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ORTHOLOGIC CORP.

1997 STOCK OPTION PLAN





	 	1.  	Purpose





     The purposes of the 1997 Stock Option Plan (“Plan”) of OrthoLogic Corp., a Delaware
corporation, are to attract and retain the best available employees and directors of OrthoLogic
Corp. or any parent or subsidiary or affiliate of OrthoLogic Corp. which now exists or hereafter
is organized or acquired by or acquires OrthoLogic Corp. (collectively or individually as the
context requires 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
of the business of the Company. This Plan is intended to comply with Rule 16b-3 under Section 16
of the Securities Exchange Act of 1934, as amended or any successor rule (“Rule 16b-3”), and the
Plan shall be construed, interpreted and administered to comply with Rule 16b-3.




	 	2.  	Definitions





          (a) “Affiliate” means any corporation, partnership, joint venture or other entity, domestic or
foreign, in which the Company, either directly or through another affiliate or affiliates, has a
50% or more ownership interest.



          (b) “Affiliated Group” means the group consisting of the Company and any entity that is an
“affiliate,” a “parent” or a “subsidiary” of the Company.



          (c) “Board” means the Board of Directors of the Company.



          (d) “Committee” means the Compensation or Stock Option Committee of the Board (as designated
by the Board), if such a committee has been appointed.



          (e) “Code” means the United States Internal Revenue Code of 1986, as amended.



          (f) “Incentive Stock Options” means options intended to qualify as incentive stock options
under Section 422 of the Code, or any successor provision.



          (g) “ISO Group” means the group consisting of the Company and any corporation that is a
“parent” or a “subsidiary” of the Company.



          (h) “Nonemployee Director” means a director of the Company who is not an employee of the
Company or any Affiliated Group Member.



          (i) “Nonqualified Stock Options” means options that are not intended to qualify for favorable
income tax treatment under Sections 421 through 424 of the Code.



          (j) “Parent” means a corporation that is a “parent” of the Company within the meaning of Code
Section 424(e).



 









 





          (k) “Section 16” means Section 16 of the Securities Exchange Act of 1934, as amended.



          (l) “Subsidiary” means a corporation that is a “subsidiary” of the Company within the meaning
of Code Section 424(f).




	 	3.  	Incentive and Nonqualified Stock Options





     Two types of options (referred to herein as “options,” without distinction between such two
types) may be granted under the Plan: Incentive Stock Options and Nonqualified Stock Options.




	 	4.  	Eligibility and Administration





          (a) Eligibility. The following individuals shall be eligible to receive grants pursuant to
the Plan as follows:



               (i) Any employee (including any officer or director who is an employee) of the Company or any
ISO Group member shall be eligible to receive either Incentive Stock Options or Nonqualified Stock
Options under the Plan. An employee may receive more than one option under the Plan.



               (ii) Any director of the Company or consultant to the Company who is not an employee of the
Company or any of its subsidiaries shall be eligible to receive Nonqualified Stock Options under
the Plan.



               (iii) Any other individual whose participation the Board or the Committee determines is in the
best interests of the Company shall be eligible to receive Nonqualified Stock Options.



          (b) Administration. The Plan may be administered by the Board or by a Committee appointed by
the Board which is constituted so to permit the Plan to comply under Rule 16b-3 and 162(m) of the
Code. The Company shall indemnify and hold harmless each director and Committee member for any
action or determination made in good faith with respect to the Plan or any option. Determinations
by the Committee or the Board shall be final and conclusive upon all parties.




	 	5.  	Shares Subject to Options





     The stock available for grant of options under the Plan shall be shares of the Company’s
authorized but unissued or reacquired voting common stock. The aggregate number of shares that may
be issued pursuant to exercise of options granted under the Plan shall be 4,190,000 shares;
provided, however, that, in any one calendar year, no individual may receive grants of options
covering more than 200,000 shares. If any outstanding option grant under the Plan for any reason
expires or is terminated, the shares of common stock allocable to the unexercised portion of the
option grant shall again be available for options under the Plan as if no options had been granted
with respect to such shares.



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	 	6.  	Terms and Condition of Options





     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 Board or the Committee shall from time to time
approve. Each agreement shall specify whether the option(s) granted thereby are Incentive Stock
Options or Nonqualified Stock Options. Such agreements may incorporate all or any of the terms
hereof by reference and shall comply with and be subject to the following terms and conditions:



          (a) Shares Granted. 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.



          (b) Purchase Price. The purchase price for a share subject to (i) a Nonqualified Stock Option
may be any amount determined in good faith by the Committee, and (ii) an Incentive Stock 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 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 or any ISO Group member. For purposes of the Plan, “fair market value” 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 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.



