-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FqygsHjxIRmgpsoQPELzy+wl9qxtetAQBN/VDNsUfku8idBl6oQPIm3c9qoGLC97 aCuf8bjcQ1+ZZFQmT8zXYg== 0000950147-97-000329.txt : 19970520 0000950147-97-000329.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950147-97-000329 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTHOLOGIC CORP CENTRAL INDEX KEY: 0000887151 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 860585310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21214 FILM NUMBER: 97609297 BUSINESS ADDRESS: STREET 1: 2850 S 36TH ST #16 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6024375520 MAIL ADDRESS: STREET 1: 2850 S 36TH ST STREET 2: SUITE 16 CITY: PHOENIX STATE: AZ ZIP: 85034 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ----------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ____________________ Commission File Number: 0-21214 ORTHOLOGIC CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 86-0585310 - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2850 S. 36th Street, #16, Phoenix, Arizona 85034 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (602) 437-5520 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 25,069,346 shares of common stock outstanding as of April 30, 1997 ORTHOLOGIC CORP. INDEX Page No. Part I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets----------------------------- 1 March 31, 1997 and December 31, 1996 Consolidated Statements of Operation-------------------------------2 Three Months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows------------------------------3 Three Months ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements-------------------- 4 - 5 Item 2. Management's Discussion and Analysis of Financial---- 6 - 8 Condition and Results of Operations Part II Other Information Item 1. Legal Proceedings--------------------------------------- 9 Item 2. Changes in Securities----------------------------------- 9 Item 6. Exhibits and Reports on Form 8-K------------------------ 9 OrthoLogic Corp. Condensed Consolidated Balance Sheets
March 31, December 31, 1997 1996 ------------- ------------- (Unaudited) ASSETS Cash and cash equivalents $ 11,729,634 $ 13,493,853 Short-term investments 16,642,730 35,306,989 Accounts receivable 32,578,196 26,856,144 Inventory 9,544,447 6,551,382 Prepaids and other current assets 1,944,915 1,194,679 Deferred income taxes 2,568,411 2,401,000 ------------- ------------- Total current assets 75,008,333 85,804,047 Furniture, rental fleet and equipment 13,526,994 11,364,295 Accumulated depreciation (3,029,253) (2,282,292) ------------- ------------- Furniture and equipment, net 10,497,741 9,082,003 Intangibles, net 29,794,125 17,846,540 Deposits and other assets 91,045 93,112 Note receivable - Officer 200,000 200,000 ------------- ------------- Total Assets $ 115,591,244 $ 113,025,702 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $ 3,628,786 $ 2,041,943 Loan payable - current portion 500,000 -- Accrued liabilities 8,530,759 8,776,896 ------------- ------------- Total current liabilities 12,659,545 10,818,839 Deferred rent and capital lease obligation 300,945 279,929 Loan payable - long term portion 875,000 -- Stockholders' Equity Common stock 12,533 12,509 Additional paid-in capital 118,944,618 118,832,041 Accumulated deficit (17,201,397) (16,917,616) ------------- ------------- Total stockholders' equity 101,755,754 101,926,934 ------------- ------------- Total Liabilities and Stockholders' Equity $ 115,591,244 $ 113,025,702 ============= =============
See notes to consolidated financial statements Page 1 OrthoLogic Corp. Consolidated Statements of Operations Unaudited
Three months ended March 31, 1997 1996 ------------ ------------ REVENUES Net sales $ 9,571,673 $ 6,759,732 Net rentals 7,730,042 -- ------------ ------------ Total Revenues 17,301,715 6,759,732 ------------ ------------ COST OF REVENUES Cost of goods sold 2,714,037 1,122,279 Cost of rentals 2,031,331 -- ------------ ------------ Total Cost of Revenues 4,745,368 1,122,279 GROSS PROFIT 12,556,347 5,637,453 OPERATING EXPENSES Selling, general and administrative 12,889,498 4,424,148 Research and development 576,056 551,611 ------------ ------------ Total Operating Expenses 13,465,554 4,975,759 ------------ ------------ OPERATING INCOME (LOSS) (909,207) 661,694 OTHER INCOME (EXPENSE) Grant revenue 73,681 49,400 Interest Income 567,836 238,533 Interest expense (5,400) -- ------------ ------------ Total Other Income 636,117 287,933 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (273,090) 949,627 Provision for income taxes -- (15,000) ------------ ------------ NET INCOME (LOSS) $ (273,090) $ 934,627 ============ ============ NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.04 ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 25,037,890 20,796,198 ============ ============
See notes to consolidated financial statements. Page 2 OrthoLogic Corp. Consolidated Statements of Cash Flows Unaudited
Three months ended March 31, 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net Earnings (Loss) $ (273,090) $ 934,627 Noncash items: Depreciation and amortization 1,320,697 79,835 Other (10,692) -- Net change in Other Operating items: Accounts receivable (826,466) (2,797,352) Inventory (418,821) (380,204) Prepaids and other current assets (834,509) (355,463) Deposits and other assets 2,068 7,200 Accounts payable 39,927 367,075 Accrued liabilities (335,495) 189,036 ------------ ------------ Cash Flows used in Operating Activities (1,336,381) (1,955,246) INVESTING ACTIVITIES Purchase of fixed assets, net (532,026) (177,889) Cash paid for acquisitions, net of other effects (18,210,269) Purchases (Sales) of short term investments 18,664,259 (2,060,305) Intangible from dealer transactions (462,403) -- ------------ ------------ Cash Flows used in Investing Activities (540,439) (2,238,194) FINANCING ACTIVITIES Net proceeds from stock option exercises 112,601 475,329 ------------ ------------ Cash Flows from Financing Activities 112,601 475,329 Net Decrease in Cash & Cash Equivalents (1,764,219) (3,718,111) Cash & Cash Equivalents, Beginning of Period 13,493,853 8,830,514 ------------ ------------ Cash & Cash Equivalents, End of Period $ 11,729,634 $ 5,112,403 ============ ============
See notes to consolidated financial statements. Page 3 ORTHOLOGIC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Financial Statement Presentation -------------------------------- The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated balance sheet as of March 31, 1997, and the consolidated statements of operations and cash flows for the three months ended March 31, 1997 and 1996 are unaudited however, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the complete fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Annual Report. 2. Earnings (Loss) Per Share -------------------------- In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", effective for both interim and annual periods ending after December 15, 1997. This statement specifies the computation, presentation and disclosure of earnings per share for entities with publicly held common stock or potential common stock. The Company will provide the required disclosures in their year-end report. The effect on the Company's earnings per share disclosure is not material for the periods presented. 