**Exhibit 10.5**

*CompuMed, Inc.*

5777 W. Century Blvd., Suite 1285

Los Angeles, CA 90045

 Tel:  (310) 258-5000             Fax:  (310)645-5880

 

                                                                                                                                                Date                                

 

 

Dear                                :

 

                                I am pleased to inform you that on                            ,CompuMed, Inc. (the “Company”) granted you a non-qualified stock option (the“Option”) under the Company’s 2002 Stock Option Plan (the “Plan”), to purchase                                  (                          )shares (the “Shares”) of the Company’s Common Stock at the price of $               ($             )  per Share, subject to adjustment as setforth in Section 6(i) of the Plan.  Theexercise price is the fair market value of a share of Common Stock on the dateof grant as determined in accordance with the Plan.  A copy of the Plan is attached hereto and incorporated herein bythis reference.  Capitalized terms used,but not otherwise defined, herein have the meanings ascribed to such terms inthe Plan.  If there is any conflictbetween the terms of this letter and the Plan, the terms in the Plan shallapply.

 

                                Thepurpose of the Plan is to encourage ownership of the Common Stock of theCompany by eligible key employees, directors and officers providing service tothe Company and its subsidiaries and to provide increased incentive for suchemployees and other persons to render services to the Company and itssubsidiaries in the future and to exert maximum effort for the success of thebusiness of the Company and its subsidiaries.

 

                                Subjectto compliance with the terms and conditions of this letter and the Plan, youwill become entitled to exercise the Option with respect to the number ofShares indicated and as of the dates indicated, below:

 
| Date Option Becomes Exercisable |   | Number of Shares |
|---------------------------------|--------|------------------|
|                            |   |             |   |   |   |   |
|                            |   |             |   |   |   |   |
|                            |   |             |   |   |   |   |
|                            |   |             |   |   |   |   |

 

The Option may be exercised in whole or in part at anytime after the date it becomes exercisable, but the Option may not be exercisedafter ten years (10) from the date of grant, and may terminate earlier as setforth herein or in the Plan.

 

                                Subjectto the provisions of the Plan and this letter, the Option may be exercised bywritten notice to the Company from the person or persons entitled to exercisethe Option, stating the number of shares with respect to which it is beingexercised and accompanied by payment of the purchase price.  The purchase price shall be paid bycertified check payable to the order of the Company.  A form of the notice of exercise is attached hereto.  Please note that, although you must return asigned copy of this letter in order to validate your Option, that act does notconstitute the exercise of the Option nor does it in any way obligate you toexercise the Option.

 

                                Youmay not assign or otherwise transfer the Option except pursuant to a will or bythe laws of descent and distribution.

 

                Notwithstandingany provision of this Plan or this Agreement, the Committee is authorized totake such action as it determines to be necessary or advisable, and fair andequitable to Optionees, with respect to Options held by Optionees in the eventof a sale or transfer of all or substantially all of the Company’s assets, ormerger or consolidation (other than a merger or consolidation in which theCompany is the 

 

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surviving corporation and no shares are converted intoor exchanged for securities, cash or any other thing of value).  Such action may include (but is not limitedto) the following:

 

                                                                (A)          Accelerating the exercisability of anyOption to permit its exercise in full during such period as the Committee inits sole discretion shall prescribe following the public announcement or a saleor transfer of assets or merger or consolidation.

 

                                                                (B)           Permitting an Optionee, at any timeduring such period as the Committee in its sole discretion shall prescribefollowing the consummation of such a merger, consolidation or sale or transferof assets, to surrender any Option (or any portion thereof) to the Company forcancellation.

 

                                                                (C)           Requiring any Optionee, at any timefollowing the consummation of such a merger, consolidation or sale or transferof assets, if required by the terms of the agreements relating thereto, tosurrender any Option (or any portion thereof) to the Company in return for asubstitute Option which is issued by the corporation surviving such merger orconsolidation or the Committee, in it sole discretion, determines to have avalue to the Optionee substantially equivalent to the value to the Optionee ofthe Option (or portion thereof) so surrendered.

 

                Subjectto any such action which the Committee may take, in the event of any merger,consolidation or sale or transfer of assets referred to above, upon anyexercise thereafter of an Option, and Optionee shall, at no additional costother than payment of the exercise price of the Option, be entitled to receivein lieu of Shares, (1) the number and class of Shares or other security, or (2)the amount of cash, or (3) property, or (4) a combination of the foregoing, towhich the Optionee would have been entitled pursuant to the terms of suchmerger, consolidation or sale or transfer of assets, if immediately priorthereto the Optionee had been the holder of record of the number of Shares forwhich such Option shall be so exercised.

 

                TheOption may not be exercised unless, at the time of such exercise, you are, andhave been continuously since the date of grant, a director of the Company,except that to the extent the Option is vested at the time of termination:  (i) the Option may be exercised within theperiod of three (3) months after the date you cease to be a director of theCompany; (ii) in the event of your death while a director of the Company, theOption may be exercised by the person to whom it is transferred by will or thelaws of descent and distribution within the period of one (1) year after thedate of death; and (iii) in the event of your disability (as defined in thePlan) while a director of the Company, the Option may be exercised within theperiod of one year after the date you cease to be such a director because ofsuch disability.  The unvested portionof the Option shall terminate immediately upon termination of your directorshipfor any reason.

 

                                Youshould consult with your personal tax advisor with respect to your personal taxconsequences arising from the exercise of the Option and the sale of theShares.

 

                                Thisletter constitutes a Stock Option Agreement between you and the Company.  In the event of any discrepancy between theterms of this Stock Option Agreement and the Plan, the terms of the Plan shallgovern.

 

                                Pleaseindicate your agreement to the terms and conditions set forth in this letterand the Plan by signing the accompanying copy of this letter and returning itto the Company, Attention:  CorporateSecretary, by not later than**                        **.  No part of this Option is exercisable untila signed copy of this letter has been received by the Company.

 

                                Pleasecontact me if you have any questions regarding your Option or the Plan or ifyou desire further information prior to exercise.
|   |   |   |   |   |   |   | Very truly yours, |   |
|--------|--------|--------|--------|--------|--------|--------|-------------------|--------|
|   |   |   |   |   |   |   |              |   |
|   |   |   |   |   |   |   | COMPUMED, INC.    |   |
|   |   |   |   |   |   |   |              |   |
|   |   |   |   |   |   |   | By:               |
|   |   |   |   |   |   |   | President and CEO |

 

 

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                                Theundersigned hereby acknowledges receipt of the foregoing letter and a copy of thePlan, and agrees to be bound by all of the terms and conditions set forththerein.

 
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|   |   |   |   |   |   |   | Address:     Street Apt.#                                                                                                                                         |   |   |
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|   |   |   |   |   |   |   | City                State             Zip Code |   |   |

 

 

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