SEVERANCE AGREEMENT


         This Severance Agreement,  which shall be effective as of September 19,
1997 is by and between  Nicholas A. Skaff  ("Skaff")  and  OrthoLogic  Corp.,  a
Delaware corporation, ("OrthoLogic").

RECITALS

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

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

AGREEMENTS

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

         1. Modification of Current Relationship.  Effective as of September 19,
1997 (the "Date of  Termination"),  Skaff shall  resign as a Vice  President  of
OrthoLogic. From and after the Date of Termination,  Skaff shall have no further
rights or duties as an employee or officer for or on behalf of OrthoLogic. Skaff
acknowledges  that  OrthoLogic  has no obligation to recall or reemploy Skaff in
the future.  Skaff acknowledges that OrthoLogic was not obligated to provide the
consideration   described  in  this   Agreement  and  that  such   consideration
constitutes  a benefit  that is being  provided to Skaff in exchange  for and in
consideration  for  his  promises,  covenants  and  releases  contained  in this
Agreement.

         2.  Severance  Payment.  So long as Skaff  continues to comply with all
requirements  of this  Agreement,  and  provided  Skaff  does  not  cancel  this
Agreement  as  provided  in  Paragraph  6, Skaff  shall also be  entitled to the
benefits  described in Paragraphs 2 and 3. OrthoLogic  agrees to pay to Skaff an
amount equal to 12 months base
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salary ($135,000 less applicable withholdings), over a 12-month period beginning
September 19, 1997,  at the times and in the amounts that are presently  paid to
Skaff in accordance with the normal payroll procedures of OrthoLogic.

         3.  Additional  Benefits.  OrthoLogic  agrees to pay  Skaff's  standard
premium for health benefits through  September 30, 1997 and acknowledges that he
is  entitled  to be paid for two  weeks of  accrued  vacation.  OrthoLogic  will
continue to pay the employer  portion of Skaff's COBRA  premiums for medical and
dental coverage through December 31, 1997. OrthoLogic hereby transfers ownership
to Skaff of the used Zaurus 5800 used by him in connection  with his employment.
OrthoLogic  agrees to pay $9,400 for  expenses  incurred by Skaff in seeking new
employment,  $7,500 of which may be paid to an out-placement  firm designated by
Skaff,  and the  balance  of which  shall be  reimbursed  to Skaff  upon  proper
documentation  of such  expenses.  OrthoLogic  shall  extend  the  date on which
Skaff's  vested options expire until March 31, 1998; and Skaff agrees to consult
with his own  advisors  concerning  the tax  effect  of such  extension  and any
exercise of such options and sale of the underlying stock.

         4.  Release  and  Covenant  Not to  Sue.  Except  as  provided  in this
Agreement, Skaff hereby releases, acquits and forever discharges OrthoLogic, and
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 Skaff'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. Except as provided in this Agreement,  OrthoLogic  hereby  releases,
acquits and forever  discharges  Skaff and his heirs and successors from any and
all actions,  claims, damages,  expenses or costs of whatever nature arising out
of  Skaff's  employment  and the  termination  of such  relationship.  By way of
example only and without  limiting the  immediately  preceding  paragraph,  this
release is applicable to any
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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.

         Skaff  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 of his employment by or service as an employee,  consultant, officer
or director of OrthoLogic, or any subsidiary of OrthoLogic.

         Skaff  acknowledges  that the  consideration  afforded  him under  this
Agreement is in full and complete  satisfaction of any claims Skaff 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.

         5. Time Period for  Considering  or  Canceling  this  Agreement.  Skaff
acknowledges  that  OrthoLogic has encouraged him to consult with an attorney of
his choice with respect to this Agreement.  Skaff 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 Skaff 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,  Skaff must
deliver to OrthoLogic 2850 South 36th Street, Suite 16, Phoenix,  Arizona 85034,
Attention:  Chief  Executive  Officer,  written  notice  stating  that  Skaff is
canceling or revoking this Agreement. If this Agreement is canceled or
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<PAGE>
revoked  by Skaff  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.

