AGREEMENT

         This  Agreement,  which shall be effective as of December 31, 1997,  is
between OrthoLogic Corp. And Chrysalis  BioTechnology,  Inc. Based on the mutual
consideration between the parties recited below, the parties agree as follows:

                            I. BACKGROUND AND PARTIES

         1.1 Chrysalis.  Chrysalis BioTechnology,  Inc. ("Chrysalis") is a Texas
corporation,  having a principal  place of business at 2200  Market,  Suite 600,
Galveston, TX 77550.

         1.2  OrthoLogic.   OrthoLogic  Corp.   ("OrthoLogic")   is  a  Delaware
corporation,  having a principal  place of  business at 2850 South 36th  Street,
Phoenix AZ 85034.

         1.3 The  Technology.  Chrysalis  owns or  holds  comprehensive  license
rights relating to a technology known as the "Chrysalis  Technology," as defined
below.

         1.4 Options and Licenses.  OrthoLogic desires to acquire from Chrysalis
and Chrysalis  desires to grant to  OrthoLogic  options to license the Chrysalis
Technology  and related  patents which are owned by or licensed to Chrysalis for
end-product  development,  manufacture,  and sales of products for  "Orthopaedic
Applications,"  as defined below,  under the terms and  conditions  contained in
this Agreement.

         1.5 The LOI. Chrysalis and OrthoLogic are parties to a Letter of Intent
(the "LOI") dated December 3, 1997 which addresses the transactions contemplated
by this Agreement.  This Agreement is the "Definitive Agreement" contemplated by
the LOI, and replaces and supersedes the LOI for all purposes.

                           II. ADDITIONAL DEFINITIONS

         2.1 "Affiliate" means any corporation or other business entity owned or
controlled  by or under common  ownership  with  OrthoLogic.  For this  purpose,
"controlled by" means direct or indirect beneficial ownership of at least 50% of
the voting  stock or  ownership  interest in the income of such  corporation  or
other business entity.

         2.2 "Chrysalis  Technology" means the core technologies  related to the
Patents, including the TP508 Peptide.

         2.3  "Chrysalis  Product" means TP508 or any related  peptides,  or any
other  materials  or  products  manufactured  by or for  Chrysalis  and  sold to
OrthoLogic for research, treatment of patients or resale.
<PAGE>
         2.4 "Commercialization"  shall refer to the date of FDA market approval
for the first product application in any specific Orthopaedic Application..

         2.5 "Licensed  Products" means devices or materials,  including but not
limited to TP508 and related peptides, all products using any of such materials,
Chrysalis  Technology or any of the  Technology  Rights,  and all other products
which, in the course of their manufacture, use, or sale would, in the absence of
this license, infringe one or more claims of any of the Patent Rights which have
not been finally adjudicated to be invalid by a court of competent jurisdiction.

         2.6 "Net  Sales"  means  gross  sales,  royalties  or fees  invoiced to
customers  less  only:  returns  and  allowances   actually  granted,   packing,
insurance,  freight out,  taxes or excise  duties  imposed on the  transactions,
wholesale  and cash  discounts  actually  granted,  and  charges or  portions of
charges disallowed by third party payors or care managers.

         2.7 "Orthopaedic  Applications"  shall include,  and be limited to, the
use of the  Technology  Rights  in  connection  with:  Treatment  of  fractures,
osteoarthritis  or  osteoporosis,  treatment  of damage to  meniscus,  ligament,
cartilage or tendon,  preparation  or  application  of segmental  bone  filling,
coating  or  preparation  of bone or joint  implants,  and spinal  fusion  (bone
related).

         2.8 "Patent  Rights"  means the ownership of or  comprehensive  license
rights to the Patents.

         2.9 "Patents" means U.S.  patents Number  5,352,664 and 5,500,412,  all
related foreign patents,  including patents issued in Europe,  Canada and Japan,
and any divisional,  continuation,  and  continuation-in-part  applications  and
patents based thereon, any reissues or extensions thereof, and any corresponding
or additional United States and foreign patent applications.

         2.10  "Technology  Rights" means the Patent Rights,  plus the Chrysalis
Technology, and all related know-how, trade secrets and trademarks.

                    III. SHARE PURCHASE AND EVALUATION PERIOD

         3.1 Preferred Stock. At the time this Agreement is executed, OrthoLogic
shall pay to  Chrysalis,  via  direct  wire  transfer  of funds  into an account
specified by Chrysalis,  $750,000 for 136,364 shares of the Series B Convertible
Preferred Stock of Chrysalis, at a purchase price of $5.50 per share, which will
constitute  approximately 7.0% of the equity of Chrysalis upon the completion of
the current Series B Preferred offering.  The rights of these shares are defined
in the Series B Private Placement Memorandum dated August 1997.

