April 6, 2009

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 5, 2009 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 2009 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.

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 2009 ANNUAL MEETING OF STOCKHOLDERS

This proxy statement and accompanying proxy card are being distributed on or about April 6, 2009.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 5, 2009

The Proxy Statement, the Proxy Card and our 2008 Annual Report on Form 10-K are available at https://materials.proxyvote.com/42805E.

TABLE OF CONTENTS

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TABLE OF CONTENTS

(Continued)

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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

AND THE 2009 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 2009 Annual Meeting will take place on Tuesday, May 5, 2009.  As a stockholder, you are invited to attend the 2009 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 2009 Annual Meeting, the voting process, the compensation of our Directors and most highly paid Executive Officers, and certain other required information.  Our 2008 Annual Report on Form 10-K as filed with the Securities and Exchange Commission is also enclosed.

Q:   What items of business will be voted on at the 2009 Annual Meeting?

A:    The items of business scheduled to be voted on at the 2009 Annual Meeting are:

(1)   The election of two nominees to serve on our Board of Directors for a three-year term;

(2)   The approval of an amendment to our 1997 Stock Plan, which would reduce the number of shares which could be issued and allow for the further issuance of incentive stock options under our 1997 Stock Plan; and

(3)   The ratification of our independent registered public accountant for fiscal 2009.

We will also consider other business that properly comes before the 2009 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 approval of the amendment to our 1997 Stock Plan 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 26, 2009 (the “Record Date”) are entitled to vote at the 2009 Annual Meeting.  As of the Record Date, 52,010,928 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 2009 Annual Meeting will be available at the 2009 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 2009 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 2009 Annual Meeting, you must contact your broker, bank or other nominee to obtain the proper documentation and bring it with you to the 2009 Annual Meeting.

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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 2009 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 2009 Annual Meeting?

A:    The quorum requirement for holding the 2009 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 2009 Annual Meeting underlying the forfeited votes regarding that matter.  Accordingly, if you abstain 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 a 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 2009 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 2009 Annual Meeting and entitled to vote on the election of Directors.  The other matters submitted for stockholder approval at the 2009 Annual Meeting, including the approval of the amendment to our 1997 Stock Plan, will be approved by the affirmative vote of a majority of the shares having voting power present in person or by proxy at the 2009 Annual Meeting and entitled to vote on the subject matter.

Q:   Who can attend the 2009 Annual Meeting?

A:    All stockholders as of the Record Date can attend.  If you wish to vote your shares at the 2009 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

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and bring it with you to the 2009 Annual Meeting.

Q:   What happens if additional matters are presented at the 2009 Annual Meeting?

A:    Other than the three items of business described in this proxy statement, we are not aware of any other business to be acted upon at the 2009 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 2009 Annual Meeting and publish final results in our quarterly report on Form 10-Q for our second fiscal quarter of 2009.

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 3, 2009.  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, 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 2009 Annual Meeting were mailed on April 6, 2009.  This means that for the 2010 Annual Meeting, that any such proposal must be received no earlier than January 6, 2010 and no later than February 5, 2010.

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 Securities and Exchange Commission 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 Securities and Exchange Commission at www.sec.gov.

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Q:   Who bears the costs of soliciting votes for the 2009 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.   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.

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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 outside Director:  (1) Audit (the “Audit Committee”), (2) Compensation (the “Compensation Committee”) and (3) Corporate Governance (the “Corporate Governance Committee”).  The membership during 2008 and the function of each Committee are described below.  Our Board held four meetings during 2008.  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.  A. Barr Dolan also served as a Director in 2008; Mr. Dolan chose not to stand for re-election to our Board and his service as a Director ended on May 6, 2008, which was the day of our 2008 Annual Meeting.  All of our Directors in 2008, other than Mr. Dolan, attended our last annual meeting of stockholders and all Board and applicable Committee meetings.

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 Securities and Exchange Commission (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 2008, our Audit Committee met five times.  Our Audit Committee consisted of Mr. Aylesworth, as Chairman, Mr. Eio and Mr. Gordon prior to our 2008 Annual Meeting on May 6, 2008 and has consisted of Mr. Aylesworth, as Chairman, Mr. Eio and Ms. McCormick since our 2008 Annual Meeting.

