HESKA CORPORATION
1613 PROSPECT PARKWAY
FORT COLLINS, COLORADO 80525
(970) 493-7272
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TIME 9:00 a.m. on Thursday May 16, 2002
PLACE Heska Corporation
1613 Prospect Parkway
Fort Collins, Colorado
ITEMS OF BUSINESS 1. To elect to the Board of Directors three directors
to serve until the 2005 Annual Meeting of
Stockholders or until their successors have been
duly elected and qualified.
2. To approve an amendment to the 1997 Employee Stock
Purchase Plan to increase the number of shares
Reserved for issuance under the plan by 1,000,000
shares.
3. To ratify and approve an amendment to Article 8 of
our Bylaws.
4. To transact such other business as may properly
come before the Annual Meeting and any adjournment
or postponement of the Annual Meeting. Management
is presently aware of no other business to come
before the Annual Meeting.
RECORD DATE You can vote if you are a stockholder of record on
March 26, 2002.
ANNUAL REPORT Our 2001 Annual Report, which is not a part of the
Proxy soliciting material, is enclosed.
PROXY VOTING It is important that your shares be represented and
voted at the Meeting. Please vote in one of these
ways:
1. VISIT THE WEB SITE noted on your proxy card to vote
via the Internet; or
2. MARK, SIGN, DATE, AND PROMPTLY RETURN the enclosed
proxy card in the postage-paid envelope provided.
Any proxy may be revoked at any time prior to its
exercise at the Meeting.
/s/ Ronald L. Hendrick
April 11, 2002 Ronald L. Hendrick
Executive Vice President,
Chief Financial Officer
and Secretary
HESKA CORPORATION
PROXY STATEMENT
These proxy materials are furnished to the stockholders of Heska
Corporation, a Delaware corporation ("Heska") in connection with the
solicitation of proxies to be used in voting at our 2002 Annual Meeting of
Stockholders and at any adjournment or postponement thereof. The enclosed Proxy
is solicited by our Board of Directors.
You are invited to attend our Annual Meeting of Stockholders to be held on
May 16, 2002, beginning at 9:00 a.m. The meeting will be held at Heska
Corporation, 1613 Prospect Parkway, Fort Collins, Colorado.
This Proxy Statement, proxy card and voting instructions are being mailed
starting April 11, 2002.
STOCKHOLDERS ENTITLED TO VOTE
Stockholders of record at the close of business on March 26, 2002 are
entitled to notice of and to vote at the Annual Meeting. As of that date, we
had __________ shares of common stock outstanding. Each holder of common stock
is entitled to one vote for each share held as of the record date. An inspector
of elections appointed by the Board of Directors will determine the shares
represented at the Annual Meeting, the validity of proxies and will count all
votes. Determinations of whether a quorum exists and whether proposals are
approved will be announced at the Annual Meeting.
PROXIES
Your vote is important. Stockholders of record may vote their proxies by
Internet or mail. The web site address is included on your proxy card. If you
choose to vote by mail, a postage-paid envelope is provided.
A proxy may be revoked at any time before it is exercised by (1) filing a
written revocation with the Secretary, (2) submitting a duly executed proxy
bearing a later date, or (3) voting by ballot at the Annual Meeting.
Vote by Internet
You can vote your shares via the Internet. The web site for Internet
voting is on your proxy card. Internet voting is available 24 hours a day. You
will be given the opportunity to confirm that your instructions have been
properly recorded. If you vote via the Internet, you do not need to return your
proxy card.
Vote by Mail
If you choose to vote by mail, simply mark your proxy, date and sign it,
and return it to Computershare Trust Company, Inc. in the postage-paid envelope
provided.
Voting at the Annual Meeting
The method by which you vote now will in no way limit your right to vote at
the Annual Meeting if you decide to attend in person. If your shares are held
in the name of a bank, broker or other holder of record, you must obtain a
proxy, executed in your favor, from the holder of record and bring it with you
to the meeting to be able to vote at the meeting.
All proxies returned prior to the Annual Meeting will be voted in
accordance with the instructions contained therein. If no choice is specified,
the shares will be voted FOR the proposals listed in this Proxy Statement.
Voting of Other Matters
The enclosed proxy card grants the proxy holders discretionary authority to
vote on other matters properly brought before the Annual Meeting. At the date
this Proxy Statement went to press, we did not know of any other matter to be
raised at the Annual Meeting.
LIST OF STOCKHOLDERS
A list of stockholders entitled to vote at the Annual Meeting will be
available at the Annual Meeting and for ten days prior to the meeting during
normal business hours at our offices at 1612 Specht Point Drive, Fort Collins,
Colorado, 80525, by contacting the Secretary of the Company.
REQUIRED VOTE
The presence in person or by proxy of the holders of a majority of our
outstanding shares constitutes a quorum for the transaction of business at the
Annual Meeting. Abstentions and broker "non-votes" are counted as present and
entitled to vote for purposes of determining a quorum.
Directors are elected by a plurality vote. Other matters submitted for
stockholder approval at the Annual Meeting, will be decided by the affirmative
vote of a majority of shares present in person or represented by valid proxy and
entitled to vote on each such matter. Abstentions with respect to any matter
are treated as shares present or represented and entitled to vote on that matter
and thus have the same effect as negative votes. If a broker, bank or other
nominee, who is the record holder of certain shares indicates on a proxy that it
does not have discretionary authority to vote on a particular matter as to such
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to any matter, these
"non-voted" shares will be counted for quorum purposes but will not be counted
in determining whether stockholder approval of a particular matter has been
obtained.
COST OF SOLICITATION
We will bear the expense of soliciting proxies, including the expense of
preparing, printing and mailing proxy materials. In addition to the
solicitation of proxies by mail, certain of our directors and employees may make
solicitation by personal interview, telephone or facsimile. No additional
compensation will be paid to these people for such solicitation.
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
There are three Class II nominees for election this year. Detailed
information on these nominees is provided starting on page 3 of this Proxy
Statement. Our Board of Directors is divided into three classes, with one class
of directors elected each year at the Annual Meeting of Stockholders for a
three-year term of office. The directors of each class hold their positions
until the Annual Meeting of Stockholders at which time their respective
successors are elected and qualified or until their earlier resignation, removal
from office, death, or incapacity. Three Class II directors are to be elected
at this meeting for a three-year term ending in 2005.
The Board of Directors proposes the election of A. Barr Dolan, Robert B.
Grieve and John F. Sasen, Sr. as Class II directors. The persons named on the
enclosed proxy card intend to vote the proxy for the election of these nominees,
unless you indicate on the proxy card that your vote should be withheld from any
nominee. If you are voting by Internet, you will be instructed how to withhold
your vote. All of the nominees have indicated their willingness to serve as a
member of the Board of Directors if elected; however, if any one of them is
unable or declines to serve as a director at the time of the Annual Meeting, an
event not now anticipated, proxies will be voted for a nominee designated by the
Board of Directors to fill the vacancy. Stockholder nominations for the Board
of Directors must be made following the procedures set forth in the Bylaws not
less than 60 days nor more than 90 days prior to the first anniversary of the
date on which notice of the prior year's Annual Meeting was mailed to
stockholders. The deadline for a stockholder to deliver notice of a nomination
for the election of directors at the 2002 Annual Meeting of Stockholders was
March 4, 2002. No such nominations were received.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
MR. DOLAN, DR. GRIEVE AND MR. SASEN, SR. AS OUR DIRECTORS.
BIOGRAPHICAL INFORMATION
Certain biographical information of the nominees and of the members of the
Board of Directors continuing in office after the Annual Meeting is set forth
below. There are no family relationships among any of the directors, nominees
or executive officers.
