0.940
|
|
8/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
7,869
|
|
|
|
|
|
0.940
|
|
8/24/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Lynn Snodgrass
|
|
1,042
|
|
48,958
|
|
|
|
0.440
|
|
11/04/2018
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
30,000
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
1.717
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
1.250
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
1.590
|
|
5/18/2014
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
1.840
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
0.950
|
|
4/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
1.060
|
|
2/5/2012
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
1.140
|
|
4/26/2011
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
2.000
|
|
11/17/2009
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
2.370
|
|
10/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J.
McGinley
|
|
3,333
|
|
156,667
|
|
|
|
0.440
|
|
11/04/2018
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
25,000
|
|
|
|
1.400
|
|
4/18/2018
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
52,500
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
1.717
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
1.250
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
0.880
|
|
3/30/2015
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
2.300
|
|
1/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
0.700
|
|
1/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
0.340
|
|
1/6/2013
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
1.060
|
|
2/5/2012
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
|
|
1.140
|
|
4/26/2011
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
2.000
|
|
8/2/2010
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
2.000
|
|
11/17/2009
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
3.060
|
|
4/6/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R.
Flanders(2)
|
|
1,042
|
|
48,958
|
|
|
|
0.440
|
|
11/4/2018
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
22,500
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
1.650
|
|
12/11/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Bent
|
|
1,042
|
|
48,958
|
|
|
|
0.440
|
|
11/04/2018
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
22,500
|
|
|
|
1.830
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
1.717
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
1.250
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
0.880
|
|
3/30/2015
|
|
|
|
|
|
|
|
|
|
|
|
65,000
|
|
|
|
|
|
1.590
|
|
1/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
0.700
|
|
1/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
0.340
|
|
1/62013
|
|
|
|
|
|
|
|
|
|
|
|
26,000
|
|
|
|
|
|
0.990
|
|
4/12/2012
|
|
|
|
|
|
|
|
|
|
|
|
32,000
|
|
|
|
|
|
1.060
|
|
2/5/2012
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
1.140
|
|
4/26/2011
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
2.000
|
|
11/17/2009
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
2.370
|
|
10/6/2009
|
|
|
|
|
|
|
|
|
|
(1)
Options are subject to earlier termination in
certain events related to termination of service.
(2)
Mr. Flanders left the Company effective January 31,
2009.
31
Aggregated Option Exercises
in Last Fiscal Year and Fiscal Year-End Option Values
The following
table shows aggregate exercises of options to purchase our common stock in the
fiscal year ended December 31, 2008 by the Named Executive Officers.
Option Exercises and Stock Vested
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares
Acquired
on Exercise
(#)
|
|
Value Realized
on Exercise
($)
|
|
Number of
Shares
Acquired
on Vesting
(#)
|
|
Value Realized
On Vesting
($)
|
|
Robert B. Grieve
|
|
|
|
|
|
|
|
|
|
Jason A. Napolitano
|
|
|
|
|
|
|
|
|
|
G. Lynn Snodgrass
|
|
|
|
|
|
|
|
|
|
Michael J. McGinley
|
|
|
|
|
|
|
|
|
|
John R. Flanders(1)
|
|
|
|
|
|
|
|
|
|
Michael A. Bent
|
|
|
|
|
|
|
|
|
|
(1)
Mr. Flanders left the Company effective January 31,
2009.
Potential
Payments Upon Termination or Change-in-Control
The following table
summarizes the potential payments and benefits payable to each of the Named
Executive Officers upon termination of employment or a change-in-control under
each situation listed below, assuming, in each situation, that our Named
Executive Officers were terminated on December 31, 2008 as determined
under the terms of our plans and arrangements as in effect on December 31, 2008.
Payments
Upon Termination (Without a Change-in-Control).
Pursuant to an employment agreement with each of Dr. Grieve,
Dr. McGinley and Messrs. Napolitano, Flanders and Bent, in the event
he is involuntarily terminated, he is entitled to receive amounts earned during
his term of employment. Such amounts
include: base salary and the cost of health insurance premiums as set forth in
the table below. Pursuant to his
employment agreement, upon an involuntary termination not for cause, Dr. Grieve
is entitled to accelerated vesting of all stock options, an extension of the
term of all outstanding stock options and a bonus payment as set forth in the
table below. Further, pursuant to his
employment agreement, upon termination for good reason Dr. Grieve is
entitled to the payments set forth below.
Payments
Upon Change-in-Control.
Pursuant
to an employment agreement with each of Dr. Grieve, Dr. McGinley and Messrs. Napolitano,
Flanders and Bent, in the event he is terminated upon a change-in-control he is
entitled to receive amounts earned during the term of his employment. Such amounts include: base salary and the
cost of health insurance premiums as set forth in the table below. Pursuant to his employment agreement, each of
Dr. Grieve and Mr. Napolitano are entitled to accelerated vesting of
all stock options and Dr. Grieve is entitled to an extension of the term
of all outstanding stock options in certain circumstances. Further, pursuant to his employment
agreement, upon an involuntary termination not for cause, Dr. Grieve is
entitled to a bonus payment as set forth in the table below. Further, upon termination for good reason, Dr. Grieve
is entitled to the payments set forth below.
