Document:

<PAGE>   1
                                                                  EXHIBIT 10.2

         ASSET PURCHASE AGREEMENT dated as of May 3, 2000 (the "Agreement"),
among BAP Acquisition Corp., a Delaware corporation ("Buyer"), B.A. Pargh
Company, LLC, a Tennessee limited liability company ("Seller"), and the members
of Seller listed on Annex I hereto (collectively, the "Members").

                                   WITNESSETH:

         WHEREAS, Seller operates an office products wholesale distributor and
reseller business in the Central and Eastern United States and Puerto Rico (the
"Business");

         WHEREAS, the Members own all of the issued and outstanding membership
interests in the Seller and the Members listed on Annex II hereto (the
"Officers") are actively engaged in the Business;

         WHEREAS, based upon the representations, covenants, agreements and
warranties herein made by Seller and the Members, and subject to the terms and
conditions contained in this Agreement, Buyer wishes to acquire the Business and
all of Seller's assets, subject to certain liabilities, and to continue to
operate the Business;

         WHEREAS, based upon the representations, covenants, agreements and
warranties herein made by Buyer, and subject to the terms and conditions
contained in this Agreement, Seller wishes to sell to Buyer the Business and all
of Seller's assets, subject to certain liabilities, for the consideration set
forth herein, including the assumption of such liabilities;

         WHEREAS, the Members, as owners of Seller, will benefit from the
transactions contemplated hereby; and

         WHEREAS, Seller, the Members and Buyer wish to provide for the
above-described acquisition and sale.

         NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Buyer, Seller and the Members hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

         1.1 Defined Terms. As used herein, the terms below shall have the
following meanings:

         "Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation, in each case, by or before any Governmental
Authority.

         "Affiliate" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including,

<PAGE>   2

with correlative meaning, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.

         "Ancillary Agreements" means the Employment Agreements, the Non-Compete
Agreements, and all other agreements required hereunder to consummate the
transactions contemplated hereby.

         "Code" means the Internal Revenue Code and Treasury Regulations
thereunder.

         "Consents" means any and all Permits and any and all consents,
approvals or waivers from third parties that are required for the consummation
of the transactions contemplated by this Agreement.

         "Contracts" means all contracts, agreements, arrangements,
understandings, licenses, leases, subleases and commitments of any kind.

         "Court Order" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign, federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable Law.

         "Default" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.

         "Employment Agreements" means the Employment Agreements to be entered
into by Buyer and the Officers, substantially in the form of Exhibit 1.1A
hereof.

         "Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.

         "Financial Statements" means the balance sheet of Seller as of March
31, 2000 and the related statements of income of Seller for the one month and
three months then ended, a copy of which is attached as Schedule 3.3A hereto.

         "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within

                                       2
<PAGE>   3

the accounting profession), or in such other statements by such entity as may be
in general use by significant segments of the U.S. accounting profession, which
are applicable to the facts and circumstances on the date of determination.

         "Governmental Authority" means any United States federal, state, local,
possession or foreign governmental, regulatory or administrative authority,
agency or commission, or any political subdivision thereof, or any court,
tribunal or arbitral body.

         "HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended.

         "Intellectual Property" means all trademarks, patents, copyrights,
tradenames, Business identifiers, service marks, logos, domain names, URLs and
all registrations and applications for registration thereof and all renewals or
reissues thereof, and all intangible property which is proprietary to Seller or
any Member and used or usable in the operation of the Business.

         "Knowledge" or "to the knowledge" or "to the best of the knowledge" of
a party (or similar phrases) means to the extent of matters which are actually
known by such party and, with respect to Seller, shall mean the actual knowledge
of the Officers.

         "Liability" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated, unliquidated, known or unknown.

         "March 31 Balance Sheet" means the balance sheet of Seller as of March
31, 2000 included in the Financial Statements.

         "Material Adverse Effect" or "Material Adverse Change" or a similar
phrase means, with respect to any Person, any material adverse effect on or
change with respect to (i) the business, operations, assets (taken as a whole),
liabilities (taken as a whole), condition (financial or otherwise) or results of
operations, of such Person, or (ii) the right or ability of such Person to
consummate any of the transactions contemplated hereby.

         "Non-Compete Agreements" means the Non-Compete Agreements to be entered
into by Buyer, Seller and each of the Officers substantially in the form of
Exhibit 1.1B hereof.

         "Permitted Encumbrances" means (a) liens for Taxes or governmental
charges or claims (i) not yet due and payable, or (ii) being contested in good
faith, if a reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made therefor, (b) statutory liens of landlords, liens
of carriers, warehouse persons, mechanics and material persons and other liens
imposed by law incurred in the ordinary course of business for sums (i) not yet
due and payable, or (ii) being contested in good faith, if a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor, (c) liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other similar types of social security
programs or to secure the performance of tenders, statutory obligations, surety
and

                                       3
<PAGE>   4

appeal bonds, bids, leases, government contracts, performance and return of
money bonds and similar obligations, in each case in the ordinary course of
business, consistent with past practice, (d) easements, rights-of-way,
restrictions and other liens or Encumbrances, in each case, which do not
interfere with the ordinary conduct of business of Seller and do not materially
detract from the value of the property upon which such lien or Encumbrance
exists and (e) liens, claims and Encumbrances specifically identified and
designated as a Permitted Encumbrance on any Schedule attached hereto.

         "Permits" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any Governmental
Authority, whether foreign, federal, state or local, necessary or desirable for
the past, present or anticipated conduct or operation of the Business or
ownership of the Assets.

         "Person" means any person or entity, whether an individual, trustee,
corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.

         "Pre-petition Liabilities" means the Liabilities of the Seller
described on Schedule 3.3B hereto.

         "Regulations" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, principles of law and
orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation energy, motor
vehicle safety, public utility, zoning, building and health codes, environmental
Laws, occupational safety and health and laws respecting employment practices.

         "RMA Inventory" means merchandise returned from customers that is not
suitable for resale or that is not returned to salable inventory.

         "Seller Material Adverse Effect" or "Seller Material Adverse Change"
means a Material Adverse Effect with respect to Seller, the Business or the
Assets.

         "Seller's Representative" means W. Alan Holman, as representative of
the Seller and the Members, or his designee.

         "Services Agreement" means the contract dated July 15, 1999 identified
in the non-binding letter of intent between Seller and Daisytek International
Corporation.

         "Tax" or "Taxes" means any and all Taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to Tax and additional amounts imposed with
respect thereto) imposed by any government or Taxing authority, including,
without limitation: Taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; Taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or

                                       4
<PAGE>   5

gains Taxes; license, registration and documentation fees; and customs' duties,
tariffs, and similar charges.

         1.2  Interpretation Provisions.

                  (a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The term "or" is disjunctive but
not necessarily exclusive. The terms "include" and "including" are not limiting
and mean "including without limitation."

                  (b) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications thereto.

                  (c) References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation.

                  (d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.

                  (e) The language used in this Agreement shall be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction shall be applied against either party.

                  (f) The annexes, schedules and exhibits to this Agreement are
a material part hereof and shall be treated as if fully incorporated into the
body of the Agreement.

                                    ARTICLE 2

                        SALE AND PURCHASE OF THE BUSINESS

         2.1 Assets to be Sold. Subject to the terms and conditions set forth in
this Agreement, at the Closing (as defined in Section 8.1 hereof) Seller shall
sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase
and acquire from Seller, all of Seller's right, title and interest in and to
Seller's assets (wherever located, tangible and intangible, real, personal or
mixed, whether known or unknown, accrued or contingent, and whether or not
carried on the books and records of Seller) and the Business (and the goodwill
associated therewith) as a going concern (collectively, the "Assets") (excluding
only the assets specified in Section 2.2 hereof), including, but not limited to,
the following:

                  (a) all of Seller's cash and cash equivalents on hand or in
banks;

                                       5
<PAGE>   6

                  (b) all machinery, equipment, furniture, furnishings,
automobiles, trucks, vehicles, tools, dies, molds and parts and similar property
(including, but not limited to, any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other Person);

                  (c) all inventories of raw materials, work in process,
finished products, goods, spare parts, replacement and component parts, and
office and other supplies, wherever located including any items in transit to
Seller (the "Inventory");

                  (d) all rights in and to products sold or leased (including
unpaid sellers' rights of rescission, replevin, reclamation and rights to
stoppage in transit);

                  (e) all of the rights of the Seller under all Contracts,
including the Services Agreement, and any right to receive payment for products
sold or services rendered, and to receive goods and services, pursuant to such
Contracts and to assert claims and take other rightful actions in respect of
breaches, defaults and other violations of such Contracts;

                  (f) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and prepaid items;

                  (g) all notes and accounts receivable held by the Seller and
all notes, bonds and other evidences of indebtedness of and rights to receive
payments from any Person held by the Seller, including all rights to receive
refunds, rebates and coop or promotional funds of any kind;

                  (h) all Intellectual Property and all rights thereunder or in
respect thereof relating to or used or held for use in connection with the
Business, including rights to sue for and remedies against past, present and
future infringements thereof, and rights of priority and protection of interests
therein under the laws of any jurisdiction worldwide and all tangible
embodiments thereof;

                  (i) all books, records, manuals and other materials (in any
form or medium), including all records and materials maintained at each office
or place of business of Seller, advertising matter, catalogues, price lists,
correspondence, mailing lists, lists of customers, distribution lists,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, personnel records, manufacturing and quality
control records and procedures, blueprints, research and development files,
records, data and laboratory books, Intellectual Property disclosures, media
materials and plates, accounting records, sales order files and litigation
files;

                  (j) to the extent their transfer is permitted by law, all
Permits, including all applications therefor;

                  (k) all rights to causes of action, lawsuits, judgments,
claims and demands of any nature available to or being pursued by the Seller
with respect to the Business or any Contract, including the Services Agreement,
whether arising prior to or following the date hereof, or the ownership, use,
function or value of any Asset, whether arising by way of counterclaim or
otherwise; and

                                       6
<PAGE>   7

                  (l) all guarantees, warranties, indemnities and similar rights
in favor of the Seller with respect to any Asset.

         2.2 Excluded Assets. The following assets (collectively, the "Excluded
Assets") shall be retained by Seller and no interest in them shall be assigned,
transferred, conveyed or delivered to Buyer:

                  (a) the organizational documents, operating agreement and
minutes of Member meetings of Seller;

                  (b) all rights of the Seller under this Agreement; and

                  (c) all Inventory which, as of the Closing Date, (i) is RMA
Inventory, (ii) is in the aggregate in excess of 76 days cost of good sold
determined on the basis of sales during the 12 month period prior to the Closing
Date, (iii) has a "freshness dating" expiration date prior to the Closing Date,
or (iv) is not included in Seller's then current catalogue, except for any of
the foregoing which Buyer, in its sole discretion, elects to purchase and
include in the Assets being transferred hereunder; and

                  (d) the automobile and other assets listed on Schedule 2.2(d)
hereto.

         2.3 Assumed Liabilities. Subject to the terms and conditions set forth
in this Agreement, at the Closing, Buyer shall assume and agree to pay, perform
and discharge all of the following obligations and liabilities of Seller
(collectively the "Assumed Liabilities"):

                  (a) all liabilities of Seller set forth on the March 31
Balance Sheet in the amounts set forth therein, to the extent not paid,
satisfied or discharged prior to or as of the Closing Date without violation or
breach of the terms thereof;

                  (b) all liabilities and obligations of Seller not set forth on
the March 31 Balance Sheet and arising in the ordinary course of the Business
after March 31, 2000, to the extent set forth on the Final Closing Balance Sheet
(as defined in Section 2.7 below) in the amounts set forth therein;

                  (c) all liabilities and obligation of Seller under the
Services Agreement, whenever and however arising; and

                  (d) to the extent arising after the Closing Date and relating
to the period after the Closing Date, all liabilities and obligations of Seller
under (i) the Contracts listed on Schedule 3.9(a) hereto, (ii) Contracts
existing as of the date hereof that are not required to be listed on Schedule
3.9(a) hereto but that were entered into in the ordinary course of the Business
and (iii) Contracts hereafter entered into by Seller in the ordinary course of
the Business in compliance with Section 5.1 hereof and without violation of any
other term or provision contained herein (collectively, the "Assumed
Contracts"), other than damages, penalties or other

                                       7
<PAGE>   8

like liabilities or obligations arising from or as a result of a breach of any
Assumed Contract by Seller or Seller's failure to satisfy any requirement which
it was required to satisfy on or prior to the Closing, and provided further,
that with respect to any Assumed Contract that is not consistent with the
representations and warranties of Seller contained herein, Buyer shall have no
liabilities or obligations thereunder except to the extent of any benefit
thereunder provided to Buyer.

         2.4 Excluded Liabilities. Except for the Assumed Liabilities, Buyer
does not assume or agree to discharge or perform any Liabilities of Seller or
any predecessor or affiliate thereto, it being expressly agreed and understood
that, except for the Assumed Liabilities, Buyer does not agree to assume, nor
shall have any responsibility, liability or obligation for any Liabilities of
Seller or the Members, including the following (collectively, the "Retained
Liabilities"):

                  (a) any liability or obligation of Seller or any Member based
upon, arising out of or otherwise in respect of the negotiation and preparation
of this Agreement or any of the Schedules or Exhibits hereto, or the
consummation of the transactions contemplated hereby, including without
limitation, any Tax liability so arising;

                  (b) except as otherwise set forth herein, any liability or
obligation based upon, arising out of or otherwise in respect of, any accounts
payable, trade payables, employee wages, employee benefits, product liability,
product warranty, or any Contract to which Seller is a party;

                  (c) any liability or obligation of Seller or any Member, or
any consolidated group of which Seller is or has been a member, for any federal,
state, county or local Taxes, or any interest, additions to and/or penalties
thereon, accrued for, applicable to or arising during any period whether prior
to or following the date hereof;

                  (d) any liability or obligation of Seller or any Member for
any cause of action, claim, demand, breach or violation of any kind or
description, whether arising under any contract, agreement, law, rule or
Regulation, or otherwise, including without limitation, any claim for or
relating to personal injury, malpractice, negligence, fraud, discrimination,
sexual harassment, wrongful termination, property damage, money laundering,
racketeering, conspiracy or any environmental claim or remedial claim;

                  (e) except as otherwise set forth herein, any liability or
obligation, including any obligation to provide severance, retirement or
post-retirement benefits, arising under any collective bargaining agreement,
union contract, employment agreement or other agreement or understanding of any
kind relating to employment of any employee or group of employees; and

                  (f) any liability or obligation of Seller to any Member.

         2.5 Consideration. Subject to the adjustment set forth below, as the
total consideration (the "Purchase Price") for the Assets to be sold by Seller
to Buyer pursuant hereto, Buyer shall:

                  (a) at the Closing, pay Seller by wire transfer (to an account
designated by Seller at least five business days prior to the Closing) the sum
of $2,000,000 (the "Closing Cash Amount");

                                       8
<PAGE>   9

                  (b) subject to the provisions hereof, on the first business
day following the 150th day after the Closing Date (the "Second Payment Date"),
pay Seller by wire transfer (to the account previously designated by Seller or
as the Seller's Representative shall otherwise direct) the sum of $1,090,166
(the "Escrowed Consideration"); and

                  (c)  at the Closing, assume the Assumed Liabilities.

         2.6 Escrowed Consideration. (a) The Buyer shall hold the Escrowed
Consideration as collateral security for the obligations of Seller and the
Members pursuant to Articles 9 and 10 hereof, and to facilitate the Purchase
Price adjustments, if any, set forth below. Subject to the Purchase Price
adjustments, if any, set forth below, and provided Seller and the Members have
complied with all of their respective covenants and obligations hereunder, Buyer
shall pay the Escrowed Consideration to Seller in accordance with Section 2.5
(b) above.

                  (b) On the Second Payment Date, the Seller shall deposit
$500,000 of the Escrowed Consideration (the "Escrow Amount") with Allen D.
Lentz, as Escrow Agent (the "Escrow Agent") in accordance with that certain
Escrow Agreement dated as of the date hereof by and among the Seller and the
Members (the "Escrow Agreement"). The Escrow Amount shall be held in escrow by
the Escrow Agent pursuant to the terms of the Escrow Agreement and shall be
collateral security for the obligations of the Seller and the Members pursuant
to Articles 9 and 10 hereof. During the one year period following the Closing
Date (and thereafter if, and for so long as, the Buyer then has a pending claim
for indemnification hereunder), the Escrow Amount shall not be distributed to
the Seller or any of the Members, nor shall the Escrow Agreement be modified,
amended or terminated, in each case, without the prior written consent of the
Buyer. If on the Second Payment Date the then remaining Balance of the Escrowed
Consideration is less than $500,000, the Seller and the Members shall deposit
such difference with the Escrow Agent.

         2.7 Price Adjustment.

                  (a) As soon as practicable after the Closing, but not later
than 120 days after the Closing, Buyer and Seller's Representative shall jointly
prepare a balance sheet setting forth the Assets and the Assumed Liabilities as
of the Closing Date (the "Closing Balance Sheet") and the Purchase Price
adjustments set forth below. The Closing Balance Sheet shall be prepared (i) in
accordance with GAAP and (ii) on a basis consistent with Schedule 2.7 hereto
(notwithstanding that the provisions of such Schedule may not be in accordance
with GAAP), and all Assets shall be valued at the lower of cost or fair market
value as of the Closing Date. In addition, the Closing Balance Sheet shall
reflect the parties' mutual agreement in respect of the Services Agreement as
provided in Section 5.10 below.

                  (b) In the event Buyer and Seller's Representative shall
disagree upon any item to be set forth on the Closing Balance Sheet or any
Purchase Price adjustment, Buyer and Seller's Representative shall use their
good faith efforts to resolve such dispute. Failing such resolution,

                                       9
<PAGE>   10

Buyer and Seller's Representative shall submit the dispute for resolution to an
independent accounting firm jointly selected by Buyer and Seller's
Representative. Such firm shall decide such dispute in accordance with the terms
and provisions of this Agreement. The decision of such firm shall be final and
binding and the fees and expenses of such firm shall be apportioned by such firm
between the Buyer and Seller on a basis that is proportionate to the extent to
which such firm's decision conforms to the Buyer's and Seller's Representative's
respective positions. Such Closing Balance Sheet and the Purchase Price
adjustments, as agreed upon by the Buyer and Seller's Representative, or as
determined by the independent accounting firm, are hereinafter referred to as
the "Final Closing Balance Sheet" and the "Final Purchase Price Adjustments,"
respectively.

                  (c) The Purchase Price will be adjusted as follows:

                  (i) The Purchase Price will be decreased, dollar for dollar,
by the amount which is the greatest of: (1) the amount by which the Closing Net
Worth (as hereinafter defined) is less than $1,841,354, (2) the amount by which
the Closing Net Working Capital (as hereinafter defined) is less than
$1,736,655, (3) the amount of Excess Liabilities (as hereinafter defined) and
(4) the amount of Current Ratio Excess Liabilities (as hereinafter defined); and

                  (ii) [deleted]

                  (d) As used herein, (i) "Closing Net Worth" shall mean the
difference between the Assets (excluding goodwill) and the Assumed Liabilities
as set forth on the Final Closing Balance Sheet, as calculated in accordance
with the provisions of Schedule 2.7 attached hereto, (ii) "Closing Net Working
Capital" shall mean the difference between the Assets (excluding goodwill,
property and equipment) and the Assumed Liabilities as set forth on the Final
Closing Balance Sheet, as calculated in accordance with the provisions of
Schedule 2.7 attached hereto, (iii) "Excess Liabilities" shall mean any
Liability or group of related Liabilities included in the Assumed Liabilities as
set forth on the Final Closing Balance Sheet (other than the Pre-petition
Liabilities), which in the aggregate is in excess of 38 days cost of goods sold
determined on the basis of the 12 months of sales prior to the Closing Date and
calculated in a manner consistent with the calculation set forth on Schedule 2.7
hereto and (iv) "Current Ratio Excess Liabilities" shall mean the amount by
which the Assumed Liabilities set forth on the Final Closing Balance Sheet
exceed the quotient obtained by dividing the Assets set forth on the Final
Closing Balance Sheet (excluding goodwill, property and equipment) by 1.149, as
calculated in accordance with the provisions of Schedule 2.7 attached hereto.

                  (e) Promptly following the determination of the Final Purchase
Price Adjustments, the Buyer shall deduct from the Escrowed Consideration and
retain for itself the amount, if any, of any decrease in the Purchase Price and
continue to hold the remaining balance in accordance with Section 2.5 (b) above.
If the amount of the decrease in the Purchase Price exceeds the amount of the
Escrowed Consideration, the Buyer shall retain the entire Escrowed Consideration
for itself and the Seller shall promptly pay to the Buyer the amount of such
shortfall.

                                       10
<PAGE>   11

                  2.8 Allocation of Purchase Price. The parties agree to
allocate the Purchase Price (as adjusted pursuant to Section 2.7) and the
Assumed Liabilities among the respective Assets and Assumed Liabilities in
accordance with an allocation schedule to be prepared by the Buyer, which
allocation schedule shall be prepared on a basis which is consistent with the
Final Closing Balance Sheet and the applicable requirements, including Section
1060, of the Code. The parties will each report the federal, state and local and
other Tax consequences of the purchase and sale contemplated hereby (including
the filing of all applicable Internal Revenue Service forms) in a manner
consistent with such allocation.

                                    ARTICLE 3

                    REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller and each Member hereby makes, jointly and severally, as of the
date hereof and as of the Closing Date, the following representations and
warranties to Buyer; provided, however, that for each Member other than the
Officers, such representations are only made to the best of their knowledge.

         3.1  Organization; Authorization; Etc.

                  (a) Seller is a limited liability company, duly organized and
validly existing and in good standing under the laws of the State of Tennessee.
Seller (i) has all requisite power and authority to own all of its properties
and assets and to carry on the Business as it is now being conducted, and (ii)
is in good standing, and is duly licensed, authorized or qualified to transact
business in each jurisdiction in which the ownership or lease of real property
or the conduct of the Business requires it to be so qualified, except where the
failure to be in good standing or to be duly licensed, authorized or qualified
to transact business, would not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect. Seller has heretofore delivered
or made available to Buyer complete and correct copies of its organizational
documents as in effect of the date hereof. Each jurisdiction in which Seller is
qualified to do business as a foreign corporation is set forth in Schedule
3.1.(a).

                  (b) Each of the Members has full power, capacity and authority
to execute and deliver this Agreement and each of the Ancillary Agreements to
which he or she may be a party and to perform his or her obligations hereunder
and thereunder. This Agreement has been duly executed and delivered by and,
assuming the due execution and delivery thereof by Buyer, is (and, upon the
execution and delivery thereof, each of the Ancillary Agreements to which each
Member may be a party will be) the legal, valid and binding obligation of each
of the Members and, is (and will be) enforceable against each of the Members in
accordance with its terms, except that enforceability may be limited by the
effect of (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws relating to or affecting the rights of
creditors or (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).

                  (c) The execution, delivery and performance by Seller of this
Agreement and

                                       11
<PAGE>   12

each of the Ancillary Agreements to which it may be a party and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
the Members of Seller, and no additional proceedings (corporate or otherwise) on
the part of any of the Members or Seller are necessary to authorize the
execution, delivery and performance hereof or thereof and the consummation of
the transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by and, assuming the due execution and delivery thereof
by Buyer, is (and, upon the execution and delivery thereof, each of the
Ancillary Agreements to which Seller may be a party will be) the legal, valid
and binding obligation of Seller and, is (and will be) enforceable against
Seller in accordance with its terms, except that enforceability may be limited
by the effect of (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws relating to or affecting the rights
of creditors or (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).

                  (d) Except as set forth in Schedule 3.1(d), the execution and
delivery of this Agreement and the Ancillary Agreements by Seller and the
Members, to the extent each may be a party thereto, and the consummation by
Seller and the Members of the transactions contemplated hereby and thereby will
not (i) violate any provision of the certificate of formation or operating
agreement or similar organizational instrument of Seller, (ii) result in a
violation of any provision of, or constitute a default (with or without notice
or lapse of time) under, or give rise to a right of termination, cancellation or
acceleration of (or entitle any party to accelerate whether after the giving of
notice or lapse of time or both) any obligation under, or result in the
imposition of any lien upon or the creation of a security interest in any of
Seller's assets or properties pursuant to, any agreement (whether written or
oral), contract, commitment, note, bond, debt instrument, mortgage, indenture,
lien, lease agreement or other instrument, or any judgment, injunction, order or
decree to which Seller or any of the Members is a party or by which any of them
or their respective properties are or is bound, or (iii) violate or conflict
with any United States (federal, state or local) or foreign (federal, provincial
or local) law, statute, ordinance, rule or regulation ("Law") or any Court Order
applicable to Seller or any of the Members or their respective properties.

                  (e) Except as set forth in Schedule 3.1(e), no consent,
approval, order or authorization of, or registration, declaration or filing with
(i) any governmental authority or (ii) any individual, corporation or other
entity (including any holder of Seller's securities) is required by or with
respect to Seller or any Member in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.

         3.2      Capitalization; Structure; No Investments.

                  (a) The Members own all of the membership and equity interests
in and of the Seller, and there are no securities of Seller convertible into or
exchangeable for membership or equity interests or voting securities of Seller
or any options, warrants or other rights to acquire from Seller, or obligations
of Seller to issue, any membership or equity interests, voting securities or
securities convertible into or exchangeable for membership or equity interests

                                       12
<PAGE>   13

or voting securities of Seller. Schedule 3.2(a) sets forth the respective
membership interests of each Member.

                  (b) Seller has no subsidiaries nor any equity investment of
any kind in any corporation, partnership, limited liability company, joint
venture or other legal entity.

         3.3 Financial Statements. Schedule 3.3A sets forth a true, correct and
complete copy of the Financial Statements. The Financial Statements were
prepared in accordance with (i) GAAP consistently applied for all periods
presented (except as otherwise expressly set forth in Schedule 3.3A and
identified as an exception thereto) and (ii) the books of account and other
financial records of the Seller. The Financial Statements present fairly the
financial condition, Members' equity and results of operations of Seller as at
the respective dates of and for the periods referred to therein. Schedule 3.3B
sets forth a true, correct and complete copy of the Pre-petition Liabilities and
all of such Liabilities are included in the March 31 Balance Sheet.

