8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 12, 2006

ORTHOLOGIC CORP.

(Exact name of registrant as specified in its charter)

Delaware	000-21214	86-0585310
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1275 West Washington Street, Tempe, Arizona	85281
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:
(602) 286-5520

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01      Entry into a Material Definitive Agreement.
	Item 9.01      Financial Statements and Exhibits.
SIGNATURES
EX-10.1
EX-10.2
EX-10.3
EX-10.4

Section 1 – Registrant’s Business and Operations

Item 1.01      Entry into a Material Definitive Agreement.

Compensation of John M. Holliman, III, and Randolph C. Steer, MD, Ph.D.

     (a)      On May 12, 2006, OrthoLogic Corp. (the “Company”) entered into an agreement with John M. Holliman, III, to compensate Mr. Holliman for his services as the Company’s Executive Chairman and principal executive officer (the “Holliman Agreement”).

     Under the Holliman Agreement, Mr. Holliman’s services to the Company may be terminated by the Company at any time, with or without cause. It provides for annual base cash compensation of $200,000, payable in accordance with the Company’s standard payroll practices. In addition, the Holliman Agreement includes other terms and conditions consistent with agreements entered into with other Company executives.

     In connection with Mr. Holliman’s services to the Company as its Executive Chairman and principal executive officer, on May 12, 2006 the Company also granted him options to purchase 200,000 shares of the Company’s common stock at an exercise price equal to $1.75, the closing price of the Company’s common stock on the date of grant as reported by the Nasdaq Stock Market. These options will vest in equal amounts over a twenty-four month period and are exercisable, subject to the vesting schedule, for ten years from the date of grant. In the event of a change of control or liquidation of the Company, the vesting of the options will be accelerated so that the options will become fully exercisable.

     (b)      On May 12, 2006, the Company also entered into an agreement with Randolph C. Steer, MD, Ph.D., to compensate Dr. Steer for his services as the Company’s President and Chief Operating Officer (the “Steer Agreement”). In connection with Dr. Steer’s services to the Company, Dr. Steer also executed an Intellectual Property, Confidentiality and Non-Competition Agreement, which sets forth restrictions on the disclosure of Company proprietary information and protects the Company’s interest in its intellectual property, and an Indemnification Agreement, which provides for indemnification by the Company for certain Company-related claims against the directors or officers to the fullest extent permitted by law, as well as the advancement of expenses relating to such claims.

     Under the Steer Agreement, Dr. Steer’s services to the Company may be terminated by the Company at any time, with or without cause. The Steer Agreement provides for annual base cash compensation of $300,000, payable in accordance with the Company’s standard payroll practices. In addition, the Steer Agreement includes other terms and conditions consistent with agreements entered into with other Company executives.

     In connection with Dr. Steer’s services to the Company, on May 12, 2006 the Company also granted him options to purchase 200,000 shares of the Company’s common stock at an exercise price equal to $1.75, the closing price of the Company’s common stock on the date of grant as reported by the Nasdaq Stock Market. These options will vest in equal amounts over a twenty-four month period and are exercisable, subject to the vesting schedule, for ten years from

the date of grant. In the event of a change of control or liquidation of the Company, the vesting of the options will be accelerated so that the options will become fully exercisable.

2005 Equity Incentive Plan

     (a)      On May 12, 2006, the Company’s stockholders approved the OrthoLogic Corp. 2005 Equity Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the grant from time to time of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares and restricted stock units to the Company’s employees, directors and appropriate third parties. The 2005 Plan will be administered by a committee designated by the Company’s Board of Directors (the “Board”). For purposes of the power to grant awards to Company directors, the committee shall consist of the entire Board. For other 2005 Plan purposes, the 2005 Plan shall initially be administered by the Compensation Committee of the Board. A maximum of 2,000,000 shares may be issued under the 2005 Plan and no person may receive awards for more than 300,000 shares in any calendar year.

     The foregoing summary description of the 2005 Plan does not purport to be complete and is qualified in its entirety by reference to the actual terms of the 2005 Plan, which is attached hereto as Exhibit 10.1. For additional information about the 2005 Plan, refer to Proposal 2 (Ratification and Approval of OrthoLogic 2005 Equity Incentive Plan) on pages 19-21 of the Company’s 2006 Proxy Statement, as filed with the Securities and Exchange Commission on April 14, 2006, which is incorporated herein by reference.

     (b)      The Company from time to time grants equity-based awards, including incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock shares and restricted stock units to its employees, directors and appropriate third parties pursuant to its 2005 Plan. The forms of Incentive Stock Option Grant Letter, Non-Qualified Stock Option Grant Letter and Restricted Stock Grant Letter used for awards under the 2005 Plan are filed herewith as Exhibits 10.2, 10.3 and 10.4, respectively, and are incorporated herein by reference. From time to time, the Company may, however, issue stock options, stock appreciation rights, restricted stock shares and restricted stock units under the 2005 Plan on terms different from those in the form agreements filed herewith.

Section 9 – Financial Statements and Exhibits

Item 9.01      Financial Statements and Exhibits.

(d)      Exhibits

Exhibit No.	Description
10.1	OrthoLogic Corp. 2005 Equity Incentive Plan
10.2	Form of Incentive Stock Option Grant Letter for grants under the 2005 Plan
10.3	Form of Non-Qualified Stock Option Grant Letter for grants under the 2005 Plan
10.4	Form of Restricted Stock Grant Letter for grants under the 2005 Plan

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 hereunto duly authorized.

Dated: May 18, 2006	ORTHOLOGIC CORP.
	/s/ Les M. Taeger
	Les M. Taeger
	Senior Vice President and Chief Financial Officer

EX-10.1

Exhibit 10.1

ORTHOLOGIC CORP.
2005 EQUITY INCENTIVE PLAN

I. INTRODUCTION.

     1.01 Purpose. This plan shall be known as the OrthoLogic Corp. 2005 Equity Incentive Plan (the “Plan”). The purposes of the 2005 Equity Incentive Plan are to attract and retain the best available employees and directors of the Company or any subsidiary which now exists or hereafter is organized or acquired by the Company, as well as appropriate third parties who can provide valuable services to the Company, to provide additional incentive to such persons and to promote the success and growth of the Company. These purposes may be achieved through the grant of options to purchase Common Stock of OrthoLogic Corp., the grant of Stock Appreciation Rights and the grant of Restricted Stock, as described below.