3. Preferred Stock Purchase Rights ------------------------------- On February 25, 1997 the Company declared a dividend distribution of one Preferred Stock Purchase Right (the "Rights") for each outstanding share of the Company's common stock, payable March 12, 1997 to holders of record on that date. The Rights will expire on March 11, 2007. Each Right will entitle shareholders to buy 1/100 of a share of Series A Preferred Stock at an exercise price of $25.00. Initially, no separate Rights certificates will be distributed; the Rights will trade with the Company's common stock and will not be exercisable until the earlier of 10 business days following the acquisition of 15% or more of the Company's common stock by a person or group or 15 business days following the commencement of a tender offer for 20% or more of the Company's common stock. Page 4 ORTHOLOGIC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Preferred Stock Purchase Rights (continued) ------------------------------------------- At the discretion of the Board of Directors of the Company, the Rights can be redeemed at any time prior to the 10th day following the date the Rights become exercisable. If the Rights are not redeemed by the Board, and the Company is acquired, holders of the Rights (other than an "acquiring person") will be entitled to purchase additional shares of common stock of either the Company or the acquiring corporation (whichever survives) at one-half the market price. 4. Acquisitions ------------ On March 3, 1997 and March 12, 1997, the Company acquired certain assets and assumed certain liabilities of Toronto Medical Corp. (Toronto) and Danninger Medical Technology, Inc. (DMTI). After paying certain of the assumed liabilities, the net cash outlay was approximately $7.2 million for Toronto and $11 million for DMTI. Both acquisitions were accounted for as a purchase which resulted in goodwill of $4 million for Toronto and $7.7 million for DMTI. The goodwill is being amortized over 20 years. Management plans to restructure the operations related to these acquisitions during the second and third quarter of 1997 including, but not limited to, closing and/or relocating facilities and terminating or relocating certain employees. The Restructuring Plan will include the integration of these acquisitions. Once the estimated costs related to these activities are determined, they will be accrued and reflected as additional acquisition costs in the allocation of purchase price. Had the Toronto and DMTI acquisitions occurred on January 1, 1996, combined unaudited pro forma results for the three months ended March 31, 1997 and 1996, would have been: net revenues - $20.5 and $11.2 million; net earnings (loss) - $(336,000) and $348,000; net earnings (loss) per common share - $(0.01) and $0.02. The pro forma amounts disclosed above include revenue and net income derived from product sales to competing independent dealers of orthopaedic rehabilitation products. Subsequent to the acquisition, the Company discontinued selling products to these dealers. Excluding the dealer product sales, combined unaudited pro forma results for the three months ended March 31, 1997 and 1996, would have been: net revenues- $19.2 and $9.6 million; net earnings (loss) - $(764,000) and $121,000; net earnings (loss) per common share - $(0.03) and $0.01. Page 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations OrthoLogic has completed three recent acquisitions which affect the year-to-year comparability of its consolidated financial position and results of operations: the acquisition of Sutter Corporation (Sutter) on August 30, 1996 and the acquisition of certain assets and the assumption of certain liabilities of two other orthopaedic rehabilitation related companies in March 1997. Revenues OrthoLogic's revenue increased 156% from $6.8 million in the first quarter of 1996 to $17.3 in the first quarter of 1997. The increase in revenue was due primarily to growth in sales of the OrthoLogic 1000 product and to first quarter sales in Sutter ($9 million) and the recently acquired operations ($900,000). The Company believes that revenues for its orthopaedic rehabilitation products may be seasonal, with the strongest sales occurring in the fourth quarter. Gross Profit Gross profit increased from $5.6 million in the first quarter of 1996 to $12.6 million in the first quarter of 1997. Gross profit as a percentage of revenue was 73% for the three months ended March 31, 1997 compared to 83% for the comparable period during 1996. The overall gross profit percentage declined as a result of the recently acquired orthopaedic rehabilitation operations which have a lower gross profit percentage than the Company's fracture healing products. Selling, General and Administrative Expenses Selling, general and administrative (S,G&A) expenses for the first quarter of 1997 were $12.9 million, up $8.5 million from the comparable 1996 period. The increase from 1996 is due to in part to the variable costs (commissions, bad debts, and royalties) associated with the increased revenue. The first quarter of 1997 also included the Sutter S,G&A, which is a significant component of total S,G&A. During late 1996, the fixed component of S,G&A increased due to the addition of employees, including salespeople added to support the Company's transition to a direct sales force, and other infrastructure required to support the growing and projected revenue volume. OrthoLogic is currently consolidating facilities and eliminating expenses from redundant operations from within the three businesses that were recently acquired. Page 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Research and Development Research and development (R&D) expenses were $576,000 for the first quarter of 1997 compared to $552,000 for the comparable 1996 period. The increase in R&D expenses was due to the 1997 acquisitions. Other Income Other Income of $636,000 for the first quarter of 1997 consisted of interest income of $568,000 and grant revenue of $74,000 offset by interest expense of $5,400. Other income for the comparable 1996 period consisted of interest income of $239,000 and grant revenue of $49,400. The 138% increase in interest income was due to the investment of the $74 million in net proceeds from the Company's April 1996 public offering of common stock. Grant revenue increased 51% because the Company was participating in two research grant projects in the first quarter of 1997 compared to only one project in the first quarter of 1996. Liquidity and Capital Resources At March 31, 1997, the Company had cash and investments of $28.4 million compared to $48.8 million at December 31, 1996. Working capital decreased from $75 million at December 31, 1996 to $62.3 million at March 31, 1997. The decrease in cash and investments is primarily the result of cash used for acquisitions of $18.2 million. Other uses of cash included $1.4 million for operating activities and $532,000 for the purchase of fixed assets. In addition, the Company paid $462,000 to a former independent dealer for the return of territory rights, rights to hire former independent dealer sales representatives and convenants not to compete, as the Company completes its transition to a direct sales force. The Company currently believes that cash generated from product sales and rentals and its available cash resources will be sufficient to meet it current operating requirements and internal development and integration initiatives for the foreseeable future. There can be no assurance, however, that the Company will not require additional financing in the future. If the Company were required to obtain additional financing in the future, there