SEVERANCE AGREEMENT

         This Severance  Agreement,  which shall be effective as of May 21, 1997
is by and  between  David E.  Derminio  ("Derminio")  and  OrthoLogic  Corp.,  a
Delaware corporation, ("OrthoLogic").

RECITALS

         A. Derminio is currently employed as a Vice President of OrthoLogic.

         B. The parties mutually desire to provide for an orderly termination of
Derminio's employment by OrthoLogic,  all on terms satisfactory to both Derminio
and OrthoLogic, as further set forth in this Agreement.

AGREEMENTS

         In Consideration of the acts, payments, covenants and mutual agreements
contained herein, OrthoLogic and Derminio agree as follows:

         1. Modification of Current  Relationship.  Effective as of May 21, 1997
(the  "Date of  Termination"),  Derminio  shall  resign as a Vice  President  of
OrthoLogic.  From and  after the Date of  Termination,  Derminio  shall  have no
further  rights  or  duties  as an  employee  or  officer  for or on  behalf  of
OrthoLogic. Derminio acknowledges that OrthoLogic has no obligation to recall or
reemploy Derminio in the future.  Derminio  acknowledges that OrthoLogic was not
obligated to provide all  consideration  described in this  Agreement and that a
portion of such  consideration  constitutes an additional  benefit that is being
provided  to Derminio in exchange  for and in  consideration  for his  promises,
covenants and releases contained in this Agreement.

         2. Severance  Payment.  OrthoLogic  agrees to pay to Derminio an amount
equal to 12 months base salary,  over a 12-month period  beginning May 21, 1997,
at the  times  and in the  amounts  that  are  presently  paid  to  Derminio  in
accordance with the normal payroll procedures of OrthoLogic.

         3. Additional  Benefits.  So long as Derminio  continues to comply with
all requirements of this Agreement,  and provided  Derminio does not cancel this
Agreement  as provided in Paragraph  6,  Derminio  shall also be entitled to the
benefits described in Paragraphs 3.1 through 3.6.

         3.1      If Derminio elects continued coverage under COBRA,  OrthoLogic
                  agrees to pay an amount equal to  Derminio's  current  medical
                  insurance  premiums  for medical  benefits,  after the Date of
                  Termination, until the earlier to occur of 12 months
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                  following  the  Date of  Termination  or the time  when  other
                  coverage  becomes  available  to Derminio in  connection  with
                  other employment.

         3.2      OrthoLogic  agrees  to pay  up to  $10,000  for  out-placement
                  counseling  and assistance  provided by a mutually  acceptable
                  out-placement  firm;  provided  that such payment will only be
                  available  if such  service is  engaged  within 90 days of the
                  Date of Termination.

         3.3      OrthoLogic will provide a single lump-sum payment in the gross
                  amount  of   $18,953.57  in  lieu  of  club  dues  (which  had
                  previously been paid monthly).

         3.4      OrthoLogic  will  provide  a  mutually  acceptable  letter  of
                  reference.

         3.5      OrthoLogic will accelerate the vesting of options to acquire a
                  total of 10,000 shares of  OrthoLogic's  common  stock,  which
                  would  not  otherwise  vest,  so  that  such  options  will be
                  exercisable on the Date of Termination.

         3.6      OrthoLogic will extend the time in which Derminio can exercise
                  all  options  that have  vested as of the Date of  Termination
                  until November 30, 1997.

         4. Car Phone Payments.  OrthoLogic  will only pay Derminio  charges for
the mobile telephone in his automobile through May 31, 1997.

         5.  Release  and  Covenant  Not to  Sue.  Except  as  provided  in this
Agreement,  Derminio hereby releases, acquits and forever discharges OrthoLogic,
its subsidiaries,  affiliates,  directors, officers, employees and agents of and
from any and all actions, claims, damages,  expenses or costs of whatever nature
arising out of Derminio's  employment and the termination of such  relationship,
including, but not limited to, any rights or claims to any vacation, sick leave,
severance,  medical,  dental or any other benefits under the Company's  internal
policies,  under any federal,  state or local  statute or  regulation,  or under
common  law.  By way of  example  only  and  without  limiting  the  immediately
preceding paragraph,  this release is applicable to any cause of action,  right,
claim or liability under Title VII of the 1964 Civil Rights Act, Section 1981 of
the 1866  Civil  Rights  Act,  the Equal  Pay Act of 1963,  the  Americans  with
Disabilities  Act,  the Arizona  Civil  Rights Act,  the Age  Discrimination  in
Employment  Act  of  1967,  all as  amended,  and  any  other  equal  employment
opportunity  law or  statute,  or of  wrongful  discharge,  breach of implied or
express  contract,  breach  of the  covenant  of good  faith  and fair  dealing,
intentional or negligent  infliction of emotional  distress,  defamation and any
other claim in contract or tort.

