Document:

exv10w1

 

Exhibit 10.1

Execution Copy

ASSET PURCHASE AGREEMENT AND

PLAN OF REORGANIZATION

BY AND BETWEEN

ORTHOLOGIC CORP.

AND

AzERx, Inc.

February 23, 2006

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	ARTICLE I	 	DEFINITIONS
	 	 	1	 
	 	1.1	 	 	Definitions
	 	 	1	 
	ARTICLE II	 	BASIC TRANSACTION
	 	 	7	 
	 	2.1	 	 	Purchase and Sale of Assets
	 	 	7	 
	 	2.2	 	 	Excluded Assets
	 	 	8	 
	 	2.3	 	 	Assumption of Liabilities
	 	 	8	 
	 	2.4	 	 	Purchase Price
	 	 	9	 
	 	2.5	 	 	Ancillary Documents
	 	 	9	 
	 	2.6	 	 	The Closing
	 	 	10	 
	 	2.7	 	 	No Actions to Affect Tax Free Reorganization
	 	 	10	 
	ARTICLE III	 	REPRESENTATIONS AND WARRANTIES OF AZERX
	 	 	10	 
	 	3.1	 	 	Organization of AzERx
	 	 	10	 
	 	3.2	 	 	Authorization of Transaction
	 	 	10	 
	 	3.3	 	 	Capital Stock
	 	 	11	 
	 	3.4	 	 	Noncontravention
	 	 	11	 
	 	3.5	 	 	Brokers’ Fees
	 	 	11	 
	 	3.6	 	 	Title to Assets
	 	 	12	 
	 	3.7	 	 	Financial Statements
	 	 	12	 
	 	3.8	 	 	Events Subsequent to Fiscal Quarter ended December 31, 2005
	 	 	12	 
	 	3.9	 	 	Undisclosed Liabilities
	 	 	14	 
	 	3.10	 	 	Legal Compliance
	 	 	14	 
	 	3.11	 	 	Pharmaceutical Regulation
	 	 	14	 
	 	3.12	 	 	Ethical Practices
	 	 	15	 
	 	3.13	 	 	Tax Matters
	 	 	15	 
	 	3.14	 	 	Real Property
	 	 	16	 
	 	3.15	 	 	Intellectual Property
	 	 	16	 
	 	3.16	 	 	Tangible Assets
	 	 	18	 
	 	3.17	 	 	Inventory
	 	 	18	 
	 	3.18	 	 	Contracts
	 	 	18	 
	 	3.19	 	 	[Intentionally Omitted]
	 	 	20	 

i

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	3.20	 	 	Powers of Attorney
	 	 	20	 
	 	3.21	 	 	Insurance
	 	 	20	 
	 	3.22	 	 	Litigation
	 	 	20	 
	 	3.23	 	 	Product Claims
	 	 	20	 
	 	3.24	 	 	Product Liability
	 	 	20	 
	 	3.25	 	 	Employees
	 	 	21	 
	 	3.26	 	 	Employee Benefits
	 	 	21	 
	 	3.27	 	 	Guaranties
	 	 	21	 
	 	3.28	 	 	Environmental, Health, and Safety Matters
	 	 	21	 
	 	3.29	 	 	Certain Business Relationships With AzERx
	 	 	22	 
	 	3.30	 	 	Investment
	 	 	22	 
	ARTICLE IV	 	REPRESENTATIONS AND WARRANTIES OF ORTHOLOGIC
	 	 	22	 
	 	4.1	 	 	Organization of OrthoLogic
	 	 	23	 
	 	4.2	 	 	Authorization of Transaction
	 	 	23	 
	 	4.3	 	 	Noncontravention
	 	 	23	 
	 	4.4	 	 	Capitalization
	 	 	23	 
	 	4.5	 	 	Reservation of Shares; Private Offering
	 	 	24	 
	 	4.6	 	 	Information
	 	 	24	 
	 	4.7	 	 	Brokers’ Fees
	 	 	24	 
	 	4.8	 	 	Tax Matters
	 	 	25	 
	ARTICLE V	 	PRE-CLOSING COVENANTS
	 	 	25	 
	 	5.1	 	 	General
	 	 	25	 
	 	5.2	 	 	Operation of Business
	 	 	25	 
	 	5.3	 	 	Preservation of Business
	 	 	25	 
	 	5.4	 	 	Preservation of Intellectual Property
	 	 	26	 
	 	5.5	 	 	Full Access
	 	 	26	 
	 	5.6	 	 	Notice of Developments
	 	 	26	 
	 	5.7	 	 	Exclusivity
	 	 	26	 
	 	5.8	 	 	Stockholder Approval
	 	 	26	 
	 	5.9	 	 	Notices and Consents
	 	 	27	 

ii

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	ARTICLE VI	 	CONDITIONS TO OBLIGATIONS TO CLOSE
	 	 	27	 
	 	6.1	 	 	General Conditions to Execution of Agreement
	 	 	27	 
	 	6.2	 	 	General Conditions to Closing
	 	 	28	 
	 	6.3	 	 	Conditions to Obligation of OrthoLogic
	 	 	28	 
	 	6.4	 	 	Conditions to Obligation of AzERx
	 	 	29	 
	ARTICLE VII	 	INDEMNIFICATION
	 	 	30	 
	 	7.1	 	 	Indemnity by AzERx
	 	 	30	 
	 	7.2	 	 	Indemnity by OrthoLogic
	 	 	31	 
	 	7.3	 	 	Provisions Regarding Indemnities
	 	 	31	 
	 	7.4	 	 	Indemnification Procedure
	 	 	32	 
	 	7.5	 	 	Dispute Resolution Mechanisms
	 	 	34	 
	 	7.6	 	 	Representative
	 	 	37	 
	 	7.7	 	 	Exclusive Remedy
	 	 	37	 
	ARTICLE VIII	 	TERMINATION
	 	 	37	 
	 	8.1	 	 	Termination of Agreement
	 	 	37	 
	 	8.2	 	 	Effect of Termination
	 	 	38	 
	ARTICLE IX	 	POST-CLOSING COVENANTS; MISCELLANEOUS
	 	 	38	 
	 	9.1	 	 	Compliance with HIPAA Privacy Rules
	 	 	38	 
	 	9.2	 	 	Covenant Not to Compete
	 	 	38	 
	 	9.3	 	 	Survival of Representations and Warranties
	 	 	38	 
	 	9.4	 	 	Confidentiality and Public Announcements
	 	 	38	 
	 	9.5	 	 	Material Nonpublic Information
	 	 	39	 
	 	9.6	 	 	No Third-Party Beneficiaries
	 	 	39	 
	 	9.7	 	 	Entire Agreement
	 	 	39	 
	 	9.8	 	 	Succession and Assignment
	 	 	39	 
	 	9.9	 	 	Counterparts
	 	 	39	 
	 	9.10	 	 	Headings
	 	 	39	 
	 	9.11	 	 	Notices
	 	 	40	 
	 	9.12	 	 	Governing Law
	 	 	41	 
	 	9.13	 	 	Amendments and Waivers
	 	 	41	 

iii

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	9.14	 	 	Severability
	 	 	41	 
	 	9.15	 	 	Expenses
	 	 	41	 
	 	9.16	 	 	Construction
	 	 	41	 
	 	9.17	 	 	Incorporation of Exhibits and Schedules
	 	 	42	 
	 	9.18	 	 	Specific Performance
	 	 	42	 
	 	9.19	 	 	Bulk Transfer Laws
	 	 	42	 

EXHIBITS

	 	 	 
	Exhibit A

	 	Escrow Agreement
	Exhibit B

	 	Certain Excluded Assets
	Exhibit C

	 	Certain Assumed Liabilities
	Exhibit D

	 	Lockup Agreement
	Exhibit E

	 	Tangible Assets
	Exhibit F

	 	Assumed Contracts
	Exhibit G

	 	Registration Rights Agreement
	Exhibit H

	 	Financial Statements
	Exhibit I

	 	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure
Agreement (Brophy)
	Exhibit J

	 	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure
Agreement (Panitch)
	Exhibit K

	 	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure
Agreement (Furnish)
	Exhibit L

	 	Confidentiality and Noncompetition Agreement
	Exhibit M

	 	Form of AzERx Opinion
	Exhibit N

	 	Form of OrthoLogic Opinion

iv

 

ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION

     THIS ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION is entered into as of the 23rd day of
February, 2006, by and between OrthoLogic Corp., a Delaware corporation (“OrthoLogic”), and
AzERx, Inc., a Delaware corporation (“AzERx”). OrthoLogic and AzERx are referred to
collectively herein as the “Parties” and individually as “Party.”

RECITALS

     WHEREAS, AzERx is a biopharmaceutical company engaged in the development of peptide drugs for
disorders involving smooth muscle tone and fibrosis (the “Business”);

     WHEREAS, AzERx desires to sell to OrthoLogic, and OrthoLogic desires to purchase from AzERx,
substantially all of the assets and properties of AzERx, and in connection therewith, OrthoLogic is
willing to assume certain specified liabilities of AzERx relating thereto, all upon the terms and
subject to the conditions and provisions set forth herein; and

     WHEREAS, for United States federal income tax purposes, it is intended that the purchase
contemplated by this Agreement will qualify as a reorganization under the provisions of Section
368(a)(1)(C) of the Code (as defined below), and that this Agreement constitutes a plan of
reorganization within the meaning of Section 1.368-2(g) of the income tax regulations promulgated
under the Code (the “Treasury Regulations”).

AGREEMENT

     NOW THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth,
and in consideration of the representations, warranties and covenants herein contained, the Parties
hereby agree as follows.

ARTICLE I

DEFINITIONS

     1.1 Definitions.

     “AAA” has the meaning set forth in Section 7.5(c).

     “Accredited Investor” has the meaning set forth in Rule 501 of Regulation D,
promulgated under the Securities Act.

     “Acquired Assets” has the meaning set forth in Section 2.1.

     “Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act.

     “Affiliated Group” means any affiliated group within the meaning of Code §1504(a) or
any similar group defined under a similar provision of state, local or foreign law.

 

 

     “Agreement” means this Asset Purchase Agreement and Plan of Reorganization, as amended
or supplemented from time to time, together with all exhibits and schedules delivered pursuant
hereto.

     “Assumed Contracts” has the meaning set forth in Section 2.1(e).

     “Assumed Liabilities” has the meaning set forth in Section 2.3(a).

     “AzERx” has the meaning set forth in the preface above.

     “AzERx’s Knowledge” means actual knowledge of Terry Winters, Colleen Brophy, Alyssa
Panitch, Elizabeth Furnish, Ellen Shaver, Randolph Steer and Dennis Goldberg.

     “AzTE” has the meaning set forth in Section 2.1(c).

     “AzTE Agreement” has the meaning set forth in Section 2.1(c).

     “AzTE License” has the meaning set forth in Section 2.1(c).

     “AzTE Option Agreement” has the meaning set forth in Section 2.1(c).

     “Basis” means any past or present fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that
forms or could form the basis for any specified consequence.

     “Business” has the meaning set forth in the recitals above.

     “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which
banks in New York, New York are authorized or obligated by law or executive order to close.

     “Cash” means cash and cash equivalents (including marketable securities and short term
investments) calculated in accordance with GAAP and applied on a basis consistent with the
preparation of the Financial Statements.

     “Closing” has the meaning set forth in Section 2.6.

     “Closing Date” has the meaning set forth in Section 2.6.

     “Closing Date Shares” has the meaning set forth in Section 2.4(b).

     “Closing Date Stock Price” shall mean the average closing sale price of OrthoLogic’s
common stock as reported by the Nasdaq National Market for the 15 trading days immediately
preceding the Closing Date.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Consent Action” shall have the meaning set forth in Section 5.8.

     “DEA” means the United States Drug Enforcement Administration.

2

 

     “Debt” with respect to a Person means all liabilities or obligations of such Person,
whether primary or secondary or absolute or contingent: (a) for borrowed money; (b) that are
evidenced by notes, bonds, debentures or similar instruments; or (c) relating to the guaranty,
creation or assumption of any liability or obligation of any other Person.

     “Disclosure Schedule” has the meaning set forth in ARTICLE III.

     “Dispute” has the meaning set forth in Section 7.5.

     “Employee Benefit Plan” means any “employee benefit plan” (as such term is defined in
ERISA §3(3)) and any other employee benefit plan, program or arrangement of any kind.

     “Employee Pension Benefit Plan” has the meaning set forth in ERISA §3(2).

     “Employee Welfare Benefit Plan” has the meaning set forth in ERISA §3(1).

     “Environmental, Health and Safety Requirements” shall mean all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the force or effect of
law, all judicial and administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened release, control or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Escrow Agent” means Wells Fargo Bank, N.A., a national banking association.

     “Escrow Agreement” means the agreement between OrthoLogic, AzERx, Representative and
the Escrow Agent in substantially the form of Exhibit A.

     “Excluded Assets” has the meaning set forth in Section 2.2.

     “FDA” means the United States Food and Drug Administration.

     “Financial Statements” has the meaning set forth in Section 3.7.

     “GAAP” means United States generally accepted accounting principles as in effect from
time to time.

     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as
amended.

     “HIPAA Privacy Rules” has the meaning set forth in Section 9.1.

3

 

     “Intellectual Property” means (a) all inventions (whether patentable or unpatentable
and whether or not reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof, and including all goodwill associated therewith,
and all applications, registrations and renewals in connection therewith, (c) all copyrightable
works, all copyrights and all applications, registrations, and renewals in connection therewith,
(d) all trade secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing, production and research processes and
techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals), (e) all computer software
(including data and related documentation), (f) all licenses through which any person holds rights
to any technology or other intellectual property, and in the case of AzERx, including but not
limited to the AzTE Agreement and the Washington University Agreement, (g) all other proprietary
rights and (h) all copies and tangible embodiments of the foregoing (in whatever form or medium).

     “Inventory” has the meaning set forth in Section 2.1(b).

     “Leased Real Property” means all leasehold or subleasehold estates and other rights to
use or occupy any land, buildings, structures, improvements, fixtures or other interest in real
property held by AzERx.

     “Leases” means all leases, subleases, licenses, concessions and other agreements
(written or oral), including all amendments, extensions, renewals, guaranties and other agreements
with respect thereto, pursuant to which AzERx holds any Leased Real Property, including the right
to all security deposits and other amounts and instruments deposited by or on behalf of AzERx
thereunder.

     “Liability” means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated and whether due or to become due), including any liability for Taxes.

     “Lockup Agreement” shall mean a Lockup Agreement substantially in the form of Exhibit
D attached hereto.

     “Lockup Stockholder” shall have the meaning set forth in Section 2.5(c).

     “Losses” has the meaning set forth in Section 7.1.

     “Material Adverse Change” with respect to a Party means any adverse event, condition,
change, circumstance or effect that, individually or in the aggregate, is or is reasonably likely
to materially adversely affect (i) the condition (financial or otherwise), properties, business,
results of operations, assets (including intangible assets), or Liabilities of such Party, taken as
a whole, or (ii) the ability of such Party to consummate the transactions contemplated hereby.

4

 

     “Most Recent Balance Sheet” means the audited balance sheet of AzERx dated as of
December 31, 2005.

     “Most Recent Fiscal Month End” means the month ended prior to the date of this
Agreement.

     “Most Recent Fiscal Year End” has the meaning set forth in Section 3.7.

     “Multiemployer Plan” has the meaning set forth in ERISA §4001(a)(3).

     “NDA” means a new drug application with the FDA.

     “Non-Compete Area” has the meaning set forth in Section 9.2(c).

     “Non-Compete Term” has the meaning set forth in Section 9.2(b).

     “Notes and Accounts Receivable” means all notes and accounts receivable of AzERx,
including, without limitation, all amounts receivable from the stockholders of AzERx and amounts
receivable through the Closing Date pursuant to agreements with respect to the Small Business
Technology Transfer (STTR) Program.

     “Ordinary Course of Business” means the ordinary course of business consistent with
past custom and practice of AzERx as a biopharmaceutical research company.

     “OrthoLogic” has the meaning set forth in the preface above.

     “OrthoLogic Common Stock” means OrthoLogic common stock, par value $.0005 per share.

     “OrthoLogic Reports” has the meaning set forth in Section 4.6(a).

     “Owned Real Property” means all land, together with all buildings, structures,
improvements and fixtures located thereon, including all electrical, mechanical, plumbing and other
building systems, fire protection, security and surveillance systems, telecommunications, computer,
wiring and cable installations, utility installations, water distribution systems and landscaping,
together with all easements and other rights and interests appurtenant thereto (including air, oil,
gas, mineral and water rights) owned by AzERx.

     “Parties” has the meaning set forth in the preface above.

     “Party” has the meaning set forth in the preface above.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “Person” means an individual, a partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a governmental entity
(or any department, agency or political subdivision thereof).

     “Phase 3 Trial” has the meaning set forth in Section 9.5.

5

 

     “PHI” has the meaning set forth in Section 9.1.

     “Purchase Price” has the meaning set forth in Section 2.4.

     “Registration Rights Agreement” has the meaning set forth in Section 2.5(b).

     “Replacement” has the meaning set forth in Section 7.5(e)(vii).

     “Representative” has the meaning set forth in Section 7.6.

     “Request” has the meaning set forth in Section 7.5(c).

     “Securities Act” means the Securities Act of 1933, as amended.

     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Security Interest” means any mortgage, pledge, lien, encumbrance, charge or other
security interest, other than (a) mechanics’, materialmen’s, and similar liens or (b) liens for
Taxes not yet due and payable.

     “Special Meeting” has the meaning set forth in Section 5.8.

     “Tax” means any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of
any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

     “Tax Return” means any return, declaration, report, claim for refund or information
return or statement relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.

     “Treasury Regulations” has the meaning set forth in the recitals above.

     “Washington University Agreement” has the meaning set forth in Section 2.1(d).

6

 

ARTICLE II

BASIC TRANSACTION

     2.1 Purchase and Sale of Assets. On and subject to the terms and conditions of this
Agreement, OrthoLogic hereby agrees to purchase from AzERx and AzERx hereby agrees to sell,
transfer, convey, assign and deliver to OrthoLogic, free and clear of any Security Interest, all of
the Acquired Assets at the Closing for the consideration specified in Section 2.4 below.
The Acquired Assets shall mean all of the assets specified below in this Section and all other
tangible and intangible assets owned by AzERx, other than the Excluded Assets, including, without
limitation:

          (a) Tangible Assets. Subject to Section 2.2, all of the tangible assets of
AzERx, including, without limitation, the items described in Exhibit E;

          (b) Inventory. All of the inventories and supplies of AzERx, as of the Closing Date
(the “Inventory”);

          (c) Rights in AzTE Agreement. All of AzERx’s rights in, under and pursuant to and
relating to the Option Agreement dated March 25, 2004, between Arizona Science and Technology
Enterprises, LLC (“AzTE”) and AzERx, as amended, revised or supplemented in connection with
the consummation of the transactions contemplated hereby (the “AzTE Option Agreement”), and
any license or other agreement arising therefrom or pursuant thereto or contemplated thereby, as
amended and restated in accordance with the terms of the side letter referred to in Section 6.1(b)
of this Agreement (the “AzTE License” and together with the AzTE Option Agreement, the
“AzTE Agreement”);

          (d) Rights in Washington University Agreement. All of AzERx’s rights in, under and
pursuant to the Nonexclusive License Agreement between The Washington University and AzERx, dated
August 1, 2004 (the “Washington University Agreement”);

          (e) Contracts. All of AzERx’s rights in, to and under the additional contracts set
forth on Exhibit F, together with the AzTE Agreement and the Washington University Agreement, as
well as such other contracts as AzERx may subsequently enter into prior to the Closing, which
OrthoLogic shall elect to assume (the “Assumed Contracts”);

          (f) Intellectual Property. All of AzERx’s rights, title and interest in and to any
Intellectual Property as of the Closing Date, goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, rights to protection of interests therein under the laws of all
jurisdictions and the right to sue for past infringement thereof; and

          (g) Miscellaneous. To the extent transferable, any and all approvals, permits,
licenses, orders, registrations, certificates, variances and similar rights obtained from
governments and governmental agencies related to the Business. Subject to Section 2.2, any
and all books, records, ledgers, files, documents, correspondence, lists, plats, architectural
plans, drawings and specifications, creative materials, advertising and promotional materials,
studies, evaluations, study results, reports and other printed or written materials related to the
Business.