         3.2  Evaluation  Period.  Beginning  on the  date  of  this  Agreement,
OrthoLogic shall have a nine-month exclusive evaluation period for the Chrysalis
Technology with respect to all Orthopaedic  Applications  including pre-clinical
trials, FDA discussions and clinical trial planning.
                                       -2-
<PAGE>
                         IV. OPTION GRANTS AND PAYMENTS

         Chrysalis  hereby  grants to  OrthoLogic a series of options to acquire
exclusive United States and worldwide  licenses,  as set forth below, to make or
have made,  use, sell and  sublicense  Licensed  Products  under the  Technology
Rights for Orthopaedic  Applications  of the type  described.  Each such license
shall run for the lives of all Patents and other patents owned by or licensed to
Chrysalis,  and related to any Licensed  Product,  which are appropriate for the
territory licensed. In exchange, OrthoLogic shall make the payments described in
this  Article IV. Such  payments  shall not be credited  against  royalties  due
pursuant to Article V. Promptly after  OrthoLogic  gives Chrysalis notice of its
determination to proceed and exercise its option to secure any license described
below,  the  parties  shall  complete  and  execute a Patent  License  Agreement
containing all provisions  contemplated by this Agreement and which otherwise is
in a form that is  commercially  reasonable for similar  licenses.  All payments
described herein shall be payable via wire transfer into an account specified by
Chrysalis.

         a. At or  before  September  30,  1998,  if  OrthoLogic  determines  to
proceed,  it shall pay an  additional  $750,000 to secure the  exclusive  United
States license for fracture applications.

         b. On or before December 31, 1998, if OrthoLogic determines to proceed,
it shall pay an  additional  $250,000  to  continue  its  option  to expand  its
exclusive  United  States  license for fracture  applications  into an exclusive
worldwide  license and to continue  its option to license all other  Orthopaedic
Applications.

         c. On or before June 30, 1999, if OrthoLogic  determines to proceed, it
shall pay an additional  $500,000 to secure the exclusive  United States license
for all Orthopaedic Applications (except for fracture applications,  which would
already have been licensed).

         d. On or before June 30, 1999, if OrthoLogic  determines to proceed, it
shall pay an additional $1,000,000 to secure the exclusive worldwide license for
all Orthopaedic Applications, including fracture applications. The parties agree
to negotiate in good faith with respect to reasonable  additional  payments that
will be based on commercialization of TP508 outside the United States.

         e. OrthoLogic  shall pursue the following  milestones on a best efforts
basis  and  make  the  following  additional  payments  to  Chrysalis  upon  the
occurrence  of the events or at the required  time noted in item (v), so long as
OrthoLogic,  one  of  its  Affiliates,  or  a  sublicensing  partner,  is  still
proceeding with the license or licenses contemplated by each such payment:

                  (i)      $500,000  upon  FDA  approval  of  the  IDE or IND to
                           initiate a fracture healing clinical trial.

                  (ii)     $500,000 upon submission to the FDA of a PMA, NDA, or
                           equivalent   application  for  the  fracture  healing
                           indication.
                                       -3-
<PAGE>
                  (iii)    $3,500,000 upon FDA approval for the fracture healing
                           indication.

                  (iv)     $500,000 upon initiation of an FDA-approved  clinical
                           trial for each new orthopaedic indication.

                  (v)      If an  FDA-approved  clinical  trial  for  the  first
                           additional  Orthopedic  application has not been made
                           by June 30, 2000,  the $500,000  payment will be made
                           in advance for the FDA  approved  clinical  trial for
                           the first additional Orthopedic application.

                  (vi)     $2,000,000  upon FDA approval of each new orthopaedic
                           indication.

         f.  If  OrthoLogic  fails  to  meet  the  milestones  or  does  not use
reasonable  efforts to  commercialize  Chrysalis  Products in the United States,
provided  that the  conditions  described in (h) below are met, (i) at any time,
Chrysalis  shall  have the  option to convert  the  United  States  license to a
non-exclusive  license, or (ii) at any time after June 30, 1999, Chrysalis shall
have the option to terminate the United States license completely.

         g. If OrthoLogic  exercises its right to secure the exclusive worldwide
license for all Orthopaedic  Applications,  and if OrthoLogic  fails to meet the
milestones  or does  not  use  reasonable  efforts  to  commercialize  Chrysalis
Products  internationally,  provided that the conditions  described in (h) below
are met,  (i) at any  time,  Chrysalis  shall  have the  option to  convert  the
worldwide license to a non-exclusive license, or (ii) at any time after June 30,
2000,  Chrysalis  shall  have the  option to  terminate  the  worldwide  license
completely.

         h. In order to  exercise  the options  described  in (f) and (g) above,
Chrysalis  shall  give  OrthoLogic  75  days  written  notice  of  the  proposed
conversion or  termination,  provided that, in either case,  the  termination or
conversion  shall not  become  effective  if within  the 75 days  following  the
effective date of the notice,  OrthoLogic  provides written evidence that it has
commercialized  or is actively  attempting to  commercialize a Licensed  Product
within the US or internationally as appropriate. Evidence provided by OrthoLogic
that it has an ongoing and active research, development,  regulatory compliance,
manufacturing,  marketing or licensing  program as appropriate,  directed toward
production and sale of Licensed  Products  within the US or  internationally  as
appropriate shall be deemed satisfactory evidence of using best efforts.

         i. In the event that  either  the US or the  World-wide  license  for a
specific  application is forfeited by OrthoLogic,  Chrysalis will have access to
all data collected specifically related to that application.

                                  V. ROYALTIES

         5.1  Percentages.  After the parties  have  executed  the first  patent
license  contemplated by this Agreement,  OrthoLogic  shall pay to Chrysalis for
such license and all other the licenses to the  Technology  Rights  subsequently
granted hereunder,  royalties for sales of Licensed Products calculated pursuant
to the table which follows this  paragraph.  For purposes of these  calculations
                                       -4-
<PAGE>
all  sales  under all  licenses  granted  pursuant  to this  Agreement  shall be
cumulated and treated as a single amount.