         3.4  Title to Properties; Encumbrances.

                  (a) Seller has good, valid and marketable title to, or holds
by valid and existing lease or license, free and clear of all Encumbrances, all
of the Assets and all other real or personal property set forth on the March 31,
2000 Balance Sheet or currently used by it in, or reasonably necessary to enable
it to carry on, the Business as presently conducted, except for Permitted
Encumbrances and except for properties disposed of in the ordinary course of
business consistent with past practice.

                  (b) The Assets comprise all assets and services required for
the continued conduct of the Business as now being conducted. The Assets, taken
as a whole, constitute all the properties and assets relating to or used or held
for use in connection with the Business during the past twelve months (except
Inventory sold, cash disposed of, accounts receivable collected, prepaid
expenses realized, Contracts fully performed, properties or assets replaced by
equivalent or superior properties or assets, in each case in the ordinary course
of business, and the Excluded Assets). Except for Excluded Assets, there are no
assets or properties used in the operation of the Business and owned by any
Person other than the Seller. The Assets are in all material respects adequate
for the purposes for which such assets are currently used or are held for use,
and are in reasonably good repair and operating condition (subject to normal
wear and tear) and, to the knowledge of the Seller, there are no facts or
conditions affecting the Assets which could, individually or in the aggregate,
interfere in any material respect with the use, occupancy or operation thereof
as currently used, occupied or operated, or their adequacy for such use.

         3.5  Intellectual Property.

                  (a) Seller owns, or has a valid license to use, all of the
Intellectual Property, if any, which are currently used by it in, and are
reasonably necessary to enable it to carry on, its business as presently
conducted. Schedule 3.5 lists (i) all material Intellectual Property, including
jurisdictions in which each such material Intellectual Property right has been
issued or registered, and (ii) all material licenses, sublicenses and other
agreements, pursuant to which Seller has

                                       13
<PAGE>   14

received or given a right to use such Intellectual Property right from or to a
third party.

                (b) Except as disclosed in Schedule 3.5, as to all Intellectual
Property set forth therein: (i) such Intellectual Property is owned, licensed or
leased by the Seller, free and clear of any Encumbrance, (ii) to the knowledge
of the Seller, no Action has been made or asserted or are pending against the
Seller based upon or challenging or seeking to deny or restrict the use by the
Seller of any of such Intellectual Property; (iii) to the knowledge of the
Seller, no Person is using any patents, copyrights, trademarks, service marks,
trade names, trade secrets or similar property that infringe upon such
Intellectual Property or upon the rights of the Seller therein; (iv) the Seller
has not granted any license or other right currently outstanding to any other
Person WITH respect to such Intellectual Property; and (v) the consummation of
the transactions contemplated by this Agreement will not result in the
termination or material impairment of any of such Intellectual Property.

                (c) The Seller has delivered to the Buyer correct and complete
copies of all licenses for all Intellectual Property set forth in Schedule 3.5
as to which the Seller is a licensor or licensee. Each such license is legal,
valid, binding, enforceable and in full force and effect in all material
respects with respect to the Seller and, to the knowledge of the Seller, with
respect to all other parties thereto and is the entire agreement between the
respective licenser and licensee with respect to such license and no Default
currently exists thereunder.

         3.6 Labor Matters. Except as set forth in Schedule 3.6, as of the date
hereof, (i) Seller is not involved in or, to Seller's knowledge, threatened with
any labor dispute, arbitration, lawsuit or administrative proceeding relating to
labor matters involving the employees of Seller (excluding routine workers'
compensation claims) that would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on Seller; (ii) Seller is not a
party to, bound by, or charged with any violation of, any collective bargaining
agreement, contract or other understanding with a labor union or labor
organization; (iii) Seller is not engaged in any unfair labor practices, or been
charged or threatened with any charges of unfair labor practices; (iv) to the
knowledge of Seller, there is no activity involving any labor union or similar
organization of Seller seeking representation of any group of employees of
Seller, to certify a collective bargaining unit or engaging in any other
organizational activity and there are no strikes, shutdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any group of employees of
Seller; (v) no executive or key employee of Seller has indicated that he or she
is considering terminating his or her employment; (vi) no employee or former
employee of Seller is entitled to any severance payment or similar payment,
either by statute or by contract, upon the termination of his or her employment;
(vii) Seller is currently in compliance with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of Taxes and
other sums as required by the appropriate Governmental Authority and has
withheld and paid to the appropriate Governmental Authority or is holding for
payment not yet due to such Governmental Authority all amounts required to be
withheld from such employees of Seller and is not liable for any arrears of
wages, Taxes, penalties or other sums for failure to comply with any of the
foregoing; (viii) Seller has paid in full to all employees of Seller or
adequately accrued for in accordance with GAAP consistently applied all wages,
salaries, commissions, bonuses (to the extent declared or earned), benefits and
other compensation due to or on behalf of such

                                       14
<PAGE>   15

employees; (ix) there is no material claim with respect to payment of wages,
salary or overtime pay that has been asserted or is now pending or, to the
knowledge of the Seller, threatened before any Governmental Authority with
respect to any persons currently or formerly employed by Seller; and (x) there
is no charge of discrimination or unlawful conduct in employment or employment
practices, for any reason, including, without limitation, age, gender, race,
religion or other legally protected category, or sexual harassment, which has
been asserted in the past 12 months or is now pending or, to the knowledge of
the Seller, threatened in writing.

         3.7 Customers. Schedule 3.7 hereto sets forth a list of Seller's ten
largest customers in order of dollar volume of sales for the seven month period
ending March 31, 2000, showing the approximate total sales in dollars by Seller
to each such customer during each such period. To the best of its knowledge,
Seller is not engaged in any disputes with any such customers except for minor
bill adjustments and similar disputes in the ordinary course of business and
Seller has no knowledge of any facts that are reasonably likely to result in a
material adverse change in the business relationship of Seller with such
customers, nor has Seller received any written notice to the effect that any
material adverse change may occur in the business relationship of Seller with
any such customers.

         3.8 Compliance with Regulations. Except as set forth in Schedule 3.8,
to Seller's knowledge, the conduct of the business of Seller complies in all
material respects with, and Seller is not currently in violation or breach of,
all applicable Regulations and all Court Orders applicable thereto.

         3.9  Material Contracts.

                  (a) Schedule 3.9(a) identifies each of the following Contracts
to which Seller is a party or otherwise is bound:

                  (i) all Contracts evidencing indebtedness for money borrowed,
including guarantees;

                  (ii) all Contracts relating to employment, compensation of or
benefits for officers, employees or consultants of Seller;

                  (iii) all noncancellable Contracts for the purchase or supply
of materials, supplies, services, merchandise or equipment involving the future
payment to, or sale or provision of goods or services by, Seller of more than
$10,000;

                  (iv) any Contract not entered into in the ordinary course of
the Business of Seller;

                  (v) any Contract containing restrictions on the operations of
Seller or any restrictions on its ability to compete in any geographic region or
in any line of business;

                  (vi) any lease of real property and all personal property
leases calling for annual lease payments after the date hereof in excess of
$10,000;

                                       15
<PAGE>   16

                  (vii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, consignment, sales promotion, marketing and
advertising Contracts;

                  (viii) all Contracts with any Governmental Authority;

                  (ix) all Contracts pursuant to which Seller is appointed or
designated as the exclusive distributor of any product or services;

                  (x) all Contracts between the Seller and any Member or any
Affiliate of any Member, to the extent such Contract will remain in force and
effect following the Closing hereunder; and

                  (xi) each and every other Contract which is material to the
financial condition, earnings, operations or business of Seller.

                   The Contracts identified in Schedule 3.9(a) are collectively
referred to herein as the " Material Contracts".

                  (b) Except as expressly set forth and identified in Schedule
         3.9(a):

                  (i) Seller has delivered to Buyer true, correct and complete
copies of all Material Contracts;

                  (ii) Neither the execution, delivery and performance of this
Agreement or the Ancillary Agreements nor the consummation of the transactions
contemplated hereby or thereby will conflict in any respect with or result in a
breach of, or give rise to a right of termination of, or accelerate the
performance required by, any terms of any Material Contracts or constitute a
Default thereunder; and

                  (iii) Each of the Material Contracts is valid and existing in
full force and effect; Seller has, in all material respects, performed all
obligations required to be performed by it under and is not in Default in any
material respect under, in material conflict in any respect with, or in material
violation in any respect of, any of the Material Contracts; and Seller has not
received notice of noncompliance or alleged noncompliance with any of the
Material Contracts; to the knowledge of the Seller, each other party to any
Material Contract has, in all material respects, performed all obligations
required to be performed by it under, and is not in Default in any material
respect under, in material conflict in any respect with, or in material
violation in any respect of, any of the Material Contracts.

         3.10 Taxes. Seller has properly prepared and filed all Tax returns
required to be filed by it in connection with its business, operations and
assets and all Taxes due thereunder have been timely paid. True and complete
copies of all such Tax returns for Seller have been delivered to the Buyer.
Except as set forth on Schedule 3.10, Seller does not have any unpaid liability
for any Taxes whatsoever that arose or otherwise was incurred in connection with
the Business. No

                                       16
<PAGE>   17

proposed Taxes, additions to Tax, interest or penalties have been asserted or
are pending against Seller and no such matters are under discussion with the
applicable Taxing authorities. There are no agreements, waivers or other
arrangements providing for extensions of time with respect to the assessment or
collection of any unpaid Tax against Seller. Seller has withheld or otherwise
collected all Taxes or amounts it was required to withhold or collect under any
applicable law, including, without limitation any amounts required to be
withheld or collected with respect to employee income Tax withholding, social
security, unemployment compensation, sales or use Taxes or workmen's
compensation, and all such amounts have been timely remitted to the proper
authorities.

         3.11  Employee Benefit Matters.

                  (a) Except as set forth in Schedule 3.11, Seller does not
maintain, sponsor or contribute to any plans for pension, profit-sharing,
deferred compensation, severance pay, bonuses, stock options, stock purchases,
or any other retirement or deferred benefit, or for any health, accident or
other welfare plan, or any other employee or retired employee benefits or
incentive plan, program, contract, understanding or arrangement in which any of
Seller's employees, former employees, retired employees or consultants (or
beneficiaries of any of the foregoing) is entitled to participate. The plans,
programs, contracts, understandings and arrangements listed in Schedule 3.11 are
hereinafter referred to as the "Employee Plans." Seller has supplied Buyer with
complete and accurate copies of each such Employee Plan.

                (b) None of the Employee Plans is a Multiemployer Plan (within
the meaning of Section 3(37) of ERISA) or a single employer pension plan (within
the meaning of Section 4001(a)(15) of ERISA) for which Seller could incur
liability under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). None
of the Employee Plans provides for the payment of separation, severance,
termination or similar type benefits to any Person or obligates Seller to pay
separation, severance, termination or similar type benefits solely as a result
of any transaction contemplated by this Agreement or as a result of a "change in
control", within the meaning of such term under Section 280G of the Code.

                (c) Each Employee Plan is operated in all material respects in
accordance with the requirements of all Regulations, including, without
limitation, ERISA and the Code, and, to the knowledge of the Seller, all persons
who participate in the operation of such Employee Plans and all Employee Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have acted in all
material respects in accordance with the provisions of all Regulations,
including, without limitation, ERISA and the Code. Seller has performed all
material obligations required to be performed by it under, is not in any
material respect in default under or in violation of, and has no knowledge of
any default or violation by any party to any Employee Plan. No legal action,
suit or claim is pending or, to the knowledge of the Seller, threatened with
respect to any Employee Plan (other than claims for benefits in the ordinary
course) and, to the knowledge of the Seller, no fact or event exists that could
give rise to any such action, suit or claim.

                (d) To the best of Seller's knowledge, each Employee Plan which
is intended to be qualified under Section 401(a) of the Code or Section 401(k)
of the Code has received a favorable determination letter from the IRS that it
is so qualified and each trust established in

                                       17
<PAGE>   18

connection with any Employee Plan which is intended to be exempt from federal
income Taxation under Section 501(a) of the Code is so exempt and, to the
knowledge of the Seller, no fact or event has occurred since the date of such
determination letter from the IRS to adversely affect the qualified status of
any such Employee Plan or the exempt status of any such trust. To the best of
Seller's knowledge, each trust maintained or contributed to by Seller which is
intended to be qualified as a voluntary employees' beneficiary association and
which is intended to be exempt from federal income Taxation under Section
501(c)(9) of the Code has received a favorable determination letter from the IRS
that it is so qualified and so exempt, and, to the knowledge of the Seller, no
fact or event has occurred since the date of such determination by the IRS to
adversely affect such qualified or exempt status.

                (e) To the knowledge of the Seller, there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Employee Plan. To the knowledge of the Seller, the
Seller has not incurred any liability for any excise Tax arising under Section
4971, 4972, 4980 or 4980B of the Code and, to the knowledge of the Seller, no
fact or event exists which could give rise to any such liability. The Seller has
not incurred any material liability under, arising out of or by operation of
Title IV of ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course), including, without
limitation, any material liability in connection with the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or the
withdrawal from any Multiemployer Plan or Multiple Employer Plan; and, to the
knowledge of the Seller, no fact or event exists which could give rise to any
such liability. No complete or partial termination has occurred within the five
years preceding the date hereof with respect to any Employee Plan subject to
Title IV of ERISA. No reportable event (within the meaning of Section 4043 of
ERISA) has occurred or is expected to occur with respect to any Employee Plan
subject to Title IV of ERISA. No Employee Plan had an accumulated funding
deficiency (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived, as of the most recently ended plan year of such
Employee Plan. None of the assets of Seller is the subject of any lien arising
under Section 302(f) of ERISA or Section 412(n) of the Code; Seller has not been
required to post any security under Section 307 of ERISA or Section 401(a)(29)
of the Code; and, to the knowledge of the Seller, no fact or event exists which
could give rise to any such lien or requirement to post any such security.

                (f) All employer and employee contributions, premiums or
payments required to be made with respect to any Employee Plan have been made on
or before their due dates. All such contributions have been fully deducted for
income Tax purposes and no such deduction has been challenged or disallowed by
any Governmental Authority and, to the knowledge of the Seller, no fact or event
exists which could give rise to any such challenge or disallowance. As of the
date hereof and as of the Closing Date, no Employee Plan which is subject to
Title IV of ERISA has or will have an "unfunded benefit liability" (within the
meaning of Section 4001(a)(18) of ERISA).

         3.12 No Material Adverse Change. Except as set forth in Schedule 3.12,
since March 31, 2000, there has not been any event, occurrence or circumstance
that has had, individually or in the aggregate, a Material Adverse Effect on
Seller, or any event, occurrence or circumstance that would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
Seller.

                                       18
<PAGE>   19

         3.13 Brokers, Finders, Etc. Neither Seller nor any of the Members has
employed, or is subject to any claim of, any broker, finder, or similar
consultant or intermediary in connection with the transactions contemplated by
this Agreement which might be entitled to a fee or commission upon the
consummation of the transactions contemplated hereby.

         3.14 Inventory. Except as set forth in Schedule 3.14, all of Seller's
Inventory is located at the distribution center described in the Services
Agreement. Seller has good and marketable title to all of its Inventory, free
and clear of all Encumbrances. Except as set forth in Schedule 3.14, the
Inventory does not include any items held on consignment for others, nor is any
Inventory of Seller held by others on consignment and Seller is not under any
obligation or liability with respect to accepting returns of Inventory or
merchandise in the possession of its customers other than in the ordinary course
of the Business consistent with past practice. All Inventory is of a quantity
and quality which is usable in the ordinary course of the Business consistent
with past practice and within a reasonable period of time and is in good and
merchantable condition in all material respects.

         3.15 Bank Accounts, Etc. Schedule 3.15 sets forth a list of all bank
accounts, safe deposit boxes, and lock boxes of Seller including, with respect
to each such account and lock box, identification of all authorized signatories.

         3.16 Insurance. Schedule 3.16 sets forth a list of all general
liability, product liability, fire, casualty, motor vehicle and other insurance
or bonding maintained by or on behalf of Seller or any of its respective
employees as of the date hereof. All requirements and provisions of all such
policies are being substantially complied with. No notice of cancellation has
been given to or received by Seller with respect to any such insurance policy.
To the knowledge of Seller, no such policies are or will become subject to an
assessment due to any retroactive rate or audit adjustments or coinsurance
arrangements, other than under worker's compensation insurance policies in the
ordinary course of business.

         3.17 Recent Operations. Since March 31, 2000, the Business has been
conducted in all material respects in the ordinary course and consistent with
past practice, and, except as set forth in Schedule 3.17, since March 31, 2000,
the Seller has not:

                  (a) permitted or allowed any of its assets or properties
(whether tangible or intangible) to be subjected to any Encumbrance, other than
Encumbrances that will be released at or prior to the Closing;

                  (b) amended, terminated, canceled or compromised any material
claims or waived any other rights of value in excess of $10,000;

                  (c) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible property), of
or relating to the Business in excess of $10,000, other than the sale of

                                       19
<PAGE>   20

Inventory and used machinery and equipment in the ordinary course of the
Business consistent with past practice;

                  (d) disclosed to a third party any material Intellectual
Property to which, or under which, it has any right or license and which is
confidential to the Business or permitted to lapse any material Intellectual
Property (or any registration thereof or any application relating thereto), to
which, or under which, it has any right or license;

                  (e) (i) granted or proposed any increase, or announced any
increase, in the wages, salaries, compensation, bonuses, incentives, pension or
other benefits payable by it to any of its employees, other than aggregate
increases which do not exceed $250,000, or (ii) established or increased or
promised or proposed to increase any benefits under any Employee Plan, in either
case except as required by law and except for ordinary increases consistent with
the past practice of the Business;

                  (f) made any change in any method of accounting or accounting
practice or policy, other than such changes required by GAAP;

                  (g) made or changed any express or deemed election or settled
or compromised any liability with respect to Taxes or prepaid any Taxes, except
in the ordinary course of the Business consistent with past practice, or as may
be required by any applicable law, rule or regulation;

                  (h) failed to pay any material amount to any creditor which
may cause or result in a Material Adverse Effect upon the Business;

                  (i) redeemed any of its membership interests or declared, made
or paid any dividends or distributions (whether in cash, securities or other
property);

                  (j) made any capital expenditure or commitment for any capital
expenditure in excess of $50,000 individually or $250,000 in the aggregate;

                  (k) merged with, entered into a consolidation with or acquired
(by purchase, merger, consolidation, stock acquisition or otherwise) a
substantial portion of the assets or business of any other Person or any
division or line of business thereof or acquired any material assets other than
in the ordinary course of the Business consistent with past practice;

                  (l) entered into any Contract with any Member or any Affiliate
thereof;

                  (m) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of, any Person in excess of
$10,000 which remains outstanding;

                  (n) materially amended, modified or consented to the
termination of any Material Contract or any of its rights therein;

                                       20
<PAGE>   21

                  (o) suffered any casualty loss or damage with respect to any
of its assets, plant, property or equipment which would have a replacement cost
of more than $100,000, whether or not such losses or damage shall have been
covered by insurance; or

                  (n) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section or granted any options to purchase, rights
of first refusal, rights of first offer or any other similar rights with respect
to any of the actions specified in this Section, except as expressly
contemplated by this Agreement.

         3.18 Suppliers. Listed in Schedule 3.18 are the names and addresses of
all the suppliers from whom the Seller ordered materials, supplies, merchandise
and other goods for the Business and to which Seller paid, or is obligated to
pay, an aggregate purchase price of $25,000 or more during the seven month
period ended on March 31, 2000 and the amount for which each such supplier
invoiced Seller during such period. Except as disclosed in Schedule 3.18, to
Seller's knowledge, none of the suppliers listed in Schedule 3.18 will not sell
materials, supplies, merchandise and other goods to the Buyer at any time after
the Closing Date on the same or similar terms and conditions as those applicable
to Seller, subject to general price increases.

         3.19 Disclosure. No representation or warranty made by Seller in this
Agreement and no statement contained in any Schedule delivered by or on behalf
of Seller pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained herein or therein not misleading.

         3.20 Litigation. Except as set forth on Schedule 3.20, there is no
Action pending or, to Seller's knowledge, threatened against or affecting
Seller, nor is there any judgment, decree, injunction, ruling or order of any
Governmental Authority outstanding against Seller.

         3.21 Absence of Undisclosed Liabilities. Seller has no Liabilities,
except for Liabilities which (i) are disclosed, accrued or reserved against on
the Financial Statements (including the financial statement notes thereto), (ii)
were incurred after March 31, 2000 in the ordinary course of the Business and
consistent with past practice and without violation or breach of any Material
Contract or Regulation, (iii) are disclosed in Schedule 3.21 and expressly
identified therein as a Liability, or (iv) arise under the Contracts in
accordance with the terms thereof (other than Liabilities arising from any
breach or violation by Seller of any of the terms or provisions thereof) .

         3.22 Environmental Laws. To Seller's knowledge, Seller is currently,
and has been in the past, in compliance in all material respects, with all
applicable laws, rules, regulations, common law, ordinances, decrees, orders,
permits, and other binding legal requirements relating to health, safety,
pollution or protection of the environment ("Environmental Laws") and there are
no outstanding allegations or claims by any person or Governmental Authority
concerning Seller's compliance with Environmental Laws. To the knowledge of
Seller, there are no asbestos containing materials or underground storage tanks
located on any properties occupied by Seller

                                       21
<PAGE>   22

         3.23 Manufacturer Transactions. Schedule 3.23 hereto sets forth a true,
correct and complete description of all vendor rebates, refunds, coop
arrangements and other promotional programs offered by manufacturers or vendors
in which Seller is a participant and under which Seller currently expects to
receive, or be entitled to receive, payments or credits of $50,000 or more (for
any single manufacturer or vendor) for the seven month period ending March 31,
2000.

         3.24 Accounts Receivable. To the best of Seller's knowledge, all of the
accounts and notes receivable of Seller set forth on the Financial Statements
(net of the applicable reserves reflected therein): (i) represent sales actually
made in the ordinary course of business for goods or services delivered or
rendered to unaffiliated customers in bona fide arm's length transactions, (ii)
except as set forth on Schedule 3.24, constitute valid claims, and (iii) to
Seller's knowledge, are good and collectible, in each case at the aggregate
recorded amounts thereof without valid right of recourse, defense, deduction,
return of goods, counterclaim, or offset and, as of the dates thereof, have been
or will be collected in the ordinary course of business and consistent with past
experience.

         3.25 Restrictions on Business Activities. Except for this Agreement,
there is no agreement, judgment, injunction, order or decree binding upon Seller
which has or could reasonably be expected to have (after giving effect to the
consummation of the transactions contemplated hereby) the effect of prohibiting
or impairing the Business.

         3.26  Real Property.  The Seller does not own any real property.

         3.27 Illegal Payments. To the knowledge of the Seller, neither Seller
nor any of its officers or agents has made any illegal payments to, or provided
any illegal benefit or inducement for, any supplier, customer or other person,
in an attempt to influence any such person to take or to refrain from taking any
action relating to Seller.

                                    ARTICLE 4

                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer hereby represents and warrants to Seller and the Members that the
statements contained in this Article 4 are true and correct as of the date
hereof and as of the Closing Date.

         4.1  Organization; Authorization; Etc.

                  (a) Buyer is a corporation, duly organized and validly
existing and in good standing under the laws of the State of Delaware. Buyer (i)
has all requisite power and authority to own all of its properties and assets
and to carry on its business as it is now being conducted, and (ii) is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be in good standing or to be duly licensed, authorized or qualified to
transact business, would not reasonably be expected to,

                                       22
<PAGE>   23

individually or in the aggregate, have a Material Adverse Effect. Buyer is an
indirect wholly-owned subsidiary of Daisytek International Corporation.

                  (b) The execution, delivery and performance by Buyer of this
Agreement and each of the Ancillary Agreements to which it may be a party and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors and stockholders of Buyer, and no
additional proceedings (corporate or otherwise) on the part of Buyer are
necessary to authorize the execution, delivery and performance hereof or thereof
and the consummation of the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by and, assuming the due
execution and delivery thereof by Seller, is (and, upon the execution and
delivery thereof, each of the Ancillary Agreements to which Buyer may be a party
will be) the legal, valid and binding obligation of Buyer and, is (and will be)
enforceable against Buyer in accordance with its terms, except that
enforceability may be limited by the effect of (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws relating
to or affecting the rights of creditors or (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).

                  (c) The execution and delivery of this Agreement and the
Ancillary Agreements by Buyer, and the consummation by Buyer of the transactions
contemplated hereby and thereby will not (i) violate any provision of the
certificate of incorporation or bylaws or similar organizational instrument of
Buyer, (ii) result in a violation of any provision of, or constitute a default
(with or without notice or lapse of time) under, or give rise to a right of
termination, cancellation or acceleration of (or entitle any party to accelerate
whether after the giving of notice or lapse of time or both) any obligation
under, or result in the imposition of any lien upon or the creation of a
security interest in any of Buyer's assets or properties pursuant to, any
agreement (whether written or oral), contract, commitment, note, bond, debt
instrument, mortgage, indenture, lien, lease agreement or other instrument, or
any judgment, injunction, order or decree to which Buyer is a party or by which
it or its properties are or is bound, or (iii) violate or conflict with any
Regulation or any Court Order applicable to Buyer or its properties.

                  (d) No consent, approval, order or authorization of, or
registration, declaration or filing with (i) any governmental authority or (ii)
any individual, corporation or other entity (including any holder of Buyer's
securities) is required by or with respect to Buyer in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.

         4.2 Litigation; Orders. There is no Action pending nor, to the
knowledge of Buyer, is any Action threatened against or involving Buyer or
affecting any properties or assets of Buyer, which, in any such case, could
reasonably be expected to (a) materially prevent or delay the ability of Buyer
to consummate the transactions contemplated hereby, or (b) individually or in
the aggregate, have a Material Adverse Effect on Buyer. Buyer is not subject to
any Order which could reasonably be expected to materially prevent or delay the
ability of Buyer to consummate the transactions contemplated hereby or,
individually or in the aggregate, have a Material Adverse Effect on Buyer.

                                       23
<PAGE>   24

         4.3 Brokers, Finders, Etc. Buyer has not employed, nor is subject to
any claim of, any broker, finder, or similar consultant or intermediary in
connection with the transactions contemplated by this Agreement which might be
entitled to a fee or commission from Buyer upon the consummation of the
transactions contemplated hereby.

         4.4 Financial Ability. Buyer has the financial ability to consummate
the transactions contemplated by this Agreement and the Ancillary Agreements to
which it may be a party.

         4.5 Disclosure. No representation or warranty made by the Buyer in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained herein or therein not misleading.

