HESKA CORP (Form: 10-K, Received: 03/09/2018 12:49:04)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________________

Commission file number: 0-22427

HESKA CORPORATION

(Exact name of registrant as specified in its charter)



Delaware	77-0192527
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
3760 Rocky Mountain Avenue Loveland, Colorado	80538
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (970) 493-7272
Securities registered pursuant to Section 12(b) of the Act: Public Common Stock, $.01 par value (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None	The Nasdaq Stock Market LLC (Name of Each Exchange on Which Registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a small reporting company)	Smaller Reporting Company ¨
	Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of voting common stock held by non-affiliates of the Registrant was approximately $663,091,000 as of June 30, 2017 based upon the closing price on the Nasdaq Capital Market reported for such date. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose.

7,305,630 shares of the Registrant's Public Common Stock, $.01 par value, were outstanding at March 8, 2018.

___________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III incorporate by reference information from the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant's 2018 Annual Meeting of Stockholders.

TABLE OF CONTENTS



			Page
PART I			1
	Item 1.	Business	1
	Item 1A.	Risk Factors	13
	Item 1B.	Unresolved Staff Comments	27
	Item 2.	Properties	27
	Item 3.	Legal Proceedings	27
	Item 4.	Mine Safety Disclosures	27
PART II			28
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	28
	Item 6.	Selected Financial Data	30
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	44
	Item 8.	Financial Statements and Supplementary Data	45
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	82
	Item 9A.	Controls and Procedures	82
	Item 9B.	Other Information	83
PART III			84
	Item 10.	Directors, Executive Officers and Corporate Governance	84
	Item 11.	Executive Compensation	84
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	85
	Item 14.	Principal Accountant Fees and Services	85
PART IV			86
	Item 15.	Exhibits and Financial Statement Schedules	86
	Item 16.	Form 10-K Summary	91
	Signatures		92

HESKA, ALLERCEPT, HEMATRUE, SOLO STEP, Element DC, Element HT5, Element POC, and Element i are registered trademarks and Element COAG is a trademark of Heska Corporation. DRI-CHEM is a registered trademark of FUJIFILM Corporation. TRI-HEART is a registered trademark of Intervet Inc., d/b/a Merck Animal Health, formerly known as Schering-Plough Animal Health Corporation ("Merck Animal Health"), which is a unit of Merck & Co., Inc., in the United States and is a registered trademark of Heska Corporation in other countries. This annual report on Form 10-K also refers to trademarks and trade names of other organizations.

- i -

Statement Regarding Forward Looking Statements

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For this purpose, any statements contained herein that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially from those expressed or forecasted in any such forward-looking statements as a result of certain factors, including those set forth in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect the passage of time, any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as otherwise required by applicable securities laws. These forward-looking statements apply only as of the date of this Form 10-K or for statements incorporated by reference from our 2018 proxy statement on Schedule 14A, as of the date of the Schedule 14A.

PART I


Item 1.	Business

Unless we state otherwise or the context otherwise requires, the terms "Heska," "we," "our," "us" and the "Company" refer to Heska Corporation and its consolidated subsidiaries.

Overview

We sell veterinary and animal health diagnostic and specialty products. Our offerings include point of care laboratory instruments and supplies, digital imaging products, software and services, vaccines, local and cloud-based data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on the canine and feline healthcare space.

On February 24, 2013, we acquired a 54.6% interest in Cuattro Veterinary USA, LLC (the "Acquisition"), which was subsequently renamed Heska Imaging US, LLC ("US Imaging") and marked our entry into the veterinary imaging market in the United States. The remaining minority position (45.4%) in US Imaging was subject to purchase by Heska under performance-based puts and calls following the audit of our financial statements for 2016 and 2017. The required performance criteria were met in 2016, we considered notice given on March 3, 2017 that the put option was being exercised and on May 31, 2017, we delivered $13.8 million in cash to obtain the remaining minority position in US Imaging.

On May 31, 2016, we acquired Cuattro Veterinary, LLC ("Cuattro International"), which was subsequently renamed Heska Imaging International, LLC ("International Imaging") and marked our entry into the international veterinary imaging market. Financial information broken out by geographic region is incorporated by reference to Note 14 to the financial statements included under Item 8 of this annual report on

- 1 -

Form 10-K. As of the closing date of the Merger, the Company's interest in both International Imaging and US Imaging was transferred to the Company's wholly-owned subsidiary, Heska Imaging Global, LLC ("Global Imaging").

On June 1, 2017, the Company consolidated its assets and liabilities in the US Imaging and International Imaging companies into Global Imaging, which was re-named Heska Imaging, LLC ("Heska Imaging").

On June 13, 2017, the Company incorporated Heska Canada Limited in the province of British Columbia, in order to expand our footprint into more of the North American veterinary market.

We were founded as Paravax, Inc. and incorporated in California in 1988. We changed our name to Heska Corporation in 1995, reincorporated in Delaware and completed our initial public offering in 1997.

Our principal executive offices are located at 3760 Rocky Mountain Avenue, Loveland, Colorado 80538, our telephone number is (970) 493-7272 and our internet address is www.heska.com.

Products and Services

Our business is composed of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The CCA segment includes, primarily for canine and feline use, point of care laboratory instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings such as point of care diagnostic tests and heartworm preventive products. The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle but also for other species including equine, porcine, avian, feline and canine. All OVP products are sold by third parties under third party labels.

Core Companion Animal Health Segment

We presently sell a variety of companion animal health products and services, among the most significant of which are the following:

Point of Care Laboratory and Imaging Diagnostics

We offer a line of veterinary point of care (stationary and portable) laboratory diagnostic instruments for testing for blood and other biological materials, for use in diagnostic imaging, and for other uses, some of which are described below. We also market and sell consumable supplies and services for these instruments. Our line of veterinary instruments includes the following:

Blood Chemistry. The Element DC ^® Veterinary Chemistry Analyzer (the "Element DC") is an easy-to-use, robust system that uses dry slide technology for blood chemistry and electrolyte analysis and has the ability to run 22 tests at a time with a single blood sample. Test slides are available as both pre-packaged panels as well as individual slides. The DRI-CHEM 7000 Veterinary Chemistry Analyzer (the "DRI-CHEM 7000") is a complementary chemistry offering, co-branded with FUJIFILM Corporation ("FUJIFILM"), with higher throughput, multiple patient staging and a "STAT" feature which provides emergency sample flexibility in critical cases. The Element DC and DRI-CHEM 7000 utilize the same test slides. We are supplied with the Element DC, the DRI-CHEM 7000 and affiliated test slides and supplies under a contractual agreement with FUJIFILM.

Hematology. The Element HT5 ^® Hematology Analyzer (the "HT5") is a true 5-part hematology analyzer which measures key parameters such as white blood cell count, red blood cell count, platelet count

- 2 -

and hemoglobin levels in animals. The HT5 can generate results in less than a minute with 15 µL of sample. We are supplied with the HT5 and affiliated reagents and supplies under a contractual agreement with Shenzen Mindray Bio-Medical Electronics Co., Ltd. ("Mindray"). The HEMATRUE Veterinary Hematology Analyzer (the "HEMATRUE") is an easy-to-use and reliable 3-part hematology blood analyzer that we continue to offer to our customers. We are supplied HEMATRUE instruments and affiliated reagents and supplies for the HEMATRUE under a contractual agreement with Boule Medical AB ("Boule").

Blood Gases and Electrolytes. The Element POC ^® Blood Gas & Electrolyte Analyzer ("EPOC") is a handheld, wireless analyzer which delivers rapid blood gas, electrolyte, metabolite, and basic blood chemistry testing. EPOC features test cards with room temperature storage which can offer results with less than 100 µL of sample as well as WiFi and Bluetooth connectivity. EPOC and affiliated consumables and supplies are supplied to us under a contractual agreement with Alere North America, LLC, a unit of Alere Inc.

Immunodiagnostics . The Element i Immunodiagnostic Analyzer ("Element i") utilizes fluorescence immunoassay technology to ensure sensitivity for accurate in-clinic detection of Total T4, TSH, Cortisol, and Bile Acids. The Element i is a benchtop technology with a test time of 10 minutes or less per analyte. Along with confidence in results, this measurement principle allows for simplified reagents and testing protocols. Element i units are supplied to us under a contractual agreement with FUJIFILM.

Coagulation. The Element COAG™ Veterinary Analyzer ("Element COAG") is a compact bench top, cartridge-based system used for coagulation and specialty testing. There are five test cartridges offered: the PT/aPTT Coag Combo, Equine Fibrinogen, Canine Fibrinogen, Canine DEA 1 Blood Typing and Feline A and B Blood Typing. Each of these cartridges perform accurate, automated analysis using less than 100 µL of sample in just minutes. We are supplied with the Element COAG and affiliated cartridges and supplies under a contractual agreement with Zoetis US, LLC, a unit of Zoetis, Inc.

IV Pumps. The VET/IV 2.2 infusion pump is a compact, affordable IV pump that allows veterinarians to easily provide regulated infusion of fluids for their patients.

Digital Radiography. We sell hardware, including digital radiography detectors, acquisition workstation equipment, positioning aides, viewing computers, radiographic generators, anti-scatter grids, and other accessories for use in digital radiography imaging diagnostics. With this hardware, we also provide licensed embedded software, support, data hosting, warranty, and other services. CloudDR ^TM solutions combine flat panel digital radiography detectors, acquisition workstations, and acquisition software to produce, review, archive, and share radiographic image studies, primarily in fixed location companion animal veterinary settings.

We also sell mobile digital radiography products, primarily for equine use, such as the Uno 6 ^TM , a full powered, portable digital radiography generator integrated with an embedded touchscreen acquisition and review function, based upon a patented design of Cuattro, LLC ("Cuattro"). In addition to Uno 6, we sell the Slate HUB ^TM , a mobile digital radiography acquisition console that is capable of operating as a general full field wireless x-ray imager and as the control and display for DentiSlate ^TM , a large format intraoral dental sensor, and SonoSlate ^TM , a wireless ultrasound.

Ultrasound Systems. Our ultrasound products, including affiliated probes and peripherals, are provided to us under an exclusive agreement with Esaote USA ("Esaote"). We sell several different ultrasound products with varying features and corresponding price points, all under Esaote's trade names or logos. These offerings include the MyLab family of high performance systems and probes, for use in abdominal, cardiac and small parts applications in companion animal and equine patients as well as other species.

- 3 -

Diagnostics Data and Support. Cloudbank ^TM is an automatic, secure, web-based image storage solution designed to interface with the imaging products we sell. ViewCloud ^TM is a Picture Archival and Communications System (PACS) for Cloudbank for web or local viewing, reporting, planning and email sharing of studies on Internet devices, including personal computers, tablet devices and smartphones. SupportCloud ^TM is a support package including call center voice and remote diagnostics, recovery and other services, such as the provision of warranty-related loaner units, to support customers. Access and operation between our imaging devices and Cloudbank and SupportCloud is supported by the acquisition software used in the equipment we sell.

With the acquisition of US Imaging and International Imaging, we entered into supply and license agreements with Cuattro to secure exclusive rights to, among other things, proprietary acquisition software, Cloudbank, ViewCloud, research and development, and other benefits. Cuattro provides us with much of the hardware, software, data hosting and other services for our digital radiography solutions under these exclusive contractual arrangements. Cuattro is 100% owned by our President and Chief Executive Officer, Kevin S. Wilson, his spouse, Shawna M. Wilson ("Mrs. Wilson") and by trusts for the benefit of their children and family.

Point-of-Care Heartworm Diagnostic Tests

Heartworm infections of dogs and cats are caused by the parasite Dirofilaria immitis . This parasitic worm is transmitted in larval form to dogs and cats through the bite of an infected mosquito. Larvae develop into adult worms that live in the pulmonary arteries and heart of the host, where they can cause serious cardiovascular, pulmonary, liver and kidney disease. Our canine and feline heartworm diagnostic tests use monoclonal antibodies or a recombinant heartworm antigen, respectively, to detect heartworm antigens or antibodies circulating in the blood of an infected animal.

We market and sell heartworm diagnostic tests for both canine and feline species. SOLO STEP CH for dogs and SOLO STEP FH for cats are available in point-of-care, single use formats that can be used by veterinarians on site. We also offer SOLO STEP CH Batch Test Strips, a rapid and simple point-of-care antigen detection test for dogs that allows veterinarians in larger practices to run multiple samples at the same time. We obtain SOLO STEP CH, SOLO STEP FH and SOLO STEP Batch Test Strips under a contractual agreement with Quidel Corporation ("Quidel").

Heartworm Preventive Products

We have an agreement with Merck Animal Health, a unit of Merck & Co., Inc., granting Merck Animal Health the exclusive distribution and marketing rights for our canine heartworm prevention product, TRI-HEART Plus Chewable Tablets, ultimately sold to or through veterinarians in the United States and Canada. TRI-HEART Plus Chewable Tablets (ivermectin/pyrantel) are indicated for use as a monthly preventive treatment of canine heartworm infection and for treatment and control of ascarid and hookworm infections. We manufacture TRI-HEART Plus Chewable Tablets at our Des Moines, Iowa production facility.

Allergy Products and Services

Allergy is common in companion animals, and it has been estimated to affect approximately 10% to 15% of dogs. Clinical symptoms of allergy are variable, but are often manifested as persistent and serious skin disease in dogs and cats. Clinical management of allergic disease is problematic, as there are a large number of allergens that may give rise to these conditions. Although skin testing is often regarded as the most accurate diagnostic procedure, such tests can be painful, subjective and inconvenient. The effectiveness of the immunotherapy that is prescribed to treat symptoms of allergic disease is inherently limited by inaccuracies in the diagnostic process.

- 4 -

We believe that our ALLERCEPT Definitive Allergen Panels provide the most accurate determination of which we are aware of the specific allergens to which an animal, such as a dog, cat or horse, is reacting. The panels use a highly specific recombinant version of the natural IgE receptor to test the serum of potentially allergic animals for IgE directed against a panel of known allergens. A typical test panel consists primarily of various pollen, grass, mold, insect and mite allergens. The test results serve as the basis for prescription ALLERCEPT Therapy Shots and ALLERCEPT Therapy Drops. We operate veterinary laboratories in Loveland, Colorado and Fribourg, Switzerland which both offer blood testing using our ALLERCEPT Definitive Allergen Panels.

We sell kits to conduct blood testing using our ALLERCEPT Definitive Allergen Panels to third-party veterinary diagnostic laboratories outside of the United States. We also sell products to screen for the presence of allergen-specific IgE to these customers - we sell kits to conduct preliminary blood testing using products based on our ALLERCEPT Definitive Allergen Panels as well as a similar test requiring less technical sophistication, our E-SCREEN Test. Animals testing positive for allergen-specific IgE using these screening tests are candidates for further evaluation using our ALLERCEPT Definitive Allergen Panels.

Veterinarians who use our ALLERCEPT Definitive Allergen Panels often purchase our ALLERCEPT Therapy Shots or ALLERCEPT Therapy Drops. These prescription immunotherapy treatment sets are formulated specifically for each allergic animal and contain only the allergens to which the animal has significant levels of IgE antibodies. The prescription formulations are administered in a series of subcutaneous injections (Shots) or by daily sublingual (under the tongue) administration (Drops), with doses increasing over several months, to ameliorate the allergic condition of the animal. Immunotherapy is generally continued for an extended time. We offer canine, feline and equine subcutaneous and sublingual immunotherapy treatment products. We believe our ALLERCEPT Therapy Drops offer a convenient alternative to subcutaneous injection, thereby increasing the likelihood of pet owner compliance.

Total assets of the CCA segment were $ 112 million , $ 111 million , $ 93 million as of December 31, 2017, 2016, and 2015, respectively. See Item 7 - MDA for Results of Operations for the CCA segment.

Other Vaccines, Pharmaceuticals and Products Segment

We developed a line of bovine vaccines that are licensed by the United States Department of Agriculture ("USDA"). Historically, the largest distributor of these vaccines was Agri Laboratories, Ltd. ("AgriLabs"), who sold these vaccines primarily under the Titanium® and MasterGuard® brands. In November 2013, Agrilabs assigned the long-term agreement with us related to these vaccines to, and the agreement was assumed by, Eli Lilly and Company ("Eli Lilly") acting through Elanco. In January 2015, we signed a long-term Master Supply Agreement related to these vaccines with Eli Lilly acting through Elanco, thereby terminating the AgriLabs agreement previously assumed by Eli Lilly in November 2013.

We manufacture biological and pharmaceutical products for a number of other animal health companies. We manufacture products for animals other than cattle including horses, pigs, chickens, cats and dogs. Our offerings range from providing complete turnkey services which include research, licensing, production, labeling and packaging of products to providing any one of these services as needed by our customers as well as validation support and distribution services.

Total assets of the OVP segment were $ 24 million , $ 20 million , $ 17 million as of December 31, 2017, 2016, and 2015, respectively. See Item 7 - MDA for Results of Operations for the OVP segment.

- 5 -

Marketing, Sales and Customer Support

We currently market our Core Companion Animal Health products in the United States to veterinarians through an outside field organization, a telephone sales force, independent third-party distributors, as well as through trade shows and print advertising and through other distribution relationships, such as Merck Animal Health in the case of our heartworm preventive. As of December 31, 2017, our customer facing sales, installed base support and utilization organization consisted of 82 individuals in various parts of the United States.

Veterinarians may obtain our products directly from us or indirectly through others. All of our Core Companion Animal Health products ultimately are sold primarily to or through veterinarians. The acceptance of our products by veterinarians is critical to our success.

We have a staff dedicated to customer and product support in our Core Companion Animal Health segment including veterinarians, technical support specialists and service technicians. Individuals from our product development group may also be used as a resource in responding to certain product inquiries.

Internationally, we market our Core Companion Animal Health products to veterinarians primarily through third-party veterinary diagnostic laboratories and independent third-party distributors.

All OVP products are marketed and sold by third parties under third-party labels.

We grant third parties rights to our intellectual property as well as our products, with our compensation often taking the form of royalties and/or milestone payments.

Manufacturing

The majority of our revenue is from proprietary products manufactured by third parties. Third parties manufacture our veterinary instruments, including affiliated consumables and supplies, as well as other products including key components of our heartworm point-of-care diagnostic tests. We manufacture and supply Quidel with certain critical raw materials and perform the final packaging operations for these products.

Our facility in Des Moines, Iowa is a United States Department of Agriculture ("USDA"), Food and Drug Administration ("FDA"), and Drug Enforcement Agency ("DEA") licensed biological and pharmaceutical manufacturing facility. This facility currently has the capacity to manufacture more than 50 million doses of vaccine each year. We expect that we will, for the foreseeable future, manufacture most or all of our pharmaceutical and biological products at this facility, as well as most or all of our recombinant proteins and other proprietary reagents for our diagnostic tests. We currently manufacture our canine heartworm prevention product, our allergy treatment products and all our OVP segment products at this facility. The OVP segment's customers purchase products in both finished and bulk format, and we perform all phases of manufacturing, including growth of the active bacterial and viral agents, sterile filling, lyophilization and packaging at this facility. We manufacture our various allergy products at our Des Moines facility, our Loveland facility and our Fribourg facility. We believe the raw materials for products we manufacture are readily available from more than one source.

- 6 -

Product Development

We are committed to providing innovative products to address health needs of companion animals. We may obtain such products from external sources, external collaboration or internal research and development.

We are committed to identifying external product opportunities and creating business and technical collaborations that lead to high value veterinary products. We believe that our active participation in scientific networks and our reputation for investing in research enhances our ability to acquire external product opportunities. We have collaborated, and intend to continue to do so, with a number of companies and universities. Examples of such collaborations include:


•	Quidel for the development of SOLO STEP CH Cassettes, SOLO STEP CH Batch Test Strips and SOLO STEP FH Cassettes;


•	Mindray for the development of veterinary applications for the HT5 Veterinary Hematology Analyzer and associated reagents;


•	FUJIFILM for the development of veterinary applications for the Element DC Veterinary Chemistry Analyzer and associated slides and supplies; and


•	Cuattro for the development of veterinary applications for digital imaging and data hosting.

Internal research and development is managed on a case-by-case basis. We employ individuals with expertise in various applicable areas and will form multidisciplinary product-associated teams as appropriate. We incurred expenses of $ 2.0 million , $ 2.1 million and $1.7 million in the years ended December 31, 2017 , 2016 and 2015 , respectively, in support of our research and development activities.

Intellectual Property

We believe that patents, trademarks, copyrights and other proprietary rights represent opportunities to grow our business and maintain or enhance our competitive position. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. The proprietary technologies of our OVP segment are primarily protected through trade secret protection of, for example, our manufacturing processes in this area.

We actively seek patent protection both in the United States and abroad. Our issued patent portfolios primarily relate to heartworm control, flea control, allergy, infectious disease vaccines, diagnostic and detection tests, immunomodulators, instrumentation, nutrition, pain control and vaccine delivery technologies. As of December 31, 2017, we owned, co-owned or had rights to 68 issued US patents expiring at various dates from January 2018 to May 2028 and had no pending US patent applications. Our corresponding foreign patent portfolio as of December 31, 2017 included 62 issued patents in various foreign countries expiring at various dates from January 2019 to August 2024 and had no pending applications.

We also have obtained exclusive and non-exclusive licenses for numerous other patents held by academic institutions and for profit companies.

Seasonality

Our fourth quarter results in any given year are typically stronger than those for any other quarter. We expect this trend to continue in the future as it is a long term trend within our imaging diagnostic business.

- 7 -

Government Regulation

Although the majority of our revenue is from the sale of unregulated items, many of our products or products that we may develop are, or may be, subject to extensive regulation by governmental authorities in the United States, including the USDA and the FDA, and by similar agencies in other countries. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion, sale and distribution of our products. Satisfaction of these requirements can take several years to achieve and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. Any product that we develop must receive all relevant regulatory approval or clearances, if required, before it may be marketed in a particular country. The following summarizes the major US government agencies that regulate animal health products:

•

USDA . Vaccines and certain single use, point-of-care diagnostics are considered veterinary biologics and are therefore regulated by the Center for Veterinary Biologics, or CVB, of the USDA. Industry data indicates that it takes approximately five to seven years and in excess of $2.0 - $5.0 million to license a conventional vaccine for animals from basic research through licensing. In contrast to vaccines, single use, point-of-care diagnostics can typically be licensed by the USDA in about two years, at considerably less cost. However, vaccines or diagnostics that use innovative materials, such as those resulting from recombinant DNA technology, usually require additional time to license. The USDA licensing process involves the submission of several data packages. These packages include information on how the product will be manufactured, information on the efficacy and safety of the product in laboratory and target animal studies and information on performance of the product in field conditions.

•

FDA . Pharmaceutical products, which typically include synthetic compounds, are approved and monitored by the Center for Veterinary Medicine of the FDA. Under the Federal Food, Drug and Cosmetic Act, the same statutory standard for FDA approval applies to both human and animal drugs: demonstrated safety, efficacy and compliance with FDA manufacturing standards. However, unlike human drugs, neither preclinical studies nor a sequential phase system of studies are required. Rather, for animal drugs, studies for safety and efficacy may be conducted immediately in the species for which the drug is intended. Thus, there is no required phased evaluation of drug performance, and the Center for Veterinary Medicine will review data at appropriate times in the drug development process. The process can be costly and time consuming, requiring up to $100 million and seven to ten years to sell an animal drug in the market. In addition, the time and cost for developing companion animal drugs may be significantly less than for drugs for livestock animals, which generally have enhanced standards designed to ensure safety in the food chain.


•	EPA . Products that are applied topically to animals or to premises to control external parasites are regulated by the Environmental Protection Agency, or EPA.

After we have received regulatory licensing or approval for our products, numerous regulatory requirements typically apply. Among the conditions for certain regulatory approvals is the requirement that our manufacturing facilities or those of our third-party manufacturers conform to current Good Manufacturing Practices or other manufacturing regulations, which include requirements relating to quality control and quality assurance as well as maintenance of records and documentation. The USDA, FDA and foreign regulatory authorities strictly enforce manufacturing regulatory requirements through periodic inspections and/or reports.

- 8 -

A number of our animal health products are not regulated. For example, certain products such as our ALLERCEPT panels are not regulated by either the USDA or FDA. Similarly, none of our veterinary instruments requires regulatory approval to be marketed and sold in the United States.

We have pursued CE mark for imaging equipment and regulatory approval outside the United States based on market demographics of foreign countries. For marketing outside the United States, we are subject to foreign regulatory requirements governing regulatory licensing and approval for many of our products. Licensing and approval by comparable regulatory authorities of foreign countries must be obtained before we can market products in those countries. Product licensing approval processes and requirements vary from country to country and the time required for such approvals may differ substantially from that required in the United States. We cannot be certain that approval of any of our products in one country will result in approvals in any other country.

To date, we or our distributors have sought regulatory approval for certain of our products in Canada, which is governed by the Canadian Center for Veterinary Biologics, or CCVB; in Japan, which is governed by the Japanese Ministry of Agriculture, Forestry and Fisheries, or MAFF; in Australia, which is governed by the Australian Department of Agriculture, Fisheries and Forestry, or ADAFF; in South Africa, which is governed by the Republic of South Africa Department of Agriculture, or RSADA; in Hong Kong, which is governed by the Agriculture, Fisheries and Conservation Department, or ADCD; in Macau, which is governed by the Macau Animal Health Division of Animal Control and Inspection, or IACM; and in certain other countries requiring such approval.

Core Companion Animal Health products previously discussed which have received regulatory approval in the United States and/or elsewhere are summarized below:



Products	Country	Regulated	Agency	Status
ALLERCEPT Allergy Treatment Sets	United States Canada	Yes Yes	USDA CCVB	Licensed Licensed
SOLO STEP CH	United States EU Canada Japan Australia	Yes No-in most countries Yes Yes Yes	USDA CCVB MAFF ADAFF	Licensed Licensed Licensed Licensed
SOLO STEP CH Batch Test Strips	United States Canada	Yes Yes	USDA CCVB	Licensed Licensed
SOLO STEP FH	United States Canada Australia	Yes Yes Yes	USDA CCVB ADAFF	Licensed Licensed Licensed
TRI-HEART Plus Heartworm Preventive	United States Japan South Korea Hong Kong Macau	Yes Yes Yes Yes Yes	FDA MAFF NVRQS AFCD IACM	Licensed Licensed Licensed Licensed Licensed

Customer Concentration

The information concerning our significant customers included in our Risk Factors section of this annual report under the caption “ The loss of significant customers who, for example, are historically large purchasers or who are considered leaders in their field could damage our business and financial results ” is incorporated herein by reference thereto.

- 9 -

Competition

Our market is intensely competitive. Our competitors include independent animal health companies and major pharmaceutical companies that have animal health divisions. We also compete with independent, third-party distributors, including distributors who sell products under their own private labels. In the point of care diagnostic testing market, our major competitors include IDEXX Laboratories, Inc. ("IDEXX"), Abaxis, Inc. ("Abaxis") and Zoetis Inc. ("Zoetis"). The products manufactured by our OVP segment for sale by third parties compete with similar products offered by a number of other companies, some of which have substantially greater financial, technical, research and other resources than us and may have more established marketing, sales, distribution and service organizations than our OVP segment's customers. Companies with a significant presence in the animal health market such as Bayer AG, CEVA Santé Animale, Eli Lilly, Merck, Sanofi, Vétoquinol S.A., Virbac S.A. and Zoetis may be marketing or developing products that compete with our products or would compete with them if successfully developed. These and other competitors and potential competitors may have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than we do. Our competitors may offer broader product lines and have greater name recognition than we do.

Environmental Regulation

In connection with our product development activities and manufacturing of our biological, pharmaceutical and diagnostic and detection products, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, handling and disposal of certain materials, biological specimens and wastes. Although we believe that we have complied with these laws, regulations and policies in all material respects and have not been required to take any significant action to correct any noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.

Employees

As of March 8, 2018, we and our subsidiaries employed 345 people. None of our employees are covered by a collective bargaining agreement, and we believe our employee relations are good.

Where You Can Find Additional Information

Our principal executive offices are located 3760 Rocky Mountain Avenue, Loveland, Colorado 80538, our telephone number is 970-493-7272, and our Internet address is www.heska.com . Reference to our website in this Annual Report on Form 10-K are inactive textual references only and the content of our website should not be deemed incorporated by reference for any purpose.

Because we believe it provides useful information in a cost-effective manner to interested investors, we make available free of charge, via a link on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the "SEC").

In addition, you may review a copy of this annual report on Form 10-K, including exhibits and any schedule filed therewith, and obtain copies of such materials at prescribed rates, at the Securities and Exchange Commission's Public Reference Room in Room 1580, 100 F Street, NE, Washington, D.C.

- 10 -

20549-0102. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Heska Corporation, that file electronically with the Securities and Exchange Commission.

Executive Officers of the Registrant

Our executive officers and their ages as of March 9, 2018 are as follows:



Name	Age	Position
Kevin S. Wilson	45	Chief Executive Officer and President
Catherine Grassman	42	Vice President, Chief Accounting Officer and Controller
Jason A. Napolitano	49	Chief Operating Officer, Chief Strategist and Secretary
Michael J. McGinley, Ph.D.	57	President, Biologicals & Pharmaceuticals
Nancy Wisnewski, Ph.D.	55	Executive Vice President, Diagnostic Operations and Product Development
Steven M. Eyl	52	Executive Vice President, Global Sales and Marketing
Steven M. Asakowicz	52	Executive Vice President, Companion Animal Health Sales
Rodney A. Lippincott	44	Executive Vice President, Companion Animal Health Sales

Kevin S. Wilson was appointed President and Chief Executive Officer effective March 31, 2014. He previously served as our President and Chief Operating Officer from February 2013. Mr. Wilson became a member of our Board of Directors in May 2014. Mr. Wilson is a founder, member and officer of Cuattro, LLC. Since 2008, he has been involved in developing technologies for radiographic imaging with Cuattro, LLC and as a founder of Cuattro Software, LLC, Cuattro Medical, LLC and Cuattro Veterinary, LLC. Mr. Wilson served on the board of various private, non-profit, and educational organizations from 2005 to 2011. He was a founder of Sound Technologies, Inc., a diagnostic imaging company, in 1996. After Sound Technologies, Inc. was sold to VCA Antech, Inc. in 2004, Mr. Wilson served as Chief Strategy Officer for VCA Antech, Inc. until 2006. Mr. Wilson attended Saddleback College.

Catherine Grassman, CPA , was appointed Vice President and Chief Accounting Officer on December 1, 2017. Previously serving as Heska’s Corporate Controller, Ms. Grassman has been a central figure in the Company’s accounting and finance leadership since January of 2017. Prior to joining Heska, Ms. Grassman was Corporate Controller of a mid-sized private-equity backed company. She also spent more than 15 years with PricewaterhouseCoopers, LLP as a senior manager in the audit practice. She is licensed in Colorado as a Certified Public Accountant and possesses a Masters of Accountancy and a Bachelors of Business Administration from Stetson University.

Jason A. Napolitano was appointed Chief Strategist in September 2016 and Chief Operating Officer in October 2015. He previously served as Executive Vice President and Chief Financial Officer from May 2002 to September 2016. He was appointed our Secretary in February 2009, having previously served as our Secretary from May 2002 to December 2006. Prior to joining us formally, he was a financial consultant. From 1990 to 2001, Mr. Napolitano held various positions at Credit Suisse First Boston, an investment bank, including Vice President in health care investment banking and Director in mergers and acquisitions. He holds a BS degree from Yale University.

Michael J. McGinley, Ph.D. was appointed President, Biologicals & Pharmaceuticals in February 2013. He previously served as President and Chief Operating Officer from January 2009 to February 2013,

- 11 -

Vice President, Global Operations from April through December 2008, Vice President, Operations and Technical Affairs and General Manager, Heska Des Moines from January 2002 to April 2008 and in other positions beginning in June 1997. Prior to joining the Company, Dr. McGinley held positions with Bayer Animal Health and Fort Dodge Laboratories. He holds Ph.D. and MS degrees in Immunobiology from Iowa State University and successfully completed the Advanced Management Program at the Harvard Business School in 2008. On December 23, 2017, the Company and Dr. Michael McGinley amicably agreed to terminate his employment as an involuntary termination effective March 31, 2018 (the “Separation Date”), under a Separation Agreement and Release, dated as of December 23, 2017, pursuant to which (i) Dr. McGinley agreed, among other things, to continue providing services to the Company through the Separation Date, to execute a customary release of claims in favor of the Company, and to refrain from engaging in certain competitive conduct against the Company for 36 months after the Separation Date, and (ii) the Company agreed to pay severance to Dr. McGinley pursuant to the terms of his existing employment agreement, as amended through August 4, 2011, with the Company, which will terminate on the Separation Date.

Nancy Wisnewski, Ph.D. was appointed Executive Vice President, Diagnostic Operations and Product Development in September 2016. She previously served as Executive Vice President, Product Development and Customer Service from April 2011 to September 2016 and as Vice President, Product Development and Technical Customer Service from December 2006 to April 2011. From January 2006 to November 2006, Dr. Wisnewski was Vice President, Research and Development. Dr. Wisnewski held various positions in Heska's Research and Development organization between 1993 and 2005. She holds a Ph.D. in Parasitology/Biochemistry from the University of Notre Dame and a BS in Biology from Lafayette College.

Steven M. Eyl was appointed Executive Vice President, Global Sales and Marketing in September 2016. He previously served as our Executive Vice President, Commercial Operations from May 2013 to September 2016. Mr. Eyl was a principal of Eyl Business Services, a consulting firm, from January 2012 to May 2013. He was President of Sound Technologies, Inc. ("Sound") from 2000 to 2011, including after Sound's acquisition by VCA Antech, Inc. in 2004. Mr. Eyl has an extensive background in medical technology sales. He is a graduate of Indiana University.

Steven M. Asakowicz was appointed Executive Vice President, Companion Animal Health Sales in February 2013. From July 2011 to February 2013, he was employed by Cuattro, LLC as Vice President, Sales – US Veterinary and sold exclusively on behalf of Cuattro Veterinary USA, LLC. Mr. Asakowicz previously worked as Sales Director for Sound Technologies, Inc. ("Sound") from November 2002 to June 2011, including after Sound was acquired by VCA Antech, Inc. in 2004. Prior to entering the animal health market, Mr. Asakowicz spent 3.5 years employed by Smith Micro Software, Inc. as a Sales Manager and spent 7.5 years employed by AirTouch Cellular and PacTel Cellular (currently Verizon Wireless) as a Corporate Account Executive. Mr. Asakowicz holds a BA degree from San Diego State University.

Rodney A. Lippincott was appointed Executive Vice President, Companion Animal Health Sales in February 2013. From July 2011 to February 2013, he was employed by Cuattro, LLC as Vice President, Sales – US Veterinary and sold exclusively on behalf of Cuattro Veterinary USA, LLC. Mr. Lippincott held various positions including Sales Director for Sound Technologies, Inc., a unit of VCA Antech, Inc., from September 2007 to June 2011. Prior to entering the animal health market, Mr. Lippincott spent 13.5 years employed by Smith Micro Software, Inc. and held positions including US and International Sales Manager and Director of Marketing. Mr. Lippincott attended Saddleback College and completed the Executive Education Marketing Management Program at Stanford University, Graduate School of Business.

- 12 -


Item 1A.	Risk Factors

Our future operating results may vary substantially from period to period due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on future results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks or uncertainties not presently known to us or that we deem to be currently immaterial also may impair our business operations. If any of the following factors actually occur, our business, financial condition or results of operations could be harmed. In that case, the price of our Public Common Stock could decline and investors in our Public Common Stock could experience losses on their investment.

We have significant related party transactions.

Cuattro, LLC is a supplier to Heska Imaging, LLC under an Amended and Restated Master License Agreement and Supply Agreement which was negotiated at arm's length as part of the acquisition by Heska Corporation of a majority interest in a predecessor entity to Heska Imaging, LLC. As discussed below, Mr. Wilson has an interest in these agreements and any time and resources devoted to monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

Mr. Wilson's employment agreement with us acknowledges that Mr. Wilson has business interests in Cuattro, LLC, Cuattro Software, LLC and Cuattro Medical, LLC which may require a portion of his time, resources and attention in his working hours. If Mr. Wilson is distracted by these or other business interests, he may not contribute as much as he otherwise would have to enhancing our business, to the detriment of our shareholder value. Mr. Wilson is the spouse of Shawna M. Wilson ("Mrs. Wilson"). Mr. Wilson, Mrs. Wilson and trusts for their children and family own a majority interest in Cuattro Medical, LLC. In addition, including equity held by Mrs. Wilson and by trusts for the benefit of Mr. and Mrs. Wilson's children and family, Mr. Wilson also owns a 100% interest in Cuattro, LLC, the largest supplier to Heska Imaging, LLC, our wholly-owned subsidiary. Cuattro, LLC owns a 100% interest in Cuattro Software, LLC.

Cuattro, LLC charged Heska Imaging $17.7 million, $14.5 million, and $9.0 million during 2017, 2016, and 2015, respectively, primarily related to digital imaging products, for which there is an underlying supply contract with minimum purchase obligations, software and services as well as other operating expenses. Heska Corporation charged Cuattro, LLC $0.1 million , $0.2 million , and $0.2 million in the years ended December 31, 2017 , 2016 , and 2015, respectively, primarily related to facility usage and other services.

Heska Corporation had a receivable from Cuattro, LLC of $1 thousand and $22 thousand as of December 31, 2017 and 2016 , respectively which is included in "Due from - related parties" on the Company's consolidated balance sheet. Heska Imaging, LLC had a receivable from Cuattro, LLC of $0 thousand and $78 thousand as of December 31, 2017 and 2016 , respectively. Heska Imaging, LLC owed Cuattro $1.7 million as of December 31, 2017 , and Global Imaging owed Cuattro $1.6 million as of December 31, 2016 , which is included in "Due to- related parties" on the Company's consolidated balance sheets.

We may face costly legal disputes, including disputes related to our intellectual property or technology or that of our suppliers or collaborators.

We may face legal disputes related to our business. For example, on March 12, 2015, a complaint was filed against us by Shaun Fauley in the United States District Court Northern District of Illinois alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action seeking stated damages of the greater of actual monetary loss or five hundred dollars per violation ("Fauley Complaint"). Even if meritless, these

- 13 -

disputes may require significant expenditures on our part and could entail a significant distraction to members of our management team or other key employees. Insurance coverage may not cover any costs required to litigate a legal dispute or an unfavorable ruling or settlement. We do not have insurance coverage for the Fauley Complaint. A legal dispute leading to an unfavorable ruling or settlement, whether or not insurance coverage may be available for any portion thereof, could have significant material adverse consequences on our business. We may have to use legal means and incur affiliated costs to secure the benefits to which we are entitled, such as to collect payment for goods shipped to third parties, which would reduce our income as compared to what it otherwise would have been.

We may become subject to patent infringement claims and litigation in the United States or other countries or interference proceedings conducted in the United States Patent and Trademark Office, or USPTO, to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are likely to be costly, time-consuming and distracting. As is typical in our industry, from time to time we and our collaborators and suppliers have received, and may in the future receive, notices from third parties claiming infringement and invitations to take licenses under third-party patents. Any legal action against us or our collaborators or suppliers may require us or our collaborators or suppliers to obtain one or more licenses in order to market or manufacture effected products or services. However, we or our collaborators or suppliers may not be able to obtain licenses for technology patented by others on commercially reasonable terms, or at all, or to develop alternative approaches to access or replace such technology if unable to obtain licenses or current and future licenses may not be adequate, any of which could substantially harm our business.

We may also need to pursue litigation to enforce any patents issued to us or our collaborative partners, to protect trade secrets or know-how owned by us or our collaborative partners, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will likely result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Any adverse determination in litigation or interference proceedings could subject us to significant liabilities to third parties. Further, as a result of litigation or other proceedings, we may be required to seek licenses from third parties which may not be available on commercially reasonable terms, if at all.

If the third parties who have substantial marketing rights for certain of our historical products, existing products or future products under development are not successful in marketing those products, then our sales and financial position may suffer.

We are party to an agreement with Merck Animal Health, which grants Merck Animal Health exclusive distribution and marketing rights for our canine heartworm preventive product, TRI-HEART Plus Chewable Tablets, ultimately sold to or through veterinarians in the United States and Canada. Historically, a significant portion of our OVP segment's revenue has been generated from the sale of certain bovine vaccines, which have been sold primarily under the Titanium® and MasterGuard® brands. We have a supply agreement with Eli Lilly and its affiliates operating through Elanco for the production of these vaccines. Either of these marketing partners may not devote sufficient resources to marketing our products and our sales and financial position could suffer significantly as a result. Revenue from Merck & Co., Inc. ("Merck") entities, including Merck Animal Health, represented 12% of our 2017 revenue. Revenue from Eli Lilly entities, including Elanco, represented 11% of our 2017 revenue. If Merck Animal Health personnel fail to market, sell and support our heartworm preventive sufficiently or if Elanco personnel fail to market, sell and support the bovine vaccines we produce and sell to Elanco sufficiently, our sales could decline significantly. Furthermore, there may be nothing to prevent these partners from pursuing alternative technologies, products or supply arrangements, including as part of mergers, acquisitions or divestitures. For example, we believe a unit of Merck has obtained FDA approval for a canine heartworm preventive product with additional claims

- 14 -

compared with our TRI-HEART Plus Chewable Tablets, but which we believe is not currently being marketed actively. Should Merck decide to emphasize sales and marketing efforts of this product rather than our TRI-HEART Plus Chewable Tablets or cancel our agreement regarding canine heartworm preventive distribution and marketing, our sales could decline significantly. In another example, if Elanco were to emphasize sales and marketing efforts for bovine vaccines other than those we produce or cancel our supply agreement and produce the vaccines we supply to it by itself, our sales could decline significantly. Third-party marketing assistance may not be available in the future on reasonable terms, if at all. If the third parties with marketing rights for our products were to merge or go out of business, the sale and promotion of our products could be diminished.

We rely substantially on third-party suppliers. The loss of products or delays in product availability from one or more third-party suppliers could substantially harm our business.

To be successful, we must contract for the supply of, or manufacture ourselves, current and future products of appropriate quantity, quality and cost. Such products must be available on a timely basis and be in compliance with any regulatory requirements. Similarly, we must provide ourselves, or contract for the supply of, certain services. Such services must be provided in a timely and appropriate manner. Failure to do any of the above could substantially harm our business.

We rely on third-party suppliers to manufacture those products we do not manufacture ourselves and to provide services we do not provide ourselves. Proprietary products provided by these suppliers represent a majority of our revenue. We currently rely on these suppliers for our point of care laboratory instruments and consumable supplies for these instruments, for our imaging products and related software and services, for key components of our point-of-care diagnostic tests as well as for the manufacture of other products.

The loss of access to products from one or more suppliers could have a significant, negative impact on our business. Major suppliers who sell us proprietary products who are responsible for more than 5% of our LTM revenue are FUJIFILM Corporation, Cuattro, LLC, and Shenzen Mindray Bio-Medical Electronics Co., Ltd. Only FUJIFILM Corporation sold us products that were responsible for more than 25% of our LTM revenue. We often purchase products from our suppliers under agreements that are of limited duration or potentially can be terminated on an annual basis. In the case of our point of care laboratory instruments and our digital radiography solutions, post-termination, we are typically entitled to non-exclusive access to consumable supplies, or ongoing non-exclusive access to products and services to meet the needs of an existing customer base, respectively, for a defined period upon expiration of exclusive rights, which could subject us to competitive pressures in the period of non-exclusive access. Although we believe we will be able to maintain a supply of our major product and service offerings in the near future, there can be no assurance that our suppliers will meet their obligations under any agreements we may have in place with them or that we will be able to compel them to do so. Risks of relying on suppliers include:

•

Inability to meet minimum obligations. Current agreements, or agreements we may negotiate in the future, may commit us to certain minimum purchase or other spending obligations. It is possible we will not be able to create the market demand to meet such obligations, which could create a drain on our financial resources and liquidity. Some such agreements may require minimum purchases and/or sales to maintain product rights and we may be significantly harmed if we are unable to meet such requirements and lose product rights.

•

Loss of exclusivity. In the case of our point of care laboratory instruments, if we are entitled to non-exclusive access to consumable supplies for a defined period upon expiration of exclusive rights, we may face increased competition from a third party with similar non-exclusive access or our former supplier, which could cause us to lose customers and/or significantly decrease our margins and could significantly affect our financial results. In addition, current agreements, or

- 15 -

agreements we may negotiate in the future, with suppliers may require us to meet minimum annual sales levels to maintain our position as the exclusive distributor of these products. We may not meet these minimum sales levels and maintain exclusivity over the distribution and sale of these products. If we are not the exclusive distributor of these products, competition may increase significantly, reducing our revenues and/or decreasing our margins.


•	Changes in economics. An underlying change in the economics with a supplier, such as a large price increase or new requirement of large minimum purchase amounts, could have a significant, adverse effect on our business, particularly if we are unable to identify and implement an alternative source of supply in a timely manner.

•

The loss of product rights upon expiration or termination of an existing agreement. Unless we are able to find an alternate supply of a similar product, we would not be able to continue to offer our customers the same breadth of products and our sales and operating results would likely suffer. In the case of an instrument supplier, we could also potentially suffer the loss of sales of consumable supplies, which would be significant in cases where we have built a significant installed base, further harming our sales prospects and opportunities. Even if we were able to find an alternate supply for a product to which we lost rights, we would likely face increased competition from the product whose rights we lost being marketed by a third party or the former supplier and it may take us additional time and expense to gain the necessary approvals and launch an alternative product.

•

High switching costs. In our point of care laboratory instrument products, we could face significant competition and lose all or some of the consumable revenues from the installed base of those instruments if we were to switch to a competitive instrument. If we need to change to other commercial manufacturing contractors for certain of our regulated products, additional regulatory licenses or approvals generally must be obtained for these contractors prior to our use. This would require new testing and compliance inspections prior to sale, thus resulting in potential delays. Any new manufacturer would have to be educated in, or develop, substantially equivalent processes necessary for the production of our products. We likely would have to train our sales force, distribution network employees and customer support organization on the new product and spend significant funds marketing the new product to our customer base.

•

The involuntary or voluntary discontinuation of a product line. Unless we are able to find an alternate supply of a similar product in this or similar circumstances with any product, we would not be able to continue to offer our customers the same breadth of products and our sales would likely suffer. Even if we are able to identify an alternate supply, it may take us additional time and expense to gain the necessary approvals and launch an alternative product, especially if the product is discontinued unexpectedly.


•	Inconsistent or inadequate quality control. We may not be able to control or adequately monitor the quality of products we receive from our suppliers. Poor quality items could damage our reputation with our customers.

•

Limited capacity or ability to scale capacity. If market demand for our products increases suddenly, our current suppliers might not be able to fulfill our commercial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demand. If we consistently generate more demand for a product than a given supplier is capable of handling, it could lead to large backorders and potentially lost sales to competitive products that are readily available. This could require us to seek or fund new sources of supply, which may be difficult to find or may require terms that are less advantageous if available at all.

- 16 -

•

Regulatory risk. Our manufacturing facility and those of some of our third-party suppliers are subject to ongoing periodic unannounced inspection by regulatory authorities, including the FDA, USDA and other federal, state and foreign agencies for compliance with strictly enforced Good Manufacturing Practices, regulations and similar foreign standards. We do not have control over our suppliers' compliance with these regulations and standards. Regulatory violations could potentially lead to interruptions in supply that could cause us to lose sales to readily available competitive products. If one of our suppliers is unable to provide a raw material or finished product due to regulatory issues, it could have a material adverse financial impact on our business and could expose us to legal action if we are unable to perform on contracts to our customers involving related products.


•	Developmental delays. We may experience delays in the scale-up quantities needed for product development that could delay regulatory submissions and commercialization of our products in development, causing us to miss key opportunities.

•

Limited geographic rights. We typically do not have global geographic rights to products supplied by third parties. If we were to determine a market opportunity in a geography where we did not have distribution rights and were unable to obtain such rights from the supplier, it might hamper our ability to succeed in such geography and our sales and profits would be lower than they otherwise would have been.


•	Limited intellectual property rights. We typically do not have intellectual property rights, or may have to share intellectual property rights, to the products supplied by third parties and any improvements to the manufacturing processes or new manufacturing processes for these products.

Potential problems with suppliers such as those discussed above could substantially decrease sales, lead to higher costs and/or damage our reputation with our customers due to factors such as poor quality goods or delays in order fulfillment, resulting in our being unable to sell our products effectively and substantially harming our business.

The loss of significant customers who, for example, are historically large purchasers or who are considered leaders in their field could damage our business and financial results.

In our CCA Segment, revenue from Butler Animal Health Supply, LLC d/b/a Henry Schein Animal Health ("Henry Schein") represented approximately 13%, 13%, and 10% of our consolidated revenue for the years ended December 31, 2017, 2016, and 2015, respectively. Revenue from Merck entities, including Merck Animal Health, represented approximately 12% for the year ended December 31, 2017, and 11% each for the years ended December 31, 2016 and 2015. Revenue from De Lage Landen Financial Services, Inc. ("DLL"), represented approximately 7%, 11%, and 10% of our consolidated revenue for the years ended December 31, 2017, 2016, and 2015, respectively. DLL is a third-party financing company that provides financing and leasing for, primarily, our imaging product customers. In our OVP segment, revenue from Eli Lilly entities, including Elanco, represented approximately 11%, 12% and 12% for the years ended December 31, 2017, 2016, and 2015, respectively. No other customer accounted for more than 10% of our consolidated revenue for the years ended December 31, 2017, 2016, or 2015.

Henry Schein represented 16% of our consolidated accounts receivable at December 31, 2017 and 2016. Merck entities represented approximately 15% and 11% of our consolidated accounts receivable at December 31, 2017 and 2016, respectively. DLL represented 11% and 18% of our consolidated accounts receivable at December 31, 2017 and 2016, respectively. Eli Lilly entities, including Elanco, represented approximately 3% and 15% of our consolidated accounts receivable at December 31, 2017 and 2016, respectively. No other customer accounted for more than 10% of our consolidated accounts receivable at December 31, 2017 or 2016.

- 17 -

The loss of significant customers who, for example, are historically large purchasers or who are considered leaders in their field could damage our business, reputation, and financial results.

We operate in a highly competitive industry, which could render our products obsolete or substantially limit the volume of products that we sell. This would limit our ability to compete and maintain sustained profitability.

The market in which we compete is intensely competitive. Our competitors include independent animal health companies and major pharmaceutical companies that have animal health divisions. We also compete with independent, third-party distributors, including distributors who sell products under their own private labels. In the point-of-care diagnostic testing market, our major competitors include IDEXX Laboratories, Inc. ("IDEXX"), Abaxis Inc. ("Abaxis"), and Zoetis Inc. ("Zoetis"). The products manufactured by our OVP segment for sale by third parties compete with similar products offered by a number of other companies, some of which have substantially greater financial, technical, research and other resources than us and may have more established marketing, sales, distribution and service organizations than those of our OVP segment customers. Competitors may have facilities with similar capabilities to our OVP segment, which they may operate and sell at a lower unit price to customers than our OVP segment does, which could cause us to lose customers. Companies with a significant presence in the companion animal health market, such as Bayer AG, CEVA Santé Animale, Eli Lilly, Merck, Sanofi, Vétoquinol S.A. and Virbac S.A. may be marketing or developing products that compete with our products or would compete with them if developed. These and other competitors and potential competitors may have substantially greater financial, technical, research and other resources and larger, more established marketing, sales and service organizations than we do. For example, if Zoetis devotes its significant commercial and financial resources to growing its market share in the veterinary allergy market, our allergy-related sales could suffer significantly. Our competitors may offer broader product lines and have greater name recognition than we do. Our competitors may also develop or market technologies or products that are more effective or commercially attractive than our current or future products or that would render our technologies and products obsolete. Further, additional competition could come from new entrants to the animal health care market. Moreover, we may not have the financial resources, technical expertise or marketing, sales or support capabilities to compete successfully. Zoetis has recently launched allergy products which may diminish the competitiveness and sales prospects for our own allergy immunotherapy products. IDEXX has recently launched an SDMA test in its point of care laboratory chemistry line, which may cause veterinary customers to prefer IDEXX products to ours.

If we fail to compete successfully, our ability to achieve sustained profitability will be limited and sustained profitability, or profitability at all, may not be possible .

We benefit from relationships or collaboration with third parties, including but not limited to, companies, buying groups, veterinary hospital groups, and reference laboratory entities that operate in our markets. Beneficial third party, semi-competitive, directly competitive, and cooperative relationships that affect how we go to market, develop products, generate leads, and other commercial efforts of Heska may be negatively affected as a result of consolidation, acquisition, merger, exclusive arrangement, or other agreements or activities between and amongst those third parties and others.

- 18 -

We depend on key personnel for our future success. If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve our goals.