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

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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 2008, our Compensation Committee met five times.  Our Compensation Committee consisted of Mr. Eio, as Chairman, Mr. Dolan and Mr. Gordon prior to our 2008 Annual Meeting and has consisted of Mr. Eio, as Chairman, Mr. Gordon and Mr. Sasen since our 2008 Annual Meeting.

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 2008, our Corporate Governance Committee met four times.  Our Corporate Governance Committee has consisted of Mr. Sasen, as Chairman, Mr. Aylesworth and Mr. Gordon since our 2006 Annual Meeting.  Ms. McCormick is to replace Mr. Aylesworth as a member of our Corporate Governance Committee, beginning at our 2009 Annual Meeting.

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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 (under Investors – Corporate Governance).  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.

Consideration of Director Nominees

Our Corporate Governance Committee considers candidates for Board membership suggested by its members.  Our Corporate Governance Committee has also utilized a third-party executive search firm in the past to identify candidates.

Our Corporate Governance Committee does not have an established policy for minimum qualifications of Director nominees.  However, pursuant to our Corporate Governance Guidelines, our Corporate Governance Committee will consider, among other things, diversity, skills and experience in such areas as operations, finance, marketing and sales, manufacturing, technology and the general needs of our Board.

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 2009 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.

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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 2008, 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 valued at $37,500 to purchase shares of our common stock, 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 valued at $37,500 to purchase shares of our common stock, 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 is also entitled to an annual cash retainer in the amount of $20,000.  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.

In addition, each non-employee Director who serves as Chairperson of a Board Committee is entitled to an annual cash retainer in the amount of $5,000 (the “Chair Retainer”).  The Chair Retainer is to be 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 will be 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.

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The following tables provide information for fiscal 2008 compensation for non-employee Directors who served during fiscal 2008.

Director Compensation (1)

2008 Equity Grants to Directors

(1)        Reimbursed travel expenses incurred in connection with Board and Board Committee meeting attendance are not included.

(2)        Represents cost recognized in 2008 for financial reporting purposes.

(3)        Grant date fair value of option awards are based on valuation techniques required by Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” and applicable guidance which we use in preparing our financial statements (“Option Accounting Rules”).  Like any estimate prepared in good faith, the underlying assumptions we use under Option Accounting Rules may vary from our actual future results.  The option valuations used for accounting and/or financial reporting purposes do not necessarily represent the value any individual recipient would place on an option award.  In addition, Option Accounting Rules prohibit some valuation techniques which may be useful in certain circumstances.  A more detailed description of our option valuation techniques and assumptions can be found in our Annual Report on Form 10-K for the year ended December 31, 2008 in our Note 7 of the Notes to Consolidated Financial Statements.

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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 2009 Annual Meeting.  Directors elected at the 2009 Annual Meeting will hold office for a three-year term expiring at our 2012 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 2012

William A. Aylesworth, age 66, 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 57, 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.

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. Aylesworth and Dr. Grieve 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 Directors is provided below.

Directors Whose Terms Will Expire in 2011

Louise L. McCormick, age 66, 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, investment committee chair and member of the ethics and corporate governance committee for Foresters, a Toronto-based insurance company.  She also serves as a Director of a wholly-owned Foresters subsidiary, 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.

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John F. Sasen, Sr., age 66, 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.  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.

Directors Whose Terms Will Expire in 2010

Peter Eio, age 67, 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 several 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 58, has served us as a Director since May 2001.  Mr. Gordon is the founder and Managing Partner of The Trion Group LP, 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.

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PROPOSAL NO. 2

APPROVAL OF AMENDMENT TO 1997 STOCK PLAN

Our Board is submitting an amendment (the “Amendment”) to our 1997 Stock Incentive Plan (our “1997 Stock Plan”) for shareholder approval.

Background

Our 1997 Stock Plan was originally adopted by our Board and approved by our shareholders in 1997.  The stated purpose of the 1997 Stock Plan is to promote the long-term success of the Company and the creation of stockholder value by a) encouraging employees, outside Directors and consultants to focus on critical long-range objectives, b) encouraging the attraction and retention of employees, outside Directors and consultants with exceptional qualifications and c) linking employees, outside Directors and consultants directly to stockholder interests through increased stock ownership.  The 1997 Stock Plan seeks to achieve this purpose by providing for awards in the form of restricted shares or options (which may constitute incentive stock options or nonstatutory stock options).  We have not issued restricted shares under the 1997 Stock Plan since 2001.