         Derminio  further  covenants  and agrees not to join in or commence any
action,  suit or proceeding,  in law or in equity, or before any  administrative
agency,  or to incite,  encourage,  or participate  in any such action,  suit or
proceedings,  against  OrthoLogic,  its  subsidiaries,   affiliates,  directors,
officers,  employees  or agents in any way  pertaining  to or arising out of the
termination
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<PAGE>
of his employment by or service as an employee,  consultant, officer or director
of OrthoLogic, or any subsidiary of OrthoLogic.

         Derminio  acknowledges that the  consideration  afforded him under this
Agreement is in full and complete  satisfaction of any claims Derminio may have,
or may have had,  arising out of or relating to the  Employment  Agreement,  his
employment with OrthoLogic (or any subsidiary) or the termination thereof.

         6. Time Period for  Considering or Canceling this  Agreement.  Derminio
acknowledges  that  OrthoLogic has encouraged him to consult with an attorney of
his choice with respect to this Agreement. Derminio further acknowledges that he
has been  offered a period of time of at least 21 days to  consider  whether  to
sign this  Agreement,  and  OrthoLogic  agrees  that  Derminio  may cancel  this
Agreement  at any time  during the seven days  following  the date on which this
Agreement  has been signed by him. In order to cancel or revoke this  Agreement,
Derminio must deliver to OrthoLogic  2850 South 36th Street,  Suite 16, Phoenix,
Arizona 85034, Attention:  Chief Executive Officer,  written notice stating that
Derminio is canceling or revoking this Agreement.  If this Agreement is canceled
or revoked by Derminio  within such time period,  none of the provisions of this
Agreement  shall  be  effective  or  enforceable  and  OrthoLogic  shall  not be
obligated to make the  payments  described  in this  Agreement  except as may be
required by any other agreement.

         7.  Confidentiality  of  Agreement.  Derminio  agrees  to  maintain  in
confidence  the terms and existence of this Agreement and the  discussions  that
led to its creation and execution, with the exception that Derminio may disclose
such  matters  to any  attorney  who is  providing  advice to  Derminio,  to any
accountant or federal or state tax agency for purposes of complying with any tax
laws, or as otherwise required by law. Further,  Derminio  acknowledges that any
duties  of  confidentiality  imposed  upon  Derminio  by  agreement  or by  law,
including  without  limitation  those  imposed  by  Paragraphs  7 and 9 of  this
Agreement, shall survive the termination of Derminio's employment.

         8. Reliance. Derminio warrants and represents that (i) he has relied on
his own judgment regarding the consideration for and language of this Agreement;
that (ii)  OrthoLogic  has not in any way  coerced or unduly  influenced  him to
execute  this  Agreement;  and (iii) that this  Agreement is written in a manner
that is  understandable  to him and he has read and understood all paragraphs of
this Agreement.

         9. Confidential  Information.  Derminio  acknowledges  that, during his
employment  by  OrthoLogic,  Derminio has received and also  contributed  to the
production  of,  Confidential  Information.  For  purposes  of  this  Agreement,
Derminio  agrees  that  "Confidential  Information"  shall mean  information  or
material proprietary to OrthoLogic or designated as Confidential  Information by
OrthoLogic and not generally known by non-OrthoLogic  personnel,  which Derminio
developed or to which  Derminio  obtained  knowledge  or access  through or as a
result
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<PAGE>
of Derminio's  relationship with OrthoLogic  (including  information  conceived,
originated,  discovered or developed in whole or in part by Derminio).  Derminio
further agrees:

         9.1      To furnish  OrthoLogic on demand, a complete list of the names
                  and addresses of all present,  former and potential  customers
                  and other  contacts  gained  while an employee of  OrthoLogic,
                  whether or not in the  possession  or within the  knowledge of
                  OrthoLogic.

