Document:

Exhibit
10.27

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

THIRD
AMENDED AND RESTATED

CREDIT AND SECURITY
AGREEMENT

BY AND BETWEEN

HESKA
CORPORATION,

DIAMOND ANIMAL HEALTH,
INC.,

AND

WELLS
FARGO BANK, NATIONAL ASSOCIATION

as
successor in interest to Wells Fargo Business Credit, Inc.

Dated as of December 30, 2005

THIRD
AMENDED AND RESTATED 

CREDIT
AND SECURITY AGREEMENT

Dated as of
December 30, 2005

HESKA CORPORATION,
a Delaware corporation (“Heska”) and DIAMOND ANIMAL HEALTH, INC., an Iowa
corporation (“Diamond”) (each of Heska and Diamond may be referred to herein
individually as a “Borrower” and collectively as the “Borrowers”) and WELLS
FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business
Credit operating division (the “Lender”), as successor in interest to Wells
Fargo Business Credit, Inc., hereby agree as follows:

RECITALS

The Borrowers and
Center Laboratories, Inc., a Delaware corporation (“Center”), and the Lender
entered into a Second Amended and Restated Credit and Security Agreement dated
as of June 14, 2000 (the “Former Credit Agreement”).

Shortly after the
Former Credit Agreement was executed, Center was sold to an unrelated entity
and is no longer a Borrower under the Former Credit Agreement or under this
Agreement.

The Borrowers have
requested that the Former Credit Agreement be amended and restated in its
entirety as set forth herein.

NOW THEREFORE, in
consideration of the premises and the mutual promises herein contained, the
parties hereto agree that the Former Credit Agreement be amended and restated
to read in its entirety 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” means all of the Borrowers’ accounts, as
such term is defined in the UCC, including each and every right of the
Borrowers 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 the Borrowers or by some other person who
subsequently transfers such person’s interest to the Borrowers, 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) which the Borrowers 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.

“Additional Capital” means any of the following
received by a Borrower on or after June 30, 2005:  (a) net cash proceeds from issuance of Heska
common stock, including common stock issued under an employee stock purchase
plan or as a result of the exercise of options or warrants, (b) net cash
proceeds from issuance of Heska preferred stock, (c) net cash proceeds from a Borrower’s
issuance of debt instruments subject to a subordination agreement acceptable to
Wells Fargo in its sole discretion, and (d) net cash proceeds from the
licensing or sale of Non-Core IP.

“Advance” means a Revolving Advance, an Equipment 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 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.

“Aggregate L/C Amount” means at any time the sum of
each Borrower’s L/C Amount.

“Agreement” means this Third 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.

 3
 

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

“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, but excluding (a) the non-cash impact of expensing
options, restricted stock or other stock-based compensation under APB 25, SFAS
123, SFAS 123R and/or SFAS 148, and (b) the non-cash impact of income or expense
relating to deferred tax assets and liabilities caused by the use of net loss
carry-forwards, in each case after December 31, 2004.

“Borrower” means Heska or Diamond, and “Borrowers”
means Heska and Diamond.

“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)                                  During the Foreign Accounts Eligibility
Period, the lesser of (A) 85% of Eligible Foreign Accounts or (B) the FREP
Sublimit, plus

(iii)                               the lesser of (A) the
sum of (1) Eligible Inventory of such Borrower consisting of raw materials
multiplied by the Raw Materials Advance Rate plus (2) 55% of Eligible Inventory
of such Borrower consisting of finished goods, or (B) the difference of (1)
$4,500,000 less (2) the aggregate amount of Advances made to all Borrowers
other than such Borrower in reliance on Eligible Inventory.

“Capital” of a Borrower means the sum of Book Net
Worth plus Subordinated Debt of such Borrower plus the lesser of (a) the amount
of Debt that was formerly Subordinated Debt payable to Agri-Laboratories, Ltd.
but that has been forgiven and is booked as a long-term liability, such as
deferred revenue, or (b) $500,000.

“Capital Expenditures” for any Borrower for a period
means the sum of (a) 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, but excluding expenditures to purchase Rental Inventory, plus (b)
all expenditures of money to purchase [***] in excess of $1,500,000 during the
fiscal year in which such period occurs.

 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).

“Collateral” means all of the Borrowers’ Accounts,
chattel paper, deposit accounts, documents, Equipment, General Intangibles,
goods, instruments, Inventory, Investment Property, letter-of-credit rights,
letter of credit, 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) in the case of all goods, all
accessions; (iii) all accessories, attachments, parts equipment and repairs now
or hereafter attached or affixed to or used in connection with any goods;
(iv) all warehouse receipts, bills of lading and other documents of title
now or hereafter covering such goods; (v) all collateral subject to the Lien of
any Security Document; (vi) any money, or other assets of any Borrower that now
or hereafter come into the possession, custody, or control of the Lender; (vii)
all sums on deposit in the Special Account; and (viii) proceeds of any and all
of the foregoing.

“Collateral Account” for Diamond means (a) the
Collateral Account, as defined in the Collateral Account Agreement and (b) the Deposit
Account listed on Exhibit A of Diamond’s Deposit Account Control Agreement, and
for Heska means (a) the “Lender Account” as defined in the Heska’s Lockbox
Agreement and (b) the Deposit Account listed on Exhibit A of Heska’s Deposit
Account Control Agreement.

“Collateral Account Agreement” means the Collateral
Account Agreement dated as of October 16, 1997, by and among Diamond, the
Lender, as successor in interest to 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, “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.

 5
 

“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.

“Deposit Account Control Agreement” for a Borrower
means the Deposit Account Control Agreement dated as of February 21, 2005, by
and among such Borrower, the Lender, as successor in interest to Wells Fargo
Business Credit, Inc., and the Lender.

“Diamond Equipment Note” means the Equipment Note
(Diamond) dated as of July 26, 2005, payable to the order of the Lender in the
original principal amount of $2,000,000, and any note or notes issued in
substitution therefor, as the same may hereafter be amended, supplemented or
restated from time to time.

“Diamond Revolving Note” means the Second Amended and
Restated Revolving Note (Diamond Animal Health) dated as of March 26, 2004,
payable to the order of the Lender in the original principal amount of
$12,000,000, as the same may hereafter be amended, supplemented or restated
from time to time.

“Director” means, with respect to any Borrower, a
director if such Borrower is a corporation, a governor, manager, or managing
member if such Borrower is a limited liability company, or a partner if such
Borrower is a partnership.

“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 the invoice date; provided,
however, that certain Accounts which are billed pursuant to dated term 

 6
 

invoices with payment terms of not greater than 180 days from the
invoice date (“Dated Term Accounts”) which (A) do not remain unpaid more than
180 days from such Dated Term Account’s invoice date, (B) are not more than 30
days past due, and (C) are approved by the Lender in its sole discretion,
shall, despite the terms of this subsection (i), be deemed Eligible Accounts;

(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 such 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 such 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 or control,
and with respect to which a control agreement concerning the letter-of-credit
rights is in effect, and acceptable to the Lender in all respects, in its sole
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 such 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 an Owner,
Subsidiary, Affiliate, officer or employee of any 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;

 7
 

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

(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; provided,
however, that for the customers listed below, such limit shall instead be the
greater of the foregoing or the amount set forth opposite such customer in the
following table:

	
  Customer

  	
   

  	
  Concentration Limit

  	
   

  
	
  [***]

  	
   

  	
  25

  	
  %

  
	
  [***]

  	
   

  	
  20

  	
  %

  

(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 Equipment” of a Borrower means Equipment
owned by such Borrower and designated by the Lender as eligible from time to
time in its sole discretion but excluding any Equipment having any of the
following characteristics:

(i)                                     Equipment
that is subject to any Lien other than in favor of the Lender;

(ii)                                  Equipment
that has not been delivered to the Premises;

(iii)                               Equipment in which the
Lender does not hold a first priority security interest;

(iv)                              Equipment
that is obsolete or not currently saleable;

(v)                                 Equipment
that is not covered by standard “all risk” insurance for an amount equal to its
forced liquidation value;

(vi)                              Equipment
that requires proprietary software in order to operate in the manner in which
it is intended when such software is not freely assignable to the Lender or any
potential purchaser of such Equipment;

 8
 

(vii)                           Equipment consisting of
computer hardware, software, tooling, or molds;

(viii)                        Equipment consisting of Rental
Inventory; and

(ix)                                Equipment
otherwise deemed unacceptable to Lender in its sole discretion.