7

 

     2.2 Excluded Assets. On and subject to the terms and conditions of this Agreement,
the Parties hereby agree that OrthoLogic will not purchase and AzERx will retain all right, title
and interest in and to the following (collectively, the “Excluded Assets”):

          (a) AzERx’s rights under this Agreement and any other agreement ancillary hereto and delivered
by AzERx to OrthoLogic in connection herewith;

          (b) All of AzERx’s Cash;

          (c) AzERx’s bank accounts, checkbooks and cancelled checks;

          (d) AzERx’s insurance policies;

          (e) AzERx’s corporate charter (not including the corporate name), minute and stock record
books, corporate seal, accounting records and tax returns;

          (f) All Notes and Accounts Receivable; and

          (g) the assets, if any, listed on Exhibit B.

     2.3 Assumption of Liabilities. At the Closing, on and subject to the terms and
conditions of this Agreement, OrthoLogic hereby agrees to assume and become responsible for all of
the Assumed Liabilities.

          (a) The Assumed Liabilities shall mean:

               (i) all liabilities, obligations and commitments of AzERx pursuant to or relating to the
Assumed Contracts arising after the Closing Date;

               (ii) all liabilities, obligations and commitments of AzERx pursuant to or relating to the AzTE
Agreement and the Washington University Agreement arising after the Closing Date; and

               (iii) the liabilities, if any, listed on Exhibit C.

          (b) Assumed Liabilities shall not include (by way of example and without limitation):

               (i) any Liabilities of AzERx not assumed as part of the Assumed Liabilities under Section
2.3(a) above;

               (ii) any Debt of AzERx not assumed as part of the Assumed Liabilities under Section
2.3(a) above;

               (iii) any Liability of AzERx for Taxes;

               (iv) any Liability of AzERx for income, transfer, sales, use, and other Taxes arising in
connection with the consummation of the transactions contemplated hereby (including any income
Taxes arising because AzERx is transferring the Acquired Assets);

8

 

               (v) any Liability of AzERx for the unpaid Taxes of any Person (other than AzERx) under Treas.
Reg. §1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise;

               (vi) any obligation of AzERx to indemnify any Person by reason of the fact that such Person
was a director, manager, officer, employee or agent of AzERx or was serving at the request of AzERx
as a partner, manager, trustee, director, officer, employee or agent of another entity (whether
such indemnification is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses or otherwise, and whether such indemnification is pursuant to any
statute, charter document, bylaw, agreement or otherwise);

               (vii) any Liability of AzERx for costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby;

               (viii) any Liability or obligation of AzERx under this Agreement (or under any other agreement
between AzERx on the one hand and OrthoLogic on the other hand entered into on or after the date of
this Agreement); or

               (ix) any Liability or obligation of AzERx arising out of AzERx’s Employee Benefit Plans or
severance agreements with its employees.

     2.4 Purchase Price. On and subject to the terms and conditions of this Agreement,
OrthoLogic hereby agrees to pay to AzERx the following consideration (the “Purchase
Price”):

          (a) on the Closing Date, OrthoLogic will pay to AzERx $390,000 in cash, payable by wire
transfer or delivery of other immediately available funds; and

          (b) on the Closing Date, subject to Sections 2.5 and 2.6 hereof, OrthoLogic
will issue and deliver to AzERx 1,325,000 shares of OrthoLogic Common Stock (the “Closing Date
Shares”).

     2.5 Ancillary Documents.

          (a) On the Closing Date, OrthoLogic shall deposit in escrow with the Escrow Agent 10% of the
Closing Date Shares, all of which will be held subject to and released in accordance with the
Escrow Agreement.

          (b) On the Closing Date, OrthoLogic will have evidenced its agreement hereunder to register
for resale the OrthoLogic Common Stock issued to AzERx as part of the Purchase Price in accordance
with, and subject to, the terms and conditions specified in the Registration Rights Agreement in
the form attached hereto as Exhibit G (the “Registration Rights Agreement”).

          (c) AzERx agrees that it will not resell or otherwise dispose of (except for distribution of
Closing Date Shares to its stockholders) more than 10% of the Closing Date Shares, in any calendar
month prior to the second anniversary of the Closing Date. AzERx further agrees that as a
condition to the distribution of Closing Date Shares to AzERx’s stockholders in accordance with the
terms hereof, AzERx shall cause each of Alyssa Panitch,

9

 

Colleen Brophy, Elizabeth Furnish, Terry Winters, Dennis Goldberg, Randolph Steer and Valley
Ventures III, L.P., a Delaware limited partnership (each, a “Lockup Stockholder”) to first
enter into a Lockup Agreement, pursuant to which each Lockup Stockholder will agree to resell no
more than 10% of the Closing Date Shares received by such stockholder in any calendar month prior
to the second anniversary of the Closing Date.

     2.6 The Closing. The closing of the purchase and sale transactions contemplated by
this Agreement (the “Closing”) shall take place at the offices of Quarles & Brady Streich
Lang LLP, located at One Renaissance Square, Two North Central Avenue, Phoenix, Arizona, 85004,
commencing at 10:00 a.m. local time on February 28, 2006, or such other date as the Parties may
mutually determine (the “Closing Date”).

     2.7 No Actions to Affect Tax Free Reorganization. The Parties intend, by executing
this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulation
§1.368-2(g), and to cause the transactions contemplated hereby to qualify as a “reorganization”
under the provisions of Code §368(a)(1)(C). Neither party shall take any action that is
inconsistent with the characterization of the transactions contemplated hereby, or would otherwise
cause such transactions to fail to qualify as a “reorganization” within the meaning of Code
§368(a)(1)(C). Notwithstanding the foregoing, no Party makes any representations as to the Tax
consequences of the transactions contemplated by this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF AZERX

     AzERx represents and warrants to OrthoLogic that the statements contained in this ARTICLE III
are true, correct and complete as of the date of this Agreement and will be true, correct and
complete as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ARTICLE III), except as set forth in the
disclosure schedule accompanying this Agreement (the “Disclosure Schedule”). Except where
an exhibit is provided for the disclosure of information required under this ARTICLE III, any
disclosures to be made on the Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this ARTICLE III. If a disclosure is not
provided under a paragraph so numbered, it shall be presumed that AzERx has no such items to
disclose in respect of the corresponding section.

     3.1 Organization of AzERx. AzERx is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. AzERx has no subsidiaries.

     3.2 Authorization of Transaction. AzERx has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. Without limiting the generality
of the foregoing, to the extent required by law or under the governing documents of AzERx, the
board of directors of AzERx and AzERx’s stockholders have duly authorized the execution, delivery
and performance of this Agreement by AzERx and the consummation of the transactions contemplated
hereby. This Agreement constitutes the valid and legally binding obligation of AzERx, enforceable
in accordance with its terms and conditions.

10

 

     3.3 Capital Stock. Section 3.3 of the Disclosure Schedule accurately and
completely sets forth a complete list of AzERx’s capital structure by listing thereon the number of
shares of capital stock of AzERx and rights to acquire such capital stock that are authorized and
that are issued and outstanding. All of the issued and outstanding shares of capital stock of
AzERx (a) are duly authorized, validly issued, fully paid and nonassessable, (b) free and clear of
all mortgages, liens, pledges, Security Interests, charges, claims, restrictions and encumbrances
of any nature whatsoever and defects of title whatsoever, (c) are held of record and beneficially
owned as set forth on Section 3.3 of the Disclosure Schedule, and (d) were not issued in
violation of the preemptive rights of any person or any agreement or laws, statutes, orders,
decrees, rules, regulations or judgments of any governmental entity by which AzERx, at the time of
issuance, was bound. Except as set forth in Section 3.3 of the Disclosure Schedule, no
shares of capital stock of AzERx are reserved for issuance or are held as treasury shares, and
except as disclosed on Section 3.3 of the Disclosure Schedule: (i) there are no
outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange,
subscriptions, claims of any character, agreements, obligations, convertible or exchangeable
securities or other plans or commitments, contingent or otherwise, relating to the capital stock or
other similar interests of AzERx or that could require AzERx to issue, sell or otherwise cause to
become outstanding any of its capital stock, other than as contemplated by this Agreement; (ii)
there are no outstanding contracts or other agreements of AzERx or any other Person to purchase,
redeem or otherwise acquire any outstanding shares of the capital stock of AzERx, or securities or
obligations of any kind convertible into any shares of the capital stock of AzERx; (iii) there are
no dividends which have accrued or been declared but are unpaid on the capital stock of AzERx; (iv)
there are no outstanding or authorized stock appreciation, phantom stock, stock plans or similar
rights with respect to AzERx; and (v) there are no voting trusts or similar agreements relating to
the voting of AzERx stock in effect with respect to AzERx.

     3.4 Noncontravention. Except as set forth in Section 3.4 of the Disclosure
Schedule, neither the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (with or without notice or the lapse of time) will: (i) conflict
with, result in a breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, Lease, license, instrument or other arrangement to which AzERx is a party or
by which it is bound or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets); (ii) accelerate, terminate, modify or cancel any
contract or agreement related to the patents, patent rights, licenses or license rights underlying
the AzTE Agreement and the Washington University Agreement; or (iii) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction
of any government, governmental agency, or court to which AzERx is subject or any provision of the
charter, bylaws or resolutions of the Board of Directors or stockholders of AzERx. AzERx does not
need to give any notice to, make any filing with or obtain any authorization, consent or approval
of, any government or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.

     3.5 Brokers’ Fees. AzERx has no Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions contemplated by this
Agreement for which OrthoLogic could become liable or obligated.

11

 

     3.6 Title to Assets. AzERx has good and marketable title to, or a valid license or
leasehold interest in, the properties and assets used by it, located on its premises, or shown on
the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for the Excluded Assets and properties and assets disposed of in the Ordinary
Course of Business since the Most Recent Fiscal Year End. Without limiting the generality of the
foregoing, AzERx has good and marketable title to all of the Acquired Assets, free and clear of any
Security Interest or restriction on transfer.

     3.7 Financial Statements. Attached hereto as Exhibit H are the following financial
statements (collectively, the “Financial Statements”): (i) unaudited balance sheets and
statements of income, as of and for the fiscal years ended December 31, 2004 and 2005 (the fiscal
year ended December 31, 2005 being referred to herein as the “Most Recent Fiscal Year End”)
for AzERx. The Financial Statements have been prepared in accordance with AzERx’s customary
practices applied on a consistent basis throughout the periods covered thereby, (which are not in
accordance with GAAP, due to absence of footnotes and customary accruals, among other things)
present fairly in all material respects in accordance with such practices the financial condition
of AzERx as of such dates and the results of operations of AzERx for such periods, are correct and
complete in all material respects in accordance with such practices and are consistent with the
books and records of AzERx (which books and records are correct and complete in all material
respects).

     3.8 Events Subsequent to Fiscal Quarter ended December 31, 2005. Since December 31,
2005, there has not been any Material Adverse Change and no event has occurred or circumstances
exist that may result in a Material Adverse Change. Without limiting the generality of the
foregoing, except as set forth in Section 3.8 of the Disclosure Schedule, since that date:

          (a) AzERx has not sold, leased, transferred or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of Business;

          (b) AzERx has not entered into any agreement, contract, Lease or license (or series of related
agreements, contracts, Leases and licenses) either involving more than $10,000 or outside the
Ordinary Course of Business;

          (c) no party (including AzERx) has accelerated, terminated, modified or cancelled any
agreement, contract, Lease or license (or series of related agreements, contracts, Leases and
licenses) involving more than $10,000 to which AzERx is a party or by which any of them is bound;

          (d) AzERx has not imposed any Security Interest upon any of its assets, tangible or
intangible;

          (e) AzERx has not made any capital expenditure (or series of related capital expenditures)
either involving more than $10,000 or outside the Ordinary Course of Business;

          (f) AzERx has not made any capital investment in, any loan to, or any acquisition of, the
securities or assets of, any other Person (or series of related capital

12

 

investments, loans and acquisitions) either involving more than $5,000 or outside the Ordinary
Course of Business;

          (g) AzERx has not issued any note, bond or other debt security or created, incurred, assumed
or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving
more than $10,000 singly or $20,000 in the aggregate;

          (h) AzERx has not delayed or postponed the payment of accounts payable and other Liabilities
involving more than $10,000 singly or $20,000 in the aggregate;

          (i) AzERx has not cancelled, compromised, waived or released any right or claim (or series of
related rights and claims) either involving more than $10,000 or outside the Ordinary Course of
Business;

          (j) AzERx has not transferred, encumbered nor granted any license or sublicense of, any rights
under or with respect to any Intellectual Property of AzERx;

          (k) AzERx has not licensed or entered into joint development agreements regarding any
Intellectual Property owned by or licensed to AzERx, or incurred any material expense, entered into
any material transaction or otherwise taken any action outside the Ordinary Course of Business;

          (l) there has been no change made or authorized in the charter or bylaws of AzERx;

          (m) AzERx has not issued, sold or otherwise disposed of any of its capital stock, or granted
any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock;

          (n) AzERx has not declared, set aside or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise
acquired any of its capital stock;

          (o) AzERx has not made any loan to, or entered into any other transaction with, any of its
directors, officers, managers or employees;

          (p) AzERx has not entered into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such contract or agreement;

          (q) AzERx has not granted any increase in the base compensation of any of its directors,
officers, managers or employees;

          (r) AzERx has not made any other change in employment terms for any of its directors,
managers, officers or employees;

          (s) AzERx has not made or pledged to make any charitable or other capital contribution;

13

 

          (t) there has not been any other material occurrence, event, incident, action, failure to act
or transaction outside the Ordinary Course of Business involving AzERx; and

          (u) AzERx has not committed to any of the foregoing.

     3.9 Undisclosed Liabilities. AzERx has no Liability (and there is to AzERx’s
Knowledge no Basis for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against it giving rise to any Liability), except for Liabilities
set forth in the Financial Statements or Section 3.9 of the Disclosure Schedule.

     3.10 Legal Compliance.

          (a) AzERx and its respective predecessors and Affiliates have complied in all respects with
all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand or notice has been filed or commenced against any of them alleging any failure so to
comply.

          (b) Without limiting the generality of the foregoing Section 3.10(a), AzERx is
currently in compliance with all applicable provisions of HIPAA and all regulations pertinent to
HIPAA, including HIPAA regulations and requirements effective through the date of this Agreement.

     3.11 Pharmaceutical Regulation. Except as set forth in Section 3.11 of the
Disclosure Schedule:

          (a) AzERx possesses all required registrations, licenses and other permits from the FDA,
United States Drug Enforcement Administration (“DEA”), relevant foreign and state agencies,
institutional review boards and any other relevant agencies to conduct its business as presently
conducted;

          (b) To the extent applicable, AzERx is in compliance with the Prescription Drug Marketing Act,
the Federal Controlled Substances Act, the Food, Drug and Cosmetic Act, as amended, applicable
state, FDA, DEA and equivalent foreign or state agencies’ regulations, including, but not limited
to, requirements for the receipt, security, inventory, and distribution of pharmaceutical products,
and record-keeping and reporting requirements;

          (c) No regulatory agency forms, reports (including establishment, rating and inspection
reports) or correspondence have been received by AzERx from or with the FDA, DEA or equivalent
foreign or state regulatory agencies;

          (d) No warning letters, other regulatory letters, notices of violation, notices of hearing or
adverse findings have been received by AzERx identifying potential violations of, or deviations
from, FDA, DEA or equivalent foreign or state agency regulatory requirements;

          (e) No regulatory audits have been performed with respect to AzERx by any outside auditor; and

14

 

          (f) AzERx has not received any warning letter regarding potential adverse findings involving
any drug that currently is or was at any time under development by AzERx, or any of AzERx’s
Intellectual Property from the FDA or the equivalent state regulatory agency nor, to AzERx’s
Knowledge is there any reasonable Basis for AzERx to receive a warning letter or other regulatory
letter, other adverse regulatory communication or become named in an action, or civil or criminal
investigation or action.

     3.12 Ethical Practices. Neither AzERx nor any representative thereof has offered or
given, and to AzERx’s Knowledge, no Person has offered or given on their behalf, anything of value
to: (i) any official of a governmental entity, any political party or official thereof, or any
candidate for political office; (ii) any customer or member of a governmental entity; or (iii) any
other Person, in any such case where such payment would violate any applicable law or ethical
guideline or would constitute a bribe, kickback or illegal or improper payment to assist AzERx in
obtaining or retaining business for, or with, or directing business to, any Person.

     3.13 Tax Matters.

          (a) AzERx has timely filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all material respects and were prepared in substantial compliance with
all applicable laws and regulations. All Taxes owed by AzERx (whether or not shown on any Tax
Return) have been paid. AzERx is not currently the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where
AzERx does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets (whether Acquired Assets or Excluded Assets)
of AzERx that arose in connection with any failure (or alleged failure) to pay any Tax.

          (b) AzERx has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party and all Forms W-2 and 1099 required with respect thereto have
been properly completed and timely filed.

          (c) No stockholder, director or officer (or employee responsible for Tax matters) of AzERx
expects any authority to assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of AzERx either (i) claimed or
raised by any authority in writing or (ii) as to which any of the stockholders and the directors
and officers (and employees responsible for Tax matters) of AzERx has Knowledge based upon personal
contact with any agent of such authority. Section 3.13(c) of the Disclosure Schedule lists
all federal, state, local, and foreign income Tax Returns filed with respect to AzERx for taxable
periods since January 1, 2003, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. AzERx has delivered to OrthoLogic
correct and complete copies of all federal income Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by AzERx since January 1, 2003.

          (d) AzERx has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.

15

 

          (e) The unpaid Taxes of AzERx (i) did not, as of the Most Recent Fiscal Month End, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice of AzERx in filing
its Tax Returns.

          (f) None of the Assumed Liabilities is an obligation to make a payment that will not be
deductible under Code Section 280G. AzERx has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Section 6662. AzERx is not a party to any Tax allocation or sharing
agreement. AzERx (i) has not been a member of an Affiliated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which was AzERx) or (ii) has no
Liability for the Taxes of any Person under Reg. §1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.

          (g) Section 3.13(g) of the Disclosure Schedule sets forth the basis of AzERx in its
assets as of the most recent practicable date.

