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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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