UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.   )

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HESKA CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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April 5, 2010

Dear Heska Stockholder:

I am pleased to invite you to attend the Annual Meeting of Stockholders of Heska Corporation to be held on Tuesday, May 4, 2010 at 9:00 a.m., local time, at 3760 Rocky Mountain Avenue, Loveland, Colorado 80538.

Details regarding the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement. This notice and all proxy materials in connection with this Annual Meeting are also available on https://materials.proxyvote.com/42805E.

Your vote is important. Whether or not you plan to attend the 2010 Annual Meeting, I hope you will vote as soon as possible. You may vote by mailing a proxy or in person at the annual meeting. Please review the instructions in the proxy statement and on the proxy card regarding your voting options.

Thank you for your ongoing support of and continued interest in Heska.

		Sincerely,
		Robert B. Grieve
		Chairman and Chief Executive Officer,
		Heska Corporation

Loveland, Colorado

YOUR VOTE IS IMPORTANT

In order to ensure your representation at the meeting, please complete, sign and date the enclosed proxy as promptly as possible and return it in the enclosed envelope (to which no postage need be affixed if mailed in the United States).

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

TIME		9:00 a.m., local time, on Tuesday, May 4, 2010
PLACE		Heska Corporation 3760 Rocky Mountain Avenue Loveland, Colorado 80538
ITEMS OF BUSINESS		1.   To elect two Directors to a three-year term.
		2.    To adopt a certificate of amendment to our Restated Certificate of Incorporation to reclassify our common stock and add stock transfer restrictions to preserve value of our tax net operating losses.
		3.    To amend and restate the Company’s 1997 Employee Stock Purchase Plan, including an increase in the number of shares available under the plan by 500,000 shares.
		4.    To ratify the appointment of Ehrhardt Keefe Steiner & Hottman PC as Heska Corporation’s independent registered public accountant.
		5.    To consider such other business as may properly come before the 2010 Annual Meeting.
RECORD DATE		You can vote if you were a stockholder of record at the close of business on March 24, 2010.
ANNUAL REPORT AND FORM 10-K/A		Our corporate 2009 Annual Report and annual report on Form 10-K/A for the year ended December 31, 2009, which are not a part of the proxy soliciting material, are enclosed.
VOTING BY PROXY		Please submit a proxy as soon as possible so that your shares can be voted at the 2010 Annual Meeting in accordance with your instructions. For specific instructions on voting, please refer to the instructions on the proxy card.

April 5, 2010		By Order of the Board of Directors
		Jason A. Napolitano
		Executive Vice President, Chief Financial Officer
		and Secretary, Heska Corporation

This proxy statement and accompanying proxy card are being distributed on or about April 5, 2010.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 4, 2010

The Proxy Statement, the Proxy Card and our 2009 Annual Report on Form
10-K/A for the year ended December 31, 2009 are available at https://materials.proxyvote.com/42805E.

TABLE OF CONTENTS

		Page
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE 2010 ANNUAL MEETING			1
Why am I receiving these materials?			1
What information is contained in these materials?			1
What items of business will be voted on at the 2010 Annual Meeting?			1
How does the Board recommend I vote on the proposals?			1
Who is entitled to vote?			1
How do I vote?			1
How can I change my vote or revoke my proxy?			2
Who can help answer my questions?			2
What does it mean if I get more than one proxy card?			2
Who will serve as inspector of elections?			2
What are the quorum and voting requirements for the 2010 Annual Meeting?			2
Who can attend the 2010 Annual Meeting?			3
What happens if additional matters are presented at the 2010 Annual Meeting?			3
Where can I find the voting results of the meeting?			3
May I propose actions for consideration at next year’s Annual Meeting or nominate individuals to serve as Directors?			3
Who bears the costs of soliciting votes for the 2010 Annual Meeting?			4
BOARD STRUCTURE AND COMMITTEES			5
Board Leadership Structure			5
Board Risk Oversight			5
Board Independence			5
Audit Committee			5
Compensation Committee			6
Corporate Governance Committee			7
Director Qualification and Nomination			7
Stockholder Communication with our Board			8
DIRECTOR COMPENSATION			9
PROPOSALS TO BE VOTED ON			11
PROPOSAL NO. 1: Election of Directors			11
PROPOSAL NO. 2: NOL Protective Amendment to Certificate of Incorporation			13
PROPOSAL NO. 3: Amendment and Restatement of 1997 Employee Stock Purchase Plan			25

TABLE OF CONTENTS
(Continued)

		Page
PROPOSAL NO. 4: Ratification of Independent Registered Public Accountant			28
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			29
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			32
EQUITY COMPENSATION PLAN INFORMATION			32
SIGNIFICANT RELATIONSHIPS AND TRANSACTIONS WITH DIRECTORS, OFFICERS OR PRINCIPAL STOCKHOLDERS			32
EXECUTIVE COMPENSATION			33
Compensation Discussion and Analysis			33
Historical Compensation Table			42
Summary Compensation Table			43
Grants of Plan-Based Awards in Last Fiscal Year			44
Outstanding Equity Awards at Fiscal Year-End			45
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values			46
Potential Payments Upon Termination or Change-in-Control			46
Compensation Committee Report			48
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			49
AUDITOR FEES AND SERVICES			49
REPORT OF OUR AUDIT COMMITTEE			50
ADDITIONAL INFORMATION: “Householding” of Proxy Materials			52
OTHER MATTERS			52
APPENDIX A: NOL PROTECTIVE AMENDMENT			A-1
APPENDIX B: AMENDED AND RESTATED 1997 EMPLOYEE STOCK PURCHASE PLAN			B-1

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE 2010 ANNUAL MEETING

Q:		Why am I receiving these materials?
A:		The Board of Directors (the “Board”) of Heska Corporation, a Delaware corporation (“Heska” or the “Company”), is providing these proxy materials for you in connection with Heska’s Annual Meeting of Stockholders (the “Annual Meeting”). The 2010 Annual Meeting will take place on Tuesday, May 4, 2010. As a stockholder, you are invited to attend the 2010 Annual Meeting and are entitled to and requested to vote on the items of business described in this proxy statement.

Q:		What information is contained in these materials?
A:		The information included in this proxy statement relates to the proposals to be voted on at the 2010 Annual Meeting, the voting process, the compensation of our Directors and most highly paid Executive Officers, and certain other required information. Our corporate 2009 Annual Report, and annual report on Form 10-K/A for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the “SEC”), are also enclosed.

Q:		What items of business will be voted on at the 2010 Annual Meeting?
A:		The items of business scheduled to be voted on at the 2010 Annual Meeting are:

	(1)		The election of two nominees to serve on our Board of Directors for a three-year term;
	(2)		The adoption of a certificate of amendment to our Restated Certificate of Incorporation to reclassify our common stock and add stock transfer restrictions to preserve value of our tax net operating losses (the “NOL Protective Amendment”);
	(3)		The amendment and restatement of the Company’s 1997 Employee Stock Purchase Plan (the “ESPP”), including an increase in the number of shares available under the ESPP by 500,000 shares; and
	(4)		The ratification of our independent registered public accountant for fiscal 2010.

We will also consider other business that properly comes before the 2010 Annual Meeting.

Q:		How does the Board recommend I vote on the proposals?
A:		The Board recommends a vote FOR the election of each of the Director nominees, FOR adoption of the NOL Protective Amendment, FOR amendment and restatement of the ESPP and FOR the ratification of Ehrhardt Keefe Steiner & Hottman PC (“EKS&H”) as the Company’s independent registered public accountant.

Q:		Who is entitled to vote?
A:		Stockholders as of the close of business on March 24, 2010 (the “Record Date”) are entitled to vote at the 2010 Annual Meeting. As of the Record Date, 52,163,750 shares of our common stock were issued and outstanding. Each stockholder is entitled to one vote for each share of common stock held on the Record Date. A list of stockholders entitled to vote at the 2010 Annual Meeting will be available at the 2010 Annual Meeting and for ten days prior to the meeting during normal business hours at our offices at 3760 Rocky Mountain Avenue, Loveland, Colorado 80538, by contacting our Secretary.

Q:		How do I vote?
A:		There are two ways you can vote:

(1)

Sign and date each proxy card you receive and return it in the prepaid envelope.

(2)

Vote in-person at the 2010 Annual Meeting. If your shares are held of record by a broker, bank or other nominee and you wish to vote your shares at the 2010 Annual Meeting, you must contact your broker, bank or other nominee to obtain the proper documentation and bring it with you to the 2010 Annual Meeting.

Q:		How can I change my vote or revoke my proxy?
A:		You have the right to revoke your proxy and change your vote at any time before the meeting by notifying our Secretary, or returning a later-dated proxy card. You may also revoke your proxy and change your vote by voting in person at the meeting.

Q:		Who can help answer my questions?
A:		If you have any questions about the 2010 Annual Meeting or how to vote or revoke your proxy, you should contact:

Heska Corporation
Attn: Secretary
3760 Rocky Mountain Avenue
Loveland, Colorado 80538
(970) 493-7272

If you need additional copies of this proxy statement or voting materials, please contact our Secretary as described above.

Q:		What does it mean if I get more than one proxy card?
A:		It means that you hold shares registered in more than one account. Sign and return all proxies to ensure that all of your shares are voted.

Q:		Who will serve as inspector of elections?
A:		The inspector of elections will be a representative of Computershare Trust Company, Inc., our transfer agent.

Q:		What are the quorum and voting requirements for the 2010 Annual Meeting?
A:		The quorum requirement for holding the 2010 Annual Meeting and transacting business is that holders of a majority of the outstanding shares of our common stock entitled to vote must be present in person at the meeting or represented by proxy. Both abstentions and non-votes are counted for the purposes of determining the presence of a quorum, but not in determining the matter at hand. We will consider an abstention or a non-vote on a given matter to be a forfeiture of the right to vote on that matter and a forfeiture of the voting power present at the 2010 Annual Meeting underlying the forfeited votes regarding that matter. Accordingly, if you abstain or do not vote on a given matter, your shares will not be voted “for” or “against” that matter and will not be considered as present and entitled to vote on that matter. However, you may abstain on a given matter for a certain portion of your shares and vote on the same matter with the remaining portion of your shares without forfeiting the votes underlying the shares you choose to vote. For example, a stockholder who owns 100 shares may choose to abstain on a proposal with 50 shares and vote for the same proposal with the other 50 shares. In this case, the stockholder would forfeit his right to vote 50 shares on the proposal and would have his other 50 votes count for the proposal. In addition, an abstention or a non-vote on any matter will not affect your ability to vote on any other matter. If you hold shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to certain matters to be acted upon. If you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and, if so, will not be considered as present and entitled to vote with respect to those matters.
		The holders of a majority of the outstanding shares of our common stock, present in person or by proxy, will constitute a quorum for the transaction of business at the 2010 Annual Meeting. Election of Directors will be determined by a plurality of the votes of the shares present in person or by proxy at the 2010 Annual Meeting and entitled to vote on the election of Directors. The NOL Protective Amendment and the ESPP Amendment and Restatement are to be approved by a majority of our shares outstanding. The other matters submitted for stockholder approval at the 2010 Annual Meeting, are to be approved by the affirmative vote of a majority of the shares having voting power present in person or by proxy at the 2010 Annual Meeting and entitled to vote on the subject matter.

Q:		Who can attend the 2010 Annual Meeting?
A:		All stockholders as of the Record Date can attend. If you wish to vote your shares at the 2010 Annual Meeting and your shares are held of record by a broker, bank or other nominee, you must contact your broker, bank or other nominee to obtain the proper documentation and bring it with you to the 2010 Annual Meeting.

Q:		What happens if additional matters are presented at the 2010 Annual Meeting?
A:		Other than the four items of business described in this proxy statement, we are not aware of any other business to be acted upon at the 2010 Annual Meeting. If you grant a proxy, the persons named as proxyholders — Robert B. Grieve, Ph.D., our Chairman and Chief Executive Officer, Jason A. Napolitano, our Executive Vice President, Chief Financial Officer and Secretary and Michael A. Bent, our Vice President, Principal Accounting Officer and Controller — will have the discretion to vote your shares on any additional matters presented for a vote at the meeting. If for any unforeseen reason any of our nominees is not available as a candidate for Director, the persons named as proxyholders, Dr. Grieve, Mr. Napolitano and Mr. Bent, will vote your proxy for such other candidate or candidates who may be nominated by the Board.

Q:		Where can I find the voting results of the meeting?
A:		We intend to announce preliminary voting results at the 2010 Annual Meeting, and publish final voting results in an 8-K filing with the SEC within 4 business days of the 2010 Annual Meeting. If final voting results are not available within 4 business days of the 2010 Annual Meeting, we intend to publish preliminary voting results in an 8-K filing with the SEC on the fourth business day following the 2010 Annual Meeting and then publish final voting results in an 8-K filing with the SEC within 4 business days of the final voting results becoming known.

Q:		May I propose actions for consideration at next year’s Annual Meeting or nominate individuals to serve as Directors?
A:		You may submit proposals, including Director nominations, for consideration at future stockholder meetings. All proposals or nominations should be addressed to: Secretary, Heska Corporation, 3760 Rocky Mountain Avenue, Loveland, Colorado 80538.
		Stockholder Proposals: For a stockholder proposal to be considered for inclusion in our proxy statement for the annual meeting next year, the written proposal must be received by our Secretary at our principal executive offices under either (1) Rule 14a-8 under the Securities Exchange Act of 1934, as amended (a “Rule 14 Proposal”) or (2) the bylaws of Heska (a “Bylaws Proposal”). A Rule 14 Proposal must be received by our Secretary at our principal executive offices no later than December 6, 2010. If the date of next year’s annual meeting is moved more than 30 days before or after the anniversary date of this year’s annual meeting, the deadline for inclusion of proposals in our proxy statement is instead a reasonable period of time before we begin to print and mail our proxy materials. Such proposals also will need to comply with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding the inclusion of stockholder proposals in company-sponsored proxy materials. For a Bylaws Proposal, the stockholder must deliver a written notice of intent to propose such action in accordance with our bylaws, which in general require that the notice be received by us 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. These proxy materials for the 2010 Annual Meeting were mailed on April 5, 2010. This means that for the 2011 Annual Meeting, that any such proposal must be received no earlier than January 5, 2011 and no later than February 4, 2011.
		Director Nominees: You may propose Director candidates for consideration by the Board’s Corporate Governance Committee. Any such recommendations should be directed to our Secretary at our principal executive offices. In addition, you may nominate a Director for consideration by Heska’s stockholders if you give timely and adequate notice to our Secretary of your intention to make such nomination in accordance with our bylaws, which require that the notice be received by the Secretary within the time periods described above under “Stockholder Proposals” and with the detail regarding your nomination as is required by our bylaws.