Class I
G. IRWIN GORDON, age 51, has served us as a director since May 2001. Mr.
Gordon is the founder and Managing Partner of The Trion Group LP, a consulting
and interim management firm. From July 2000 until August 2001, Mr. Gordon
served as President and Chief Executive Officer of Gruma Corporation. He also
served as President and Chief Operating Officer of Suiza Foods Corporation 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., 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 Public Relations of Frito-Lay
International from 1992 to 1996. Prior to joining PepsiCo in 1992, Mr. Gordon
served in various capacities at the Kellogg Company. He currently is a director
and member of the Audit Committee of Horizon Organic Holding Corp. Mr. Gordon
holds a B.E. from the University of British Columbia and a Management
Certificate from Stanford University.
EDITH W. MARTIN, PH.D., age 56, has served us as a director since October
2000. Since 1992, Dr. Martin has also served as President of Advanced Global
Technologies, Inc., a computer services company that she founded. She also has
served as a Managing Partner of M14M1 Enterprises since 1994. From March 1999
to March 2000, Dr. Martin was Chief Information Officer and Vice President at
Halliburton Company. She also served as Chief Information Officer and Vice
President at Eastman Kodak from 1996 to 1997 and as Executive Vice President and
Chief Technology Officer at Sallie Mae from 1994 to 1996. From 1992 to 1994,
Dr. Martin served as Vice President and Chief Information Officer at Intelstat.
She was a Vice President at Boeing from 1984 to 1992. Prior to 1984, she was
the Deputy Under-Secretary of Research and Advanced Technology for the
Department of Defense. Dr. Martin currently serves on the board of Immunex
Corporation and several private companies. In addition, she serves on the audit
and compensation committees at Immunex. Dr. Martin holds Ph.D. and M.S. degrees
from Georgia Institute of Technology and a B.A. from Lake Forest College.
Class II
A. BARR DOLAN, age 52, has served us as a director since March 1988, and
was Chairman of the Board of Directors from 1988 to January 1999. Mr. Dolan has
been the President of Charter Venture Capital, a venture capital management
firm, since 1982, a general partner of Charter Ventures since 1982, a general
partner of Charter Ventures II, L.P. since 1994 and managing director of Charter
Ventures III, L.P. since 1998. Mr. Dolan is also a director of several private
companies. He holds M.S. and B.A. degrees from Cornell University, an M.A.
degree from Harvard University and an M.B.A. from Stanford University.
ROBERT B. GRIEVE, PH.D., age 50, 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.
JOHN F. SASEN, SR., age 59, 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., and from December 1993, he held various
other senior executive positions at PSS. From July 1993 to April 1998,
Mr. Sasen served as a Director of PSS. Prior to joining PSS in 1993, 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 a
director of Humascan, Inc., a manufacturer of a medical device.
Class III
WILLIAM A. AYLESWORTH, age 59, has served us as a director since June 2000.
Mr. Aylesworth has served as Senior Vice President since 1988 and Chief
Financial Officer of Texas Instruments Incorporated since 1984. 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. Mr. Aylesworth is
also a director of Factory Mutual Insurance Company and various private
organizations. He holds an M.S. in industrial administration from Carnegie
Mellon University and a B.E.E. in electrical engineering from Cornell
University.
LYLE A. HOHNKE, PH.D., age 59, has served as a director since April 1996.
Dr. Hohnke is a general partner of Tullis Dickerson Company (formerly Javelin
Capital Fund, L.P.), a venture capital firm, a position he has held since 1994.
Dr. Hohnke was a co-founder of Diamond Animal Health, Inc. and served as
Chairman and CEO from 1994 until its acquisition by us in April 1996. From
January 1991 to October 1993 he was a general partner of Heart Land Seed Capital
Fund. Dr. Hohnke is also a director of several private companies and he is a
member of the audit and compensation committees of several of these companies.
He holds Ph.D. and M.A. degrees from the University of Oregon, an M.B.A. from
the Hartford Graduate Institute and a B.A. degree from Western Michigan
University.
LYNNOR B. STEVENSON, PH.D., age 58, is one of our founders and has served
us as a director since March 1988. Dr. Stevenson served us as President and
Chief Executive Officer from March 1988 to March 1992. She currently is
President of Alta Biomedical Group LLC. Dr. Stevenson was President and Chief
Executive Officer of Cascade Oncogenics, Inc. from December 1992 until December
2000. From July 1992 to April 1997, she was Director, Technology Transfer at
the University of Oregon. She holds a Ph.D. degree from Monash University,
Australia and B.Sc. and B.Ed. degrees from the University of Melbourne,
Australia.
BOARD AND COMMITTEE MEMBERSHIP AND MEETINGS
The Board of Directors held eight meetings during 2001. No director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors or the committees upon which such director served that were held
during his or her respective term of office, other than Dr. Martin who did not
attend three meetings of the Board of Directors and two committee meetings.
The Board of Directors has an Audit Committee, Corporate Governance
Committee and a Compensation Committee. These committees are comprised entirely
of non-employee directors.
The Audit Committee principally reviews the scope of the annual audit,
monitors the relationship with our independent auditors, advises and assists the
Board of Directors in evaluating the auditors' examination, and provides
oversight in connection with our financial and accounting organization and
financial reporting. The Audit Committee consists of Directors Gordon, as
Chairman, Aylesworth, Dolan and Martin. In August 2001, the Audit Committee was
reconstituted and Mr. Gordon replaced Mr. Aylesworth as Chairman. The Audit
Committee held three meetings during 2001. Dr. Martin did not attend one of the
meetings.
The Corporate Governance Committee is responsible for monitoring the
structure, size and composition of the Board of Directors and, in consultation
with the Chief Executive Officer, recommending for nomination candidates for
election to the Board of Directors. The Corporate Governance Committee is also
responsible for evaluating the compensation of Board members and the
organization and responsibilities of other Board committees. The Corporate
Governance Committee is further responsible for reviewing the balance of
expertise and skills among Board members, Board and committee effectiveness,
individual director performance and succession planning for top management
positions. Names of prospective candidates for election to the Board of
Directors may be submitted to the Secretary for referral to the Corporate
Governance Committee. Any stockholder who wishes to make a nomination for
election to the Board of Directors at an annual or special meeting for the
election of directors must comply with procedures set forth in our Bylaws. The
Corporate Governance Committee consists of Directors Aylesworth, as Chairman,
Gordon, Sasen and Hohnke. The Corporate Governance Committee was formed in
August 2001 and did not hold any meetings during 2001.
The Compensation Committee is responsible for reviewing and approving our
compensation policies, including the compensation paid to executive officers,
and administering our stock incentive plans. The Compensation Committee
consists of Directors Sasen, as Chairman, Dolan, Hohnke and Martin. The
Compensation Committee held three meetings in 2001. Dr. Martin did not attend
one of the meetings.
DIRECTORS' COMPENSATION
Each new outside director elected to our Board of Directors is
automatically granted as of the date of election an option to purchase 40,000
shares of common stock at an exercise price equal to the fair market value of
the common stock on the date of grant. The shares subject to these options vest
in four equal installments at annual intervals over the four-year period
commencing on the date of grant. Further, (i) each outside director who
continues to serve in such capacity following any annual meeting of stockholders
is automatically granted an option as of the date of such meeting to purchase
40,000 shares of common stock at an exercise price equal to the fair market
value of the common stock on the date of grant and (ii) each outside director
who will serve as chairperson of a committee of the Board of Directors,
following any annual meeting of stockholders, is automatically granted an
additional option to purchase 2,000 shares of common stock at an exercise price
equal to the fair market value of the common stock on the date of grant. These
annual grants are 100% vested at the time of grant. No director is eligible to
receive the initial 40,000-share grant and the annual 40,000-share grant in the
same year. Directors are eligible to receive a greater number of options or
shares than the automatic grants described above under the 1997 Stock Incentive
Plan.
