-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BSMUIyKBOiql2mMrxs8kds4kg3XH0PKT+f1c/9D7iCIGhfiWEjQmGOGlLMciqOpc CRyXl/EPf0pRIcl4tiviaQ== 0001038133-01-500020.txt : 20010830 0001038133-01-500020.hdr.sgml : 20010830 ACCESSION NUMBER: 0001038133-01-500020 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20010829 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HESKA CORP CENTRAL INDEX KEY: 0001038133 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 770192527 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: 1934 Act SEC FILE NUMBER: 005-51279 FILM NUMBER: 1727204 BUSINESS ADDRESS: STREET 1: 1613 PROSPECT PARKWAY CITY: FORT COLLINS STATE: CO ZIP: 80525 BUSINESS PHONE: 9704937272 MAIL ADDRESS: STREET 1: 1825 SHARP POINT DR CITY: FORT COLLINS STATE: CO ZIP: 80525 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HESKA CORP CENTRAL INDEX KEY: 0001038133 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 770192527 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 1613 PROSPECT PARKWAY CITY: FORT COLLINS STATE: CO ZIP: 80525 BUSINESS PHONE: 9704937272 MAIL ADDRESS: STREET 1: 1825 SHARP POINT DR CITY: FORT COLLINS STATE: CO ZIP: 80525 SC TO-I 1 sto.txt SCHEDULE TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE TO (RULE 13E-4) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 HESKA CORPORATION (NAME OF SUBJECT COMPANY (ISSUER) AND FILING PERSON (OFFEROR) OPTIONS TO PURCHASE COMMON STOCK, PAR VALUE $0.001 PER SHARE, HAVING AN EXERCISE PRICE GREATER THAN $3.90 PER SHARE (TITLE OF CLASS OF SECURITIES) 42805E108 (CUSIP NUMBER OF CLASS OF SECURITIES) (UNDERLYING COMMON STOCK) ROBERT B. GRIEVE CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD HESKA CORPORATION 1613 PROSPECT PARKWAY FORT COLLINS, COLORADO 80525 (970) 493-7272 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF FILING PERSON) Copies to: KAREN A. DEMPSEY, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION ONE MARKET, SPEAR TOWER SUITE 3300 SAN FRANCISCO, CALIFORNIA 94105 (415) 947-2000 CALCULATION OF FILING FEE TRANSACTION VALUATION* AMOUNT OF FILING FEE $892,293.52 $178.46 * Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 1,068,615 shares of common stock of Heska Corporation having an aggregate value of $892,293.52 as of August 23, 2001 (based on the market value of the underlying common stock) will be exchanged pursuant to this offer. The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction. Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing party: Not applicable. Date filed: Not applicable. Check box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: third party tender offer subject to Rule 14d-1. issuer tender offer subject to Rule 13e-4. going-private transaction subject to Rule 13e-3. amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer. ITEM 1. SUMMARY TERM SHEET. The information set forth under the "Summary Term Sheet" section in the Offer to Exchange, dated August 29, 2001, attached hereto as Exhibit (a)(1) (the "Offer to Exchange"), is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) The name of the issuer is Heska Corporation, a Delaware corporation (the "Company"), and the address of its principal executive office is 1613 Prospect Parkway, Fort Collins, Colorado 80525, (970) 493-7272. The information set forth in the Offer to Exchange under Section 10 ("Information Concerning Heska") is incorporated herein by reference. (b) This Tender Offer Statement on Schedule TO relates to an offer by the Company to exchange options having an exercise price greater than $3.90 per share (the "Options") to purchase shares of the Company's common stock, par value $0.001 per share, that are outstanding under the Company's 1997 Stock Incentive Plan (the "1997 Plan") and held by current employees of the Company for restricted shares of common stock (the "Restricted Stock"), upon the terms and subject to the conditions described in the Offer to Exchange, and the related Letter to Eligible Employees attached hereto as Exhibit (a)(2) (together with the Offer of Exchange, as they may be amended or supplemented from time to time, the "Offer"). As of August 29, 2001, the total number of shares of common stock underlying the Options is 1,088,815 of which 1,068,615 underlying shares are held by current employees who are eligible to participate in the Offer. Only employees of Heska Corporation will be eligible to accept the Offer. Employees of Diamond Animal Health, Inc., Heska AG and CMG-Heska Allergy Products S.A., each a subsidiary of the Company, will not be eligible to participate in the Offer. In addition, outside directors will not be eligible to accept the Offer. The number of shares of Restricted Stock to be issued will be equal to the number of shares of common stock underlying the options that are accepted for exchange and cancelled. The information set forth in the Offer to Exchange under "Summary Term Sheet", Section 2 ("Number of Options; Expiration Date") and Section 9 ("Source and Amount of Consideration; Terms of Restricted Stock") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 8 ("Price Range of Shares Underlying the Options") is incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a) The information set forth under Item 2(a) above is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Exchange under "Summary Term Sheet," Section 1 ("Eligibility"), Section 2 ("Number of Options; Expiration Date"), Section 4 ("Procedures for Tendering Options"), Section 5 ("Withdrawal Rights and Change of Election"), Section 6 ("Acceptance of Options for Exchange and Issuance of Restricted Stock"), Section 7 ("Conditions of the Offer"), Section 9 ("Source and Amount of Consideration; Terms of Restricted Stock"), Section 12 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer"), Section 13 ("Legal Matters; Regulatory Approvals"), Section 14 ("Material U.S. Federal Income Tax Consequences") and Section 15 ("Extension of Offer; Termination; Amendment") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND ARRANGEMENTS. (e) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (a) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 6 ("Acceptance of Options for Exchange and Issuance of Restricted Stock") and Section 12 ("Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the Offer") is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Offer to Exchange under Section 9 ("Source and Amount of Consideration; Terms of Restricted Stock") and Section 16 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 7 ("Conditions of the Offer") is incorporated herein by reference. (d) Not applicable. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options") is incorporated herein by reference. ITEM 9. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (a) Not applicable. ITEM 10. FINANCIAL STATEMENTS. (a) The information set forth in the Offer to Exchange under Section 10 ("Information Concerning Heska") and Section 17 ("Additional Information"), and in Part I - Item 8 of the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2000, as filed with the SEC on March 29, 2001, the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2001, as filed with the SEC on May 10, 2001, and the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2001, as filed with the SEC on August 14, 2001, is incorporated herein by reference. (b) Not applicable. ITEM 11. ADDITIONAL INFORMATION. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Officers; Transactions and Arrangements About the Options") and Section 13 ("Legal Matters; Regulatory Approvals") is incorporated herein by reference. (b) Not applicable. ITEM 12. EXHIBITS. (a)(1) Offer to Exchange, dated August 29, 2001. (a)(2) Form of Letter to Eligible Employees. (a)(3) Form of Election Form. (a)(4) Form of Notice to Withdraw from the Offer. (a)(5) Form of Notice to Tendering Employees. (a)(6) Heska Corporation Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 29, 2001 and incorporated herein by reference. (a)(7) Heska Corporation Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2001, filed with the Securities and Exchange Commission on May 10, 2001, and incorporated herein by reference. (a)(8) Heska Corporation Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001, and incorporated herein by reference. (d)(1) Heska Corporation 1997 Stock Incentive Plan. (d)(2) Form of Restricted Stock Agreement. (g) Not applicable. (h) Not applicable. ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. (a) Not applicable. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. HESKA CORPORATION /s/ Robert B. Grieve ------------------------ Robert B. Grieve Chief Executive Officer Date: August 29, 2001 INDEX TO EXHIBITS EXHIBIT DESCRIPTION NUMBER (a)(1) Offer to Exchange, dated August 29, 2001. (a)(2) Form of Letter to Eligible Employees. (a)(3) Form of Election Form. (a)(4) Form of Notice to Withdraw from the Offer. (a)(5) Form of Notice to Tendering Employees. (a)(6) Heska Corporation Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 29, 2001 and incorporated herein by reference. (a)(7) Heska Corporation Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2001, filed with the Securities and Exchange Commission on May 10, 2001, and incorporated herein by reference. (a)(8) Heska Corporation Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001, and incorporated herein by reference. (d)(1) Heska Corporation 1997 Stock Incentive Plan. (d)(2) Form of Restricted Stock Agreement. EX-1 3 offer.txt OFFER TO EXCHANGE EXHIBIT (A)(1) OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK FOR SHARES OF RESTRICTED STOCK (THE "OFFER TO EXCHANGE") AUGUST 29, 2001 EXHIBIT (A)(1) HESKA CORPORATION OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK FOR SHARES OF RESTRICTED STOCK (THE "OFFER TO EXCHANGE") THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., MOUNTAIN DAYLIGHT TIME, ON SEPTEMBER 27, 2001 UNLESS THE OFFER IS EXTENDED. Heska Corporation, a Delaware corporation ("Heska"), is offering eligible employees the opportunity to exchange certain outstanding options to purchase shares of our common stock for shares of our common stock that will vest after the date of issuance in equal monthly amounts for a period of 48 months (the "restricted stock"). We will grant the restricted stock under the Heska Corporation 1997 Stock Incentive Plan (the "1997 Plan"). We are making the offer upon the terms and conditions described in (i) this "Offer to Exchange"; (ii) the related letter from Robert B. Grieve, Chief Executive Officer of Heska, dated August 29, 2001; (iii) the Election Form; and (iv) the Notice to Withdraw from the Offer (which together, as they may be amended from time to time, constitute the "offer"). All tendered options accepted by us through the offer will be cancelled as promptly as practicable on the first business day following the date the offer ends. The offer is presently scheduled to expire on September 27, 2001 (the "Expiration Date") and we expect to cancel tendered options on October 1, 2001, or as soon as possible thereafter (the "Cancellation Date"). The offer is not conditioned on a minimum number of options being tendered. Participation in the offer is completely voluntary. The offer is subject to conditions that we describe in Section 7 of this Offer to Exchange. You may participate in the offer if you are an employee of Heska as of the date the offer commences and through the Cancellation Date. Employees of Diamond Animal Health, Inc., Heska AG and CMG-Heska Allergy Products S.A., each a subsidiary of Heska, will not be eligible to participate in the offer. In order to actually receive the restricted stock pursuant to this offer, you must continue to be an employee as of the date on which the restricted stock is granted. You may only tender outstanding vested and unvested options which have an exercise price greater than $3.90 per share of the common stock underlying such options. We will not accept any options whose exercise price is equal to or less than $3.90 per share. You may only tender all or none of your options whose exercise price is greater than $3.90. We will not accept tenders for a particular option or a portion of an unexercised option. In exchange for the options you tender that are accepted for exchange and cancelled by us, you will receive a number of shares of restricted stock equal to the total number of shares of common stock underlying the options you tender. If you tender options for exchange as described in this offer, we will issue you restricted stock under the 1997 Plan. The restricted stock will be available for issuance promptly after the date the tendered options are accepted and cancelled. The restricted stock, however, will not actually be issued until you sign a restricted stock agreement. Regardless of the vesting schedules of the options that you tender to us, the restricted stock issued to you will vest after the date of issuance in equal monthly amounts for a period of 48 months, assuming that you meet the requirements for vesting specified in the restricted stock agreement between you and us. Until it vests, the restricted stock will be held in our custody and will be subject to certain forfeiture provisions and transfer restrictions set forth in the restricted stock agreement. UNDER U.S. TAX LAWS, IF YOU DO NOT MAKE AN ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE, THE VESTING OF YOUR RESTRICTED STOCK WILL RESULT IN YOUR RECOGNITION OF TAXABLE INCOME. IF YOU DO MAKE AN ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE, YOU WILL RECOGNIZE TAXABLE INCOME FOR ALL OF THE SHARES ON THE DATE OF GRANT. BEFORE WE DELIVER TO YOU THE STOCK CERTIFICATES FOR YOUR RESTRICTED STOCK, YOU MUST PROVIDE FOR THE PAYMENT TO US OF THE APPLICABLE FEDERAL, STATE AND FOREIGN INCOME AND EMPLOYMENT WITHHOLDING TAXES, EITHER BY CASH PAYMENT OR IN ACCORDANCE WITH ANOTHER ARRANGEMENT AGREED UPON BETWEEN YOU AND US. As of August 29, 2001, the total number of option shares eligible for the offer is 1,068,615. Assuming that all of the eligible option shares are tendered for the exchange, we would issue 1,068,615 shares of restricted stock, which is approximately 3% of our total shares outstanding following the issuance. ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED OUR MAKING OF THE OFFER, NEITHER WE NOR OUR BOARD OF DIRECTORS MAKE ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR OPTIONS. Shares of Heska common stock are traded on the Nasdaq National Market under the symbol "HSKA." On August 27, 2001, the closing price of our common stock reported on the Nasdaq Stock Market was $0.94 per share. WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. THIS OFFER TO EXCHANGE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Questions about the offer or requests for assistance or for additional copies of (i) this Offer to Exchange; (ii) the letter from Robert B. Grieve dated August 29, 2001; (iii) the Election Form; and (iv) the Notice to Withdraw from the Offer should be directed to: Lynn DeGeorge (email: degeorl@heska.com) Heska Corporation 1613 Prospect Parkway Fort Collins, Colorado 80525 Tel. (970) 493-7272 x 4150 Fax. (970) 491-9976 IMPORTANT If you wish to tender your options for exchange, you must complete and sign the Election Form in accordance with its instructions, and fax or hand deliver it and any other required schedules to Lynn DeGeorge at fax number (970) 491- 9976 on or before 5:00 p.m. Mountain Daylight Time on September 27, 2001. We are not making the offer to, and we will not accept any tender of options from or on behalf of, employees in any jurisdiction in which the offer or the acceptance of any tender of options would not be in compliance with the laws of that jurisdiction. However, we may, at our discretion, take any actions necessary for us to make the offer to employees in any of these jurisdictions. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT AND IN THE RELATED LETTER FROM ROBERT B. GRIEVE DATED AUGUST 29, 2001, THE ELECTION FORM AND THE NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. SUMMARY TERM SHEET The following are answers to some questions that you may have about this offer. WE URGE YOU TO READ CAREFULLY THE REMAINDER OF THIS OFFER TO EXCHANGE AND THE ACCOMPANYING MATERIALS BECAUSE THE INFORMATION IN THIS SUMMARY AND IN THE INTRODUCTION PRECEDING THIS SUMMARY ARE NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. We have included references to the relevant sections of this Offer to Exchange where you can find a more complete description of the topics in this summary. 1. Why are you making the offer? We generally grant equity awards to our employees so that they may obtain an equity interest. We believe that when our employees own (or have a chance to acquire) our stock, the employees have a further incentive to work diligently in our best interests. The goal of granting equity awards is to make ourselves a better company. With the recent downturn in the market, our stock price (like many other companies) has dropped dramatically. As a result, we believe that options with exercise prices in excess of the current fair market value are not providing the same incentive they once did. As such, we believe that offering our employees the right to acquire restricted stock for a nominal value and in exchange for their options will help increase the incentive for our employees to work diligently in our best interests. (Section 3) 2. Who is eligible to participate in the offer? If you are a current employee of Heska and have an option or options with an exercise price greater than $3.90 per share, you are eligible to participate in the offer. Employees of Diamond Animal Health, Inc., Heska AG and CMG-Heska Allergy Products S.A. are not eligible to participate in the offer. (Section 1) 3. What will I receive in exchange for my options? If you choose to participate in the offer, you will receive one (1) share of restricted stock for every share of common stock underlying your options which are accepted and cancelled by us. (Section 9) 4. May I exchange a portion or fractional amount of my option(s)? No. Partial exchanges are not permitted. That is, if you choose to participate in the offer, any and all options which you hold must be exchanged in full. You should be aware that this offer only applies to options, and does not apply in any way to shares already purchased upon the exercise of options. If you have exercised an eligible option in its entirety, that option is no longer outstanding and is therefore not subject to this offer. If you have exercised an eligible option in part, the remaining outstanding, unexercised portion of the option may be tendered in this offer. (Section 2) 5. What else will I have to do to receive restricted stock? If you choose to participate in the offer, you will need to sign a restricted stock agreement in order to receive your shares of restricted stock. (Section 6) 6. How does restricted stock work? In the event of a termination of your employment with us for any reason (or for no reason), we will retain the right (but not the obligation) to repurchase your then unvested shares of restricted stock at a price equal to the par value ($.001) of the stock (the "Repurchase Right"). This Repurchase Right is what makes this award restricted stock. (Section 9) 7. Will I receive shares of restricted stock upon my signing of the restricted stock agreement? No. To ensure that the shares of restricted stock will be available to us in the event we want to exercise the Repurchase Right, the shares will be held in escrow by the Secretary of Heska. We will release your shares from escrow subject to the terms of the restricted stock agreement. (Section 9) 8. Do you keep the Repurchase Right forever? No. The Repurchase Right with respect to the restricted stock you receive will lapse over time. This lapsing of the Repurchase Right is referred to as "vesting." The shares of restricted stock you receive will vest after the date of issuance in equal monthly amounts for a period of forty-eight (48) months. In the event the monthly amount is a fraction, we will round the number up to the nearest whole number. For example, if you receive 10,000 shares of restricted stock, 209 shares will vest monthly over the first 47 months and 177 shares will vest on the 48th month. (10,000 divided by 48 equals 208.33, which rounds up to 209 shares per month. After 47 months, 9,823 shares would vest and the remaining 177 shares would vest on the 48th month.) This vesting schedule will apply to the shares of restricted stock regardless of whether or not the options exchanged in this offer had already vested. After your termination of employment, we have 120 days to exercise the Repurchase Right for the unvested shares. If we fail to exercise this right within that time period, then the unvested shares will become vested. (Section 9) 9. Do I have any voting or dividend rights with respect to my restricted stock? Yes. If you hold restricted stock you generally have the same rights as other stockholders, except that generally in the event of any stock dividend, stock split, recapitalization or other change affecting our outstanding common stock as a class effected without the receipt of consideration or in the event of a stock split, stock dividend or other similar change in the common stock, any new, substituted or additional securities or other property which is by reason of such transaction distributed with respect to the common stock will be immediately delivered to the Secretary of Heska and be held in escrow to the extent the restricted stock is subject to the escrow requirements. (Section 9) 10. How do I exchange my options for restricted stock pursuant to the offer? In connection with the offer, we will provide to you a packet of information, which will include, among other things, a cover letter describing the offer. Additionally, there will be included an election form that you must deliver to the Company by September 27, 2001, at 5:00 p.m., Mountain Daylight Time, stating whether or not you intend to participate in the offer. It is acceptable to fax in your signed agreement on or before the above deadline and mail the original. If you do not hand it in, or you are late, you will not be able to participate. Once you hand in that election form and such form indicates your desire to participate in the offer, and once we accept and cancel your tendered options, we will thereafter deliver to you a restricted stock agreement which will enable you to acquire your restricted stock. (Section 4) 11. What are the conditions to the offer? The offer is not conditioned upon us receiving a minimum number of tendered options, however, the offer is subject to a number of other conditions, including those described in Section 7 12. When does the offer expire? Can the offer be extended, and if so, how will I be notified of the extension? The offer expires on September 27, 2001, at 5:00 p.m., Mountain Daylight Time. Although we do not currently intend to do so, we may, in our discretion, extend the offer at any time. If the offer is extended we will make a public announcement of the extension no later than 9:00 am Mountain Daylight Time, on the next business day following the previously scheduled expiration of the offer period. (Section 15) 13. During what period of time may I withdraw previously tendered options? You may withdraw your tendered options at any time before 5:00 p.m., Mountain Daylight Time, on September 27, 2001. If the offer is extended by us beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. To withdraw tendered options, you must deliver to us a completed Notice to Withdraw From the Offer while you still have the time to withdraw the tendered options. Once you have withdrawn your options, you may re-tender them only by following the delivery procedures described in this offer. (Section 5) 14. What happens if after I tender my options, I cease to be an employee of Heska.? If you cease to be an employee of Heska prior to the expiration of the offer, you may withdraw your tendered options and exercise them to the extent they are vested and in accordance with their terms. In this event, you will not receive any restricted stock. If you cease to be an employee of Heska after we have accepted and cancelled your tendered options, you will have no rights with respect to those options and they will not be reissued and returned to you for any reason. (Section 2) THIS OFFER DOES NOT CHANGE THE "AT-WILL" NATURE OF YOUR EMPLOYMENT WITH US AND YOUR EMPLOYMENT MAY BE TERMINATED BY US OR BY YOU AT ANY TIME. 15. What happens if an outside party (a.k.a. a "buyer") acquires control of Heska? If you continue employment after a buyer acquires control of Heska, your unvested restricted stock will be assumed by the buyer and your monthly vesting schedule would continue. Rather than receiving shares of stock in Heska, you would in all likelihood receive shares of stock in the buyer, cash or a combination of both when you vest. If you do not continue employment after a buyer acquires Heska, you may be entitled to receive one year accelerated vesting. The restricted stock agreement contains the provisions regarding the effect of a change of control on your restricted stock. (Section 9). 16. What do you think of the offer? Although our board of directors have approved this offer, neither we nor our board of directors makes any recommendation as to whether you should tender or refrain from tendering your options. You must make your own decision whether to tender options. 17. What are the U.S. tax effects for the restricted stock? Assuming you do not make an election under Section 83(b) of the Internal Revenue Code, you will have no taxable income at the time we grant you the restricted stock. Instead, you will recognize ordinary income when (and if) the restricted stock vests and no longer is subject to the Repurchase Right. If you make a Section 83(b) election, you recognize ordinary income at the time of grant of the restricted stock. However, if you later forfeit the restricted stock, no tax deduction is allowed with respect to the forfeiture. That is, you will not receive any credit for taxes paid with respect to such forfeited stock. In all cases, the amount of ordinary income that you recognize will equal: * the fair market value of the shares at the time you recognize income, less * less the amount of consideration you paid for the shares For example, if you receive four thousand eight hundred (4,800) shares of restricted stock on October 1, 2001, one hundred (100) shares would vest each month. If you do not make an election under Section 83(b) of the Code, on November 1, 2001, you would recognize ordinary income for 100 shares and the amount would be the price of our common stock on that date. If our stock price is $1.00 on November 1, 2001, you would recognize $100 of ordinary income (less the amount of consideration you paid for each share). If on December 1, 2001, our stock price is $1.25, you would recognize $125 of ordinary income. If you do make an election under Section 83(b) of the Code, you would recognize ordinary income for all 4,800 shares on October 1, 2001, the date of grant. If our stock price is $1.00 on October 1, 2001, you would recognize $4,800 of ordinary income (less the amount of consideration you paid for each share). The subsequent vesting of the shares does not trigger additional recognition of ordinary income. Upon the subsequent sale of the shares, any gain or loss will be treated as capital gain or loss. Capital gains are grouped and netted by holding periods. Net capital gain on assets held twelve (12) months or less is taxed at your highest marginal income tax rate. Net capital gain on assets held for more than twelve (12) months is taxed currently at a maximum federal rate of 20%. Capital losses are first allowed in full against capital gains and then up to $3,000 against other income. (Section 14) PLEASE BE AWARE THAT THE STOCK PRICES LISTED ABOVE ARE ONLY BEING USED AS EXAMPLES. WE ARE NOT MAKING ANY REPRESENTATIONS, WARRANTIES OR COVENANTS THAT HESKA'S STOCK PRICE WILL ACTUALLY ACHIEVE THE AMOUNTS INDICATED AS OF SUCH DATES. THE PREVIOUS DISCUSSION REGARDING TAXES IS INTENDED ONLY AS A SUMMARY OF THE GENERAL U.S. TAX LAWS THAT MAY APPLY TO THE RESTRICTED STOCK. THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES TO ANY PARTICULAR INDIVIDUAL WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. ACCORDINGLY, WE STRONGLY ADVISE YOU TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING YOUR PARTICIPATION IN THE OFFER. 