EMPLOYMENT AGREEMENT


         This  Agreement  is to be  effective,  as of December  1, 1996,  by and
between OrthoLogic Corp., a Delaware  corporation (the "Company"),  and Allen R.
Dunaway ("Employee").

RECITALS:
---------

         A. Employee is presently  employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.

         B. The  parties  wish to set  forth in this  Agreement  the  terms  and
conditions of such continuing employment.

AGREEMENT:
----------

         In  consideration  of the mutual  covenants  and  agreements  set forth
herein, the parties agree as follows:

         1.  Employment and Duties.  Subject to the terms and conditions of this
Agreement,  the Company employs  Employee to serve in a managerial  capacity and
Employee   accepts  such  employment  and  agrees  to  perform  such  reasonable
responsibilities  and duties as may be  assigned to him from time to time by the
Company's  Board  of  Directors.  Initially,  Employee's  title  shall  be  Vice
President and Chief Financial Officer,  with general  responsibility for Finance
and  Operations.  Such title and duties may be changed  from time to time by the
Board  of  Directors  (the  "Board").  Employee  will  report  to the  Company's
President and CEO.

         2. Term. The term of this Agreement shall be for 13 months beginning on
the effective  date.  Thereafter this Agreement  shall renew  automatically  for
additional  terms of one- year each unless it is terminated  pursuant to Section
7.

         3. Compensation.

                  (a) Salary.  From the effective date of this Agreement through
December 31, 1996,  the Company shall pay Employee a minimum base annual salary,
before deducting all applicable  withholdings,  of $116,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective  January 1, 1997,  and  annually  thereafter,  the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.

                  (b) Bonus.  Employee  shall be eligible to participate in such
bonus and incentive  programs as determined from time to time by the Board.  Any
bonuses  shall be based upon the  achievement  of  individual  goals and Company
performance. Beginning January 1,
<PAGE>
1997,  the Company shall  implement a bonus plan providing a target bonus of 40%
of Employee's base salary for achievement of the Board-approved plan.

                  (c) Stock  Options.  Employee  currently  may have  options to
purchase  shares of the Company's  Common Stock.  From time to time, the Company
will consider granting to Employee options,  or additional  options, to purchase
shares of the  Company's  common stock at the fair market value of such stock on
the date of grant.  Any such  grant  shall  have  terms  that are  substantially
consistent  with the terms of other  grants  generally  being made to  executive
officers of the Company at the time of such grant.

         4. Fringe Benefits. In addition to the compensation,  bonus and options
described in Section 3, and any other employee benefit plans (including  without
limitation  pension,  savings  and  disability  plans)  generally  available  to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible,  any group  retirement  plan  instituted  by the Company.  The
manner  of  implementation  of such  benefits  with  respect  to such  items  as
procedures  and  amounts  are  discretionary  with  the  Company  but  shall  be
commensurate with Employee's executive capacity.

         5.  Vacation.  Employee  shall  be  entitled  to  vacation  with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.

         6.   Expenses.   The  Company   shall,   upon  receipt  of  appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment,  promotion  and other  ordinary and necessary  business  expenses
consistent with Company policies.

         7. Termination.

                  (a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee  stating the facts  constituting  such
cause,  provided that Employee  shall have 30 days following such notice to cure
any conduct or act, if curable,  alleged to provide  grounds for termination for
cause  hereunder.  In the event of termination  for cause,  the Company shall be
obligated to pay Employee  only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination  after a Severance Event as provided in Section 8, cause shall
include neglect of duties,  willful failure to abide by instructions or policies
from or set by the  Board  of  Directors,  commission  of a  felony  or  serious
misdemeanor  offense or pleading guilty or nolo  contendere to same,  Employee's
breach of this Agreement or Employee's  breach of any other material  obligation
to the Company.

                  (b)  Without  Cause.  The  Company  may  terminate  Employee's
employment at any time,  immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply,  it shall  continue  to pay to Employee  his  minimum  base salary in
effect at the time of termination for a period of one
                                        2
<PAGE>
year following the date of  termination,  at the time and in the manner dictated
by the Company's standard payroll policies. If the Company terminates Employee's
employment  and  Section 8 applies,  Employee  shall be  entitled to receive the
amount described in Section III of Exhibit A.

                  (c) Disability. If during the term of this Agreement, Employee
fails to perform his duties  hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate  this  Agreement  without  further
obligation  hereunder except as otherwise provided in disability plans generally
applicable to executive employees.