Shares available under the 1997 Stock Plan are reduced by the Amendment

The number of shares which may be issued under the 1997 Stock Plan is limited.  Shares underlying options issued under the 1997 Stock Plan which are forfeited or terminate for any other reason before being exercised may be used to underlie the future grant of options or restricted shares under the 1997 Stock Plan.  As of the Record Date, there were 2,576,652 shares available under the 1997 Stock Plan.  The Amendment, if it had been approved on the Record Date, would have reduced the number of shares available under the 1997 Stock Plan on the Record Date by 250,000 to 2,326,652.

Further incentive stock options may be issued under the 1997 Stock Plan due to the Amendment

A stock option is the right to acquire shares at a fixed exercise price for a fixed period of time.  Incentive stock options are a type of option designed to comply with certain provisions of the U.S. tax code which may offer the recipient certain tax advantages depending on circumstances, as is discussed in more detail below.  An individual must be an employee to receive an incentive stock option, so outside Directors and consultants may not receive this type of option.  The current 1997 Stock Plan does not allow the issuance of any incentive stock options after March 14, 2007.  All incentive stock options issued since that date have been issued under our 2003 Equity Incentive Plan, as amended and restated (our “2003 Stock Plan”).  Our 2003 Stock Plan is currently the only vehicle under which we may issue incentive stock options and has 479,738 shares available for issuance as of the Record Date.  The 1997 Stock Plan allows for the issuance of nonstatutory stock options after March 14, 2007 and as outside Directors are not eligible for incentive stock options, all options issued to our outside Directors have been issued under the 1997 Stock Plan since that time.  The Amendment will allow the issuance of incentive stock options through May 4, 2019.

Certain Federal Tax Aspects

The following paragraphs are a summary of the Company’s understanding of the general federal income tax consequences to U.S. taxpayers and the Company of awards granted under the 1997 Stock Plan. Tax consequences for any particular individual may be different.

Incentive Stock Options

No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax, in which case taxable income is the same as for nonstatutory stock options). If the participant exercises the option and then later sells or otherwise disposes of the shares more

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than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss.  If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option.

Nonstatutory Stock Options

No taxable income is reportable when a nonstatutory stock option, which also may be referred to as a nonqualified stock option, is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option.  Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

Restricted Stock

A participant will not have taxable income upon grant unless he or she elects to be taxed at that time. Instead, he or she will recognize ordinary income at the time of vesting equal to the fair market value (on the vesting date) of the vested shares.

Tax Effect for the Company

The Company generally will be entitled to a tax deduction in connection with an award under the 1997 Stock Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option).  Special rules limit the deductibility of compensation paid to our Chief Executive Officer and to each of our four most highly compensated Executive Officers.  Under Section 162(m) of the Internal Revenue Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000.  However, the Company can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met.  These conditions include stockholder approval of the 1997 Stock Plan, setting limits on the number of awards that any individual may receive and, for awards other than certain stock options, establishing performance criteria that must be met before the award actually will vest or be paid.  The 1997 Stock Plan has been designed to permit the Company to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting the Company to continue to receive a federal income tax deduction in connection with such awards.

The Company expects a minimal impact on cash taxes paid resulting from deductions related to the 1997 Stock Plan due to the Company’s large domestic net operating loss position, which allows the Company to offset current taxable income with losses from prior years for ordinary income tax purposes.

Awards to be Granted to Certain Individuals and Groups

The number of awards that an employee or consultant may receive under the Plan is at the discretion of our Compensation Committee and therefore cannot be determined in advance.  The following table sets forth: a) the aggregate number of shares subject to incentive stock options granted under our 2003 Stock Plan during 2008, b) the aggregate number of shares subject to nonstatutory stock options granted under our 1997 Stock Plan during 2008 and c) the average per share exercise price of all such options.  Dr. Grieve received both incentive stock options and nonstatutory stock options as federal tax rules limit the value of incentive stock options which may become exercisable in any given year.