18. Will any withholding be required? If you decide to file an 83(b) election as described above, the income you recognize is considered wages for which withholding will be required. If you choose not to file the 83(b) election, then any income recognized upon each vesting date will be wages for which withholding also will be required. You must make arrangements with us to pay any required withholding obligations that occur due to the restricted stock. If you fail to make any arrangements, we will either withhold these amounts from your paycheck or withhold shares that have otherwise vested in an amount sufficient to satisfy any required withholding obligations. (Section 9) 19. What are the accounting effects for Heska? We generally will receive a deduction for federal income tax purposes in connection with restricted stock equal to the ordinary income you realize. We will be entitled to this deduction at the time that you recognize the ordinary income. (Section 12) 20. What if I need more information? We will provide you free of charge with a copy of any or all of the documents incorporated by reference in this Offer to Exchange and in the Schedule TO filed with the SEC in connection with this offer, including our annual report, and copies of other reports, proxy statements and communications distributed to our stockholders. You should direct your requests to: Heska Corporation 1613 Prospect Parkway Fort Collins, Colorado 80525 Tel. (970) 493-7272 Fax. (970) 493-9976 Attention: Lynn DeGeorge 21. What else should I know about this Offer to Exchange? We may update this Offer to Exchange (a.k.a. the prospectus) in the future by furnishing to participants an appendix, memorandum, notice or replacement page containing updated information. We generally will not send you a new prospectus, except upon request. Accordingly, you should keep this prospectus for future reference. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different or additional information. We are not making an offer to sell any stock in any state or country where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of this document. The SEC allows us to "incorporate by reference" the information we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"). 1. Our latest annual report filed pursuant to Section 13(a) or 15(d) of the 1934 Act or the latest prospectus filed pursuant to Rule 424(a) under the Securities Act of 1933 (the "1933 Act") which contains, either directly or by incorporation by reference, audited financial statements for our latest fiscal year for which such statements have been filed. 2. All other reports and proxy statements filed pursuant to Section 13(a) or 15(d) of the 1934 Act since the end of the fiscal year covered by the annual report or prospectus referred to in paragraph (1) above. THE OFFER 1. Eligibility Employees are "eligible employees" if they are employees of Heska Corporation ("Heska" or the "Company") as of the date the offer commences and remain employees through the date on which the tendered options are accepted and cancelled. However, employees of Diamond Animal Health, Inc., Heska AG and CMG- Heska Allergy Products S.A., each a subsidiary of the Company, are not eligible to participate in the offer. In addition, outside directors of Heska are not eligible to participate in the offer. Every outstanding, unexercised or partially unexercised option with an exercise price greater than $3.90 per share and granted pursuant to the Heska Corporation 1997 Stock Incentive Plan, as amended (the "1997 Plan") may be tendered for exchange by eligible employees. These options are the "eligible options." 2. Number of options; expiration date Subject to the terms and conditions of the offer, we will exchange all outstanding, unexercised options granted pursuant to the 1997 Plan held by eligible employees that are properly tendered in accordance with Section 4 and not validly withdrawn before the "expiration date," as defined below, in return for shares of "restricted stock," as defined in Section 9. We will not accept partial tenders of unexercised option grants for portions of the shares subject to the unexercised option grant. Therefore, you may tender options for all or none of the shares subject to your eligible options. We presently expect to cancel all tendered options on October 1, 2001. If you cease to be an employee of Heska prior to the expiration of the offer, you may withdraw your tendered options and exercise them to the extent they are vested and in accordance with their terms. In this case, you will not receive any restricted stock. If you cease to be an employee of Heska after we have accepted and cancelled your tendered options, you will have no rights with respect to those options and they will not be reissued and returned to you for any reason. In this case, you will be entitled to keep any vested shares of restricted stock as of your date of termination. These forfeiture provisions will apply regardless of whether you quit with or without good reason, we terminate your employment with or without cause or your employment is terminated because of death. The term "expiration date" means 5:00 p.m., Mountain Daylight Time, on September 27, 2001, unless and until we, in our discretion, have extended the period of time during which the offer will remain open, in which event the term "expiration date" refers to the latest time and date at which the offer, as so extended, expires. See Section 15 of this Offer to Exchange for a description of our rights to extend, delay, terminate and amend the offer. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of such action: * we increase or decrease the amount of consideration offered for the options, * we decrease the number of options eligible to be tendered in the offer, or * we increase the number of options eligible to be tendered in the offer by an amount that exceeds 2% of the shares issuable upon exercise of the o options that are subject to the offer immediately prior to the increase If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of the increase or decrease is first published, sent or given in the manner specified in Section 15 of this Offer to Exchange, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. We will also notify you of any other material change in the information contained in this Offer to Exchange. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Mountain Daylight Time. 3. Purpose of the offer We previously issued the eligible options to: * provide our employees with additional incentives and to promote the success of our business, and * encourage our employees to continue their employment with us. One of the keys to our continued growth and success is the retention of a valuable asset, our employees. The offer provides an opportunity for us to offer our eligible employees a valuable incentive to remain with Heska. The eligible options, whether or not they are currently exercisable, have exercise prices that are significantly higher than the current market price of our common stock. We believe these options are unlikely to be exercised in the foreseeable future. By making this offer to exchange eligible options for restricted stock, we intend to provide our eligible employees with the benefit of equity ownership in Heska and thereby create better performance and retention incentives following the date the tendered options are accepted and cancelled. We continually evaluate strategic opportunities as they arise, including business combination transactions, capital infusions and the purchase or sale of assets. We also routinely grant options to our employees and non-employee directors and offer stock pursuant to our 1997 Employee Stock Purchase Plan. Subject to the foregoing, and except as otherwise disclosed in this Offer to Exchange or in our filings with the SEC, we presently have no definitive plans or binding proposals that relate to or would result in: (a) any extraordinary transaction , such as a merger, reorganization or liquidation; (b) any purchase, sale or transfer of a material amount of assets of our assets or the assets of our subsidiaries; (c) any material change in our present dividend rate or policy or in our indebtedness; (d) any change in our present board of directors or management; (e) any material changes in our corporate structure or business; (f) our common stock not being authorized for quotation in an automated quotation system operated by a national securities transaction; (g) our common stock becoming eligible for termination of registration pursuant to Section 12)(g)(4) of the Securities Exchange Act of 1934; (h) the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934; or (i) any change in our certificate of incorporation or bylaws or any actions which may impede the acquisition of control of us by an person. NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS, NOR HAVE WE AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION. YOU ARE URGED TO EVALUATE CAREFULLY ALL OF THE INFORMATION IN THIS OFFER TO EXCHANGE, THE LETTER FROM ROBERT B. GRIEVE DATED AUGUST 29, 2001, THE ELECTION FORM, AND THE NOTICE TO WITHDRAW FROM THE OFFER AND TO CONSULT YOUR OWN INVESTMENT AND TAX ADVISORS. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR OPTIONS FOR EXCHANGE. 4. Procedures for tendering options Proper Tender of Options. To validly tender your eligible options, you must, in accordance with the terms of the Election Form, properly complete, execute and deliver the Election Form to us via facsimile (970-491-9976) or hand delivery to Lynn DeGeorge, along with any other required documents. Ms. DeGeorge must receive all of the required documents before the expiration date. The expiration date is 5:00 p.m. Mountain Daylight Time on September 27, 2001. THE DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS AND ANY NOTICE TO WITHDRAW FROM THE OFFER, IS AT YOUR RISK. WE INTEND TO CONFIRM THE RECEIPT OF YOUR ELECTION FORM WITHIN TWO BUSINESS DAYS; IF YOU HAVE NOT RECEIVED SUCH A CONFIRMATION OF RECEIPT, IT IS YOUR RESPONSIBILITY TO ENSURE THAT YOUR ELECTION FORM HAS BEEN RECEIVED BY US. Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine, in our discretion, all questions as to the form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. Although we anticipate that we will accept properly and timely tendered options that are not validly withdrawn, we reserve the right to reject any or all tenders of options for any reason, including tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender of any particular options or for any particular eligible employee. No tender of options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering eligible employee or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders, nor will anyone incur any liability for failure to give any notice. This is a one-time offer, and we will strictly enforce the offer period, subject only to an extension which we may grant in our sole discretion. Our Acceptance Constitutes an Agreement. Your tender of options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE AND CANCELLATION OF THE OPTIONS TENDERED BY YOU THROUGH THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER. As noted above, we reserve the right to reject any or all tenders of options for any reason, including tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Subject to our rights to extend, terminate and amend the offer, we presently expect that we will accept all properly tendered options that have not been validly withdrawn promptly after the expiration of the offer. 5. Withdrawal Rights and Change of Election You may only withdraw your tendered options or change your election in accordance with the provisions of this section. You may withdraw your tendered options at any time before 5:00 p.m., Mountain Daylight Time, on September 27, 2001. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the offer. We expect to accept all properly tendered options promptly after the expiration of the offer on September 27, 2001, and we expect to cancel all accepted options on or about October 1, 2001. If, however, we have not accepted your tendered options for exchange by 5:00 p.m., Mountain Daylight Time, you may withdraw your tendered options at any time after September 27, 2001, until they are accepted and cancelled. To validly withdraw tendered options, you must deliver to Lynn DeGeorge via facsimile (970-491-9976) or HAND delivery, in accordance with the procedures listed in Section 4 above, a signed and dated Notice to Withdraw from the Offer, with the required information, while you still have the right to withdraw the tendered options. If you first decline to participate in the offer and then decide to participate, you must deliver a new Election Form to Lynn DeGeorge via facsimile (970-491-9976) or hand delivery, in accordance with the procedures listed in Section 4 above prior to the expiration date. If you deliver a new Election Form that is properly signed and dated, it will replace any previously submitted Election Form, which will be disregarded. The new Election Form must be signed and dated. Except as described in the following sentences of this paragraph, the Election Form and the Notice to Withdraw from the Offer must be executed by the eligible employee whose name appears on the option agreement or agreements evidencing such options. If the eligible employee's name has legally been changed since the signing of the option agreement, the eligible employee must submit proof of the legal name change. If THE signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in that capacity must be indicated. You may not rescind any withdrawal, and any options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options before the expiration date by following the procedures described in Section 4. Neither we nor any other person is OBLIGATED to give notice of any defects or irregularities in any Notice to Withdraw from the Offer or any new or amended Election Form, nor will anyone incur any liability for failure to give any notice. We will resolve, in our discretion, all questions as to the form and validity, including time of receipt, of any Notices to Withdraw from the Offer and any new or amended Election Forms. Our determination of these matters will be final and binding. 