          (h) AzERx will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of (i) a change in method of accounting for a taxable period (or portion thereof)
ending on or prior to the Closing Date, (ii) any “closing agreement,” as described in Code Section
7121 (or any corresponding provision of state, local or foreign income Tax law), (iii) any
Intercompany Transaction (as defined in Treasury Regulation Section 1.1502-13) or any Excess Loss
Account (as defined in Treasury Regulation Section 1.1502-19) (or any corresponding or similar
provision or administrative rule of federal, state, local or foreign income Tax law), (iv) any
installment sale or open transaction made on or prior to the Closing Date or (v) as a result of any
prepaid amount received on or prior to the Closing Date.

          (i) AzERx has not distributed stock of any Person, or had its stock distributed by another
Person, in a transaction that was purported or intended to be governed in whole or in part by Code
Section 355 or Code Section 361.

     3.14 Real Property.

          (a) AzERx has no Owned Real Property and has never had any Owned Real Property.

          (b) AzERx has no Leased Real Property and has never had any Leased Real Property.

     3.15 Intellectual Property.

          (a) AzERx owns or has the right to use pursuant to license, sublicense, agreement or
permission all Intellectual Property necessary or desirable for the operation of the Business as
presently conducted. Each item of Intellectual Property (including, specifically, the AzTE
Agreement and the Washington University Agreement) owned or used by AzERx

16

 

immediately prior to the Closing will be owned or available for use by OrthoLogic on identical
terms and conditions immediately subsequent to the Closing. AzERx has taken all necessary and
desirable action to maintain and protect each item of Intellectual Property that it owns or uses.

          (b) The AzTE Agreement and the Washington University Agreement have been executed and
delivered by the relevant parties, are binding on such parties in accordance with their terms and
are effective as of the date hereof.

          (c) AzERx has not interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of third parties, and AzERx has never received any
charge, complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that AzERx must license or refrain from using
any Intellectual Property rights of any third party) by AzERx. To AzERx’s Knowledge, no third
party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of AzERx.

          (d) No patent or registration has been issued to AzERx with respect to any of its Intellectual
Property, and no patent application or application for registration is pending with respect to any
of its Intellectual Property. Section 3.15(d) of the Disclosure Schedule identifies each
license, agreement or other permission which AzERx has granted to any third party with respect to
any of its Intellectual Property (together with any exceptions). AzERx has delivered to OrthoLogic
correct and complete copies of all such licenses, agreements and permissions (as amended to date).
Section 3.15(d) of the Disclosure Schedule identifies each trade name or trademark used in
connection with the Business. With respect to each item of Intellectual Property required to be
identified in Section 3.15(d) of the Disclosure Schedule:

               (i) AzERx possesses all right, title, and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;

               (ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling or
charge;

               (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand
is pending or, to AzERx’s Knowledge, is threatened which challenges the legality, validity,
enforceability, use or ownership of the item; and

               (iv) except as set forth in Section 3.15(d)(iv) of the Disclosure Schedule, AzERx has
never agreed to indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to the item.

          (e) Section 3.15(e) of the Disclosure Schedule identifies each item of Intellectual
Property that any third party owns and that AzERx uses pursuant to license, sublicense, agreement
or permission. AzERx has delivered to OrthoLogic correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in Section 3.15(e) of the Disclosure
Schedule, except as disclosed therein:

17

 

               (i) the license, sublicense, agreement or permission covering the item is legal, valid,
binding, enforceable in accordance with its terms and in full force and effect;

               (ii) the license, sublicense, agreement or permission will continue to be legal, valid,
binding, enforceable and in full force and effect (as assigned to OrthoLogic, including the AzTE
Agreement and the Washington University Agreement) on identical terms following the consummation of
the transactions contemplated by this Agreement;

               (iii) AzERx is not, and to AzERx’s Knowledge, no other party to the license, sublicense,
agreement or permission is in breach or default thereof, and no event has occurred which, with
notice or lapse of time or both, would constitute a breach or default by AzERx, or to AzERx’s
Knowledge, such other party, or permit termination, modification or acceleration thereunder by
AzERx, or to AzERx’s Knowledge, such other party;

               (iv) no party to the license, sublicense, agreement or permission has repudiated any provision
thereof;

               (v) with respect to each sublicense, the representations and warranties set forth in
subsections 3.15(e)(i) through 3.15(e)(iv) above are true and correct with respect to the
underlying license;

               (vi) the underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;

               (vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand
is pending or, to AzERx’s Knowledge, is threatened which challenges the legality, validity or
enforceability of the underlying item of Intellectual Property; and

               (viii) AzERx has not granted any sublicense or similar right with respect to the license,
sublicense, agreement or permission, which is currently in effect.

          (f) AzERx has delivered to OrthoLogic all reports, studies, opinions, evaluations, tests,
research, studies and any other material from any source within AzERx’s Knowledge which AzERx
reasonably believes would be a material factor in the evaluation of the validity and value of, and
rights with respect to, the AzERx Intellectual Property.

     3.16 Tangible Assets. AzERx owns or leases the tangible assets set forth in
Section 3.16 of the Disclosure Schedule, all of which are included in the Acquired Assets
and does not own or lease any other material tangible assets. Each tangible asset listed in
Section 3.16 of the Disclosure Schedule has been maintained in accordance with
manufacturer’s suggested practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used.

     3.17 Inventory. The Inventory of AzERx consists of seven (7) grams of AZX100.

     3.18 Contracts. Section 3.18 of the Disclosure Schedule lists the following
contracts and other agreements to which AzERx is a party:

18

 

          (a) any agreement (or group of related agreements) for the lease of personal property to or
from any Person providing for lease payments in excess of $5,000 per annum;

          (b) any agreement (or group of related agreements) for the purchase or sale of raw materials,
commodities, supplies, products or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one year, result in a
material loss to AzERx, or involve consideration in excess of $5,000;

          (c) any license, sublicense or other similar agreement entered into by AzERx or otherwise used
in connection with any of AzERx’s Intellectual Property;

          (d) any agreement concerning a partnership or joint venture;

          (e) any agreement (or group of related agreements) under which AzERx has created, incurred,
assumed or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in
excess of $5,000 or under which it has imposed a Security Interest on any of its assets, tangible
or intangible;

          (f) any agreement concerning noncompetition and any agreement which will, or by its terms
purports to, subject OrthoLogic to any non-disclosure or confidentiality obligations upon the
consummation of the transactions contemplated in this Agreement;

          (g) any agreement with or involving any of AzERx’s stockholders and their Affiliates (other
than AzERx);

          (h) any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance or other plan or arrangement for the benefit of AzERx’s current or former
directors, officers or employees;

          (i) any collective bargaining agreement;

          (j) any agreement for the employment of any individual on a full-time, part-time, consulting,
or other basis providing annual compensation or providing severance benefits;

          (k) any agreement under which AzERx has advanced or loaned any amount to any of its directors,
officers, or employees;

          (l) any agreements covering “work made for hire” as defined under the United States copyright
laws, Title 17 of the United States Code, or any agreements with independent contractors;

          (m) any agreement under which the consequences of a default or termination could have a
material adverse effect on the Business, financial condition, operations, results of operations or
future prospects of AzERx;

          (n) any agreement for the cleanup, abatement or other actions in connection with any
Environmental, Health and Safety Requirements, the remediation of any existing environmental
condition or relating to the performance of any environmental audit or study; and

19

 

          (o) any other agreement (or group of related agreements) the performance of which involves
total annual consideration in excess of $5,000.

          (p) AzERx has delivered to OrthoLogic a correct and complete copy of each written agreement
listed in Section 3.18 of the Disclosure Schedule (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred to in Section
3.18 of the Disclosure Schedule. With respect to each such agreement that is an Assumed
Contract: (i) the agreement is legal, valid, binding, enforceable and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions contemplated by this
Agreement; (iii) AzERx is not, and to AzERx’s Knowledge, no other party is, in breach or default,
and no event has occurred which, with notice or lapse of time or both, would constitute a breach or
default by AzERx, or, to AzERx’s Knowledge, by such other party, or permit termination,
modification or acceleration by AzERx, or to AzERx’s Knowledge, any other party, under the
agreement; and (iv) no party has repudiated any provision of the agreement.

     3.19 [Intentionally Omitted]

     3.20 Powers of Attorney. Except as provided in Section 3.20 of the Disclosure
Schedule, there are no outstanding powers of attorney executed on behalf of AzERx.

     3.21 Insurance. AzERx does not have and has not maintained in the past, any insurance
policies, including, without limitation, any policies providing property, casualty, health,
liability or workers’ compensation coverage.

     3.22 Litigation. AzERx (i) has not been subject to any outstanding injunction,
judgment, order, decree, ruling or charge, or (ii) has not been a party or, to AzERx’s Knowledge,
is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator. To AzERx’s Knowledge, there is no reason to believe
that any such action, suit, proceeding, hearing or investigation may be brought or threatened
against AzERx.

     3.23 Product Claims. AzERx has never commercially manufactured, sold, leased,
delivered or used any product and AzERx’s development activities with respect to products have been
in conformity with all applicable contractual commitments, FDA and applicable institutional review
board requirements and all express and implied warranties. AzERx has no Liability (and there is to
AzERx’s Knowledge, no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against AzERx giving rise to any Liability) in
connection therewith.

     3.24 Product Liability. AzERx has no Liability (and there is to AzERx’s Knowledge no
Basis for any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against AzERx giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession or use of any product
manufactured, sold, leased, delivered or used by AzERx.

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     3.25 Employees. Section 3.25 of the Disclosure Schedule lists all of AzERx’s
current employees. AzERx is not a party to nor is it bound by any collective bargaining agreement,
nor has it experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. AzERx has not committed any unfair labor practice. No
organizational effort is presently being made or threatened by or on behalf of any labor union with
respect to employees of AzERx.

     3.26 Employee Benefits. AzERx does not fund or administer and has not in the past,
funded or administered any Employee Benefit Plan, including, without limitation, any Employee
Pension Benefit Plan, Multiemployer Plan or Employee Welfare Benefit Plan.

     3.27 Guaranties. AzERx is not a guarantor or otherwise liable for any Liability or
obligation (including indebtedness) of any other Person.

     3.28 Environmental, Health, and Safety Matters.

          (a) AzERx, its predecessors and its Affiliates have complied and are in compliance with all
Environmental, Health, and Safety Requirements.

          (b) Without limiting the generality of the foregoing, AzERx, its predecessors and its
Affiliates have obtained and complied with, and are currently in compliance with, all permits,
licenses and other authorizations that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of the Business. A list of all
such permits, licenses and other authorizations is set forth in Section 3.28(b) of the
Disclosure Schedule.

          (c) Neither AzERx, its predecessors nor its Affiliates have received any written or oral
notice, report or other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any Liabilities or potential Liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or
corrective obligations relating to any of them or AzERx’s facilities arising under Environmental,
Health, and Safety Requirements.

          (d) None of the following exists at any property or facility owned or operated by AzERx: (1)
underground storage tanks; (2) asbestos-containing material in any form or condition; (3) materials
or equipment containing polychlorinated biphenyls; or (4) landfills, surface impoundments or
disposal areas.

          (e) Neither AzERx, nor any of its predecessors or its Affiliates have treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to Liabilities, including any Liability for response costs,
corrective action costs, personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, the Solid Waste Disposal Act, as amended, or any other Environmental, Health, and
Safety Requirements.

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          (f) Neither this Agreement nor the consummation of the transactions contemplated hereby will
result in any obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called “transaction-triggered” or
“responsible property transfer” Environmental, Health, and Safety Requirements.

          (g) Neither AzERx, nor any of its predecessors or its Affiliates have expressly or by
operation of law, assumed or undertaken any Liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.

          (h) No facts, events or conditions within AzERx’s Knowledge relating to the past or present
facilities, properties or operations of AzERx or its respective predecessors or its Affiliates will
prevent, hinder or limit continued compliance with Environmental, Health, and Safety Requirements,
give rise to any investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other Liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental, Health, and Safety Requirements,
including without limitation any Liabilities relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury, property damage or natural
resources damage.

     3.29 Certain Business Relationships With AzERx. Except as otherwise disclosed in
Section 3.29 of the Disclosure Schedule, none of AzERx’s stockholders or their Affiliates
has been involved in any business arrangement or relationship with AzERx within the past twelve
(12) months (except as an employee, director, officer or consultant of AzERx), and none of AzERx’s
stockholders or their Affiliates owns any asset, tangible or intangible, which is used in AzERx’s
Business.

     3.30 Investment. AzERx (i) understands that the OrthoLogic Common Stock granted
pursuant to the terms of this Agreement has not been registered under the Securities Act, or under
any state securities laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring OrthoLogic Common
Stock solely for its own account for investment purposes, and not with a view to the distribution
thereof (except to its stockholders), (iii) is a sophisticated investor with knowledge and
experience in business and financial matters, (iv) has received certain information concerning
OrthoLogic and has had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding OrthoLogic Common Stock, (v) is able to bear
the economic risk and lack of liquidity inherent in holding OrthoLogic Common Stock, and (vi) is an
Accredited Investor.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ORTHOLOGIC

     OrthoLogic represents and warrants to AzERx that the statements contained in this ARTICLE IV
are correct and complete as of the date of this Agreement and will be correct and

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complete as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ARTICLE IV.

     4.1 Organization of OrthoLogic. OrthoLogic is a corporation validly existing and in
good standing under the laws of Delaware.

     4.2 Authorization of Transaction. OrthoLogic has full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, to the extent required by law or under the governing documents of
OrthoLogic, the board of directors of OrthoLogic has duly authorized the execution, delivery and
performance of this Agreement by OrthoLogic and no further action is required to be taken by the
stockholders of OrthoLogic to authorize the execution, delivery or performance of this Agreement.
This Agreement constitutes the valid and legally binding obligation of OrthoLogic, enforceable in
accordance with its terms and conditions.

     4.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby (with or without notice or the lapse of
time) will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government, governmental agency or court to
which OrthoLogic is subject or any provision of the charter, bylaws or resolutions of the Board of
Directors or stockholders of OrthoLogic, or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any material agreement, contract, lease,
license, instrument or other arrangement to which OrthoLogic is a party or by which it is bound or
to which any of its assets is subject. OrthoLogic does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of, any government or governmental
agency in order for the Parties to consummate the transactions contemplated by this Agreement.

     4.4 Capitalization.

          (a) The authorized capital stock of OrthoLogic consists of 100,000,000 shares of common stock,
par value $.0005 per share, and 2,000,000 shares of preferred stock, par value $.0005 per share.
As of February 14, 2006, there are outstanding 38,648,810 shares of OrthoLogic Common Stock and no
other shares of capital stock of any other class.

          (b) Assuming the truthfulness and accuracy of the representations and warranties made by AzERx
in ARTICLE III hereof, at the Closing, the shares of OrthoLogic Common Stock issued pursuant to
Section 2.4(b) hereof will be duly authorized, validly issued, fully paid and nonassessable, and
not issued in violation of any preemptive rights of subscription or purchase. The authorization or
consent of no other person or entity is required in order to consummate the transactions
contemplated herein by virtue of such person or entity having an equitable or beneficial interest
in OrthoLogic.

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     4.5 Reservation of Shares; Private Offering.

          (a) OrthoLogic will, prior to the Closing, in accordance with the terms hereof, have available
shares of OrthoLogic Common Stock sufficient to deliver the Closing Date Shares.

          (b) Assuming the truthfulness and accuracy of the representations and warranties made by AzERx
in ARTICLE III hereof; assuming the satisfaction of all information delivery requirements of the
Parties set forth in Regulation D promulgated under the Securities Act; and upon receipt of
evidence satisfactory to OrthoLogic from each stockholder of AzERx or person who has the right to
acquire stock of AzERx at the time of AzERx’s approval of the Agreement and the transactions
contemplated hereby, that each such stockholder or other person is an Accredited Investor or either
alone or with a purchaser representative has such knowledge and experience in financial and
business matters that such stockholder or such other person is capable of evaluating the merits and
risks of the prospective investment contemplated in the Agreement (such evidence to include, but
not be limited to, the execution and delivery of a purchaser suitability questionnaire and a
purchaser representative questionnaire (if such stockholder or person is not an Accredited
Investor), the form and substance of which shall be reasonably acceptable to OrthoLogic), no
registration of the Closing Date Shares pursuant to the provisions of the Securities Act or any
state securities or “blue sky” laws will be required by the offer, sale and issuance of the Closing
Date Shares to AzERx pursuant to the terms of the Agreement. OrthoLogic agrees that neither it,
nor anyone acting on its behalf, shall offer to sell the Closing Date Shares or any other
securities of OrthoLogic so as to require the registration of the Closing Date Shares pursuant to
the provisions of the Securities Act or any state securities or “blue sky” laws, unless such
Closing Date Shares or other securities are so registered.

     4.6 Information.

          (a) In General. OrthoLogic had made available to AzERx each registration statement,
schedule, report, proxy statement or information statement it has filed with the Securities and
Exchange Commission since January 1, 2005 (collectively, the “OrthoLogic Reports”). The
OrthoLogic Reports, at the time of filing, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein where necessary to make the
statements made therein, in light of the circumstances in which they were made, not misleading.
Since January 1, 2005, OrthoLogic has made all filings with the Securities and Exchange Commission
in a timely manner as required by law and no event has occurred that requires an additional filing
or any amendment to a prior filing.

          (b) Information Provided Under Confidential Disclosure Agreement. All of the
information, data, documents and disclosures provided by OrthoLogic to AzERx pursuant to that
certain Confidential Disclosure Agreement dated as of June 28, 2005, is true, correct and complete
in all material respects.

     4.7 Brokers’ Fees. OrthoLogic has no Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions contemplated by this
Agreement, including any for which AzERx could become liable or obligated.

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     4.8 Tax Matters.

          (a) It is the present intention of OrthoLogic to continue at least one significant historic
business line of AzERx, or to use at least a significant portion of AzERx’s historic business
assets in a business, in each case within the meaning of Section 1.368-1(d) of the Treasury
Regulations.

          (b) Neither OrthoLogic nor any related person under Section 1.368-1(e)(3) of the Treasury
Regulations has a present plan or intention to, or will during the twelve months following the
Closing Date, knowingly reacquire shares of OrthoLogic’s common stock from AzERx or AzERx’s
stockholders, except in open market transactions through a broker.

          (c) OrthoLogic has no present plan or intention to sell or otherwise dispose of the Acquired
Assets, except for: (i) dispositions made in the ordinary course of business; (ii) transfers
described in Section 368(a)(2)(C) of the Code; (iii) transfers to any entity disregarded as an
entity separate from OrthoLogic for federal income tax purposes under Section 301.7701-2(c)(2) of
the Treasury Regulations; or (iv) other transfers permitted under Section 1.368-1(d) of the
Treasury Regulations.

ARTICLE V

PRE-CLOSING COVENANTS

     The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing (except for Section 5.8, which shall be completed prior to the
execution of this Agreement), unless the Agreement is terminated earlier pursuant to ARTICLE VIII
hereof.

     5.1 General. Each of the Parties will use its reasonable best efforts to take all
action and to do all things necessary, proper or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including satisfaction, but not waiver,
of the closing conditions set forth in ARTICLE VI below).

