Document:

Exhibit 10.5

 

HESKA
CORPORATION 2003 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

(EMPLOYEES AND CONSULTANTS)

 

	
  Tax Treatment

  	
   

  	
  This option is intended to be an incentive stock option under section
  422 of the Internal Revenue Code or a nonstatutory option, as provided in the
  Notice of Stock Option Grant. To the extent this option is designated an
  incentive stock option and it does not qualify as an incentive stock option
  under applicable laws, it will be treated as a nonstatutory option.

  
	
   

  	
   

  	
   

  
	
  Vesting/Exercisability

  	
   

  	
  This option vests and becomes exercisable in installments, as shown
  in the Notice of Stock Option Grant. In addition, in the event your service
  as an Employee, Director or Consultant terminates because of your death, your
  option shall become fully vested and exercisable as to the total number of
  shares subject thereto immediately upon the date of your death.

   

  Except as otherwise provided below following a Change in Control, no
  additional shares become vested after your Termination of Service and the
  option shall terminate as to any shares that are unvested as of the end of
  business on the date of your Termination of Service.

  
	
   

  	
   

  	
   

  
	
  Term

  	
   

  	
  This option expires in any event at the close of business at Company
  headquarters on the day before the 10th anniversary of the Date of Grant, as
  shown in the Notice of Stock Option Grant. (It will expire earlier if your
  service terminates, as described below.)

  
	
   

  	
   

  	
   

  
	
  Regular Termination

  	
   

  	
  In the event of your Termination of Service for any reason except
  death or Disability, then this option will expire as to unexercised vested
  option shares at the close of business at Company headquarters on the date
  three months after your termination date. The Company determines when your
  service terminates for this purpose.

  
	
   

  	
   

  	
   

  
	
  Death

  	
   

  	
  In the event of your Termination of Service because of your death or
  your death within three months after your Termination of Service, then this
  option will expire as to unexercised vested option shares at the close of
  business at Company headquarters on the date one year after your date of
  death.

  
	
   

  	
   

  	
   

  
	
  Disability

  	
   

  	
  In the event of your Termination of Service because of your
  Disability, then this option will expire as to unexercised vested option
  shares at the close of business at Company headquarters on the date one year
  after your termination date.

  

 

1

 

	
  Leave of Absence

  	
   

  	
  Vesting of this option shall be suspended during any unpaid leave of
  absence unless continued vesting is required by the terms of the leave or by
  applicable law.

  
	
   

  	
   

  	
   

  
	
  Change in Control

  	
   

  	
  This option shall vest and become exercisable in full if (i) the
  Company is subject to a Change in Control, (ii) this option is not
  continued by the Company and (iii) this option is not either assumed by
  the surviving corporation or its parent or substituted for by the surviving
  corporation’s or its parent’s issuing its own option in replacement of this
  option. This option shall vest and become exercisable in full if (i) the
  Company is subject to a Change in Control and (ii) within twelve months
  thereafter the surviving corporation or its parent triggers a Termination of
  Service for you without your consent and without Cause. If the surviving
  corporation or its parent demotes you to a lower position, materially reduces
  your authority or responsibilities, materially reduces your total
  compensation or announces its intention to relocate your principal place of
  work by more than 20 miles, then that action shall be treated as triggering a
  Termination of Service under this Agreement. For the avoidance of doubt, a
  refusal by the surviving corporation or its parent to extend a consulting
  engagement beyond its current term shall not be deemed to trigger any option
  to vest and become immediately exercisable under this Agreement. 