                  (d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due  Employee  through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.

         8. Termination or Resignation After a Change in Control.

                  (a) Application of Section 8. The provisions of this Section 8
shall  apply if a Change in  Control  of the  Company  occurs,  and  within  the
"Transitional  Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs.  For purposes of this  Agreement,
your  Transitional  Period  shall be a period  of 12  months.  Exhibit  A,  also
contains  additional  terms and  conditions  governing  the rights and duties of
Employee  after the  occurrence  of a Severance  Event  within the  Transitional
Period.

                  (b)  "Change  in  Control".  For  purposes  of this  Agreement
(except to the extent  governed  or  affected  by Section  280G of the  Internal
Revenue Code of 1986, as amended [the  "Code"]),  a "Change in Control" shall be
deemed to have  occurred if (i) any "person" (as such term is used in Paragraphs
13(d)  and  14(d) of the  Securities  Exchange  Act of  1934,  as  amended  [the
"Exchange  Act"]),  other than a trustee or other fiduciary  holding  securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly  by the  stockholders  of  the  Company  in  substantially  the  same
proportions  as their  ownership  of stock of the  Company,  is or  becomes  the
"beneficial  owner"  (as  defined in Rule 13d-3  under  said Act),  directly  or
indirectly,  of securities of the Company representing  one-third or more of the
total voting power  represented by the Company's then outstanding  Common Stock,
or (ii)  during  any period of two  consecutive  years,  individuals  who at the
beginning  of such period  constitute  the Board of Directors of the Company and
any new director  whose  election by the Board of Directors  or  nomination  for
election  by the  Company's  stockholders  was  approved  by a vote of at  least
two-thirds  of the directors  then still in office who either were  directors at
the  beginning of the period or whose  election or  nomination  for election was
previously so approved,  cease for any reason to constitute a majority  thereof,
or (iii) the  stockholders of the Company approve a merger or  consolidation  of
the Company  with any other  corporation,  other than a merger or  consolidation
which would  result in the Common Stock of the Company  outstanding  immediately
prior thereto  continuing to represent  (either by remaining  outstanding  or by
being converted into
                                        3
<PAGE>
Common Stock of the  surviving  entity) at least  two-thirds of the total voting
power  represented by the Common Stock of the Company or such  surviving  entity
outstanding immediately after such merger or consolidation,  or the stockholders
of the  Company  approve a plan of  complete  liquidation  of the  Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.

         9.  Limitations  on  Transitional  Compensation  and  Benefits.  If the
Transitional  Compensation and Benefits payable to Employee under Section 8 plus
any other  severance  benefits  ("Severance  Benefits") or any other payments or
benefits  received  or to be received  by  Employee  from the  Company  (whether
payable  pursuant to the terms of this  Agreement or pursuant to any other plan,
agreement  or  arrangement  with the  Company or any  corporation  ["Affiliate"]
affiliated  with the Company  within the meaning of Section 1504 of the Code, in
the opinion of tax counsel  selected by the Company and  acceptable to Employee,
constitute  "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation  payable to Employee by the Company
(or an Affiliate) and  includable in Employee's  gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company  occurred ("Base  Amount"),  if, but only if
Employee so elects in writing,  such  Severance  Benefits shall be reduced to an
amount the present  value of which (when  combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute  payments") is equal to
2.99 times the Base Amount,  notwithstanding any other provision to the contrary
in this Agreement.  However,  the Severance  Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially  reduced,  as the case may be) plus all other  payments or benefits
which constitute  "parachute  payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable  compensation for services actually rendered,  within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by  the  Company.  The  Base  Amount  shall  include  every  type  and  form  of
compensation  includable in Employee's gross income in respect of his employment
by the Company (or an  Affiliate),  except to the extent  otherwise  provided in
temporary or final  regulations  promulgated under Section 280G (b) of the Code.
For purposes of this  Section 9, a "change in  ownership or control"  shall have
the meaning set forth in Section  280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred  cash payment  shall be  determined  by the  Company's  independent
auditors in  accordance  with the  principles of Sections 280G (d)(3) and (4) of
the Code.