Copy of Bylaw Provisions: You may contact our Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating Director candidates. A copy of our bylaws has also been filed with the SEC with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. A copy of which is accessible at the website of the SEC at www.sec.gov.

Q:		Who bears the costs of soliciting votes for the 2010 Annual Meeting?
A:		Heska is making this solicitation and will pay the entire cost of preparing, printing, assembling and mailing these proxy materials. In addition to the mailing of these proxy materials, certain of our Directors and employees may solicit proxies on our behalf in person, by telephone, electronic transmission or facsimile. No additional compensation will be paid to these people for such solicitation. We may enlist the assistance of brokerage firms, fiduciaries, custodians and other third party solicitation firms in soliciting proxies. If we elect to engage any such assistance, our arrangements with the solicitation firm(s) will be on customary terms and conditions, the anticipated cost of which is not anticipated to be material to us. Upon request, we will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.

BOARD STRUCTURE AND COMMITTEES

Our Board is divided into three classes serving staggered three-year terms. Our Board has three standing Committees, each of which is chaired by an independent Director: (1) Audit (the “Audit Committee”), (2) Compensation (the “Compensation Committee”) and (3) Corporate Governance (the “Corporate Governance Committee”). The membership during 2009 and the function of each Committee are described below. Our Board held five meetings during 2009. Our Board currently has six Directors: Robert B. Grieve, Ph.D., Chairman, William A. Aylesworth, Peter Eio, G. Irwin Gordon, Louise L. McCormick and John F. Sasen, Sr. All of our Directors in 2009 attended our last annual meeting of stockholders and at least 75% of all Board and applicable Committee meetings.

Board Leadership Structure

Since May 2000, Dr. Grieve has served as both our Chairman and Chief Executive Officer and we believe the Company has benefited from the efficiencies inherent in combining these roles during this time period. Beginning at our 2010 Annual Meeting, Mr. Aylesworth is to assume the role of Lead Director and as such is expected to chair sessions involving only the independent Directors. We believe appointing a Lead Director will simplify communications between management and the independent Directors, enhance our Board’s operations, in particular in situations where it is appropriate for the independent Directors to act without management involvement, and increase the credibility of the Company’s independent Director oversight function.

Board Risk Oversight

Our business, including risk oversight, is conducted with the advice, counsel and direction of our Board. The formal channel for risk-related information to be communicated to our Board is through our Chief Executive Officer. Our Chief Executive Officer periodically conveys the Company’s risks, including credit risks, liquidity risks and operational risks to the Board at Board meetings and through other forms of communication, such as email, as appropriate. Our Board may also discuss the Company’s risks with other members of management as directed by our Chief Executive Officer or as part of another Board function. For example, our Chief Financial Officer and our Controller have both discussed credit risk with Directors during an Audit Committee meeting primarily focused on accounting determinations.

Board Independence

Our Board has determined that each of the Directors standing for re-election has no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and meets the requirements of “independence” as set forth in the rules and regulations promulgated by the SEC and the Nasdaq Stock Market listing standards (the “Nasdaq Listing Standards”). Furthermore, the Board has determined that, with the exception of Dr. Grieve, Heska’s Chairman and Chief Executive Officer, all current members of the Board meet the requirements of “independence” as set forth in the rules and regulations promulgated by the SEC and the Nasdaq Listing Standards.

Audit Committee

Our Audit Committee has the following responsibilities:

•

appoint and replace our independent auditors;

•

compensate and oversee the work of our independent auditors;

•

oversee and monitor the integrity of our annual and quarterly financial statements;

•

review and discuss with management and our independent auditors significant financial reporting issues and critical accounting policies and practices;

•

oversee and monitor the qualifications, independence and performance of our independent auditors;

•

oversee and monitor our internal accounting and financial controls; and

•

provide the results of examinations and recommendations derived therefrom to the Board.

During 2009, our Audit Committee met four times. Our Audit Committee has consisted of Mr. Aylesworth, as Chairman, Mr. Eio and Ms. McCormick since our 2008 Annual Meeting. Beginning at our 2010 Annual Meeting, our Audit Committee is to consist of Mr. Eio, as Chairman, Mr. Aylesworth and Ms. McCormick.

Our Board has determined that each of the current members of our Audit Committee meets the requirements of “independence” as set forth in Section 10A(m)(3) of the Securities Exchange Act of 1934, the rules and regulations promulgated by the SEC and the Nasdaq Listing Standards. Our Board has also determined that William A. Aylesworth is an audit committee financial expert within the meaning of the rules and regulations promulgated by the SEC and he has accounting and related financial management expertise within the meaning of the Nasdaq Listing Standards.

Our Audit Committee has a written charter, which is available on our website at www.heska.com (under Investors — Corporate Governance). The Company’s website address provided above is not intended to function as a hyperlink, and the information on the Company’s website is not and should not be considered part of this proxy statement and is not incorporated by reference herein.

Compensation Committee

Our Compensation Committee has the following responsibilities:

•

discharge the Board’s responsibilities relating to compensation of our Executive Officers, including our Chief Executive Officer;

•

oversee all compensation programs involving the use of our stock; and

•

produce an annual report on executive compensation for inclusion in our proxy statement for our annual meeting of stockholders.

During 2009, our Compensation Committee met four times. Our Compensation Committee has consisted of Mr. Eio, as Chairman, Mr. Gordon and Mr. Sasen since our 2008 Annual Meeting. Beginning at our 2010 Annual Meeting, our Compensation Committee is to consist of Mr. Gordon, as Chairman, Mr. Eio and Mr. Sasen.

Our Board has determined that each of the current members of our Compensation Committee meets the requirements of “independence” as set forth in the rules and regulations promulgated by the SEC and the Nasdaq Listing Standards.

Our Compensation Committee has a written charter, which is available on our website at www.heska.com (under Investors — Corporate Governance). The Company’s website address provided above is not intended to function as a hyperlink, and the information on the Company’s website is not and should not be considered part of this proxy statement and is not incorporated by reference herein.

Corporate Governance Committee

Our Corporate Governance Committee has the following responsibilities:

•

assist our Board by identifying qualified candidates for Director, and select the Director nominees for each annual meeting of stockholders;

•

lead our Board in its annual review of our Board’s performance;

•

recommend Director nominees to our Board for each Board Committee; and

•

develop and recommend to our Board the corporate governance guidelines applicable to the Company.

During 2009, our Corporate Governance Committee met five times. Our Corporate Governance Committee consisted of Mr. Sasen, as Chairman, Mr. Aylesworth and Mr. Gordon prior to our 2009 Annual Meeting on May 5, 2009 and Mr. Sasen, as Chairman, Mr. Gordon and Ms. McCormick beginning at our 2009 Annual Meeting. Beginning at our 2010 Annual Meeting, our Corporate Governance Committee will consist of Ms. McCormick, as Chairwoman, Mr. Gordon and Mr. Sasen.

Our Board has determined that each of the current members of our Corporate Governance Committee meets the requirements of “independence” as set forth in the rules and regulations promulgated by the SEC and the Nasdaq Listing Standards.

Our Corporate Governance Committee has a written charter, which is available on our website at www.heska.com. In addition, our Corporate Governance Committee prepared, and our full Board has approved, Corporate Governance Guidelines outlining the qualifications, responsibilities and other issues related to our Board’s governance role and functions. The document is also available on our website at www.heska.com (under Investors — Corporate Governance). The references to the Company’s website address provided above is not intended to function as a hyperlink, and the information on the Company’s website is not and should not be considered part of this proxy statement and is not incorporated by reference herein.

Director Qualification and Nomination

All of our Directors have served on our Board for over a year and have gained Company and industry specific knowledge as a result. The experience, qualifications, attributes or skills that qualify our Directors to serve on our Board are discussed on a Director-by-Director basis in the “Election of Directors” section of this document as well as in this “Board Structure and Committees” section. None of our Directors is serving as a result of one specific qualification. It is the breadth of their individual experiences and the manner in which they complement each other as a group that make them individually and collectively attractive Directors.

Our Corporate Governance Committee does not have an established policy for minimum qualifications of Director nominees or appointees. However, pursuant to our Corporate Governance Committee Charter, we believe that it is in the best interests of the Corporation and its stockholders to obtain highly qualified candidates for the Board. Our Corporate Governance Committee seeks candidates with excellent decision-making ability, business experience, relevant experience, personal integrity and reputation as candidates for nomination and appointment.

Our Corporate Governance Committee does not have an established policy for diversity of Director nominees or appointees. However, we believe diversity is inherent in our approach of seeking high quality individuals with complementary skills to create a group dynamic and decision making process that is even stronger than would be obtained by the mere summation of its individual contributors in isolation.

Our Corporate Governance Committee does not have a formalized process for identifying and evaluating nominees or appointees for Director. Our Corporate Governance Committee determines desired Board member skills and attributes and conducts searches for prospective Director candidates whose skills and attributes reflect those desired. This analysis may start with a Board evaluation, including determination of areas of strength and areas for improvement. Particular skills and experience may be desired in areas of improvement. Our Corporate Governance Committee may determine guidelines and parameters for a search for an individual with the desired skills and experience. Our Corporate Governance Committee will evaluate candidates identified by its own initiative as well as candidates referred to it by other members of the Board, by the Company’s management, or by external sources. Our Corporate Governance Committee has utilized a third-party executive search firm in the past to identify candidates as well as other sources such as the National Association of Corporate Directors Registry^® database.

Our Corporate Governance Committee will also consider nominees recommended by stockholders provided such recommendations are made in accordance with our bylaws and the procedures described in this proxy statement under “Questions and Answers About the Proxy Materials and the 2010 Annual Meeting.” Although to date no stockholder has presented any candidate for Board membership to us, it is expected that recommendations from stockholders would generally be considered in the same manner as recommendations by a Director or an Officer of the Company.

Stockholder Communication with our Board

Stockholders can contact our Board, any Committee thereof, or any Director in particular, by writing to them, c/o Heska Corporation, 3760 Rocky Mountain Avenue, Loveland, Colorado 80538, Attn: Secretary. We will forward any correspondence sent in the foregoing manner to the appropriate addressee without review by management.

DIRECTOR COMPENSATION

The form and amount of compensation paid to the non-employee Directors is reviewed from time to time by our Corporate Governance Committee, which currently is reviewing the method and level of Director compensation and may approve corresponding changes to take effect prior to year end. Any revisions to our Director Compensation policy have been recommended by our Corporate Governance Committee and approved by our Board.

In 2009, our sole employee Director did not receive any separate compensation for his Board activities. Non-employee Directors received the compensation described below.

On each date of our Annual Meeting, each continuing non-employee Director who was a Director immediately prior to the Annual Meeting automatically receives options to purchase shares of our common stock valued at $37,500, subject to a maximum grant of options to purchase 50,000 shares of our common stock. These grants are to be immediately exercisable and to vest in full on the earlier of (i) the one year anniversary of the date of grant and (ii) the date immediately preceding the date of the Annual Meeting for the year following the year of grant for the award. Any new non-employee Directors appointed or elected to our Board will be automatically granted options to purchase shares of our common stock valued at $37,500, subject to a maximum grant of option to purchase 50,000 shares of our common stock. Any such grant is to be immediately exercisable and to vest over a period of four years in equal annual installments. The value for options granted pursuant to this paragraph is to be determined pursuant to our option valuation policy at the time of issuance.

Each non-employee Director was also entitled to an annual cash retainer in the amount of $20,000 during 2009. Effective January 1, 2010, and following the study of data from a compensation consultant, the annual cash retainer was increased to $30,000. The Company pays the annual retainer in advance, in quarterly installments on the first business day of each calendar quarter, subject to the non-employee Director’s continued service to the Company as a non-employee Director on such date.

Beginning on July 1, 2010, our Lead Director is to be entitled to an annual cash retainer in the amount of $10,000 (the “Lead Retainer”). The Company is to pay the Lead Retainer in advance, in quarterly installments on the first business day of each calendar quarter, subject to the non-employee Director’s continued service as Lead Director. In addition, each non-employee Director who served as Chairperson of a Board Committee was entitled to an annual cash retainer in the amount of $5,000 (the “Chair Retainer”) through June 30, 2009. The Chair Retainer was reduced from $5,000 to $2,500, effective July 1, 2009. The Company pays the Chair Retainer in advance, in quarterly installments on the first business day of each calendar quarter, subject to the non-employee Director’s continued service as Chairperson of such Committee. Each non-employee Director who serves on a Board Committee is entitled to an annual cash retainer of $2,500 (the “Committee Retainer”). A non-employee Director who is also the Chairperson of a Committee shall be entitled to the Committee Retainer in addition to the Chair Retainer. The Company pays the Committee Retainer in advance, in quarterly installments on the first business day of each calendar quarter, subject to the non-employee Director’s continued service as a member of such Committee. Non-employee Directors will also continue to be reimbursed for customary and usual travel expenses.

The following tables provide information for fiscal 2009 compensation for non-employee Directors who served during fiscal 2009.