                    Incremental Sales    Royalty Rate

                    First  $20 million        8.0%
                    Next   $30 million        6.0%
                    Next   $50 million        5.0%
                    Next  $100 million        4.0%
                    Over  $200 million        2.5%


         5.2  Minimums.  For each year after  Commercialization,  regardless  of
actual sales, OrthoLogic shall pay (for all licenses to all technology or patent
rights licensed from Chrysalis pursuant to this Agreement),  during the first 12
months  after  Commercialization  of at least  $250,000,  royalties  of at least
$500,000 during the second 12 months after  Commercialization,  and royalties of
at least $750,000  during the third 12 months after  Commercialization.  In that
regard,  OrthoLogic  shall  pay to  Chrysalis  a  sufficient  amount in its last
quarterly payment for each calendar year to reach the minimum annual royalty.



                            VI. PAYMENTS AND REPORTS

         6.1 Reports.  OrthoLogic  shall  provide to  Chrysalis,  on a quarterly
basis, a written report of all sales of Licensed Products for which a royalty is
due or payable under this Agreement.  Such report shall be due within 45 days at
the end of each calendar quarter, whether or not royalties are due, and shall be
accompanied by a remittance from OrthoLogic to Chrysalis of all earned royalties
specified by Sections 5.1 and 5.2.

         6.2 Records.  OrthoLogic  shall keep  suitable  books of records of all
manufacture,  use,  or sale of  Licensed  Products  for which a  royalty  is due
hereunder for at least three years, unless in dispute, in which event they shall
be kept until such dispute is settled, and shall make such records available for
inspection by  Chrysalis,  or its designee,  upon  reasonable  notice and during
normal hours of operation of OrthoLogic.

         6.3 Third Party Contest.  If a third party contests the validity of any
of the  Patent  Rights  granted  hereunder,  OrthoLogic  shall  continue  to pay
royalties with respect to that patent as if such contest were not underway until
the patent is adjudicated invalid or unenforceable by a court of last resort.

                         VII. TRANSFERS AND SUBLICENSES

         OrthoLogic  may  transfer any Licensed  Products to any  Affiliates  or
sublicensees  without  any  such  transfers  being  considered  as  sales of the
Licensed  Products.  OrthoLogic  may also  sublicense  any of the license rights
granted  hereunder  provided  that:  (1) each  Affiliate or sublicensee to which
OrthoLogic  sublicenses  agrees in writing to honor the terms of this
                                      -5-
<PAGE>
Agreement  and (2)  OrthoLogic  agrees to pay to  Chrysalis  milestone  payments
described in Article IV and the earned royalty due under Section 4.2 for all Net
Sales of Licensed  Products by any Affiliate or sublicensee  just as if such Net
Sales were made directly by OrthoLogic.


                      VIII. PURCHASES OF CHRYSALIS PRODUCTS

         8.1  Chrysalis  to  Manufacture.  Except as  provided  in  Article  IX,
Chrysalis  will  retain all  exclusive  rights to  manufacture  TP508 or related
peptides  to be used in  Licensed  Products,  and in  product  development,  for
Orthopaedic  Applications,  and  OrthoLogic  agrees to  purchase  such  peptides
exclusively from Chrysalis for all preclinical  studies,  clinical  trials,  and
final end-product sales.

         8.2 Materials Transfer Agreement.  Promptly after the execution of this
Agreement,  the parties will prepare and execute a materials transfer agreement,
with commercially  reasonable terms, whereby, until the expiration of all patent
license  agreements  contemplated  by this  Agreement,  Chrysalis  will agree to
provide TP508 or related  peptides for  preclinical  studies (GLP or equivalent,
lot verified) in 1 milligram  vials (not sterile) for $150 per milligram or in 5
milligram vials (not  sterilized) for $80 per milligram ($400 per vial).  During
the  term of any  patent  license  agreement  contemplated  by  this  Agreement,
Chrysalis will also supply TP508 or related peptides for end-product manufacture
and  commercial  use, as follows:  Small  quantity vials (up to 3 micrograms per
vial),  sterile,  delivered,  $15.00  each;  and 5-10  gram  bulk,  non-sterile,
delivered $3.00 per microgram.

         8.3 Payment. The purchase price for each Chrysalis Product purchased by
OrthoLogic  shall  be due and  payable  30 days  after  the date of  receipt  by
OrthoLogic

         8.4 Forecasts.  During the first 90 days of 1998, with respect to 1998,
and no later  than 30 days  prior to the start of the year with  respect to 1999
and later years, OrthoLogic and Chrysalis will agree to a reasonable forecast of
the number of Chrysalis Products, by type, that will be purchased from Chrysalis
by  OrthoLogic  during the  appropriate  calendar  year and during each  quarter
thereof.  OrthoLogic will be required to purchase at least 100% of the quarterly
amounts as forecasted.  However,  OrthoLogic may revise each quarterly  forecast
plus or minus 50% of the original  forecasted  amount,  provided that changes to
the  forecast  for a  quarter  must be made no later  than the  first day of the
preceding quarter.