         Employee  shall have the right to  request  that the  Company  obtain a
ruling from the Internal  Revenue  Service  ("Service") as to whether any or all
payments or  benefits  determined  by such tax  counsel  are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee  to the extent they would  exceed 2.99 times the Base Amount
until after 15 days from the date of such  ruling.  For purposes of this Section
9,  Employee  and the Company  agree to be bound by the  Service's  ruling as to
whether payments
                                        4
<PAGE>
constitute "parachute payments" under Section 280G. If the Service declines, for
any reason, to provide the ruling requested,  the tax counsel's opinion provided
with respect to what payments or benefits constitute  "parachute payments" shall
control,  and the period  during which the  excessive  portion of the  Severance
Benefits  may be  deferred  shall be extended to a date 15 days from the date of
the Service's notice indicating that no ruling would be forthcoming.

         If Section 280G, or any successor statute, is repealed,  this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement  recognize that final  regulations under Section 280G of the Code
may affect the  amounts  that may be paid under this  Agreement  and agree that,
upon  issuance of such final  regulations  this  Agreement may be modified as in
good faith deemed  necessary in light of the  provisions of such  regulations to
achieve the purposes of this Agreement,  and that consent to such  modifications
shall not be unreasonably withheld.

         10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations,  rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer.  Upon mutual  agreement  of the parties,  the Company upon  reasonable
notice to Employee may transfer  Employee to an affiliate of the Company,  which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement  shall  be  assigned  automatically  to any  entity  merging  with  or
acquiring the Company.

         11.  Amendment.  Except  for  documents  regarding  the  grant of stock
options  and  an  Invention,   Confidential   Information  and   Non-Competition
Agreement,  this  Agreement  contains,  and its  terms  constitute,  the  entire
agreement of the parties and  supersedes  any prior  agreements,  including  any
Employment  Agreements,  and it may be amended only by a written document signed
by both parties to this Agreement.

         12.  Governing Law. This  Agreement  shall be governed by and construed
and  enforced  in  accordance  with the  internal  laws of the State of Arizona,
exclusive of the conflict of law provisions thereof,  and the parties agree that
any  litigation  pertaining  to this  Agreement  shall be in courts  located  in
Maricopa County, Arizona.

         13.  Attorneys'  Fees.  If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof,  the party  prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.

         14. Notices. 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,
                                        5
<PAGE>
(iii) five days after posting when sent by United States registered or certified
mail,  with return  receipt  requested  and postage paid, or (iv) on the date of
transmission when sent by facsimile with a hard-copy  confirmation;  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.

               To the Company:           ORTHOLOGIC CORP.
                                         2850 South 36th Street, Suite 16
                                         Phoenix, AZ 85034
                                         Attention:  Chief Executive Officer

               To Employee:              Allen R. Dunaway
                                         4612 E. Onyx Avenue
                                         Phoenix, AZ  85028

         15. Entire  Agreement.  This  Agreement  constitutes  the final written
expression of all of the agreements  between the parties  (except those relating
to  Employee's  service as a director  of the  Company),  and is a complete  and
exclusive  statement  of those  terms.  It  supersedes  all  understandings  and
negotiations  concerning  the matters  specified  herein.  Any  representations,
promises,  warranties or statements  made by either party that differ in any way
from the terms of this written 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 matters herein
contained 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. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.

         17.  Invalidity of Any Provision.  The provisions of this Agreement are
severable,  it being  the  intention  of the  parties  hereto  that  should  any
provisions   hereof  be   invalid   or   unenforceable,   such   invalidity   or
unenforceability  of any  provision  shall not affect the  remaining  provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.

         18.  Attachments.  All  attachments  or exhibits 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  attachments,  the  terms of this
Agreement shall prevail.

         19.  Interpretation  of  Agreement.  When a  reference  is made in this
Agreement  to an article or section,  such  reference  shall be to an article or
section of this Agreement unless otherwise indicated.  The headings contained in
this Agreement are for reference purposes only
                                        6
<PAGE>
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever  the  words  "include,"  "includes,"  or  "including"  are used in this
Agreement,   they  shall  be  deemed  to  be  followed  by  the  words  "without
limitation."

         20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.

         21. 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.

         22. 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.

         This Agreement has been executed by the parties as of December 1, 1996.



                                        ORTHOLOGIC CORP.
                                        ("Company")


                                        By: /s/ Allan M. Weinstein
                                           -------------------------------------
                                                 Allan M. Weinstein
                                                 Chief Executive Officer


                                        ALLEN R. DUNAWAY
                                        ("Employee")


                                        By: /s/ Allen R. Dunaway
                                           -------------------------------------
                                        7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation



                                   EXHIBIT "A"

                            TRANSITIONAL COMPENSATION

I.       DEFINITIONS

         Except as otherwise  defined in either this Exhibit A or the  Agreement
to which this  Exhibit A is attached,  capitalized  terms used in this Exhibit A
shall have the meanings set forth below.

