SUBSEQUENT EVENTS

scil Acquisition

As previously disclosed, the Company entered into an agreement (the “Agreement”) on January 14, 2020 regarding the sale and purchase of the sole share in scil animal care company GmbH (“scil”). Pursuant to the Agreement, by and among the Company, Heska GmbH, a subsidiary of the Company (the “Purchaser”), Covetrus, Inc. (“Covetrus”) and Covetrus Animal Health Holdings Limited (the “Seller”), a subsidiary of Covetrus, Heska GmbH agreed to purchase 100% of the capital stock of scil (the “Acquisition”). On April 1, 2020, the Company, the Purchaser, the Seller, Covetrus and Covetrus Financing Holding, Ltd entered into an amendment agreement (the “Amendment Agreement”), providing for certain amendments to the Agreement (the Agreement as amended by the Amendment Agreement, the “Amended Agreement”), that among other things, reduced the aggregate purchase price from $125 million to $110 million.

On April 1, 2020 (the “Acquisition Closing Date”), the Company completed the Acquisition in accordance with the terms of the Amended Agreement.

The Acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements, as of the Acquisition date. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of April 1, 2020. The total purchase consideration is subject to customary working capital adjustments.

The information below represents the preliminary purchase price allocation of scil (in thousands):



	April 1, 2020
Total purchase consideration	$	111,027

Current assets, including cash acquired	18,255
Inventories, net	11,373
Property and equipment, net	19,373
Other intangible assets, net	44,267
Deferred tax asset, net	1,013
Investments in unconsolidated affiliates	55
Other assets	1,365
Total assets	95,701
Current Liabilities	16,189
Current portion of deferred revenue	1,035
Deferred revenue, net of current portion	234
Deferred tax liability	13,023
Other liabilities	798
Net assets acquired	64,422
Goodwill	46,605
Total fair value of consideration transferred	$	111,027

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information currently available, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the Acquisition. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the Acquisition from those valuations would result in a corresponding increase in the amount of goodwill from the Acquisition.

The following table presents unaudited supplemental pro forma financial information as if the scil Acquisition had occurred on January 1, 2019 (in thousands):



	Year Ended December 31, 2019
Total revenue, net	$	201,865
Net (loss) attributable to Heska Corporation	(2,568		)

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of scil and further reflects the effect of purchase accounting adjustments. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

Series X Convertible Preferred Stock

As more fully described in Note 12. Capital Stock, Heska financed the Acquisition through a private offering of $122 million of Series X Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The Preferred offering was made in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the SEC under the Securities Act, as a transaction not involving a public offering.

On April 8, 2020, the Company held its annual shareholder meeting, during which stockholders approved the proposal to amend the Company’s Restated Certificate of Incorporation to increase the total number of authorized shares of each class of our Common Stock by 3,000,000. On April 14, 2020, the Company gave notice of its exercise of its right to convert the 122,000 shares of Preferred Stock into 1,508,964 shares of Public Common Stock (the "Conversion Shares") and the conversion was effective on April 21, 2020. The conversion resulted in dilution of less than 20% of total shares of the Company’s Public Common Stock currently issued and outstanding. A registration statement on Form S-3 (File No. 333-238005) registering for resale the Conversion Shares was filed by us with the SEC on May 5, 2020.

Stock Issuances

On April 16, 2020 and May 5, 2020, the Compensation Committee of the Company’s Board of Directors authorized the issuance of a total of 305,000 stock options and 20,000 restricted stock awards, respectively, under the Stock Incentive Plan granted to Company Executive Officers and other members of management. 230,000 stock options and 20,000 restricted stock awards vest upon the achievement of certain Company performance conditions. 10,000 stock options vest upon the achievement of certain market conditions. Performance and market conditions must be achieved by December 31, 2023 otherwise the stock options or restricted stock awards are forfeited. 65,000 stock options are subject to time vesting requirements, with 30,000 stock options vesting upon December 31, 2021 and the remainder vesting upon December 31, 2022. All vested but unexercised options will expire April 15, 2030.