Document:

exv10w1

 

Exhibit 10.1

ORTHOLOGIC CORP.

2005 EQUITY INCENTIVE PLAN

	 	I.	 	INTRODUCTION.

     1.01 Purpose. This plan shall be known as the OrthoLogic Corp. 2005 Equity
Incentive Plan (the “Plan”). The purposes of the 2005 Equity Incentive Plan are to attract
and retain the best available employees and directors of the Company or any subsidiary which
now exists or hereafter is organized or acquired by the Company, as well as appropriate
third parties who can provide valuable services to the Company, to provide additional
incentive to such persons and to promote the success and growth of the Company. These
purposes may be achieved through the grant of options to purchase Common Stock of OrthoLogic
Corp., the grant of Stock Appreciation Rights and the grant of Restricted Stock, as
described below.

     1.02 Effective Date. The effective date of the Plan shall be April 15, 2005,
subject to the approval of the Plan by shareholders of the Company at the 2006 annual
meeting. Any Awards granted prior to such stockholder approval shall be expressly
conditioned upon such stockholder approval of the Plan.

	 	II.	 	DEFINITIONS.

     2.01 “Award” means an Incentive Stock Option, Non-Qualified Stock Option, Stock
Appreciation Right or Restricted Stock grant, as appropriate.

     2.02 “Award Agreement” means the agreement between the Company and the Grantee
specifying the terms and conditions as described thereunder.

     2.03 “Board” means the Board of Directors of OrthoLogic Corp.

     2.04 “Change of Control” shall be defined as a change in ownership or control
of the Company effected through any of the following transactions: (a) a statutory share
exchange, merger, consolidation or reorganization approved by the Company’s stockholders,
unless securities representing more than 50% of the total combined voting power of the
voting securities of the successor corporation are immediately thereafter beneficially
owned, directly or indirectly, by the persons who beneficially owned the Company’s
outstanding voting securities immediately prior to such transaction; (b) any stockholder
approved transfer or other disposition of all or substantially all of the Company’s assets
(whether held directly or indirectly through one or more controlled subsidiaries) except to
or with a wholly-owned subsidiary of the Company); or (c) the acquisition, directly or
indirectly by any person or related group of persons of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) of securities possessing more than 50% of the total combined voting power of the
Company’s outstanding securities pursuant to transactions with the Company’s stockholders.

     2.05 “Code” means the Internal Revenue Code of 1986, as it may be amended from
time to time.

     2.06 “Committee” means the committee described in Article 4 or the person or
persons to whom the committee has delegated its power and responsibilities under Article 4.

     2.07 “Common Stock” or “Stock” means the common stock of the Company
having a par value of $.0005 per share.

     2.08 “Company” means OrthoLogic Corp., a Delaware corporation.

     2.09 “Fair Market Value” means for purposes of the Plan at any date shall be
(i) the reported closing price of such stock on the New York Stock Exchange or other
established stock exchange or Nasdaq National Market on such date, or if no sale of such
stock shall have been made on that date, on the preceding date on which there was such a
sale, (ii) if such stock is not then listed on an exchange or the Nasdaq National Market,
the last trade price per share for such stock in the over-the-counter market as

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quoted on Nasdaq or the pink sheets or successor publication of the National Quotation
Bureau on such date, or (iii) if such stock is not then listed or quoted as referenced
above, an amount determined in good faith by the Board or the Committee.

     2.10 “Grant Date” means the date on which an Award is deemed granted, which
shall be the date on which the Committee authorizes the Award or such later date as the
Committee shall determine in its sole discretion.

     2.11 “Grantee” means an individual who has been granted an Award.

     2.12 “Incentive Stock Option” or “ISO” means an option that is intended
to meet the requirements of Section 422 of the Code and regulations thereunder.

     2.13 “Non-Qualified Stock Option” or “NSO” means an option other than
an Incentive Stock Option.

     2.14 “Option” means an Incentive Stock Option or Non-Qualified Stock Option, as
appropriate.

     2.15 “Performance Goal” means a performance goal established by the Committee
prior to the grant of any Award of Restricted Stock that is based on the attainment of goals
relating to one or more operating or business criteria, measured on an absolute basis or in
terms of growth or reduction related to the Company’s objective to successfully develop
synthetic therapeutics for unmet medical needs. (Planned performance goals are confidential
and, accordingly, not described herein).