     5.2 Operation of Business. AzERx will not engage in any practice, take any action or
enter into any transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, AzERx will not (i) enter into or assume any material agreement,
contract or instrument or enter into or permit any material amendment, supplement, waiver or other
modification in respect thereof; (ii) sell or dispose or otherwise grant any interests in any of
the Acquired Assets, except consumption of supplies and sales or dispositions of finished goods in
the Ordinary Course of Business; (iii) fail to comply in all material respects with all applicable
Laws and orders of any court or federal, state, municipal or other governmental authority; or (iv)
otherwise engage in any practice, take any action or enter into any transaction of the sort
described in Section 3.8 above. In addition, AzERx shall use its reasonable commercial efforts to
confer with OrthoLogic on all operational matters of AzERx that are of a material nature.

     5.3 Preservation of Business. AzERx will keep the Business and the properties related
thereto substantially intact, including its present operations, physical facilities, working
conditions and relationships with lessors, landlords, creditors, licensors, suppliers, customers,

25

 

employees, agents and others having business relationships with AzERx. AzERx will comply in
all respects with the requirements of the AzTE Agreement and the Washington University Agreement,
and cause such agreements to remain in full force and effect, and not take any actions in
contravention thereof.

     5.4 Preservation of Intellectual Property. AzERx will take all actions reasonably
necessary or appropriate to protect its rights in its Intellectual Property.

     5.5 Full Access. AzERx will permit representatives of OrthoLogic to have full access
at all reasonable times, and in a manner so as not to interfere with the normal business operations
of AzERx, to all premises, properties, personnel, books, records (including Tax records), prior
study results, contracts and other documents and materials of or pertaining to AzERx.

     5.6 Notice of Developments. Each Party shall give prompt written notice to the other
Party of any material adverse development causing a breach of any of its own representations and
warranties in ARTICLES III and IV hereof. No disclosure by either Party pursuant to this Section,
however, shall be deemed to amend or supplement the Disclosure Schedule (in the case of AzERx) or
to prevent or cure any misrepresentation, breach of warranty or breach of covenant of such Party.

     5.7 Exclusivity. Upon the execution of this Agreement by the Parties, AzERx shall
immediately cease and desist and discontinue and cause to be terminated any and all existing
activities with respect to any of the following and shall not, directly or indirectly (through any
officer, director, former director, affiliate, employee, attorney, accountant, financial advisor,
subsidiary, independent representative or independent agent or any other advisor or representative
of AzERx), solicit, initiate, encourage or take any action to facilitate (including by way of
furnishing information or engaging in discussions or negotiations) any inquiries, proposals or
offers that constitute, or could reasonably be expected to lead to or relate to an acquisition
proposal by another party. From and after the date hereof, AzERx will not (i) solicit, initiate or
encourage the submission of any proposal or offer from any Person relating to the acquisition of
any capital stock or other voting securities, or any substantial portion of the assets, of AzERx
(including any acquisition structured as a merger, consolidation or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or attempt by any Person to
do or seek any of the foregoing. AzERx shall notify OrthoLogic promptly if any Person makes any
proposal, offer, inquiry or contact with respect to any of the foregoing.

     5.8 Stockholder Approval. AzERx shall promptly take all steps necessary to either:
(i) cause a special meeting of its stockholders (the “Special Meeting”) to be duly called,
noticed, convened and held as soon as practicable for the purposes of voting to approve this
Agreement, the transactions contemplated hereby and all matters related thereto; or (ii) obtain
sufficient written consent of its stockholders to approve and adopt this Agreement, the
transactions contemplated hereby and all matters related thereto (the “Consent Action”).
In connection with the Special Meeting or the Consent Action, the board of directors of AzERx shall
recommend to the stockholders that the stockholders vote in favor of the approval of this
Agreement, the transactions contemplated hereby and all matters related thereto, and the board of
directors of

26

 

AzERx shall use reasonable commercial efforts to secure the required approval of the
stockholders.

     5.9 Notices and Consents. AzERx will: (i) use its reasonable commercial efforts to
give any required notices to third parties in connection with the transactions contemplated by this
Agreement; (ii) use its reasonable commercial efforts to obtain any third party consents that
OrthoLogic may reasonably require in connection with the matters referred to in Section 3.4
hereof or as may otherwise be required pursuant to this Agreement; and (iii) use its reasonable
commercial efforts to take all other actions required to satisfy the closing conditions in
Section 6.3 hereof. OrthoLogic will: (i) use its reasonable commercial efforts to give
any required notices to third parties in connection with the transactions contemplated by this
Agreement; and (ii) use its reasonable commercial efforts to fulfill all of the closing conditions
in Section 6.4 hereof. Each of the Parties will give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents and approvals of governments
and governmental agencies in connection with the matters referred to in Section 3.4 and
Section 4.3 hereof.

ARTICLE VI

CONDITIONS TO OBLIGATIONS TO CLOSE

     6.1 General Conditions to Execution of Agreement. The obligations of the Parties to
execute and deliver this Agreement will be subject to the following conditions, unless waived in
writing by both Parties:

          (a) The requisite majorities of AzERx stockholders and members of the AzERx Board of Directors
shall have approved the Agreement and the transactions contemplated hereby, including, but not
limited to, the sale of the Acquired Assets as contemplated herein;

          (b) AzTE, AzERx and OrthoLogic shall have entered into a side letter agreement, pursuant to
which the parties thereby agree that, subject to and conditioned upon the Closing hereof and the
assignment of the AzTE Agreement by AzERx to OrthoLogic pursuant thereto, the AzTE Agreement shall
be amended and restated in the form attached to the side letter agreement, which form shall be
acceptable to OrthoLogic and effective immediately upon the Closing without any additional
execution, consent or other action by any party;

          (c) Each of Colleen Brophy, Alyssa Panitch and Elizabeth Furnish shall have entered into
consulting agreements with OrthoLogic and intellectual property, confidentiality and non-disclosure
agreements in the forms of Exhibit I, Exhibit J, and Exhibit K, respectively, to be effective on
the Closing Date;

          (d) each of Alyssa Panitch, Colleen Brophy, Dennis Goldberg and Terry Winters shall have
entered into Confidentiality and Noncompetition Agreements in the form attached hereto as Exhibit
L; and

          (e) Each stockholder of AzERx or person who has the right to acquire stock of AzERx at the
time of AzERx’s approval of the Agreement and the transactions contemplated hereby, shall have
executed and delivered a purchaser suitability questionnaire and a purchaser

27

 

representative questionnaire (if such stockholder or person is not an Accredited Investor),
the form and substance of which shall be reasonably acceptable to OrthoLogic.

          (f) AzERx shall have delivered to OrthoLogic an estoppel letter addressed to OrthoLogic from
The Washington University stating that, with respect to the Washington University Agreement, as of
the date of this Agreement, AzERx is not in breach or default thereof, and no event has occurred
which, with notice or lapse of time or both, would constitute a breach or default or permit
termination, modification or acceleration thereunder, as well as such other representations
reasonably requested by OrthoLogic.

     6.2 General Conditions to Closing. The obligations of the Parties to effect the
Closing will be subject to the following conditions, unless waived in writing by both Parties:

          (a) no law or order will have been enacted, entered, issued, promulgated or enforced by any
governmental entity at what would otherwise be the Closing Date that prohibits or materially
restricts consummation of the transactions contemplated by this Agreement; and

          (b) OrthoLogic, AzERx, the Escrow Agent and the Representative shall have entered into the
Escrow Agreement.

     6.3 Conditions to Obligation of OrthoLogic. The obligation of OrthoLogic to
consummate the transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following additional conditions (in addition to those set forth in Sections 6.1
and 6.2 above):

          (a) the representations and warranties of AzERx set forth in ARTICLE III hereof shall be true
and correct in all material respects at and as of the Closing;

          (b) there shall not have occurred a Material Adverse Change with respect to AzERx;

          (c) AzERx shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;

          (d) AzERx shall have procured all of the third party consents required to be obtained by it as
specified in Section 5.9 above;

          (e) AzERx shall have exercised its option under the AzTE Agreement, paid in full the option
fee contemplated in the AzTE Agreement, and assigned the AzTE Agreement to OrthoLogic;

          (f) the Research Collaboration Agreement between Prolexys Pharmaceuticals, Inc. and Arizona
State University, effective February 20, 2004 shall have been terminated pursuant to the terms
thereof and shall be no longer in force and effect;

          (g) each of the Lockup Stockholders shall have entered into a Lockup Agreement substantially
in the form attached hereto as Exhibit D;

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          (h) no action, suit or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge
would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely the right of OrthoLogic to own the Acquired Assets or to
operate the former business of AzERx (and no such injunction, judgment, order, decree, ruling or
charge shall be in effect);

          (i) AzERx shall have delivered to OrthoLogic a certificate to the effect that each of the
conditions specified in this Section 6.3 has been satisfied in all material respects;

          (j) OrthoLogic shall have received from counsel to AzERx an opinion in substantially the form
set forth in Exhibit M attached hereto, addressed to OrthoLogic, and dated as of the Closing Date;

          (k) AzERx shall have delivered a Bill of Sale, and an assignment of all Assumed Contracts,
including the AzTE Agreement and the Washington University Agreement; and

          (l) all actions to be taken by AzERx in connection with the consummation of the transactions
contemplated hereby and, when executed and delivered by AzERx at the Closing, all certificates,
opinions, instruments and other documents required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to OrthoLogic.

OrthoLogic may waive any condition specified in this Section 6.3 if it executes a writing
so stating at or prior to the Closing.

     6.4 Conditions to Obligation of AzERx. The obligation of AzERx to consummate the
transactions to be performed by it in connection with the Closing is subject to satisfaction of the
following conditions:

          (a) the representations and warranties of OrthoLogic set forth in ARTICLE IV hereof shall be
true and correct in all material respects at and as of the Closing;

          (b) there shall not have occurred a Material Adverse Change with respect to OrthoLogic;

          (c) OrthoLogic shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;

          (d) no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge
would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii)
cause any of the transactions contemplated by this Agreement to be rescinded

29

 

following consummation (and no such injunction, judgment, order, decree, ruling or charge
shall be in effect);

          (e) OrthoLogic shall have delivered a stock certificate representing the Closing Date Shares
to the Escrow Agent pursuant to the Escrow Agreement and stock certificates representing the
remainder of the Closing Date Shares to the AzERx stockholders in such denominations as specified
by AzERx prior to the Closing;

          (f) OrthoLogic shall have executed and delivered to AzERx a certificate to the effect that
each of the conditions specified in this Section 6.4 has been satisfied in all material
respects;

          (g) OrthoLogic shall have executed and delivered the Registration Rights Agreement;

          (h) AxERx shall have received from counsel to OrthoLogic an opinion in substantially the form
set forth in Exhibit N attached hereto, addressed to AzERx and dated as of the Closing Date; and

          (i) OrthoLogic shall have delivered an assumption of all Assumed Contracts, including the AzTE
Agreement and the Washington University Agreement, and Assumed Liabilities, in a form reasonably
satisfactory to AzERx.

          (j) all actions to be taken by OrthoLogic in connection with consummation of the transactions
contemplated hereby and, when executed and delivered by OrthoLogic at the Closing, all
certificates, opinions, instruments and other documents required to effect the transactions
contemplated hereby, will be reasonably satisfactory in form and substance to AzERx.

AzERx may waive any condition specified in this Section 6.4 if it executes a writing so
stating at or prior to the Closing.

ARTICLE VII

INDEMNIFICATION

     7.1 Indemnity by AzERx. To induce OrthoLogic to enter into this Agreement and to
consummate the transactions contemplated hereby, AzERx agrees that, subject to the limitations set
forth in Section 7.3, from and after the Closing Date AzERx shall indemnify and hold
OrthoLogic harmless from and against, and agrees to promptly defend OrthoLogic from and reimburse
OrthoLogic for, any and all losses, damages, costs, expenses, liabilities, obligations and claims
of any kind (including, without limitation, reasonable attorneys’ fees and other reasonable legal
costs and expenses, including without limitation, those incurred in connection with any suit,
action or other proceeding; provided, that attorneys’ fees and other legal costs and expenses
incurred in connection with the implementation of the dispute resolution mechanisms contemplated in
Section 7.5 shall not be included as indemnifiable expenses in this Section or in
Section 7.2 hereof) (“Losses”) which OrthoLogic may at any time, subject to the
terms of Section 7.3 hereof, suffer or incur, or become subject to, as a result of or in
connection with:

30

 

          (a) any inaccuracy in or breach of any representation and warranty made by AzERx in this
Agreement or in any closing document delivered to OrthoLogic in connection with this Agreement;

          (b) any breach by AzERx of, or failure by AzERx to comply with, any of its covenants or
obligations under this Agreement (including, without limitation, its obligations under this ARTICLE
VII);

          (c) the failure to discharge when due any Liability or obligation of AzERx other than the
Assumed Liabilities, or any claim against OrthoLogic with respect to any such Liability or
obligation or alleged Liability or obligation;

          (d) any claims by parties other than OrthoLogic to the extent caused by acts or omissions of
AzERx on or prior to the Closing Date, including, without limitation, claims for damages which
arise or arose out of AzERx’s operation of the Business or by virtue of AzERx’s ownership of the
Acquired Assets on or prior to the Closing Date other than claims which are Assumed Liabilities;

          (e) any claims by third parties as to title for the Intellectual Property assigned to
OrthoLogic as part of the Acquired Assets and any claims for royalty payments with respect thereto
(other than royalty payments pursuant to the terms of any Assumed Contract); or

     7.2 Indemnity by OrthoLogic. To induce AzERx to enter into this Agreement and to
consummate the transactions contemplated hereby, OrthoLogic agrees that, subject to the limitations
set forth in Section 7.3, from and after the Closing Date, OrthoLogic shall indemnify and
hold AzERx harmless from and against, and agrees to promptly defend AzERx from and reimburse it
for, any and all Losses AzERx may at any time suffer or incur, or become subject to, as a result of
or in connection with:

          (a) any inaccuracy in or breach of any representation and warranty made by OrthoLogic in this
Agreement or in any closing document delivered to AzERx in connection with this Agreement;

          (b) any breach by OrthoLogic of, or failure by OrthoLogic to comply with, any of its covenants
or obligations under this Agreement (including, without limitation, its obligations under this
ARTICLE VII) or the Registration Rights Agreement;

          (c) OrthoLogic’s failure to pay, discharge and perform any of the Assumed Liabilities; or

          (d) any claims by parties other than AzERx to the extent caused by the acts or omissions of
OrthoLogic after the Closing Date and not constituting a Liability excluded from the Assumed
Liabilities.

     7.3 Provisions Regarding Indemnities.

          (a) Insurance Recoveries. The amounts for which an indemnifying party shall be liable
under Sections 7.1 and 7.2 of this Agreement shall be net of any insurance proceeds

31

 

actually received by the indemnified party in connection with the facts giving rise to the
right of indemnification.

          (b) Termination of Rights to Indemnity. The right of the parties to receive indemnity
as provided in Section 7.1 or 7.2 shall expire on the date that is 12 months (24
months in the case of the Registration Rights Agreement) after the Closing Date, except as to any
claim for indemnity that has been described in a notice delivered to the other party pursuant to
Section 7.4(a) or Section 7.4(c) of this Agreement prior to such time.

          (c) Rights on Termination. The termination under Section 7.3(b) of the rights
of an indemnified party to receive indemnity shall not affect that person’s right to prosecute to
conclusion any claim made by that person in accordance with this Agreement prior to the time that
the relevant right of indemnity terminates.

          (d) Limitations on Liability of AzERx. The liability of AzERx under Section
7.1 of this Agreement shall be without deduction or limitation, except that (i) such liability
shall be recoverable only if and to the extent that the cumulative Losses suffered by OrthoLogic
exceed $25,000 and then only for the amount by which such Losses exceed $25,000 and (ii) such
liability shall in no event exceed an amount equal to the escrow fund maintained pursuant to the
Escrow Agreement and such liability shall be satisfied solely pursuant to Sections 7.3(f) and (g)
of this Agreement and the Escrow Agreement, which, except in the case of fraud, willful misconduct
or active concealment, shall be OrthoLogic’s sole and exclusive remedy.

          (e) Limitations on Liability of OrthoLogic. The liability of OrthoLogic under
Section 7.2 of this Agreement shall be without deduction or limitation, except that such
liability shall be recoverable only if and to the extent that the cumulative Losses suffered by
AzERx exceed $25,000 and then only for the amount by which such Losses exceed $25,000.

          (f) General Limitations on Liability. Notwithstanding any provision of this Agreement
to the contrary, except in the case of fraud, willful misconduct or active concealment, the
liability of any Party under this ARTICLE VII shall not exceed an amount equal to the escrow fund
maintained pursuant to the Escrow Agreement (for which purpose the Closing Date Shares shall be
valued at the Closing Date Stock Price). AzERx may elect to satisfy any liability under this
ARTICLE VII by delivering shares of OrthoLogic Common Stock to OrthoLogic, valued for this purpose
at the Closing Date Stock Price.

          (g) Valuation of Shares Held in Escrow to Pay Indemnity by AzERx. For purposes of
satisfying indemnification obligations under Section 7.1, each share of OrthoLogic Common Stock
held pursuant to the Escrow Agreement shall be valued at the Closing Date Stock Price.

     7.4 Indemnification Procedure.

          (a) Notice. If an indemnified party shall claim to have suffered a Loss for which
indemnification is available under Section 7.1 or 7.2, as the case may be, the indemnified party
shall notify the indemnifying party in writing of such claim, which notice shall describe the
nature of such claim, the facts and circumstances that give rise to such claim and the amount of

32

 

such claim if reasonably ascertainable at the time such claim is made. In the case of a claim
by OrthoLogic, a copy of such written notice shall also be provided by OrthoLogic to the Escrow
Agent if the Escrow Agreement is still in effect. In the event that within 45 days after the
receipt by the indemnifying party of such a written notice from the indemnified party, the
indemnified party shall not have received from the indemnifying party a written objection to such
claim, such claim shall be conclusively presumed and considered to have been assented to and
approved by the indemnifying party following receipt by the indemnifying party (and, in the case of
a claim by OrthoLogic, the Escrow Agent) of a written notice from the indemnified party to such
effect.

          (b) Resolution. If within the 45 day period described in paragraph (a) above the
indemnified party (and, in the case of a claim by OrthoLogic, the Escrow Agent) shall have received
from the indemnifying party a notice setting forth the indemnifying party’s objections to such
claim and the indemnifying party’s reasons for such objection, then the parties shall follow the
procedures set forth in Section 7.5 below with respect to the resolution of such matter.

          (c) Third-Party Claims.

               (i) Any indemnified party seeking indemnification pursuant to this ARTICLE VII in respect of
any third-party claim shall give the indemnifying party from whom indemnification with respect to
such claim is sought (A) prompt (but in any event no later than 45 days after such indemnified
party has received notice of such third party claim) written notice of such third-party claim and
(B) copies of all documents and information provided by the third party to the indemnified party in
connection with such claim. The failure of the indemnified party to so notify or provide copies to
the indemnifying party shall not relieve the indemnifying party from any liability to the
indemnified party for any liability hereunder except to the extent that such failure shall have
prejudiced the defense of such third-party claim.