“Eligible
Foreign Accounts” for a Borrower means all Accounts due and owing by an account
debtor located outside the United States to such Borrower; but excluding any
Accounts having any of the following characteristics:

(i)                                     That
portion of Accounts (other than dated Accounts) unpaid 120 days or more after
the invoice date, (B) that portion of dated Accounts unpaid more than 90 days
after the stated due date, and (C) that portion of Accounts that do not provide
for payment in full within 120 days after the shipment date;

(ii)                                  That portion of Accounts related to goods or
services with respect to which such Borrower has received notice of a claim or
dispute, which are subject to a claim of offset or a contra account, or which
reflect a reasonable reserve for warranty claims or returns;

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

(iv)                              That portion of Accounts for which an invoice
has not been sent to the applicable account debtor;

(v)                                 Accounts
owed by any unit of government;

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

(vii)                           Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of any Borrower;

(viii)                        Accounts
not subject to a duly perfected security interest in the Lender’s favor or
which are subject to any Lien in favor of any Person other than the Lender,
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;

 9
 

(xi)                                That portion of Accounts owed by any one
account debtor that would permit Revolving Advances supported by such account
debtor’s Accounts to exceed $300,000 at any one time;

(xii)                             Accounts denominated in any currency other
than United States dollars, Canadian dollars, Swiss francs, Japanese yen,
United Kingdom pounds sterling or European Union euros;

(xiii)                          Accounts with respect to which the Borrower
has not instructed the Account debtor to pay the Account to the Collateral
Account;

(xiv)                         Accounts owed by debtors located in countries
not acceptable to the Lender in its sole discretion;

(xv)                            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;

(xvi)                         Accounts otherwise deemed unacceptable to 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
such Borrower’s operations;

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

 10
 

(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;

(ix)                                all
Rental Inventory that has been delivered to, or is in transit to, a customer,
and all Rental Inventory that is not substantially the same in functionality
and quality as other Inventory carried for sale by such Borrower; and

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

“Environmental Laws” has the meaning specified in
Section 5.12.

“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.

“Equipment Advance” has the meaning given in Section
2.3.

“Equipment Note” means the Heska Equipment Note or the
Diamond Equipment Note.

“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.

 11
 

“Factory Mortgage” means the Combination Mortgage, Assignment
of Rents and Fixture Financing Statement, executed by Diamond for the benefit
of the Lender, dated as of September 8, 1998, concerning the Factory Mortgaged
Property, as amended.

“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 Diamond for
the benefit of the Lender, dated as of September 8, 1998, concerning the Farm
Mortgaged Property, as amended.

“Farm Mortgaged Property” means Mortgaged Property as
defined in the Farm Mortgage.

“Foreign Accounts Eligibility Period” means the period
beginning on the first day of any month in which a Borrower requests in writing
that Eligible Foreign Accounts be included in the Borrowing Base and ending on
the last day of any month in which a Borrower requests in writing that Eligible
Foreign Accounts no longer be included in the Borrowing Base; provided,
however, that the Foreign Accounts Eligibility Period shall automatically
terminate on the earlier of the Termination Date or on the first date on which
(i) the Borrowers have failed to make any payment of the fee provided for in
Section 2.9(e), or (ii) the foreign receivables eligibility program in which
the Lender participates becomes unavailable to the Lender, or (iii) any
Borrower’s foreign Accounts cease for any reason to be eligible for coverage
under such foreign receivables eligibility program.

“Former Credit Agreement” has the meaning given in the
Recitals.

“FREP Sublimit” means an amount from zero to $500,000,
as adjusted from time to time in increments of $100,000 in the Borrowers’
discretion.

“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 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.

 12
 

“Heska Equipment Note” means the Equipment Note
(Heska) dated as of July 26, 2005, payable to the order of the Lender in the
original principal amount of $500,000, as the same may hereafter be amended,
supplemented or restated from time to time.

“Heska Revolving Note” means the Second Amended and
Restated Revolving Note (Heska) dated as of March 26, 2004, payable to the
order of the Lender in the original principal amount of $12,000,000, as the
same may hereafter be amended, supplemented or restated from time to time.

“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, and including, without limitation, all Rental Inventory.

“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.

“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
such 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 Lender.

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

“Lien” means any security interest, mortgage, deed of
trust, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device, including the interest of each lessor under any
capitalized lease and the interest of any bondsman under any payment or
performance bond, in, of or on any assets or properties of a Person, whether
now owned or hereafter acquired and whether arising by agreement or operation
of law.

“Liquidity” means the sum of Cash (excluding Cash
located in accounts outside the United States or owned by an entity not
incorporated in the United States) plus Excess Collateral Base less Past Due
Payables.

“Loan Documents” means this Agreement, the Notes and
the Security Documents.

 13

“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 Diamond, the
Lender, as successor in interest to Norwest Bank Iowa, NA, and the Lender, as
successor in interest to Wells Fargo Business Credit, Inc., dated as of October
16, 1997, and for Heska means the Lockbox and Collection Account Agreement
among Heska, Regulus West LLC (“Regulus”), the Lender, as successor in interest
to Wells Fargo Business Credit, Inc., and the Lender, dated as of June 14,
2000.

“Maturity Date” means
June 30, 2009.

“Maximum Line” means
$12,000,000, 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, but excluding (a) the non-cash
impact of expensing options, restricted stock or other stock-based compensation
under APB 25, SFAS 123, SFAS 123R and/or SFAS 148, and (b) the non-cash impact
of income or expense relating to deferred tax assets and liabilities caused by
the use of net loss carry-forwards.

“Non-Core IP” means
intellectual property (including, without limitation, any patent, trademark,
trade name, or copyrighted material) of any Borrower that is unrelated to the
Borrowers’ veterinary product sales and the sale of which would not have a
material adverse effect on any Borrower.

“Note” means a Revolving
Note, an Equipment Note, or the Term Loan B Note, and “Notes” means the Revolving
Notes, the Equipment Notes, and the Term Loan B Note.

“Obligation of
Reimbursement” has the meaning given in Section 2.19.

“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.

 14
 

“Owner” means with
respect to a Borrower, each Person having legal or beneficial title to an
ownership interest in such Borrower or a right to acquire such an interest.

“Past Due Payables” means
accounts payable (other than accounts payable to Affiliates) that are 60 days
or more past due.

“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 any 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 A attached hereto.

“Prepayment Factor” means
three percent (3%) at all times unless one of the following conditions
applies:  (a) if Heska achieves, on a
consolidated basis, Net Income greater than $0 for its fiscal year ending
December 31, 2006, “Prepayment Factor” shall mean two percent (2%) from July 1,
2006 through and including June 30, 2007; and (b) if Heska achieves, on a
consolidated basis, Net Income greater than $0 for its fiscal year ending
December 31, 2007, “Prepayment Factor” shall mean two percent (2%) from July 1,
2007 through and including June 30, 2008; and (c) if Heska achieves, on a
consolidated basis, Net Income greater than $0 for its fiscal year ending
December 31, 2008, “Prepayment Factor” shall mean one percent (1%) from July 1,
2008 through and including June 30, 2009.

“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.

“Raw Materials Advance
Rate” means 35%.

“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 

 15
 

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.