     2.16 “Plan” means the OrthoLogic Corp. 2005 Equity Incentive Plan as set forth
herein, as it may be amended from time to time.

     2.17 “Restricted Stock” means shares or units of Common Stock which are subject
to restrictions established by the Committee.

     2.18 “Stock Appreciation Right” or “SAR” means the right to receive
cash or shares of Common Stock based upon the excess of the Fair Market Value of one share
of Common Stock on the date the SAR is exercised over the Fair Market Value of one share of
Common Stock on the Grant Date.

	 	III.	 	SHARES SUBJECT TO AWARD.

     3.01 Available Shares. The number of shares of Common Stock of the Company
which may be issued under the Plan shall not exceed 2,000,000 shares; provided that no
individual can be granted Awards covering, in the aggregate, more than 300,000 shares of
Common Stock in any calendar year. Shares issued under the Plan may come from authorized
but unissued shares, from treasury shares held by the Company, from shares purchased by the
Company on an open market for such purpose, or from any combination of the foregoing. If
any Award granted under this Plan is canceled, terminates, expires, or lapses for any
reason, any shares subject to such Award again shall be available for the grant of an Award
under the Plan.

     3.02 Changes in Common Stock. If any stock dividend is declared upon the
Company Stock, or if there is any stock split, stock distribution, or other recapitalization
of the Company with respect to the Common Stock, resulting in a split or combination or
exchange of shares, the Committee shall make or provide for such adjustment in the number of
and class of shares which may be delivered under the Plan, and in the number and class of
and/or price of shares subject to outstanding Awards as it may, in its discretion, deem to
be equitable.

	 	IV.	 	ADMINISTRATION

     4.01 Administration by the Committee. For purposes of the power to grant
Awards to Company directors, the Committee shall consist of the entire Board. For other
Plan purposes, the Plan shall be administered by a committee designated by the Board to
administer the Plan and shall initially be the Compensation Committee of the Board. A
majority of the members of the Committee shall constitute a quorum. The approval of such a
quorum, expressed by a vote at a meeting held either in person or by conference telephone
call, or the unanimous consent of all members in writing without a meeting, shall constitute
the action of the Committee and shall be valid and effective for all purposes of the Plan.

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     4.02 Committee Powers. The Committee is empowered to adopt such rules,
regulations and procedures and take such other action as it shall deem necessary or proper
for the administration of the Plan. The Committee shall also have authority to interpret
the Plan, and the decision of the Committee on any questions concerning the interpretation
of the Plan shall be final and conclusive. The Committee may consult with counsel, who may
be counsel for the Company, and shall not incur any liability for any action taken in good
faith in reliance upon the advice of counsel. Subject to the provisions of the Plan, the
Committee shall have full and final authority to:

	 	(a)	 	designate the persons to whom Awards shall be granted;
	 
	 	(b)	 	grant Awards in such form and amount as the Committee shall determine;
	 
	 	(c)	 	impose such limitations, restrictions and conditions upon any such
Award as the Committee shall deem appropriate;
	 
	 	(d)	 	waive in whole or in part any limitations, restrictions or conditions
imposed upon any such Award as the Committee shall deem appropriate; and
	 
	 	(e)	 	modify, extend or renew any Award previously granted, provided that
this provision shall not provide authority to reprice Awards to a lower
exercise price.

     4.03 Delegation by Committee. The Committee may delegate all or any part of its
responsibilities and powers to any executive officer or officers of the Company selected by
it. Any such delegation may be revoked by the Board or by the Committee at any time.

	 	V.	 	STOCK OPTIONS.

     5.01 Granting of Stock Options. Options may be granted to directors, officers
and key employees of the Company and any of its subsidiaries, as well as appropriate third
parties who can provide valuable services to the Company; provided, however that a maximum
of 2,000,000 shares of stock may be issued pursuant to the exercise of Incentive Stock
Options. In selecting the individuals to whom Options shall be granted, as well as in
determining the number of Options granted, the Committee shall take into consideration such
factors as it deems relevant pursuant to accomplishing the purposes of the Plan. A Grantee
may, if he is otherwise eligible, be granted an additional Option or Options if the
Committee shall so determine. Option grants under the Plan shall be evidenced by agreements
in such form and containing such provisions as are consistent with the Plan as the Committee
shall from time to time approve.