It is our policy to compensate each "outside" or non-employee director with
additional options to purchase shares of our common stock for attendance at
Board meetings, Board Committee meetings and for consulting services rendered to
the Company. Under this policy, outside directors receive an option to purchase
200 shares for attendance at a meeting of the Board of Directors, or Board
committee, which is less than four hours and an option to purchase 1,000 shares
for attendance at a meeting of the Board of Directors, or Board committee, which
is four hours or more, or for consulting services of four hours or more. These
options are immediately exercisable and the exercise price is equal to the fair
market value on the date of grant. Directors are reimbursed for their
reasonable expenses for each meeting attended.
See "Employment Agreements" below for a description of the compensation
arrangement with Dr. Grieve.
BOARD COMPOSITION
Mr. Dolan was appointed to our Board of Directors in connection with equity
investments in us by Charter Ventures and Charter Ventures II, L.P. Dr. Hohnke
was appointed to our Board of Directors in connection with our acquisition of
Diamond.
PROPOSAL 2 -AMENDMENT TO THE 1997 EMPLOYEE STOCK PURCHASE PLAN
We are seeking your approval of an amendment to our 1997 Employee Stock
Purchase Plan (the "Plan") to increase the number of shares of our common stock
available for issuance under the Plan by 1,000,000 shares, from 750,000 to
1,750,000 shares. The Board of Directors approved this amendment in February
2002. The Plan has been suspended, as there are not sufficient shares available
for purchase and will be reinstated if this increase is approved. The purpose
of the Plan is to provide our employees with an opportunity to increase their
stake in the success of our business by purchasing our stock at a discount to
the fair market value through a convenient payroll deduction plan. We believe
the Plan is an important component of our employee compensation package and
approximately 40% of our employees participated in the Plan during the most
recent purchase period. We also believe that the Plan assists us in attracting
and retaining skilled personnel. The essential features of the Plan are
summarized below.
SUMMARY OF 1997 EMPLOYEE STOCK PURCHASE PLAN
General. The Plan was originally approved by the Board of Directors and
stockholders in April 1997 and provides our employees with the opportunity to
purchase shares of common stock through payroll deductions. The number of
shares of common stock previously reserved for issuance under the Plan was
750,000 shares. As of December 31, 2001, 743,639 shares of common stock had
been sold under the Plan, leaving 6,361 shares available for purchase.
Administration. The Compensation Committee administers the Plan. The
Plan, and the right of participants to make purchases thereunder, is intended to
qualify under the provisions of Sections 421 and 423 of the Internal Revenue
Code. All questions of interpretation or application of the Plan are determined
by the Board of Directors or its appointed committee, and its decisions are
final, conclusive and binding upon all participants.
Eligibility and Participation. Currently, all U.S. employees who work more
than 20 hours per week for more than five months per calendar year, and have
been employed by us or one of our U.S. subsidiaries for more than 30 consecutive
days are eligible to participate in the Plan, unless the employee would own 5%
or more of the total combined voting power of our stock at the end of an
offering period. Participation in the Plan is voluntary.
Offering Dates. Shares of stock are offered for purchase through a series
of overlapping 24-month offering periods. New offering periods start on each
January 1 and July 1. Each offering period is comprised of four successive six-
month accumulation periods.
Purchase Price. The purchase price per share is 85% of the lower of
(a) the closing price per share on the last trading day before the commencement
of the applicable offering period, or Entry Price, or (b) the closing price of
the stock on the last trading day of the accumulation period, or Exit Price.
Payroll Deductions; Payment of Purchase Price. Employees may authorize
payroll deductions in 1% multiples of cash compensation for each accumulation
period they complete within an offering period, up to a maximum of 10%. An
employee may discontinue his or her participation in the Plan at any time and
may increase or decrease the rate of payroll deduction not more than two times
during any accumulation period.
Purchase of Stock. By executing an enrollment form, an employee is
entitled to purchase shares on the last day of the accumulation period. The
maximum number of shares that may be purchased during an accumulation period is
determined at the end of the period by dividing the amount accumulated in such
participant's account during the period by the lower of the Entry Price or the
Exit Price, subject to a maximum of 5,000 shares. Unless the employee's
participation is discontinued prior to such purchase date, his or her purchase
of the shares will occur automatically at the end of the accumulation period at
the applicable price.
Notwithstanding the foregoing, no participant may purchase shares if
immediately after such purchase, the participant would own stock and/or
outstanding options to purchase stock comprising five percent or more of the
total combined voting power of our stock. In addition, no participant is
permitted to purchase stock with a value in excess of $25,000 (determined at the
fair market value of the stock at the time such option is granted) in any
calendar year.
Withdrawal. Generally, a participant may withdraw from an offering period
at any time by written notice without affecting his or her eligibility to
participate in future offering periods. However, once a participant withdraws
from a particular offering period, that participant may not participate again in
the same offering period. To participate in a subsequent offering period, the
participant must deliver a new subscription agreement to us.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, cancels his or her option and
participation in the Plan immediately. In such event, the payroll deductions
credited to the participant's account will be returned to him or her or, in the
case of death, to the person or persons entitled thereto as provided in the
Plan.
Changes in Capitalization. The number of shares reserved under the Plan,
the limit on the number of shares which may be purchased during an the
accumulation period and the purchase price per share of common stock under the
Plan shall be proportionately adjusted for any increase or decrease in the
number of outstanding shares of our common stock resulting from a subdivision or
consolidation of shares, the payment of a stock dividend, any other increase or
decrease in such shares effected without receipt or payment of consideration by
us, the distribution of the shares of a subsidiary to our stockholders or a
similar event. Such adjustment shall be made by the Board of Directors, whose
determination in that respect shall be final, binding and conclusive.
Change of Control, Merger or Consolidation. In the event of a change of
control (as defined in the Plan), the Board of Directors shall shorten any
accumulation periods and offering periods then in progress by setting a new
exercise date and any offering periods shall end on the new exercise date. The
new exercise date shall be prior to the change of control and the shares will be
purchased automatically on the new exercise date, unless the participant has
already withdrawn from the offering period. In the event of a merger or
consolidation which does not constitute a change of control, the Plan shall
continue unless the plan of merger or consolidation provides otherwise.
Amendment and Termination of the Plan. The Board of Directors may at any
time terminate or amend the Plan. No amendment shall be effective unless it is
approved by the holders of a majority of the votes cast at a duly held
stockholders' meeting, if such amendment would require stockholder approval in
order to comply with Section 423 of the Code.
FEDERAL INCOME TAX CONSEQUENCES
The proposed amendment will have no effect upon the tax consequences to
participants or us.
The following brief summary of the effect of federal income taxation upon
the participant and us with respect to the shares purchased under the Plan does
not purport to be complete, and does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
The Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
shares purchased under the Plan are sold or otherwise disposed of. Upon sale or
other disposition of the shares, the participant will generally be subject to
tax in an amount that depends upon the holding period. If the shares are sold
or otherwise disposed of more than two years from the first day of the
applicable offering period and more than one year from the date of purchase, the
participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (b) an amount equal to 15% of the fair
market value of the shares as of the first day of the applicable offering
period. Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of these holding
periods, the participant will recognize ordinary income generally measured as
the excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. We generally are not entitled to a deduction for amounts
taxed as ordinary income or capital gain to a participant except to the extent
of ordinary income recognized by participants upon a sale or disposition of
shares prior to the expiration of the holding periods described above.
PARTICIPATION IN THE PLAN
The following table sets forth the number of shares purchased under the
Plan during 2001 by each of (i) the named executive officers; (ii) all executive
officers as a group; and (iii) all employees, including all officers who are not
currently executive officers, as a group. Non-employee directors are not
eligible for participation in the Plan.