         9.2      That all notes,  memoranda,  documentation  and records in any
                  way  incorporating or reflecting any Confidential  Information
                  shall belong  exclusively to OrthoLogic,  and Derminio  agrees
                  promptly  to  turn  over  all  copies  of  such  materials  in
                  Derminio's control to OrthoLogic.

         9.3      That  Derminio  will hold in  confidence  and not  directly or
                  indirectly reveal, report,  publish,  disclose or transfer any
                  of the  Confidential  Information to any person or entity,  or
                  utilize any of the  Confidential  Information for any purpose,
                  except in the course of Derminio's work for OrthoLogic.

         9.4      That any  ideas in  whole or in part  conceived  of or made by
                  Derminio  during the term of his  employment  or  relationship
                  with OrthoLogic  which were made through the use of any of the
                  Confidential  Information of OrthoLogic or any of OrthoLogic's
                  equipment,  facilities, trade secrets or time, or which result
                  from any work  performed  by Derminio for  OrthoLogic,  belong
                  exclusively  to  OrthoLogic  and shall be deemed a part of the
                  Confidential  Information  for  purposes  of  this  Agreement.
                  Derminio hereby assigns and agrees to assign to OrthoLogic all
                  rights in and to such  Confidential  Information  whether  for
                  purposes  of  obtaining  patent  or  copyright  protection  or
                  otherwise.   Derminio   shall   acknowledge   and  deliver  to
                  OrthoLogic,  without charge to OrthoLogic (but at its expense)
                  such  written  instruments  and do such other acts,  including
                  giving  testimony  in  support  of  Derminio's  authorship  or
                  inventorship,  as the case may be, necessary in the opinion of
                  OrthoLogic  to obtain  patents or  copyrights  or to otherwise
                  protect or vest in Derminio  the entire right and title in and
                  to the Confidential Information.

         10.  Non-Compete  After Employment  Term. The parties  acknowledge that
Derminio has acquired much knowledge and information  concerning the business of
OrthoLogic  and its  affiliates  as the  result of  Derminio's  employment.  The
parties further  acknowledge  that the scope of business in which  OrthoLogic is
engaged as of the date of execution of this  Agreement  is  world-wide  and very
competitive and one in which few companies can successfully compete. Competition
by Derminio in that business  would  severely  injure  OrthoLogic.  Accordingly,
until one year after the Date of Termination, Derminio will not:
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<PAGE>
         10.1     Within any  jurisdiction or marketing area in which OrthoLogic
                  or any of its  affiliates is doing business or is qualified to
                  do business,  directly or  indirectly  own,  manage,  operate,
                  control,  be  employed  by or  participate  in the  ownership,
                  management,  operation  or control of, or be  connected in any
                  manner with, any business of the type and character engaged in
                  and  competitive  with that  conducted by OrthoLogic or any of
                  its affiliates. For these purposes, ownership of securities of
                  not in  excess of 1% of any  class of  securities  of a public
                  company  shall  not  be  considered  to  be  competition  with
                  OrthoLogic or any of its affiliates;

         10.2     Persuade  or attempt to  persuade  any  potential  customer or
                  client to which OrthoLogic or any of its affiliates has made a
                  proposal  or  sale,  or with  which  OrthoLogic  or any of its
                  affiliates  has  been  having  discussions,  not  to  transact
                  business  with  OrthoLogic  or such  affiliate,  or instead to
                  transact business with another person or organization;

         10.3     Solicit the  business  of any  company  which is a customer or
                  client  of  OrthoLogic  or any of its  affiliates  at any time
                  during  Derminio's  employment  by the  OrthoLogic,  provided,
                  however,  if  Derminio  becomes  employed by or  represents  a
                  business that  exclusively  sells products that do not compete
                  with  products  then  marketed  or  intended to be marketed by
                  OrthoLogic, such contact shall be permissible; or

         10.4     Solicit, endeavor to entice away from OrthoLogic or any of its
                  affiliates,  or otherwise  interfere with the  relationship of
                  OrthoLogic or any of its  affiliates  with,  any person who is
                  employed  by or  otherwise  engaged  to perform  services  for
                  OrthoLogic or any of its  affiliates,  whether for  Derminio's
                  account   or  for  the   account   of  any  other   person  or
                  organization.

         11.  Common Law of Torts or Trade  Secrets.  Nothing in this  Agreement
shall be construed  to limit or negate the common law of torts or trade  secrets
where such common law  provides  OrthoLogic  with  broader  protection  than the
protection provided by this Agreement.