   

  “Cause” shall mean (i)  your failure to perform your assigned
  duties or responsibilities as an Employee, Director or Consultant (other than
  a failure resulting from death or Disability) after notice thereof from the
  surviving corporation or its parent describing your failure to perform such
  duties or responsibilities; (ii) your material breach of any
  confidentiality agreement or invention assignment agreement between you and
  the Company or a Subsidiary; (iii) your engaging in any act of dishonesty,
  fraud, misrepresentation, moral turpitude, or misappropriation of material
  property that was or is materially injurious to the Company or its
  Affiliates; (iv) your violation of any federal or state regulation
  applicable to the Company’s business; or (v) your being convicted of, or
  entering a plea of nolo contendere to, any crime.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Exercise

  	
   

  	
  The Company will not permit you to exercise this option if the
  issuance of shares at that time would violate any law or regulation, and the
  Company will have no liability for failure to issue or deliver any shares
  upon exercise of this option if the issuance or delivery would violate any
  law or regulation as determined by the Company in consultation with its legal
  counsel. This option may not be exercised for a fraction of a share.

  
	
   

  	
   

  	
   

  
	
  Notice of Exercise

  	
   

  	
  When you wish to exercise this option, you must notify the Company by
  filing the proper “Notice of Exercise” form at the address given on the form.
  Your notice must specify how many shares you wish to purchase. The exercise
  will be effective when the Company receives the Notice of Exercise with the
  option exercise payment described herein. 

  

 

2

 

	
   

  	
   

  	
  If someone else wants to exercise this option after your death, that
  person must prove to the Company’s satisfaction that he or she is entitled to
  do so.

  
	
   

  	
   

  	
   

  
	
  Form of Payment

  	
   

  	
  When you submit your notice of exercise, you must include payment of
  the option exercise price for the shares you are purchasing. Payment may be
  made in one (or a combination of two or more) of the following forms:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Cash, check or wire
  transfer.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Certificates
  for shares of Company stock that you own, along with any forms needed to
  affect a transfer of those shares to the Company. The value of the shares,
  determined as of the effective date of the option exercise, will be applied
  to the option exercise price. However, the Company may restrict your ability
  to surrender shares of Company stock (including your ability to surrender any
  particular shares of Company Stock held by you) in payment of the exercise price
  if your doing so would result in the Company’s recognizing additional
  compensation expense with respect to this option for financial reporting
  purposes. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ·      Irrevocable directions to
  a securities broker approved by the Company to sell all or part of your
  option shares and to deliver to the Company proceeds from the sale in an
  amount sufficient to pay the option exercise price and any withholding taxes.
  (The balance of the sale proceeds, if any, will be delivered to you.) The
  directions must be given by signing a special “Notice of Exercise” form
  provided by the Company.

  
	
   

  	
   

  	
   

  
	
  Withholding Taxes and Stock Withholding

  	
   

  	
  You will not be allowed to exercise this option unless you make
  arrangements acceptable to the Company to pay any withholding taxes that may
  be due as a result of the option exercise. These arrangements may include
  (with the Company’s approval) withholding shares of Company stock that
  otherwise would be issued to you when you exercise this option. The value of
  these shares, determined as of the effective date of the option exercise,
  will be applied to the withholding taxes.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Resale

  	
   

  	
  By signing this Agreement, you agree not to sell any option shares at
  a time when applicable laws, Company policies or an agreement between the
  Company and its underwriters prohibit a sale. This restriction will apply as
  long as you are an Employee, Consultant or Director of the Company or a
  Subsidiary.

  
	
   

  	
   

  	
   

  
	
  Transfer of Option

  	
   

  	
  Prior to your death, only you may exercise this option. You cannot
  sell, transfer, pledge or assign this option. For instance, you may not sell
  this option or use it as security for a loan. You may, however, dispose of
  this option in your will, by the laws of descent and distribution or through
  a beneficiary designation. 

  

 

3

 

	
   

  	
   

  	
  Regardless of any marital property settlement agreement, the Company
  is not obligated to honor a notice of exercise from your former spouse, nor
  is the Company obligated to recognize your former spouse’s interest in your
  option in any other way.

  
	
   

  	
   

  	
   

  
	
  Retention Rights

  	
   

  	
  Neither your option nor this Agreement give you the right to be
  employed or otherwise retained by the Company in any capacity. The Company
  reserves the right to terminate your service at any time, with or without
  cause.