Our future success is substantially dependent on the efforts of our senior management and other key personnel, including our Chief Executive Officer and President, Kevin Wilson. The loss of the services of members of our senior management or other key personnel may significantly delay or prevent the achievement of our business objectives. Although we have employment agreements with many of these individuals, all are at-will employees, which means that either the employee or Heska may terminate employment at any time without prior notice. If we lose the services of, or fail to recruit, key personnel, the growth of our business could be substantially impaired. We do not maintain key person life insurance for any of our senior management or key personnel.

We often depend on third parties for products we intend to introduce in the future. If our current relationships and collaborations are not successful, we may not be able to introduce the products we intend to introduce in the future.

We are often dependent on third parties and collaborative partners to successfully and timely perform research and development activities to successfully develop new products. We routinely discuss Heska marketing in the veterinary market instruments being developed by third parties for use in the human health care market. In the future, one or more of these third parties or collaborative partners may not complete research and development activities in a timely fashion, or at all. Even if these third parties are successful in their research and development activities, we may not be able to come to an economic agreement with them. If these third parties or collaborative partners fail to complete research and development activities or fail to complete them in a timely fashion, or if we are unable to negotiate economic agreements with such third parties or collaborative partners, our ability to introduce new products will be impacted negatively and our revenues may decline.

We may be unable to market and sell our products successfully.

We may not develop and maintain marketing and/or sales capabilities successfully, and we may not be able to make arrangements with third parties to perform these activities on satisfactory terms. If our marketing and sales strategy is unsuccessful, our ability to sell our products will be negatively impacted and our revenues will decrease. This could result in the loss of distribution rights for products or failure to gain access to new products and could cause damage to our reputation and adversely affect our business and future prospects.

The market for companion animal healthcare products is highly fragmented. Because our CCA proprietary products are generally available only to veterinarians or by prescription and our medical instruments require technical training to operate, we ultimately sell all our CCA products primarily to or through veterinarians. The acceptance of our products by veterinarians is critical to our success. Changes in our ability to obtain or maintain such acceptance or changes in veterinary medical practice could significantly decrease our anticipated sales. As the vast majority of cash flow to veterinarians ultimately is funded by pet owners without private insurance or government support, our business may be more susceptible to severe economic downturns than other health care businesses which rely less on individual consumers.

For our point of care laboratory blood diagnostics products, we primarily rely on contracts with our veterinary customers for their use of our owned equipment and our consumables supplies over a multiple year period. If veterinarians under these contracts experience a significant downturn in their business, they may not fulfill their use and financial obligations under these contracts. If veterinarians breach our contracts, and we are unable to collect on default payment provisions or otherwise enforce the terms of our contracts, our business will be adversely affected. If we have to litigate against customer(s) to enforce our contracts, our

- 19 -

expenses may increase, our sales may decrease to those customers, and our reputation may suffer. If significant numbers of our customers under contracts for use of our equipment and consumable supplies do not renew their contracts, our business will be adversely affected.

We have entered into agreements with independent third party distributors, including Henry Schein, which we anticipated to market and sell our products to a greater degree than in the recent past. Independent third-party distributors may be effective in increasing sales of our products to veterinarians, although we would expect a corresponding lower gross margin as such distributors typically buy products from us at a discount to end user prices. It is possible new or existing independent third-party distributors could cannibalize our direct sales efforts and lower our total gross margin. For us to be effective when working with an independent third-party distributor, the distributor must agree to market and/or sell our products and we must provide proper economic incentives to the distributor as well as contend effectively for the time, energy and focus of the employees of such distributor given other products the distributor may be carrying, potentially including those of our competitors. If we fail to be effective with new or existing independent third-party distributors, our financial performance may suffer.

Our stock price has historically experienced high volatility, and could do so in the future, including experiencing a material price decline resulting from a large sale in a short period of time.

Should a relatively large shareholder decide to sell a large number of shares in a short period of time, it could lead to an excess supply of our shares available for sale and correspondingly result in a significant decline in our stock price.

The securities markets have experienced significant price and volume fluctuations and the market prices of securities of many small cap companies have in the past been, and can in the future be expected to be, especially volatile. During the twelve months ended December 31, 2017, the closing stock price of our Public Common Stock has ranged from a low of $71.55 to a high of $110.24. Fluctuations in the trading price or liquidity of our Public Common Stock may adversely affect our ability to raise capital through future equity financings. Factors that may have a significant impact on the market price and marketability of our Public Common Stock include:


•	stock sales by large stockholders or by insiders;


•	changes in the outlook for our business;


•	our quarterly operating results, including as compared to expected revenue or earnings and in comparison to historical results;


•	termination, cancellation or expiration of our third-party supplier relationships;


•	announcements of technological innovations or new products by our competitors or by us;


•	litigation;


•	regulatory developments, including delays in product introductions;


•	developments or disputes concerning patents or proprietary rights;


•	availability of our revolving line of credit and compliance with debt covenants;


•	releases of reports by securities analysts;


•	economic and other external factors; and


•	general market conditions.

In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, it is likely we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation.

- 20 -

On May 4, 2010, our shareholders approved an amendment (the "Amendment") to our Restated Certificate of Incorporation. The Amendment places restrictions on the transfer of our stock that could adversely affect our ability to use our domestic Federal Net Operating Loss carryforward ("NOL"). In particular, the Amendment prevents the transfer of shares without the approval of our Board of Directors if, as a consequence, an individual, entity or groups of individuals or entities would become a 5-percent holder under Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury regulations, and also prevents any existing 5-percent holder from increasing his or her ownership position in the Company without the approval of our Board of Directors. Any transfer of shares in violation of the Amendment (a "Transfer Violation") shall be void ab initio under the our Restated Certificate of Incorporation, as amended (our "Certificate of Incorporation") and our Board of Directors has procedures under our Certificate of Incorporation to remedy a Transfer Violation including requiring the shares causing such Transfer Violation to be sold and any profit resulting from such sale to be transferred to a charitable entity chosen by the Company's Board of Directors in specified circumstances. The Amendment could have an adverse impact on the value and trading liquidity of our stock if certain buyers who would otherwise have bid on or purchased our stock, including buyers who may not be comfortable owning stock with transfer restrictions, do not bid on or purchase our stock as a result of the Amendment. In addition, because some corporate takeovers occur through the acquirer's purchase, in the public market or otherwise, of sufficient shares to give it control of a company, any provision that restricts the transfer of shares can have the effect of preventing a takeover. The Amendment could discourage or otherwise prevent accumulations of substantial blocks of shares in which our stockholders might receive a substantial premium above market value and might tend to insulate management and the Board of Directors against the possibility of removal to a greater degree than had the Amendment not passed.

In February 2018, our Board of Directors granted a waiver to a non-affiliated stockholder to allow the purchase, subject to certain limitations, of up to 730,000 shares of our common stock without causing a Transfer Violation. This waiver can be withdrawn by our Board of Directors at any time, in which case the non-affiliated stockholder is to only sell our stock until the non-affiliated stockholder ceases to be a Five Percent Shareholder (as defined in our Certificate of Incorporation). This waiver, and any similar waivers that our Board of Directors may grant in the future, may make it more likely that we have a "change of ownership" as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, which could place a significant restriction on our ability to utilize our domestic Federal NOL in the future and materially adversely affect our results of operations.

Our Credit Facility contains restrictions that may limit our flexibility in operating our business.

In July 2017, we entered into a Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. ("Chase"), which provides for a revolving credit facility of up to $30.0 million (the "Credit Facility"). The Credit Facility contains various financial and non-financial operating covenants that limit our ability to engage in specified types of transactions. The financial covenants require that we maintain a minimum fixed charge coverage ratio and a maximum leverage ratio. The operating covenants limit our ability to, among other things:


•	sell, transfer, lease or dispose of our assets;


•	create, incur or assume additional indebtedness;


•	encumber or permit lines on certain of our assets;


•	make restricted payments, including paying dividends on, repurchasing or making distributions with respect to our common stock;


•	make specified investments (including loans and advances);


•	consolidate, merge, sell or otherwise dispose of all our substantially all of our assets; and


•	enter into certain transactions.

- 21 -

A breach of any of these covenants or a material adverse change to our business could result in a default under the Credit Agreement. Upon the occurrence of an event of default under our Credit Agreement, our lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure such indebtedness.

Interpretation of existing legislation, regulations and rules, including financial accounting standards, or implementation of future legislation, regulations and rules could cause our costs to increase or could harm us in other ways.

We prepare our financial statements in conformance with United States generally accepted accounting principles, or US GAAP. These accounting principles are established by and are subject to interpretation by the SEC, the FASB and others who interpret and create accounting policies. A change in those policies or how those policies are interpreted can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is made effective. Such changes may adversely affect our reported financial results and the way we conduct our business, or have a negative impact on us if we fail to track such changes.

If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we could experience unanticipated changes in our reported financial statements, including but not limited to restatements, which could adversely affect our business due to litigation and investor confidence in our financial statements. In addition, changes in the underlying circumstances to which we apply given accounting standards and principles may affect our results of operations and have a negative impact on us. For example, we review goodwill recognized on our consolidated balance sheets at least annually and if we were to conclude there was an impairment of goodwill, we would reduce the corresponding goodwill to its estimated fair value and recognize a corresponding expense in our statement of operations. This impairment and corresponding expense could be as large as the total amount of goodwill recognized on our consolidated balance sheets, which was $26.7 million at December 31, 2017 . There can be no assurance that future goodwill impairments will not occur if projected financial results are not met, or otherwise.

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") has increased our required administrative actions and expenses as a public company since its enactment. The general and administrative costs of complying with Sarbanes-Oxley will depend on how it is interpreted over time. Of particular concern are the level of standards for internal control evaluation and reporting adopted under Section 404 of Sarbanes-Oxley. If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we and/or our auditors may be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect investor confidence in our financial statements and cause our stock price to decline. Even if we and our auditors are able to conclude that our internal control over financial reporting is designed and operating effectively in such a circumstance, our general and administrative costs are likely to increase. For example, in both 2017 and 2016, we were required to have our independent registered public accountant conduct an audit of our internal control over financial reporting because as of June 30 of both years our stock market value was above a certain level prescribed by regulation. This increased our general and administrative costs from what they otherwise would have been.

Similarly, we are required to comply with the SEC's mandate to provide interactive data using the eXtensible Business Reporting Language as an exhibit to certain SEC filings. Compliance with this mandate has required a significant time investment, which has and may in the future preclude some of our employees from spending time on more productive matters. In addition, future legislative, regulatory or rule-making action or more stringent interpretations of existing legislation, regulations and rules may increase our general and administrative costs or have other adverse effects on us.

- 22 -

Finally, changes in our tax environment could cause volatility or have an adverse effect on our business and financial results, as taxes are a significant component of our expenses. On December 22, 2017, H.R. 1, also known as the Tax Cuts and Jobs Act (the “Act”), was enacted into law. The resulting changes in US corporate tax rates, revised rules and taxing regimes could result in a material effect to our results of operations, deferred tax asset value, and financial condition. Additionally, at this point, it is unclear how many US states will incorporate these federal law changes into their local laws, and to what extent. We are continuing to evaluate the Act and the resulting impacts. If our complete and final assessment and understanding of the 2017 Tax Act differs significantly from this initial assessment, or the forthcoming rules, regulations and interpretations change our preliminary conclusions, the resulting impacts could have a material adverse impact on our tax rate and tax expense.

We intend to pursue acquisitions and other strategic development opportunities, which may not result as desired and could be detrimental to our financial position.

We intend to pursue acquisitions and other strategic development opportunities, including minority investments where strategic. The ultimate business and financial performance of these opportunities may not create, and may end up adversely affecting materially, the value we hope to enhance by pursuing them. Any acquisition may significantly underperform relative to our financial expectations and may serve to diminish rather than enhance shareholder value.

The success of any acquisition will depend on, among other things, our ability to integrate assets and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The integration of acquisitions may require significant attention from our management, and the diversion of management's attention and resources could have a material adverse effect on our ability to manage our business. Furthermore, we may not realize the degree or timing of benefits we anticipated when we first entered into the acquisition transaction. If actual integration costs are higher than amounts originally anticipated, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be materially adversely affected. Furthermore, it is possible we will use management time and resources to pursue opportunities we ultimately are unable or decide not to consummate, in which case, we may not be able to utilize such management time and resources on what may have proved to be more productive matters in other areas of our business.

Obtaining and maintaining regulatory approvals in order to market our products may be costly and delay the marketing and sales of our products. Failure to meet all regulatory requirements could cause significant losses from affected inventory and the loss of market share.

Many of the products we develop, market or manufacture may subject us to extensive regulation by one or more of the USDA, the FDA, the EPA and foreign and other regulatory authorities. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion and sale of some of our products. Satisfaction of these requirements can take several years and time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. The decision by a regulatory authority to regulate a currently non-regulated product or product area could significantly impact our revenue and have a corresponding adverse impact on our financial performance and position while we attempt to comply with the new regulation, if such compliance is possible at all.

The effect of government regulation may be to delay or to prevent marketing of our products for a considerable period of time and to impose costly procedures upon our activities. We may not be able to estimate the time to obtain required regulatory approvals accurately and such approvals may require

- 23 -

significantly more time than we anticipate. We have experienced in the past, and may experience in the future, difficulties that could delay or prevent us from obtaining the regulatory approval or license necessary to introduce or market our products. Such delays in approval may cause us to forego a significant portion of a new product's sales in its first year due to seasonality and advanced booking periods associated with certain products. Regulatory approval of our products may also impose limitations on the indicated or intended uses for which our products may be marketed.

Difficulties in making established products to all regulatory specifications may lead to significant losses related to affected inventory as well as market share. Among the conditions for certain regulatory approvals is the requirement that our facilities and/or the facilities of our third-party manufacturers conform to current Good Manufacturing Practices and other requirements. If any regulatory authority determines that our manufacturing facilities or those of our third-party manufacturers do not conform to appropriate manufacturing requirements, we or the manufacturers of our products may be subject to sanctions, including, but not limited to, warning letters, manufacturing suspensions, product recalls or seizures, injunctions, refusal to permit products to be imported into or exported out of the United States, refusals of regulatory authorities to grant approval or to allow us to enter into government supply contracts, withdrawals of previously approved marketing applications, civil fines and criminal prosecutions. Furthermore, third parties may perceive procedures required to obtain regulatory approval objectionable and may attempt to disrupt or otherwise damage our business as a result. In addition, certain of our agreements may require us to pay penalties if we are unable to supply products, including for failure to maintain regulatory approvals.

Any of these events, alone or in combination with others, could damage our business.

Our future revenues depend on successful product development, commercialization and/or market acceptance, any of which can be slower than we expect or may not occur.

The product development and regulatory approval process for many of our potential products is extensive and may take substantially longer than we anticipate. Research projects may fail. New products that we may be developing for the veterinary marketplace may not perform consistently within our expectations. Because we have limited resources to devote to product development and commercialization, any delay in the development of one product or reallocation of resources to product development efforts that prove unsuccessful may delay or jeopardize the development of other product candidates. If we fail to successfully develop new products and bring them to market in a timely manner, our ability to generate additional revenue will decrease.

Even if we are successful in the development of a product or obtain rights to a product from a third-party supplier, we may experience delays or shortfalls in commercialization and/or market acceptance of the product. For example, veterinarians may be slow to adopt a product, a product may not achieve the anticipated technical performance in field use or there may be delays in producing large volumes of a product. The former is particularly likely where there is no comparable product available or historical precedent for such a product. The ultimate adoption of a new product by veterinarians, the rate of such adoption and the extent veterinarians choose to integrate such a product into their practice are all important factors in the economic success of any new products and are factors that we do not control to a large extent. If our products do not achieve a significant level of market acceptance, demand for our products will not develop as expected and our revenues will be lower than we anticipate.

Many of our expenses are fixed and if factors beyond our control cause our revenue to fluctuate, this fluctuation could cause greater than expected losses, cash flow and liquidity shortfalls.

We believe that our future operating results will fluctuate on a quarterly basis due to a variety of factors which are generally beyond our control, including:

- 24 -


•	supply of products, including minimum purchase agreements, from third-party suppliers or termination, cancellation or expiration of such relationships;


•	competition and pricing pressures from competitive products;


•	the introduction of new products or services by our competitors or by us;


•	large customers failing to purchase at historical levels;


•	fundamental shifts in market demand;


•	manufacturing delays;


•	shipment problems;


•	information technology problems, which may prevent us from conducting our business effectively, or at all, and may also raise our costs;


•	regulatory and other delays in product development;


•	product recalls or other issues which may raise our costs;


•	changes in our reputation and/or market acceptance of our current or new products; and


•	changes in the mix of products sold.

We have high operating expenses, including those related to personnel. Many of these expenses are fixed in the short term and may increase over time. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed.

Cyberattack related breaches of the Company’s information technology systems could have an adverse effect on our business.

Cyberattacks, ranging from the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting, social engineering and other means for obtaining unauthorized access to or disrupting our Company’s ability to operate normally, could have an effect on our business. Cyberattacks may cause equipment failures, loss of information, including sensitive personal information of vendors, customers or employees or valuable technical and marketing information, as well as disruptions to our or our vendor or customers’ operations. These attacks may be committed by company employees or external actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective. Cyberattacks may occur alone or in conjunction with physical attacks, especially where disruption of service is an objective of the attacker. While, to date, we have not been subject to cyberattacks which, individually or in the aggregate, have been material to Heska Corporation’s operations or financial condition, the preventive actions we take to reduce the risks associated with cyberattacks, including protection of our systems and networks, may be insufficient to repel or mitigate the effects of a major cyberattack in the future.

The Company devotes significant resources to network security, data encryption and other security measures to protect its systems and data, but these security measures cannot provide absolute security. The Company requires user names and passwords to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent unauthorized access. The Company also conducts periodic internal training and educational communications to raise and maintain employee cybersecurity awareness. To the extent the Company was to experience a breach of its systems and was unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and reduce or otherwise negatively impact access to online services. Moreover, if a computer security breach affects the Company’s systems or results in the unauthorized release of Personally Identifiable Information (PII), the Company’s reputation and brand could be materially damaged. Use of the Company’s products and services could decrease, and the Company could be exposed to a risk of loss or litigation and possible liability.

- 25 -

We have less than 300 holders of record, which could allow us to terminate voluntarily the registration of our common stock with the SEC and after which we would no longer be eligible to maintain the listing of our Public Common Stock on the Nasdaq Capital Market. We may also be unable to otherwise maintain our listing on the Nasdaq Capital Market.

We have less than 300 holders of record as of our latest information, a fact which could make us eligible to terminate voluntarily the registration of our common stock with the SEC and therefore suspend our reporting obligations with the SEC under the Exchange Act and become a non-reporting company. If we were to cease reporting with the SEC, we would no longer be eligible to maintain the listing of our common stock on the Nasdaq Capital Market, which we would expect to materially adversely affect the liquidity and market price for our common stock. The Nasdaq Capital Market has several additional quantitative and qualitative requirements companies must comply with to maintain this listing. While we believe, we are currently in compliance with all Nasdaq requirements, there can be no assurance we will continue to meet Nasdaq listing requirements, that Nasdaq will interpret these requirements in the same manner we do if we believe we meet the requirements, or that Nasdaq will not change such requirements or add new requirements to include requirements we do not meet in the future.

If we are delisted from the Nasdaq Capital Market, our Public Common Stock may be considered a penny stock under the regulations of the SEC and would therefore be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our Public Common Stock, which could severely limit market liquidity of the Public Common Stock and any stockholder's ability to sell our securities in the secondary market. This lack of liquidity would also likely make it more difficult for us to raise capital in the future.

We may not be able to continue to achieve sustained profitability or increase profitability on a quarterly or annual basis.

Prior to 2005, we incurred net losses on an annual basis since our inception in 1988 and, as of December 31, 2017 , we had an accumulated deficit of $143.5 million . Relatively small differences in our performance metrics may cause us to generate an operating or net loss in future periods. Our ability to continue to be profitable in future periods will depend, in part, on our ability to increase sales in our CCA segment, including maintaining and growing our installed base of instruments and related consumables, to maintain or increase gross margins and to limit the increase in our operating expenses to a reasonable level as well as avoid or effectively manage any unanticipated issues. We may not be able to generate, sustain or increase profitability on a quarterly or annual basis. If we cannot achieve or sustain profitability for an extended period, we may not be able to fund our expected cash needs, including the repayment of debt as it comes due, or continue our operations.

We may face product returns and product liability litigation in excess of, or not covered by, our insurance coverage or indemnities and/or warranties from our suppliers. If we become subject to product liability claims resulting from defects in our products, we may fail to achieve market acceptance of our products and our sales could substantially decline.

The testing, manufacturing and marketing of our current products as well as those currently under development entail an inherent risk of product liability claims and associated adverse publicity. Following the introduction of a product, adverse side effects may be discovered. Adverse publicity regarding such effects could affect sales of our other products for an indeterminate time period. To date, we have not experienced any material product liability claims, but any claim arising in the future could substantially harm our business. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from

- 26 -

coverage under the terms of the policy. We may not be able to continue to obtain adequate insurance at a reasonable cost, if at all. In the event that we are held liable for a claim against which we are not indemnified or for damages exceeding the $10 million limit of our insurance coverage or which results in significant adverse publicity against us, we may lose revenue, be required to make substantial payments which could exceed our financial capacity and/or lose or fail to achieve market acceptance.

We may be held liable for the release of hazardous materials, which could result in extensive remediation costs or otherwise harm our business.

Certain of our products and development programs produced at our Des Moines, Iowa facility involve the controlled use of hazardous and bio hazardous materials, including chemicals and infectious disease agents. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by applicable local, state and federal regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any fines, penalties, remediation costs or other damages that result. Our liability for the release of hazardous materials could exceed our resources, which could lead to a shutdown of our operations, significant remediation costs and potential legal liability. In addition, we may incur substantial costs to comply with environmental regulations if we choose to expand our manufacturing capacity.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

Our principal administrative and research and development activities are located in Loveland, Colorado. We lease approximately 60,000 square feet at a facility in Loveland, Colorado under an agreement which expires in 2023. Our principal production facility located in Des Moines, Iowa, consists of 168,000 square feet of buildings on 34 acres of land, which we own. We also own a 175-acre farm used principally for testing products, located in Carlisle, Iowa. Our European facility in Fribourg, Switzerland has approximately 6,000 square feet leased under an agreement which expires in 2022.


Item 3.	Legal Proceedings

From time to time, we may be involved in litigation related to claims arising out of our operations. On March 12, 2015, a complaint was filed against us by Shaun Fauley in the United States District Court Northern District of Illinois alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action seeking stated damages of the greater of actual monetary loss or five hundred dollars per violation. The Company intends to defend itself vigorously in this matter and at this time is unable to estimate a possible loss or range of loss. As of December 31, 2017, we were not a party to any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results.


Item 4.	Mine Safety Disclosures

Not applicable.

- 27 -

PART II


Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Public common stock is quoted on the Nasdaq Capital Market under the symbol "HSKA". The following table sets forth the high and low sales prices for our Public common stock as reported by the Nasdaq Capital Market for the periods indicated below:



	High		Low
2016
First Quarter	$	38.29	$	27.00
Second Quarter	$	40.73	$	26.26
Third Quarter	$	57.41	$	37.49
Fourth Quarter	$	74.33	$	46.51
2017
First Quarter	$	105.00	$	70.84
Second Quarter	$	110.25	$	87.01
Third Quarter	$	115.00	$	84.40
Fourth Quarter	$	99.21	$	75.21
2018
First Quarter (through March 8, 2018)	$	83.98	$	56.59

As of March 8, 2018, there were approximately 260 holders of record of our Public Common Stock, and approximately 3,900 beneficial stockholders. We do not anticipate any dividend payments in the foreseeable future.

- 28 -

STOCK PRICE PERFORMANCE GRAPH

The following graph provides a comparison over the five-year period ended December 31, 2017 of the cumulative total shareholder return from a $100 investment in the Company's common stock with the NASDAQ Medical Supplies Index and the NASDAQ Composite Total Return:



	Dec-12		Dec-13		Dec-14		Dec-15		Dec-16		Dec-17
Heska Corporation	$	100	$	108	$	224	$	478	$	884	$	990
NASDAQ Medical Supplies Index	$	100	$	122	$	147	$	163	$	185	$	243
NASDAQ Composite Total Return Index	$	100	$	140	$	161	$	172	$	187	$	243

- 29 -


Item 6.	Selected Financial Data

The selected consolidated statements of income and consolidated balance sheets data have been derived from our consolidated financial statements. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes included as Items 7 and 8, respectively, in this Form 10-K.



	2017		2016		2015		2014		2013
	(In thousands, except per share data)
Consolidated Statements of Income Data:
Revenue, net	$	129,341	$	130,083	$	104,597	$	89,837	$	78,339
Net income (loss) attributable to Heska Corporation	$	9,953	$	10,508	$	5,239	$	2,603	$	(1,196	)

Earnings (loss) per share attributable to Heska Corporation:
Basic earnings (loss) per share attributable to Heska Corporation	$	1.42	$	1.55	$	0.80	$	0.44	$	(0.21	)
Diluted earnings (loss) per share attributable to Heska Corporation	$	1.30	$	1.43	$	0.74	$	0.41	$	(0.21	)
Basic weighted-average common shares outstanding	7,026		6,783		6,509		5,951		5,755
Diluted weighted-average common shares outstanding	7,642		7,361		7,074		6,409		5,755

Consolidated Balance Sheets Data:
Total assets	$	135,787	$	130,844	$	109,719	$	96,844	$	93,553
Long-term obligations and redeemable preferred stock	$	—	$	—	$	—	$	—	$	—

Cash dividends declared per share:	$	—	$	—	$	—	$	—	$	—

- 30 -


Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and the Consolidated Financial Statements and related Notes included in Items 6 and 8, respectively, of this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, gross profit margins, selling and marketing expenses, research and development expenses, general and administrative expenses, capital resources, additional financings or borrowings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Form 10-K, particularly in Item 1A "Risk Factors," that could cause actual results to differ materially from those projected. The forward-looking statements set forth in this Form 10-K are as of the close of business on March 8, 2018, and we undertake no duty and do not intend to update this information, except as required by applicable securities laws.

Overview

We sell advanced veterinary diagnostic and specialty products. Our offerings include point of care diagnostics laboratory instruments and supplies, digital imaging diagnostics products, vaccines, local and cloud-based data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on supporting veterinarians in the canine and feline healthcare space.

Our business is composed of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The CCA segment includes, primarily for canine and feline use, point of care laboratory instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings such as in-clinic diagnostic tests and heartworm preventive products. The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle but also for other species including equine, porcine, avian, feline and canine.

Core Companion Animal Health ("CCA"), represented 81% of our 2017 revenue. Other Vaccines, Pharmaceuticals and Products ("OVP"), represented 19% of our 2017 revenue. OVP products are sold by third parties under third party labels.

The CCA segment includes, primarily for canine and feline use, point of care diagnostics consisting of laboratory instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings such as in-clinic diagnostic tests and heartworm preventive products.

Revenue from point of care laboratory includes instruments, consumables, and other revenue such as service represented $54.9 million, $48.8 million, and $38.6 million, of our 2017 , 2016, and 2015 revenue, respectively. Revenue in this area primarily involves placing an instrument under contract in the field and generating future revenue from testing consumables, such as cartridges and reagents, as that instrument is used. Approximately $39.2 million, $36.3 million, and $30.6 million of our 2017 , 2016, and 2015 revenue, respectively, resulted from the sale of such testing consumables to an installed base of instruments. Approximately $13.8 million, $10.4 million, and $5.9 million, of our 2017 , 2016 and 2015 revenue, respectively, was from instrument sales. Approximately $1.9 million, $2.0 million, and $2.2 million, of our 2017 , 2016 and 2015 revenue, respectively, was from other revenue sources, such as charges for repairs. Instruments placed under subscription agreements are considered operating or sales-type (capital) leases, depending on the duration and other factors of the underlying agreement. A loss of, or disruption in, the

- 31 -

supply of consumables we are selling to an installed base of instruments could substantially harm our business. All of our point of care laboratory and other non-imaging instruments and supplies are supplied by third parties, who typically own the product rights and supply the product to us under marketing and/or distribution agreements. In many cases, we have collaborated with a third party to adapt a human instrument for veterinary use. Major products in this area include our instruments for chemistry, hematology, blood gas, and immunodiagnostic testing and their affiliated operating consumables.

Imaging hardware, software and services represented approximately $21.9 million, $29.6 million, and $19.6 million of 2017 , 2016, and 2015 revenue, respectively. Digital radiography is the largest product offering in this area, which also includes ultrasound instruments. Digital radiography solutions typically consist of a combination of hardware and software placed with a customer, often combined with an ongoing service and support contract. We sell our imaging solutions both in the United States and internationally. Our experience has been that most of the revenue is generated at the time of sale in this area, in contrast to the point of care diagnostics laboratory placements discussed above where ongoing consumable revenue is often a larger component of economic value as a given instrument is used.

Other CCA revenue, including single use diagnostic and other tests, pharmaceuticals and biologicals as well as research and development, licensing and royalty revenue, represented $25.6 million, $26.3 million, and $23.5 million of our 2017 , 2016, and 2015 revenue, respectively. Since items in this area are often single use by their nature, our typical aim is to build customer satisfaction and loyalty for each product, generate repeat annual sales from existing customers and expand our customer base in the future. Products in this area are both supplied by third parties and provided by us. Major products and services in this area include heartworm diagnostic tests and preventives, and allergy test kits, allergy immunotherapy and testing.

We consider the CCA segment to be our core business and devote most of our management time and other resources to improving the prospects for this segment. Maintaining a continuing, reliable and economic supply of products we currently obtain from third parties is critical to our success in this area. Virtually all of our sales and marketing expenses occur in the CCA segment. The majority of our research and development spending is dedicated to this segment as well.

All of our CCA products are ultimately sold primarily to or through veterinarians. In many cases, veterinarians will mark up their costs to their customer. The acceptance of our products by veterinarians is critical to our success. CCA products are sold directly to end users by us as well as through distribution relationships, such as our agreement with Intervet Inc., d/b/a Merck Animal Health ("Merck Animal Health"), the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors. Revenue from direct sales and distribution relationships represented approximately 58% and 42%, respectively, of CCA 2017 revenue, 61% and 39%, respectively, of CCA 2016 revenue, and 66% and 34%, respectively, of CCA 2015 revenue.

The OVP segment includes our 168,000 square foot USDA and FDA licensed production facility in Des Moines, Iowa. We view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future. We have increased integration of this facility with our operations elsewhere. For example, virtually all our US inventory, excluding our imaging products, is now stored at this facility and related fulfillment logistics are managed there. CCA segment products manufactured at this facility are transferred at cost and are not recorded as revenue for our OVP segment. We view OVP reported revenue as revenue primarily to cover the overhead costs of the facility and to generate incremental cash flow to fund our CCA segment.

Historically, a significant portion of our OVP segment's revenue has been generated from the sale of certain bovine vaccines, which have been sold primarily under the Titanium® and MasterGuard® brands. We have an agreement with Eli Lilly and Company ("Eli Lilly") and its affiliates operating through Elanco for the

- 32 -

production of these vaccines. Our OVP segment also produces vaccines and pharmaceuticals for other third parties.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with US generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess or obsolete inventory, in determining future costs associated with warranties provided, in determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights, estimating the useful lives of equipment under leasing arrangements, estimating the expense associated with the granting of stock, and in determining the need for, and the amount of, a valuation allowance on deferred tax assets. We consider the following to be our critical accounting estimates.

Revenue Recognition

We generate our revenue through the sale of products, either by outright purchase by our customers or through a subscription agreement whereby our customers receive equipment and pay us a monthly fee for the usage of the equipment as well as, when applicable, the consumables needed to conduct testing. Outright sales to customers is the majority of imaging diagnostics transactions, while subscription placement is the majority of point of care diagnostics laboratory transactions. We also may recognize revenue through licensing of technology product rights, royalties and sponsored research and development. Our policy is to recognize revenue when the applicable revenue recognition criteria have been met, which generally include the following:


•	Persuasive evidence of an arrangement exists;


•	Delivery has occurred or services rendered;


•	Price is fixed or determinable; and


•	Collectability is reasonably assured.

Revenue from the outright sale of products to customers is recognized after both the goods are shipped to the customer and acceptance has been received, if required, with an appropriate provision for estimated returns and allowances. We do not permit general returns of products sold.

Revenue from our point of care diagnostics laboratory subscription agreements is recognized based on the length of the agreements that are signed by our customers. Among other factors, the length of the agreement determines whether a subscription is considered an operating lease or capital lease. Our capital leases qualify for sales-type lease treatment. For subscription agreements that are considered operating leases, we recognize revenue of our subscriptions ratably over the term of the agreement. The equipment is transferred from inventory to property, plant and equipment and depreciated into cost of goods sold over the term of the agreement, based on the assets’ useful life, typically over a five to seven-year period depending on the circumstance under which the instrument is placed with the customer. Revenue from subscription agreements that are sales-type (capital) leases is recognized, along with the associated cost of the equipment, at the time of placement in our customer’s location. The amount of revenue recognized at the time of lease

- 33 -

inception is based on, along with other factors, observable prior sales prices of similar equipment sold by us over the prior twelve months, relative to total contract value. We record a short and long-term capital lease receivable related to sales-type leases.

Revenue from our rentals of digital imaging equipment is recognized ratably over the term of the rental agreement, which is typically over a 26-month period. The equipment is transferred from inventory to property, plant and equipment and depreciated over the assets' useful life. At the conclusion of these arrangements, customers generally have the option to (a) extend the rental agreement for an additional term, (b) purchase the items for a price negotiated at the inception of the rental, less rental payments paid or (c) pay a termination and recovery fee and return the items and terminate the agreement.

Recording revenue from the sale of products involves the use of estimates and management's judgment. We must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements. While we do utilize past payment history and, to the extent available for new customers, public credit information in making our assessment, the determination of whether collectability is reasonably assured is ultimately a judgment that must be made by management. We must also make estimates regarding our future obligations relating to returns, rebates, allowances and similar other programs.

License revenue under arrangements to sell or license product rights or technology rights is recognized as obligations under the agreement are satisfied, which generally occurs over a period of time. Generally, licensing revenue is deferred and recognized over the estimated life of the related agreements, products, patents or technology. Nonrefundable licensing fees, marketing rights and milestone payments received under contractual arrangements are deferred and recognized over the remaining contractual term using the straight-line method.

Recording revenue from license arrangements involves the use of estimates. The primary estimate made by management is determining the useful life of the related agreement, product, patent or technology. We evaluate all of our licensing arrangements by estimating the useful life of either the product or the technology, the length of the agreement or the legal patent life and defer the revenue for recognition over the appropriate period.

We enter into arrangements that include multiple elements. In these situations, we must determine whether the various elements meet the criteria to be accounted for as separate elements. If the elements cannot be separated, revenue is recognized once revenue recognition criteria for the entire arrangement have been met or over the period that the Company's obligations to the customer are fulfilled, as appropriate. If the elements are determined to be separable, the revenue is allocated to the separate elements based on relative fair value and recognized separately for each element when the applicable revenue recognition criteria have been met. In accounting for these multiple element arrangements, we must make determinations about whether elements can be accounted for separately and make estimates regarding their relative fair values.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” and has subsequently issued several supplemental and/or clarifying ASUs (collectively “ASC 606”). ASC 606 prescribes a single common revenue standard that replaces most existing US GAAP revenue recognition guidance. ASC 606 outlines a five-step model, under which Heska will recognize revenue as performance obligations within a customer contract are satisfied. ASC 606 is intended to provide more consistent interpretation and application of the principles outlined in the standard across filers in multiple industries and within the same industries compared to current practices, which should improve comparability. Along with the issuance of ASC 606, additional cost guidance was issued and codified under ASC 340-40 that outlines the requirement for capitalizing incremental costs of obtaining a contract and costs to fulfill a contract that meet certain capitalization criteria.

- 34 -

Adoption of ASC 606 is required for annual reporting periods beginning after December 15, 2017, including interim periods within the reporting period. Upon adoption, Heska must elect to adopt either retrospectively to each prior reporting period presented (full retrospective method) or using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application (modified retrospective method). Heska has elected to adopt the modified retrospective method and apply this method to contracts not yet completed as of January 1, 2018. The cumulative effect of initially applying the new revenue standard is recognized as an adjustment to the opening balance of our fiscal year 2018 retained earnings. The comparative information will not be recast and will continue to be reported under the accounting standards in effect for those periods.

Heska assessed the impact that the future adoption of ASC 606 is expected to have on its Consolidated Financial Statements by analyzing its current portfolio of customer contracts and various revenue streams, including a review of historical accounting policies and practices to identify potential differences in applying the guidance of ASC 606. Heska also performed a comprehensive review of its current processes and systems to determine and implement changes required to support the adoption of ASC 606 on January 1, 2018.

Based on review of customer contracts within our Core Companion Animal segment, Heska has determined the timing of revenue recognition of our product sales, which includes upfront equipment sales and sales of consumables, will continue to be recognized as it is currently, generally upon shipment of products. Also included within CCA are our subscription agreements, which contain a lease of equipment, for which rental income will continue to be recognized under ASC 840, Leases, unless the equipment is considered a sales-type lease and revenue will be recognized under ASC 606 at the point of sale. Often our contracts contain multiple performance obligations to which the transaction price must be allocated. The objective when allocating the transaction price is to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. All of the individual performance obligations, including equipment, consumables and services are sold separately, and therefore, observable prices are available.

Based on review of customer contracts within our Other Vaccines, Pharmaceuticals, and Products segment, Heska has determined that the timing of revenue recognition of our customer contracts will continue to be recognized as it is currently - generally upon shipment or acceptance by our customer. Heska assessed the over-time criteria within ASC 606 and concluded that because products within this segment have no alternative use to Heska as Heska is contractually prohibited to redirect the product to other customers, Heska does not have right to payment for performance to date and therefore, point in time recognition is appropriate.

In addition, ASC 606 states that "an asset recognized in accordance with the incremental costs of obtaining a contract shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates". Because a significant number of Heska’s customers are under noncancelable contracts for periods extending beyond one year with the delivery of goods and services occurring throughout the duration, Heska anticipates recording an asset related to the prepayment of such contract acquisition costs.

We expect the impact of the adoption of the new standard will result in an adjustment to the following recognition of software support revenue, which historically has been a separate element however this has been deemed to be an immaterial promise and therefore, previously deferred revenue relating to software support will be recognized at point of sale along with the equipment and embedded software. The adoption of the new standard will also impact the recognition of sales commissions. Previously, sales commissions were expensed

- 35 -

when the underlying contract was executed, which will now be recognized as a cost to acquire a contract and amortized over its useful life. Finally, the new standard will impact the recognition of revenue associated with certain bill and hold arrangements. Previously, we deferred revenue recognition until shipment, which will now be recognized upon customer acceptance. We are finalizing the quantitative impact of these changes.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts receivable based on client-specific allowances, as well as a general allowance. Specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors, among others, as: (i) the aging of the accounts receivable balance; (ii) the client's past payment history; and (iii) a deterioration in the client's financial condition, evidenced by weak financial condition and/or continued poor operating results, reduced credit ratings, and/or a bankruptcy filing. In addition to the specific allowance, the Company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance. The general allowance is established based on such factors, among others, as: (i) the total balance of the outstanding accounts receivable, including considerations of the aging categories of those accounts receivable; (ii) past history of uncollectable accounts receivable write-offs; and (iii) the overall creditworthiness of the client base. A considerable amount of judgment is required in assessing the realizability of accounts receivable. Should any of the factors considered in determining the adequacy of the overall allowance change, an adjustment to the provision for doubtful accounts receivable may be necessary.

Inventories

Inventories are stated at the lower of cost or net realizable value, cost being determined on the first-in, first-out method. Inventories are written down if the estimated net realizable value of an inventory item is less than its recorded value. We review the carrying cost of our inventories by product each quarter to determine the adequacy of our reserves for excess and/or obsolete inventory. In accounting for inventories we must make estimates regarding the estimated net realizable value of our inventory. This estimate is based, in part, on our forecasts of future sales and shelf life of products.

Deferred Tax Assets – Valuation Allowance

We evaluate our ability to realize the tax benefits associated with a deferred tax asset (“DTA”) by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. As of December 31, 2016, a portion of our deferred tax assets, specifically our domestic federal and state net operating loss carryforwards ("NOL"), were reduced by a valuation allowance. As of December 31, 2017, due to the significant amount of additional stock-based compensation excess tax deductions generated, the Company determined that sufficient taxable income may not be generated to realize all of the DTAs as of December 31, 2017. As such, an additional valuation allowance of $2.9 million was recorded for the year against certain of the Company’s deferred tax assets. See Note 3 - Income Taxes in the accompanying notes to the consolidated financial statements for additional information regarding our income taxes.

- 36 -

Results of Operations

Our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward. Our 2016 results of operations include the results of International Imaging for the period of June 1, 2016 through December 31, 2016. Our 2017 results included a full year of International Imaging operations. This discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, in Item 8 of this annual report on Form 10-K.

The following table sets forth, for the periods indicated, certain data derived from our consolidated statements of income (in thousands):



	Year Ended December 31,
	2017			2016		2015
Revenue	$	129,341		$	130,083	$	104,597
Gross Profit	58,261			53,892		44,213
Operating expenses	40,042			37,359		35,656
Operating income	18,219			16,533		8,557
Interest and other (income) expense, net	(150		)	29		130
Income before income taxes	18,369			16,504		8,427
Provision for income taxes	8,913			4,339		2,908
Net income	9,456			12,165		5,519
Net (loss) income attributable to non-controlling interest	(497		)	1,657		280
Net income attributable to Heska Corporation	$	9,953		$	10,508	$	5,239

The following table sets forth, for the periods indicated, segment data derived from our consolidated statements of income (in thousands):

CCA Segment



	Year Ended December 31,									Change
	2017			2016			2015			Dollar Change			% Change		Dollar Change		% Change
Revenue	$	105,191		$	107,398		$	84,249		$	(2,207	)	(2	)%	$	23,149	27	%
Percent of Total Revenue	81.3		%	82.6		%	80.5		%
Cost of Revenue	54,509			59,066			45,652			(4,557		)	(8	)%	13,414		29	%
Gross Profit	50,682			48,332			38,597			2,350			5	%	9,735		25	%
Operating Income	$	12,656		$	13,015		$	4,911		$	(359	)	(3	)%	$	8,104	165	%

- 37 -

OVP Segment



	Year Ended December 31,									Change
	2017			2016			2015			Dollar Change			% Change		Dollar Change			% Change
Revenue	$	24,150		$	22,685		$	20,348		$	1,465		6	%	$	2,337		11	%
Percent of Total Revenue	18.7		%	17.4		%	19.5		%
Cost of Revenue	16,570			17,125			14,733			(555		)	(3	)%	2,392			16	%
Gross Profit	7,580			5,560			5,615			2,020			36	%	(55		)	(1	)%
Operating Income	$	5,563		$	3,518		$	3,646		$	2,045		58	%	$	1,601		44	%

Revenue

Total revenue decreased 1% to $129.3 million in 2017 compared to $130.1 million in 2016 . Total revenue increased 24% to $ 130.1 million in 2016 compared to $ 104.6 million in 2015 .

CCA segment revenue decreased 2% to $105.2 million in 2017 compared to $107.4 million in 2016 . The decrease was driven primarily by a 26% decrease in revenue from sales of our imaging products, partially offset by a 12% increase in revenue from core point of care laboratory subscriptions, equipment and consumables. CCA segment revenue increased 27% to $107.4 million in 2016 compared to $84.2 million in 2015 . The increase was driven primarily by greater sales of our digital imaging products, increased sales of our heartworm preventive products and increased installed base and revenue recognition of our instruments and sales of their associated consumables. These increases were partially offset by declines in sales of our heartworm diagnostic tests and allergy testing and treatments.

OVP segment revenue increased 6% to $24.2 million in 2017 compared to $22.7 million in 2016 and increased 11% to $22.7 million in 2016 compared to $20.3 million in 2015 . The increase in 2017 from 2016 was due to various customer contracts. The increase in 2016 from 2015 was driven primarily by greater revenue from our contract with Elanco.

Gross Profit

Gross profit increased 8% to $58.3 million in 2017 compared to $53.9 million in 2016 . Gross margin percent, which we derive by dividing gross profit by total revenue, increased to 45.0% in 2017 compared to 41.4% in 2016 . The increase in gross profit was driven primarily by favorable pricing, while the increase in gross margin percentage was driven in part by favorable margins on consumables in our CCA segment and product mix in our OVP segment. Gross profit increased 22% to $53.9 million in 2016 compared to $ 44.2 million in 2015 . Gross margin percent decreased to 41.4% in 2016 compared to 42.3% in 2015 . This lower gross margin percentage was driven primarily by unfavorable product mix in our OVP segment as well as incremental sales from International Imaging, which contributes slightly lower gross margins than our domestic imaging products.

Operating Expenses

Selling and marketing expenses increased 5% to $23.2 million in 2017 compared to $22.1 million in 2016 . The increase was driven primarily by a $1.0 million increase in compensation and benefits and a $0.3 million increase in stock compensation, partially offset by a $0.6 million decrease in commissions and other incentive compensation. Selling and marketing expenses increased 4% to $22.1 million in 2016 compared to $21.3 million in 2015 . The increase was driven primarily by commissions paid on higher sales levels, particularly on our digital radiography sales and instrument placements.

- 38 -

Research and development expenses decreased 7% to $2.0 million in 2017 , compared to $2.1 million in 2016 , primarily driven by a decrease in other incentive compensation. Research and development increased 29% to $2.1 million in 2016 , as compared to $1.7 million in 2015 . The increase was driven primarily by spending on product development for digital radiography solutions.

General and administrative expenses increased 13% to $14.8 million in 2017 , compared to $13.1 million in 2016 . The increase was driven primarily by a $0.7 million increase in general consulting services, $0.6 million increase in compensation and benefits (net of a decrease in other incentive compensation), and a $0.2 million increase in severance expense. General and administrative expenses increased 4% to $13.1 million in 2016, as compared to $12.7 million in 2015 . The increase was driven primarily by intangible amortization expense related to our acquisition of International Imaging.

Interest and Other Expense (Income), Net

Interest and other expense (income), net, was income of $ 150 thousand in 2017 , as compared to an expense of $29 thousand in 2016 and expense of $130 thousand in 2015 .

The increase in other income in 2017 was primarily driven by a $293 thousand increase in net foreign currency gains offset by a $85 thousand increase in interest expense. The decrease in other expense in 2016 as compared to 2015 was driven primarily by income received from the sale of an equity investment during the first quarter of 2016. This income was offset by minimum interest payments made on our line of credit and greater foreign currency losses.

Income Tax Expense

In 2017, we had total income tax expense of $8.91 million , including approximately $5.9 million related to the re-measurement of our deferred tax balances as a result of the US Tax Cuts and Jobs Act. In 2016 and 2015 respectively, we had total income tax expense of $4.3 million and $ 2.9 million . In 2017, our deferred income tax expense was increased by $5.9 million (i.e. the write down of deferred tax asset balances and the valuation allowance) for tax reform legislation and our current income tax expense was reduced by $5.5 million for employee share-based payment awards which are now recorded in the income statement in accordance with our accounting policy election. See Note 3 - Income Taxes in the accompanying notes to the consolidated financial statements for additional information regarding our income taxes.

On December 22, 2017, the tax legislation commonly known as The US Tax Cuts and Jobs Act was signed into law (the “Act”). This enactment resulted in a number of significant changes to US federal income tax law for US corporations. Most notably, the statutory US federal corporate income tax rate was reduced to 21%. In addition to the change in the corporate income tax rate, the Act further introduced a number of other changes including a one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits; the introduction of a tax on global intangible low-taxed income (“GILTI”) for tax years beginning after December 31, 2017; the further limitation of the deductibility of share-based compensation of certain highly compensated employees; and the repeal of the corporate alternative minimum tax; amongst other provisions. We are required to recognize the effect of the tax law changes in the period of enactment. Shortly after enactment, the Security and Exchange Commission (SEC) issued SAB 118, which provides guidance on accounting for the new legislation. Under SAB 118, an entity should recognize amounts for which accounting can be completed. Where accounting under ASC 740 is incomplete relative to certain income tax effects of tax reform, the entity should recognize provisional amounts and adjust such amounts as more information becomes available and disclose this information in its financial statements. The measurement period under SAB 118 is one year from date of enactment (with the approach being similar to business combinations). Due to the timing of enactment of the Act, and the ongoing guidance and accounting interpretation expected over the next 12 months, we consider the accounting for the transition tax, impact of

- 39 -

GILTI, deferred tax re-measurements, and other impacts of the Act applicable to the Company to be incomplete as of the balance sheet date. We expect to complete our analysis within the measurement period in accordance with SAB 118.

Net Income attributable to Heska Corporation

Net income attributable to Heska Corporation was $10.0 million in 2017 , as compared to a net income attributable to Heska Corporation of $10.5 million in 2016 and net income attributable to Heska Corporation of $5.2 million in 2015 . The difference between this line item and "Net Income" is the net income or loss attributable to our minority interest in US Imaging, prior to when we purchased it on May 31, 2017. The difference between these line items was a gain of $0.5 million in 2017 , a loss of $1.7 million in 2016 and a loss of $0.3 million in 2015 .

Non-GAAP Financial Measures

As discussed above, under Income Taxes, the caption, our deferred income tax expense was increased by $5.9 million due to the revaluation of our deferred tax assets as a result of the Act. On a non-GAAP basis, excluding the one-time tax adjustment, net income attributable to Heska was $15.9 million in 2017, as compared to $10.5 million in 2016. The following table is a reconciliation of the impact of this adjustment to the nearest U.S. GAAP financial measure:



	Year Ended December 31,
	2017		2016
U.S. GAAP: Net (loss) income attributable to Heska	$	9,953	$	10,508
Add: U.S. Tax Reform	5,898		—
Non-GAAP: Net income attributable to Heska excluding U.S. Tax Reform	$	15,851	$	10,508

U.S. GAAP: Diluted (loss) earnings per share attributable to Heska	$	1.30	$	1.43
Non-GAAP: Diluted earnings per share attributable to Heska	$	2.07	$	1.43

Weighted average outstanding shares used to compute diluted earnings per share attributable to Heska Corporation	7,642		7,361

Impact of Inflation

In recent years, inflation has not had a significant impact on our operations.

Liquidity, Capital Resources and Financial Condition

We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which are beyond our control. Our primary sources of liquidity are our available cash, cash generated from current operations and availability under our credit facilities noted below.

For the year ended December 31, 2017 , we had net income of $9.5 million and net cash provided by operations of $10.4 million . At December 31, 2017 , we had $9.7 million of cash and cash equivalents, working capital of $ 37.2 million and $6.0 million outstanding borrowings under our revolving line of credit, discussed below.

- 40 -

On July 27, 2017, we entered into a Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. ("Chase"), which provides for a revolving credit facility of up to $30.0 million (the "Credit Facility"). The Credit Facility provides us with the ability to borrow up to $30.0 million, although the amount of the Credit Facility may be increased by an additional $20.0 million up to a total of $50.0 million subject to receipt of additional lender commitments and other conditions. Any interest on borrowings due is to be charged at either the (i) rate of interest per annum publicly announced from time to time by Chase at its prime rate in effect at its principal offices in New York City, subject to a floor, minus 1.65%, or (ii) the interest rate per annum equal to (a) LIBOR for the interest period in effect multiplied by (b) Chase's Statutory Reserve Rate (as defined in the Credit Agreement), plus 1.10% and payable monthly. There is an annual minimum interest charge of $60 thousand under the Credit Agreement. Borrowings under the Credit Facility are subject to certain financial and non-financial covenants and are available for various corporate purposes, including general working capital, capital investments, and certain permitted acquisitions. Failure to comply with any of the covenants, representations or warranties could result in our being in default on the loan and could cause all outstanding amounts payable to Chase to become immediately due and payable or impact our ability to borrow under the agreement. The Credit Agreement also permits us to issue letters of credit. The maturity date of the Credit Facility is July 27, 2020. The foregoing discussion of the Credit Facility is a summary only and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which has been filed as an exhibit to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2017. At December 31, 2017 , we had $6.0 million of borrowings outstanding on this line of credit and we were in compliance with all financial covenants.