     5.02 Type of Option. At the time each Option is granted, the Committee shall
designate the Option as an Incentive Stock Option or a Non-Qualified Stock Option. Any
Option designated as an Incentive Stock Option shall comply with the requirements of Section
422 of the Code, including the requirement that incentive stock options may only be granted
to individuals who are employed by the Company, a parent or a subsidiary corporation of the
Company. If required by applicable tax rules regarding a particular grant, to the extent
that the aggregate fair market value (determined as of the date an Incentive Stock Option is
granted) of the shares with respect to which an Incentive Stock Option grant under this Plan
(when aggregated, if appropriate, with shares subject to other Incentive Stock Option grants
made before said grant under this Plan or another plan maintained by the Company or any ISO
Group member) is exercisable for the first time by an optionee during any calendar year
exceeds $100,000 (or such other limit as is prescribed by the Code), such option grant shall
be treated as a grant of Nonqualified Stock Options pursuant to Code Section 422(d).

     5.03 Option Terms. Each option grant agreement shall specify the number of
Incentive Stock Options and/or Nonqualified Stock Options being granted; one option shall be
deemed granted for each share of stock. In addition, each option grant agreement shall
specify the exercisability and/or vesting schedule of such options, if any.

     5.04 Purchase Price. The purchase price of the Common Stock covered by each
Option shall be not less than the Fair Market Value of such Stock on the Grant Date. Such
price shall be subject to adjustment as provided in Article X hereof. The purchase price for
a share subject to Option shall not be less than 100% of the Fair Market Value of the share
on the date the option is granted, provided, however, the option price of an Incentive Stock
Option shall not be less than 110% of the fair market value of such share on the date the
option is granted to an individual then owning (after the application of the family and

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other attribution rules of Section 424(d) or any successor rule of the Code) more than
10% of the total combined voting power of all classes of stock of the Company.

     5.05 Method of Exercise. An Option that has become exercisable may be
exercised from time to time by written notice to the Company stating the number of shares
being purchased and accompanied by the payment in full of the Option price for such shares.
The purchase price may be paid by any of the following methods, (a) by cash, (b) by check,
or (c) to the extent permitted under the particular grant agreement, by transferring to the
Company shares of stock of the Company at their fair market value as of the date of exercise
of the option, provided that the optionee held the shares of stock for at least six months.
Notwithstanding the foregoing, the Company may arrange for or cooperate in permitting
broker-assisted cashless exercise procedures.

     5.06 Shareholder Rights. A Grantee shall not, by reason of any Options granted
hereunder, have any right of a shareholder of the Company with respect to the shares covered
by Options until shares of Stock have been issued.

	 	VI.	 	STOCK APPRECIATION RIGHTS.

     6.01 Granting of SARs. The Committee may, in its discretion, grant SARs to
directors, officers and key employees of the Company and any of its subsidiaries, as well as
appropriate third parties who can provide valuable services to the Company. SAR grants
under the Plan shall be evidenced by agreements in such form and containing such provisions
as are consistent with the Plan as the Committee shall from time to time approve.

     6.02 Method of Exercise. An SAR that has become exercisable may be exercised
by written notice to the Company stating the number of SARs being exercised.

     6.03 Payment upon Exercise. Upon the exercise of SARs, the Grantee shall be
entitled to receive an amount determined by multiplying (a) the difference obtained by
subtracting the Fair Market Value of a share of Common Stock as of the Grant Date of the SAR
from the Fair Market Value of a share of Common Stock on the date of exercise, by (b) the
number of SARs exercised. At the discretion of the Committee, the payment upon the exercise
of the SARs may be in cash, in shares of Common Stock of equivalent value, or in some
combination thereof. The number of available shares under Section 3.01 shall only be
reduced by shares of Common Stock issued upon exercise of an SAR and shall not be affected
by any cash payments.