Director Compensation (1)

																		Change in
		Fees																Pension
		Earned																Value and
		Or												Non-Equity				Nonqualified
		Paid in				Stock				Option				Incentive Plan				Deferred				All Other
		Cash				Awards				Awards				Compensation				Compensation				Compensation				Total
Name		($)				($)				($) (2) (3)				($)				Earnings				($)				($)
William A. Aylesworth			27,500				—				16,038				—				—				—				43,538
Peter Eio			28,750				—				16,038				—				—				—				44,788
G. Irwin Gordon			25,000				—				16,038				—				—				—				41,038
Louise L. McCormick			23,750				—				25,407				—				—				—				49,157
John F. Sasen, Sr.			27,500				—				16,038				—				—				—				43,538

2009 Equity Grants to Directors

						Number of								Grant Date
						Securities				Exercise				Fair Value of
						Underlying				Price				Option Award
Name		Grant Date				Options				($)				($) (3)
William A. Aylesworth			5/5/09				50,000				0.46				10,085
Peter Eio			5/5/09				50,000				0.46				10,085
G. Irwin Gordon			5/5/09				50,000				0.46				10,085
Louise L. McCormick			5/5/09				50,000				0.46				10,085
John F. Sasen, Sr.			5/5/09				50,000				0.46				10,085

PROPOSALS TO BE VOTED ON

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Our Board is divided into three classes serving staggered three-year terms. Our amended and restated certificate of incorporation requires us to ensure each class is as nearly equal in number as possible. Directors for each class are elected at the Annual Meeting of Stockholders held in the year in which the term for their class expires.

The terms for two continuing Directors will expire at this 2010 Annual Meeting. Directors elected at the 2010 Annual Meeting will hold office for a three-year term expiring at our 2013 Annual Meeting (or until their respective successors are elected and qualified, or until their earlier death, resignation or removal).

Nominees for Three-Year Terms That Will Expire in 2013 (Class I)

Peter Eio, age 68, has served us as a Director since October 2002. Mr. Eio served as the President of LEGO Systems, Inc., from 1989 to 2001 and was Managing Director of LEGO UK from 1982 to 1989. He also held various positions with International Playtex, Inc., in Scandinavia and the UK from 1971 to 1981. His previous experience includes marketing, sales and general management positions. Mr. Eio is also a Director of two private companies and serves on the Board of several charitable and educational organizations. Mr. Eio holds an honorary degree from Rensselaer Polytechnic Institute (Doctor of laws-honoris causa, 1996), attended the IMD Business School in Lausanne, Switzerland and received the Prince Henrik Medal of Honor for services to Danish industry in 1992.

G. Irwin Gordon, age 59, has served us as a Director since May 2001. Mr. Gordon is the founder and Managing Partner of Trion LLC, a consulting firm. From July 2000 until August 2001, Mr. Gordon served as President and Chief Executive Officer of Gruma Corporation, a food manufacturer. He also served as President and Chief Operating Officer of Suiza Foods Corporation, a food manufacturer and distributor, from February 1998 to October 1999. Mr. Gordon joined Suiza in August 1997 as its Executive Vice President and Chief Marketing Officer. Prior to joining Suiza, Mr. Gordon held various positions with subsidiaries of PepsiCo, Inc. (“PepsiCo”), including most recently as Senior Vice President Global Branding for Frito-Lay, Inc., from May 1996 to August 1997. From 1983 to 1992, Mr. Gordon served as President and General Manager of several international Frito-Lay companies before becoming Senior Vice President Marketing, Sales and Technology for Frito-Lay International from 1992 to 1996. Prior to joining PepsiCo in 1992, Mr. Gordon served in various capacities at the Kellogg Company. Mr. Gordon holds an Education degree from the University of British Columbia and a Management Certificate from Stanford University.

Vote Required; Recommendation of our Board of Directors

The affirmative vote of a plurality of the votes of the shares present in person or by proxy at the Annual Meeting and entitled to vote on the election of Directors will be used to elect the nominees. Our Board of Directors unanimously recommends a vote FOR the election of Mr. Eio and Mr. Gordon as our Directors.

Heska’s Directors listed below whose terms are not expiring this year will continue in office for the remainder of their terms in accordance with our bylaws. Information regarding the business experience and education of each of such Director is provided below.

Directors Whose Terms Will Expire in 2012 (Class III)

William A. Aylesworth, age 67, has served us as a Director since June 2000. Mr. Aylesworth served as Senior Vice President from 1988 to 2003 and Chief Financial Officer of Texas Instruments Incorporated from 1984 to 2003. He served as Treasurer of Texas Instruments from 1982 to 2002. From 1972 to 1982, he served in treasury services, and from 1967 to 1972, he held numerous assignments in control, manufacturing and marketing for Texas Instruments. He holds an M.S. in industrial administration from Carnegie Mellon University and a B.E.E. in electrical engineering from Cornell University.

Robert B. Grieve, Ph.D., age 58, one of our founders, currently serves as Chief Executive Officer and Chairman of the Board of Directors. Dr. Grieve was named Chief Executive Officer effective January 1999, Vice Chairman effective March 1992 and Chairman of the Board effective May 2000. Dr. Grieve also served as Chief Scientific Officer from December 1994 to January 1999 and Vice President, Research and Development, from March 1992 to December 1994. He has been a member of our Board of Directors since 1990. He holds a Ph.D. degree from the University of Florida and M.S. and B.S. degrees from the University of Wyoming.

Directors Whose Terms Will Expire in 2011 (Class II)

Louise L. McCormick, age 67, has served us as a Director since January 2008. Ms. McCormick was with Aetna, Inc. for over 25 years in various finance, strategic planning and legal positions, including as Corporate Secretary and Securities Counsel, and Vice President, Strategy, Finance and Administration. Ms. McCormick retired from Aetna, Inc. in 2000. Since June 2005, Ms. McCormick has served as an independent Director of Foresters, a Toronto-based insurance company, and is a member of its Ethics, Governance and Compensation Committee. She also serves as a Director of a wholly-owned Foresters subsidiary and several non-profit and educational institutions. Ms. McCormick holds a J.D. from the University of Connecticut Law School and a M.S.T. and B.A. from the University of Florida.

John F. Sasen, Sr., age 67, has served us as a Director since October 1998. Since April 1998, he has served as Executive Vice President and Chief Marketing Officer of PSS/World Medical, Inc. (“PSS”), a medical supply distributor, and has held various other senior executive positions at PSS, including President and Chief Operating Officer, since 1993. From July 1993 to April 1998, Mr. Sasen served as a Director of PSS. Prior to joining PSS, Mr. Sasen was Vice President Sales, Marketing and Distributor Relations for a division of Becton Dickinson & Company, a manufacturer of health care products. Mr. Sasen was with Becton Dickinson for over 20 years. Mr. Sasen has developed and implemented executive and sales compensation programs in his career. In addition, Mr. Sasen serves as the Chairman of the Health Industry Distribution Association Education Foundation, Executive Director of the Health Industry Distributor Association, Director of Nova Vision, Inc. and Director of the Boys’ Home Foundation.

PROPOSAL 2: NOL PROTECTIVE AMENDMENT

ADOPTION OF CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO RECLASSIFY OUR COMMON STOCK AND ADD TRANSFER RESTRICTIONS TO PRESERVE VALUE OF OUR TAX NET OPERATING LOSSES

General

At the 2010 Annual Meeting, you will consider and vote on a proposal to adopt a certificate of amendment to our Restated Certificate of Incorporation to reclassify our common stock and impose restrictions on its transfer under certain circumstances (the “NOL Protective Amendment”). The NOL Protective Amendment attempts to prevent certain future transfers of our capital stock that could adversely affect our ability to utilize our net operating loss carryforwards (“NOLs”) and certain income tax credits to reduce our federal income taxes. If the NOL Protective Amendment is approved and filed with the Secretary of State of the State of Delaware, each share of our existing common stock will automatically be reclassified into one share of new common stock. The new common stock shall be eligible for use in our 1997 Stock Plan, as amended and restated, our 1997 Employee Stock Purchase Plan, as amended and restated, and our 2003 Equity Incentive Plan, as amended and restated. Except for the restrictions noted below, the reclassified shares of common stock will have the same rights and preferences as shares of our existing common stock (a description of which is contained in our Registration Statement on Form 8-A, dated April 24, 1997).

The NOL Protective Amendment is contained in a proposed new Article IV to our Restated Certificate of Incorporation which is attached as Appendix A to this proxy statement and is incorporated by reference herein. We urge you to read the NOL Protective Amendment in its entirety, as the discussion in this proxy statement is only a summary and does not contain all of the language in the NOL Protective Amendment. The NOL Protective Amendment will only become effective if our stockholders holding a majority of our outstanding common stock approve it.

The Problem: Potential Limitations on Our NOLs

The Value of our NOLs. We estimate that we had approximately $163 million of (pre-tax) federal NOLs as of December 31, 2009. Furthermore, our federal NOLs do not begin to expire until the end of 2010, and are available to use at some level through 2025. To the extent we have future taxable income, and until the NOLs expire or are subject to limitation, they can be used to eliminate future ordinary tax on our income (we may still pay alternative minimum taxes). Because the amount and timing of our future taxable income, if any, cannot be accurately predicted, we cannot estimate the exact amount, if any, of our NOLs that we can ultimately use to reduce our income tax liability. Although we are unable to quantify an exact value, we believe our NOLs are a valuable asset.

The Section 382 Limit on Use. Certain transfers of our stock between shareholders could result in our undergoing an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury Regulations (“Section 382”). If that were to happen, we would only be allowed to use a limited amount of our then existing NOLs and credits to reduce our current and future federal income taxes subsequent to the ownership change. The annual limit is obtained by multiplying (i) the aggregate value of our outstanding capital stock immediately prior to the ownership change (reduced by certain capital contributions made during the immediately preceding two years, any substantial non-business assets, including cash, and less certain other items) by (ii) the federal long-term tax-exempt interest rate in effect for the month of the “ownership change.” In calculating this annual limit, numerous special rules and limitations apply, including provisions dealing with “built-in gains and losses.” If we were to experience an ownership change at our current stock price levels, we believe we would be subject to an annual NOL limitation which would result in a material amount of our NOLs expiring unused, resulting in a significant diminution in the value of our NOLs.

Following a Section 382 Ownership Change. If we were to have taxable income in excess of the NOL limitations following a Section 382 ownership change, we would not be able to utilize all of our NOLs to reduce federal taxes on such excess. Consequently, we would make cash payments on corporate income tax on any taxable income during a given year for income earned in excess of the NOL limitation. While any loss carryforwards not used as a result of any Section 382 limitation would remain available to offset income in future years (again, subject to the Section 382 limitation) until the NOLs expire, any ownership change could significantly defer the utilization of the NOLs, accelerate payment of federal income taxes and could cause some of the NOLs to expire unused. Because the aggregate value of our outstanding stock and the federal long-term tax-exempt interest rate fluctuate, it is impossible to predict with any accuracy the annual limitation upon the amount of the federal taxes on our income that could be reduced by such tax NOLs and income tax credits were an ownership change to occur in the future, even under certain circumstances resulting in the complete loss of our NOLs and income tax credits.

Section 382 Ownership Shift Calculations. Generally, an ownership change occurs under Section 382 if one or more “5-percent shareholders” (which in general includes stockholders who own five percent or more in value of a company’s capital stock) collectively increase their aggregate percentage ownership by more than 50 percentage points over the lowest percentage of our stock owned by such stockholders during the preceding three-year period. For example, if a single stockholder acquires more than 50% of our common stock within a three-year period, an ownership change would occur. Similarly, if ten persons, none of whom own any shares of our common stock, each acquire just over 5% of our common stock within a three-year period, an ownership change would occur under Section 382.

The determination of whether an ownership change has occurred under Section 382 involves complex analysis, the details of which are beyond the scope of this discussion.

Current Ownership Shift. As of December 31, 2009, we estimate that we had experienced a shift in our ownership for purposes of Section 382 of slightly over 15% based on certain assumptions that we have made about our 5-percent shareholders. Because the shift is calculated based on a rolling preceding three year period, it is possible to project how much of the shift will roll-off of the shift calculation over the future three year period assuming no other changes in ownership. Based on this roll-off projection, we believe that the current shift will not materially decrease until the third quarter of 2012.

Reasons for the NOL Protective Amendment

Our $163 million federal NOLs are a significant asset that could reduce federal income taxes on our income. At our current stock price, the value of our NOLs could be significantly impaired unless we avoid potential transfers that, individually or in the aggregate, could trigger an ownership change under Section 382. Furthermore, because our federal NOLs are available to use at some level through 2025, we will need to continually manage our Section 382 risk for a significant period of time. Our Board of Directors believes that the provisions of the NOL Protective Amendment will be an important tool in avoiding potential adverse impacts from Section 382 limitations.

Currently, if a shareholder makes a transfer that creates, or increases the ownership of, a 5-percent shareholder, there is nothing we can do to prevent or reverse the impact on the ownership shift that results. In contrast, the NOL Protective Amendment would provide a mechanism with the potential to reverse the impact of the transfer on the ownership shift.

Description and Effect of NOL Protective Amendment

The following is a brief summary of the proposed transfer restrictions. You are urged to read the NOL Protective Amendment in its entirety as set forth in Appendix A, as its terms (and not this summary) will govern our legal rights and those of our shareholders.

The NOL Protective Amendment generally restricts any person or entity from attempting to transfer (which includes any direct or indirect acquisition, sale, transfer, assignment, conveyance, pledge or other disposition) any of our stock (or options, warrants or other rights to acquire our stock, or securities convertible or exchangeable into our stock), to the extent that transfer would (i) create or result in an individual or entity, or any group of individuals or entities, becoming a 5-percent shareholder of our stock for purposes of Section 382 (which the NOL Protective Amendment refers to as a “Five Percent Shareholder”) or (ii) increase the stock ownership percentage of any existing Five Percent Shareholder. The NOL Protective Amendment refers to any person or entity attempting to acquire shares in such a transaction as a “Restricted Holder.” The NOL Protective Amendment would not prevent transfers that are sales by a Five Percent Shareholder, although it would restrict any purchasers that seek to acquire shares from a Five Percent Shareholder to the extent that the purchaser is or would become a Five Percent Shareholder.