can be no assurance that such sources of capital will be available on terms favorable to the Company, if at all. The Company plans to relocate its corporate offices in the fourth quarter of 1997. No lease has been signed related to this move. There are currently no other material definitive commitments for future use of the Company's available cash resources; however, management continually evaluates opportunities to expand its operations, which includes internal development of new products and may include additional acquisitions. Page 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the statements contained in this document that are not historical facts, including, without limitation, statements of future expectations, projections of results of operations and financial condition, statements of future economic performance and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to differ materially from those contemplated in such forward-looking statements. In addition to the specific matters referred to herein, important factors which may cause actual results to differ from those contemplated in such forward-looking statements include: (i) the results of the Company's efforts to implement its business strategy; (ii) actions of the Company's competitors and the Company's ability to respond to such actions; (iii) changes in governmental regulation, tax rates and similar matters; (iv) other risks detailed in the Company's other filings with the Commission; and (v) the costs and results of pending litigation. Page 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings See the information under the caption "Item 3 Legal Proceedings" of the Company's 10-K for the fiscal year ended December 31, 1996. Item 2. Changes in Securities On February 21, 1997, the Company's Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock, par value $.0005 per share (a "Common Share"), of the Company to stockholders of record at the close of business on March 12, 1997, all as described in detail in the Company's Forms 8-A and 8-K filed with the Securities and Exchange Commission on March 6, 1997 which are incorporated herein by reference. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Bank of New York, as Rights Agent. Except as set forth in the Rights Agreement, each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, par value $.0005 per share at a price of $25.00, subject to adjustment. The Purchase Price shall be paid in cash. Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index following the signature page which is incorporated herein by reference. (b) Reports on Form 8-K 1) On March 6, 1997, the Company filed a Current Report on Form 8-K dated February 21, 1997 to report in Item 5, the Board's declaration of a dividend distribution of Rights described in Item 2 above. 2) On March 18, 1997, the Company filed a Current Report on Form 8-K dated March 3, 1997, to report in Item 2, the consummation of its acquisition of substantially all the assets and business and the assumption of substantially all of the liabilities of Toronto Medical Corp., an Ontario corporation, pursuant to a Purchase and Sale Agreement dated as of December 30, 1996. 3) On March 27, 1997, the Company filed a Current Report on Form 8-K dated March 12, 1997 to report in Item 2, the consummation of its acquisition of certain assets and the assumption of certain liabilities of each of Danninger Medical Technology, Inc., a Delaware corporation ("DMTI"), and Danninger Healthcare, Inc., an Ohio corporation and a wholly-owned subsidiary of DMTI ("DHI, and together with DMTI, "Danninger"), pursuant to an Asset Purchase Sale Agreement (the "Agreement") dated March 12, 1997. Page 9 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signature Title Date - --------- ----- ---- /s/ Allan M. Weinstein Chairman of the Board of Directors and May 15, 1997 - ---------------------- Chief Executive Officer Allan M. Weinstein (Principal Executive Officer) /s/ Allen R. Dunaway Vice-President and Chief Financial Officer May 15, 1997 - -------------------- (Principal Financial and Accounting Officer) Allen R. Dunaway
page 10 ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Exhibit Incorporated by Filed No. Description Reference to: Herewith --- ----------- ------------- -------- 2.1 Stock Purchase Agreement dated August 30, 1996 by Exhibit 2.1 to the Company's Current and among the Company, Sutter Corporation and Smith Report on Form 8-K filed on September Laboratories, Inc. 13, 1996 2.2 Purchase and Sale Agreement dated as of December Exhibit 2.1 to the Company's 30, 1996 by and among the Company and Current Report on Form 8-K filed Toronto Medical Corp., an Ontario on March 18, 1997 ("March 18, corporation 1997 8-K") 2.3 Amendment to Purchase and Sale Agreement dated as Exhibit 2.2 to March 18, 1997 8-K of January 13, 1997 by and among the Company and Toronto Medical Corp., an Ontario corporation 2.4 Second Amendment to Purchase and Sale Agreement Exhibit 2.3 to March 18, 1997 8-K dated as of March 1, 1997 by and among the Company and Toronto Medical Corp., an Ontario corporation 2.5 Assignment of Purchase and Sale Agreement dated as Exhibit 2.4 to March 18, 1997 8-K of March 1, 1997 by and among the Company, Toronto Medical Orthopaedics Ltd., a Canada corporation and Toronto Medical Corp., an Ontario corporation 2.6 Asset Purchase Agreement dated March 12, 1997 by Exhibit 2.1 to the Company's and among the Company, Danninger Medical Current Report on Form 8-K filed Technology, Inc., a Delaware corporation, on March 27, 1997 and Danninger Healthcare, Inc., an Ohio corporation 3.1 Composite Certificate of Incorporation of the X Company, as amended, including Certificate of Designation in respect of Series A Preferred Stock 3.2 Bylaws of the Company Exhibit 3.4 to Company's Amendment No. 2 to Registration Statement on Form S-1 (No. 33-47569) filed with the SEC on January 25, 1993 ("January 1993 S-1")
ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 (continued)
Exhibit Incorporated by Filed No. Description Reference to: Herewith --- ----------- ------------- -------- 4.1 Articles 5, 9 and 11 of Certificate of Exhibit 3.1 above Incorporation of the Company 4.2 Articles II and III.2(c)(ii) of Bylaws of the Exhibit 3.4 to January 1993 S-1 Company 4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1 4.4 Stock Option Plan of the Company, as amended and Incorporated by reference to Exhibit approved by stockholders 99.1 to the Company's Registration Statement on Form S-8 (No. 333-09785) filed with the SEC on August 8, 1996 4.5 Stock Purchase Warrant, dated August 18, 1993, Exhibit 4.6 to the Company's Form issued to CyberLogic, Inc. 10-K for the fiscal year ended December 31, 1994 4.6 Stock Purchase Warrant, dated September 20, 1995, Exhibit 4.6 to Company's Registration issued to Registered Consulting Group, Inc. Statement on Form S-1 (No. 33-97438) filed with the SEC on September 27, 1995 4.7 Stock Purchase Warrant, dated October 15, 1996, Exhibit 4.7 to the Company's Form issued to Registered Consulting Group, Inc. 10-K for the fiscal year ended December 31, 1996 ("1996 10-K") 4.8 Rights Agreement dated as of March 4, 1997 Exhibit 4.1 to the Company's between the Company and Bank of New York, Registration Statement on Form 8-A and Exhibits A, B and C thereto filed with the SEC on March 6, 1997 10.1 1997 Officer Bonus Plan Exhibit 10.13 to 1996 10-K 10.2 Lease made March 1997 between Toronto Medical Corp. Exhibit 10.34 to 1996 10-K and Toronto Medical Orthopaedics Ltd.
ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 (continued)
Exhibit Incorporated by Filed No. Description Reference to: Herewith --- ----------- ------------- -------- 10.3 Severance Agreement dated February 18, 1997 by and Exhibit 10.39 to 1996 10-K between George A. Oram, Jr. and the Company 10.4 Employment Agreement by and between Allan M. X Weinstein and the Company effective as of December 1, 1996 10.5 Employment Agreement by and between Frank P. Magee X and the Company effective as of December 1, 1996 10.6 Employment Agreement by and between Allen R. X Dunaway and the Company effective as of December 1, 1996 10.7 Employment Agreement by and between James B. X Koeneman and the Company effective as of December 1, 1996 10.8 Employment Agreement by and between MaryAnn G. X Miller and the Company effective as of December 1, 1996 10.9 Employment Agreement by and between Nicholas A. X Skaff and the Company effective as of December 1, 1996 11 Statement of Computation of Net Income (Loss) per X Weighted Average Number of Common Shares Outstanding 27 Financial Data Schedule X
EX-3.1 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF ORTHOLOGIC CORP. 1. Name. The name of the corporation is OrthoLogic Corp. 2. Registered Agent. The name and address of the initial registered office and registered agent of the Corporation is The Corporation Trust company, Corporation Trust center, 1209 Orange Street, New Castle County, Wilmington, Delaware 19801. 3. Purpose. The purpose for which this Corporation is organized is the transaction of any or all lawful activity for which corporations may be organized under the General Corporation Law of Delaware, as it may be amended from time to time. 4. Election of Directors. Elections of directors at an annual or special meeting of stockholders shall be by written ballot unless the Bylaws of the Corporation shall otherwise provide. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the Bylaws of the Corporation. 5. Authorized Capital. The total number of shares of stock which the Corporation shall have authority to issue is 42,000,000 shares, consisting of 40,000,000 shares of common stock having a par value of $.0005 per share (the "Common Stock") and 2,000,000 shares of preferred stock having a par value of $.0005 per share (the "Preferred Stock"). The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of Article 5, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) Any other relative rights, preferences and limitations of that series. 6. Classification and Terms of Directors. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors consisting of not less than three directors nor more than nine directors, the exact number of directors to be determined from time to time by resolution adopted by the Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The terms of the initial Class I directors shall terminate on the date of the first annual meeting of stockholders held after the effective date of this Article 6; the term of the initial Class II directors shall terminate on the date of the second annual meeting of stockholders held after the effective date of this Article 6; and the term of the initial Class III directors shall terminate on the date of the third annual meeting of stockholders held after the effective date of this Article 6. At each annual meeting of stockholders beginning with the first annual meeting held after the effective date of this Article 6, successors to the class of directors whose term expires at that annual meeting 2 shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining terms of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, howsoever resulting (including without limitation newly created directorships), may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Article Five applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Six unless expressly provided by such terms. 7. Removal of Directors. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article 7 as one class. 8. Director Liability. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the 3 director derived an improper personal benefit. No amendment to or repeal of this Section 8 shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. 9. Action by Consent of Stockholders. Any action required or permitted to be taken by the stockholders must be effected at a duly called and noticed annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. 10. Compromise of Debts. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court direct. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 11. Special Voting Requirements. (a) Except as set forth in Section (b) of this Article 11, the affirmative vote of the holders of two-thirds of the outstanding stock of the Corporation entitled to vote shall be required for: (1) any merger or consolidation to which the Corpora- tion, or any of its subsidiaries, and an Interested Person (as hereinafter defined) are parties; 4 (2) any sale or other disposition by the Corporation, or any of its subsidiaries, of all or substantially all of its assets to an Interested Person; (3) any purchase or other acquisition by the Corporation, or any of its subsidiaries, of all or substantially all of the assets or stock of an Interested Person; and (4) any other transaction with an Interested Person which requires the approval of the stockholders of the Corporation under the GCL, as in effect from time to time. (b) The provisions of Section (a) of this Article 11 shall not be applicable to any transaction described therein if such transaction is approved by resolution of the Corporation's Board of Directors, provided that a majority of the members of the Board of Directors voting for the approval of such transaction are Continuing Directors. The term "Continuing Director" shall mean any member of the Board of Directors of the Corporation who is not the Interested Person, and not an affiliate, associate, representative or nominee of the Interested Person or of such an affiliate or associate that is involved in the relevant transaction, and (A) was a member of the Board of Directors prior to the date that the person, firm or corporation, or any group thereof, with whom such transaction is proposed, became an Interested Person or (B) whose initial election as a director of the Corporation succeeds a Continuing Director or is a newly created directorship, and in either case was recommended by a majority vote of the Continuing Directors then in office. (c) As used in this Article 11, the term "Interested Person" shall mean any person, firm or corporation, or any group thereof, acting or intending to act in concert, including any person directly or indirectly controlling or controlled by or under direct or indirect common control with such person, firm or corporation or group, which owns of record or beneficially, directly or indirectly, five percent (5%) or more of any class of voting securities of the Corporation. 12. Special Meetings. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time only by the President, or the Board of Directors pursuant to a resolution approved by a majority of the whole Board of Directors, or at the request in writing of shareholders owning at least 35% of the capital stock issued and outstanding and entitled to vote. Special meetings of the stockholders may not be called by any other person or persons. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice of such meeting. 13. Bylaws. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly 5 authorized by majority vote of the whole Board of Directors to adopt, repeal, alter, amend or rescind the Bylaws of the Corporation. In addition, the Bylaws of the Corporation may be adopted, repealed, altered, amended, or rescinded by the affirmative vote of two-thirds of the outstanding stock of the Corporation entitled to vote thereon; provided, if the Continuing Directors, as defined in Article 11 shall by a majority vote of such Continuing Directors have adopted a resolution approving the amendment or repeal proposal and have determined to recommend it for approval by the holders of stock entitled to vote thereon, then the vote required shall be the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote thereon. 14. Certificate. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute and the Certificate of Incorporation, and all rights conferred on stockholders herein are granted subject to the reservations in Article 14. Provided, however, the affirmative vote of the holders of at least two-thirds of the voting power of the outstanding stock of the Corporation entitled to vote thereon, shall be required to alter, amend, or adopt any provision inconsistent with or repeal Articles 4, 6, 7, 9, 11, 12 and 13 and this Article 14; provided, if the Continuing Directors, as defined in Article 11 shall by a majority vote of such Continuing Directors have adopted a resolution approving the amendment or repeal proposal and have determined to recommend it for approval by the holders of stock entitled to vote thereon, then the vote required shall be the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote thereon. 