                                    ARTICLE 5

                ACTIONS BY SELLER AND BUYER PRIOR TO THE CLOSING

         Seller and Buyer, as applicable, covenant and agree, and the Officers
covenant and agree to cause the Seller, to comply with the following for the
period from the date hereof through the Closing Date:

         5.1 Conduct of Business. Seller shall, except as contemplated by this
Agreement, or as consented to by Buyer in writing, operate the Business in the
ordinary course of business and in accordance with past practice and will not
take any action inconsistent with this Agreement, the Ancillary Agreements or
the consummation of the Closing. Without limiting the generality of the
foregoing, Seller shall not, except as specifically contemplated by this
Agreement or as consented to by Buyer in writing:

                  (a) other than in the ordinary course of the Business,
consistent with past practice, incur any indebtedness for borrowed money, or
assume, guarantee, endorse (other than endorsements for deposit or collection in
the ordinary course of business), or otherwise become responsible for
obligations of any other Person;

                  (b) issue or commit to issue any membership interests or any
other securities or any securities convertible into membership interests or any
other securities;

                  (c) except as set forth in Schedule 5.1 (c), pay or incur any
obligation to pay any dividend or distribution in respect if any membership
interest or redeem or incur any obligation to redeem any membership interest;

                  (d) other than in the ordinary course of the Business,
consistent with past practice, mortgage, pledge or otherwise encumber any Assets
(except for Permitted Encumbrances) or sell, transfer, license or otherwise
dispose of any Assets;

                  (e) cancel, release or assign any indebtedness owed to it or
any claims or rights held by it;

                                       24
<PAGE>   25

                  (f) make any investment of a capital nature either by purchase
of stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other Person;

                  (g) modify, amend, supplement or terminate any Material
Contract;

                  (h) enter into or modify any employment Contract (except for
Contracts which are cancelable by Seller without premium, penalty or severance
and upon not more than 30 days prior notice), (ii) pay any compensation to or
for any employee, officer or director other than pursuant to existing employment
arrangements, (iii) pay or agree to pay any bonus, incentive compensation,
service award or other like benefit or (iv) enter into or modify any other
Employee Plan;

                  (i) enter into or modify any Contract with any Member or any
Affiliate of any Member;

                  (j) make any change in any method of accounting or accounting
practice;

                  (k) fail to materially comply with all Regulations and Court
Orders applicable to the Assets and the Business consistent with past practices;

                  (l) fail to use its commercially reasonable efforts to (i)
maintain the Business, (ii) retain the services of its employees so that such
employees will remain available to Buyer on and after the Closing Date (provided
that Seller shall not be required by this Section 5.1(l) to enter into any
employment agreement with any Employee), (iii) maintain existing relationships
with suppliers and customers and others having business dealings with Seller and
(iv) otherwise to preserve the goodwill of the Business so that such
relationships and goodwill will be preserved on and after the Closing Date; or

                  (m) do any other act which would cause any representation or
warranty of Seller in this Agreement to be or become untrue in any material
respect or that is not in the ordinary course of business consistent with past
practice.

         5.2  Full Access.

                  (a) Seller shall provide the Buyer and its officers,
directors, employees, attorneys, accountants, consultants, agents and other
representatives free and full access to, and the right to review and make
extracts from, inspect and appraise during normal business hours, Seller's
premises, properties, assets, records, Contracts and other documents,
instruments and agreements and consult with the officers, directors, employees,
attorneys, accountants, customers, suppliers, vendors, consultants, agents and
other representatives of the Seller for the purpose of conducting such
investigation and appraisal of the Business and the respective operations,
assets, properties and

                                       25
<PAGE>   26

condition (financial or otherwise) of Seller as Buyer
shall desire to conduct, provided that such investigation shall not unreasonably
interfere with the Seller's business operations.

                  (b) The Buyer agrees to comply with and be bound by the terms
of that certain Confidentiality Agreement dated February 4, 2000 which shall
remain in full force and effect in accordance with its terms. In addition,
unless the Closing shall occur prior thereto, neither the Buyer nor any
Affiliate thereof shall, for a period of one year from the date hereof, recruit
or solicit to employ any person currently employed by the Seller.

         5.3 Maintenance of Insurance. The Seller shall maintain in full force
and effect and renew at their respective expiration dates all of the current
insurance policies and binders covering the Business.

         5.4 Standstill. Seller and the Officers shall neither discuss nor
negotiate with nor enter into any letter of intent or agreement with any Person
(other than the Buyer and its respective Affiliates, agents and representatives)
with respect to any direct or indirect sale or disposition of the Assets or any
direct or indirect sale or disposition of substantially all of the Business or
any material part thereof.

         5.5  Authorizations, Notices and Consents.

                  (a) Each party will use its reasonable best efforts to obtain
all authorizations, consents, orders and approvals of all Governmental
Authorities and officials that may be or become necessary for his or its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement and the Ancillary Agreements and will cooperate fully with each
other party hereto in promptly seeking to obtain all such authorizations,
consents, orders and approvals. Each party hereto, to the extent required
thereunder, agrees to make the appropriate filing required under the HSR Act
with respect to the transactions contemplated by this Agreement as promptly as
possible following the execution and delivery hereof and to supply promptly to
the appropriate Governmental Authorities any additional information and
documentary material that may be lawfully requested pursuant to the HSR Act.

                  (b) Each party hereto shall promptly give such notices to
third parties, and use its reasonable best efforts to obtain such third party
consents and estoppel certificates, as it may be required to deliver hereunder
in order to consummate the transactions contemplated herein, including consents
to the assignment of all Material Contracts, and each party hereto shall
cooperate with the other as may be necessary in giving such notices or obtaining
such consents or estoppels, provided, however, no party shall have any
obligation to give any guaranty or other material consideration, or to consent
to any change, modification or amendment to any Material Contract or any other
material agreement, lease, license or other instrument, in connection with the
obtaining of any consent or estoppel.

         5.6  Notice of Developments.  Prior to the Closing:

                  (a) The Seller shall give prompt notice to the Buyer of (i)
any circumstance, change in, or effect on the Business which has a Material
Adverse Effect, (ii) any material

                                       26
<PAGE>   27

development affecting the ability of the Seller to consummate the transactions
contemplated by this Agreement and (iii) all events, circumstances, facts and
occurrences arising subsequent to the date hereof which would result in any
breach of a representation or warranty or covenant of the Seller in this
Agreement or which would have the effect of making any representation or
warranty of the Seller in this Agreement false or misleading in any respect.

                  (b) The Buyer shall give prompt notice to the Seller's
Representative of (i) any material development affecting the ability of Buyer to
consummate the transactions contemplated by this Agreement and (ii) all events,
circumstances, facts and occurrences arising subsequent to the date hereof which
would result in any breach of a representation or warranty or covenant of the
Buyer in this Agreement or which would have the effect of making any
representation or warranty of the Buyer in this Agreement false or misleading in
any respect.

                  (c) Any disclosure made pursuant to the preceding paragraphs
(a) or (b) shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition.

         5.7 Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree, in each case both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder and (iii) to cooperate with each other in connection with the
foregoing.

         5.8. Liability for Transfer Taxes. The Seller shall be responsible for
the timely payment of, and shall indemnify and hold harmless the Buyer against,
all sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance, excise,
recording, license and other similar Taxes and fees ("Transfer Taxes"), arising
out of or in connection with or attributable to the transactions effected
pursuant to this Agreement. The Seller shall prepare and timely file all Tax
returns required to filed in respect of Transfer Taxes (including, without
limitation, all notices required to be given with respect to bulk sales Taxes),
provided that the Buyer shall be permitted to prepare any such Tax returns that
are the primary responsibility of the Buyer under applicable law.

         5.9. Certificates of Tax Authorities. On or before the Closing Date,
the Seller shall provide to the Buyer copies of certificates from the
appropriate Taxing authority stating that no Taxes are due to any state or other
Taxing authority for which the Buyer could have liability to withhold or pay
Taxes with respect to the transfer of the Assets or the Business, provided that
if the Seller shall fail to provide such certificates, the Buyer shall withhold
or, where appropriate, escrow such amount as necessary based upon the Buyer's
reasonable estimate of the amount of such potential liability, or as determined
by the appropriate Taxing authority, to cover such Taxes until such time as
certificates are provided.

         5.10 Physical Inventory. Prior to the Closing Date, Buyer and Seller
shall conduct a

                                       27
<PAGE>   28

complete physical count of Seller's Inventory. Each party shall bear its own
costs of such physical count. Prior to such count, and solely for purposes of
consummating the transactions contemplated herein, Buyer and Seller's
Representative shall mutually agree upon a methodology to determine the amount,
if any, of Seller's payable under the Services Agreement and the amount, if any,
of Seller's receivable under the Services Agreement. The amount of such payable
and/or receivable under the Services Agreement, as so determined by Buyer and
Seller's Representative, shall be conclusive solely and exclusively for purposes
of this Agreement and shall be reflected on the Final Closing Balance Sheet.

                                    ARTICLE 6

                       CONDITIONS TO SELLER'S OBLIGATIONS

         The obligation of the Seller to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, or waiver
by the Seller's Representative, prior to or at the Closing, of each of the
following conditions precedent:

         6.1 Representations and Warranties. The representations and warranties
made by the Buyer contained in this Agreement shall be true, correct and
complete in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties were made or given on and
as of such date (other than such representations and warranties as are made as
of another specified date, which shall be true and correct as of such other
specified date).

         6.2 Performance of Obligations. Buyer shall have performed and complied
with all of the covenants, agreements and conditions required by this Agreement
to be performed and complied with by it prior to or on the Closing Date.

         6.3 Compliance Certificate. Buyer shall each have delivered to Seller's
Representative on the Closing Date a certificate signed by an authorized officer
thereof and dated as of the Closing Date to the effect that each of the
representations and warranties of Buyer contained in this Agreement is true,
correct and complete in all material respects as of the Closing Date (other than
such representations and warranties as are made as of another specified date,
which shall be true and correct as of such other specified date), and Buyer has
complied with, fulfilled and performed each of the covenants, terms and
conditions to be complied with, fulfilled or performed by it under this
Agreement on or prior to the Closing Date.

         6.4 Absence of Litigation. No Action shall be threatened or pending on
the Closing Date in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby, and no investigation that might result in
any such Action shall be pending or threatened.

         6.5 Required Consents and Approvals; HSR. Each Governmental Authority
and all other Persons whose approval, consent or waiver may be necessary or
required with respect to the transactions contemplated herein shall have given
or granted such approval, consent or waiver. Specifically, but without limiting
the foregoing, if applicable, any waiting period (and any extension thereof)
under the HSR Act shall have expired or shall have been terminated.

                                       28
<PAGE>   29

         6.6 Resolutions. The Seller's Representative shall have received a true
and complete copy, certified by an officer of the Buyer, of the resolutions duly
adopted by the Board of Directors of the Buyer evidencing its authorization of
the execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby.

         6.7 Legal Opinion. The Seller's Representative shall have received a
legal opinion, dated as of the Closing Date, of counsel to the Buyer,
substantially in the form of Exhibit 6.7 hereto.

         6.8 Additional Agreements. The Buyer shall have executed and delivered
the Employment Agreements and the Non-Compete Agreements.

         6.9 Services Agreement. The Buyer and the Seller's Representative shall
have agreed upon the matters set forth in Section 5.10 above.

         6.10 Closing Payment. The Buyer shall have made the payment of the
Closing Cash Amount as set forth in Section 2.5 above.

                                    ARTICLE 7

                        CONDITIONS TO BUYER'S OBLIGATIONS

         The obligation of the Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, or waiver by the Buyer,
prior to or at the Closing, of each of the following conditions precedent:

         7.1 Representations and Warranties. The representations and warranties
made by Seller contained in this Agreement shall be true, correct and complete
in all material respects on and as of the Closing Date with the same effect as
though such representations and warranties were made or given on and as of such
date (other than such representations and warranties as are made of another
specified date, which shall be true and correct as of such other specified
date).

         7.2 Performance of Obligations. Seller shall have performed and
complied with all of the covenants, agreements and conditions required by this
Agreement to be performed and complied with by it prior to or on the Closing
Date.

         7.3 Compliance Certificate. Seller shall have delivered to Buyer on the
Closing Date a certificate signed by or on behalf of Seller and dated as of the
Closing Date to the effect that each of the representations and warranties of
Seller contained in this Agreement is true, correct and complete in all material
respects as of the Closing Date (other than such representations and warranties
as are made of another specified date, which shall be true and correct as of
such other specified date), and Seller has complied with, fulfilled and
performed each of the covenants, terms and conditions to be complied with,
fulfilled or performed by Seller under this Agreement on or prior to the Closing
Date.

                                       29
<PAGE>   30

         7.4 Absence of Litigation. No Action shall be threatened or pending on
the Closing Date in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby, and no investigation that might result in
any such Action shall be pending or threatened.

         7.5 Required Consents and Approvals; HSR. Each Governmental Authority
and all other Persons whose approval, consent or waiver may be necessary or
required with respect to the transactions contemplated herein shall have given
or granted such approval, consent or waiver. Specifically, but without limiting
the foregoing, if applicable, any waiting period (and any extension thereof)
under the HSR Act shall have expired or shall have been terminated.

         7.6 Good Standing Certificate. The Buyer shall have received a long
form good standing certificate from the Secretary of State (or other similar
official) of Seller's state of incorporation or organization and each other
jurisdiction set forth in Schedule 3.1(a) hereof, in each case dated as of a
date not earlier than five Business Days prior to the Closing Date and
accompanied by "bring down" certificates or similar assurances dated as of the
Closing Date.

         7.7 Change of Name. The Buyer shall have received evidence that Seller
shall have changed its name to a name which does not include "B.A. Pargh" or
"Pargh" or any other name which is identified with the Business.

         7.8 Legal Opinion. The Buyer shall have received a legal opinion, dated
as of the Closing Date, of counsel to the Seller and the Members, substantially
in the form of Exhibit 7.8 hereto.

         7.9 Ancillary Agreements. The Officers shall have executed and
delivered the Employment Agreements and the Seller and the Officers shall have
executed and delivered the Non-compete Agreements.

         7.10 Services Agreement. The Buyer and the Seller's Representative
shall have agreed upon the matters set forth in Section 5.10 above.

         7.11 Bank Debt. The Buyer shall have received a certificate or written
statement of a duly authorized representative of First American National Bank
(the "Bank"), dated as of a date no earlier than five Business Days prior to the
Closing Date, setting forth, with respect to all indebtedness of the Seller to
the Bank: (i) the amount necessary to repay the Bank in full (including all
principal, interest, fees and other charges) together with a per diem amount for
each day thereafter, (ii) the address (or wire transfer account) to which such
payment should be delivered and (iii) the acknowledgment of the Bank that upon
its receipt (and collection) of such amount, all amounts owing to the Bank will
be satisfied and paid in full and all collateral and security given therefor
will be released and such Bank will execute and deliver such further termination
statements and similar releases as the Buyer may reasonably request in order to
evidence the foregoing.

         7.12 Due Diligence. The Buyer shall have completed to its satisfaction
(in its sole and absolute discretion) its due diligence review and analysis of
the Business and the Seller; provided, however, the Buyer shall have a period of
five Business Days from the date hereof in

                                       30
<PAGE>   31

which to notify the Seller's Representative that it is not so satisfied and in
the event the Buyer shall fail or elect not to so notify the Seller's
Representative, this condition (but not any other condition) shall be deemed
satisfied.

         7.13 No Material Adverse Effect. No circumstance, change in, or effect
on the Business (including any labor dispute, loss of material customer or
supplier, shortage, cessation or interruption of inventory shipments or any
similar event, occurrence or circumstance) shall have occurred since March 31,
2000 which in the reasonable judgment of the Buyer has, or would have, a
Material Adverse Effect upon the Business.

         7.14 Board of Directors Approval. The transactions contemplated hereby
shall have been approved by appropriate action of the Board of Directors of
Daisytek International Corporation.

         7.15 Bank Approval. Daisytek International Corporation shall have
received the consent of its lenders to the consummation of the transactions
contemplated herein.

                                    ARTICLE 8

                                     CLOSING

         8.1 Date of Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at 10:00 a.m. local time at the offices
of counsel to the Seller on the first business day following the fulfillment or
waiver of the conditions set forth in Articles 6 and 7 hereof or at such other
time and place as the parties hereto may mutually agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date." The following
transactions shall take place at the Closing, all of which shall be deemed to
have occurred simultaneously and none of which shall be deemed completed unless
and until all of them shall have been completed (or waived in writing by the
parties entitled to performance):

         8.2 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
the following: (i) such bills of sale, assignments or other instruments of
transfer and assignment, in form and substance reasonably satisfactory to Buyer,
as are effective to vest in Buyer title to the Assets; (ii) the Ancillary
Agreements, duly executed by each party thereto other than Buyer; (iii) any
Consents required to be obtained by Seller; (iv) the Seller Closing certificates
set forth in Article 7 hereof; (v) an opinion of counsel to Seller dated as of
the Closing Date, in the form annexed hereto as Exhibit 7.8; and (vi) such other
documents and certificates duly executed as may reasonably be requested by Buyer
prior to the Closing Date.

         8.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller
the following: (i) payment of the Closing Cash Amount; (ii) an Assumption
Agreement in the form annexed hereto as Exhibit 8.3; (iii) the Ancillary
Agreements to which Buyer is a party, duly executed by it; (iv) any Consents
required to be obtained by Buyer; (v) the Buyer Closing certificate set forth in
Article 6 hereof; (vi) an opinion of counsel to Buyer, dated as of the Closing
Date, in the form annexed hereto as Exhibit 6.7; and (vii) such other documents
and certificates duly executed as may reasonably be requested by Seller's
Representative prior to the Closing Date.

                                       31
<PAGE>   32

         8.4 Third Party Consents. Notwithstanding anything to the contrary in
this Agreement, this Agreement shall not constitute an agreement to assign or
transfer any Governmental Approval, Contract, or any claim, right or benefit
arising thereunder or resulting therefrom if an assignment or transfer or an
attempt to make such an assignment or transfer without the consent of a third
party would constitute a breach or violation thereof or affect adversely the
rights of the Buyer or Seller thereunder; and any transfer or assignment to the
Buyer by Seller of any interest therein or thereunder that requires the consent
of a third party shall be made subject to such consent or approval being
obtained. In the event any such consent or approval is not obtained on or prior
to the Closing Date, Seller shall continue to use all reasonable efforts to
obtain any such approval or consent after the Closing Date until such time as
such consent or approval has been obtained, and Seller will cooperate with the
Buyer in any lawful and economically feasible arrangement to provide that the
Buyer shall receive the interest of Seller in the benefits thereunder, including
performance by Seller, as agent, if economically feasible, provided that the
Buyer shall undertake to pay or satisfy the corresponding liabilities for the
enjoyment of such benefit to the extent the Buyer would have been responsible
therefor hereunder if such consent or approval had been obtained. Seller shall
pay and discharge, and shall indemnify and hold the Buyer harmless from and
against, any and all out-of-pocket costs of seeking to obtain or obtaining any
such consent or approval whether before or after the Closing Date. Nothing in
this Section shall be deemed a waiver by the Buyer of its right to have received
on or before the Closing an effective assignment of all of the Assets nor shall
this Section be deemed to constitute an agreement to exclude any assets from the
Assets.

                                    ARTICLE 9

                                 INDEMNIFICATION

         9.1 Indemnification of by Seller and Members. From and after the
Closing, the Seller and the Members shall, jointly and severally, but subject to
the limitations of Section 9.3 hereof, reimburse, indemnify and hold harmless
the Buyer, and its parent corporation, officers, directors, employees, agents,
representatives and successors and assigns from and against and in respect of
each of the following (collectively, the "Buyer's Indemnification Events"):

                  (a) any and all damages, losses, deficiencies, liabilities,
claims, demands, charges, fines, penalties, costs and expenses of every nature
and character whatsoever, including, without limitation, reasonable attorneys'
fees and costs (collectively, the "Losses") that result from, relate to or arise
out of:

                           (i) any misrepresentation or breach of warranty of
the Seller or any Member in this Agreement or any of the Schedules provided
hereunder or any agreement, document, statement, list, certificate or instrument
furnished by or on behalf of the Seller in connection with the negotiation,
execution or performance of this Agreement and the transactions contemplated
herein;

                           (ii) the failure of the Seller to perform any
agreement or covenant on its part required to be performed on or before the
Closing Date (except to the extent waived by Buyer

                                       32
<PAGE>   33

at or prior to the Closing) or the failure of Seller to perform any agreement or
covenant on its part required to be performed after the Closing Date;

                           (iii) any Retained Liabilities or Excluded Assets;

                           (iv) any and all Taxes of Seller, including all Taxes
arising from or related to the operation of the Business prior to the Closing
Date and all Taxes arising from or related to the consummation of the
transactions contemplated herein;

                           (v) any product liability claim with respect to
products sold by Seller prior to the Closing Date; and

                           (vi) the failure of Seller to comply with all
applicable bulk sales laws; and

                  (b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses incident to any of the foregoing or to the successful enforcement of
this Section.

         9.2 Indemnification of Seller and Members. From and after the Closing,
the Buyer shall, subject to the limitations of Section 9.3 hereof, reimburse,
indemnify and hold harmless Seller and the Members and each of their respective
heirs, estate, successors and assigns from and against and in respect of each of
the following (collectively, the "Seller's Indemnification Events"):

                  (a) any and all Losses that result from, relate to or arise
out of:

                           (i) any misrepresentation or breach of warranty of
the Buyer in this Agreement or any of the Schedules provided hereunder or any
agreement, document, statement, list, certificate or instrument furnished by or
on behalf of the Buyer in connection with the negotiation, execution or
performance of this Agreement and the transactions contemplated herein;

                           (ii) the failure of the Buyer to perform any
agreement or covenant on its part required to be performed on or before the
Closing Date (except to the extent waived by Seller's Representative at or prior
to the Closing) or the failure of the Buyer to perform any agreement or covenant
on its part required to be performed after the Closing Date;

                           (iii) any Assumed Liabilities;

                           (iv) any and all Taxes of Buyer, including all Taxes
arising from or related to the operation of the Business after the Closing; and

                           (v) any product liability claim with respect to
products sold by Buyer after the Closing Date; and

                  (b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses incident to any of the foregoing or to the successful enforcement of
this Section.

                                       33
<PAGE>   34

         9.3  Limitations on Losses.

                  (a) In case any event shall occur that would otherwise entitle
any party to assert a claim for indemnification hereunder, no Losses shall be
deemed to have been sustained by such party to the extent of (i) any actual Tax
benefit or savings realized by such party with respect thereto (net of any Tax
cost attributable to the receipt of any indemnification payment hereunder) or
(ii) any proceeds (net of deductibles, Taxes and collection costs) received by
such party from any insurance policies maintained by or on behalf of such party
with respect to losses (net of any increase in insurance premiums attributable
to such recovery). The parties agree to submit a claim under any applicable
insurance policies prior to or promptly following making a request for
indemnification hereunder.

                  (b) The aggregate liability of any party in respect of
indemnification hereunder shall not exceed the Purchase Price, and the maximum
liability of (i) any Member other than the Officers in respect of
indemnification hereunder shall be equal to the cash portion of the Purchase
Price (minus the amount, if any, paid or retained in respect of the guaranteed
Receivables under Section 10.1(b) below), multiplied by such member's percentage
ownership interest in the Seller as set forth in Schedule 3.2(a) hereto and (ii)
any Officer in respect of indemnification hereunder shall be equal to the cash
portion of the Purchase Price (minus the amount, if any, paid or retained in
respect of the guaranteed Receivables under Section 10.1(b) below).

                  (c) The sum of all Losses incurred by the Buyer, or the sum of
all Losses incurred by the Seller and the Members in the aggregate, must exceed,
on a cumulative basis, $150,000 before such parties shall be entitled to
indemnification hereunder; provided, however, once such cumulative Losses exceed
$150,000, such parties shall be entitled to indemnification for all Losses. The
foregoing limitation shall not apply to any indemnification claim relating to
Taxes for the period prior to the Closing Date.

                  (d) No party shall have any liability in respect of
indemnification under Section 9.1(a)(i) or Section 9.2(a)(i) hereunder following
the one year anniversary date of the Closing Date; provided, however, the
representations and warranties of the Seller relating to (i) title to the Assets
shall survive indefinitely and (ii) Taxes and Tax matters shall survive until
the applicable statute of limitations has expired. The limitation set forth in
this paragraph shall not apply to any claim asserted on or before such one year
anniversary.

         9.4 Notice and Procedure. Promptly after receipt by an indemnified
party of notice of the assertion of any claim by a Person not a party to this
Agreement (a "Third Party Claim") with respect to which such indemnified party
expects to make a request for indemnification hereunder, such indemnified party
shall give the indemnifying party written notice describing such claim in
reasonable detail. The indemnifying party shall, upon receipt of such notice, be
entitled to participate in or, at the indemnifying party's option, assume the
defense, appeal or settlement of, such claim with respect to which such
indemnity has been invoked with counsel selected by it and approved by the
indemnified party (such approval not to be unreasonably withheld), and the
indemnified party will fully cooperate with the indemnifying party in connection
therewith; provided, that the indemnified party shall be entitled to employ
separate counsel (at the expense of the indemnifying party) to represent such
indemnified party if counsel selected by the indemnifying

                                       34
<PAGE>   35

party cannot, by reason of any actual or deemed conflict of interest, adequately
represent the interests of the indemnified party. In the event that the
indemnifying party fails to assume the defense, appeal or settlement of such
claim within 20 days after receipt of notice thereof from the indemnified party,
the indemnified party shall have the right to undertake the defense or appeal
of, or settle or compromise, such claim on behalf of and for the account and
risk of the indemnifying party. The indemnifying party shall not settle or
compromise any such claim without the indemnified party's prior written consent,
unless the terms of such settlement or compromise release the indemnified party
from any and all liabilities with respect to such Third Party Claim. Any
indemnifiable claim that is not a Third Party Claim shall be asserted by written
notice to the indemnifying party. If the indemnifying party does not respond to
such notice within 30 days, it shall have no further right to contest the
validity of such claim.