NUMBER OF SHARES
PURCHASED UNDER THE
Name and Position PLAN IN 2001
---------------------------------------- -------------------
Robert B. Grieve -
Chairman of the Board and Chief Executive Officer
Nominee for election as a director
James H. Fuller 10,000
President and Chief Operating Officer
Ronald L. Hendrick 9,303
Executive Vice President, Chief Financial
Officer and Secretary
Dan T. Stinchcomb -
Executive Vice President, Research and
Development
Carol T. Verser 6,084
Executive Vice President, Intellectual
Property and Business Development
All executives officers as a group 25,387
All employees, including all officers who are not 301,352
executive officers, as a group
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of our outstanding common
stock is required to approve this proposal. Therefore, failure to vote will
have the same effect as a vote against the amendment. If approved by the
stockholders, the proposed amendment to the 1997 Employee Stock Purchase Plan
will become effective immediately.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE 1997
EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 3 - AMENDMENT TO ARTICLE 8 OF THE BYLAWS
SUMMARY OF PROPOSAL
On January 10, 2002, our Board of Directors approved the submission of an
amendment to our Bylaws that would impose additional restrictions on the grant
and repricing of stock options and certain types of "toxic financings" to our
stockholders. This amendment of our Bylaws requires stockholder approval.
Section 8.1 of our current Bylaws requires that all options to any officer
or director must be granted at no less than the closing market price on the date
of grant and contains certain limitations on our ability to reprice stock
options. Section 8.1 provides that any amendment of Section 8.1 requires
stockholder approval. Section 8.1 was added at the request of one of our
stockholders, the State of Wisconsin Investment Board ("SWIB"), as a condition
to its purchase of common stock in our December 1999 public offering. In
addition, we have agreed to certain restrictions on our ability to sell or issue
common stock or other equity securities for a purchase price which is subject to
adjustment based on the market price of our common stock at the time of
conversion, exercise or exchange (sometimes referred to as "toxic financings"),
without first consulting our five largest shareholders. We agreed to this
restriction in February 2001 as a condition to SWIB's purchase of common stock
in our private offering of securities in February 2001.
As a condition to purchasing common stock in our private offering in
December 2001, SWIB required that we submit to our stockholders a further
amendment to Section 8.1 of the Bylaws that would impose additional restrictions
on the grant or repricing of stock options and further limit our ability to
participate in certain types of financings. Specifically, we would be
prohibited from taking the following actions without first obtaining the
approval of the holders of a majority of the shares entitled to vote at a duly
convened meeting of our stockholders:
* grant any stock option, including stock appreciation rights, at less than
100% of the fair market value on the date of grant;
* reduce the exercise price of any stock option or stock appreciation
right, or cancel and re-grant options at a lower exercise price
(including a "6 month and 1 day" exchange program);
* sell or issue any security which is convertible, exercisable or
exchangeable into shares of common stock, having a conversion, exercise
or exchange price which is subject to downward adjustment based on the
market price of our common stock at a future date; or
* enter into an equity line of credit or similar agreement or arrangement
to sell or issue stock at a price that is fixed after the execution date
of the agreement, whether or not based on any predetermined price-
setting formula or calculation method.
The full text of the proposed amendment and restatement of Article 8 of our
Bylaws is set forth on Appendix A of this Proxy Statement, and we encourage you
to read it in its entirety.
The Board of Directors carefully considered the additional restrictions
being imposed on us when it agreed to submit this amendment to our stockholders
as a condition to SWIB's purchase of shares of common stock. The Board took
into account the existing restrictions in our Bylaws as well as our previous
agreement to limitations on financing activities. The Board noted that the
additional restrictions relating to stock options might limit our ability to
retain management or motivate employees during a period when our stock price had
declined significantly and specifically that the additional limitations would
have prohibited the restricted stock exchange program that we implemented in
October 2001. The Board also considered the additional restrictions imposed on
our ability to participate in certain types of financing activities. The Board
noted that these types of "toxic financings" are often the only financing terms
available to financially distressed companies and the additional requirement of
obtaining stockholder approval might cause significant delay or be an impediment
to obtaining such financing. The Board of Directors also considered that
submitting the proposed Bylaw amendment to our stockholders was a condition to
the sale of its common stock in December 2001 and that such financing was in the
best interests of our stockholders. Therefore, the Board of Directors
recommends a vote in favor of the Bylaw amendment.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of our outstanding common
stock is required to approve this proposal. Therefore, failure to vote will
have the same effect as a vote against the amendment. If approved by the
stockholders, the proposed amendment to our Bylaws will become effective
immediately.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND
ARTICLE 8 OF OUR BYLAWS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 26, 2002 as
to shares of our common stock beneficially owned by: (i) each of the named
executive officers listed in the Summary Compensation Table; (ii) each of our
directors; (iii) all of our directors and executive officers as a group; and
(iv) each person who is known by us to own beneficially more than 5% of our
common stock.
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED(1)
------------------------------------------------- ------------- ------------
State of Wisconsin Investment Board (2) 9,490,182 19.8%
P.O. Box 7842
Madison, WI 53707
Entities associated with Charter Ventures (3) 8,414,717 17.6%
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Novartis Tiergesundheit AG 3,705,389 7.7%
Klybeckstrasse A4A
4002 Basel
Switzerland
Zesiger Capital Group LLC (4) 6,033,060 12.6%
320 Park Avenue, 30th Floor
New York, NY 10022
Capital Group International, Inc. (5) 2,967,500 6.2%
1100 Santa Monica Blvd.
Los Angeles, CA 90025
Lombard Odier & Cie (6) 3,911,851 8.2%
11, Rue de la Corraterie
1204 Geneva
Switzerland
William A. Aylesworth (9) 64,000 *
A. Barr Dolan (7)(9)(10) 8,473,517 17.7%
G. Irwin Gordon (9) 45,800
Robert B. Grieve, Ph.D. (8)(9) 965,181 2.0%
Lyle A. Hohnke, Ph.D. (9) 166,225 *
Edith W. Martin, Ph.D. (9) 93,900 *
John F. Sasen, Sr. (9) 68,000 *
Lynnor B. Stevenson, Ph.D. (9) 240,100 *
James H. Fuller (9) 512,957 *
Ronald L. Hendrick (9) 229,402 *
Dan Stinchcomb, Ph.D. (9) 112,962 *
Carol T. Verser, Ph.D. (9) 95,934 *
All directors and executive officers as a group
(14 persons)(9)(10) 11,220,234 22.8%
* Amount represents less than 1% of our common stock.
(1) To our knowledge, 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 Securities and Exchange
Commission and includes voting and investment power with respect
to securities. Shares of common stock issuable upon exercise of
stock options or warrants exercisable within 60 days of March 26,
2002 are deemed outstanding and to be beneficially owned by the
person holding such option for purposes of computing such
person's 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
February 12, 2002 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 9,490,182 shares.
(3) Based upon information derived from a Schedule 13D filed on
January 9, 2002 by entities associated with Charter Ventures
pursuant to Section 13D of the Exchange Act reporting their
beneficial ownership of our common stock. According to the
Schedule 13D, these entities have sole power to vote and dispose
of 8,414,717 shares. Includes 3,387,510 shares and options to
purchase 1,000 shares of common stock held by Charter Ventures
and 5,027,207 shares and options to purchase 1,000 shares of
common stock held by Charter Ventures II, L.P.
(4) Based upon information derived from a Schedule 13G filed on
February 14, 2002 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 has the sole power to vote 3,799,960 shares and the sole
power to dispose of 6,033,060 shares.