“Rental Inventory” of a
Borrower means diagnostic and monitoring instruments purchased by such Borrower
for the purpose of demonstrating, loaning, leasing or renting to customers,
whether accounted for as equipment or as inventory.

“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 or the Diamond Revolving Note.

“Security Documents”
means this Agreement, each Collateral Account Agreement, each Lockbox
Agreement, each Deposit Account Control 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.

“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.

“Subordinated Debt” of a
Borrower means all Debt of such Borrower that is subject to a Subordination
Agreement.

“Subordination Agreement”
means any subordination agreement accepted by the Lender from time to time.

“Subsidiary” means any
Person of which more than 50% of the outstanding ownership interests having
general voting power under ordinary circumstances to elect a majority of the
directors or the equivalent of such Person, regardless of whether or not at the
time ownership interests 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 a Borrower, by a Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries.

 16
 

“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
Equipment 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 B Advance” has
the meaning specified in Section 2.5.

“Term Loan B Note” means
the Term Loan B Note of the Borrowers, dated as of June 14, 2000 and payable to
the order of the Lender in the original principal amount of $2,062,500, 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 Borrowers terminate
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             Other Definitional
Terms; Rules of Interpretation. The words ‘hereof’, ‘herein’ and ‘hereunder’
and words of similar import when used in the Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with GAAP. All terms defined in the UCC and not otherwise
defined herein have the meanings assigned to them in the UCC. References to
Articles, Sections, subsections, Exhibits, Schedules and the like, are to
Articles, Sections and subsections of, or Exhibits or Schedules attached to,
this Agreement unless otherwise expressly provided. The words ‘include’, ‘includes’
and ‘including’ shall be deemed to be followed by the phrase ‘without
limitation’. Unless the context in which used herein otherwise clearly
requires, ‘or’ has the inclusive meaning represented by the 

 17
 

phrase ‘and/or’. Defined
terms include in the singular number the plural and in the plural number the
singular. Reference to any agreement (including the Loan Documents), document
or instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms thereof
(and, if applicable, in otherwise explicitly provided, and reference to any
promissory note includes any promissory note which is an extension or renewal
thereof or a substitute or replacement therefore. Reference to any law, rule,
regulation, order, decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified, replaced or reenacted, in
whole or in part, and in effect on the determination date, including rules and
regulations promulgated thereunder.

ARTICLE
II

Amount
and Terms of the Credit Facility

Section 2.1             Existing
Revolving Advances.  The Lender has
made various revolving advances to the Borrowers (the “Existing Revolving Advances”)
in accordance with the Former Credit Agreement. As of December 28, 2005, the
outstanding principal balance of the Existing Revolving Advances to Heska was
$8,545,126.50 and the outstanding principal balance of the Existing Revolving
Advances to Diamond was $541,186.19.  Upon execution and delivery of this
Agreement, the Existing Revolving Advances shall be deemed to be Revolving
Advances pursuant to Section 2.2.

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 until 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 to such Borrower exceed such Borrower’s Borrowing Base, or
(b) the sum of the outstanding and unpaid Revolving Advances would exceed the
Aggregate 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

 18
 

unless the Lender and such 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 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             Equipment Advances.  On July 28, 2005, the Lender made an
Equipment Advance to Heska in the amount of $500,000 and an Equipment Advance
to Diamond in the amount of $2,000,000, each in accordance with the Former
Credit Agreement. As of December 28, 2005, the outstanding principal balance of
the Equipment Advance to Heska was $500,000, and the outstanding principal
balance of the Equipment Advance to Diamond was $2,000,000. Each Borrower’s
obligation to pay the Equipment Advances shall be evidenced by such Borrower’s
Equipment 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 Equipment
Note. The outstanding principal balance of each Equipment Note shall be due
and payable as follows:

(a)           On February 1, 2006, and the first
day of each month thereafter, Diamond shall pay monthly installments of
$37,037.04

(b)           On February 1, 2006, and the first
day of each month thereafter, Heska shall pay monthly installments of
$9,259.26; and

(c)           On the Maturity Date, the entire
unpaid principal balance of each Equipment 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”).  As of
December 28, 2005, the outstanding principal balance of the Term Loan B
Advances was $904,738.00. 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.

 19
 

 

Section
2.7             Spread.  The spread (the “Spread”) means the
percentage set forth in the table below opposite the applicable
prior-fiscal-year Net Income of the Borrowers, which percentage shall change
annually effective as of the first day of the month following the month in
which the Borrowers delivers to the Lender their audited financial statements
for the prior fiscal year; provided, however, that so long as no Default Period
then exists, if Heska raises Additional Capital of not less than $1,500,000 the
“Spread” shall be decreased by 0.75% below the otherwise-applicable rate,
effective as of the first day of the month following the month in which such
Additional Capital is raised; and provided further that if Heska does not raise
at least $1,500,000 of Additional Capital on or before January 1, 2006, the “Spread”
shall be increased by 0.25% above the otherwise-applicable rate, effective as
of January 1, 2006; and provided further that if Heska does not raise at least $1,500,000
of Additional Capital on or before July 1, 2006, the “Spread” shall be
increased by 0.75% (including, and not in addition to, the 0.25% increase
described in the proviso above) above the otherwise-applicable rate, effective
as of July 1, 2006; and provided further that in no case shall any decrease in
the Spread occur during the Default Period:

	
  Prior Fiscal Year Net Income

  	
   

  	
  Spread

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than $0

  	
   

  	
  2.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Greater than or
  equal to $0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  but less than
  $2,500,000

  	
   

  	
  1.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Greater than or equal
  to $2,500,000

  	
   

  	
  0.75

  	
  %

  

 

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.

(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)           Equipment Note.
Except as set forth in Sections 2.8(e), 2.8(f) and 2.8(g), the outstanding
principal balance of the Equipment 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

 20
 

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 Borrowers 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.

Section
2.9             Fees.

(a)           Unused Line Fee.
For the purposes of this Section 2.9(a), “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.

(b)           Audit Fees. The
Borrowers hereby agree to pay the Lender, on demand, audit fees in connection
with any audits or inspections conducted by the Lender of any Collateral or any
Borrower’s operations or business at the rates established from time to time by
the Lender as its audit fees (which fees are currently $100 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.

(c)           Letter of Credit Fees.
Each Borrower agrees to pay the Lender a fee with respect to each Letter of
Credit issued for such Borrower’s account, 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 outstanding Letters of Credit
issued for such Borrower’s account, 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

 21
 

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
addition to any and all fees, commissions and charges imposed by Lender with
respect to or in connection with such Letter of Credit.

(d)           Letter of Credit Administrative
Fees.  Each Borrower shall pay all administrative fees
charged by the Lender in connection with the honoring of drafts under any
Letter of Credit issued for such Borrower’s account, amendments thereto,
transfers thereof and all other activity with respect to the Letters of Credit
at the then-current rates published by the Lender for such services rendered on
behalf of customers of the Lender generally.

(e)           Foreign Receivables
Eligibility Program Fee.  The Borrowers agree to pay to the Lender during the
Foreign Accounts Eligibility Period, a monthly fee in an amount equal to
one-twelfth of two-and-one-half percent (2.50%) of the FREP Sublimit, due and
payable monthly in advance on the first day of the month.

(f)            Amendment Fee.  The
Borrowers shall pay the Lender as of the date hereof a fully earned, non-refundable
fee in the amount of $10,000 in consideration of the Lender’s execution and
delivery of this Agreement.

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 any 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.

 22
 

 

(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 Borrowers 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 any 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
Borrowers. 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 Equipment 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 the Borrowers 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
Equipment 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
Borrowers reduce the Maximum Line to zero, all Obligations shall be immediately
due and payable.  Any partial prepayments
of the Equipment 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.

 

 23

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 the Borrowers reduce the
Maximum Line, the Borrowers shall pay the Lender a fee in an amount equal to
the Prepayment Factor multiplied by the Maximum Line (or the reduction, as the
case may be).