               (ii) The indemnifying party shall have the right to participate in the defense of such claim
and at its option to assume the defense thereof using counsel reasonably acceptable to the
indemnified party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim, the indemnified party may continue to participate in
the defense of such claim, but, except as set forth in subsection (iii) below, the indemnifying
party shall not be liable to the indemnified party under this ARTICLE VII for any legal or other
expenses subsequently incurred by the indemnified party in connection with the defense of such
claim. If, following its assumption of the defense of a claim pursuant to this Section
7.4(c), the indemnifying party believes that the claim is not indemnifiable pursuant to
Section 7.1 or Section 7.2, the indemnifying party shall promptly tender back to
the indemnified party the defense of such claim. If the indemnifying party fails to assume or, if
assumed, tenders back the defense of a claim pursuant to this Section 7.4(c) and thereafter
concludes that it wishes to defend the claim, it shall be entitled to do so upon notice to the
indemnified party of its decision; provided, however, that any assumption of defense pursuant to
this sentence shall constitute an admission by the indemnifying party that the claim is
indemnifiable pursuant to Section 7.1 or Section 7.2.

               (iii) Notwithstanding the foregoing, if: (A) the employment thereof is authorized by the
indemnifying party in writing; (B) the indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are

33

 

different from or in addition to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for the indemnified party to employ such
counsel; or (C) the indemnifying party has failed to assume defense of such claim within 45 days
after it receives written notice of such claim or to employ counsel reasonably satisfactory to the
indemnified party; the indemnified party may notify the indemnifying party in writing that it
elects to employ separate counsel (which counsel shall be reasonably acceptable to the indemnifying
party) at the expense of the indemnifying party and the indemnifying party shall not have the right
to assume the defense of such claim, except as provided for by the last sentence of Section
7.4(c)(ii). The indemnifying party shall not, in connection with one claim or substantially
similar claims in the same jurisdiction arising out of the same or substantially similar facts, be
liable for the reasonable fees and expenses of more than one firm of attorneys, which firm shall be
designated in writing by the indemnified party. Nothing contained in this Section 7.4(c)
shall in any way restrict the indemnified party’s ability to defend a claim and, if such claim is
otherwise indemnifiable pursuant to the provisions of this ARTICLE VII, to recover all costs
associated with such defense while the indemnifying party is considering whether to assume the
defense of a claim tendered to it.

               (iv) Each indemnifying party and indemnified party shall use commercially reasonable efforts
to cooperate with the other in the defense of such claim. The indemnifying party shall not be
liable for the settlement of any claim effected without its written consent, which consent shall
not be unreasonably withheld. No such claim shall be settled by the indemnifying party without the
prior written consent of the indemnified party, which consent shall not be unreasonably withheld.
If a firm, written, bona fide offer is made by the third party to settle or resolve any third party
claim and the indemnifying party proposes to accept such settlement and the indemnified party
refuses to consent to such settlement, then: (A) the indemnifying party shall be excused from, and
the indemnified party shall be solely responsible for all further defense of, such claim; (B) the
maximum liability of the indemnifying party relating to such claim shall be the amount of the
proposed settlement if the amount thereafter recovered from the indemnified party is greater than
the amount of the proposed settlement; and (C) the indemnified party shall pay all attorneys’ fees
and legal costs and expenses incurred after the rejection of such settlement, but if the amount
thereafter recovered by the third party from the indemnified party is less than the amount of the
proposed settlement, the indemnified party shall also be entitled to reimbursement for such fees
and costs up to a maximum equal to the difference between the amount recovered by such third party
and the amount of the proposed settlement.

     7.5 Dispute Resolution Mechanisms. As used in this Agreement, “Dispute” shall
mean any post-Closing dispute or disagreement between AzERx or the Representative, as applicable,
and OrthoLogic concerning the interpretation of this Agreement, the validity of this Agreement, any
breach or alleged breach by any party under this Agreement or any other matter relating in any way
to this Agreement.

          (a) Process. If a Dispute arises, the parties shall follow the procedures specified
in Sections 7.5(b), 7.5(c), 7.5(d) and 7.5(e) of this Agreement.

          (b) Negotiations. The parties shall promptly attempt to resolve any Dispute by
negotiations between AzERx or the Representative, as applicable, and OrthoLogic. AzERx or

34

 

the Representative, as applicable, and OrthoLogic may give the other Party written notice of
any Dispute not resolved in the normal course of business. AzERx or the Representative, as
applicable, and OrthoLogic shall meet at a mutually acceptable time and place within ten (10)
calendar days after delivery of such notice, and thereafter as often as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve the Dispute. If the Dispute
has not been resolved by these Persons within thirty (30) calendar days of the disputing party’s
notice, or if the parties fail to meet within such ten (10) calendar days, AzERx or the
Representative, as applicable, or OrthoLogic may initiate mediation as provided in Section
7.5(c) of this Agreement. If a negotiator intends to be accompanied at a meeting by legal
counsel, the other negotiator shall be given at least three (3) Business Days’ notice of such
intention and may also be accompanied by legal counsel.

          (c) Mediation. If the Dispute is not resolved by negotiations pursuant to Section
7.5(b) of this Agreement, AzERx or the Representative, as applicable, and OrthoLogic shall
attempt in good faith to resolve any such Dispute by nonbinding mediation. Either AzERx or the
Representative, as applicable, or OrthoLogic may initiate a nonbinding mediation proceeding by a
request in writing to the other party (the “Request”), and both parties will then be
obligated to engage in a mediation. The proceeding will be conducted in Phoenix, Arizona in
accordance with the then current mediation rules of the American Arbitration Association
(“AAA”) applicable to commercial disputes, with the following exceptions:

               (i) if the parties have not agreed within thirty (30) calendar days of the Request on the
selection of a mediator willing to serve, AAA, upon the request of either AzERx or the
Representative, as applicable, or OrthoLogic, shall appoint a member from its panel of neutrals as
the mediator; and

               (ii) efforts to reach a settlement will continue until the conclusion of the proceedings,
which shall be deemed to occur upon the earliest of the date that: (w) a written settlement is
reached; or (x) the mediator concludes and informs the parties in writing that further efforts
would not be useful; or (y) AzERx or the Representative, as applicable, and OrthoLogic agree in
writing that an impasse has been reached; or (z) is sixty (60) calendar days after the Request and
none of the events specified in Sections 7.5(c)(ii)(w), (x), or (y) have
occurred. No party may withdraw before the conclusion of the proceeding.

          (d) Submission to Arbitration. If a Dispute is not resolved by negotiation pursuant
to Section 7.5(b) of this Agreement or by mediation pursuant to Section 7.5(c) of
this Agreement within one hundred (100) calendar days after initiation of the negotiation process
pursuant to Section 7.5(b) of this Agreement, such Dispute and any other claims arising out
of or relating to this Agreement shall be resolved in a binding arbitration proceeding conducted by
the AAA, employing its then current Commercial Dispute Resolution Procedures, or the equivalent
arbitration rules of the AAA as may be in existence at such time. Such arbitration proceedings
shall be held in Phoenix, Arizona, and all parties hereto waive any objection to that venue.
Arbitration proceedings shall be conducted by a single arbitrator, appointed in accordance with the
applicable AAA rules. The arbitrator shall render the award in writing, explaining the factual and
legal basis for the decision as to each of the principal controverted issues, and the decision of
the arbitrator shall be final and binding on the parties. The parties agree to submit to the
jurisdiction of the courts in the State of Arizona, located in the County of Maricopa or the
federal

35

 

court for the District of Arizona and waive any objections with respect to jurisdiction or
venue thereto, and the parties may make an application to such courts to enforce the arbitration
procedures under this Section 7.5(d), to enter judgment on the arbitral award, or to
enforce the arbitral award.

          (e) General Provisions Regarding Dispute Resolution.

               (i) Provisional Remedies. At any time during the procedures specified in Sections
7.5(b) or 7.5(c) of this Agreement, a party may seek a preliminary injunction or other
provisional judicial relief if in its judgment such action is necessary to avoid irreparable damage
or to preserve the status quo. Despite such action, the parties will continue to participate in
good faith in the procedures specified in this Section 7.5.

               (ii) Tolling Statutes of Limitations. All applicable statutes of limitation and
defenses based upon the passage of time shall be tolled while the procedures specified in this
Section 7.5 are pending. The parties will take such action, if any, as is required to
effectuate such tolling.

               (iii) Performance to Continue. Each party is required to continue to perform its
obligations under this Agreement pending final resolution of any Dispute.

               (iv) Extension of Deadlines. All deadlines specified in this Section 7.5 of
this Agreement may be extended by mutual agreement between AzERx or the Representative, as
applicable, and OrthoLogic.

               (v) Enforcement. The parties regard the obligations in this Section 7.5 to
constitute an essential provision of this Agreement and one that is legally binding on them. In
case of a violation of the obligations in this Section 7.5 by either AzERx or the
Representative, as applicable, or OrthoLogic, the other party may bring an action to seek
enforcement of such obligations in the courts in the State of Arizona, located in the County of
Maricopa, or the federal court for the District of Arizona and the parties hereto waive any
objections with respect to jurisdiction or venue thereto.

               (vi) Costs. The parties shall pay: (i) their own costs, fees, and expenses incurred
in connection with the application of the provisions of this Section 7.5 of this Agreement;
and (ii) fifty percent (50%) of the fees and expenses of AAA and the mediator in connection with
the application of the provisions of Section 7.5(c) of this Agreement.

               (vii) Replacement. If AAA is no longer in business or is unable or refuses or
declines to act or to continue to act under this Section 7.5 of this Agreement for any
reason, then the functions specified in this Section 7.5 of this Agreement to be performed
by AAA shall be performed by another Person engaged in a business equivalent to that conducted by
AAA as is agreed to by AzERx or the Representative, as applicable, and OrthoLogic (the
“Replacement”). If AzERx or the Representative, as applicable, and OrthoLogic cannot agree
on the identity of the Replacement within ten (10) calendar days after a Request, the Replacement
shall be selected by the Chief Judge of the United States District Court for the District of
Arizona upon application. If a Replacement is selected by either means, this Section 7.5
shall be deemed appropriately amended to refer to such Replacement.

36

 

     7.6 Representative. By approving this Agreement, the stockholders of AzERx shall be
deemed to have irrevocably made, constituted and appointed Alyssa Panitch as their true and lawful
attorney-in-fact to take all action required under this Agreement on behalf of them (such Person is
referred to herein as the “Representative”), including without limitation: (a) to give and
receive notices and communications; (b) to authorize delivery to OrthoLogic of OrthoLogic Common
Stock from the Escrow Agent in satisfaction of claims by OrthoLogic; (c) to object to such
deliveries; (d) to make claims on behalf of the stockholders of AzERx pursuant to this Agreement;
(e) to agree to, negotiate, enter into settlements and compromises of, and comply with orders of
courts with respect to such claims; and (f) to take all actions necessary or appropriate in the
judgment of the Representative for the accomplishment of the foregoing. OrthoLogic shall not be
obligated to pay any compensation to Representative for his or her services. Notices or
communications to or from the Representative shall constitute notice to or from each of the
stockholders of AzERx.

     7.7 Exclusive Remedy. Except in the case of fraud, willful misconduct or active
concealment or where a Party is entitled to injunctive relief or other equitable remedies, this
ARTICLE VII shall constitute the exclusive remedy of each Party for any breach or nonperformance of
any representation, warranty, covenant or other obligation under this Agreement and with respect to
any other action or omission of each Party in connection herewith.

ARTICLE VIII

TERMINATION

     8.1 Termination of Agreement. The Parties may terminate this Agreement as provided
below:

          (a) OrthoLogic and AzERx may terminate this Agreement by mutual written agreement at any time
prior to the Closing;

          (b) OrthoLogic may terminate this Agreement if AzERx has breached any representation, warranty
or covenant contained in this Agreement in any material respect, OrthoLogic has notified AzERx of
the breach, and the breach has continued without cure for a period of 5 days after the notice of
breach;

          (c) AzERx may terminate this Agreement if OrthoLogic has breached any representation, warranty
or covenant contained in this Agreement in any material respect, AzERx has notified OrthoLogic of
the breach, and the breach has continued without cure for a period of 5 days after the notice of
breach;

          (d) This Agreement may be terminated by OrthoLogic if the Closing has not occurred on or prior
to February 24, 2006.

          (e) This Agreement will be terminated automatically without any action of any of the Parties
if the Closing has not occurred on or prior to March 6, 2006. Notwithstanding the foregoing, the
Parties may extend the termination date under this Section 8.1(e) by mutual agreement.

37

 

     8.2 Effect of Termination. If the Parties terminate this Agreement pursuant to
Section 8.1(a) above, all rights and obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party. If either Party terminates this Agreement
pursuant to Section 8.1(b) through (e) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except for any Liability of
any Party then in breach with respect to such breach).

ARTICLE IX

POST-CLOSING COVENANTS; MISCELLANEOUS

     9.1 Compliance with HIPAA Privacy Rules. In connection with the closing of the
transactions contemplated by this Agreement, AzERx will transfer ownership of certain medical
records to OrthoLogic. These medical records contain Protected Health Information (“PHI”),
as defined in 45 C.F.R. §160.103. AzERx is permitted to disclose these medical records to
OrthoLogic pursuant to 45 C.F.R. §164.501. OrthoLogic understands and acknowledges that these
medical records contain PHI and that, upon consummation of the transactions contemplated by this
Agreement, OrthoLogic will be the owner of the medical records and will be considered to be a
Covered Entity under 45 C.F.R. Part 160 and Part 164, subparts A and E (the “HIPAA Privacy
Rules”), and therefore will comply with applicable provisions of the HIPAA Privacy Rules.

     9.2 Covenant Not to Compete.

          (a) For the Non-Compete Term, AzERx will not engage directly or indirectly in any business
involving the development of, or technology based in part upon, AZX100, any derivative thereof, any
of the AzERx Intellectual Property, HSP20 and molecules based on the parent HSP20 entity that alter
actin cytoskeletal dynamics, in the Non-Compete Area; provided, however, that no owner of less than
1% of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses.

          (b) “Non-Compete Term” shall mean a period of three years after the Closing Date,
unless a court of competent jurisdiction finds such definition to be unenforceable, in which case
“Non-Compete Term” shall mean a period of two years after the Closing Date, unless a court
of competent jurisdiction finds such definition to be unenforceable, in which case “Non-Compete
Term” shall mean a period of one year after the Closing Date.

          (c) “Non-Compete Area” shall mean any geographic area in which OrthoLogic conducts its
business as of the Closing Date, unless a court of competent jurisdiction finds such definition to
be unenforceable, in which case “Non-Compete Area” shall mean the United States of America,
unless a court of competent jurisdiction finds such definition to be unenforceable, in which case
“Non-Compete Area” shall mean the State of Arizona.

     9.3 Survival of Representations and Warranties. All of the representations and
warranties of the Parties contained in this Agreement shall survive the Closing.

     9.4 Confidentiality and Public Announcements. No Party shall issue nor permit any of
its Affiliates, directors, officers, employees, representatives or agents to disclose, whether to

38

 

employees, customers, suppliers or otherwise, any information relating to the subject matter
of this Agreement prior to the earlier of: (i) the Closing; or (ii) the termination of this
Agreement in accordance with ARTICLE VIII, without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement concerning its publicly-traded
securities (it being understood and agreed that each Party shall promptly provide the other party
with copies of any such public disclosure and shall use best efforts to inform the other Party
prior to making any such public disclosure).

     9.5 Material Nonpublic Information. The Parties hereby acknowledge that OrthoLogic
has represented that (i) enrollment is complete in OrthoLogic’s Phase 3 trial in patients with
unstable and/or displaced distal radius fractures (the “Phase 3 Trial”), (ii) the data
relating to the Phase 3 Trial is currently being processed and, (iii) as of the date of this
Agreement, OrthoLogic has no access to such data or any other non-public information relating to
the results of the Phase 3 Trial. The Parties further acknowledge that OrthoLogic has advised
AzERx that, subsequent to the execution of this Agreement, OrthoLogic will in the future have
access to the data from the Phase 3 Trial for processing, analysis and evaluation and that once
disclosed to the public in due course, the results of such data processing, analysis and evaluation
will have a material effect on the price of OrthoLogic Common Stock. AzERx, by approval and
execution of this Agreement, hereby agrees to assume the risk of investment in OrthoLogic Common
Stock in light of the future events described in this Section 9.5 and the effects such events will
have on the price of the Closing Date Shares received pursuant to this Agreement.

     9.6 No Third-Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors and permitted
assigns.

     9.7 Entire Agreement. This Agreement (including the documents referred to herein)
constitutes the entire agreement between the Parties and supersedes any prior understandings,
agreements or representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.

     9.8 Succession and Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and permitted assigns. Prior
to the Closing Date, no Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Party; provided, however,
that OrthoLogic may assign any or all of its rights and interests hereunder to one or more of its
Affiliates.

     9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which, when taken together, shall constitute one and
the same instrument.

     9.10 Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

39

 

     9.11 Notices. All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient
as set forth below:

	 	 	 
	If to AzERx:

	 	AzERx, Inc.
	 

	 	Attn: Alyssa Panitch
	 

	 	3863 West Park Avenue
	 

	 	Chandler, AZ 85226
	 
	 	 
	 

	 	Phone: (480) 540-0204
	 

	 	Fax: (480) 965-0037
	 

	 	Email: Alyssa.panitch@asu.edu
	 
	 	 
	 

	 	Copy to:
	 
	 	 
	 

	 	Osborn Maledon PA
	 

	 	Attn: William M. Hardin
	 

	 	2929 N. Central Ave., Ste. 2100
	 

	 	Phoenix, AZ 85012
	 
	 	 
	 

	 	Phone: 602-640-9322
	 

	 	Fax: 602-640-6068
	 

	 	Email: whardin@omlaw.com
	 
	 	 
	If to OrthoLogic:

	 	OrthoLogic Corp.
	 

	 	Attn: James M. Pusey, M.D.
	 

	 	1275 West Washington Street
	 

	 	Tempe, AZ 85281
	 
	 	 
	 

	 	Phone: (602) 286-5520
	 

	 	Fax: (602) 470-7080
	 

	 	Email: jpusey@olgc.com
	 
	 	 
	 

	 	Copy to:
	 
	 	 
	 

	 	Quarles & Brady LLP
	 

	 	Attn: Steven P. Emerick
	 

	 	Two North Central Avenue
	 

	 	Phoenix, AZ 85004
	 
	 	 
	 

	 	Phone: (602) 230-5517
	 

	 	Fax: (602) 417-2980
	 

	 	Email: emerick@quarles.com

40

 

Any Party may send any notice, request, demand, claim or other communication hereunder to the
intended recipient at the address set forth above using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.

     9.12 Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Arizona without giving effect to any choice or conflict of
law provision or rule (whether of the State of Arizona or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of Arizona.

     9.13 Amendments and Waivers. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by OrthoLogic and AzERx. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.

     9.14 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof, or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.

     9.15 Expenses. Each of OrthoLogic and AzERx shall bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.

     9.16 Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word “including” shall mean including without limitation.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail. Without limiting
the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other
item shall not be deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty and covenant contained herein
shall have independent significance. If any Party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of

41

 

the relative levels of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation, warranty, or covenant.

     9.17 Incorporation of Exhibits and Schedules. The exhibits and schedules identified
in this Agreement are incorporated herein by reference and made a part hereof.

     9.18 Specific Performance. Each of the Parties acknowledges and agrees that the other
Party would be damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached. Accordingly, each of
the Parties agrees that the other Party shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the United States or any
state thereof having jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 7.5 above), in addition to any other remedy to which it may be entitled,
at law or in equity.

     9.19 Bulk Transfer Laws. OrthoLogic acknowledges that AzERx will not comply with the
provisions of any bulk transfer laws of any jurisdiction in connection with the transactions
contemplated by this Agreement.