(5) Based upon information derived from a Schedule 13G, filed on
February 11, 2002 by Capital Group International, Inc., pursuant
to Section 13G of the Exchange Act reporting its beneficial
ownership of our common stock. According to the Schedule 13G,
Capital has sole power to vote 2,577,200 shares and the sole
power to dispose of 2,967,500 shares.
(6) Based upon information derived from a Schedule 13G filed by
Lombard Odier & Cie on February 14, 2002 to Section 13G of the
Exchange Act reporting its beneficial ownership of shares.
According to the Schedule 13G, Lombard has sole power to vote and
dispose of 3,911,851 shares.
(7) Represents shares and options held by Charter Ventures and
Charter Ventures II, L.P., with respect to which Mr. Dolan
disclaims beneficial ownership except to the extent of his
proportionate share therein. Mr. Dolan, one of our directors, is
a general partner of each of Charter Ventures and Charter
Ventures II, L.P., and may be deemed a beneficial owner of the
shares held by such entities because of his status as a general
partner.
(8) Does not include 15,649 shares of common stock held by
Dr. Grieve's wife, with respect to which Dr. Grieve disclaims
beneficial ownership.
(9) Includes an aggregate of 1,338,606 shares of common stock
issuable upon exercise of stock options currently exercisable
within 60 days of March 26, 2002 as follows: Mr. Aylesworth,
64,000; Mr. Cicotello, 9,083; Mr. Dolan, 60,800; Mr. Gordon,
45,800; Dr. Grieve, 399,480; Dr. Hohnke, 79,834; Dr. Martin,
57,900; Mr. Sasen, 68,000; Dr. Stevenson, 61,100; Mr. Hendrick,
98,020; Mr. Fuller, 123,957; Dr. Miozzari, 102,256;
Dr. Stinchcomb, 91,813; and Dr. Verser, 76,563.
(10) Includes shares held by the entities referenced in footnote 7
that are affiliated with a director.
EXECUTIVE COMPENSATION
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about our common stock that may
be issued upon exercise of options, warrants and rights under all of our equity
compensation plans as of December 31, 2001, including the 1988 Stock Option
Plan, the 1994 Executive Stock Plan, the 1997 Stock Incentive Plan and the 1997
Employee Stock Purchase Plan. Our stockholders have approved all of these
plans.
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to Weighted Average Equity Compensation
be Issued Upon Exercise Exercise Price of Plans (excluding
of Outstanding Options, Outstanding Options, securities reflected in
Plan Category Warrants and Rights Warrants and Rights in column (a))
----------------------------- ----------------------- ------------------- -----------------------
Equity Compensation Plans
Approved by Stockholders 3,901,860 $2.57 2,814,434
Equity Compensation Plans Not
Approved by Stockholders None None None
Total 3,901,860 2,814,434
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for services rendered in all
capacities to us for the past three fiscal years ended December 31 of
(i) Robert B. Grieve, Chairman of the Board and Chief Executive Officer and
(ii) our four other most highly compensated executive officers as of
December 31, 2001, collectively referred to as the named executive officers.
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------------------
--------------------------------------------- RESTRICTED SECURITIES
BONUS OTHER ANNUAL STOCK AWARDS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) ($)(2) COMPENSATION ($)(5)(6) OPTIONS (#)
---------------------------- ------- -------------- ----------- -------------- ----------------- ------------------
Robert B. Grieve 2001 297,499 23,174 - 238,000 125,000
Chairman of the Board 2000 260,000 11,044 - - 200,000
and Chief Executive Officer 1999 245,400 - - - 200,000(7)
James H. Fuller 2001 255,149 18,540 - 238,000 100,000
President and Chief Operating 2000 249,600 8,595 - - 150,000
Officer 1999 229,200(3) 68,730(4) - - 350,000(7)
Ronald L. Hendrick 2001 196,799 9,734 - 68,000 100,000
Executive Vice President, Chief 2000 187,720 4,725 - - 115,000
Financial Officer and Secretary 1999 180,000 - - - -
Dan T. Stinchcomb 2001 184,124 9,187 - 13,600 30,000
Executive Vice President, 2000 180,000 3,412 - - 30,000
Research and Development 1999 160,000 - - - 35,000
Carol Talkington Verser 2001 180,224 6,309 - 6,800 50,000
Executive Vice President, 2000 140,152 2,754 - - 15,000
Intellectual Property and 1999 122,400 - - - 20,000
Business Development
(1) Salary includes amounts, if any deferred pursuant to 401(k)
arrangements.
(2) Performance bonus based on financials goals established in the
Company's Management Incentive Compensation Plan.
(3) Mr. Fuller's employment with us commenced on January 19, 1999 and his
1999 salary reflects a partial year of employment.
(4) Includes a starting bonus of $60,000 and a moving expense
reimbursement of $8,730.
(5) Represents restricted stock issued in exchange for the termination of
employee stock options as described more fully below under "Restricted
Stock Exchange Program."
(6) The number and value of unvested restricted stock based upon the closing
market price per share of the common stock at December 31, 2001 ($1.00)
were: Grieve, 335,416 shares valued at $335,416; Fuller, 335,416 shares
valued at $335,416; Hendrick, 95,833 shares valued at $95,833; Stinchcomb,
19,166 shares valued at $19,166; and Verser, 9,583 shares valued at $9,583.
(7) These options were cancelled in exchange for restricted stock as described
in more detail below under "Restricted Stock Exchange Program."
STOCK OPTIONS
The following tables summarize option grants to, and exercises by, the
named executive officers during 2001, and the value of the options held by each
such person during 2001.
OPTION GRANTS IN 2001
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF PERCENTAGE OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE FOR OPTION TERM(4)
GRANTED FISCAL YEAR PRICE EXPIRATION -------------------------------
NAME (#)(1) (%) ($/SH)(2) DATE(3) 5%($) 10%($)
-------------------------- ----------- ------------- ------------ ---------- ------------- ----------------
Robert B. Grieve 125,000 11.72 1.25 02/05/11 98,265 249,022
James H. Fuller 100,000 9.37 1.25 02/05/11 78,612 199,218
Ronald L. Hendrick 100,000 9.37 1.25 02/05/11 78,612 199,218
Dan T. Stinchcomb 30,000 2.81 1.25 02/05/11 23,584 59,765
Carol T. Verser 50,000 4.69 1.25 02/05/11 39,306 99,609
(1) The right to exercise these stock options vests ratably on a monthly
basis over a four-year period. Under the terms of our stock plans,
our Compensation Committee retains the discretion, subject to certain
limitations, to modify, extend, or renew outstanding options and to
reprice outstanding options. Options may currently be repriced by
canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue,
which may be lower than the original exercise price of such canceled
options. However, Proposal 3, on page 11 of this Proxy Statement, if
approved would restrict the ability to reprice. See Proposal 3 herein
for a more detailed discussion.
(2) The exercise price is equal to 100% of the fair market value on the
date of grant as determined by the Compensation Committee.
(3) The options have a term of ten years, subject to earlier termination
in certain events related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the
rules of the Securities and Exchange Commission and do not represent
our estimate or projection of the future common stock price. There
can be no assurance that any of the values reflected in the table will
be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2001(#) DECEMBER 31, 2001($)(2)
ACQUIRED ON VALUE ---------------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------ ------------ -------------------- ---------------- ---------------- ---------------- ----------------
Robert B. Grieve 19,600 10,936 342,709 207,291 50,750 -
James H. Fuller - - 89,583 160,417 - -
Ronald L. Hendrick - - 67,292 147,708 - -
Dan T. Stinchcomb - - 74,417 54,583 - -
Carol T. Verser - - 57,292 57,708 13,000 -
(1) These values were calculated based on the fair market value of the
underlying securities at the exercise date minus the applicable per
share exercise price.