         12. Nature of the Agreement.  This Agreement and all provisions hereof,
including all representations and promises contained herein, are contractual and
not a mere  recital and shall  continue  in  permanent  force and  effect.  This
Agreement and all  attachments  constitute the sole and entire  agreement of the
parties  with  respect  to the  subject  matter  hereof,  superseding  all prior
agreements and understandings  between the parties,  and there are no agreements
of any nature  whatsoever  between the parties hereto except as expressly stated
herein.  This  Agreement  may not be  modified  or changed  except by means of a
written  instrument signed by both parties.  If any portion of this Agreement is
found to be unenforceable for any reason whatsoever, the unenforceable provision
shall be considered to be severable, and the remainder of the Agreement
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<PAGE>
shall continue to be in full force and effect.  This Agreement shall be governed
by and  construed  and  enforced  in  accordance  with the laws of the  State of
Arizona.

         13. No  Admission of  Liability.  Nothing  contained in this  Agreement
shall be construed in any manner as an admission by  OrthoLogic or Derminio that
he or it has violated any statute,  law or regulation,  or breached any contract
or agreement.

         14. Remedies.  Any and all remedies set forth herein are intended to be
nonexclusive  and either  party may,  in  addition  to such  remedies,  seek any
additional remedies available either in law or in equity in the event of default
or breach by the other party.

         15.  Injunctive  Relief.  Derminio agrees that it would be difficult to
measure the damage to  OrthoLogic  from any breach by Derminio of the  covenants
set forth  herein,  that  injury to  OrthoLogic  from any such  breach  would be
impossible to calculate, and that money damages would therefore be an inadequate
remedy for any such breach. Accordingly, Derminio agrees that if Derminio should
breach any term of this Agreement,  OrthoLogic shall be entitled, in addition to
and without  limitation of all other remedies it may have, to offset payments to
Derminio  required by this Agreement and/or to injunctions or other  appropriate
orders to restrain any such breach without  showing or proving any actual damage
to  OrthoLogic.   This  paragraph   shall  survive   termination  of  Derminio's
employment.

         16.   Indemnification.   OrthoLogic  will  provide  indemnification  to
Derminio in accordance  with the current  Certificate  and Bylaws of OrthoLogic.
These obligations shall survive the termination of Derminio's employment.

         17.  Testimony.  If  Derminio  has  knowledge  of or is alleged to have
knowledge  of any matters  which are the subject of any pending,  threatened  or
future litigation involving OrthoLogic (or any subsidiary), he will make himself
available  to  testify  if and as  necessary.  Derminio  will also make  himself
available to the attorneys  representing  OrthoLogic in connection with any such
litigation  or  dispute  for  such  purposes  as  they  may  deem  necessary  or
appropriate, including but not limited to the review of documents, discussion of
the case and  preparation  for any  legal  proceedings.  This  Agreement  is not
intended to and shall not be  construed  so as to in any way limit or affect the
testimony  which  Derminio  gives  in  any  such  proceedings.  Further,  it  is
understood and agreed that Derminio will at all times testify fully,  truthfully
and accurately, whether in deposition, hearing, trial or otherwise.

         18.  Publicity.  Derminio  agrees  that he will not,  without the prior
consent of OrthoLogic,  either (i) make any  announcements or public  statements
regarding this Agreement or the termination of his  employment;  or (ii) mention
or discuss this  Agreement or the  termination  of his employment to or with any
past or present  employee  or  consultant  of  OrthoLogic,  or any other  person
whatsoever.  The parties  understand that a form of press release  acceptable to
OrthoLogic was issued on or about May 21, 1997.
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<PAGE>
         19. No Disparagement. Derminio agrees that as part of the consideration
for this Agreement, he will not make disparaging or derogatory remarks,  whether
oral or  written,  about  OrthoLogic  or  about  its  subsidiaries,  affiliates,
officers,  directors,  employees or agents.  OrthoLogic  agrees that it will not
make any  disparaging  or  derogatory  remarks,  whether oral or written,  about
Derminio and agrees to instruct its officers to behave in the same manner.

         Dated this ___ day of May, 1997.

                                             /s/ David E. Derminio
                                             DAVID E. DERMINIO

                                             ORTHOLOGIC CORP.


                                             By:    /s/ Allan M. Weinstein
                                                    Allan M. Weinstein, Ph.D.

                                             Its:   Chairman and CEO
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