Payments
Upon Death or Disability.
In
the event of death or disability, Dr. Grieve is entitled to the same
benefits as in the event of termination without a change in control and is also
entitled to receive the death benefits under our life insurance plan or the
disability benefits under our disability plan, as appropriate, as set forth
below.
In
the event of death or disability, Dr. McGinley and Messrs. Napolitano,
Snodgrass, Flanders and Bent, are each entitled to receive the death benefits
under our life insurance plan or the disability benefits under our disability
plan, as appropriate, as set forth below.
32
Potential Payments Upon Termination or Change-in-Control
(1)
|
|
|
|
Other Than in
Connection With a
Change-in-Control
|
|
In Connection With a
Change-in-Control
|
|
|
|
|
|
Executive Benefits and
Payments Upon Termination
|
|
Voluntary
Termination or
Termination
for Cause
($)
|
|
Involuntary
Termination
not for
Cause
($)
|
|
Termination
for Good
Reason
($)
|
|
Involuntary
Termination
not for
Cause
($)
|
|
Termination
for Good
Reason
($)
|
|
Death
($)
|
|
Disability
($)
|
|
Robert B. Grieve
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
420,000
12,716
|
|
420,000
12,716
|
|
840,000
502,756
25,433
|
|
840,000
502,756
25,433
|
|
420,000
12,716
300,000
|
|
420,000
12,716
15,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason A. Napolitano
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
121,500
4,407
|
|
|
|
243,000
8,814
|
|
|
|
300,000
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Lynn Snodgrass
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
7,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. McGinley
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
97,500
6,358
|
|
|
|
195,000
12,716
|
|
|
|
300,000
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Flanders (3)
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
103,000
6,358
|
|
|
|
206,000
12,716
|
|
|
|
300,000
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Bent
Base Salary
Bonus
Medical continuation
Death benefits
Monthly disability benefits
Value of accelerated stock options (2)
|
|
|
|
86,000
6,358
|
|
|
|
172,000
12,716
|
|
|
|
300,000
|
|
8,000
|
|
(1)
Based on 2008 salary and
cost information.
(2)
Calculated based on December 31,
2008 closing price of $0.2501 per share.
(3)
Mr. Flanders left the Company effective January 31,
2009.
33
The following Compensation Committee
Report and related disclosure shall not be deemed incorporated by reference by
any general statement incorporating this proxy statement into any filing under
the Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPENSATION COMMITTEE
REPORT
The
Compensation Committee of the Company has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation
S-K and, based on such review and discussions, the Compensation Committee
recommended to the Board that the Compensation Discussion and Analysis be
included in this Proxy Statement.
|
THE COMPENSATION COMMITTEE
|
|
|
|
|
|
Peter Eio,
Chairman
|
|
G. Irwin Gordon
|
|
John F. Sasen, Sr.
|
|
|
April 6, 2009
|
|
34
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation
Committee consists of non-employee Directors only. No interlocking relationship existed during
2008 between our Executive Officers, members of our Board of Directors or
members of our Compensation Committee, and the Executive Officers, members of
the Board of Directors or members of the Compensation Committee of the Board of
Directors of any other company.
AUDITOR FEES AND SERVICES
EKS&H was our
independent registered public accountant for fiscal 2007 and 2008. KPMG LLP (KPMG) was our independent
registered public accountant for fiscal 2005 and continued to bill us for
services related to historical audit opinions, such as actions required to
obtain consent to include these opinions in our SEC filings. In 2007, our Audit Committee engaged
EKS&H to conduct an audit of fiscal 2005 so that we did not have to obtain
KPMGs consent to include KPMGs audit opinion for that year in our Annual
Report on Form 10-K for the year ended December 31, 2007 and any
future SEC filings. The following table
sets forth the aggregate fees billed by EKS&H for audit services rendered
in connection with the consolidated financial statements and reports for fiscal
years 2007 and 2008, respectively, and for other services rendered during 2007
and 2008 on behalf of Heska and its subsidiaries, as well as all out-of-pocket
costs incurred in connection with these services which have been billed to
Heska and its subsidiaries. Our Audit
Committee has approved all of the below fees.
|
|
EKS&H
|
|
|
|
2007
|
|
2008
|
|
Audit Fees (1)
|
|
$
|
369,286
|
|
$
|
275,750
|
|
Audit Related Fees (2)
|
|
15,500
|
|
16,750
|
|
Tax Fees
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
Total
|
|
$
|
384,786
|
|
$
|
292,500
|
|
(1)
Audit fees represent fees for the audit of our
annual financial statements, review of financial statements included in our Form 10-Q
Quarterly Reports and services that are normally provided by the independent
auditors in connection with statutory and regulatory filings including consents
for historical audit opinions. EKS&H
2007 fees include an audit of fiscal 2005 and an audit of the Companys
internal control over financial reporting.
EKS&H 2008 fees include an audit of the Companys internal control
over financial reporting.
(2)
Audit related fees are fees for the assurance
and related services by the independent auditors that are reasonably related to
the performance of the audit or review of our financial statements and are not
reported above under Audit Fees. The
services for fees disclosed under this category include the annual audit of our
401(k) Retirement Plan.
Pre-Approval Policy.