         9.5 Nonexclusive Remedy. The indemnification rights of the parties
hereto under this Agreement shall be subject to, and deemed effective as of, the
Closing of the transactions contemplated hereunder and are independent of, and
in addition to, such other rights and remedies as the parties may have at law or
in equity for any fraud or willful failure to fulfill any agreement or covenant
hereunder on the part of any party hereto, including without limitation, each
party's right of, or to obtain, set-off, specific performance or rescission,
none of which rights or remedies shall be affected or diminished hereby. The
parties expressly agree that each party shall be entitled to rely upon the
representations, warranties and agreements set forth herein notwithstanding (i)
any investigation conducted, or information received (whether pursuant to the
terms hereof or otherwise) prior to the Closing or (ii) the decision of any
party to consummate the transactions described herein.

         9.6 Escrowed Consideration. Subject to the limitations set forth in
Section 9.3 above, and for so long as the Buyer is holding the Escrowed
Consideration in accordance with the provisions hereof, the Buyer shall have the
right to offset any indemnification claim against the Escrowed Consideration
then being held by it; provided, however, that (i) such right of offset shall
not limit or otherwise restrict the indemnification and other rights of Buyer
hereunder or under applicable law, and (ii) Buyer shall give Seller's
Representative not less than ten business days prior notice of such offset, and
if Seller's Representative shall, within such ten day period, provide a notice
of dispute to such offset, then Buyer shall not exercise such right of offset
and shall continue to hold such Escrowed Consideration until such dispute shall
be resolved in accordance with the provisions of Section 2.7(b) hereof. Subject
to the provisions of Section 10.1 below, and provided Buyer has no outstanding
indemnification claims then pending, Buyer shall pay the Escrowed Consideration
to Seller in accordance with Section 2.5 (b) above.

                                   ARTICLE 10

                               FURTHER AGREEMENTS

     10.1 Guarantee of Collectibility of Receivables of Seller.

                    (a) Subject to the limitations set forth in this Section
10.1, Seller and the Members, jointly and severally, guarantee to Buyer that,
except to the extent of the reserve for doubtful accounts shown on the Final
Closing Balance Sheet, all accounts and notes receivable and other

                                       35
<PAGE>   36

receivables reflected on said balance sheet (the "Receivables") will be valid
and legally binding obligations of the persons owing said amounts to Seller and
that the full amount of the Receivables will be paid to Buyer within 120 days of
the Closing Date.

                  (b) If any part of the Receivables has not been paid within
120 days of the Closing Date, then to the extent that such unpaid part of the
Receivables exceeds the reserve for doubtful accounts shown on the Final Closing
Balance Sheet, Buyer shall reassign to Seller such unpaid part of the
Receivables, free and clear of any Encumbrance arising on or after the Closing,
and Buyer shall retain for itself from the Escrowed Consideration an amount
equal to the face amount of such reassigned Receivables, and if there are
insufficient funds therefor remaining in the Escrowed Consideration, Seller
shall, within ten days of demand therefor, pay to Buyer the amount of such
deficiency.

                  (c) Buyer will use its good faith efforts to collect all of
the Receivables in accordance with the same efforts it uses to collect its own
accounts receivable; provided, however, that to the extent the Buyer commences
any legal proceedings or retains or employs any collection agents to collect the
Receivables, all expenses and costs of collection shall be reimbursed by Seller
to the Buyer.

                  (d) During the 120 day following the Closing Date, all monies
received by the Buyer from the account debtors of the Receivables shall be
applied in accordance with the payment instructions or designation of such
account debtors.

                  (e) Notwithstanding the foregoing, the maximum liability of
the Seller and the Members under this Section 10.1 shall not exceed the cash
portion of the Purchase Price.

         10.2  Employment Matters.

                  (a) Seller will use all reasonable efforts to cause the
employees employed in the Business to make available their employment services
to the Buyer. For a period of two years from the Closing Date, neither Seller
nor any Member, nor any of their respective Affiliates, will solicit, offer to
employ or retain the services of or otherwise interfere with the relationship of
Buyer with any Person employed by or otherwise engaged to perform services for
Buyer in connection with the operation of the Business.

                  (b) Effective as of the Closing Date, Buyer shall, in its sole
and absolute discretion, offer employment to those employees selected by Buyer
who are employed by Seller in the operation of the Business at wage or salary
levels, as applicable, and with employee benefits, as determined by Buyer. Those
employees who accept such offers of employment effective as of the Closing Date
shall be referred to herein as the "Transferred Employees". Effective as of the
Closing Date, the Buyer shall assume the liability of Seller in respect of the
Transferred Employees for accrued but unpaid salaries, wages, vacation and sick
pay, and all payroll taxes related thereto, but only to the extent such
liability is accrued and reflected on the Final Closing Balance Sheet. Seller
shall remain responsible for payment of any and all retention, change in control
or other similar compensation or benefits which are or may become payable in
connection with the consummation

                                       36
<PAGE>   37

of the transactions contemplated by this Agreement. Attached hereto as Schedule
10.2(b) is a list of all employees of the Seller and their respective years of
service. To the extent any of such employees shall be "Transferred Employees"
hereunder, Buyer shall credit such employees with the same years of service as
set forth on such Schedule.

                  (c) Neither the Buyer nor any of its Affiliates shall have any
Liability with respect to any employee of Seller or Employee Plan or any claim
thereof or related thereto except to the extent expressly provided in this
Section 10.2 with respect to the Transferred Employees. From and after the
Closing, the Seller shall remain solely responsible for any and all Liabilities
in respect of all of its employees, including the Transferred Employees and
their beneficiaries and dependents, relating to or arising in connection with or
as a result of (i) the employment or the actual or constructive termination of
employment of any such employee by Seller (including, without limitation, in
connection with the consummation of the transactions contemplated by this
Agreement), (ii) the participation in or accrual of benefits or compensation
under, or the failure to participate in or to accrue compensation or benefits
under, any Employee Plan or other employee or retiree benefit or compensation
plan, program, practice, policy, agreement or arrangement of Seller or (iii)
accrued but unpaid salaries, wages, bonuses, incentive compensation, vacation or
sick pay or other compensation or payroll items (including, without limitation,
deferred compensation), except, in any such case, to the extent any such
Liability is specifically assumed by Buyer pursuant to this Section 10.2.

                  (d) [deleted]

                  (e) Buyer shall provide the Transferred Employees and their
dependents and beneficiaries coverage under any welfare and fringe benefit
plans, programs, policies or arrangements established by the Buyer for such
Persons, provided that, from and after the Closing Date, the Seller shall remain
solely responsible for any and all Liabilities to or in respect of the
Transferred Employees or their beneficiaries or dependents relating to or
arising in connection with any claims, whether such claims are asserted before,
on or after the Closing Date, for life, disability, accidental death or
dismemberment, supplemental unemployment compensation, medical, dental,
hospitalization, other health or other welfare or fringe benefits or expense
reimbursements which claims relate to or are based upon an occurrence on or
before the Closing Date (including claims for continuing treatment in respect of
any illness, accident, disability, condition or confinement which occurs or
commences on or before the Closing Date).

                  (f) From and after the Closing Date, the Seller shall remain
solely responsible for any and all Liabilities relating to or arising in
connection with the requirements of section 4980B of the Code to provide
continuation of health care coverage under any Employee Plan in respect of (i)
all of its employees, other than the Transferred Employees and their covered
dependents, and (ii) to the extent related to a qualifying event occurring on or
before the Closing Date, Transferred Employees and their covered dependents.

                  (g) From and after the Closing Date, the Seller shall remain
solely responsible for any and all Liabilities to or in respect of any of its
employees relating to or arising in connection

                                       37
<PAGE>   38

with any and all claims for workers' compensation benefits arising in connection
with any occupational injury or disease occurring or existing on or prior to the
Closing Date.

                  (h) Seller and the Buyer will (i) treat the Buyer as a
"successor employer" and Seller as a "predecessor," within the meaning of
sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to Transferred
Employees who are employed by the Buyer for purposes of Taxes imposed under the
United States Federal Unemployment Tax Act ("FICA") or the United States Federal
Insurance Contributions Act ("FUTA") and (ii) cooperate with each other to
avoid, to the extent possible, the filing of more than one IRS Form W-2 with
respect to each such Transferred Employee for the calendar year within which the
Closing Date occurs.

                  (i) At the request of the Buyer with respect to any particular
applicable Tax law relating to employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care or other
similar Tax other than Taxes imposed under FICA and FUTA, Seller and the Buyer
will (i) treat the Buyer as a successor employer and Seller as a predecessor
employer, within the meaning of the relevant provisions of such Tax law, with
respect to Transferred Employees who are employed by the Buyer and (ii)
cooperate with each other to avoid, to the extent possible, the filing of more
than one individual information reporting form pursuant to each such Tax law
with respect to each such Transferred Employee for the calendar year within
which the Closing Date occurs.

                                   ARTICLE 11
                                  MISCELLANEOUS

         11.1     Termination.

                  (a) This Agreement may be terminated at any time prior to
Closing:

                           (i) by mutual written consent of Buyer and Seller;

                           (ii) by Buyer or Seller if the Closing shall not have
occurred on or before May 31 , 2000, other than due to a breach of this
Agreement by the party seeking to terminate;

                           (iii) by Buyer if there is a material breach of any
representation or warranty set forth in Article 3 or any covenant or agreement
to be complied with or performed by Seller or any Member pursuant to the terms
of this Agreement;

                           (iv) by Buyer if Buyer notifies Seller in writing
prior to May 31, 2000 that it is not satisfied with its diligence review
pursuant to Section 7.10; or

                           (v) by Seller if there is a material breach of any
representation or warranty set forth in Article 4 hereof or of any covenant or
agreement to be complied with or performed by Buyer pursuant to the terms of
this Agreement;

                  (b) In the event of termination of this Agreement:

                                       38
<PAGE>   39

                           (i) The provisions of the Confidentiality Agreement
shall continue in full force and effect; and

                           (ii) No party hereto shall have any liability to any
other party to this Agreement, except for any willful breach of, or knowing
misrepresentation made in, this Agreement occurring prior to the proper
termination of this Agreement.

         11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Seller or any Member without the prior
written consent of Buyer, or by Buyer without the prior written consent of
Seller's representative; provided, however, that Buyer may assign this Agreement
to any wholly-owned subsidiary of Daisytek International Corporation without
such consent of Seller's Representative.

         11.3 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, sent by facsimile
transmission, sent via overnight delivery service or mailed by registered or
certified mail (such notice to be effective upon receipt), as follows:

                  If to a Member, to the address of such Member as set forth on
Annex 1 hereto.

                  If  to Seller:

                  c/o W. Alan Holman
                  245 Great Circle Road
                  Nashville, TN 37228

                  With a copy to:

                  Allen D. Lentz, Esq.
                  Gullett, Sanford, Robinson & Martin, PLLC
                  230 Fourth Avenue, North
                  Nashville, TN 37219

                  If to Buyer:

                  Daisytek International Corporation
                  500 North Central Expressway
                  Plano, Texas 75074
                  Attention:  Jack Kearney
                  Fax:

                  With a copy to:

                  Wolff & Samson, P.A.
                  5 Becker Farm Road
                  Roseland, New Jersey  07068
                  Attn:    Morris Bienenfeld, Esq.
                  Fax:     (973) 740-1407

                                       39
<PAGE>   40

or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.

         11.4 Choice of Law. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
Delaware except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.

         11.5 Descriptive Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

         11.6 Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits and schedules hereto, and the Ancillary Agreements and the
Confidentiality Agreement, constitute the entire agreement among the parties
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the Buyer and the Seller's Representative.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.

         11.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         11.8 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.

         11.9 Expenses. Except as otherwise provided in this Agreement, Buyer
will be liable for its, and the Members will be liable for the Seller's
expenses, incurred in connection with the negotiation, preparation and execution
of this Agreement.

         11.10 Publicity. Except as otherwise required by law, neither party
shall issue any press release or make any public statement or filing regarding
the transactions contemplated hereby without the prior approval of the other
parties, and the parties hereto shall issue a mutually acceptable press release
as soon as practicable after the Closing Date.

                                       40
<PAGE>   41

         11.11 No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, except
as specifically set forth in Article 9 hereof.

                                       41
<PAGE>   42

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.

                                          BAP ACQUISITION CORP.

                                          By:
                                             -------------------------------
                                              Name:
                                              Title:

                                          B.A. PARGH COMPANY, LLC

                                          By:
                                             -------------------------------
                                              Name:
                                              Title:

                                          -----------------------------------
                                          Bernard A. Pargh

                                          -----------------------------------
                                          W. Alan Holman

                                          -----------------------------------
                                          Christopher C. Tate

                                          -----------------------------------
                                          Amanda F. Pargh

                                          -----------------------------------
                                          Franklin A. Pargh

                                          -----------------------------------
                                          Ted Feldman

                                          -----------------------------------
                                          Scott Moskovitz

                                          -----------------------------------
                                          John D. Lentz

<PAGE>   43

<TABLE>

ANNEX I - List of Members
ANNEX II - Officers

<S>                       <C>       <C>
Exhibit 1.1A               -        Form of Employment Agreements
Exhibit 1.1B               -        Form of Non-Compete Agreements
Exhibit 6.7                -        Form of Opinion of Counsel to Buyer
Exhibit 7.8                -        Form of Opinion of Counsel to Seller and Members
Exhibit 8.3                -        Form of Assumption Agreement
Schedule 2.2(d)            -        Excluded Assets
Schedule 2.7               -        Price Adjustment
Schedule 3.1(a)            -        Foreign Qualifications
Schedule 3.1(d)            -        Violations
Schedule 3.1(e)            -        Consents
Schedule 3.2(a)            -        Membership Interests
Schedule 3.5               -        Intellectual Property
Schedule 3.6               -        Labor Matters
Schedule 3.7               -        Customers
Schedule 3.8               -        Compliance with Regulations
Schedule 3.9(a)            -        Material Contracts
Schedule 3.10              -        Taxes
Schedule 3.11              -        Employee Benefits
Schedule 3.12              -        No Material Adverse Change
Schedule 3.14              -        Inventory
Schedule 3.15              -        Bank Accounts
Schedule 3.16              -        Insurance
Schedule 3.17              -        Recent Operations
Schedule 3.18              -        Suppliers
Schedule 3.20              -        Litigation
Schedule 3.21              -        Non-Disclosed Liabilities
Schedule 3.23              -        Manufacturer Transactions
Schedule 3.24              -        Accounts Receivable
Schedule 5.1(c)            -        Conduct of Business
Schedule 10.2(b)           -        Employee Years of Service
</TABLE><PAGE>   1

                                                                   EXHIBIT 10.39

                        --------------------------------

                        --------------------------------

                           SECOND AMENDED AND RESTATED
                          CREDIT AND SECURITY AGREEMENT

                                 BY AND BETWEEN

                               HESKA CORPORATION,
                          DIAMOND ANIMAL HEALTH, INC.,
                            CENTER LABORATORIES, INC.

                                       AND

                        WELLS FARGO BUSINESS CREDIT, INC.

                           Dated as of: JUNE 14, 2000

                        --------------------------------

                        --------------------------------

<PAGE>   2

                          SECOND AMENDED AND RESTATED
                         CREDIT AND SECURITY AGREEMENT

                            Dated as of June 14, 2000

                  HESKA CORPORATION, a Delaware corporation ("Heska"), DIAMOND
ANIMAL HEALTH, INC., an Iowa corporation ("Diamond"), and CENTER LABORATORIES,
INC., a Delaware corporation ("Center") (each of Heska, Diamond, and Center may
be referred to herein individually as a "Borrower" and collectively as the
"Borrowers") and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation
formerly known as Norwest Business Credit, Inc. (the "Lender"), hereby agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:

                  (a) the terms defined in this Article have the meanings
         assigned to them in this Article, and include the plural as well as the
         singular; and

                  (b) all accounting terms not otherwise defined herein have the
         meanings assigned to them in accordance with GAAP.

                  "Accounts" for a Borrower means all of such Borrower's
         accounts, as such term is defined in the UCC, including without
         limitation the aggregate unpaid obligations of customers and other
         account debtors to such Borrower arising out of the sale or lease of
         goods or rendition of services by such Borrower on an open account or
         deferred payment basis.

                  "Advance" means a Revolving Advance, a Term Loan A Advance, or
         a Term Loan B Advance.

                  "Affiliate" or "Affiliates", for any Borrower, means any
         Person controlled by, controlling or under common control with such
         Borrower, including (without limitation) any Subsidiary of such
         Borrower. For purposes of this definition, "control," when used with
         respect to any specified Person, means the power to direct

<PAGE>   3

         the management and policies of such Person, directly or indirectly,
         whether through the ownership of voting securities, by contract or
         otherwise.

                  "Aggregate Borrowing Base" means at any time the lesser of (a)
         the Maximum Line or (b) the sum of each Borrower's Borrowing Base.

                  "Agreement" means this Second Amended and Restated Credit and
         Security Agreement, as amended, supplemented or restated from time to
         time.

                  "Availability" for a Borrower means the difference of (i) such
         Borrower's Borrowing Base and (ii) the sum of (A) the outstanding
         principal balance of such Borrower's Revolving Note and (B) such
         Borrower's L/C Amount.

                  "Banking Day" means a day other than a Saturday, Sunday or
         other day on which banks are generally not open for business in Denver,
         Colorado and Minneapolis, Minnesota.

                  "Book Net Worth" of a Borrower means the aggregate of the
         common and preferred stockholders' equity in such Borrower, determined
         in accordance with GAAP.

                  "Borrowing Base" for a Borrower means, at any time the lesser
         of:

                  (a) the Maximum Line; or

                  (b) subject to change from time to time in the Lender's sole
         discretion:

                           (i)      85% of Eligible Accounts of such Borrower,
                                    plus

                           (ii)     the lesser of (A) the sum of (1) 30% of
                                    Eligible Inventory of such Borrower
                                    consisting of raw materials plus (2) 50% of
                                    Eligible Inventory of such Borrower
                                    consisting of finished goods, or (B) the
                                    difference of (1) $6,000,000 less (2) the
                                    aggregate amount of Advances made to all
                                    Borrowers other than such Borrower in
                                    reliance on Eligible Inventory, less

                           (iii)    for any Borrower other than Heska, the
                                    principal sum of all outstanding Advances
                                    made to Heska in reliance on such Borrower's
                                    Borrowing Base.

                  "Capital Expenditures" for any Borrower for a period means any
         expenditure of money for the purchase or construction of assets, or for
         improvements or additions thereto during such period, which are
         capitalized on such Borrower's balance sheet, whether financed or
         unfinanced.

                                                                            - 3
<PAGE>   4

                  "Cash" means instantly available cash and cash equivalents
         (including, without limitation, investments permitted by Section
         7.4(a)(i) and the investments identified at item (i) on Schedule 7.4).

                  "Center Revolving Note" means the revolving promissory note of
         Center and Heska of even date herewith, in the form attached as Exhibit
         C.

                  "Collateral" means all of each Borrower's Equipment, General
         Intangibles, Inventory, Receivables, Investment Property, all sums on
         deposit in any Collateral Account, and any items in any Lockbox;
         together with (i) all substitutions and replacements for and products
         of any of the foregoing; (ii) proceeds of any and all of the foregoing;
         (iii) in the case of all tangible goods, all accessions; (iv) all
         accessories, attachments, parts, equipment and repairs now or hereafter
         attached or affixed to or used in connection with any tangible goods;
         (v) all warehouse receipts, bills of lading and other documents of
         title now or hereafter covering such goods; and (vi) all amounts on
         deposit in any Special Account. Notwithstanding the foregoing, except
         to the extent necessary for the Lender to fully exercise its rights and
         remedies hereunder with respect to Inventory and other tangible
         collateral of the Borrowers, the term "Collateral" shall not include
         any Intellectual Property License to the extent granting a security
         interest therein is prohibited by or would constitute a default under
         any such license (but only to the extent such prohibition is
         enforceable under applicable law).

                  "Collateral Account" for Diamond has the meaning given in such
         Borrower's Collateral Account Agreement and for Heska and Center has
         the same meaning as the "Lender Account" in the Lockbox Agreement of
         each such Borrower.

                  "Collateral Account Agreement" for Diamond means the
         Collateral Account Agreement dated as of October 16, 1997, by and among
         such Borrower, Norwest Bank Iowa, NA, and the Lender.

                  "Commitment" means the Lender's commitment to make Advances to
         or for the Borrowers' account pursuant to Article II.

                  "Credit Facility" means the credit facility being made
         available to the Borrowers by the Lender pursuant to Article II.

                  "Debt" of any Person means all items of indebtedness or
         liability which in accordance with GAAP would be included in
         determining total liabilities as shown on the liabilities side of a
         balance sheet of that Person as at the date as of which Debt is to be
         determined. For purposes of determining a Person's aggregate Debt at
         any time,

                                                                           - 4
<PAGE>   5

         "Debt" shall also include the aggregate payments required to be made by
         such Person at any time under any lease that is considered a
         capitalized lease under GAAP.

                  "Default" means an event that, with giving of notice or
         passage of time or both, would constitute an Event of Default.

                  "Default Period" means any period of time beginning on the day
         on which a Default or Event of Default has occurred and ending on the
         date the Lender notifies the Borrowers in writing that such Default or
         Event of Default has been cured or waived.

                  "Default Rate" means, (i) with respect to the Revolving
         Advances, an annual rate equal to three percent (3.0%) over the
         Revolving Floating Rate, which rate shall change when and as the
         Revolving Floating Rate changes, and (ii) with respect to the Term
         Advances, an annual rate equal to three percent (3.0%) over the Term
         Floating Rate, which rate shall change when and as the Term Floating
         Rate changes.

                  "Diamond Revolving Note" means the revolving promissory note
         of Diamond and Heska of even date herewith, in the form attached as
         Exhibit B.

                  "Discretionary Reduction" means any of the following that is
         unilaterally adopted by the Lender through the exercise of its sole
         discretion: (a) a reduction (in accordance with subsection (b) of the
         definition of Borrowing Base) in any advance rate under any Borrower's
         Borrowing Base; (b) disqualification (in accordance with subsection
         (xiv) of the definition of Eligible Accounts) of any Account that would
         otherwise have been an Eligible Account; or (c) disqualification (in
         accordance with subsection (x) of the definition of Eligible Inventory)
         of any Inventory that would otherwise have been Eligible Inventory.

                  "Discretionary Reduction Date" means any date on which the
         Aggregate Borrowing Base is at least $3,000,000 less than it would have
         been had no Discretionary Reductions been adopted.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended.

                  "Eligible Accounts" for a Borrower means all unpaid Accounts
         of such Borrower, net of any credits, except the following shall not in
         any event be deemed Eligible Accounts:

                           (i) That portion of Accounts with terms of 60 days or
                  less that are over 60 days past due, and all other Accounts
                  over 90 days past invoice date;

                                                                           - 5
<PAGE>   6

                           (ii) That portion of Accounts that is disputed or
                  subject to a claim of offset or a contra account (up to the
                  amount of such dispute), including that portion of Accounts
                  due from customers who have made prepayments, up to the amount
                  of the prepayment;

                           (iii) That portion of Accounts not yet earned by the
                  final delivery of goods or rendition of services, as
                  applicable, by the Borrower to the customer;

                           (iv) Accounts owed by any unit of government, whether
                  foreign or domestic (provided, however, that there shall be
                  included in Eligible Accounts that portion of Accounts owed by
                  such units of government for which the Borrower has provided
                  evidence satisfactory to the Lender that (A) the Lender has a
                  first priority perfected security interest and (B) such
                  Accounts may be enforced by the Lender directly against such
                  unit of government under all applicable laws);

                           (v) Accounts owed by an account debtor located
                  outside the United States and Canada which are not (A) backed
                  by a bank letter of credit naming the Lender as beneficiary or
                  assigned to the Lender, in the Lender's possession and
                  acceptable to the Lender in all respects, in its reasonable
                  discretion, or (B) covered by a foreign receivables insurance
                  policy acceptable to the Lender in its sole discretion;

                           (vi) Accounts owed by an account debtor that the
                  Borrower has learned or has determined to be insolvent, is the
                  subject of bankruptcy proceedings or has gone out of business;

                           (vii) Accounts owed by a shareholder, Subsidiary,
                  Affiliate, officer or employee of the Borrower;

                           (viii) Accounts not subject to a duly perfected
                  security interest in the Lender's favor or which are subject
                  to any lien, security interest or claim in favor of any
                  Person, other than Permitted Liens;

                           (ix) That portion of Accounts that has been
                  restructured, extended, amended or modified;

                           (x) That portion of Accounts that constitutes
                  advertising, finance charges, service charges or sales or
                  excise taxes;

                           (xi) Accounts owed by an account debtor, regardless
                  of whether otherwise eligible, if 10% or more of the total
                  amount due under Accounts from such debtor is ineligible under
                  clauses (i), (ii) or (ix) above;

                           (xii) That portion of the aggregate Accounts of a
                  single customer owed to all Borrowers in the aggregate that
                  exceeds 15% of all Accounts of all Borrowers in the aggregate;

                                                                           - 6
<PAGE>   7

                           (xiii) That portion of Accounts that arises from
                  research contracts;

                           (xiv) Accounts, or portions thereof, otherwise deemed
                  ineligible by the Lender in its sole discretion.

                  "Eligible Inventory" for a Borrower means all Inventory of
         such Borrower, at the lower of cost or market value as determined in
         accordance with GAAP; provided, however, that the following shall not
         in any event be deemed Eligible Inventory:

                           (i) Inventory that is: in-transit; located at any
                  warehouse, job site or other premises not approved by the
                  Lender in writing; located outside of the states, or
                  localities, as applicable, in which the Lender has filed
                  financing statements to perfect a first priority security
                  interest in such Inventory; covered by any negotiable or
                  non-negotiable warehouse receipt, bill of lading or other
                  document of title; on consignment from or to any Person or
                  subject to any bailment unless such consignee or bailee has
                  executed an agreement with the Lender;

                           (ii) Supplies, packaging or parts Inventory;

                           (iii) Work-in-process Inventory;

                           (iv) Inventory that is damaged, obsolete, or not
                  currently saleable in the normal course of the Borrower's
                  operations;

                           (v) Inventory that the Borrower has returned, has
                  attempted to return, is in the process of returning or intends
                  to return to the vendor thereof;

                           (vi) Inventory that is perishable or live; provided,
                  however, that Inventory with an expiration date shall be
                  deemed Eligible Inventory, up to 90 days before the expiration
                  date of such Inventory;

                           (vii) Inventory that is subject to a security
                  interest in favor of any Person other than the Lender, except
                  for Permitted Liens;

                           (vii) Inventory manufactured by any Borrower pursuant
                  to a license that (A) prohibits the Lender from exercising its
                  rights against such Inventory or (B) restricts such Borrower's
                  ability to grant the Lender the right to sell such Inventory,
                  in either case unless the applicable licensor has agreed in
                  writing to permit the Lender to exercise its rights and
                  remedies against such Inventory;

                           (viii) Sample Inventory; and

                           (ix) Inventory otherwise deemed ineligible by the
                  Lender in its sole discretion.