A summary of our cash provided by and used in operating, investing and financing activities is as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Net cash provided by operating activities	$	10,409		$	5,855		$	2,125
Net cash used in investing activities	(17,169		)	(3,302		)	(3,773		)
Net cash provided by financing activities	5,551			1,403			2,726
Effect of currency translation on cash	74			(52		)	(43		)
Increase (decrease) in cash and cash equivalents	(1,135		)	3,904			1,035
Cash and cash equivalents, beginning of the period	10,794			6,890			5,855
Cash and cash equivalents, end of the period	$	9,659		$	10,794		$	6,890

Net cash provided by operating activities was $10.4 million in 2017 as compared to net cash provided by operating activities of $5.9 million in 2016 , an increase of approximately $4.6 million . The change was driven primarily by a $9.9 million increase in cash provided by accounts receivable, a $4.9 million increase in deferred tax expense, a $3.8 million increase in cash provided by accounts payable, a $1.0 million decrease in cash used for other non-current assets, a $0.9 million decrease in cash used by deferred revenue, and a $0.5 million increase in stock-based compensation. These factors were partially offset by a $9.1 million increase in cash used for inventory, a $2.7 million decrease in net income, a $1.4 million increase in cash used for other current assets, a $1.1 million decrease in cash provided by related party payables, a $0.9 million increase in cash used for accrued liabilities, and a $1.4 million increase in current and non-current lease receivables. Net cash provided by operating activities was $5.9 million in 2016 as compared to net cash provided by operating

- 41 -

activities of $2.1 million in 2015 , an increase of approximately $3.7 million . The change was driven primarily by a $6.6 million increase in net income, a $2.6 million increase in the use of our deferred tax asset, a $2.5 million decrease in cash used for inventory, some of which related to inventory transferred to property, plant and equipment as rental units, a $1.9 million increase in cash provided by other current assets, a $1.4 million increase in cash provided by related party payables, and a $0.5 million increase in depreciation and amortization. These factors were partially offset a $3.7 million increase in cash used for accounts payable, a $2.9 million increase in cash used for non-current lease receivables, a $2.1 million increase in cash used by deferred revenue, a $0.9 million decrease in cash provided by related party receivables, and a $0.6 million increase in cash used for current lease receivables.

Net cash used in investing activities was $17.2 million in 2017 as compared to net cash used in investing activities of $3.3 million in 2016 , an increase of approximately $13.9 million . The increase was driven primarily by our purchase of the minority interest in US Imaging for $13.8 million. Net cash used in investing activities was $3.3 million in 2016 as compared to net cash used in investing activities of $3.8 million in 2015 , a decrease of approximately $0.5 million . The change was driven primarily by a $0.4 million decrease in purchases of property and equipment and $0.1 million of proceeds from the sale of an equity investment.

Net cash provided by financing activities was $5.6 million in 2017 as compared to net cash provided by financing activities of $1.4 million in 2016 , an increase of approximately $4.1 million . The change was driven primarily by a $4.8 million increase in borrowings, net of repayments, partially offset by $1.0 million of distributions to non-controlling interest members. Net cash provided by financing activities was $1.4 million in 2016 as compared to net cash provided by financing activities of $2.7 million in 2015 , a decrease of approximately $1.3 million . The change was driven primarily by a $1.5 million change related to the accounting for additional tax benefits for employee share-based payment awards, which in 2016 were recorded as income tax benefit in earnings as compared to 2015, when they were carried on the balance sheet and classified as part of cash provided by financing activities.

Our financial plan for 2018 indicates that our available cash and cash equivalents, together with cash from operations and borrowings expected to be available under our revolving line of credit, will be sufficient to fund our operations for the foreseeable future. Additionally, we would consider additional acquisitions if we felt they were consistent with our strategic direction. However, our actual results may differ from this plan, and we may be required to consider alternative strategies. We may be required to raise additional capital in the future. If necessary, we expect to raise these additional funds through the increased sale of customer leases, the sale of equity securities or the issuance of new term debt. There is no guarantee that additional capital will be available from these sources on acceptable terms, if at all, and certain of these sources may require approval by existing lenders. See "Risk Factors" in Item 1A of this Form 10-K for a discussion of some of the factors that affect our capital raising alternatives.

Effect of currency translation on cash

Net effect of foreign currency translations on cash changed $ 126 thousand to a $74 thousand positive impact in 2017 as compared to a $ 52 thousand negative impact in 2016 . The net effect of foreign currency translation on cash changed $9 thousand to a $52 thousand negative impact in 2016 from a $43 thousand negative impact in 2015 . These effects are related to changes in exchange rates between the US Dollar and the Swiss Franc, which is the functional currency of our Swiss subsidiary.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements or variable interest entities.

- 42 -

Contractual Obligations

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provided financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or R&D services with the Company.

Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and specify approximate timing of the transaction.

The following table presents certain future payments due by the Company as of December 31, 2017 , and excludes amounts already recorded on the Consolidated Balance Sheet, except for our line of credit (in thousands):



	Total		Less Than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
Purchase obligations	$	35,464	$	11,651	$	15,558	$	8,255	$	—
Operating lease obligations	11,104		2,156		3,871		3,460		1,617
Revolving credit facility	6,000		6,000		—		—		—
Future interest obligations	180		60		120		—		—
Total	$	52,748	$	19,867	$	19,549	$	11,715	$	1,617

Net Operating Loss Carryforwards

As of December 31, 2017, we had a net domestic operating loss carryforward (“NOL”) and domestic research and development tax credit carryforward. See Note 3 - Income Taxes in the accompanying notes to the consolidated financial statements for additional information regarding our carryforwards.

Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board ("FASB") or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 1- Operations and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

- 43 -


Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk in the areas of changes in United States and foreign interest rates and changes in foreign currency exchange rates as measured against the United States dollar. These exposures are directly related to our normal operating and funding activities.

Interest Rate Risk

At December 31, 2017 , there was approximately $6.0 million outstanding on our revolving credit facility with Chase. We had no interest rate hedge transactions in place on December 31, 2017 . We completed an interest rate risk sensitivity analysis based on the above and an assumed one-percentage point increase in interest rates would have an approximate $60 thousand negative impact on our pre-tax earnings based on our outstanding balances as of December 31, 2017 .

Foreign Currency Risk

Foreign currency risk may impact our results of operations. In cases where we purchase inventory in one currency and sell corresponding products in another, our gross margin percentage is typically at risk based on foreign currency exchange rates. In addition, in cases where we may be generating operating income in foreign currencies, the magnitude of such operating income when translated into U.S. dollars will be at risk based on foreign currency exchange rates. We had no foreign currency hedge transactions in place on December 31, 2017. We do not consider foreign currency risk to be material to our business.

- 44 -


Item 8.	Financial Statements and Supplementary Data

HESKA CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Report of Independent Registered Public Accounting Firm	46
Consolidated Balance Sheets	48
Consolidated Statements of Income	49
Consolidated Statements of Comprehensive Income	50
Consolidated Statements of Stockholders' Equity	51
Consolidated Statements of Cash Flows	52
Notes to Consolidated Financial Statements	53

- 45 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Heska Corporation and Subsidiaries

Loveland, Colorado

OPINIONS ON THE CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING

We have audited the accompanying consolidated balance sheets of Heska Corporation and Subsidiaries (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each year in the three‑year period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We have also audited the Company's internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control ‑ Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each year in the three‑year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control ‑ Integrated Framework: (2013) issued by COSO.

BASIS FOR OPINIONS

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

- 46 -

DEFINITION AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

EKS&H LLLP

March 9, 2018

Denver, Colorado

We have served as the Company's auditor since 2006.

- 47 -

HESKA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



	December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	9,659		$	10,794
Accounts receivable, net of allowance for doubtful accounts of $215 and $237, respectively	15,710			20,857
Due from – related parties	1			100
Inventories, net	32,596			20,395
Lease receivable, current	2,069			825
Other current assets	2,877			2,302
Total current assets	62,912			55,273

Property and equipment, net	17,331			16,581
Goodwill	26,687			26,647
Other intangible assets, net	1,958			2,346
Deferred tax asset, net	11,877			21,122
Lease receivable, non-current	9,615			4,833
Other non-current assets	5,407			4,042
Total assets	$	135,787		$	130,844

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,489		$	6,343
Due to – related party	1,828			1,578
Accrued liabilities	4,417			5,581
Current portion of deferred revenue	3,992			3,560
Obligation to purchase minority interest	—			14,602
Line of credit and other short-term borrowings	6,000			750
Total current liabilities	25,726			32,414

Deferred revenue, net of current portion, and other	9,621			11,455
Total liabilities	35,347			43,869
Commitments and contingencies (Note 11)

Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding	—			—
Common stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding	—			—
Public common stock, $.01 par value, 10,000,000 shares authorized, 7,302,954 and 7,026,051 shares issued and outstanding, respectively	73			70
Additional paid-in capital	243,598			238,635
Accumulated other comprehensive income	232			97
Accumulated deficit	(143,463		)	(151,827		)
Total stockholders' equity	100,440			86,975
Total liability and stockholders' equity	$	135,787		$	130,844

See accompanying notes to consolidated financial statements.

- 48 -

HESKA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



	Year Ended December 31,
	2017			2016		2015
Revenue:
Core companion animal health	$	105,191		$	107,398	$	84,249
Other vaccines, pharmaceuticals and products	24,150			22,685		20,348
Total revenue, net	129,341			130,083		104,597

Cost of revenue	71,080			76,191		60,384

Gross profit	58,261			53,892		44,213

Operating expenses:
Selling and marketing	23,225			22,092		21,339
Research and development	2,004			2,147		1,658
General and administrative	14,813			13,120		12,659
Total operating expenses	40,042			37,359		35,656
Operating income	18,219			16,533		8,557
Interest and other (income) expense, net	(150		)	29		130
Income before income taxes	18,369			16,504		8,427
Income tax expense:
Current income tax expense	49			407		1,581
Deferred income tax expense	8,864			3,932		1,327
Total income tax expense	8,913			4,339		2,908

Net income	9,456			12,165		5,519
Net (loss) income attributable to non-controlling interest	(497		)	1,657		280
Net income attributable to Heska Corporation	$	9,953		$	10,508	$	5,239

Basic earnings per share attributable to Heska Corporation	$	1.42		$	1.55	$	0.80
Diluted earnings per share attributable to Heska Corporation	$	1.30		$	1.43	$	0.74

Weighted average outstanding shares used to compute basic earnings per share attributable to Heska Corporation	7,026			6,783		6,509
Weighted average outstanding shares used to compute diluted earnings per share attributable to Heska Corporation	7,642			7,361		7,074

See accompanying notes to consolidated financial statements.

- 49 -

HESKA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



	Year Ended December 31,
	2017			2016			2015

Net income	$	9,456		$	12,165		$	5,519
Other comprehensive income (loss):
Minimum pension liability	12			75			(129		)
Sale of equity investment	—			(90		)	44
Foreign currency translation	123			(75		)	(11		)
Comprehensive income	9,591			12,075			5,423

Comprehensive (loss) income attributable to non-controlling interest	(497		)	1,657			280
Comprehensive income attributable to Heska Corporation	$	10,088		$	10,418		$	5,143

See accompanying notes to consolidated financial statements.

- 50 -

HESKA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders' Equity
Balances January 1, 2015	6,342	$	63	$	222,297		$	283		$	(169,511	)	$	53,132
Net income	—	—		—			—			5,519			5,519
Issuance of common stock, net of shares withheld for employee taxes	283	3		1,255			—			—			1,258
Stock-based compensation	—	—		2,269			—			—			2,269
Excess tax benefit from stock-based compensation	—	—		1,514			—			—			1,514
Accretion of non-controlling interest	—	—		(68		)	—			—			(68		)
Other comprehensive income (loss)	—	—		—			(96		)	—			(96		)
Balances, December 31, 2015	6,625	$	66	$	227,267		$	187		$	(163,992	)	$	63,528
Net income	—	—		—			—			12,165			12,165
Issuance of common stock related to the acquisition of Cuattro Veterinary International, LLC	175	2		6,347			—			—			6,349
Issuance of common stock, net of shares withheld for employee taxes	226	2		1,616			—			—			1,618
Stock-based compensation	—	—		2,260			—			—			2,260
Accretion of non-controlling interest	—	—		1,145			—			—			1,145
Other comprehensive income (loss)	—	—		—			(90		)	—			(90		)
Balances, December 31, 2016	7,026	$	70	$	238,635		$	97		$	(151,827	)	$	86,975
Net income	—	—		—			—			9,456			9,456
Issuance of common stock, net of shares withheld for employee taxes	277	3		1,373			—			—			1,376
Stock-based compensation	—	—		2,745			—			—			2,745
Accretion of non-controlling interest	—	—		845			—			—			845
Distribution for Heska Imaging minority	—	—		—			—			(1,092		)	(1,092		)
Other comprehensive income (loss)	—	—		—			135			—			135
Balances, December 31, 2017	7,303	$	73	$	243,598		$	232		$	(143,463	)	$	100,440

See accompanying notes to consolidated financial statements.

- 51 -

HESKA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Year Ended December 31,
	2017			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,456		$	12,165		$	5,519
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,754			4,645			4,187
Deferred income tax expense	8,864			3,932			1,327
Stock-based compensation	2,745			2,260			2,269
Other (gain) loss	(46		)	(3		)	36
Changes in operating assets and liabilities:
Accounts receivable	5,156			(4,700		)	(4,216		)
Inventories	(13,834		)	(4,731		)	(7,240		)
Due from related parties	99			(59		)	851
Lease receivable, current	(1,244		)	(736		)	(89		)
Other current assets	(469		)	883			(1,000		)
Accounts payable	3,143			(688		)	3,059
Due to related parties	250			1,356			(30		)
Accrued liabilities and other	(1,293		)	(351		)	73
Lease receivable, non-current	(4,782		)	(3,867		)	(967		)
Other non-current assets	(989		)	(1,951		)	(1,463		)
Deferred revenue and other	(1,401		)	(2,300		)	(191		)
Net cash provided by operating activities	10,409			5,855			2,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equity investment	—			115			—
Purchase of minority interest	(13,757		)	—			—
Purchases of property and equipment	(3,469		)	(3,417		)	(3,773		)
Proceeds from disposition of property and equipment	57			—			—
Net cash used in investing activities	(17,169		)	(3,302		)	(3,773		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	2,452			2,382			2,143
Repurchase of common stock	(1,076		)	(762		)	(885		)
Distributions to non-controlling interest members	(965		)	—			—
Proceeds from line of credit borrowings	40,307			34,792			26,809
Repayments of line of credit borrowings	(34,979		)	(34,262		)	(26,714		)
Repayments of other debt	(68		)	(747		)	(141		)
Payment of debt issuance costs	(120		)	—			—
Excess tax benefit from stock-based compensation	—			—			1,514
Net cash provided by financing activities	5,551			1,403			2,726
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH	74			(52		)	(43		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(1,135		)	3,904			1,035
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	10,794			6,890			5,855
CASH AND CASH EQUIVALENTS, END OF YEAR	$	9,659		$	10,794		$	6,890
NON-CASH TRANSACTIONS:
Common stock issued as partial consideration of acquisition of Cuattro Veterinary International, LLC	$	—		$	6,349		$	—

See accompanying notes to consolidated financial statements.

- 52 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Heska Corporation and its wholly-owned subsidiaries ("Heska", the "Company", "we" or "our") sell veterinary and animal health diagnostic and specialty products. Our offerings include point of care diagnostics laboratory instruments and supplies, digital imaging diagnostics products, software and services, vaccines, local and cloud-based data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on supporting veterinarians in the canine and feline healthcare space.

Basis of Presentation and Consolidation

Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries since their respective dates of acquisitions. All intercompany accounts and transactions have been eliminated in consolidation. Where our ownership of a subsidiary was less than 100%, the non-controlling interest is reported on our consolidated balance sheets. The non-controlling interest in our consolidated net income is reported as "Net income (loss) attributable to non-controlling interest" on our consolidated statements of income. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP").

Reclassification

To maintain consistency and comparability, certain amounts in the financial statements have been reclassified to conform to current year presentation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess or obsolete inventory, in determining future costs associated with warranties provided, in determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights, evaluating long-lived and intangible assets for impairment, estimating the useful lives of equipment under leasing arrangements, determining the allocation of purchase price under purchase accounting, estimating the expense associated with the granting of stock options, and in determining the need for, and the amount of, a valuation allowance on deferred tax assets.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. We maintain the majority of our cash and cash equivalents with financial institutions that management believes are creditworthy in the form of demand deposits. We have no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign currency hedging arrangements. Our accounts receivable balances are due largely from distribution partners, domestic veterinary clinics and individual veterinarians and other animal health companies.

- 53 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Henry Schein represented 16% of our consolidated accounts receivable at December 31, 2017 and 2016 . Merck entities represented approximately 15% and 11% of our consolidated accounts receivable at December 31, 2017 and 2016 , respectively. DLL represented 11% and 18% of our consolidated accounts receivable at December 31, 2017 and 2016 , respectively. Eli Lilly entities, including Elanco, represented approximately 3% and 15% of our consolidated accounts receivable at December 31, 2017 and 2016 , respectively. No other customer accounted for more than 10% of our consolidated accounts receivable at December 31, 2017 or 2016 .

We have established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at net realizable value. From time to time, our customers are unable to meet their payment obligations. We continuously monitor our customers' credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results.

Changes in allowance for doubtful accounts are summarized as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Balances at beginning of period	$	237		$	189		$	216
Additions - charged to expense	168			163			83
Deductions - write offs, net of recoveries	(190		)	(115		)	(110		)
Balances at end of period	$	215		$	237		$	189

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost, which approximates market value, and include short-term, highly liquid investments with original maturities of less than three months. We valued our Euro and Japanese Yen cash accounts at the spot market foreign exchange rate as of each balance sheet date, with changes due to foreign exchange fluctuations recorded in current earnings. We held 1,077,787 and 2,778,614 Euros at December 31, 2017 and 2016 , respectively. We held 0 and 1,252,221 Yen at December 31, 2017 and 2016 , respectively. We held 80,459 and 172,743 Swiss Francs at December 31, 2017 and 2016 , respectively. We held 0 and 26,477 Canadian Dollars at December 31, 2017 and 2016 , respectively. The majority of our cash and cash equivalents are held at US-based or Swiss-based financial institutions in accounts not insured by governmental entities.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, short-term trade receivables and payables and the Company's revolving line of credit. The carrying values of cash and cash equivalents and short-term trade receivables and payables approximate fair value because of the short-term nature of the instruments. The fair value of our line of credit balance is estimated based on current rates available for

- 54 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

similar debt with similar maturities and collateral, and at December 31, 2017 and 2016 , approximates the carrying value due primarily to the floating rate of interest on such debt instruments.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method. Inventory we manufacture includes the cost of material, labor and overhead. If the cost of inventories exceeds estimated net realizable value, provisions are made to reduce the carrying value to estimated net realizable value.

Inventories, net consist of the following (in thousands):



	December 31,
	2017			2016
Raw materials	$	18,465		$	10,807
Work in process	4,296			3,820
Finished goods	11,465			7,087
Allowance for excess or obsolete inventory	(1,630		)	(1,319		)
	$	32,596		$	20,395

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. When an item is sold or retired, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in the consolidated statements of income. We provide for depreciation primarily using the straight-line method by charges to income in amounts that allocate the cost of property and equipment over their estimated useful lives as follows:



Asset Classification	Estimated Useful Life
Building	10 to 20 years
Machinery and equipment	3 to 15 years
Leasehold and building improvements	7 to 15 years

We capitalize certain costs incurred in connection with developing or obtaining software designated for internal use based on three distinct stages of development. Qualifying costs incurred during the application development stage, which consist primarily of internal payroll and direct fringe benefits and external direct project costs, including labor and travel, are capitalized and amortized on a straight-line basis over the estimated useful life of the asset, which range from three to five years. Costs incurred during the preliminary project and post-implementation and operation phases are expensed as incurred. These costs are general and administrative in nature and related primarily to the determination of performance requirements, data conversion and training.

Goodwill, Intangible and Other Long-Lived Assets

We assess goodwill for impairment annually, at the reporting unit level, in the fourth quarter and whenever events or circumstances indicate impairment may exist. In evaluating goodwill for impairment, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the estimated fair value of the reporting unit is less than its carrying amount as a basis for determining whether it

- 55 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

is necessary to perform the comparison of the estimated fair value of the reporting unit to the carrying value. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that is it more likely than not that the estimated fair value of a reporting is less than its carrying amount, we would then estimate the fair value of the reporting unit and compare it to the carrying value. If the carrying value exceeds the estimated fair value we would recognize an impairment for the difference; otherwise, no further impairment test would be required. In contrast, we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative analysis. Doing so does not preclude us from performing the qualitative assessment in any subsequent period.

In the fourth quarter of 2017 , we performed a qualitative assessment of the goodwill residing within the assets of our CCA segment, also determined to be a reporting unit, and determined that no indications of impairment existed.

Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful lives. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of intangible assets as well as other long-lived assets may warrant revision, or that the remaining balance of these assets may not be recoverable. When deemed necessary, we complete this evaluation by comparing the carrying amount of the assets with the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of amortizable long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values.

The estimation of useful lives and expected cash flows requires us to make significant judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations.

Revenue Recognition


•	Persuasive evidence of an arrangement exists;


•	Delivery has occurred or services rendered;


•	Price is fixed or determinable; and


•	Collectability is reasonably assured.

- 56 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue from our subscription agreements is recognized based on the length of the agreements that are signed by our customers. Among other factors, the length of the agreement determines whether a subscription is considered an operating lease or capital lease. Our capital leases qualify for sales-type lease treatment. For subscription agreements that are considered operating leases, we recognize revenue of our subscriptions ratably over the term of the agreement. The equipment is transferred from inventory to property, plant and equipment and depreciated into cost of revenue over the term of the agreement, based on the assets’ useful life. Revenue from subscription agreements that are sales-type (capital) leases is recognized, along with the associated cost of the equipment, at the time of placement in our customer’s location. The amount of revenue recognized at the time of lease inception is based on, along with other factors, observable prior sales prices of similar equipment sold by us over the prior twelve months, relative to total contract value. We record a short and long-term capital lease receivable related to sales-type leases.

Recording revenue from the sale of products involves the use of estimates and management's judgment. We must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements. While we do utilize past payment history, and, to the extent available for new customers, public credit information in making our assessment, the determination of whether collectability is reasonably assured is ultimately a judgment decision that must be made by management. We must also make estimates regarding our future obligations relating to returns, rebates, allowances and similar other programs.

Stock-based Compensation

Stock-based compensation expense is measured at the grant date based upon the estimated fair value of the portion of the award that is ultimately expected to vest and is recognized as expense over the applicable vesting period of the award generally using the straight-line method.

- 57 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Advertising Costs

Advertising costs are expensed as incurred and are included in sales and marketing expenses. Advertising expenses were $0.2 million for each of the years ended December 31, 2017 and 2016 , and $0.1 million for the year ended December 31, 2015 .

Income Taxes

The Company records a current provision for income taxes based on estimated amounts payable or refundable on tax returns filed or to be filed each year. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates, in each tax jurisdiction, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates, including the current year impact of the enacted 21% US corporate income tax rate under the Tax Cuts and Jobs Act, is recognized in operations in the period that includes the enactment date. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Deferred tax assets are reduced by a valuation allowance based on a judgmental assessment of available evidence if the Company is unable to conclude that it is more likely than not that some or all of the deferred tax assets will be realized.

Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Foreign Currency Translation

The functional currency of our Swiss subsidiary is the Swiss Franc. Assets and liabilities of our Swiss subsidiary are translated using the exchange rate in effect at the balance sheet date. Revenue and expense accounts and cash flows are translated using an average of exchange rates in effect during the period. Cumulative translation gains and losses are shown in the consolidated balance sheets as a separate component of stockholders' equity. Exchange gains and losses arising from transactions denominated in foreign currencies (i.e., transaction gains and losses) are recognized as a component of other income (expense) in current operations, as are exchange gains and losses on intercompany transactions expected to be settled in the near term.

Taxes Collected from Customers

In the course of doing business we collect various taxes from customers including, but not limited to, sales taxes. It is our policy to record revenue net of taxes collected from customers in our consolidated statements of income.

Shipping and Handling Costs

Amounts billed to customers related to shipping and handling are classified as revenue. Shipping and handling costs incurred by us for the delivery of products to customers are classified as cost of revenue.

- 58 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Warranty Costs

The Company generally provides for the estimated cost of hardware and software warranties in the period the related revenue is recognized. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates. Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations.

Adoption of New Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The amendments in ASU 2017-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. Heska adopted the new guidance in its second quarter of fiscal year 2017.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment,” to simplify financial reporting by eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the amount of goodwill allocated to that reporting unit. The new guidance effectively eliminates “Step 2” from the previous goodwill impairment test. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. Heska adopted the new guidance in its fourth quarter of fiscal year 2017 when it performed its annual goodwill impairment test as of December 15, 2017.

Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The ASU permits companies to elect a reclassification of disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The ASU also requires additional disclosures. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the effect of this ASU on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)", which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for

- 59 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal year beginning after December 15, 2018 is permitted.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which supersedes ASC 840, Leases, and creates a new topic, ASC 842, Leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. The accounting for lessors does not fundamentally change except for changes to conform and align guidance to the lessee guidance as well as to the new revenue recognition guidance in ASU 2014-09. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.

Heska assessed the impact that the adoption of ASC 606 is expected to have on its Consolidated Financial Statements by analyzing its current portfolio of customer contracts and various revenue streams, including a review of historical accounting policies and practices to identify potential differences in applying the guidance of ASC 606. Heska also performed a comprehensive review of its current processes and systems to determine and implement changes required to support the adoption of ASC 606 on January 1, 2018.

Based on review of customer contracts within our Core Companion Animal ("CCA") segment, Heska has determined the timing of revenue recognition of our product sales, which includes upfront equipment sales and sales of consumables, will continue to be recognized as it is currently, generally upon shipment of products. Also included within CCA are our subscription agreements, which contain a lease of equipment, for which rental income will continue to be recognized under ASC 840, Leases, unless the equipment is considered a sales-type lease, which revenue will be recognized under ASC 606 at the point of sale.

- 60 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

to be recognized as it is currently - generally upon shipment or acceptance by our customer. Heska assessed the over-time criteria within ASC 606 and concluded that because products within this segment have no alternative use to Heska as Heska is contractually prohibited to redirect the product to other customers, Heska does not have right to payment for performance to date and therefore, point in time recognition is appropriate.

Often our contracts contain multiple performance obligations to which the transaction price must be allocated. The objective when allocating the transaction price is to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. To accomplish this objective, Heska will allocate transaction price on a relative standalone selling price basis (SSP) and where SSP is not readily observable, Heska will generally utilize expected cost-plus-a-margin approach. All of the individual performance obligations, including equipment, consumables, and services are sold separately, and therefore, observable prices are available.

Because a significant number of Heska’s customers are under noncancelable contracts for periods extending beyond one year with the delivery of goods and services occurring throughout the duration, Heska anticipates recording an asset related to the prepayment of such contract acquisition costs. In addition, ASC 606 states that "an asset recognized in accordance with the incremental costs of obtaining a contract shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates." Because a significant number of Heska’s customers are under noncancelable contracts for periods extending beyond one year with the delivery of goods and services occurring throughout the duration, Heska anticipates recording an asset related to the prepayment of such contract acquisition costs.

We expect the impact of the adoption of the new standard will result in an adjustment to the recognition of software support revenue, which historically has been a separate element however this has been deemed to be an immaterial promise and therefore, previously deferred revenue relating to software support will be recognized at point of sale along with the equipment and embedded software. The adoption of the new standard will also impact the recognition of sales commissions. Previously, sales commissions were expensed when the underlying contract was executed, which will now be recognized as a cost to acquire a contract and amortized over its useful life. Finally, the new standard will impact the recognition of revenue associated with certain bill and hold arrangements. Previously, we deferred revenue recognition until shipment, which will now be recognized upon customer acceptance. We are finalizing the quantitative impact of these changes.

2. ACQUISITION AND RELATED PARTY ITEMS

Cuattro Veterinary, LLC

On May 31, 2016, the Company closed a transaction (the "Merger") to acquire Cuattro Veterinary, LLC ("Cuattro International") from Kevin S. Wilson, and all of the members of Cuattro International (the "Members"). Pursuant to the Merger, the Company issued 175,000 shares of the Company’s common stock, $0.01 par value per share (the "Common Stock"), to the Members on the Closing Date, at an aggregate value equal to approximately $6.3 million based on the adjusted closing price per share of the Common Stock as reported on the Nasdaq Stock Market on the Merger closing date. These shares were issued to the Members in a private placement in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and the safe harbor provided by Rule 506 of Regulation D promulgated thereunder. Effective on the Merger closing date, each of the Members executed lock-up agreements with the Company that restricted their ability to sell any of the shares of Common Stock received in the Merger until 180 days after the Merger closing date. In addition, the Company assumed approximately $1.5 million in debt as part of the transaction.

- 61 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Mr. Wilson is a founder of Cuattro International, Cuattro, LLC, Cuattro Software, LLC and Cuattro Medical, LLC. Mr. Wilson, Mrs. Wilson and trusts for the benefit of Mr. and Mrs. Wilson’s children and family own a 100% interest in Cuattro, LLC and a majority interest in Cuattro Medical, LLC. Cuattro, LLC owns a 100% interest in Cuattro Software, LLC and, prior to the Merger, owned a majority interest in Cuattro International.

The Company recorded assets acquired and liabilities assumed at their estimated fair values. Intangible assets were valued based on a report from an independent third party. The goodwill associated with the acquisition is the result of expected synergies and expansion of the technology into additional markets.

The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price (in thousands):



Common stock issued - 175,000 shares	$	6,347
Debt assumed	1,535
Total fair value of consideration transferred	$	7,882



Accounts receivable	$	222
Inventories	39
Due from Cuattro, LLC	963
Property and equipment	80
Other tangible assets	164
Deferred tax asset	56
Intangible assets	2,521
Goodwill	5,783
Accounts payable	(112		)
Deferred tax liability	(905		)
Other assumed liabilities	(929		)
Total fair value of consideration transferred	$	7,882

Intangible assets acquired, amortization method and estimated useful lives as of May 31, 2016 was as follows (dollars in thousands):



	Useful Life	Amortization Method	Fair Value
Customer relationships	6.67	Straight-line	$2,521

Cuattro International is a provider to international markets of digital radiography technologies for veterinarians. As a leading provider of advanced veterinary diagnostic and specialty products, we made the acquisition in an effort to combine Cuattro International's international reach with our domestic success in the imaging and point of care laboratory markets in the United States. International markets represent a significant portion of worldwide veterinary revenues for which we intend to compete.

As of the closing date of the Merger, Cuattro International was renamed Heska Imaging International, LLC, and the Company's interest in both Heska Imaging International, LLC ("International Imaging") and

- 62 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Heska Imaging US, LLC ("US Imaging") was transferred to the Company's wholly-owned subsidiary, Heska Imaging Global, LLC ("Global Imaging").

Cuattro Veterinary USA, LLC

On February 24, 2013, the Company acquired a 54.6% interest in Cuattro Veterinary USA, LLC (the "Acquisition"), which was subsequently renamed Heska Imaging US, LLC ("US Imaging"). The remaining minority position (45.4)% in US Imaging was subject to purchase by Heska under performance-based puts and calls following the audit of our financial statements for 2016 and 2017. The required performance criteria were met in 2016, we considered notice given on March 3, 2017 that the put option was being exercised and on May 31, 2017, we delivered $13.8 million in cash to obtain the remaining minority position in US Imaging.

Prior to the purchase of the minority position (the "Imaging Minority"), Shawna M. Wilson, Clint Roth, DVM, Steven M. Asakowicz, Rodney A. Lippincott, Kevin S. Wilson and Cuattro, LLC owned approximately 29.75% , 8.39% , 4.09% , 3.07% , 0.05% and 0.05% of US Imaging, respectively. Kevin S. Wilson is the Chief Executive Officer and President of the Company and the spouse of Shawna M. Wilson. Steven M. Asakowicz serves as Executive Vice President, Companion Animal Health Sales for the Company. Rodney A. Lippincott serves as Executive Vice President, Companion Animal Health Sales for the Company. On April 3, 2017, and in accordance with the terms of its Operating Agreement, US Imaging distributed $2.1 million based on past operating performance, including $1.0 million to its minority interest members. As of December 31, 2017, US Imaging accrued an additional $0.3 million distribution, including $0.1 million to its minority interest members.

Related Party Activities

Cuattro, LLC charged Heska Imaging $17.7 million , $14.5 million , and $9.0 million during 2017, 2016, and 2015, respectively, primarily related to digital imaging products, for which there is an underlying supply contract with minimum purchase obligations, software and services as well as other operating expenses. Heska Corporation charged Cuattro, LLC $0.1 million , $0.2 million , and $0.2 million in the years ended December 31, 2017 , 2016 , and 2015, respectively, primarily related to facility usage and other services.

Heska Corporation had a receivable from Cuattro, LLC of $1 thousand and $22 thousand as of December 31, 2017 and 2016 , respectively which is included in "Due from - related parties" on the Company's consolidated balance sheet. Heska Imaging had a receivable from Cuattro, LLC of $0 thousand and $78 thousand as of December 31, 2017 and 2016 , respectively. Heska Imaging owed Cuattro $1.7 million as of December 31, 2017 , and Global Imaging owed Cuattro $1.6 million as of December 31, 2016 , which is included in "Due to- related parties" on the Company's consolidated balance sheets.

Heska Corporation charged US Imaging $2.9 million from January 1, 2017 to May 31, 2017, prior to the acquisition of the minority interest, and $5.3 million and $4.9 million for the years ended December 31, 2016 , and 2015, respectively, for sales and other administrative related expenses. At December 31, 2016 , US Imaging had a $1.6 million note receivable, including accrued interest, from International Imaging, which was due on June 15, 2019 and which eliminated in consolidation of the Company's financial statements. As of June 1, 2017, the $0.3 million remaining balance of the note was eliminated in the consolidation of the imaging companies into Heska Imaging. At December 31, 2016 , Heska Corporation had accounts receivable from US Imaging of $5.6 million , including accrued interest, and Global Imaging had net prepaid receivables

- 63 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

from US Imaging of $1.2 million , all of which eliminated in consolidation of the Company's financial statements.

3. INCOME TAXES

Income Taxes

As of December 31, 2017 , the Company had a domestic federal net operating loss carryforward ("NOL"), of approximately $94.0 million and a domestic research and development tax credit carryforward of approximately $0.4 million . Our federal NOL is expected to expire as follows if unused: $88.0 million in 2018 through 2022 , $5.5 million in 2024 and 2025 and $0.5 million in 2027 and later. The Tax Cuts and Jobs Act repealed the corporate alternative minimum tax credit and made refundable all carryforward amounts in years 2018-2021. As a result, the alternative minimum tax credit of $0.5 million has been reclassified from a deferred tax asset to a non-current federal income tax asset.

The Company is subject to income taxes in the US federal jurisdiction, and various foreign, state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the United States, the tax years 2014 - 2016 remain open to examination by the Internal Revenue Service and the tax years 2013 - 2016 remain open for various state taxing authorities.

Cash paid for income taxes for the years ended December 31, 2017 , 2016 , and 2015 was $213 thousand , $357 thousand and $55 thousand , respectively.

The components of income before income taxes were as follows (in thousands):



	Year Ended December 31,
	2017		2016		2015
Domestic	$	18,188	$	16,375	$	8,325
Foreign	181		129		102
	$	18,369	$	16,504	$	8,427

- 64 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Temporary differences that give rise to the components of net deferred tax assets are as follows (in thousands):



	December 31,
	2017			2016
Inventory	$	1,321		$	1,172
Accrued compensation	103			114
Stock options	914			811
Research and development	442			438
Alternative minimum tax credit	—			543
Deferred revenue	2,002			2,934
Property and equipment	2,531			2,750
Net operating loss carryforwards – domestic	22,627			34,706
Foreign tax credit carryforward	54			—
Capital leases	(3,757		)	(2,833		)
Unremitted earnings for controlled foreign corporations	(50		)	—
Other	194			34
	26,381			40,669
Valuation allowance	(14,504		)	(19,547		)
Total net deferred tax assets	$	11,877		$	21,122

The components of the income tax expense are as follows (in thousands):



	Year Ended December 31,
	2017			2016		2015
Current income tax expense:
Federal	$	—		$	197	$	1,492
State	6			179		65
Foreign	43			31		24
Total current expense	$	49		$	407	$	1,581
Deferred income tax expense (benefit):
Federal	$	9,736		$	3,545	$	1,043
State	(872		)	387		284
Foreign	—			—		—
Total deferred expense	8,864			3,932		1,327
Total income tax expense	$	8,913		$	4,339	$	2,908

- 65 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company's income tax expense (benefit) relating to income (loss) for the periods presented differs from the amounts that would result from applying the federal statutory rate to that income (loss) as follows:



	Year Ended December 31,
	2017		2016		2015
Statutory federal tax rate	34	%	34	%	34	%
State income taxes, net of federal benefit	(5	)%	2	%	3	%
Non-controlling interest in Heska Imaging US, LLC	1	%	(3	)%	(1	)%
Non-temporary stock option benefit	(30	)%	(7	)%	(1	)%
Other permanent differences	1	%	(1	)%	—	%
Change in tax rate	32	%	—	%	(1	)%
Change in valuation allowance	16	%	—	%	(14	)%
Other	—	%	1	%	15	%
Effective income tax rate	49	%	26	%	35	%

In 2017 , we had total income tax expense of $8.91 million , including $8.86 million in domestic deferred income tax expense, a non-cash expense, and $0.05 million in current income tax expense. In 2016 , we had total income tax expense of $4.3 million , including $3.9 million in domestic deferred income tax expense, a non-cash expense, and $0.4 million in current income tax expense. In 2015 , we had total income tax expense of $2.9 million , including $1.3 million in domestic deferred income tax expense, a non-cash expense, and $1.6 million in current income tax expense. The overall increase in tax expense in 2017 from 2016 was due to the re-measurement of our deferred tax assets (including the valuation allowance) due to the US Tax Cuts and Jobs Act, offset by the reduction of tax expense from stock based compensation deductions. Income tax expense increased in 2016 from 2015 as a result of higher income before taxes in 2016.

ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold before a benefit is recognized in the financial statements. As of December 31, 2017, the Company has not recorded a liability for uncertain tax positions. The Company would recognize interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2017.

US Tax Reform

On December 22, 2017, the tax legislation commonly known as the US Tax Cuts and Jobs Act was signed into law (the “Act”). This enactment resulted in a number of significant changes to US federal income tax law for US corporations. Most notably, the statutory US federal corporate income tax rate was changed from 35% to 21% for corporations. In addition to the change in the corporate income tax rate, the Act further introduced a number of other changes including a one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits; the introduction of a tax on global intangible low-taxed income (“GILTI”) for tax years beginning after December 31, 2017; the further limitation of the deductibility of share-based compensation of certain highly compensated employees; and the repeal of the corporate alternative minimum tax; amongst other things.

Shortly after enactment, the Security and Exchange Commission ("SEC") issued SAB 118, which provides guidance on accounting for the new legislation. Under SAB 118, an entity should recognize amounts for which accounting can be completed. Where accounting under ASC 740 is incomplete relative to

- 66 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

certain income tax effects of tax reform, the entity should recognize provisional amounts and adjust such amounts as more information becomes available and disclose this information in its financial statements. The measurement period under SAB 118 is one year from date of enactment (with the approach being similar to business combinations).

Heska has determined the estimated tax impact of the Act by using the most reliable data available in accordance with SAB 118. Specifically, at the time the estimated tax reform impact was performed, only the Final Bill itself and Notice 2018-07 had been released to provide guidance. Therefore, reasonable approaches and considerations were performed in estimating the overall tax reform impact. Further refinement will be made to this estimation as the IRS provides further guidance prior to the filing of the Company’s 2017 income tax returns. The ultimate impact of the Act may differ from this year-end estimate due to changes in interpretations and assumptions, guidance that may be issued by various US authorities and standard setting bodies, and actions the Company may take as a result of the new provisions. The Company will refine these estimates during the one year measurement period in accordance with SAB 118.

The items below outline the 2017 financial statement considerations associated with the most material provisions of the Act impacting the Company. This list is not intended to be inclusive of all provisions included in the Act nor all impacts to the Company as a result of the Act.

•

The Act reduces the US corporate income tax rate to 21% for tax years beginning after December 31, 2017. The Company’s deferred tax balances were re-measured at 21% as of December 31, 2017. The total impact of the US tax rate decrease resulted in a one-time tax expense of $5.9 million (i.e., the write down of deferred tax asset balances and the valuation allowance.). The large amount of federal NOLs, offset against the valuation allowance thereon, were included in this re-measurement, acting as a significant driver in the large adjustment.

•

The Act imposes a one-time transition tax associated with the deemed mandatory repatriation of accumulated, and previously undistributed, foreign earnings. The Company has considered estimates of earnings and profits (E&P) as prepared and maintained for US income tax reporting and performed other procedures consistent with current guidance, in arriving at the current transition tax estimate of $38 thousand . The Company will pay this tax liability in the year it is initially assessed and will not elect to pay over the optional eight-year period.

•

GILTI (Global Intangible and Low Taxed Income) is not expected to apply to the Company as it has been historically subject to full inclusions of Subpart F income, which is excluded from “tested income” for GILTI purposes. This will be monitored going forward to ensure proper inclusion if necessary. If indeed levied, the Company will likely elect to treat such GILTI inclusion as a period expense, not a deferred tax liability.


•	Corporate AMT is repealed for tax years beginning after December 31, 2017. For this reason, the remaining AMT credit carryforward has been re-classified in the tax provision from a deferred tax asset to a long term receivable. This change reflects the Act’s provision that AMT credits become refundable over time beginning in 2018.

We previously considered the earnings in our non-US subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes for the year ended December 31, 2016. As of December 31, 2017, Heska is no longer asserting indefinite reinvestment under the exception noted in ASC 740-30-25-3, which states that the presumption that all undistributed earnings will be transferred to the parent entity may be overcome, and no income taxes shall be accrued by the parent entity. Prior to the Transition Tax, we had an excess of the amount for financial reporting over the tax basis in our foreign subsidiaries. While the Transition Tax resulted in the reduction of the excess of the amount for financial reporting over the tax basis

- 67 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

in our foreign subsidiaries and subjected undistributed foreign earnings to an estimated $.02 million of tax which has been provisionally recorded, an actual repatriation from our non-US subsidiaries could still be subject to additional foreign withholding taxes and US state taxes. As such, for those investments from which we were able to make a reasonable estimate of the tax effects of such repatriation, we have recorded a provisional estimate for withholding and state taxes as a deferred tax liability of $.05 million . We will record the tax effects of any change in our prior assertion with respect to these investments, and disclose any unrecognized deferred tax liability for temporary differences related to our foreign investments, if practicable, in the period that we are first able to make a reasonable estimate, no later than December 2018.

4. LEASES

In our CCA segment, primarily related to our point of care laboratory products, the Company enters into sales-type (capital) and operating leases as part of our subscription agreements. Detail of scheduled minimum lease receipts are as follows in the years ended December 31, (in thousands):



Year	2018	2019	2020	2021	2022	Thereafter
Sales-type leases	$2,119	$2,288	$2,281	$2,198	$1,794	$1,004
Operating leases	1,159	933	605	148	9	—

Our cost of equipment under operating leases at December 31, 2017 and December 31, 2016, was $10.8 million and $10.5 million , before accumulated depreciation of $5.0 million and $3.7 million , and the net book value was $5.7 million and $6.8 million , respectively.

5. EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing net income attributable to Heska Corporation by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator is increased to exclude charges that would not have been incurred, and the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if securities containing potentially dilutive common shares (stock options and restricted stock units but excluding options to purchase fractional shares resulting from the Company's December 2010 1-for- 10 reverse stock split) had been converted to common shares, and if such assumed conversion is dilutive.

- 68 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share for the years ended December 31, 2017 , 2016 , and 2015 (in thousands, except per share data):



	Years ended December 31,
	2017		2016		2015
Net income attributable to Heska Corporation	$	9,953	$	10,508	$	5,239

Basic weighted-average common shares outstanding	7,026		6,783		6,509
Assumed exercise of dilutive stock options and restricted stock units	616		578		565
Diluted weighted-average common shares outstanding	7,642		7,361		7,074

Basic earnings per share	$	1.42	$	1.55	$	0.80
Diluted earnings per share	$	1.30	$	1.43	$	0.74

The following stock options and restricted units were excluded from the computation of diluted earnings per share because they would have been anti-dilutive (in thousands):



	Years ended December 31,
	2017	2016	2015
Stock options	123	234	144

6. GOODWILL AND OTHER INTANGIBLES

The following summarizes the changes in goodwill during the years ended December 31, 2017 and 2016 (in thousands):



Carrying amount, December 31, 2015	$	20,910
Additions and adjustments	5,761
Foreign currency adjustments	(24		)
Carrying amount, December 31, 2016	$	26,647
Foreign currency adjustments	40
Carrying amount, December 31, 2017	$	26,687

Other intangibles assets, net consisted of the following as of December 31, 2017 and 2016 (in thousands):



	Year Ended December 31,
	2017			2016
Gross carrying amount	$	3,309		$	3,309
Accumulated amortization	(1,351		)	(963		)
Net carrying amount	$	1,958		$	2,346

- 69 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Amortization expense relating to other intangibles is as follows (in thousands):



	Years Ended December 31,
	2017		2016		2015
Amortization expense	$	388	$	230	$	246

Estimated amortization expense related to intangibles for each of the five years from 2018 through 2022 and thereafter is as follows (in thousands):



Year Ending December 31,
2018	$	388
2019	388
2020	388
2021	384
2022	378
Thereafter	32
	$	1,958

7. PROPERTY AND EQUIPMENT

Detail of property and equipment is as follows (in thousands):



	December 31,
	2017			2016
Land	$	377		$	377
Building	2,868			2,868
Machinery and equipment	38,432			36,588
Leasehold and building improvements	8,156			7,662
Construction in progress	3,531			1,655
	53,364			49,150
Less accumulated depreciation	(36,033		)	(32,569		)
Total property and equipment, net	$	17,331		$	16,581

The Company has subscription agreements whereby its instruments in inventory may be placed in a customer's location on a rental basis. The cost of these instruments is transferred to machinery and equipment and depreciated, typically over a five to seven -year period depending on the circumstance under which the instrument is placed with the customer. Total costs transferred from inventory were approximately $1.1 million , $1.8 million and $4.1 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.

The Company has sold certain customer rental contracts and underlying assets to third parties under agreements that once the customer has met the customer obligations under the contract, ownership of the assets underlying the contract would be returned to the Company. The Company enters a debit to cash and a corresponding credit to deferred revenue at the time of these sales. Since the Company anticipates it will regain ownership of the assets underlying these sales, the Company reports these assets as part of property and equipment and depreciates these assets in accordance with its depreciation policies. The Company had $0.2 million and $0.3 million of net property and equipment related to these transactions as of December 31, 2017 and December 31, 2016 , respectively, all related to Heska Imaging.

- 70 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Depreciation expense for property and equipment was $4.3 million , $4.4 million and $4.0 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 31, 2017 and 2016 (in thousands):



	2017		2016
Accrued payroll and employee benefits	$	1,209	$	2,166
Accrued property taxes	661		748
Other	2,547		2,667
Total accrued liabilities	$	4,417	$	5,581

Other accrued liabilities consists of items that are individually less than 5% of total current liabilities.

9. CAPITAL STOCK

Stock Plans

We have two stock option plans which authorize granting of stock options, restricted, and stock purchase rights to our employees, officers, directors and consultants. In 1997, the board of directors adopted the 1997 Stock Incentive Plan (the "1997 Plan") and terminated two prior stock plans. All shares that remained available for grant under the terminated plans were incorporated into the 1997 Plan, including shares subsequently canceled under prior plans. In May 2012 , the stockholders approved an amendment to the 1997 Plan allowing for an increase of 250,000 shares and an annual increase through 2016 based on the number of non-employee directors serving as of our Annual Meeting of Stockholders, subject to a maximum of 45,000 shares per year. In May 2016, the stockholders approved a further amendment to the 1997 Plan to authorize an additional 500,000 shares to be available for issuance thereunder. In May 2003 , the stockholders approved a new plan, the 2003 Equity Incentive Plan (the "2003 Plan"), which allows for the granting of stock options/restricted stock for up to 239,050 shares of the Company's common stock. The number of shares reserved for issuance under both plans as of December 31, 2017 was 320,039 .

Stock Options

The stock options granted by the board of directors may be either incentive stock options ("ISOs") or non-qualified stock options ("NQs"). The exercise price for options under all of the plans may be no less than 100% of the fair value of the underlying common stock for ISOs or 85% of fair value for NQs. Options granted will expire no later than the tenth anniversary subsequent to the date of grant or three months following termination of employment, except in cases of death or disability, in which case the options will remain exercisable for up to twelve months. Under the terms of the 1997 Plan, in the event we are sold or merged, outstanding options will either be assumed by the surviving corporation or vest immediately.

There are four key inputs to the Black-Scholes model which we use to estimate the fair value for options which we issue: expected term, expected volatility, risk-free interest rate and expected dividends, all of which require us to make estimates. Our estimates for these inputs may not be indicative of actual future performance and changes to any of these inputs can have a material impact on the resulting estimated fair value calculated for the option. Our expected term input was estimated based on our historical experience for time from option grant to option exercise for all employees in 2017 , 2016 and 2015 . We treated all employees in one grouping in all three years. Our expected volatility input was estimated based on our historical stock price volatility in 2017 , 2016 and 2015 . Our risk-free interest rate input was determined based on the US

- 71 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Treasury yield curve at the time of option issuance in 2017 , 2016 and 2015 . Our expected dividends inputs were zero in all periods as we did not anticipate paying dividends in the foreseeable future.

Weighted average assumptions used in 2017 , 2016 and 2015 for each of these four key inputs are listed in the following table:



	2017	2016	2015
Risk-free interest rate	1.76%	1.76%	1.41%
Expected lives	4.8 years	4.5 years	3.4 years
Expected volatility	41%	41%	41%
Expected dividend yield	0%	0%	0%

A summary of our stock option plans, excluding options to purchase fractional shares resulting from our December 2010 1-for- 10 reverse stock split, is as follows:



	Year Ended December 31,
	2017				2016				2015
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of period	829,617		$	23.203	940,610		$	14.163	1,074,251		$	10.110
Granted at Market	27,050		$	99.087	129,855		$	67.706	146,446		$	36.904
Canceled	(18,331	)	$	57.197	(463	)	$	14.881	(28,440	)	$	10.080
Exercised	(207,489	)	$	11.520	(240,385	)	$	11.886	(251,647	)	$	10.559
Outstanding at end of period	630,847		$	29.312	829,617		$	23.203	940,610		$	14.163
Exercisable at end of period	456,802		$	18.316	532,703		$	12.140	621,559		$	10.269

The total estimated fair value of stock options granted were computed to be approximately $1.0 million , $3.2 million and $1.6 million during the years ended December 31, 2017 , 2016 and 2015 , respectively. The amounts are amortized ratably over the vesting periods of the options. The weighted average estimated fair value of options granted was computed to be approximately $37.35 , $24.59 and $11.35 during the years ended December 31, 2017 , 2016 and 2015 , respectively. The total intrinsic value of options exercised was $17.7 million , $9.9 million and $4.7 million during the years ended December 31, 2017 , 2016 and 2015 , respectively. The cash proceeds from options exercised was $1.8 million , $1.9 million and $1.8 million during the years ended December 31, 2017 , 2016 and 2015 , respectively.

- 72 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes information about stock options outstanding and exercisable at December 31, 2017 .



	Options Outstanding				Options Exercisable
Exercise Prices	Number of Options Outstanding at December 31, 2017	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Options Exercisable at December 31, 2017	Weighted Average Exercise Price
$ 4.40 - $ 6.90	97,743	2.68	$	5.404	97,743	$	5.404
$ 6.91 - $ 8.35	132,096	5.77	$	7.548	132,096	$	7.548
$ 8.36 - $18.13	132,976	6.18	$	14.456	108,852	$	13.680
$18.14 - $39.76	144,683	7.85	$	37.055	90,388	$	35.785
$39.77 - $108.25	123,349	9.02	$	78.497	27,723	$	76.389
$ 4.40 - $108.25	630,847	6.52	$	29.312	456,802	$	18.316

As of December 31, 2017 , there was approximately $3.5 million of total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted-average period of 2.1 years with all cost to be recognized by the end of December 2019, assuming all options vest according to the vesting schedules in place at December 31, 2017 . As of December 31, 2017 , the aggregate intrinsic value of outstanding options was approximately $32.6 million and the aggregate intrinsic value of exercisable options was approximately $28.3 million .

Employee Stock Purchase Plan

Under the 1997 Employee Stock Purchase Plan (the "ESPP"), we are authorized to issue up to 450,000 shares of common stock to our employees, of which 419,651 had been issued as of December 31, 2017 . On May 5, 2015, our shareholders approved the amendment and restatement of the ESPP, including a 75,000 share increase to 450,000 total shares authorized under the ESPP as well as changes discussed below as compared to the ESPP prior to the amendment and restatement. Employees who are expected to work at least 20 hours per week and 5 months per year are eligible to participate and can choose to have up to 10% of their compensation withheld to purchase our stock under the ESPP when they choose to withhold a whole percentage of their compensation.