	 	VII.	 	EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH.

     7.01 Incentive Stock Options. Unless otherwise provided herein or in a
specific Option Agreement which may provide longer or shorter periods of exercisability, no
ISO shall be exercisable after the expiration of the earliest of:

	 	(a)	 	10 years from the date the option is granted, or five years from the
date the option is granted to an individual owning (after the application of
the family and other attribution rules of Section 424(d) of the Code) at the
time such option was granted, more than 10% of the total combined voting power
of all classes of stock of the Company,
	 
	 	(b)	 	three months after the date the Grantee ceases to perform services for
the Company or its subsidiaries, if such cessation is for any reason other than
death, disability (within the meaning of Code Section 22(e)(3)), or cause,
	 
	 	(c)	 	one year after the date the Grantee ceases to perform services for the
Company or its subsidiaries, if such cessation is by reason of death or
disability (within the meaning of Code Section 22(e)(3)), or
	 
	 	(d)	 	the date the Grantee ceases to perform services for the Company or its
subsidiaries, if such cessation is for cause, as determined by the Board or the
Committee in its sole discretion;

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     7.02 Non-Qualified Stock Options and SARs. Unless otherwise provided herein or
in a specific NSO or SAR Agreement which may provide longer or shorter periods of
exercisability, no NSO or SAR shall be exercisable after the expiration of the earliest of:

	 	(a)	 	10 years from the date of grant,
	 
	 	(b)	 	two years after the date the Grantee ceases to perform services for
the Company or its subsidiaries, if such cessation is for any reason other than
death, permanent disability, retirement or cause,
	 
	 	(c)	 	three years after the date the Grantee ceases to perform services for
the Company or its subsidiaries, if such cessation is by reason of the
Grantee’s death, permanent disability or retirement; or
	 
	 	(d)	 	the date the Grantee ceases to perform services for the Company or its
subsidiaries, if such cessation is for cause, as determined by the Board or the
Committee in its sole discretion;

     7.03 ISOs, NSOs and SARs. Unless otherwise provided in a specific grant
agreement or determined by the Committee, an Option or SAR shall only be exercisable for the
periods above following the date a Grantee ceases to perform services to the extent the
option was exercisable on the date of such cessation.

	 	VIII.	 	RESTRICTED STOCK AWARDS.

     8.01 Granting of Restricted Stock. The Committee may, in its discretion, grant
Restricted Stock to directors, officers and key employees of the Company and any of its
subsidiaries, as well as appropriate third parties who can provide valuable services to the
Company. Restricted Stock Awards may consist of shares issued subject to forfeiture if
specified conditions are not satisfied (“Restricted Stock Shares”) or agreements to issue
shares of Common Stock in the future if specified conditions are satisfied (“Restricted
Stock Units”).

     8.02 Terms of Restricted Stock Grants. Each Restricted Stock Award shall be
confirmed by, and be subject to the terms of, an agreement identifying the restrictions
applicable to the Award. Restricted Stock Awards shall be subject to the following terms
and conditions:

	 	(a)	 	The Committee may condition the grant of Restricted Stock upon the
attainment of Performance Goals so that the grant qualifies as
“performance-based compensation” within the meaning of Section 162(m) of the
Code. The Committee may also condition the grant of Restricted Stock upon such
other conditions, restrictions and contingencies as the Committee may
determine.
	 
	 	(b)	 	Except to the extent otherwise provided in the applicable Award
Agreement and (c) below, the portion of the Restricted Stock Award still
subject to restriction shall be forfeited by the Grantee upon termination of
the Grantee’s service for any reason.
	 
	 	(c)	 	In the event of hardship or other special circumstances of a Grantee,
the Committee may waive in whole or in part any or all remaining restrictions
with respect to such Grantee’s Restricted Stock Award.
	 
	 	(d)	 	If and when the applicable restrictions lapse, unlegended certificates
for such shares shall be delivered to the Grantee.

     8.03 Shareholder Rights. A Grantee receiving an Award of Restricted Stock
Shares shall have all of the rights of a shareholder of the Company, including the right to
vote the shares and the right to receive any cash dividends. Unless otherwise determined by
the Committee, cash dividends shall be paid in cash and dividends payable in stock shall be
paid in the form of additional Restricted Stock Shares. A Grantee receiving an Award of
Restricted Stock Units shall not be deemed the holder of any shares covered by the Award, or
have any rights as a shareholder with respect thereto, until such shares are issued to
him/her.