                  "Environmental Laws" has the meaning specified in Section
         5.12.

                                                                           - 7
<PAGE>   8

                  "Equipment" of a Borrower means all of such Borrower's
         equipment, as such term is defined in the UCC, whether now owned or
         hereafter acquired, including but not limited to all present and future
         machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
         equipment, office and recordkeeping equipment, parts, tools, supplies,
         and including specifically (without limitation) the goods described in
         any equipment schedule or list herewith or hereafter furnished to the
         Lender by any Borrower.

                  "Event of Default" has the meaning specified in Section 8.1.

                  "Existing Revolving Advances" has the meaning specified in
         Section 2.1.

                  "Excess Collateral Base" for a Borrower means the difference
         of (i) such Borrower's Borrowing Base calculated without taking into
         account the limitation imposed by the Maximum Line, and (ii) the sum of
         (A) the outstanding principal balance of such Borrower's Revolving Note
         and (B) such Borrower's L/C Amount.

                  "Expanded Heska Borrowing Base" on a given date means the
         lesser of (a) the Maximum Line or (b) subject to change from time to
         time in the Lender's sole discretion, the sum of (i) Heska's Borrowing
         Base, plus (ii) for each Borrower other than Heska, the lesser of (A)
         such Borrower's Availability as of such date or (B) the amount by which
         the Tangible Net Worth of such Borrower on such date exceeds
         $2,000,000.

                  "Factory Mortgage" means the Combination Mortgage, Assignment
         of Rents and Fixture Financing Statement, executed by the Borrower for
         the benefit of the Lender, dated as of September 8, 1998, concerning
         the Factory Mortgaged Property, as amended by a First Amendment to
         Combination Mortgage, Assignment of Rents and Fixture Financing
         Statement of even date herewith.

                  "Factory Mortgaged Property" means Mortgaged Property as
         defined in the Factory Mortgage.

                  "Farm Mortgage" means the Combination Mortgage, Assignment of
         Rents and Fixture Financing Statement, executed by the Borrower for the
         benefit of the Lender, dated as of September 8, 1998, concerning the
         Farm Mortgaged Property, as amended by a First Amendment to Combination
         Mortgage, Assignment of Rents and Fixture Financing Statement of even
         date herewith.

                  "Farm Mortgaged Property" means Mortgaged Property as defined
         in the Farm Mortgage.

                  "Funding Date" has the meaning given in Section 2.2.

                                                                             - 8
<PAGE>   9

                  "GAAP" means generally accepted accounting principles, applied
         on a basis consistent with the accounting practices applied in the
         financial statements described in Section 5.5.

                  "General Intangibles" of a Borrower means all of such
         Borrower's general intangibles, as such term is defined in the UCC,
         whether now owned or hereafter acquired, including (without limitation)
         all present and future patents, patent applications, copyrights,
         trademarks, trade names, trade secrets, customer or supplier lists and
         contracts, manuals, operating instructions, permits, franchises, the
         right to use the Borrower's name, and the goodwill of the Borrower's
         business.

                  "Guarantors" shall mean Diamond, Center, and any other Person
         who executes a guaranty of all or any part of the Obligations for the
         benefit of the Lender.

                  "Hazardous Substance" has the meaning given in Section 5.12.

                  "Heska Revolving Note" means Heska's revolving promissory note
         of even date herewith, in the form attached as Exhibit A.

                  "Inactive Period" means a period beginning on the date of this
         Agreement and ending on the date that the Lender gives notice to the
         Borrower that an audit has been completed and all outstanding audit
         issues with respect to the Borrowers' Collateral have been resolved to
         the Lender's satisfaction; provided, however, that the Lender shall use
         commercially reasonable efforts to cooperate with the Borrowers in
         resolving such issues in an efficient manner.

                  "Intellectual Property License" means a license owned by any
         Borrower, which license allows such Borrower the use of any patent,
         trademark, trade name, or copyrighted material owned by a Person that
         is not a Borrower.

                  "Inventory" of a Borrower means all of such Borrower's
         inventory, as such term is defined in the UCC, whether now owned or
         hereafter acquired, whether consisting of whole goods, spare parts or
         components, supplies or materials, whether acquired, held or furnished
         for sale, for lease or under service contracts or for manufacture or
         processing, and wherever located.

                  "Investment Property" of a Borrower means all of such
         Borrower's investment property, as such term is defined in the UCC,
         whether now owned or hereafter acquired, including but not limited to
         all securities, security entitlements, securities accounts, commodity
         contracts, commodity accounts, stocks, bonds, mutual fund shares, money
         market shares and U.S. Government securities.

                  "Issuer" means the issuer of any Letter of Credit.

                                                                             - 9
<PAGE>   10

                  "L/C Amount" for a Borrower means the sum of (i) the Aggregate
         Face Amount of any issued and outstanding Letters of Credit for which
         the Borrower is the account party and (ii) the unpaid amount of the
         Obligation of Reimbursement with respect to such Letters of Credit.

                  "L/C Application" means an application and agreement for
         Letters of Credit in a form acceptable to the Issuer and the Lender.

                  "Letter of Credit" has the meaning given it in Section 2.18.

                  "Liquidity" means the sum of Cash plus Excess Collateral Base.

                  "Loan Documents" means this Agreement, the Notes and the
         Security Documents.

                  "Lockbox" for any Borrower has the meaning given in such
         Borrower's Lockbox Agreement.

                  "Lockbox Agreement" for Diamond means the Agreement as to
         Lockbox Service by and among such Borrower, Norwest Bank Iowa, NA, and
         the Lender, dated as of October 16, 1997, and for Heska and Center
         means the Lockbox and Collection Account Agreement among such Borrower,
         Regulus West LLC ("Regulus"), Wells Fargo Bank, NA, and Lender, dated
         as of the date hereof.

                  "Maturity Date" means May 31, 2002.

                  "Maximum Line" means $10,000,000, unless said amount is
         reduced pursuant to Section 2.12, in which event it means the amount to
         which said amount is reduced.

                  "Minimum Interest Charge" has the meaning given in Section
         2.8(d).

                  "Net Income" for a Borrower means, for any period, after-tax
         net income from continuing operations (that is, not including
         extraordinary items, or gains or losses from unusual items or
         discontinued operations), in each case for such Borrower for such
         period, as determined in accordance with GAAP.

                   "Note" means the Revolving Note, the Term Loan A Note, or the
         Term Loan B Note and "Notes" means the Revolving Note, the Term Loan A
         Note, and the Term Loan B Note.

                  "Obligation of Reimbursement" has the meaning given in Section
         2.19.

                                                                            - 10
<PAGE>   11

                  "Obligations" means each and every debt, liability and
         obligation of every type and description which any Borrower may now or
         at any time hereafter owe to the Lender, related to the indebtedness
         arising under this Agreement, the Notes or any other agreement between
         any such Borrower and the Lender, entered into in connection with the
         Credit Facility, including without limitation the Obligation of
         Reimbursement.

                  "Old Credit Documents" means that certain Amended and Restated
         Credit and Security Agreement dated as of September 8, 1998 by and
         between Diamond and the Lender, as amended by a First Amendment to
         Credit and Security Agreement, dated as of August 26, 1999.

                  "Old Revolving Note" means Diamond's revolving promissory note
         dated as of September 8, 1998, payable to the order of the Lender in
         the original principal amount of $2,500,000.

                  "Old Term Loan A Note" means Diamond's promissory note dated
         as of September 8, 1998, payable to the order of the Lender in the
         original principal amount of $1,600,000.

                  "Old Term Loan B Note" means Diamond's promissory note dated
         as of September 8, 1998, payable to the order of the Lender in the
         original principal amount of $2,570,000.

                   "Other Lender" means a lender who is providing equipment
         financing to the Borrower, where a condition of such financing is that
         no other security interests can be granted in such equipment (other
         than nonconsensual liens) while the underlying debt is still
         outstanding.

                  "Permitted Lien" has the meaning given in Section 7.1.

                  "Person" means any individual, corporation, partnership, joint
         venture, limited liability company, association, joint-stock company,
         trust, unincorporated organization or government or any agency or
         political subdivision thereof.

                  "Plan" means an employee benefit plan or other plan maintained
         for the Borrower's employees and covered by Title IV of ERISA.

                  "Premises" means all premises where any Borrower conducts its
         business and has any rights of possession, including (without
         limitation) the premises legally described in Exhibit F attached
         hereto.

                                                                            - 11
<PAGE>   12

                  "Prime Rate" means the rate publicly announced from time to
         time by Wells Fargo Bank, N.A. as its "prime rate" or, if such bank
         ceases to announce a rate so designated, any similar successor rate
         designated by the Lender.

                  "Receivables" of a Borrower means each and every right of such
         Borrower to the payment of money, whether such right to payment now
         exists or hereafter arises, whether such right to payment arises out of
         a sale, lease or other disposition of goods or other property, out of a
         rendering of services, out of a loan, out of the overpayment of taxes
         or other liabilities, or otherwise arises under any contract or
         agreement, whether such right to payment is created, generated or
         earned by such Borrower or by some other person who subsequently
         transfers such person's interest to such Borrower, whether such right
         to payment is or is not already earned by performance, and howsoever
         such right to payment may be evidenced, together with all other rights
         and interests (including all liens and security interests) which such
         Borrower may at any time have by law or agreement against any account
         debtor or other obligor obligated to make any such payment or against
         any property of such account debtor or other obligor; all including but
         not limited to all present and future accounts, contract rights, loans
         and obligations receivable, chattel papers, bonds, notes and other debt
         instruments, tax refunds and rights to payment in the nature of general
         intangibles.

                  "Reportable Event" shall have the meaning assigned to that
         term in Title IV of ERISA.

                  "Revolving Advance" has the meaning given in Section 2.2.

                  "Revolving Floating Rate" means an annual rate equal to the
         sum of the Prime Rate plus the Spread, which annual rate shall change
         when and as the Prime Rate changes.

                  "Revolving Note" means the Heska Revolving Note, the Diamond
         Revolving Note, and the Center Revolving Note.

                   "Security Documents" means this Agreement, each Collateral
         Account Agreement, each Lockbox Agreement, the Factory Mortgage, the
         Farm Mortgage, and any other document delivered to the Lender from time
         to time to secure the Obligations, as the same may hereafter be
         amended, supplemented or restated from time to time.

                  "Security Interest" has the meaning given in Section 3.1.

                                                                            - 12
<PAGE>   13

                  "Special Account" means a specified cash collateral account
         maintained by a financial institution acceptable to the Lender in
         connection with Letters of Credit, as contemplated by Sections 2.20 and
         3.8.

                  "Spread" has the meaning given in Section 2.7.

                  "Subsidiary" of any Borrower means any corporation of which
         more than 50% of the outstanding shares of capital stock having general
         voting power under ordinary circumstances to elect a majority of the
         board of directors of such corporation, irrespective of whether or not
         at the time stock of any other class or classes shall have or might
         have voting power by reason of the happening of any contingency, is at
         the time directly or indirectly owned by such Borrower, by such
         Borrower and one or more other Subsidiaries, or by one or more other
         Subsidiaries.

                  "Tangible Net Worth" of a Borrower means the difference
         between (i) the tangible assets of such Borrower, which, in accordance
         with GAAP are tangible assets, after deducting adequate reserves in
         each case where, in accordance with GAAP, a reserve is proper and (ii)
         all Debt of such Borrower; provided, however, that notwithstanding the
         foregoing in no event shall there be included as such tangible assets
         patents, trademarks, trade names, copyrights, licenses, goodwill,
         receivables from Affiliates, directors, officers or employees, prepaid
         expenses, deposits, deferred charges or treasury stock or any
         securities or Debt of such Borrower or any other securities unless the
         same are readily marketable in the United States of America or entitled
         to be used as a credit against federal income tax liabilities, and any
         other assets designated from time to time by the Lender, in its
         reasonable discretion.

                  "Tax Expense" for a Borrower as of any date means state and
         federal income taxes recorded by such Borrower for the year-to-date
         period ending on such date.

                  "Term Advances" means the Term Loan A Advance and the Term
Loan B Advances.

                  "Term Floating Rate" means an annual rate equal to the sum of
         the Prime Rate plus the Spread, which annual rate shall change when and
         as the Prime Rate changes.

                  "Term Loan A Advance" has the meaning specified in Section
         2.3.

                  "Term Loan A Note" means the promissory note, payable to the
         order of the Lender in substantially the form of Exhibit D hereto and
         any note or notes issued in substitution therefor, as the same may
         hereafter be amended, supplemented or restated from time to time.

                  "Term Loan B Advance" has the meaning specified in Section
         2.5.

                                                                            - 13
<PAGE>   14

                  "Term Loan B Note" means the promissory note, payable to the
         order of the Lender in substantially the form of Exhibit E hereto and
         any note or notes issued in substitution therefor, as the same may
         hereafter be amended, supplemented or restated from time to time.

                  "Termination Date" means the earliest of (i) the Maturity
         Date, (ii) the date the Borrower terminates the Credit Facility, or
         (iii) the date the Lender demands payment of the Obligations after an
         Event of Default pursuant to Section 8.2

                  "UCC" means the Uniform Commercial Code as in effect from time
         to time in the state designated in Section 9.15 as the state whose laws
         shall govern this Agreement, or in any other state whose laws are held
         to govern this Agreement or any portion hereof.

                  "Wells Fargo Bank" means Wells Fargo Bank West, National
         Association.

                  Section 1.2 Cross References. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.

                                   ARTICLE II

                     AMOUNT AND TERMS OF THE CREDIT FACILITY

                  Section 2.1 Existing Advances.

                  (a) EXISTING REVOLVING ADVANCES. The Lender has made various
revolving advances to Diamond (the "Existing Revolving Advances") as evidenced
by the Old Credit Documents. As of June 13, 2000, the outstanding principal
balance of the Existing Revolving Advances was $1,240,034.96. Upon execution and
delivery of this Agreement, the Existing Revolving Advances shall be deemed to
be Revolving Advances pursuant to Section 2.2 and repayable in accordance with
the Diamond Revolving Note. To the extent the Diamond Revolving Note evidences
the Existing Revolving Advances, the Diamond Revolving Note shall be issued in
substitution for and replacement of but not in payment of the Old Revolving
Note.

                  (b) EXISTING TERM ADVANCES. In addition to the foregoing, the
Lender has made a Term Loan A Advance to Diamond in the amount of $1,600,000 and
a Term Loan B Advance to Diamond in the amount of $2,250,000, each as evidenced
by the Old Credit Documents. As of June 13, 2000, the outstanding principal
balance of the Term Loan A Advance was $1,040,000.14, and the outstanding
principal balance of the Term Loan B Advance was $2,062,500. The Term Loan A
Note shall be issued in substitution for and

                                                                            - 14
<PAGE>   15

replacement of, but not in payment of, the Old Term Loan A Note, and the Term
Loan B Note shall be issued in substitution for and replacement of, but not in
payment of, the Old Term Loan B Note.

                  Section 2.2 Revolving Advances. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances (the
"Revolving Advances") to any Borrower from time to time from the date the
Inactive Period ends (the "Funding Date") to the Termination Date, on the terms
and subject to the conditions herein set forth. The Lender shall have no
obligation to make a Revolving Advance to a Borrower if, after giving effect to
such requested Revolving Advance, (a) the sum of the outstanding and unpaid
Revolving Advances would exceed the Aggregate Borrowing Base, (b) the sum of the
outstanding and unpaid Revolving Advances to any Borrower other than Heska would
exceed such Borrower's Borrowing Base, (c) the sum of the outstanding and unpaid
Revolving Advances to Heska would exceed the Expanded Heska Borrowing Base, or
(d) during any Default Period, the sum of the outstanding and unpaid Revolving
Advances to Heska would exceed Heska's Borrowing Base. Each Borrower's
obligation to pay the Revolving Advances shall be evidenced by such Borrower's
Revolving Note and shall be secured by the Collateral as provided in Article III
and the Mortgaged Property as defined in each of the Factory Mortgage and the
Farm Mortgage. Within the limits set forth in this Section 2.2, each Borrower
may borrow, prepay pursuant to Section 2.12 and reborrow. Each Borrower agrees
to comply with the following procedures in requesting Revolving Advances under
this Section 2.2:

                  (a) Such Borrower shall make each request for a Revolving
         Advance to the Lender before 11:00 a.m. (Denver time) of the day of the
         requested Revolving Advance. Requests may be made in writing or by
         telephone, specifying the date of the requested Revolving Advance and
         the amount thereof. Each request shall be by (i) any officer of such
         Borrower; or (ii) any person designated as such Borrower's agent by any
         officer of such Borrower in a writing delivered to the Lender; or (iii)
         any person whom the Lender reasonably believes to be an officer of such
         Borrower or such a designated agent.

                  (b) Upon fulfillment of the applicable conditions set forth in
         Article IV, the Lender shall disburse the proceeds of the requested
         Revolving Advance by crediting the same to such Borrower's demand
         deposit account maintained with Wells Fargo Bank unless the Lender and
         the Borrower shall agree in writing to another manner of disbursement.
         Upon the Lender's request, such Borrower shall promptly confirm each
         telephonic request for an Advance by executing and delivering an
         appropriate confirmation certificate to the Lender. Each Borrower shall
         repay all such Advances even if the Lender does not receive such
         confirmation and even if the person requesting such Advance was not in
         fact authorized to do so. Any request for an Advance by a Borrower,
         whether written or telephonic, shall be deemed to be a

                                                                            - 15
<PAGE>   16

         representation by such Borrower that the conditions set forth in
         Section 4.2 have been satisfied as of the time of the request.

                  Section 2.3 Term Loan A Advance. The Lender has previously
made an advance to Diamond in the amount of $1,600,000 (the "Term Loan A
Advance"). The Borrowers' obligation to pay the Term Loan A Advance shall be
evidenced by the Term Loan A Note and shall be secured by the Collateral as
provided in Article III and the Mortgaged Property as defined in each of the
Factory Mortgage and the Farm Mortgage.

                  Section 2.4 Payment of Term Loan A Note. The outstanding
principal balance of the Term Loan A Note shall be due and payable as follows:

                  (a) On June 1, 2000 and the first day of each month
         thereafter, in monthly installments of $18,667; and

                  (b) On the Maturity Date, the entire unpaid principal balance
         of the Term Loan A Note, and all unpaid interest accrued thereon, shall
         in any event be due and payable.

                  Section 2.5 Term Loan B Advances. The Lender has previously
made advances to Diamond in the amount of $2,250,000 (the "Term Loan B
Advances"). The Borrowers' obligation to pay the Term Loan B Advances shall be
evidenced by the Term Loan B Note and shall be secured by the Collateral as
provided in Article III and the Mortgaged Property as defined in each of the
Factory Mortgage and the Farm Mortgage.

                  Section 2.6 Payment of Term Loan B Note. The outstanding
principal balance of the Term Loan B Note shall be due and payable as follows:

                  (a) On June 1, 2000 and the first day of each month
         thereafter, in monthly installments of $17,658; and

                  (b) On the Maturity Date, the entire unpaid principal balance
         of the Term Loan B Note, and all unpaid interest accrued thereon, shall
         in any event be due and payable.

                  Section 2.7 Spread. The spread (the "Spread") means, with
respect to calculation of the Revolving Floating Rate, one percent (1.0%), and
with respect to calculation of the Term Floating Rate, one and one-quarter
percent (1.25%).

                  Section 2.8 Interest; Minimum Interest Charge; Default
Interest; Participations; Usury. Interest accruing on the Notes shall be due and
payable in arrears on the first day of each month.

                                                                            - 16
<PAGE>   17

                  (a) REVOLVING NOTE. Except as set forth in Sections 2.8(e),
         2.8(f) and 2.8(g), the outstanding principal balance of the Revolving
         Note shall bear interest at the Revolving Floating Rate.

                  (b) TERM LOAN A NOTE. Except as set forth in Sections 2.8(e),
         2.8(f) and 2.8(g), the outstanding principal balance of the Term Loan A
         Note shall bear interest at the Term Floating Rate.

                  (c) TERM LOAN B NOTE. Except as set forth in Sections 2.8(e),
         2.8(f) and 2.8(g), the outstanding principal balance of the Term Loan B
         Note shall bear interest at the Term Floating Rate.

                  (d) MINIMUM INTEREST CHARGE. Notwithstanding Sections 2.8(a),
         2.8(b), 2.8(c) and 2.8(e), the Borrowers shall pay to the Lender
         interest of not less than $100,000 per calendar year (the "Minimum
         Interest Charge") during the term of this Agreement, and the Borrowers
         shall pay any deficiency between the Minimum Interest Charge and the
         amount of interest otherwise calculated under Sections 2.8(a), 2.8(b),
         or 2.8(c) on the date and in the manner provided in Section 2.10;
         provided, however, that if the period for which the Minimum Interest
         Charge is being calculated is shorter than one year, such amount shall
         be prorated on a per diem basis for such shorter period.

                  (e) DEFAULT INTEREST RATE. At any time during any Default
         Period, in the Lender's sole discretion and without waiving any of its
         other rights and remedies, the principal of the Advances outstanding
         from time to time shall bear interest at the Default Rate, effective
         for any periods designated by the Lender from time to time during that
         Default Period.

                  (f) PARTICIPATIONS. If any Person shall acquire a
         participation in the Advances under this Agreement, the Borrower shall
         be obligated to the Lender to pay the full amount of all interest
         calculated under this Section 2.8, along with all other fees, charges
         and other amounts due under this Agreement, regardless if such Person
         elects to accept interest with respect to its participation at a lower
         rate than the Revolving Floating Rate or the Term Floating Rate, or
         otherwise elects to accept less than its prorata share of such fees,
         charges and other amounts due under this Agreement.

                  (g) USURY. In any event no rate change shall be put into
         effect which would result in a rate greater than the highest rate
         permitted by law.

                                                                            - 17
<PAGE>   18

                  Section 2.9 Fees.

                  (a) ORIGINATION FEE. The Borrower hereby agrees to pay the
         Lender a fully earned and non-refundable origination fee in the amount
         of $18,750, which fee is due and payable upon the execution of this
         Agreement.

                  (b) UNUSED LINE FEE. For the purposes of this Section 2.11(b),
        "Unused Amount" means the Maximum Line reduced by (i) outstanding
        Revolving Advances and (ii) the L/C Amount. The Borrowers agree to pay
        to the Lender an unused line fee at the rate of one-quarter of one
        percent (0.25%) per annum on the average daily Unused Amount from the
        date of this Agreement to and including the Termination Date, due and
        payable monthly in arrears on the first day of the month and on the
        Termination Date.

                  (C) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
         on demand, audit fees in connection with any audits or inspections
         conducted by the Lender of any Collateral or the Borrower's operations
         or business at the rates established from time to time by the Lender as
         its audit fees (which fees are currently $70 per hour per auditor),
         together with all actual out-of-pocket costs and expenses incurred in
         conducting any such audit or inspection, such audits shall be
         conducted, at the least, on a quarterly basis; provided, however, that
         the Borrowers shall not have to reimburse the Lender for such fees,
         costs and expenses incurred during the Inactive Period except for
         audits conducted at the Borrowers' request to bring the Inactive Period
         to an end. In addition, except during Default Periods, the Borrowers
         shall not have to reimburse the Lender for such fees, costs and
         expenses to the extent they exceed $80,000 (including audits during the
         Inactive Period) during the period beginning on the date of this
         Agreement and ending on the first anniversary of this Agreement. If
         Center is sold, this limitation shall be renegotiated in a commercially
         reasonable manner by the Lender and the Borrowers.

                  (d) LETTER OF CREDIT FEES. The Borrower agrees to pay the
        Lender a fee with respect to each Letter of Credit, if any, accruing on
        a daily basis and computed at the annual rate of two and one-half
        percent (2.5%) of the aggregate amount that may then be drawn on all
        issued and outstanding Letters of Credit assuming compliance with all
        conditions for drawing thereunder (the "Aggregate Face Amount"), from
        and including the date of issuance of such Letter of Credit until such
        date as such Letter of Credit shall terminate by its terms or be
        returned to the Lender, due and payable monthly in arrears on the first
        day of each month and on the Termination Date; provided, however that
        during Default Periods, in the Lender's sole discretion and without
        waiving any of its other rights and remedies, such fee shall increase to
        five and one-half percent (5.5%) of the Aggregate Face Amount. The
        foregoing fee shall be in

                                                                            - 18
<PAGE>   19

         addition to any and all fees, commissions and charges of any Issuer of
         a Letter of Credit with respect to or in connection with such Letter of
         Credit

                  (e) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees
        to pay the Lender, on demand, the administrative fees charged by the
        Issuer in connection with the honoring of drafts under any Letter of
        Credit, amendments thereto, transfers thereof and all other activity
        with respect to the Letters of Credit at the then-current rates
        published by the Issuer for such services rendered on behalf of
        customers of the Issuer generally.

                  Section 2.10 Computation of Interest and Fees; When Interest
Due and Payable. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be payable in arrears on the first day of each month and on the Termination
Date.

                  Section 2.11 Capital Adequacy.

                  If any Related Lender determines at any time that its Return
has been reduced as a result of any Rule Change, such Related Lender may require
the Borrower to pay it the amount necessary to restore its Return to what it
would have been had there been no Rule Change. For purposes of this Section
2.11:

                  (a) "Capital Adequacy Rule" means any law, rule, regulation,
         guideline, directive, requirement or request regarding capital
         adequacy, or the interpretation or administration thereof by any
         governmental or regulatory authority, central bank or comparable
         agency, whether or not having the force of law, that applies to any
         Related Lender. Such rules include rules requiring financial
         institutions to maintain total capital in amounts based upon
         percentages of outstanding loans, binding loan commitments and letters
         of credit.

                  (b) "L/C Rule" means any law, rule, regulation, guideline,
         directive, requirement or request regarding letters of credit, or the
         interpretation or administration thereof by any governmental or
         regulatory authority, central bank or comparable agency, whether or not
         having the force of law, that applies to any Related Lender. Such rules
         include rules imposing taxes, duties or other similar charges, or
         mandating reserves, special deposits or similar requirements against
         assets of, deposits with or for the account of, or credit extended by
         any Related Lender, on letters of credit.