Our Audit Committee pre-approves
all auditing services and non-audit services not prohibited by law to be
performed by our independent registered public accountant. Our Audit Committee also pre-approves all
associated fees, except for
de minimis
amounts for non-audit services, which are approved by our Audit Committee prior
to the completion of the audit. In February 2009,
our Audit Committee approved EKS&H as our primary provider of tax
compliance and return preparation services.
35
The following Report of our
Audit Committee and related disclosure shall not be deemed incorporated by
reference by any general statement incorporating this proxy statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts
.
REPORT OF OUR AUDIT
COMMITTEE
The ultimate
responsibility for good corporate governance rests with Heska Corporations
Board of Directors (the Board), whose primary roles are oversight, counseling
and direction to Heska Corporations management in the best long-term interests
of Heska Corporation (Heska or the Company) and its stockholders. The Audit Committee of the Board (the Audit
Committee) has been established for the purpose of overseeing the accounting
and financial reporting processes of the Company and audits of Heskas
financial statements.
The Audit Committee
operates under a written charter, a copy of which is available on Heskas
website at www.heska.com. As described
more fully in its charter, the purpose of the Audit Committee is to assist the
Board in its oversight and monitoring of Heskas financial reporting, internal
controls and audit function. Management
is responsible for the preparation, presentation and integrity of Heskas
financial statements; accounting and financial reporting principles; internal
controls; and procedures designed to ensure compliance with accounting
standards, applicable laws and regulations.
The Audit Committee has hired an independent registered public accountant,
who is responsible for performing an independent audit of the Companys
consolidated financial statements in accordance with generally accepted
auditing standards. In accordance with
the Sarbanes-Oxley Act of 2002, the Audit Committee has ultimate authority and
responsibility to select, direct, compensate, evaluate and, when appropriate,
replace Heskas independent registered public accountant.
The Audit Committee
members are not professional accountants or auditors, and their functions are
not intended to duplicate or to certify the activities of management and the
independent registered public accountant, nor can the Audit Committee certify
that the independent registered public accountant is independent under
applicable rules. The Audit Committee
serves a board-level oversight role, in which it provides advice, counsel and
direction to management on the basis of the information it receives,
discussions with management and the independent registered public accountant,
and the experience of the Audit Committees members in business, financial and
accounting matters. The Audit Committee
has the authority to engage its own outside advisers, including experts in
particular areas of accounting, as it determines appropriate, apart from
counsel or advisers hired by management.
In this context, during
the year 2008, we met and held discussions with management and Ehrhardt Keefe
Steiner & Hottman PC (EKS&H), Heskas independent registered
public accountant. Management
represented to us that Heskas consolidated financial statements were prepared
in accordance with generally accepted accounting principles, and we have
reviewed and discussed the consolidated financial statements with management
and EKS&H. In Audit Committee
meetings with EKS&H, we discussed matters as required by Statement of
Auditing Standards No. 61 (Communication with Audit Committees). Our review included a discussion with
management of the quality, not merely the acceptability, of Heskas accounting
principles, the reasonableness of significant estimates and judgments and the
disclosure in Heskas consolidated financial statements.
We received from EKS&H the written disclosures required by the
applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountants communications with the Audit Committee
concerning independence and discussed with EKS&H its independence. In reliance on the reviews and discussions
noted above, and the report of the independent registered public accountant, we
recommended to the Board that the Companys audited financial statements be
included in its Annual Report on Form 10-K for the year ended December 31,
2008 (the Companys 2008 10-K), and be filed with the Securities and Exchange
Commission.
36
On March 31, 2006, we dismissed KPMG LLP (KPMG) as Heskas
independent registered public accountant and engaged EKS&H as Heskas
independent registered public accountant.
An extensive search was conducted to evaluate Heskas alternatives
regarding independent registered public accountants, including face-to-face
interviews conducted by the Chairman of the Audit Committee. We believe EKS&H is compatible with a
company Heskas size and we believe EKS&H has consistently conducted high
quality, cost-effective audits. In 2007,
we engaged EKS&H to conduct an audit (the 2005 Re-audit) for fiscal 2005,
so that we did not have to obtain KPMGs consent to include KPMGs audit
opinion for that year in the Companys 2007 10-K and any future SEC
filings. We believe it was wise to incur
the additional fees affiliated with the 2005 Re-audit due to the significant
management time and distraction associated with obtaining KPMGs consent to
include KPMGs audit opinion in the Companys SEC filings in the past and our
concern over this recurring. KPMG was
also our primary provider of tax compliance and return preparation services
from July 2002 until February 2009.
Based on our experience with KPMG and EKS&H and at managements
request, we approved EKS&H as the Companys primary provider of tax
compliance and return preparation service in February 2009.
KPMG
served as Heskas independent auditors from July 30, 2002 to March 31,
2006. In connection with the audit of
the fiscal year ended December 31, 2005, and during the subsequent interim
period through March 31, 2006, the Company did not have any disagreements
with KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
In addition, during the fiscal year ended December 31, 2005 and through March 31,
2006, the Company had no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K).