[Signature page follows]

42

 

          IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	 	ORTHOLOGIC:
	 
	 	 	 	 
	 	 	OrthoLogic Corp., a Delaware corporation
	 
	 	 	 	 
	 

	 	          /s/ James M. Pusey
 

	 	 
	 
	 	 	 	 
	 	 	By: James M. Pusey, M.D.
	 
	 	 	 	 
	 	 	Title: President and Chief Executive Officer
	 
	 	 	 	 
	 	 	AZERX:
	 
	 	 	 	 
	 	 	AzERx, Inc., a Delaware corporation
	 
	 	 	 	 
	 

	 	          /s/ Colleen M. Brophy
 

	 	 
	 
	 	 	 	 
	 	 	By: Colleen M. Brophy, M.D.
	 
	 	 	 	 
	 	 	Title: Chief Executive Officer

[Signature page to Asset Purchase Agreement and Plan of Reorganization]exv10w5

 

Exhibit 10.5

AMENDED AND RESTATED LICENSE AGREEMENT

THIS AGREEMENT is made this 23rd day of February, 2006, but effective only upon the
Effective Date as set forth below, by and between the Arizona Science & Technology Enterprises,
LLC, an Arizona limited liability company dba Arizona Technology Enterprises, LLC (“AzTE”) having
its principal place of business at 699 South Mill Avenue, Tempe, Arizona 85281 and OrthoLogic
Corp., a Delaware corporation and assignee of AzERx (“Licensee”), having its principal place of
business at 1275 West Washington Street, Tempe, Arizona 85281.

This Agreement shall become effective immediately, and without further action by either party upon
(i) the assignment by AzERx, Inc. (“AzERx”) of its rights under the License Agreement (as defined
below) or the Option Agreement (as defined below) upon the closing of the Transaction (as defined
below), (ii) payment by AzERx to AzTE of the amounts set forth in Exhibit C to the Side Letter
Agreement of even date herewith, and (iii) issuance of the Shares (as defined in the Side Letter
Agreement) by Licensee to AzTE and the delivery of the Put Option Agreement (as defined in the Side
Letter Agreement), each as set forth in the Side Letter Agreement, whereupon the License Agreement
will be automatically amended and restated as set forth herein. In the event that the closing of
the Transaction does not occur on or before March 6, 2006, this Agreement shall be null and void
and of no further effect.

RECITALS

	A.	 	Arizona State University (“ASU”) is the owner of the Licensed Subject Matter (as defined
below).
	 
	B.	 	AzTE is the exclusive intellectual property management company for ASU and the exclusive
master licensee of all current and future Licensed Subject Matter pursuant to a license
agreement between ASU and AzTE dated November 1, 2003, with full power and authority to
sublicense and otherwise grants rights to third parties in the Licensed Subject Matter.
	 
	C.	 	AzERx and AzTE are parties to that certain Option Agreement dated March 25, 2004, as amended
(the “Option Agreement”) pursuant to which AzERx has rights to that certain License Agreement
(the “License Agreement”) contemplated thereby. Licensee and AzERx are currently negotiating
a possible purchase by Licensee of all or substantially all of the assets of AzERx pursuant to
that certain Asset Purchase Agreement dated as of the date hereof (the “Transaction”). In
connection with Transaction, AzERx will assign to Licensee its rights to the License
Agreement. However, Licensee has required as a condition to entering into the Transaction
that AzTE enter into this amended and restated License Agreement upon the closing of the
Transaction.
	 
	D.	 	This Agreement and the grant of the license described herein are subject to the terms of the
Bayh-Dole Act, 35 U.S.C. Sections 200-212.

          NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the
parties agree as follows:

AGREEMENT

	1.	 	DEFINITIONS

	 	1.1	 	“Affiliate” of a party shall mean any corporation or other entity which controls,
is controlled by or is under common control with such party. For purposes of this
definition, “control” shall mean beneficial ownership (direct or indirect) of at least
a majority of the outstanding stock or other voting rights entitled to elect directors
(or in the case of an entity that is not a corporation the election or appointment of
the corresponding managing authority); provided, however, that in any country where the
local law shall not permit foreign equity participation of at least a majority, then an
“Affiliate” of Licensee shall include any company in which the Licensee shall own or
control,

 

 

	 	 	 	directly or indirectly, the maximum percentage of such outstanding stock or voting
rights permitted by local law and otherwise exercises control over the management of
such company. With respect to ASU and AzTE, “Affiliate” shall also include AzTE,
ASU and professors, employees, contractors and agents of ASU .
	 
	 	1.2	 	“Founders” shall mean the following ASU employees, who are the founders and
shareholders of AzERx: Coleen Brophy and Alyssa Panitch.
	 
	 	1.3	 	“Improvements” shall mean any and all improvements, alterations, updates,
modifications and enhancements to the Licensed Patents that are developed by Founders
in their own respective laboratories, solely, or jointly with Licensee or other
third-parties (including Sublicensees), or their respective employees, contractors,
Affiliates or agents, or any other party utilizing ASU facilities or ASU resources.
Improvements shall also include any such improvements, alterations, updates,
modifications and enhancements to Licensed Patents that are produced by Licensee, any
Sublicensee, or their respective employees, contractors, agents or Affiliates;
provided, however, that Improvements shall not include improvements, alterations,
updates, modifications or enhancements that are both (1) produced independently by
Licensee (without inventive contribution of ASU or its employees, contractors,
Affiliates or agents or through the use of any ASU resources or facilities) and (2) are
not based on any Confidential Information in the Licensed Subject Matter. Further,
Improvements shall not include rights to improvements, alterations, updates,
modifications or enhancements derived from research funded from third party government
or industry sponsors, granting agencies, or any third party research partners, which
are granted to such parties in connection with such funding.
	 
	 	1.4	 	[INTENTIONALLY OMITTED.]
	 
	 	1.5	 	“Know-How” shall mean all unpatented or unpatentable technical data,
information, materials and technical expertise that relates to the Licensed Patents and
Improvements for use in the Licensed Field of Use, that are developed by the Founders
(and persons working under their direct supervision) in the Founders’ respective
laboratories, including without limitation, chemical and physical data and techniques,
regulatory plans, clinical data, medical uses, product forms, formulations, recorded
notes, studies, ideas, inventions and specifications, which are not generally known, in
which AzTE or ASU has an ownership or licensable interest during the Term. “Know-How”
shall not include any of such technical data, information, materials or technical
expertise that (i) is or becomes in the public domain or (ii) is produced independently
by Licensee (without inventive contribution of ASU or its employees, contractors,
Affiliates or agents or through the use of any ASU resources or facilities) and is not
based on any Confidential Information in the Licensed Subject Matter.
	 
	 	1.6	 	“Licensed Field of Use” shall mean all fields of use and applications of the
Licensed Subject Matter.
	 
	 	1.7	 	“Licensed Patents” shall mean any and all of ASU’s rights in the United States
or other international or foreign patents or patent applications, provisional,
non-provisional, and continuing applications thereof that are listed on Schedule
1 hereto, including any U.S., international or foreign patents or the equivalent
thereof issuing thereon or any addition, division, continuation, continuation-in-part,
substitution, renewal, reissue, re-examination or extension thereof. With respect to
ASU’s rights in patents and patent applications that will be and have been developed
under the Research Collaboration Agreement between ASU and Prolexys Pharmaceuticals,
Inc., a Delaware corporation dated February 20, 2004 (the “Prolexys Research
Agreement”), the Licensed Patents shall include ASU’s rights (and only to the extent of
such rights) under such patents and patent applications solely in the areas of: (a)
small molecule memetics of HSP20; and (b) new proteins and peptides developed from
existing Licensed Patents; provided, however, the rights of ASU (if
any) are subject to any rights granted to Prolexys under the Prolexys Research
Agreement, a correct and complete copy of which has been provided to Licensee by AzTE.

 

 

	 	 	 	Nothing contained in this Agreement shall be construed as giving Licensee any rights
to any consideration ASU is permitted to receive other than such rights to patents
and patent applications under the Prolexys Research Agreement. Licensed Patents
shall not include any intellectual property not specifically set forth herein.
	 
	 	1.8	 	“Licensed Products” shall mean, with respect to Net Sales in a country, any
method, system, material, composition, item, compound, device or embodiment, product,
or part thereof, which is part of, or embodied in, the Licensed Subject Matter, and for
which at the time of the occurrence of the relevant Net Sales in such country, the
manufacture, use or sale is covered in whole or in part by any Valid Claim contained in
the Licensed Patents under a patent issued by such country. “Licensed Products” shall
include any services offered using any of the foregoing.
	 
	 	1.9	 	“Licensed Subject Matter” shall mean all of ASU’s rights to the Licensed
Patents, Know-How and Improvements.
	 
	 	1.10	 	“Net Sales” means the total of the gross revenue recorded by the Licensee, its
Affiliates, or any Sublicensee, from the import, sale, license, use, distribution,
leasing or other disposition, transfer, for Licensed Products to third parties
(including Affiliates), provided that Net Sales shall not include (i) reasonable and
customary trade, cash or quantity discounts or rebates actually allowed; (ii) credits
and rebates for damaged, rejected, or returned Licensed Products provided that such
Licensed Product was sold not more than twelve (12) months prior to the date of such
return, customary prepaid freight and insurance charges, and customs duties, tariffs,
sales, use, privilege, excise and other similar use or sales taxes or other
governmental charges actually paid in connection with sales or other dispositions of
Licensed Products (but excluding what are commonly known as income taxes). Any
adjustment to Net Sales resulting from returns of Licensed Products sold shall only be
applied as an adjustment to Net Sales in succeeding periods. For transactions in
Licensed Products between Licensee and an Affiliate or Sublicensee of Licensee for the
sole purpose of resale to customers, royalties shall be based on Net Sales by the
Affiliate or Sublicensee to its own customers.
	 
	 	1.11	 	“Option” shall mean the option granted by AzTE to AzERx pursuant to that Option
Agreement between AzTE and AzERx dated March 25, 2004.
	 
	 	1.12	 	“Sublicensee” shall mean any person or entity that has a valid sublicense to
any portion of the Licensed Subject Matter pursuant to a sublicense from Licensee after
compliance with the provisions of Section 3 below. “Sublicensee” shall not
include contractors who are licensed by Licensee solely to develop or manufacture
Licensed Products on Licensee’s behalf.
	 
	 	1.13	 	“Territory” shall mean the world.
	 
	 	1.14	 	“Term” shall mean that period beginning on the Effective Date and expiring upon
the expiration of the obligation of Licensee to pay royalties under this Agreement.
	 
	 	1.15	 	“VA” shall mean the United States Department of Veterans Affairs.
	 
	 	1.16	 	“VA Agreement” shall mean that certain Cooperative Technology
Administration Agreement between ASU and VA dated November 18, 2003, a correct and
complete copy of which has been provided to Licensee by AzTE.
	 
	 	1.17	 	“Valid Claim” shall mean a claim in any filed patent application or any issued
and unexpired patent, which shall not have been withdrawn, cancelled or disclaimed, nor
held invalid by a court of competent jurisdiction in an unapealled or unappealable
decision (after all such statute limitations for such appeal have run) in the country
where the product or process was made, used or sold by licensee, its Affiliates or
Sublicensees.

 

 

	2.	 	GRANT

	 	2.1	 	Subject to the terms and conditions of this Agreement, AzTE hereby grants to
Licensee during the Term, a royalty-bearing, exclusive license, including the right to
sublicense, under the Licensed Subject Matter (under the conditions described below),
to develop, have developed, make, have made, use, offer for sale, sell, have sold,
import, export and otherwise commercialize Licensed Products throughout the Territory
solely in the Licensed Field of Use; provided, however, the rights to
Know-How shall be exclusive only to the extent necessary to exercise Licensees rights
under the Licensed Patents and Improvements.
	 
	 	2.2	 	AzTE expressly reserves the right for ASU to use the Licensed Subject Matter
solely for noncommercial purposes such as for educational, teaching and research
purposes. Further, AzTE and ASU shall have the right to make the Licensed Subject
Matter available to other scientific institutions and researchers solely for
non-commercial scientific and research purposes.
	 
	 	2.3	 	The grant of license set forth above is subject to any interest in the Licensed
Subject Matter retained by the United States or state government granting agencies.

	3.	 	AFFILIATES; SUBLICENSES

	 	3.1	 	Affiliates shall be deemed to be licensees under this Agreement provided that
such Affiliates first consent in writing to be bound by the applicable terms of this
Agreement to the same extent as Licensee and such consent has been delivered to AzTE.
Each sublicense agreement shall contain confidentiality and non-use provisions no less
burdensome than set forth in Section 7 herein and shall further require
Sublicensees to maintain books and records consistent with the provisions of
Section 9.5. Licensee shall provide AzTE with a copy of all documentation
granting any such rights within 10 business days of the date such documentation is
executed and delivered.
	 
	 	3.2	 	Upon termination of this Agreement for any reason, AzTE, at its reasonable
discretion, may determine whether any or all sublicenses granted to Sublicensees shall
be cancelled or assigned to AzTE.

	4.	 	EQUITY GRANT AND RELATED RIGHTS
	 
	 	 	[INTENTIONALLY OMITTED.]
	 
	5.	 	PAYMENTS AND ROYALTIES

	 	5.1	 	AzERx has previously paid or agreed to pay to AzTE an initial non-refundable
license fee of One Hundred Six Thousand One Hundred Twenty-Nine and 11/100 Dollars
($106,129.11), payable on the effective date hereof.
	 
	 	5.2	 	In further consideration for the rights, privileges and licenses granted by
AzTE hereunder, Licensee shall pay AzTE royalties until the last expiration date of a
Licensed Patent in the amount of 3% of Net Sales by Licensee, Sublicensees, or any
Affiliates of Licensed Products (regardless of how many Licensed Patents are used in
the Licensed Products), and 5% of any other consideration received by Licensee,
Sublicensees and any Affiliates in connection with the grant of sublicense rights to
Licensed Subject Matter (e.g., license issue fees, milestones, exclusivity fees, etc.)
but excluding (i) royalty payments received (which shall be governed by the previous
clause) by Licensee or (ii) payments received that are not received primarily for
rights to the Licensed Subject or Licensed Products such as consideration received in
connection with a sale of all or substantially all of the stock or assets of Licensee,
until the expiration of the Term. It is understood and agreed by the parties that the
payment of royalties pursuant to this Section 5.2 shall be made only on the first Net
Sale of a Licensed Product by Licensee, a Subsidiary or a Sublicensee, and that
subsequent Sales of the same Licensed Product or Licensed Process for

 

 

	 	 	 	which royalties have been accrued pursuant to this Section 5.2 shall not be subject
to any additional accrual of royalties (for example, and for illustration purposes
only, if a royalty accrues due to a Sale by Licensee of a Licensed Product to a
Sublicensee or a pharmaceutical distributor, a subsequent Sale by such Sublicensee
or such pharmaceutical distributor shall not generate a royalty payable to AzTE).
	 
	 	5.3	 	Beginning on the date Licensee or any Sublicensee first records any revenue for
Net Sales of Licensed Products for commercial use (“First Sale”), Licensee shall pay to
AzTE until the last expiration date of a Licensed Patent a minimum annual royalty (the
“Minimum Annual Royalty”), in the amounts set forth below, for the twelve-month period
beginning on the date of First Sale and each succeeding twelve-month period during the
Term (each, a “Minimum Royalty Year”). The Minimum Annual Royalty shall be paid to
AzTE in two (2) equal installments, in arrears, semi-annually, on or before 30 days
after each June 30 or December 31 semi-annual period; provided, that the first such
installment shall be made within 30 days after the First Sale. The Minimum Annual
Royalty shall be credited against all amounts payable under Section 5.2 hereto
in the Minimum Royalty Year to which the installment of Minimum Annual Royalty relates.
Licensee shall pay the Minimum Annual Royalty under this Agreement regardless of
whether or not Licensee’s Net Sales for the relevant Minimum Royalty Year achieve an
aggregate level sufficient to result in earned royalties equal to the Minimum Annual
Royalty. The Minimum Annual Royalty amounts shall be as follows:

	 	 	 	 	 
	First Minimum Royalty Year
	 	$	25,000	 
	Second Minimum Royalty Year
	 	$	50,000	 
	Third Minimum Royalty Year
	 	$	75,000	 
	Each Minimum Royalty Year Thereafter
	 	$	100,000	 

	 	5.4	 	The Licensee shall be responsible for payment of all bank transfer charges,
taxes, duties and other charges imposed by any taxing authority (other than AzTE’s
income taxes) in connection with payments of royalties from Licensee to AzTE. All
amounts payable to AzTE under this Agreement shall be grossed up for all required
applicable withholdings related to such charges, taxes or duties.
	 
	 	5.5	 	Amounts payable under Section 5 hereof shall be paid, semi-annually in
arrears, to AzTE within thirty (30) days after the semi-annual period in which such
amounts are due, except as otherwise expressly provided herein. All payments will be
paid to AzTE in U.S. dollars by check or wire transfer of immediately available funds,
as directed by AzTE in writing.

	6.	 	PATENT EXPENSES AND PATENT PROSECUTION AND MAINTENANCE

	 	6.1	 	Subject to the requirements, limitations and conditions set forth in this
Agreement, AzTE shall direct, with the agreement of Licensee which shall not be
unreasonably withheld or delayed, after consultation with Licensee and through counsel
of Licensee’s choosing: (i) the preparation, filing, and prosecution of the United
States and foreign patent applications within Licensed Subject Matter (including any
interferences and foreign oppositions) and (ii) the maintenance and enforcement of the
patents issuing therefrom. AzTE shall implement all reasonable requests made by
Licensee with regard to the preparation, filing, prosecution and/or maintenance of the
patent applications and/or patents within Licensed Subject Matter. AzTE and Licensee
shall cooperate in good faith to determine the content and claims made with respect to
such filings. Patent counsel shall be directed to provide both AzTE and Licensee
copies of all relevant documentation sufficiently in advance of such filings so both
parties have a reasonably sufficient amount of time to provide comments on such
proposed filings and to otherwise be informed and apprised of the continuing
prosecution and other status of all Licensed Patents. All legal fees and out-of-pocket

 

 

	 	 	 	expenses associated with the filing, prosecution and maintenance of Licensed Patents
shall be paid by Licensee directly to such patent counsel when due.
	 
	 	6.2	 	All Licensed Patents shall be held in the name of ASU or AzTE, as determined by
AzTE.
	 
	 	6.3	 	If either party receives notice or information pertaining to the actual or
potential infringement of Licensed Patents, that party shall notify the other party
promptly, but not later than thirty (30) days after receipt of such notice or
information.
	 
	 	6.4	 	Licensee shall have the continuing responsibility to notify AzTE if Licensee is
not a small entity under the provisions of 15 USC Section 632 as applied in 35 USC
Section 41(h).
	 
	 	6.5	 	Promptly after the Effective Date and from time to time during the Term of this
Agreement, Licensee, and its Affiliates shall disclose to AzTE all inventions,
technical data, information, and materials relating to the Licensed Subject Matter that
could reasonably be considered Improvements and (ii) to the extent that AzTE or ASU has
the legal right to do so, AzTE shall disclose to Licensee all Know-How and Improvements
that is known by AzTE or ASU and with respect to which AzTE or ASU has an ownership or
licensable interest. For purposes of the foregoing provisions, information known or
available to Founders shall be deemed to have satisfied any disclosure obligations of
AzTE or ASU.