          (c) Termination. Unless otherwise provided herein or in a specific option grant agreement
which may provide for accelerated vesting and/or longer or shorter periods of exercisability, no
option shall be exercisable after the expiration of the earliest of



               (i) in the case of an Incentive Stock Option:




     (1) 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 or any ISO
Group member,




     (2) three months after the date the optionee ceases to perform services
for the Company or any ISO Group member, if such cessation is




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for any reason other than death, disability (within the meaning of Code
Section 22(e)(3)), or cause,




     (3) one year after the date the optionee ceases to perform services for
the Company or any ISO Group member, if such cessation is by reason of death
or disability (within the meaning of Code Section 22(e)(3)), or




     (4) the date the optionee ceases to perform services for the Company or
any ISO Group member, if such cessation is for cause, as determined by the
Board or the Committee in its sole discretion;



               (ii) in the case of a Nonqualified Stock Option;




     (1) 10 years from the date the option is granted,




     (2) two years after the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such cessation is for any
reason other than death, permanent disability, retirement or cause,




     (3) three years after the date the optionee ceases to perform services
for the Company or any Affiliated Group member, if such cessation is by
reason of death, permanent disability or retirement, or




     (4) the date the optionee ceases to perform services for the Company or
any Affiliated Group member, if such cessation is for cause, as determined
by the Board or the Committee in its sole discretion;


provided, that, unless otherwise provided in a specific option grant agreement, an option shall
only be exercisable for the periods above following the date an optionee ceases to perform services
to the extent the option was exercisable on the date of such cessation.




          (d) Method of Payment. The purchase price for any share purchased pursuant to the exercise of
an option granted under the Plan shall be paid in full upon exercise of the option by any of the
following methods, (i) by cash, (ii) by check, or (iii) 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 as determined in accordance with
paragraph 6(b), 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. The Company may also extend and maintain, or arrange
for the extension and maintenance of, credit to an optionee to finance the optionee’s purchase of
shares pursuant to the exercise of options, on such terms as may be approved by the Board or the
Committee, subject to applicable regulations of the Federal Reserve Board and any other applicable
laws or regulations in effect at the time such credit is extended.




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          (e) Exercise. Except for options which have been transferred pursuant to paragraph 6(f), no
option shall be exercisable during the lifetime of an optionee by any person other than the
optionee, his or her guardian or legal representative. The Board or the Committee shall have the
power to set the time or times within which each option shall be exercisable and to accelerate the
time or times of exercise; provided, however, no options may be exercised prior to the later of the
expiration of six months from the date of grant thereof or stockholder approval, unless otherwise
provided by the Board or Committee. To the extent that an optionee has the right to exercise one
or more options and purchase shares pursuant thereto, the option(s) may be exercised from time to
time by written notice to the Company stating the number of shares being purchased and accompanied
by payment in full of the purchase price for such shares. Any certificate for shares of
outstanding stock used to pay the purchase price shall be accompanied by a stock power duly
endorsed in blank by the registered owner of the certificate (with the signature thereon
guaranteed). If the certificate tendered by the optionee in such payment covers more shares than
are required for such payment, the certificate shall also be accompanied by instructions from the
optionee to the Company’s transfer agent with respect to the disposition of the balance of the
shares covered thereby.



          (f) Nontransferability. No option shall be transferable by an optionee otherwise than by will
or the laws of descent and distribution, provided that the Committee in its discretion may grant
options that are transferable, without payment of consideration, to immediate family members of the
optionee or to trusts or partnerships for such family members; the Committee may also amend
outstanding options to provide for such transferability.



          (g) ISO $100,000 Limit. 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).



          (h) 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 optionee by accepting an option grant 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
purchased upon exercise of options indicating that such shares have not been registered with the
Securities and Exchange Commission and may so notify its transfer agent.




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          (i) Rights of Optionee. An optionee or transferee holding an option grant shall have no
rights as a stockholder of the Company with respect to any shares covered by any option grant until
the date one or more of the options granted thereunder have been properly exercised and the
purchase price for such shares has been paid in full. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such share certificate is issued, except as
provided for in paragraph 6(k). Nothing in the Plan or in any option grant agreement shall confer
upon any optionee any right to continue performing services for the Company or any Affiliated Group
member, or interfere in any way with any right of the Company or any Affiliated Group member to
terminate the optionee’s services at any time.



          (j) Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise of an option. The value of any fractional share subject to an option grant shall be paid
in cash in connection with an exercise that results in all full shares subject to the grant having
been exercised.



          (k) Reorganizations, Etc. Subject to paragraph 9 hereof, if the outstanding shares of stock
of the class then subject to this Plan are increased or decreased, or are changed into or exchanged
for a different number or kind of shares or securities, as a result of one or more reorganizations,
stock splits, reverse stock splits, stock dividends, spin-offs, other distributions of assets to
stockholders, appropriate adjustments shall be made in the number and/or type of shares or
securities for which options may thereafter be granted under this Plan and for which options then
outstanding under this Plan may thereafter be exercised. Any such adjustments in outstanding
options shall be made without changing the aggregate exercise price applicable to the unexercised
portions of such options.