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Summary

Our Board believes incentive stock options are an important tool to be used in attracting, retaining and providing the proper long-term incentives to employees, and believes it is desirable to give the Company the flexibility to issue incentive stock options under the 1997 Stock Plan.  Along with this change, our Board is proposing to reduce the shares available for issuance under the 1997 Stock Plan as an indication of the Company’s commitment to using the 1997 Stock Plan to maximize shareholder value while minimizing any corresponding dilution.

If approved, the impact of the Amendment is intended only to: 1) reduce the number of shares we could issue under the 1997 Stock Plan by 250,000 and 2) allow us to issue incentive stock options through May 4, 2019 under the 1997 Stock Plan, assuming we have the underling shares available under the 1997 Stock Plan.  The foregoing is only a summary of the 1997 Stock Plan, as amended if approved, and is qualified in its entirety by reference to its full text, a copy of which is attached hereto as Appendix A.

Vote Required; Recommendation of our Board of Directors

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 approve the proposed amendment to our 1997 Stock Incentive Plan.  If the amendment to our 1997 Stock Plan is not approved, the 1997 Stock Plan will remain as is with no changes — i.e. the Company would be able to issue at least 2,576,652 new shares from the Record Date under the 1997 Stock Plan, including underlying nonstatutory stock options, although the Company could not issue incentive stock options under the 1997 Stock Plan.

Our Board unanimously recommends a vote FOR the approval of the Amendment to the 1997 Stock Plan.

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PROPOSAL NO. 3

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 2009 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 will also 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 2009.  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 interests 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 2009.

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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, 2009 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 52,010,928 shares outstanding on March 15, 2009.

Ownership Table

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

(1)                  To our knowledge and unless otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.  Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to securities.  Shares of common stock issuable upon exercise of stock options exercisable within 60 days of March 15, 2009 are deemed outstanding and beneficially owned by the person holding such option for purposes of computing such person’s percentage ownership, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

(2)                  Based upon information derived from a Schedule 13G filed on January 30, 2009 for holdings on December 31, 2008 by State of Wisconsin Investment Board pursuant to Section 13G of the Securities Exchange Act of 1934 and the rules promulgated thereunder (the “Exchange Act”), reporting its beneficial ownership of our common stock.  According to the Schedule 13G, State of Wisconsin Investment Board has sole power to vote and dispose of 9,310,600 shares.

(3)                  Based upon information derived from a Schedule 13G filed February 10, 2009 for holdings on December 31, 2008 by Zesiger Capital Group LLC pursuant to Section 13G of the Exchange Act reporting its beneficial ownership of our common stock.  According to the Schedule 13G, Zesiger Capital Group LLC has the sole power to vote 5,439,700 shares and the sole power to dispose of 8,054,700 shares.

(4)                  Based upon information derived from a Schedule 13G filed June 27, 2008 for holdings on June 20, 2008 by Pacific Coast Investors Limited pursuant to Section 13G of the Exchange Act reporting its beneficial ownership of our common stock.  According to the Schedule 13G, Pacific Coast Investors Limited has sole power to vote and dispose of 7,790,466 shares.

(5)                  Includes “Shares Owned” and “Exercisable Options” from “Exercisable Option Table” below for each Director and Named Executive Officer, as well as for all Directors and Executive Officers as a group.

(6)                  Includes 61,550 shares of common stock held for the benefit of Dr. Grieve’s children and 15,649 shares of common stock held by Dr. Grieve’s wife, all of with respect to which Dr. Grieve disclaims beneficial ownership.  Dr. Grieve’s business address is c/o the Company at 3760 Rocky Mountain Avenue, Loveland, Colorado 80538.

(7)                  Includes 6,020 shares of common stock held by Mr. Napolitano’s wife, with respect to which Mr. Napolitano disclaims beneficial ownership.

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Exercisable Option Table

(1)                  To our knowledge and unless otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown in the column, subject to community property laws where applicable and the information contained in the footnotes of this table.

(2)                  Represents shares of common stock issuable upon exercise of stock options exercisable within 60 days of March 15, 2009.

(3)                  Represents the lowest and highest strike price for stock options exercisable within 60 days of March 15, 2009.

(4)                  Represents the average strike price for stock options exercisable within 60 days of March 15, 2009.

(5)                  Represents the weighted average remaining contractual life, in years, for stock options exercisable within 60 days of March 15, 2009.