         8.5  Shipment  and  Risk.   Chrysalis  will  ship  to  OrthoLogic,   at
Chrysalis's  expense,  the  Chrysalis  Products  that are  actually  ordered  as
specified in the  appropriate  binding  purchase  order.  Title and risk of loss
shall pass to OrthoLogic when the Chrysalis Product is delivered to OrthoLogic.

         8.6 Chrysalis'  Obligation.  To the extent that the amount of Chrysalis
Products  ordered by OrthoLogic with respect to any quarter does not exceed 125%
of the higher of (i) the  forecast  made  pursuant  to Section  8.4, or (ii) the
average amount ordered  during the prior three months,  Chrysalis  agrees to use
its best  efforts to  manufacture  and ship the  Chrysalis  Products  ordered by
OrthoLogic within 30 days after receipt of the appropriate purchase order.
                                      -6-
<PAGE>
                      IX. ORTHOLOGIC'S RIGHT TO MANUFACTURE

         9.1 OrthoLogic  Right.  OrthoLogic  shall have the right to manufacture
Chrysalis Products for exclusive use in areas granted to OrthoLogic by Chrysalis
if Chrysalis fails to deliver Chrysalis Products as specified in Section 9.2, or
upon the  occurrence of any of the events  described in Section 9.3. In any such
event, the contents of the escrow described in Section 9.4 shall be delivered to
OrthoLogic promptly.  If the contents of the escrow are delivered to OrthoLogic,
OrthoLogic  shall take reasonable  steps to protect the  confidentiality  of the
escrowed materials.

         9.2  Grace  Period.  Chrysalis  shall  have a  minimum  of four  months
following any applicable date for the delivery of Chrysalis Products in which to
deliver at least 90% of the Chrysalis Products due on such date, as contemplated
by Section 8.6.

         9.3 Other Events.  OrthoLogic  shall also have the right to manufacture
Chrysalis Products upon the occurrence of any of the following events:

         a. Chrysalis has ceased its on-going business operations,  or the sale,
licensing,  proper  maintenance  or other  reasonable  support of the Technology
Rights; or either cannot manufacture or elects to discontinue the manufacture of
Chrysalis Products.

         b.  Chrysalis has availed itself of, or been subjected by a third party
to, a proceeding in bankruptcy in which Chrysalis is the named debtor;  there is
an assignment by Chrysalis for the benefit of its creditors the appointment of a
receiver for  Chrysalis or any other  proceeding  involving  the  insolvency  of
Chrysalis or the protection of or from its creditors,  and the same has not been
discharged  or  terminated  without  any  prejudice  to  OrthoLogic's  rights or
interests  under  this  License  Agreement  within  60 days  (unless  reasonable
alternative provisions have been made to protect the rights of OrthoLogic).

         c. Any other  event or  circumstance  occurs  which  demonstrates  with
reasonable  certainty the inability or unwillingness of Chrysalis to fulfill its
obligations to OrthoLogic, including, without limitation, the maintenance of and
the correction of defects in the Chrysalis Products.

         9.4  Escrow.  Chrysalis  agrees  that it  will  enter  into  an  escrow
agreement  with a third party  acceptable to Chrysalis and  OrthoLogic  and will
deposit with the escrow agent all  formulae and  specifications  relating to the
Chrysalis  Products and their  production,  including  all relevant  commentary,
explanations and other documentation, as well as instructions sufficient for the
production of such products,  and will name OrthoLogic as the beneficiary of the
escrow  agreement.  The cost of the escrow agent's  services  pertaining to this
Agreement will be split equally between OrthoLogic and Chrysalis.

         9.5 Expiration of OrthoLogic Limited Manufacturing Right. Chrysalis can
regain  the  right  to  manufacture  products  for  OrthoLogic  (thereby  ending
OrthoLogic's  Limited  Right  to  Manufacture)  if it can  provide  satisfactory
written evidence that it can meet  OrthoLogic's  supply
                                      -7-
<PAGE>
needs  for a period  of at least one year.  Sufficient  evidence  shall  include
having a  sufficient  inventory of Chrysalis  Products  for  OrthoLogic  to meet
OrthoLogic's needs, or other written documentation that demonstrates  Chrysalis'
ability to provide  products to  OrthoLogic  in a timely  matter as described in
this Agreement.  OrthoLogic will still retain the right to regain  manufacturing
rights whenever Chrysalis fails to perform as described in Section 9.1.

                               X. PRODUCT CHANGES

         10.1  Improvements.  From time to time,  OrthoLogic  or  Chrysalis  may
identify possible improvements or change opportunities with respect to Chrysalis
Products for Orthopedic  Applications.  Chrysalis and  OrthoLogic  agree to work
together to determine  whether  appropriate  and  cost-effective  changes can be
engineered and cleared through applicable regulatory agencies.

         10.2 Pricing. After the occurrence of a situation of the type described
in paragraph 10.1, Chrysalis will work with OrthoLogic to design an orderly plan
for the introduction and pricing of such modifications,  with particular concern
for the prior pricing structure, the benefits to the treatment of patients using
or  potentially  using the Chrysalis  Products and the efficient and  profitable
operation of the businesses of Chrysalis and OrthoLogic.

                                    XI. TERM

         11.1 The term of this agreement shall extend from the effective date of
execution  until the  expiration  of the last to expire of any  licensed  Patent
Rights granted hereunder.

         11.2 During the term of this agreement OrthoLogic agrees not to contest
the validity of any patent or the technology rights of Chrysalis relative to any
Chrysalis Technology.