  
	
   

  	
   

  	
   

  
	
  Stockholder Rights

  	
   

  	
  You, or your estate or heirs, have no rights as a stockholder of the
  Company until you have exercised this option by giving the required notice to
  the Company and paying the exercise price.

  
	
   

  	
   

  	
   

  
	
  Applicable Law

  	
   

  	
  This Agreement will be interpreted and enforced under the laws of the
  State of Delaware (without giving effect to its conflict of laws provisions).

  
	
   

  	
   

  	
   

  
	
  The Plan and Other Agreements

  	
   

  	
  The Amended and Restated 2003 Equity Incentive Plan is incorporated
  in this Agreement by reference. Unless otherwise defined herein, all
  capitalized terms herein have the same defined meanings as in the Amended and
  Restated 2003 Equity Incentive Plan. In the event of any conflict
  between the terms and provisions of the Plan and this Agreement, the Plan
  terms and provisions shall govern.  

   

  This Agreement and the Plan constitute the entire understanding
  between you and the Company regarding this option. Any prior agreements,
  commitments or negotiations concerning this option 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.

 

4Exhibit 10.27

 

[***] —
Certain information in this exhibit have been omitted and filed separately with
the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

SIXTH AMENDMENT TO THIRD
AMENDED AND RESTATED 

CREDIT AND SECURITY AGREEMENT

 

This Amendment, dated as of December 30,
2008, is made by and between Heska Corporation, a Delaware corporation (“Heska”),
Diamond Animal Health, Inc., an Iowa corporation (“Diamond”) (each of
Heska and Diamond may be referred to herein individually as a “Borrower” and
collectively as the “Borrowers”), and Wells Fargo Bank, National Association,
operating through its Wells Fargo Business Credit operating division (the “Lender”).

 

Recitals

 

The Borrowers and the Lender
are parties to a Third Amended and Restated Credit and Security Agreement dated
as of December 30, 2005 (as amended to date and as the same may be
hereafter amended from time to time, the “Credit Agreement”).

 

The Borrowers have requested
that certain amendments be made to the Credit Agreement, which the Lender is
willing to make pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, in
consideration of the premises and of the mutual covenants and agreements herein
contained, it is agreed as follows:

 

1.             Defined Terms. Capitalized terms used in this
Amendment which are defined in the Credit Agreement shall have the same
meanings as defined therein, unless otherwise defined herein.  In addition, Section 1.1 of the Credit
Agreement is amended by adding or amending, as the case may be, the following
definitions:

 

“Prepayment Factor” means
one percent (1%).

 

2.             Inventory
Cap. The figure “$7,500,000” in clause (iii) of the definition of “Borrowing
Base” is replaced by the figure “$6,500,000”.

 

3.             Spread. Section 2.7 of the Credit Agreement
is hereby amended to read in its entirety as follows:

 

“Section 2.7           Spread.  The spread (the “Spread”) means two and
one-half percent (2.5%).”

 

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

4.             Audit Fees. Section 2.9(b) of the
Credit Agreement is hereby amended to read it its entirety as follows:

 

“(b)         Audit Fees. The Borrowers
shall pay the Lender fees in connection with any collateral exams, audits or
inspections conducted by or on behalf of the Lender of any Collateral or the
Borrowers’ operations or business at the rates established from time to time by
the Lender as its collateral exam fees (which fees are currently $125 per hour
per collateral examiner), together with all actual out-of-pocket costs and
expenses incurred in conducting any such collateral examination or inspection;
provided, however, that so long as no Default Period exists and average
Availability (computed on a 90-day rolling average basis, as reasonably determined
by the Lender) exceeds $1,750,000 the Lender will not demand reimbursement for
more than three such collateral exams in any calendar year.”