     1.02 Effective Date. The effective date of the Plan shall be April 15, 2005, subject to the approval of the Plan by shareholders of the Company at the 2006 annual meeting. Any Awards granted prior to such stockholder approval shall be expressly conditioned upon such stockholder approval of the Plan.

II. DEFINITIONS.

     2.01 “Award” means an Incentive Stock Option, Non-Qualified Stock Option, Stock Appreciation Right or Restricted Stock grant, as appropriate.

     2.02 “Award Agreement” means the agreement between the Company and the Grantee specifying the terms and conditions as described thereunder.

     2.03 “Board” means the Board of Directors of OrthoLogic Corp.

     2.04 “Change of Control” shall be defined as a change in ownership or control of the Company effected through any of the following transactions: (a) a statutory share exchange, merger, consolidation or reorganization approved by the Company’s stockholders, unless securities representing more than 50% of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction; (b) any stockholder approved transfer or other disposition of all or substantially all of the Company’s assets (whether held directly or indirectly through one or more controlled subsidiaries) except to or with a wholly-owned subsidiary of the Company); or (c) the acquisition, directly or indirectly by any person or related group of persons of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to transactions with the Company’s stockholders.

     2.05 “Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     2.06 “Committee” means the committee described in Article 4 or the person or persons to whom the committee has delegated its power and responsibilities under Article 4.

     2.07 “Common Stock” or “Stock” means the common stock of the Company having a par value of $.0005 per share.

     2.08 “Company” means OrthoLogic Corp., a Delaware corporation.

     2.09 “Fair Market Value” means for purposes of the Plan at any date shall be (i) the reported closing price of such stock on the New York Stock Exchange or other established stock exchange or Nasdaq National Market on such date, or if no sale of such stock shall have been made on that date, on the preceding date on which there was such a sale, (ii) if such stock is not then listed on an exchange or the Nasdaq National Market, the last trade price per share for such stock in the over-the-counter market as

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quoted on Nasdaq or the pink sheets or successor publication of the National Quotation Bureau on such date, or (iii) if such stock is not then listed or quoted as referenced above, an amount determined in good faith by the Board or the Committee.

     2.10 “Grant Date” means the date on which an Award is deemed granted, which shall be the date on which the Committee authorizes the Award or such later date as the Committee shall determine in its sole discretion.

     2.11 “Grantee” means an individual who has been granted an Award.

     2.12 “Incentive Stock Option” or “ISO” means an option that is intended to meet the requirements of Section 422 of the Code and regulations thereunder.

     2.13 “Non-Qualified Stock Option” or “NSO” means an option other than an Incentive Stock Option.

     2.14 “Option” means an Incentive Stock Option or Non-Qualified Stock Option, as appropriate.

     2.15 “Performance Goal” means a performance goal established by the Committee prior to the grant of any Award of Restricted Stock that is based on the attainment of goals relating to one or more operating or business criteria, measured on an absolute basis or in terms of growth or reduction related to the Company’s objective to successfully develop synthetic therapeutics for unmet medical needs. (Planned performance goals are confidential and, accordingly, not described herein).

     2.16 “Plan” means the OrthoLogic Corp. 2005 Equity Incentive Plan as set forth herein, as it may be amended from time to time.

     2.17 “Restricted Stock” means shares or units of Common Stock which are subject to restrictions established by the Committee.

     2.18 “Stock Appreciation Right” or “SAR” means the right to receive cash or shares of Common Stock based upon the excess of the Fair Market Value of one share of Common Stock on the date the SAR is exercised over the Fair Market Value of one share of Common Stock on the Grant Date.

III. SHARES SUBJECT TO AWARD.

     3.01 Available Shares. The number of shares of Common Stock of the Company which may be issued under the Plan shall not exceed 2,000,000 shares; provided that no individual can be granted Awards covering, in the aggregate, more than 300,000 shares of Common Stock in any calendar year. Shares issued under the Plan may come from authorized but unissued shares, from treasury shares held by the Company, from shares purchased by the Company on an open market for such purpose, or from any combination of the foregoing. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason, any shares subject to such Award again shall be available for the grant of an Award under the Plan.

     3.02 Changes in Common Stock. If any stock dividend is declared upon the Company Stock, or if there is any stock split, stock distribution, or other recapitalization of the Company with respect to the Common Stock, resulting in a split or combination or exchange of shares, the Committee shall make or provide for such adjustment in the number of and class of shares which may be delivered under the Plan, and in the number and class of and/or price of shares subject to outstanding Awards as it may, in its discretion, deem to be equitable.

IV. ADMINISTRATION

     4.01 Administration by the Committee. For purposes of the power to grant Awards to Company directors, the Committee shall consist of the entire Board. For other Plan purposes, the Plan shall be administered by a committee designated by the Board to administer the Plan and shall initially be the Compensation Committee of the Board. A majority of the members of the Committee shall constitute a quorum. The approval of such a quorum, expressed by a vote at a meeting held either in person or by conference telephone call, or the unanimous consent of all members in writing without a meeting, shall constitute the action of the Committee and shall be valid and effective for all purposes of the Plan.

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     4.02 Committee Powers. The Committee is empowered to adopt such rules, regulations and procedures and take such other action as it shall deem necessary or proper for the administration of the Plan. The Committee shall also have authority to interpret the Plan, and the decision of the Committee on any questions concerning the interpretation of the Plan shall be final and conclusive. The Committee may consult with counsel, who may be counsel for the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. Subject to the provisions of the Plan, the Committee shall have full and final authority to:

(a)	designate the persons to whom Awards shall be granted;
(b)	grant Awards in such form and amount as the Committee shall determine;
(c)	impose such limitations, restrictions and conditions upon any such Award as the Committee shall deem appropriate;
(d)	waive in whole or in part any limitations, restrictions or conditions imposed upon any such Award as the Committee shall deem appropriate; and
(e)	modify, extend or renew any Award previously granted, provided that this provision shall not provide authority to reprice Awards to a lower exercise price.

     4.03 Delegation by Committee. The Committee may delegate all or any part of its responsibilities and powers to any executive officer or officers of the Company selected by it. Any such delegation may be revoked by the Board or by the Committee at any time.