(2) These values were calculated on the basis of the fair market value
per share of the common stock at December 31, 2001 ($1.00), minus the
applicable per share exercise price.
RESTRICTED STOCK EXCHANGE PROGRAM
On August 9, 2001, based upon management's review of the status of stock
options previously granted to employees, including executive officers, the Board
of Directors determined that the majority of such stock options had an exercise
price significantly in excess of the current market price of our common stock,
which was $1.099 per share as of August 9, 2001. Consequently, these options
did not provide the incentive to the recipient that was originally intended. In
order to provide a renewed financial incentive to current employees, including
executive officers, the Board of Directors approved an exchange program in which
we offered Heska's current employees the opportunity to exchange all options
outstanding with exercise prices greater than $3.90 per share under the 1997
Stock Incentive Plan for shares of restricted stock. The offer closed on
September 28, 2001 with options to purchase 1,044,900 shares of common stock
exchanged for 1,044,900 shares of restricted stock. The restricted stock vests
over 48 months from its issuance on October 1, 2001.
Under current interpretations issued by the Securities and Exchange
Commission, the cancellation of underwater or out-of-the-money stock options,
and the exchange of restricted stock therefor must be disclosed under Proxy
Statement rules as a repricing. Therefore, the following information discloses
the out-of-the money-stock options cancelled by executive officers and the
shares of restricted stock exchanged therefor.
TEN-YEAR OPTION/SAR REPRICINGS
SECURITIES
UNDERLYING MARKET PRICE EXERCISE LENGTH OF ORIGINAL
NUMBER OF OF STOCK AT PRICE OPTION TERM
OPTIONS TIME OF AT TIME OF NUMBER OF SHARES REMAINING AT DATE OF
NAME DATE REPRICED (#) REPRICING ($) REPRICING($) GRANTED(1) REPRICING OR AMENDMENT
----------------------------- ----------- ------------ ------------ ------------- ------------------ ----------------------
Robert B. Grieve 10/01/01 150,000 0.68 11.88 150,000 5.3
Chairman of the Board 10/01/01 200,000 0.68 5.19 200,000 6.2
and Chief Executive Officer
James H. Fuller 10/01/01 350,000 0.68 5.37 350,000 6.8
President and Chief
Operating Officer
Ronald L. Hendrick 10/01/01 100,000 0.68 5.25 100,000 5.2
Executive Vice President,
Chief Financial Officer and
Secretary
Dan T. Stinchcomb 10/01/01 20,000 0.68 11.88 20,000 5.3
Executive Vice President,
Research and Development
Carol T. Verser 10/01/01 10,000 0.68 11.88 10,000 5.3
Executive Vice President,
Intellectual Property and
Business Development
(1) Restricted stock grants were made in exchange for the cancellation of
options at a ratio of 1.0 shares of restricted stock per 1.0 option
share.
PENSION AND LONG-TERM INCENTIVE PLANS
We have no pension or long-term incentive plans.
EMPLOYMENT AGREEMENTS
During 2001, we were a party to employment agreements with each of our
named executive officers. All of the agreements provide for severance payments
if the individual's employment is terminated without cause, including
terminations in connection with a change in control. In the case of Dr. Grieve,
the payments set forth in his employment agreement are equal to one year's
salary plus an additional year of vesting under any stock arrangements if his
employment is involuntarily terminated. In the case of Mr. Fuller, the payments
set forth in his employment agreement are equal to six months' salary and an
additional six months' vesting under any stock arrangements. In the case of
Mr. Hendrick, the payments set forth in his employment agreement are equal to
six months' salary. In the case of Dr. Stinchcomb, the payments set forth in
this employment agreement are equal to six months' salary if he is terminated
without cause other than a change in control, or one year's salary if he is
terminated without cause due to a change in control. In the case of Dr. Verser,
the payments set forth in this employment agreement are equal to six months'
salary if she is terminated without cause other than a change in control, or one
year's salary if she is terminated without cause due to a change in control.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
This report on executive compensation is provided by the Compensation
Committee of the Board of Directors to assist stockholders in understanding the
objectives and procedures used in establishing the compensation of our executive
officers. Four non-employee directors, Mr. Dolan, Dr. Hohnke, Dr. Martin and
Mr. Sasen, served on the Compensation Committee during the last fiscal year.
RESPONSIBILITIES OF THE COMPENSATION COMMITTEE
The Compensation Committee acts on behalf of the Board of Directors. Our
responsibilities include:
* Establishing the Company's compensation philosophy for all employees,
including the Chief Executive Officer and other executive officers;
* Reviewing the performance of the Chief Executive Officer;
* Determining salary levels and stock grants for the Chief Executive
Officer and other executive officers; and
* Administering the Company's 1997 Stock Incentive Plan and Employee Stock
Purchase Plan, including determining the number and type of options to be
granted to employees of the Company and its subsidiaries and the terms of
such grants.
COMPENSATION PHILOSOPHY AND OBJECTIVES
We believe that compensation of the Company's executive officers should
promote the success of the Company by attracting, retaining and motivating all
employees, including executive officers, while aligning their interests with the
Company's long-term and strategic interests and the interests of stockholders.
Competition for skilled employees, particularly management level employees, in
the Company's industry is intense and the Committee seeks to provide total
compensation packages that will attract and retain superior caliber individuals,
yet be consistent with the Company's financial situation and stage of
development.
KEY ELEMENTS OF EXECUTIVE COMPENSATION
Until the Company has achieved operational profitability, we believe that
the use of traditional performance standards, such as profit levels and return
on equity, is not appropriate in the evaluation of executive officer
performance. Instead, the Committee evaluates the performance of executive
officers and sets their compensation based primarily on the Company's
achievement of its business objectives, such as developing and introducing
products, improving financial performance, obtaining appropriate financing,
developing its intellectual property portfolio and entering into collaborations
with other companies and academia. The Committee also evaluates each officer's
individual contribution toward the achievement of these objectives and of other
individual objectives. The Company's compensation structure for executive
officers includes a combination of base salary, stock options, restricted stock
awards and performance based cash incentive under a management incentive
compensation plan.
Base Salary. Salary levels are largely determined through comparisons with
companies of similar headcount and market capitalizations or complexity in the
biotechnology industry. Actual salaries are based on individual performance
contributions within a competitive salary range for each position that is
established through evaluation of responsibilities and market comparisons. We
believe, that the Company's salary levels for the executive officers are at a
level that, at the time such salary determinations were made, were considered to
be reasonable and necessary given the Company's financial resources and the
stage of its development. This belief is based on our knowledge of executive
compensation in the industry and based on practices of comparable companies in
the Company's industry.
Stock Options. We believe that stock options provide excellent long-term
incentives for executive officers to increase the Company's market value for the
benefit of all stockholders. We are responsible for determining the number and
terms of options 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 in the Company's industry.
Options granted to executive officers have exercise prices equal to fair market
value on the date of grant, vest over a four-year period, and expire ten years
from the date of grant. Vesting ceases and the vested portion of options must
be exercised should the executive leave the Company's employ (subject to any
rights to partial acceleration of vesting upon termination without cause under
employment agreements). This Committee believes that these vesting 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.
Restricted Stock Exchange Program. As more fully discussed above, the
Company offered current employees of Heska the opportunity to exchange all
options outstanding with exercise prices greater than $3.90 per share under the
1997 Stock Incentive Plan for shares of restricted stock. The offer closed on
September 28, 2001 with options to purchase 1,044,900 shares of common stock
exchanged for 1,044,900 shares of restricted stock. The number of restricted
shares received by the named executive officers in connection with this exchange
is included in the Summary Compensation Table. The following named executive
officers participated in the exchange: Dr. Grieve exchanged 150,000 options with
exercise prices of $11.88 and 200,000 options with exercise prices of $5.19; Mr.