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	 	IX.	 	ACCELERATION OF EXERCISABILITY AND VESTING UNDER CERTAIN CIRCUMSTANCES.

     9.01 Upon a Change in Control. Notwithstanding any provision in the Plan to
the contrary, unless the particular letter of grant provides otherwise, 75% of the unvested
Awards held by each Grantee shall automatically become vested upon the occurrence, before
the expiration or termination of such option, of a Change in Control.

     9.02 Balance of Awards. The balance of each Grantee’s unvested Awards will
vest exercisable in 12 equal monthly installments following the occurrence of a Change in
Control, or according to the Grantee’s individual vesting schedule as applicable without
regard to this Article X, whichever is earlier. If a Grantee loses his position with the
Company as a result of or subsequent to the occurrence of a Change in Control, 100% of the
unexpired and unvested Awards granted pursuant to this Plan held by such optionee shall
automatically become vested upon such loss of position.

	 	X.	 	EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN.

     10.01 Merger, Consolidation or Reorganization. In the event of a merger,
consolidation or reorganization with another corporation in which the Company is not the
surviving corporation or a merger, consolidation or reorganization involving the Company in
which the Company Stock ceases to be publicly traded, the Committee shall, subject to the
approval of the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company hereunder, take action regarding each
outstanding and unexercised option pursuant to either clause (a) or (b) below:

	 	(a)	 	Appropriate provision may be made for the protection of such Award by
the substitution on an equitable basis of appropriate shares of the surviving
or related corporation, provided that the excess of the aggregate Fair Market
Value of the shares subject to such Award immediately before such substitution
over the exercise price thereof is not more than the excess of the aggregate
fair market value of the substituted shares made subject to option immediately
after such substitution over the exercise price thereof; or
	 
	 	(b)	 	The Committee may cancel such Award. In the event any Option or SAR
is canceled, the Company, or the corporation assuming the obligations of the
Company hereunder, shall pay the Grantee an amount of cash (less normal
withholding taxes) equal to the excess of the highest Fair Market Value per
share of the Stock during the 60-day period immediately preceding the merger,
consolidation or reorganization over the exercise price, multiplied by the
number of shares subject to such Award. In the event any other Award is
canceled, the Company, or the corporation assuming the obligations of the
Company hereunder, shall pay the Grantee an amount of cash or stock, as
determined by the Committee, based upon the highest Fair Market Value per share
of the Stock during the 60-day period immediately preceding the cancellation.

     Notwithstanding anything to the contrary, in the event a Change in Control should occur, the
Committee shall have the right to cancel such Awards and pay the Grantee an amount determined under
(b) above.

	 	XI.	 	MISCELLANEOUS.

     11.01 Withholding. The Company shall have the power and the right to deduct or
withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes (including the Grantee’s FICA obligation) required by law to
be withheld with respect to any taxable event arising or as a result of this Plan. With
respect to withholding required upon the exercise of Options or SARs, or upon the lapse of
restrictions on Restricted Stock, Grantees may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by having the
Company withhold shares having a Fair Market Value on the date the tax is to be determined
equal to the minimum statutory total tax which could be imposed on the transaction.

     11.02 No Employment or Retention Agreement Intended. Neither the establishment
of, nor the awarding of Awards under this Plan shall be construed to create a contract of
employment or service between any Grantee and the Company or its subsidiaries; nor does it
give any Grantee the right to continued service in any capacity with the Company or its
subsidiaries or limit in any way the right of the Company or its subsidiaries to discharge
any Grantee at any time and without notice, with or without cause,

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or to any benefits not specifically provided by this Plan, or in any manner modify the
Company’s right to establish, modify, amend or terminate any profit sharing or retirement
plans.

     11.03 Non-transferability of Awards. Any Award granted hereunder shall, by its
terms, be non-transferable by a Grantee other than by will or the laws of descent and shall
be exercisable during the Grantee’s lifetime solely by the Grantee or the Grantee’s duly
appointed guardian or personal representative. Notwithstanding the foregoing, the Committee
may permit a Grantee to transfer a Non-Qualified Stock Option or SAR to a family member or a
trust or partnership for the benefit of a family member, in accordance with rules
established by the Committee.