V. STOCK OPTIONS.

     5.01 Granting of Stock Options. Options may be granted to directors, officers and key employees of the Company and any of its subsidiaries, as well as appropriate third parties who can provide valuable services to the Company; provided, however that a maximum of 2,000,000 shares of stock may be issued pursuant to the exercise of Incentive Stock Options. In selecting the individuals to whom Options shall be granted, as well as in determining the number of Options granted, the Committee shall take into consideration such factors as it deems relevant pursuant to accomplishing the purposes of the Plan. A Grantee may, if he is otherwise eligible, be granted an additional Option or Options if the Committee shall so determine. Option grants under the Plan shall be evidenced by agreements in such form and containing such provisions as are consistent with the Plan as the Committee shall from time to time approve.

     5.02 Type of Option. At the time each Option is granted, the Committee shall designate the Option as an Incentive Stock Option or a Non-Qualified Stock Option. Any Option designated as an Incentive Stock Option shall comply with the requirements of Section 422 of the Code, including the requirement that incentive stock options may only be granted to individuals who are employed by the Company, a parent or a subsidiary corporation of the Company. If required by applicable tax rules regarding a particular grant, to the extent that the aggregate fair market value (determined as of the date an Incentive Stock Option is granted) of the shares with respect to which an Incentive Stock Option grant under this Plan (when aggregated, if appropriate, with shares subject to other Incentive Stock Option grants made before said grant under this Plan or another plan maintained by the Company or any ISO Group member) is exercisable for the first time by an optionee during any calendar year exceeds $100,000 (or such other limit as is prescribed by the Code), such option grant shall be treated as a grant of Nonqualified Stock Options pursuant to Code Section 422(d).

     5.03 Option Terms. Each option grant agreement shall specify the number of Incentive Stock Options and/or Nonqualified Stock Options being granted; one option shall be deemed granted for each share of stock. In addition, each option grant agreement shall specify the exercisability and/or vesting schedule of such options, if any.

     5.04 Purchase Price. The purchase price of the Common Stock covered by each Option shall be not less than the Fair Market Value of such Stock on the Grant Date. Such price shall be subject to adjustment as provided in Article X hereof. The purchase price for a share subject to Option shall not be less than 100% of the Fair Market Value of the share on the date the option is granted, provided, however, the option price of an Incentive Stock Option shall not be less than 110% of the fair market value of such share on the date the option is granted to an individual then owning (after the application of the family and

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other attribution rules of Section 424(d) or any successor rule of the Code) more than 10% of the total combined voting power of all classes of stock of the Company.

     5.05 Method of Exercise. An Option that has become exercisable may be exercised from time to time by written notice to the Company stating the number of shares being purchased and accompanied by the payment in full of the Option price for such shares. The purchase price may be paid by any of the following methods, (a) by cash, (b) by check, or (c) to the extent permitted under the particular grant agreement, by transferring to the Company shares of stock of the Company at their fair market value as of the date of exercise of the option, provided that the optionee held the shares of stock for at least six months. Notwithstanding the foregoing, the Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures.

     5.06 Shareholder Rights. A Grantee shall not, by reason of any Options granted hereunder, have any right of a shareholder of the Company with respect to the shares covered by Options until shares of Stock have been issued.

VI. STOCK APPRECIATION RIGHTS.

     6.01 Granting of SARs. The Committee may, in its discretion, grant SARs to directors, officers and key employees of the Company and any of its subsidiaries, as well as appropriate third parties who can provide valuable services to the Company. SAR grants under the Plan shall be evidenced by agreements in such form and containing such provisions as are consistent with the Plan as the Committee shall from time to time approve.

     6.02 Method of Exercise. An SAR that has become exercisable may be exercised by written notice to the Company stating the number of SARs being exercised.

     6.03 Payment upon Exercise. Upon the exercise of SARs, the Grantee shall be entitled to receive an amount determined by multiplying (a) the difference obtained by subtracting the Fair Market Value of a share of Common Stock as of the Grant Date of the SAR from the Fair Market Value of a share of Common Stock on the date of exercise, by (b) the number of SARs exercised. At the discretion of the Committee, the payment upon the exercise of the SARs may be in cash, in shares of Common Stock of equivalent value, or in some combination thereof. The number of available shares under Section 3.01 shall only be reduced by shares of Common Stock issued upon exercise of an SAR and shall not be affected by any cash payments.

VII. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH.

     7.01 Incentive Stock Options. Unless otherwise provided herein or in a specific Option Agreement which may provide longer or shorter periods of exercisability, no ISO shall be exercisable after the expiration of the earliest of:

(a)	10 years from the date the option is granted, or five years from the date the option is granted to an individual owning (after the application of the family and other attribution rules of Section 424(d) of the Code) at the time such option was granted, more than 10% of the total combined voting power of all classes of stock of the Company,
(b)	three months after the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is for any reason other than death, disability (within the meaning of Code Section 22(e)(3)), or cause,
(c)	one year after the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is by reason of death or disability (within the meaning of Code Section 22(e)(3)), or
(d)	the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is for cause, as determined by the Board or the Committee in its sole discretion;

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     7.02 Non-Qualified Stock Options and SARs. Unless otherwise provided herein or in a specific NSO or SAR Agreement which may provide longer or shorter periods of exercisability, no NSO or SAR shall be exercisable after the expiration of the earliest of:

(a)	10 years from the date of grant,
(b)	two years after the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is for any reason other than death, permanent disability, retirement or cause,
(c)	three years after the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is by reason of the Grantee’s death, permanent disability or retirement; or
(d)	the date the Grantee ceases to perform services for the Company or its subsidiaries, if such cessation is for cause, as determined by the Board or the Committee in its sole discretion;

     7.03 ISOs, NSOs and SARs. Unless otherwise provided in a specific grant agreement or determined by the Committee, an Option or SAR shall only be exercisable for the periods above following the date a Grantee ceases to perform services to the extent the option was exercisable on the date of such cessation.

VIII. RESTRICTED STOCK AWARDS.

     8.01 Granting of Restricted Stock. The Committee may, in its discretion, grant Restricted Stock to directors, officers and key employees of the Company and any of its subsidiaries, as well as appropriate third parties who can provide valuable services to the Company. Restricted Stock Awards may consist of shares issued subject to forfeiture if specified conditions are not satisfied (“Restricted Stock Shares”) or agreements to issue shares of Common Stock in the future if specified conditions are satisfied (“Restricted Stock Units”).