         A. "Affiliate," means an entity affiliated with the Company.

         B. "Agreement," means the Employment  Agreement to which this Exhibit A
is attached.

         C. "Change in  Control." A "Change in Control"  shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]),  other
than a trustee or other fiduciary  holding  securities under an employee benefit
plan of the  Company  or a  corporation  owned  directly  or  indirectly  by the
stockholders  of the  Company in  substantially  the same  proportions  as their
ownership  of stock of the  Company,  is or becomes the  "beneficial  owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly,  of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive  years,  individuals who at the beginning of such period  constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's  stockholders was
approved by a vote of at least  two-thirds of the directors then still in office
who either were  directors at the  beginning of the period or whose  election or
nomination  for election  was  previously  so approved,  cease for any reason to
constitute a majority thereof,  or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation,  other than
a merger or consolidation  which would result in the Common Stock of the Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding or by being  converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power  represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or  consolidation,  or the  stockholders of the Company approve a plan of
complete  liquidation of the Company or an agreement for the sale or disposition
by the  Company  of (in one  transaction  or a series  of  transactions)  all or
substantially all the Company's assets.
                                        8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation




         D.  "Change in Control  Date" means the  effective  date of a Change in
Control.

         E. "Company" or "the Company," shall mean OrthoLogic  Corp., a Delaware
corporation.

         F. "Severance Event."

                  A  Severance  Event  occurs  if the  Company  or an  Affiliate
                  terminates   Employee's   employment  for  any  reason  during
                  Employee's  Transitional Period,  except for a termination due
                  to a felony  conviction  or  Employee's  continued and willful
                  failure  to be  present  and  perform  Employee's  duties or a
                  termination resulting from the expiration, without renewal, of
                  Employee's  term of  employment at the end of the initial term
                  or any subsequent term.

                  A Severance  Event also occurs if Employee  resigns or retires
                  at a time which is during Employee's  Transitional  Period and
                  within 90 days after the Company and its Affiliates  have done
                  any of the following:

                  1.       fail to  maintain  Employee's  base salary at a level
                           that is equal to the  higher  of the  level in effect
                           immediately  prior to the Change in  Control,  or the
                           level to which it has been increased after the Change
                           of Control; or

                  2.       fail to provide for Employee's  participation  in (a)
                           the  Company or an  Affiliate's  annual  bonus  plan;
                           stock option or other equity incentive  programs;  or
                           group medical, dental, life, disability,  retirement,
                           profit  sharing,  thrift,  nonqualified  and deferred
                           compensation   plans,   in  each   case  on  a  basis
                           comparable to that enjoyed by other  employees of the
                           Company  or  any  of  its   Affiliates   with  duties
                           comparable to those of Employee; or

                  3.       fail   to   provide    vacation    and    perquisites
                           substantially  equivalent  to those  provided  by the
                           Company or any of its  Affiliates  to employees  with
                           comparable duties, and at least as favorable as those
                           provided  immediately  before  the  Change in Control
                           Date; or

                  4.       change Employee's duties and responsibilities so that
                           they  are  not  at  least   commensurate  with  those
                           immediately prior to the Change in Control Date; or
                                        9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation




                  5.       change Employee's primary place of employment by more
                           than 25 miles from Employee's current office location
                           or more  than 10  additional  miles  from  Employee's
                           primary residence.

         G.  "Transitional  Compensation  and Benefits,"  shall mean the special
compensation  and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.

         H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar  months  thereafter  stated in
Section 8 of the Agreement.

II.      ELIGIBILITY

         Notwithstanding  the occurrence of a Severance Event during  Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and  Benefits  only from and  after the time  Employee  executes  a Release  and
Severance Agreement substantially in the standard form then used by the Company.

III.     TRANSITIONAL COMPENSATION AND BENEFITS

         A. Transitional Compensation.  Employee will receive the greater of (i)
one month of  Transitional  Compensation  for every month (full or partial) from
the date of  Employee's  Severance  Event  through  the  last day of  Employee's
Transitional  Period;  or (ii)  the  amount  described  in  Section  7(b) of the
Agreement.  One month of  Transitional  Compensation is equal to Employee's base
monthly salary  determined as of Employee's  Severance  Event.  This will be the
greater of  Employee's  annual salary as of the  Severance  Event,  or as of the
Change in Control Date,  divided by 12. Solely for purposes of  determining  the
amount payable upon the occurrence of a Severance  Event,  the base salary under
Section 7(b) of the Agreement  shall be the greater of Employee's  annual salary
as of the Severance Event, or as of the Change in Control Date.