Beginning on July 1, 2013, our ESPP had a 27 -month offering period and three -month accumulation periods ending on each March 31, June 30, September 30 and December 31. The purchase price of stock on March 31, June 30, September 30 and December 31 was the lesser of (1) 85% of the fair market value at the time of purchase and (2) the greater of (i) 95% of the fair market value at the beginning of the applicable offering period or (ii) 65% of the fair market value at the time of purchase. In addition, participating employees may purchase shares under the ESPP at the beginning of an applicable offering period for a purchase price of stock equal to 95% of the fair market value at such time or at 5 pm on a day other than March 31, June 30, September 30 and December 31 during the applicable offering period for a purchase price of stock equal to 95% of the fair market value at purchase.

Beginning April 1, 2015, employees may elect to withhold a positive fixed amount from each compensation payment in addition to the previous approach of withholding a whole percentage of such compensation payment, with all withholding for a given employee subject to a maximum monthly amount of $2,500 following the amendment and restatement as opposed to a $25,000 maximum annual amount prior to the amendment and restatement. For offering periods beginning on or after April 1, 2015, the purchase price of stock on March 31, June 30, September 30 and December 31 is to be the lesser of (1) 85% of the fair

- 73 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

market value at the time of purchase and (2) the greater of (i) 85% of the fair market value at the beginning of the applicable offering period, (ii) the fair market value at the beginning of the applicable offering period less 1 cent and (iii) 65% of the fair market value at the time of purchase. In addition, participating employees may elect to purchase shares under the ESPP at the beginning of an applicable offering period for a purchase price of stock equal to the greater of (1) 85% of the fair market value at the beginning of the applicable offering period and (2) the fair market value at the beginning of the applicable offering period less 1 cent or at 5 pm on a day other than March 31, June 30, September 30 and December 31 during the applicable offering period for a purchase price of stock equal to the greater of (1) 85% of the fair market value at the time of purchase and (2) the fair market value at the time of purchase less 1 cent.

We issued 10,983 , 17,826 and 16,673 shares under the ESPP for the years ended December 31, 2017 , 2016 and 2015 , respectively.

For the years ended December 31, 2017 , 2016 and 2015 , we estimated the fair values of stock purchase rights granted under the ESPP using the Black-Scholes pricing model and the following weighted average assumptions:



	2017	2016	2015
Risk-free interest rate	0.74%	0.54%	0.27%
Expected lives	1.2 years	1.2 years	1.2 years
Expected volatility	45%	42%	36%
Expected dividend yield	0%	0%	0%

The weighted-average fair value of the purchase rights granted was $15.72 , $8.23 and $6.25 per share for the years ended December 31, 2017 , 2016 and 2015 , respectively.

Restricted Stock

On March 26, 2014, we issued 63,572 shares to Robert B. Grieve, Ph.D., who was our Executive Chair, pursuant to an employment agreement between Dr. Grieve and the Company effective as of March 26, 2014 (the "Grieve Employment Agreement"). Of the 63,572 shares, 39,217 shares were issued from the 1997 Plan and 24,355 shares were issued from the 2003 Plan. The shares were issued in five tranches and were subject to time-based vesting and other provisions outlined in the Grieve Employment Agreement. All shares were to vest in full as of April 30, 2017. Effective on October 1, 2015, the Grieve Employment Agreement was terminated and, in connection therewith, the Company entered into a Separation and Release Agreement dated as of October 1, 2015 (the "Release Agreement") with Dr. Grieve. Pursuant to the Release Agreement, the Company agreed to treat the termination of the Grieve Employment Agreement as a termination without cause, entitling Dr. Grieve to the immediate vesting of 55,715 shares, 14,373 of which were withheld for tax purposes. As a result of the termination of the Grieve Employment Agreement, and as acknowledged in the Release Agreement, effective October 1, 2015, Dr. Grieve began serving as a consultant to the Company pursuant to the Consulting Agreement (Founder Emeritus) dated as of March 26, 2014 (the "Consulting Agreement"). The remaining 7,857 shares issued to Dr. Grieve on March 26, 2014 vested on April 30, 2016, of which 2,525 shares were withheld for tax purposes.

On March 26, 2014, we issued 110,000 shares to Mr. Wilson from the 1997 Plan pursuant to an employment agreement between Mr. Wilson and the Company effective as of March 26, 2014 (the "Wilson Employment Agreement"). The shares were issued in four equal tranches and are subject to time-based vesting and other provisions outlined in the Wilson Employment Agreement. The first tranche vested on September 26, 2014, and each of the three remaining tranches were to vest on the succeeding March 26 until all shares were vested in full as of March 26, 2017. On May 6, 2014, we issued an additional 130,000 shares

- 74 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

to Mr. Wilson following a vote of approval on the issuance by our stockholders. The shares were issued in ten equal tranches, five of which were subject to vesting based on the achievement of certain stock price targets as defined and further described in the Wilson Employment Agreement and five of which were subject to vesting based on certain "Adjusted EBITDA" targets as defined and further described in the Wilson Employment Agreement. All shares subject to vesting based on "Adjusted EBITDA" vested based on our 2014 performance. Of the five tranches based on the achievement of certain stock price targets, one vested in 2014 and the remaining four vested in 2015.

On March 17, 2015, the Company issued unvested shares to certain Executive Officers related to performance-based restricted stock grants (the "Performance Grants") and performance-based restricted stock grants related to the Company's 2015 Management Incentive Plan (the "2015 MIP Grants"). The Company issued 52,956 shares under the Performance Grants and 24,649 shares under the 2015 MIP Grants from the 1997 Plan. The Performance Grants have met the underlying performance condition based on the Company's 2015 financial performance and are to cliff vest on March 17, 2018, subject to other vesting provisions in the underlying restricted stock grant agreement. The 2015 MIP Grants were subject to the Company’s achievement of certain financial goals and other vesting provisions in the underlying restricted stock grant agreement. On March 2, 2016, the Company vested 14,364 shares related to the 2015 MIP Grants based on the respective performance criteria, including 4,788 shares withheld for tax, and canceled the remaining 10,285 shares. The compensation expense is based on the closing market price on the date of the grant.

On March 2, 2016, the Company issued 15,000 unvested shares to certain Executive Officers related to performance-based restricted stock grants as part of the Company’s 2016 Management Incentive Plan (the "2016 MIP Grants") from the 1997 Plan. Of these, 14,629 vested, 371 were forfeited, and 4,133 were withheld for tax. The 2016 MIP Grants vested during the three months ended March 31, 2017. The compensation expense is based on the closing market price on the date of the grant.

On May 1, 2017, the Company issued 2,720 shares of our Common Stock to the Company's non-employee directors from the 2003 Plan, with a subsequent grant of 567 shares to a new non-employee director on June 12, 2017 from the 2003 Plan. These grants are to vest (the "Vesting Time") in full on the latter of (i) the one year anniversary of the date of grant and (ii) the Company’s Annual Meeting of Stockholders for the year following the year of grant for the award (the "Vesting Meeting"), subject to (i) the non-employee director's continued service to the Company through the Vesting Time, unless the non-employee director’s current term expires at the Vesting Meeting in which case vesting is subject to the non-employee director’s service to the Vesting Meeting and (ii) the non-employee director not engaging in “competition”, as defined in a restricted stock grant agreement executed by the non-employee director, to the Vesting Time. The compensation expense is based on the closing market price on the date of the grant.

On May 31, 2017, the Company issued 23,700 unvested performance-based restricted stock shares to certain key employees from the 1997 Plan. The vesting of these shares is subject to the achievement of certain Company performance and market conditions and, in some instances, a service period requirement, that must be met on or before May 30, 2024. For the four tranches related to performance conditions, the compensation expense is based on the closing market price on the date of the grant, $98.66 . The award is expensed when the performance condition is considered probable and taken ratably over the period in which the performance metrics are expected to be achieved. For the six tranches related to market conditions, which include stock price targets and outperformance of the S&P, the compensation expense is based on a fair value assigned to the market metric upon grant using a Monte Carlo model, weighted average value of $69.06 , which remains constant throughout the vesting period, also determined within the model.

On June 15, 2017, the Company issued 6,594 unvested shares to certain Executive Officers related to performance-based restricted stock grants as part of the Company's 2017 Management Incentive Plan from

- 75 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the 1997 Plan. As of December 31, 2017, all shares were forfeited and no compensation expense was recorded for the period ended December 31, 2017.

On December 1, 2017, the Company issued 45,000 unvested performance-based restricted stock shares from the 1997 Plan to Mr. Wilson. The vesting of these shares is subject to the achievement of certain Company performance and market conditions and, in some instances, a service period requirement, that must be met on or before March 31, 2025. For the three tranches (equal tranches of 9,375 restricted shares) related to performance conditions, the compensation expense is based on the closing market price on the date of the grant, $86.32 . The award is expensed when the performance condition is considered probable and taken ratably over the period in which the performance metrics are expected to be achieved. For the three tranches (equal tranches of 5,625 restricted shares) related to market conditions, which include stock price targets, the compensation expense is based on a fair value assigned to the market metric upon grant using a Monte Carlo model, weighted average value of $72.95 , which remains constant throughout the vesting period, which is also determined within the model.

As of December 31, 2017, there was approximately $3.2 million of total unrecognized compensation cost related to restricted stock. The Company expects to recognize this expense over a weighted average period of 1.4 years.

Restrictions on the transfer of Company stock

The Company's Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), places restrictions (the "Transfer Restrictions") on the transfer of the Company's stock that could adversely affect the Company's ability to utilize its domestic Federal Net Operating Loss Position. In particular, the Transfer Restrictions prevent the transfer of shares without the approval of the Company's Board of Directors if, as a consequence of such transfer, an individual, entity or groups of individuals or entities would become a 5-percent holder under Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury regulations, and also prevents any existing 5 -percent holder from increasing his or her ownership position in the Company without the approval of the Company's Board of Directors. Any transfer of shares in violation of the Transfer Restrictions (a "Transfer Violation") shall be void ab initio under the Certificate of Incorporation, and the Company's Board of Directors has procedures under the Certificate of Incorporation to remedy a Transfer Violation including requiring the shares causing such Transfer Violation to be sold and any profit resulting from such sale to be transferred to a charitable entity chosen by the Company's Board of Directors in specified circumstances.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income consisted of the following (in thousands):



	Minimum pension liability			Foreign currency translation			Sale of equity investment			Total accumulated other comprehensive income
Balances at December 31, 2015	$	(576	)	$	673		$	90		$	187
Other comprehensive income (loss)	75			(75		)	(90		)	(90		)
Balances at December 31, 2016	(501		)	598			—			97
Other comprehensive income (loss)	12			123			—			135
Balances at December 31, 2017	$	(489	)	$	721		$	—		$	232

- 76 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. COMMITMENTS AND CONTINGENCIES

The Company holds certain rights to market and manufacture all products developed or created under certain research, development and licensing agreements with various entities. In connection with such agreements, the Company has agreed to pay the entities royalties on net product sales. Royalties of $0.3 million became payable under these agreements in the year ended December 31, 2017 , and $0.4 million in each of the years ended December 31, 2016 and 2015 .

The Company has entered into operating leases for its office and research facilities and certain equipment with future minimum payments as of December 31, 2017 as follows (in thousands):



Year Ending December 31,
2018	$	2,156
2019	2,035
2020	1,835
2021	1,747
2022	1,714
Thereafter	1,617
	$	11,104

The Company had rent expense of $1.6 million in each of the years ended December 31, 2017 , 2016 , and 2015.

From time to time, the Company may be involved in litigation relating to claims arising out of its operations. On March 12, 2015, a complaint was filed against us by Shaun Fauley in the United States District Court Northern District of Illinois alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action seeking stated damages of the greater of actual monetary loss or five hundred dollars per violation ("Fauley Complaint"). The Company does not have insurance coverage for the Fauley Complaint. The Company intends to defend itself vigorously in this matter and at this time is unable to estimate a possible loss or a range of loss. At December 31, 2017 , the Company was not a party to any other legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results.

The Company's current terms and conditions of sale include a limited warranty that its products and services will conform to published specifications at the time of shipment and a more extensive warranty related to certain of its products. The Company also sells a renewal warranty for certain of its products. The typical remedy for breach of warranty is to correct or replace any defective product, and if not possible or practical, the Company will accept the return of the defective product and refund the amount paid. Historically, the Company has incurred minimal warranty costs. The Company's warranty reserve was $0.2 million and $0.4 million as of December 31, 2017 and 2016 , respectively.

- 77 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12. INTEREST AND OTHER EXPENSE (INCOME)

Interest and other expense (income) consisted of the following (in thousands):



	Year Ended December 31,
	2017			2016			2015
Interest income	$	(167	)	$	(124	)	$	(172	)
Interest expense	245			160			200
Other expense (income), net	(228		)	(7		)	102
	$	(150	)	$	29		$	130

Cash paid for interest was $206 thousand , $78 thousand and $90 thousand for the years ended December 31, 2017 , 2016 and 2015 , respectively.

13. CREDIT FACILITY AND LONG-TERM DEBT

On July 27, 2017, we entered into a Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. ("Chase"), which provides for a revolving credit facility of up to $30.0 million (the "Credit Facility"). The Credit Facility provides us with the ability to borrow up to $30.0 million , although the amount of the Credit Facility may be increased by an additional $20.0 million up to a total of $50.0 million subject to receipt of additional lender commitments and other conditions. Any interest on borrowings due is to be charged at either the (i) rate of interest per annum publicly announced from time to time by Chase at its prime rate in effect at its principal offices in New York City, subject to a floor, minus 1.65% , or (ii) the interest rate per annum equal to (a) LIBOR for the interest period in effect multiplied by (b) Chase's Statutory Reserve Rate (as defined in the Credit Agreement), plus 1.10% and payable monthly. There is an annual minimum interest charge of $60 thousand under the Credit Agreement. Borrowings under the Credit Facility are subject to certain financial and non-financial covenants and are available for various corporate purposes, including general working capital, capital investments, and certain permitted acquisitions. The Credit Agreement also permits us to issue letters of credit. The maturity date of the Credit Facility is July 27, 2020. The foregoing discussion of the Credit Facility is a summary only and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which has been filed as an exhibit to the Company's Current Report on Form 8-K filed with the SEC on August 2, 2017. At December 31, 2017 , we had $6.0 million of borrowings outstanding on this line of credit and we were in compliance with all financial covenants. In connection with the Credit Agreement, the Company incurred debt issuance costs of $120 thousand . These costs are included in other non-current assets on the Company's consolidated balance sheet, and will be amortized to interest expense ratably over the term of the agreement.

Concurrent with the Credit Agreement, we repaid all outstanding balances and closed our $ 15.0 million asset-based revolving line of credit with Wells Fargo, which had a maturity date of December 31, 2017. Our outstanding balance under this arrangement at December 31, 2016 was $0.7 million . Our ability to borrow under this line of credit varied based upon available cash, eligible accounts receivable and eligible inventory. On December 31, 2016 , any interest on borrowings due was to be charged at a stated rate of three month LIBOR plus 2.25% and payable monthly. Under this agreement, we were required to comply with various financial and non-financial covenants, and we have made various representations and warranties under our agreement with Wells Fargo. A key financial covenant was based on a fixed charge coverage ratio, as defined in our agreement with Wells Fargo. Failure to comply with any of the covenants, representations or warranties could result in our being in default on the loan and could cause all outstanding amounts payable to Wells Fargo to become immediately due and payable or impact our ability to borrow under the agreement.

- 78 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. SEGMENT REPORTING

The Company is comprised of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The CCA segment includes point of care diagnostic laboratory instruments and supplies, and imaging instruments and software and services as well as single use diagnostic and other tests, pharmaceuticals and vaccines, primarily for canine and feline use. These products are sold directly by the Company as well as through independent third-party distributors and through other distribution relationships. CCA segment products manufactured at the Des Moines, Iowa production facility included in the OVP segment's assets are transferred at cost and are not recorded as revenue for the OVP segment. The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle, but also for other species including equine, porcine, avian, feline and canine. All OVP products are sold by third parties under third-party labels.

Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):



Year Ended December 31, 2017	Core Companion Animal Health		Other Vaccines, Pharmaceuticals and Products		Total
Total revenue	$	105,191	$	24,150	$	129,341
Operating Income	12,656		5,563		18,219
Income before income taxes	12,828		5,541		18,369
Total assets	111,968		23,819		135,787
Net assets	75,984		24,456		100,440
Capital expenditures	209		3,260		3,469
Depreciation and amortization	3,736		1,018		4,754



Year Ended December 31, 2016	Core Companion Animal Health		Other Vaccines, Pharmaceuticals and Products		Total
Total revenue	$	107,398	$	22,685	$	130,083
Operating Income	13,015		3,518		16,533
Income before income taxes	12,938		3,566		16,504
Total assets	110,995		19,849		130,844
Net assets	68,072		18,903		86,975
Capital expenditures	1,135		2,282		3,417
Depreciation and amortization	3,800		845		4,645



Year Ended December 31, 2015	Core Companion Animal Health		Other Vaccines, Pharmaceuticals and Products		Total
Total revenue	$	84,249	$	20,348	$	104,597
Operating Income	4,911		3,646		8,557
Income before income taxes	4,836		3,591		8,427
Total assets	92,567		17,152		109,719
Net assets	48,175		15,353		63,528
Capital expenditures	1,177		2,596		3,773
Depreciation and amortization	3,478		709		4,187

- 79 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue is attributed to individual countries based on customer location. Total revenue by principal geographic area was as follows (in thousands):



	For the Years Ended December 31,
	2017		2016		2015
United States	$	116,823	$	120,082	$	97,164
Canada	2,924		2,378		1,833
Europe	4,780		4,781		2,086
Other International	4,814		2,842		3,514
Total	$	129,341	$	130,083	$	104,597

Total assets by principal geographic areas were as follows (in thousands):



	As of December 31,
	2017		2016		2015
United States	$	132,413	$	127,827	$	106,780
Europe	3,374		3,017		2,939
Total	$	135,787	$	130,844	$	109,719

In our CCA segment, revenue from Butler Animal Health Supply, LLC d/b/a Henry Schein Animal Health ("Henry Schein") represented approximately 13% , 13% , and 10% of our consolidated revenue for the years ended December 31, 2017, 2016, and 2015, respectively. Revenue from Merck entities, including Merck Animal Health, represented approximately 12% for the year ended December 31, 2017, and 11% each for the years ended December 31, 2016 and 2015. Revenue from De Lage Landen Financial Services, Inc. ("DLL"), represented approximately 7% , 11% , and 10% of our consolidated revenue for the years ended December 31, 2017, 2016, and 2015, respectively; DLL is a third-party that provides financing and leasing for our customers, primarily for our imaging products. In our OVP segment, revenue from Eli Lilly entities, including Elanco, represented approximately 11% , 12% and 12% for the years ended December 31, 2017, 2016, and 2015, respectively. No other customer accounted for more than 10% of our consolidated revenue for the years ended December 31, 2017, 2016, or 2015.

- 80 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (Unaudited)

The following tables present quarterly unaudited results for the two years ended December 31, 2017 and 2016 (amounts in thousands, except per share data).



	Q1		Q2		Q3		Q4			Total
2017
Total revenue (revised)	$	29,559	$	33,405	$	30,336	$	36,041		$	129,341
Gross profit	13,209		14,929		13,553		16,570			58,261
Operating income	2,788		4,560		3,778		7,093			18,219
Net income	4,303		3,139		3,083		(1,069		)	9,456
Net income attributable to Heska Corporation	4,606		3,333		3,083		(1,069		)	9,953
Basic earnings (loss) per share attributable to Heska Corporation	0.67		0.47		0.43		(0.15		)	1.42
Diluted earnings (loss) per share attributable to Heska Corporation	0.60		0.44		0.40		(0.14		)	1.30

2016
Total revenue	$	27,146	$	29,965	$	33,430	$	39,542		$	130,083
Gross profit	11,442		12,682		13,718		16,050			53,892
Operating income	1,970		3,556		4,492		6,515			16,533
Net income	1,447		2,742		3,343		4,633			12,165
Net income attributable to Heska Corporation	1,186		2,522		3,347		3,453			10,508
Basic earnings per share attributable to Heska Corporation	0.18		0.38		0.49		0.50			1.55
Diluted earnings per share attributable to Heska Corporation	0.17		0.35		0.45		0.46			1.43

For each of the quarters included in the Company’s Form 10-Qs for the year ended December 31, 2017, revenue and cost of revenue related to CCA distributor sales were overstated by $0.8 million , $0.9 million , and $1.1 million for the first, second, and third quarters, respectively. On December 31, 2017, an adjustment was made to reduce cost of revenue and full year revenue by $2.8 million , resulting in no impact on gross profit or net income and an increase to gross profit percentage of 1.3% for the full year and 1.2% , 1.2% , and 1.6% for the first, second, and third quarters, respectively. Management considered the impact to current and past financial statements under the SEC’s authoritative guidance on materiality and determined that the issue was not material, and therefore, the prior quarters’ Form 10-Qs were not amended. Impacts to all periods in 2017, 2016 and 2015 were immaterial.

The following table illustrates the correction shown in the statements of income in Form 10-Q:



	Three Months Ended March 31, 2017									Three Months Ended June 30, 2017									Three Months Ended September 30, 2017
	As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised			As Reported			Adjustment			As Revised
Revenue	$	30,382		$	(823	)	$	29,559		$	34,336		$	(931	)	$	33,405		$	31,428		$	(1,092	)	$	30,336
Cost of Revenue	(17,173		)	823			(16,350		)	(19,407		)	931			(18,476		)	(17,875		)	1,092			(16,783		)
Gross Profit	13,209			—			13,209			14,929			—			14,929			13,553			—			13,553
Gross Margin	43.5		%				44.7		%	43.5		%				44.7		%	43.1		%				44.7		%

- 81 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16. SUBSEQUENT EVENTS

On March 7, 2018, the Compensation Committee of the Company's Board of Directors authorized the issuance of 153,500 shares of performance-based restricted stock and stock options with 150,000 underlying shares under the 1997 Plan, including 143,500 shares of performance-based restricted stock and stock options with 140,000 underlying shares granted to Company Executive Officers. The vesting of these shares is subject to the achievement of certain Company performance and market conditions and, in some instances, a service period requirement, that must be met on or before March 31, 2025, with the exception of 30,873 restricted stock with vesting tied to the Company's stock outperforming the S&P 500 Index over a two or four year time period, which will forfeit if not achieved at the specified time period. The stock options are to vest annually in three approximately equal tranches. No other material recognized or non-recognizable subsequent events were identified.


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15 of the Exchange Act, as of December 31, 2017. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding disclosure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, the Company's management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2017 .

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control will provide only reasonable assurance that the objectives of the internal control system are met.

EKS&H LLLP, an independent registered public accounting firm, has audited our Consolidated Financial Statements included in this Form 10-K, and as part of the audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2017 .

- 82 -

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fourth quarter of 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	Other Information

On November 16, 2017, the Company made minor modifications to its amended and restated bylaws, as amended, to memorialize the Company's officer designations, as then approved by the board of directors. The foregoing summary is qualified in its entirety by reference to the full text of the Company's amended and restated bylaws, as further amended, a copy of which is attached hereto as an exhibit and is incorporated herein by reference thereto.

- 83 -

PART III

Certain information required by Part III is incorporated by reference to our definitive Proxy Statement filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2018 Annual Meeting of Stockholders.


Item 10.	Directors, Executive Officers and Corporate Governance

Executive Officers

The information required by this item with respect to executive officers is incorporated by reference to Item 1 of this report and can be found under the caption "Executive Officers of the Registrant."

Directors

The information required by this section with respect to our directors will be incorporated by reference to the information in the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.

Code of Ethics

Our Board of Directors has adopted a code of ethics for our senior executive and financial officers (including our principal executive officer, principal financial officer and principal accounting officer). The code of ethics is available on our website at www.heska.com under the Corporate Governance section under the Investor Relations section under the "Company" tab. We intend to disclose any amendments to or waivers from the code of ethics at that location.

Audit Committee

The information required by this section with respect to our Audit Committee will be incorporated by reference to the information in the section entitled "Board Structure and Committees" in the Proxy Statement.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this item is incorporated by reference to the information in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.


Item 11.	Executive Compensation

The information required by this section will be incorporated by reference to the information in the sections entitled "Director Compensation," "Executive Compensation," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement.


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The other information required by this section will be incorporated by reference to the information in the section entitled "Ownership of Securities - Common Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

- 84 -

Equity Compensation Plan Information

The following table sets forth information about our common stock that may be issued upon exercise of options and rights under all of our equity compensation plans as of December 31, 2017 , including the 1997 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 1997 Employee Stock Purchase Plan. Our stockholders have approved all of these plans.



Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights	(b) Weighted-Average Exercise Price of Outstanding Options and Rights	(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Stockholders	630,847	$29.31	351,667
Equity Compensation Plans Not Approved by Stockholders	None	None	None
Total	630,847	$29.31	351,667


Item 13.	Certain Relationships and Related Transactions and Director Independence

The information required by this section will be incorporated by reference to the information in the sections entitled "Board Structure and Committees" and "Significant Relationships and Transactions with Directors, Officers or Principal Stockholders" in the Proxy Statement.


Item 14.	Principal Accountant Fees and Services

The information required by this section will be incorporated by reference to the information in the section entitled "Auditor Fees and Services" in the Proxy Statement.

The information required by Part III to the extent not set forth herein, will be incorporated herein by reference to our definitive Proxy Statement for the 2018 Annual Meeting of Stockholders.

- 85 -

PART IV


Item 15.	Exhibits and Financial Statement Schedules

(a) The following documents are filed as a part of this Form 10-K.

(1) Financial Statements:

Reference is made to the Index to Consolidated Financial Statements under Item 8 in Part II of this Form 10-K.

(2) Financial Statement Schedules:

NOTE : All schedules have been omitted because they are either not required or the information is included in the financial statements and notes thereto.

(3) Exhibits:

The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K has been identified.



Exhibit Number	Notes	Description of Document
3(i)	(9)	Restated Certificate of Incorporation of the Registrant.
3(ii)	(9)	Certificate of Amendment to Restated Certificate of Incorporation of Registrant.
3(iii)	(9)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3(iv)	(21)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3(v)	(22)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3(vi)		Amended and Restated Bylaws of the Registrant, as amended.
10.1*	(21)	1997 Stock Incentive Plan of Registrant, as amended and restated.
10.2*	(21)	1997 Stock Incentive Plan Restricted Stock Grant Agreement.
10.3*	(21)	1997 Stock Incentive Plan Restricted Stock Grant Agreement (Management Incentive Plan Award).
10.4*	(21)	1997 Stock Incentive Plan Restricted Stock Grant Agreement (Outside Director Award).
10.5*	(21)	1997 Stock Incentive Plan Employees and Consultants Option Agreement.
10.6*	(21)	1997 Stock Incentive Plan Outside Directors Option Agreement.
10.7*	(6)	2003 Equity Incentive Plan, as amended and restated.
10.8*	(21)	2003 Equity Incentive Plan Restricted Stock Grant Agreement.
10.9*	(21)	2003 Equity Incentive Plan Restricted Stock Grant Agreement (Management Incentive Plan Award).
10.10*	(21)	2003 Equity Incentive Plan Restricted Stock Grant Agreement (Outside Director Award).
10.11*	(21)	2003 Equity Incentive Plan Employees and Consultants Option Agreement.
10.12*	(21)	2003 Equity Incentive Plan Outside Directors Option Agreement.

- 86 -



10.13*	(15)	1997 Employee Stock Purchase Plan of Registrant, as amended and restated.
10.14*	(14)	Amended and Restated Management Incentive Plan Master Document.
10.15*		2017 Management Incentive Plan .
10.16*	(23)	Director Compensation Policy.
10.17*	(5)	Form of Indemnification Agreement entered into between Registrant and its directors and certain officers.
10.18*	(12)	Employment Agreement between Registrant and Kevin S. Wilson, effective as of March 26, 2014.
10.19*	(12)	Restricted Stock Grant Agreement between Registrant and Kevin S. Wilson, effective as of March 26, 2014.
10.20*	(14)	Restricted Stock Grant Agreement between Heska Corporation and Kevin S. Wilson, effective as of May 6, 2014.
10.21*		Restricted Stock Grant Agreement between Registrant and Kevin S. Wilson, effective as of December 1, 2017.
10.22*	(1)	Employment Agreement between Registrant and Jason A. Napolitano, effective as of May 6, 2002.
10.23*	(5)	Amendment to Employment Agreement between Registrant and Jason A. Napolitano, effective as of January 1, 2008.
10.24*	(4)	Employment Agreement between Registrant and Nancy Wisnewski, effective as of April 15, 2002.
10.25*	(5)	Amendment to Employment Agreement between Registrant and Nancy Wisnewski, effective as of January 1, 2008.
10.26*	(12)	Employment Agreement between Registrant and Steven M. Eyl, effective as of May 15, 2013.
10.27*	(9)	Employment Agreement between Registrant and Steven M. Asakowicz, effective as of February 22, 2013.
10.28*	(14)	Amendment to Employment Agreement between Registrant and Steven M. Asakowicz, effective as of March 1, 2015.
10.29*	(9)	Employment Agreement between Registrant and Rodney A. Lippincott, effective as of February 22, 2013.
10.30*	(14)	Amendment to Employment Agreement between Registrant and Rodney A. Lippincott, effective as of March 1, 2015.
10.31*	(4)	Employment Agreement between Diamond Animal Health, Inc. and Michael J. McGinley, effective as of May 1, 2000.
10.32*	(5)	Employment Agreement between Diamond Animal Health, Inc. and Michael J. McGinley, effective as of May 1, 2000.
10.33*	(7)	Assignment and Second Amendment to Employment Agreement between Registrant and Michael J. McGinley, effective as of August 4, 2011.
10.34*		Separation Agreement and Release between Registrant and Michael J. McGinley, effective as of December 22, 2017.
10.35*	(18)	Employment Agreement between Registrant and John McMahon, effective as of October 14, 2015.
10.36*		Separation Agreement and Release between Registrant and John McMahon, effective as of November 30, 2017.
10.37	(2)	Net Lease Agreement between Registrant and CCMRED 40, LLC, effective as of May 24, 2004.
10.38	(3)	First Amendment to Net Lease Agreement and Development Agreement between Registrant and CCMRED 40, LLC, dated February 11, 2005.

- 87 -



10.39	(3)	Second Amendment to Net Lease Agreement between Registrant and CCMRED 40, LLC, dated July 14, 2005.
10.40	(8)	Third Amendment to Net Lease Agreement between Registrant and Millbrae Square Company, effective as of January 1, 2010.
10.41+	(4)	Supply and License Agreement between Registrant and Schering-Plough Animal Health Corporation, effective as of August 1, 2003.
10.42+	(6)	Amendment No. 1 to Supply and License Agreement between Registrant and Schering-Plough Animal Health Corporation, effective as of August 31, 2005.
10.43+	(9)	Amendment No. 2 to Supply and License Agreement between Registrant and Intervet Inc., d/b/a Merck Animal Health, effective as of December 7, 2011.
10.44+	(11)	Amendment No. 3 to Supply and License Agreement between Registrant and Intervet Inc., d/b/a Merck Animal Health, effective as of July 30, 2013.
10.45+	(12)	Amendment No. 4 to Supply and License Agreement between Registrant and Intervet Inc., d/b/a Merck Animal Health, effective as of December 9, 2013.
10.46+	(19)	Amendment No. 5 to Supply and License Agreement between Registrant and Intervet Inc., d.b.a. Merck Animal Health, effective as of October 30, 2015.
10.47+		Amendment No. 6 to Supply and License Agreement between Registrant and Intervet Inc., d.b.a. Merck Animal Health, effective as of November 27,2017.
10.48+	(13)	Clinical Chemistry Analyzer Agreement between Registrant and FUJIFILM Corporation, effective as of January 30, 2007; and First Amendment to Clinical Chemistry Analyzer Agreement between Registrant and FUJIFILM Corporation, effective as of April 1, 2014.
10.49	(15)	Second Amendment to Clinical Chemistry Analyzer Agreement between Registrant and FUJIFILM Corporation, effective as of April 1, 2015.
10.50+	(9)	Amended and Restated Master License Agreement between Heska Imaging US, LLC and Cuattro, LLC, effective as of February 22, 2013.
10.51	(20)	Assignment and Assumption Agreement (License Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016.
10.52+	(9)	Supply Agreement between Cuattro, LLC and Heska Imaging US, LLC effective as of February 24, 2013.
10.53	(17)	First Amendment to Supply Agreement between Heska Imaging US, LLC and Cuattro, LLC, effective as of August 10, 2015.
10.54	(20)	Assignment and Assumption Agreement (Supply Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016.
10.55+	(10)	Asset Purchase and License Agreement between Diamond Animal Health, Inc., and Elanco Animal Health, a division of Eli Lilly and Company effective as of June 17, 2013.
10.56+	(16)	Master Supply Agreement between Diamond Animal Health, Inc. and Eli Lilly and Company and its Affiliates, operating through its Elanco Animal Health division, effective as of October 1, 2014.
10.57+	(16)	Supplemental Agreement between Diamond Animal Health, Inc. and Eli Lilly and Company and its Affiliates, operating through its Elanco Animal Health division, effective as of October 1, 2014.
10.58+		Exclusive Supply Agreement by and between Registrant and Shenzhen Mindray Bio-Medical Electronics Co., Ltd., effective as of September 1, 2013; and Supplemental memo to September 1, 2013 Exclusive Supply Agreement by and between Registrant and Shenzhen Mindray Bio-Medical Electronics Co., Ltd., effective as of March 1, 2015.

- 88 -



10.59+		Exclusive Supply Agreement by and between Registrant and Shenzhen Mindray Bio-Medical Electronics Co., Ltd., effective as of February 1, 2016; and Amendment to February 1, 2016 Exclusive Supply Agreement by and between Registrant and Shenzhen Mindray Bio-Medical Electronics Co., Ltd., effective as of January 1, 2017.
10.60+		Master Supply Agreement between Registrant and Butler Animal Health Supply, LLC d/b/a Henry Schein Animal Health effective as of October 17, 2014.
10.61	(24)	Credit Agreement among Registrant, Diamond Animal Health, Inc., Heska Imaging, LLC, as Borrowers, the other Loan Parties party hereto, the Lenders party hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent dated as of July 27, 2017.
10.62	(24)	Pledge and Security Agreement by and among Registrant, Diamond Animal Health, Inc., Heska Imaging, LLC and JPMorgan Chase Bank, N.A., in its capacity as administrative agent, effective as of July 27, 2017.
21.1		Subsidiaries of the Company.
23.1		Consent of EKS&H LLLP, Independent Registered Public Accounting Firm.
24.1		Power of Attorney (See Signature Page of this Form 10-K).
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

- 89 -



Notes
*	Indicates management contract or compensatory plan or arrangement.
+	Portions of the exhibit have been omitted pursuant to a request for confidential treatment.
**	Furnished herewith but not filed.
(1)	Filed with the Registrant's Form 10-K for the year ended December 31, 2002.
(2)	Filed with the Registrant's Form 10-K for the year ended December 31, 2004.
(3)	Filed with the Registrant's Form 10-Q for the quarter ended June 30, 2005.
(4)	Filed with the Registrant's Form 10-K for the year ended December 31, 2006.
(5)	Filed with the Registrant's Form 10-K for the year ended December 31, 2007.
(6)	Filed with the Registrant's Form 10-K for the year ended December 31, 2008.
(7)	Filed with the Registrant's Form 10-Q for the quarter ended June 30, 2011.
(8)	Filed with the Registrant's Form 10-K for the year ended December 31, 2011.
(9)	Filed with the Registrant's Form 10-K for the year ended December 31, 2012.
(10)	Filed with the Registrant's Form 8-K/A on August 29, 2013.
(11)	Filed with the Registrant's Form 10-Q for the quarter ended September 30, 2013.
(12)	Filed with the Registrant's Form 10-K for the year ended December 31, 2013.
(13)	Filed with the Registrants' Form 10-Q for the quarter ended June 30, 2014.
(14)	Filed with the Registrants' Form 10-K for the year ended December 31, 2014.
(15)	Filed with the Registrants' Form 10-Q for the quarter ended March 31, 2015.
(16)	Filed with the Registrants' Form 10-Q for the quarter ended June 30, 2015.
(17)	Filed with the Registrants' Form 10-Q for the quarter ended September 30, 2015.
(18)	Filed with the Registrants' Form 10-K for the year ended December 31, 2015.
(19)	Filed with the Registrant's Form 10-Q for the quarter ended March 31, 2016.
(20)	Filed with the Registrants' Form 10-Q for the quarter ended June 30, 2016.
(21)	Filed with the Registrants' Form 10-K for the year ended December 31, 2016.
(22)	Filed with the Registrants' Form 10-Q for the quarter ended March 31, 2017.
(23)	Filed with the Registrants' Form 10-Q for the quarter ended June 30, 2017.
(24)	Filed with the Registrants' Form 8-K on August 2, 2017.

- 90 -


Item 16.	Form 10-K Summary

Registrants may voluntarily include a summary of information required by Form 10-K under this item 16. The Registrant has elected not to include such summary information.

- 91 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9, 2018.



	HESKA CORPORATION

	By: /s/ KEVIN S. WILSON Kevin S. Wilson Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Catherine Grassman his or her true and lawful attorneys-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all of said attorney-in-fact or their substitute may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:



Signature	Title	Date
/s/ KEVIN S. WILSON Kevin S. Wilson	Chief Executive Officer, President and Director (Principal Executive Officer)	March 9, 2018
/s/ CATHERINE GRASSMAN Catherine Grassman	Vice President, Chief Accounting Officer and Controller (Principal Financial and Accounting Officer)	March 9, 2018
/s/ SHARON J. LARSON Sharon J. Larson	Chair	March 9, 2018
/s/ G. IRWIN GORDON G. Irwin Gordon	Director	March 9, 2018
/s/ BONNIE J. TROWBRIDGE Bonnie J. Trowbridge	Director	March 9, 2018
/s/ DAVID E. SVEEN David E. Sveen, Ph.D.	Director	March 9, 2018
/s/ CAROL A. WRENN Carol A. Wrenn	Director	March 9, 2018
/s/ SCOTT HUMPHREY Scott Humphrey	Director	March 9, 2018

- 92 -

Exhibit 3(vi)

Amended and Restated Bylaws as approved on May 16, 2002, as further amended

on May 4, 2010, February 19, 2014, February 5, 2016, September 22, 2016, July 26, 2017 and November 16, 2017.

B Y L A W S

HESKA CORPORATION

(a Delaware corporation)

-i-

ARTICLE 1

Offices

1.1 Principal Office . The registered office of the corporation shall be 1209 Orange Street, Wilmington, Delaware.

1.2 Additional Offices . The corporation may also have offices at such other places, either within or without the State of Delaware, as the Board of Directors (the "Board") may from time to time designate or the business of the corporation may require.

ARTICLE 2

Meeting of Stockholders

2.1 Place of Meeting . Meetings of stockholders may be held at such place, either within or without the State of Delaware, as may be designated by or in the manner provided in these Bylaws, or, if not so designated, as determined by the Board.

2.2 Annual Meeting . Annual meetings of stockholders shall be held each year at such date and time as shall be designated from time to time by the Board and stated in the notice of the meeting. At such annual meetings, the stockholders shall elect by a plurality vote the number of directors equal to the number of directors of the class whose term expires at such meetings (or, if fewer, the number of directors properly nominated and qualified for election) to hold office until the third succeeding annual meeting of stockholders after their election. The stockholders shall also transact such other business as may properly be brought before the meetings.

To be properly brought before the annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board or the Chief Executive Officer, (b) otherwise properly brought before the meeting by or at the direction of the Board or the Chief Executive Officer, or (c) otherwise properly brought before the meeting by a stockholder of record. In addition to any other applicable requirements, for business to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered personally or deposited in the United States mail, or delivered to a common carrier for transmission to the recipient or actually transmitted by the person giving the notice by electronic means to the recipient or sent by other means of written communication, postage or delivery charges prepaid in all such cases, and received at the principal executive offices of the corporation, addressed to the attention of the Secretary of the corporation, not less than 60 days nor more than 90 days prior to the first anniversary of the date on which notice of the prior year's annual meeting was mailed to stockholders. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class, series and number of shares of the corporation that are owned beneficially by the stockholder, and

(iv) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section; provided, however, that nothing in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting.

The Chair of the Board of the corporation (or such other person presiding at the meeting in accordance with these Bylaws) shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

2.3 Special Meetings . Special meetings of the stockholders may be called for any purpose or purposes, unless otherwise prescribed by statute or by the Restated Certificate of Incorporation, only at the request of the Chair of the Board, by the Chief Executive Officer of the corporation or by a resolution duly adopted by the affirmative vote of a majority of the Board. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.

2.4 Action Without a Meeting . Any action which may be taken at any annual or special meeting of the stockholders of this corporation may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing or electronic transmission, setting forth the action or actions so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Written consent or consents and, unless the Board otherwise provides, reproduction in paper form of electronic consent or consents, shall be delivered to the corporation by hand or certified mail, return receipt requested, to its principal executive office, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.

2.5 Notice of Meetings . Except as otherwise required by law, written notice of stockholders' meetings, stating the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which such special meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days prior to the meeting.

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, if any, date and time thereof and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, if any, date and time of the adjourned meeting shall

-2-

be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

Whenever, under the provisions of Delaware law or of the Restated Certificate of Incorporation or of these Bylaws, notice is required to be given to any stockholder it shall not be construed to mean personal notice, but such notice (a) may be given in writing, by mail, addressed to such stockholder, at his or her address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or (b) may be given by a form of electronic transmission consented to by the stockholder to whom the notice is given.

Whenever any notice is required to be given under the provisions of Delaware law or of the Restated Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

2.6 Business Matter of a Special Meeting . Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice, except to the extent such notice is waived or is not required.

2.7 List of Stockholders . The officer in charge of the stock ledger of the corporation or the transfer agent shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present in person thereat. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

2.8 Organization and Conduct of Business . The Chair of the Board or, in his or her absence, the Lead Director, or in their absence, the Chief Executive Officer of the corporation or, in their absence, such person as the Board may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as Chair of the meeting. In the absence of the Secretary of the corporation, the Secretary of the meeting shall be such person as the Chair appoints.

-3-

The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her in order.

2.9 Quorum and Adjournments . Except where otherwise provided by law, the Restated Certificate of Incorporation, or these Bylaws, the holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented in proxy, shall constitute a quorum at all meetings of the stockholders. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. At any adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.

2.10 Voting Rights . Unless otherwise provided in the Restated Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder.

2.11 Majority Vote . When a quorum is present at any meeting, the vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote on the subject matters shall decide any matter brought before such meeting, unless the matter is one upon which by express provision of law or of the Restated Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such matter. For purposes of determining whether shares are present and entitled to vote with respect to any particular subject matter, abstentions and non-votes with respect to such subject matter shall be treated as not present or entitled to vote on such subject matter, but shall be treated as present and entitled to vote for all other purposes.

2.12 Record Date for Stockholder Notice and Voting .

(i) For purposes of determining the stockholders entitled to notice of any meeting or to vote, or entitled to receive payment of any dividend or other distribution, or entitled to exercise any right in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any other action. If the Board does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(ii) For purposes of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the

-4-

date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing such record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required under Delaware law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by hand or certified mail, return receipt requested, to its principal executive office, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the Board and prior action by the Board is required under Delaware law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the close of business on the day on which the Board adopts the resolution taking such prior action.

2.13 Proxies . To the extent permitted by law, any stockholder of record may appoint a person or persons to act as the stockholder's proxy or proxies at any stockholder meeting for the purpose of representing and voting the stockholders' shares. The stockholder may make this appointment by any means the General Corporation Law of the State of Delaware specifically authorizes, and by any other means the Secretary of the corporation may permit. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of three years from the date of the proxy, unless otherwise provided in the proxy.

2.14 Inspectors of Election . The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The corporation may designate one or more persons to act as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.

ARTICLE 3

Directors

3.1 Number, Election, Tenure and Qualifications . The Board of the corporation shall consist of not less than five (5) members nor more than nine (9) members and shall be divided into three classes, designated as Class I, Class II and Class III, as nearly equal in number as possible, and the exact number of members of any future Board, and the exact number of directors in each Class, shall be determined from time to time by resolution of the Board. The Board currently consists of eight (8) members, with Class I consisting of two (2) directors, Class II consisting of three (3) directors and Class III consisting of three (3) directors.

-5-

Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board at the annual meeting, by or at the direction of the Board, may be made by any nominating committee or person appointed by the Board; nominations may also be made by any stockholder of record of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered personally or deposited in the United States mail, or delivered to a common carrier for transmission to the recipient or actually transmitted by the person giving the notice by electronic means to the recipient or sent by other means of written communication, postage or delivery charges prepaid in all such cases, and received at the principal executive offices of the corporation addressed to the attention of the Secretary of the corporation not less than 60 days nor more than 90 days prior to the first anniversary of the date on which notice of the prior year's annual meeting was mailed to stockholders. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class, series and number of shares of capital stock of the corporation that are owned beneficially by the person, (iv) a statement as to the person's citizenship, and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder and (ii) the class, series and number of shares of capital stock of the corporation that are owned beneficially by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein.

In connection with any annual meeting, the Chair of the Board (or such other person presiding at such meeting in accordance with these Bylaws) shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

Directors shall serve as provided in the Restated Certificate of Incorporation of the corporation. Directors need not be stockholders.

3.2 Vacancies . Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election at which the term of the class to which they have been elected expires and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by law. In the event of a

-6-

vacancy in the Board, the remaining directors, except as otherwise provided by law or these bylaws, may exercise the powers of the full Board until the vacancy is filled.

3.3 Resignation and Removal . Any director may resign at any time upon written notice or by electronic transmission to the corporation at its principal place of business or to the Chief Executive Officer or the Secretary. Such resignation shall be effective upon receipt of such notice unless the notice specifies such resignation to be effective at some other time or upon the happening of some other event. Any director or the entire Board may be removed, but only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the Restated Certificate of Incorporation.

3.4 Powers . The business of the corporation shall be managed by or under the direction of the Board which may exercise all such powers of the corporation and do all such lawful acts and things which are not by statute or by the Restated Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

3.5 Place of Meetings . The Board may hold meetings, both regular and special, either within or without the State of Delaware.

3.6 Annual Meetings . The annual meetings of the Board shall be held in the four month period either immediately preceding or immediately following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the Board, provided a quorum shall be present. The annual meetings shall be for the purposes of organization, and an election of officers and the transaction of other business.

3.7 Regular Meetings . Regular meetings of the Board may be held without notice at such time and place as may be determined from time to time by the Board.

3.8 Special Meetings . Special meetings of the Board may be called by the Chair of the Board, the Lead Director, the Chief Executive Officer or by a majority of the Board upon one (1) day's notice to each director and can be delivered either personally, or by telephone, express delivery service (so that the scheduled delivery date of the notice is at least one (1) day in advance of the meeting), telegram, facsimile transmission or electronic transmission, and on five (5) day's notice, by mail. The notice need not describe the purpose of the special meeting.

3.9 Quorum and Adjournments . At all meetings of the Board, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may otherwise be specifically provided by law or the Restated Certificate of Incorporation. If a quorum is not present at any meeting of the Board, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved of by at least a majority of the required quorum for that meeting.

-7-

3.10 Action Without Meeting . Unless otherwise restricted by law, the Restated Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.11 Telephone Meetings . Unless otherwise restricted by law, the Restated Certificate of Incorporation or these Bylaws, any member of the Board or any committee may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.12 Waiver of Notice . Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

3.13 Fees and Compensation of Directors . Unless otherwise restricted by law, the Restated Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

3.14 Rights of Inspection . Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director.

3.15 The Chair of the Board . The Board shall choose a Chair of the Board from among its members with the powers, duties and responsibilities outlined in these Bylaws, among other powers, duties and responsibilities as the Board may provide. The Chair of the Board is to meet as needed with the Chief Executive Officer, participate in the hiring and firing of the Chief Executive Officer and act as spokesperson for the Board. The Chair of the Board shall serve in this capacity at the pleasure of the Board.

3.16 The Lead Director . If the Chair of the Board is an officer or employee of the Corporation or is otherwise not independent (an "Inside Chair"), the Board may choose a Lead Director from among its other members. The Lead Director shall serve in this capacity at the pleasure of the Board. The Lead Director must be independent and must not be an officer or employee of the Corporation. The Lead Director is expected to chair sessions involving only the independent Directors, among other responsibilities as the Board may provide.

-8-

ARTICLE 4

Committees of Directors

4.1 Selection . The Board may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.

4.2 Power . Any such committee, to the extent provided by law and to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it.

4.3 Committee Minutes . Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

ARTICLE 5

Officers

5.1 Officers Designated . The officers of the corporation shall be chosen by the Board and shall be a Chief Executive Officer, a Secretary and a Chief Financial Officer (or a Controller in the absence of a Chief Financial Officer). The Board may also choose a President, a Chief Operating Officer, one or more Executive Vice Presidents, one or more Vice Presidents, a Controller, and one or more Assistant Secretaries. Any number of offices may be held by the same person, unless the Restated Certificate of Incorporation or these Bylaws otherwise provide.

5.2 Appointment of Officers . The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or 5.5 of this Article 5, shall be chosen in such manner and shall hold their offices for such terms as are prescribed by these Bylaws or determined by the Board. Each officer shall hold his or her office until his or her successor is elected and qualified or until his or her earlier resignation or removal. This section does not create any rights of employment or continued employment. The corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.

5.3 Subordinate Officers . The Board may appoint, and may empower the Chief Executive Officer to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board may from time to time determine.

-9-

5.4 Removal and Resignation of Officers . Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board, at any regular or special meeting of the Board, or if such officer has not been chosen or approved by the Board, by the Chief Executive Officer.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5 Vacancies in Offices . A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointment to that office.

5.6 Compensation . The salaries of all officers of the corporation shall be fixed from time to time by the Board and no officer shall be prevented from receiving a salary because he or she is also a director of the corporation.

5.7 The Executive Chair of the Board . The Board may designate the Chair of the Board as an officer known as the Executive Chair of the Board. The Executive Chair of the Board shall, if present, perform such other powers and duties as may be assigned to him or her from time to time by the Board. If there is no elected Chief Executive Officer, the Executive Chair of the Board shall also be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 5.8 of this Article 5.

5.8 The Chief Executive Officer . Subject to such supervisory powers, if any, as may be given by the Board to the Executive Chair of the Board, if there be such an officer, the Chief Executive Officer of the Corporation, shall preside at all meetings of the stockholders in the absence of the Chair of the Board and the Lead Director, shall preside at all meetings of the Board, in the absence of the Chair of the Board and the Lead Director, shall have all lawful powers necessary to conduct the general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. He or she shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation.

5.9 The President . The President, shall in the absence of the Chief Executive Officer or in the event of his or her disability or refusal to act, perform the duties of the Chief Executive Officer, and when so acting, shall have the powers of and subject to all the restrictions upon the Chief Executive Officer. The President shall perform such other duties and have such other powers as may from time to time be prescribed for them by the Board, the Chief Executive Officer, the Executive Chair of the Board or these Bylaws.

-10-

5.10 The Chief Operating Officer . The Chief Operating Officer, shall, in the absence of the President or in the event of his or her disability or refusal to act, perform the duties of the President, and when so acting, shall have the powers of and subject to all the restrictions upon the President. The Chief Operating Officer shall perform such other duties and have such other powers as may from time to time be prescribed for them by the Board, the Chief Executive Officer, the Executive Chair of the Board or these Bylaws.

5.11 The Executive Vice President . The Executive Vice President (or in the event there be more than one, the Executive Vice Presidents in the order designated by the directors, or in the absence of any designation, in the order of their election), shall, in the absence of the President and the Chief Operating Officer or in the event of their disability or refusal to act, perform the duties of the President, and when so acting, shall have the powers of and subject to all the restrictions upon the President. The Executive Vice President(s) shall perform such other duties and have such other powers as may from time to time be prescribed for them by the Board, the Chief Executive Officer, the Executive Chair of the Board or these Bylaws.

5.12 The Vice President . The Vice President (or in the event there be more than one, the Vice Presidents in the order designated by the directors, or in the absence of any designation, in the order of their election), shall, in the absence of the President, the Chief Operating Officer and any Executive Vice President or in the event of their disability or refusal to act, perform the duties of the President, and when so acting, shall have the powers of and subject to all the restrictions upon the President. The Vice President(s) shall perform such other duties and have such other powers as may from time to time be prescribed for them by the Board, the Chief Executive Officer, the Executive Chair of the Board or these Bylaws.

5.13 The Secretary . The Secretary shall attend all meetings of the Board and the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the standing committees, when required. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board, and shall perform such other duties as may from time to time be prescribed by the Board, the Executive Chair of the Board or the Chief Executive Officer, under whose supervision he or she shall act. The Secretary shall have custody of the seal of the corporation, and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the corporation and to attest the affixing thereof by his or her signature. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.

