(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

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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

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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

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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;

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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,

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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):

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[***] — 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.

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):

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

In 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”):

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(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;

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(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

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[***] — 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

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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

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(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.

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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:

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.

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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;

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(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

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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:

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(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,

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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 ###-###-####

Attention:  Chief Financial Officer

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Diamond Animal Health, Inc.

c/o Heska Corporation

3760 Rocky Mountain Avenue

Loveland, Colorado 80538

Telecopier:  970 ###-###-####

Attention:  Chief Financial Officer

If to the Lender:

Wells Fargo Bank, National Association

MAC C7300-210

1740 Broadway

Denver, Colorado 80274

Telecopier:  303 ###-###-####

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

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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

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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

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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.

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Table of Exhibits and Schedules

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

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           %.

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:

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:

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:

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.

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

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.

Guaranties

NONE.

Schedule 7.4 to Third Amended and
Restated Credit and Security Agreement

Investments

Diamond Animal Health, Inc.

Investments in Subsidiaries

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