Fuller exchanged 350,000 options with exercise prices of $5.37; Mr. Hendrick
exchanged 100,000 options with exercise prices of $5.25; Dr. Stinchcomb
exchanged 20,000 options with exercise prices of $11.88; and Dr. Verser
exchanged 10,000 options with exercise prices of $11.88.
Management Incentive Compensation Plan. We believe that cash performance
based incentives can also serve an important role in executive compensation.
The management incentive compensation plan provides incentives to the executives
of the Company to meet and exceed certain predetermined annual net income and
revenue goals. While we believe that providing cash bonuses to the executives
of the Company is an essential part of creating a competitive executive
compensation package, we have determined that paying the great majority of such
bonuses only if specific predetermined financial goals are achieved provides a
very strong incentive to the Company's management to achieve financial
performance that will be beneficial to the Company and its stockholders. At
management's request this plan has been suspended in 2002 in an effort assist
the Company toward its goal of profitability.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual salary of Robert B. Grieve, the Company's Chairman of the Board
and Chief Executive Officer, was increased to $310,000 in 2001 and, at the
request of Dr. Grieve will remain unchanged during 2002, and we awarded him a
stock option in February, 2001 to purchase an additional 125,000 shares of
common stock. These options have the terms described above. Given the
Company's stage of development, the use of traditional performance standards,
such as profit levels and return on equity were not considered appropriate in
the evaluation of Dr. Grieve's performance.
QUALIFYING COMPENSATION
It is the Company's policy generally to qualify compensation paid to
executive officers for deductibility under section 162(m) of the Internal
Revenue Code. Section 162(m) generally prohibits the Company from deducting the
compensation of executive officers that exceeds $1,000,000 unless that
compensation is based on the satisfaction of objective performance goals. The
Company's 1997 Stock Incentive Plan is structured to qualify awards under such
plans as performance-based compensation and to maximize the tax deductibility of
such awards. However, the Company reserves the discretion to pay compensation
to its executive officers that may not be deductible.
The foregoing report has been furnished by the Compensation Committee of
the Board of Directors and shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this report by
reference and shall not otherwise be deemed filed under such Acts.
Respectfully submitted,
A. Barr Dolan
Lyle A. Hohnke
Edith W. Martin
John F. Sasen, Sr., Chairman
AUDIT DISCLOSURE
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as our independent public accountants since
our inception in 1988. It has been selected to audit our financial statements
for the fiscal year beginning January 1, 2002. Representatives of Arthur
Andersen LLP will be present at the meeting. They will be given the opportunity
to make a statement if they desire to do so, and they will be available to
respond to appropriate questions.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's accounting, auditing and
financial reporting practices on behalf of the Board of Directors. The members
of the Audit Committee during 2001 were Directors Gordon, Aylesworth, Dolan and
Martin. In August 2001, the Audit Committee was reconstituted and Mr. Gordon
was appointed Chairman. All members of this Audit Committee meet the
independence and experience requirements of the Nasdaq Stock Market.
The Board of Directors has adopted a charter outlining the functions this
Committee is to perform. These functions include:
* Monitoring the corporate financial reporting and internal and external
audits of the Company;
* Providing the results of its examinations and recommendations derived
therefrom to the Board of Directors; and
* Nominating independent auditors.
We rely on the work and assurances of management, which has the primary
responsibility for preparing the Company's financial statements, and of the
independent auditors, who are responsible for auditing the financial statements.
The functions of the Audit Committee are not intended to duplicate or supersede
these activities. Except to the extent required by the Nasdaq Stock Market,
Committee members are not required to have professional training or expertise
associated with career professionals in the fields of accounting and auditing.
In addition, the independent auditors have more time and detailed information
about the Company than do Committee members. Consequently, the Committee is not
providing any professional certification as to the independent auditors' work or
any expert assurance as to the financial statements.
In this context, during the year 2001, we met and held discussions with
management and the independent auditors. Management represented to us that the
Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Audit Committee has reviewed
and discussed the consolidated financial statements with management and the
independent auditors. In our meetings with the independent auditors, we
discussed matters required to be discussed by the auditors with audit committees
under Statement of Auditing Standards No. 61 (Communication with Audit
Committees) In addition, we received and discussed with the auditors their
annual written report on their independence from the Company and its management
which is made under Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and considered, and concluded that, the non-
audit services by the auditors are compatible with maintaining the auditors'
independence with respect to the audit of the Company's financial statements.
In reliance on these reviews and discussions and the report of the
independent auditors, we have recommended to the Board of Directors, that the
audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, for filing with the Securities
and Exchange Commission.
Respectfully submitted,
William A. Aylesworth
A. Barr Dolan
G. Irwin Gordon, Chairman
Edith W. Martin
AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES AND ALL
OTHER FEES
The fees billed to us by Arthur Andersen LLP for 2001 are as follows:
Audit Fees. The aggregate fees billed by Arthur Andersen LLP for the audit
of our annual financial statements for 2001 and for the reviews of our quarterly
financial statements for 2001 were $110,000.
Financial Information Systems Design and Implementation Fees. No fees were
billed by Arthur Andersen LLP for the design or implementation of our financial
information systems during 2001.
All Other Fees. The aggregate fees for all other services provided by
Arthur Andersen LLP during 2001 were $131,870, including audit related fees of
$69,850 and other fees of $62,020. Audit related fees include statutory audits,
benefit plan audits, work associated with possible transactions, accounting
consultations, assistance with registration statements, comfort letters and
consents. Other fees were primarily for tax services.
The Audit Committee has considered whether and concluded that, the scope
and nature of the non-audit services provided by Arthur Andersen LLP as
described above are compatible with maintaining Arthur Andersen's independence
as our principal accountants with respect to the audit of our financial
statements.
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of our
common stock with the Center for Research in Securities Prices Total Return
Index for the Nasdaq Stock Market (U.S. and Foreign) and the CRSP Total Return
Index for Nasdaq Pharmaceutical Stocks assuming an investment of $100 in each on
December 31, 1997, the year of our initial public offering. The comparisons in
the graph are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of our
common stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG HESKA CORPORATION, THE NASDAQ STOCK
MARKET INDEX (U.S. AND FOREIGN) AND THE NASDAQ PHARMACEUTICAL STOCK INDEX
NASDAQ
NASDAQ US & PHARMACEUTICAL HESKA
DATE FOREIGN STOCKS CORPORATION
-------- ------------- -------------- --------------
Dec-97 100.000 100.000 100.000
Jun-98 119.843 101.491 89.398
Dec-98 138.505 127.297 35.863
Jun-99 169.977 142.218 18.691
Dec-99 258.201 239.265 18.182
Jun-00 251.773 325.975 17.172
Dec-00 155.890 297.608 5.560
Jun-01 136.162 274.378 8.646
Dec-01 122.822 254.167 8.081
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 with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other of our equity securities. Directors,
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 2001
our directors, officers and 10% or greater stockholders complied with all filing
requirements under Section 16(a) of the Exchange Act.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
AGREEMENTS WITH NOVARTIS
We have entered into distribution agreements with various subsidiaries
and/or divisions of Novartis AG, one of our principal stockholders. In August
1998, we entered into an agreement with Novartis Agro K.K. to be our exclusive
distributor for SOLO STEP CH and SOLO STEP FH heartworm diagnostic products and
our feline Trivalent Intranasal/Intraocular Vaccine in Japan upon obtaining
regulatory approval in Japan for such products. In February 2001, we entered
into an agreement with Novartis Animal Health Canada, Inc. to be our exclusive
distributor for Flu AVERT, I.N., our equine influenza vaccine in Canada.
LOAN TO EXECUTIVE OFFICER
In December 1999, we approved a personal loan to Dr. Grieve for $100,000.