     8.02 Terms of Restricted Stock Grants. Each Restricted Stock Award shall be confirmed by, and be subject to the terms of, an agreement identifying the restrictions applicable to the Award. Restricted Stock Awards shall be subject to the following terms and conditions:

(a)	The Committee may condition the grant of Restricted Stock upon the attainment of Performance Goals so that the grant qualifies as “performance-based compensation” within the meaning of Section 162(m) of the Code. The Committee may also condition the grant of Restricted Stock upon such other conditions, restrictions and contingencies as the Committee may determine.
(b)	Except to the extent otherwise provided in the applicable Award Agreement and (c) below, the portion of the Restricted Stock Award still subject to restriction shall be forfeited by the Grantee upon termination of the Grantee’s service for any reason.
(c)	In the event of hardship or other special circumstances of a Grantee, the Committee may waive in whole or in part any or all remaining restrictions with respect to such Grantee’s Restricted Stock Award.
(d)	If and when the applicable restrictions lapse, unlegended certificates for such shares shall be delivered to the Grantee.

     8.03 Shareholder Rights. A Grantee receiving an Award of Restricted Stock Shares shall have all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash dividends. Unless otherwise determined by the Committee, cash dividends shall be paid in cash and dividends payable in stock shall be paid in the form of additional Restricted Stock Shares. A Grantee receiving an Award of Restricted Stock Units shall not be deemed the holder of any shares covered by the Award, or have any rights as a shareholder with respect thereto, until such shares are issued to him/her.

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IX. ACCELERATION OF EXERCISABILITY AND VESTING UNDER CERTAIN CIRCUMSTANCES.

     9.01 Upon a Change in Control. Notwithstanding any provision in the Plan to the contrary, unless the particular letter of grant provides otherwise, 75% of the unvested Awards held by each Grantee shall automatically become vested upon the occurrence, before the expiration or termination of such option, of a Change in Control.

     9.02 Balance of Awards. The balance of each Grantee’s unvested Awards will vest exercisable in 12 equal monthly installments following the occurrence of a Change in Control, or according to the Grantee’s individual vesting schedule as applicable without regard to this Article X, whichever is earlier. If a Grantee loses his position with the Company as a result of or subsequent to the occurrence of a Change in Control, 100% of the unexpired and unvested Awards granted pursuant to this Plan held by such optionee shall automatically become vested upon such loss of position.

X. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN.

     10.01 Merger, Consolidation or Reorganization. In the event of a merger, consolidation or reorganization with another corporation in which the Company is not the surviving corporation or a merger, consolidation or reorganization involving the Company in which the Company Stock ceases to be publicly traded, the Committee shall, subject to the approval of the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, take action regarding each outstanding and unexercised option pursuant to either clause (a) or (b) below:

(a)

Appropriate provision may be made for the protection of such Award by the substitution on an equitable basis of appropriate shares of the surviving or related corporation, provided that the excess of the aggregate Fair Market Value of the shares subject to such Award immediately before such substitution over the exercise price thereof is not more than the excess of the aggregate fair market value of the substituted shares made subject to option immediately after such substitution over the exercise price thereof; or

(b)

The Committee may cancel such Award. In the event any Option or SAR is canceled, the Company, or the corporation assuming the obligations of the Company hereunder, shall pay the Grantee an amount of cash (less normal withholding taxes) equal to the excess of the highest Fair Market Value per share of the Stock during the 60-day period immediately preceding the merger, consolidation or reorganization over the exercise price, multiplied by the number of shares subject to such Award. In the event any other Award is canceled, the Company, or the corporation assuming the obligations of the Company hereunder, shall pay the Grantee an amount of cash or stock, as determined by the Committee, based upon the highest Fair Market Value per share of the Stock during the 60-day period immediately preceding the cancellation.

     Notwithstanding anything to the contrary, in the event a Change in Control should occur, the Committee shall have the right to cancel such Awards and pay the Grantee an amount determined under (b) above.

XI. MISCELLANEOUS.

     11.01 Withholding. The Company shall have the power and the right to deduct or withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Grantee’s FICA obligation) required by law to be withheld with respect to any taxable event arising or as a result of this Plan. With respect to withholding required upon the exercise of Options or SARs, or upon the lapse of restrictions on Restricted Stock, Grantees may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.

     11.02 No Employment or Retention Agreement Intended. Neither the establishment of, nor the awarding of Awards under this Plan shall be construed to create a contract of employment or service between any Grantee and the Company or its subsidiaries; nor does it give any Grantee the right to continued service in any capacity with the Company or its subsidiaries or limit in any way the right of the Company or its subsidiaries to discharge any Grantee at any time and without notice, with or without cause,

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or to any benefits not specifically provided by this Plan, or in any manner modify the Company’s right to establish, modify, amend or terminate any profit sharing or retirement plans.

     11.03 Non-transferability of Awards. Any Award granted hereunder shall, by its terms, be non-transferable by a Grantee other than by will or the laws of descent and shall be exercisable during the Grantee’s lifetime solely by the Grantee or the Grantee’s duly appointed guardian or personal representative. Notwithstanding the foregoing, the Committee may permit a Grantee to transfer a Non-Qualified Stock Option or SAR to a family member or a trust or partnership for the benefit of a family member, in accordance with rules established by the Committee.

     11.04 Investment Representation. Unless the shares of stock covered by the Plan have been registered with the Securities and Exchange Commission pursuant to Section 5 of the Securities Act of 1933, as amended, each Grantee by accepting an Award represents and agrees, for himself or herself and his or her transferees by will or the laws of descent and distribution, that all shares of stock purchased upon the exercise of the option grant will be acquired for investment and not for resale or distribution. Upon such exercise of any portion of any option grant, the person entitled to exercise the same shall upon request of the Company furnish evidence satisfactory to the Company (including a written and signed representation) to the effect that the shares of stock are being acquired in good faith for investment and not for resale or distribution. Furthermore, the Company may if it deems appropriate affix a legend to certificates representing shares of stock that such shares have not been registered with the Securities and Exchange Commission and may so notify its transfer agent.

     11.05 Dissolution or Liquidation. Upon the dissolution or liquidation of the Company, any outstanding Awards theretofore granted under this Plan shall be deemed canceled.

     11.06 Controlling Law. The law of the State of Delaware, except its law with respect to choice of law, shall be controlling in all matters relating to the Plan.

     11.07 Termination and Amendment of the Plan. The Plan will expire ten (10) years after the Effective Date, solely with respect to the granting of Incentive Stock Options or such later date as may be permitted by the Code for Incentive Stock Options. The Board may from time to time amend, modify, suspend or terminate the Plan; provided, however, that no such action shall (a) impair without the Grantee’s consent any Award theretofore granted under the Plan or (b) be made without shareholder approval where such approval would be required as a condition of compliance with the Code or other applicable laws or regulatory requirements.