During the year ended December 31,
2005 and the subsequent period through March 31, 2006,
neither the Company nor anyone acting on the Companys behalf consulted
EKS&H regarding: (1) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Companys financial statements; or (2) any
matter that was either the subject of a disagreement as defined in Item
304(a)(1)(iv) of Regulation S-K or a reportable event described in Item
304(a)(1)(v) of Regulation S-K.
Submitted by the Audit Committee of Heskas
Board of Directors:
|
William A. Aylesworth,
Chairman
|
|
Peter Eio
|
|
Louise L. McCormick
|
|
|
April 6, 2009
|
|
37
ADDITIONAL INFORMATION
Householding
of Proxy Materials
The SEC has
adopted rules that permit companies and intermediaries such as brokers to
satisfy delivery requirements for proxy statements with respect to two or more
stockholders sharing the same address by delivering a single proxy statement
addressed to those stockholders. This
process, which is commonly referred to as householding, potentially provides
extra convenience for stockholders and cost savings for companies. Heska and some brokers household proxy
materials, delivering a single proxy statement to multiple stockholders sharing
an address unless contrary instructions have been received from the affected
stockholders. Once you have received
notice from your broker or us that they or we will be householding materials to
your address, householding will continue until you are notified otherwise or
until you revoke your consent. If, at
any time, you no longer wish to participate in householding and would prefer to
receive a separate proxy statement, or if you are receiving multiple copies of
the proxy statement and wish to receive only one, please notify your broker if
your shares are held in a brokerage account or us if you hold registered
shares. You can notify us by sending a
written request to Investor Relations, Heska Corporation, 3760 Rocky Mountain
Avenue, Loveland, Colorado 80538.
OTHER MATTERS
Our Board knows of no
other matters to be presented for stockholder action at our 2009 Annual
Meeting. However, if other matters do
properly come before our Annual Meeting or any adjournments or postponements
thereof, our Board intends that the persons named in the proxies will vote upon
such matters in accordance with their best judgment.
|
BY ORDER OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
|
|
Jason A. Napolitano
|
|
Executive Vice President, Chief Financial Officer
and Secretary,
|
|
Heska Corporation
|
|
|
Loveland, Colorado
|
|
April 6, 2009
|
|
38
Appendix A
HESKA CORPORATION
1997 STOCK INCENTIVE PLAN
(AS AMENDED MARCH 6,
2007 AND MAY 5, 2009)
A-1
TABLE
OF CONTENTS
|
|
|
Page
|
|
|
|
|
ARTICLE
1.
|
INTRODUCTION
|
|
A-4
|
|
|
|
|
ARTICLE
2.
|
ADMINISTRATION
|
|
A-4
|
|
|
|
|
2.1
|
Committee Composition
|
|
A-4
|
2.2
|
Committee Responsibilities
|
|
A-4
|
|
|
|
|
ARTICLE
3.
|
SHARES
AVAILABLE FOR GRANTS
|
|
A-4
|
|
|
|
|
3.1
|
Basic Limitation
|
|
A-4
|
3.2
|
Annual Increase in Shares
|
|
A-5
|
3.3
|
Additional Shares
|
|
A-5
|
|
|
|
|
ARTICLE
4.
|
ELIGIBILITY
|
|
A-5
|
|
|
|
|
4.1
|
Nonstatutory Stock Options and Restricted Shares
|
|
A-5
|
4.2
|
Incentive Stock Options
|
|
A-5
|
|
|
|
|
ARTICLE 5.
|
OPTIONS
|
|
A-5
|
|
|
|
|
5.1
|
Stock Option Agreement
|
|
A-5
|
5.2
|
Number of Shares
|
|
A-5
|
5.3
|
Exercise Price
|
|
A-5
|
5.4
|
Exercisability and Term
|
|
A-5
|
5.5
|
Effect of Change in Control
|
|
A-6
|
5.6
|
Modification or Assumption of Options
|
|
A-6
|
5.7
|
Buyout Provisions
|
|
A-6
|
|
|
|
|
ARTICLE 6.
|
PAYMENT
FOR OPTION SHARES
|
|
A-6
|
|
|
|
|
6.1
|
General Rule
|
|
A-6
|
6.2
|
Surrender of Stock
|
|
A-6
|
6.3
|
Exercise/Sale
|
|
A-7
|
6.4
|
Exercise/Pledge
|
|
A-7
|
6.5
|
Promissory Note
|
|
A-7
|
6.6
|
Other Forms of Payment
|
|
A-7
|
|
|
|
|
ARTICLE
7.
|
[Reserved]
|
|
A-7
|
|
|
|
|
ARTICLE
8.
|
RESTRICTED
SHARES
|
|
A-7
|
|
|
|
|
8.1
|
Time, Amount and Form of Awards
|
|
A-7
|
8.2
|
Payment for Awards
|
|
A-7
|
8.3
|
Vesting Conditions
|
|
A-7
|
8.4
|
Voting and Dividend Rights
|
|
A-7
|
|
|
|
|
ARTICLE
9.
|
PROTECTION
AGAINST DILUTION
|
|
A-8
|
|
|
|
|
9.1
|
Adjustments
|
|
A-8
|
9.2
|
Dissolution or Liquidation
|
|
A-8
|
9.3
|
Reorganizations
|
|
A-8
|
|
|
|
|
ARTICLE
10.
|
AWARDS
UNDER OTHER PLANS
|
|
A-8
|
A-2
ARTICLE
11.
|
LIMITATION
ON RIGHTS
|
|
A-8
|
|
|
|
|
11.1
|
Retention Rights
|
|
A-8
|
11.2
|
Stockholders Rights
|
|
A-8
|
11.3
|
Regulatory Requirements
|
|
A-8
|
|
|
|
|
ARTICLE
12.
|
WITHHOLDING
TAXES
|
|
A-9
|
|
|
|
|
12.1
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General
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12.2
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Share Withholding
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ARTICLE
13.