6. Acceptance of options for exchange and issuance of restricted stock Upon the terms and conditions of the offer and as promptly as practicable following the expiration date, we will accept for exchange and will cancel those options that are properly tendered and not validly withdrawn before the expiration date. Once the options are cancelled, you will no longer have any rights with respect to those options. Subject to the terms and conditions of this offer, if your options are properly tendered and accepted for exchange, these options will be cancelled as soon as practicable after the date of our acceptance and we anticipate the date of cancellation to be October 1, 2001, and we will forward to you, as soon as practicable, a restricted stock agreement for execution in connection with the issuance to you of restricted stock. The restricted stock will be issued under the 1997 Plan. Your restricted stock will be issued upon your return to US of a properly executed restricted stock agreement. Once your shares of restricted stock vest, we will distribute to you certificates representing the vested shares in accordance with the procedures set forth in Section 9. We will not accept partial tenders of your eligible options. However, you may tender the remaining portion of an OPTION which you have partially exercised. Accordingly, to participate in the offer, you must tender all eligible options, whether or not such options are partially exercised. Within two (2) business days after the receipt of your Election Form or your Notice to Withdraw from the Offer, we intend to e-mail you a confirmation of receipt. However, this is not by itself an acceptance of your options for exchange. For purposes of the offer, we WILL not be deemed to have accepted your options for exchange until such time as of when we have given oral or written notice to the eligible employees generally of such acceptance of such options for exchange, which notice may be made by press release. Subject to our rights to extend, terminate and amend the offer, we presently expect that we will accept all properly tendered options that are not validly withdrawn promptly after the expiration of the offer. Options accepted for exchange will be cancelled on the Cancellation Date, which we presently expect to be October 1, 2001. 7. Conditions of the offer Notwithstanding any other provision of the offer, we will not be required to accept any options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act, if at any time on or after August 29, 2001, and prior to the Cancellation Date, any of the following events has occurred, or has been determined by us to have occurred, and, in our reasonable judgment in any case and regardless of the circumstances giving rise to the event, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with such acceptance and cancellation of options tendered for exchange: * there shall have been threatened or instituted or be pending any action or proceeding by any governmental, regulatory or administrative agency or authority that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, the issuance of restricted stock, or otherwise relates in any manner to the offer, or that, in our reasonable judgment, could materially and adversely affect our business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Heska; * there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the offer or Heska, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (i) make the acceptance for exchange of, or issuance of restricted stock for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or that otherwise relates in any manner to the offer; (ii) delay or restrict our ability, or render us unable, to accept for exchange, or issue restricted stock for, some or all of the tendered options; (iii) materially impair the contemplated benefits of the offer to Heska; or (iv) materially and adversely affect Heska's business, condition, income, operations or prospects or materially impair the contemplated benefits of the offer to Heska; * a tender or exchange offer for some or all of our shares, or a merger or acquisition proposal for Heska, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed; * any change or changes shall have occurred in Heska's business, condition, assets, income, operations, prospects or stock ownership that, in our reasonable judgment, is or may be material to Heska or may materially impair the contemplated benefits of the offer to Heska; * any general suspension of trading in, or limitation on prices for, securities on any national securities exchange, the Nasdaq stock market or the over-the-counter market; or * any change in United States generally accepted accounting principles which could materially and adversely effect the manner in which we are required for financial accounting purposes to account for the offer. The conditions to the offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them before the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this Section 7 will be final and binding upon all persons. 8. Price range of shares underlying the options The shares underlying your options are currently traded on the Nasdaq National Market under the symbol "HSKA." The following table shows, for the periods indicated, the high and low sales prices per share of our common stock as reported by the Nasdaq National Market, as adjusted for stock dividends and stock splits.
HIGH LOW FISCAL YEAR 2001 Quarter ended March 31, 2001 $ 1.563 $ 0.656 Quarter ended June 30, 2001 1.440 $ 0.950 FISCAL YEAR 2000 Quarter ended March 31, 2000 $ 5.563 $ 2.063 Quarter ended June 30, 2000 4.375 1.500 Quarter ended September 30, 2000 4.469 1.750 Quarter ended December 31, 2000 2.938 0.594 FISCAL YEAR 1999 Quarter ended June 30, 1999 $ 5.125 $ 2.250 Quarter ended September 30, 1999 3.938 2.000 Quarter ended December 31, 1999 2.938 1.375
As of August 27, 2001, the last reported sale price during regular trading hours of our common stock, as reported by the Nasdaq National Market, was $0.94 per share. WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON STOCK, AMONG OTHER FACTORS, BEFORE deciding WHETHER OR NOT TO TENDER YOUR OPTIONS. 9. Source and amount of consideration; terms of restricted stock Consideration. We will issue shares of common stock subject to certain vesting restrictions (the "restricted stock") under our 1997 Plan in exchange for the eligible options properly tendered to and accepted for exchange and cancelled by us. We will issue a number of shares of restricted stock equal to the total number of shares of common stock underlying the tendered options which we accept and cancel in accordance with the terms of this offer. If we receive and accept tenders of all eligible options from eligible employees, subject to the terms and conditions of this offer we will issue 1,068,615 shares of restricted stock. These shares would equal approximately 3% of the total shares of our common stock outstanding as of August 29, 2001. Terms of Restricted Stock. The following description of the terms of the restricted stock is a summary and is not complete. The description is subject to, and qualified in its entirety by reference to, all provisions of the 1997 Plan and the form of restricted stock agreement. The 1997 Plan, as amended, and the form of restricted stock agreement have been filed with the SEC as exhibits to the Schedule TO. Please contact us at 1613 Prospect Parkway, Fort Collins, Colorado 80525, Attention: Lynn DeGeorge, (telephone: 970-493-7272 ext. 4150), to receive a copy of the 1997 Plan or the restricted stock agreement. We will promptly furnish you with copies of these documents at our expense. General Awards of restricted stock under the 1997 Plan may be made to our employees, directors or consultants. At present, 7,774,842 shares of common stock are reserved for issuance under our 1997 Plan. Under the terms of the 1997 Plan, the shares of common stock underlying an option cancelled as part of this offer are available for subsequent grants under the plan. We currently do not intend to amend the 1997 Plan in connection with this offer. The restricted stock issued under the 1997 Plan will be evidenced by a restricted stock agreement between us and each eligible employee whose tendered options in the offer are accepted and cancelled. The restricted stock agreement will contain the vesting provisions and other restrictions applicable to the restricted stock to be issued to each such eligible employee. The shares of restricted stock will be subject to repurchase by us and other restrictions until the shares vest. These restrictions include prohibitions against sale, assignment, transfer, conveyance, pledge, hypothecation or gift. Once you sign the restricted stock agreement and return it to us, we will issue in your name the number of shares of restricted stock that you are entitled to receive in connection with the offer. Until the shares have vested in accordance with the restricted stock agreement, we will hold the certificates representing the unvested portion of your restricted shares in our custody. After you have provided for the payment to us of any required federal and state income and withholding taxes with respect to the vested portion of the restricted stock, either by cash payment or in accordance with another arrangement agreed upon between you and us, we will deliver to you the stock certificates representing the vested portion of the restricted stock issued to you pursuant to the offer. If you fail to make any arrangements, we will either withhold these amounts from your paycheck or withhold shares that have otherwise vested in an amount sufficient to satisfy any required withholding obligations. Please note that for administrative ease, we currently plan to issue certificates which represent one year's worth of vested shares, however, you may receive certficates representing a month's worth of vested shares by sending us a written request. You will have dividend, voting and other stockholder rights with respect to all of the restricted stock, even though the stock certificate representing the unvested portion of the restricted stock is held in our custody until you vest in that portion of the restricted stock. In addition, we will send you all notices of meetings, proxy statements, proxies and other materials distributed to our stockholders. However, if you do not vest in the unvested portion of the restricted stock and it is forfeited to us, you will lose all stockholder rights with respect to those shares, and you will not be sent notices of meetings, proxy statements or other materials distributed to our stockholders unless you otherwise continue to hold shares of our common stock. Vesting; Forfeiture The shares of restricted stock you receive will vest after the date of issuance in equal monthly amounts for a period of forty-eight (48) months. In the event the monthly amount is a fraction, we will round the number up to the nearest whole number. For example, if you receive 10,000 shares of restricted stock, 209 shares will vest monthly over the first 47 months and 177 shares will vest on the 48th month. (10,000 divided by 48 equals 208.33, which rounds up to 209 shares per month. After 47 months, 9,823 shares would vest and the remaining 177 shares would vest on the 48th month.) This vesting schedule will apply to the shares of restricted stock regardless of whether or not the options exchanged in this offer had already vested. Unvested shares of restricted stock are subject to repurchase by us as described below. In the event you terminate your employment with us with or without good reason, we terminate your employment with or without cause or your employment is terminated because of your death, we will have the right to repurchase all unvested shares of restricted stock at a price equal to the par value ($.001) of the stock (the "Repurchase Right"). For example, assume you receive 10,000 shares of restricted stock in this offer. One year later, you terminate your employment and at that time, 2,508 shares of restricted stock have vested. This means that the remaining 7,492 shares of unvested restricted stock are subject to the Repurchase Right. We would be able to exercise the Repurchase Right on all of the shares by paying to you the par value of these shares. This Repurchase Right is what makes the stock restricted. After your termination, we will have one hundred twenty (120) days to exercise the Repurchase Right. We have sole discretion as to whether or not we will buy back unvested shares. In addition, we may elect to buy back a portion of your unvested shares. After 120 days, any remaining unvested shares which we have not repurchased will be vested. Acceleration If in the future an outside party, or a "buyer", acquires control of Heska, your unvested restricted stock may be assumed by the buyer or you may receive accelerated vesting, depending on the following circumstances: * If you continue employment with the buyer, your monthly vesting schedule will continue. The difference is that rather than receiving shares of common stock in Heska as you vest, you will receive either shares of stock in the buyer or cash as you vest. The amount of stock or cash you receive will be based on the per share amounts paid by the buyer to the Heska stockholders in connection with the buyer's acquisition of Heska. In other words, your restricted shares would be converted into a right to receive what the Heska stockholders received in the acquisition. In all likelihood, this would either be stock in the buyer, cash or a combination of both. The actual amounts you receive would be subject to the appropriate exchange ratios that are determined in the acquisition. * If at the time of the acquisition you are not offered employment with the buyer, then one year's worth of unvested restricted stock will receive accelerated vesting and become unrestricted stock. The time period will be based on your last day of employment. For example, if your employment is terminated on June 30, 2002, you would receive accelerated vesting for the shares of stock that would have vested from July 1, 2002 to June 29, 2002. Please note that if the remaining period of vesting is less than one year, you would only receive accelerated vesting for the actual amount of shares within that shorter time period. This one year accelerated vesting also applies if you continue employment with the buyer and the buyer later terminates your employment prior to you becoming fully vested. The restricted stock agreement contains the provisions regarding the effect of a change of control on your restricted stock. PLEASE BE AWARE THAT THE DATES LISTED ABOVE AND THE DESCRIPTION OF POTENTIAL BUYERS ARE ONLY BEING USED AS EXAMPLES. WE ARE NOT MAKING ANY REPRESENTATIONS, WARRANTIES, COVENANTS OR STATEMENTS REGARDING YOUR EMPLOYMENT OR THAT AN ACQUISITION OF HESKA WILL OR WILL NOT OCCUR IN THE FUTURE. Tax Consequences You should refer to Section 14 of this Offer to Exchange for a discussion of U.S. federal tax consequences resulting from the exchange of options for restricted stock. 