5.14 The Assistant Secretary . The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order designated by the Board (or in the absence of any designation, in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or

-11-

refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board.

5.15 The Chief Financial Officer . The Chief Financial Officer shall have the custody of the Corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. The Chief Financial Officer shall have all lawful powers necessary to open and close accounts with banks and other financial institutions for the deposit of moneys and other valuable effects in the name and to the credit of the corporation. In conjunction with the Chief Executive Officer, the Chief Financial Officer shall have all lawful powers necessary to borrow money and obtain other credit accommodations including, but not limited to, the authority to mortgage or pledge as collateral the corporation's assets. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board, at its regular meetings, or when the Board so requires, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the corporation.

5.16 The Controller . The Controller shall be the chief accounting officer of the corporation and shall in the absence of the Chief Financial Officer or in the event of his or her disability or refusal to act, perform the duties of the Chief Financial Officer, and when so acting, shall have the powers of and subject to all the restrictions upon the Chief Financial Officer. The Controller shall perform such other duties and have such other powers as may from time to time be prescribed for them by the Board, the Chief Executive Officer, the Executive Chair of the Board, the Chief Financial Officer or these Bylaws.

ARTICLE 6

Stock Certificates

6.1 Certificates for Shares . The shares of the corporation shall be represented by certificates or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the Executive Chair of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, an Executive Vice President or a Vice President and by the Chief Financial Officer, the Secretary or an Assistant Secretary of the corporation.

Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required by the General Corporation Law of the State of Delaware or a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

6.2 Signatures on Certificates . Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such

-12-

certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

6.3 Transfer of Stock . Upon surrender to the corporation or the transfer agent of the corporation of a certificate of shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated share, such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation.

6.4 Registered Stockholders . The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a percent registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

6.5 Lost, Stolen or Destroyed Certificates . The Board may direct that a new certificate or certificates be issued to replace any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing the issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require, and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

ARTICLE 7

General Provisions

7.1 Dividends . Dividends upon the capital stock of the corporation, subject to any restrictions contained in the General Corporation Law of the State of Delaware or the provisions of the Restated Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Restated Certificate of Incorporation.

7.2 Dividend Reserve . Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

-13-

7.3 Checks . All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate.

7.4 Corporate Seal . The Board may provide a suitable seal, containing the name of the corporation, which seal shall be in charge of the Secretary. If and when so directed by the Board or a committee thereof, duplicates of the seal may be kept and used by the Chief Financial Officer or by any Assistant Secretary.

7.5 Execution of Corporate Contracts and Instruments . The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

7.6 Representation of Shares of Other Corporations . The Executive Chair of the Board, Chief Executive Officer, President, the Chief Operating Officer, any Executive Vice President or any Vice President or the Chief Financial Officer, the Secretary or any Assistant Secretary of this corporation is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of any corporation or corporations standing in the name of this corporation. The authority herein granted to said officers to vote or represent on behalf of this corporation any and all shares held by this corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. The Board, in its discretion, may appoint specific officers the authority to vote, represent or exercise shares in certain other corporations, although other officers may exercise such authority in the event of the incapacitation or death of such specific officers.

ARTICLE 8

Miscellaneous

8.1 Stock Options and Toxic Securities . Except in the case of shares of common stock that may be offered to employees of the corporation at a discount to fair market value pursuant to an employee stock purchase or similar plan intended to qualify under section 423 of the Internal Revenue Code of 1986, as amended, which shall not be covered by this Section 8.1, unless approved by the holders of a majority of the shares entitled to vote at a duly convened meeting of stockholders, the corporation shall not:

(i) grant any stock option, including stock appreciation right, with an exercise price that is less than 100% of the fair market value of the underlying stock on the date of grant;

(ii) reduce the exercise price of any stock option, including stock appreciation right, outstanding or to be granted in the future; cancel and re-grant options at a lower exercise price (including entering into any "6 month and 1 day" cancellation and re-grant scheme), whether or not

-14-

the cancelled options are put back into the available pool for grant; replace underwater options with restricted stock in an exchange, buy-back or other scheme; or replace any options with new options having a lower exercise price or accelerated vesting schedule in an exchange, buy-back or other scheme;

(iii) sell or issue any security of the corporation convertible, exercisable or exchangeable into shares of common stock, having a conversion, exercise or exchange price per share which is subject to downward adjustment based on the market price of the common stock at the time of conversion, exercise or exchange of such security into common stock (except for appropriate adjustments made to give effect to any stock splits or stock dividends); or

(iv) enter into (a) any equity line or similar agreement or arrangement; or (b) any agreement to sell common stock (or any security convertible, exercisable or exchangeable into shares of common stock ("Common Stock Equivalent")) at a per share price (or, with respect to a Common Stock Equivalent, at a conversion, exercise or exchange price, as the case may be ("Equivalent Price")) that is fixed after the execution date of the agreement, whether or not based on any predetermined price-setting formula or calculation method. Notwithstanding the foregoing, however, a price protection clause shall be permitted in an agreement for sale of common stock or Common Stock Equivalent, if such clause provides for an adjustment to the price per share of common stock or, with respect to a Common Stock Equivalent, to the Equivalent Price (provided that such price or Equivalent Price is fixed on or before the execution date of the agreement) (the "Fixed Price") in the event that the corporation, during the period beginning on the date of the agreement and ending no later than ninety (90) days after the closing date of the transaction, sells shares of common stock or Common Stock Equivalent to another investor at a price or Equivalent Price, as the case may be, below the Fixed Price.

8.2 Amendments. The Board of Directors is expressly empowered to adopt, amend or repeal these Bylaws, provided, however, that any adoption, amendment or repeal of these Bylaws by the Board of Directors shall require the approval of at least sixty-six and two-thirds percent (66‑2/3%) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the board). The stockholders shall also have power to adopt, amend or repeal these Bylaws, provided, however, that in addition to any vote of the holders of any class or series of stock of this corporation required by law or by the Restated Certificate of Incorporation of this corporation, the affirmative vote of the holders of more than fifty percent (50%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for such adoption, amendment or repeal by the stockholders of any provisions of these Bylaws. Notwithstanding the foregoing sentence, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the amendment or repeal of Article 3.1 of these Bylaws.

Notwithstanding the foregoing paragraph or any provision of the Restated Certificate of Incorporation, Section 8.1 of these Bylaws may only be amended or repealed by the affirmative vote

-15-

of the holders of a majority of the shares of the stock of the corporation entitled to vote at a duly convened meeting of stockholders.

-16-

Exhibit 10.15

Heska Corporation

2017 Management Incentive Plan

1. The Category Percentages for the 2017 MIP are as follows:



Title	Category Percentage
Executive Vice President-level	40.0% of base salary
Other Officers	35.0% of base salary
Directors	25.0% of base salary

2. The Plan Allocation for the 2017 MIP is as follows:

50% on achievement of the company-wide financial objective and 50% on individual performance

3. The Key Parameters for the 2017 MIP are as follows:

1) Pre-MIP Target Income (Pre-MIP Operating Income excluding acquisitions and related expenses and excluding development expenses specified at the Compensation Committee’s February 23, 2017 meeting) and 2) Revenue

4. The Payout Structure for the 2017 MIP is as follows:



Pre-MIP Target Income (% MIP Goal)	Revenue (% MIP Goal)	MIP Payout (% MIP Goal)	Post-MIP Target Income
$18,600K (93%)	$131,000K (92%)	$0 (0%)	$18,600K
$18,900K (94%)	$132,000K (93%)	$280K (20%)	$18,620K
$19,200K (96%)	$133,000K (94%)	$560K (40%)	$18,640K
$19,500K (97%)	$135,000K (95%)	$840K (60%)	$18,660K
$19,800K (99%)	$137,000K (97%)	$1,120K (80%)	$18,680K
$20,100K (100%)	$141,800K (100%)	$1,400K (100%)	$18,700K
$22,100K (110%)	$148,200K (105%)	$1,750K (125%)	$20,350K
$24,100K (120%)	$155,300K (110%)	$2,100K (150%)	$22,000K

There shall be no MIP Payout if Pre-MIP Target Income is less than $18,600K or Revenue is less than $131,000K. If necessary, MIP Payouts shall be determined by interpolating between MIP Payout result rows, subject to a minimum Post-MIP Target Income interpolation.

5. MIP Payout Features:

Eligibility – To earn an MIP Payout, an MIP participant must remain an active employee of Heska Corporation or one of its affiliates through the time of payment of MIP Payouts (planned to be on February 28, 2018), excepting death, disability and Change-in-Control.

Medium of Payment – MIP Payouts are to be made in cash, although by June 15, 2017 Executive Officer participants may elect to receive up to 50% of his or her MIP Payout in stock, subject to a maximum of 3,000 shares, a maximum grant of such participant’s Incentive Target and vesting based upon MIP Payout achieved.

Maximum payout: The maximum payout to any participant shall be 200% such participant’s Incentive Target, which is calculated by multiplying such participant’s base salary by the Category Percentage applicable to such participant.

Exhibit 10.21

HESKA CORPORATION
1997 STOCK INCENTIVE PLAN

RESTRICTED STOCK GRANT AGREEMENT

THIS AGREEMENT is made as of the 1 ^st day of December, 2017 (the “ Grant Date ”) by and between Heska Corporation (the “ Company ”) and Kevin Wilson (the “ Executive ”).

In consideration of the mutual covenants and representations herein set forth, the Company and Executive agree as follows:

Section 1. GRANT OF STOCK .

1.1 Precedence of Plan . This Agreement is subject to and shall be construed in accordance with the terms and conditions of the Heska Corporation 1997 Stock Incentive Plan (the “ Plan ”), as now or hereinafter in effect. Any capitalized terms that are used in this Agreement without being defined and that are defined in the Plan shall have the meaning specified in the Plan.

1.2 Grant of Stock . The Company hereby grants to Executive an aggregate of 45,000 shares of Restricted Stock (the “ Shares ”), subject to vesting as provided in Section 2.

Section 2. UNVESTED SHARES SUBJECT TO FORFEITURE.

2.1 Shares Subject to Forfeiture. The Shares are subject to the following vesting restrictions:

a. Market Price Vesting . Subject to the terms and conditions of this Agreement, 5,625 Shares shall vest on the Market-Vesting Date following achievement of each Market-Vesting Threshold (collectively, the " Market-Vesting Shares ") . For purposes of this Agreement, a “ Market-Vesting Threshold” will be achieved each time the 20-Day Price first equals or exceeds each of the following thresholds achieved on or before December 1, 2024: (i) $110.00, (ii) $125.00, and (iii) $150.00. For purposes of this Agreement, the “ Market-Vesting Date ” with respect to each Market-Vesting Threshold will be the date such Market-Vesting Threshold is first achieved; provided , that if the Company achieves one or more Market-Vesting Thresholds on or before the first anniversary of the Grant Date (the “ First Anniversary ”), the Market-Vesting Date for the Shares that would otherwise then vest shall instead be the First Anniversary. For purposes of this Agreement, the " 20-Day Price " shall mean, with respect to any date, the average of the closing prices per share of the Company's Common Stock for the 20 trading days ending on such date (inclusive) on the NASDAQ Stock Market, or if the Shares are not traded on the NASDAQ Stock Market, the average of the high bid and low asked prices on such trading days quoted on the NASDAQ OTC Bulletin Board or by the National Quotation Bureau, Inc., or a comparable service as determined in the discretion of the Committee (as applicable, the “ Closing Price ”). In the event of a stock split, stock dividend or reverse stock split affecting the Shares, the Committee shall adjust the Market-Vesting Thresholds to appropriately reflect such event.

-1-

b. Operating Income Vesting . Subject to the terms and conditions of this Agreement, 9,375 Shares shall vest on the Income-Vesting Date following achievement of each Income-Vesting Threshold (collectively, the " Income-Vesting Shares "). For purposes of this Agreement, an “ Income-Vesting Threshold” will be achieved on each Reporting Date that the Company's Operating Income for the preceding fiscal year first equals or exceeds each of the following thresholds for fiscal years through and including 2024: (i) $25,000,000 (ii) $30,000,000 and (iii) $35,000,000 (collectively, the " Income-Vesting Shares "). For purposes of this Agreement, the “ Income-Vesting Date ” will be (1) with respect to each Income-Vesting Threshold achieved on or before the Reporting Date in 2022, the earlier of (i) the third anniversary of the date such Income-Vesting Threshold is first achieved and (ii) the Reporting Date in 2022 and (2) with respect to each Income-Vesting Threshold achieved after the Reporting Date in 2022, the Reporting Date for such achievement. (The Income-Vesting Dates, together with the Market-Vesting Dates, are sometimes referred to herein as the “ Vesting Dates ”.) For purposes of this Agreement, " Reporting Date " means the date in each fiscal year that the Company's independent public accountants issue their Financial Report on the Company's financial statements for the preceding fiscal year (each, a " Financial Report) . For purposes of this Agreement, " Operating Income " means for any fiscal year, the following, determined on a consolidated basis in accordance with generally-accepted accounting principles for the Company and its subsidiaries, based on the Financial Report for such year: (x) consolidated net income plus (y) the sum of the following, without duplication, to the extent deducted in determining such consolidated net income: (i) income and franchise tax expense and (ii) interest and other expense (net). Notwithstanding any provision of this Agreement to the contrary, all Income-Vesting Shares that do not vest pursuant to this paragraph on or before March 31, 2025 will be forfeited.

c. Financial Statement Restatement . Notwithstanding any provision of this Agreement to the contrary, the Shares shall be subject to the terms and conditions of this Section in the event that the Company issues a restatement of its audited financial statements (a " Restatement ") after any portion of the Shares has vested. If (i) any portion of the Shares vests based on achievement of an Income-Vesting Threshold and within 3 years thereafter the Company issues a Restatement affecting Operating Income for the corresponding fiscal year such that the Income-Vesting Threshold would not have been met, then the corresponding portions of the Shares shall be deemed not to have vested, and (ii) any portion of the Shares vests based on achievement of a Market-Vesting Threshold and within 3 years thereafter the Company issues a Restatement, and the Committee determines in its good faith discretion, based on a reasonable estimate of the effect of the Restatement, that there is a reasonable likelihood that a Market-Vesting Threshold would not have occurred if the results reported in the Restatement had been reported initially, then the corresponding portions of the Shares shall be deemed not to have vested. If any portion of the Shares is deemed not to have vested pursuant to the foregoing sentence (an " Unearned Grant "), then Executive shall either (x) promptly return the Shares comprising the Unearned Grant to the Company or (y) if Executive has sold such Shares, pay to the Company within one (1) year from the date of the corresponding Restatement an amount equal to the proceeds Executive received from any sale of such Shares not returned by Executive pursuant to the foregoing clause (x). For the avoidance of doubt, if any portion of the Shares is deemed not to have vested as a result of a Restatement in accordance with this paragraph, such

-2-

unvested portion will remain eligible for vesting on the terms and conditions of this Agreement for the remainder of the vesting periods set forth herein. In addition to the foregoing, Executive's compensation and equity awards shall remain subject to any applicable law (including without limitation Section 302 of the Sarbanes Oxley Act and Section 954 of the Dodd Frank Act) or regulation in effect from time to time.

d. If, at any time, Executive's employment is terminated by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below), and the termination is not In Connection with a Change of Control (as defined below), all further vesting of the Shares will terminate immediately; provided, that if, within one (1) year after any such termination, (A) the Company achieves one or more Market-Vesting Thresholds or (B) a Reporting Date occurs on which the Company achieves one or more Income-Vesting Thresholds, then any Shares that would otherwise have vested by virtue of such achievement, if such termination had not occurred and Executive had served through the corresponding Vesting Date under this Agreement, shall be deemed to vest on such Vesting Date.

e. In the event of a Change of Control (as defined below), any remaining unvested Shares will vest. If, at any time, Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, and the termination is In Connection with a Change of Control, then any remaining unvested Shares will vest.

f. If Executive’s employment is terminated at least one (1) year following the Grant Date due to Executive’s death or Disability (as defined below), any remaining unvested Shares will vest.

g. Except as otherwise expressly provided in this Section 2.1, in the event that Executive’s employment with the Company is terminated prior to the vesting of all Shares, Executive will forfeit all right to any unvested Shares.

2.2 Restriction on Transfer. Until the Shares are vested, the Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated.

Section 3. STOCKHOLDER RIGHTS

3.1 Stock Register and Certificates . The Shares will be recorded in the stock register of the Company in the name of Executive. If applicable, a stock certificate or certificates representing the Shares will be registered in the name of Executive, but such certificates shall remain in the custody of the Company. Executive shall deposit with the Company a Stock Assignment Separate from Certificate in the form attached below as Attachment 1, endorsed in blank, so as to permit retransfer to the Company of all or a portion of the Shares that are forfeited or otherwise do not become vested in accordance with the Plan and this Agreement.

3.2 Exercise of Stockholder Rights . Executive shall have the right to vote the Shares (to the extent of the voting rights of said Shares, if any), to receive and retain all regular cash dividends and such other distributions, as the Board of Directors of the Company may, in its discretion, designate, pay or distribute on such Shares, and to exercise all other rights, powers

-3-

and privileges of a holder of Common Stock with respect to such Shares, except as set forth in this Agreement and the Plan.

3.3 Legends . Certificates, if any, representing the Shares will contain the following or other legends in the Company’s discretion:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.

Section 4. RESPONSIBILITY FOR TAXES .

4.1 Section 83(b) Election . Executive may complete and file with the Internal Revenue Service an election pursuant to Section 83(b) of the Internal Revenue Code to be taxed currently on the fair market value of the Shares without regard to the vesting restrictions set forth in this Agreement. Executive shall be responsible for all taxes associated with the acceptance of the transfer of the Shares, including any tax liability associated with the representation of fair market value if the election is made pursuant to Code Section 83(b).

4.2 Withholding . In accordance with Section 12 of the Plan, Executive agrees to make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan under applicable federal, state, local or foreign law. The Company in its discretion may permit Executive to satisfy all or part of Executive’s withholding or income tax obligations by having the Company withhold all or a portion of the Shares that otherwise would be issued to Executive on vesting.

Section 5. MISCELLANEOUS.

5.1 Not an Employment Contract . This Agreement is not an employment contract and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on the part of Executive to remain in the service of the Company in any capacity, or of the Company to continue Executive’s service in any capacity.

5.2 Effect on Employee Benefits . Executive agrees that the Award will constitute special incentive compensation that will not be taken into account as “salary” or “compensation” or “bonus” in determining the amount of any payment under any pension, retirement, profit sharing or other remuneration plan of the Company unless so provided in such plan.

5.3 Further Assurances . The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

-4-

5.4 Entire Agreement . This Agreement, including any exhibits, is the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written understandings of the parties.

5.5 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado as applied to contracts between Colorado residents to be wholly performed within the State of Colorado.

5.6 Definitions .

a. Cause . For purposes of this Agreement, "Cause" shall mean the occurrence of one or more of the following: (i) conviction of, or entry of a plea of nolo contendere to, any felony crime (including one involving moral turpitude), or any crime which reflects so negatively on Heska to be detrimental to Heska's image or interests, or any act of fraud or dishonesty that has such negative reflection upon Heska; (ii) the repeated commitment of insubordination or refusal to comply with any reasonable request of the Board related to the scope or performance of Executive's duties; (iii) possession of any illegal drug on Heska premises or being under the influence of illegal drugs or abusing prescription drugs or alcohol while on Heska business, attending Heska-sponsored functions, or on Heska premises; (iv) the gross misconduct or gross negligence in the performance of Executive's responsibilities which, based upon good faith and reasonable factual investigation of the Board, demonstrates Executive's unfitness to serve; (v) material breach of Executive's obligations under this Agreement; or (vi) material breach of any fiduciary duty of Executive to Heska, which results in material damage to Heska or its business; provided , however , that if any occurrence under subsections (ii), (iv), (v), and (vi) may be cured, Heska will provide notice to Executive describing the nature of such event and Executive will thereafter have thirty (30) days to cure such event, and if such event is cured with that 30-day period, then grounds will no longer exist for terminating Executive's employment for Cause.

b. Change of Control . For purposes of this Agreement, "Change of Control" means (i) a sale of all or substantially all of Heska's assets, (ii) any merger, consolidation, or other business combination transaction of Heska with or into another corporation, entity, or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of Heska outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of Heska (or the surviving entity) outstanding immediately after such transaction, (iii) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of Heska, (iv) a contested election of Directors, as a result of which or in connection with which the persons who were Directors before such election or their nominees cease to constitute a majority of the Board, or (v) a dissolution or liquidation of Heska.

c. Disability . For purposes of this Agreement, "Disability" shall mean that, by reason of any medically determinable physical or mental impairment that can be expected to

-5-

result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive either (i) is unable to perform the business and professional services in the performance of Executive's duties, consistent with Executive's position within Heska, as prior reasonably assigned to Executive by the Board, or (ii) is receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Heska employees.

d. Good Reason .

i. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following without Executive's express written consent:

A. Executive's authority with Heska is, or Executive's duties or responsibilities as President and Chief Executive Officer are, materially diminished relative to Executive's authority, duties, and responsibilities as in effect immediately prior to such change;

B. a material diminution in Executive's Base Salary as in effect immediately prior to such diminution; provided , that an across-the-board reduction in the base compensation and benefits of all other executive officers of Heska by the same percentage amount (or under the same terms and conditions) as part of a general base compensation reduction and/or benefit reduction shall not constitute such a qualifying material diminution;

C. a material change in the geographic location of Executive's principal place of employment such that the new location results in a commute for Executive that is both (A) longer than Executive's commute prior to the relocation and (B) greater than fifty (50) road miles each way from Executive's home in the Beaver Creek, Colorado area;

D. any material breach by Heska of any provision of this Agreement; and

E. any acquiring company fails to assume or be bound by the terms of this Agreement In Connection with a Change of Control.

i. The aforementioned occurrences shall not be deemed Good Reason unless Executive gives Heska written notice of the existence of the condition which Executive believes constitutes Good Reason (which notice must be given within ninety (90) days of the initial existence of the condition) and such condition remains uncured for a period of thirty (30) days after the date of such notice. An event of Good Reason shall occur automatically at the expiration of such 30-day period if the relevant condition remains uncured at such time.

e. In Connection with a Change of Control . For purposes of this Agreement, a termination of Executive's employment with Heska is "In Connection with a Change of Control" if Executive's employment is terminated without Cause or for Good Reason during the period beginning three (3) months prior to a Change of Control and ending twenty-four (24) months following a Change of Control.

-6-

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

HESKA CORPORATION

EXECUTIVE a Delaware corporation

By:

Title:

Address

Attachment 1

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, I, _____________________, hereby sell, assign and transfer unto ( ) shares of the Common Stock of Heska Corporation, standing in my name on the books of said corporation represented by Certificate No. herewith and do hereby irrevocably constitute and appoint

to transfer said stock on the books of the within-named corporation with full power of substitution in the premises.

Dated: , 20 .

Signature:

This Assignment Separate from Certificate was executed in conjunction with the terms of a Restricted Stock Grant Agreement between the above assignor and Heska Corporation, dated __________ __, 20__.


Instruction :	Please do not fill in any blanks other than the signature line.

-7-

Exhibit 10.34

SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (this “Agreement”) is made by and between Heska Corporation, for itself and for the benefit of its subsidiary Diamond Animal Health, Inc. (the “Company”) and Michael McGinley (“Employee”). The Company and Employee are referred to below collectively as the “Parties” and individually as a “Party.”

RECITALS

WHEREAS, Employee currently is employed as the President, Biologicals and Pharmaceuticals, Heska Corporation;

WHEREAS, the Company and Employee are parties to an Employment Agreement dated as of May 1, 2000, as amended on January 1, 2008 (the “First Amendment”) and August 4, 2011 (the “Second Amendment”) (collectively the “Employment Agreement”), pursuant to which Employee has been employed by the company at-will, meaning that either Party may terminate Employee’s employment with or without cause, reason, or notice subject to the provisions of the Employment Agreement;

WHEREAS, the Company notified Employee on December 22, 2017 of its intent to cause the involuntary termination of his employment;

WHEREAS, the Company has agreed to extend the date of Employee’s involuntary termination until March 31, 2018 (the “Separation Date”);

WHEREAS, the Company wishes to benefit from Employee’s skills, knowledge, and experience during Employee’s transition to retirement and thereafter; and

WHEREAS, the Parties have entered into this Agreement to ensure the protection of the Company’s confidential information and trade secrets and to prevent damage to the Company caused by Employee using or disclosing the Company’s confidential information or trade secrets and competing unfairly against the Company.

NOW THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

TERMS

1. Effective Date, Employment, Payments .

(a) This Agreement shall become effective after expiration of the Revocation Period as provided in Section 5 below (the “Effective Date”), and, except as otherwise provided

herein, shall replace and supersede all prior understandings and agreements between the Parties. In the event of any conflict between this Agreement and the Employment Agreement, this Agreement shall control.

(b) Employee shall continue to work through the Separation Date as needed by the Company.

(c) In consideration for Employee entering into this Separation Agreement and Release, Company shall pay Employee the severance pay in the amount and in the manner as provided in Section 6(b)(ii) of the Employment Agreement (“Severance Pay”).

(d) Employee’s receipt of the Severance Pay is subject to the following conditions:

(i) Employee continuing to work as needed by the Company and as required by the Employment Agreement up and through the Separation Date;

(ii) Employee signing, and not revoking, this Agreement;

(iii) Employee signing, and not revoking, a final release of claims (the “Final Release”), in a form attached as Exhibit B, upon the Separation Date.

(e) Reporting and Withholding . Reporting of and withholding on any payment under this Paragraph for tax purposes shall be at the discretion of the Company in conformance with applicable tax laws. If a claim is made against the Company for any additional tax or withholding in connection with or arising out of any payment pursuant to this Agreement, Employee shall pay any such claim within thirty (30) days of being notified by the Company and agrees to indemnify the Company and hold it harmless against such claims, including, but not limited to, any taxes, attorneys’ fees, penalties, and/or interest, which are or become due from the Company.

(f) Medical and Dental Benefits . Provided Employee timely elects continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), and further provided that Employee executes this Agreement and does not revoke Employee’s acceptance of the Agreement pursuant to Paragraph 5 below, the Company shall pay, for the time period beginning April 1, 2018 and ending September 30, 2018 , the premiums for the COBRA coverage elected by Employee directly to the insurance provider(s). For the balance of the period that Employee is entitled to coverage under COBRA, Employee shall be entitled to maintain coverage for Employee and Employee’s eligible dependents as pursuant to applicable law but shall be responsible for payment of the entire premium. Employee shall notify the Company immediately upon Employee’s acceptance of employment with another employer during the COBRA continuation period.

-2-

(g) Employee shall resign from his employment with the Company effective March 31, 2018 . Employee’s resignation shall be deemed an “involuntary termination” of employment under the Employment Agreement.

(h) Employee has received certain incentive restricted stock grants and stock options pursuant to the Company’s 1997 Incentive Stock Plan and related documents, the 2003 Incentive Stock Plan and related documents, and the various Stock Grant and Stock Option Agreements between Employee and the Company (each an “Option Document”). Continued vesting and exercise of such restricted stock and stock options shall be governed by the Option Documents. Employee and the Company acknowledge and agree that this Agreement does not represent a modification to any Option Document and to the extent this Agreement shall conflict with any Option Document, including in any manner that could be deemed a modification, the Option Documents shall control. . Employee acknowledges that the Company’s agreement to extend the date of Employee’s involuntary separation from the Company pursuant to this Agreement and thereby allow certain unvested options and unvested restricted stock, which would otherwise be forfeited upon Employees’ termination of employment, constitutes sufficient and valuable consideration.

(i) Employee is a participant in the Company’s 2017 Management Incentive Plan (“MIP”). Company agrees that Employee shall continue to be a participant in the 2017 MIP and that Employee’s entitlement to compensation under the MIP shall be governed by the terms of the MIP and in accordance with the Company’s normal business practices.

2. Termination :

If Employee’s employment terminates prior to the Separation Date due to Employee’s Voluntary Resignation or Employee’s Termination For Cause as defined in the Employment Agreement, Section 6(d) of the Employment Agreement shall control and in such event, Employee shall be entitled to only compensation earned as of the termination date.

3. At-Will Employment . Employee’s employment with the Company continues to be at-will. Nothing in this Agreement alters Employee’s status as an at-will employee of the Company. Subject to the terms of this Agreement, both the Company and Employee reserve the right to terminate Employee’s employment by the Company at any time, for any reason or no reasons, with or without cause, warning, or notice, subject to provisions of the Employment Agreement and this Agreement.

4. General Release .

(a) Employee, for Employee, and for Employee’s affiliates, successors, heirs, subrogees, assigns, principals, agents, partners, employees, associates, attorneys, and representatives, voluntarily, knowingly, unequivocally, unconditionally and intentionally releases and discharges (i) the Company and its predecessors, successors, parents, subsidiaries, affiliates, and assigns, and (ii) each of their respective officers, directors, principals, shareholders, agents, attorneys, board members, and employees (the “Released Parties”) from any and all claims, actions, liabilities, demands, rights, damages,

-3-

costs, expenses, and attorneys’ fees (including, but not limited to, any claim of entitlement for attorneys’ fees under contract, statute, or rule of law allowing a prevailing party or plaintiff to recover attorneys’ fees), of every kind and description from the beginning of time through the Effective Date (the “Released Claims”).

(b) The Released Claims include, but are not limited to, those which arise out of, relate to, or are based upon: (i) Employee’s employment with the Company or the termination thereof; (ii) statements, acts, or omissions by the Released Parties whether in their individual or representative capacities; (iii) express or implied agreements between the Parties and claims under any severance plan (except as provided herein); (iv) any stock or stock option grant, agreement, or plan (except as provided herein); (v) all federal, state, and municipal statutes, ordinances, and regulations, including, but not limited to, claims of discrimination based on race, color, national origin, age, sex, sexual orientation, religion, disability, veteran status, whistleblower status, public policy, or any other characteristic of Employee under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Americans with Disabilities Act, the Equal Pay Act, Title VII of the Civil Rights Act of 1964 (as amended), the Employee Retirement Income Security Act of 1974, the Rehabilitation Act of 1973, Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, Colorado Anti-Discrimination in Employment Act, seq., or any other federal, state, or municipal law prohibiting discrimination or termination for any reason; (vi)state and federal common law; (vii) the failure of this Agreement or of any other employment, severance, profit sharing, bonus, equity incentive or other compensatory plan to which Employee and the Company are or were parties, to comply with, or to be operated in compliance with, Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), or any similar provision of state or local income tax law; and (viii) any claim which was or could have been raised by Employee.

(c) The General Release in this Agreement does not apply to claims under federal, state, or local law (statutory, regulatory, or otherwise) that may not be lawfully waived and released, including but not limited to vested retirement benefits (if any), COBRA rights, unemployment compensation, and workers’ compensation. If any claim is not subject to release, to the extent permitted by law: (i) you promise not to consent to become a party to or member of any class in a class, collective or multi-party action or proceeding in which claims are asserted against the Company that are related in any way to your compensation, employment or the separation of your employment with the Company; (ii) if, without your prior knowledge and consent, you are made a member of a class in any such proceeding, you agree to opt out of the class at the first opportunity; and (iii) you waive any right or ability to be a class or collective action representative in such a proceeding. In the event that any claim, charge, or complaint is filed with any federal, state or local administrative agency in which you could be eligible to receive any damages or compensation from the Company, you hereby expressly waive any right to receive any monetary or other personal benefits that you would otherwise receive as a result of the said proceeding.

5. ADEA and Older Workers Benefit Protection Act Release

-4-

In addition to the General Release contained in Paragraph 4, you knowingly, voluntarily, and irrevocably discharge and release the Released Parties from any claims arising under the Age Discrimination in Employment Act (ADEA). You acknowledge that you have been informed pursuant to the federal Older Workers Benefit Protection Act of 1990 that:

You are advised to consult with an attorney before signing this Agreement.

You do not waive rights or claims under the federal Age Discrimination in Employment Act that may arise after the date this Agreement is executed.

You have twenty-one (21) days from the date of receipt of this Agreement to consider this Agreement. You acknowledge that if you sign this Agreement before the end of the twenty-one (21)-day period, it will be your personal, voluntary decision to do so and that you have not been pressured to make a decision sooner.

You have seven (7) days after signing this Agreement to revoke the Agreement (the “Revocation Period”), and the Agreement will not be effective until that Revocation Period has expired. If mailed, the rescission must be postmarked within the seven-day period, properly addressed to:

Heska Corporation

Attn: Stephanie Alsip

Senior Manager, Human Resources

3760 Rocky Mountain Avenue

Loveland, CO 80538

This Agreement shall not be effective or enforceable, and no payments or benefits under this Agreement shall be provided to you, until after the seven (7) day Revocation Period has expired. You understand that you will not receive any separation payment if you void your signature or revoke this Agreement.

6. Non-Competition and Non-Solicitation .

(a) During Employee’s remaining term of employment and for 36 months immediately following the Separation Date (“Restriction Period”), Employee shall not engage in any Competitive Conduct, as defined herein. For the purposes of this Agreement, “Competitive Conduct” shall be determined in good faith by the Company and shall include any of the following conduct whether direct or indirect, on Employee’s own behalf or on behalf of, or in conjunction with, any person, partnership, corporation, or entity:

(i) owning, managing, operating, controlling, being employed by, participating in, engaging in, rendering any services for, assisting, having any financial interest in, permitting Employee’s name to be used in connection with, or being connected in any manner with the ownership, management, operation, or control of any Restricted Company, other than as set forth in paragraph 6(b) below. For the purposes of this

-5-

Agreement, a “Restricted Company” is any person or entity (as well as any affiliates or successors) that has purchased from the Company or a Company subsidiary product produced at a location in Des Moines, Iowa owned by the Company or a Company subsidiary in the twelve months ending December 31, 2017 including, without limitation Elanco Animal Health, a division of Eli Lilly and Company, Internet Inc., d/b/a Merck Animal Health, a unit of Merck and Co., Inc., Bayer AG and CEVA Sante` Animale.

(ii) consulting with, acting as an agent for, or otherwise assisting any Restricted Company to compete or prepare to compete with the Company in any of the Company’s existing or prospective businesses;

(iii) interfering with the relationship between the Company and any Restricted Company, current or former employee, independent contractor, vendor, or supplier of the Company, including, without limitation, soliciting, enticing, inducing or attempting to induce or influence such Restricted Company, current or former employee, independent contractor, vendor or supplier of the Company to terminate or alter his, her, or its relationship with the Company;

(iv) interfering or attempting to interfere with any transaction in which the Company was involved or which was pending during the term of Employee’s employment or at the date on which Employee’s employment with the Company ends;

(v) soliciting any of the Company’s customers, investors, or prospective customer or investor; and/or

(vi) soliciting, inducing, or attempting to induce any customer or other business relation of the Company to cease doing business with Company or in any way interfering with the relationship between any such customer or business relation of the Company.

(b) Notwithstanding the foregoing, so long as Employee strictly complies with each and all of his obligations under this Agreement, including without limitation the requirements set forth at this Section 6(a)(i) through (vi) inclusively, without exception, after the Separation Date Employee may upon advance notice to Company be engaged by a Restricted Company as an independent contractor for the purpose of rendering advice unrelated to the Company, Company products, or Company activities. Activities in compliance with this section 6(b) shall not be deemed “Competitive Conduct.” In such event, Employee shall notify any such Restricted Company who has engaged Employee as a contractor of the terms and existence of this Agreement and the provisions of this Section 6.

(c) Employee shall not engage in Competitive Conduct within the geographic areas in which the Company competes as of the Effective Date or at any time during the Restriction Period.

(d) The extension of Employee’s employment until the Separation Date and the Severance Payment are conditioned upon Employee’s compliance with the restrictive covenants set

-6-

forth in this Paragraph 6, which terms survive and continue in force following the expiration or termination of this Agreement until the expiration of the Restriction Period. In the event that Employee violates the restrictive covenants or otherwise breaches this Agreement, all continuing payments and benefits to which Employee would otherwise be entitled pursuant to this Paragraph 6 will cease immediately in addition to, and not in lieu of, any other remedies to which the Company may be entitled.

7. Confidentiality . Employee and the Company are parties to an Employee Confidential Information and Inventions Agreement, effective as of March 18, 2013 (“Confidentiality Agreement”), which is attached hereto as Exhibit A and incorporated by reference. Employee acknowledges that the Confidentiality Agreement remains in force and that Employee is bound by the Confidentiality Agreement pursuant to its terms.

8. Remedies .

Injunctive Relief . Employee acknowledges that any breach of Paragraphs 6 or 7 will cause the Company to suffer immediate and irreparable harm and damage for which money alone cannot fully compensate the Company. Employee agrees that upon breach or threat of imminent breach of any obligation under Paragraphs 6 or 7 of this Agreement, the Company shall be entitled to seek a temporary restraining order, preliminary injunction, permanent injunction, or other injunctive relief without posting any bond or other security. This Paragraph shall not be construed as an election of any remedy, or as a waiver of any right available to the Company under this Agreement or the Colorado law governing this Agreement, including the right to seek damages from Employee.


b.	Attorneys’ Fees . In the event of any controversy, claim, or dispute between the parties affecting or relating to Paragraphs 6 or 7 of this Agreement, and the Company or Employee is required to defend its actions or seek enforcement of the Agreement, the prevailing party shall be entitled to recover all of his or its attorneys’ fees and costs.

c. Separate Provisions . Employee agrees the provisions of Paragraphs 6 or 7 of this Agreement are separate from and independent of the remainder of this Agreement and that these provisions are specifically enforceable by the Company notwithstanding any claim by Employee that the Company has violated or breached this Agreement. Notwithstanding the foregoing, if Company fails to pay Employee the Severance Pay as required by this Agreement, provided such failure is not a result of Employee’s breach of his obligations pursuant to this Agreement, and the Company fails to cure such breach within 30 days of written notice from Employee, Employee’s obligations under Paragraphs 6 and 7 shall cease.

-7-

9. Return of Company Property . Employee represents and warrants that, Employee will return all Company property to the designated Company representative on or before Employee’s Separation Date, unless otherwise agreed upon. This property includes, but is not limited to, Company documents and files (in any recorded media, such as papers, computer disks, copies, transparencies, and microfiche), cell phone/phone number, materials, keys, credit cards, laptops, computer disks, and badges. Employee agrees that, to the extent that Employee possesses any files, data, or information relating in any way to the Company or the Company’s business on any personal computer, Employee will delete the data, files, or information (and will retain no copies in any form).

10. Unknown Facts . The releases in this Agreement include, but are not limited to, claims of every nature and kind, known or unknown, suspected or unsuspected. Employee hereby acknowledges that Employee may hereafter discover facts different from, or in addition to, those which Employee now knows to be or believes to be true with respect to this Agreement, and Employee agrees that this Agreement and the releases contained herein shall be and remain effective in all respects, notwithstanding such different or additional facts or the discovery thereof.

11. Confidentiality of Agreement . The Parties agree to keep this Agreement confidential and will not disclose the existence or the terms of this Agreement to anyone except to his/its immediate family, accountants, legal or financial advisors, as part of an investigation or proceeding conducted by any Government Agency, or as otherwise appropriate or necessary as required by law, regulation or court order, unless and until this document is filed by the Company with the Securities and Exchange Commission.

12. No Admission of Liability . The Parties agree that nothing contained herein, and no action taken by any Party hereto with regard to this Agreement, shall be construed as an admission by any Party of liability or of any fact that might give rise to liability for any purpose whatsoever

13. Representations and Warranties . Employee warrants and represents as follows:

(a) Employee has read this Agreement, and Employee agrees to the conditions and obligations set forth in it.

(b) Employee voluntarily executes this Agreement (i) after having been advised to consult with legal counsel, (ii) after having had opportunity to consult with legal counsel, and (iii) without being pressured or influenced by any statement or representation or omission of any person acting on behalf of the Company including, without limitation, the officers, directors, board members, committee members, employees, agents, and attorneys for the Company.

-8-

(c) Employee has no knowledge of the existence of any lawsuit, charge, or proceeding against the Company or any of its officers, directors, board members, committee members, employees, successors, affiliates, or agents arising out of or otherwise connected with any of the matters herein released. In the event that any such lawsuit, charge, or proceeding has been filed, Employee immediately will take all actions necessary to withdraw or terminate that lawsuit, charge, or proceeding, unless the requirement for such withdrawal or termination is prohibited by applicable law.

(d) Employee has full and complete legal capacity to enter into this Agreement.

(e) Employee acknowledges the success of the Company’s business depends in large part on the protection of the Confidential Information and trade secrets. Employee acknowledges Employee’s access to the Confidential Information, coupled with the personal relationships and goodwill between the Company and its customers would enable Employee to compete unfairly against the Company. Employee agrees that the provisions in Paragraphs 6 and 7 above are designed and intended to protect the Company’s trade secrets.

(f) As an Officer of Heska Corporation, Employee is among the Company’s executive personnel, management personnel, or officers and employees who constitute professional staff to executive and management personnel.

(g) Given the nature of the business in which the Company is engaged, the restrictions in Paragraphs 6 and 7 above, including their geographic scope and duration, are reasonable.

14. Non-Disparagement . Employee agrees not to make to any person any statement that disparages the Company or reflects negatively upon the Company, including, without limitation, statements regarding the Company’s financial condition, business practices, employment practices, or its predecessors, successors, parents, subsidiaries, officers, directors, employees, affiliates, agents, or representatives. Company agrees not make any statement that, disparages Employee. In response to any requests for references related to Employee, Company shall disclose only Employee’s dates of employment and positions held and no other information.

15. Cooperation . Employee agrees to cooperate with and assist the Company with any investigation, lawsuit, arbitration, or other proceeding to which the Company is subjected. Employee will make Employee available for preparation for, and attendance of, hearings, proceedings, or trial, including pretrial discovery and trial preparation, subject to Company’s agreement to reimburse Employee for any reasonable and necessary expenses, including attorneys’ fees required to defend him in such proceeding. Employee further agrees to perform all acts and execute any documents that may be necessary to carry out the provisions of this Paragraph.

16. Section 409A . This Agreement is intended to comply with Section 409A of the Code and Treasury Regulations promulgated thereunder (“Section 409A”) and shall

-9-

be construed accordingly. Section 11 of the Employment Agreement (also referenced as paragraph 5 of the Second Amendment) relating to 409A is incorporated by this reference.

17. Severability . If any provision of this Agreement is held illegal, invalid, or unenforceable, such holding shall not affect any other provisions hereof. In the event, any provision is held illegal, invalid, or unenforceable, such provision shall be limited so as to give effect to the intent of the Parties to the fullest extent permitted by applicable law. Any claim by Employee against the Company shall not constitute a defense to enforcement by the Company.

18. Assignments. The Company may assign its rights under this Agreement and any successor or assign of the Company or that acquires all or substantially all of the Company’s assets or a majority of the Company’s stock, shall remain bound by the terms and conditions set forth in this Agreement, including but not limited to the Severance payments. No other assignment is permitted except by written permission of the Parties.

19. Entire Agreement . This Agreement (including Exhibits A and B), the Employment Agreement and the Option Documents are the entire agreement between the Parties. Except as provided herein, this Agreement supersedes any and all prior oral or written promises or agreements between the Parties. Employee acknowledges that Employee has not relied on any promise, representation, or statement other than those set forth in this Agreement. This Agreement cannot be modified except in writing signed by all Parties.

20. Interpretation . The determination of the terms of, and the drafting of, this Agreement has been by mutual agreement after negotiation, with consideration by and participation of all Parties. Accordingly, the Parties agree that rules relating to the interpretation of contracts against the drafter of any particular clause shall not apply in the case of this Agreement. The term “Paragraph” shall refer to the enumerated paragraphs of this Agreement. The headings contained in this Agreement are for convenience of reference only and are not intended to limit the scope or affect the interpretation of any provision of this Agreement.

21. Choice of Law and Venue . This Agreement shall be construed and interpreted in accordance with the laws of the State of Colorado, without regard to its conflict of laws rules. Venue shall be in the Colorado state or federal courts.

22. Waiver . The failure of any Party to insist upon strict performance of any of the terms or conditions of this Agreement shall not constitute a waiver of any of such Party’s rights hereunder.

23. Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and electronic signatures shall be treated as originals.

-10-

1010

IN WITNESS WHEREOF, this Agreement has been duly executed by the Company and by Employee on the dates set forth below:

Employee has carefully read the above and executes it voluntarily, fully understanding and accepting the provisions of this Agreement in its entirety and without reservation after having had sufficient time and opportunity to consult with legal advisors prior to executing this Agreement. Employee has been advised to consult with an attorney prior to executing this Agreement. In agreeing to sign this Agreement, Employee has not relied on any statements or explanation made by the Company. Employee has had at least twenty-one (21) days to consider this Agreement. Employee understands that if he does not return this Agreement signed by him to the Company upon the expiration of the twenty-one-day consideration period, this offer will expire. Employee understands that he may revoke and cancel the Agreement within seven (7) days after signing it by serving written notice upon Company.

-11-

1111

Signature Page

EMPLOYEE THE COMPANY

/s/ Michael McGinley _/s/ Kevin Wilson __________________

Michael McGinley Heska Corporation

By: Kevin Wilson, CEO, President

12/23/2017 __ 12/22/2017 _____________________

Date Date

-12-

1212

Exhibit 10.36

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement (the “Agreement”) is made between (i) John McMahon (“Employee”) and (ii) Heska Corporation (the “Company”). Employee and the Company are referred to collectively as the “Parties” and individually as a “Party.”

RECITALS

WHEREAS, Employee was employed at the Company’s Loveland facility;

WHEREAS, Employee and the Company entered into an Employment Agreement made effective as of October 14, 2015 (the “Employment Agreement”);

WHEREAS, Employee’s employment with the Company terminated effective November 30, 2017 (the “Termination Date”);

WHEREAS, Employee’s termination is without “Cause” as defined by the Employment Agreement in Section 8(b), entitling Employee to certain payments and benefits under Section 6(a) of the Employment Agreement;

WHEREAS, the Parties wish to resolve fully and finally any potential disputes regarding Employee’s employment with the Company and any other potential disputes between the Parties, including the extent to which the Employment Agreement survives after the termination of Employee’s employment; and

WHEREAS, in order to accomplish this end, the Parties are willing to enter into this Agreement.

NOW THEREFORE, in consideration of the mutual promises and undertakings contained herein, the sufficiency of which is acknowledged by the Parties, the Parties to this Agreement agree as follows:

TERMS


1.	Effective Date . This Agreement shall become effective on the eighth day after Employee signs this Agreement (the “Effective Date”), so long as Employee does not revoke this Agreement pursuant to Paragraph 11(f) below. Employee’s Termination Date will not change regardless of whether this Agreement becomes effective on the “Effective Date.”


2.	Consideration for Release and Payment Terms .


a.	Pursuant to Section 6(a) of the Employment Agreement, the Company shall, as consideration for your release and promises set forth in this Agreement, pay you additional compensation that you would not be entitled to otherwise.


b.	After the Effective Date and on the express condition that Employee has not revoked this Agreement, the Company will pay Employee a severance payment in the total sum of one hundred thirty-seven thousand five hundred dollars ($137,500.00), less applicable deductions

- 1 -

and withholdings, to be paid as follows: (i) $68,750.00 paid in equal installments in accordance with the Company’s standard payroll practices through February 28, 2018 and (ii) $68,750 paid on March 15, 2018. This amount represents the equivalent of six (6) months of Employee’s base salary as agreed in Section 6 (a) of the Employment Agreement. Payment will be mailed to Employee’s residence address payable to “John McMahon” or directly deposited to the Employee’s financial institution as soon as is administratively feasible.

Medical and Dental Benefits . Provided that Employee timely elects continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), and further provided that Employee executes this Agreement and does not revoke Employee’s acceptance of the Agreement pursuant to Paragraph 11(f) below, the Company shall pay, for the time period beginning December 1, 2017 and ending May 31, 2018, the premiums for the COBRA coverage elected by Employee. After the Employee elects COBRA coverage, the Company will make the payments for the coverage during the time period designated above directly to the insurance carrier. For the balance of the period that Employee is entitled to coverage under COBRA, Employee shall be entitled to maintain coverage for Employee and Employee’s eligible dependents as pursuant to applicable law but shall be responsible for payment of the entire premium. Employee shall notify the Company immediately upon Employee’s acceptance of employment with another employer.

Reporting and Withholding . Reporting of and withholding on any payment under this Paragraph for tax purposes shall be at the discretion of the Company in conformance with applicable tax laws. If a claim is made against the Company for any additional tax or withholding in connection with or arising out of any payment pursuant to this Paragraph, Employee shall pay any such claim within thirty (30) days of being notified by the Company and agrees to indemnify the Company and hold it harmless against such claims, including, but not limited to, any taxes, attorneys’ fees, penalties, and/or interest, which are or become due from the Company.

Cessation of Payments in the Event of Violation of Non-Competition and Non-Solicitation Clauses . The severance payment in Paragraph 2(a) above is conditioned upon Employee’s compliance with the restrictive covenants set forth in Sections 7(b) and 7(c) of the Employment Agreement and the provisions of the Employment Agreement (the “Restrictive Covenants”), which terms survive and continue in force as explained in Paragraph 19 of this Agreement. In the event that Employee violates the Restrictive Covenants, all continuing payments and benefits to which Employee would otherwise be entitled pursuant to this Paragraph 2 will cease immediately.


3.	General Release .

Employee, for Employee, and for Employee’s affiliates, successors, heirs, subrogees, assigns, principals, agents, partners, employees, associates, attorneys, and representatives, voluntarily, knowingly, unequivocally, unconditionally and intentionally releases and discharges (i) the Company and its predecessors, successors, parents, subsidiaries, affiliates, and assigns, and (ii) each of their respective officers, directors, principals, shareholders, agents, attorneys, board members, and employees (the “Released Parties”) from any and all claims, actions, liabilities, demands, rights, damages, costs, expenses, and attorneys’ fees (including, but not limited to, any claim of entitlement for attorneys’ fees under any contract, statute, or rule of law allowing a prevailing party or plaintiff to recover attorneys’ fees), of every kind and description from the beginning of time through the Effective Date (the “Released Claims”).

- 2 -

The Released Claims include, but are not limited to, those which arise out of, relate to, or are based upon: (i) Employee’s employment with the Company or the termination thereof; (ii) statements, acts, or omissions by the Released Parties whether in their individual or representative capacities; (iii) express or implied agreements between the Parties and claims under any severance plan (except as provided herein); (iv) any stock or stock option grant, agreement, or plan; (v) all federal, state, and municipal statutes, ordinances, and regulations, including, but not limited to, claims of discrimination based on race, color, national origin, age, sex, sexual orientation, religion, disability, veteran status, whistleblower status, public policy, or any other characteristic of Employee under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Americans with Disabilities Act, the Equal Pay Act, Title VII of the Civil Rights Act of 1964 (as amended), the Employee Retirement Income Security Act of 1974, the Rehabilitation Act of 1973, Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, Colorado Anti-Discrimination in Employment Act, seq, or any other federal, state, or municipal law prohibiting discrimination or termination for any reason; (vi) state and federal common law; (vii) the failure of this Agreement, or of any other employment, severance, profit sharing, bonus, equity incentive or other compensatory plan to which Employee and the Company are or were parties, to comply with, or to be operated in compliance with, Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), or any similar provision of state or local income tax law; and (viii) any claim which was or could have been raised by Employee.

The Agreement does not, however, limit or otherwise affect Employee’s right to file a charge or complaint with the Equal Employment Opportunity Commission (EEOC), the National Labor Relations Board (NLRB), the Occupational Safety and Health Administration (OSHA), the Securities and Exchange Commission (SEC) or any other federal, state, or local government agency or commission (“Government Agency”). Employee further understands that this Agreement does not limit his ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Employee’s right to receive an award from a Government Agency for information you provide.


c.	The General Release in this Agreement does not apply to claims under federal, state, or local law (statutory, regulatory, or otherwise) that may not be lawfully waived and released, including but not limited to vested retirement benefits (if any), COBRA rights, unemployment compensation, and workers’ compensation.


4.	Confidential Information .

For the purposes of this Agreement, “Confidential Information” shall include, without limitation, any information relating to or pertaining to the Company, such as the whole or any portion or phase of (i) any proprietary information or Trade Secrets (defined below); (ii) any scientific, technical, business, or financial information; (iii) any marketing information, business development information, prospect information, or marketing analysis or plans; (iv) any customer information, lists, contacts, or needs; (v) any contracts, agreements, or leases; (vi) any discoveries, inventions, products, designs, methods, know-how, techniques, systems, processes, software programs, works of authorship, projects, or plans; (vii) any proposals, strategies, concepts, analyses, surveys, ideas, research,

- 3 -

data, databases, reports, manuals, manuscripts, articles, or records; and (viii) any other business or corporate documents related to Company Business. The Company’s “Trade Secrets” include, without limitation, the Company’s marketing strategies, financial information, customer and client information, projects, plans, proposals, business strategies (including potential new business opportunities and divisions). All Confidential Information identified above shall be treated as Confidential Information regardless of whether it pertains to the Company, its affiliates, subsidiaries, or parents, or their customers. The list set forth above is not intended by the Company to be a comprehensive list of Confidential Information.