(6)                  Represents shares of common stock issuable upon exercise of stock options exercisable within 60 days of March 15, 2009 that have a strike price less than $0.22, the last closing market price per share of Heska stock available on March 15, 2009.

(7)                  Represents net shares under the Treasury Stock method assuming a market price per share of $0.22, the last closing market price per share of Heska stock available on March 15, 2009, for shares of common stock issuable upon exercise of stock options exercisable within 60 days of March 15, 2009 that have a strike price less than $0.22.

(8)                  Includes 61,550 shares of common stock held for the benefit of Dr. Grieve’s children and 15,649 shares of common stock held by Dr. Grieve’s wife, all of with respect to which Dr. Grieve disclaims beneficial ownership.

(9)                  Includes 6,020 shares of common stock held by Mr. Napolitano’s wife, with respect to which Mr. Napolitano disclaims beneficial ownership.

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Outstanding Option Table

(1)                  To our knowledge and unless otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown in the column, subject to community property laws where applicable and the information contained in the footnotes of this table.

(2)                  Represents shares of common stock issuable upon exercise of stock options outstanding on March 15, 2009.

(3)                  Represents the lowest and highest strike price for stock options outstanding on March 15, 2009.

(4)                  Represents the average strike price for stock options outstanding on March 15, 2009.

(5)                  Represents the weighted average remaining contractual life, in years, for stock options outstanding on March 15, 2009.

(6)                  Represents shares of common stock issuable upon exercise of stock options outstanding on March 15, 2009 that have a strike price less than $0.22, the last closing market price per share of Heska stock available on March 15, 2009.

(7)                  Represents net shares under the Treasury Stock method assuming a market price per share of $0.22, the last closing market price per share of Heska stock available on March 15, 2009, for shares of common stock issuable upon exercise of stock options outstanding on March 15, 2009 that have a strike price less than $0.22.

(8)                  Includes 61,550 shares of common stock held for the benefit of Dr. Grieve’s children and 15,649 shares of common stock held by Dr. Grieve’s wife, all of with respect to which Dr. Grieve disclaims beneficial ownership.

(9)                  Includes 6,020 shares of common stock held by Mr. Napolitano’s wife, with respect to which Mr. Napolitano disclaims beneficial ownership.

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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 2008 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, 2008, including the 1988 Stock Option Plan, 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.

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, 2008, 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.

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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.

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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 calls 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.  This is why many options held by Executive Officers are vested, and exercisable, as of December 31, 2008 in the table labeled “Outstanding Equity Awards at Fiscal Year-End” 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 2006 MIP, the 2007 MIP, the 2008 MIP and the 2009 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

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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, Heska’s Vice President of Human Resources has compiled and presented data discussed below for the Committee’s consideration of the different compensation elements discussed below.  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.

In 2005 and 2006, the process to determine executive compensation culminated at our Board meeting held in the fourth quarter.  At that time a Committee meeting was held and final determinations were made regarding any base salary increases, MIP Plan adoption and/or long-term compensation equity grants for the coming year.  Accordingly, all option grants to Executive Officers were granted after the market close on the day the Committee met during the Company’s fourth quarter Board meeting.  We expect this to be our standard practice going forward.

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

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Heska.  In 2006, the Committee reviewed compensation data for the following companies as part of its review of Executive Compensation: Abaxis, Abgenix, Arqule, Array Biopharma, Digene, Embrex, Hi Tech Pharmaceuticals, IDEXX Laboratories, Meridian Bioscience, MGI Pharma, Quidel and Savient Pharmaceuticals.  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.  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.

(1)                    Mr. Flanders joined the Company as of December 11, 2006.

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.

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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 include 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.

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 2006 MIP Payouts to the 2007 MIP Payouts in the “Summary 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 2009 MIP.  All Executive Officers, with the exception of Mr. Snodgrass, our Vice President of Sales, were eligible for the MIP in 2006, 2007 and 2008.  In 2006, 2007 and 2008, performance-based incentive compensation for Mr. Snodgrass consisted of commissions earned based on achieving certain sales volume targets (his “Commissions”) and, in 2007 and 2008, 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 2006, 2007 and 2008 is discussed below.