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EX-10.2

Exhibit 10.2

LETTER OF INCENTIVE OPTION GRANT
ORTHOLOGIC CORP. 2005 EQUITY INCENTIVE PLAN

Date                

Name & address

RE: OrthoLogic Corp. 2005 Equity Incentive Plan

Dear            ,

     In order to provide additional incentive to certain employees and directors, OrthoLogic Corp. (the “Company”) adopted the OrthoLogic Corp. 2005 Equity Incentive Plan (the “2005 Plan”). By means of this letter (the “Letter of Grant”), the Company is offering you an incentive stock option pursuant to the 2005 Plan. The Company’s sale of its common shares underlying the option granted to you hereby has been or will be registered with the U.S. Securities and Exchange Commission. A copy of the prospectus, including a copy of the 2005 Plan relating to that registration, can be obtained from the Company by request.

     The option granted to you hereunder shall be subject to all of the terms and conditions of the 2005 Plan, which you should carefully review. In addition, such option is subject to the following terms and conditions:

     1.      Grant of Option. The Company hereby grants to you, pursuant to the 2005 Plan, the option to purchase from the Company upon the terms and conditions and at the times hereinafter set forth, an aggregate of                 shares of the Company’s $0.0005 par value common stock (the “Shares”) at a purchase price of $                per Share. The date of grant of this option is                 (hereinafter referred to as the “Option Date”).

     This option is an incentive stock option within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), except if required by applicable tax rules, to the extent that the aggregate fair market value (determined as of the date these options are granted) of Shares exercisable for the first time by you during any calendar year (when aggregated, if appropriate, with shares subject to other incentive stock option grants made under the 2005 Plan and any other plan maintained by the Company or any ISO Group member as defined in the 2005 Plan) exceeds $100,000 (or such other limit as is prescribed by the Internal Revenue Code, as amended), the option granted hereby as to such excess Shares shall be treated as a nonqualified stock option (NQO pursuant to Code Section 422(d).

[Optionee]
[Date]
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     2.      Exercise Term of Option. Unless earlier terminated as described in Section 7, the option will vest and may be exercised for the purchase of Shares as described in the following schedule:

     Number of Shares      Vesting Schedule

     3.      Nontransferability. This option shall not be transferable otherwise than by will or by the laws of descent and distribution, and the option shall be exercisable only by you during your lifetime.

     4.      Other Conditions and Limitations.

(a)	Any Shares issued upon exercise of this option shall not be issued unless the issuance and delivery of Shares pursuant thereto shall comply with all relevant provisions of law including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, any applicable state securities or “Blue Sky” law or laws (or an exemption from such provision is available), and the requirements of any stock exchange or national market system of a national securities association upon which the Shares may then be listed and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b)	No transfer of any Shares issued upon the exercise of the option will be permitted by the Company, unless any request for transfer is accompanied by evidence satisfactory to the Company that the proposed transfer will not result in a violation of any applicable law, rule or regulation, whether federal or state, including in the discretion of the Company an opinion of counsel reasonably acceptable to the Company.
(c)	Inability of the Company to obtain approval from any regulatory body having jurisdictional authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect to the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained.
(d)	Unless the Shares are subject to a then effective registration statement under the Securities Act of 1933, upon exercise of this option (in whole or in part) and the issuance of the Shares, the Company shall instruct its transfer agent to

[Optionee]
[Date]
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enter stop transfer orders with respect to Shares, and all certificates representing the Shares shall bear on the face thereof substantially the following legend:

“The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration.”

     5.      Exercise of Option. You may exercise the option only by giving the Executive Chairman of the Company written notice (including the number of Shares that you are intending to acquire, accompanied by the full exercise price), by personal hand delivery, by professional overnight delivery service, or by registered or certified mail, postage prepaid with return receipt requested, at the following address:

Executive Chairman
OrthoLogic Corp.
1275 West Washington
Phoenix, Arizona 85281

     Payment of the option price shall be made either in (i) cash or by check, or (ii) at your request and with the written approval of the Company, (a) by delivering shares of the Company’s common stock which have been beneficially owned by you for a period of at least six months prior to the time of exercise (“Delivered Stock”), or (b) a combination of cash and Delivered Stock. The Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures. Payment in the form of Delivered Stock shall be in the amount of the fair market value of the stock at the date of exercise, determined pursuant to the 2005 Plan.

     6.      Valuation and Withholding. If required by applicable regulations, the Company shall, at the time of issuance of any Shares purchased pursuant to the 2005 Plan, provide you with a statement of valuation of the Shares issued. The Company shall be entitled to withhold amounts from your compensation or otherwise to receive an amount adequate to provide for any applicable federal, state and local income taxes (or require you to remit such amount as a condition of issuance). The Company may, in its discretion, satisfy any such withholding requirement, in whole or in part, by withholding form the shares to be issued the number of shares that would satisfy the withholding amount due.

     7.      Termination of Incentive Stock Option. Notwithstanding anything to the contrary, this option can become exercisable only while you are an employee of the Company, and shall not be exercisable after the earliest of (i) the tenth anniversary of the Option Date; (ii) three months after the

[Optionee]
[Date]
Page 4

date your employment with the Company terminates, if such termination is for any reason other than permanent disability, death, or cause; (iii) the date your employment terminates, if such termination is for cause, as determined by the Company in its sole discretion; or (iv) one year after the date your employment with the Company terminates, if such termination is the result of death or permanent disability.

     8.      Change of Control or Termination without Cause. Should a “Change of Control” (as defined in the 2005 Plan), liquidation or “Termination without Cause”, as defined in this section 8 to this letter of Incentive Option Grant, occur, the option shall immediately vest at 100%.

(a)

As used herein, the term “Termination without Cause” shall mean the Company’s termination of your employment other than a termination for Cause. In addition, a “Termination without Cause” shall have occurred if the Board alters your duties so that you no longer render such services of an executive and administrative character to the Company as are usual and customary in the case of your position at the time of the grant of the option covered hereby, at comparable compensation, benefits, working conditions and work location as exist at the date of grant, except for changes unrelated to a “Change of Control” that apply to substantially all employees.