(b)           Prepayment Fees.
If the Equipment Note is prepaid for any reason except in accordance with
Section 2.4, the Borrowers shall pay to the Lender a fee in an amount equal to
the Prepayment Factor multiplied by the amount prepaid. If the Term Loan B Note
is prepaid for any reason except in accordance with Section 2.6, the Borrowers
shall pay to the Lender a fee in an amount equal to one percent (1%) 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 another division 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 made to a Borrower shall at any
time exceed such Borrower’s Borrowing Base, such 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 a Borrower designates as
a payment of the Revolving Advances, shall be applied to such Borrower’s
Revolving Advances; provided, further, that any prepayment under Section 2.12
which a Borrower designates as a partial prepayment of the Equipment Note or
the Term Loan B Note, shall be applied to principal installments of the
Equipment 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 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, each Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time
without such 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

 24
 

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 a Borrower establishes the contrary. Upon the Lender’s demand,
each Borrower will admit and certify in writing the exact principal balance of
the Obligations that such Borrower then asserts to be outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrowers unless the Borrowers give 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 issue, from time to time until the Termination Date, one or more
documentary or standby letters of credit (each, a “Letter of Credit”) for such
Borrower’s account, provided that:

(i)            The Lender shall have no obligation
to issue any Letter of Credit for the benefit of a 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)           $1,000,000 less the Aggregate L/C
Amount, or

(2)           such Borrower’s Availability.

Each Letter of Credit, if any, shall be issued
pursuant to a separate L/C Application entered by the applicable Borrower and
the Lender, completed in a manner satisfactory to the Lender.  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 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 requesting 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.  Each
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)           Each 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 Lender may pay or incur relative to such draw,
plus interest on all such amounts, charges and expenses as set forth

 25
 

below (all such amounts are hereinafter referred to as
the “Obligation of Reimbursement”).

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

If a 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 for any Borrower’s account, such Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the maximum aggregate amount available to be
drawn under all Letters of Credit then outstanding for such Borrower’s account,
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 such Borrower’s
Obligation of Reimbursement or any other Obligations, in the Lender’s sole
discretion, and shall not be subject to withdrawal by any Borrower so long as
the Lender maintains a security interest therein.  The Lender agrees to transfer any balance in
the Special Account to such 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 each 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 any 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

 26
 

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 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.

ARTICLE III

Security Interest; Occupancy; Setoff

Section
3.1             Grant of Security
Interest. Each 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.
Upon request by the Lender, each Borrower will grant the Lender a security
interest in all commercial tort claims it may have against any Person.

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. Each Borrower will join in giving
such notice if the Lender so requests. At any time after any 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 any 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 each
Borrower’s agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of such Borrower’s mail to any address
designated by the Lender, otherwise intercept such Borrower’s mail, and
receive, open and dispose of such Borrower’s mail, applying all Collateral as
permitted under this Agreement and holding all other mail for such Borrower’s
account or forwarding such mail to such Borrower’s last known address.

Section
3.3             Assignment of Insurance.  As additional security for the payment and
performance of the Obligations, each 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 such 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

 27
 

valuable papers
pertaining thereto, and such 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), in the Lender’s name or
in any 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)           Each 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 Borrowers shall reimburse the Lender promptly
for the full amount thereof. In addition, the Borrowers 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. Each
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 such 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.
The Borrowers authorize the Lender to file from time to time where permitted by
law, such financing statements against collateral described as ‘all personal
property’ or describing specific items of collateral including commercial tort
claims as the Lender deems necessary or useful to perfect the Security
Interest. 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

 28
 

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

Name
and address of Debtors:

Heska
Corporation

3760 Rocky Mountain Avenue

Loveland, Colorado 80538

Organizational Identification No. 2733906

Diamond
Animal Health, Inc.

2538 43rd Street SE

Des Moines, Iowa 50317

Organizational Identification No. 170088

Name
and address of Secured Party:

Wells
Fargo Bank, National Association

MAC C7300-210

1740 Broadway

Denver, Colorado 80274

Section
3.7             Setoff. Each
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 such 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 such 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 such Borrower the amount of such
participating interest.

Section
3.8             Security Interest in
Special Account.  Each 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.

ARTICLE IV

Conditions of Lending

Section
4.1             Conditions Precedent to
Effectiveness. This Agreement shall be effective upon the Lender’s receipt
of all of the following, each properly executed by the appropriate party and in
form and substance satisfactory to the Lender:

(a)           This Agreement.

(b)           A certificate of each Borrower’s
Chief Financial Officer certifying that no action of any Borrower’s directors
is necessary to authorize execution of this Agreement.

 29
 

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

Section
4.2             Conditions Precedent to
All Advances and Letters of Credit. 
The Lender’s obligation to make each Advance or to issue each Letter of
Credit shall be subject to the further conditions precedent that:

(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, Heska 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 Owners; (ii) require any authorization, consent or approval by,
or registration, declaration or filing with, or notice to, any governmental
department, 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

 30
 

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 Former Credit Agreement constituted the legal, valid and
binding obligations of each Borrower, enforceable against each Borrower in
accordance with its terms, subject to general principles of equity and the
effects of bankruptcy and insolvency laws applicable to creditors generally.  No Borrower has any claim, defense or offset
to enforcement of the Former Credit Agreement.

(b)           This Agreement constitutes and, upon
due execution by each Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of each 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).

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

 31
 

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 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.

 32
 

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 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.

 33
 

(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.

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;

 

 34

(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.

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 

 35
 

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 or principal accounting
officer, substantially in the form of Exhibit B 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 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 each 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)           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 

 36
 

respect thereto, together with a copy of the notice of
such Reportable Event to the Pension Benefit Guaranty Corporation;

(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 any
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.

(q)           Promptly upon knowledge thereof, each
Borrower will deliver to the Lender notice of any commercial tort claims it may
bring against any person, including the name and address of each defendant, a
summary of the facts, an estimate of such Borrower’s damages, copies of any
complaint or demand letter submitted by such Borrower, and such other
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 

 37
 

with account debtors and
other obligors requests for verification of amounts owed to such Borrower, and
to discuss such Borrower’s affairs with 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. The Borrowers hereby
irrevocably authorize all accountants and third parties to disclose and deliver
to the Lender, at the Borrowers’ expense, all financial information, books and
records, work papers, management reports and other information in their
possession regarding the Borrowers.

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.  No Borrower shall have any Past Due Payables.

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;

 38
 

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 such 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.

Section 6.10           Collateral
Accounts.

(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 Equipment Note and the Term Loan B Note, 

 39
 

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 applicable Borrower 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 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 Capital.
Heska will maintain, on a consolidated basis, as of each date listed below, its
Capital at an amount not less than the amount set forth opposite such date
(amounts in parentheses denote negative numbers):

 40
 

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

	
  Date

  	
   

  	
  Minimum Capital

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  November 30,
  2005

  	
   

  	
  $

  	
  (150,000

  	
  )

  
	
  December 31,
  2005

  	
   

  	
  $

  	
  800,000

  	
   

  
	
  January 1, 2006

  	
   

  	
  $

  	
  1,835,000

  	
   

  
	
  February 28,
  2006

  	
   

  	
  $

  	
  1,275,000

  	
   

  
	
  March 31, 2006

  	
   

  	
  $

  	
  1,385,000

  	
   

  
	
  April 30, 2006

  	
   

  	
  $

  	
  1,010,000

  	
   

  
	
  May 31, 2006

  	
   

  	
  $

  	
  350,000

  	
   

  
	
  June 30, 2006

  	
   

  	
  $

  	
  725,000

  	
   

  
	
  July 31, 2006

  	
   

  	
  $

  	
  475,000

  	
   

  
	
  August 31, 2006

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  September 30,
  2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  October 31, 2006

  	
   

  	
  $

  	
  1,300,000

  	
   

  
	
  November 30,
  2006

  	
   

  	
  $

  	
  1,150,000

  	
   

  
	
  December 31,
  2006

  	
   

  	
  $

  	
  1,950,000

  	
   

  
	
  January 31, 2007 and
  the last day of each month thereafter

  	
   

  	
  $

  	
  1,350,000

  	
   

  

Amounts corresponding to dates after December 31, 2005
shall be adjusted upward or downward, respectively, on a dollar-for-dollar
basis, by the amount the Borrowers’ aggregate actual Capital on December 31,
2005 per the Borrowers’ audited financial statements exceeds or falls short of $3,243,000.