                                                                            - 19
<PAGE>   20

                  (c) "Related Lender" includes (but is not limited to) the
         Lender, any parent corporation of the Lender and any assignee of any
         interest of the Lender hereunder and any participant in the loans made
         hereunder.

                  (d) "Return" for any period, means the return as determined by
         a Related Lender on the Advances and Letters of Credit based upon its
         total capital requirements and a reasonable attribution formula that
         takes account of the Capital Adequacy Rules and the L/C Rules then in
         effect, costs of issuing or maintaining any Letter of Credit and
         amounts received or receivable under this Agreement or the Notes with
         respect to any Advance or Letter of Credit. Return may be calculated
         for each calendar quarter and for the shorter period between the end of
         a calendar quarter and the date of termination of whole of this
         Agreement.

                  (e) "Rule Change" means any change in any Capital Adequacy
         Rule or L/C Rule occurring after the date of this Agreement, but the
         term does not include any changes in applicable requirements that at
         the Closing Date are scheduled to take place under the existing capital
         Adequacy Rules or L/C Rules or any increases in the capital that any
         Related Lender is required to maintain to the extent that the increases
         are required due to a regulatory authority's assessment of the
         financial condition of such Related Lender.

The Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Lender to
compensation pursuant to this Section 2.11. Certificates of any Related Lender
sent to the Borrower from time to time claiming compensation under this Section
2.11, stating the reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the Related Lender
hereunder to restore its Return shall be conclusive absent manifest error. In
determining such amounts, the Related Lender may use any reasonable averaging
and attribution methods.

                  Section 2.12 Voluntary Prepayment; Reduction of the Maximum
Line; Termination of the Credit Facility by the Borrower. Except as otherwise
provided herein, each Borrower may prepay the Revolving Advances made to it in
whole at any time or from time to time in part. Diamond may prepay the Term Loan
A Advances (other than in accordance with Section 2.4) or prepay the Term Loan B
Advances (other than in accordance with Section 2.6), or Heska may terminate the
Credit Facility or reduce the Maximum Line at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender the
prepayment, termination or line reduction fees in accordance with Section 2.13.
Any prepayment of the Term Loan A Advances (other than in accordance with
Section 2.4), any prepayment of the Term Loan B Advances (other than in
accordance with Section 2.6), or reduction in the Maximum Line must be in an
amount not less than $250,000 or an integral multiple thereof. If the Borrower
reduces the Maximum Line to zero, all Obligations

                                                                            - 20
<PAGE>   21

shall be immediately due and payable. Any partial prepayments of the Term Loan A
Note (other than in accordance with Section 2.4), and any partial prepayments of
the Term Loan B Note (other than in accordance with Section 2.6), shall be
applied to principal payments due and owing in inverse order of their
maturities. Upon termination of the Credit Facility and payment and performance
of all Obligations, the Lender shall release or terminate the Security Interest
and the Security Documents to which the Borrowers are entitled by law.

                  Section 2.13 Termination, Line Reduction and Prepayment Fees;
Waiver of Termination, Prepayment and Line Reduction Fees.

                  (a) TERMINATION AND LINE REDUCTION FEES. If the Credit
         Facility is terminated for any reason as of a date other than the
         Maturity Date, or Heska reduces the Maximum Line, the Borrowers shall
         pay the Lender a fee in an amount equal to one percent (1.0%) of the
         Maximum Line (or the reduction, as the case may be).

                  (b) PREPAYMENT FEES. If the Term Loan A Note or the Term Loan
         B Note is prepaid for any reason except in accordance with Sections 2.4
         and 2.6, respectively, the Borrowers shall pay to the Lender a fee in
         an amount equal to one percent (1.0%) of the amount prepaid.

                  (c) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The
         Borrowers will not be required to pay the termination or line reduction
         fees otherwise due under this Section 2.13 if such termination or line
         reduction is made (i) because of refinancing of the Borrowers by an
         affiliate of the Lender, (ii) within 60 days after any demand for
         payment upon any Borrower in accordance with Section 2.11, or (iii)
         within 60 days after any Discretionary Reduction Date.

                  Section 2.14 Mandatory Prepayment. Without notice or demand,
if the outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately (or, to the extent
such condition is a result of a Discretionary Reduction, within 5 Business Days)
prepay the Revolving Advances to the extent necessary to eliminate such excess.
Any payment received by the Lender under Section 2.12 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine; provided that any prepayment under Section 2.12
which the Borrower designates as a payment of the Revolving Advances, shall be
applied to the Revolving Advances; provided, further, that any prepayment under
Section 2.12 which the Borrower designates as a partial prepayment of the Term
Loan A Note or the Term Loan B Note, shall be applied to principal installments
of the Term Loan A Note or the Term Loan B Note respectively, in inverse order
of maturity.

                  Section 2.15 Payment. All payments to the Lender shall be made
in immediately available funds and shall be applied to the Obligations upon
receipt by the

                                                                            - 21
<PAGE>   22

Lender. The Lender may hold all payments not constituting immediately available
funds for three (3) days before applying them to the Obligations.
Notwithstanding anything in Section 2.2, the Borrower hereby authorizes the
Lender, in its discretion at any time or from time to time without the
Borrower's request and even if the conditions set forth in Section 4.2 would not
be satisfied, to make a Revolving Advance in an amount equal to the portion of
the Obligations from time to time due and payable.

                  Section 2.16 Payment on Non-Banking Days. Whenever any payment
to be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest
on the Advances or the fees hereunder, as the case may be.

                  Section 2.17 Liability Records. The Lender may maintain from
time to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit and
certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
30 days after receipt.

                  Section 2.18  Issuance of Letters of Credit.

                  (a) Upon any Borrower's Request the Lender shall cause an
         Issuer to issue, from the Funding Date to the Termination Date, one or
         more documentary letters of credit (each, a "Letter of Credit") for
         such Borrower's account, provided that:

                           (i) The Lender shall have no obligation to cause an
                  Issuer to issue any Letter of Credit for the benefit of the
                  Borrower if (A) a Default Period exists, or (B) the face
                  amount of the Letter of Credit to be issued would exceed the
                  lesser of:

                                    (1) $500,000 less the L/C Amount, or

                                    (2) the Borrowing Base less the sum of (a)
                           all outstanding and unpaid Revolving Advances and (b)
                           the L/C Amount.

                  Each Letter of Credit, if any, shall be issued pursuant to a
                  separate L/C Application entered by the Borrower and the
                  Lender for the benefit of the Issuer, completed in a manner
                  satisfactory to the Lender and the Issuer. The terms and
                  conditions set forth in each such L/C Application shall
                  supplement the terms and conditions hereof, but if the terms
                  of any such L/C Application

                                                                            - 22
<PAGE>   23

                  and the terms of this Agreement are inconsistent, the terms
                  hereof shall control.

                  (b) No Letter of Credit shall be issued with an expiry date
         later than the Maturity Date.

                  (c) Any request for the issuance of a Letter of Credit under
         this Section 2.18 shall be deemed to be a representation by the
         Borrower that the statements set forth in Section 4.2 hereof are
         correct as of the time of the request.

                  Section 2.19 Payment of Amounts Drawn Under Letters of Credit.
The Borrower acknowledges that the Lender, as co-applicant, will be liable to
the Issuer of any Letter of Credit for reimbursement of any and all draws
thereunder and all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:

                  (a) The Borrower hereby agrees to pay the Lender on the day a
         draft is honored under any Letter of Credit a sum equal to all amounts
         drawn under such Letter of Credit plus any and all reasonable charges
         and expenses that the Issuer or the Lender may pay or incur relative to
         such draw, plus interest on all such amounts, charges and expenses as
         set forth below (all such amounts are hereinafter referred to as the
         "Obligation of Reimbursement").

                  (b) The Borrower hereby agrees to pay the Lender on demand
         interest on all amounts, charges and expenses payable by the Borrower
         to the Lender under this Section 2.19, accrued from the date any such
         draft, charge or expense is paid by the Issuer until payment in full by
         the Borrower at the Revolving Floating Rate.

         If the Borrower fails to pay to the Lender promptly the amount of its
         Obligation of Reimbursement in accordance with the terms hereof and the
         L/C Application pursuant to which such Letter of Credit was issued, the
         Lender is hereby irrevocably authorized and directed, in its sole
         discretion, to make a Revolving Advance in an amount sufficient to
         discharge the Obligation of Reimbursement, including all interest
         accrued thereon but unpaid at the time of such Revolving Advance, and
         such Revolving Advance shall be evidenced by the Revolving Note and
         shall bear interest as provided in Section 2.8 hereof.

                  Section 2.20 Special Account. If this Credit Facility is
terminated for any reason whatsoever, while any Letter of Credit is outstanding,
the Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount

                                                                            - 23
<PAGE>   24

equal to the maximum aggregate amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder. The Special Account shall be maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Borrower's Obligation of Reimbursement or any
other Obligations, in the Lender's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to the
Borrower at such time as the Lender is required to release its security interest
in the Special Account under applicable law.

                  Section 2.21 Obligations Absolute. The obligations of the
Borrower arising under Section 2.18 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including (without limitation)
the following circumstances:

                  (a) any lack of validity or enforceability of any Letter of
         Credit or any other agreement or instrument relating to any Letter of
         Credit (collectively the "Related Documents");

                  (b) any amendment or waiver of or any consent to departure
         from all or any of the Related Documents;

                  (c) the existence of any claim, setoff, defense or other right
         which the Borrower may have at any time, against any beneficiary or any
         transferee of any Letter of Credit (or any persons or entities for whom
         any such beneficiary or any such transferee may be acting), or other
         person or entity, whether in connection with this Agreement, the
         transactions contemplated herein or in the Related Documents or any
         unrelated transactions;

                  (d) any statement or any other document presented under any
         Letter of Credit proving to be forged, fraudulent, invalid or
         insufficient in any respect or any statement therein being untrue or
         inaccurate in any respect whatsoever;

                  (e) payment by or on behalf of the Issuer or the Lender under
         any Letter of Credit against presentation of a draft or certificate
         which does not strictly comply with the terms of such Letter of Credit;
         or

                  (f) any other circumstance or happening whatsoever, whether or
         not similar to any of the foregoing.

                                                                            - 24
<PAGE>   25

                                   ARTICLE III

                      SECURITY INTEREST; OCCUPANCY; SETOFF

                  Section 3.1 Grant of Security Interest. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations; provided, however, that no security
interest is granted in any Collateral specifically identified in the financing
statements filed by the Other Lenders (the "Other Lender's Collateral");
provided, further, that the Borrower does grant a security interest in the Other
Lender's Collateral after the related debt on such specific Other Lender's
Collateral owed to the respective Other Lender has been satisfied, other than
through a permitted secured refinancing of such indebtedness with another Other
Lender.

                  Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may during any Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.

                  Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral, to the extent such rights
may be assigned in accordance with such policies, or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, after and during the continuance of an Event of Default,
the Lender may (but need not),

                                                                            - 25
<PAGE>   26

in the Lender's name or in the Borrower's name, execute and deliver proof of
claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.

                  Section 3.4 Occupancy

                  (a) The Borrower hereby irrevocably grants to the Lender the
         right to take exclusive possession of the Premises at any time during a
         Default Period.

                  (b) The Lender may use the Premises only to hold, process,
         manufacture, sell, use, store, liquidate, realize upon or otherwise
         dispose of goods that are Collateral and for other purposes that the
         Lender may in good faith deem to be related or incidental purposes.

                  (c) The Lender's right to hold the Premises shall cease and
         terminate upon the earlier of (i) payment in full and discharge of all
         Obligations and termination of the Commitment, and (ii) final sale or
         disposition of all goods constituting Collateral and delivery of all
         such goods to purchasers.

                  (d) The Lender shall not be obligated to pay or account for
         any rent or other compensation for the possession, occupancy or use of
         any of the Premises; provided, however, that if the Lender does pay or
         account for any rent or other compensation for the possession,
         occupancy or use of any of the Premises, the Borrower shall reimburse
         the Lender promptly for the full amount thereof. In addition, the
         Borrower will pay, or reimburse the Lender for, all taxes, fees,
         duties, imposts, charges and expenses at any time incurred by or
         imposed upon the Lender by reason of the execution, delivery,
         existence, recordation, performance or enforcement of this Agreement or
         the provisions of this Section 3.4.

                  Section 3.5 License. The Borrower hereby grants to the Lender
a non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period. Notwithstanding the foregoing, such grant
shall not constitute an assignment of any Intellectual Property License to the
extent granting such a license is prohibited by or would constitute a default
under any such Intellectual Property License (but only to the extent such
prohibition is enforceable under applicable law).

                  Section 3.6 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to

                                                                            - 26
<PAGE>   27

perfect the security interests granted hereby. For this purpose, the following
information is set forth:

                  Name and address of Debtors:

                  Heska Corporation
                  1613 Prospect Parkway
                  Fort Collins, Colorado 80525
                  Federal Tax Identification No. 77-0192527

                  Diamond Animal Health, Inc.
                  2538 43rd Street SE
                  Des Moines, Iowa 50317
                  Federal Tax Identification No. 42-1410342

                  Center Laboratories, Inc.
                  35 Channel Drive
                  Post Washington, New York 11050
                  Federal Tax Identification No. 11-3388167

                  Name and address of Secured Party:

                  Wells Fargo Business Credit, Inc.
                  MAC C7300-300
                  1740 Broadway
                  Denver, Colorado 80274
                  Federal Tax Identification No. 41-1237652

                  Section 3.7 Setoff. The Borrower agrees that the Lender may at
any time or from time to time during any Default Period, at its sole discretion
and without demand and without notice to anyone, setoff any liability owed to
the Borrower by the Lender, whether or not due, against any Obligation, whether
or not due. In addition, whether or not a Default Period exists, each other
Person holding a participating interest in any Obligations shall have the right
to appropriate or setoff any deposit or other liability then owed by such Person
to the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.

                  Section 3.8 Security Interest in Special Account. The Borrower
hereby pledges, and grants to the Lender a security interest in, all funds held
in the Special Account from time to time and all proceeds thereof, as security
for the payment of all Obligations.

                                                                            - 27
<PAGE>   28

                                   ARTICLE IV

                              CONDITIONS OF LENDING

                  Section 4.1 Conditions Precedent to the Initial Revolving and
Term Advances. The Lender's obligation to make the initial Advance hereunder
shall be subject to the condition precedent that the Lender shall have received
all of the following, each in form and substance satisfactory to the Lender:

                  (a) This Agreement, properly executed by each Borrower.

                  (b) The Notes, properly executed by the appropriate Borrowers.

                  (c) A true and correct copy of any and all leases pursuant to
         which any Borrower is leasing the Premises, together with a landlord's
         disclaimer and consent with respect to each such lease.

                  (d) A Patent and Trademark Security Agreement with respect to
         its registered trademarks, executed by Center.

                  (e) Separate Lockbox Agreements, executed by Center, Heska,
         Regulus and Wells Fargo Bank, NA.

                  (f) Amendments to the Farm Mortgage and the Factory Mortgage,
         executed by the Borrower.

                  (g) With respect to each of the Mortgages, an endorsement to
         bring down and make current the title insurance policy previously
         issued for the benefit of the Lender and any documents required by the
         title insurance company in connection therewith.

                  (h) Current searches of appropriate filing offices showing
         that (i) no state or federal tax liens have been filed and remain in
         effect against any Borrower, (ii) no financing statements have been
         filed and remain in effect against any Borrower except those financing
         statements relating to Permitted Liens or to liens held by Persons who
         have agreed in writing that upon receipt of proceeds of the Advances,
         they will deliver UCC releases and/or terminations satisfactory to the
         Lender, and (iii) the Lender has duly filed all financing statements
         necessary to perfect the Security Interest, to the extent the Security
         Interest is capable of being perfected by filing.

                  (i) A certificate of each Borrower's secretary or assistant
         secretary certifying as to (i) the resolutions of such Borrower's
         directors and if required,

                                                                            - 28
<PAGE>   29

         shareholders, authorizing the execution, delivery and performance of
         the Loan Documents, (ii) such Borrower's articles of incorporation and
         bylaws, and (iii) the signatures of such Borrower's officers or agents
         authorized to execute and deliver the Loan Documents and other
         instruments, agreements and certificates, including Advance requests,
         on such Borrower's behalf.

                  (j) A current certificate issued by the Secretary of State of
         the state of incorporation of each Borrower, certifying that such
         Borrower is in compliance with all applicable organizational
         requirements of such state.

                  (k) Evidence that each Borrower is duly licensed or qualified
         to transact business in all jurisdictions where the character of the
         property owned or leased or the nature of the business transacted by it
         makes such licensing or qualification necessary.

                  (l) A certificate of one of the Borrowers' officers confirming
         the representations and warranties set forth in Article V.

                  (m) An opinion of counsel to the Borrowers, addressed to the
         Lender.

                  (n) Separate guaranties, executed by each of Diamond and
         Center.

                  (o) Certificates of the insurance required hereunder and under
         the Mortgages, with all hazard insurance containing a lender's loss
         payable endorsement in the Lender's favor and with all liability
         insurance naming the Lender as an additional insured.

                  (p) An amendment to the Amended and Restated Security Interest
         - Subordination Agreement dated as of August __, 1998, increasing the
         principal amount allowed under the "Obligations" defined therein to at
         least $13,102,500.13, executed by the City of Des Moines, Iowa, for the
         benefit of Lender.

                  (q) Payment of the fees and commissions due through the date
         of the initial Advance under Section 2.9 and expenses incurred by the
         Lender through such date and required to be paid by the Borrower under
         Section 9.8, including all legal expenses incurred through the date of
         this Agreement.

                  (r) Such other documents as the Lender in its sole discretion
         may require.

                  Section 4.2 Conditions Precedent to All Advances and Causing
All Letters of Credit to be Issued. The Lender will not consider a request for
any Advance or the issuance of any Letter of Credit unless on the date thereof:

                                                                            - 29
<PAGE>   30

                  (a) the representations and warranties contained in Article V
         hereof are correct on and as of such date of such Advance as though
         made on and as of such date, except to the extent that such
         representations and warranties relate solely to an earlier date; and

                  (b) no event has occurred and is continuing, or would result
         from such Advance or the issuance of such Letter of Credit, as the case
         may be, which constitutes a Default or an Event of Default.

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

                  Each Borrower represents and warrants to the Lender as
follows:

                  Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations; Tax Identification Number.
Diamond is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Iowa, Each of Heska and Center is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each Borrower is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. No dissolution or termination of any Borrower has
occurred, and no notice of dissolution or articles of termination have been
filed with respect to any Borrower. Each Borrower has all requisite corporate
power and authority, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under the Loan
Documents. Since 1994, each Borrower has done business solely under the names
set forth in Schedule 5.1 hereto. Each Borrower's chief executive office and
principal place of business is located at the address set forth under the name
of such Borrower in Schedule 5.1 hereto, and all of such Borrower's records
relating to its business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto. Each Borrower's tax identification
number is correctly set forth in Section 3.6 hereto.

                  Section 5.2 Authorization of Borrowing; No Conflict as to Law
or Agreements. The execution, delivery and performance by each Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of such Borrower's shareholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department,

                                                                            - 30
<PAGE>   31

commission, board, bureau, agency or instrumentality, domestic or foreign, or
any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior
to the date hereof; (iii) violate any provision of any law, rule or regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to such Borrower or of such Borrower's articles of
incorporation and bylaws; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material agreement,
lease or instrument to which such Borrower is a party or by which it or its
properties may be bound or affected; or (v) result in, or require, the creation
or imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature (other than the Security Interest)
upon or with respect to any of the properties now owned or hereafter acquired by
such Borrower.

                  Section 5.3 Legal Agreements.

                  (a) Immediately prior to execution of this Agreement, the Old
         Credit Documents constituted the legal, valid and binding obligations
         of Diamond, enforceable against Diamond in accordance with their
         respective terms, subject to general principles of equity and the
         effects of bankruptcy and insolvency laws applicable to creditors
         generally. Diamond has no claim, defense or offset to enforcement of
         the Old Credit Documents.

                  (b) This Agreement constitutes and, upon due execution by each
         Borrower, the other Loan Documents will constitute the legal, valid and
         binding obligations of such Borrower, enforceable against such Borrower
         in accordance with their respective terms, subject to general
         principles of equity and the effects of bankruptcy and insolvency laws
         applicable to creditors generally.

                  Section 5.4 Subsidiaries. No Borrower has any Subsidiaries
except as set forth in Schedule 5.4.

                  Section 5.5 Financial Condition; No Adverse Change. Heska has
heretofore furnished to the Lender its consolidated and consolidating financial
statements and those statements fairly present the Borrowers' financial
condition on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles (except for the absence of footnotes and subject
to normal year-end adjustments with respect to unaudited financial statements).
Since the date of the most recent financial statements, to the date hereof,
there has been no material adverse change in any Borrower's business, properties
or condition (financial or otherwise).

                                                                            - 31
<PAGE>   32

                  Section 5.6 Litigation. Except as set forth in Schedule 5.6
hereto, there are no actions, suits or proceedings pending or, to any Borrower's
knowledge, threatened against or affecting any Borrower or the properties of any
Borrower before any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which, if determined adversely
to such Borrower, would have a material adverse effect on the financial
condition, properties or operations of such Borrower.

                  Section 5.7 Regulation U. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

                  Section 5.8 Taxes. Each Borrower and its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them (other than (a) any such tax
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made, or (b) any
such taxes in an aggregate amount among all Borrowers less than $25,000 at any
given time). Each Borrower and its Affiliates have filed all federal, state and
local tax returns which to the knowledge of the officers of such Borrower or any
Affiliate, as the case may be, are required to be filed, and each Borrower and
its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due (other than (a) any such
tax whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made, or (b) any
such taxes in an aggregate amount among all Borrowers less than $25,000 at any
given time).

                  Section 5.9 Titles and Liens. Each Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets (other than assets
identified as being subject to capital leases) reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens, adverse claims and encumbrances,
except for Permitted Liens. No financing statement naming any Borrower as debtor
is on file in any office except to perfect only Permitted Liens.

                  Section 5.10 Plans. Except as disclosed to the Lender in
writing prior to the date hereof, no Borrower nor any Affiliates of any Borrower
maintains or has maintained any Plan. To the best of its knowledge, no Borrower
nor any Affiliate of any Borrower has received any notice or has any knowledge
to the effect that it is not in full compliance with any of the requirements of
ERISA, except as set forth on Schedule 5.10. No Reportable Event or other fact
or circumstance which may have an adverse effect on the Plan's tax

                                                                            - 32
<PAGE>   33

qualified status exists in connection with any Plan. No Borrower nor any
Affiliate of any Borrower has:

                  (a) Any accumulated funding deficiency within the meaning of
         ERISA; or

                  (b) Any liability or knows of any fact or circumstances which
         could result in any liability to the Pension Benefit Guaranty
         Corporation, the Internal Revenue Service, the Department of Labor or
         any participant in connection with any Plan (other than accrued
         benefits which or which may become payable to participants or
         beneficiaries of any such Plan).

                  Section 5.11 Default. Each Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on any Borrower's financial
condition, properties or operations.

                  Section 5.12 Environmental Matters.

                  (a) Definitions. As used in this Agreement, the following
         terms shall have the following meanings:

                           (i) "Environmental Law" means any federal, state,
                  local or other governmental statute, regulation, law or
                  ordinance dealing with the protection of human health and the
                  environment.

                           (ii) "Hazardous Substances" means pollutants,
                  contaminants, hazardous substances, hazardous wastes,
                  petroleum and fractions thereof, and all other chemicals,
                  wastes, substances and materials listed in, regulated by or
                  identified in any Environmental Law.

                  (b) To each Borrower's best knowledge, except as previously
         disclosed to Lender, there are not present in, on or under the Premises
         any Hazardous Substances in such form or quantity as to create any
         liability or obligation for any Borrower or for the Lender under common
         law of any jurisdiction or under any Environmental Law, and no
         Hazardous Substances have ever been stored, buried, spilled, leaked,
         discharged, emitted or released in, on or under the Premises in such a
         way as to create any such liability.

                  (c) Except as set forth in Schedule 5.12, to each Borrower's
         best knowledge, no Borrower has disposed of Hazardous Substances in
         such a manner as to create any liability under any Environmental Law.

                  (d) Except as previously disclosed to Lender, there are not
         and there never have been any requests, claims, notices,
         investigations, demands, administrative

                                                                            - 33
<PAGE>   34

         proceedings, hearings or litigation, relating in any way to the
         Premises or any Borrower, alleging liability under, violation of, or
         noncompliance with any Environmental Law or any license, permit or
         other authorization issued pursuant thereto, which could create
         liability to any Borrower in excess of $25,000. To each Borrower's best
         knowledge, no such matter is threatened or impending.

                  (e) To each Borrower's best knowledge, except as previously
         disclosed to Lender, each Borrower's businesses are and have in the
         past always been conducted in accordance with all Environmental Laws
         and all licenses, permits and other authorizations required pursuant to
         any Environmental Law and necessary for the lawful and efficient
         operation of such businesses are in the Borrowers' possession and are
         in full force and effect. Except as set forth in Schedule 5.12, to each
         Borrower's best knowledge, there is no threat that any permit required
         under any Environmental Law will be withdrawn, terminated, limited or
         materially changed.

                  (f) To each Borrower's best knowledge, except as previously
         disclosed to Lender, the Premises are not and never have been listed on
         the National Priorities List, the Comprehensive Environmental Response,
         Compensation and Liability Information System or any similar federal,
         state or local list, schedule, log, inventory or database.

                  (g) Except as set forth in Schedule 5.12, each Borrower has
         delivered to Lender all environmental assessments, audits, reports,
         permits, licenses and other documents describing or relating in any way
         to the Premises or such Borrower's businesses to the extent in such
         Borrower's possession or control.

                  Section 5.13 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of each Borrower in
connection with such Borrower's request for the credit facilities contemplated
hereby were true and correct in all material respects as of the date given and,
as to projections, valuations or proforma financial statements, presented, at
the time given, a good faith opinion as to such projections, valuations and
proforma condition and results. It is recognized by the Lender that projections
and forecasts provided by or on behalf of the Borrowers, although reflecting the
Borrowers' good faith projections or forecasts based on methods and data which
the Borrowers believe to be reasonable and accurate, are not to be viewed as
facts and that actual results during the periods covered by any such projections
and forecasts may (and are likely to) differ from the projected or forecasted
results. Notwithstanding the foregoing, it is recognized by the Borrowers that
the Lender will rely on, among other things, the Borrowers' projections in
setting financial covenants set forth in Articles VI and VII hereof, and nothing
in this Section 5.13 shall be construed as a waiver of the Lender's right to
rely on such covenants or to exercise its remedies in case of a breach of such
covenants.