The NOL Protective Amendment provides that any transfer that violates the NOL Protective Amendment shall be null and void ab initio and shall not be effective to transfer any record, legal, beneficial or any other ownership of the number of shares which result in the violation of the NOL Protective Amendment (which are referred to as “Excess Securities”). The purported transferee shall not be entitled to any rights as our stockholder with respect to the Excess Securities. Instead, the purported transferee would be required, upon demand by the Company, to transfer the Excess Securities to an agent designated by us for the limited purpose of consummating an orderly arm’s-length sale of such shares. The net proceeds of the sale will be distributed first to reimburse the agent for any costs associated with the sale, second to the purported transferee to the extent of the price it paid, and finally any additional amount will go to the purported transferor, or, if the purported transferor cannot be readily identified to the Company, to cover the costs incurred by the Company as a result of such prohibited transfer, as more particularly described below, with the remainder, if any, to be donated to a charity designated by the Board of Directors.

With respect to any transfer that does not involve a transfer of our “securities” within the meaning of Delaware law but which would cause any Five Percent Shareholder to violate the transfer restrictions, the following procedure would apply in lieu of those described above. In such case, no such Five Percent Shareholder would be required to dispose of any interest that is not a security of the Company, but such Five Percent Shareholder and/or any person whose ownership of securities of the Company is attributed to such Five Percent shareholder, would be deemed to have disposed of (and would be required to dispose of) sufficient securities (which securities shall be disposed of in the inverse order in which they were acquired), simultaneously with the transfer, to cause such Five Percent Shareholder not to be in violation of the transfer restrictions, and such securities would be treated as Excess Securities to be disposed of through the agent under the provisions summarized above, with the maximum amount payable to such Five Percent Shareholder or such other person that was the direct holder of such Excess Securities from the proceeds of sale by the agent being the fair market value of such Excess Securities at the time of the prohibited transfer.

The NOL Protective Amendment also provides us with various remedies to prevent or respond to a purported transfer which violates its provisions. In particular, the NOL Protective Amendment provides that any person who knowingly violates the NOL Protective Amendment, together with any persons in the same control group with such person, are jointly and severally liable to us for such amounts as will put us in the same financial position as we would have been in had such violation not occurred.

If it is adopted, any amendments to or repeal of the transfer restriction provisions of the NOL Protective Amendment will require the affirmative vote of 66-2/3% of our then-outstanding shares.

Authorization of Transfers of Stock

Any Restricted Holder that would like to acquire shares of our stock must make a written request to our Board of Directors prior to any such acquisition. The written request must be delivered to the Secretary of the Company at the following address:

Heska Corporation

3760 Rocky Mountain Avenue

Loveland, CO 80538

Attn: Secretary

Re: NOL Protective Amendment

Fax: (970) 619-3003

The request should include information such as (i) the name, address and telephone number of the Restricted Holder, (ii) a description of the Restricted Holder’s direct and indirect ownership of our stock; (iii) a description of the stock that the Restricted Holder proposes to acquire, (iv) the date on which the proposed acquisition is expected to take place (or, if the acquisition is proposed to be made by a Five Percent Shareholder in a transaction on a national securities exchange, a statement to that effect), (v) the name of the proposed transferor of the stock that the Restricted Holder proposes to acquire (or, if the acquisition is proposed to be made by a Restricted Holder in a transaction on a national securities exchange, a statement to that effect), and (vi) a request that the Board of Directors (or a committee thereof) authorize, if appropriate, the acquisition.

Our Board of Directors may authorize an acquisition by a Restricted Holder of stock that would otherwise violate the NOL Protective Amendment if the Board of Directors determines, in its sole discretion, that after taking into account the preservation of our NOLs and income tax credits, such acquisition would be in the best interests of the Company and its stockholders. In deciding whether to authorize such transaction, our Board of Directors may seek the advice of counsel and tax experts with respect to the preservation of our federal tax attributes pursuant to Section 382. In addition, our Board of Directors may request relevant information from the Restricted Holder in order to determine compliance with the NOL Protective Amendment or the status of our NOLs and income tax credits. In considering whether to authorize such a proposed acquisition, we expect our Board of Directors to consider, among other things:

•

whether the person acquiring the shares is or would become a 5-percent shareholder under Section 382 as a result of the proposed acquisition;

•

the impact of the proposed acquisition on our Section 382 shift in ownership percentage;

•

the then existing level of our Section 382 shift in ownership percentage;

•

the economic impact of any Section 382 limitation that might result, taking into account factors such as our market capitalization and cash position;

•

the impact on possible future issuances or purchases of our common stock by us;

•

any changes or expected changes in applicable tax law; and

•

other business and strategic matters that the Board of Directors determines are in the best interests of the Company and its stockholders.

If our Board of Directors decides to authorize any proposed acquisition, it may impose conditions on the Restricted Holder. In addition, our Board of Directors may require the Restricted Holder to make certain representations to the Company or require an opinion of counsel regarding the proposed acquisition. Likewise, any Restricted Holder requesting authorization for a proposed acquisition may be required to reimburse the Company for any costs or expenses associated with the Board of Directors’ review of the proposed acquisition.

Implementation and Suspension of the NOL Protective Amendment

If the NOL Protective Amendment is approved by our stockholders at our 2010 annual meeting of stockholders, we intend to enforce the restrictions to preserve future use of our NOLs and income tax credits immediately thereafter. The NOL Protective Amendment will expire on the earlier to occur of (i) the Board’s determination that the NOL Protective Amendment is no longer necessary to preserve the NOLs because of the amendment or repeal of Section 382 or any successor statute, (ii) the date that the Board of Directors determines in good faith that it is in the best interests of the Company and its stockholders for the transfer restrictions to terminate or (iii) January 1, 2026.

Effectiveness and Enforceability of NOL Protective Amendment

Although the NOL Protective Amendment is intended to reduce the likelihood of an ownership change, we cannot eliminate the possibility that an ownership change will occur even if we adopt the NOL Protective Amendment. Likewise, we cannot guarantee that an ownership change will not have occurred prior to the adoption of the NOL Protective Amendment.

The NOL Protective Amendment will not prevent all transfers that might result in an “ownership change.” For example, it will not prevent existing Five Percent Shareholders from selling stock to persons other than Five Percent Shareholders.

The NOL Protective Amendment also does not limit certain changes in relationships and other events which could cause us to undergo an ownership change. Section 382 is an extremely complex provision with respect to which there are many uncertainties. We have not requested a ruling from the IRS regarding the effectiveness of the NOL Protective Amendment, and we cannot assure you that the IRS will agree that the NOL Protective Amendment is effective for purposes of limiting the applicability of Section 382.

Further, a court could find that some or all of the provisions of the NOL Protective Amendment are not enforceable, either in general or as to a particular fact situation. Under the laws of the State of Delaware, our jurisdiction of incorporation, a corporation may provide in its certificate of incorporation or bylaws for restrictions on the transfer of securities for the purpose of maintaining any tax advantage. Delaware law provides that transfer restrictions are effective against purported transferees if the transfer restriction is conspicuously noted on the certificate(s) representing the shares and against purported transferees with actual knowledge of the restriction (even absent such conspicuous notation). In connection with the NOL Protective Amendment, the shares of our existing common stock will be exchanged for, and reclassified into, new shares of common stock that provide for the transfer restrictions discussed above. These new common shares will contain a conspicuous legend on the back of the stock certificates that refers to transfer restrictions. We believe that this reclassification and exchange of shares will be sufficient to make the proposed transfer restrictions binding on all holders of our stock. Nonetheless, a court could find that either the reclassification or the transfer restrictions are unenforceable, either in general or under particular facts and circumstances.

As a result of these and other factors, the NOL Protective Amendment serves to reduce, but does not eliminate, the risk that we will undergo an ownership change.

Other Considerations

Our Board of Directors believes that attempting to safeguard our NOLs and income tax credits as described above is in our best interests. Nonetheless, the NOL Protective Amendment, if adopted, could have certain potentially negative consequences:

Anti-Takeover Impact. Because some corporate takeovers occur through the acquirer’s purchase, in the public market or otherwise, of sufficient stock to give it control of a company, any provision that restricts the transferability of shares can have the effect of preventing such a takeover. The NOL Protective Amendment, if adopted, could be deemed to have an “anti-takeover” effect because, among other things, it will restrict the ability of a person, entity or group to accumulate five percent or more of our common stock and the ability of persons, entities or groups now owning more than five percent of our common stock from acquiring additional shares of our common stock without the approval of our Board of Directors. As a result, our Board of Directors may be able to prevent any future takeover attempt. Therefore, the NOL Protective Amendment could discourage or 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. However, these disadvantages are outweighed, in our opinion, by the fundamental importance of maintaining the availability of our NOLs and income tax credits. The “anti-takeover” effect of the proposed NOL Protective Amendment is not the reason for the NOL Protective Amendment. We are proposing the NOL Protective Amendment in an effort to reduce the risk that we may be unable to fully utilize the NOLs and income tax credits described above as a result of future transfers of our common stock.

Potential Effects on Liquidity. The NOL Protective Amendment will restrict a stockholder’s ability to acquire, directly or indirectly, additional shares of our common stock in excess of the specified limitations. Furthermore, a stockholder’s ability to dispose of our stock may be limited by reducing the class of potential acquirers for such stock and a stockholder’s ownership of our stock may become subject to the NOL Protective Amendment upon actions taken by persons related to, or affiliated with, them.

Potential Impact on Value. Because certain buyers, including persons who wish to acquire 5% or more of our stock and certain institutional holders who may not be comfortable holding stock with transfer restrictions, may not purchase our stock, the NOL Protective Amendment could depress the value of our stock in an amount that might more than offset any value conserved as a result of the preservation of our NOLs and income tax credits.

Questions and Answers About Proposal 2: NOL Protective Amendment

Q:		What is Section 382?
A:		Section 382 is a provision of the Internal Revenue Code of 1986, as amended that imposes limitations on the future use of our NOLs and income tax credits if we undergo an “ownership change” as that term is defined in Section 382.
Q:		What happens if there is an ownership change under Section 382?
A:		If there is an ownership change under Section 382, we would only be allowed to use a limited amount of our then existing NOLs and income tax credits to reduce the federal income taxes on our income in the current or any future year. The annual limit is obtained by multiplying (i) the aggregate value of our outstanding capital stock immediately prior to the ownership change (reduced by certain capital contributions made during the immediately preceding two years, any substantial non-business assets, including cash, and less certain other items) by (ii) the federal long-term tax-exempt interest rate in effect for the month of the ownership change. In calculating this annual limit, numerous special rules and limitations apply, including provisions dealing with “built-in gains and losses.”
Q:		How is an ownership change determined under Section 382?
A:		The determination of whether an ownership change has occurred under Section 382 involves complex analysis; however, in general terms, an ownership change occurs under Section 382 if one or more “5-percent shareholders” (which in general includes stockholders who own five percent or more in value of a company’s capital stock) collectively increase their aggregate percentage ownership by more than 50 percentage points over the lowest percentage of our stock owned by such stockholders during the preceding three-year period. For example, if a single stockholder acquires more than 50% of our common stock within a three-year period, an ownership change would occur. Similarly, if ten persons, none of whom own any shares of our common stock, each acquire just over 5% of our common stock within a three-year period an ownership change would occur under Section 382.
Q:		How important are our NOLs?
A:		Our approximately $163 million of (pre-tax) federal NOLs as of December 31, 2009 are a significant asset that could reduce federal income taxes on our income. These NOLs are available to use at some level through 2025. Because the amount and timing of our future taxable income, if any, cannot be accurately predicted, we cannot estimate the amount, if any, of our NOLs that we can ultimately use to reduce our income tax liability or the time period in which these restrictions will continue to be necessary. Although we are unable to quantify an exact value of our NOLs due to the above factors, we believe the value of our NOLs and income tax credits is significant.

Q:		How close are we to triggering an ownership change under Section 382?
A:		As of December 31, 2009, we estimate that we had experienced a shift in our ownership for purposes of Section 382 of slightly over 15% based on certain assumptions that we have made about our 5-percent shareholders. An ownership shift over 50% would trigger an ownership change under Section 382.
Q:		Do all investors who file a Schedule 13-G/D count in the shift calculation?
A:		No, some investors who file a Schedule 13G or 13D are not 5-percent shareholders under the Section 382 definition and hence would not affect our ownership shift for purposes of Section 382. However, we have provided in the NOL Protective Amendment that we may rely conclusively on the existence or absence of any Schedule 13G or 13D filings in making our determination as to whether or not any given stockholder may be considered a 5-percent shareholder. Likewise, the filing of a Schedule 13G or 13D may indicate whether a particular stockholder may warrant further investigation as to their status as a 5-percent shareholder under Section 382.
Q:		What is the process to obtain authorization from the Board of Directors to acquire shares?
A:		If the NOL Protective Amendment is adopted, we expect that requests for authorization for proposed acquisitions of our stock by persons or entities that would otherwise be affected by the proposed transfer restrictions would be submitted in writing to the Secretary of the Company, who will submit the matter to our Board of Directors. The request should include information such as (i) the name, address and telephone number of the person seeking to acquire shares, (ii) a description of the Restricted Holder’s direct and indirect ownership of our stock; (iii) a description of the stock that such person proposes to acquire, (iv) the date on which the proposed acquisition is expected to take place (or, if the acquisition is proposed to be made by a person in a transaction on a national securities exchange, a statement to that effect), (v) the name of the proposed transferor of the stock that the person proposes to acquire (or, if the acquisition is proposed to be made by a person in a transaction on a national securities exchange, a statement to that effect), and (vi) a request that the Board of Directors (or a committee thereof) authorize, if appropriate, the acquisition. The affected person may also be asked to supply certain information so that our Board of Directors can assess whether the proposed acquisition is in the best interests of the Company and our stockholders.