                           XII. WARRANTY AND INDEMNITY

         12.1  Patent  Warranty.  Chrysalis  warrants  (i) that it owns or holds
comprehensive  license  rights  to  all  of the  Patents  and  to the  Chrysalis
Technology, (ii) that it has the power to enter into this Agreement with respect
to the Patents and Chrysalis  Technology,  (iii) that no other party is or shall
be entitled to use technology  licensed  exclusively to OrthoLogic  hereunder by
virtue  of  invention  or  funding   claims  or  otherwise  for  the  Orthopedic
Applications  granted to  OrthoLogic,  except for limited  rights granted to the
National  Institutes of Health to use Chrysalis  Products for research purposes,
(iv) that Chrysalis is and shall remain in good standing and in full  compliance
under its Patent License  Agreement  dated November 10, 1995,  with the Board of
Regents of the University of Texas System, and (v) that it shall maintain all of
the Patents.

         12.2 Standard Warranty.  Chrysalis'  standard warranty will be provided
prior to the  commencement  of clinical  trials  conducted by  OrthoLogic.  This
warranty shall apply to all Chrysalis Products, and shall run to OrthoLogic, the
ultimate  user and any  intermediate  owners  of the  Chrysalis  Products.  Such
warranty shall  include,  at least,  warranty of title and  assurances  that the
Chrysalis Products are free from defects in workmanship or materials.
                                      -8-
<PAGE>
         12.3  Approvals.  All applicable  filings,  consents and expirations of
waiting periods required by law,  regulatory  authorities,  existing licenses or
contracts with respect to the execution of this Agreement have been obtained, or
expired.

         12.4  Limitation  of  Liability.  Neither  party shall be liable to the
other  party  or any  third  party  for any  special  or  consequential  damages
whatsoever,  however  arising,  in connection  with the performance or breach of
this Agreement.

         12.5 Patents, Trademarks,  Marketing and Products Liability.  Chrysalis
agrees,  to defend,  indemnify and hold harmless  OrthoLogic and its affiliates,
and their officers,  directors,  shareholders,  employees,  agents,  successors,
assigns and  customers,  from and against all actions,  proceedings,  judgments,
claims,  liabilities,   losses  or  expenses  whatsoever  (including  reasonable
attorneys'  fees) in connection  with: (i) allegations that any Licensed Product
or Chrysalis  Product sold  infringes  any  intellectual  property,  contract or
license rights, or any U.S. or foreign patents,  patents pending, or trademarks;
(ii)  allegations  that any  advertising  or  marketing  conducted  by Chrysalis
violates  any state or  federal  law or  regulation;  (iii)  allegations  of any
liability,  loss,  cost or damage arising from an alleged defect in or breach of
warranty  with respect to any Chrysalis  Product;  and (iv)  allegations  of any
liability,  loss, cost or damages arising from any safety claim with any respect
to any Chrysalis Product.

         12.6  Insurance.   Chrysalis  will  add  OrthoLogic,  and  OrthoLogic's
Affiliates (if requested),  as additional  insureds with  Chrysalis's  insurance
carrier for liability  limited to claims made due to  deficiencies  of Chrysalis
Products,  and a certificate of insurance  shall be provided to OrthoLogic  upon
its  request.  The amount of  insurance  and the  carrier  will be of an amount,
quality and rating  reasonably  acceptable to OrthoLogic.  Likewise,  OrthoLogic
will add Chrysalis as additional  insureds with  OrthoLogic's  insurance carrier
limited to claims made as a result of modifications made to Chrysalis  Products,
conduct of clinical trials, and marketing of Chrysalis Products.

         12.7 FDA  Recalls.  Chrysalis  shall be  responsible  for all costs and
replacements  directly  resulting  from the recall of any Chrysalis  Products as
required  by the FDA or any  successor  agency or by  Chrysalis,  so long as the
recall is not a result of  modifications  or further  manufacturing of Chrysalis
Products conducted by OrthoLogic.

                      XIII. REPRESENTATIONS AND WARRANTIES
                                  OF ORTHOLOGIC

         13.1 Duly Organized. OrthoLogic is duly organized, validly existing and
in good standing under the laws of the State of Delaware.

         13.2 Power and  Authority.  OrthoLogic  has full power and authority to
own its  properties  and  assets  and to  carry  on its  business  as now  being
conducted.

         13.3 Fully Authorized.  OrthoLogic is fully authorized and permitted to
enter into this Agreement,  to execute any and all documentation required herein
and to perform the terms of this 
                                      -9-
<PAGE>
Agreement.  This Agreement and each of the other documents  contemplated  herein
are valid and binding legal obligations of OrthoLogic and each is enforceable in
accordance with its terms.

         13.4 No Breach or Default.  The execution,  delivery and performance by
OrthoLogic of this Agreement and any other  documents  contemplated  hereby will
not  conflict  with or result  in a  default  under:  (i) any  provision  of the
organizational documents of OrthoLogic, (ii) any law or regulation applicable to
OrthoLogic,  or (iii) the terms,  conditions  or  provisions  of any  agreement,
license or other  instrument  to which  OrthoLogic is a party or, by which it is
bound.  OrthoLogic  is not in default in the  performance  or  observance of any
covenants, conditions or provisions of any such agreement license or instrument.