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FUTURE OF
THE PLAN
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13.1
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Term of the Plan
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13.2
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Amendment or Termination
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ARTICLE
14.
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DEFINITIONS
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ARTICLE
15.
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EXECUTION
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HESKA
CORPORATION
1997
STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION
.
The Plan was adopted by the Board effective March 15,
1997. The purpose of the Plan is to
promote the long-term success of the Company and the creation of stockholder
value by (a) encouraging Employees, Outside Directors and Consultants to
focus on critical long-range objectives, (b) encouraging the attraction
and retention of Employees, Outside Directors and Consultants with exceptional
qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock
ownership. The Plan seeks to achieve
this purpose by providing for Awards in the form of Restricted Shares or
Options (which may constitute incentive stock options or nonstatutory stock
options).
The Plan shall be governed by, and construed in
accordance with, the laws of the State of Colorado (except their choice-of-law
provisions).
ARTICLE 2. ADMINISTRATION
.
2.1 Committee Composition
. The Plan shall be administered by the
Committee. The Committee shall consist
exclusively of two or more directors of the Company, who shall be appointed by
the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such
requirements as the Securities and Exchange Commission may establish for administrators
acting under plans intended to qualify for exemption under Rule 16b-3 (or
its successor) under the Exchange Act; and
(b) Such
requirements as the Internal Revenue Service may establish for outside
directors acting under plans intended to qualify for exemption under section
162(m)(4)(C) of the Code.
The Board may also appoint
one or more separate committees of the Board, each composed of one or more
directors of the Company who need not satisfy the foregoing requirements, who
may administer the Plan with respect to Employees and Consultants who are not
considered officers or directors of the Company under section 16 of the
Exchange Act, may grant Awards under the Plan to such Employees and Consultants
and may determine all terms of such Awards.
2.2 Committee
Responsibilities
. The
Committee shall (a) select the Employees, Outside Directors and
Consultants who are to receive Awards under the Plan, (b) determine the
type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan and (d) make all other decisions
relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The
Committees determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES
AVAILABLE FOR GRANTS.
3.1 Basic Limitation
. Common Shares issued pursuant to the Plan may
be authorized but unissued shares or treasury shares. The aggregate number of Options and
Restricted Shares awarded under the Plan shall not exceed (a) 1,350,000
plus (b) the aggregate number of Common Shares remaining available for
grants under the Predecessor Plans on March 15, 1997, plus (c) the
additional Common Shares described in Sections 3.2 and 3.3 less (d) 250,000. No additional grants shall be made under the
Predecessor Plans after March 15, 1997.
The limitation of this Section 3.1 shall be subject to adjustment
pursuant to Article 9.
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3.2 Annual Increase in
Shares
. As of January 1 of each
year, commencing with the year 1998 and continuing through January 1,
2007, the aggregate number of Options and Restricted Shares that may be awarded
under the Plan shall be increased by a number of Common Shares equal to the
lesser of (a) 5% of the total number of Common Shares outstanding as of
the next preceding December 31 or (b) 1,500,000. After the annual increase on January 1,
2007, there shall be no further annual increases under the Plan unless and
until stockholder approval of such increase has been obtained.
3.3 Additional Shares
. If Options granted under this Plan or under
the Predecessor Plans are forfeited or terminate for any other reason before
being exercised, then the corresponding Common Shares shall become available
for the grant of Options and Restricted Shares under this Plan. If Restricted Shares are forfeited, then the
corresponding Common Shares shall again become available for the grant of NQOs
and Restricted Shares under the Plan.
The aggregate number of Common Shares that may be issued under the Plan
upon the exercise of ISOs shall not be increased when Restricted Shares are
forfeited.
ARTICLE 4. ELIGIBILITY.
4.1 Nonstatutory Stock
Options and Restricted Shares
. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of NQOs and Restricted Shares.
4.2 Incentive Stock
Options.
Only Employees who are
common-law employees of the Company, a Parent or a Subsidiary shall be eligible
for the grant of ISOs. In addition, an
Employee who owns more than 10% of the total combined voting power of all
classes of outstanding stock of the Company or any of its Parents or
Subsidiaries shall not be eligible for the grant of an IS0 unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement
. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are
not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an IS0 or an
NQO. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a
cash payment or in consideration of a reduction in the Optionees other
compensation. A Stock Option Agreement
may provide that a new Option will be granted automatically to the Optionee
when he or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 Number of Shares
. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the adjustment
of such number in accordance with Article 9. Options granted to any Optionee in a single
fiscal year of the Company shall not cover more than 500,000 Common Shares,
except that Options granted to a new Employee in the fiscal year of the Company
in which his or her service as an Employee first commences shall not cover more
than one million Common Shares. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 9.