In addition to the
foregoing, if Heska makes [***] during the fiscal year ending December 31,
2006, as contemplated by Section 7.4(a)(ix), to the extent [***] is expensed in
accordance with GAAP, the Minimum Capital amounts listed above occurring [***]
shall be adjusted downward on a dollar-for-dollar basis by the amount of such
expense, not to exceed $1,000,000.

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

 41
 

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

	
  Period

  	
   

  	
  Minimum Net Income

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Twelve months
  ending December 31, 2005

  	
   

  	
  $

  	
  (2,600,000

  	
  )

  
	
  Three months
  ending March 31, 2006

  	
   

  	
  $

  	
  (1,850,000

  	
  )

  
	
  Six months
  ending June 30, 2006

  	
   

  	
  $

  	
  (2,000,000

  	
  )

  
	
  Nine months
  ending September 30, 2006

  	
   

  	
  $

  	
  (1,500,000

  	
  )

  
	
  Twelve months ending
  December 31, 2006

  	
   

  	
  $

  	
  (750,000

  	
  )

  

 

In addition to the
foregoing, if Heska makes [***] during the fiscal year ending December 31,
2006, as contemplated by Section 7.4(a)(ix), to the extent [***] is expensed in
accordance with GAAP, the Minimum Capital amounts listed above occurring [***]
shall be adjusted downward on a dollar-for-dollar basis by the amount of such
expense, not to exceed $1,000,000.

Section
6.14           Minimum Liquidity.
Heska will maintain, on a consolidated basis, as of the last day of each month,
its Liquidity at an amount not less than $1,500,000.

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, as shown on the
“Total stockholders’ equity” line for each Borrower in Exhibit C, at an amount
greater than zero.

Section
6.16           New Covenants. On or
before November 30, 2006, the Borrowers and the Lender shall agree on new covenant
levels for Sections 6.12, 6.13, 6.14, 7.4(a)(v) and 7.10 for periods after such
date. The new covenant levels will be based on (i) the Borrowers’ projections
for such periods and (ii) the year to date financial results of Heska, on a
consolidated basis, and such new covenant levels 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”):

 42
 

(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;

(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, 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;

 43
 

(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;

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

(m)          Diamond’s grant of a security interest
in the Farm Mortgaged Property to secure existing indebtedness payable to Agri
Laboratories, Ltd. or to secure new indebtedness for borrowed money described
in Section 7.2(g), in each case on terms acceptable to the Lender in its
reasonable discretion; and

(n)           Diamond’s grant of a security
interest in the Factory Mortgaged Property to secure new indebtedness for
borrowed money described in Section 7.2(h).

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, (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,
or (iv) in the case of Heska, at all times on or before January 31, 2006,
indebtedness to Heska Holding AG in an amount not to exceed $1,500,000, and
thereafter, zero.

(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 shall be in an

 44
 

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

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)           Diamond’s incurrence of indebtedness
of not less than [***] nor more than [***] secured by the Farm Mortgaged
Property, in each case on terms acceptable to the Lender in its reasonable
discretion, but in no event on terms less favorable to the Borrowers than the
terms of the Term Loan B Note; and upon receipt of proceeds of such
indebtedness, the Lender will release its security interest in the Farm
Mortgaged Property;

(h)           Diamond’s incurrence of indebtedness
not less than [***] nor more than [***] secured by the Factory Mortgaged
Property in connection with a refinancing of the Term Loan B Note, provided
that (a) the proceeds of such indebtedness are sufficient to repay, and in fact
are used to repay, the Term Loan B Note in its entirety, with the balance of
such proceeds (if any) being deposited in Diamond’s Collateral Account for
repayment of Revolving Advances, and (b) the terms of such indebtedness are
acceptable to the Lender in its reasonable discretion, but in no event on terms
less favorable to the Borrowers than the terms of the Term Loan B Note. In the
case of such a refinancing, the Lender agrees that it will release its security
interest in the Factory Mortgaged Property upon receipt of the proceeds of such
permitted refinancing;

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

(j)            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 7.2 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 

 45
 

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;

(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;

(v)           unless a Default Period exists or
would exist immediately after or as a result of any such advance or
contribution, advances or contributions during the fiscal year ending December
31, 2006, 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 fiscal year ending December 31, 2006;

(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 such 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; and

 

 46

(ix)                                unless
(A) a Default Period exists or would exist immediately after or as a result of
any such purchase or investment, or (B) Heska, on a consolidated basis,
achieves Net Income of less than ($500,000) during the fiscal year ending
December 31, 2005, a purchase of intellectual property rights concerning
immunodiagnostic technology or an investment in an equity position in a company
in the immunodiagnostic industry, not to exceed $1,000,000, which purchase or
investment shall occur during the fiscal year ending December 31, 2006.

(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.

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

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; and (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.  Such Borrower
will not in any manner transfer any property without prior or present receipt
of full and adequate consideration.

 47
 

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.

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 in the aggregate
during the fiscal year-to-date period ending on any date described below in
excess of the amount set forth opposite such period:

	
  Date

  	
   

  	
  Maximum Capital

  Expenditures

  	
   

  
	
  November 30,
  2005

  	
   

  	
  $

  	
  1,250,000

  	
   

  
	
  December 31,
  2005

  	
   

  	
  $

  	
  1,250,000

  	
   

  
	
  January 1, 2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  February 28,
  2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  March 31, 2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  April 30, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  May 31, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  June 30, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  July 31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  August 31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September 30,
  2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  October 31, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  November 30,
  2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  December 31, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  

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.

 48
 

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 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.

Section 7.16                                Financing
Statements. No Borrower will amend any financing statements showing the
Lender as Secured Party or Assignee, or any other financing statements that are
filed in favor of the Lender, except as permitted by law. Any authorization by
the Lender to any Person to amend any such financing statements shall be in
writing.

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;

 49
 

(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;

(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 

 50
 

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;

(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; or

(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.

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

 51
 

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

(b)                                 the
Lender may, by notice to the Borrowers, 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.

ARTICLE IX

Miscellaneous

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

Section 9.2                                      Release.
Each Borrower hereby absolutely and unconditionally releases and forever
discharges the Lender, the Participants and any and all parent corporations, 

 52
 

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:

If to the Borrowers:

Heska Corporation

3760 Rocky Mountain
Avenue

Loveland, Colorado 80538

Telecopier:  970-619-6003

Attention:  Chief Financial Officer

 53
 

Diamond Animal Health,
Inc.

c/o Heska Corporation

3760 Rocky Mountain
Avenue

Loveland, Colorado 80538

Telecopier:  970-619-6003

Attention:  Chief Financial
Officer

If to the Lender:

Wells Fargo Bank,
National Association

MAC C7300-210

1740 Broadway

Denver, Colorado 80274

Telecopier:  303-863-4904

Attention:  Tim Ulrich

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). All requests under Section 9-210 of
the UCC (i) shall be made in a writing signed by a person authorized under
Section 2.2, (ii) shall be personally delivered, sent by registered or
certified mail, return receipt requested, or by overnight courier of national
reputation (iii) shall be deemed to be sent when received by the Lender and
(iv) shall otherwise comply with the requirements of Section 9-210. The
Borrowers request that the Lender respond to all such requests which on their
face appear to come from an authorized individual and releases the Lender from
any liability for so responding. The Borrowers shall pay Lender the maximum
amount allowed by law for responding to such requests.