	7.	 	CONFIDENTIALITY

	 	7.1	 	Each party undertakes during the Term of this Agreement, and for a period of seven
(7) years following the termination of this Agreement, to hold in confidence and not to
use or disclose to any third party, or to use for any purpose other than pursuant to
this Agreement, the Know-How or other confidential information or materials (the
“Confidential Information”) received from the other party. Information which is
communicated orally shall be considered Confidential Information if such information is
confirmed in writing as being Confidential Information within a reasonable time after
the initial disclosure. Licensee shall require any Sublicensee to assume the same
obligation in any sublicenses. The obligation under this Section 7.1 shall not
apply to information which:

	 	 	 	is known to the receiving party or any of its Sublicensees prior to its
receipt by the receiving party, and can be so proven by written records; or
	 
	 	 	 	is received at any time by the receiving party or its Sublicensees in good
faith from a third party lawfully in possession of it and having the right
to disclose the same, and can be so proven by written records; or
	 
	 	7.1.3	 	is as of the date of receipt by the receiving party in the
public domain or subsequently enters the public domain other than by reason of
acts or omissions of the employees or agents of the receiving party or its
sub-licensees which acts or omissions have not been consented to by the other
party, and can be so proven by written records; or
	 
	 	7.1.4	 	is independently developed by or on behalf of the receiving
party without resort to the other party’s Confidential Information as can be
shown by reasonable documentary evidence.

	 	7.2	 	AzTE and Licensee may also disclose Confidential Information to the extent
required by applicable law, provided that the party required to make such disclosure
cooperates with the other party’s efforts to limit such disclosure and promptly
notifies such other party upon receipt of any order or request for such disclosure.

 

 

	 	7.3	 	Notwithstanding the provisions of Section 7.1, each of the parties, ASU
and their respective Affiliates reserve the right to publish (and teach) information of
scientific importance. Each of Licensee and AzTE shall, and shall cause its
Affiliates to, provide the other party with an advance copy of any proposed publication
or other written disclosure with respect to Licensed Subject Matter (“Publication”) and
the receiving party shall have ninety (90) days within which to recommend any changes
it reasonably believes are necessary to preserve patent rights or Know-How belonging in
whole or in part to Licensee or ASU or their respective Affiliates and the disclosing
party shall cause the incorporation of such recommended changes not to be unreasonably
refused. Further, if the receiving party informs the disclosing party, within ninety
(90) days of receipt of an advance copy of a proposed Publication, that such
Publication in the receiving party’s reasonable judgment could be expected to have a
material adverse effect on any patent rights or Know-How belonging in whole or in part
to Licensee or ASU, or their respective Affiliates, the disclosing party shall cause
such Publication to be delayed for such period of time as shall be reasonably required
to avoid such adverse effect. In the case of inventions, the delay shall be
sufficiently long (but in not in excess of six (6) months) to permit the timely
preparation and filing of patent application(s) or a certification of invention with
respect to the information involved. Notwithstanding anything to the contrary in this
Section 7.3, neither AzTE or ASU shall have any responsibility or obligation
related to any Publication by any Founder.
	 
	 	7.4	 	Any press release or other public announcement regarding the transactions
contemplated by this Agreement shall be mutually agreed by the parties unless AzTE or
ASU reasonably determine such disclosure is necessary to satisfy any disclosure duties
related to ASU being a public institution; provided, however, that
prior to any such disclosure, AzTE shall first consult with Licensee to ensure that any
such disclosure does not violate any strategic, securities or other legal requirements
applicable to Licensee. AzTE and ASU shall further be entitled to publish the
existence of this Agreement on their websites and as otherwise required by law without
consent of Licensee, provided, however, that prior to such disclosure AzTE shall first
consult with Licensee to ensure that any such disclosure does not violate any
strategic, securities or other legal requirements applicable to Licensee. Licensee
shall be entitled to publish the existence of this Agreement on its website and in
business plans, financing and marketing materials and otherwise as required by law
without consent of AzTE.

	8.	 	DUE DILIGENCE AND MARKETING OBLIGATIONS

	 	8.1	 	Licensee, upon execution of this Agreement, shall use commercially reasonable
efforts to proceed with the development, regulatory approval, manufacture and sale of
Licensed Products, and shall use commercially reasonable efforts to market the same
throughout the Territory. Licensee shall not use the name AzTE, ASU or that of an
Affiliate of either of them without AzTE’s prior written consent. AzTE shall have the
right to terminate this Agreement, or at its option, to convert any exclusive license
granted hereunder to a non-exclusive license, in the event that Licensee has not filed
an Investigational New Drug Application, or foreign equivalent, for HSP20 within thirty
(30) months from the Effective Date. Notwithstanding the foregoing, if such milestone
has not been met on the date specified due to a clinical failure or FDA delay that the
parties reasonably mutually agree is curable within a reasonable period of time, and if
Licensee can demonstrate that Licensee has used its best diligent efforts to meet the
milestone, but the failure to meet the milestone was outside the control of Licensee,
the parties shall agree in writing to extend the applicable milestone period for an
amount of time necessary to account for such failure or delay.
	 
	 	8.2	 	Licensee shall in the performance of any investigation, testing and
solicitation of government approvals pertaining to the use of the Licensed Subject
Matter, exercise at least the same degree of diligence which any reasonable and
prudent, similarly-situated discovery company exercises in the investigation, testing,
and solicitation of government approvals for an invention of similar class or utility
invented by employees of and owned by the discovery company.

 

 

	9.	 	REPORTS

	 	9.1	 	Within ninety (90) days after the end of each calendar quarter after the
Effective Date, Licensee shall submit to AzTE a progress report covering Licensee’s
activities related to the testing and development of all Licensed Products and the
obtaining of any governmental approvals necessary for marketing. The progress reports
submitted under this Section 9.1 shall include, but not be limited to, the
following topics:

	 	•	 	summary of work completed
	 
	 	•	 	key scientific discoveries
	 
	 	•	 	summary of work in progress
	 
	 	•	 	current schedule of anticipated events or milestones
	 
	 	•	 	market plans for introduction of Licensed Products, and
	 
	 	•	 	a summary of resources (dollar value) spent in the reporting period.

	 	9.2	 	The information described in Section 9.1 shall be provided to AzTE in a
form reasonably determined by AzTE from time-to-time, and shall constitute Confidential
Information.
	 
	 	9.3	 	The Licensee shall report to AzTE the date of first commercial sale or service
offering of a Licensed Product in each country.
	 
	 	9.4	 	With each payment pursuant to Section 5 hereunder during the Term of
this Agreement (including the last day of any such calendar quarter following the
expiration date of this Agreement), Licensee shall provide AzTE with a report
detailing: (i) all royalties and other revenue owed to AzTE hereunder with an
itemization of the source of such revenue (e.g., whether due to sales of products
(including model numbers), services, receipts from Sublicensees, etc.), (ii) gross and
Net Sales on all Licensed Products sold, and (iii) other information reasonably
requested by AzTE. If no payment is due for any period, Licensee shall so report.
	 
	 	9.5	 	Licensee shall keep, and it shall require its Sublicensees to keep, accurate
records in sufficient detail as requested by AzTE from time-to-time, including
reporting of sales and all appropriate deductions claimed, to enable the payments due
under Section 5 to be determined. Upon the request of AzTE, Licensee and its
Sublicensees shall permit an independent certified public accountant selected by AzTE
to have access, not more than once in any twelve-month period, during regular business
hours and upon reasonable notice to Licensee, to inspect and copy those records of
Licensee and its Sublicensees as may be necessary or desirable to verify the accuracy
of the reports given pursuant to this Agreement. Should the audit reveal an
underpayment discrepancy of 5% or more between the payment reported and the payment
actually due to AzTE, Licensee shall pay the reasonable fees and expenses incurred in
conducting the audit; otherwise AzTE shall pay the fees and expenses incurred in
conducting the audit and inspection. Underpayment discrepancies shall be paid promptly
by Licensee to AzTE and overpayment discrepancies shall be credited to Licensee’s
account in connection with the next subsequent payment of royalties.

	10.	 	WARRANTY AND INDEMNIFICATION

	 	10.1	 	Licensee represents and warrants that the Founders have duly and validly
assigned all of their respective right, title and interest in the Licensed Patents to
ASU and/or VA. AzTE warrants and represents that ASU is the owner of the Licensed
Patents, subject to the rights of Prolexys under the Prolexys Research Agreement, any
interests or encumbrances created by the Founders, any interests of the United States
Veteran’s Administration, and the possible government interest described above.
Subject to the foregoing, AzTE warrants and represents that it has the full right and
power, to grant the licenses hereunder. NEITHER AZTE, ASU NOR ITS REGENTS, FELLOWS,
OFFICERS, EMPLOYEES OR AGENTS (COLLECTIVELY FOR THE PURPOSES OF THIS SECTION
10, “ASU”), MAKE ANY OTHER REPRESENTATION OR

 

 

	 	 	 	WARRANTY, EXPRESSED OR IMPLIED, REGARDING THE LICENSED SUBJECT MATTER OR THE USE
THEREOF, AND ALL SUCH PARTIES SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY SUBJECT
MATTER HEREUNDER OR USE THEREOF, AND NO SUCH PARTY ASSUMES ANY RESPONSIBILITIES
WHATSOEVER WITH RESPECT TO THE DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE OR OTHER
DISPOSITION BY LICENSEE, AFFILIATES, OR SUBLICENSEES OF LICENSED PRODUCTS.
	 
	 	10.2	 	Neither AzTE nor ASU shall have any liability or obligation in respect of any
infringement of any patent or other right of third parties due to Licensee’s, or its
Affiliate’s or Sublicensee’s activities under the license granted. LICENSEE,
AFFILIATES AND SUBLICENSEES ASSUME THE ENTIRE RISK AS TO PERFORMANCE OR DISPOSITION OF
LICENSED PRODUCTS OR USE OF THE LICENSED SUBJECT MATTER. In no event shall AzTE or ASU
be responsible or liable for any direct, indirect, special, incidental, or
consequential damages or lost profits or other economic loss or damage with respect to
Licensed Products regardless of the legal theory. The limitations on liability
contained in this Article apply even though AzTE or ASU may have been advised of the
possibility of such damage.
	 
	 	10.3	 	Licensee hereby agrees to indemnify, defend, save and hold AzTE, its directors,
officers, employees, and agents, ASU, the ASU Foundation, and their respective regents,
directors, officers, employees and agents, and the State of Arizona, harmless from and
against any third party claims, demands, or actions alleging or seeking recovery or
other relief for any liability, cost, fee, expense, loss, or damage arising or
resulting from the use of Licensed Subject Matter or Licensed Products by Licensee, its
customers or end-users or its Sublicensees or their customers or end-users, however the
same may arise. Licensee shall not, and shall require that its Affiliates and
Sublicensees not, make any statements, representations or warranties whatsoever to any
person or entity, or accept any liabilities or responsibilities whatsoever from any
person or entity that, as to AzTE or ASU, are inconsistent with any disclaimer or
limitation included in this Section 10.

	11.	 	OWNERSHIP AND PATENT ENFORCEMENT

	 	11.1	 	ASU owns and shall own any and all right, title and interest in and to the
Licensed Subject Matter and all Know-How regardless of whether developed prior to, or
after the Effective Date. Licensee shall, and shall cause each of its employees and
agents to, take all actions and to execute, acknowledge, and deliver all instruments or
agreements reasonably requested by AzTE, at AzTE’s expense, and necessary for the
perfection, maintenance, enforcement or defense of the rights of AzTE or ASU with
respect to the Licensed Subject Matter or Know-How.
	 
	 	11.2	 	Licensee shall have the option to enforce rights of AzTE and Licensee to the
Licensed Subject Matter against potential and actual infringers, and to defend against
allegations of infringement, at its expense. AzTE shall permit, if legally necessary,
the use of its name and shall execute any documents and do any acts as may be
reasonably necessary for the purpose of taking such action, at Licensee’s expense.
Licensee shall keep AzTE informed of the progress of the action, and AzTE shall be
entitled to engage separate counsel at its own expense and AzTE may join any action by
Licensee at its own expense. If Licensee recovers damages in any patent action,
proceeding or litigation (or settlement thereof), the award shall be applied first to
satisfy Licensee’s unreimbursed reasonable out-of-pocket legal expenses related to the
litigation next to reimburse AzTE for its reasonable out-of-pocket legal expenses
related to the litigation, and then the remaining recovery shall be split five percent
(5%) to AzTE and ninety-five percent (95%) to Licensee. AzTE shall have the right to
approve any such settlements, which shall not be unreasonably withheld or delayed. In
the event Licensee does not provide timely notice to AzTE of its intent to enforce the
rights described above, AzTE shall have the option to enforce rights of AzTE and
Licensee to the Licensed Subject Matter against potential and actual infringers, and to
defend against allegations of infringement, at its expense. Licensee shall permit, if
legally necessary, the use of its name and shall execute any documents and do any acts
as may be

 

 

	 	 	 	reasonably necessary for the purpose of taking such action, at AzTE’s expense. AzTE
shall keep Licensee informed of the progress of the action, and Licensee shall be
entitled to engage separate counsel at its own expense and Licensee may join any
action by AzTE at its own expense. If AzTE recovers damages in any patent action,
proceeding or litigation (or settlement thereof), the award shall be applied first
to satisfy AzTE’s unreimbursed reasonable out-of-pocket legal expenses related to
the litigation next to reimburse Licensee for its reasonable out-of-pocket legal
expenses related to the litigation, and then the remaining recovery shall be split
five percent (5%) to Licensee and ninety-five percent (95%) to AzTE.
	 
	 	11.3	 	Any infringement suit which either party may institute to enforce the Licensed
Patents pursuant to this Agreement, or in a suit for patent infringement which is
brought by a third party against AzTE or Licensee, which either party or both parties
are required or elect to defend, the other party hereto shall, at the request and the
expense of the party initiating such suit (or if any such party is defending such suit
at the expense of the Licensee), cooperate in all reasonable respects and, to the
extent reasonably possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the like.
	 
	 	11.4	 	AzTE shall use commercially reasonable efforts to advise Licensee of the grant,
lapse, revocation, surrender, invalidation or abandonment of any of the Licensed
Patents; provided, however, that the failure to provide such notice shall not
constitute a breach of this Agreement unless Licensee can demonstrate that Licensee was
materially prejudiced thereby.

	12.	 	COMMUNICATION
	 
	 	 	Any payment, notice, or other communication required or permitted to be made or given to
either party pursuant to this Agreement shall be sufficiently made or given on the date of
mailing if sent to the party by mail, postage prepaid (followed up by fax), addressed to it
at its address set forth or to such other address as it shall be designated by written
notice to the other party as follows:

In the case of AzTE:

Arizona Technology Enterprises

P.O. Box 873511

Tempe, Arizona 85287-3511

Attn: Peter Slate, Chief Executive Officer

Fax: 480-965-0421

With a copy to:

Rogers & Theobald LLP

2425 East Camelback Road

Suite 850

Phoenix, Arizona 85016

Attn: Michael Hool, Esq.

Fax: 602-852-5570

In the case of Licensee:

OrthoLogic Corp.

1275 West Washington Street

Tempe, Arizona 85281

Attn: James M. Pusey, M.D.

President and Chief Executive Officer

Fax: (602) 470-7080

 

 

With a copy to:

Quarles & Brady Streich Lang LLP

Two North Central Avenue

Phoenix, Arizona 85004-2391

Attn: Steven P. Emerick, Esq.

Fax: (602) 417-2980

	13.	 	ASSIGNMENTS
	 
	 	 	Except as set forth below and with respect to sublicenses granted in accordance with
Section 3, this Agreement (or any rights, interests, or obligations set forth
hereunder) shall not be assignable by either party (or transferred by operation of law)
without the prior written consent of the other party, which will not be unreasonably
conditioned, withheld, or delayed. Notwithstanding the foregoing, the parties agree that at
any time, (i) AzTE may assign its rights and obligations to a successor intellectual
property management company for ASU or to ASU; and (ii) either party may assign this
Agreement without consent in connection with any merger, consolidation or sale of assets
constituting a transfer of all or substantially all of Licensee’s business. In the case of
any assignment not requiring AzTE’s consent as set forth above, the effectiveness of the
assignment shall be conditioned on Licensee providing written notice of such proposed
assignment to AzTE prior to the assignment.
	 
	14.	 	[INTENTIONALLY DELETED.]
	 
	15.	 	PATENT MARKING
	 
	 	 	Licensee, Affiliates, and Sublicensees shall mark all packaging and documentation for
Licensed Products, and when possible the Licensed Product itself, with permanent and legible
designation of the number of applicable Licensed Patents in accordance with each country’s
applicable patent laws.
	 
	16.	 	TERMINATION

	 	16.1	 	Failure by AzTE or Licensee to comply with any of the material terms contained
in this Agreement shall entitle the other party to give to such defaulting party
written notice requiring it to cure the default. If the default is not cured within
ninety (90) days after the receipt of the notice of such default, the notifying party
shall be entitled (without prejudice to any of its other rights conferred on it by this
Agreement of such notice) to terminate this Agreement by giving notice to take effect
immediately upon receipt by the party in default; provided, however,
that if the default is by reason of non-payment of amounts due, such non-payment shall
constitute a default without further notice if not paid within thirty (30) days of
notice of such non-payment, The right of either party to terminate this Agreement
shall not be affected in any way by its waiver of, or failure to take action with
respect to, any previous default
	 
	 	16.2	 	Either party shall be entitled to terminate this Agreement immediately upon
written notice to the other party if (i) the other party shall voluntarily or
involuntarily go into liquidation or bankruptcy, takes steps or prepare for such
liquidation or bankruptcy, makes an assignment for the benefit of creditors, or have a
receiver or a trustee appointed for its properties, in each case where such proceedings
are not dismissed or revoked within 60 days, (ii) the other party is unable to pay its
debts when due or ceases to continue material business operations, or (iii) if the
other party otherwise unwinds or dissolves its business.
	 
	 	16.3	 	Any party is entitled to terminate this Agreement by providing thirty (30) days
prior written notice if an uncured breach of this Agreement due to a Force Majeure
Event (as defined in Section 19 below) has been in existence for more than one
hundred eighty (180) days.

 

 

	 	16.4	 	Licensee is entitled to terminate this Agreement by providing at least sixty
(60) days’ prior written notice if Licensee determines that further development of
Licensed Products is no longer in Licensee’s interests. AzTE is entitled to terminate
this Agreement in the circumstances set forth in Section 3.4.5.3 of the VA Agreement if
Licensee cannot reasonably satisfy the requirements set forth therein within one
hundred eighty (180) days after written notice thereof. This Agreement shall terminate
automatically in the circumstances set forth in Sections 3.4.5.4 and 3.4.5.5 of the VA
Agreement.
	 
	 	16.5	 	If not sooner terminated as provided or permitted herein or extended by mutual
agreement in writing, this Agreement shall automatically terminate upon expiration of
the Term.
	 
	 	16.6	 	Upon termination of this Agreement for whatever reason, Licensee shall
immediately deliver or cause to be delivered to AzTE copies of all patent applications,
test results and protocols, procedures, investigator rosters and instructions, and any
other document relevant to the procurement of patent protection or government approval
for Licensed Subject Matter and shall do whatever is necessary to provide AzTE or
AzTE’s designee full unconditional, and unrestricted access to all and use of such data
including any related open investigational drug application file.