Submissions should be sent to:

Heska Corporation

3760 Rocky Mountain Avenue

Loveland, CO 80538

Attn: Secretary

Re: NOL Protective Amendment

Fax: (970) 619-3003

If our Board of Directors decides to authorize any proposed acquisition, it may impose conditions on the Restricted Holder. In addition, our Board of Directors may require the Restricted Holder to make certain representations to the Company or require an opinion of counsel regarding the proposed acquisition. Likewise, any Restricted Holder requesting authorization for a proposed acquisition may be required to reimburse the Company for any costs or expenses associated with the Board of Directors’ review of the proposed acquisition.

Q:		Do I still have to obtain authorization if I don’t count in the shift calculation?
A:		Yes, if you meet the definition of 5-percent shareholder under Section 382 (or would upon completion of the proposed acquisition).
Q:		How does this affect me if I am or become a 5-percent shareholder?
A:		The NOL Protective Amendment would prevent you from acquiring additional shares of our stock. However, it would not restrict sales of our shares by you, although it would restrict any purchaser from purchasing additional shares from you to the extent that the purchaser is or would become a 5-percent shareholder under Section 382.
Q:		How long will these restrictions be in place?
A:		The transfer restrictions and other provisions of the NOL Protective Amendment will terminate when our Board of Directors determines in good faith that it is in the best interests of the Company and its stockholders for the transfer restrictions imposed by the amendment to terminate or on January 1, 2026, whichever occurs first.

Q:		Why should I vote in favor?
A:		Our approximately $163 million of (pre-tax) federal NOLs as of December 31, 2009 are a significant asset that could reduce the federal income taxes on our income. However, at our current stock price, the value of our NOLs could be significantly impaired unless we avoid potential transfers that could trigger an ownership change under Section 382. Furthermore, because our federal NOLs are available to use at some level through 2025, we will need to continually manage our Section 382 risk for a significant period of time. Our Board of Directors believes that the provisions of the NOL Protective Amendment will be an important tool in avoiding adverse impacts from Section 382 limitations.
Q:		What are some of the negative factors I should consider?
A:		The NOL Protective Amendment could reduce the possibility of a takeover of the Company, and could adversely impact the liquidity and value in our stock if certain buyers decide not to purchase our stock.
Q:		Why are you doing this now?
A:		We are aware of ownership shifts and the potential for ownership shifts that have raised concerns about the applicability of Section 382, and currently, if a shareholder makes a transfer that further increases our ownership shift, there is nothing we can do to reverse the potential impact to our NOLs and income tax credits that results. As of December 31, 2009, we estimate that we had experienced a shift in our ownership for purposes of Section 382 of slightly over 15% based on certain assumptions that we have made about our 5-percent shareholders. As a result, we face an increased risk that we could experience an ownership change that would materially decrease or completely eliminate our NOLs and income tax credits unless shareholders adopt the NOL Protective Amendment. In fact, we can offer no guarantees that we will not experience an ownership change prior to the adoption of the proposed NOL Protective Amendment.
Q:		What happens if I vote “No” on this proposal, but it is nonetheless approved by the requisite majority of stockholders? Am I still subject to the transfer restriction?
A:		Yes. In connection with the NOL Protective Amendment, the shares of our existing common stock will be reclassified into and exchanged for new shares of common stock that provide for the transfer restrictions discussed above. These new common shares will contain a conspicuous legend on the back of the stock certificates that refers to transfer restrictions. We believe that under Delaware law this reclassification and exchange of shares will be sufficient to make the proposed transfer restrictions binding on all holders of our stock. Nonetheless, a court could find that either the reclassification or the transfer restrictions are unenforceable, either in general or under particular facts and circumstances.

Q.		May I obtain physical share certificates of the new common stock?
A.		Yes. If you request physical share certificates of the new common stock in writing prior to year end 2010, they will be provided at Heska Corporation’s expense. After year end 2010, Heska Corporation in its discretion may provide you with physical shares at your expense upon your request in writing. Submissions should be sent to:

Heska Corporation

3760 Rocky Mountain Avenue

Loveland, CO 80538

Attn: Secretary

Re: Physical share request

You must include your name, address, phone number, email and all information needed to identify and transfer your current share holdings in your communication in order to be provided with physical shares.

Vote Needed for Approval

The affirmative vote by the holders of at least a majority of our outstanding common stock is required for approval and adoption of the proposed NOL Protective Amendment. Any abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal. The NOL Protective Amendment, if approved, would become effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, which we expect to accomplish as soon as practicable after the approval is obtained.

Our Board of Directors unanimously recommends a vote “FOR” the adoption of the proposed NOL Protective Amendment.

PROPOSAL NO. 3

AMENDMENT AND RESTATEMENT OF 1997 EMPLOYEE STOCK PURCHASE PLAN

General

We are seeking your approval to amend and restate our 1997 Employee Stock Purchase Plan (the “ESPP”), including an increase in the number of shares of our common stock available for issuance under the ESPP by 500,000 shares — from 2,750,000 to 3,250,000 shares. The amended and restated ESPP is enclosed as Appendix B to this proxy statement. The Board of Directors approved this amendment in March 2010. The purpose of the ESPP is to provide our employees with an opportunity to increase their stake in the success of our business by purchasing our stock at a discount to the fair market value through a convenient payroll deduction plan. We believe that the ESPP is an important component of our employee compensation package. In the past two years, up to 43% of our employees have participated in a semi-annual purchase under the ESPP. We also believe that the ESPP assists us in attracting and retaining skilled personnel. The essential features of the ESPP are summarized below.

Summary of Employee Stock Purchase Plan

General. The ESPP was originally approved by our Board of Directors and stockholders in April 1997, and provides our employees with the opportunity to purchase shares of common stock through payroll deductions. The number of shares of common stock previously reserved for issuance under the ESPP was 2,750,000. As of January 1, 2010, all 2,750,000 shares of common stock had been sold under the ESPP. The Board of Directors approved this amendment in March 2010. We will purchase shares on behalf of employees at the next regularly scheduled purchase date — June 30, 2010 — if this share increase is approved. If this increase is not approved, no such purchase shall occur until an affirmative shareholder vote increasing the number of shares available for issuance under the ESPP has occurred.

Administration. The Compensation Committee administers the ESPP. The ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Internal Revenue Code (the “Code”). All questions of interpretation or application of the ESPP are determined by the Board of Directors or its appointed committee, and its decisions are final, conclusive and binding upon all participants.

Eligibility and Participation. Currently, all U.S. employees who work more than 20 hours per week for more than five months per calendar year, and are employed by us or one of our U.S. subsidiaries are eligible to participate in the ESPP, unless the employee would own 5% or more of the total combined voting power of our stock at the start of an offering period. Participation in the ESPP is voluntary.

Offering Dates. Shares of stock are offered for purchase through a series of consecutive, overlapping 5-year offering periods. New offering periods start on each January 1 and July 1. Each offering period is comprised of up to ten successive six-month accumulation periods.

Purchase Price. The purchase price per share is 85% of the lower of our closing price of the stock on the last trading day of the accumulation period.

Payroll Deductions; Payment of Purchase Price. Employees may authorize payroll deductions in 1% multiples of cash compensation for each accumulation period they complete within an offering period, up to a maximum of 10%. An employee may discontinue his or her participation in the ESPP at any time and may increase or decrease the rate of payroll deduction not more than two times during any accumulation period.

Purchase of Stock. By executing an enrollment form, an employee is entitled to purchase shares on the last day of the accumulation period. The maximum number of shares that may be purchased during an accumulation period is determined at the end of the period by dividing the amount accumulated in such participant’s account during the period by the applicable purchase price, subject to a maximum of 2,500 shares. Unless the employee’s participation is discontinued prior to such purchase date, his or her purchase of the shares will occur automatically at the end of the accumulation period at the applicable price.

Notwithstanding the foregoing, no participant may participate in the ESPP if immediately after such election to participate, the participant would own stock and/or outstanding options to purchase stock possessing five percent or more of the total combined voting power of our stock. In addition, no participant is permitted to purchase stock with a value in excess of $25,000 (determined at the fair market value of the stock as of the beginning of the applicable offering period) in any calendar year.

Withdrawal. Generally, a participant may withdraw from an offering period at any time by written notice without affecting his or her eligibility to participate in future offering periods. However, once a participant withdraws from a particular offering period, that participant may not participate again in the same offering period. To participate in a subsequent offering period, the participant must deliver a new subscription agreement to us.

Termination of Employment. Termination of a participant’s employment for any reason, including disability or death, cancels his or her participation in the ESPP immediately. In such event, the payroll deductions credited to the participant’s account will be returned to him or her or, in the case of death, to the person or persons entitled thereto unless otherwise prohibited by law as provided in the ESPP.

Changes in Capitalization. The number of shares reserved under the ESPP, the accumulation period share purchase limit and relevant accumulation and offering period purchase price per share provisions under the ESPP shall be proportionately adjusted for any increase or decrease in the number of outstanding shares of our common stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, any other increase or decrease in such shares effected without receipt or payment of consideration by us, the distribution of the shares of a subsidiary to our stockholders or a similar event. Such adjustment shall be made by the Board of Directors, whose determination in that respect shall be final, binding and conclusive.

Change of Control, Merger or Consolidation. In the event of a change of control (as defined in the ESPP), any accumulation periods and offering periods then in progress shall terminate and shares are to be purchased under the ESPP immediately prior to the effective time of the change in control. In the event of a merger or consolidation which does not constitute a change of control, the ESPP shall continue unless the plan of merger or consolidation provides otherwise.

Amendment and Termination of the ESPP. The Board of Directors may at any time terminate or amend the ESPP. No amendment shall be effective unless it is approved by the holders of a majority of the votes cast at a duly held stockholders’ meeting, if such amendment would require stockholder approval in order to comply with Section 423 of the Code.

Incorporation by Reference. The foregoing is only a summary of the ESPP and is qualified in its entirety by reference to its full text, a copy of which is attached hereto as Appendix B.

Federal Income Tax Consequences

The proposed amendment will have no effect upon the tax consequences to participants or us.

The following brief summary of our understanding of the effect of federal income taxation upon the participant and us with respect to the shares purchased under the ESPP does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.

The ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the applicable offering period and one year from the applicable date of purchase, the participant will recognize ordinary income measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period. Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period. The Company generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above.

Participation in the ESPP

We are unable to predict the amount of benefits that will be received by or allocated to any particular participant under the ESPP. The following table sets forth the number of shares purchased under the ESPP during 2009 by each of (i) the Named Executive Officers; (ii) all Executive Officers as a group; and (iii) all employees, including all Executive Officers, as a group. Non-employee directors are not eligible for participation in the ESPP.

		Number of Shares				Weighted Average
Name and Position		Purchased				Purchase Price
Robert B. Grieve			—				—
Chairman of the Board and Chief Executive Officer
Michael J. McGinley			3,804			$	0.424
President and Chief Operating Officer
Jason A. Napolitano Executive Vice President, Chief Financial Officer and Secretary			3,804			$	0.424
G. Lynn Snodgrass Vice President, Sales			—				—
Michael A. Bent Vice President, Principal Accounting Officer and Controller			3,804			$	0.424
All executive officers as a group (5)			11,412			$	0.424
All employees, including all Executive Officers, as a group			148,810			$	0.348

Vote Required; Recommendation of the Board of Directors

The affirmative vote of the holders of a majority of our outstanding common stock is required to approve this proposal. Therefore, failure to vote will have the same effect as a vote against the amendment and restatement. If approved by the stockholders, the proposed Amended and Restated 1997 Employee Stock Purchase Plan will become effective immediately.

The Board of Directors recommends a vote FOR the proposal to amend and restate the 1997 Employee Stock Purchase Plan.

PROPOSAL NO. 4

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT

Our Board of Directors is submitting the appointment of Ehrhardt Keefe Steiner & Hottman PC (“EKS&H”) as the Company’s independent registered public accountant for stockholder ratification at the 2010 Annual Meeting. EKS&H has served as our independent registered public accountant since March 31, 2006. A representative of EKS&H is expected to be present at the Annual Meeting and will have an opportunity to make a statement if the representative desires to do so. Such representative also is to be available to answer questions at the meeting.

Vote Required; Recommendation of our Board of Directors

Stockholder ratification of the appointment of EKS&H as our independent registered public accountant is not required by our bylaws or otherwise. Our Board, however, is submitting the appointment of EKS&H to the stockholders for ratification as a matter of good corporate governance practice. The affirmative vote of a majority of the shares present in person or by proxy at our Annual Meeting which are entitled to vote on the subject matter and have voted and chosen not to abstain is required to ratify the appointment of EKS&H as our independent registered public accountant for fiscal 2010. If the stockholders fail to ratify the appointment, our Audit Committee will reconsider whether or not to retain that firm. Even if the appointment is ratified, our Audit Committee in its discretion may direct the appointment of a different independent registered public accountant at any time during the year if it determines that such a change would be in the best interest of the Company and its stockholders.

Our Board unanimously recommends a vote FOR the ratification of EKS&H as our independent registered public accountant for fiscal 2010.

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables show the number of shares of our common stock beneficially owned as of March 15, 2010 by each of the Named Executive Officers listed in the Summary Compensation Table, each of our Directors, all of our Directors and Named Executive Officers as a group, and each person who is known by us to be the beneficial owner of more than 5% of our common stock. We had 52,163,650 shares outstanding on March 15, 2010.