Employee acknowledges the success of the Company depends in large part on the protection of the Company’s Confidential Information. Employee further acknowledges that, in the course of Employee’s employment with the Company, Employee became familiar with the Company’s Confidential Information. Employee recognizes and acknowledges that the Company’s Confidential Information is a valuable, special, and unique asset of the Company’s business, access to and knowledge of which were essential to the performance of Employee’s duties. Employee acknowledges use or disclosure of the Confidential Information outside the performance of Employee’s job duties for the Company would cause harm and/or damage to the Company.

Employee agrees that Employee will not, directly or indirectly, disclose any Confidential Information to any person, firm, business, company, corporation, association, or any other entity for any reason or purpose whatsoever. Employee also agrees that Employee has not and will not use, directly or indirectly, any Confidential Information for Employee’s own purposes or for the benefit of any person, firm, business, company, corporation, or any other entity (except the Company) under any circumstances. Employee has considered and treated and shall consider and treat as confidential all Confidential Information in any way relating to the Company’s business and affairs, whether created by Employee or otherwise coming into Employee’s possession before, during, or after the Termination Date. Employee shall not use or attempt to use any Confidential Information in any manner which has the possibility of injuring or causing loss, whether directly or indirectly, to the Company, its affiliates, subsidiaries, parents, or customers. Employee agrees all such Confidential Information shall be and remain the sole and exclusive property of the Company.


5.	Remedies .

Injunctive Relief . Employee acknowledges that any breach of Paragraph 4 or the surviving provisions of the Employment Agreement referenced in Paragraph 19 below will cause the Company to suffer immediate and irreparable harm and damage for which money alone cannot fully compensate the Company. Employee agrees that upon breach or threat of imminent breach of any obligation under Paragraphs 4, 5, and/or 19 of this Agreement, the Company shall be entitled to a temporary restraining order, preliminary injunction, permanent injunction, or other injunctive relief without posting any bond or other security, and that Employee shall not oppose entry of any of these measures. This Paragraph shall not be construed as an election of any remedy, or as a waiver of any right available to the Company under this Agreement or the Colorado law governing this Agreement, including the right to seek damages from Employee.


b.	Attorneys’ Fees . In the event of any controversy, claim, or dispute between the parties affecting or relating to Paragraphs 4, 5, and/or 19 of this Agreement, and the Company is

- 4 -

required to defend its actions or seek enforcement of the Agreement, the Company shall be entitled to recover all of its attorneys’ fees and costs if the Company is successful in its defense or enforcement action.


c.	Separate Provisions . Employee agrees the provisions of Paragraphs 4, 5, and 19 of this Agreement are separate from and independent of the remainder of this Agreement and that these provisions are specifically enforceable by the Company notwithstanding any claim by Employee that the Company has violated or breached this Agreement.

Return of Company Property . Employee represents and warrants that Employee returned all Company property to the designated Company representative on or before Employee’s Termination Date, unless otherwise agreed upon. This property includes, but is not limited to, Company documents and files (in any recorded media, such as papers, computer disks, copies, transparencies, and microfiche), materials, keys, credit cards, laptops, computer disks, and badges. Employee agrees that, to the extent that Employee possesses any files, data, or information relating in any way to the Company or the Company’s business on any personal computer, Employee will delete the data, files, or information (and will retain no copies in any form).

Unknown Facts . The releases in this Agreement include, but are not limited to, claims of every nature and kind, known or unknown, suspected or unsuspected. Employee hereby acknowledges that Employee may hereafter discover facts different from, or in addition to, those which Employee now knows to be or believes to be true with respect to this Agreement, and Employee agrees that this Agreement and the releases contained herein shall be and remain effective in all respects, notwithstanding such different or additional facts or the discovery thereof.

Confidentiality of Agreement . You agree to keep this Agreement confidential and will not disclose the existence or the terms of this Agreement to anyone except to your immediate family, accountants, legal or financial advisors, as part of an investigation or proceeding conducted by any Government Agency, or as otherwise appropriate or necessary as required by law or court order. To the extent that you do disclose the existence or terms of this Agreement to your immediate family, accountants, or legal or financial advisors, you must advise them that they must not disclose the existence or terms of this Agreement to any person or entity. However, nothing contained herein precludes any individual from communicating with any Government Agency. If compulsory disclosure is required by a Government Agency, Employee shall provide the Company immediate notice of the compulsory process and affording the Company the opportunity to obtain any necessary or appropriate protective orders. Otherwise, in response to inquiries about Employee’s employment and this matter, Employee shall state, “My employment with the Company has ended” and nothing more.


9.	No Admission of Liability . The Parties agree that nothing contained herein, and no action taken by any Party hereto with regard to this Agreement, shall be construed as an admission by any Party of liability or of any fact that might give rise to liability for any purpose whatsoever.


10.	ADEA and Older Workers Benefit Protection Act Release

In addition to the General Release contained in Section 3, you knowingly, voluntarily, and irrevocably discharge and release Releasees from any claims arising under the Age Discrimination in Employment Act (ADEA). You acknowledge that you have been informed pursuant to the federal Older Workers Benefit Protection Act of 1990 that:

- 5 -

You are advised to consult with an attorney before signing this Agreement.

You do not waive rights or claims under the federal Age Discrimination in Employment Act that may arise after the date this Agreement is executed.

You have twenty-one (21) days from the date of receipt of this Agreement to consider this Agreement. You acknowledge that if you sign this Agreement before the end of the twenty-one-(21)-day period, it will be your personal, voluntary decision to do so and that you have not been pressured to make a decision sooner.

You have seven (7) days after signing this Agreement to revoke the Agreement, and the Agreement will not be effective until that revocation period has expired. If mailed, the rescission must be postmarked within the seven-day period, properly addressed to:

Heska Corporation

Attn: Stephanie Alsip

Senior Manager, Human Resources

3760 Rocky Mountain Avenue

Loveland, CO 80538

This agreement shall not be effective or enforceable, and no payments or benefits under this Agreement shall be provided to you, until after the seven (7) day revocation period has expired. You understand that you will not receive any settlement payment if you void your signature or revoke this Agreement.


11.	Representations and Warranties . Employee represents and warrants as follows:


a.	Employee has read this Agreement and agrees to the conditions and obligations set forth in it;

Employee voluntarily executes this Agreement (i) after having been advised to consult with legal counsel, (ii) after having had opportunity to consult with legal counsel, and (iii) without being pressured or influenced by any statement or representation or omission of any person acting on behalf of the Company including, without limitation, the officers, directors, board members, committee members, employees, agents, and attorneys for the Company;

Employee has no knowledge of the existence of any lawsuit, charge, or proceeding against the Company or any of its officers, directors, board members, committee members, employees, or agents arising out of or otherwise connected with any of the matters herein released. In the event that any such lawsuit, charge, or proceeding has been filed, Employee immediately will take all actions necessary to withdraw or terminate that lawsuit, charge, or proceeding;


d.	Employee has not previously disclosed any information which would be a violation of the confidentiality provisions set forth herein if such disclosure were to be made after the execution of this Agreement;


e.	Employee has full and complete legal capacity to enter into this Agreement; and

- 6 -

Employee admits, acknowledges, and agrees that Employee is not otherwise entitled to the amounts and other consideration set forth in Paragraph 2, which are good and valuable consideration for this Agreement. Employee further admits, acknowledges, and agrees that pursuant to Section 7(a) of the Employment Agreement, Employee is not entitled to any severance payment under Section 6(a) of the Employment Agreement unless this Agreement becomes effective.


g.	Employee further admits, acknowledges, and agrees that Employee has been fully and finally paid all wages, compensation, vacation, bonuses, stock, stock options, or other benefits from the Company which are or could be due to Employee under the terms of Employee’s employment with the Company or otherwise.


12.	No Application . Employee agrees that Employee will not apply for any job or position as an employee, consultant, independent contractor, or otherwise, with the Company or its successors or affiliates. Employee warrants that no such applications are pending at the time this Agreement is executed.

13.

Non-Disparagement . Employee agrees not to make to any person any statement that disparages the Company or reflects negatively upon the Company, including, without limitation, statements regarding the Company’s financial condition, business practices, employment practices, or its predecessors, successors, parents, subsidiaries, officers, directors, employees, affiliates, agents, or representatives.

14.

Cooperation . Employee agrees to cooperate with and assist the Company with any investigation, lawsuit, arbitration, or other proceeding to which the Company is subjected. Employee will make Employee available for preparation for, and attendance of, hearings, proceedings, or trial, including pretrial discovery and trial preparation. Employee further agrees to perform all acts and execute any documents that may be necessary to carry out the provisions of this Paragraph.

15.

Section 409A . This Agreement is intended to comply with Section 409A of the Internal Revenue Code and shall be construed accordingly. It is the intention of the Parties that payments or benefits payable under this Agreement not be subject to the additional tax or interest imposed pursuant to Section 409A. To the extent such potential payments or benefits are or could become subject to Section 409A, the Parties shall cooperate to amend this Agreement with the goal of giving Employee the economic benefits described herein in a manner that does not result in such tax or interest being imposed. Employee shall, at the request of the Company, take any reasonable action (or refrain from taking any action), required to comply with any correction procedure promulgated pursuant to Section 409A.

16.

Severability . If any provision of this Agreement is held illegal, invalid, or unenforceable, such holding shall not affect any other provisions hereof. In the event any provision is held illegal, invalid or unenforceable, such provision shall be limited so as to affect the intent of the parties to the fullest extent permitted by applicable law. Any claim by Employee against the Company shall not constitute a defense to enforcement by the Company of this Agreement.


17.	Enforcement . The Release contained herein does not release any claims for enforcement of the terms, conditions, or warranties contained in this Agreement. The Parties shall be free to pursue any remedies available to them to enforce this Agreement.

- 7 -


18.	Entire Agreement . This Agreement, together with the Employment Agreement, the Company’s stock plans, any stock agreements, and the provisions of the Employment Agreement identified in Paragraph 19 below, constitute the entire agreement between the Parties and supersede and modify any and all prior agreements. This Agreement cannot be modified except in writing signed by all Parties.

19.

Survival of Provisions in Employment Agreement : The Employment Agreement contains obligations that continue to remain in force until the expiration date set forth in the relevant provision. Notwithstanding Paragraphs 3 and 17 of this Agreement, the following provisions are not superseded by this Agreement, are valid and enforceable, and will continue in full force and effect as set forth below: Section 7(b) (Non-Competition) will remain in force and effect for twelve (12) months following the Termination Date; Section 7(c) (Non-Solicitation) will remain in force and effect for twenty-four (24) months following the Termination date; Section 7(d) will remain in force and effect until the Sections 7(b) and 7(c) expire. All of these terms remain subject to Sections 8(d) (Competition [defined]), 11 (Notices), 14 (Interpretation), 15 (Waivers), 16 (Severability), 19 (Governing Law; Waiver of Jury Trial), and 20 (Counterparts) of the Employment Agreement.


20.	Venue, Applicable Law, and Submission to Jurisdiction . This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado, without regard to its conflicts of law provisions. Venue and jurisdiction will be in the Colorado state or federal courts.

21.

Interpretation . The determination of the terms of, and the drafting of, this Agreement has been by mutual agreement after negotiation, with consideration by and participation of all Parties. Accordingly, the Parties agree that rules relating to the interpretation of contracts against the drafter of any particular clause shall not apply in the case of this Agreement. The term “Paragraph” shall refer to the enumerated paragraphs of this Agreement. The headings contained in this Agreement are for convenience of reference only and are not intended to limit the scope or affect the interpretation of any provision of this Agreement.


22.	Assignment . The Company may assign its rights under this Agreement. Employee cannot assign Employee’s rights under this Agreement without the written consent of the Company. No other assignment is permitted except by written permission of the Parties.

Counterparts . This Agreement may be executed in counterparts.

IN WITNESS WHEREOF, the Parties have executed this Separation and Release Agreement on the dates written below.

- 8 -

EMPLOYEE HESKA CORPORATION

_/s/ John McMahon _____________________ /s/ Kevin Wilson________________________

John McMahon By: Kevin Wilson

Title: CEO, President

_ 12/26/17 ____________________________ _ 12/26/17____________________________

Date Date

- 9 -

Portions of this Exhibit have been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act. Omitted information, marked “[***]” in this Exhibit, has been filed separately with the Securities and Exchange Commission together with such request for confidential treatment.

Exhibit 10.47

AMENDMENT NO. 6
TO THE
SUPPLY AND LICENSE AGREEMENT
BY AND BETWEEN
HESKA CORPORATION
AND
INTERVET INC., d/b/a MERCK ANIMAL HEALTH

This AMENDMENT NO. 6, dated as of this 27 ^th day of November, 2017 ("Amendment No. 6"), to the Supply and License Agreement, dated as of August 1, 2003, as amended by that certain Amendment No.1, dated as of August 31, 2005; that certain Amendment No. 2, dated as of December 7, 2011; that certain Amendment No. 3, dated as of July 30, 2013; that certain Amendment No. 4 dated as of December 9, 2013; that certain Amendment No. 5 dated as of October 30, 2015; and that certain Letter Agreement dated as of August 14, 2015 (collectively, the "Agreement"), is made by and between INTERVET INC., d/b/a MERCK ANIMAL HEALTH ("MAH"), and HESKA CORPORATION ("Heska").

RECITALS:

WHEREAS, MAH and Heska entered into the Agreement to, among other things, provide for the supply by Heska to MAH of the Product (as defined in the Agreement); and

WHEREAS, MAH and Heska desire to amend the Agreement.

NOW, THEREFORE, MAH and Heska hereby agree to amend the Agreement as follows:

1. Unless otherwise defined herein, each of the capitalized terms used in this Amendment shall have the meaning ascribed to it in the Agreement.

2. Section 1.15 of the Agreement is hereby deleted in its entirety and replaced with the following:

"Territory" shall mean the countries and territories contained in Schedule 1.15 of this Agreement.

3. Schedule 1.15 attached hereto shall be added to the Agreement as Schedule 1.15.

4. Except as expressly modified by this Amendment No. 6, all other terms and conditions of the Agreement shall remain in full force and effect.

[Signatures on following Page]

- 1 -

IN WITNESS WHEREOF, each of MAH and Heska has caused this Amendment No. 6 to be executed by its respective duly authorized officer as of the date first above written.



HESKA CORPORATION
By:	/s/ Michael J. McGinley
Name:		Michael J. McGinley
Title:	President, Bios and Pharma



INTERVET INC.
By:	[***]
Name:		[***]
Title:	[***]

[***]

- 2 -

Schedule 1.15

Territory

The United States and its territories, commonwealths and possessions

Canada and its territories, commonwealths and possessions

The Republic of Korea and its territories, commonwealths and possessions

The countries of Central America and the Caribbean Basin, including:

• Antigua and Barbuda

• The Bahamas

• Barbados

• Belize

• Costa Rica

• Dominica

• Dominican Republic

• El Salvador

• Grenada

• Guatemala

• Haiti

• Honduras

• Jamaica

• Nicaragua

• Panama

• St. Kitts and Nevis

• Saint Lucia

• Saint Vincent and the Grenadines

• Trinidad and Tobago

The dependent territories of the Caribbean Basin, including:

• Anguilla (UK)

• Aruba (Netherlands)

• British Virgin Islands (UK)

• Cayman Islands (UK)

• Curacao (Netherlands)

• Montserrat (UK)

• Saint Barthelemy (France)

• Saint Martin (France)

• Sint Maarten (Netherlands)

• Turks and Caicos (UK)

- 3 -

Exhibit 10.58

EXCLUSIVE SUPPLY AGREEMENT

This Exclusive Supply Agreement (“Agreement”) is made and entered into as of September 1, 2013 (the “ Effective Date ”) by and between Shenzhen Mindray Bio-Medical Electronics Co., Ltd., a corporation organized under the laws of The People’s Republic of China (hereinafter “ Mindray ”), and Heska Corporation, a corporation duly organized and existing under the laws of the State of Delaware with its principal business address at 3760 Rocky Mountain Ave, Loveland, CO 80538, United States and its Affiliates (hereinafter “ Heska ”). Heska and Mindray shall at times be collectively referred to herein as the “ Parties ” and individually as a “ Party ”.

WHEREAS, Heska is willing to purchase Products, the details of which are defined in this Agreement, from Mindray and Mindray is also willing to provide those Products to Heska with the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein, the Parties agree as follows:


1.	Definitions

1.1

" Affiliate " shall mean, with respect to each Party (as hereinafter defined), any legal entity that is, directly or indirectly, controlling, controlled by or under common control with such Party. For purposes of this definition, a Party shall be deemed to control another entity if it owns or controls, directly or indirectly, more than fifty percent (50%) of the voting equity of the other entity, or directly or indirectly possesses the power to direct, or cause the direction of, the management and policies of such other entity by any means whatsoever. For clarification, affiliates of Mindray shall include entities in the Business controlled by or under common control with Mindray Medical International Limited (Cayman Islands), including without limitation Mindray Medical Netherlands B.V.


1.2	" Business " shall mean the market of hematology analyzers hardware, software, consumables, reagents, supplies, calibrators, and/or spare parts, whether for manufacture, development, sale, lease, rental, distribution, or promotion, directly or indirectly.


1.3	" Calendar Quarter " shall mean a period of three (3) consecutive calendar months commencing on January 1, April 1, July 1 or October 1 during the Term of this Agreement.


1.4	“ Calendar Year ” shall mean each twelve (12) month period during the Term of this Agreement beginning on January 1 and ending on December 31.


1.5	“ Clinical Acceptance ” shall mean the date on which Heska approves of the Products and Specification as marketable and useful for the intended purpose by Customers, in the Market, in the Territory.

1.6

“ Confidential Information ” means any proprietary or confidential information of a Party which may be disclosed to the other Party under this Agreement, including without limitation all prices, discounts or product specifications, customers, Customers, designs, software, software code, drawings, reports, interpretations, forecasts, plans, records, technical or other financial or business information of any kind, of a disclosing Party regarding the subject matter of this Agreement, together with any notes or other documents prepared by a receiving Party or others which reflect such information.


1.7	“ Consumables ” shall mean documentation, supplies, consumables, reagents, calibrator, fluids, tubes, tips, cups, and other supplies necessary or ordinarily beneficial in the ordinary course of installation, calibration, maintenance and use of the Product(s).

1.8

“ Customer ” shall mean the end user of the Products, where use of Products is limited to non-human subjects, within the Market, within the Territory; provided that “within the Territory” means the location where the Products will be used by the end user, as opposed to the location where the order is generated. Supply of the Products to Customer may include one or more transactions that include the involvement of a third party dealer or reseller of Heska (“ Agent ”), who facilitates the purchase and installation to the end user Customer solely for use within the Market within the Territory.


1.9	“ DOA ” shall mean dead on arrival, as used in Article 8.2 Non-Conformities and Acceptance.

1.10

“ Improvements ” means, individually and collectively, all discoveries, inventions, know-how, techniques, modifications, improvements, works of authorship, designs, data, and all proprietary rights therein or associated therewith (whether or not protectable under patent, copyright, trade secrecy or similar laws) relating to additions, enhancements, updates, alterations, modifications, derivative works or other changes to any Products sold by Mindray to Heska hereunder.

1.11

“ Intellectual Property ” shall mean all drawings, designs, models, specifications, documentation, software, firmware, user interfaces, inventions, designs, techniques, processes, business methods, customer information, marketing programs, distributor information, know-how, technology, mask-works, copyrights, copyrightable materials, patents, trade secrets, software code, software schema, contractor contacts, sources, vendors, suppliers, and any other information or materials protected under any intellectual property laws in effect anywhere in the world, and any applications, registrations or filings relating thereto.

1.12

“ Market ” shall be defined as the field of Veterinary Medicine; as defined as the practice of medicine on non-human subjects by licensed users, in good standing with licensing and governmental authorities, or persons duly and legally supervised by such licensed users or authorities, in accordance with laws and regulations governing the use of medical devices on non-human subjects, in all locations and facilities, including, but not limited to veterinary hospitals and clinics, zoos, breeding operations, feedlots, pharmaceutical facilities, research facilities, universities, veterinary teaching hospitals, and governmental agencies.


1.13	“ Territory ” shall mean Canada, United States of America (including Puerto Rico) and Mexico.


1.14	“ Product ” shall mean, as the case may be, the Analyzer Product(s), Consumable(s), and Spare Part(s), as those terms are further described and defined in Annex A and elsewhere in this Agreement.

1.15

“ Spare Parts ” shall mean service parts, installation parts, replacement parts, spare parts, and documentation related thereto that are necessary or ordinarily beneficial in the ordinary course of installation, calibration, maintenance, repair, provision of warranty support, and use of the Product(s), including, without limitation, those spare parts identified on Annex A , as amended from time to time.


1.16	“ Tail ” shall mean the five (5) year period following expiration or earlier termination of this Agreement, during which Mindray will sell to Heska the Consumables and Spare Parts.


1.17	Capitalized terms not defined in this Article 1 shall have the meaning set forth herein.


2.	Purpose, Appointment and Acceptance


2.1	Products; Specifications . The initial minimum specifications for the Products are set forth in Annex A . Final specifications shall be mutually agreed by the Parties as soon as possible, and the Parties shall use all commercially reasonable efforts to agree on or before their mutual target of September

31, 2013 . Upon agreement of final specifications, Annex A to this Agreement shall be amended accordingly (“Specifications”).


2.2	Purpose . On and subject to the terms and conditions of this Agreement, Mindray agrees to sell to Heska, and Heska agrees to purchase from Mindray, the Products in accordance with the Specifications, as each are or shall be defined in Annex A attached, in the Minimum Annual Total volume(s), for resale or placement to Customers, in the Market, in the Territory.

2.3

Appointment and Acceptance . During the Term of this Agreement (as specified in Article 3.1), and subject to the conditions hereinafter set forth, including but not limited to Article 6 below, Mindray hereby appoints Heska as its exclusive distributor (even to the exclusion of Mindray and its Affiliates) for the Products, to Customers, in the Market within the Territory, and Heska accepts such appointment. Each Party warrants and represents to the other Party that: (i) they have the right to enter into this Agreement, (ii) the terms of this Agreement are not inconsistent with other contractual obligations, expressed or implied, which they may have, (iii) by negotiating or entering into this Agreement, the representing Party is not breaching, violating, unlawfully altering, being induced or inducing others to interfere, halt, terminate, or otherwise modify any other contractual obligations, express or implied, which they may have with any other party, (iv) it is not a party to any agreement, litigation, or business relationship that prevents it from carrying out its obligations under this Agreement, (v) it has the right and full corporate power to enter into this Agreement, and (vi) as of the date of the Agreement, it is unaware of any actual, threatened, or pending litigation or claim that would prevent or impair it or its Affiliates from carrying out its obligations under this Agreement or would reasonably cause the other Party to be prevented from or have difficulties carrying out its obligations under this Agreement.


3.	Term

3.1

This Agreement shall commence on the Effective Date and remain in effect until December 31, 2018 (the “Initial Term”); thereafter, so long as Heska has met the Minimum Annual Total in the prior Calendar Year, this Agreement shall automatically renew for successive one year periods (each a “Renewal Term”), unless sooner terminated in accordance with Article 15 of this Agreement (the Renewal Term together with the Initial Term, is collectively the “Term”). Notwithstanding the foregoing, however, the Term shall not exceed ten (10) years without the express written agreement of Mindray.


4.	Purchase Orders & Product Packaging and Labeling

4.1

Orders . In placing purchase orders with Mindray, Heska shall detail the (i) Products (ii) quantity of each, and (iii) a requested receipt date, at least sixty (60) days from written purchase order issuance by Heska (“ Lead Time ”). The orders shall be binding unless they are rejected by Mindray, provided that such acceptance shall not be unreasonably withheld and Mindray shall notify Heska within five (5) days if any order from Heska is rejected; provided, however, if Mindray is unable or unwilling to timely fulfill a purchase order that otherwise complies with all requirements set forth in this Agreement, Heska shall nonetheless be credited with such order quantity for purposes of the Minimum Annual Total requirements of Article 5 below. REGARDLESS OF FORM, EVERY PURCHASE ORDER, ORDER ACKNOWLEDGMENT, ORDER ACCEPTANCE OR INVOICE IS DEEMED TO INCLUDE THE APPLICABLE TERMS AND CONDITIONS OF THIS AGREEMENT AND ANY PRE-PRINTED OR OTHER TERMS AND CONDITIONS ASSOCIATED WITH SUCH FORM SHALL NOT BE APPLICABLE ABSENT MUTUAL WRITTEN AGREEMENT OF THE

PARTIES. The order shall be, when fulfilled with Product, payable in full within thirty (30) days of possession of the Product by Heska at Heska’s dock.

4.2

Packaging and Labeling . Mindray shall supply all packaging and labeling required by Heska for Products in accordance with the Specifications on Annex A . All Product packaging and labeling shall be as set forth and agreed to in good faith in the Specifications in Annex A . It is intended that the Product packaging and labeling will be a full private label branding to Heska brands, marks, and packaging logos, without reference to Mindray. All labeling and packaging shall designate Heska as the exclusive "source" of the Products using terminology of “manufactured for Heska in China” and shall include Heska’s logos and such other additional branding as shall be set forth in the Specifications. Mindray shall not acquire any right, title or interest in any of Heska’s trademarks and/or artwork, therein except for the purpose of manufacturing and packaging Products for Heska pursuant hereto. Heska shall be responsible for assuring that all Product packaging materials and labels comply with applicable laws in the Territory.


5.	Minimum Purchase


5.1	Minimum Calendar Year Volume . Heska shall make purchases of Product from Mindray in such annual minimum quantities (“ Minimum Annual Total ”) as specified in Annex B . The Minimum Annual Total shall begin in the year in which Clinical Acceptance occurs, and prorated in that Calendar Year from the date of Clinical Acceptance.

5.2

Remedies for Volume Failure. If Heska fails to purchase the Minimum Annual Total (a " Minimum Purchase Failure ") and if such Minimum Purchase Failure has not been cured by Heska within sixty (60) days after Mindray gives Heska written notice of such Minimum Purchase Failure (“ Quantity Failure Notice ”) then Heska shall pay Mindray, within thirty (30) days of receipt of the Quantity Failure Notice, an amount equal to fifteen percent (15%) of the Average Transfer Price (as determined by calculating the quotient of (a) the sum of all actual prices paid for the Analyzer Products purchased in the immediately prior two (2) Calendar Quarters, divided by (b) the actual number of Analyzer Products purchased in the immediately prior two (2) Calendar Quarters) multiplied by the Deficiency (as calculated by subtracting the number of Products purchased by Heska in the Calendar Year from the Minimum Annual Total); provided, however, in addition, if the Deficiency is greater than thirty-five (35%) percent of the Minimum Annual Total for the applicable Calendar Year, then Heska’s exclusive right to purchase the Products for sale in the Market within the Territory shall become non-exclusive for the remainder of the Term and Heska’s rights and Mindray’s obligations of exclusivity in Article 6.1, Article 6.2, Article 6.3 shall cease. In the event of two (2) Minimum Purchase Failures in consecutive years, Mindray may, on or before March 15 ^th of the year immediately thereafter, terminate this Agreement upon ninety (90) days written notice.

5.3

To maintain harmonious relations, the Parties agree that they will make a mutually agreeable, good faith adjustment downward of the Minimum Annual Total from a period in which there was a Minimum Purchase Failure, if during such period; (i) Mindray was unable to deliver Products ordered on time, (ii) Mindray delivered to Heska a significant quantity of DOA Product, as defined in Article 8.2, or Product not meeting the Specification, iii) the Products were subject to a recall or other similar adverse event, or (iv) the Products, in the reasonable judgment of the Parties and a disinterested informed observer, are no longer competitive in the Market, in the Territory or have not met Clinical Acceptance.


6.	Market, Territory, Exclusivity

6.1

Exclusive Rights of Heska. Heska is granted the sole and exclusive right to purchase the Products for sale, marketing and distribution in the “ Market ”, in the “ Territory ”, to “ Customers ”, as each are defined in Article 1, which right shall operate to exclude all others, including Mindray and its Affiliates and all third parties. Mindray shall not, directly or indirectly through any third party, distributor, reseller or agent, sell or offer to sell, rent, loan, or lease the Products (or any modification, iteration, or derivation thereof) or any generic or similar in-clinic hematology analyzer products (5 part), or portions or subassemblies thereof, that are or could be competitive with the Products, that may be used by or sold to Customers in the Market within the Territory during the Term (“Illicit Products”). Heska shall not sell or offer to sell Products outside of the Territory or Market, except with Mindray's prior written consent.

6.2

Mindray’s Efforts to Protect. Upon receipt of notice of a violation of Territory and Market exclusive to Heska by a third party (or through an agent of such third party) who has a distribution agreement with Mindray (or its Affiliates), Mindray shall use commercially reasonable efforts to protect Heska's Territory and Market, including without limitation and as applicable, at Mindray’s sole discretion (i) sending a cease and desist letter, (ii) sending a demand letter, (iii) legally voiding warranty and software license on Illicit Product, and (iv) requesting from the third party responsible for illicit sale(s) of the Illicit Product the disgorgement and payment to Heska of profits from the sale of Illicit Product(s) in Heska’s Market and Territory. If the third party responsible for sale of the Illicit Product refuses or cannot be forced to discontinue the sale of Illicit Product, within Heska’s Market and Territory after pursuing those remedies above, Mindray will use all other best efforts to prohibit such third party from engaging in any further illicit sales of the Illicit Products in the Market within the Territory, including and without limitation to exercising applicable penalty and termination contract rights Mindray (or its Affiliates) may have against such third party and assisting Heska in seeking injunctive relief against such third party

6.3

Exclusive Territory Protections by Mindray. Mindray undertakes to not, either itself or through an Affiliate, knowingly allow any party to sell, lease, lend, demonstrate, market or solicit for business, directly or indirectly, a Product or Illicit Product to a Customer in the Market within the Territory. For the Term of this Agreement, Mindray shall not, directly or indirectly, except exclusively through or for the benefit of Heska under this Agreement, sell, resell, lease, lend, or market: (i) the Products, (ii) portions or components of the Products, or (iii) products to which Mindray directly or indirectly benefits, controls, develops, manufacturers or commercializes, that compete with the Products, to Customers in the Market within the Territory.

6.4

No Export or Gray Market by Heska. Heska undertakes not to sell, lease, lend, or participate in any way, directly or indirectly, through one or more relationships or contracts, the Products or any products or services that contain, in whole or in part, the Products, for use, resale, export outside of the Territory or Market. Heska shall not directly or indirectly, and shall not authorize any other party to, sell, lease, lend, demonstrate, market or solicit for business any of the Products or products containing, in whole or in part the Products, outside the Market or Territory, including, without limitation, using commercially reasonable efforts so that Heska’s distributors and customers do not resell or otherwise distribute the Products outside of the Market or Territory.

6.5

Market Limited. Heska shall not sell, lease, lend, or participate in any way, directly or indirectly, through one or more relationships or contracts, the Products or any products or services that contain, in whole or in part, the Products, intended for use or for resale, demonstration, use or export outside of the Market or Territory, nor to any person, entity, or organization who is not a Customer or Agent selling directly to a Customer in the Market in the Territory. Heska and Mindray agree that all software

and Products provided hereunder from Mindray to Heska shall be and are intended for use in the veterinary medical industry in the Territory.

6.6

Protection of Mindray Property; Heska Customer Obligations. Heska shall protect all Mindray Intellectual Property and Confidential Information to the same degree it protects its own Intellectual Property and Confidential Information, but in no case less than exercising reasonable care. Heska shall use commercially reasonable efforts to obtain written acceptance from each of its Customers that imposes substantially the same restrictions and requirements of this Agreement upon each Customer with regard to Market and Territory restrictions and licensing requirements, and Heska shall use commercially reasonable efforts to enforce such terms.


7.	Price and Payment


7.1	Prices. The prices for the Products purchased by Heska hereunder shall be as set forth in the attached Annex B , unless otherwise agreed upon by the Parties in writing from time to time.

7.2

Net Amounts and Costs. All prices for the Products are “net amounts” in US Dollars. Mindray is responsible for all insurance, freight, customs, duties, VAT, any foreign, federal, state or local taxes that may be applicable to bring the Products to Heska’s dock DDP. (Incoterms 2010). Each Party shall be responsible for their own federal, state and local sales, use and income taxes and assessments, Value Added Taxes, and other taxes, fees, and duties.


7.3	Resale Tax Exemption . Heska agrees to provide to Mindray a copy of Heska’s Resale Tax Exemption Certificate for any sales within Heska’s Territory subject to resale tax exemption, otherwise, all applicable taxes will be included on the invoices.

7.4

Payment Instructions . Subject to offset for DOA Product as provided in Article 8.2 below, the full payment is immediately due and must be settled, within thirty (30) days of receipt of the Product(s) at Heska’s shipping dock, with payment by company check or wire transfer of immediately available funds, issued by a first class, international bank, satisfactory to Mindray at the following bank (or such other financial institution as Mindray may designate):

Bank: [***]

Account number: [***]

7.5

Currency Exchange Rate Adjustment . Currency is in US Dollars. The prices set forth in Annex B are based on the dollar parity in relation to the Chinese Yuan Renminbi (“CNY”) as of August _, 2013 (6.10 CNY per 1.00 USD) (“Currency Basis”). Variations of the exchange rate that are more or less than 15% (“Currency Shift”) will result in an adjustment to pricing in Annex B under the following procedures (“Currency Rate Adjustment”). Upon occurrence of a Currency Shift, one Party may notice the other Party of the actual percentage of the change from the Currency Basis (“Currency Factor”) by written notice (“Currency Notice”). If the Currency Shift is still in effect ninety (90) days after receipt of Currency Notice, a Currency Rate Adjustment shall be recorded as a written amendment to Annex B , at which time the Price of each Product in Annex B shall be adjusted. The Price adjustment (increase or decrease) shall be an amount equal to the product of the Currency Factor, multiplied by fifty percent (50%), multiplied by the Price then in effect for each Product; provided however, (i) no single Currency Rate Adjustment shall result in an adjustment to the Price that is greater than ten percent (10%), and (ii) Purchase Order(s) issued by Heska prior to

such amendment shall be unaffected and deliverable at the Price prior to the Currency Notice, and (iii) the Price for any Product in Annex A as of the Effective Date shall not be adjusted by Currency Rate Adjustments by an amount greater than forty (40%) percent in the aggregate during any five (5) consecutive year period of the Term.

7.6

Adjustment of Minimum Annual Total for Currency Rate Adjustment. For each instance of Currency Rate Adjustment, the Minimum Annual Total shall be adjusted. In the event the Price is increased due to a Currency Rate Adjustment, the Minimum Annual Total shall be adjusted downward by the same percentage as the Currency Rate Adjustment. In the event the Price decreases due to a Currency Rate Adjustment, the Minimum Annual Total shall be adjusted upward by the same percentage as the Currency Rate Adjustment.


8.	Shipment and Acceptance

8.1

Freight Terms. The Prices are based on DDP (Incoterms 2000) Heska’s Dock, Loveland, CO. Risk of loss for the Products shall pass to Heska upon delivery to Heska’s Dock. Mindray shall ship Product to Heska using reputable carriers, under Economy class shipment or better. The Parties shall cooperate in freight matters, including the prompt and complete documentation for proof of loss claims to an appropriate carrier and/or insurer. Heska shall photograph damage to original packaging, immediately upon receipt of packaging that Heska deems to have incurred external damage under which Product may have been damaged.

8.2

Non-Conformities and Acceptance. All claims for error, damages, defects, shortages and material non-conformities in any shipment discovered by reasonable inspection shall be made in writing to Mindray (together with detailed descriptions and evidence thereon) within thirty (30) days after receipt of the Products at Heska’s destination point shipping dock (such Products containing errors, damages, defects, shortages, and material non-conformities, each, a “ DOA Product ”). Failure to make such claim within such period shall constitute acceptance of the shipment (“ Acceptance ”). The extent of Mindray’s liability for DOA Product under this warranty shall, at Heska’s option, be limited to: (i) replacement as herein provided of any defective Products, freight prepaid to Heska designated dock, or (ii) return of DOA Product(s), at Mindray’s sole expense, provided however, that Heska agrees to use reasonable efforts to repackage and make DOA Product(s) available for shipment in original packaging, or if damaged, in a manner consistent with Heska’s own packaging standards for similar products, for a full refund, to the extent Mindray was previously paid by Heska for such DOA Product, or for an offset against future invoices. Mindray shall have no liability for any defects in cases of damage arising from Heska’s negligent handling.


9.	Warranties


9.1	Limited Product Warranty .

9.1.1

Analyzer Product Warranty . Mindray warrants the Analyzer Products sold by Mindray conform to the Specifications as set forth in Annex A and shall be free from defect in material and workmanship for (i) twenty-one (21) months from the date of Mindray’s shipment of the Products to Heska if shipped from a non-U.S. facility, or (ii) eighteen (18) months from the date of Mindray’s shipment of the Products to Heska if shipped from a U.S. facility (items (i) and (ii) each, “ Initial Warranty Period ”). Mindray and Heska agree that the exclusive remedies for Mindray's breach of its limited express warranty is limited at Mindray’s election solely to: (a) the repair and/or replacement of the defective Analyzer Product or part, as reasonably determined by Mindray; or (b) refund of the purchase price

and return the Analyzer Product; provided, however, that for DOA Products, the provisions of Section 8.2 shall apply. In fulfilling its limited warranty to repair and/or replace a defective Analyzer Product or part, Mindray shall act in a commercially reasonable manner. The limited warranty does not extend to any of the Analyzer Products that have been, other than by Mindray: (1) subject to misuse, neglect, or abuse, (2) improperly repaired, or altered or modified, and/or (3) used in violation of instructions furnished by Mindray or in contravention of generally accepted usage standards in the Market, in the Territory, by Customers, for products similar to Analyzer Products. Heska shall solely bear all costs to retrieve and to ship all Analyzer Product(s) requiring warranty service to Mindray designated location within the United States. Mindray shall solely bear all costs to ship all Analyzer Product(s) repaired under warranty service to Heska’s principal place of business.

9.1.2

Mindray warrants the Consumables sold by Mindray conform to the Specifications as set forth in Annex A , shall work with the Analyzer Product for the intended purpose, shall have a shelf life of at least twelve (12) months, except for probe cleanser shall have a shelf life of at least six (6) months, from receipt by Heska, and shall be free from defect in material and workmanship. At Mindray’s exclusive choice, Mindray will cover the replacement or repair of the non-conforming or defective Consumable(s).

9.2

Repair-Replace Warranty . Mindray warrants its repair work and replacement parts for a period of ninety (90) days from return to Heska (or other location directed by Heska) of the repaired or replaced Analyzer Product or for the balance of the warranty period as set forth in Article 9 “Warranty”, whichever is longer. Mindray and Heska agree that the exclusive remedy for Mindray's breach of its limited express warranty concerning repair work and replacement parts is limited solely to the repair and/or replacement of the Analyzer Product or part, as reasonably determined by Mindray. In fulfilling its limited warranty to repair and/or replace a defective Analyzer Product or part, Mindray shall act in a commercially reasonable manner. Any claim arising under this Article 9 shall be settled by amicable cooperation between Mindray and Heska, to minimize or avoid unnecessary expense and time.

9.3

No Infringement . Mindray represents and warrants that neither the Products nor their manufacture, use, importation or sale infringe upon the proprietary rights held by a third party in the Territory. In the event of an allegation of infringement of any third party intellectual property rights is made, or in Mindray's and Heska's opinions is likely to be made, in respect of the Product Mindray may at its own expense (i) obtain for Heska and its customers the right to continue to import, sell and use the Product, (ii) modify the Product so as to avoid infringement in a way reasonably acceptable to Heska or (iii) if conditions (i) and (ii) cannot be complied with on terms which in Mindray's opinion are reasonable, Mindray (x) may terminate this Agreement upon not less than ninety (90) days’ advance notice, and (y) shall indemnify Heska according to the provisions of Article 13.2 of this Agreement. If the Agreement is terminated pursuant to this Section 9.3 Mindray shall, at its cost, use its best efforts to identify a mutually acceptable manner of modifying the Product or this Agreement to render the Product or the performance of this Agreement non-infringing and, upon Heska’s request, accept return of and refund monies paid for Product in Heska’s inventory. Heska shall have the right of first refusal for a period of twenty-four (24) months following such termination before Mindray may appoint any new distributor in the Territory.


9.4	Disclaimer of All Other Warranties . EXCEPT FOR THE LIMITED WARRANTY EXPRESSLY SET FORTH IN THIS AGREEMENT, MINDRAY HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, WITH RESPECT TO THE PRODUCTS,

INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.


10.	Governing Law; Dispute Resolution; Exclusive Venue and Jurisdiction

10.1

The English language employed herein shall be controlling and this Agreement shall be deemed to have been executed at Loveland, Colorado, United States of America. This Agreement shall be governed by the laws of the State of Delaware and the United States of America without reference to conflict of laws principles, and shall not be governed by the 1980 United Nations Convention on Contracts for the International Sale of Goods. The Parties shall attempt in good faith to resolve any dispute, controversy or claim between them arising out of or relating to this Agreement, or the breach or interpretation of this Agreement (“ Dispute ”) promptly by negotiations between executive level representatives of the Parties with authority to resolve the Dispute. If a Dispute should arise, such representatives shall confer in person or by telephone at least once and attempt to resolve the matter. Such conference shall take place within ten (10) days of a written request therefor at a mutually agreed time and location (or by telephone). Such conference is a condition precedent to initiating an action as provided below, unless the responding Party fails to confer within ten (10) days of receipt of the request to do so; provided, however, such conference is not a condition precedent to initiating an action for interim injunctive or provisional relief necessary to avoid irreparable harm or to maintain the status quo. If the Dispute is not settled within five (5) days of the conference or time to confer described above, either Party may bring an action pursuant to this Article 10: in the event that Mindray brings the action, such action shall be brought within the state and federal courts located in Denver, Colorado, and in the event that Heska brings the action, such action shall be brought within the state and federal courts located in New Jersey. Each Party agrees to submit to the jurisdiction of such courts. Each of the Parties hereby consents, for the benefit of the other Party, to the service of process by certified or registered mail or by an express delivery service providing a return receipt at its address set forth for notices herein.

10.2

Mindray represents and warrants to Heska that Mindray has the authority to enter into this Agreement and to bind itself to the obligations set forth herein. Mindray shall not assist, permit or cause any Affiliate to take any action which, if taken by Mindray, would constitute a breach of this Agreement, and Mindray shall use its best efforts to prevent any Affiliate from taking any such actions. Heska represents and warrants to Mindray that Heska has the authority to enter into this Agreement on behalf of, and to bind, each and all of its Affiliates to the obligations set forth herein.


11.	Parties’ Responsibilities


11.1	HESKA’S RESPONSIBILITIES:

11.1.1 Marketing and Promotion of Product . Heska shall undertake for its own account advertisement and sales promotions of the Products. Heska shall use reasonably commercial efforts to market and sell the Products to Customers in the Market throughout the Territory.

11.1.2 Communication with Customers . Heska shall provide all warranty, technical support, shipping, and communications to and between Heska’s Customers, on the one hand, and Heska on the other, without, unless previously authorized between Heska and Mindray, any direct communication or obligations between Mindray and Heska’s Customers.

11.1.3 Sales Agents . Heska shall be solely responsible for selection, training, and support of installation personnel, technical support personnel, dealers, agents, sales representatives and

contractors and for the advice performance of such persons under Heska’s direction and control in providing information and services to end user customers and Customers of the Products purchased hereunder.

11.1.4 Customer Use Restrictions . Heska shall reasonably undertake to train and to support Customers using the Product as to the proper use, installation, maintenance, and safety precautions necessary for the Product(s) proper performance and maintenance of good working condition.

11.1.5 Forecast . Heska, on a rolling basis, during the first ten (10) days of each Calendar Quarter after the Effective Date, shall provide Mindray with a written forecast of estimated purchases of the Products for the next twelve (12) month period. The forecast shall represent Heska’s commercially reasonable good-faith estimate of its Product requirements for such twelve (12) month period. Such forecasts are for the convenience of Mindray only, and shall not constitute firm purchase orders or shipping orders and shall not be binding upon or create any obligation or liability with respect to Heska. Mindray shall, within ten (10) days of becoming aware that Mindray may reasonably be unlikely to have the ability to fulfill the forecast quantities and schedule.


11.2	MINDRAY’S RESPONSIBILITIES:

11.2.1 Spare Parts and Consumables Tail . During the Tail period, Mindray shall maintain the capability to repair the Products, to deliver Consumables, and to deliver Spare Parts to Heska at terms at least as favorable as Mindray offers to any other customer(s) of Mindray in the Market and in the Territory of similar purchase or end user placement volume of the Spare Parts or Consumables, but in no case less favorable than the Price and terms of this Agreement, or at Mindray’s then-current price, whichever is lower; provided however , that the Price of this Agreement during the Tail may be adjusted pursuant to the Currency Rate Adjustment procedures in Section 7.5 and the Price during the Tail shall not rise more than five percent (5%) in any Calendar Year.

11.2.2 Modifications and New Versions. Mindray reserves the right to make changes to any manufacturing source, controlled process parameters or sources and materials used with respect to the production of any of the Products and to otherwise reasonably modify any of the Products; provided that Mindray will provide Heska with at least one-hundred-eighty (180) days written notice of any major, material changes in the form, fit, performance, or function of any of the Products, along with details of such changes, and such major, material changes shall not adversely affect the performance, the Specification, the ability of Spare Parts and Consumables to operate on the Analyzer Products, or the sales prospects of the Product to Customers in the Market in the Territory. For any minor, changes, Mindray will endeavor to provide Heska with at least ninety (90) days written notice of such changes, or as soon as practicable in line with Mindray’s standard change notification practices, provided however that such minor changes shall not adversely affect the performance, the Specification, the ability of Spare Parts and Consumables to operate on the Analyzer Products, or the sales prospects of the Product to Customers in the Market in the Territory.

11.2.3 In the event Mindray replaces or updates a Product, for minor improvements to the form, fit, performance or functionality, Heska shall be entitled to acquire such updated or replaced version under the same terms of this Agreement in effect before such update or replacement. Pricing and relevant terms and conditions for (i) new products sold by Mindray that Heska reasonably deems appropriate for sale to Customers in the Market within in the Territory, and (ii) for the Products that undergo major improvements in form, fit, performance or functionality shall be negotiated in good faith by the Parties. Mindray represents and warrants to Heska as of the Effective Date and throughout the Term and during the Tail, the prices, benefits and other terms and conditions in this Agreement

are no less favorable to Heska than any other similarly situated customer of Mindray of similar purchase, sales, or placement of Products or similar products volume in the Market and in the Territory.

11.2.4 Technical Assistance . For technical assistance, Mindray shall supply Heska with a reasonable amount of informative and illustrated materials regarding the Products. Mindray shall train a reasonable number of Heska’s technical personnel, at Heska’s and Mindray’s corporate address or other mutually agreed to location, scheduled by consent of both Parties, if it becomes necessary to achieving better installation and maintenance standards or to release new Products which may be added to the Products Schedule. Each Party shall bear its own costs in providing or receiving such training. Technical assistance is by and between Mindray and Heska, for the benefit of Heska, not the Heska’s Customers. The number of Heska personnel to be trained and the frequency of such trainings shall be agreed upon in good faith.

11.3 RESPONSIBILITIES OF BOTH PARTIES:

11.3.1 Government Approvals . The Parties shall be responsible for obtaining and maintaining all regulatory approvals and any amendment or supplements required, if any, to fulfill their own obligations hereunder specifically, plus, (i) in the case of Mindray, those necessary to provide for the manufacture, import, delivery, and sale of the Products in the Territory in the Market, and (ii) in the case of Heska, to receive, market, sell and service the Products in the Territory in the Market.

11.3.2 Regulatory Inquiries . Each Party shall promptly inform the other Party of the existence and substance of any inquiry or investigation related to Products initiated by any government authority or certification agency.

11.3.3 Regulatory Inspections and Information . To the extent required by law or at its reasonable discretion, Mindray and Heska shall each permit all governmental authorities and certification agencies the reasonable right to inspect their respective facilities at which the Products or any components of them are handled, stored, or shipped, and all records related to them. Both Parties shall reasonably assist such governmental authorities and certification agencies with such inspections. Each Party shall promptly notify the other of all such inspections related to or affecting the Products, and shall use reasonable efforts to provide the other Party the opportunity to be present at such inspections and shall use reasonable efforts, time of the essence, to comply with governmental authority or certification agency requests for one Party to produce information that is confidential in nature to the disclosing Party, such as Customer contact information and location of Products; Confidential Information and Intellectual Property and provided pursuant to this Article 11.3.3 shall be used solely for the strict and limited purpose of complying with the governmental authority or certification agency requests or mandates, and shall not be used by the receiving Party for any commercial use, and shall be protected under Article 14 and Article 12 of this Agreement.

11.3.4 Product Complaints/Reports . Each Party shall promptly provide the other Party notice of any information regarding real or potential defects and complaints about the Products or would reasonably be considered material to the safety of them for their intended use. Each Party shall reasonably cooperate with the other in sharing any information that may constitute a complaint related to the Products. Mindray will use reasonable efforts to assist Heska in investigating and correcting any problems Heska or its Customers may experience with the Product. Such efforts will include qualified representatives of Mindray visiting the Territory when deemed reasonably necessary by

Heska. Heska will use reasonable efforts to implement any corrective action recommended by Mindray.

11.3.5 Recalls . Mindray shall bear all costs and have sole authority and obligation to declare a recall of any Products, if Mindray believes that there is a potential significant health hazard or non-compliance with applicable government regulations. In the event that a mandatory recall, withdrawal or modification of the Product is required by a decision or ruling of a court of competent jurisdiction or by a ruling or regulation of a governmental agency (“Mandatory Recall”), Mindray shall be responsible for s upplying modified Products or components thereof, to Heska for Heska’s delivery to Customers who purchased such Product, consistent with applicable regulations and/or government agency instructions or rulings. In connection with any recall, Heska will provide Mindray with all customer information necessary for Mindray to implement the recall and supply the affected Customers with modified Products or components thereof. Mindray agrees to use the customer information supplied by Heska under this Article 11.3.5 only for purposes of implementing the recall. Mindray and Heska agree to work cooperatively to facilitate any recall.

11.3.6 Laws . Each Party will at its own expense comply with all applicable international, national, state, regional, and local laws, rules, and regulations of competent public authorities relating to its duties, obligations, any applicable quality processes, regulatory compliance and performance under this Agreement. Heska has sole responsibility for determining that no applicable laws of the Territory within the Market prohibits, limits or materially impairs in any respect the sale and distribution of the Products for the intended purpose.


12.	Proprietary Rights


12.1	Intellectual Property.

12.1.1 Each Party retains all rights to its Intellectual Property pre-existing as of the Effective Date of this Agreement. Except as provided for expressly in this Agreement, no license, right or ownership is granted, by implication or otherwise, to a Party’s Intellectual Property. As of the date of this Agreement, neither Party claims any rights to, or ownership in, the other Party’s Intellectual Property, and neither Party claims the existence of any jointly owned Intellectual Property between the Parties. In the event either Party provides the other Party with such other Party’s data regarding certain veterinary parameters, such information shall be provided pursuant to the Confidential Information rights in Article 14.

12.1.2 Mindray owns all Intellectual Property rights in the Products, and shall own all Improvements thereto, except for the Confidential Information of Heska. In the event that any Intellectual Property rights in the Products or any Improvements vest in Heska, Heska hereby assigns to Mindray all right, title, and interest in such Intellectual Property rights to Mindray, and shall fully cooperate with Mindray, at Mindray’s expense and for reimbursement of Heska’s reasonable related expenses, in executing all documents required to confirm the foregoing assignment.

12.1.3 During the Term of this Agreement, and subject to Heska’s compliance with the terms of this Agreement, Mindray hereby grants to Heska an exclusive (even to the exclusion of Mindray and its Affiliates) non-transferable, non-sublicenseable (other than as permitted under Section 12.6) license under Mindray’s Intellectual Property embodied in the Products solely for the purpose of

selling the Products to Customers in the Market within the Territory. For avoidance of doubt, the exclusivity of the license granted herein shall extend only to the Market within the Territory.

12.1.4 During the Term of this Agreement, Heska hereby grants to Mindray a non-exclusive license under Heska’s Intellectual Property embodied in Heska’s trademarks solely for the purpose of manufacturing and providing the Products to Heska pursuant to the terms of this Agreement.


12.2	No Unauthorized Use. Neither Party shall use the other Party’s Intellectual Property or Confidential Information for any purpose other than to advance the sale of the Products by Heska to Customers in the Market within the Territory.