 

5.             Financial Covenants.  Sections 6.12 and 6.13 of the Credit
Agreement are hereby amended to read in their entireties as follows:

 

“Section 6.12 Minimum
Capital. Heska will maintain, on a consolidated basis, as of each date listed
below, its Capital at an amount not less than the amount set forth opposite
such date:

 

	
  Date

  	
   

  	
  Minimum Capital

  
	
  December 31, 2008

  	
   

  	
  [***]

  
	
  January 31, 2009

  	
   

  	
  [***]

  
	
  February 28, 2009

  	
   

  	
  [***]

  
	
  March 31, 2009

  	
   

  	
  [***]

  
	
  April 30, 2009

  	
   

  	
  [***]

  
	
  May 31, 2009

  	
   

  	
  [***]

  
	
  June 30, 2009

  	
   

  	
  [***]

  
	
  July 31, 2009

  	
   

  	
  [***]

  
	
  August 31, 2009

  	
   

  	
  [***]

  
	
  September 30, 2009

  	
   

  	
  [***]

  
	
  October 31, 2009

  	
   

  	
  [***]

  
	
  November 30, 2009

  	
   

  	
  [***]

  
	
  December 31, 2009

  	
   

  	
  [***]

  

 

2

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

The covenant levels for January 31,
2009 through and including December 31, 2009 shall be adjusted upwards or
downwards, respectively on a dollar-for-dollar basis, by an amount equal to the
amount by which Heska’s Capital, as evidenced by Heska’s audited balance sheet
as of December 31, 2008, is greater than or less than [***]; provided,
however, that any such downward adjustment shall not exceed $500,000.

 

Section 6.13 Minimum
Net Income. Heska will achieve, on a consolidated basis, during each period
described below, Net Income in an amount not less than the amount set forth opposite
such period (amounts in parentheses denote negative numbers):

 

	
  Period

  	
   

  	
  Minimum Net 

  Income

  
	
  Twelve months ending
  December 31, 2008

  	
   

  	
  [***]

  
	
  Three months ending
  March 31, 2009

  	
   

  	
  [***]

  
	
  Six months ending
  June 30, 2009

  	
   

  	
  [***]

  
	
  Nine months ending
  September 30, 2009

  	
   

  	
  [***]

  
	
  Twelve months ending
  December 31, 2009

  	
   

  	
  [***]

  

 

6.             Elimination of $2,000,000 Stock Repurchase Basket.
Section 7.5 of the Credit Agreement is hereby amended to read in its
entirety as follows:

 

“Section 7.5           Dividends. Such Borrower will
not declare or pay any dividends (other than dividends payable solely in stock
of such Borrower) on any class of its stock or make any payment on account of
the purchase, redemption or other retirement of any shares of such stock or
make any distribution in respect thereof, either directly or indirectly;
provided, however, that so long as no Default Period then exists or would occur
immediately following or as a result of such action, (a) any Borrower that
is a Subsidiary of Heska may pay dividends to Heska so long as such Subsidiary’s
Tangible Net Worth both before and after such dividend equals or exceeds
$100,000; and (b) Heska may repurchase capital stock of Heska held by any
employee provided Heska is required to do so pursuant to any employee equity
subscription agreement, stock ownership plan or stock option agreement in
effect from time to time; and provided further that the aggregate price paid
for all such repurchased, redeemed, acquired or retired capital shall not
exceed $100,000 during any fiscal year. 
Notwithstanding the foregoing, the exercise of stock options for the
purchase of Heska’s capital stock shall not, by means of any deemed repurchase
of shares as a result of a cashless exercise or otherwise, cause a breach of
this Section 7.5.”

 

3

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

7.             Capital Expenditures. Section 7.10 of the
Credit Agreement is hereby amended to read in its entirety as follows:

 

“Section 7.10 Capital
Expenditures. The Borrowers, together with any Affiliates, will not incur
or contract to incur, in the aggregate, Capital Expenditures in the aggregate
during the fiscal year-to-date period ending on any date described below in
excess of the amount set forth opposite such date:

 

	
  Period

  	
   

  	
  Maximum Capital 

  Expenditures

  
	
  December 31, 2008

  	
   

  	
  [***]

  
	
  January 31, 2009

  	
   

  	
  [***]

  
	
  February 28, 2009

  	
   

  	
  [***]

  
	
  March 31, 2009

  	
   