In considering the 2006 MIP, the Committee was aware that the Executive Officers were entering their third consecutive year with the same salary and that the Executive Officers had not received any bonus payments in the prior two years.  The Committee adopted a plan with relatively low payout thresholds, as detailed below.  At the Committee meeting in the fourth quarter of 2005, the Committee adopted the 2006 MIP with the following parameters:

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As an example, if Heska had $1.2 million in Pre-MIP Net Income, there would be $600 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 2006 salary was $341,000 and his targeted payout was $170,500 (50% of $341,000).  In a 60% MIP-funded plan, his funded targeted payout would be $102,300 (60% of $170,500).  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 meeting in March 2007, the Committee approved a recommendation that all plan participants be paid an MIP Payout nearly 50% greater than target in accordance with performance achievement in excess of the individual MIP “cap.”  The Committee also decided Dr. Grieve’s MIP Payout would similarly be nearly 50% greater than 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 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:

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.  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.  MIP Payouts were lower for 2007 than for 2006 due to a relatively lower funded status (roughly 30% of target for 2007 versus 150% of target for 2006) for 2007, which lowered the funded target MIP Payout for each MIP-eligible Named Executive Officer.  The 2007 MIP achieved lower funded status than the 2006 MIP due to the more aggressive payout thresholds in the 2007 MIP.

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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:

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 tight 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:

All of Mr. Snodgrass’s performance-based incentive compensation for 2006 was from Commissions.  For 2007, approximately $45 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 2006 to 2007.  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 the table named “Grants of Plan-Based Awards” below, we list potential payouts under the 2009 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 Net Income, as defined in the table above, is at (or below) the threshold level of $2.0 million.  All “Target” MIP Payouts are as defined above.  The “Maximum” MIP Payouts are 50% greater than the “Target” MIP Payouts to reflect

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that the 2009 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 duplicative 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 the fourth quarter of 2006, after significant discussion and considering factors including the Historical Compensation to Executive Officers, the fact that the 2006 MIP was expected to be “capped”, our 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 and approved a grant of fully-vested stock options to Mr. Flanders upon his formally joining the Company.  These options were granted at the close of business on November 17, 2006 – the date of the Committee meeting, with the exception of options granted to Mr. Flanders which were granted upon his joining the Company on December 11, 2006.

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 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 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 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, except for Mr. Flanders who joined the Company in December 2006.  Related option grants to Named Executive Officers are reflected in the “Grants of Plan-Based Awards” table below in the column labeled “All Other Option Awards; Number of Securities Underlying Options (#).”

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

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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.

“Option Awards” in the “Summary Compensation Table” below represent the cost of options recognized for financial reporting purposes for each of our Named Executive Officers.  In 2006, the majority of the value for each Named Executive Officer is related to the fully vested option grants in the fourth quarter of 2006 discussed above.  For all other Named Executive Officers other than Mr. Napolitano and Mr. Snodgrass, the only other option cost included is for options granted with a four year vesting schedule in January 2003 with monthly vesting in 2006 and January 2007.  In addition to such options granted in January 2003, Mr. Napolitano’s 2006 total also includes option cost from his initial grant of options upon joining the Company in May 2002, which vested monthly ending in May 2006 after an initial six-month “cliff vest” in November 2002.  Mr. Snodgrass’s 2006 total includes only options granted in the fourth quarter of 2006.  Options granted on December 31, 2007 did not impact 2007 in the “Summary Compensation Table” because the affiliated cost will be recognized over the four year vesting period and these options were granted at year end.  The significant decline in value in 2007 versus 2006 for each Named Executive Officer is due to the fact that 2007 includes at most one month of stock option vesting for each individual, as discussed above.  In 2008, option award compensation increased for all Named Executive Officers due mostly to recognition of stock options granted on December 31, 2007.  We expect the value recognized under “Option Awards” will increase in future years as the December 2007 and November 2008 option grants vest and future options are issued.

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.

All of our Named Executive Officers, with the exception of Mr. Snodgrass, had employment contracts in 2006, 2007 and 2008.  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, Heska Corporation currently faces a challenging environment.  Heska’s Executive Compensation is adjusting to that environment along with the Company.  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.

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Summary Compensation Table

The following table sets forth compensation for services rendered in all capacities to us during 2006, 2007 and 2008 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, 2008 (the “Named Executive Officers”).

Summary Compensation Table