     11.04 Investment Representation. Unless the shares of stock covered by the
Plan have been registered with the Securities and Exchange Commission pursuant to Section 5
of the Securities Act of 1933, as amended, each Grantee by accepting an Award represents and
agrees, for himself or herself and his or her transferees by will or the laws of descent and
distribution, that all shares of stock purchased upon the exercise of the option grant will
be acquired for investment and not for resale or distribution. Upon such exercise of any
portion of any option grant, the person entitled to exercise the same shall upon request of
the Company furnish evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in good faith for
investment and not for resale or distribution. Furthermore, the Company may if it deems
appropriate affix a legend to certificates representing shares of stock that such shares
have not been registered with the Securities and Exchange Commission and may so notify its
transfer agent.

     11.05 Dissolution or Liquidation. Upon the dissolution or liquidation of the
Company, any outstanding Awards theretofore granted under this Plan shall be deemed
canceled.

     11.06 Controlling Law. The law of the State of Delaware, except its law with
respect to choice of law, shall be controlling in all matters relating to the Plan.

     11.07 Termination and Amendment of the Plan. The Plan will expire ten (10)
years after the Effective Date, solely with respect to the granting of Incentive Stock
Options or such later date as may be permitted by the Code for Incentive Stock Options. The
Board may from time to time amend, modify, suspend or terminate the Plan; provided, however,
that no such action shall (a) impair without the Grantee’s consent any Award theretofore
granted under the Plan or (b) be made without shareholder approval where such approval would
be required as a condition of compliance with the Code or other applicable laws or
regulatory requirements.

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Exhibit 10.2

LETTER OF INCENTIVE OPTION GRANT

ORTHOLOGIC CORP. 2005 EQUITY INCENTIVE PLAN

Date                

Name & address

RE: OrthoLogic Corp. 2005 Equity Incentive Plan

Dear            ,

     In order to provide additional incentive to certain employees and directors, OrthoLogic Corp.
(the “Company”) adopted the OrthoLogic Corp. 2005 Equity Incentive Plan (the “2005 Plan”). By
means of this letter (the “Letter of Grant”), the Company is offering you an incentive stock option
pursuant to the 2005 Plan. The Company’s sale of its common shares underlying the option granted
to you hereby has been or will be registered with the U.S. Securities and Exchange Commission. A
copy of the prospectus, including a copy of the 2005 Plan relating to that registration, can be
obtained from the Company by request.

     The option granted to you hereunder shall be subject to all of the terms and conditions of the
2005 Plan, which you should carefully review. In addition, such option is subject to the following
terms and conditions:

     1.      Grant of Option. The Company hereby grants to you, pursuant to the 2005 Plan, the option
to purchase from the Company upon the terms and conditions and at the times hereinafter set forth,
an aggregate of                 shares of the Company’s $0.0005 par value common stock (the “Shares”) at a purchase
price of $                per Share. The date of grant of this option is                
(hereinafter referred to as the “Option Date”).

     This option is an incentive stock option within the meaning of the Internal Revenue Code of
1986, as amended (the “Code”), except if required by applicable tax rules, to the extent that the
aggregate fair market value (determined as of the date these options are granted) of Shares
exercisable for the first time by you during any calendar year (when aggregated, if appropriate,
with shares subject to other incentive stock option grants made under the 2005 Plan and any other
plan maintained by the Company or any ISO Group member as defined in the 2005 Plan) exceeds
$100,000 (or such other limit as is prescribed by the Internal Revenue Code, as amended), the
option granted hereby as to such excess Shares shall be treated as a nonqualified stock option (NQO
pursuant to Code Section 422(d).

 

 

[Optionee]

[Date]

Page 2

     2.      Exercise Term of Option. Unless earlier terminated as described in Section 7, the option
will vest and may be exercised for the purchase of Shares as described in the following schedule:

     Number of Shares      Vesting Schedule

     3.      Nontransferability. This option shall not be transferable otherwise than by will or by the
laws of descent and distribution, and the option shall be exercisable only by you during your
lifetime.