  	
  [***]

  
	
  April 30, 2009

  	
   

  	
  [***]

  
	
  May 31, 2009

  	
   

  	
  [***]

  
	
  June 30, 2009

  	
   

  	
  [***]

  
	
  July 31, 2009

  	
   

  	
  [***]

  
	
  August 31, 2009

  	
   

  	
  [***]

  
	
  September 30, 2009

  	
   

  	
  [***]

  
	
  October 31, 2009

  	
   

  	
  [***]

  
	
  November 30, 2009

  	
   

  	
  [***]

  
	
  December 31, 2009

  	
   

  	
  [***]

  

 

In addition to the
foregoing, the amounts set forth above shall be adjusted upward on a
dollar-for-dollar basis by the amount allocated for such purpose in accordance
with Section 2.22, from the date of such increase through the end of the
fiscal year in which such increase occurs.”

 

8.             Compliance Certificate. Exhibit B to the
Credit Agreement is replaced in its entirety by Exhibit A to this
Amendment.

 

9.             No Other Changes. Except as explicitly amended by
this Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect and shall apply to any advance or letter of
credit thereunder.

 

10.           Waiver of Defaults. 
The Borrowers are in default of Section 6.12 of the Credit
Agreement as of November 30, 2008 (the “Existing Default”).  Upon the terms and subject to the conditions
set forth in this Amendment, the Lender hereby waives the Existing
Default.  This waiver shall be effective
only in this specific instance and for the specific purpose for which it is
given, and this waiver shall not entitle the Borrowers to any other or further
waiver in any 

 

4

 

similar or other
circumstances.  The Borrowers acknowledge
that, from December 1, 2008 through and including the date of this
Amendment, the Obligations will bear interest at a portion of the Default Rate
equal to two and one-half percent (2.5%) above the otherwise-applicable interest
rate.

 

11.           Waiver
and Amendment Fee.  The Borrower
shall pay to the Lender as of December 31, 2008, a fully earned,
non-refundable fee of $50,000 in consideration of the Lender’s execution of
this Amendment.

 

12.           Conditions Precedent. This Amendment shall be
effective when the Lender shall have received an executed original hereof,
together with the following, each in form and substance acceptable to the
Lender in its sole discretion:

 

(a)           A Certificate of Authority of the Borrowers certifying as
to the resolutions of the boards of directors of the Borrowers approving the
execution and delivery of this Amendment.

 

(b)           Such other matters as the Lender may require.

 

13.           Representations and Warranties. The Borrowers
hereby represent and warrant to the Lender as follows:

 

(a)           The Borrowers have all requisite power and authority to
execute this Amendment and the Replacement Notes and to perform all of its
obligations hereunder, and this Amendment and the Replacement Notes have been
duly executed and delivered by the Borrowers and constitute the legal, valid
and binding obligation of the Borrowers, enforceable in accordance with their
terms.

 

(b)           The
execution, delivery and performance by the Borrowers of this Amendment and the
Replacement Notes have been duly authorized by all necessary corporate action
and do not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or
of any order, writ, injunction or decree presently in effect, having applicability
to the Borrowers, or the articles of incorporation or by-laws of the Borrowers,
or (iii) result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other agreement, lease or instrument to
which any Borrower is a party or by which it or its properties may be bound or
affected.

 

(c)           All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.

 

14.           No Other Waiver. Except as specifically set forth
in paragraph 10, the execution of this Amendment and acceptance of the
Replacement Notes and any documents related hereto shall not be deemed to be a
waiver of any Default or Event of
Default under the 

 

5

 

Credit Agreement or breach,
default or event of default under any Security Document or other document held
by the Lender, whether or not known to the Lender and whether or not existing
on the date of this Amendment.

 

15.           Release. The Borrowers hereby absolutely and
unconditionally release and forever discharge the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which any
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.