Ownership Table

		Shares				Percentage
		Beneficially				Beneficially
Name and Address of Beneficial Owner		Owned (1)				Owned (1)
State of Wisconsin Investment Board (2)			9,275,174				17.8	%
P.O. Box 7842
Madison, WI 53707
Zesiger Capital Group LLC (3)			7,949,700				15.2	%
320 Park Avenue, 30th Floor
New York, NY 10022
CMC Master Fund, L.P. (4)			7,790,466				14.9	%
525 University Avenue, Suite 1400
Palo Alto, CA 94301
William A. Aylesworth (5)			513,577				1.0	%
Peter Eio (5)			399,936				*
G. Irwin Gordon (5)			451,605				*
Robert B. Grieve, Ph.D. (5)(6)			2,913,029				5.6	%
Louise L. McCormick (5)			182,634				*
John F. Sasen, Sr. (5)			474,437				*
Michael A. Bent (5)			482,623				*
Michael J. McGinley, Ph.D. (5)			610,620				1.2	%
Jason A. Napolitano (5)(7)			2,001,719				3.8	%
G. Lynn Snodgrass (5)			174,737				*
All Directors and Executive Officers as a group (10 persons)(5)(6)(7)			8,204,917				15.7	%

*   Amount represents less than 1% of our common stock.

Exercisable Option Table

																		Weighted
														Exercisable				Average				Exercisable				Net Shares
										Exercisable				Option				Remaining				“In-the				from
		Shares				Exercisable				Option Price				Average				Contractual				money”				Exercisable
Name		Owned (1)				Options (2)				Range (3)				Price (4)				Life (5)				Options (6)				Options (7)
William A. Aylesworth			80,000				433,577			$	0.38-4.12			$	1.27				4.99				141,777				41,211
Peter Eio			20,000				379,936			$	0.46-2.73			$	1.25				5.73				135,177				48,182
G. Irwin Gordon			37,000				414,605			$	0.38-2.687			$	1.24				5.15				142,177				41,528
Robert B. Grieve, Ph.D. (8)			591,033				2,321,996			$	0.34-2.30			$	1.34				5.33				771,996				184,681
Louise L. McCormick			60,000				122,634			$	0.46-1.83			$	1.17				8.38				50,000				24,444
John F. Sasen, Sr.			39,923				434,514			$	0.46-4.12			$	1.25				5.22				147,560				41,571
Michael A. Bent			43,873				438,750			$	0.34-2.30			$	1.19				5.36				181,250				43,778
Michael J. McGinley, Ph.D.			40,287				570,333			$	0.34-2.30			$	1.17				6.53				247,500				70,194
Jason A. Napolitano (9)			611,948				1,389,771			$	0.44-2.30			$	1.09				5.01				837,304				157,358
G. Lynn Snodgrass			4,404				170,333			$	0.44-1.84			$	1.40				6.91				22,500				11,458
All Directors and Executive Officers as a group (10 persons) (8)(9)			1,528,468				6,676,449			$	0.34-4.12			$	1.24				5.45				2,677,241				664,405

Outstanding Option Table

																		Weighted
														Outstanding				Average				Outstanding				Net Shares
										Outstanding				Option				Remaining				“In-the-				from
		Shares				Outstanding				Option Price				Average				Contractual				money”				Outstanding
Name		Owned (1)				Options (2)				Range (3)				Price (4)				Life (5)				Options (6)				Options (7)
William A. Aylesworth			80,000				433,577			$	0.38-4.12			$	1.27				4.99				141,777				41,211
Peter Eio			20,000				379,936			$	0.46-2.73			$	1.25				5.73				135,177				48,182
G. Irwin Gordon			37,000				414,605			$	0.38-2.687			$	1.24				5.15				142,177				41,528
Robert B. Grieve, Ph.D. (8)			591,033				2,861,996			$	0.34-2.30			$	1.23				5.33				1,186,996				394,264
Louise L. McCormick			60,000				145,268			$	0.46-1.83			$	1.27				8.38				50,000				24,444
John F. Sasen, Sr.			39,923				434,514			$	0.46-4.12			$	1.25				5.22				147,560				41,571
Michael A. Bent			43,873				535,000			$	0.34-2.30			$	1.09				5.36				265,000				86,000
Michael J. McGinley, Ph.D.			40,287				837,000			$	0.34-2.30			$	1.01				6.53				470,000				182,556
Jason A. Napolitano (9)			611,948				1,639,354			$	0.44-2.30			$	1.03				5.01				1,041,054				260,136
G. Lynn Snodgrass			4,404				244,500			$	0.44-1.84			$	1.21				6.91				80,000				40,556
All Directors and Executive Officers as a group (10 persons)(8)(9)			1,528,468				7,925,750			$	0.34-4.12			$	1.16				5.48				3,659,741				1,160,448

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Compliance with Section 16(a) of the Securities Exchange Act of 1934 requires our Directors, Executive Officers and persons who own more than 10% of a registered class of our equity securities to file reports of holdings and transactions of Heska common stock and other equity securities with the SEC. Directors, Executive Officers and 10% or greater stockholders are required by SEC regulations to furnish us with copies of all of the Section 16(a) reports they file. Based solely upon a review of the copies of the forms furnished to us and the representations made by the reporting persons to us, we believe that during 2009 our Directors, Executive Officers and 10% or greater stockholders complied with all filing requirements under Section 16(a) of the Exchange Act.

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, 2009, including the 1997 Stock Incentive Plan, the 1997 Employee Stock Purchase Plan and the 2003 Equity Incentive Plan. Our stockholders have approved all of these plans.

(c)

Number of Securities

(a)

Remaining Available for

Number of Securities to be

(b)

Future Issuance Under Equity

Issued Upon Exercise of

Weighted-Average Exercise

Compensation Plans

Outstanding Options and

Price of Outstanding

(excluding securities reflected

Plan Category

Rights

Options and Rights

in column (a))

Equity Compensation Plans Approved by Stockholders

12,917,702

$

1.18

2,707,193

Equity Compensation Plans Not Approved by Stockholders

None

None

None

Total

12,917,702

$

1.18

2,707,193

SIGNIFICANT RELATIONSHIPS AND TRANSACTIONS WITH DIRECTORS, OFFICERS OR
PRINCIPAL STOCKHOLDERS

Related Party Transactions

Pursuant to our code of ethics for senior executives and financial officers, a copy of which is available on Heska’s website at www.heska.com, and our Corporate Governance Committee charter, our Audit Committee or our Corporate Governance Committee must review and approve any transaction that the Company proposes to enter into that would be required to be disclosed under Item 404(a) of Regulation S-K. Item 404(a) of Regulation S-K requires the Company to disclose in its proxy statement any transaction involving more than $120,000 in which the Company is a participant and in which any related person has or will have a direct or indirect material interest. A related person for purposes of this analysis is any executive officer, director, nominee for director, or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons.

Since January 1, 2009, the Company has not been a participant in any transaction with a related person other than the indemnification agreements described below.

Indemnification agreements with officers and directors

Our amended and restated certificate of incorporation and our bylaws provide that we will indemnify each of our Directors and Executive Officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our Directors and Executive Officers.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Compensation Objective and Philosophy

The Compensation Committee of Heska Corporation’s Board of Directors (the “Committee”) administers our executive compensation program and establishes the salaries of our Executive Officers. The ultimate objective of our executive compensation program is to attract, retain and reward executives who will enhance the value and profitability of Heska Corporation (“Heska” or the “Company”) and increase stockholder value. The Committee strives to provide competitive compensation opportunities with the ultimate amount of compensation received tied significantly to short-term and long-term Company performance. Inherent in our approach is the philosophy that compensation can align behavior and actions with stockholder interests, attract and retain stronger executives and thus create value for stockholders over time. The Committee’s goal in executive compensation is to design and administer programs that best serve these ends.

What is Heska’s Executive Compensation Program Designed to Reward?

The Committee develops our executive compensation programs to reward Executive Officers for their contribution to Heska’s financial performance and to recognize individual initiative, leadership, achievement and other contributions. An effective compensation program will reward executives for working well collectively as well as for strong individual performance.

What are the Elements of Heska’s Executive Compensation?

Our compensation program is designed to reward four interlocking aspects of executive performance:

•

Continued service to the Company; rewarded primarily through base salary, equity award requirements and vesting and competitive benefits levels;

•

Individual contribution: rewarded primarily through the setting of base salary and annual Management Incentive Plan (“MIP”) targets;

•

Annual financial performance: rewarded primarily through the awards paid under the MIP; and

•

Long-term gains in stockholder value: rewarded primarily through the equity incentive program.

Why Does Heska Choose to Pay Each Element of Executive Compensation?

Base salary. Base salaries are set on an annual or other periodic basis and designed to reflect competitive market salaries for each position. They are also used in determining the basis for bonus targets in our Management Incentive Plan (“MIP”) discussed below.

Performance-based incentive compensation. This form of compensation is based on the achievement of predetermined financial, project, research or other designated objectives. This form of compensation is paid to reward near-term performance (i.e., no longer than the coming year) and encourage Executive Officers to optimize immediate opportunities. In recent years, an MIP has been offered to Executive Officers and other managers to provide a performance-based incentive.

Long-term equity compensation. This form of compensation is designed to encourage the achievement of superior financial results over an extended period of time and align the interests of stockholders and Executive Officers. It is intended to ensure that Executive Officers make thoughtful decisions about the Company’s future and long-term prospects.

Other benefits, compensation or arrangements. Other than broad-based programs open to all employees, such as participation in our 401(k) program and employee stock purchase plan, this category tends to be used rarely. Most of our Executive Officers have employment agreements. An Executive Officer’s extraordinary performance or participation in an unanticipated endeavor may occasionally trigger such an award in this category.

Perspective on Executive Compensation at Heska

Heska was founded in 1988 and completed its initial public offering in 1997 but only achieved its first profitable year in 2005. We believe the Company’s historical liquidity concerns and efforts to achieve profitability have influenced the Committee’s decisions regarding executive compensation, as outlined below.

Profitability has been an important goal for Heska to ensure the sustainability of the business. Profitability has also been critical, not only for its own sake, but also for employee morale, attracting talented individuals to join the Company and commercial perceptions. At the request of Heska’s Executive Officers to help achieve profitability, the Committee froze base salaries for all Executive Officers in 2005 and 2006. Similarly, the 2005 MIP called for a performance in excess of the Company’s internal budget before any bonus payments were made and no payouts were ultimately made under the 2004 MIP or the 2005 MIP (with the foregoing base salary and MIP information defined as “Historical Cash Compensation”). Based on the challenges the Company faced in 2008 and at the request of management, the Committee has taken a similar approach to cash compensation in 2009. With limited circumstance-based exceptions outlined below, in November 2008 the Committee froze base salaries for all of our Executive Officers and also adopted a 2009 MIP that called for a performance in excess of the Company’s internal budget before any bonus payments are made.

Stock options have historically had the advantage of allowing the Company to address both liquidity and profitability concerns simultaneously. First, stock options allowed the Committee to compensate employees without a corresponding cash outlay, and, in fact, provided the Company with cash upon exercise in most instances. Secondly, stock options granted have not historically been required to be expensed for financial reporting purposes. Accordingly, the Committee tended to emphasize stock options as a tool for executive compensation. Since 2006, the Company has been required to recognize a cost for certain stock options in its financial statements, as detailed in the “Summary Compensation Table” below; the estimated fair value of stock options granted, rather than the corresponding intrinsic value, is amortized ratably over the vesting periods of the related options. After considering the significant impact that the use of fair values, rather than intrinsic values, would have on our future results of operations, as well as factors including Historical Cash Compensation to Executive Officers and similar cash compensation issues to other employees, the Company accelerated stock option vesting in December 2004 and March 2005 as well as issuing all options with immediate vesting on and between March 30, 2005 and December 31, 2005. In addition, in the fourth quarter of 2006, after significant discussion and considering factors including the Historical Cash Compensation to Executive Officers, the fact that the 2006 MIP was expected to be “capped”, the Company’s expected financial results in the fourth quarter of 2006, the significant impact that the use of fair values for options granted would have on our future results of operations and the total number of options previously granted in 2006, the Committee decided to grant fully-vested stock options in an amount approximately 60% of the size of the prior year’s grant. These actions explain why options held by Executive Officers issued prior to 2007 are vested, and exercisable, as of December 31, 2009 in the table labeled “Outstanding Equity Awards at Fiscal Year-End” below as well as the relatively low 2007 “Option Awards” expense in the “Historical Compensation Table” below.

The Committee is also sensitive to, and tries to optimize, tax implications. It is our policy generally to qualify compensation paid to Executive Officers for deductibility under Section 162(m) of the Internal Revenue Code. The Committee has structured the Management Incentive Plan Master Document, the 2007 MIP, the 2008 MIP, the 2009 MIP and the 2010 MIP to qualify as awards under such plans as performance-based compensation and to maximize the tax deductibility of such awards. However, the Committee reserves the discretion to pay compensation to its Executive Officers that may not be tax deductible.

Determination of Compensation Elements

In reviewing the compensation of our Executive Officers, the Committee reviews the nature and scope of each Executive Officer’s responsibilities as well as his or her effectiveness in that role as well as in supporting the Company’s long-term goals. Heska’s Board of Directors (the “Board”) formally evaluates the Chief Executive Officer (our “CEO”). Our CEO communicates his view of the performance of other Executive Officers to the Committee and makes recommendations regarding salary, incentive-based performance compensation and long-term compensation grants for the Committee’s consideration. The Company has a performance appraisal system it uses to evaluate its employees, including Executive Officers, which Dr. Grieve considers, potentially along with other information, such as third-party interviews of Company employees who interact with the Company’s Executive Officers. As more detailed oversight of items such as short-term sales performance by product is considered more important, our CEO has historically taken a more active role in determining the cash performance-based incentive compensation of our Vice President of Sales than for our other Executive Officers. Through the end of 2008, our CEO approved cash performance-based incentive compensation for our Vice President of Sales and made the resulting compensation information available to the Committee. Decisions regarding base salary, long-term equity incentive compensation and other benefits, compensation or arrangements are made in the same manner for our Vice President of Sales as for our other Executive Officers. In the past few years, our Vice President of Human Resources and/or our Controller has compiled and/or presented data discussed below for the Committee’s consideration of the different compensation elements. The Chief Financial Officer (our “CFO”) has also met with the Committee to communicate on issues of interest to the Committee, including the accounting implications of various compensation alternatives and information on our financial plans, expectations and historical results for the Committee’s consideration.