     4.      Other Conditions and Limitations.

	 	(a)	 	Any Shares issued upon exercise of this option shall not be
issued unless the issuance and delivery of Shares pursuant thereto shall comply
with all relevant provisions of law including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, any applicable state
securities or “Blue Sky” law or laws (or an exemption from such provision is
available), and the requirements of any stock exchange or national market
system of a national securities association upon which the Shares may then be
listed and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
	 
	 	(b)	 	No transfer of any Shares issued upon the exercise of the
option will be permitted by the Company, unless any request for transfer is
accompanied by evidence satisfactory to the Company that the proposed transfer
will not result in a violation of any applicable law, rule or regulation,
whether federal or state, including in the discretion of the Company an opinion
of counsel reasonably acceptable to the Company.
	 
	 	(c)	 	Inability of the Company to obtain approval from any regulatory
body having jurisdictional authority deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect to the nonissuance or sale of such
Shares as to which such requisite authority shall not have been obtained.
	 
	 	(d)	 	Unless the Shares are subject to a then effective registration
statement under the Securities Act of 1933, upon exercise of this option (in
whole or in part) and the issuance of the Shares, the Company shall instruct
its transfer agent to

 

 

[Optionee]

[Date]

Page 3

enter stop transfer orders with respect to Shares, and
all certificates representing the Shares shall bear on the face thereof substantially the
following legend:

“The shares of common stock represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold, offered for sale,
assigned, transferred or otherwise disposed of unless registered pursuant to the
provisions of that Act or an opinion of counsel to the Company is obtained stating
that such disposition is in compliance with an available exemption from such
registration.”

     5.      Exercise of Option. You may exercise the option only by giving the Executive Chairman of
the Company written notice (including the number of Shares that you are intending to acquire,
accompanied by the full exercise price), by personal hand delivery, by professional overnight
delivery service, or by registered or certified mail, postage prepaid with return receipt
requested, at the following address:

Executive Chairman

OrthoLogic Corp.

1275 West Washington

Phoenix, Arizona 85281

     Payment of the option price shall be made either in (i) cash or by check, or (ii) at your
request and with the written approval of the Company, (a) by delivering shares of the Company’s
common stock which have been beneficially owned by you for a period of at least six months prior to
the time of exercise (“Delivered Stock”), or (b) a combination of cash and Delivered Stock. The
Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures.
Payment in the form of Delivered Stock shall be in the amount of the fair market value of the stock
at the date of exercise, determined pursuant to the 2005 Plan.

     6.      Valuation and Withholding. If required by applicable regulations, the Company shall, at the
time of issuance of any Shares purchased pursuant to the 2005 Plan, provide you with a statement of
valuation of the Shares issued. The Company shall be entitled to withhold amounts from your
compensation or otherwise to receive an amount adequate to provide for any applicable federal,
state and local income taxes (or require you to remit such amount as a condition of issuance). The
Company may, in its discretion, satisfy any such withholding requirement, in whole or in part, by
withholding form the shares to be issued the number of shares that would satisfy the withholding
amount due.

     7.      Termination of Incentive Stock Option. Notwithstanding anything to the contrary, this
option can become exercisable only while you are an employee of the Company, and shall not be
exercisable after the earliest of (i) the tenth anniversary of the Option Date; (ii) three months
after the

 

 

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date your employment with the Company terminates, if such termination is for any reason
other than permanent disability, death, or cause; (iii) the date your employment terminates, if
such termination is for cause, as determined by the Company in its sole discretion; or (iv) one
year after the date your employment with the Company terminates, if such termination is the result
of death or permanent disability.

     8.      Change of Control or Termination without Cause. Should a “Change of Control” (as defined
in the 2005 Plan), liquidation or “Termination without Cause”, as defined in this section 8 to this letter of
Incentive Option Grant, occur, the option shall immediately vest at 100%.

	 	(a)	 	As used herein, the term “Termination without Cause” shall mean
the Company’s termination of your employment other than a termination for
Cause. In addition, a “Termination without Cause” shall have occurred if the
Board alters your duties so that you no longer render such services of an
executive and administrative character to the Company as are usual and
customary in the case of your position at the time of the grant of the option
covered hereby, at comparable compensation, benefits, working conditions and
work location as exist at the date of grant, except for changes unrelated to a
“Change of Control” that apply to substantially all employees.
	 