         13.5 No Adverse  Proceedings.  No  actions,  suits or  proceedings  are
pending  or  threatened  against  OrthoLogic  that  could  result in a  Material
OrthoLogic  Adverse  Effect.  OrthoLogic  is not in default  with respect to any
order,  writ,  injunction  or  decree,  of any court,  governmental  department,
commission,  board, agency or official, which default could result in a Material
OrthoLogic Adverse Effect.  "Material OrthoLogic Adverse Effect" as used in this
Agreement shall mean any event or condition, in the reasonable business judgment
of  Chrysalis  that  either (i) would have a material  adverse  effect  upon the
validity,  performance  or  enforceability  of this  Agreement,  or any document
contemplated  hereby, (ii) is material and adverse to the properties,  financial
condition,  credit, business operations or prospects of OrthoLogic,  (iii) would
impair  the  ability  of  OrthoLogic  to  fulfill  its  obligations  under  this
Agreement, or any other document contemplated hereby, or (iv) causes a breach of
this  Agreement  or an event or  condition  that with notice or lapse of time or
both, would become a breach of this Agreement.

         13.6 Financial Statements Correct. All financial statements, profit and
loss  statements,  statements  as to ownership  and other  statements or reports
previously or hereafter given to Chrysalis by or on behalf of OrthoLogic are and
shall be true,  complete and correct as of the date  thereof.  There has been no
change since the latest  financial  statements of OrthoLogic  given to Chrysalis
that could have a Material OrthoLogic Adverse Effect.

                       XIV. REPRESENTATIONS AND WARRANTIES
                                  OF CHRYSALIS

         14.1 Duly Organized.  Chrysalis is duly organized, validly existing and
in good standing under the laws of the State of Texas.

         14.2 Power and Authority. Chrysalis has full power and authority to own
its properties and assets and to carry on its business as now being conducted.

         14.3 Fully  Authorized.  Chrysalis is fully authorized and permitted to
enter into this Agreement,  to execute any and all documentation required herein
and to perform the terms of this Agreement. This Agreement and each of the other
documents  contemplated  herein  are  valid and  binding  legal  obligations  of
Chrysalis and each is enforceable in accordance with its terms.

         14.4 No Breach or Default.  The execution,  delivery and performance by
Chrysalis of this Agreement and any other documents contemplated hereby will not
conflict  with  or  result  in  a  
                                      -10-
<PAGE>
default under: (i) any provision of the  organizational  documents of Chrysalis,
(ii)  any law or  regulation  applicable  to  Chrysalis,  or  (iii)  the  terms,
conditions or provisions of any agreement,  license or other instrument to which
Chrysalis  is a party or, by which it is bound.  Chrysalis  is not in default in
the performance or observance of any covenants,  conditions or provisions of any
such agreement license or instrument.

         14.5 No Adverse  Proceedings.  No  actions,  suits or  proceedings  are
pending  or  threatened  against  Chrysalis  that  could  result  in a  Material
Chrysalis Adverse Effect. Chrysalis is not in default with respect to any order,
writ, injunction or decree, of any court,  governmental department,  commission,
board,  agency or official,  which default could result in a Material  Chrysalis
Adverse Effect.  "Material  Chrysalis  Adverse Effect" as used in this Agreement
shall  mean any event or  condition,  in the  reasonable  business  judgment  of
OrthoLogic,  that  either  (i) would  have a material  adverse  effect  upon the
validity,  performance  or  enforceability  of this  Agreement,  or any document
contemplated  hereby, (ii) is material and adverse to the properties,  financial
condition,  credit,  business operations or prospects of Chrysalis,  (iii) would
impair the ability of Chrysalis to fulfill its obligations under this Agreement,
or any  other  document  contemplated  hereby,  or (iv)  causes a breach of this
Agreement  or an event or  condition  that with notice or lapse of time or both,
would become a breach of this Agreement.

         14.6 Financial Statements Correct. All financial statements, profit and
loss  statements,  statements  as to ownership  and other  statements or reports
previously or hereafter given to OrthoLogic by or on behalf of Chrysalis are and
shall be true,  complete and correct as of the date  thereof.  There has been no
change since the latest  financial  statements of Chrysalis  given to OrthoLogic
that could have a Material Chrysalis Adverse Effect.

                            XV. AFFIRMATIVE COVENANTS

         So long as OrthoLogic has an option or license hereunder:

         15.1 Maintain Contracts and Licenses.  Chrysalis shall maintain in full
force and effect all agreements, rights and licenses necessary for OrthoLogic to
market and sell Licensed Products, without any costs, royalties, fees or burdens
except those stated in this Agreement or resulting from OrthoLogic's  operations
in the ordinary course of business.

         15.2 Comply With Laws.  Chrysalis will comply in all material  respects
with all applicable laws.

         15.3 Maintain  Insurance.  Chrysalis and  OrthoLogic  shall maintain in
full force and effect at all times all insurance required by this Agreement.

         15.4  Statements  and  Reports.  Chrysalis  shall  maintain a standard,
modern system of accounting that reflects the application of generally  accepted
accounting  principles,  consistently  applied,  and Chrysalis  shall furnish to
OrthoLogic, all in a form acceptable to OrthoLogic, the following:
                                      -11-
<PAGE>
                  15.4.1  Within 90 days  after the end of each  fiscal  year of
Chrysalis,  financial  statements of Chrysalis for that fiscal year signed by an
officer,  including  without  limitation,  a  balance  sheet,  profit  and  loss
statement and statement of cash flows.