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 the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third 

 54
 

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;

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 

 55
 

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. To the extent
permitted by law, each Borrower waives and will not assert against any assignee
any claims, defenses or set-offs which such Borrower could assert against the
Lender.

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.

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 

 56
 

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.

Section 9.16                                Retention
of Borrowers’ Records. The Lender shall have no obligation to maintain any
electronic records or any documents, schedules, invoices, agings, or other
papers delivered to the Lender by the Borrowers or in connection with the Loan
Documents for more than four months after receipt by the Lender.

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 BANK, NATIONAL ASSOCIATION

  	
   

  	
  HESKA CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Tim Ulrich, Vice President

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Jason Napolitano, Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  DIAMOND ANIMAL HEALTH, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Jason Napolitano, Chief Financial Officer

  

 

 57

Table of Exhibits
and Schedules

	
  Exhibit A

  	
   

  	
  Premises

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Consolidating Balance Sheets

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ___________________

  
	
   

  	
   

  	
   

  
	
  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 7.4

  	
   

  	
  Investments

  

 

Exhibit A to Third
Amended and Restated

Credit and Security
Agreement

Premises

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

Heska Corporation

3760 Rocky Mountain
Avenue

Loveland, Colorado
80538

Diamond Animal Health,
Inc.

2538 43rd Street SE

Des Moines, Iowa
50317

440 170th Avenue

Carlisle, Iowa

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

Exhibit B to Third
Amended and Restated

Credit and Security
Agreement

Compliance
Certificate

	
  To:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Wells Fargo Business
  Credit

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
                           ,
  200      

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subject:

  	
   

  	
  Heska Corporation

  	
   

  	
   

  
	
   

  	
   

  	
  Financial Statements

  	
   

  	
   

  

 

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

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

Events of Default.
(Check one):

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

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

I hereby certify
to the Lender as follows:

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

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

Financial
Covenants. I further hereby certify as follows:

 

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

2.             Spread. Pursuant to Section
2.7 of the Credit Agreement, as of the Reporting Date, Heska’s
prior-fiscal-year Net Income was, on a consolidated basis, $                              ,
which determines a base Spread of           %
pursuant to the table below.  Heska o has o
has not raised at least $1,500,000 in Additional Capital as of the Reporting
Date, leading to an o increase o decrease from the base Spread of            %,
so that the applicable Spread is equal to           %.

	
  Prior Fiscal Year Net Income

  	
   

  	
  Spread

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than $0

  	
   

  	
  2.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Greater
  than or equal to $0

  but less than $2,500,000

  	
   

  	
  1.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Greater than or equal to $2,500,000

  	
   

  	
  0.75

  	
  %

  

 

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

 

	
  Date

  	
   

  	
  Minimum Capital

  	
   

  
	
  November 30, 2005

  	
   

  	
  $

  	
  (150,000

  	
  )

  
	
  December 31, 2005

  	
   

  	
  $

  	
  800,000

  	
   

  
	
  January 1, 2006

  	
   

  	
  $

  	
  1,835,000

  	
   

  
	
  February 28, 2006

  	
   

  	
  $

  	
  1,275,000

  	
   

  
	
  March 31, 2006

  	
   

  	
  $

  	
  1,385,000

  	
   

  
	
  April 30, 2006

  	
   

  	
  $

  	
  1,010,000

  	
   

  
	
  May 31, 2006

  	
   

  	
  $

  	
  350,000

  	
   

  
	
  June 30, 2006

  	
   

  	
  $

  	
  725,000

  	
   

  
	
  July 31, 2006

  	
   

  	
  $

  	
  475,000

  	
   

  
	
  August 31, 2006

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  September 30, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  October 31, 2006

  	
   

  	
  $

  	
  1,300,000

  	
   

  
	
  November 30, 2006

  	
   

  	
  $

  	
  1,150,000

  	
   

  
	
  December 31, 2006

  	
   

  	
  $

  	
  1,950,000

  	
   

  
	
  January 31, 2007 and
  the last day of each month thereafter

  	
   

  	
  $

  	
  1,350,000

  	
   

  

 

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

	
  Period

  	
   

  	
  Minimum Net Income

  	
   

  
	
  Twelve months ending December 31, 2005

  	
   

  	
  $

  	
  (2,600,000)

  	
   

  
	
  Three months ending March 31, 2006

  	
   

  	
  $

  	
  (1,850,000)

  	
   

  
	
  Six months ending June 30, 2006

  	
   

  	
  $

  	
  (2,000,000)

  	
   

  
	
  Nine months ending September 30, 2006

  	
   

  	
  $

  	
  (1,500,000)

  	
   

  
	
  Twelve months ending December 31, 2006

  	
   

  	
  $

  	
  (750,000)

  	
   

  

 

5.             Minimum Liquidity.  Pursuant to Section 6.14 of the Credit
Agreement, as of the Reporting Date, Heska’s Liquidity was, on a consolidated
basis,

$                             ,
which o satisfies o
does not satisfy the requirement that such amount be no less than $1,500,000 on
the Reporting Date.

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

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

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

 

 

	
  Date

  	
   

  	
  Maximum Capital

  Expenditures

  	
   

  
	
  November 30, 2005

  	
   

  	
  $

  	
  1,250,000

  	
   

  
	
  December 31, 2005

  	
   

  	
  $

  	
  1,250,000

  	
   

  
	
  January 1, 2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  February 28, 2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  March 31, 2006

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  April 30, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  May 31, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  June 30, 2006

  	
   

  	
  $

  	
  750,000

  	
   

  
	
  July 31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  August 31, 2006

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  September 30, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  October 31, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  November 30, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  December 31, 2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  

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

  	
   

  
	
   

  	
  Its

  	
   

  
					

 

Exhibit C to Third Amended
and Restated

Credit and Security Agreement

Consolidating
Balance Sheets

Schedule 5.1 to Third
Amended and

Restated Credit and Security Agreement

Trade Names, Chief
Executive Office, Principal Place of Business, 

and Locations of Collateral

Trade Names

Diamond Animal Health,
Inc.

Diamond

Diamond Animal Health

Diamond Scientific, Inc.

Heska

Heska Corp.

Heska Des Moines

Chief
Executive Office/Principal Place of Business

Heska Corporation

3760 Rocky Mountain
Avenue

Loveland, Colorado
80538

Diamond Animal Health,
Inc.

2538 43rd Street SE

Des Moines, Iowa
50317

Other
Inventory and Equipment Locations

440 170th Avenue

Carlisle, Iowa

Schedule 5.4 to Third
Amended and

Restated Credit and Security Agreement

Subsidiaries

Heska Corporation Subsidiaries:

Diamond Animal Health, Inc. (Iowa)

Heska Holding AG (Switzerland)

Sensor Devices, Inc.
(Wisconsin—inactive)

Diamond Animal Health, Inc.
Subsidiaries:

None

Heska Holding AG Subsidiaries:

Heska AG (Switzerland)

Schedule 5.6 to Third
Amended and

Restated Credit and Security Agreement

Litigation
Matters

On
September 9, 2005, United Vaccines, Inc. (“United”), a customer of Diamond,
filed a lawsuit in Wisconsin against Diamond and Heska alleging various claims,
including breach of contract and breach of warranty, and demanding compensatory
and punitive damages.  On October 20,
2005, Diamond and Heska filed a motion to dismiss certain claims against
Diamond and all claims against Heska, as well as an answer to United’s claims,
affirmative defenses and counterclaims on behalf of Diamond.  While Diamond and Heska intend to pursue the
matter vigorously and believe they are entitled to damages from United and that
United is not entitled to damages from Heska or Diamond, there can be no
assurance the ultimate resolution of this case will reflect Heska’s and Diamond’s
current beliefs.