                                                                            - 34
<PAGE>   35

                  Section 5.14 Financing Statements. Each Borrower has provided
to the Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which is
capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.

                  Section 5.15 Rights to Payment. To the best of each Borrower's
knowledge, except as disclosed to Lender, each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in such Borrower's records pertaining thereto as being
obligated to pay such obligation.

                  Section 5.16 Financial Solvency. Both before and after giving
effect to all of the transactions contemplated in the Loan Documents, no
Borrower, and no Affiliate of any Borrower:

         (a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;

         (b) has unreasonably small capital or is engaged or about to engage in
a business or a transaction for which any remaining assets of such Borrower or
such Affiliate are unreasonably small;

         (c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any action
with respect thereto, intends to, nor believes that it will, incur debts beyond
its ability to pay them as they mature;

         (d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any action
with respect thereto, intends to hinder, delay or defraud either its present or
future creditors; and

         (e) at this time contemplates filing a petition in bankruptcy or for an
arrangement or reorganization or similar proceeding under any law of any
jurisdiction, or, to the best knowledge of any Borrower, is the subject of any
actual, pending or threatened bankruptcy, insolvency or similar proceedings
under any law of any jurisdiction.

                                                                            - 35
<PAGE>   36

                                   ARTICLE VI

                        BORROWER'S AFFIRMATIVE COVENANTS

                  So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, each Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:

                  Section 6.1 Reporting Requirements. Heska will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:

                  (a) as soon as available, and in any event within 90 days
         after the end of each fiscal year of Heska, Heska's audited financial
         statements with the unqualified opinion of independent certified public
         accountants selected by Heska and acceptable to the Lender, which
         annual financial statements shall include Heska's balance sheet as at
         the end of such fiscal year and the related statements of Heska's
         income, retained earnings and cash flows for the fiscal year then
         ended, prepared on a consolidating and consolidated basis to include
         any Affiliates, all in reasonable detail and prepared in accordance
         with GAAP, together with (i) copies of all management letters prepared
         by such accountants and (ii) a certificate of Heska's chief financial
         officer stating that to the best of his knowledge such financial
         statements have been prepared in accordance with GAAP and whether or
         not such officer has knowledge of the occurrence of any Default or
         Event of Default hereunder and, if so, stating in reasonable detail the
         facts with respect thereto;

                  (b) within 5 business days of filing with the United States
         Securities and Exchange Commission, a copy of each of Heska's annual or
         quarterly reports on forms 10K or 10Q;

                  (c) as soon as available and in any event within 20 days after
         the end of each month (or, in the case of months that coincide with the
         end of the Borrowers' fiscal quarter, within 30 days after the end of
         such month), an unaudited/internal balance sheet and statement of
         income and retained earnings of Heska as at the end of and for such
         month and for the year to date period then ended, prepared on a
         consolidated and consolidating basis in accordance with GAAP, subject
         to year-end audit adjustments; and accompanied by a certificate of
         Heska's chief financial officer, substantially in the form of Exhibit G
         hereto, stating (i) that to the best of his knowledge such financial
         statements have been prepared in accordance with GAAP and fairly
         represent each Borrower's financial condition and the results of its
         operations, subject to year-end audit adjustments, (ii) whether or not
         such officer has knowledge of the occurrence of any Default or Event of
         Default hereunder not

                                                                            - 36
<PAGE>   37

         theretofore reported and remedied and, if so, stating in reasonable
         detail the facts with respect thereto, and (iii) all relevant facts in
         reasonable detail to evidence, and the computations as to, whether or
         not the Borrower is in compliance with the requirements set forth in
         Sections 6.12, 6.13, 6.14, 6.15, and 7.10;

                  (d) weekly, or more frequently if the Lender so requires,
         sales journals, collection reports, and credit memos of each Borrower;

                  (e) Except during the Inactive Period, monthly within 20 days
         after the end of each month, agings of each Borrower's accounts
         receivable and its accounts payable, an inventory certification report,
         and a calculation of each Borrower's Accounts, Eligible Accounts,
         Inventory and Eligible Inventory as at the end of such month or shorter
         time period;

                  (f) at least 30 days before the beginning of each fiscal year
         of Heska, the projected balance sheets and income statements for each
         month of such year, each in reasonable detail, representing each
         Borrower's good faith projections and certified by such Borrower's
         chief financial officer as being the most accurate projections
         available and identical to the projections used by such Borrower for
         internal planning purposes, together with such supporting schedules and
         information as the Lender may in its discretion require;

                  (g) immediately after the commencement thereof, notice in
         writing of all litigation and of all proceedings before any
         governmental or regulatory agency affecting any Borrower of the type
         described in Section 5.12 or which seek a monetary recovery against any
         Borrower in excess of $50,000;

                  (h) as promptly as practicable (but in any event not later
         than five business days) after an officer of any Borrower obtains
         knowledge of the occurrence of any breach, default or event of default
         under any Security Document or any event which constitutes a Default or
         Event of Default hereunder, notice of such occurrence, together with a
         detailed statement by a responsible officer of such Borrower of the
         steps being taken by such Borrower to cure the effect of such breach,
         default or event;

                  (i) as soon as possible and in any event within 30 days after
         any Borrower knows or has reason to know that any Reportable Event with
         respect to any Plan has occurred, the statement of such Borrower's
         chief financial officer setting forth details as to such Reportable
         Event and the action which such Borrower proposes to take with respect
         thereto, together with a copy of the notice of such Reportable Event to
         the Pension Benefit Guaranty Corporation;

                                                                            - 37
<PAGE>   38

                  (j) as soon as possible, and in any event within 10 days after
         any Borrower fails to make any quarterly contribution required with
         respect to any Plan under Section 412(m) of the Internal Revenue Code
         of 1986, as amended, the statement of such Borrower's chief financial
         officer setting forth details as to such failure and the action which
         such Borrower proposes to take with respect thereto, together with a
         copy of any notice of such failure required to be provided to the
         Pension Benefit Guaranty Corporation;

                  (k) promptly upon knowledge thereof, notice of any loss of or
         material damage to any Collateral or other collateral covered by the
         Security Documents or of any substantial adverse change in the
         Collateral or such other collateral or the prospect of payment thereof,
         in each case involving a loss, damage or change of $50,000 of more;

                  (l) promptly upon their distribution, copies of all financial
         statements, reports and proxy statements which the Borrower shall have
         sent to its stockholders;

                  (m) promptly after the sending or filing thereof, copies of
         all regular and periodic reports which any Borrower shall file with the
         Securities and Exchange Commission or any national securities exchange;

                  (n) promptly upon filing, copies of the state and federal tax
         returns and all schedules thereto of each Borrower;

                  (o) promptly upon knowledge thereof, notice of any Borrower's
         violation of any law, rule or regulation, the non-compliance with which
         could materially and adversely affect any Borrower's business or its
         financial condition; and

                  (p) from time to time, with reasonable promptness, any and all
         receivables schedules, collection reports, deposit records, equipment
         schedules, copies of invoices to account debtors, shipment documents
         and delivery receipts for goods sold, and such other material, reports,
         records or information as the Lender may request.

                  Section 6.2 Books and Records; Inspection and Examination.
Each Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to such Borrower's business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of such Borrower at all times
during ordinary business hours, to send and discuss with account debtors and
other obligors requests for verification of amounts owed to such Borrower, and
to discuss such Borrower's affairs with

                                      - 38
<PAGE>   39

any of its directors, officers, employees or agents. Each Borrower will permit
the Lender, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral, other collateral covered by the Security Documents or
any other property of such Borrower at any time during ordinary business hours.

                  Section 6.3 Account Verification. The Lender may at any time
and from time to time send or require any Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.

                  Section 6.4 Compliance with Laws.

                  (a) Each Borrower will (i) comply with the requirements of
         applicable laws and regulations, the non-compliance with which would
         materially and adversely affect its business or its financial condition
         and (ii) use and keep the Collateral, and require that others use and
         keep the Collateral, only for lawful purposes, without violation of any
         federal, state or local law, statute or ordinance.

                  (b) Without limiting the foregoing undertakings, each Borrower
         specifically agrees that it will comply in all material respects with
         all applicable Environmental Laws and obtain and comply with all
         permits, licenses and similar approvals required by any Environmental
         Laws, and will not generate, use, transport, treat, store or dispose of
         any Hazardous Substances in such a manner as to create any material
         liability or obligation under the common law of any jurisdiction or any
         Environmental Law.

                  Section 6.5 Payment of Taxes and Other Claims; Payment of
Past-Due Accounts. Each Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including, without
limitation, the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on which penalties
attach thereto, (b) all federal, state and local taxes required to be withheld
by it, and (c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon any properties of such
Borrower; provided, that no Borrower shall be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made. Each Borrower will, at all times (except for the period of time
beginning on the date of this Agreement and ending 60 days prior to the end of
the Inactive Period) immediately pay all of its accounts payable that are 60
days or more past due. Each Borrower will at all times maintain its accounts
payable in accordance with the previous sentence.

                                                                            - 39
<PAGE>   40

                  Section 6.6 Maintenance of Properties.

                  (a) Each Borrower will keep and maintain the Collateral, the
         other collateral covered by the Security Documents and all of its other
         properties necessary or useful in its business in good condition,
         repair and working order (normal wear and tear excepted) and will from
         time to time replace or repair any worn, defective or broken parts;
         provided, however, that nothing in this Section 6.6 shall prevent any
         Borrower from discontinuing the operation and maintenance of any of its
         properties if such discontinuance is, in such Borrower's judgment,
         desirable in the conduct of the Borrower's business and not
         disadvantageous in any material respect to the Lender.

                  (b) Each Borrower will defend the Collateral against all
         claims or demands of all persons (other than the Lender) claiming the
         Collateral or any interest therein.

                  (c) Each Borrower will keep all Collateral and other
         collateral covered by the Security Documents free and clear of all
         security interests, liens and encumbrances except Permitted Liens.

                  Section 6.7 Insurance. Each Borrower will obtain and at all
times maintain insurance with insurers believed by such Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be reasonably required by the Lender, but in all events in such
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which such Borrower operates. Without limiting the generality of the foregoing,
each Borrower will at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit acceptable
to the Lender. All policies of liability insurance required hereunder shall name
the Lender as an additional insured.

                  Section 6.8 Preservation of Existence. Each Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.

                  Section 6.9 Delivery of Instruments, etc. Upon request by the
Lender, each Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by such Borrower.

                                                                            - 40
<PAGE>   41

                  Section 6.10 Collateral Account.

                  (a) If, notwithstanding the instructions to debtors to make
         payments to the Lockbox, any Borrower receives any payments on
         Receivables, such Borrower shall deposit such payments into such
         Borrower's Collateral Account. Until so deposited, such Borrower shall
         hold all such payments in trust for and as the property of the Lender
         and shall not commingle such payments with any of its other funds or
         property; provided, however, that the foregoing shall not be construed
         to allow the Lender to withhold any such payments after full payment
         and discharge of all Obligations.

                  (b) Amounts deposited in any Collateral Account shall not bear
         interest and shall not be subject to withdrawal by any Borrower, except
         after full payment and discharge of all Obligations; provided, however,
         that if the Borrowers' only outstanding Obligations are principal owing
         under the Term Loan A Note and the Term Loan B Note, and if no such
         principal amount is due, the Lender agrees to remit such amounts to
         such Borrower's demand deposit account maintained with Wells Fargo
         Bank.

                  (c) All deposits in any Collateral Account shall constitute
         proceeds of Collateral and shall not constitute payment of the
         Obligations. The Lender shall from time to time within one Banking Day,
         apply deposited funds in each Collateral Account to the payment of the
         Obligations, in any order or manner of application satisfactory to the
         Lender, by transferring such funds to the Lender's general account.

                  (d) All items deposited in any Collateral Account shall be
         subject to final payment. If any such item is returned uncollected, the
         Borrowers will immediately pay the Lender, or, for items deposited in a
         Collateral Account, the bank maintaining such account, the amount of
         that item, or such bank at its discretion may charge any uncollected
         item to any commercial account or other account belonging to the
         Borrower to whom the item was payable.

                  Section 6.11 Performance by the Lender. If any Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives such Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.10, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of such Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing

                                                                            - 41
<PAGE>   42

statements, and the endorsement of instruments); and such Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Revolving Floating Rate. To facilitate the Lender's performance or observance of
such covenants of the Borrowers, each Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as such Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of such Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by such Borrower under this Section 6.11.

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

<TABLE>
<CAPTION>
                         Period                                      Minimum Book Net Worth
                         ------                                      ----------------------
<S>                                                                  <C>
                     March 31, 2000                                    $34,609,000
                     April 30, 2000                                    $33,011,000
                      May 31, 2000                                     $31,399,000
                     June 30, 2000                                     $29,844,000
                     July 31, 2000                                     $27,828,000
                    August 31, 2000                                    $26,095,000
                   September 30, 2000                                  $24,915,000
                    October 31, 2000                                   $23,302,000
                   November 30, 2000                                   $22,110,000
               December 31, 2000 and the
           last day of each month thereafter                           $21,666,000
</TABLE>

                  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):

                                                                            - 42
<PAGE>   43

<TABLE>
<CAPTION>
                          Period                                                 Minimum Net Income
                          ------                                                 ------------------
<S>                                                                             <C>
            Three months ending March 31, 2000                                  ($10,830,000)
              Six months ending June 30, 2000                                   ($15,595,000)
           Nine months ending September 30, 2000                                ($20,524,000)
          Twelve months ending December 31, 2000                                ($23,773,000)
</TABLE>

                  Section 6.14 Minimum Cash Balance. During the Inactive Period,
Heska shall maintain at all times, on a consolidated basis, Cash of not less
than $3,000,000. At all times thereafter, Heska shall maintain, on a
consolidated basis, its Liquidity at not less than $6,000,000.

                  Section 6.15 Minimum Individual Book Net Worth. Each Borrower
shall at all times maintain its Book Net Worth, calculated without regard to any
Subsidiary or other Affiliate, at an amount greater than zero.

                  Section 6.16 New Covenants. On or before December 31, 2000,
the Borrower and the Lender shall agree on new covenant levels for Sections
6.12, 6.13, 7.4(a)(v), and 7.10 for periods after such date. The new covenant
levels will be based on the Borrower's projections for such periods and shall be
no less stringent than the present levels. An Event of Default shall occur if
the new covenants are not agreed to by the above date.

                                   ARTICLE VII

                               NEGATIVE COVENANTS

                  So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, each Borrower agrees that, without the
Lender's prior written consent:

                  Section 7.1 Liens. Such Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
adverse claim, assignment or transfer (collectively, "Liens") upon or of any of
its assets, now owned or hereafter acquired, to secure any indebtedness;
excluding, however, from the operation of the foregoing, the following
(collectively, "Permitted Liens"):

                  (a) in the case of any of such Borrower's property which is
         not Collateral or other collateral described in the Security Documents,
         mortgages, deeds of trust, covenants, restrictions, rights, easements
         and minor irregularities in title which do not materially interfere
         with such Borrower's business or operations as presently conducted;

                                                                            - 43
<PAGE>   44

                  (b) Liens in existence on the date hereof and listed in
         Schedule 7.1 hereto;

                  (c) the Security Interest and Liens and security interests
         created by the Security Documents;

                  (d) purchase money Liens given, simultaneously with or within
         one hundred twenty (120) days after the acquisition or construction of
         real property or tangible personal property (including vendor's rights
         under purchase contracts under an agreement whereby title is retained
         for the purpose of securing the purchase price thereof and lessors'
         liens under capitalized lease obligations) or any Lien given to a
         financial institution financing the acquisition or construction of the
         real property or tangible personal property, on real property or
         tangible personal property hereafter acquired or constructed and not
         heretofore owned by any Borrower; provided, however, that in each such
         case such Lien (i) does not exceed the amount paid for such acquisition
         or construction, and (ii) is limited to such acquired or constructed
         real or tangible personal property;

                  (e) carriers', mechanics', materialmen's, suppliers', and
         other like Liens and charges arising in the ordinary course of business
         securing obligations that are not incurred in connection with the
         obtaining of any advance or credit and which are not overdue, or are
         being contested in good faith by appropriate proceedings;

                  (f) Liens arising in connection with worker's compensation,
         unemployment insurance and progress payments under government contracts
         and liens securing the performance of bids, tenders, leases, contracts
         (other than for the repayment of borrowed money), statutory
         obligations, surety customs and appeal bonds and other obligations of
         like nature, incurred, in each case, in the ordinary course of
         business;

                  (g) judgment liens in existence in an amount not more than
         $100,000;

                  (h) zoning restrictions, easements, licenses, encumbrances,
         reservations, provisions, covenants, conditions, waivers, restrictions
         on the use of property or minor irregularities of title (and with
         respect to leasehold interests, mortgages, obligations, liens and other
         encumbrances incurred, created, assumed or permitted to exist and
         arising by, through or under a landlord or owner of the leased
         property, with or without consent of the lessee) as normally exist with
         respect to similar properties which do not in the aggregate materially
         impair the use thereof in the operation of any Borrower's business;

                  (i) any preexisting Lien (whether or not assumed) on any real
         property or tangible personal property hereafter acquired by any
         Borrower; provided, however,

                                                                            - 44
<PAGE>   45

         that in each such case such Lien is limited to such acquired real or
         tangible personal property; provided, further, that proceeds from a
         Term Advance are not used to acquire such real property or tangible
         personal property;

                  (j) extensions, renewals and replacements of the Liens
         referred to in clause (b), (d) or (i) above; provided, any such
         extension, renewal or replacement liens shall be limited to the
         property or assets covered by the Lien extended, renewed or replaced;

                  (k) leases, subleases, licenses and sublicenses to third
         parties of patents, patent applications, trademarks and copyrights, in
         each case in the ordinary course of its business as currently
         conducted; and

                  (l) Liens of brokers under brokerage agreements entered into
         in the ordinary course of business as presently conducted.

                  Section 7.2 Indebtedness. Such Borrower will not incur,
create, assume or permit to exist any indebtedness or liability on account of
deposits or advances or any indebtedness for borrowed money or letters of credit
issued on such Borrower's behalf, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:

                  (a) indebtedness arising hereunder;

                  (b) indebtedness of such Borrower in existence on the date
         hereof and listed in Schedule 7.2 hereto;

                  (c) indebtedness of such Borrower (i) relating to liens of
         such Borrower permitted in accordance with Section 7.1, (ii) arising
         out of guaranties of such Borrower permitted under Section 7.3, or
         (iii) arising for such Borrower as a result of an investment in or loan
         to such Borrower by another Borrower in accordance with Section 7.4.

                  (d) unsecured trade debt incurred, and cash advances received
         from customers, in each case in the ordinary course of business;

                  (e) indebtedness of any Person existing at the time such
         Person is merged with or into such Borrower, to the extent the Lender
         consents to such merger in accordance with Section 7.7, and provided
         that such Debt is not incurred in connection with or in contemplation
         of such merger;

                  (f) extensions, renewals and replacements of the debt referred
         to in clause (b) or (c) above; provided that any such extension,
         renewal or replacement

                                                                            - 45
<PAGE>   46

         shall be in an amount not greater than, and on terms no less favorable
         to such Borrower (other than interest rate increases) than, the amount
         extended, renewed or replaced;

                  (g) other Debt in an amount not to exceed $100,000; and

                  (h) capital leases to the extent the entry into such leases
         does not cause a Default or Event of Default hereunder.

                  Section 7.3 Guaranties. Such Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:

                  (a) the endorsement of negotiable instruments by such Borrower
         for deposit or collection or similar transactions in the ordinary
         course of business;

                  (b) guaranties, endorsements and other direct or contingent
         liabilities in connection with the obligations of other Persons, in
         existence on the date hereof and listed in Schedule 7.3 hereto; and

                  (c) guaranties of the obligations of one Borrower given by
         another Borrower.

                  Section 7.4 Investments and Subsidiaries.

                  (a) Such Borrower will not purchase or hold beneficially any
         stock or other securities or evidences of indebtedness of, make or
         permit to exist any loans or advances to, or make any investment or
         acquire any interest whatsoever in, any other Person, including
         specifically but without limitation any partnership or joint venture,
         except:
                           (i) investments in direct obligations of the United
                  States of America or any agency or instrumentality thereof
                  whose obligations constitute full faith and credit obligations
                  of the United States of America having a maturity of one year
                  or less, commercial paper issued by U.S. corporations rated
                  "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
                  "P-2" by Moody's Investors Service or certificates of deposit
                  or bankers' acceptances having a maturity of one year or less
                  issued by members of the Federal Reserve System having
                  deposits in excess of $100,000,000 (which certificates of
                  deposit or bankers' acceptances are fully insured by the
                  Federal Deposit Insurance Corporation);

                           (ii) advances or loans to such Borrower's officers
                  and employees not exceeding at any one time an aggregate of
                  $200,000;

                                                                            - 46
<PAGE>   47

                           (iii) advances in the form of progress payments,
                  prepaid rent not exceeding two months or security deposits;

                           (iv) unless a Default Period exists or would exist
                  immediately after or as a result of any such loan, advance or
                  capital contribution, loans, advances or capital contributions
                  by Heska to any Subsidiary that is also a Borrower; provided,
                  however, that both before and after such advance or
                  contribution both Heska's Tangible Net Worth and such
                  Subsidiary's Tangible Net Worth must equal or exceed $100,000;

                           (v) unless a Default Period exists or would exist
                  immediately after or as a result of any such advance or
                  contribution, advances or contributions by Heska to any
                  Subsidiary that is not a Borrower; provided, however, that (A)
                  both before and after such advance or contribution Heska's
                  Tangible Net Worth must equal or exceed $100,000 and (B) all
                  contributions and advances made in reliance on this subsection
                  (v) shall not exceed $700,000 in the aggregate during the 2000
                  fiscal year;

                           (vi) investments, including investments in
                  Subsidiaries, existing on the date hereof and listed in
                  Schedule 7.4;

                           (vii) investments in the following items arising in
                  the ordinary course of business: (A) prepaid expenses and
                  negotiable instruments held for collection; (B) Accounts (and
                  Investments obtained in exchange or settlement of Accounts for
                  which the Borrower has determined that collection is not
                  likely); and (C) lease, utility and worker's compensation,
                  performance and other similar deposits;

                           (viii) unless a Default Period exists or would exist
                  immediately after or as a result of any such loan or advance,
                  loans or advances by any Subsidiary that is also a Borrower to
                  Heska; provided, however, that both before and after such loan
                  or advance both Heska's Tangible Net Worth and such
                  Subsidiary's Tangible Net Worth must equal or exceed $100,000.

                  (b) Such Borrower will not create or permit to exist any
         Subsidiary; provided, however, that so long as no Default Period
         exists, upon written request by such Borrower, the Lender shall not
         withhold its consent to the creation of (i) any domestic subsidiary
         provided such Borrower causes such subsidiary to deliver to the Lender
         a guaranty, a security agreement, and UCC financing statements and
         other documents requested by the Lender to create a first priority
         security interest on behalf of the Lender, or to perfect such security
         interest, in all assets of such subsidiary, or (ii) any foreign
         subsidiary.

                                                                            - 47
<PAGE>   48

                  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 (A) any Subsidiary may pay dividends to Heska; provided, however,
that if such Subsidiary is also a Borrower such Subsidiary's Tangible Net Worth
both before and after such dividend must equal or exceed $100,000; and (B) if no
Default Period then exists or would occur immediately following or as a result
of such repurchase, 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.

                  Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. Such Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than (A)
sale of Inventory in the ordinary course of business; (B) licenses and
sublicenses to third parties of patents, patent applications, trademarks and
copyrights, in each case in the ordinary course of its business as currently
conducted; (C) the sale of used equipment, provided that the aggregate amount of
any such sales of equipment shall not exceed $100,000 during any year, unless
the proceeds of such sales are delivered to the Lender for application against
the Obligations; (D) sales or other dispositions of Investments permitted by
Section 7.4; (E) sales of defaulted receivables to a collection agency in the
ordinary course of business; (F) other sales of assets with book value of not
more than $100,000 during any fiscal year, for fair and reasonable
consideration, to the extent such sale could not reasonably be expected to have
a material adverse effect; and (G) so long as the outstanding balance under the
Center Revolving Note is zero and no Advances have been made to any Borrower in
reliance on the assets of Center, a sale of substantially all the assets of
Center. Such Borrower will not in any manner transfer any property without prior
or present receipt of full and adequate consideration.

                  Section 7.7 Consolidation and Merger; Asset Acquisitions. Such
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person; provided, however, that the Lender will not unreasonably withhold
its consent to any merger or acquisition.

                                                                            - 48
<PAGE>   49

                  Section 7.8 Restrictions on Nature of Business. Such Borrower
will not engage in any line of business materially different from that presently
engaged in by such Borrower and/or lines of business reasonably related or
supplementing thereto and will not purchase, lease or otherwise acquire assets
not related to its business.

                  Section 7.9 Accounting. Such Borrower will not adopt any
material change in accounting principles other than as required by GAAP, the
SEC, or NASDAQ. Such Borrower will not adopt, permit or consent to any change in
its fiscal year.

                  Section 7.10 Capital Expenditures. The Borrowers, together
with any Affiliates, will not incur or contract to incur, in the aggregate,
Capital Expenditures of more than $2,800,000 in the aggregate during the period
from January 1, 2000 through December 31, 2000.

                  Section 7.11 Discounts, etc. Such Borrower will not, following
and during the continuance of an Event of Default, if requested by the Lender,
grant any discount, credit or allowance to any customer of such Borrower or
accept any return of goods sold, or modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of such
Borrower.

                  Section 7.12 Defined Benefit Pension Plans. Such Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.

                  Section 7.13 Other Defaults. Such Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon such Borrower if the effect of such breach,
default or event of default is to permit the lender thereof to accelerate the
payment of $100,000 or more; provided, however, that such Borrower shall not be
in breach hereunder so long as such breach, default or event of default is being
contested in good faith by appropriate proceedings, for which proper reserves
have been made, and the Lender has been given written notice of such content.

                  Section 7.14 Place of Business; Name. Such Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. Such Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. Such Borrower will not change
its name. Upon written request by any Borrower, after delivery by such Borrower
of (a) financing statements, financing statement amendments, and other documents
requested by the Lender for the purpose of perfecting or maintaining priority or
perfection of the Security

                                                                            - 49
<PAGE>   50

Interest and the other security interests evidenced by the Security Documents,
and (b) searches and other proof requested by the Lender to evidence such
priority and perfection, the Lender shall grant its consent to (x) a relocation
of business locations or Collateral within the United States or (y) a change of
any Borrower's name.