10. Information concerning Heska Our principal executive offices are located at 1613 Prospect Parkway, Fort Collins, Colorado 80525, and our telephone number is (970) 493-7272. We discover, develop, manufacture and market companion animal health products. We have a sophisticated scientific effort devoted to applying biotechnology to create a broad range of pharmaceutical, vaccine and diagnostic products for the large and growing companion animal health market. In addition to our pharmaceutical, vaccine and diagnostic products, we also sell veterinary diagnostic and patient monitoring instruments and offer diagnostic services in the United States and Europe to veterinarians. Our primary manufacturing subsidiary, Diamond Animal Health, Inc., or Diamond, manufactures some of our companion animal products and food animal vaccine and pharmaceutical products which are marketed and distributed by third parties. The financial information in the following documents are incorporated herein by reference: * Our annual report on Form 10-K for the fiscal year ended December 31, 2000, as filed with the SEC on March 29, 2001; * Our quarterly report on Form 10-Q for the quarter ended March 31, 2001, as filed with the SEC on May 10, 2001; and * Our quarterly report on Form 10-Q for the quarter ended June 30, 2001, as filed with the SEC on August 14, 2001. For a copy of our audited financial statements for the two fiscal years ended December 31, 2000 and December 31, 1999, as filed with the SEC, please see the Form 10-K for the fiscal year ended December 31, 2000. For our most recent unaudited balance sheet, unaudited comparative year-to- date income statements and related earnings per share data, unaudited statements of cash flows and unaudited comprehensive income, as filed with the SEC, please see the Form 10-Q for the quarter ended June 30, 2001. As of June 30, 2001, Heska's book value was $0.544 per share. SEE SECTION 17 FOR INSTRUCTIONS ON HOW YOU CAN OBTAIN COPIES OF OUR SEC FILINGS AND COPIES OF THE FINANCIAL STATEMENTS REFERENCED ABOVE. 11. Interests of directors and officers; transactions and arrangements concerning the options A list of our directors and executive officers is attached to this Offer to Exchange as Schedule A. Directors and executive officers, as a group, beneficially own options under the 1997 Plan and having an exercise price greater than $3.90 to purchase a total of 850,200 shares of our common stock, which represents approximately 78% of the shares underlying all options outstanding under the 1997 Plan that have an exercise price greater than $3.90. Directors who are employees of Heska and executive officers are eligible to participate in the offer, however, outside directors are not eligible to participate in the offer. The directors who are employees of Heska and the executive officers, as a group, benefically own options having an exercise price greater than $3.90 to purchase a total of 830,000 shares of our common stock which represents approximately: * 76% of the shares underlying all options outstanding under the 1997 Plan that have an exercise price greater than $3.90; and * 78% of the shares underlying the options which may participate in the offer. The total number shares underlying outstanding options having an exercise price greater than $3.90 is 1,088,815 and the total number of shares underlying outstanding options which may participate in the offer is 1,068,615. Other than periodic purchases or our common stock pursuant to our 1997 Employee Stock Purchase Plan and grants of stock options in the ordinary course to employees who are not executive officers, there have been no transactions in options to purchase our common stock or in our common stock that were effected during the past sixty (60) days by Heska or, to our knowledge, by any current executive officer, director, affiliate or subsidiary of Heska. 12. Status of options acquired by us in the offer; accounting consequences of the offer Options we acquire through the offer will be cancelled and the shares subject to those options will be returned to the pool of shares available for grants under the 1997 Plan. To the extent these shares are not issued as restricted stock in connection with the offer, the shares will be available for future awards to employees and other eligible plan participants under the 1997 Plan without further stockholder action, except as required by applicable law or the rules of the Nasdaq National Market or any other securities quotation system or any stock exchange on which our shares are then quoted or listed. The exchange and cancellation of tendered options and the subsequent issuance of restricted stock will result in the recognition of a compensation cost by us. If you do not make an election under Section 83(b) of the Internal Revenue Code, the compensation cost is measured as the quoted market price of our common stock on the date a share of restricted stock vests, less the consideration paid by the employee. As shares vest, we will recognize compensation costs. If you do make an election under Section 83(b), the compensation cost will be measured for all of the shares issued as of the date of grant. 13. Legal matters; regulatory approvals. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of options and issuance of restricted stock as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein. Should any such approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, could be obtained or what the conditions imposed in connection with such approvals would entail or whether the failure to obtain any such approval or other action would result in adverse consequences to our business. Our obligation under the offer to accept tendered options for exchange and to issue new options for tendered options is subject to the conditions described in Section 7. 14. Material U.S. Federal Income Tax Consequences. The following is a general summary of the material U.S. federal income tax consequences of the exchange of options pursuant to the offer. This discussion is based on the Internal Revenue Code, its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof as of the date of the offer, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all eligible employees. WE ADVISE ALL ELIGIBLE EMPLOYEES WHO MAY CONSIDER EXCHANGING THEIR OPTIONS TO MEET WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. Issuance of Restricted Stock Assuming you do not make an election under Section 83(b) of the Internal Revenue Code, you will have no taxable income at the time we grant you the restricted stock. Instead, you will recognize ordinary income when (and if) the restricted stock vests and no longer is subject to the Repurchase Right. If you make a Section 83(b) election, you recognize ordinary income at the time of grant of the restricted stock. However, if you later forfeit the restricted stock, no tax deduction is allowed with respect to the forfeiture. That is, you will not receive any credit for taxes paid with respect to such forfeited stock. In all cases, the amount of ordinary income that you recognize will equal: * the fair market value of the shares at the time you recognize income, less * less the amount of consideration you paid for the shares For example, if you receive four thousand eight hundred (4,800) shares of restricted stock on October 1, 2001, one hundred (100) shares would vest each month. If you do not make an election under Section 83(b) of the Code, on November 1, 2001, you would recognize ordinary income for 100 shares and the amount would be the price of our common stock on that date. If our stock price is $1.00 on November 1, 2001, you would recognize $100 of ordinary income (less the amount of consideration you paid for each share). If on December 1, 2001, our stock price is $1.25, you would recognize $125 of ordinary income. If you do make an election under Section 83(b) of the Code, you would recognize ordinary income for all 4,800 shares on October 1, 2001, the date of grant. If our stock price is $1.00 on October 1, 2001, you would recognize $4,800 of ordinary income (less the amount of consideration you paid for each share). The subsequent vesting of the shares does not trigger additional recognition of ordinary income. We will generally be allowed a business expense deduction for the amount of the taxable income recognized by you in connection with the issuance or vesting of your restricted stock. Subsequent Sale of Restricted Stock Upon a sale or other taxable disposition of the restricted stock, you will recognize a taxable capital gain equal to the amount realized upon the sale or disposition of the shares less their fair market value at the time you recognized taxable income in connection with those shares. A capital loss will result to the extent the amount realized upon such sale is less than such fair market value. The capital gain or capital loss will be long-term if the shares are held for more than one (1) year prior to the sale. The capital gain holding period for unvested restricted stock will start either (i) at the time the restricted stock vests, if no Section 83(b) election is filed at the time of issuance, or (ii) at the time of issuance, if you file the Section 83(b) election within 30 days after the date of issuance. Effect on Incentive Stock Options Not Tendered We do not believe that our offer to you will change any of the terms of your eligible incentive stock options if you do not accept the offer. However, the Internal Revenue Service may characterize our offer to you as a "modification" of those incentive stock options, even if you decline the offer. A successful assertion by the Internal Revenue Service that your incentive stock options are modified would extend your required holding period with respect to the shares purchased under those options in order to qualify all of the gain on a subsequent sale of those shares as long-term capital gain. That extended holding period for long-term capital gain would require that any taxable sale or disposition of the shares not take place until the later of (i) two (2) years from the date of the deemed modification of your incentive stock options or (ii) one (1) year from the date of the option exercise for those shares. In addition, such a deemed modification may also cause a portion of your incentive stock options to be treated as non-qualified stock options upon exercise. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATION IN THE OFFER. 15. Extension of offer; termination; amendment. We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event listed in Section 7 has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any options by giving oral or written notice of such extension to the eligible employees or making a public announcement thereof. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange upon the occurrence of any of the events listed in Section 7, by giving oral or written notice of such termination or postponement to you or by making a public announcement. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event listed in Section 7 has occurred or is deemed by us to have occurred, to amend the offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in the offer to eligible employees or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by public announcement of the amendment. In the case of an extension, the amendment must be issued no later than 9:00 a.m., Mountain Daylight Time, on the next business day after the last previously scheduled or announced expiration date. Any public announcement made through the offer will be disseminated promptly to eligible employees in a manner reasonably designated to inform eligible employees of the change. Without limiting the manner in which we may choose to make a public announcement, except as required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such public announcement. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act of 1934. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. If we decide to take any of the following actions, we will publish notice or otherwise inform you in writing of these actions: * we increase or decrease the amount of consideration offered for the options, * we decrease the number of options eligible to be tendered in the offer, or * we increase the number of options eligible to be tendered in the offer by an amount that exceeds 2% of the shares issuable upon exercise of the options that are subject to the offer immediately prior to the increase. If the offer is scheduled to expire at any time earlier than the tenth (10th) business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in this Section 15, we will extend the offer so that the offer is open at least ten (10) business days following the publication, sending or giving of notice. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Mountain Daylight Time. 16. Fees and expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of options pursuant to this offer. 17. Additional information. This Offer to Exchange is part of a Tender Offer Statement on Schedule TO that we have filed with the SEC. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC before making a decision on whether to tender your options: * Our annual report on Form 10-K for our fiscal year ended December 31, 2000, filed with the SEC on March 29, 2001; * Our quarterly report on Form 10-Q for our quarter ended March 31, 2001, filed with the SEC on May 10, 2001; and * Our quarterly report on Form 10-Q for our quarter ended June 30, 2001, filed with the SEC on August 14, 2001. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the following SEC public reference rooms: 450 Fifth Street, 7 World Trade Center 500 West Madison N.W. Street Room 1024 Suite 1300 Suite 1400 Washington, D.C. New York, New York Chicago, Illinois 20549 10048 60661 You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to public on the SEC's Internet site at http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market under the symbol "HSKA" and our SEC filings can be read at the following Nasdaq address: Nasdaq Operations 1735 K Street, N.W. Washington, D.C. 20006 Each person to whom a copy of this Offer to Exchange is delivered may obtain a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents) at no cost, by: * writing to us at Heska Corporation, 1613 Prospect Parkway, Fort Collins, Colorado 80525, Attention: Lynn DeGeorge; * e-mailing Lynn DeGeorge at degeorl@heska.com; or * telephoning Lynn DeGeorge at (970) 493-7272, ext. 4150. As you read the foregoing documents, you may find some inconsistencies in information from one document to another. If you find inconsistencies between the documents, or between a document and this Offer to Exchange, you should rely on the statements made in the most recent document. The information contained in this Offer to Exchange about Heska should be read together with the information contained in the documents to which we have referred you. 18. Miscellaneous. This Offer to Exchange and our SEC reports referred to above include "forward-looking statements." When used in this Offer to Exchange, the words "anticipate," "believe," "estimate," "expect," "intend" and "plan" as they relate to Heska or our management are intended to identify these forward-looking statements. All statements by us regarding our expected future financial position and operating results, our business strategy, our financing plans and expected capital requirements, forecasted trends relating to our services or the markets in which we operate and similar matters are forward-looking statements. The documents we filed with the SEC, including our annual report for the year ended December 31, 2000, on Form 10-K filed on March 29, 2001, as amended, discuss some of the risks that could cause our actual results to differ from those contained or implied in the forward-looking statements. These risks include, but are not limited to: * We have a history of losses and may never achieve profitability. * We may need additional capital in the future. * We have limited resources to devote to product development and commercialization. If we are not able to devote resources to product development and commercialization, we may not be able to develop our products. * We must obtain and maintain costly regulatory approvals in order to market our products. * Factors beyond our control may cause our operating results to fluctuate, and since many of our expenses are fixed, this fluctuation could cause our stock price to decline. * We must maintain various financial and other covenants under our revolving line of credit agreement. * A small number of large customers account for a large percentage of our revenues, and the loss of any of them could harm our operating results. * We operate in a highly competitive industry, which could render our products obsolete or substantially limit the volume of products that we sell. This would limit our ability to compete and achieve profitability. * We have limited experience in marketing our products, and may be unable to commercialize our products. * We have granted third parties substantial marketing rights to our products under development. If our current third party marketing agreements are not successful, or if we are unable to develop our own marketing capabilities or enter into additional marketing agreements in the future, we may not be able to develop and commercialize our products. * We may face costly intellectual property disputes. * We have limited manufacturing experience and capacity and rely substantially on third party manufacturers. The loss of any third party manufacturers could limit our ability to launch our products in a timely manner, or at all. * We depend on partners in our research and development activities. If our current partnerships and collaborations are not successful, we may not be able to develop our technologies or products. * We depend on key personnel for our future success. If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve our goals. * We may face product returns and product liability litigation and the extent of our insurance coverage is limited. If we become subject to product liability claims resulting from defects in our products, we may fail to achieve market acceptance of our products and our business could be harmed. * We may be held liable for the release of hazardous materials, which could result in extensive costs which would harm our business. * We expect to experience volatility in our stock price, which may affect our ability to raise capital in the future or make it difficult for investors to sell their shares. * If we fail to meet Nasdaq National Market listing requirements, our common stock will be delisted and become illiquid. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will tenders be accepted from or on behalf of, the option holders residing in such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR DOCUMENTS TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT, THE LETTER FROM ROBERT B. GRIEVE DATED AUGUST 29, 2001, THE ELECTION FORM AND THE NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. HESKA CORPORATION, AUGUST 29, 2001 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF HESKA CORPORATION The directors and executive officers of Heska Corporation and their positions and offices as of August 29, 2001, are set forth in the following table:
NAME POSITION AND OFFICES HELD Robert B. Grieve, Ph.D. Chairman of the Board of Directors & Chief Executive Officer James H. Fuller President & Chief Operating Officer Ronald L. Hendrick Executive Vice President, Chief Financial Officer & Secretary Guiseppe Miozzari, Ph.D. Managing Director, Heska AG Dan T. Stinchcomb, Ph.D. Executive Vice President, Research and Development Carol Talkington Verser, Ph.D. Executive Vice President, Intellectual Property and Business Development William A. Aylesworth Director A. Barr Dolan Director G. Irvin Gordon Director Lyle A. Hohnke, Ph.D Director Edith W. Martin, Ph.D Director John F. Sasen, Sr. Director Lynnor B. Stevenson, Ph.D. Director
The address of each director and executive officer is: c/o Heska Corporation, 1613 Prospect Parkway, Fort Collins, Colorado 80525. EX-2 4 cover.txt OFFER LETTER EXHIBIT (A)(2) [HESKA LETTERHEAD] AUGUST 29, 2001 RE: OFFER TO EXCHANGE OPTIONS FOR RESTRICTED STOCK Dear Eligible Employee: I am pleased to announce that the Board of Directors of Heska Corporation (the "Company") has decided to offer certain employees that hold outstanding stock options with an exercise price greater than $3.90 per share ("Old Options"), the opportunity to exchange their Old Options into shares of restricted common stock (the "Restricted Stock"). Participation by each eligible employee is voluntary. The main features of the exchange program are as follows: * If you are a current employee of the Company you have the opportunity to exchange your Old Options and receive one (1) share of Restricted Stock for every one (1) share subject to your Old Options. Any and all of the unexercised Old Options which you hold must be exchanged in full. That is, no partial exchanges are permitted. Employees of Diamond Animal Health, Inc., Heska AG and CMG-Allergy Products S.A. are not eligible to participate in this exchange program. * The Restricted Stock will be subject to a Company repurchase right which provides that if your employment with the Company terminates for any reason (or for no reason), the Company will have the right (but not the obligation) to repurchase your unvested shares of Restricted Stock on the date of termination (the "Repurchase Right") at a price equal to the par value ($.001) of the shares. * The shares of Restricted Stock you receive in exchange for Old Options (whether vested or unvested) will vest in equal monthly amounts over a period of forty-eight (48) months. * The Restricted Stock will in all other respects be subject to the terms and conditions of the Company's 1997 Stock Incentive Plan under which it is granted and the restricted stock purchase agreement to be executed by you and the Company. You are being provided with this letter and an Offer to Exchange that describes the main features of the Offer, which should be useful in helping you make your decision as to whether to participate in this program. NEVERTHELESS, AS WITH ANY INVESTMENT DECISION I STRONGLY ENCOURAGE YOU TO CONSULT WITH YOUR TAX AND FINANCIAL ADVISORS BEFORE PARTICIPATING IN THIS OFFER. You will be provided under separate cover a schedule showing your outstanding options as of August 29, 2001. Please indicate whether or not you will be participating in the exchange program by returning the enclosed form entitled "Election Form to Exchange Stock Options" to Lynn DeGeorge, who must receive your completed form no later than 5:00 p.m. Mountain Daylight Time on September 27, 2001. You may alternatively fax your signed copy to Lynn DeGeorge at (970) 491-9976 by the above deadline. IF YOU TURN IN YOUR FORM AFTER THIS DATE, IT WILL NOT BE ACCEPTED, OR IF YOU FAIL TO TURN IT IN, YOU WILL BE CONSIDERED TO HAVE DECLINED TO ACCEPT THE OFFER. THIS OFFER IS NOT A GUARANTY OF EMPLOYMENT FOR ANY PERIOD. YOUR EMPLOYMENT WITH THE COMPANY REMAINS "AT-WILL" AND CAN BE TERMINATED AT ANY TIME BY YOU OR THE COMPANY, WITH OR WITHOUT CAUSE OR NOTICE. If you have any questions concerning the Offer, please do not hesitate to call Lynn DeGeorge at 970-493-7272, ext. 4150. Sincerely, /s/ Robert G. Grieve --------------------------------------- Robert B. Grieve, Chief Executive Officer EX-3 5 elect.txt ELECTION FORM HESKA CORPORATION ELECTION FORM TO EXCHANGE STOCK OPTIONS ____ I ACCEPT Heska Corporation's offer to exchange all of my outstanding unexercised stock options with an exercise price greater than $3.90 per share for rights to acquire restricted common stock of the Company (the "Restricted Stock") pursuant to the terms set forth in the Offer to Exchange dated August 29, 2001, from the Company. The number of shares of common stock subject to the tendered option is set forth below. ____ I DECLINE Heska Corporation's offer to exchange all of my outstanding unexercised options with an exercise price greater than $3.90 per share for rights to acquire restricted common stock of the Company. I acknowledge receipt of the Company's Offer to Exchange dated August 29, 2001, and the enclosures referenced therein and contained therewith. I hereby agree to be bound by all of the terms and conditions of the Offer as described in said materials, and understand that the restricted stock shall be subject to the Company's 1997 Stock Incentive Plan under which it is granted and the restricted stock agreement to be executed by me and the Company. I further acknowledge and agree that participation in the Offer will not be construed as an express or implied agreement of employment with the Company or any of its subsidiaries other than on an at-will basis. For purposes of this election form, "Company" shall mean Heska Corporation, a Delaware corporation. (Print Name) ___________________________________ Signature _____________________________________ Date and Time: ________________________________ Government ID #: ______________________________ Shares of common stock subject to the tendered options:_________________ RETURN TO LYNN DEGEORGE NO LATER THAN 5:00 PM MDT SEPTEMBER 27, 2001, VIA FACSIMILE AT (970) 491-9976 OR HAND DELIVERY INSTRUCTIONS TO THE ELECTION FORM FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Election Form. A properly completed and executed original of this Election Form (or a facsimile of it), and any other documents required by this Election Form, must be received by Lynn DeGeorge either via hand delivery or via the facsimile at (970) 491-9976 on or before 5:00 p.m. Mountain Daylight Time on September 27, 2001 (the "Expiration Date"). THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY. YOU MAY HAND DELIVER YOUR ELECTION FORM TO LYNN DEGEORGE AT HESKA CORPORATION (THE "COMPANY"), OR YOU MAY FAX IT TO MS. DEGEORGE AT (970) 491- 9976. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. WE INTEND TO CONFIRM THE RECEIPT OF YOUR ELECTION FORM WITHIN TWO BUSINESS DAYS; IF YOU HAVE NOT RECEIVED SUCH A CONFIRMATION OF RECEIPT, IT IS YOUR RESPONSIBILITY TO ENSURE THAT YOUR ELECTION FORM HAS BEEN RECEIVED BY MS. DEGEORGE. 2. Withdrawal. Tenders of options made through the Offer may be withdrawn at any time before the Expiration Date. If the Company extends the Offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of the Offer. In addition, although the Company currently intends to accept and cancel your validly tendered options promptly after the expiration of the Offer, unless the Company accepts and your tendered options by 5:00 p.m., Mountain Daylight Time, on October 1, 2001, you may withdraw your tendered options at any time after October 1, 2001, until the Company has accepted and cancelled your tendered options. To withdraw tendered options you must hand deliver or fax a signed and dated Notice to Withdraw from the Offer, with the required information, to the Company while you still have the right to withdraw the tendered options. Withdrawals may not be rescinded and any eligible options withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless the withdrawn options are properly re-tendered before the Expiration Date by delivery of a new Election Form following the procedures described in these Instructions. Upon the receipt of such a new, properly filled out, signed and dated Election Form, any previously submitted Election Form or Notice to Withdraw from the Offer will be disregarded and will be considered replaced in full by the new Election Form. 3. Conditions. The Company will not accept any alternative, conditional or contingent tenders. Although it is our intent to send you a confirmation of receipt of this Election Form, by signing this Election Form (or a facsimile of it), you waive any right to receive any notice of the receipt of the tender of your options, except as provided for in the Offer to Exchange. Any confirmation of receipt sent to you will merely be a notification that we have received your Election Form and does not mean that your options have been cancelled. Your options that are accepted for exchange will not be cancelled until October 1, 2001, which is two (2) business days following the expiration of the Offer. The Company will not accept partial tenders of options. Accordingly, you may tender all or none of the shares subject to each unexercised (or partially unexercised) option. 