12.3

No Right. Except as expressly set forth herein, neither Party is granted any right to the other Party’s software or Intellectual Property, even if the software, hardware, or firmware is incorporated into any products, software, or other Intellectual Property. Nothing herein, or in any way related to this Agreement or interaction or non-action or delay between the Parties or their assigns, shall grant, transfer, or cause to be shared, with the other Party, any rights in and to either Party’s software, in any form, firmware, designs, component sources and specifications, documentation, or Intellectual Property. This Article 12.3 shall apply, whether or not either Party or any third party products are incorporated in, embedded in, merged with, or otherwise associated with a Party’s products.


12.4	Software License Definition . Certain licenses may be provided, included, or bundled with Products, including but not limited to HL7, networking, and other interfaces and software for displaying, capturing, transmitting or synchronizing data to and from the Analyzer Product (the “ Software ”).

12.5

Software License . Heska is hereby granted a non-exclusive, fully-paid-up, perpetual, irrevocable license to license, install, use and support the Software solely in connection with the sale of Products to Customers in the Market within the Territory according to the terms hereunder (the “ License ”). Software is protected by copyright, trademark, and trade secrets laws, international treaty provisions and various other intellectual property laws. Heska shall not, and shall use reasonable commercial efforts to ensure that each Customer does not, (i) use the Software for other than Customer’s internal business purposes, (ii) permit any third parties to use the Software other than as expressly permitted by this Agreement, (iii) reverse engineer, decompile, disassemble, or otherwise attempt to discover the source code of any Software, (iv) modify the Software in any manner, (v) use the Software in the operation of a service bureau, (vi) copy the Software, except that Heska may make copies of the Software for regulatory reasons and in furtherance of support and warranty of the Products, or (vii) use the Software other than in conjunction with the Products sold hereunder, or in any manner not expressly authorized by this Agreement. The Software’s component parts may not be separated either from each other or from the other Product components for any use. Where the Software is end user readable, the Software will be private labeled to Heska’s brand; provided, however, that any copyright notices, other ownership notices, or other legal notices embedded in the Software shall remain in the name of Mindray.


12.6	Right to Sublicense . During the Term of this Agreement, Heska may sublicense to Customers, for use in the Market within the Territory, the nonexclusive and personal right to use, in object code format only, the Software for the life of the Products associated with such Software. Such sublicense shall be granted consistent with the terms of Section 6.6 of this Agreement.


12.7	Ownership; Rights . Neither Party shall acquire any right, title or interest in any of the other Party’s trademarks, copyrights, trade names, nor other intellectual property and proprietary information, except as specifically granted in this Agreement. No rights are granted to Heska under this Agreement to make or cause to be made any of the Products.


12.	Insurance and Indemnity

13.1

Insurance . Mindray shall at its sole cost and expense maintain throughout the Term: (i) Workers' Compensation insurance as required by all applicable laws; and (ii) product and public liability insurance coverage affording protection for bodily injury, death, personal injury and property damage, and including coverage for contractual liability and products liability, with minimum coverage limits of [***] per occurrence, and minimum coverage limits of [***] in the aggregate. Any product liability insurance policy of Mindray covering the Products shall name Heska as an additional insured. If applicable law requires Mindray to maintain higher coverage limits or other insurance coverage, then such required limits or insurance shall be satisfied. Mindray hereby covenants to obtain all insurance as required under the terms of this Article 13.1 from a reputable, licensed insurance provider with a financial strength rating of “A-“ or better and financial size category of “VII” or better. Upon written request by Heska, Mindray shall deliver to Heska, one or more certificate(s) of insurance evidencing such coverage. The policies required to be maintained by Mindray under this Article 13.1 shall be primary and non-contributory. With respect to any policies or coverage maintained on a “claims-made” basis, such policies shall be maintained for a period of not less than two years following the expiration of the Term.

13.2

Indemnification by Mindray . Mindray agrees to defend, indemnify and hold harmless Heska and its Affiliates, and each of their respective directors, officers, agents, investors and employees, from any and all losses, claims, damages, awards, penalties, expenses or injuries incurred by Heska, including reasonable attorney's fees and all court costs, arising out of or resulting from: (a) any third party claims alleging that the Products infringe any copyright, patent, trade secret, trademark, or other proprietary right of any third party; or (b) any third party claims the Products cause bodily injury (including death), or physical damage to tangible property and/or such injury or damage resulted in reputational harm to such third party; or (c) any third party claim that this Agreement, including the negotiation or implementation of this Agreement, or the appointment of Heska by Mindray to sell Products to Customers in the Market within the Territory violates or interferes with (i) any agreement between any third party and Mindray or (ii) any alleged legal duty, express or implied, allegedly owing from Mindray to a third party. The foregoing indemnity applies only if the instructions outlined in the Product’s labeling, manual, and/or instructions for use are followed. This indemnification does not apply to liability and/or damages arising from: (1) an injury due to the negligence of any person other than an employee or agent of Mindray; (2) the failure of any person other than an employee or agent of Mindray to follow any instructions for use of the Product; or (3) the use of any Product not purchased from Mindray, or Product that has been modified, altered, reprocessed, or repaired in a manner inconsistent with Mindray published instructions or specifications, where such modification, alteration, reprocess, or repair can be shown to be a material contributor to such liability and/or damages for which indemnification is claimed. Mindray shall have the sole right to defend such claims covered under this indemnification, at its own expense, and Heska shall, at Mindray’s expense, use reasonable efforts to provide such assistance in investigating and defending such claims as Mindray may reasonably request. This indemnity shall survive the expiration or termination of this Agreement.

13.3

Indemnification by Heska . Heska agrees to defend, indemnify and hold harmless Mindray and its Affiliates and each of their respective directors, officers, investors and employees, from any and all losses, claims, damages, awards, penalties, expenses or injuries incurred by Mindray, including reasonable attorney's fees and all court costs, arising out of or resulting from: (a) any third party claims alleging that the Products as a result of marking by Heska infringe any trademark of any third party; or (b) any third party claims alleging that this Agreement, including the negotiation or implementation of this Agreement, or the appointment of Heska by Mindray to sell Products to Customers in the Market within the Territory violates or interferes with (i) any agreement to which Heska is a party or (ii) any alleged legal duty, express or implied, allegedly owing from Heska to any such third party; or (c) any third party claim arising from Heska’s tortious acts or violation of applicable laws in Heska’s marketing, sale, distribution, or service of the Products; or (d) any third party claim arising from items (1), (2), and (3) in Section 13.2 above. Heska shall have the sole right to defend such claims covered under this indemnification, at its own expense, and Mindray shall, at Heska’s expense, use reasonable efforts to provide such assistance in investigating and defending such claims as Heska may reasonably request. This indemnity shall survive the termination of this Agreement.


13.	Confidential Information

14.1

Confidentiality . No Confidential Information disclosed by either Party to the other in connection with this Agreement shall be disclosed to any person or entity other than the receiving Party's employees and contractors directly involved with the receiving Party's use of such information. Such information shall be used only for the purposes contemplated by this Agreement, and such information shall otherwise be protected by the receiving Party from disclosure to others with the same degree of care accorded to its own proprietary information, but not less than a reasonable degree of care in accordance with the normal practice of the medical device development industry. To be subject to this provision, information must be delivered in writing and designated as "proprietary" or "confidential" or, if initially disclosed orally or visually, must be confirmed in writing as "proprietary" or "confidential" within thirty (30) days after the disclosure. Information will not be subject to this provision if it (i) is or becomes a matter of public knowledge without the fault of the receiving Party, (ii) was known to the receiving Party before the disclosure to it by the other Party, as evidenced by written records of the receiving Party, or (iii) was received by the receiving Party from a third person under circumstances permitting its unrestricted disclosure by the receiving Party. If the receiving Party is required by law, or requested by a court or administrative body, to disclose any Confidential Information of the disclosing Party, the receiving Party shall give the disclosing Party prior written notice of such requirement or request prior to disclosing such Confidential Information so that the disclosing Party may seek a protective order or other appropriate relief.


14.2	Confidentiality Release . The Parties shall be released from any confidentiality obligations under this Article 14 five (5) years after the last of any and all of the obligations of the Parties to this Agreement have expired.


14.	Termination


15.1	Right to Terminate for Good Cause . A Party has the right to terminate this Agreement for Good Cause with immediate effect. "Good Cause" means the occurrence of one or more of the following events:


(a)	Should one of the Parties become bankrupt or insolvent, or have its business placed in the hands of a receiver, assignee or trustee, whether by voluntary act or otherwise, or become unable to pay its bills in the ordinary course of business, on time; or


(b)	If one of the Parties ceases to function as a going concern or to conduct its operations in the normal course of business; or


(c)	A Party becomes unable, due to regulatory sanction or claim or loss of license or regulatory approval, to meet its commitments under the Agreement.

15.2

Right to Terminate for Breach with Notice. This Agreement may be terminated by either Party if the other Party materially breaches any material provision of this Agreement and fails to cure such breach within sixty (60) days of written notice by the non-breaching Party describing the material breach (“Notice Period”). Each Party agrees to work with the other, in good faith, in connection with a Party's efforts to cure any breach.


15.3	Termination During Renewal Term. This Agreement may be terminated by Heska during the Renewal Term upon not less than 180 days prior to the expiration of the then current Renewal Term upon notice to Mindray.

15.4

Effect of Termination. In the event of termination by Mindray for Good Cause pursuant to Article 15.1 or resulting from a breach by Heska pursuant to Article 15.2 above or following the effective date of termination by Heska pursuant to Article 15.3, all undisputed monies owed to Mindray shall become due and payable. Following the expiration of the Term or earlier termination of this Agreement as permitted by Article 15 of this Agreement, Mindray shall have no right to require Heska to continue to act as a distributor of the Products, and Heska shall have no right to require Mindray to continue to sell the Products to Heska; provided, however, that Mindray shall be obligated; (i) to sell to Heska and fulfill extended warranty obligations hereunder and during the Tail so that Heska can meet its commitments to Customers who have purchased and paid for (or contractually promised to pay for), through Heska, warranty and service products and services and its obligations to Heska, including as provided for in Article 9, and Annex B and (ii) to sell Replacement Parts and Consumables to Heska under the Tail, including as provided for in Article 11.2. Each of the Parties acknowledges that it is acting independently in connection with any actions taken in connection with this Agreement, including any investments in personnel, facilities, and marketing activities undertaken hereunder, and is not relying on any express or implied representation or promise from the other Party that this Agreement will continue for any period except as expressly provided herein. Each of the Parties hereby waives any claim against the other for loss or damage of any kind (including, without limitation, damages or other compensation for unjust enrichment, loss of prospective profits, lost business opportunities, reimbursement for expenditures or investments made or commitments entered into or goodwill) because of the termination of this Agreement for any reason as permitted by Article 15 of this Agreement or failure of Heska to extend the term beyond the Initial Term of this Agreement or because of failure of the Parties, for whatever reason, upon expiration hereof, to make a similar agreement.


15.	General Provisions

16.1

Assignment . Except as set forth in this Article 16.1, this Agreement may not be assigned by either Party without the prior written consent of the other Party, which shall not be unreasonably withheld. This Agreement shall be binding on and shall inure to the benefit of each Parties’ successors and assigns. Heska may assign this Agreement to: (i) any of its majority owned Affiliates; or (ii) any person or entity that acquires substantially all of the business or assets of Heska or substantially all of the business segment relating to the Products that are the subject of this Agreement; provided, however, Mindray shall have the right to reject such assignment if in Mindray's reasonable judgment

such assignment is to a person or entity that manufactures, distributes or sells a competitive product to the Products.

16.2

Force Majeure . Mindray shall not be liable for, or be deemed to be in default for, delay of or failure in delivery or performance of any other act under this Agreement due directly to any of the following causes; acts of God or the public enemies, civil war, insurrection or riot, fires, floods, explosions, earth quakes or serious accident, epidemics or quarantine restrictions, or any act of government or military authority. Promptly upon the occurrence of any event hereunder which may result in all delay in the delivery of the Products, Mindray shall give notice thereof to Heska, which notice shall identify such occurrence and specify the period of delay which may reasonably be expected to result therefrom.


16.3	Survival of Obligations . Notwithstanding any provision to the contrary contained in this Agreement, the provisions of Articles 6, 9, 10, 11.2.1, 12, 13, 14, 15.4 and 16, and other terms that by their nature are intended to survive termination, shall survive the expiration or termination of this Agreement and continue to be enforceable in accordance with their respective terms.

16.4

Notices . Except as otherwise provided herein, any notice or other communication from one Party to the other Party shall be in writing, deemed effective upon receipt and either delivered in person or sent via internationally recognized overnight carrier, United States certified mail, or facsimile (upon confirmation of delivery thereof) and addressed as follows, or to such other address as the addressee shall have specified by notice hereunder from time to time:

If to Heska:

Heska Corporation

Attn: President

3760 Rocky Mountain Ave.

Loveland, CO 80538

Copy to:

If to Mindray:

Shenzhen Mindray Bio-Medical Electronics Co., Ltd.

Attn: Legal Department

Mindray Building, Keji 12th Road South

High-Tech Industrial Park

Nanshan, Shenzhen 518057 P.R. China

Copy to:

Shenzhen Mindray Bio-Medical Electronics Co., Ltd.

c/o North American Corporate Counsel

800 MacArthur Blvd.

Mahwah, NJ 07430


16.5	Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures transmitted by facsimile or other electronic means are acceptable the same as original signatures for execution of this Agreement.

16.6

Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable because it is invalid or in conflict with any law of any relevant jurisdiction, the validity of the remaining provisions shall not be affected, and the Parties agree that the court making the determination of unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.


16.7	Compliance with Laws . Each Party to this Agreement shall comply with all applicable laws and regulations relating to the Products and their respective performance under this Agreement.

16.8

No Partnership or Agency . Nothing in this Agreement shall be construed as creating a partnership, agency, employment relationship, franchise relationship or taxable entity between the Parties. The relationship established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to (i) give either Party the power to direct and control the day-to-day activities of the other, (ii) constitute the Parties as partners, joint ventures, co-owners, or otherwise as participants in a joint or common undertaking, or (iii) allow either Party to create or assume any obligation on behalf of the other for any purpose whatsoever, except as expressly authorized under this Agreement. All financial obligations associated with the business of each respective Party are the sole responsibility of that respective Party.


16.9	Entire Agreement . This Agreement constitutes the entire understanding of the Parties relating to the subject hereof and supersedes all other previous agreement and understandings, whether written or oral.

16.10

Interpretation; Headings . Articles and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretations of this Agreement. This Agreement is the result of arms-length negotiations between the Parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed against a Party by reason of the fact that such Party or its legal counsel was the draftsman of that provision.

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date specified above.


HESKA CORPORATION	SHENZHEN MINDRAY BIO-MEDICAL ELECTRONICS CO., LTD.:

By: /s/ Kevin Wilson By: Mindray

Name: Kevin Wilson Name: [***]

Title: President, COO Title: VP

Annex A – Product & Product Specifications

Analyzer Product

Name and main function

Mindray product: BC-5150vet

OEM product: Element HT5

BC-5150vet is an automatic veterinary 5-part differential hematology analyzer.

Net Size / Net Weight



Net Size/ Net Weight	[***]
HxWxD (cm)	[***]
Weight (Kg)	[***]

Throughput and Parameters

At least [***] samples per hour (Dog, Cat, Horse, Ape/Monkey, Ferret, Rat, Mouse)

Addition of Cow/Bovine, Goat, Llama and Sheep parameters is optional, Mindray will make the best effort to incorporate these animals into the Product.

Aspiration volume:

≤ [***] ul

Parameters:

WBC, Neu#, Lym#, Mon#, Eos#, Bas#, Neu%, Lym%, Mon%, Eos%, Bas%

RBC, MCV, HGB, HCT, MCH, MCHC, RDW%

PLT, MPV

Display and Software

Color touch screen: ≥ 10.1’’

Software updates directly through USB drive.

Embedded operation system.

Communication and Interface

LAN Port supports HL7 protocol

USB, LAN

Support LIS – Bi-Directional Communication

Linearity



Parameter	Unit	Linearity Range	Display Range
WBC	[***]	[***]	[***]
RBC	[***]	[***]	[***]
MCV	[***]	[***]	[***]
HGB	[***]	[***]	[***]
HCT	[***]	[***]	[***]
PLT	[***]	[***]	[***]

Background



Parameter	Unit	Background Limits
WBC	[***]	[***]
RBC	[***]	[***]
HGB	[***]	[***]
PLT	[***]	[***]

Carryover

[***]



Parameter	Carryover
WBC	[***]
RBC	[***]
HGB	[***]
PLT	[***]

Reproducibility [***]



Parameter	CV%
WBC	[***]
RBC	[***]
MCV	[***]
HGB	[***]
PLT	[***]

Reagent

Diluent, DIFF lyse, LH lyse (shelf-life is [***]-months)

Probe cleanser (shelf-life is [***]-months)

Shelf-life is counted from the manufacturing dates.

DIFF Lyse and LH Lyse concealed in analyzer. Only Diluent and Probe Cleanser are outside.

Spare Parts

To be added when its availability, before end of year 2013 based upon principal of manufacturing cost plus [***].

Annex B – Price & Minimum Quantity

Price


1.	Analyzer Product Units



a.	[***] units	[***]/unit
b.	[***] units	[***]/unit
c.	[***] units	[***]/unit
d.	[***] units	[***]/unit


2.	Consumables

Pricing references of Reagents: Reagent price will be based on the following cost per test schedule assuming [***]:



[***]	[***]	[***]	[***]
Reagent Cost Per Test (HESKA Transfer Price)	[***]	[***]	[***]


3.	Spare Parts


a.	To Be Completed when available, before end of year 2013, based upon the concept of manufacturing cost plus [***].


4.	Extended Warranty (per unit per year of Extended Warranty)


b.	[***] of the Analyzer Product Price

Minimum Annual Total


1.	Initial Term [***] Analyzer Product units per Year


2.	Renewal Term(s) [***] Analyzer Product units per Year

Supplementary Memo to Agreement

MEMO TO AGREEMENT

This is a supplementary memo (Memo) to the Mindray/Heska OEM Agreement (the “Agreement”) effective on Sept 1, 2013 and is entered into by and between Shenzhen Mindray Bio-Medical Electronics Co., Ltd. (hereinafter referred to as “ Mindray ”) with principal address at Mindray Building, Keji 12th Road South, High-tech Industrial Park, Nanshan, Shenzhen 518057, P. R. China and Heska Corporation, a corporation duly organized and existing under the laws of the State of Delaware with its principal business address at 3760 Rocky Mountain Ave, Loveland, CO 80538, United States and its Affiliates (hereinafter “ Heska ”). as of March 1, 2015 (the “Effective Date”).

Mindray and Heska may hereinafter be referred to individually as the “Party” or collectively as the “Parties”.

WHEREAS, the Parties previously executed the Agreement, the Parties now wish to execute this Memo dated as of the Effective Date set forth above to make amendment to the inclusive species and delivery timeline:

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:


1.	Annex A – Product & Product Specifications. Throughput and Parameters:

The following clause “At least [***] samples per hour (Dog, Cat, Horse, Ape/Monkey, Ferret, Rat, Mouse)” of the Original Agreement is hereby replaced with the following:

“At least [***] samples per hour (Dog, Cat, Horse, Ape/Monkey, Rat, Mouse, Rabbit, Pig, Panda, and Red Panda).


2.	Due to the unavailability of ferret samples at Heska, development of specie “Ferret” will begin after the delivery of all species in Article #1 of the Memo. Mindray cannot commit to a timeline for delivery, but will make its best efforts allowed by Mindray’s R&D resource planning.



SHENZHEN MINDRAY BIO-MEDICAL ELECTRONICS CO., LTD.	HESKA CORPORATION
By: [***]	By: /s/ Nancy Wisnewski
26/03/15	24 Mar ‘15
Print [***] Name:	Print Nancy Wisnewski Name:

Page 1of 1

Exhibit 10.59

EXCLUSIVE SUPPLY AGREEMENT

This Exclusive Supply Agreement (“Agreement”) is made and entered into as of February 1, 2016 (the “ Effective Date ”) by and between Shenzhen Mindray Bio-Medical Electronics Co., Ltd., a corporation organized under the laws of The People’s Republic of China (hereinafter “ Mindray ”), and Heska Corporation, a corporation duly organized and existing under the laws of the State of Delaware with its principal business address at 3760 Rocky Mountain Ave, Loveland, CO 80538, United States and its Affiliates (hereinafter “ Heska ”). Heska and Mindray shall at times be collectively referred to herein as the “ Parties ” and individually as a “ Party ”.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein, the Parties agree as follows:


1.	Definitions

1.1


1.2	" Business " shall mean the market of hematology analyzers hardware, software, consumables, reagents, supplies, calibrators, and/or spare parts, whether for manufacture, development, sale, lease, rental, distribution, or promotion, directly or indirectly.


1.3	" Calendar Quarter " shall mean a period of three (3) consecutive calendar months commencing on January 1, April 1, July 1 or October 1 during the Term of this Agreement.


1.4	“ Calendar Year ” shall mean each twelve (12) month period during the Term of this Agreement beginning on January 1 and ending on December 31.


1.5	BLANK.

1.6


1.7	“ Consumables ” shall mean documentation, supplies, consumables, reagents, calibrator, fluids, tubes, tips, cups, and other supplies necessary or ordinarily beneficial in the ordinary course of installation, calibration, maintenance and use of the Product(s).

1.8

“ Customer ” shall mean the end user of the Products, where use of Products is limited to non-human subjects, within the Market, within the Territory, as defined below. Supply of the Products to Customer may include one or more transactions that include the involvement of a third party dealer or reseller of Heska (“ Agent ”), who facilitates the purchase and installation to the Customer solely for use within the Market within the Territory.


1.9	“ DOA ” shall mean dead on arrival, as used in Article 8.2 Non-Conformities and Acceptance.

1.10

1.11

1.12


1.13	“North America Agreement” shall mean that certain agreement between the parties dated September 1, 2013.


1.14	“ Product ” shall mean, as the case may be, the Analyzer Product(s), Consumable(s), and Spare Part(s), as those terms are further described and defined in Annex A and elsewhere in this Agreement.

1.15

“ Service Exchange Pool ” shall mean a pool of between ten (10) and twenty (20) Analyzer Products to be maintained by Heska during the course of the Agreement. Heska shall ship replacement Products (“Service Exchange(s)”) from the Service Exchange Pool to Customers who have reasonably claimed that Products are not working correctly, and such returned Products will be serviced by Heska to then be made available as Service Exchange Pool Products.

1.16


1.17	“ Tail ” shall mean the five (5) year period following expiration or earlier termination of this Agreement, during which Mindray will sell to Heska the Consumables and Spare Parts.


1.18	“Territory ” shall mean the areas defined in Annex C, including “Exclusive Territory” and “Non-exclusive Territory”.


1.19	Capitalized terms not defined in this Article 1 shall have the meaning set forth herein.


2.	Purpose, Appointment and Acceptance

2.1

Products; Specifications . The initial minimum specifications for the Products are set forth in Annex A . Final specifications shall be mutually agreed by the Parties as soon as possible, but in no case shall the final specifications be less than those for products delivered under the North America Agreement, and the Parties shall use all commercially reasonable efforts to agree on or before their mutual target of December 31, 2016 . Upon agreement of final specifications, Annex A to this Agreement shall be amended accordingly (“Specifications”).

2.2

Purpose . Subject to the terms and conditions of this Agreement, Mindray agrees to sell to Heska, and Heska agrees to purchase from Mindray, the Products in accordance with the Specifications, as each are or shall be defined in Annex A attached, in the Minimum Annual Total volume(s), as described in Section 5.1 and Appendix B , for resale or placement to Customers, in the Market, in the Territory.

2.3

Appointment and Acceptance . During the Term of this Agreement, as specified in Article 3.1 , and subject to the conditions hereinafter, including but not limited to Article 6 below, Mindray hereby appoints Heska as its exclusive distributor (even as to Mindray) for the Products, to Customers, in the Market within the Exclusive Territory, and non-exclusive distributor for the Products, to Customers, in the Market within the Non-Exclusive Territory, and Heska accepts such appointment. Each Party warrants and represents to the other Party that: (i) they have the right to enter into this Agreement, (ii) the terms of this Agreement are not inconsistent with other contractual obligations, expressed or implied, which they may have, (iii) by negotiating or entering into this Agreement, the representing Party is not breaching, violating, unlawfully altering, being induced or inducing others to interfere, halt, terminate, or otherwise modify any other contractual obligations, express or implied, which they may have with any other party, (iv) it is not a party to any agreement, litigation, or business relationship that prevents it from carrying out its obligations under this Agreement, (v) it has the right and full corporate power to enter into this Agreement, and (vi) as of the date of the Agreement, it is unaware of any actual, threatened, or pending litigation or claim that would prevent or impair it or its Affiliates from carrying out its obligations under this Agreement or would reasonably cause the other Party to be prevented from or have difficulties carrying out its obligations under this Agreement.


3.	Term

3.1

This Agreement shall commence on the Effective Date and remain in effect until December 31, 2019 (the “Initial Term”); thereafter, Agreement shall automatically renew for successive two year periods (each a “Renewal Term”), unless sooner terminated in accordance with Article 15 of this Agreement (the Renewal Term together with the Initial Term, is collectively the “Term”), provided, however, that Heska must meet the Minimum Annual Total in the prior Calendar Year. As discussed in Section 5.2, failure to meet the Minimum Annual Total in the prior Calendar Year may lead to termination of the Agreement. Notwithstanding the foregoing, however, the Term shall not exceed ten (10) years without the express written agreement of Mindray.


4.	Purchase Orders & Product Packaging and Labeling

4.1

Orders . In placing purchase orders with Mindray, Heska shall detail the (i) Products (ii) quantity of each Product, and (iii) delivery date, which shall be at least sixty (60) days from the date of the purchase order (“ Lead Time ”). The orders shall be considered accepted and binding unless they are rejected by Mindray, provided that such acceptance shall not be unreasonably withheld and Mindray shall notify Heska within five (5) days if any order from Heska is rejected; provided, however, if Mindray is unable or unwilling to timely fulfill a purchase order that otherwise complies with all requirements set forth in this Agreement, Heska shall nonetheless be credited with such order quantity for purposes of the Minimum Annual Total requirements of Article 5 below. REGARDLESS OF FORM, EVERY PURCHASE ORDER, ORDER ACKNOWLEDGMENT, ORDER ACCEPTANCE OR INVOICE IS DEEMED TO INCLUDE THE APPLICABLE TERMS AND CONDITIONS OF THIS AGREEMENT AND ANY PRE-PRINTED OR OTHER TERMS AND CONDITIONS ASSOCIATED WITH SUCH FORM SHALL NOT BE APPLICABLE ABSENT MUTUAL WRITTEN AGREEMENT OF THE PARTIES. The order shall be, when fulfilled with Product, payable in full within thirty (30) days of possession of the Product by Heska at Heska’s dock.

4.2


5.	Minimum Purchase


5.1	Minimum Calendar Year Volume. Heska shall make purchases of Product from Mindray in such annual minimum quantities (“ Minimum Annual Total ”) as specified in Annex B . If Heska fails to make purchases equal to or greater to the Minimum Annual Total, the remedies in Section 5.2 shall apply.

5.2

Remedies for Volume Failure. If Heska fails to purchase the Minimum Annual Total (a " Minimum Purchase Failure ") within thirty (30) days of the end of the Calendar Year for which Mindray alleges Heska had a Minimum Purchase Failure, Mindray shall provide Heska written notice of such failure. If such Minimum Purchase Failure has not been cured by Heska within sixty (60) days after Mindray gives Heska written notice of such Minimum Purchase Failure, then Heska shall, in Heska’s sole discretion:

5.2.1

Pay Mindray, within thirty (30) days of receipt of the Quantity Failure Notice, an amount equal to five percent (5%) of the Average Transfer Price (as determined by calculating the quotient of (a) the sum of all actual prices paid for the Analyzer Products purchased in the immediately prior two (2) Calendar Quarters, divided by (b) the actual number of Analyzer Products purchased in the immediately prior two (2) Calendar Quarters)

multiplied by the Deficiency (as calculated by subtracting the number of Analyzer Products purchased by Heska in the Calendar Year from the Minimum Annual Total); In the event of two (2) Minimum Purchase Failures in consecutive years, Mindray may, on or before March 15 ^th of the year immediately thereafter, terminate this Agreement upon ninety (90) days written notice. Or;


5.2.2	Terminate this Agreement. There are no other remedies for a Minimum Purchase Failure.

5.3

The Parties agree that they will make a mutually agreeable, good faith adjustment downward of the Minimum Annual Total from a period in which there was a Minimum Purchase Failure, if during such period; (i) Mindray was unable to deliver Products ordered on time, (ii) Mindray delivered to Heska a significant quantity of DOA Product, as defined in Article 8.2 , or Products not meeting the Specification, iii) the Products were subject to a recall or other similar adverse event, or (iv) the Products, in the reasonable judgment of the Parties and a disinterested informed observer, are no longer competitive in the Market, in the Territory.


6.	Market, Territory, Exclusivity

6.1

Exclusivity Rights of Heska. Heska is granted the exclusive right to purchase the Products for sale, marketing and distribution in the “ Market ”, in the “Exclusive Territory ”, to “ Customers ”, which right shall operate to exclude all others, including Mindray, its Affiliates and all third parties.; and the non-exclusive right to purchase the Products for sale, marketing and distribution in the “Market”, in the “Non-exclusive Territory”, to “Customers” as each are defined in Article 1 , In the Exclusive Territory in the Market, Mindray shall not, directly or indirectly through any third party, distributor, reseller or agent, sell or offer to sell, rent, loan, or lease the Products (or any modification, iteration, or derivation thereof) or any generic or similar in-clinic hematology analyzer products (5 part), or portions or subassemblies thereof, that are or could be competitive with the Products, that may be used by or sold to Customers in the Market within the Territory during the Term (“Illicit Products”). Heska shall not sell or offer to sell Products outside of the Territory or Market, except with Mindray's prior written consent.

6.2

In the Market within the Non-exclusive Territory, Mindray maintains right to sell or offer to sell, rent, loan, or lease, directly or indirectly through Mindray, its Affiliates, and/or any third party, distributor, reseller or agent, the Products (including consumables, reagents and spare parts) (or any modification, iteration, or derivation thereof) or any generic or similar in-clinic hematology analyzer products (5 part), or portions or subassemblies thereof, that are or could be competitive with the Products, that may be used by or sold to Customers.

6.3


6.4	Exclusive Territory Protections by Mindray. Mindray undertakes to not knowingly allow any party to sell, lease, lend, demonstrate, market or solicit for business, directly or indirectly, a Product or Illicit Product to a Customer in the Market within the Territory. For the Term of this Agreement,

Mindray shall not, directly or indirectly, except exclusively through or for the benefit of Heska under this Agreement, sell, resell, lease, lend, or market: (i) the Products, (ii) portions or components of the Products, or (iii) products to which Mindray directly or indirectly benefits, controls, develops, Mindrays or commercializes, that compete with the Products, to Customers in the Market within the Territory.

6.5

6.6

Market Limited. Except as provided by the North American Agreement, Heska shall not sell, lease, lend, or participate in any way, directly or indirectly, through one or more relationships or contracts, the Products or any products or services that contain, in whole or in part, the Products, intended for use or for resale, demonstration, use or export outside of the Market or Territory, nor to any person, entity, or organization who is not a Customer or Agent selling directly to a Customer in the Market in the Territory. Heska and Mindray agree that all software and Products provided hereunder from Mindray to Heska shall be and are intended for use in the veterinary medical industry in the Territory.

6.7

Other Agreements In Effect. The terms in this Agreement apply solely to the Territory and Market as defined in Article 1 of this Agreement. Heska’s rights and obligations in territories and markets, as defined in other effective agreements between the two parties, including the North American Agreement, will not be affected by this Agreement. Nothing contained in this Agreement shall affect or alter the North American Agreement.


6.8	Protection of Mindray Property; Heska Customer Obligations. Heska shall protect all Mindray Intellectual Property and Confidential Information to the same degree it protects its own Intellectual Property and Confidential Information, but in no case less than exercising reasonable care.


7.	Price and Payment


7.1	Prices. The prices for the Products purchased by Heska hereunder shall be as set forth in the attached Annex B , unless otherwise agreed upon by the Parties in writing from time to time.

7.2

Net Amounts and Costs. All prices for the Analyzer Products are “net amounts” in US Dollars. Mindray is responsible for all insurance, freight, customs, duties, VAT, any foreign, federal, state or local taxes that may be applicable to bring the Analyzer Products to Heska’s dock DDP, or DDP at Heska's Logistic Center Dock in Europe. (Incoterms 2010). Each Party shall be responsible for their own federal, state and local sales, use and income taxes and assessments, Value Added Taxes, and other taxes, fees, and duties.


7.3	Resale Tax Exemption . Heska agrees to provide to Mindray a copy of Heska’s Resale Tax Exemption Certificate for any sales within Heska’s Territory subject to resale tax exemption, otherwise, all applicable taxes will be included on the invoices.

7.4

Payment Instructions. Subject to offset for DOA Product as provided in Article 8.2 below, the full payment is immediately due and must be settled, within thirty (30) days of receipt of the Product(s) at Heska’s shipping dock, with payment by company check or wire transfer of immediately available funds, issued by a first class, international bank, satisfactory to Mindray at the following bank (or such other financial institution as Mindray may designate):Bank: [***]

Account number: [***]

7.5

Currency Exchange Rate Adjustment. Currency is in US Dollars. When converted to Chinese Yuan Renminbi (CNY) the currency has a basis in this Agreement of 6.10 CNY per 1.00 USD (“Currency Basis”). If the Currency Basis shifts up by more than 15% (for example, to 7.02 or more CNY per 1.00 USD) or down by more than 15% (for example to 5.19 or fewer CNY per 1.00 USD) (“Currency Shift”) will result in an adjustment to pricing in Annex B under the following procedures (“Currency Rate Adjustment”). Upon occurrence of a Currency Shift, one Party may notice the other Party of the actual percentage of the change from the Currency Basis (“Currency Factor”) by written notice (“Currency Notice”). If the Currency Shift is still in effect ninety (90) days after receipt of Currency Notice, a Currency Rate Adjustment shall be recorded as a written amendment to Annex B , at which time the Price of each Product in Annex B shall be adjusted. The Price adjustment (increase or decrease) shall be an amount equal to the product of the Currency Factor, multiplied by fifty percent (50%), multiplied by the Price then in effect for each Product; provided however , (i) no single Currency Rate Adjustment shall result in an adjustment to the Price that is greater than ten percent (10%), and (ii) Purchase Order(s) issued by Heska prior to such amendment shall be unaffected and deliverable at the Price prior to the Currency Notice, and (iii) the Price for any Product in Annex A as of the Effective Date shall not be adjusted by Currency Rate Adjustments by an amount greater than forty (40%) percent in the aggregate during any five (5) consecutive year period of the Term. The new rate of currency immediately following a Currency Rate Adjustment shall thereafter become the new Currency Basis.

7.6


8.	Shipment and Acceptance

8.1

Freight Terms. The Analyzer Product prices are based on DDP (Incoterms 2010) Heska’s Dock, Loveland, CO, or other logistic center dock in Europe designated by Heska; The Reagent prices are based on DAT (Incoterms 2010) at a European port designated by Heska; The Spare Parts prices are based on Exworks (Incoterms 2010) Mahwah, NJ USA, shipped only to Heska USA facilities; The QC/Cal prices are based on Exworks (Incoterms 2010) Indianapolis, Indiana, USA. Risk of loss for the Products shall pass to Heska upon delivery to Heska’s Dock. Mindray shall ship Product to Heska using reputable carriers, under Economy class shipment or better. The Parties shall cooperate in freight matters, including the prompt and complete documentation for proof of loss claims to an appropriate carrier and/or insurer. Heska shall photograph damage to original

packaging, immediately upon receipt of packaging that Heska deems to have incurred external damage.

8.2


9.	Warranties


9.1	Limited Product Warranty .

9.1.1

Analyzer Product Warranty . Mindray warrants the Analyzer Products sold by Mindray conform to the Specifications and shall be free from defect in material and workmanship for (i) twenty-one (21) months from the date of Mindray’s shipment of the Products to Heska. Mindray and Heska agree that the exclusive remedies for Mindray's breach of its limited express warranty is limited at Mindray’s election solely to: (a) the repair and/or replacement of the defective Analyzer Product or part, as reasonably determined by Mindray; or (b) refund of the purchase price and return the Analyzer Product; provided, however, that for DOA Products, the provisions of Section 8.2 shall apply. In fulfilling its limited warranty to repair and/or replace a defective Analyzer Product or part, Mindray shall act in a commercially reasonable manner. The limited warranty does not extend to any of the Analyzer Products that have been, other than by Mindray: (1) subject to misuse, neglect, or abuse, (2) improperly repaired, or altered or modified, and/or (3) used in violation of instructions furnished by Mindray or in contravention of generally accepted usage standards in the Market, in the Territory, by Customers, for products similar to Analyzer Products. Heska shall solely bear all costs to retrieve and to ship all Analyzer Product(s) requiring warranty service to Mindray designated location within the United States. Mindray shall solely bear all costs to ship all Analyzer Product(s) repaired under warranty service to Heska’s principal place of business.

9.1.2

Analyzer Products Needing Repair. Heska must maintain a Service Exchange Pool, with Service Exchanges, as defined in Article 1 . Heska will make its commercially reasonable effort to troubleshoot and fix non-functioning Analyzer Products in the Territory. If the units in question cannot be brought by Heska up to normal functionality and operation according to Specification, Heska will attempt to repair such units in the USA Head Office of Heska for a second and final attempt. If the units in question still fail, Heska will then initiate the Analyzer Product limited warranty process with Mindray, as described in Section 9.1.1 . Mindray will return the repaired units back to Heska's Service Exchange

Pool. Mindray will not accept failed units sent by Heska directly from the Territories to Mindray for repair without following the repairing efforts from its U.S. Service Center as outlined herein. Mindray shall reimburse or replace Spare Parts used by Heska in repairing units under warranty upon receipt of Heska’s written itemization of Spare Parts used in such repairs, itemized per repaired unit’s serial number.


9.1.3	Fund for the Service Exchange Pool. Through the first twelve (12) months of the Agreement, Mindray will provide Heska a discount totaling up to [*] to offset Heska costs for the Service Exchange Pool. The fund will come from a []/unit discount on each EHT5 ordered until a total discount of [**] is reached.


9.1.4	Extended Warranty. Products must be covered by active warranty or extended warranty policies in order to be eligible for purchasing extended warranty for the next period.

9.1.5

Consumables Warranty. Mindray warrants the Consumables sold by Mindray conform to the Specifications as set forth in Annex A , shall work with the Analyzer Product for the intended purpose, shall have a shelf life of at least fifteen (15) months, except for probe cleanser shall have a shelf life of at least eight (8) months, from receipt by Heska, and shall be free from defect in material and workmanship. Mindray will cover the replacement of the non-conforming or defective Consumable(s).

9.2

9.3

No Infringement . Mindray represents and warrants that neither the Products nor their manufacture, use, importation or sale infringe upon the proprietary rights held by a third party in the Territory. In the event of an allegation of infringement of any third party intellectual property rights is made, or in Mindray's and Heska's opinions is likely to be made, in respect of the Product Mindray may at its own expense (i) obtain for Heska and its customers the right to continue to import, sell and use the Product, (ii) modify the Product so as to avoid infringement in a way reasonably acceptable to Heska or (iii) if conditions (i) and (ii) cannot be complied with on terms which in Mindray's opinion are reasonable, Mindray (x) may terminate this Agreement upon not less than ninety (90) days’ advance notice, and (y) shall indemnify Heska according to the provisions of Section 13.2 of this Agreement. If the Agreement is terminated pursuant to this Section 9.3 Mindray shall, at its cost, use its best efforts to identify a mutually acceptable manner of modifying the Product or this Agreement to render the Product or the performance of this Agreement non-infringing and, upon Heska’s request, accept return of and refund monies paid for Product in Heska’s inventory. Heska shall have the right of first refusal for a period of thirty-six (36) months following such termination before Mindray may appoint any new distributor in the Territory.


9.4	Disclaimer of All Other Warranties . EXCEPT FOR THE LIMITED WARRANTY EXPRESSLY SET FORTH IN THIS AGREEMENT, MINDRAY HEREBY DISCLAIMS ALL OTHER

WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, WITH RESPECT TO THE PRODUCTS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.


10.	Governing Law; Dispute Resolution; Exclusive Venue and Jurisdiction

10.1

10.2


11.	Parties’ Responsibilities


11.1	HESKA’S RESPONSIBILITIES:

11.1.3 Sales Agents . Heska shall be solely responsible for selection, training, and support of installation personnel, technical support personnel, dealers, agents, sales representatives and contractors and for the advice performance of such persons under Heska’s direction and control in providing information and services to end user customers and Customers of the Products purchased hereunder.

11.1.5 Forecast . Heska, on a rolling basis, during the first ten (10) days of each Calendar Quarter after the Effective Date, shall, upon Mindray’s written request, provide Mindray with a written forecast of estimated purchases of the Products for the next twelve (12) month period. The forecast shall represent Heska’s commercially reasonable good-faith estimate of its Product requirements for such twelve (12) month period. Such forecasts are for the convenience of Mindray only, and shall not constitute firm purchase orders or shipping orders and shall not be binding upon or create any obligation or liability with respect to Heska. Mindray shall, within ten (10) days of becoming aware that Mindray may reasonably be unlikely to have the ability to fulfill the forecast quantities and schedule.


11.2	MINDRAY’S RESPONSIBILITIES:

11.2.1 Spare Parts and Consumables Tail . During the Tail period, Mindray shall maintain the capability to repair the Products, to deliver Consumables, and to deliver Spare Parts to Heska at terms at least as favorable as Mindray offers to any other customer(s) of Mindray in the Market and in the Territory, but in no case less favorable than the Price and terms of this Agreement, or at Mindray’s then-current price, whichever is lower; provided however, that the Price of this Agreement during the Tail may be adjusted pursuant to the Currency Rate Adjustment procedures in Section 7.5 . During the Tail period, Heska shall have the exclusive right to sell Consumables and Spare Parts to Customers acquired by Heska from Effective Date through Termination.

that undergo major improvements in form, fit, performance or functionality shall be negotiated in good faith by the Parties. Mindray represents and warrants to Heska as of the Effective Date and throughout the Term and during the Tail, the prices, benefits and other terms and conditions in this Agreement are no less favorable to Heska than any other similarly situated customer or Affiliate of Mindray of similar purchase, sales, or placement of Products or similar products volume in the Market and in the Territory.

11.3 RESPONSIBILITIES OF BOTH PARTIES:

reasonably cooperate with the other in sharing any information that may constitute a complaint related to the Products. Mindray will use reasonable efforts to assist Heska in investigating and correcting any problems Heska or its Customers may experience with the Product. Such efforts will include qualified representatives of Mindray visiting the Territory when deemed reasonably necessary by Heska. Heska will use reasonable efforts to implement any corrective action recommended by Mindray.

11.3.5 Recalls . Mindray shall bear all costs and have sole authority and obligation to declare a recall of any Products, if Mindray believes that there is a potential significant health hazard or non-compliance with applicable government regulations. In the event that a mandatory recall, withdrawal or modification of the Product is required by a decision or ruling of a court of competent jurisdiction or by a ruling or regulation of a governmental agency (“Mandatory Recall”), or in the event of a voluntary recall initiated by Mindray, Mindray shall be responsible for s upplying modified Products or components thereof, to Heska for Heska’s delivery to Customers who purchased such Product, consistent with applicable regulations and/or government agency instructions or rulings. In connection with any recall, Heska will implement the recall and supply the affected Customers with modified Products or components and/or service, where applicable, thereof under the direction of Mindray. Mindray and Heska agree to work cooperatively to facilitate any recall. In connection with this obligation, Heska shall track serial numbers of all Product delivered to customers at the time of delivery. Mindray shall reimburse Heska for reasonable expenses incurred by Heska pursuant to this Article 11.3.5.


12.	Proprietary Rights


12.1	Intellectual Property.

reasonable related expenses, in executing all documents required to confirm the foregoing assignment.

12.1.3 During the Term of this Agreement, and subject to Heska’s compliance with the terms of this Agreement, Mindray hereby grants to Heska an exclusive (even as to Mindray) non-transferable, non-sublicenseable (other than as permitted under Section 12.6 ) license under Mindray’s Intellectual Property embodied in the Products solely for the purpose of selling the Products to Customers in the Market within the Territory. For avoidance of doubt, the exclusivity of the license granted herein shall extend only to the Market within the Territory.


12.2	No Unauthorized Use. Neither Party shall use the other Party’s Intellectual Property or Confidential Information for any purpose other than to advance the sale of the Products by Heska to Customers in the Market within the Territory.

12.3

No Right. Except as expressly set forth herein, neither Party is granted any right to the other Party’s software or Intellectual Property, even if the software, hardware, or firmware is incorporated into any products, software, or other Intellectual Property. Nothing herein, or in any way related to this Agreement or interaction or non-action or delay between the Parties or their assigns, shall grant, transfer, or cause to be shared, with the other Party, any rights in and to either Party’s software, in any form, firmware, designs, component sources and specifications, documentation, or Intellectual Property. This Section 12.3 shall apply, whether or not either Party or any third party products are incorporated in, embedded in, merged with, or otherwise associated with a Party’s products.


12.4	Software License Definition . Certain licenses may be provided, included, or bundled with Products, including but not limited to HL7, networking, and other interfaces and software for displaying, capturing, transmitting or synchronizing data to and from the Analyzer Product (the “ Software ”).

12.5


12.6	Right to Sublicense . During the Term of this Agreement, Heska may sublicense to Customers, for use in the Market within the Territory, the nonexclusive and personal right to use, in object code format only, the Software for the life of the Products associated with such Software. Such sublicense shall be granted consistent with the terms of Section 6.6 of this Agreement.


12.7	Ownership; Rights . Neither Party shall acquire any right, title or interest in any of the other Party’s trademarks, copyrights, trade names, nor other intellectual property and proprietary information, except as specifically granted in this Agreement. No rights are granted to Heska under this Agreement to make or cause to be made any of the Products.


12.	Insurance and Indemnity

13.1

Insurance . Mindray shall at its sole cost and expense maintain throughout the Term: (i) Workers' Compensation insurance as required by all applicable laws; and (ii) product and public liability insurance coverage affording protection for bodily injury, death, personal injury and property damage, and including coverage for contractual liability and products liability, with minimum coverage limits of [***] per occurrence, and minimum coverage limits of [***] in the aggregate. Any product liability insurance policy of Mindray covering the Products shall name Heska as an additional insured. If applicable law requires Mindray to maintain higher coverage limits or other insurance coverage, then such required limits or insurance shall be satisfied. Mindray hereby covenants to obtain all insurance as required under the terms of this Section 13.1 from a reputable, licensed insurance provider with a financial strength rating of “A-“ or better and financial size category of “VII” or better. Upon written request by Heska, Mindray shall deliver to Heska, one or more certificate(s) of insurance evidencing such coverage. The policies required to be maintained by Mindray under this Section 13.1 shall be primary and non-contributory. With respect to any policies or coverage maintained on a “claims-made” basis, such policies shall be maintained for a period of not less than two years following the expiration of the Term.

13.2

specifications, where such modification, alteration, reprocess, or repair can be shown to be a material contributor to such liability and/or damages for which indemnification is claimed. Mindray shall have the sole right to defend such claims covered under this indemnification, at its own expense, and Heska shall, at Mindray’s expense, use reasonable efforts to provide such assistance in investigating and defending such claims as Mindray may reasonably request. This indemnity shall survive the expiration or termination of this Agreement.

13.3

Indemnification by Heska . Heska agrees to defend, indemnify and hold harmless Mindray and its Affiliates and each of their respective directors, officers, investors and employees, from any and all losses, claims, damages, awards, penalties, expenses or injuries incurred by Mindray, including reasonable attorney's fees and all court costs, arising out of or resulting from: (a) any third party claims alleging that the Products as a result of marking by Heska infringe any trademark of any third party; or (b) any third party claims alleging that this Agreement, including the negotiation or implementation of this Agreement, or the appointment of Heska by Mindray to sell Products to Customers in the Market within the Territory violates or interferes with (i) any agreement to which Heska is a party or (ii) any alleged legal duty, express or implied, allegedly owing from Heska to any such third party; or (c) any third party claim arising from Heska’s purchase, marketing, sale, distribution, service, or support of the Products; or (d) Heska’s breach of this Agreement. Heska shall have the sole right to defend such claims covered under this indemnification, at its own expense, and Mindray shall, at Heska’s expense, use reasonable efforts to provide such assistance in investigating and defending such claims as Heska may reasonably request. This indemnity shall survive the termination of this Agreement.


13.	Confidential Information

14.1


14.2	Confidentiality Release . The Parties shall be released from any confidentiality obligations under this Article 14 five (5) years after the last of any and all of the obligations of the Parties to this Agreement have expired; provided, however, that with respect to any trade secrets disclosed by a

Party, the confidentiality obligations under this Article 14 shall survive for as long as such confidential information remains a trade secret.


14.	Termination


15.1	Right to Terminate for Good Cause . A Party has the right to terminate this Agreement for Good Cause with immediate effect. "Good Cause" means the occurrence of one or more of the following events:


(a)	Should one of the Parties become bankrupt or insolvent, or have its business placed in the hands of a receiver, assignee or trustee, whether by voluntary act or otherwise, or become unable to pay its bills in the ordinary course of business, on time; or


(b)	If one of the Parties ceases to function as a going concern or to conduct its operations in the normal course of business; or


(c)	A Party becomes unable, due to regulatory sanction or claim or loss of license or regulatory approval, to meet its commitments under the Agreement.

15.2


15.3	Termination During Renewal Term. This Agreement may be terminated by either Party during the Renewal Term upon not less than 180 days prior to the expiration of the then current Renewal Term upon notice to the other Party.

15.4

Effect of Termination. In the event of termination by Mindray for Good Cause pursuant to Section 15.1 or resulting from a breach by Heska pursuant to Section 15.2 above or following the effective date of termination by Heska pursuant to Section 15.3 , all undisputed monies owed to Mindray shall become due and payable. Following the expiration of the Term or earlier termination of this Agreement as permitted by Article 15 of this Agreement, Mindray shall have no right to require Heska to continue to act as a distributor of the Products, and Heska shall have no right to require Mindray to continue to sell the Products to Heska; provided, however , that Mindray shall be obligated; (i) to sell to Heska and fulfill extended warranty obligations hereunder and during the Tail so that Heska can meet its commitments to Customers who have purchased and paid for (or contractually promised to pay for), through Heska, warranty and service products and services and its obligations to Heska, including as provided for in Article 9 , and Annex B and (ii) to sell Replacement Parts and Consumables to Heska under the Tail, including as provided for in Section 11.2 . Each of the Parties acknowledges that it is acting independently in connection with any actions taken in connection with this Agreement, including any investments in personnel, facilities, and marketing activities undertaken hereunder, and is not relying on any express or implied representation or promise from the other Party that this Agreement will continue for any period except as expressly provided herein. Each of the Parties hereby waives any claim against the other for loss or damage of any kind (including, without limitation, damages or other compensation for unjust enrichment, loss of prospective profits, lost business opportunities, reimbursement for

expenditures or investments made or commitments entered into or goodwill) because of the termination of this Agreement for any reason as permitted by Article 15 of this Agreement or failure of Heska to extend the term beyond the Initial Term of this Agreement or because of failure of the Parties, for whatever reason, upon expiration hereof, to make a similar agreement.


15.	General Provisions

16.1

Assignment . Except as set forth in this Section 16.1 , this Agreement may not be assigned by either Party without the prior written consent of the other Party, which shall not be unreasonably withheld. This Agreement shall be binding on and shall inure to the benefit of each Parties’ successors and assigns. Heska may assign this Agreement to: (i) any of its majority owned Affiliates; or (ii) any person or entity that acquires substantially all of the business or assets of Heska or substantially all of the business segment relating to the Products that are the subject of this Agreement; provided, however, Mindray shall have the right to reject such assignment if in Mindray's reasonable judgment such assignment is to a person or entity that manufactures, distributes or sells a competitive product to the Products.

16.2


16.3	Survival of Obligations . Notwithstanding any provision to the contrary contained in this Agreement, the provisions of Articles 6, 9, 10, 11.2.1, 12, 13, 14, 15.4 and 16 , and other terms that by their nature are intended to survive termination, shall survive the expiration or termination of this Agreement and continue to be enforceable in accordance with their respective terms.

16.4

If to Heska:

Heska Corporation

Attn: President

3760 Rocky Mountain Ave.

Loveland, CO 80538

Copy to:

Heska Corporation

Attn: Legal Department

3760 Rocky Mountain Ave.

Loveland, CO 80538

If to Mindray:

Shenzhen Mindray Bio-Medical Electronics Co., Ltd.