(b)

As used herein, the term “Cause” shall mean your: (i) conviction or entry of a plea of nolo contendere for a crime or offense involving misappropriation of monies or other property, or any felony offense (including Foreign Corrupt Practices Act of 1977) for any crime of moral turpitude, or your commission of fraud or embezzlement; (ii) breach, other than an immaterial breach, by you of your fiduciary duties to the Company, as determined under the laws of the State of Delaware; (iii) gross insubordination or willful failure to discharge any of your material duties; (iv) willful or knowing violation of any law, rule, or regulation of any governmental agency with jurisdiction over the Company which could reasonably be expected to impair the Company’s ability to conduct its business in its usual manner or could reasonably be expected to subject the Company to public disrespect, scandal or ridicule; (v) insobriety or non-therapeutic use of drugs, chemicals or controlled substances while performing the duties and responsibilities of your position; or (vi) material willful misconduct with respect to the business and affairs of the Company or any subsidiary or affiliate thereof, including, but not limited to your willful material violation of the Company’s Code of Ethics, Insider Trading Policy or any other material Company policy applicable to all employees.

[Optionee]
[Date]
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     9.      Notice of Disposition of Shares. If you dispose of any Shares acquired on the exercise of this option within either (a) two years after the Option Date or (b) one year after the date of exercise of this option, you must notify the Company within seven days of such disposition.

     10.      Miscellaneous. You will have no rights as a stockholder with respect to the Shares until the exercise of the option and payment of the full purchase price therefor in accordance with the terms of the 2005 Plan and this Letter of Grant. Nothing herein contained shall impose any obligation on the Company or any parent or subsidiary of the Company or on you with respect to your continued employment by the Company or any parent or subsidiary of the Company. Nothing herein contained shall impose any obligation upon you to exercise this option. While the option granted hereunder is intended to qualify as an incentive stock option under Section 422 of the Code, the Company cannot assure you that such option will, in fact, qualify as an incentive stock option, and makes no representation as to the tax treatment to you upon receipt or exercise of the option or sale or other disposition of the Shares covered by the option.

     11.      Governing Law. This Letter of Grant shall be subject to and construed in accordance with the law of the State of Arizona, except as may be required by the Delaware General Corporation Law or the federal securities laws. Venue for any action arising from or relating to this Agreement shall lie exclusively in Superior Court, Maricopa County, Arizona or the United States District Court for the District of Arizona, Phoenix Division.

     12.      Relationship to the 2005 Plan. The option contained in this Letter of Grant is subject to the terms, conditions and definitions of the 2005 Plan. To the extent that the terms, conditions and definitions of this Letter of Grant are inconsistent with the terms, conditions and definitions of the 2005 Plan, the terms, conditions and definitions of the 2005 Plan shall govern. You hereby accept this option subject to all terms and provisions of the 2005 Plan. You agree to accept as binding, conclusive and final all decisions or interpretations of the Board or any committee appointed by the Board upon any questions arising under the 2005 Plan. You agree to consult your independent tax advisors with respect to the income tax consequences to you, if any, of participating in the 2005 Plan and authorize the Company to withhold in accordance with applicable law from any compensation otherwise payable to you any taxes required to be withheld by federal, state or local law as a result of your participation in the 2005 Plan.

     13.      Communication. No notice or other communication under this Letter of Grant shall be effective unless the same is in writing and is personally hand-delivered, or is sent by professional overnight delivery service or mailed by registered or certified mail, postage prepaid and with return receipt requested, addressed to the Company at the address set forth in Section 5 above, or such other address as the Company has designated in writing to you, in accordance with the provisions hereof, or you at the address set forth at the beginning of this letter, or such other address as you have designated in writing to the Company, in accordance with the provisions hereof.

     You should execute the enclosed copy of this Letter of Grant and return it to the Company as

[Optionee]
[Date]
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soon as possible. The additional copy is for your records.

Very truly yours,

     OrthoLogic Corp.

By: John M. Holliman, III
Executive Chairman

ACCEPTED AND AGREED TO:

                                                               
Name:

Date:                                                                

EX-10.3

Exhibit 10.3

LETTER OF NON-QUALIFIED OPTION GRANT
ORTHOLOGIC CORP. 2005 EQUITY INCENTIVE PLAN

Date ____________

Name & address

RE:   OrthoLogic Corp. 2005 Equity Incentive Plan

Dear ________ ,

In order to provide additional incentive to certain employees, directors and appropriate third parties, OrthoLogic Corp. (the “Company”) adopted the OrthoLogic Corp. 2005 Equity Incentive Plan (the “2005 Plan”). By means of this letter (the “Letter of Grant”), the Company is offering you a non-qualified stock option pursuant to the 2005 Plan. The Company’s sale of its common shares underlying the option granted to you hereby has been or will be registered with the U.S. Securities and Exchange Commission. A copy of the prospectus, including a copy of the 2005 Plan relating to that registration, can be obtained from the Company by request.

The option granted to you hereunder shall be subject to all of the terms and conditions of the 2005 Plan, which you should carefully review. In addition, such option is subject to the following terms and conditions:

     1.     Grant of Option. The Company hereby grants to you, pursuant to the 2005 Plan, the option to purchase from the Company upon the terms and conditions and at the times hereinafter set forth, an aggregate of                shares of the Company’s $0.0005 par value common stock (the “Shares”) at a purchase price of $               per Share. The date of grant of this option is                           (hereinafter referred to as the “Option Date”).

     2.     Exercise Term of Option. Unless earlier terminated as described in Section 7, the option will vest and may be exercised for the purchase of Shares as described in the following schedule:

   Number of Shares               Vesting Schedule

     3.     Nontransferability. This option shall not be transferable otherwise than by will or by the laws of descent and distribution, and the options shall be exercisable only by you during your lifetime. Notwithstanding the foregoing, the Board of Directors or a committee appointed by the Board of Directors may permit you to transfer a non-qualified stock option to a family member or a

[Optionee]
[Date]
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trust or partnership for the benefit of a family member, in accordance with rules established by the Board or a committee appointed thereby.

     4.     Other Conditions and Limitations.

(a) Any Shares issued upon exercise of this option shall not be issued unless the issuance and delivery of Shares pursuant thereto shall comply with all relevant provisions of law including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, any applicable state securities or “Blue Sky” law or laws (or an exemption from such provision is available), and the requirements of any stock exchange or national market system of a national securities association upon which the Shares may then be listed and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) No transfer of any Shares issued upon the exercise of the option will be permitted by the Company, unless any request for transfer is accompanied by evidence satisfactory to the Company that the proposed transfer will not result in a violation of any applicable law, rule or regulation, whether federal or state, including in the discretion of the Company an opinion of counsel reasonably acceptable to the Company.