Schedule 5.10 to Third
Amended and

Restated Credit and Security Agreement

Plans

Borrower now maintains or has maintained the following
employee pension benefit plans as defined in ERISA, 3(2), 29 U.S.C. 1002(2):

1.                                       The
Diamond Animal Health, Inc. Pension Plan for Collective Bargaining Unit
Employees.

This Defined Benefit Pension Plan is currently
frozen.  No new participants may enter
the plan nor are any contribution liabilities accruing.  The plan has a funding liability of $235,974
for Termination purposes, calculated as of
May 1, 1998; this liability is a result of the difference between the GATT
rates used to calculate contributions and the PBGC rates required to be used by
a terminating plan.  Upon termination,
participants must receive the larger of the accrued benefit calculated using
GATT rates and using PBGC rates.  Since
the PBGC rates have been consistently lower than the GATT rates, the Pension
Plan has a funding liability on termination. 
The Plan can remain frozen until such time as the PBGC rates match the
GATT rates or Diamond chooses to contribute funds to make up the termination
funding liability.  The termination
funding liability varies from year to year based upon fluctuations in
interest  and mortality rates.

The Plan does not have a funding liability under the
provisions of Internal Revenue Code 412, and there are no reportable events.

2.             The
Diamond Animal Health, Inc. Saving Plan (the “Savings Plan”).

The Savings Plan is a profit sharing/401(k) plan.  It was merged into the Heska Corporation
401(k) Plan (the “Heska Plan”) effective January 1, 1998.  Diamond Animal Health, Inc. is the wholly
owned subsidiary of its parent, Heska Corporation.  Diamond Animal Health, Inc. was acquired by
Heska Corporation in April, 1996.  At the
time of the acquisition, both Heska and Diamond sponsored 401(k) plans.  In accordance with the provisions of Treas.
Reg. 1.401(k)-1(d)(3), Heska Corporation determined that it would be in the
best interests of both Heska and Diamond to merge the Savings Plan into the
Heska Plan.  Both plans have been
submitted to the Internal Revenue Service for a Determination that:

(1)  the Savings
Plan was a tax-qualified plan as of the effective date of the merger; and

(2)  the Heska
Plan remains a tax-qualified plan on and after the merger date.

3.             The
Heska Corporation 401(k) Plan (the “Heska Plan”)

The Heska Plan is a defined contribution plan that was
established under the provisions of Section 401(a) of the Internal Revenue Code
(“IRC”), which includes a qualified deferred arrangement as defined in Section
401(k) of the IRC, for the benefit of eligible employees of

Heska Corporation. 
The Heska Plan is subject to the provisions of ERISA.  Benefits under the plan are not guaranteed by
the Pension Benefit Guaranty Corporation. 
On July 1, 2003, the Heska Plan changed custodians and record keepers
from Principal Life Insurance Company to Putnam Fiduciary Trust Company.

Schedule 5.12 to Third
Amended and 

Restated Credit and Security Agreement

Environmental
Matters

Settlement Agreement
between Williams Pipe Line Company and Bayer Corporation

Schedule 7.1 to Third
Amended and 

Restated Credit and Security Agreement

Permitted
Liens

 

	
  Creditor

  	
   

  	
  Collateral

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing Date

  	
   

  	
  Filing No.

  

 

None

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

Schedule 7.2 to Third Amended and 

Restated Credit and Security Agreement

Permitted
Indebtedness and Guaranties

Indebtedness

Diamond Animal
Health, Inc.

	
  Lender

  	
   

  	
  Final Pmt Due

  	
   

  	
  Type

  	
   

  	
  Amt Due

  	
   

  	
  Assets Secured

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bankers Leasing

  	
   

  	
  11/2008

  	
   

  	
  Cap
  Lease

  	
   

  	
  $

  	
  9,615

  	
   

  	
  Copier

  	
   

  
	
  Bankers Leasing

  	
   

  	
  4/2009

  	
   

  	
  Cap
  Lease

  	
   

  	
  $

  	
  17,914

  	
   

  	
  Copier

  	
   

  
	
  City of Des Moines

  	
   

  	
  6/2006

  	
   

  	
  LTD

  	
   

  	
  $

  	
  40,310

  	
   

  	
  Subordinated

  	
   

  
	
  [***]

  	
   

  	
  5/2006

  	
   

  	
  LTD

  	
   

  	
  $

  	
  500,000

  	
   

  	
  Subordinated

  	
   

  

 

Guaranties

	
  

  	
   

  	
  Amount and Description of 

  	
   

  	
   

  
	
  Primary Obligor

  	
   

  	
  Obligation Guaranteed

  	
   

  	
  Beneficiary of Guaranty

  

 

NONE.

Schedule 7.4 to Third Amended and 

Restated Credit and Security Agreement

Investments

Diamond Animal Health,
Inc.

	
  Stancorp Financial Group
  Inc. (shares received in demutualization)(SFG)

  	
   

  	
  1,008 shares

  

Investments in Subsidiaries

As of November 30, 2005
Heska Corporation had the following investments in subsidiaries:

	
  Diamond Animal Health, Inc.

  	
   

  	
  $

  	
  297,350

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  European
  Subsidiaries

  	
   

  	
  $

  	
  6,805,913Exhibit
10.28

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

FIRST
AMENDMENT TO THIRD AMENDED AND RESTATED 

CREDIT AND SECURITY AGREEMENT

This Amendment, dated as of December 5, 2006, is made
by and between Heska Corporation, a Delaware corporation (“Heska”), Diamond
Animal Health, Inc., an Iowa corporation (“Diamond”) (each of Heska and Diamond
may be referred to herein individually as a “Borrower” and collectively as the “Borrowers”),
and Wells Fargo Bank, National Association, operating through its Wells Fargo
Business Credit operating division (the “Lender”).

Recitals

The Borrowers and the Lender are parties to a Third
Amended and Restated Credit and Security Agreement dated as of December 30,
2005 (as the same may be hereafter amended from time to time, the “Credit
Agreement”). Capitalized terms used in these recitals have the meanings given
to them in the Credit Agreement unless otherwise specified.

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

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

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

“Additional Capital
Increase” shall have the meaning set forth in Section 2.22.

“Available Additional
Capital” means [***] of the amount, if any, by which Additional Capital exceeds
[***].

“Capital Expenditures”
for any Borrower for a period means the sum of (a) 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, but excluding expenditures to purchase
Rental Inventory, plus (b) all expenditures of money to purchase Rental
Inventory in excess of the Rental Inventory Cap during the fiscal year in which
such period occurs.

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

“Investment Cap” means [***],
unless said amount is increased pursuant to Section 2.22, in which event it
means the amount to which said amount is increased.

“Rental Inventory Cap”
means $1,500,000, unless said amount is increased pursuant to Section 2.22, in
which event it means the amount to which said amount is increased.

2.     Inventory Cap. The figure “$4,500,000”
in clause (iii) of the definition of “Borrowing Base” is replaced by the figure
“$4,750,000.”

3.     Use of Available Additional Capital.
Article 2 of the Credit Agreement is hereby amended by inserting therein a new
Section 2.22 to read in its entirety as follows:

“Section 2.22 Use of
Available Additional Capital.  Pursuant
to the procedure set forth in this Section 2.22 and so long as no Default
Period then exists, the Borrowers from time to time may increase one or more of
the Investment Cap, the Rental Inventory Cap and the Capital Expenditures
amounts set forth in Section 7.10 in an aggregate amount equal to Available
Additional Capital (the “Additional Capital Increase”).  Before making an Additional Capital Increase:

(a)  the Borrowers shall send to the Lender a
written request containing a statement by a responsible officer of the
Borrowers setting forth in sufficient detail the amount of Additional Capital
raised as of that time and the amounts of Available Additional Capital which
the Borrowers requests approval for to allocate to each of the Investment Cap,
the Rental Inventory Cap and the Capital Expenditures amounts set forth in
Section 7.10; and

(b)  the Lender shall send a written
acknowledgement to the Borrowers agreeing to the amount of Available Additional
Capital.”