The Committee has considered it appropriate, and in the best interests of Heska’s stockholders, to endeavor to set our overall Executive Officer compensation near the mid-point of the range of companies in the comparison group it reviewed (“Comparable Companies”). The Committee also reviews the relative mix of compensation paid by Comparable Companies for use as a guideline. It is the sense of the Committee that performance-based incentive compensation has been relatively lower and long-term equity compensation relatively higher than for Comparable Companies. We anticipate the Committee will continue to exercise its discretion regarding the relative mix of compensation, although the relative mix may become more similar to that of Comparable Companies over time. The Committee views the difference between the compensation of our CEO and our other Named Executive Officers as largely a reflection of competitive market practices and the CEO’s responsibility for all Company operations and not any compensation philosophy specific to Heska. In compensation matters, the Committee reviews relevant information and makes a case-by-case determination relying on its collective judgment and experience.

At our regularly scheduled Board meeting in November 2007, the Committee met with an outside compensation consultant (the “Consultant”) and decided to engage the Consultant for an assessment of executive compensation strategy and programs and to provide data on competitive compensation practices. Accordingly, the process to determine executive compensation was delayed. The Committee asked the Consultant to conduct a compensation survey of companies similar to Heska and to review the current total and equity compensation of the Company’s Executive Officers. The Consultant reported to the Committee, only, and was prohibited from doing any work for management unless it was specifically requested by the Chairman of the Committee. The Committee viewed the Consultant as an advisor only, and the Committee retained the discretion to implement or not implement the Consultant’s suggestions. In subsequent dialogue with the Consultant, alternative long-term compensation approaches were discussed, including the use of restricted stock and performance-based vesting. The Committee held a series of meetings in December 2007 to review information and suggestions from the Consultant and to debate, and ultimately approve, the form and scale of long-term equity compensation for 2008. Base salaries and 2008 performance-based incentive compensation were agreed upon at a Committee meeting during our regularly scheduled Board meeting in February 2008.

The Committee considers compensation data from companies in medical, biotechnology and general industry groups that have similar revenues, veterinary focus and/or are in a similar stage of development to Heska. In 2007, the Committee reviewed compensation data for the following companies as part of its review of Executive Compensation: Abaxis, Array Biopharma, Auxilium Pharmaceuticals, Cardiac Science, Cyberonics, Hi Tech Pharmaceuticals, IDEXX Laboratories, Immucor, Meridian Bioscience, MGI Pharma, Noven Pharmaceuticals, Quidel, Santarus, Savient Pharmaceuticals and Zoll Medical. The Committee also reviewed benchmark data resulting from a study of 120 life sciences companies carried out by the Consultant in 2007. In 2008, the Committee reviewed compensation data for the following companies as part of its review of Executive Compensation: Abaxis, Array Biopharma, Auxilium Pharmaceuticals, Cardiac Science, Cyberonics, Hi Tech Pharmaceuticals, IDEXX Laboratories, Immucor, Meridian Bioscience, MGI Pharma, Noven Pharmaceuticals, Quidel, Santarus, Savient Pharmaceuticals and Zoll Medical. In 2009, the Committee reviewed compensation data for the following companies as part of its review of Executive Compensation: Abaxis, Akron, Array Biopharma, Hi Tech Pharmaceuticals, ImmunoGen, Inspire Pharmaceuticals, ISTA Pharmaceuticals, Jazz Pharmaceuticals, Lannett, Lexicon Pharmaceuticals, Noven Pharmaceuticals, Pain Therapeutics, POZEN, Quidel, Santarus, and XOMA. The Committee also reviewed summary compensation data based on company size for each year.

Base Salary. The Committee reviews each Executive Officer’s base salary annually. When reviewing base salaries, the Committee considers compensation data from companies in medical, biotechnology and general industry groups that have similar revenues, veterinary focus and/or are in a similar stage of development to Heska. Consideration is also given to prior performance, relevant experience, level of responsibility and skills, and abilities of each Executive Officer. The Committee believes that salary levels for our Executive Officers are set at a level that, at the time such salary determinations were made, were reasonable and necessary given the Company’s financial resources and stage of development. The Committee reviews relevant information and makes a case-by-case determination relying on its collective judgment and experience.

In 2006, the Committee was concerned regarding the effect of the three year salary freeze on Executive Officer base salaries versus market levels. The information in the base salary table below was approved for the Named Executive Officers by the Committee. The Committee also agreed to consider a mid-2007 review of base salaries if necessary to bring them more in line with desired rates.

Name		Annual Salary				Percent Increase
Robert B. Grieve		$	375,000				10.0	%
Michael J. McGinley		$	166,650				10.0	%
Jason A. Napolitano		$	232,575				5.0	%
G. Lynn Snodgrass		$	154,500				3.0	%
Michael A. Bent		$	165,635				3.8	%

In 2007, after reviewing and considering Comparable Company data and the recent performance of both Dr. Grieve and the Company, our Board of Directors decided to increase Dr. Grieve’s base salary by approximately 6.7% to $400,000 effective September 2007. In February 2008, after reviewing and considering relevant data, including input from Dr. Grieve, the Committee agreed to the following base salaries, effective March 2008. Dr. McGinley’s salary increase was due in part, to his anticipated promotion and increased responsibilities upon another Executive Officer leaving the Company. Dr. McGinley was promoted to Executive Vice President, Global Operations and General Manager, Heska Des Moines in April 2008.

Name		Annual Salary				Percent Increase
Robert B. Grieve		$	420,000				5.0	%
Michael J. McGinley		$	195,000				17.0	%
Jason A. Napolitano		$	243,000				4.5	%
G. Lynn Snodgrass		$	158,000				2.3	%
Michael A. Bent		$	172,000				3.0	%

In November 2008, at the request of management based on the challenges the Company faced in 2008 and expected to face in the near term, the Committee froze base salaries for all Executive Officers, with the exception of Dr. McGinley and Mr. Snodgrass. Dr. Grieve proposed that, effective January 1, 2009, the Committee formally included Mr. Snodgrass in the 2009 MIP in lieu of the commission and bonus structure outlined below then in use for his performance-based incentive compensation, as Dr. Grieve felt Mr. Snodgrass had reached a level where this form of compensation was more appropriately based on overall corporate results rather than shorter term sales results. Dr. Grieve also proposed that Mr. Snodgrass’s salary increase effective as of January 1, 2009 as historically it was intended that, compared with managers and other officers outside of sales, Mr. Snodgrass would receive a relatively lower proportion of his overall compensation in base pay and a relatively higher proportion in performance-based incentive compensation. The Committee accepted Dr. Grieve’s recommendation, and increased Mr. Snodgrass’s salary to $180,120 effective January 1, 2009. In November 2008, our Board of Directors appointed Dr. McGinley the Company’s President and Chief Operating Officer at a salary of $230,000, effective January 1, 2009.

In November 2009, the Committee reviewed market data on base compensation and executive compensation practices, noted management’s performance in 2009 as well as the aforementioned salary freezes, and decided upon the following base salaries for the Named Executive Officers.

Name		Annual Salary				Percent Increase
Robert B. Grieve		$	440,000				4.8	%
Michael J. McGinley		$	245,000				6.5	%
Jason A. Napolitano		$	260,000				7.0	%
G. Lynn Snodgrass		$	185,000				2.7	%
Michael A. Bent		$	180,000				4.7	%

Performance-Based Incentive Compensation. The Company first adopted an MIP in 1999 to provide incentives to our Executive Officers, other managers and key employees to meet and exceed certain predetermined annual goals. Target annual incentives and specific performance criteria are established each year by the Committee, with the actual payout based on the extent to which the specified performance criteria are met. We believe this approach provides a strong incentive for our management to achieve the stated annual goals. An example of the incentive can be seen when comparing the cash levels of the 2007 MIP Payouts to zero 2008 MIP Payouts in the “Non-Equity Incentive Plan Compensation” column of the “Historical Compensation Table” below. In late 2005, the Committee adopted the Management Incentive Plan Master Document (the “Master Document”). A goal of the Master Document is self-funding status for the MIP in any given year. A given year’s MIP can be implemented by the Committee agreeing on four parameters: 1) the percent of salary that is an individual’s targeted bonus compensation, 2) the relative weighting of company wide and individual performance, 3) the key parameter(s) the MIP Payouts are to be based upon and 4) the Payout Structure by which the MIP is funded. Typically there has been a cap on the MIP of approximately 150% of target payout to all employees, although this is not required in any given year. Each individual has a “targeted” MIP Payout and this is intended as a guideline. Our CEO will generally make recommendations to the Committee regarding MIP Payouts to other MIP Plan participants; all awards under the MIP Plan are at the discretion of the Committee. Any MIP Payouts are to be made in the first quarter of the following year. All Executive Officers are eligible for the 2010 MIP. All Executive Officers, with the exception of Mr. Snodgrass, our Vice President of Sales, were eligible for the MIP in 2007, 2008 and 2009. In 2007 and 2008, performance-based incentive compensation for Mr. Snodgrass consisted of commissions earned based on achieving certain sales volume targets (his “Commissions”) and a bonus paid at the discretion of Dr. Grieve based on Company financial performance and individual performance that is similar to the MIP (his “Bonus”). Mr. Snodgrass’s performance-based incentive compensation in 2007 and 2008 is discussed below. In 2009 and 2010, Mr. Snodgrass’s performance-based incentive compensation was to be solely from the MIP and not from Commissions or Bonus. We believe the Commissions paid to Mr. Snodgrass in 2007 and 2008 are common in our industry. We generally pay our sales force commissions in a similar manner, which we believe is typical in our industry. We do not believe our compensation policy to our Executive Officers, our sales force, or our other employees are reasonably likely to have a material adverse effect on our Company.

In considering the 2007 MIP, the Committee was aware that the Executive Officers were to receive base salary increases in the coming year and were likely to receive maximum MIP Payouts under the 2006 MIP as the 2006 MIP was expected to reach its capped level due to the Company’s financial performance. The Committee adopted a plan with more aggressive payout thresholds than had been set for the 2006 MIP, as detailed below. At the Committee meeting in the fourth quarter of 2006, the Committee adopted the 2007 MIP with the following parameters:

Parameter		Result
% Salary Target		Chief Executive Officer — 50% All other eligible Executive Officers — 35%
Relative Weighting		75% Company Performance / 25% Individual Performance
Key Parameter		Pre-MIP Operating Income
Payout Structure		Funding starts at $4.5 million of Pre-MIP Operating Income, as defined 25.14% Share of every additional $1 in Pre-MIP Operating Income MIP Capped at $1.65 million (150% of targeted payout)

As an example, if Heska had approximately $7.125 million in Pre-MIP Operating Income there would be $660 thousand available for the MIP for the Committee to distribute among plan participants. This represents a plan funded at 60% of target. Dr. Grieve’s 2007 salary was $375,000 and his targeted payout was $187,500 (50% of $375,000). In a 60% MIP-funded plan, his funded targeted payout would be $112,000 (60% of $187,500). The Committee could then adjust his pay upward for strong individual performance or downward for poor individual performance using a 25% weighting as a guideline for the adjustment. This is a guideline only, however, as the Committee retains discretion to adjust this number as circumstances dictate.

At a Committee meeting in February 2008, the Committee approved MIP plan participants’ MIP Payouts recommendations and decided Dr. Grieve’s MIP Payout would be equal to his individual funded target (roughly 30% of target). Each of the Named Executive Officers eligible for the MIP received an MIP Payout in line with his individual funded target. The MIP Payouts to MIP-eligible Named Executive Officers are listed as “Non-Equity Incentive Plan Compensation” in the “Summary Compensation Table” below.

In considering the 2008 MIP, the Committee considered the Company’s 2007 performance and 2008 outlook in setting the payout structure. At the Committee meeting in the first quarter of 2008, the Committee adopted the 2008 MIP with the following parameters:

Parameter		Result
% Salary Target		Chief Executive Officer — 50% All other eligible Executive Officers — 35%
Relative Weighting		75% Company Performance / 25% Individual Performance
Key Parameter		Pre-MIP Operating Income
Payout Structure		Funding starts at $5.862 million of Pre-MIP Operating Income, as defined 32.22% Share of every additional $1 in Pre-MIP Operating Income MIP Capped at $1.732 million (150% of targeted payout)

The Company’s financial performance was well below expectations in 2008. The Company failed to achieve pre-MIP Operating Income at a level to fund the MIP. Accordingly, no MIP Payouts were made under the 2008 MIP.

In considering the 2009 MIP, the Committee considered the challenges facing the Company and the importance of observing the MIP’s self-funding goal, particularly in a period with restrictive credit conditions. Accordingly, the Committee approved an MIP with aggressive payout thresholds which were in excess of the Company’s internal budget levels before any MIP Payouts were to be made. In November 2008, the Committee adopted the 2009 MIP with the following parameters:

Parameter		Result
% Salary Target		Chief Executive Officer — 50% All other eligible Executive Officers — 35%
Relative Weighting		75% Company Performance / 25% Individual Performance
Key Parameter		Pre-MIP Net Income, as defined in the Third Amended and Restated Credit and Security Agreement by and between Heska Corporation, Diamond Animal Health, Inc. and Wells Fargo Bank, National Association dated December 30, 2005.
Payout Structure		Funding starts at $2 million of Pre-MIP Net Income, as defined 30.0% Share of every additional $1 in Pre-MIP Net Income MIP Capped at $1.855 million (150% of targeted payout)

At a Committee meeting in February 2009, the Committee approved MIP plan participants’ MIP Payouts recommendations and decided Dr. Grieve’s MIP Payout would be equal to his individual funded target (roughly 85% of target). Each of the Named Executive Officers eligible for the MIP received an MIP Payout in line with his individual funded target, with the exception of Mr. Bent who received a higher percentage due to his particularly strong individual performance. The MIP Payouts to MIP-eligible Named Executive Officers are listed as “Non-Equity Incentive Plan Compensation” in the “Summary Compensation Table” below.