This loan is evidenced by a promissory note that is due and payable on
December 23, 2002. Interest on the outstanding principal balance accrues at the
rate of 5.74% per annum. Payment of any unpaid principal balance together with
all accrued and unpaid interest can be accelerated and become payable within
ninety days after Dr. Grieve's relationship with us is terminated for any reason
other than Dr. Grieve's death or permanent disability.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
Proposals of stockholders submitted pursuant to Rule 14a-8 under the
Securities and Exchange Act of 1934, as amended, and intended to be presented
for consideration at our 2003 Annual Meeting of Stockholders must be received by
us not later than December 12, 2002 in order to be considered for inclusion in
our proxy materials for that meeting.
Alternatively, our Bylaws establish an advance notice procedure with
respect to certain stockholder proposals and nominations. In the event a
stockholder wishes to nominate a candidate for election as a director, or wishes
to propose any other matter for consideration at the Annual Meeting, other than
proposals for possible inclusion in the Proxy Statement pursuant to Rule 14a-8,
notice of such intent to make such nomination or propose such action must be
delivered to or mailed or sent by other means of written communication and
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 year's Annual Meeting was
mailed to stockholders. For the 2003 Annual Meeting, this means that any such
proposal or nomination must be submitted no earlier than January 11, 2003 and no
later than February 10, 2003. Any such notice must contain certain specified
information concerning the proposed matter and the stockholder submitting the
proposed matter, all as set forth in the Bylaws. The chairman of the Annual
Meeting may refuse to acknowledge the nomination of any person or the request
for such other action not made in compliance with the foregoing procedures. If
the foregoing procedures are not followed and such nomination or other request
for action is nonetheless permitted, the proxy holders appointed by us herein
shall have discretionary voting authority with respect to such matters at the
Annual Meeting.
OTHER MATTERS
We are not aware of any other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting,
it is intended that proxies will be voted in accordance with the judgment of the
persons voting the proxies.
Whether or not you plan to attend the meeting, please vote by Internet or
mark, sign, date and promptly return the enclosed proxy card in the enclosed
envelope. No postage is required for mailing in the United States.
By Order of the Board of Directors.
/s/Ronald L. Hendrick
Ronald L. Hendrick
Executive Vice President,
Chief Financial Officer and Secretary
Fort Collins, Colorado
April 11, 2002
APPENDIX A
PROPOSED AMENDMENT TO ARTICLE 8 OF THE BYLAWS
The proposed amendment amends and restates Article 8 of the Bylaws to read
as follows:
"8.1 Stock Options and Toxic Securities
Unless approved by the holders of a majority of the shares entitled to vote
at a duly convened meeting of stockholders, the corporation shall not:
(i) Grant any stock option, including stock appreciation right, with an
exercise price that is less than 100% of the fair market value of the underlying
stock on the date of grant;
(ii) Reduce the exercise price of any stock option, including stock
appreciation right, outstanding or to be granted in the future; cancel and
re-grant options at a lower exercise price (including entering into any "6 month
and 1 day" cancellation and re-grant scheme), whether or not the cancelled
options are put back into the available pool for grant; replace underwater
options with restricted stock in an exchange, buy-back or other scheme; or
replace any options with new options having a lower exercise price or
accelerated vesting schedule in an exchange, buy-back or other scheme;
(iii) Sell or issue any security of the corporation convertible,
exercisable or exchangeable into shares of common stock, having a conversion,
exercise or exchange price per share which is subject to downward adjustment
based on the market price of the common stock at the time of conversion,
exercise or exchange of such security into common stock (except for appropriate
adjustments made to give effect to any stock splits or stock dividends); or
(iv) Enter into (a) any equity line or similar agreement; or (b) any
agreement to sell common stock (or any security convertible, exercisable or
exchangeable into shares of common stock ("Common Stock Equivalent")) at a
per share price (or, with respect to a Common Stock Equivalent, at a conversion,
exercise or exchange price, as the case may be ("Equivalent Price")) that is
fixed after the execution date of the agreement, whether or not based on
any predetermined price-setting formula or calculation method.
Notwithstanding the foregoing, however, a price protection clause shall be
permitted in an agreement for sale of common stock or Common Stock Equivalent,
if such clause provides for an adjustment to the price per share of
common stock or, with respect to a Common Stock Equivalent, to the Equivalent
Price (provided that such price or Equivalent Price is fixed on or before the
execution date of the agreement) (the "Fixed Price") in the event that the
corporation, during the period beginning on the date of the agreement and
ending no later than ninety (90) days after the closing date of the
transaction, sells shares of common stock or Common Stock Equivalent to
another investor at a price or Equivalent Price, as the case may be, below
the Fixed Price.
8.2 Amendments
The Board of Directors is expressly empowered to adopt, amend or repeal
these Bylaws, provided, however, that any adoption, amendment or repeal of these
Bylaws by the Board of Directors shall require the approval of at least sixty-
six and two-thirds percent (66-2/3%) of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the board). The stockholders shall also have power to adopt, amend
or repeal these Bylaws, provided, however, that in addition to any vote of the
holders of any class or series of stock of this corporation required by law or
by the Restated Certificate of Incorporation of this corporation, the
affirmative vote of the holders of more than fifty percent (50%) of the voting
power of all of the then outstanding shares of the stock of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for such adoption, amendment or repeal by the
stockholders of any provisions of these Bylaws. Notwithstanding the foregoing
sentence, the affirmative vote of the holders of at least sixty-six and two-
thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required for
the amendment or repeal of Article 3.1 of these Bylaws.
Notwithstanding the foregoing paragraph or any provision of the Restated
Certificate of Incorporation, Section 8.1 of these Bylaws may only be amended or
repealed by the affirmative vote of the holders of a majority of the shares of
the stock of the corporation entitled to vote at a duly convened meeting of
stockholders."
PROXY [GRAPHIC] PROXY
1613 Prospect Parkway
Fort Collins, Colorado 80525
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints the Board of Directors of Heska
Corporation, or its designee, the undersigned's true and lawful agent and proxy
with full power of substitution, to represent the undersigned at the Annual
Meeting of Stockholders to be held at 1613 Prospect Parkway, Fort Collins,
Colorado on May 16, 2002 at 9:00 a.m., and at any adjournment thereof, to vote
as designated below:
-----------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1,2 and 3.
-----------------------------------------------------------------
1.To elect three directors, A. FOR ALL
Barr Dolan, Robert B. Grieve and John FOR WITHHOLD EXCEPT
F. Sasen, Sr. to serve until the 2005 [ ] [ ] [ ]
Annual Meeting of Stockholders or
until their successors have been duly
elected and qualified.
------------------------------------
Write exception(s) here
2.To approve an amendment to the
1997 Employee Stock Purchase Plan to FOR AGAINST ABSTAIN
increase the number of shares [ ] [ ] [ ]
reserved for issuance under the Plan
by 1,000,000 shares.
3.To ratify and approve an
amendment to Article 8 of Heska's
Bylaws. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Date: , 2002
----------------------------
--------------------------------- ----------------------------------
Signature Signature if held jointly
Please sign exactly as name(s) appears hereon. When joint tenants hold shares,
both should sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
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VOTE BY INTERNET
QUICK EASY IMMEDIATE
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YOUR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME
MANNER AS IF YOU HAVE MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
TO VOTE BY INTERNET: Connect to the Website listed below: You will be asked to
enter a control number which is located at the bottom of this form. Then
follow the instructions. THE WEBSITE for voting is www.proxyvoting.com/heska
IF YOU VOTE INTERNET DO NOT MAIL IN THE PROXY CARD.
THANK YOU FOR VOTING!
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CONTROL NUMBER
For Internet voting
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