                  Section 7.15 Organizational Documents. Such Borrower will not
become an S Corporation within the meaning of the Internal Revenue Code of 1986,
as amended.

                                  ARTICLE VIII

                     EVENTS OF DEFAULT, RIGHTS AND REMEDIES

                  Section 8.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:

                  (a) default in the payment of the Obligations (other than the
         Obligations specified in Section 8.1(b)) when they become due and
         payable;

                  (b) default in the payment of any fees, commissions, costs or
         expenses required to be paid by any Borrower under this Agreement or
         any other Loan Document within 5 Business Days of the date they become
         due and payable;

                  (c) default in the performance, or breach, of the covenants
         contained in Section 6.4(a) or Section 6.6(a) of this Agreement if such
         default remains unremedied 15 Business Days after its occurrence; or
         default in the performance, or breach, of any other covenant or
         agreement of any Borrower contained in this Agreement or any other Loan
         Document;

                  (d) Any Borrower or any Guarantor shall be or become
         insolvent, or admit in writing its or his inability to pay its or his
         debts as they mature, or make an assignment for the benefit of
         creditors; or any Borrower or any Guarantor shall apply for or consent
         to the appointment of any receiver, trustee, or similar officer for it
         or him or for all or any substantial part of its or his property; or
         such receiver, trustee or similar officer shall be appointed without
         the application or consent of such Borrower or such Guarantor, as the
         case may be; or any Borrower or any Guarantor shall institute (by
         petition, application, answer, consent or otherwise) any bankruptcy,
         insolvency, reorganization, arrangement, readjustment of debt,
         dissolution, liquidation or similar proceeding relating to it or him
         under the laws of any jurisdiction; or any such proceeding shall be
         instituted (by petition, application or otherwise) against any Borrower
         or any such Guarantor; or any judgment, writ, warrant of attachment or
         execution or similar process shall be issued or levied against a
         substantial part of the property of any Borrower or any Guarantor;

                                                                            - 50
<PAGE>   51

                  (e) A petition shall be filed by or against any Borrower or
         any Guarantor under the United States Bankruptcy Code naming such
         Borrower or such Guarantor as debtor;

                  (f) Any representation or warranty made by any Borrower in
         this Agreement, by any Guarantor in any guaranty delivered to the
         Lender, or by any Borrower (or any of its officers) or any Guarantor in
         any agreement, certificate, instrument or financial statement or other
         statement contemplated by or made or delivered pursuant to or in
         connection with this Agreement or any such guaranty shall prove to have
         been incorrect in any material respect when deemed to be effective;

                  (g) The rendering against any Borrower of a final judgment,
         decree or order for the payment of money in excess of $100,000 and the
         continuance of such judgment, decree or order unsatisfied and in effect
         for any period of 30 consecutive days without a stay of execution;

                  (h) A default under any bond, debenture, note or other
         evidence of indebtedness of any Borrower owed to any Person other than
         the Lender, or under any indenture or other instrument under which any
         such evidence of indebtedness has been issued or by which it is
         governed, or under any lease of any of the Premises, and the expiration
         of the applicable period of grace, if any, specified in such evidence
         of indebtedness, indenture, other instrument or lease, if the effect of
         such default is to permit the lender thereof to accelerate the payment
         of indebtedness $100,000 or more;

                  (i) Any Reportable Event, which the Lender determines in good
         faith might constitute grounds for the termination of any Plan or for
         the appointment by the appropriate United States District Court of a
         trustee to administer any Plan, shall have occurred and be continuing
         30 days after written notice to such effect shall have been given to
         such Borrower by the Lender; or a trustee shall have been appointed by
         an appropriate United States District Court to administer any Plan; or
         the Pension Benefit Guaranty Corporation shall have instituted
         proceedings to terminate any Plan or to appoint a trustee to administer
         any Plan; or any Borrower shall have filed for a distress termination
         of any Plan under Title IV of ERISA; or any Borrower shall have failed
         to make any quarterly contribution required with respect to any Plan
         under Section 412(m) of the Internal Revenue Code of 1986, as amended,
         which the Lender determines in good faith may by itself, or in
         combination with any such failures that the Lender may determine are
         likely to occur in the future, result in the imposition of a lien on
         such Borrower's assets in favor of the Plan;

                                                                            - 51
<PAGE>   52

                  (j) An event of default shall occur under any Security
         Document or under any other security agreement, mortgage, deed of
         trust, assignment or other instrument or agreement securing any
         obligations of any Borrower hereunder or under any note;

                  (k) Except as permitted by Section 7.6 of this Agreement, any
         Borrower shall liquidate, dissolve, terminate or suspend its business
         operations or otherwise fail to operate its business in the ordinary
         course, or sell all or substantially all of its assets, without the
         Lender's prior written consent;

                  (l) Any Borrower shall fail to pay, withhold, collect or remit
         any tax or tax deficiency when assessed or due (other than any tax
         deficiency which is being contested in good faith and by proper
         proceedings and for which it shall have set aside on its books adequate
         reserves therefor) or notice of any state or federal tax liens shall be
         filed or issued (unless such lien is being contested in good faith and
         by proper proceedings and for which it shall have set aside on its
         books adequate reserves therefor);

                  (m) Default in the payment of any amount owed by any Borrower
         to the Lender, other than any indebtedness arising hereunder;

                  (n) Any Guarantor shall repudiate, purport to revoke or fail
         to perform any such Guarantor's obligations under such Guarantor's
         guaranty in favor of the Lender, or any Guarantor shall cease to exist;

                  (o) Any event or circumstance with respect to any Borrower
         shall occur such that the Lender shall believe in good faith that the
         prospect of payment of all or any part of the Obligations or the
         performance by any Borrower under the Loan Documents is impaired or any
         material adverse change in the business or financial condition of any
         Borrower shall occur;

                  (p) Any Borrower shall take or participate in any action which
         would be prohibited under the provisions of any Subordination Agreement
         or make any payment on Subordinated Indebtedness (as defined in any
         Subordination Agreement) that any Person was not entitled to receive
         under the provisions of such Subordination Agreement; or

                  Section 8.2 Rights and Remedies. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:

                  (a) the Lender may, by notice to Heska, declare the Commitment
         to be terminated, whereupon the same shall forthwith terminate;

                                                                            - 52
<PAGE>   53

                  (b) the Lender may, by notice to Heska, declare the
         Obligations to be forthwith due and payable, whereupon all Obligations
         shall become and be forthwith due and payable, without presentment,
         notice of dishonor, protest or further notice of any kind, all of which
         each Borrower hereby expressly waives;

                  (c) the Lender may refuse to fund any requested Advance made
         by any Borrower;

                  (d) the Lender may, without notice to any Borrower and without
         further action, apply any and all money owing by the Lender to any
         Borrower to the payment of the Obligations;

                  (e) the Lender may exercise and enforce any and all rights and
         remedies available upon default to a secured party under the UCC,
         including, without limitation, the right to take possession of
         Collateral, or any evidence thereof, proceeding without judicial
         process or by judicial process (without a prior hearing or notice
         thereof, which each Borrower hereby expressly waives) and the right to
         sell, lease or otherwise dispose of any or all of the Collateral, and,
         in connection therewith, each Borrower will on demand assemble the
         Collateral and make it available to the Lender at a place to be
         designated by the Lender which is reasonably convenient to both
         parties;

                  (f) the Lender may exercise and enforce its rights and
         remedies under the Loan Documents; and

                  (g) the Lender may exercise any other rights and remedies
         available to it by law or agreement.

Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.

                  Section 8.3 Certain Notices. If notice to any Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.5) at least ten
calendar days before the date of intended disposition or other action.

                                                                            - 53
<PAGE>   54

                                   ARTICLE IX

                                  MISCELLANEOUS

                  Section 9.1 Restatement of Old Credit Documents. This
Agreement is executed for the purpose of amending and restating the Old Credit
Documents.

                  Section 9.2 Release. Each Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, the Participants and
any and all 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 relating to the transactions contemplated by
this Agreement, whether arising in law or equity or upon contract or tort or
under any state or federal law or otherwise, which such Borrower has had 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 Agreement, whether such claims, demands and
causes of action are matured or unmatured or known or unknown. For greater
certainty, nothing herein shall constitute a release by any Borrower of any
Person for any such claim, demand or cause of action arising after the date of
this Agreement.

                  Section 9.3 No Waiver; Cumulative Remedies. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.

                  Section 9.4 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by any Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on any Borrower
in any case shall entitle such Borrower to any other or further notice or demand
in similar or other circumstances.

                  Section 9.5 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:

                                                                            - 54
<PAGE>   55

                  If to the Borrowers:

                  Heska Corporation
                  1613 Prospect Parkway
                  Fort Collins, Colorado 80525
                  Telecopier: (970) 484-9505
                  Attention: Chief Financial Officer

                  If to the Lender:

                  Wells Fargo Business Credit, Inc.
                  MAC C7300-300
                  1740 Broadway
                  Denver, Colorado 80274
                  Telecopier: 303-863-4904
                  Attention: Colette Taylor

or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.

                  Section 9.6 Further Documents. Each Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that any Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).

                  Section 9.7 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law,
each Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in

                                                                            - 55
<PAGE>   56

the custody or possession of a bailee or other third person, exercises
reasonable care in the selection of the bailee or other third person, and the
Lender need not otherwise preserve, protect, insure or care for any Collateral.
The Lender shall not be obligated to preserve any rights any Borrower may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order or to apply any cash proceeds of the Collateral in any
particular order of application.

                  Section 9.8 Costs and Expenses. Each Borrower, jointly and
severally, agrees to pay on demand all costs and expenses, including (without
limitation) reasonable attorneys' fees, incurred by the Lender in connection
with the Obligations, this Agreement, the Loan Documents, and any other document
or agreement related hereto or thereto, and the transactions contemplated
hereby, including without limitation all such costs, expenses and fees incurred
in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.

                  Section 9.9 Indemnity. In addition to the payment of expenses
pursuant to Section 9.8, each Borrower, jointly and severally, agrees to
indemnify, defend and hold harmless the Lender, and any of its participants,
parent corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the "Indemnitees") from and against any
of the following (collectively, "Indemnified Liabilities"):

                           (i) any and all transfer taxes, documentary taxes,
                  assessments or charges made by any governmental authority by
                  reason of the execution and delivery of the Loan Documents or
                  the making of the Advances;

                           (ii) any claims, loss or damage to which any
                  Indemnitee may be subjected if any representation or warranty
                  contained in Section 5.12 proves to be incorrect in any
                  respect or as a result of any violation of the covenant
                  contained in Section 6.4(b); and

                           (iii) any and all other liabilities, losses, damages,
                  penalties, judgments, suits, claims, costs and expenses of any
                  kind or nature whatsoever (including, without limitation, the
                  reasonable fees and disbursements of counsel) in connection
                  with the foregoing and any other investigative, administrative
                  or judicial proceedings, whether or not such Indemnitee shall
                  be designated a party thereto, which may be imposed on,
                  incurred by or asserted against any such Indemnitee, in any
                  manner related to or arising out of or in connection with the
                  making of the Advances and the Loan Documents or the use or
                  intended use of the proceeds of the Advances;

                                                                            - 56
<PAGE>   57

provided that no Borrower shall have any such obligation for any Indemnified
Liabilities arising from any act or omission by an Indemnitee which constitutes
gross negligence or willful misconduct. If any investigative, judicial or
administrative proceeding arising from any of the foregoing is brought against
any Indemnitee, upon such Indemnitee's request, each Borrower, or counsel
designated by any such Borrower and satisfactory to the Indemnitee, will resist
and defend such action, suit or proceeding to the extent and in the manner
directed by the Indemnitee, at such Borrower's sole costs and expense. Each
Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding. If the foregoing undertaking to indemnify, defend
and hold harmless may be held to be unenforceable because it violates any law or
public policy, each Borrower shall nevertheless make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Each Borrower's obligation under this Section
9.9 shall survive the termination of this Agreement and the discharge of such
Borrower's other obligations hereunder.

                  Section 9.10 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.

                  Section 9.11 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.

                  Section 9.12 Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrowers and the Lender and their respective successors and
assigns, except that no Borrower shall have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding any Borrower and its
Affiliates with the Lender's participants (except that the Lender shall not
share any information with a participant that is a competitor, or an affiliate
of a competitor, of any such Borrower, in the area of researching, developing
and manufacturing animal health products), accountants, lawyers and other
advisors, the Lender, WFC Holdings Corporation, and all direct and indirect
subsidiaries of WFC Holdings Corporation, may exchange any and all information
they may have in their possession regarding any Borrower and its Affiliates, and
each Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.

                                                                            - 57
<PAGE>   58

                  Section 9.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.

                  Section 9.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.

                                                                            - 58
<PAGE>   59

                  Section 9.15 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Colorado.
The parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of Colorado in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or any Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court for the City and County
of Denver, Colorado, or the United States District Court, District of Colorado;
and (iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.

WELLS FARGO                            HESKA CORPORATION
BUSINESS CREDIT, INC.

By  /s/Collette Taylor                 By /s/Ronald L. Hendrick
    ------------------------------       ----------------------
    Colette Taylor, Assistant            Ronald L. Hendrick, Chief
    Vice President                       Financial Officer

                                       DIAMOND ANIMAL HEALTH, INC.

                                       By /s/Ronald L. Hendrick
                                         ----------------------
                                         Ronald L. Hendrick, Secretary
                                         and Treasurer

                                       CENTER LABORATORIES, INC.

                                       By /s/Ronald L. Hendrick
                                         ----------------------
                                         Ronald L. Hendrick, Secretary

                                                                            - 59
<PAGE>   60

                         Table of Exhibits and Schedules

<TABLE>
<S>                                                  <C>
                  Exhibit A                          Form of Heska Revolving Note

                  Exhibit B                          Form of Diamond Revolving Note

                  Exhibit C                          Form of Center Revolving Note

                  Exhibit D                          Form of Term Loan A Note

                  Exhibit E                          Form of Term Loan B Note

                  Exhibit F                          Premises

                  Exhibit G                          Compliance Certificate

                                                  -------------------

                  Schedule 5.1                       Trade Names, Chief Executive Office, Principal
                                                     Place of Business, and Locations of Collateral

                  Schedule 5.4                       List of Subsidiaries

                  Schedule 5.6                       Litigation

                  Schedule 5.10                      Plans

                  Schedule 5.12                      Environmental Matters

                  Schedule 7.1                       Permitted Liens

                  Schedule 7.2                       Permitted Indebtedness and Guaranties

                  Schedule 7.3                       Guarantees

                  Schedule 7.4                       Investments
</TABLE>

<PAGE>   61

                                        Exhibit A to Amended and Restated Credit
                                        and Security Agreement

                                 REVOLVING NOTE

$10,000,000                                                     Denver, Colorado
                                                                  June ___, 2000

                  For value received, the undersigned, HESKA CORPORATION, a
Delaware corporation (the "Borrower"), hereby promises to pay on the Termination
Date under the Credit Agreement (defined below), to the order of WELLS FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main
office in Denver, Colorado, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ten Million Dollars
($10,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Second Amended and
Restated Credit and Security Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") by and among the Lender, the Borrower, Diamond Animal Health, Inc.,
and Center Laboratories, Inc. The principal hereof and interest accruing thereon
shall be due and payable as provided in the Credit Agreement. This Note may be
prepaid only in accordance with the Credit Agreement.

                  This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Heska Revolving Note referred to in the Credit Agreement. This Note
is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.

                  The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.

<PAGE>   62

                  Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

                                       HESKA CORPORATION

                                       By
                                          --------------------------------------
                                          Ronald L. Hendrick,
                                          Chief Financial Officer

                                      -2-
<PAGE>   63

                                        Exhibit B to Amended and Restated Credit
                                        and Security Agreement

                                 REVOLVING NOTE

$10,000,000                                                     Denver, Colorado
                                                                  June ___, 2000

                  For value received, the undersigned, DIAMOND ANIMAL HEALTH,
INC., an Iowa corporation ("Diamond") and HESKA CORPORATION, a Delaware
corporation (collectively, the "Borrowers"), hereby promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Denver, Colorado, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Ten Million Dollars
($10,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to Diamond under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Second Amended and
Restated Credit and Security Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") by and among the Lender, the Borrowers, and Center Laboratories,
Inc. The principal hereof and interest accruing thereon shall be due and payable
as provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.

                  This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. To the
extent this Note evidences the Borrower's Obligation to pay Existing Revolving
Advances, this Note is issued in substitution for and replacement of, but not in
payment of, Diamond's promissory note dated as of September 8, 1998, payable to
the order of the Lender in the original principal amount of $2,500,000. This
Note is the Diamond Revolving Note referred to in the Credit Agreement. This
Note is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.

<PAGE>   64

                  The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.

                  Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

DIAMOND ANIMAL HEALTH, INC.            HESKA CORPORATION

By                                     By
   -------------------------------       ---------------------------------------
   Ronald L. Hendrick,                   Ronald L. Hendrick,
   Secretary and Treasurer               Chief Financial Officer

                                      -2-
<PAGE>   65

                                        Exhibit C to Amended and Restated Credit
                                        and Security Agreement

                                 REVOLVING NOTE

$10,000,000                                                     Denver, Colorado
                                                                  June ___, 2000

                  For value received, the undersigned, CENTER LABORATORIES,
INC., a Delaware corporation ("Center") and HESKA CORPORATION, a Delaware
corporation (collectively, the "Borrowers"), hereby promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Denver, Colorado, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Ten Million Dollars
($10,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to Center under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Second Amended and
Restated Credit and Security Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") by and between the Lender, the Borrowers, and Diamond Animal Health,
Inc. The principal hereof and interest accruing thereon shall be due and payable
as provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.

                  This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Center Revolving Note referred to in the Credit Agreement. This Note
is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.

                  The Borrowers hereby agree to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.

<PAGE>   66

                  Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

CENTER LABORATORIES, INC.              HESKA CORPORATION

By                                     By
  --------------------------------       ---------------------------------------
  Ronald L. Hendrick, Secretary          Ronald L. Hendrick,
                                         Chief Financial Officer

                                      -2-

<PAGE>   67

                                        Exhibit D to Amended and Restated Credit
                                        and Security Agreement

                                TERM LOAN A NOTE

$1,040,000.13                                                   Denver, Colorado
                                                                   June 14, 2000

                  For value received, the undersigned, DIAMOND ANIMAL HEALTH,
INC., an Iowa corporation ("Diamond") and HESKA CORPORATION, a Delaware
corporation (collectively, the "Borrowers"), hereby promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Denver, Colorado, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of One Million Forty Thousand
and 13/100 Dollars ($1,040,000.13) or, if less, the aggregate unpaid principal
amount of all Term Loan A Advances made by the Lender to Diamond under the
Credit Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Second
Amended and Restated Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and among the Lender, the Borrowers, and Center
Laboratories, Inc. The principal hereof and interest accruing thereon shall be
due and payable as provided in the Credit Agreement. This Note may be prepaid
only in accordance with the Credit Agreement.

                  This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is issued in substitution for and replacement of, but not in payment of,
Diamond's Term Loan A Note dated as of September 8, 1998, payable to the order
of the Lender in the original principal amount of $1,600,000. This Note is the
Term Loan A Note referred to in the Credit Agreement. This Note is secured,
among other things, pursuant to the Credit Agreement and the Security Documents
as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.

<PAGE>   68

                  The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.

                  Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

DIAMOND ANIMAL HEALTH, INC.            HESKA CORPORATION

By                                     By
  --------------------------------       ---------------------------------------
  Ronald L. Hendrick,                    Ronald L. Hendrick,
  Secretary and Treasurer                Chief Financial Officer

                                      -2-
<PAGE>   69

                                        Exhibit E to Amended and Restated Credit
                                        and Security Agreement

                                TERM LOAN B NOTE

$2,062,500                                                      Denver, Colorado
                                                                  June ___, 2000

                  For value received, the undersigned, DIAMOND ANIMAL HEALTH,
INC., an Iowa corporation ("Diamond") and HESKA CORPORATION, a Delaware
corporation (collectively, the "Borrowers"), hereby promise to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Denver, Colorado, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Two Million Sixty-Two
Thousand Five Hundred Dollars ($2,062,500) or, if less, the aggregate unpaid
principal amount of all Term Loan B Advances made by the Lender to Diamond under
the Credit Agreement (defined below) together with interest on the principal
amount hereunder remaining unpaid from time to time, computed on the basis of
the actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Second
Amended and Restated Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and among the Lender, the Borrowers, and Center
Laboratories, Inc. The principal hereof and interest accruing thereon shall be
due and payable as provided in the Credit Agreement. This Note may be prepaid
only in accordance with the Credit Agreement.

                  This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is issued in substitution for and replacement of, but not in payment of,
Diamond's Term Loan B Note dated as of September 8, 1998, payable to the order
of the Lender in the original principal amount of $2,250,000. This Note is the
Term Loan B Note referred to in the Credit Agreement. This Note is secured,
among other things, pursuant to the Credit Agreement and the Security Documents
as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.

<PAGE>   70

                  The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.

                  Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

DIAMOND ANIMAL HEALTH, INC.            HESKA CORPORATION

By                                     By
  --------------------------------       ---------------------------------------
  Ronald L. Hendrick,                    Ronald L. Hendrick,
  Secretary and Treasurer                Chief Financial Officer

                                      -2-
<PAGE>   71

                                        Exhibit F to Amended and Restated Credit
                                        and Security Agreement

                                    PREMISES

                  The Premises referred to in the Amended and Restated Credit
and Security Agreement are legally described as follows:

All of the Northeast 1/4 of the Southwest 1/4 of Section 17, Township 78 North,
Range 23 West of the Fifth Principal Meridian lying North and East of the
Chicago, Burlington & Quincy Railroad (formerly known as Des Moines & Knoxville
Railway and sometimes erroneously described as the Des Moines & Kansas City
Railway) now included in and forming a part of the City of Des Moines, Polk
County, Iowa, except the following:

The South 208 3/4 feet of the East 434 feet of said Northeast 1/4 of the
Southwest 1/4 of Section 17, Township 78 North, Range 23, West of the Fifth
Principal Meridian, Polk County, Iowa;

A strip of ground 30 feet in width lying Northerly from and adjacent to the
Northerly line of the 100 foot right-of-way of the Chicago, Burlington & Quincy
Railroad Company in the South 17 acres (except street) of the Northeast 1/4 of
the Southwest 1/4 of Section 17, Township 78 North, Range 23, West of the Fifth
Principal Meridian, Polk County, Iowa;

A rectangular piece in the Northeast 1/4 of the Southwest 1/4 of Section 17,
Township 78 North, Range 23 West of the Fifth Principal Meridian, Polk County,
Iowa, lying within the following described lines: Beginning at a point on the
West line of said Northeast 1/4 of said Southwest 1/4 of said Section 17 which
is 120 feet North of the Northerly line of the 100 foot right-of-way; of the
Chicago, Burlington & Quincy Railroad Company; thence South along said West line
of said Northeast 1/4 of said Southwest 1/4 of said Section 17, a distance of
120 feet to the Northerly line of said railroad right-of-way; thence Easterly at
right angles to said West line of said Northeast 1/4 of said Southwest 1/4 of
said Section 17, a distance of 80 feet; thence North on a line 80 feet East of
and parallel with the West line of said Northwest 1/4 of Southwest 1/4 of said
Section 17, a distance of 120 feet; thence Westerly in a straight line a
distance of 80 feet to the point of beginning; and

The Southeast 1/4 of the Northeast 1/4 and the Northeast 1/4 of the Northeast
1/4 and the Northeast 1/4 of the Southeast 1/4 and the Southeast 1/4 of the
Southeast 1/4 of Section 22, Township 77 North, Range 23 West of the 5th P.M. in
Warren County, Iowa and the portion of the Northwest 1/4 of the Southwest 1/4
located north and west of the roadway in Section 23, Township 77 North, Range 23
West of the 5th P.M. in Warren County, Iowa.

<PAGE>   72

                                        Exhibit G to Amended and Restated Credit
                                        and Security Agreement

                             COMPLIANCE CERTIFICATE

To:               Colette Taylor
                  Wells Fargo Business Credit, Inc.

Date:                               , 20
                  ------------------    ---

Subject:          Heska Corporation
                  Financial Statements

                  In accordance with our Second Amended and Restated Credit and
Security Agreement dated as of June 14, 2000 (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 Borrower's financial condition and the
results of its operations as of the date thereof.

                  Events of Default. (Check one):

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

         [ ]      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:

         [ ]      The Reporting Date does not mark the end of one of the
                  Borrower's fiscal quarters, hence I am completing all
                  paragraphs below except paragraph 2.

         [ ]      The Reporting Date marks the end of one of the Borrower's
                  fiscal quarters, hence I am completing all paragraphs below.

<PAGE>   73

                  Financial Covenants. I further hereby certify as follows:

                  1. Minimum Book Net Worth. Pursuant to Section 6.12 of the
         Credit Agreement, as of the Reporting Date, Heska's Book Net Worth was,
         on a consolidated basis, $_________________, which [ ] satisfies [ ]
         does not satisfy the requirement that such amount be not less than
         $_____________ on the Reporting Date.

                  2. 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 [ ] satisfies [ ] does
         not satisfy the requirement that such amount be no less than
         $______________ on the Reporting Date.

                  3. Minimum Cash Balance. Pursuant to Section 6.14 of the
         Credit Agreement, as of the Reporting Date, the Borrower's Cash was
         $_________________, which [ ] satisfies [ ] does not satisfy the
         requirement that such amount be no less than $______________ on the
         Reporting Date.

                  4. 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 $_________________, Diamond's Book Net Worth was
         $_________________, and Center's Book Net Worth was $_________________,
         which [ ] satisfies [ ] does not satisfy the requirement that such
         amounts be no less than zero on the Reporting Date.

                  5. Capital Expenditures. Pursuant to Section 7.10 of the
         Credit Agreement, as of the Reporting Date, Heska's Capital
         Expenditures were, in the aggregate and on a consolidated basis,
         $_______________ which [ ] satisfies [ ] does not satisfy the
         requirement that such amount be not more than $______________ during
         its fiscal year ending December 31, _____________.

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

                                       HESKA CORPORATION

                                       By
                                         ---------------------------------------
                                         Ronald L. Hendrick
                                         Its Chief Financial Officer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00013-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00013-of-00352.parquet"}]]