5.3 Exercise Price
. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an IS0 shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NQO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an NQO, a Stock Option
Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NQO is outstanding.
5.4 Exercisability and
Term
. Each Stock Option Agreement
shall specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement
shall also
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specify
the term of the Option; provided that the term of an IS0 shall in no event
exceed 10 years from the date of grant.
A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionees death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionees service.
NQOs may also be awarded in combination with Restricted Shares, and such
an Award may provide that the NQOs will not be exercisable unless the related
Restricted Shares are forfeited.
5.5
Effect
of Change in Control.
The Committee
may determine, at the time of granting an Option or thereafter, that such
Option shall become exercisable as to all or part of the Common Shares subject
to such Option in the event that a Change in Control occurs with respect to the
Company, subject to the following limitations:
(a) In
the case of an ISO, the acceleration of exercisability shall not occur without
the Optionees written consent.
(b) If
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a pooling of interests
for financial reporting purposes, and if such transaction in fact is so
treated, then the acceleration of exercisability shall not occur to the extent
that the surviving entitys independent public accountants determine in good
faith that such acceleration would preclude the use of pooling of interests
accounting.
5.6
Modification
or Assumption of Options.
Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such Option.
5.7 Buyout Provisions
. The Committee
may at any time (a) offer to buy out for a payment in cash or cash
equivalents an Option previously granted or (b) authorize an Optionee to
elect to cash out an Option previously granted, in either case at such time and
based upon such terms and conditions as the Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES
.
6.1 General Rule
. The entire
Exercise Price of Common Shares issued upon exercise of Options shall be
payable in cash or cash equivalents at the time when such Common Shares are
purchased, except as follows:
(a) In
the case of an IS0 granted under the Plan, payment shall be made only pursuant
to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that
payment may be made in any form(s) described in this Article 6.
(b) In
the case of an NQO, the Committee may at any time accept payment in any form(s) described
in this Article 6.
6.2
Surrender
of Stock
. To the
extent that this Section 6.2 is applicable, all or any part of the
Exercise Price may be paid by surrendering, Common Shares that are already
owned by the Optionee. Such Common
Shares shall be valued at their Fair Market Value on the date when the new
Common Shares are purchased under the Plan.
The Optionee shall not surrender, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
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6.3 Exercise/Sale
. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.
6.4 Exercise/Pledge
. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to pledge all or part of the Common Shares being purchased under the
Plan to a securities broker or lender approved by the Company, as security for
a loan, and to deliver all or part of the loan proceeds to the Company.
6.5 Promissory Note
. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note; provided that the par value of the Common Shares being
purchased under the Plan shall be paid in cash or cash equivalents.
6.6 Other Forms of Payment.
To the extent that this Section 6.6
is applicable, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. [Reserved]
ARTICLE 8. RESTRICTED
SHARES.
8.1 Time, Amount and Form of
Awards
. Awards under the Plan may be
granted in the form of Restricted Shares.
Restricted Shares may also be awarded in combination with NQOs, and such
an Award may provide that the Restricted Shares will be forfeited in the event
that the related NQOs are exercised.
8.2 Payment for Awards
. To the extent that an Award is granted in the
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash or cash
equivalents an amount equal to the par value of such Restricted Shares. To the extent that an Award is granted in the
form of Restricted Shares from the Companys treasury, no cash consideration
shall be required of the Award recipients.
Any amount not paid in cash may be paid with a full recourse promissory
note.
8.3 Vesting Conditions
. Each Award of Restricted Shares may or may
not be subject to vesting. Vesting shall
occur, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement.
A Stock Award Agreement may provide for accelerated vesting in the event
of the Participants death, disability or retirement or other events. The
Committee may determine, at the time of granting Restricted Shares or
thereafter, that all or part of such Restricted Shares shall become vested in
the event that a Change in Control occurs with respect to the Company, except
as provided in the next following sentence.
If the Company and the other party to the transaction constituting a
Change in Control agree that such transaction is to be treated as a pooling of
interests for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of vesting shall not occur to the extent that
the surviving entitys independent public accountants determine in good faith
that such acceleration would preclude the use of pooling of interests
accounting.
8.4 Voting and Dividend
Rights
. The holders of Restricted
Shares awarded under the Plan shall have the same voting, dividend and other
rights as the Companys other stockholders.
A Stock Award Agreement, however, may require that the holders of
Restricted Shares invest any cash dividends received in additional Restricted
Shares. Such additional Restricted Shares shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid.
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ARTICLE 9. PROTECTION
AGAINST DILUTION.
9.1 Adjustments
. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common
Shares, a declaration of a dividend payable in a form other than Common Shares
in an amount that has a material effect on the price of Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or
more of (a) the number of Options and Restricted Shares available for
future Awards under Article 3, (b) the limitations set forth in Section 5.2,
(c) the number of Common Shares covered by each outstanding Option or (d) the
Exercise Price under each outstanding Option.
Except as provided in this Article 9, a Participant shall have no
rights by reason of any issue by the Company of stock of any class or
securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class.