	 	(b)	 	As used herein, the term “Cause” shall mean your: (i)
conviction or entry of a plea of nolo contendere for a crime or offense
involving misappropriation of monies or other property, or any felony offense
(including Foreign Corrupt Practices Act of 1977) for any crime of moral
turpitude, or your commission of fraud or embezzlement; (ii) breach, other than
an immaterial breach, by you of your fiduciary duties to the Company, as
determined under the laws of the State of Delaware; (iii) gross insubordination
or willful failure to discharge any of your material duties; (iv) willful or
knowing violation of any law, rule, or regulation of any governmental agency
with jurisdiction over the Company which could reasonably be expected to impair
the Company’s ability to conduct its business in its usual manner or could
reasonably be expected to subject the Company to public disrespect, scandal or
ridicule; (v) insobriety or non-therapeutic use of drugs, chemicals or
controlled substances while performing the duties and responsibilities of your
position; or (vi) material willful misconduct with respect to the business and
affairs of the Company or any subsidiary or affiliate thereof, including, but
not limited to your willful material violation of the Company’s Code of Ethics,
Insider Trading Policy or any other material Company policy applicable to all
employees.

 

 

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     9.      Notice of Disposition of Shares. If you dispose of any Shares acquired on the exercise of
this option within either (a) two years after the Option Date or (b) one year after the date of
exercise of this option, you must notify the Company within seven days of such disposition.

     10.      Miscellaneous. You will have no rights as a stockholder with respect to the Shares until
the exercise of the option and payment of the full purchase price therefor in accordance with the
terms of the 2005 Plan and this Letter of Grant. Nothing herein contained shall impose any
obligation on the Company or any parent or subsidiary of the Company or on you with respect to your
continued employment by the Company or any parent or subsidiary of the Company. Nothing herein
contained shall impose any obligation upon you to exercise this option. While the option granted
hereunder is intended to qualify as an incentive stock option under Section 422 of the Code, the
Company cannot assure you that such option will, in fact, qualify as an incentive stock option, and
makes no representation as to the tax treatment to you upon receipt or exercise of the option or
sale or other disposition of the Shares covered by the option.

     11.      Governing Law. This Letter of Grant shall be subject to and construed in accordance with
the law of the State of Arizona, except as may be required by the Delaware General Corporation Law
or the federal securities laws. Venue for any action arising from or relating to this Agreement
shall lie exclusively in Superior Court, Maricopa County, Arizona or the United States District
Court for the District of Arizona, Phoenix Division.

     12.      Relationship to the 2005 Plan. The option contained in this Letter of Grant is subject to
the terms, conditions and definitions of the 2005 Plan. To the extent that the terms, conditions
and definitions of this Letter of Grant are inconsistent with the terms, conditions and definitions
of the 2005 Plan, the terms, conditions and definitions of the 2005 Plan shall govern. You hereby
accept this option subject to all terms and provisions of the 2005 Plan. You agree to accept as
binding, conclusive and final all decisions or interpretations of the Board or any committee
appointed by the Board upon any questions arising under the 2005 Plan. You agree to consult your
independent tax advisors with respect to the income tax consequences to you, if any, of
participating in the 2005 Plan and authorize the Company to withhold in accordance with applicable
law from any compensation otherwise payable to you any taxes required to be withheld by federal,
state or local law as a result of your participation in the 2005 Plan.

     13.      Communication. No notice or other communication under this Letter of Grant shall be
effective unless the same is in writing and is personally hand-delivered, or is sent by
professional overnight delivery service or mailed by registered or certified mail, postage prepaid
and with return receipt requested, addressed to the Company at the address set forth in Section 5
above, or such other address as the Company has designated in writing to you, in accordance with
the provisions hereof, or you at the address set forth at the beginning of this letter, or such
other address as you have designated in writing to the Company, in accordance with the provisions
hereof.

     You should execute the enclosed copy of this Letter of Grant and return it to the Company as

 

 

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soon as possible. The additional copy is for your records.

Very truly yours,

     OrthoLogic Corp.

                                                               

			
	By:	 	John M. Holliman, III

Executive Chairman

ACCEPTED AND AGREED TO:

                                                               

Name:

Date:

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