	17.	 	RIGHTS AND OBLIGATIONS FOLLOWING TERMINATION

	 	17.1	 	Termination of this Agreement, by expiration or otherwise for any reason, shall
be without prejudice to the following provisions, which shall expressly survive any
termination of this Agreement:

	 	 	 	AzTE’s right to receive all payments and royalties accrued and unpaid on the
effective date of the termination; and
	 
	 	 	 	the rights and obligations provided for in Sections 4 (Equity Grant
and Related Rights), 7 (Confidentiality), 10 (Warranty and
Indemnification) and Section 23 (Miscellaneous);

	 	17.2	 	Following any termination of this Agreement, by expiration or otherwise (other
than termination by AzTE pursuant to Section 16.1 hereof), Licensee and its
Sublicensees, may offer for sale, sell, have sold, import and export for a twelve (12)
month period after termination in accordance with the terms of this Agreement, any
Licensed Product which was in process of manufacture or finished on the Effective Date
of the termination, but, with respect to these sales, Licensee shall continue to be
bound by all of its obligations under this Agreement, including the obligation to
render quarterly reports covering sales in accordance with the provision of Section
9 and the obligation to pay royalties at the rates set forth in Section 5.

	18.	 	INSURANCE
	 
	 	 	Licensee agrees to maintain the following minimum insurance coverages during the term of
this Agreement:

	 	18.1	 	Commercial general liability insurance, with a broad form general liability
endorsement, with contractual liability included, against claims for bodily injury,
death or property damage in connection with its operations contemplated by this
Agreement, to afford protection in the amount of not less than $1,000,000, combined
single limit per occurrence, and general aggregate minimum limits of $2,000,000. If
such coverage is on a “claims made” basis rather than an “occurrence” basis, Licensee
shall continue coverage, whether by tail coverage or otherwise, for a period of not
less than two years following expiration of this Agreement.
	 
	 	18.2	 	Business automobile liability with a minimum combined single limit of
$1,000,000 per occurrence including coverage for owned, if any, non-owned and hired
vehicles; Worker’s Compensation insurance in forms and amounts required by law; and
Employer’s liability

 

 

	 	 	 	insurance at: $500,000 each accident, $500,000 each employee/disease, $1,000,000
policy limit/disease.
	 
	 	18.3	 	The coverage will not be invalidated due to any act or omission on the part of
AzTE, ASU, the ASU Foundation or the State of Arizona, or its board, officers,
employees or agents. Licensee will provide certificates of insurance showing required
coverages to:

Risk Management

Arizona State University

P. O. Box 875505

Tempe, AZ 85287-5505

	 	18.4	 	Licensee’s coverage obligation shall include, without limitation, the acts and
omissions of Licensee and its directors, officers, employees and agents and:

The insurance policy must require the insurer to notify AzTE in writing at least thirty (30) days
prior to any cancellation, alteration or nonrenewal.

If the Licensee fails to carry and maintain the required insurance or to deliver certificates of
insurance, then Licensee will be in default under this Agreement.

Upon request by AzTE, the Licensee will provide AzTE with copies of all insurance policies and
endorsements.

All insurance required hereby shall be affected under policies issued by responsible insurers
authorized to do business within the State of Arizona. All insurers must posses a current A.M.
Best, Inc. rating of a least A VII.

	 	18.5	 	Licensee shall procure such other policies of insurance from time to time as is
reasonably requested by AzTE (such as Directors’ & Officers’ Insurance, Products
Liability Insurances, and Errors & Omissions Insurance).
	 
	 	18.6	 	With respect to foregoing policies, AzTE, ASU, the ASU Foundation and the State
of Arizona shall be named insured under such third party liability policies.

	19.	 	FORCE MAJEURE
	 
	 	 	The parties shall not be liable for failure or delay upon fulfillment of all or part of this
Agreement (other than for payments due hereunder), directly owing to acts of Nature,
Governmental orders or restriction, war, warlike condition, revolution, riot, looting,
terrorism, fire, or flood (each, a “Force Majeure Event”).

	20.	 	LATE PAYMENTS
	 
	 	 	In the event royalty payments, re-billings or other amounts are not received by AzTE when
due, the Licensee shall pay to AzTE interest charges at a rate of ten percent (10%) per
annum. Interest shall be calculated from the date payment was due until the date payment
was actually received by AzTE.
	 
	21.	 	FOREIGN GOVERNMENT APPROVAL OR REGISTRATION
	 
	 	 	If the law of any nation requires that this Agreement or any associated transaction be
either approved or registered with any governmental agency, the Licensee shall assume all
legal obligations and costs to do so.
	 
	22.	 	EXPORT CONTROL LAWS
	 
	 	 	The Licensee shall observe all applicable United States and foreign laws with respect to the
transfer of Licensed Products and related technical data to foreign countries, including,
without limitation, the International Traffic in Arms Regulations (ITAR) and the Export
Administration Regulations.

 

 

	23.	 	MISCELLANEOUS

	 	23.1	 	No amendment or modification of this Agreement or waiver of any right hereunder
shall be valid or binding upon the parties unless made in writing and signed by each
party. This Agreement embodies the entire understanding of the parties and shall
supersede all previous communications, representations, or undertakings, whether verbal
or written, between the parties relating to its subject matter.
	 
	 	23.2	 	Licensee shall have no right to use the name or other designation of the
Arizona Board of Regents or Arizona State University in connection with any sale or
promotion of Licensed Products without the express written consent of the Arizona Board
of Regents or AzTE respectively, which shall not be unreasonably withheld. Licensee
shall be entitled to identify the source, but not the content, of the Licensed Subject
Matter in a factual manner.
	 
	 	23.3	 	If any provision of this Agreement shall be held to be invalid, illegal, or
unenforceable, the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired; provided that the essential benefits to
the parties hereunder remain intact.
	 
	 	23.4	 	To the extent required by applicable United States laws, if at all, Licensee
agrees that Licensed Products will be manufactured in the United States, or its
territories, subject to such waivers as may be required, or obtained, if at all, from
the United States Department of Health and Human Services, or its designee or such
other authorized U.S. agency or instrumentality.
	 
	 	23.5	 	The headings of the sections are inserted for convenience of reference only,
and are not intended to influence the interpretation of this Agreement. All recitals,
exhibits and schedules are incorporated by reference into the body of this Agreement.
	 
	 	23.6	 	ASU is a public institution and only those obligations imposed upon ASU and
AzTE which can be lawfully undertaken by the Board of Regents in accordance with its
legislative charter shall be enforceable. To the best knowledge of AzTE, there are no
provisions of this Agreement which are unenforceable by virtue of the foregoing
restriction.
	 
	 	23.7	 	If ASU’s or AzTE’s performance of an obligation under this Agreement depends
upon the appropriation of funds by the Arizona Legislature and if the Legislature fails
to appropriate the necessary funds (an “Unappropriated Obligation”), then upon thirty
(30) days prior written notice, either Licensee or AzTE may cancel this Agreement,
unless within such thirty (30) day period, Licensee waives in writing the
Unappropriated Obligation. Cancellation will not terminate any obligation based on
events occurring prior to cancellation, although until the Legislature appropriates
funds, AzTE may not be able to pay the obligation. Appropriation is a legislative act
and is beyond the control of AzTE.
	 
	 	23.8	 	Licensee agrees that the employees, consultants, and agents of Licensee will
not for any purpose be considered employees, consultants, or agents of AzTE or ASU and
that Licensee assumes full responsibility for the actions of such parties while
performing services under this Agreement, and shall be solely responsible for their
supervision, daily direction and control, payment of salary (including withholding
income taxes and social security), worker’s compensation and disability benefits. AzTE
agrees that the employees, consultants, and agents of AzTE and ASU will not for any
purpose be considered employees, consultants, or agents of Licensee and that AzTE and
ASU assume full responsibility for the actions of such parties while performing
services under this Agreement, and shall be solely responsible for their supervision,
daily direction and control, payment of salary (including withholding income taxes and
social security), worker’s compensation and disability benefits.
	 
	 	23.9	 	The parties agree to comply with all applicable state and federal laws, rules,
regulations and executive orders governing equal employment opportunity, immigration,
nondiscrimination,

 

 

	 	 	 	including the Americans with Disabilities Act, and affirmative action. Licensee
certifies that it is in good standing to do business with the federal government
regarding debarment, suspension, proposed debarment or other matters rendering
organizations ineligible to do such business. This Agreement is subject to all
applicable Arizona Board of Regents (ABOR) policies in effect on the Effective Date.
	 
	 	23.10	 	Any disputes under or relating to this Agreement between AzTE and the Licensee
would best be, and therefore shall be, resolved pursuant to the dispute resolution
procedure set forth in Schedule 2 hereto subject to ABOR policies.
Notwithstanding the foregoing, nothing herein shall prohibit or limit either party’s
right to injunctive relief in connection with this Agreement or any dispute arising in
connection with the relationship contemplated hereby.
	 
	 	23.11	 	No waiver by either party to this Agreement of any breach or default of any of
the covenants or agreements set forth in this Agreement shall be deemed a waiver as to
any subsequent and/or similar breach or default.
	 
	 	23.12	 	If it becomes necessary for either party to undertake legal action against the
other because of a failure of performance due under the terms of this Agreement, then
the prevailing party shall be entitled to reasonable attorney’s fees in addition to
costs and necessary disbursements.
	 
	 	23.13	 	SUBJECT TO THE DISPUTE RESOLUTION PROVISIONS HEREIN, THIS AGREEMENT SHALL BE
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS AND WITHIN THE JURISDICTION OF
THE STATE OF ARIZONA, without regard to conflicts of laws principles and each party
hereby submits to the personal jurisdiction of the courts of the State of Arizona,
Maricopa County, for the purposes of any dispute between the parties.
	 
	 	23.14	 	Each party represents that the execution and delivery of this Agreement by
such party, and the consummation by it of all transactions contemplated hereby, have
been duly authorized by all requisite action on its part, and this Agreement
constitutes the valid and legally binding obligation of such party, enforceable against
it in accordance with its terms; and that the execution, delivery and performance of
this Agreement by such party will not violate the provisions of any law, rule,
regulation or policy applicable to such party or conflict with or result in the breach
or termination or constitute a default under any agreement, instrument, right or
obligation to which such party is a party.
	 
	 	23.15	 	If, and to the extent that A.R.S. § 38-511 is applicable to this Agreement,
the parties acknowledge and agree that none of the Founders, nor any of their
Affiliates, employees, contractors or agents has been significantly involved in
initiating, negotiating, securing, drafting or creating this Agreement on behalf of
AzTE or any of its Affiliates, including but not limited to ASU.

IN WITNESS WHEREOF, AzTE and Licensee have caused this Agreement to be signed as of the
Effective Date.

	 	 	 	 	 	 	 	 	 	 	 
	Arizona Science & Technology Enterprises, LLC dba	 	OrthoLogic Corp., a Delaware corporation	 	 
	Arizona Technology Enterprises, LLC, an Arizona	 	 	 	 	 	 	 	 
	limited liability company	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Peter Slate
	 	 	 	By:
	 	/s/ Les M. Taeger	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	Peter Slate
	 	 	 	Name:
	 	Les M. Taeger	 	 
	Title:

	 	CEO
	 	 	 	Title:
	 	CFO	 	 

 

 

SCHEDULE 1 — INTELLECTUAL PROPERTY (Section 1.5)

SCHEDULE 2 – DISPUTE RESOLUTION PROCEDURE (Section 23.10)

 

 

SCHEDULE 1

INTELLECTUAL PROPERTY

Tech ID: M1-061 Title: Reagents and Methods for Smooth Muscle Therapies

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	60/314,535

	 	03-223
	 	08/23/2001
	 	Provisional
	 	United States
	10/226,956

	 	03-223-US
	 	08/23/2002
	 	Non-Provisional
	 	United States
	PCT/US02/26918

	 	03-223-PCT
	 	08/23/2002
	 	PCT
	 	PCT
	2,458,574

	 	03-223-CA
	 	08/23/2002
	 	Nationalized PCT
	 	CANADA
	2002324777

	 	03-223-AU
	 	08/23/2002
	 	Nationalized PCT
	 	AUSTRALIA
	02759442.3

	 	03-223-EP
	 	08/23/2002
	 	Nationalized PCT
	 	EPO
	2003-523609

	 	03-223-JP
	 	02/20/2004
	 	Nationalized PCT
	 	JAPAN
	11/078,256

	 	03-223-USD1
	 	03/11/2005
	 	Divisional
	 	United States

Tech ID: M3-052 Title: Methods for Promoting Wound Healing and Reducing Scar Formation

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	60/448,954

	 	03-228
	 	02/21/2003
	 	Provisional
	 	United States
	PCT/US04/004999

	 	03-228-PCT
	 	02/20/2004
	 	PCT
	 	PCT
	 

	 	03-228-AU
	 	02/20/2004
	 	Nationalized PCT
	 	AUSTRALIA
	04713307.9

	 	03-228-EP
	 	02/20/2004
	 	Nationalized PCT
	 	EPO
	10/545,518

	 	03-228-US
	 	08/15/2005
	 	Nationalized PCT
	 	United States

Tech ID: M4-025 Title: Novel Heat Shock Protein 20-Related Polypeptides and Uses Thereof

Title: Transduction of HSP20 Phosphopeptides Alters Actin Cytoskeleton via Interaction

Tech ID: M4-042 with 14-3-3 Proteins and Cofilin

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	60/512,211

	 	03-956
	 	10/17/2003
	 	Provisional
	 	United States
	60/530,306

	 	03-228-P3
	 	12/16/2003
	 	Provisional
	 	United States
	PCT/US04/34989

	 	03-956-PCT
	 	10/15/2004
	 	PCT
	 	PCT

Tech ID: M4-058 Title: Vasoactive Compounds and Use Thereof

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	60/547,158

	 	PRLX-P60-003
	 	02/23/2004
	 	Provisional
	 	United States

Tech ID: M5-038 Title: Peptidomimetics for Inhibition of Vasospasm

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	 

	 	05-664
	 	 
	 	Provisional
	 	United States

Tech ID: M5-101 Title: HSP20 Mediates Airway Smooth Muscle Relaxation

	 	 	 	 	 	 	 	 	 
	Serial No	 	Legal Ref No	 	File Date	 	App Type	 	Country
	 
	 	 	 	 	 	 	 	 

Tech ID: M6-089 Title: HSP20 Phosphopeptide Reverses Subarachnoid Hemorrhage-Induce Vasospasm

	 	 	 	 	 	 	 	 	 
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SCHEDULE 2

DISPUTE RESOLUTION PROCEDURE

     Section 1. The parties hereto deem it to be in their respective best interests to settle any
dispute as expeditiously and economically as possible. Therefore, the parties expressly agree to
submit any dispute between them arising out of or relating to this Agreement (“Dispute”) to
mediation and, if necessary, arbitration, as set forth below. The parties hereto thus expressly
waive any rights they may have to trial by jury with respect to such dispute. The dispute
resolution proceedings shall be conducted in Phoenix, Arizona, in the English language. The
parties agree to use the following procedure in good faith to resolve any Dispute:

          a. A meeting shall be held among the parties within ten (10) days after any party gives
written notice of the Dispute to each other party (the “Dispute Notice”) attended by a
representative of each party having decision-making authority regarding the Dispute (subject to
board of directors or equivalent approval, if required), to attempt in good faith to negotiate a
resolution of the Dispute.

          b. If, within thirty (30) days after the Dispute Notice, the parties have not succeeded in
negotiating a written resolution of the Dispute, upon written request by any party to each other
party all parties will promptly negotiate in good faith to jointly appoint a mutually acceptable
neutral person not affiliated with any of the parties (the “Neutral”). If all parties so agree in
writing, a panel of two or more individuals (such panel also being referred to as the “Neutral”)
may be selected by the parties. The parties shall seek assistance in such regard from the American
Arbitration Association (the “AAA”) or the Center for Public Resources if they have been unable to
agree upon such appointment within forty (40) days after the Dispute Notice. The fees and costs of
the Neutral and of any such assistance shall be shared equally among the parties.

          c. In consultation with the Neutral, the parties will negotiate in good faith to select or
devise a nonbinding alternative dispute resolution procedure (“Mediation”) by which they will
attempt to resolve the Dispute, and a time and place for the Mediation to be held, with the Neutral
(at the written request of any party to each other party) making the decision as to the procedure
if the parties have been unable to agree on any of such matters in writing within ten (10) days
after selection of the Neutral.

          d. The parties agree to participate in good faith in the Mediation to its conclusion;
provided, however, that no party shall be obligated to continue to participate in the Mediation if
the parties have not resolved the Dispute in writing within one hundred twenty (120) days after the
Dispute Notice and any party shall have terminated the Mediation by delivery of written notice of
termination to each other party following expiration of said 120-day period. Following any such
termination notice after selection of the Neutral, and if any party so requests in writing to the
Neutral (with a copy to each other party), then the Neutral shall make a recommended resolution of
the Dispute in writing to each party, which recommendation shall not be binding upon the parties;
provided, however, that the parties shall give good faith consideration to the settlement of the
Dispute on the basis of such recommendation, and if the parties are unable to resolve the Dispute
on the basis of such recommendation, then at the election of either party the Dispute shall be
submitted to binding arbitration as provided below. In the event of binding arbitration, the party
seeking further resolution shall pay the reasonable attorneys‘‘ fees, costs and other
expenses (including expert witness fees) of the other party incurred in connection with the pursuit
of (and defense against) such arbitration, if the result thereof is less favorable to the party
pursuing the arbitration than the recommendation of the Neutral.

          e. Notwithstanding anything herein to the contrary, nothing in this Section shall preclude any
party from seeking interim or provisional relief, in the form of a temporary restraining order,
preliminary injunction or other interim equitable relief concerning the Dispute, either prior to or
during the Mediation if necessary to protect the interests of such party, or to obtain specific
performance of obligations under this Agreement. Further, this Section shall be specifically
enforceable. Bringing or defending an action for such relief shall not constitute waiver of the
right or avoid the obligation to mediate or arbitrate contained in this Agreement.

          f. Subject to the foregoing, a party may seek arbitration of an unresolved Dispute in Phoenix,
Arizona, in accordance with the Rules of the AAA governing commercial transactions. The
arbitration tribunal shall consist of three (3) arbitrators. The party initiating arbitration
shall nominate one arbitrator (who shall

 

 

be knowledgeable in the industry but not be affiliated with such party) in the request for
arbitration and the other party shall nominate a second arbitrator (who shall be knowledgeable in
the industry but not be affiliated with such party) in the answer thereto. The two arbitrators so
named will then jointly appoint the third arbitrator (who shall be knowledgeable in the industry
but shall not be affiliated with either party) as chairman of the arbitration tribunal. If either
party fails to nominate its arbitrator, or if the arbitrators named by the parties fail to agree on
the person to be named as chairman within sixty (60) days, the office of the AAA in Phoenix,
Arizona shall make the necessary appointments of an arbitrator or the chairman of the arbitration
tribunal. The award of the arbitration tribunal shall be final and judgment upon such an award may
be entered in any competent court or application may be made to any competent court for judicial
acceptance of such an award and an order of enforcement.

     Section 2. At the reasonable request of either party, the mediator or arbitration
tribunal shall adopt rules and procedures designed to expedite the dispute resolution
process.

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