9.2 Dissolution or
Liquidation
. To the
extent not previously exercised, Options shall terminate immediately prior to
the dissolution or liquidation of the Company.
9.3 Reorganizations
. In the event that the Company is a party to a
merger or other reorganization, outstanding Options and Restricted Shares shall
be subject to the agreement of merger or reorganization. Such agreement may provide, without
limitation, for the continuation of outstanding Awards by the Company (if the
Company is a surviving corporation), for their assumption by the surviving
corporation or its parent or subsidiary, for the substitution by the surviving
corporation or its parent or subsidiary of its own awards for such Awards, for
accelerated vesting and accelerated expiration, or for settlement in cash or
cash equivalents.
ARTICLE 10. AWARDS UNDER OTHER
PLANS.
The Company may grant awards under other plans or
programs. Such awards may be settled in
the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all
purposes under the Plan like Restricted Shares and shall, when issued, reduce
the number of Common Shares available under Article 3.
ARTICLE 11. LIMITATION ON
RIGHTS.
11.1 Retention Rights
. Neither the Plan nor any Award granted under
the Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The
Company and its Parents, Subsidiaries and Affiliates reserve the right to
terminate the service of any Employee, Outside Director or Consultant at any
time, with or without cause, subject to applicable laws, the Companys certificate
of incorporation and bylaws and a written employment agreement (if any).
11.2 Stockholders Rights
. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common
Shares covered by his or her Award prior to the time when a stock certificate
for such Common Shares is issued or, in the case of an Option, the time when he
or she becomes entitled to receive such Common Shares by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash dividends
or other rights for which the record date is prior to such time, except as
expressly provided in the Plan.
11.3 Regulatory
Requirements.
Any other
provision of the Plan notwithstanding, the obligation of the Company to issue
Common Shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict,
in whole or in part, the delivery of Common Shares pursuant to any Award prior
to the satisfaction of all legal requirements relating to the issuance of such
Common
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Shares, to their registration, qualification or
listing or to an exemption from registration, qualification or listing.
ARTICLE 12. WITHHOLDING
TAXES.
12.1 General
. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue
any Common Shares or make any cash payment under the Plan until such obligations
are satisfied.
12.2 Share Withholding
. The Committee
may permit a Participant to satisfy all or part of his or her withholding or
income tax obligations by having the Company withhold all or a portion of any
Common Shares that otherwise would be issued to him or her or by surrendering
all or a portion of any Common Shares that he or she previously acquired. Such
Common Shares shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash.
ARTICLE 13. FUTURE OF THE
PLAN.
13.1 Term of the Plan
. The Plan, as set forth herein, shall become
effective on March 14, 1997. The
Plan shall remain in effect until it is terminated under Section 13.2,
except that no ISOs shall be granted after May 4, 2019.
13.2 Amendment or
Termination.
The Board may,
at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to
the approval of the Companys stockholders only to the extent required by
applicable laws, regulations or rules.
No Awards shall be granted under the Plan after the termination thereof.
The termination of the Plan, or any amendment thereof, shall not affect any
Award previously granted under the Plan.
ARTICLE 14. DEFINITIONS.
14.1
Affiliate
means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
14.2
Award
means any award of an Option or a Restricted Share
under the Plan.
14.3
Board
means the Companys Board of Directors, as
constituted from time to time.
14.4
Change in Control
shall mean:
(a) The
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if more than 50% of the combined
voting power of the continuing or surviving entitys securities outstanding immediately
after such merger, consolidation or other reorganization is owned by persons
who were not stockholders of the Company immediately prior to such merger,
consolidation or other reorganization;
(b) The
sale, transfer or other disposition of all or substantially all of the Companys
assets;
(c)
A change in the composition of the Board, a result of which fewer than
50% of the incumbent directors are directors who either (i) had been
directors of the Company on the date 24 months prior to the date of the event
that may constitute a Change in Control (the original directors) or (ii) were
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the aggregate of the original directors who were still
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in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any
transaction as a result of which any person is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 30% of the total voting power
represented by the Companys then outstanding voting securities. For purposes of this Paragraph (d), the term person
shall have the same meaning as when used in sections 13(d) and 14(d) of
the Exchange Act but shall exclude (i) any person, or person affiliated
with said person, who, on March 15, 1997, is the beneficial owner of
securities of the Company representing at least 20% of the total voting power
represented by the Companys then outstanding voting securities (11,607,764), (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or of a Parent or Subsidiary and (iii) a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company.
A transaction shall not
constitute a Change in Control if its sole purpose is to change the state of
the Companys incorporation or to create a holding company that will be owned
in substantially the same proportions by the persons who held the Companys
securities immediately before such transaction.
14.5
Code
means the Internal Revenue Code of 1986, as amended.
14.6
Committee
means a committee of the Board, as described in Article 2.
14.7
Common Share
means one share of the common stock of the
Company.
14.8
Company
means either (a) Heska Corporation, a California
corporation (prior to the formation of Heska Corporation, a Delaware
corporation), or (b) Heska Corporation, a Delaware corporation (following
its formation).
14.9
Consultant
means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a
Consultant shall be considered employment for all purposes of the Plan, except
as provided in Section 4.2.