For 2007, approximately $45 thousand of Mr. Snodgrass’s performance-based incentive compensation was from Commissions, with the balance resulting from his Bonus. For 2008, approximately $35 thousand of Mr. Snodgrass’s performance-based incentive compensation was from Commissions, with the balance resulting from his Bonus. Relatively lower performance versus target was the reason for the decline in Commissions from 2007 to 2008. Mr. Snodgrass’s Bonus was greater in 2008 than in 2007 due to the view that he had a greater contribution to overall Company performance outside of his core sales responsibility in 2008 than in 2007. Mr. Snodgrass’s Commissions and Bonus are listed as “Non-Equity Incentive Plan Compensation” in the “Summary Compensation Table” below. In 2009, Mr. Snodgrass’s performance-based incentive compensation was solely from the 2009 MIP.

In considering the 2010 MIP, the Committee considered the Company’s 2009 performance as well as anticipated challenges in 2010, in particular the loss of access to consumables and supplies for the handheld line of instruments the Company sold in 2009. The Committee approved an MIP with a higher anticipated threshold payout level than in 2009 but with a higher payout percentage upon reaching the threshold. In November 2009, the Committee adopted the 2010 MIP with the following parameters:

Parameter		Result
% Salary Target		Chief Executive Officer — 50% All other eligible Executive Officers — 35%
Relative Weighting		75% Company Performance / 25% Individual Performance
Key Parameter		Pre-MIP Operating Income
Payout Structure		Funding starts at $3.257 million of Pre-MIP Operating Income 53.0% Share of every additional $1 in Pre-MIP Operating Income MIP Capped at $1.5 million (150% of targeted payout)

In the table named “Grants of Plan-Based Awards” below, we list potential payouts under the 2010 MIP to Named Executive Officers, under “Estimated Future Payouts Under Non-Equity Incentive Plan Awards.” All “Threshold” MIP Payouts are listed at $0 as the MIP Plan will not fund if Pre-MIP Operating Income is at (or below) the threshold level of $3.257 million. All “Target” MIP Payouts are as defined above. The “Maximum” MIP Payouts are 50% greater than the “Target” MIP Payouts to reflect that the 2010 MIP Plan is “capped” at 150% of its targeted funding level. It is possible the Committee may decide to pay a Named Executive Officer greater than this amount, although this did not occur in 2006 when the 2006 MIP Plan reached its capped funding level.

Long-term Equity Compensation. Historically, we have used stock options to provide long-term equity compensation to our Executive Officers. The Committee is responsible for determining the number and terms of options, or other forms of long-term equity compensation, to be granted to Executive Officers, taking into account such factors as individual and Company performance, policies regarding cash compensation and practices of Comparable Companies. Options granted to Executive Officers have exercise prices equal to fair market value (closing price) at the time of grant and expire within ten years from the time of grant. Any vesting ceases and the vested portion of options must be exercised within a certain period should an Executive Officer leave Heska’s service (subject to any rights to partial acceleration of vesting upon termination without cause under employment agreements). Accordingly, option grants will provide a return to an Executive Officer only if said Executive Officer continues to work for the benefit of the Company and only if Heska’s market price per share appreciates over the option term. We believe that these provisions help both to retain qualified employees and to motivate them to achieve long-term increases in stock value, providing continuing benefits to the Company and its stockholders beyond those in the year of grant. The Committee had discussions regarding the use of restricted stock and performance-based vesting in December 2007, but decided not to pursue these alternatives. This was due to potential tax implications for employees in using restricted stock and the likely increase in complexity and administrative costs, as well as potential redundant incentives to the MIP in using performance-based vesting. While it appears stock options will remain the core component of long-term equity compensation in the near future, it is possible the Committee will choose to use restricted stock, restricted stock units, some other form of long-term equity compensation or some combination of the foregoing with or without stock options in the future.

In December 2007, after receiving input from the Consultant, reviewing relevant data, including data requested to follow-up on certain questions, and engaging in significant discussion and debate, the Committee approved a grant of stock options to certain Officers of the Company. Due to this process, including hiring and considering the input of the Consultant, the option grant occurred on December 31, 2007 — later in the year than in 2006. In contrast to then recent stock option grants, this stock option grant was subject to monthly vesting over a four year period as a result of the concern of some of our Board members that fully-vested options may not provide as great a retention incentive as desired. We anticipate granting stock options with 4-year monthly vesting will continue to be our standard practice in the future. The Committee granted Dr. Grieve a significantly larger stock option grant than in the prior year, reflective of the Committee’s view of the market and the Committee’s evaluation of Dr. Grieve’s performance. The value of this option grant in the 2007 row of the “Summary Compensation Table” below reflects the size of the grant as well as the Company’s stock price at the time, which was significantly higher than at the time of stock option grants in 2008 and 2009. The Committee considered Dr. Grieve’s input in addition to market data in determining stock option grants to the other Named Executive Officers, all of which increased or were at the same level as the prior year.

In November 2008, the Committee considered the fact that 2009 salaries had been frozen for most Executive Officers, that no 2008 MIP Payouts were to be made and that the Company’s 2009 MIP required a performance in excess of the Company’s internal budget before any MIP Payouts were to be made. Accordingly, the Committee desired to provide Executive Officers with a greater proportion of long-term compensation than in the recent past. In November 2008, the Committee granted all of our Named Executive Officers a greater number of shares underlying options than in 2007, with the exception of Dr. Grieve, who received the same number of shares underlying options. Dr. McGinley received the largest year-over-year increase in recognition of his pending promotion to President and Chief Operating Officer and increased responsibilities.

In November 2009, the Committee considered individual performance, salary and projected 2009 MIP Payouts, as well as overall corporate performance and awarded option grants listed in “Grants of Plan-Based Awards” below.

Other Benefits, Compensation or Arrangements

“All Other Compensation” in the “Summary Compensation Table” below represent matching funds received by each of our Named Executive Officers under our 401(k) plan, which is open to all employees, as well as life insurance and short-term and long-term disability premiums. We have historically provided a 25% match of 401(k) contribution limits (up to a certain maximum). In 2009, we suspended this match which is a reason for the decline in “All Other Compensation” from 2008 to 2009 in the “Summary Compensation Table” below for most Named Executive Officers. The match was restored on January 1, 2010.

All of our Named Executive Officers, with the exception of Mr. Snodgrass, had employment contracts in 2007, 2008 and 2009. They entitle Named Executive Officers to payments based on salary, continuing medical benefits for a given period and immediate vesting of unvested options in certain circumstances. Payments based on salary are typically paid monthly. The Committee believes these are common, in line with the experience of the Committee for executives at other companies and are intended to provide Executive Officers with additional resources to seek a comparable job, which is unlikely to be a rapid process given the level of employment, in these certain circumstances, such as an acquisition. Dr. Grieve is also entitled to payout based on bonus targets in certain circumstances, such as termination without cause, as well. These employment contracts are intended to provide the Named Executive Officers with protections appropriate for, and in line with, those received by comparable executives at companies similar to Heska. Periodically, we review these agreements versus market benchmarks.

In summary, as Heska Corporation continues to change, Heska’s Executive Compensation continues to adjust to that change. The Committee endeavors to find the proper level and balance of base salary, performance-based incentive compensation, long-term equity incentive compensation and other forms of compensation.

Historical and Summary Compensation Tables

The following table sets forth compensation for services rendered in all capacities to us during 2007, 2008 and 2009 by Robert B. Grieve, our Chairman of the Board and Chief Executive Officer, Jason A. Napolitano, our Chief Financial Officer, and our three other most highly compensated Executive Officers for the fiscal year ended December 31, 2009 (the “Named Executive Officers”). The following table represents compensation recognized for financial reporting purposes for each of the Named Executive Officers. The “Option Awards” column lists the accounting cost of options recognized for a given individual in a given year. In general, stock options are valued at the time of grant with the corresponding cost amortized ratably over the corresponding option vesting period.

Historical Compensation Table

																										Change in
																										Pension Value
																										and
																										Nonqualified
																						Non-Equity				Deferred
																		Option				Incentive Plan				Compensation				All Other
						Salary								Stock				Awards				Compensation				Earnings				Compensation				Total
Name and Principal Position		Year				($) (1)				Bonus				Awards				($) (2)				($) (3)				($)				($) (4)				($)
Robert B. Grieve Chairman of the Board and			2009				420,000				—				—				77,325				180,182				—				7,827				685,334
Chief Executive Officer			2008				416,666				—				—				61,696				—				—				11,277				489,639
			2007				377,667				—				—				1,126				60,242				—				10,077				449,112
Michael J. McGinley(5) President and Chief			2009				230,000				—				—				25,347				69,071				—				99,083				423,501
Operating Officer			2008				194,105				—				—				17,582				—				—				5,695				217,652
			2007				163,737				—				—				568				20,000				—				4,833				189,138
Jason A. Napolitano Executive Vice President,			2009				243,000				—				—				28,118				72,974				—				3,178				347,270
Chief Financial Officer and			2008				241,263				—				—				22,586				—				—				5,346				269,195
Secretary			2007				230,729				—				—				239				24,519				—				4,146				259,633
G. Lynn Snodgrass Vice President, Sales			2009				180,120				—				—				10,205				54,091				—				2,732				247,148
			2008				157,417				—				—				8,231				52,972				—				2,217				220,837
			2007				153,750				—				—				—				52,119				—				1,113				206,982
Michael A. Bent Vice President, Principal			2009				172,000				—				—				8,431				57,200				—				3,896				241,526
Accounting Officer and			2008				170,939				—				—				6,257				—				—				6,431				183,627
Controller			2007				164,196				—				—				568				18,000				—				6,075				188,839

The following table contains the same information as above with the exception of the column entitled “Option Awards”. Option Awards in the following table represent the grant date option value for all stock options granted in a given year rather than the value of stock options vesting during that year.

Summary Compensation Table

																										Change in
																										Pension Value
																										and
																										Nonqualified
																						Non-Equity				Deferred
																						Incentive Plan				Compensation				All Other
						Salary								Stock				Option				Compensation				Earnings				Compensation				Total
Name and Principal Position		Year				($) (1)				Bonus				Awards				Awards ($) (2)				($) (3)				($)				($) (4)				($)
Robert B. Grieve Chairman of the Board and			2009				420,000				—				—				48,412				180,182				—				7,827				656,421
Chief Executive Officer			2008				416,666				—				—				51,269				—				—				11,277				479,212
			2007				377,667				—				—				236,460				60,242				—				10,077				684,446
Michael J. McGinley(5) President and Chief			2009				230,000				—				—				26,068				69,071				—				99,083				424,222
Operating Officer			2008				194,105				—				—				18,040				—				—				5,695				217,840
			2007				163,737				—				—				55,174				20,000				—				4,833				243,744
Jason A. Napolitano Executive Vice President,			2009				243,000				—				—				26,068				72,974				—				3,178				345,220
Chief Financial Officer and			2008				241,263				—				—				22,204				—				—				5,346				268,813
Secretary			2007				230,729				—				—				86,702				24,519				—				4,146				346,096
G. Lynn Snodgrass Vice President, Sales			2009				180,120				—				—				5,586				54,091				—				2,732				242,529
			2008				157,417				—				—				8,540				52,972				—				2,217				221,146
			2007				153,750				—				—				31,528				52,119				—				1,113				238,510
Michael A. Bent Vice President, Principal			2009				172,000				—				—				11,172				57,200				—				3,896				244,268
Accounting Officer and			2008				170,939				—				—				8,540				—				—				6,431				185,910
Controller			2007				164,196				—				—				23,646				18,000				—				6,075				211,917

Grants of Plan-Based Awards in Last Fiscal Year

The following table shows all grants of options to acquire shares of our common stock granted in the fiscal year ended December 31, 2009 to the Named Executive Officers.

Grants of Plan-Based Awards

																																										Grant
																														All Other				All Other								Date
																														Stock				Option								Fair
																														Awards:				Awards:				Exercise				Value of
						Estimated Future Payouts												Estimated Future Payouts												Number				Number of				or Base				Stock
						Under Non-Equity Incentive												Under Equity Incentive Plan												of Shares				Securities				Price of				and
						Plan Awards												Awards												of Stock				Underlying				Option				Option
		Grant				Threshold				Target				Maximum				Threshold				Target				Maximum				or Units				Options				Awards				Awards
Name		Date				($)				($)				($) (1)				(#)				(#)				(#)				(#)				(#) (2)				($/Sh)				($) (3)
Robert B. Grieve			11/10/09				—				—				—				—				—				—				—				260,000				0.450				48,412
			N/A				—				220,000				330,000				—				—				—				—				—				—				—
Michael J. McGinley			11/10/09				—				—				—				—				—				—				—				140,000				0.450				26,068
			N/A				—				85,750				128,625				—				—				—				—				—				—				—
Jason A. Napolitano			11/10/09				—				—				—				—				—				—				—				140,000				0.450				26,068
			N/A				—				91,000				136,500				—				—				—				—				—				—				—
G. Lynn Snodgrass			11/10/09				—				—				—				—				—				—				—				30,000				0.450				5,586
			N/A				—				64,750				97,125				—				—				—				—				—				—				—
Michael A. Bent			11/10/09				—				—				—				—				—				—				—				60,000				0.450				11,172
			N/A				—				63,000				94,500				—				—				—				—				—				—				—