4.     Projections. Sub-section (f) of
Section 6.1 of the Credit Agreement is hereby amended to read in its entirety
as follows:

“(f)  on or before April 30 of each year, the
projected balance sheets and income statements for each of the subsequent
twelve months, 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;”

 2
 

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

5.             Financial Covenants.  Sections 6.12, 6.13 and 6.16 of the Credit
Agreement are hereby amended to read in their entireties as follows:

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

	
  Date

  	
   

  	
  Minimum Capital

  	
   

  
	
  November 30,
  2006

  	
   

  	
  [***]

  	
   

  
	
  December 31,
  2006

  	
   

  	
  [***]

  	
   

  
	
  January 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  February 28,
  2007

  	
   

  	
  [***]

  	
   

  
	
  March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  April 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  May 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  June 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  July 31, 2007 and the
  last day of each month thereafter

  	
   

  	
  [***]

  	
   

  

 

In addition to the foregoing, if Heska makes a
purchase of intellectual property rights by June 30, 2007, as contemplated by
Section 7.4(a)(ix), to the extent the purchase is expensed in accordance with
GAAP, the Minimum Capital amounts listed above occurring after the date of such
purchase shall be adjusted downward on a dollar-for-dollar basis by the amount
of such expense, not to exceed the Investment Cap.”

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

	
  Period

  	
   

  	
  Minimum Net Income

  	
   

  
	
  Twelve months
  ending December 31, 2006

  	
   

  	
  [***]

  	
   

  
	
  Three months
  ending March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  Six months
  ending June 30, 2007

  	
   

  	
  [***]

  	
   

  

 

In addition to the foregoing, if Heska makes a
purchase of intellectual property rights by June 30, 2007, as contemplated by
Section 7.4(a)(ix), to the extent the purchase is expensed in accordance with
GAAP, the Minimum Net Income amounts listed above occurring after the date of
such purchase shall be adjusted downward on a dollar-for-dollar basis by the
amount of such expense, not to exceed the Investment Cap.”

“Section 6.16 New
Covenants. Annually, on or before May 31, the Borrowers and the Lender
shall agree on new covenant levels for Sections 6.12, 6.13, 6.14, 7.4(a)(v) and
7.10 for periods after such date. The new covenant levels

 3
 

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

will be based on (i) the Borrowers’ projections for
such periods and (ii) the year to date financial results of Heska, on a
consolidated basis, and such new covenant levels 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.”

6.     Investments. Clause (ix) of Section
7.4(a) of the Credit Agreement is hereby amended to read in its entirety as
follows:

“(ix)  unless a Default Period exists or would exist
immediately after or as a result of any such purchase or investment, a purchase
of intellectual property rights concerning immunodiagnostic technology or an
investment in an equity position in a company in the immunodiagnostic industry,
not to exceed the Investment Cap, which purchase or investment shall occur on
or before June 30, 2007.”

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

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

	
  Period

  	
   

  	
  Maximum Capital

  Expenditures

  	
   

  
	
  November
  30, 2006

  	
   

  	
  [***]

  	
   

  
	
  December 31, 2006

  	
   

  	
  [***]

  	
   

  
	
  January 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  February 28, 2007

  	
   

  	
  [***]

  	
   

  
	
  March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  April 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  May 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  June 30, 2007

  	
   

  	
  [***]

  	
   

  

 

In addition to the foregoing, the amounts set forth
above shall be adjusted upward on a dollar-for-dollar basis by the amount allocated
for such purpose in accordance with Section 2.22.”

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

 

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

 4
 

10.           Consent to Merger. The Lender
hereby consents to the merger of Heska Holdings AG into Heska AG. 

11.           Conditions Precedent. This
Amendment, including the consent set forth in paragraph 10, shall be effective
when the Lender shall have received an executed original hereof, together with
the following, each in form and substance acceptable to the Lender in its sole
discretion:

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

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

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

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

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

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

13.   No Waiver. The execution of this
Amendment and acceptance of any documents related hereto shall not be deemed to
be a waiver of any Default or Event of
Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.

14.   Release. The Borrowers hereby
absolutely and unconditionally release and forever discharge the Lender, and
any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands or causes
of action of any kind, nature or description, whether arising in law or equity
or upon contract or tort or under any state or federal

 5
 

law or otherwise, which any Borrower has had, now has
or has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.

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

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

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

	
  HESKA CORPORATION

  	
   

  	
  DIAMOND ANIMAL HEALTH, INC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Jason
  Napolitano

  	
   

  	
  By

  	
  /s/ Jason Napolitano

  
	
   

  	
  Its

  	
  Chief Financial
  Officer

  	
   

  	
   

  	
  Its

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WELLS FARGO
  BANK, NATIONAL

  ASSOCIATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Tim Ulrich 

  	
   

  	
   

  	
   

  
	
   

  	
  Tim Ulrich, Vice
  President

  	
   

  	
   

  	
   

  

 

 6

Exhibit A to First Amendment

Compliance
Certificate

	
  To:

  	
   

  	
   

  	
   

  
	
   

  	
  Wells Fargo Business Credit

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  __________________, 200___

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Subject:

  	
  Heska Corporation

  	
   

  
	
   

  	
  Financial Statements

  	
   

  
					

 

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

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

Events of Default.
(Check one):

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

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

I hereby certify
to the Lender as follows:

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

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

Financial
Covenants. I further hereby certify as follows:

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

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

2.             Spread. Pursuant to Section
2.7 of the Credit Agreement, as of the Reporting Date, Heska’s
prior-fiscal-year Net Income was, on a consolidated basis, $_________________,
which determines a base Spread of ______% pursuant to the table below.  Heska o has
o has not raised at least [***] in Additional
Capital as of the Reporting Date, leading to an o increase
o decrease from the base Spread of ______%, so
that the applicable Spread is equal to ______%.

	
  Prior Fiscal Year Net Income

  	
   

  	
  Spread

  	
   

  
	
  Less than $0

  	
   

  	
  2.75

  	
  %

  
	
  Greater than or equal
  to $0 but less than $2,500,000

  	
   

  	
  1.75

  	
  %

  
	
  Greater than or equal
  to $2,500,000

  	
   

  	
  0.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  

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

	
  Date

  	
   

  	
  Minimum Capital

  	
   

  
	
  November 30, 2006

  	
   

  	
  [***]

  	
   

  
	
  December 31, 2006

  	
   

  	
  [***]

  	
   

  
	
  January 1, 2007

  	
   

  	
  [***]

  	
   

  
	
  February 28, 2007

  	
   

  	
  [***]

  	
   

  
	
  March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  April 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  May 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  June 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  July 31, 2007 and the last day of each month thereafter

  	
   

  	
  [***]

  	
   

  

 

 2
 

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

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

	
  Period

  	
   

  	
  Minimum Net Income

  	
   

  
	
  Twelve months ending
  December 31, 2006

  	
   

  	
  [***]

  	
   

  
	
  Three months ending
  March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  Six months ending June 30, 2007

  	
   

  	
  [***]

  	
   

  

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

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

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

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

 3
 

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

	
  Date

  	
   

  	
  Maximum Capital

  Expenditures

  	
   

  
	
  November 30, 2006

  	
   

  	
  [***]

  	
   

  
	
  December 31, 2006

  	
   

  	
  [***]

  	
   

  
	
  January 1, 2007

  	
   

  	
  [***]

  	
   

  
	
  February 28, 2007

  	
   

  	
  [***]

  	
   

  
	
  March 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  April 30, 2007

  	
   

  	
  [***]

  	
   

  
	
  May 31, 2007

  	
   

  	
  [***]

  	
   

  
	
  June 30, 2007

  	
   

  	
  [***]

  	
   

  

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

	
  

  	
  HESKA CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 4

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