14.10
Employee
means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
14.11
Exchange Act
means the Securities Exchange Act of 1934, as
amended.
14.12
Exercise Price
means the amount for which one Common Share
may be purchased upon exercise of such Option, as specified in the applicable
Stock Option Agreement.
14.13
Fair Market Value
means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the
determination of Fair Market Value by the Committee shall be based on the
prices reported in The Wall Street Journal. Such determination shall be
conclusive and binding on all persons.
14.14
ISO
means an incentive stock option described in section
422(b) of the Code.
14.15
NQO
means a stock option not described in sections 422 or
423 of the Code.
14.16
Option
means an IS0 or NQO granted under the Plan and
entitling the holder to purchase Common Shares.
14.17
Optionee
means an individual or estate who holds an Option.
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14.18
Outside Director
shall mean a member of the Board who is
not an Employee. Service as an Outside
Director shall be considered employment for all purposes of the Plan, except as
provided in Section 4.2.
14.19
Parent
means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
14.20
Participant
means an individual or estate who holds an Award.
14.21
Plan
means this Heska Corporation 1997 Stock Incentive
Plan, as amended from time to time.
14.22
Predecessor Plans
means (a) the 1988 Heska Corporation
Stock Plan and (b) the Heska Corporation 1994 Key Executive Stock Plan.
14.23
Restricted Share
means a Common Share awarded under the
Plan.
14.24
Stock Award Agreement
means the agreement between the
Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.
14.25
Stock Option Agreement
means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
14.26
Subsidiary
means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
ARTICLE 15. EXECUTION.
To record the adoption of the Plan by the Board, the
Company has caused its duly authorized officer to execute this document in the
name of the Company.
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HESKA CORPORATION
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By:
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Jason A. Napolitano
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Executive Vice President
and Chief Financial Officer
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Heska Corporation
Holder
Account Number
C
1234567890 J N T
o
Mark this box with an X if you have made changes to
your name or address details above.
2009
Annual Meeting Proxy Card
A
Election of Directors
The Board of Directors
recommends a vote
FOR
the listed
nominees.
1.
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Election of two
Directors to serve for a three-year term that expires at the 2012 Annual
Meeting or until their respective successors have been elected and qualified.
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For
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Withhold
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01William A.
Aylesworth
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02Robert B.
Grieve, Ph.D.
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B
Issues
The Board of Directors
recommends a vote
FOR
each of the
following:
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For
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Against
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Abstain
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2.
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To approve an
amendment to Heska Corporations 1997 Stock Incentive Plan (the 1997 Stock
Plan), which would reduce the number of shares which could be issued and
allow for the further issuance of incentive stock options under the 1997
Stock Plan.
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3.
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To ratify the
appointment of Ehrhardt Keefe Steiner & Hottman PC as Heska
Corporations independent registered public accountant.
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4.
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To consider such
other business as may properly come before the 2009 Annual Meeting.
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C
Authorized Signatures - Sign Here
- This section must be completed for your vote to be counted.
Please date and sign
exactly as your name or names appear herein.
Corporate or partnership proxies should be signed in full corporate or
partnership name by an authorized person.
Persons signing in a fiduciary capacity should indicate their full title
in such capacity.
Signature 1Please
keep signature within the box Signature 2Please keep signature within the box
Date (mm/dd/yyyy)
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1 U P X
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H H H
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P P P P
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001808
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ProxyHeska Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby
appoints Robert B. Grieve, Ph.D., Jason A. Napolitano and Michael A. Bent, and
each of them, as proxies, with full power of substitution, and hereby
authorizes them to represent and vote, as designated below, all shares of the
Common Stock of Heska Corporation, a Delaware corporation (the
Company
), held of record by the
undersigned on March 26, 2009, at the 2009 Annual Meeting of Stockholders
(the
Annual Meeting
) to be held
at the corporate offices of the Company located at 3760 Rocky Mountain Avenue,
Loveland, Colorado 80538 at 9:00 a.m., local time, on Tuesday, May 5,
2009, or at any adjournment or postponement thereof, with all the powers that
the undersigned would have if personally present at the meeting.
The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting and Proxy Statement, dated
April 6, 2009, and a copy of Heska Corporations 2008 Annual Report on Form 10-K
as filed with the Securities and Exchange Commission. The undersigned hereby expressly revokes any
and all proxies heretofore given or executed by the undersigned with respect to
the shares of stock represented by this proxy and, by filing this proxy with
the Secretary of Heska Corporation, gives notice of such revocation. This proxy when properly executed will be
voted in accordance with the specifications made by the undersigned
stockholder.
IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
FOR DIRECTOR, FOR APPROVAL OF THE AMENDMENT TO THE COMPANYS 1997 STOCK
INCENTIVE PLAN, FOR THE RATIFICATION OF EHRHARDT KEEFE STEINER &
HOTTMAN PC AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTANT AND AT THE
DISCRETION OF THE PROXIES ON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE
THE ANNUAL MEETING. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
TIME IT IS VOTED.
PLEASE
COMPLETE, DATE AND SIGN THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 5, 2009
The Proxy Statement, this Proxy Card
and our 2008 Annual Report on Form 10-K are available at https://materials.proxyvote.com/42805E.
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