         6. Confidentiality of Agreement. Skaff 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 Skaff may disclose such matters
to any attorney who is providing  advice to Skaff,  to any accountant or federal
or state tax agency for purposes of complying with any tax laws, or as otherwise
required by law or by an order of a court of competent jurisdiction.  OrthoLogic
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
OrthoLogic may disclose such matters to any attorney who is providing  advice to
OrthoLogic,  to any  accountant  or federal or state tax agency for  purposes of
complying with any tax laws, or as otherwise required by law or by an order of a
court of  competent  jurisdiction.  Further,  the parties  acknowledge  that any
duties of  confidentiality  imposed by  agreement or by law,  including  without
limitation  those  imposed by  Paragraphs  6, 7 and 9 of this  Agreement,  shall
survive the termination of Skaff's employment.

         7. Reliance.  Skaff  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.

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

         8.1      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.


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

         8.3      That  Skaff  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 Skaff's work for OrthoLogic.

         8.4      That any  ideas in  whole or in part  conceived  of or made by
                  Skaff 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 Skaff  for  OrthoLogic,  belong
                  exclusively  to  OrthoLogic  and shall be deemed a part of the
                  Confidential Information for purposes of this Agreement. Skaff
                  hereby  assigns and agrees to assign to OrthoLogic  all rights
                  in
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<PAGE>
                  and to such Confidential  Information  whether for purposes of
                  obtaining patent or copyright  protection or otherwise.  Skaff
                  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
                  Skaff'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 Skaff the entire
                  right and title in and to the Confidential Information.

         9.  Non-Compete  After  Employment  Term. The parties  acknowledge that
Skaff has acquired much  knowledge and  information  concerning  the business of
OrthoLogic and its affiliates as the result of Skaff'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 Skaff in
that business  would severely  injure  OrthoLogic.  Accordingly,  until one year
after the Date of Termination, Skaff will not:

         9.1      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  in  areas  of  or  related  to   bone-growth
                  stimulation,  external fixation of bones,  continuous  passive
                  motion devices,  or Hyalgen or any similar product.  For these
                  purposes,  ownership of  securities  of not in excess of 5% of
                  any  class of  securities  of a public  company  shall  not be
                  considered  to be  competition  with  OrthoLogic or any of its
                  affiliates;
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<PAGE>
         9.2      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;

         9.3      Solicit the  business  of any  company  which is a customer or
                  client  of  OrthoLogic  or any of its  affiliates  at any time
                  during  Skaff's   employment  by  the  OrthoLogic,   provided,
                  however, if Skaff 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

         9.4      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  Skaff's
                  account   or  for  the   account   of  any  other   person  or
                  organization.

         10.  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.

         11. 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
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<PAGE>
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 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.

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

         13. 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.

         14.  Injunctive  Relief.  Skaff  agrees that it would be  difficult  to
measure the damage to  OrthoLogic  from any breach by Skaff 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,  Skaff agrees that if Skaff 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 Skaff
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 Skaff's employment.

         15. Indemnification. OrthoLogic will provide indemnification
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to Skaff in accordance  with the  Certificate and Bylaws of OrthoLogic in effect
as  of  the  date  of  this  Agreement.  These  obligations  shall  survive  the
termination of Skaff's employment.

         16.  Testimony.  If  Skaff  has  knowledge  of or is  alleged  to  have
knowledge  of any matters  which are the subject of any pending,  threatened  or
future litigation or proceedings  involving  OrthoLogic (or any subsidiary),  he
will make himself available to testify if and as necessary. Skaff will also make
himself  available to the attorneys  representing  OrthoLogic in connection with
any such  litigation,  dispute or proceedings 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 Skaff gives in any such proceedings.  Further,  it is
understood and agreed that Skaff will at all times testify fully, truthfully and
accurately,  whether in deposition,  hearing, trial or otherwise.  To the extent
not  prohibited  by conflicts  between the  interests  of Skaff and  OrthoLogic,
OrthoLogic will make its attorneys  available to advise Skaff in connection with
any such  proceedings.  If  there  is a  conflict,  at the  sole  discretion  of
OrthoLogic, OrthoLogic will pay for separate counsel selected by Skaff.

         17. No  Disparagement.  Skaff 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 Skaff
and agrees to instruct its officers to behave in the same manner.
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         Dated this 31st day of October, 1997.

                                                 /s/ Nicholas A. Skaff
                                                 NICHOLAS A. SKAFF



                                                 ORTHOLOGIC CORP.


                                                 By:  /s/ MaryAnn G. Miller
                                                      MaryAnn G. Miller

                                                 Its: Vice President,
                                                      Human Resources
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