6 ORTHOLOGIC CORP. CERTIFICATE OF DESIGNATION in respect of SERIES A PREFERRED STOCK ---------------------------- Pursuant to Section 151 of the Delaware General Business Corporation Law ----------------------------------------- The undersigned, being the Chairman and Chief Executive officer of OrthoLogic Corp. (the "Corporation"), a corporation organized and existing under the Delaware General Corporation Law, hereby certifies that, pursuant to the provisions of Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation duly adopted the following resolution at a meeting of said Board of Directors duly called and held on February 21, 1997, which resolution remains in full force and effect as of the date hereof: RESOLVED, that the Board of Directors of the Corporation, pursuant to authority expressly vested in it by the provisions of the Corporation's Amended and Restated Certificate of Incorporation, as amended (the "Charter"), hereby establishes a series of the Preferred Stock, par value $.0005 per share, of the Corporation and fixes the number of shares of such series and the powers, designations, preferences and relative, participating, optional or other rights of such series, and the qualifications, limitations or restrictions thereof, as follows: The first series of Preferred Stock, par value $.0005 per share, of the Corporation shall be, and hereby is, designated "Series A Preferred Stock" (the "Series A Shares"), and the number of shares constituting such series shall be Three Hundred Thousand (300,000). The relative rights and preferences of the Series A Shares shall be as follows: Section a. Dividends and Distributions. (1) Subject to the prior and superior rights of the holders of any shares of any series of stock ranking prior and superior to the Series A Shares with respect to dividends, the holders of Series A Shares, in preference to the holders of Common Stock, par value $.0005 per share, of the Corporation (the "Common Stock") and of any other junior stock, shall be entitled to receive, when and as declared by the Board of Directors, out of any funds lawfully available therefor, cash dividends thereon, payable quarterly, from the date of issuance thereof, upon the tenth days of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Share, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the provisions for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend or distribution payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Series A Share. In the event the Corporation shall at any time after March 12, 1997 (i) declare any dividend on the Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amounts to which holders of Series A Shares were entitled immediately prior to such event under clause (a) and clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) The Corporation shall declare a dividend or distribution on the Series A Shares as provided in paragraph (1) of this Section immediately after it declares a dividend or.distribution on the Common Stock (other than a dividend or distribution payable in shares of Common Stock); provided, however, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Shares 2 shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date; and provided further, that nothing contained in this paragraph (2) shall be construed so as to conflict with any provision relating to the declaration of dividends contained in the Charter. (3) Dividends shall begin to accrue and be cumulative on outstanding Series A Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Series A Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Series A Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Series A Shares entitled to receive payment of a dividend or distribution declared thereon. Section b. Redemption. The Series A Shares are not redeemable. Section c. Liquidation, Dissolution or Winding Up. In the event of the voluntary or involuntary liquidation of the Corporation the "preferential amount" that the holders of the Series A Shares shall be entitled to receive out of the assets of the Corporation shall be $100.00 per share plus all accrued and unpaid dividends thereon. (1) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Shares unless, prior thereto, the holders of Series A Shares shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of Series A Shares unless, prior thereto, the holders of shares of common stock shall have received an amount per share (the 3 "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in paragraph (3) of this Section c to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding Series A Shares and Common Stock, respectively, holders of Series A Shares and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one with respect to the Series A Shares and Common Stock, on a per share basis, respectively. (2) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, that rank on a parity with the Series A Shares, then all such available assets shall be distributed ratably to the holders of the Series A Shares and the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then any such remaining assets shall be distributed ratably to the holders of Common Stock. (3) In the event the Corporation shall at any time after March 12, 1997 (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section d. Sinking Fund. The Preferred Shares shall not be entitled to the benefit of any sinking fund for the redemption or purchase of such shares. 4 Section e. Conversion. (1) Subject to paragraph (2) of this Section e, the Preferred Shares shall not be convertible. (2) In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the Series A Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section f. Voting Rights. (1) The holders of Series A Shares shall have no voting rights except as provided by Delaware statutes or by paragraph (2) of this Section f. (2) So long as any Series A Shares shall be outstanding, and in addition to any other approvals or consents required by law, without the consent of the holders of 66- 2/3% of the Series A Shares outstanding as of a record date fixed by the Board of Directors, given either by their affirmative vote at a special meeting called for that purpose, or, if permitted by law, in writing without a meeting: (i) The Corporation shall not sell, transfer or lease all or substantially all the properties and assets of the Corporation; provided, however, that nothing herein shall require the consent of the holders of Series A Shares for or in respect of the creation of any mortgage, pledge, or other lien upon all or any part of the assets of the Corporation. 5 (ii) The Corporation shall not effect a merger or consolidation with any other corporation or corporations unless as a result of such merger or consolidation and after giving effect thereto holders of Series A Shares are entitled to receive a per share amount and type of consideration equal to 100 times the per share amount and type of consideration received by holders of shares of Common Stock, or (1) either (A) the Corporation shall be the surviving corporation or (B) if the Corporation is not the surviving corporation, the successor corporation shall be a corporation duly organized and existing under the laws of any state of the United States of America or the District of Columbia, and all obligations of the Corporation with respect to the Series A Shares shall be assumed by such successor corporation, (2) the Series A Shares then outstanding shall continue to be outstanding and (3) there shall be no alteration or change in the designation or the preferences, relative rights or limitations applicable to outstanding Series A Shares prejudicial to the holders thereof. (iii) The Corporation shall not amend, alter or repeal any of the provisions of its Certificate of Incorporation in any manner that adversely affects the relative rights, preferences or limitations of the Series A Shares or the holders thereof. Section g. Certain Restrictions. (1) Whenever quarterly dividends or other dividends or distributions payable on the Series A Shares as provided in Section a are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Series A Shares outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (as to dividends) to the Series A Shares; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (as to dividends) with the Series A Shares, except dividends paid ratably on the Series A Shares and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for 6 consideration shares of any stock ranking junior (as to dividends) to the Series A Shares; provided, however, that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation, ranking junior (as to dividends) to the Series A Shares; and (iv) purchase or otherwise acquire for consideration any Series A Shares, or any shares of stock ranking on a parity (as to dividends) with the Series A Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of this Section g, purchase or otherwise acquire such shares at such time and in such manner. Section h. Fractional Shares. The Corporation may issue fractions and certificates representing fractions of Series A Shares in integral multiples of 1/100th of a Series A Share, or in lieu thereof, at the election of the Board of Directors of the Corporation at the time of the first issue of any Series A Shares, evidence such fractions by depositary receipts, pursuant to an appropriate agreement between the Corporation and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all rights, privileges and preferences to which they would be entitled as beneficial owners of Series A Shares. In the event that fractional Series A Shares are issued, the holders thereof shall have all the rights provided herein for holders of full Series A Shares in the proportion that such fraction bears to a full share. 7 IN TESTIMONY WHEREOF, OrthoLogic Corp. has caused this Certificate of Designation to be executed and acknowledged by its Chairman of the Board and Chief Executive Officer, and attested by its Exec. Vice President as of the 5th day of March, 1997. ORTHOLOGIC CORP. By: /s/ Allan M. Weinstein -------------------------- Name: Allan M. Weinstein Title: Chairman and Chief Executive Officer ATTEST: /s/ Frank P. Magee - ----------------------------------- Name: Frank P. Magee Title: Executive Vice President, Research and Development 8 EX-10.4 3 EMPLOYMENT AGREEMENT WITH ALLAN M. WEINSTEIN EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Allan M. Weinstein ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Chief Executive Officer, with general responsibility for Company operations. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's Board of Directors. During the term of Employee's employment pursuant to this Agreement, the Company shall use its best efforts to maintain Employee as a member of the Board. 2. Term. The term of this Agreement shall be for 25 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $203,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in bonus and incentive programs as determined from time to time by the Board. Any such bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 50% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options as described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. The Company agrees to maintain term life insurance during the term of this Agreement in an amount equal to two times Employee's base salary, as it may be adjusted from time to time, with the beneficiary to be designated by Employee. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. Employee shall also be entitled to an automobile allowance of $450 per month. 7. Termination. (a) For Cause. The Company may terminate Employee's employment for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. 2 (b) Without Cause. The Company may terminate Employee's employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 24 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning 3 of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. 4 Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments constitute "parachute payments" under Section 280G. If the Service declines, for any reason, to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms 5 hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: Allan M. Weinstein 3177 E. Sierra Vista Drive Phoenix, AZ 85016 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 6 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- /s/ Allen R. Dunaway ALLAN M. WEINSTEIN ("Employee") By: /s/ Allan M. Weinstein ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation Transitional Compensation is subject to all applicable federal and state deductions and withholding. B. When Transitional Compensation and Benefits are Paid 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation be made when bonus payouts are made under the Company bonus or incentive plan. 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-10.5 4 EMPLOYMENT AGREEMENT WITH FRANK P. MAGEE EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Frank P. Magee ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Executive Vice President, with general responsibility for Research and Development. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's President and CEO. 2. Term. The term of this Agreement shall be for 25 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $174,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 45% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. 7. Termination. (a) For Cause. The Company may terminate Employee's employment for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate Employee's employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one 2 year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 18 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments 4 constitute "parachute payments" under Section 280G. If the Service declines, for any reason, to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, 5 (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: Frank P. Magee 602 Woodriver Drive Ketchum, ID 83340 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only 6 and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- Allan M. Weinstein Chief Executive Officer FRANK P. MAGEE ("Employee") By: /s/ Frank P. Magee ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, Transitional Compensation is subject to all applicable federal and state deductions and withholding. 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation B. When Transitional Compensation and Benefits are Paid 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will be made when bonus payouts are made under the Company bonus or incentive plan. 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided ---------------------------- Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits ------------------------------ Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-10.6 5 EMPLOYMENT AGREEMENT WITH ALLEN R. DUNAWAY EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Allen R. Dunaway ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Vice President and Chief Financial Officer, with general responsibility for Finance and Operations. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's President and CEO. 2. Term. The term of this Agreement shall be for 13 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $116,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 40% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. 7. Termination. (a) For Cause. The Company may terminate Employee's employment for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate Employee's employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one 2 year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 12 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments 4 constitute "parachute payments" under Section 280G. If the Service declines, for any reason, to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, 5 (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: Allen R. Dunaway 4612 E. Onyx Avenue Phoenix, AZ 85028 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only 6 and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- Allan M. Weinstein Chief Executive Officer ALLEN R. DUNAWAY ("Employee") By: /s/ Allen R. Dunaway ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, Transitional Compensation is subject to all applicable federal and state deductions and withholding. 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation B. When Transitional Compensation and Benefits are Paid 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will be made when bonus payouts are made under the Company bonus or incentive plan. 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided ---------------------------- Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits ------------------------------ Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-10.7 6 EMPLOYMENT AGREEMENT WITH JAMES B. KOENEMAN EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and James B. Koeneman ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Vice President, with general responsibility for Engineering. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's President and CEO. 2. Term. The term of this Agreement shall be for 13 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $116,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 40% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. 7. Termination. (a) For Cause. The Company may terminate Employee's employment for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate Employee's employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one 2 year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 12 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments 4 constitute "parachute payments" under Section 280G. If the Service declines, for any reason, to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, 5 (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: James B. Koeneman 1760 E. Hale Mesa, AZ 85203 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only 6 and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- Allan M. Weinstein Chief Executive Officer JAMES B. KOENEMAN ("Employee") By: /s/ James B. Koeneman ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, Transitional Compensation is subject to all applicable federal and state deductions and withholding. 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation B. When Transitional Compensation and Benefits are Paid ---------------------------------------------------- 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits -------------- 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will be made when bonus payouts are made under the Company bonus or incentive plan. 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided ---------------------------- Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits ------------------------------ Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-10.8 7 EMPLOYEMNT AGREEMENT WITH MARYANN G. MILLER EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and MaryAnn G. Miller ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Vice President, with general responsibility for Human Resources. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's President and CEO. 2. Term. The term of this Agreement shall be for 13 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $105,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 40% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. 7. Termination. (a) For Cause. The Company may terminate this Agreement for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate Employee's Employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one 2 year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 12 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 3 Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments 4 constitute "parachute payments" under Section 280G. If the Service declines, for any reason, to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, 5 (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: MaryAnn G. Miller 12090 E. Altadena Drive Scottsdale, AZ 85259 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only 6 and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- Allan M. Weinstein Chief Executive Officer MARYANN G. MILLER ("Employee") By: /s/ Maryann G. Miller ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, Transitional Compensation is subject to all applicable federal and state deductions and withholding. 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation B. When Transitional Compensation and Benefits are Paid ---------------------------------------------------- 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits -------------- 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will be made when bonus payouts are made under the Company bonus or incentive plan. 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided ---------------------------- Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits ------------------------------ Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-10.9 8 EMPLOYMENT AGREEMENT WITH NICHOLAS A. SKAFF EMPLOYMENT AGREEMENT This Agreement is to be effective, as of December 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Nicholas A. Skaff ("Employee"). RECITALS: - --------- A. Employee is presently employed by the Company and both parties wish to continue and redefine the nature of the employment relationship. B. The parties wish to set forth in this Agreement the terms and conditions of such continuing employment. AGREEMENT: - ---------- In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Initially, Employee's title shall be Vice President, with general responsibility for Managed Care. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Employee will report to the Company's President and CEO. 2. Term. The term of this Agreement shall be for 13 months beginning on the effective date. Thereafter this Agreement shall renew automatically for additional terms of one- year each unless it is terminated pursuant to Section 7. 3. Compensation. (a) Salary. From the effective date of this Agreement through December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $125,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. Effective January 1, 1997, and annually thereafter, the minimum base annual salary shall be reviewed by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a target bonus of 40% of Employee's base salary for achievement of the Board-approved plan. (c) Stock Options. Employee currently may have options to purchase shares of the Company's Common Stock. From time to time, the Company will consider granting to Employee options, or additional options, to purchase shares of the Company's common stock at the fair market value of such stock on the date of grant. Any such grant shall have terms that are substantially consistent with the terms of other grants generally being made to executive officers of the Company at the time of such grant. 4. Fringe Benefits. In addition to the compensation, bonus and options described in Section 3, and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve from time to time. 6. Expenses. The Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. 7. Termination. (a) For Cause. The Company may terminate Employee's employment for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Except for a termination after a Severance Event as provided in Section 8, cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate Employee's employment at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates Employee without cause and Section 8 does not apply, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one year following the date of termination, at the time and in the manner dictated by the Company's 2 standard payroll policies. If the Company terminates Employee's employment and Section 8 applies, Employee shall be entitled to receive the amount described in Section III of Exhibit A. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of 45 consecutive days, or for 60 days during any six-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Termination or Resignation After a Change in Control. (a) Application of Section 8. The provisions of this Section 8 shall apply if a Change in Control of the Company occurs, and within the "Transitional Period," as described in Exhibit A to this Agreement, a Severance Event," also as described in Exhibit A occurs. For purposes of this Agreement, your Transitional Period shall be a period of 12 months. Exhibit A, also contains additional terms and conditions governing the rights and duties of Employee after the occurrence of a Severance Event within the Transitional Period. (b) "Change in Control". For purposes of this Agreement (except to the extent governed or affected by Section 280G of the Internal Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented 3 by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 9. Limitations on Transitional Compensation and Benefits. If the Transitional Compensation and Benefits payable to Employee under Section 8 plus any other severance benefits ("Severance Benefits") or any other payments or benefits received or to be received by Employee from the Company (whether payable pursuant to the terms of this Agreement or pursuant to any other plan, agreement or arrangement with the Company or any corporation ["Affiliate"] affiliated with the Company within the meaning of Section 1504 of the Code, in the opinion of tax counsel selected by the Company and acceptable to Employee, constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and the present value of such "parachute payments" equals or exceeds three times the average of the annual compensation payable to Employee by the Company (or an Affiliate) and includable in Employee's gross income for federal income tax purposes for the five calendar years preceding the year in which a change in ownership or control of the Company occurred ("Base Amount"), if, but only if Employee so elects in writing, such Severance Benefits shall be reduced to an amount the present value of which (when combined with the present value of any other payments or benefits otherwise received or to be received by Employee from the Company [or an Affiliate] that are deemed "parachute payments") is equal to 2.99 times the Base Amount, notwithstanding any other provision to the contrary in this Agreement. However, the Severance Benefits shall not be reduced if in the opinion of such tax counsel, the Severance Benefits (in their full amount or as partially reduced, as the case may be) plus all other payments or benefits which constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code are reasonable compensation for services actually rendered, within the meaning of Section 280G (b)(4) of the code, and such payments are deductible by the Company. The Base Amount shall include every type and form of compensation includable in Employee's gross income in respect of his employment by the Company (or an Affiliate), except to the extent otherwise provided in temporary or final regulations promulgated under Section 280G (b) of the Code. For purposes of this Section 9, a "change in ownership or control" shall have the meaning set forth in Section 280G(b) of the Code and any temporary or final regulations promulgated thereunder. The present value of any non-cash benefit or any deferred cash payment shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G (d)(3) and (4) of the Code. Employee shall have the right to request that the Company obtain a ruling from the Internal Revenue Service ("Service") as to whether any or all payments or benefits determined by such tax counsel are, in the view of the Service, "parachute payments" under Section 280G. If a ruling is sought pursuant to executive's request, no Severance Benefits payable under this Agreement shall be made to Employee to the extent they would exceed 2.99 times the Base Amount until after 15 days from the date of such ruling. For purposes of this Section 9, Employee and the Company agree to be bound by the Service's ruling as to whether payments constitute "parachute payments" under Section 280G. If the Service declines, for any reason, 4 to provide the ruling requested, the tax counsel's opinion provided with respect to what payments or benefits constitute "parachute payments" shall control, and the period during which the excessive portion of the Severance Benefits may be deferred shall be extended to a date 15 days from the date of the Service's notice indicating that no ruling would be forthcoming. If Section 280G, or any successor statute, is repealed, this Section 9 shall cease to be effective on the effective date of such repeal. The parties to this Agreement recognize that final regulations under Section 280G of the Code may affect the amounts that may be paid under this Agreement and agree that, upon issuance of such final regulations this Agreement may be modified as in good faith deemed necessary in light of the provisions of such regulations to achieve the purposes of this Agreement, and that consent to such modifications shall not be unreasonably withheld. 10. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 11. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, including any Employment Agreements, and it may be amended only by a written document signed by both parties to this Agreement. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 13. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 14. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, (iii) five days after posting when sent by United States registered or certified mail, with return 5 receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: Chief Executive Officer To Employee: Nicholas A. Skaff 14407 N. 67th Street Scottsdale, AZ 85254 15. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 16. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 17. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 18. Attachments. All attachments or exhibits to this Agreement are incorporated herein by this reference as though fully set forth herein. In the event of any conflict, contradiction or ambiguity between the terms and conditions in this Agreement and any of its attachments, the terms of this Agreement shall prevail. 19. Interpretation of Agreement. When a reference is made in this Agreement to an article or section, such reference shall be to an article or section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the 6 words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 20. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 21. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of December 1, 1996. ORTHOLOGIC CORP. ("Company") By: /s/ Allan M. Weinstein ------------------------------------- Allan M. Weinstein Chief Executive Officer NICHOLAS A. SKAFF ("Employee") By: /s/ Nicholas A. Skaff ------------------------------------- 7 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation EXHIBIT "A" TRANSITIONAL COMPENSATION I. DEFINITIONS Except as otherwise defined in either this Exhibit A or the Agreement to which this Exhibit A is attached, capitalized terms used in this Exhibit A shall have the meanings set forth below. A. "Affiliate," means an entity affiliated with the Company. B. "Agreement," means the Employment Agreement to which this Exhibit A is attached. C. "Change in Control." A "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing one-third or more of the total voting power represented by the Company's then outstanding Common Stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Common Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Common Stock of the surviving entity) at least two-thirds of the total voting power represented by the Common Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. 8 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation D. "Change in Control Date" means the effective date of a Change in Control. E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware corporation. F. "Severance Event." A Severance Event occurs if the Company or an Affiliate terminates Employee's employment for any reason during Employee's Transitional Period, except for a termination due to a felony conviction or Employee's continued and willful failure to be present and perform Employee's duties or a termination resulting from the expiration, without renewal, of Employee's term of employment at the end of the initial term or any subsequent term. A Severance Event also occurs if Employee resigns or retires at a time which is during Employee's Transitional Period and within 90 days after the Company and its Affiliates have done any of the following: 1. fail to maintain Employee's base salary at a level that is equal to the higher of the level in effect immediately prior to the Change in Control, or the level to which it has been increased after the Change of Control; or 2. fail to provide for Employee's participation in (a) the Company or an Affiliate's annual bonus plan; stock option or other equity incentive programs; or group medical, dental, life, disability, retirement, profit sharing, thrift, nonqualified and deferred compensation plans, in each case on a basis comparable to that enjoyed by other employees of the Company or any of its Affiliates with duties comparable to those of Employee; or 3. fail to provide vacation and perquisites substantially equivalent to those provided by the Company or any of its Affiliates to employees with comparable duties, and at least as favorable as those provided immediately before the Change in Control Date; or 4. change Employee's duties and responsibilities so that they are not at least commensurate with those immediately prior to the Change in Control Date; or 9 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. change Employee's primary place of employment by more than 25 miles from Employee's current office location or more than 10 additional miles from Employee's primary residence. G. "Transitional Compensation and Benefits," shall mean the special compensation and benefits payable upon a Severance Event as provided in Section III of this Exhibit A. H. "Transitional Period," means the time period beginning on the Change in Control Date and ending the number of calendar months thereafter stated in Section 8 of the Agreement. II. ELIGIBILITY Notwithstanding the occurrence of a Severance Event during Employee's Transitional Period, Employee shall be entitled to the Transitional Compensation and Benefits only from and after the time Employee executes a Release and Severance Agreement substantially in the standard form then used by the Company. III. TRANSITIONAL COMPENSATION AND BENEFITS A. Transitional Compensation. Employee will receive the greater of (i) one month of Transitional Compensation for every month (full or partial) from the date of Employee's Severance Event through the last day of Employee's Transitional Period; or (ii) the amount described in Section 7(b) of the Agreement. One month of Transitional Compensation is equal to Employee's base monthly salary determined as of Employee's Severance Event. This will be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date, divided by 12. Solely for purposes of determining the amount payable upon the occurrence of a Severance Event, the base salary under Section 7(b) of the Agreement shall be the greater of Employee's annual salary as of the Severance Event, or as of the Change in Control Date. Employee's Transitional Compensation will not be subject to reduction for any earnings Employee may have from other employment following Employee's Severance Event. However, Transitional Compensation is subject to all applicable federal and state deductions and withholding. 10 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation B. When Transitional Compensation and Benefits are Paid ---------------------------------------------------- 1. Monthly Payments ---------------- Transitional Compensation shall be paid in monthly installments beginning on the last day of the month in which the seven-day revocation period following the date Employee executes Employee's Release and Severance Agreement has expired. 2. Lump Sum Death Benefit ---------------------- If Employee dies before all of Employee's Transitional Compensation payments have been made, the Company will pay a lump sum death benefit equal to the discounted present value (based on the prime rate reported in The Wall Street Journal) of unpaid Transitional Compensation to Employee's designated beneficiary within 30 days from Employee's date of death. C. Other Benefits -------------- 1. Salary and Vacation ------------------- Any earned but unpaid salary or vacation for which Employee is eligible at the time of Employee's Severance Event will be paid in a lump sum at the time of termination of employment, subject to applicable federal and state withholding. 2. Bonuses ------- Employee will also receive a pro rata bonus or other incentive compensation payment for the period in which Employee's Severance Event occurred. Employee's bonus will be based on the payout made to comparable employees and the number of months of employment Employee have completed in the period. Employee's bonus payment will be made when bonus payouts are made under the Company bonus or incentive plan. 11 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 3. Continuation of Employee Benefits and Stock Options --------------------------------------------------- Employee's medical, dental, life and disability benefits (and if applicable, benefits for Employee's dependents) will continue through Employee's Transitional Period as if Employee remained actively employed. Solely for purposes of determining the date on which options shall expire and become non-exercisable under applicable option plans, Employee's employment will be considered to extend through the Transitional Period; any incentive stock options shall become nonqualified options to the extent they remain unexercised more than three months after the Severance Event. 4. Out-Placement Assistance ------------------------ Upon Employee's Severance Event, the Company will provide Employee with outplacement counseling and assistance. Counseling is available from the date of Employee's Severance Event until Employee is first employed or providing compensated services; provided, however, that the Company is not obligated to pay more than $10,000 for such counseling and assistance. IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID No Transitional Compensation Benefits under the Plan will be paid if Employee: 1. is a party to an employment or severance agreement with the Company or an Affiliate, other than the Agreement, that provides payments or other benefits as a result of termination of employment; or 2. retires or resigns, other than for reasons that constitute a Severance Event; or 3. takes a leave of absence; or 4. is offered and refuses or refuses to transfer to another comparably compensated position with the Company, an Affiliate, or a successor company (other than in a circumstance that constitutes a Severance Event); or 12 OrthoLogic Corp. Employment Agreement Exhibit A Transitional Compensation 5. refuses to sign a Release and Severance Agreement; or 6. dies prior to a Severance Event. V. OTHER IMPORTANT INFORMATION A. How the Coverage Is Provided ---------------------------- Any payment made under the Plan will come from the general assets of the Company or an Affiliate. No separate fund will be established. B. Limited Alienation of Benefits ------------------------------ Employee's benefits in this Plan cannot be claimed by any person to whom Employee owes a debt and neither Employee nor Employee's beneficiary may transfer rights to these benefits to anyone. 13 EX-11 9 STATEMENT OF COMPUTATION OF NET INCOME (LOSS) ORTHOLOGIC CORP. STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (In thousands, except per share amounts) Three Months Ended March 31, ------------------------ 1997 1996 (1) ------------------------ Net income (loss) $ (273) $ 935 Common shares outstanding at end of period 25,069 19,682 Adjustment to reflect weighted average for shares issued during the period (31) (164) Adjustment to reflect assumed exercise of outstanding stock options -- 1,278 ---------------------- Weighted average number of common shares outstanding 25,038 20,796 ====================== Net income (loss) per weighted average number of common shares outstanding $ (0.01) $ 0.04 ====================== (1) The share and per share amounts have been adjusted to reflect the Company's 2-for-1 stock split effected in the form of a 100% stock dividend in June 1996. EX-27 10 FDS --
5 1 U.S. Dollars 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 11,729,634 16,642,730 40,917,042 (8,338,846) 9,544,447 75,008,333 13,526,994 (3,029,253) 115,591,244 12,659,545 0 0 0 12,533 101,743,221 115,591,244 17,301,715 17,301,715 2,714,037 4,745,368 13,465,554 1,683,794 0 (273,090) 0 (273,090) 0 0 0 (273,090) (.01) (.01)
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