 

16.           Costs and Expenses. The Borrowers hereby reaffirm
their agreement under the Credit Agreement to pay or reimburse the Lender on
demand for all costs and expenses incurred by the Lender in connection with the
Loan Documents, including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the
foregoing, the Borrowers specifically agree to pay all fees and disbursements
of counsel to the Lender for the services performed by such counsel in
connection with the preparation of this Amendment and the documents and
instruments incidental hereto. The Borrowers hereby agree that the Lender may,
at any time or from time to time in its sole discretion and without further
authorization by the Borrowers, make a loan to the Borrowers under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any
such fees, disbursements, costs and expenses.

 

17.           Miscellaneous. This Amendment may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.

 

6

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

 

IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first written above.

 

	
  HESKA CORPORATION

  	
   

  	
  DIAMOND ANIMAL HEALTH,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   /s/ Jason Napolitano

  	
   

  	
  By

  	
   /s/ Jason Napolitano

  
	
   

  	
  Its

  	
    Chief
  Financial Officer

  	
   

  	
   

  	
  Its

  	
    Chief
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WELLS FARGO BANK, NATIONAL
  ASSOCIATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
    [***]

  	
   

  	
   

  
	
   

  	
    [***], Vice
  President

  	
   

  	
   

  
								

 

7

 

Exhibit A to First
Amendment

 

Compliance
Certificate

 

To:                                                      

Wells Fargo Business Credit

 

Date:                                          ,
2008

 

Subject:                                                     Heska
Corporation

Financial Statements

 

In accordance with our Third
Amended and Restated Credit and Security Agreement dated as of December 30,
2005 (the “Credit Agreement”), attached are the financial statements of Heska
Corporation (“Heska”) as of and for                                 ,
20       (the “Reporting Date”) and the
year-to-date period then ended (the “Current Financials”). All terms used in
this certificate have the meanings given in the Credit Agreement.

 

I certify that, to the best
of my knowledge, the Current Financials have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and fairly present the Borrowers’
financial condition and the results of its operations as of the date thereof.

 

Events of Default. (Check one):

 

o                                    The undersigned does not have knowledge of
the occurrence of a Default or Event of Default under the Credit Agreement.

 

o                                    The undersigned has knowledge of the
occurrence of a Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to thereto.

 

I hereby certify to the
Lender as follows:

 

o                                    The Reporting Date does not mark the end of
one of the Borrowers’ fiscal quarters, hence I am completing all paragraphs
below except paragraph 4.

 

o                                    The Reporting Date marks the end of one of
the Borrowers’ fiscal quarters, hence I am completing all paragraphs below.

 

Financial Covenants. I further hereby certify as follows:

 

1.             Accounts Payable. 
Pursuant to Section 6.5 of the Credit Agreement, as of the
Reporting Date, Past Due Payables on a consolidated basis was $                                  ,
which o satisfies o does
not satisfy the requirement that the Borrowers have no Past Due Payables.

 

8

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

2.             Minimum Capital. Pursuant to Section 6.12 of
the Credit Agreement, as of the Reporting Date, Heska’s Capital was, on a
consolidated basis, $                                  ,
which o satisfies o does
not satisfy the requirement that such amount be not less than $                          
on the Reporting Date, as set forth in the table below and adjusted, if
applicable, in accordance with Section 6.12:

 

	
  Date

  	
   

  	
  Minimum Capital

  
	
  December 31, 2008

  	
   

  	
  [***]

  
	
  January 31, 2009

  	
   

  	
  [***]

  
	
  February 28, 2009

  	
   

  	
  [***]

  
	
  March 31, 2009

  	
   

  	
  [***]

  
	
  April 30, 2009

  	
   

  	
  [***]

  
	
  May 31, 2009

  	
   

  	
  [***]

  
	
  June 30, 2009

  	
   

  	
  [***]

  
	
  July 31, 2009

  	
   

  	
  [***]

  
	
  August 31, 2009

  	
   

  	
  [***]

  
	
  September 30, 2009

  	
   

  	
  [***]

  
	
  October 31, 2009

  	
   

  	
  [***]

  
	
  November 30, 2009

  	
   

  	
  [***]

  
	
  December 31, 2009

  	
   

  	
  [***]

  

 

The covenant levels for January 31,
2009 through and including December 31, 2009 shall be adjusted upwards or
downwards, respectively on a dollar-for-dollar basis, by an amount equal to the
amount by which Heska’s Capital, as evidenced by Heska’s audited balance sheet
as of December 31, 2008, is greater than or less than [***]; provided,
however, that any such downward adjustment shall not exceed $500,000.