                  15.4.2 Within 15 days after the end of each calendar  quarter,
internally  prepared  financial  statements  of  Chrysalis,  prepared on a basis
consistent with Chrysalis's year-end financial statements, certified as true and
correct by the president or principal financial officer of Chrysalis.

                  15.4.3 A statement of litigation  matters involving  Chrysalis
that could cause a Material  Chrysalis  Adverse  Effect,  such  statement  to be
furnished  within  five days after date of  service  of such  litigation  or the
occurrence of any significant change.

                  15.4.4  Promptly,  from time to time,  such other  information
regarding the operations,  business affairs and financial condition of Chrysalis
as OrthoLogic may reasonably request.

         15.5 Records.  Chrysalis  shall maintain,  in a safe place,  proper and
accurate  books,  ledgers,  correspondence  and other  records  relating  to its
operations and business  affairs.  OrthoLogic  shall have the right from time to
time to  examine  and  audit  and to make  abstracts  from  and  photocopies  of
Chrysalis's  books,  ledgers,  correspondence  and other records relevant to the
subject matter of this Agreement.  OrthoLogic  shall maintain,  in a safe place,
proper and accurate books, ledgers, correspondence and other records relating to
its operations and business affairs. Chrysalis shall have the right from time to
time to  examine  and  audit  and to make  abstracts  from  and  photocopies  of
OrthoLogic's  books,  ledgers,  correspondence and other records relative to the
subject matter of this Agreement.

         15.6  Further  Assurances.  Chrysalis  shall  execute and deliver  such
additional documents and do such other acts as OrthoLogic may reasonably require
in connection with this Agreement.

                                  XVI. GENERAL

         16.1 Attachments.  All Exhibits, schedules or other attachments to this
Agreement are  incorporated  herein by this  reference as though fully set forth
herein.  In the event of any conflict,  contradiction  or ambiguity  between the
terms and  conditions in this  Agreement  and any of its Exhibits,  schedules or
attachments, the terms of this Agreement shall prevail.

         16.2  Attorneys  Fees. If any  litigation or  arbitration  is commenced
between the parties  hereto or their  successors  in  interest,  concerning  any
provisions of this Agreement, or the rights and duties of any person in relation
thereto,  the  party  prevailing  in such  litigation  or  arbitration  shall be
entitled,  in addition to such other  relief as may be granted,  to a reasonable
sum for its attorney's  fees and litigation  costs as determined by the court or
arbitrator, and not by a jury, or in a separate action brought for that purpose.

         16.3  Authorization  and  Signatures.  By  signing  below,  each  party
represents  that  this  Agreement  has  been  duly  authorized  by its  Board of
Directors and constitutes an agreement by which it is bound.
                                      -12-
<PAGE>
         16.4 Binding Effect; Benefits. This Agreement shall be binding upon and
shall  inure to the benefit of the parties  hereto and their  respective  heirs,
successors,  executors,  administrators  and assigns.  Notwithstanding  anything
contained  in  this  Agreement  to the  contrary,  nothing  in  this  Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective  heirs,  successors,  executors,  administrators  and
assigns any rights,  remedies,  obligations or liabilities under or by reason of
this Agreement.

         16.5 Construction. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning and not strictly
for or against either party. The Article and Section headings  contained in this
Agreement  are for  reference  purposes  only and will not affect the meaning or
interpretation  of this  Agreement  in any way.  All terms used in one number or
gender  shall be  construed to include any other number or gender as the context
may require.  The parties agree that each party has reviewed this  Agreement and
has had the  opportunity  to have  counsel  review the same and that any rule of
construction  to the effect  that  ambiguities  are to be  resolved  against the
drafting  party shall not apply in the  interpretation  of this Agreement or any
amendment or any exhibits  thereto.  Except in the  definition  of  "Orthopaedic
Application,"  whenever the words "include," "includes," or "including" are used
in the  Agreement,  they shall be deemed to be  followed  by the words  "without
limitation."

         16.6 Legal and Brokerage  Fees. Each party shall pay and be responsible
for its legal fees,  accounting fees, and related expense incurred in connection
with the preparation and execution of this Agreement.  Chrysalis shall be solely
responsible  for any fee payable to any broker of finder claiming as a result of
an agreement with Chrysalis or because of Chrysalis'  actions.  OrthoLogic shall
be solely  responsible for any fee payable to any broker or finder claiming as a
result of an agreement with OrthoLogic or because of OrthoLogic's actions.

         16.7.  Publicity.  Each of the parties agrees that it will not make any
public  statements  regarding this Agreement  without first consulting the other
party hereto in order that such public  statement shall be jointly issued by the
parties,  except  to the  extent  required  by law,  provided  that in any  such
situation,  the  party  seeking  to make the  disclosure  agrees to use its best
efforts to provide the other party with  advance  notice of any such request for
disclosure  as  promptly  as  feasible  in order that the other party may seek a
protective  order or such  other  appropriate  remedy as the other  party  deems
necessary.

         16.8  Continuing  Cooperation.  Each party to this  Agreement  shall be
obligated  hereunder to perform such other and further acts,  including  without
limitation the execution of any documents or  instruments,  which are reasonable
and may be  necessary  or  convenient  in carrying out the purpose and intent of
this Agreement.