          (l) Option Modification. Subject to the terms and conditions and within the limitations of
the Plan, the Board or the Committee may modify, extend or renew outstanding options granted under
the Plan, or accept the surrender of outstanding options (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option (either directly or through
modification of the Plan) shall, without the consent of the optionee, alter or impair any rights of
the optionee under the option. Notwithstanding anything herein to the contrary, the Board or
Committee may not reprice outstanding options nor may the Board or the Committee accept the
surrender of outstanding options in conjunction with a grant of new options in substitution
therefor at an exercise price lower than the price of the options surrendered, and this sentence
may not be amended without consent of the Board and ratification by the Company’s stockholders.



          (m) Grants to Foreign Optionees. The Board or the Committee in order to fulfill the Plan
purposes and without amending the Plan may modify grants to optionees who are foreign nationals or
performing services for the Company or an Affiliated Group member outside the United States to
recognize differences in local law, tax policy or custom.



          (n) Other Terms. Each option grant agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board or the Committee, such
as without limitation discretionary performance standards, tax withholding provisions, or other
forfeiture provisions regarding competition and confidential information.




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	 	7.  	Termination or Amendment of the Plan





     The Board may at any time terminate or amend the Plan; provided, that stockholder approval
shall be obtained of any action for which stockholder approval is required in order to comply with
Rule 16b-3, the Code or other applicable laws or regulatory requirements within such time periods
prescribed.




	 	8.  	Stockholder Approval and Term of the Plan





     The Plan shall be effective as of March 26, 1997, the date as of which it was adopted by the
Board, subject to ratification by the stockholders of the Company within (each of) the time
period(s) prescribed under Rule 16b-3, the Code, and any other applicable laws or regulatory
requirements, and shall continue thereafter until terminated by the Board. Unless sooner
terminated by the Board, in its sole discretion, the Plan will expire on March 25, 2007, 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, provided that options outstanding upon termination or
expiration of the Plan shall remain in effect until they have been exercised or have expired or
been forfeited.




	 	9.  	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, the Board, the Committee (subject to the approval of
the Board) or the board of directors of any corporation assuming the obligations of the Company
hereunder shall 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 option by the substitution on
an equitable basis of appropriate shares of the surviving corporation, provided that the excess of
the aggregate fair market value (as defined in paragraph 6(b)) of the shares subject to such option
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) Appropriate provision may be made for the cancellation of such option. In such event, the
Company, or the corporation assuming the obligations of the Company hereunder, shall pay the
optionee an amount of cash (less normal withholding taxes) equal to the excess of the highest fair
market value (as defined in paragraph 6(b)) per share of the Common Stock during the 60-day period
immediately preceding the merger, consolidation or reorganization over the option exercise price,
multiplied by the number of shares subject to such options (whether or not then exercisable).




	 	10.  	Dissolution or Liquidation





     Anything contained herein to the contrary notwithstanding, on the effective date of any
dissolution or liquidation of the Company, the holder of each then outstanding option (whether



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or not then exercisable) shall receive the cash amount described in paragraph 9(b) hereof and such
option shall be cancelled.




	 	11.  	Acceleration of Exercisability and Vesting Under Certain Circumstances





     Notwithstanding any provision in the Plan to the contrary, unless the particular letter of
grant provides otherwise, 75% of the unvested options held by each optionee shall automatically
become exercisable and vested upon the occurrence, before the expiration or termination of such
option, of the acquisition by a third party of 100% of the Company’s outstanding equity securities,
a merger in which the Company is not the surviving corporation, a sale of all or substantially all
of the Company’s assets, or a similar reorganization of the Company (collectively, “Accelerating
Events”). The balance of each optionee’s unvested options will vest and become exercisable in 12
equal monthly installments following the occurrence of any Accelerating Event, or according to the
optionee’s individual vesting schedule as applicable without regard to this Section 11, whichever
is earlier. If an optionee loses his position with the Company as a result of or subsequent to the
occurrence of an Accelerating Event, 100% of the unexpired and unvested options granted pursuant to
this Plan held by such optionee shall automatically become vested upon such loss of position.




	 	12.  	Withholding Taxes





          (a) General Rule. Pursuant to applicable federal and state laws, the Company is or may be
required to collect withholding taxes upon the exercise of an option. The Company may require, as
a condition to the exercise of an option or the issuance of a stock certificate, that the optionee
concurrently pay to the Company (either in cash or, at the request of optionee but in the
discretion of the Board or the Committee and subject to such rules and regulations as the Board or
the Committee may adopt from time to time, in shares of Common Stock of the Company) the entire
amount or a portion of any taxes which the Company is required to withhold by reason of such
exercise, in such amount as the Committee or the Board in its discretion may determine.



          (b) Withholding from Shares to be Issued. In lieu of part or all of any such payment, the
optionee may elect, subject to such rules and regulations as the Board or the Committee may adopt
from time to time, or the Company may require that the Company withhold from the shares to be
issued that number of shares having a fair market value (as defined in paragraph 6(b)) equal to the
amount which the Company is required to withhold.



          (c) Special Rule for Insiders. Any such request or election (to satisfy a withholding
obligation using shares) by an individual who is subject to the provisions of Section 16 shall be
made in accordance with the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.




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