         Employee's  Transitional  Compensation will not be subject to reduction
for any earnings  Employee may have from other employment  following  Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
                                       10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation



         B.       When Transitional Compensation and Benefits are Paid

                  1.       Monthly Payments
                           ----------------

                           Transitional  Compensation  shall be paid in  monthly
                           installments  beginning  on the last day of the month
                           in which the seven-day  revocation  period  following
                           the date  Employee  executes  Employee's  Release and
                           Severance Agreement has expired.

                  2.       Lump Sum Death Benefit
                           ----------------------

                           If   Employee   dies   before   all   of   Employee's
                           Transitional  Compensation  payments  have been made,
                           the Company will pay a lump sum death  benefit  equal
                           to the  discounted  present value (based on the prime
                           rate  reported in The Wall Street  Journal) of unpaid
                           Transitional  Compensation  to Employee's  designated
                           beneficiary  within 30 days from  Employee's  date of
                           death.

         C.       Other Benefits

                  1.       Salary and Vacation
                           -------------------

                           Any earned but unpaid  salary or  vacation  for which
                           Employee  is  eligible  at  the  time  of  Employee's
                           Severance  Event  will be  paid in a lump  sum at the
                           time  of  termination   of  employment,   subject  to
                           applicable federal and state withholding.

                  2.       Bonuses
                           -------

                           Employee  will also receive a pro rata bonus or other
                           incentive  compensation  payment  for the  period  in
                           which Employee's Severance Event occurred. Employee's
                           bonus will be based on the payout made to  comparable
                           employees  and the  number of  months  of  employment
                           Employee  have  completed  in the period.  Employee's
                           bonus  payment  will be made when bonus  payouts  are
                           made under the Company bonus or incentive plan.
                                       11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation



                  3.       Continuation of Employee Benefits and Stock Options
                           ---------------------------------------------------

                           Employee's  medical,   dental,  life  and  disability
                           benefits (and if applicable,  benefits for Employee's
                           dependents)   will   continue   through    Employee's
                           Transitional  Period as if Employee remained actively
                           employed. Solely for purposes of determining the date
                           on   which    options   shall   expire   and   become
                           non-exercisable   under   applicable   option  plans,
                           Employee's  employment  will be  considered to extend
                           through the Transitional  Period; any incentive stock
                           options  shall  become  nonqualified  options  to the
                           extent they remain unexercised more than three months
                           after the Severance Event.

                  4.       Out-Placement Assistance
                           ------------------------

                           Upon  Employee's  Severance  Event,  the Company will
                           provide  Employee with  outplacement  counseling  and
                           assistance.  Counseling is available from the date of
                           Employee's  Severance  Event until  Employee is first
                           employed or providing compensated services; provided,
                           however,  that the  Company is not  obligated  to pay
                           more than $10,000 for such counseling and assistance.

IV.      WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID

                  No Transitional  Compensation  Benefits under the Plan will be
paid if Employee:

                  1.       is a party to an  employment  or severance  agreement
                           with the  Company  or an  Affiliate,  other  than the
                           Agreement,  that provides  payments or other benefits
                           as a result of termination of employment; or

                  2.       retires  or  resigns,  other  than for  reasons  that
                           constitute a Severance Event; or

                  3.       takes a leave of absence; or

                  4.       is offered  and  refuses or  refuses to  transfer  to
                           another  comparably  compensated  position  with  the
                           Company, an Affiliate,  or a successor company (other
                           than in a circumstance  that  constitutes a Severance
                           Event); or
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<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation



                  5.       refuses to sign a Release and Severance Agreement; or

                  6.       dies prior to a Severance Event.

V.       OTHER IMPORTANT INFORMATION

         A.       How the Coverage Is Provided
                  ----------------------------

                  Any  payment  made  under the Plan will come from the  general
                  assets of the Company or an  Affiliate.  No separate fund will
                  be established.


         B.       Limited Alienation of Benefits
                  ------------------------------

                  Employee's  benefits  in this Plan  cannot be  claimed  by any
                  person to whom Employee  owes a debt and neither  Employee nor
                  Employee's  beneficiary  may transfer rights to these benefits
                  to anyone.
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