         16.9 Counterparts. This Agreement may be executed simultaneously in any
number of  counterparts,  each of which shall be deemed an  original  but all of
which together shall constitute one and the same agreement.

         16.10  Entire  Agreement.  This  Agreement,  plus  the  Confidentiality
Agreement  executed by the parties in December 1997 constitute the final written
expression  of all of the  agreements  
                                      -13-
<PAGE>
between the parties with respect to the Chrysalin  Technology and the Technology
Rights and are a complete and exclusive statement of those terms. They supersede
all understandings and negotiations concerning the matters specified herein, and
shall take precedence over all inconsistent provisions in any purchase orders or
any other  documents  unless  agreed to in  writing  by both  parties.  Any oral
representations,  promises,  warranties or statements  made by either party that
relate to the license granted  hereunder and differ in any way from the terms of
this written Agreement and the Confidentiality Agreement shall be given no force
or effect. The parties specifically represent, each to the other, that there are
no additional or supplemental  agreements between them related in any way to the
Chrysalin  Technology or the Technology Rights unless  specifically  included or
referred to herein.  No addition to or  modification  of any  provision  of this
Agreement  shall be binding  upon any party unless made in writing and signed by
all parties.

         16.11 Force  Majeure.  Neither  party shall be in default  hereunder by
reason of its delay in the  performance  of or  failure  to  perform  any of its
obligations  hereunder,  if such delay or failure is caused by strikes,  acts of
God  or  a  public  enemy,  riots,  fire,  interference  by  civil  or  military
authorities,  compliance with governmental  laws, rules,  regulations or orders,
delays in  transit  or  delivery,  inability  to secure  necessary  governmental
priorities or materials, or any fault beyond its control or without its fault or
negligence.

         16.12  Indemnification  and  Attorney's  Fees.  Each of OrthoLogic  and
Chrysalis  shall  defend,   indemnify  and  hold  harmless  the  other  and  its
affiliates,  employees,  officers,  directors  and agents  from and  against all
fines, suits, proceedings, claims, demands, debts, obligations,  liabilities and
actions of any kind by anyone (including  reasonable  attorney's fees and costs)
allegedly  arising from or connected  with (i)  violations  by the  indemnifying
party of any law,  ordinance,  rule or  regulation  of the United  States or any
state or city or other  international  or domestic  governmental  body, (ii) the
indemnifying  party's  actions or omissions in  furtherance  of this  Agreement,
(iii) any breach of a representation  or warranty by or any breach or default in
the  performance of any obligation of the  indemnifying  party, or (v) any other
activities or operations of the  indemnifying  party,  its employees,  officers,
directors or agents.

         16.13 Notice. All notices, demands,  instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise  provided herein,
shall be deemed to have been given for all purposes (i) upon personal  delivery,
(ii) one day after  being  sent,  when sent by  professional  overnight  courier
service from and to locations within the continental  United States,  (iii) five
days after posting when sent by United States registered or certified mail, with
postage paid, or (iv) on the date of  transmission  when sent by facsimile  with
evidence  of  transmission  and hard copy  mailed,  if directed to the person or
entity to which  notice is to be given at his or its  address  set forth in this
Agreement  or at any other  address  such  person or entity  has  designated  by
notice.

         16.14 Severability. If any term or other provision of this Agreement is
invalid,  illegal or incapable  of being  enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the transactions  contemplated  hereby are not affected in any manner materially
adverse  to  either  party.  Upon  such  determination  that  any  term or other
provisions is invalid, illegal or incapable of being enforced, the parties shall
negotiate  in good faith to modify this  Agreement  so as to effect the original
intent of the parties as closely as possible in a 
                                      -14-
<PAGE>
mutually  acceptable  manner in order that the  transactions  be  consummated as
originally contemplated to the fullest extent possible.

         16.15  Survival.  The rights and  obligations of those Sections of this
Agreement  that by their nature  survive and continue  after any  expiration  or
termination  of  this  Agreement,   shall  bind  the  parties  and  their  legal
representatives, successors, heirs and assigns after expiration or termination.

         16.16  Waiver.  The  failure  of  either  party  to  insist  on  strict
performance of any term or condition  hereof or to exercise any option contained
herein, shall not be construed as a waiver of that party's right to enforce that
term of condition in the future or any other term or condition to this Agreement
in any other instance.

         16.17 Independent Entities. Chrysalis and OrthoLogic each have separate
and independent  rights and obligations under this Agreement.  Nothing contained
herein shall be construed as creating,  forming or constituting any partnership,
joint  venture,  merger or  consolidation  of Chrysalis and  OrthoLogic  for any
purpose or in any respect.

         16.18 Signature. This Definitive Agreement may be executed by facsimile
or manual signatures.

         IN  WITNESS  WHEREOF,  OrthoLogic  and  Chrysalis  have  executed  this
Agreement as of the day and year first written above.

                                        CHRYSALIS BIOTECHNOLOGY, INC.

                                        By /s/ Darrell H. Carney, Ph.D.
                                          -------------------------------
                                             Darrell H. Carney, Ph.D.
                                             President


                                        ORTHOLOGIC CORP.

                                        By /s/ Thomas R. Trotter
                                          -------------------------------
                                             Thomas R. Trotter
                                             President