4. Signatures on This Election Form. If this Election Form is signed by the holder of the eligible options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. If your name has been legally changed since your option agreement was signed, please submit proof of the legal name change. If this Election Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of that person to so act must be submitted with this Election Form. 5. Other Information on This Election Form. In addition to signing this Election Form, you must print your name and indicate the date at which you signed. You must also include your government identification number, such as your social security number, tax identification number or national identification number, as appropriate. 6. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Election Form should be directed to Lynn DeGeorge, at the Company's principal address, telephone number (970) 493-7272, ext. 4150, e-mail address: degeorl@heska.com. Copies will be furnished promptly at the Company's expense. 7. Irregularities. All questions as to the number of option shares subject to options to be accepted for exchange and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of options will be determined by the Company in its discretion. The Company's determinations shall be final and binding on all parties. The Company reserves the right to reject any or all tenders of options the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular options, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. IMPORTANT: THE ELECTION FORM (OR A FACSIMILE COPY OF IT) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY, ON OR BEFORE 5:00 P.M. MOUNTAIN DAYLIGHT TIME ON THE EXPIRATION DATE. 8. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced therein, and the letter from Robert B. Grieve dated August 29, 2001 before deciding to participate in the Offer. 9. Important Tax Information. You should refer to Section 14 of the Offer to Exchange, which contains important U.S. federal income tax information. 10. Miscellaneous. A. Data Privacy. By accepting the Offer, you hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, Heska Corporation and/or any affiliate for the exclusive purpose of implementing, administering and managing your participation in the Offer. You understand that Heska Corporation and/or any affiliate may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the stock option plan and this Offer ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Offer, that these recipients may be located in your country, or elsewhere, and that the recipient's country may have different data privacy laws and protections than in your country. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the your participation in the stock option plans and this Offer. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the stock option plans and this Offer. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or withdraw the consents herein by contacting in writing your local human resources representative. You understand that withdrawal of consent may affect your ability to participate in this Offer and exercise or realize benefits from the stock option plans. B. Acknowledgement and Waiver. By accepting this Offer, you acknowledge that: (i) your acceptance of the Offer is voluntary; (ii) your acceptance of the Offer shall not create a right to further employment with your employer and shall not interfere with the ability of your employer to terminate your employment relationship at any time with or without cause; and (iii) the Offer, the tendered options and the restricted stock are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. EX-4 6 with.txt WITHDRAWAL FORM HESKA CORPORATION NOTICE TO WITHDRAW FROM THE OFFER I previously received (i) a copy of the Offer to Exchange; (ii) the letter from Robert B. Grieve dated August 29, 2001; and (iii) an Election Form. I signed and returned the Election Form, in which I elected to accept Heska Corporation's ("Heska") offer to exchange (the "Offer") all of my options with an exercise price greater than $3.90. I now wish to change that election and REJECT Heska's Offer to exchange my options. I understand that by signing this Notice and delivering it to Lynn DeGeorge by 5:00 p.m. Mountain Daylight Time on September 27, 2001, I will be able to withdraw my acceptance of the Offer and instead reject the Offer to exchange options. I have read and understand all the terms and conditions of the Offer to exchange options. I have read and understand the instructions attached to this Notice. I understand that in order to withdraw my acceptance of the Offer, I must sign, date and deliver this Notice via facsimile at (970) 491-9976 or hand delivery to Lynn DeGeorge by 5:00 p.m. Mountain Daylight Time on September 27, 2001. I understand that by withdrawing my acceptance of the Offer to exchange options, I will not receive any restricted stock pursuant to the Offer and I will keep the options that I have. These options will continue to be governed by the stock option plan under which they were granted and by the existing option agreements between Heska and me. I understand that I may change this election, and once again accept the Offer to exchange options, by submitting a new Election Form to Lynn DeGeorge via facsimile at (970) 491-9976 or hand delivery prior to 5:00 p.m. Mountain Daylight Time on September 27, 2001. I have signed this Notice and printed my name exactly as it appears on the Election Form. I do not accept the Offer to exchange any options. - --------------------------- ------------------------------------- Employee Signature Government ID (e.g. Social Security #, Social Insurance #, etc.) - ---------------------------- ------------------------------------- Employee Name (Please Print) Date and Time RETURN TO LYNN DEGEORGE NO LATER THAN 5:00 PM MDT SEPTEMBER 27, 2001 VIA FACSIMILE AT (970) 491-9976 OR HAND DELIVERY INSTRUCTIONS TO THE NOTICE TO WITHDRAW FROM THE OFFER FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Notice to Withdraw from the Offer. A properly completed and executed original of this Notice to Withdraw from the Offer (or a facsimile of it), and any other documents required by this Notice to Withdraw from the Offer, must be received by Lynn DeGeorge either via hand delivery or via the facsimile at (970) 491-9976 on or before 5:00 p.m. Mountain Daylight Time on September 27, 2001 (the "Expiration Date"). THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY HESKA CORPORATION (THE "COMPANY"). YOU MAY HAND DELIVER YOUR NOTICE TO WITHDRAW FROM THE OFFER TO LYNN DEGEORGE AT THE COMPANY, OR YOU MAY FAX YOUR NOTICE TO WITHDRAW TO MS. DEGEORGE AT (970) 491-9976. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. WE INTEND TO CONFIRM THE RECEIPT OF YOUR NOTICE TO WITHDRAW FROM THE OFFER WITHIN TWO BUSINESS DAYS; IF YOU HAVE NOT RECEIVED SUCH A CONFIRMATION OF RECEIPT, IT IS YOUR RESPONSIBILITY TO ENSURE THAT YOUR NOTICE TO WITHDRAW FROM THE OFFER HAS BEEN RECEIVED BY US. Although by submitting a Notice to Withdraw from the Offer you have withdrawn your tendered options from the Offer, you may change your mind and re-accept the Offer until the expiration of the Offer. Tenders of options made through the Offer may be made at any time before the Expiration Date. If the Company extends the Offer beyond that time, you may tender your options at any time until the extended expiration of the Offer. To change your mind and elect to participate in the Offer, you must deliver a new signed and dated Election Form, or a facsimile of the Election Form, with the required information to the Company, while you still have the right to participate in the Offer. Your options will not be properly tendered for purposes of the Offer unless the withdrawn options are properly re-tendered before the Expiration Date by delivery of the new Election Form following the procedures described in the Instructions to the Election Form. Although it is our intent to send you a confirmation of receipt of this Notice, by signing this Notice to Withdraw from the Offer (or a facsimile of it), you waive any right to receive any notice of the withdrawal of the tender of your options. 2. Signatures on This Notice to Withdraw from the Offer. If this Notice to Withdraw from the Offer is signed by the holder of the eligible options, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever. If your name has been legally changed since your option agreement was signed, please submit proof of the legal name change. If this Notice to Withdraw from the Offer is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of that person so to act must be submitted with this Notice to Withdraw from the Offer. 3. Other Information on This Notice to Withdraw from the Offer. In addition to signing this Notice to Withdraw from the Offer, you must print your name and indicate the date and time at which you signed. You must also include your government identification number, such as your social security number, tax identification number or national identification number, as appropriate. 4. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Notice to Withdraw from the Offer should be directed to Lynn DeGeorge at the Company's principal address, telephone number (970) 493-7272, ext. 4150, e-mail address: degeorl@heska.com Copies will be furnished promptly at the Company's expense. 5. Irregularities. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of this withdrawal from the Offer will be determined by the Company in its discretion. The Company's determinations shall be final and binding on all parties. The Company reserves the right to reject any or all Notices to Withdraw from the Offer that the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the Notice to Withdraw from the Offer, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No Notice to Withdraw from the Offer will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with Notices to Withdraw from the Offer must be cured within the time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in Notices to Withdraw from the Offer, and no person will incur any liability for failure to give any such notice. IMPORTANT: THE NOTICE TO WITHDRAW FROM THE OFFER (OR A FACSIMILE COPY OF IT) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY, ON OR BEFORE THE EXPIRATION DATE. 6. Additional Documents to Read. You should be sure to read the Offer to Exchange, all documents referenced therein, and the letter from Robert B. Grieve dated August 29, 2001 before making any decisions regarding participation in, or withdrawal from, the Offer. 7. Important Tax Information. You should refer to Section 14 of the Offer to Exchange, which contains important U.S. federal income tax information. EX-6 7 plan.txt 1997 PLAN HESKA CORPORATION 1997 STOCK INCENTIVE PLAN (As Amended May 17, 2001) HESKA CORPORATION 1997 STOCK INCENTIVE PLAN 1. 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). 2. 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 Committee's determinations under the Plan shall be final and binding on all persons. 3. 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. 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. 3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing with the year 1998, 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. 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. 4. 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 ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied. 5. 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 ISO 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 Optionee's 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 ISO 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 specify the term of the Option; provided that the term of an ISO 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 Optionee's 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 Optionee's 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 Optionee's 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 entity's 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 ore may accept thcancellation 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. 6. 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 ISO 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, of attesting to the ownership of, 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, or attest to the ownership of, 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. 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. 7. ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS 7.1 INITIAL GRANTS. Each Outside Director who first becomes a member of the Board shall receive a one-time grant of an NQO covering 40,000 Common Shares (subject to adjustment under Article 9). Such NQO shall be granted on the date when such Outside Director first joins the Board and shall be exercisable immediately. Common Shares issued upon exercise of such NQO shall be subject to repurchase by the Company at the Exercise Price in the event of the termination of such Outside Director's service for any reason. The Company's right to repurchase such Common Shares shall lapse in four equal installments at annual intervals over the 48-month period commencing on the date of grant. 7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual meeting of the Company's stockholders (i) each Outside Director who will continue serving as a member of the Board thereafter shall receive an NQO covering 40,000 Common Shares, except that such NQO shall not be granted in the calendar year in which the same Outside Director received the NQO described in Section 7.1, and (ii) each director who will serve as chairman of a Board committee thereafter shall receive an NQO covering 2,000 Common Shares (both awards are subject to adjustment under Article 9). Common Shares issued upon exercise of such NQO shall be subject to repurchase by the Company at the Exercise Price in the event of the termination of such Outside Director's service for any reason. The Company's right to repurchase such Common Shares shall lapse in full on the first anniversary of the date of grant. 7.3 ACCELERATED EXERCISABILITY. The Company's right to repurchase Common Shares issued to an Outside Director under this Article 7 shall also lapse in full in the event of: (a) The termination of such Outside Director's service because of death, total and permanent disability or retirement at or after age 65; or (b) A Change in Control 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 entity's independent public accountants determine in good faith that such acceleration would preclude the use of "pooling of interests" accounting. 7.4 EXERCISE PRICE. The Exercise Price under all NQOs granted to an Outside Director under this Article 7 shall be equal to 100% of the Fair Market Value of a Common Share on the date of grant, payable in one of the forms described in Sections 6.1, 6.2, 6.3 and 6.4. 7.5 TERM. All NQOs granted to an Outside Director under this Article 7 shall terminate on the earliest of (a) the 10th anniversary of the date of grant, (b) the date three months after the termination of such Outside Director's service for any reason other than death or total and permanent disability or (c) the date 12 months after the termination of such Outside Director's service because of death or total and permanent disability. 7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide that the NQOs that otherwise would be granted to an Outside Director under this Article 7 shall instead be granted to an affiliate of such Outside Director. Such affiliate shall then be deemed to be an Outside Director for purposes of the Plan, provided that the service-related vesting and termination provisions pertaining to the NQOs shall be applied with regard to the service of the Outside Director. 8. 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 Company's 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 Participant's 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 suchtransaction in fact is so treated, then the acceleration of vesting shall not occur to the extent that the surviving entity's 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 Company's under the Plan shall have the same voting, dividend and other rights as the 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. 9. 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 NQOs to be granted to Outside Directors under Article 7; (d) the number of Common Shares covered by each outstanding Option or (e) 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. 10. 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. 11. 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 Company's certificate of incorporation and by-laws 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 Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. 12. 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. 13. 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 March 14, 2007. 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 Company's 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. 14. 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 Company's 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 entity's 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 Company's assets; (c) A change in the composition of the Board, as 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 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 Company's 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 Company's 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 Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's 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 ISO 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. 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. 15. 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. Heska Corporation By /s/ Ronald L. Hendrick Executive Vice President and Chief Financial Officer EX-7 8 rs.txt RESTRICTED STOCK AGREEMENT EXHIBIT (D)(2) HESKA CORPORATION 1997 STOCK INCENTIVE PLAN NOTICE OF RESTRICTED STOCK AWARD You have been granted restricted shares of common stock of HESKA CORPORATION (the "Company") on the following terms: NAME OF RECIPIENT: TOTAL NUMBER OF SHARES GRANTED: FAIR MARKET VALUE PER SHARE (AS OF DATE OF GRANT): $ TOTAL FAIR MARKET VALUE OF AWARD (AS OF DATE OF GRANT): $ DATE OF GRANT: _______ __, 2001 VESTING COMMENCEMENT DATE: _______ __, 2001 VESTING SCHEDULE: The first one forty-eighth (1/48) of the restricted shares granted (rounded up to the nearest whole integer) shall vest when you complete one (1) month of continuous service to the Company (or one of its subsidiaries) after the Vesting Commencement Date and an additional 1/48 of the shares (rounded up to the nearest whole integer) vest when you complete each month of continuous service to the Company (or one of its subsidiaries) thereafter, so that one hundred percent (100%) of the shares shall vest after 48 months of continuous service to the Company (or one of its subsidiaries) after the Vesting Commencement Date. By your signature and the signature of the Company's representative below, you and the Company agree that these shares are granted under and governed by the terms and conditions of the Heska Corporation 1997 Stock Incentive Plan and the Restricted Stock Agreement, both of which are attached to and made a part of this document. RECIPIENT: HESKA CORPORATION, a Delaware corporation Signature: ---------------------------- By: ---------------------------- Title: Vice President and General Counsel HESKA CORPORATION 1997 STOCK INCENTIVE PLAN: RESTRICTED STOCK AGREEMENT PAYMENT FOR The cancellation of your options with an SHARES exercise price greater than $3.90 per share will be the consideration for the shares of restricted stock. VESTING The shares vest as shown in the Notice of Restricted Stock Award and subject to the Heska Corporation 1997 Stock Incentive Plan (the "Plan"). SHARES Unvested shares will be considered "Restricted RESTRICTED Shares." You may not sell, transfer, pledge or otherwise dispose of any Restricted Shares, except as provided in the next sentence. With the consent of the Compensation Committee of the Company's Board of Directors, you may transfer Restricted Shares to your spouse, children or grandchildren or to a trust established by you for the benefit of yourself or your spouse, children or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. FORFEITURE If your service as an employee of the Company or a subsidiary of the Company terminates for any reason or no reason prior to a Change of Control (as such term is defined in the Plan) in the Company, then your shares will be subject to repurchase by the Company to the extent that they have not vested before the termination date. As of the termination date, the Company will have 120 days to repurchase the unvested shares at a price equal to the par value ($.001) of the shares (the "Repurchase Right"). The Company has sole discretion to exercise the Repurchase Right. To the extent the Company fails to exercise the Repurchase Right for all of the unvested shares, such unvested shares will become vested shares upon the expiration of the 120 day period. The Company determines when your service terminates for this purpose. CHANGE OF In the event of a Change of Control in the CONTROL Company, any securities issued (or cash paid) in exchange for the shares of stock of the Company to which you are entitled to based upon your ownership of the Restricted Shares shall remain subject to the vesting schedule as set forth in the Notice of Restricted Stock Award and Repurchase Right pursuant to this Agreement, provided that: (1) if you are not offered employment with the Company (or the acquirer of the Company) after the effective date of the Change of Control, that amount of Restricted Shares (or other consideration you are entitled to based upon your ownership of the Restricted Shares) that would have vested for a period of twelve (12) months after the effective date of the Change of Control shall vest and no longer be subject to the Repurchase Right set forth in this Agreement; and (2) if after a Change of Control, you are terminated with or without cause by the Company (or the acquirer of the Company), that amount of Restricted Shares (or other consideration you are entitled to based upon your ownership of the Restricted Shares) that would have vested for a period of twelve (12) months after the effective date of such termination shall vest and no longer be subject to the Repurchase Right set forth in this Agreement. LEAVES OF For purposes of this award, your service does ABSENCE not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law. But your service terminates when the approved leave ends, unless you immediately return to active work. STOCK Your Restricted Shares will be held for you by CERTIFICATES the Company. After shares have vested, a stock certificate for those shares will be released to you. For adminstrative purposes, the Company will issue stock certificates evidencing an amount of vested shares equal to 12 months of vesting. However upon written request from you, the Company will issue to you certificate(s) evidencing an amount of vested shares equal to 1 month of vesting as soon as practicable. In no event shall the Company release to you certificates evidencing any amounts of unvested shares. VOTING RIGHTS You will have voting rights with respect to your shares even before they vest. WITHHOLDING No stock certificates will be released to you TAXES unless you have made acceptable arrangements to pay any withholding taxes that may be due as a result of this award or the vesting of the shares. If you do not make acceptable arrangement, we will either withhold these amounts from your paycheck or withhold shares that have otherwise vested in an amount sufficient to satisfy any required withholding obligations. These arrangements may also include surrendering shares of Company stock that you already own. The fair market value of the shares you surrender, determined as of the date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. RESTRICTIONS By signing this Agreement, you agree not to ON RESALE sell any shares at a time when applicable laws or Company policies prohibit a sale. This restriction will apply as long as you are an employee of the Company or a subsidiary of the Company. NO RETENTION Your award or this Agreement does not give you RIGHTS the right to be employed or retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your service at any time, with or without cause. ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Restricted Shares that remain subject to forfeiture will be adjusted accordingly pursuant to the applicable provisions of the Plan including but not limited to Section 9.1 of the Plan. APPLICABLE LAW This Agreement will be interpreted and enforced under the laws of the State of Colorado (without regard to their choice-of-law provisions). THE PLAN AND The text of the Plan is incorporated in this OTHER Agreement by reference. This Agreement and the AGREEMENTS Plan constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement, signed by both parties. BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN. EX-5 9 accept.txt ACCEPTANCE LETTER EXHIBIT (A)(5) Dear _______________: On behalf of Heska Corporation (the "Company"), I am writing to provide you with the results of the Company's recent offer to exchange (the "Offer") certain outstanding options (the "Options") that were granted under the Heska Corporation 1997 Stock Incentive Plan (the "1997 Plan") for restricted shares of common stock (the "Restricted Stock") which the Company will issue under the 1997 Plan. The Offer expired at 5:00 p.m., Mountain Daylight Time, on _________, 2001. Promptly following the expiration of the Offer and pursuant to the terms and conditions of the Offer, the Company accepted for exchange Options to purchase a total of [____________] shares of common stock and cancelled all such Options. The Company has accepted for exchange and cancelled your Options to purchase ____________ shares of common stock. In accordance with the terms and subject to the conditions of the Offer, you will have the right to receive a number of shares of Restricted Stock equal to the number of common stock subject to your cancelled Options. The Restricted Stock will be subject to the terms and conditions of the 1997 Plan and a restricted stock agreement between you and the Company. In accordance with the terms of the Offer, in order to be issued Restricted Stock, you must sign and return to us the restricted stock agreement enclosed with this letter. The Restricted Stock will be issued following our receipt of your signed agreement, but the stock certificate for the issued Restricted Stock will be held in the custody of the Company until it vests. The Restricted Stock will vest monthly over a forty-eight (48) month period. The certificates representing your vested shares will not actually be delivered to you until you provide for the payment to us of the federal, state and foreign income and employment withholding taxes to which you become subject as a result of the vesting of your Restricted Stock, either by cash payment or in accordance with another arrangement agreed upon between the Company and you. In accordance with the terms of the Offer, in order to receive the unvested portion of the Restricted Stock, you must remain an employee of the Company through the dates the Restricted Stock vests. If you do not remain an employee of the Company for the required periods, you will not receive any unvested Restricted Stock, as the case may be, and you will not receive any other consideration for the Options tendered by you and cancelled by the Company. If you have any questions about your rights in connection with the grant of Restricted Stock, please call Lynn DeGeorge, at (970) 493-7272, ext. 4150. Sincerely, ________________________________ ROBERT B. GRIEVE -----END PRIVACY-ENHANCED MESSAGE-----