 

3.             Minimum Net Income.  Pursuant to Section 6.13 of the Credit
Agreement, as of the Reporting Date, Heska’s Net Income was, on a consolidated
basis, $                                  ,
which o satisfies o does
not satisfy the requirement that such amount be no less than $                            
on the Reporting Date, as set forth in the table below:

 

9

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

	
  Period

  	
   

  	
  Minimum Net

  Income

  
	
  Twelve months ending December 31,
  2008

  	
   

  	
  [***]

  
	
  Three months ending
  March 31, 2009

  	
   

  	
  [***]

  
	
  Six months ending
  June 30, 2009

  	
   

  	
  [***]

  
	
  Nine months ending
  September 30, 2009

  	
   

  	
  [***]

  
	
  Twelve months ending
  December 31, 2009

  	
   

  	
  [***]

  

 

4.             Minimum Liquidity.  Pursuant to Section 6.14 of the Credit
Agreement, as of the Reporting Date, Heska’s Liquidity was, on a consolidated
basis, $                                  ,
which o satisfies o does
not satisfy the requirement that such amount be no less than $1,500,000 on the
Reporting Date.

 

5.             Minimum Individual Book Net Worth.  Pursuant to Section 6.15 of the Credit
Agreement, as of the Reporting Date, Heska’s Book Net Worth was $                                  
and Diamond’s Book Net Worth was $                         ,
which o satisfies o does
not satisfy the requirement that such amounts be no less than zero on the
Reporting Date.

 

6.             Maximum Contributions.  Pursuant to Section 7.4(a)(v) of
the Credit Agreement, as of the Reporting Date, Heska’s fiscal year-to-date
aggregate contributions to non-Borrower Subsidiaries was $                                  ,
which o satisfies o does
not satisfy the requirement that such amounts be no more than $700,000 during
any fiscal year.

 

7.             Capital Expenditures.  Pursuant to Section 7.10 of the Credit
Agreement, for the fiscal year-to-date period ending on the Reporting Date,
Heska’s Capital Expenditures were, in the aggregate and on a consolidated
basis, $                              
which o satisfies o does
not satisfy the requirement that such amount be not more than $                              
during the period ending on the Reporting Date, as set forth in the table below
and adjusted, if applicable, in accordance with Section 7.10:

 

10

 

[***] —
Certain information on this page have been omitted and filed separately
with the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

	
  Period

  	
   

  	
  Maximum Capital

  Expenditures

  
	
  December 31, 2008

  	
   

  	
  [***]

  
	
  January 31, 2009

  	
   

  	
  [***]

  
	
  February 28, 2009

  	
   

  	
  [***]

  
	
  March 31, 2009

  	
   

  	
  [***]

  
	
  April 30, 2009

  	
   

  	
  [***]

  
	
  May 31, 2009

  	
   

  	
  [***]

  
	
  June 30, 2009

  	
   

  	
  [***]

  
	
  July 31, 2009

  	
   

  	
  [***]

  
	
  August 31, 2009

  	
   

  	
  [***]

  
	
  September 30, 2009

  	
   

  	
  [***]

  
	
  October 31, 2009

  	
   

  	
  [***]

  
	
  November 30, 2009

  	
   

  	
  [***]

  
	
  December 31, 2009

  	
   

  	
  [***]

  

 

Attached hereto are all
relevant facts in reasonable detail to evidence the computations of the
financial covenants referred to above. These computations were made in
accordance with GAAP.

 

HESKA CORPORATION

 

 

	
   

  	
  By

  	
   

  
	
   

  	
  Its

  	
   

  
				

 

11

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