(c) Inability of the Company to obtain approval from any regulatory body having jurisdictional authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect to the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained.

(d) Unless the Shares are subject to a then effective registration statement under the Securities Act of 1933, upon exercise of this option (in whole or in part) and the issuance of the Shares, the Company shall instruct its transfer agent to enter stop transfer orders with respect to Shares, and all certificates representing the Shares shall bear on the face thereof substantially the following legend:

“The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration.”

     5.     Exercise of Option. You may exercise the option only by giving the Executive Chairman of the Company written notice (including the number of Shares that you are intending to

[Optionee]
[Date]
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acquire, accompanied by the full exercise price), by personal hand delivery, by professional overnight delivery service, or by registered or certified mail, postage prepaid with return receipt requested, at the following address:

Executive Chairman
OrthoLogic Corp.
1275 West Washington
Phoenix, Arizona 85281

Payment of the option price shall be made either in (i) cash or by check, or (ii) at your request and with the written approval of the Company, (a) by delivering shares of the Company’s common stock which have been beneficially owned by you for a period of at least six months prior to the time of exercise (“Delivered Stock”), or (b) a combination of cash and Delivered Stock. The Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures. Payment in the form of Delivered Stock shall be in the amount of the fair market value of the stock at the date of exercise, determined pursuant to the 2005 Plan.

     6.     Valuation and Withholding. If required by applicable regulations, the Company shall, at the time of issuance of any Shares purchased pursuant to the 2005 Plan, provide you with a statement of valuation of the Shares issued. The Company shall be entitled to withhold amounts from your compensation or otherwise to receive an amount adequate to provide for any applicable federal, state and local income taxes (or require you to remit such amount as a condition of issuance). The Company may, in its discretion, satisfy any such withholding requirement, in whole or in part, by withholding form the shares to be issued the number of shares that would satisfy the withholding amount due.

     7.     Termination of Non-Qualified Stock Options. Notwithstanding anything to the contrary, this option can become exercisable, and shall not be exercisable after the earliest of (i) the tenth anniversary of the Option Date; (ii) two years after the date you cease to perform services for the Company, if such termination of services is for any reason other than death, permanent disability, retirement or cause, (iii) three years after the date you cease to perform services for the Company, if such termination of services is by reason of death, permanent disability or retirement, or (iv) the date you cease to perform services for the Company, if such termination is for cause, as determined by the Board of Directors in its sole discretion. Notwithstanding anything to the contrary in this Section 7, if you are a non-employee director of the Company and you have served as a director of the Company for at least five years at the time you cease to serve in such capacity, your options will be fully exercisable until the expiration of such options.

     8.     Change of Control or Termination without Cause. Should a “Change of Control” (as defined in the 2005 Plan), liquidation or “Termination without Cause”, as defined in this section 8 to this letter of Non-Qualified Option Grant, occur, the option shall immediately vest at 100%.

(a) As used herein, the term “Termination without Cause” shall mean the Company’s termination of your employment other than a termination for Cause. In addition, a “Termination without Cause” shall have occurred if

[Optionee]
[Date]
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the Board alters your duties so that you no longer render such services of an executive and administrative character to the Company as are usual and customary in the case of your position at the time of the grant of the option covered hereby, at comparable compensation, benefits, working conditions and work location as exist at the date of grant, except for changes unrelated to a “Change of Control” that apply to substantially all employees.

(b) As used herein, the term “Cause” shall mean your: (i) conviction or entry of a plea of nolo contendere for a crime or offense involving misappropriation of monies or other property, or any felony offense (including Foreign Corrupt Practices Act of 1977) for any crime of moral turpitude, or your commission of fraud or embezzlement; (ii) breach, other than an immaterial breach, by you of your fiduciary duties to the Company, as determined under the laws of the State of Delaware; (iii) gross insubordination or willful failure to discharge any of your material duties; (iv) willful or knowing violation of any law, rule, or regulation of any governmental agency with jurisdiction over the Company which could reasonably be expected to impair the Company’s ability to conduct its business in its usual manner or could reasonably be expected to subject the Company to public disrespect, scandal or ridicule; (v) insobriety or non-therapeutic use of drugs, chemicals or controlled substances while performing the duties and responsibilities of your position; or (vi) material willful misconduct with respect to the business and affairs of the Company or any subsidiary or affiliate thereof, including, but not limited to your willful material violation of the Company’s Code of Ethics, Insider Trading Policy or any other material Company policy applicable to all employees.

     9.     Miscellaneous. You will have no rights as a stockholder with respect to the Shares until the exercise of the option and payment of the full purchase price therefor in accordance with the terms of the 2005 Plan and this Letter of Grant. Nothing herein contained shall impose any obligation on the Company or any parent or subsidiary of the Company or on you with respect to your continued employment by the Company or any parent or subsidiary of the Company. Nothing herein contained shall impose any obligation upon you to exercise this option.

     10.   Governing Law. This Letter of Grant shall be subject to and construed in accordance with the law of the State of Arizona, except as may be required by the Delaware General Corporation Law or the federal securities laws. Venue for any action arising from or relating to this Agreement shall lie exclusively in Superior Court, Maricopa County, Arizona or the United States District Court for the District of Arizona, Phoenix Division.

     11.   Relationship to the 2005 Plan. The option contained in this Letter of Grant is subject to the terms, conditions and definitions of the 2005 Plan. To the extent that the terms,

[Optionee]
[Date]
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conditions and definitions of this Letter of Grant are inconsistent with the terms, conditions and definitions of the 2005 Plan, the terms, conditions and definitions of the 2005 Plan shall govern. You hereby accept this option subject to all terms and provisions of the 2005 Plan. You agree to accept as binding, conclusive and final all decisions or interpretations of the Board or any committee appointed by the Board upon any questions arising under the 2005 Plan. You agree to consult your independent tax advisors with respect to the income tax consequences to you, if any, of participating in the 2005 Plan and authorize the Company to withhold in accordance with applicable law from any compensation otherwise payable to you any taxes required to be withheld by federal, state or local law as a result of your participation in the 2005 Plan.