Attn: Legal Department

Mindray Building, Keji 12th Road South

High-Tech Industrial Park

Nanshan, Shenzhen 518057 P.R. China

Copy to:

Shenzhen Mindray Bio-Medical Electronics Co., Ltd.

c/o North American Corporate Counsel

800 MacArthur Blvd.

Mahwah, NJ 07430


16.5	Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures transmitted by facsimile or other electronic means are acceptable the same as original signatures for execution of this Agreement.

16.6


16.7	Compliance with Laws . Each Party to this Agreement shall comply with all applicable laws and regulations relating to the Products and their respective performance under this Agreement.

16.8


16.9	Entire Agreement . This Agreement constitutes the entire understanding of the Parties relating to the subject hereof and supersedes all other previous agreement and understandings, whether written or oral.


16.10	Interpretation; Headings . Articles and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretations of this Agreement. This Agreement is the result of arms-length negotiations between the Parties hereto and no provision hereof, because of any ambiguity found to be contained therein or otherwise, shall be construed

against a Party by reason of the fact that such Party or its legal counsel was the draftsman of that provision.

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date specified above.


HESKA CORPORATION	SHENZHEN MINDRAY BIO-MEDICAL ELECTRONICS CO., LTD.:

By: /s/ Kevin Wilson By: [***]

Name: Kevin Wilson Name: [***]

Title: President, CEO Title: General Manager – IVD Division

Annex A – Product & Product Specifications

Analyzer Product

Name and main function

Mindray product: BC-5000vet

OEM product: Element HT5

BC-5000vet is an automatic veterinary 5-part differential hematology analyzer.

Net Size / Net Weight



Net Size/ Net Weight	[***]
HxWxD (cm)	[***]
Weight (Kg)	[***]

Throughput and Parameters

At least [***] samples per hour (Dog, Cat, Horse, Ape/Monkey, Ferret, Rat, Mouse)

Addition of Cow/Bovine, Goat, Llama and Sheep parameters is optional, Mindray will make the best effort to incorporate these animals into the Product.

Aspiration volume:

≤ [***] ul

Parameters:

WBC, Neu#, Lym#, Mon#, Eos#, Bas#, Neu%, Lym%, Mon%, Eos%, Bas%

RBC, MCV, HGB, HCT, MCH, MCHC, RDW%

PLT, MPV

Display and Software

Color touch screen: ≥ 10.1’’

Software updates directly through USB drive.

Embedded operation system.

Communication and Interface

LAN Port supports HL7 protocol

USB, LAN

Support LIS – Bi-Directional Communication

Linearity



Parameter	Unit	Linearity Range	Display Range
WBC	[***]	[***]	[***]
RBC	[***]	[***]	[***]
MCV	[***]	[***]	[***]
HGB	[***]	[***]	[***]
HCT	[***]	[***]	[***]
PLT	[***]	[***]	[***]

Background



Parameter	Unit	Background Limits
WBC	[***]	[***]
RBC	[***]	[***]
HGB	[***]	[***]
PLT	[***]	[***]

Carryover

[***]



Parameter	Carryover
WBC	[***]
RBC	[***]
HGB	[***]
PLT	[***]

Reproducibility [***]



Parameter	CV%
WBC	[***]
RBC	[***]
MCV	[***]
HGB	[***]
PLT	[***]

Reagent

Diluent, DIFF lyse, LH lyse (shelf-life is [***] months)

Probe cleanser (shelf-life is [***] months)

Shelf-life is counted from the manufacturing dates.

DIFF Lyse and LH Lyse concealed in analyzer. Only Diluent and Probe Cleanser are outside.

Spare Parts

Not to exceed the principal of manufacturing cost plus [***].

Annex B – Price & Minimum Quantity

Price


1.	Analyzer Product Units (Purchased within the Territory)



	Accumulated Units in the Territory of the Agreement	Unit Price
a.	[***] units	[***]/unit
b.	[***] units	[***]/unit
c.	[***] units	[***]/unit
d.	[***] units	[***]/unit


2.	Consumables



P/N	Description	Heska Transfer Price
[***]	EHT5 Diluent(OEM/5.5L×2)	$ [***]
[***]	EHT5 Diluent(OEM/20L×1)	$ [***]
[***]	EHT5 DIFF LYSE(OEM/300mL×4)	$ [***]
[***]	EHT5 LH LYSE(OEM/90mL×4)	$ [***]
[***]	Probe Cleanser(OEM/25mL×6)	$ [***]


3.	QC/Cal



P/N	Description	Heska Transfer Price
[***]	EHT5 Control_CBC-5DMR Vet Normal pack (2 x 3.0mL - Normal Level )	$ [***]
[***]	EHT5 Control_CBC-5DMR Vet Tri-Pack (12 x 3.0mL – 4 of each level Low, Normal, High)	$ [***]
[***]	EHT5 Cal_CBC-CAL PLUS Vet Calibrator set (1 x 3.0mL)	$ [***]


4.	Spare Parts


a.	Not to exceed actual manufacturing cost plus [***].


b.	The Spare Parts prices are based on Exworks (Incoterms 2010) Mahwah, NJ USA. Spare Parts are shipped to Heska US facilities only.


5.	Extended Warranty (per unit per year of Extended Warranty)


a.	[***] of the Analyzer Product Price

Minimum Annual Total


1.	Initial Term and Renewal Term(s) [***] Analyzer Product units per Year

Annex C: Territories

Exclusive Territories:

Albania

Andorra

Austria

Belgium

Bosnia & Herzegovina

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Israel

Italy

Kosovo

Latvia

Liechtenstein

Lithuania

Luxembourg

Macedonia

Malta

Moldova

Monaco

Montenegro

Netherlands

Norway

Poland

Portugal

Romania

San Marino

Serbia

Slovakia

Slovenia

Sweden

Switzerland

United Kingdom (Including Scotland, Northern Ireland, Wales, England)

Non-Exclusive Territories

Spain

Australia

New Zealand

South Africa

AMENDMENT TO

EXCLUSIVE SUPPLY AGREEMENT

This Amendment (the "Amendment"), effective as of January 1, 2017 (the "Effective

Date"), modifies the Exclusive Supply Agreement between Heska Corporation ("Heska") and

Shenzhen Bio-Medical Electronics Co., Ltd. ("Mindray"), dated February 1, 2016 (the "Original Agreement"). Heska and Mindray both believe the other to be in compliance with the terms of the Original Agreement and hereby each waive and release any and all claims and rights to relief of

any kind for breach, default or non-performance by the other party under the Original Agreement.

The Amendment and the Original Agreement shall collectively be referred to as the "Agreement".


1.	Annex C . Russia and Ukraine are hereby added as "Exclusive Territories" on "Annex C: Territories".


2.	Annex B . Beginning on the Effective Date, the "Minimum Annual Total" on "Annex B —Price & Minimum Quantity" shall be changed from "[*]" to "[*]" Analyzer Produce units per Year under the "Initial Term and Renewal Term(s)".


3.	No Other Changes . Except as expressly modified by this Amendment, all other provisions

of the Original Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment by their duly authorized representatives.

SIGNED:


Heska Corporation	Shenzhen Mindray Bio-Medical Electronics Co., Ltd.

By: /s/ Kevin Wilson By: [***]

Name: Kevin Wilson Name: [***]

Title: Title:

Date: Title: 02/16/2017

Exhibit 10.60

Execution

MASTER DISTRIBUTION AND SUPPLY AGREEMENT

This Master Distribution and Supply Agreement (this “ Agreement ”) is entered into as of October 17, 2014 (the “Effective Date”) by and between Heska Corporation, a Delaware corporation (“ Heska ”) and Butler Animal Health Supply, LLC d/b/a Henry Schein Animal Health, a Delaware limited liability company (“ HSAH ”). HSAH and Heska are each a “Party” and jointly are the “Parties”.

1. Appointment and Term.

1.1 Subject to the terms and conditions of this Agreement and each schedule entered into from time to time between the parties (substantially in the form attached hereto as Exhibit A , each a “ Schedule ”, and collectively, the “ Schedules ”), Heska hereby appoints HSAH as its exclusive distributor of the products (including any modifications, variations, enhancements, improvements and advances thereto (“ Exclusive Products ”) listed on the applicable Schedule in the territory identified on such applicable Schedule (the “ Territory ”), and HSAH hereby accepts such appointment. Subject to the terms and conditions of this Agreement and the Schedules , Heska hereby also appoints HSAH as its non-exclusive distributor of the products (including any modifications, variations, enhancements, improvements and advances thereto and products or developments ancillary or related thereto (“ Non-Exclusive Products ”) listed on the applicable Schedule in the territory identified on such applicable Schedule (the “ Territory ”), and HSAH hereby accepts such appointment. Exclusive Products and Non-Exclusive Products are collectively referred to as “Products”. The terms and conditions of this Agreement are hereby incorporated by reference into each Schedule as if fully set forth therein. Subsidiaries and affiliates of a Party may, at the direction of that Party, exercise any of the rights, or assume any of the duties, of that Party hereunder, provided that the Party shall be responsible for the performance of, and the adherence to this Agreement by, any such subsidiaries. Heska agrees not to sell or otherwise distribute the Exclusive Products in the Territory during the Term through a third party; provided however, nothing in this Agreement shall restrict Heska from selling or marketing the Products directly to customers or from fulfilling contracts and obligations of Heska in force with any third party prior to the Effective Date, including those obligations between Heska and end users of the Products, without alteration, obligation, liability, or penalty to HSAH or any third party.

1.2 The term of this Agreement shall commence on the date hereof and remain in effect so long as any Schedule incorporated hereunder remains in effect (the “ Term ”). The term with respect to each applicable transaction shall be set forth in the applicable Schedule (the “ Applicable Term ”).

1.3 HSAH agrees to purchase at least the Minimum quantities of Products as set forth in the Schedules. “Minimum” means a minimum for which there is some contractual ramification under this Agreement. In the event that HSAH fails to purchase the Minimum quantities as set forth in the Schedules and HSAH does not remedy such failure within 45 days after receipt of a written notice from Heska of such failure, then Heska’s sole and exclusive remedy shall be that Heska may elect, in its sole discretion, upon thirty (30) day’s prior written notice to HSAH, to, (i) in the case of Non-Exclusive Products, to remove the Non-Exclusive Products from the Agreement, and, (ii) in the case of Exclusive Products, to be relieved of all obligations arising from this Agreement with respect to the Exclusive Products (the “Exclusivity Obligations”); provided, however, that Heska may not exercise such right to be relieved of the Exclusivity Obligations to the extent such failure by HSAH to meets its purchase

FORM DISTRIBUTION AGREEMENT 11-7-12

Minimums directly arises from Heska’s (i) failure to install, in a commercially reasonable period of time, any Products that were purchased pursuant to the terms of this Agreement (and such failure was not due to any act or omission on the part of HSAH), or (ii) direct sales by Heska that are in amounts greater than [***] percent [***] of the Minimums.

1.4 Forecast . HSAH, on a rolling basis, during the first ten (10) days of each Calendar Quarter after the Effective Date, shall provide Heska with a written forecast of estimated purchases of the Products for the next twelve (12) month period. The forecast shall represent HSAH’s commercially reasonable good-faith estimate of its Product requirements for such twelve (12) month period. Such forecasts shall not constitute firm purchase orders or shipping orders and shall not be binding upon or create any obligation or liability with respect to either Party. Heska shall, within ten (10) days of becoming aware that Heska may reasonably be unlikely to have the ability to fulfill the forecast quantities and schedule, shall notice HSAH of such forecasted inability to fulfill the forecast.

1. Pricing. Heska agrees to sell the Products to HSAH at the prices in Schedule E , as such prices are adjusted from time to time in accordance with this Agreement. Heska may only increase any of the prices for the Products on at least 90 days’ prior written notice to HSAH. If an increase in the price for any of the Products becomes effective after Heska accepts an order for such Products, but before Heska has shipped the Products ordered, the price that HSAH will pay for the Products will be the price in effect when the Heska accepted HSAH’s order for the Products. Heska may decrease the prices for the Products at any time and will promptly notify HSAH of any price decrease. If the price for Products is decreased after Heska accepts an order for such Products, but before Heska has shipped the Products ordered, the price HSAH will pay for the Products will be the price in effect when Heska ships the Products. All prices are expressed in U.S. dollars and are exclusive of any sales or excise taxes. Each Party shall be responsible for their own federal, state and local sales, use and income taxes and assessments, Value Added Taxes, and other taxes, fees, and duties.

2. Orders; Shipping and Payment Terms.

3.1 HSAH shall order Products from Heska by submitting a purchase order indicating the desired quantity, delivery date at least seven (7) business days in the future, and delivery location. Heska will use commercially reasonable efforts to accept the HSAH order and to meet the quantity, delivery date, and delivery location terms on the purchase order, but in no case, except as expressly provided for in this Agreement, shall Heska be liable for failure to meet those terms. Unless Heska provided to HSAH a written notice of rejection of a purchase order within three (3) business days of Heska’s receipt of HSAH’s purchase order, the purchase order shall be deemed to have been accepted. Heska may reject any purchase order for any commercially reasonable reason.

3.2 All shipments of Products to HSAH shall be shipped by Heska, FOB shipping point, with risk of loss and title to the Products to pass to HSAH (or HSAH’s customers in the case of drop shipments) at the shipping point.

3.3 The amounts payable under purchase orders shall be made within 30 days of the date of HSAH’s receipt of the applicable invoice. All payments shall be made in U.S. dollars. No invoice may be issued prior to Heska’s shipment of the Products ordered.

3.4 Heska agrees to deliver Products as soon as commercially practicable after receipt of a purchase order from HSAH.

3. Return Policy. Heska shall promptly credit in full any amounts paid by HSAH in respect of Products purchased that are defective upon receipt by HSAH, and returned by HSAH within 30 days of receipt of such defective product. Heska shall be responsible for all reasonable shipping costs associated with the return by HSAH of Products that are defective. Once a Product has been used by HSAH or sold

FORM DISTRIBUTION AGREEMENT 11-7-12

to an end user customer in the Territory, the Product shall be warranted pursuant to Heska’s standard, then in force, Master Warranty Terms and Conditions (“MWTC”) for that Product. There is no right of return, refund, cancellation, or alteration of sale in the MWTC; remedies are limited to repair or replacement, in the case of Product, or re-performance of service, in the case of service. The Parties shall follow the return of Product procedures in Schedule D .

4. Product Discontinuance. Heska agrees to use commercially reasonable efforts to notify HSAH in writing at least 90 days prior to the date that Heska intends to discontinue the distribution or sale of any Products, provided however that HSAH shall, without the express written permission of Heska, keep such notification confidential. Notwithstanding its receipt of such notice, HSAH may continue to sell such discontinued Products until its inventory is depleted. HSAH may, at its option, within 60 days after its receipt of such notice, return all discontinued Products remaining in its inventory for full credit from Heska. HSAH shall pay all shipping costs associated with such return.

5. Purchase Cancellations/Rescheduling. HSAH may reschedule without charge, any Product to be delivered (but not yet shipped) under any purchase order up to 15 days prior to shipment by providing Heska with notice of such cancellation or rescheduling electronically, by facsimile or by mail. Heska shall use commercially reasonable efforts to accommodate HSAH’s requested rescheduling of a purchase order, or Heska may, in Heska’s sole discretion, cancel such purchase order that has been requested for rescheduling by HSAH. Purchase orders not rescheduled before 15 days prior to shipment date originally specified on the purchase order shall be binding and non-cancellable.

6. Support of Products . HSAH, at its expense, will represent, support, market, promote, and distribute the Products in the Territory. Heska, at its expense, will provide HSAH with such technical support, product literature and training on the Products as Heska reasonably deems is necessary for HSAH to effectively market and sell the Products. The Parties shall work collaboratively, professionally, and responsively together. Heska and HSAH shall diligently follow-up on all leads. The Parties shall use commercially reasonable efforts to keep each other reasonably informed of the status of the sales process through their standard procedures. A Party’s failure to comply with the provisions of this Article 7 shall constitute a material breach of this Agreement by that Party. In support of Heska, HSAH will, in substance, provide the services and support outlined in Schedule B , the details of which will be worked out by the Parties’ sales and marketing personnel.

7. Termination .

8.1 A party may terminate this Agreement, effective immediately upon delivery to the other party of written notice to such effect, in any of the following circumstances:

(i) the other party dissolves, ceases doing business, or sells or transfers all or substantially all of its assets;

(ii) the other party (A) makes an assignment for the benefit of its creditors, (B) institutes a proceeding as a debtor under any law relating to insolvency or bankruptcy, (C) fails to have discharged within 30 days any involuntary proceedings brought against it under any insolvency or bankruptcy law, (D) becomes insolvent or (E) generally does not pay its debts as they become due;

(iii) the other party (A) commits theft or embezzlement or obtains funds or property under false pretenses, (B) commits a material act of malfeasance, dishonesty, breach of trust or other similar act against that party or its employees, customers or suppliers or (C) is convicted of a felony or serious misdemeanor; or

FORM DISTRIBUTION AGREEMENT 11-7-12

(iv) the other party fails to remedy any breach or default in performance of the terms of this Agreement within 30 days after its receipt of a written notice of such breach or default.

8.2 The parties agree that termination of any individual Schedule, removal of any Product, or reclassification of a Product from an Exclusive Product to a Non-Exclusive Product shall not terminate this Agreement or any other Schedule in effect under the Agreement. Termination of this Agreement, however, shall automatically terminate all outstanding Schedules in effect hereunder. A party sending notice of termination pursuant to this Article 8 shall clearly indicate in any termination notice the grounds for termination and whether the Agreement or only the specified Schedule is being terminated by such notice.

8.3 Except in the event of termination by Heska due to an uncured breach or default by HSAH in performance of the terms of this Agreement, Heska shall honor all orders accepted by Heska for Product that HSAH placed prior to the effective date of termination. Upon termination for any reason, the monies owed by HSAH to Heska shall become immediately due and payable. Termination shall not affect the rights or obligations of either party accrued as of the effective date of such termination or that may arise subsequently with respect to transactions initiated or completed prior to the effective date of such termination. The confidentiality and indemnification provisions of this Agreement shall survive the termination of this Agreement.

8.4 Each of the Parties hereby waives any claim against the other for loss or damage of any kind (including, without limitation, damages or other compensation for unjust enrichment, loss of prospective profits, lost business opportunities, reimbursement for expenditures or investments made or commitments entered into or goodwill) because of the termination of this Agreement for any reason as permitted by Article 8 of this Agreement or failure of a Party to extend the term beyond the Initial Term of this Agreement or because of failure of the Parties, for whatever reason, upon expiration hereof, to make a similar agreement.

8. Treatment of Confidential Information.

9.1 Neither party will use (except to undertake the activities contemplated by this Agreement), publish or otherwise disclose any information related to the other party that is acquired by such party in connection with the performance of this Agreement unless required by law, regulation or legal process. During the Term and for a period of five years thereafter, neither party will disclose, reveal or use any Confidential Information concerning the other party or its respective clients, affiliates or business partners, including but not limited to customer lists, customer identifying information of purchasers of the Products, without the prior written consent of the disclosing party.

9.2 “ Confidential Information ” means all data and information of any type or form (whether visual, written, oral, electronic, photographic or otherwise) of a proprietary or confidential nature and not generally known to the public that is disclosed (either intentionally or unintentionally) by a party hereto or one of its affiliates or representatives to the other party hereto or one of its affiliates or representatives, regardless of whether such information is marked or indicated as being confidential. Confidential Information includes, but is not limited to, all information of a financial, business, marketing, organizational, legal or technological nature, including patents, copyrights, proprietary software, computer algorithms, trade secrets, inventions and other intellectual property, financial statements and other financial data, customer and supplier lists, marketing plans, sales projections and forecasts, cost information, product designs, engineering and technical data, models, prototypes and other information relating to business practices, current and future acquisitions, research and development, manufacturing, production, operations and the like. Confidential Information also includes information of or relating to third parties that is disclosed by the disclosing party to the receiving party. Confidential Information shall not, however, include any information that, as shown by competent proof, (i) is publicly known or generally available in the public domain prior to the time of disclosure by the disclosing party to the

FORM DISTRIBUTION AGREEMENT 11-7-12

receiving party, (ii) becomes publicly known or generally available in the public domain after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party, (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party as shown by the receiving party’s written records existing immediately prior to the time of such disclosure, (iv) is obtained by the receiving party from a third party that may lawfully disclose such information without breaching any obligation of confidentiality applicable to such third party, (v) is independently developed by the receiving party without use of or reference to the disclosing party’s Confidential Information, as shown by the receiving party’s independent cogent evidence, or (vi) is the result of joint activity between the Parties pursuant to this Agreement after the Effective Date.

9.3 All Confidential Information provided hereunder will be and remain the property of the disclosing party and will be promptly returned to the disclosing party or destroyed upon the disclosing party’s written request.

9. Other Matters.

10.1 Access . Both Parties may audit the other, strictly for the purpose of confirming compliance with the Agreement, no more than once per year, upon 30 day’s advanced written notice. Any such audit shall take place during normal business hours and all costs associated with any such audit shall be borne by the Party conducting such audit.

10.2 Software Integration . HSAH shall use commercially reasonable efforts to integrate, validate, release AviMark and Infinity practice management software communication links for two-way communication, using HL7 or other appropriate standard for Heska Chemistry Analyzers and Hematology Analyzers and DICOM for Digital Radiography and Ultrasound devices, within six (6) months of Effective Date, [***] (unless there is an increase in such cost caused by Heska). Heska shall use commercially reasonable efforts to assist HSAH with all aspects of this project.

10.3 Continuing Guaranty . The parties shall be subject to the terms of the Continuing Guaranty and Indemnification set forth on Schedule C . In the event of a conflict between the terms and conditions set forth in this Agreement or any Schedule and the terms and conditions set forth on Schedule C , the terms and conditions set forth on Schedule C shall control. The Continuing Guaranty and Indemnification set forth on Schedule C shall survive the termination of this Agreement and the termination of each Schedule.

10.4 LIMITATION OF LIABILITY . EXCEPT IN CONNECTION WITH A PARTY’S WILFUL MISCONDUCT OR BREACH OF ARTICLE 9 , NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST PROFITS AND LOSS OF GOODWILL, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT (OR ANY DUTY OF COMMON LAW, AND WHETHER OR NOT OCCASIONED BY THE NEGLIGENCE OF A PARTY OR ITS AFFILIATES), REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED THAT NOTHING IN THIS ARTICLE IS INTENDED TO, OR DOES, LIMIT (A) THE INDEMNIFICATION OR CONFIDENTIALITY RIGHTS OR OBLIGATIONS OF EITHER PARTY SET FORTH HEREIN OR (B) EITHER PARTY’S RIGHT TO CLAIM DIRECT DAMAGES FROM THE OTHER PARTY.

10.5 Notices . Except as otherwise provided, all notices given under this Agreement shall be in writing and shall be deemed to have been duly given upon receipt if delivered by hand or facsimile transmission with receipt confirmed, three days after mailing by certified or registered mail, and one day after sending by overnight courier, to the parties’ respective address indicated on the signature page of this Agreement or such other address as a party specifies in writing to the other party. All notices given to

FORM DISTRIBUTION AGREEMENT 11-7-12

HSAH under this Agreement shall be sent with a copy to Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747, Attn: General Counsel, [***].

10.6 No Joint Venture. Nothing in this Agreement shall be construed to create, constitute, give effect to or otherwise imply a joint venture, partnership, agency or employment relationship of any kind between the parties.

10.7 Compliance with Government Contracting Requirements . Heska and HSAH will work together in good faith to identify mutually beneficial opportunities to utilize the services of minority-owned businesses in connection with HSAH’s pursuit of federal, state and local government contracts.

The Parties shall comply with laws, regulations and orders related to government contracting, including without limitation with respect to minority owned and disadvantaged businesses (including pursuant to 48 CFR Sections 52.219-8 and 52.219-9), and equal employment opportunity and affirmative action. The Parties performing this Agreement have not been debarred, suspended or excluded, and are not subject to any proposed debarment, suspension or exclusion, from participation in the Medicare or Medicaid programs or any other government program, and have not been convicted of, or have charges pending regarding, any offenses which may lead to such debarment, suspension or exclusion. The Parties shall promptly inform each other if a Party becomes aware that the provisions of this paragraph become inaccurate in a material way during the term.

10.8 Trademarks and Proprietary Rights . Heska grants to HSAH the limited right to use Heska’s trademarks relating to the Products in connection with the marketing of the Products during the Term of this Agreement. All goodwill and intellectual property value accruing from the use of Heska’s trademarks shall belong to and shall inure solely to benefit of Heska. HSAH grants to Heska the limited right to use the trademarks of HSAH and its subsidiaries in connection with the marketing of the Products during the Term of this Agreement. All goodwill and intellectual property value accruing from the use of the trademarks of HSAH and its subsidiaries shall belong to and shall inure to the benefit of HSAH and its subsidiaries. Each Party retains all rights to its intellectual property pre-existing as of the Effective Date of this Agreement. Except as provided for expressly in this Agreement, no license, right or ownership is granted, by implication or otherwise, to a Party’s intellectual property. As of the date of this Agreement, neither Party claims any rights to, or ownership in, the other Party’s intellectual property, and neither Party claims the existence of any jointly owned intellectual property between the Parties.

10.8.1 Heska owns or has obtained the license rights to all intellectual property rights in the Products, and shall own all improvements thereto, except for the Confidential Information of HSAH. In the event that any intellectual property rights in the Products or any improvements vest in HSAH, HSAH hereby assigns to Heska all right, title, and interest in such intellectual property rights to Heska, and shall fully cooperate with Heska, at Heska’s expense and for reimbursement of HSAH’s reasonable related expenses, in executing all documents required to confirm the foregoing assignment. HSAH agrees to use Heska’s intellectual property embodied in the Products solely for the purpose of selling the Products to end user customers within the Territory.

10.8.2 No Unauthorized Use. Neither Party shall use the other Party’s intellectual property or Confidential Information for any purpose other than to advance the sale of the Products to end user customers within the Territory.

10.8.3 No Right. Except as expressly set forth herein, neither Party is granted any right to the other Party’s software or intellectual property, even if the software, hardware, or firmware is incorporated into any products, software, or other intellectual property. Nothing herein, or in any way related to this Agreement or interaction or non-action or delay between the Parties or their assigns, shall grant, transfer, or cause to be shared, with the other Party, any rights in and to either Party’s software, in

FORM DISTRIBUTION AGREEMENT 11-7-12

any form, firmware, designs, component sources and specifications, documentation, or intellectual property. This Article 10.8.3 shall apply, whether or not either Party or any third party products are incorporated in, embedded in, merged with, or otherwise associated with a Party’s products.

10.9 Assignment . This Agreement may not be assigned by either party without the other party’s prior written consent.

10.10 Governing Law . This Agreement shall be governed by the laws of the State of Delaware and the United States of America without reference to conflict of laws principles, and shall not be governed by the 1980 United Nations Convention on Contracts for the International Sale of Goods. The Parties shall attempt in good faith to resolve any dispute, controversy or claim between them arising out of or relating to this Agreement, or the breach or interpretation of this Agreement (“ Dispute ”) promptly by negotiations between executive level representatives of the Parties with authority to resolve the Dispute. If a Dispute should arise, such representatives shall confer in person or by telephone at least once and attempt to resolve the matter. Such conference shall take place within ten (10) days of a written request therefor at a mutually agreed time and location (or by telephone). Such conference is a condition precedent to initiating an action as provided below, unless the responding Party fails to confer within ten (10) days of receipt of the request to do so; provided, however, such conference is not a condition precedent to initiating an action for interim injunctive or provisional relief necessary to avoid irreparable harm or to maintain the status quo. If the Dispute is not settled within five (5) days of the conference or time to confer described above, either Party may bring an action pursuant to this Article 10.10in the event that HSAH brings the action, such action shall be brought within the state and federal courts located in Denver, Colorado, and in the event that Heska brings the action, such action shall be brought within the state and federal courts located in New York. Each Party agrees to submit to the jurisdiction of such courts. Each of the Parties hereby consents, for the benefit of the other Party, to the service of process by certified or registered mail or by an express delivery service providing a return receipt at its address set forth for notices herein.

10.11 Regulatory Matters .

10.11.1 Government Approvals . The Parties shall be responsible for obtaining and maintaining all regulatory approvals and any amendment or supplements required, if any, to fulfill their own obligations hereunder.

10.11.2 Regulatory Inquiries . Each Party shall promptly inform the other Party of the existence and substance of any inquiry or investigation related to Products initiated by any government authority or certification agency that may reasonably be anticipated to affect either Party’s ability to fulfill their obligations hereunder or that my reasonably be related to potential end user or patient safety concerns.

10.11.3 Regulatory Inspections and Information . To the extent required by law or at its reasonable discretion, each Party shall each permit all governmental authorities and certification agencies the reasonable right to inspect their respective facilities at which the Products or any components of them are handled, stored, or shipped, and all records related to them. Both Parties shall reasonably assist such governmental authorities and certification agencies with such inspections. Each Party shall promptly notify the other of all such inspections related to or affecting the Products, and shall use reasonable efforts to provide the other Party the opportunity to be present at such inspections and shall use reasonable efforts, time of the essence, to comply with governmental authority or certification agency requests for one Party to produce information that is confidential in nature to the disclosing Party, such as End user customers’ contact information and location of Products; Confidential Information and intellectual property and provided pursuant to this Article 10.11.3 shall be used solely for the strict and limited purpose of complying with the governmental authority or certification agency requests or mandates, and

FORM DISTRIBUTION AGREEMENT 11-7-12

shall not be used by the receiving Party for any commercial use, and shall be protected as Confidential Information under this Agreement.

10.12 Product Complaints/Reports . Each Party shall promptly provide the other Party notice of any information regarding real or potential defects and complaints about the Products or would reasonably be considered material to the safety of them for their intended use. Each Party shall reasonably cooperate with the other in sharing any information that may constitute a complaint related to the Products. HSAH will use reasonable efforts to assist Heska in investigating and correcting any problems HSAH or its end user customers may experience with the Product. HSAH will use reasonable efforts to implement any corrective action or to issue any communication recommended by Heska, provided however that upon HSAH’s written request and records related to HSAH actual costs to implement such corrective action or communication, in accordance with Heska’s recommendation and instructions, Heska shall reimburse HSAH for all costs and expenses incurred by HSAH in performance of those actions, in connection with any assistance or efforts by HSAH pursuant to this Article 10.12.

10.13 Recalls . Heska shall bear all costs and have sole authority and obligation to declare a recall of any Products, if Heska believes that there is a potential significant health hazard or non-compliance with applicable government regulations. In the event that a mandatory recall, withdrawal or modification of the Product is required by a decision or ruling of a court of competent jurisdiction or by a ruling or regulation of a governmental agency (“Mandatory Recall”), Heska shall be responsible for s upplying modified Products or components thereof, consistent with applicable regulations and/or government agency instructions or rulings. In connection with any recall, HSAH will provide Heska with all customer information necessary for Heska to implement the recall and supply the affected end user customers with modified Products or components thereof. HSAH and Heska agree to work cooperatively to facilitate any recall.

10.14 Laws . Each Party will at its own expense comply with all applicable international, national, state, regional, and local laws, rules, and regulations of competent public authorities relating to its duties, obligations, any applicable quality processes, regulatory compliance and performance under this Agreement. Heska has sole responsibility for determining that no applicable laws of the Territory within the Market prohibits, limits or materially impairs in any respect the sale and distribution of the Products for the intended purpose.

10.15 Remedies . Due to the fact that the disclosing party could not be adequately compensated by money damages in the event of the receiving party’s breach of any of the confidentiality provisions of this Agreement, the disclosing party shall be entitled, in addition to any other right or available remedy, to an injunction or other equitable relief restraining such breach or any threatened breach.

10.16 Entire Agreement; Amendments . This Agreement, including the exhibits attached hereto and each Schedule, each of which is incorporated herein by reference in its entirety, constitutes the entire agreement between Heska and HSAH. All prior or contemporaneous agreements, proposals, understandings and communications between or involving Heska and HSAH, whether oral or written, are superceded by this Agreement. The terms contained in this Agreement shall supercede any conflicting terms contained in any purchase order, invoice or other document used or submitted by either party in connection with the purchase of Products covered by this Agreement. This Agreement may not be amended, nor any obligation waived, except by a writing signed by both parties.

10.17 No Waiver . No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

FORM DISTRIBUTION AGREEMENT 11-7-12

10.18 Severability. If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining unaffected terms, shall remain in full force and effect as if such invalid or unenforceable term had never been included.

10.19 No Publicity . Neither party shall originate any publicity, press releases or other public announcement relating to any relationship between the parties, this Agreement or the performance hereof without the other party’s prior written consent; provided, however, that either party may, without such consent, make any press release or other public announcement as required by law, including regulations of the Securities and Exchange Commission.

10.20 Force Majeure . Neither Party shall be liable for, or be deemed to be in default for, delay of or failure in delivery or performance of any other act under this Agreement due directly to any of the following causes; acts of God or the public enemies, civil war, insurrection or riot, fires, floods, explosions, earth quakes or serious accident, epidemics or quarantine restrictions, or any act of government or military authority, or in the case of Heska, Heska’s supplier’s inability or unwillingness to supply Products.

10.21 Article Headings . The headings contained in this Agreement are for convenience of reference only and are not intended to have any substantive significance in interpreting this Agreement.

10.22 Survival . The provisions of any and all articles of this Agreement that are intended to survive expiration or termination shall survive any expiration or termination of this Agreement.

10.23 Signatures . This Agreement may be executed in any number of counterparts, each of which is deemed an original but all of which constitute the same instrument. This Agreement may be executed by the exchange of faxed executed copies, certified electronic signatures or copies delivered by electronic mail in Adobe Portable Document Format or similar format, and any signature transmitted by such means for the purpose of executing this Agreement is deemed an original signature for purposes of this Agreement.

Signatures on next page

FORM DISTRIBUTION AGREEMENT 11-7-12

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

Butler Animal Health Supply, LLC

Heska Corporation

By:

[***]

By:

/s/ Jason Napolitano

Name:

[***]

Name:

Jason Napolitano

Title:

President, Commercial Division

Title:

Chief Financial Officer

Address for Notices:

Butler Animal Health Supply, LLC

Heska Corporation

400 Metro Place North

3760 Rocky Mountain Avenue

Dublin, OH 43017

Loveland, CO 80538

Fax:

[***]

Fax:

970 619 - 3003

Attn:

President

Attn:

Chief Financial Officer

SCHEDULE A

KEY TERMS

Term : The initial term shall commence on the Effective Date and shall remain in full force and effect for two (2) years (the “ Initial Term ”), and shall thereafter automatically renew for successive one year terms (each such period a “ Renewal Term ” and collectively with the Initial Term, the “Term”) unless either party gives written notice to the other of its intent not to renew this Schedule at least 90 days prior to expiration of the Initial Term or a Renewal Term, as applicable, or unless otherwise terminated in accordance with this Agreement.


2.	Territory : United States of America


3.	Description of Products :


(a)	Exclusive Products:


a.	Chemistry Blood Analyzers:


i.	Fuji manufactured Dri-Chem “Element DC”


ii.	Fuji manufactured Dri-Chem “DC 7000”


iii.	Fuji manufactured Dri-Chem “DC 4000” (remanufactured)


iv.	(i)-(iii) the “Chemistry Analyzers”


v.	Consumable test slides the Chemistry Analyzers


b.	Hematology Blood Analyzers:


i.	Mindray manufactured “HT5 Laser” Hematology Analyzer


ii.	Boule manufactured “Hematrue” Hematology Analyzer


iii.	(i)-(ii) the “Hematology Analyzers”


iv.	Consumable reagents for Hematology Analyzers

(b) Non-Exclusive Products:


1.	Solostep based Heartworm Tests


2.	Allercept Allergy Tests and Drops and Shots Immunotherapy Treatments


3.	Thyroid Tests and Treatments


4.	Pump Equipment


5.	Food Additives


6.	Imaging Equipment


7.	Element POC Blood Gas and Electrolyte Handheld Analyzer and Test Cards


4.	Pricing : Pricing for the Products shall be as follows in Schedule E.

Shelf Life of Product : Each Product, upon delivery to HSAH, shall have a shelf life of not less than that shown on the Pricing of the Products Schedule E . In the event that Heska makes a significant improvement or modification to any of its equipment products, Heska shall permit HSAH to return its inventory of older versions of such product then currently on hand for exchange with the newer version. Heska’s returns policy is attached hereto as Schedule D .


6.	Minimums and Targets:


(a)	Non-Exclusive Products:


a.	From Effective Date through December 31, 2015: no Purchase Minimums;

For calendar year 2016 and for each year beyond: The parties will agree in good faith to set Purchase Minimums for Non-Exclusive Products. In the event that the parties cannot agree on the Purchase Minimums, the parties will submit to an expedited "baseball” arbitration (i.e., each party shall submit to the arbitrator and exchange with the other, in accordance with a procedure to be established by the arbitrator, its best offer; the arbitrator shall be limited to awarding only one or the other of the two positions submitted).


(b)	Exclusive Products:


a.	From Effective Date through December 31, 2015: Chemistry Blood & Hematology Blood Analyzers: [***] in the aggregate. All purchases made by HSAH from Heska of Exclusive Products during 2014 shall be credited toward HSAH’s 2015 Purchase Minimum.

For calendar year 2016 and for each year beyond: The parties will agree in good faith to set Purchase Minimums for Exclusive Products. In the event that the parties cannot agree on the Purchase Minimums, the parties will submit to an expedited "baseball” arbitration (i.e., each party shall submit to the arbitrator and exchange with the other, in accordance with a procedure to be established by the arbitrator, its best offer; the arbitrator shall be limited to awarding only one or the other of the two positions submitted).

SCHEDULE B

HSAH will make Heska a “Focus Channel Partner”

The Focus Channel Partner Program is designed to direct HSAH sales and marketing activities to ensure HSAH meets HSAH Targets and Minimums. Only a select number of partners are chosen to participate in the program each year. Participation in the program includes HSAH benefits to Heska including:


•	Territory Managers have specific goals


•	Mandatory “Ride Alongs” in field


•	Presidents Club attainment criteria


•	Management Bonus criteria

Sales Access and Training Schedule Timeline

HSAH is committed to providing resources and training opportunities to ensure the Parties’ combined success and expand the reach of Heska’s diagnostic and specialty products, while helping veterinarians embrace the changing veterinary market and develop their practices through best-in-class customer service and support.

Below is a current outline of the HSAH sales force and additional resources available to Heska and a proposed training timeline.


•	Sales Team


o	[***] Sales Managers


o	[***] Territory Managers


§	[***] Equine Specialists


o	[***] Inside Sales Representatives


o	[***] capital equipment specialists


§	Specialized expertise in the areas of diagnostics and digital x-ray, etc.


§	Evaluation of significant expansion of capital equipment resources


•	[***] Person Corporate Accounts Team


•	[***] Technology Specialists


•	Sales Support Team – dedicated support Equipment / Financial processing


•	Proposed training schedule:


•	2015 National Sales Meeting March 16-19 –Platinum Sponsorship Opportunity


•	2015 Zone Meetings


•	Career Development


o	HSAH asks Heska to contribute to HSAH Career Development curriculum to further educate the HSAH team on the clinical and financial benefits of Heska’s solutions.


o	HSAH is the only veterinary distributor that invests in training its sales force on the Business Solutions of veterinary medicine


o	HSAH’s sales representatives are trained on the veterinary industry trends and driving successful veterinary practices.


o	HSAH focuses on Business Solutions that drive practice revenues and pet owner compliance for better medicine.


o	The practice laboratory is one of the [***] centers for the practice and is a primary focus for the HSAH sales force.


o	HSAH Career Development program provides HSAH sales force with the tools to facilitate the implementation of revenue generating programs at the practice level including pet owner compliance for diagnostics.


o	HSAH’s sales team utilizes programs for practice leadership, teamwork, standards of care, communication skills, technology, and much more to increase the practice success

Marketing Focus

HSAH is the leader in multi-media channels reaching over [***] customers. Heska will have access to 8 different marketing channels to maximize reach across all marketing channel platforms with the flexibility to deliver custom messages to specific customer types. Because of the exclusive distribution rights granted under this Agreement by Heska to HSAH with respect to the Exclusive Products, HSAH shall provide Heska the following:


•	Advertising: print and digital


o	Monthly magazine – Henry Schein Animal Health Solutions


§	Full Heska Diagnostic Platform spread will be featured, [***]


§	Prime placement of all advertising, [***]


§	Articles are encouraged, [***]


o	Full-line product catalog, [***]


o	Social media campaigns, [***]


o	Monthly customer e-newsletters, [***]


o	Targeted e-campaigns, [***]


§	Provide customers with a range of information from general product knowledge and promotions to process improvement tips, etc.


o	Web targeted marketing, [***]


•	Advertising in the Equipment Buyers Guide, the premier equipment focus annually, [***]


•	Trade Show placement, advertising/focus, [***]


o	Product placement within tradeshow booths – included in key partnerships, [***]


•	Co-promotional marketing programs

Educational Events Partnership

HSAH conducts multiple educational programs nationwide. Partnership opportunities are available, at a guaranteed lowest cost of participation to Heska for each opportunity.


•	Dental Wet Labs


•	Orthopedic Wet labs


•	Equipment Fairs


•	Hosted educational webinars


•	Technology Summit


•	Technology Virtual Trade show

HSAH Sales and Training Meetings

HSAH conducts multiple educational programs nationwide for HSAH sales and marketing personnel. For those meetings at which vendors are able to attend, Heska may attend, and HSAH shall charge [***] to Heska, provided however that Heska shall be responsible for all of its travel, employee, and related costs of attendance.

SCHEDULE C

CONTINUING GUARANTY AND INDEMNIFICATION

Heska Corporation, on behalf of itself and its affiliates (collectively referred to as “Heska”) hereby guarantees that each article constituting or being part of any shipment or delivery now or hereafter made by Heska or its authorized distributor(s) (including any drop shipments or deliveries made to HSAH’s customers) (collectively, the “Products”) to Henry Schein, Inc. or any affiliate thereof (collectively, “HSAH”) will: (i) at the time of each shipment or delivery be in compliance with all applicable federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law) (hereinafter referred to as “Legal Requirements”), in the Territory; (ii) not be adulterated or misbranded by Heska within the meaning of the U.S Federal Food, Drug and Cosmetic Act (the “Act”), or within the meaning of any Legal Requirements and (iii) not be an article which may be prohibited from being introduced into interstate commerce under the provisions of Sections 405, 505 or 512 of the Act. Heska hereby guarantees that it has proper legal title to the Products and that the Products are merchantable and fit for their intended purpose. HSAH agrees to not misrepresent the merchantability, intended purpose, features, specification, term, condition, shelf life, lifespan, usefulness, benefit, risk, label, efficacy, warranty of, support of, or performance of any Products.

Heska shall indemnify and hold HSAH harmless for and against any and all liabilities, losses, damages (including, actual, punitive and exemplary damages), claims, costs and expenses, interest, awards, judgments and penalties (including attorneys’ and consultants’ fees and expenses), to the extent not caused or contributed to by HSAH, suffered or incurred by HSAH arising or resulting from a third party claim for:


i.	any claim of trademark, trade dress, trade secret, copyright, patent or other intellectual property infringement arising out of HSAH’s distribution of the Products (except where HSAH has supplied the trademark which is the basis for the claim);


ii.	any product liability claim; or


iii.	any negligent or willful action or omission of Heska or any of its agents, employees, representatives, successors or assigns in connection with the manufacture, development, sale, distribution, storage or dispensing of the Products.

HSAH shall indemnify and hold Heska harmless for and against any and all liabilities, losses, damages (including, actual, punitive and exemplary damages), claims, costs and expenses, interest, awards, judgments and penalties (including attorneys’ and consultants’ fees and expenses), to the extent not caused or contributed to by Heska, suffered or incurred by Heska arising or resulting from a third party claim for any negligent or willful action or omission of HSAH or any of its agents, employees, representatives, successors or assigns in connection with the sale, distribution, storage, or dispensing of the Products.

The Parties each agree to maintain their own comprehensive “occurrence” general liability insurance, including “occurrence” product liability, contractual liability insurance and advertising injury coverage, with liability coverage of at least [***] and to deliver to each other a certificate thereof with the other Party named as an additional insured thereon. Such insurance must insure against all products and activities contemplated under this Agreement. Insurance coverage must be procured from an insurance company bearing an AM Best Rating of no less than B+ or a S&P Rating of no less than BBB.

Heska shall be responsible, if required by Legal Requirements, for notifying the appropriate federal, state and local authorities of any customer complaints or other occurrences regarding the Products, evaluating all complaints and responding to HSAH about any complaints from HSAH for its customers. Heska shall comply with all applicable Legal Requirements, including making filings with appropriate federal and state authorities and disclosing reportable transactions with practitioners and other relevant parties with respect to any marketing or promotion of its Products whether directly or on its behalf, provided however that HSAH shall endeavor to provide Heska with HSAH information related to reportable transactions made by it on behalf of Heska.

This Agreement shall be continuing and shall be binding upon the Parties and their successors and assigns. This Agreement shall supersede any and all prior agreements or understandings between HSAH and Heska regarding the subject matter hereof. Each Party shall not provide any compensation or other benefit to the other Party’s employees without the prior consent of that Party, and each Party agrees to promptly disclose any financial relationships between that Party and the other Party’s employee(s) which may give rise to a conflict of interest between such employee(s) and the Party employing the employee(s). No right, express or implied, is granted to Heska hereunder to use in any manner any name, trade name, trademark or service mark of HSAH. This Agreement contains proprietary information and may not be disclosed without prior written approval from both Parties, unless required by law, a court of competent jurisdiction, or the Securities and Exchange Commission. Any amendments or modifications to this Agreement must be in writing and executed by authorized representatives of both parties.

SCHEDULE D

RETURNS POLICY

Heska recognizes returns for only the following reasons: defective Product, proper rejection, and Heska initiated returns. Returns for defective Product are accepted only for the individual unit(s) affected. All returns of Product to Heska require an authorized RMA number and, unless otherwise agreed by Heska, must be freight prepaid by HSAH.

Notify Customer Return Administrator

Telephone: 800-464-3752

Fax: 970-619-3007

The Information Needed:

- Type and quantity of Product being returned

- The Product serial numbers or lot numbers, if applicable

- Reason for return

- Whether the Product is under warranty

- A reference for warranty returns, copy of the invoice or proof of purchase

An RMA number will be assigned. Products must be returned promptly following issuance of the related RMA number. All Products must be shipped to Heska in accordance with the handling instructions, including packaging and refrigeration, included with such Product. HSAH shall be responsible to, and shall indemnify, Heska for all losses attributable to failure to follow such instructions and for any losses to the Products prior to receipt by Heska. Reference the RMA number on each shipping carton.

Return the product to:

REF: RMA Number

Heska Corporation

3760 Rocky Mountain Avenue

Loveland, CO 80538

Replacement Product, if required, will be shipped within a reasonable time. Heska will bear the cost to HSAH of shipping the replacement Product for warranty returns. Unless otherwise agreed by Heska, HSAH will pay for the cost of shipping return or replacement Product returned for all other reasons.

SCHEDULE E

PRICING OF THE PRODUCTS

SCHEDULE F

REPORTING ON PRODUCT SALES AND LOCATION AND COMPLAINTS

Daily Sales Reports . HSAH shall provide to Heska through EDI on each business day during the term hereof invoice copies and computer printouts showing all sales of Products, by branch, made by HSAH since the last such report. For the purposes of this section, “sales” shall mean sales of Products that have been shipped and invoiced by HSAH. Heska reserves the right to amend the data to be included in these daily reports from time to time.

In the event HSAH does not currently have EDI technology or use EDI technology in the course of conducting its business, Heska will accept sales data electronically submitted using Microsoft® Excel (“Excel”) in the format specified in this Schedule F . There is no change in the requirement that such data be transmitted to Heska on a daily basis, nor to the above-identified information that must be included in such transmissions. Excel files should be sent by E-mail to salesdata@heska.com . Heska will transmit an electronic version of the Excel format for use by HSAH in reporting its sales activities if HSAH’s E-mail address as specified in writing by HSAH, from time to time. If HSAH begins using EDI technology in the future, HSAH agrees to use EDI technology for its reporting obligations under this Schedule F .

Monthly Inventory Reports . HSAH will take a physical inventory of Products at the close of each calendar month and will report to Heska no later than five (5) days following such close, the following information for each Product: (a) Heska Part Number; (b) Heska Lot Number; (c) Unit of Measure; and (d) ending inventory quantity. Whenever possible, reports shall be submitted to Heska using EDI technology. HSAH may, at its discretion, transmit inventory reports on a more frequent basis.

In the event HSAH does not currently have EDI technology or use EDI technology in the course of conducting its business, Heska will accept inventory data electronically submitted using Microsoft® Excel (“Excel”) in the format specified in this Schedule F . There is no change in the requirement that such data be transmitted to Heska on at least a monthly basis, nor to the above-identified information that must be included in such transmissions. Excel files should be sent by E-mail to inventorydata@heska.com . Heska will transmit an electronic version of the Excel format for use by HSAH in reporting its inventory activities if HSAH’s E-mail address as specified in writing by HSAH, from time to time. If HSAH begins using EDI technology in the future, HSAH agrees to use such EDI technology for its reporting obligations under this Schedule F .

Product Complaints . HSAH will immediately notify Heska upon receipt of complaints regarding the Products, but in no event later than twenty-four (24) hours after the receipt of such complaint. Notification shall be given by telephone, with a facsimile confirmation following within one (1) business day. HSAH shall, at Heska’s request, assist Heska in investigating all such complaints. HSAH shall be responsible for addressing all complaints related to HSAH’s distribution, order processing, shipping and handling of Products. Heska shall be responsible for addressing all other complaints relating to the Products. HSAH shall have no authority to bind Heska in the settlement of any complaints. In the event of a third party claim, suit or demand against either Party involving Products supplied or purchased hereunder, the Parties agree to fully cooperate in the defense of such claim, suit or demand.

Records . HSAH shall keep proper books of account and records containing complete information relating to Products purchased and sold by HSAH, including the names of customers, the quantities purchased and the terms of each sale. HSAH shall also have in its files at all times copies of valid resale licenses of its customers if required in the Territory. HSAH’s failure to maintain such valid resale licenses in its files will render HSAH liable for any and all taxes, fees, penalties and interest that may be assessed by any taxing authorities arising from such failure.

Audit Obligation . In addition to Heska’s audit rights set forth in Section 10.1, HSAH shall conduct an internal audit at the end of each of its fiscal years of inventory of Product and sales records relating to this Agreement and provide to Heska certified documentation of such audit.

FORM DISTRIBUTION AGREEMENT 11-7-12

Exhibit 21.1

SUBSIDIARIES OF COMPANY

Diamond Animal Health, Inc., an Iowa corporation

Heska Imaging, LLC, a Delaware Limited Liability Company

Heska AG, a corporation incorporated under the laws of Switzerland

Heska Canada, Limited, a corporation organized under the laws of British Columbia, Canada

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in Heska Corporation’s Registration Statements on Form S-8 (File Nos. 333-30951, 333-34111, 333-47129, 333-72155, 333-38138, 333-39448, 333-55112, 333-82096, 333-89738, 333-102871, 333-106679, 333-112701, 333-115995, 333-123196, 333-132916, 333-141737, 333-194120, 333-194122, 333-195734, 333-204036 and 333-211567) of our report dated March 9, 2018, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of Heska Corporation, which appears in this Annual Report on Form 10-K.

EKS&H LLLP

March 9, 2018

Denver, Colorado

Exhibit 31.1

CERTIFICATION

I, Kevin S. Wilson, certify that:


1.	I have reviewed this annual report on Form 10-K of Heska Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Dated: March 9, 2018	/s/ Kevin S. Wilson
	KEVIN S. WILSON
	Chief Executive Officer and President
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Catherine Grassman, certify that:


1.	I have reviewed this annual report on Form 10-K of Heska Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Dated: March 9, 2018	/s/ Catherine Grassman
	Catherine Grassman
	Vice President, Chief Accounting Officer and Controller
	(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin S. Wilson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Heska Corporation on Form 10-K for the year ended December 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Heska Corporation, to the best of my knowledge.



Dated: March 9, 2018	By:	/s/ Kevin S. Wilson
	Name:	KEVIN S. WILSON
	Title:	Chief Executive Officer and President

I, Catherine Grassman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Heska Corporation on Form 10-K for the year ended December 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Heska Corporation, to the best of my knowledge.



Dated: March 9, 2018	By:	/s/ Catherine Grassman
	Name:	CATHERINE GRASSMAN
	Title:	Vice President, Chief Accounting Officer and Controller

A signed original of this written statement required by Section 906 has been provided to Heska Corporation and will be retained by Heska Corporation and furnished to the Securities and Exchange Commission or its staff upon request.