     12.     Communication. No notice or other communication under this Letter of Grant shall be effective unless the same is in writing and is personally hand-delivered, or is sent by professional overnight delivery service or mailed by registered or certified mail, postage prepaid and with return receipt requested, addressed to the Company at the address set forth in Section 5 above, or such other address as the Company has designated in writing to you, in accordance with the provisions hereof, or you at the address set forth at the beginning of this letter, or such other address as you have designated in writing to the Company, in accordance with the provisions hereof.

You should execute the enclosed copy of this Letter of Grant and return it to the Company as soon as possible. The additional copy is for your records.

Very truly yours,

OrthoLogic Corp.

By:	John M. Holliman, III
	Executive Chairman

ACCEPTED AND AGREED TO:

Name:

Date:

EX-10.4

Exhibit 10.4

LETTER OF RESTRICTED STOCK GRANT
ORTHOLOGIC CORP. 2005 EQUITY INCENTIVE PLAN

Date                                

«FIRSTNAME» «LASTNAME»
«STREET» «STREET1»
«CITY», «STATE» «ZIPCODE»

RE: OrthoLogic Corp. 2005 Equity Incentive Plan

Dear                                ,

In order to provide additional incentive to selected employees, OrthoLogic Corp. (the “Company”) adopted the OrthoLogic 2005 Equity Incentive Plan (the “2005 Plan”). By means of this letter (the “Letter of Grant”), the Company is offering you a restricted stock grant pursuant to the 2005 Plan

The option granted to you hereunder shall be subject to all of the terms and conditions of the 2005 Plan, which you should carefully review. In addition, the grant is subject to the following terms and conditions:

     1.      Grant of Restricted Stock. The Company hereby grants to you an aggregate of                                 fully paid and nonassessable shares of the common stock, $.0005 par value, of the Company (the “Restricted Stock”) upon the terms and conditions hereinafter set forth. The date of grant is                                ,                 (hereinafter referred to as the “Grant Date”). On the Grant Date, you shall pay $                to the Company as the full purchase price for the Restricted Stock.

     2.      Restrictions. The Restricted Stock shall be forfeitable as described below until the shares become vested upon the following events:

• 100% of the Restricted Stock covered by this Letter of Grant shall be subject to performance vesting.

• The period of time during which the Restricted Stock is forfeitable is referred to as the “Restricted Period.” If your employment with the Company terminates during the Restricted Period for any reason, any Restricted Stock which has not yet become vested shall be forfeited to the Company on the date of such termination, without any further obligations of the Company to you and all your rights with respect to such Restricted Stock shall terminate.

     Upon the occurrence of a Change of Control, all restrictions relating to the Restricted Stock shall lapse; provided, however, that if the Company shall, on or before the date of such Change of

[Name]
[Date]
Page 2

Control, request that Executive remain in the employ of the Company following the Change of Control, then: the restrictions on the Restricted Stock shall instead lapse as to all but 10% of the number of shares originally included in the Restricted Stock grant, and the restrictions on the remainder shall lapse upon the completion by Executive of six months service thereafter or, if earlier, the date on which the Company terminates Executive’s employment.

     3.      Rights During Restricted Period. During the Restricted Period, you shall have the right to vote the Restricted Stock and to receive cash dividends. If any stock dividend is declared upon the Restricted Stock, or there is any stock split, stock distribution, or other change in the corporate structure of the Company with respect to the Restricted Stock, the aggregate number and kind of shares covered by this grant shall be proportionately and appropriately adjusted (subject to the same restrictions applicable to the original Restricted Stock). The Restricted Stock may not be sold, assigned, transferred, pledged, encumbered or otherwise disposed of by you prior to vesting.

     4.      Custody. The Restricted Stock shall be held in custody by the Company or an agent for the Company until the applicable restrictions have expired. If any certificates are issued for shares of Restricted Stock during the Restricted Period, such certificates shall bear an appropriate legend as determined by the Company referring to the applicable terms, conditions and restrictions and you agree to deliver a signed, blank stock power to the Company relating thereto. On each date that the Restricted Stock vests, the Company shall, or shall cause its transfer agent to, deliver to you a stock certificate for those vested shares. Additionally, on the final vesting date, the Company shall deliver to you the blank stock power that you signed and delivered to the Company in connection with your Restricted Stock grant.

     5.      Tax Withholding. If required by applicable regulations, the Company shall, at the time of vesting, provide you with a statement of valuation of the Restricted Stock. The Company may require, as a condition to the vesting of any shares of the Restricted Stock, that you concurrently pay to the Company any taxes which the Company is required to withhold by reason of such vesting. In lieu of part or all of such payment, you may request that the Company withhold a portion of the shares otherwise becoming vested to defray all or a portion of any applicable taxes, or request that the Company withhold the required amounts from other compensation payable to you.

     6.      Other Conditions and Limitations. Unless the shares are subject to a then effective registration statement under the Securities Act of 1933, the Company shall instruct its transfer agent to enter stop transfer orders with respect to shares, and all certificates representing the shares shall bear on the face thereof substantially the following legend:

“The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration.”

     7.      Miscellaneous. Nothing herein contained shall impose any obligation on the Company or any parent or subsidiary of the Company or on you with respect to your continued employment by the Company or any parent or subsidiary of the Company.

[Name]
[Date]
Page 3

     8.      Counterparts. This Letter of Restricted Stock Grant may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This Letter of Restricted Stock Grant may be executed and delivered by facsimile.

     9.      Governing Law. This Letter of Restricted Stock Grant shall be subject to and construed in accordance with the law of the State of Arizona, except as may be required by the Delaware General Corporation Law or the federal securities laws. Venue for any action arising from or relating to this Agreement shall lie exclusively in Superior Court, Maricopa County, Arizona or the United States District Court for the District of Arizona, Phoenix Division. You should execute the enclosed copy of this Letter of Restricted Stock Grant and return it to the Company as soon as possible. The additional copy is for your records.

     10.      Relationship to 2005 Plan. This Letter of Restricted Stock Grant is subject to the terms, conditions and definitions of the 2005 Plan. To the extent that the terms, conditions and definitions of this Letter of Grant are inconsistent with the terms, conditions and definitions of the 2005 Plan, the terms, conditions and definitions of the 2005 Plan shall govern. You hereby accept this grant subject to all terms and provisions of the 2005 Plan. You agree to accept as binding, conclusive and final all decisions or interpretations of the Board or any committee appointed by the Board upon any questions arising under the 2005 Plan.

Very truly yours, ORTHOLOGIC CORP.
By:
	John M. Holliman, III
	Executive Chairman

ACCEPTED AND AGREED TO:

Date: