EXHIBIT 10.1 EMPLOYMENT AGREEMENT

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of the 3^rd day of March, 2005, is between OrthoLogic Corp., a Delaware corporation (the “Corporation”) located at 1275 West Washington, Tempe, Arizona 85281, and James M. Pusey (“Executive”).

     The Corporation desires to employ Executive, and Executive desires to accept such employment on the terms and subject to the conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows:

     1. Employment; Effectiveness of Agreement. Not later than March 18, 2005, or such earlier date as may be specified by Executive (such date, the “Commencement Date,” for all purposes hereof), the Corporation shall employ the Executive and the Executive shall accept employment by the Corporation, upon the terms and conditions hereinafter set forth.

     2. Term of Service. The employment of the Executive hereunder shall commence on the Commencement Date and continue until terminated pursuant to the terms of this Agreement. The period of Executive’s employment is hereinafter referred to as the “Employment Period.”

     3. Duties. During the Employment Period, Executive shall serve as the Chief Executive Officer (“CEO”) of the Corporation and shall serve the Corporation faithfully and to the best of his ability. Subject to the approval of the shareholders, Executive will serve as a Director on the Board of Directors. Subject to Executive’s continued employment, the Corporation will nominate Executive for election, and re-election, as a Director on the Board of Directors at each annual meeting of the shareholders beginning in 2006. Executive shall devote his full time, attention, skill and efforts to the performance of such duties as are normal and customary to the position of CEO as required by or reasonably requested by the Corporation’s Board of Directors. Subject to paragraph 6(a)(ii), Executive’s responsibilities, title, working conditions, duties and/or any other aspect of Executive’s employment may be changed, added to or eliminated during the Employment Period at the sole discretion of the Corporation. Prior to serving on any outside board of directors, Executive shall obtain the written consent of the Board of Directors, provided however that no consent shall be required to serve on the boards of directors, or boards of trustees, for not-for-profit organizations provided such service does not, in the good faith judgment of the Company’s Board of Directors, impair Executive’s performance of his duties hereunder.

     4. Compensation; Bonus; Benefits; Reimbursement.

          (a) Base Salary. During the Employment Period, the Corporation shall pay to Executive an annual base salary of $350,000 which shall be subject to review and, at the option of the Compensation Committee of the Corporation, subject to increase, but not decrease, (such salary, as the same may be increased from time to time as aforesaid, being referred to herein as the “Base Salary”). The Base Salary shall be payable in such installments (but not less

frequently than monthly) as is the policy of the Corporation with respect to senior executives of the Corporation.

          (b) Special Bonuses. Executive shall be entitled to a signing bonus of $125,000 payable on the Commencement Date, and an additional bonus of $125,000 payable (i) upon the completion of one year of service with the Corporation or, (ii) if Executive’s employment is terminated by the Company without Cause prior to the completion of one year of service, upon such termination.

          (c) Bonuses. Executive shall be entitled to participate in a discretionary bonus plan established for Executive from time to time by the Compensation Committee with reasonable consultation with the Executive. Executive’s target bonus will be 50% of Base Salary upon the achievement of individual and corporate performance objectives established jointly from time to time by the Compensation Committee and the Executive. Such cash bonus, if earned, will be payable to the Executive annually on or before the first day of March immediately following the end of the calendar year for which it is earned. Any bonus will be paid in such manner so that it is not subject to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, and shall be interpreted in a manner consistent with that intention.

          (d) Equity Compensation.

               (i) Stock Options. On the date hereof, the Corporation shall grant to Executive options to purchase 425,000 shares of the Corporation’s common stock at an exercise price equal to the closing price of the Corporation’s common stock on the date hereof, as reported by the Nasdaq Stock Market, and the Corporation shall grant to Executive on the Commencement Date an option to purchase an additional 75,000 shares of the Corporation’s common stock at an exercise price equal to the closing price of the Corporation’s common stock on the Commencement Date, as reported by the Nasdaq Stock Market (collectively, the “Initial Option Grant”). The grant shall be evidenced by one or more grant agreements (collectively, the “Stock Option Agreement”) which shall provide for immediate vesting as to 10% and monthly vesting of the remainder in equal amounts over 48 months, subject to continued employment. To the extent permitted by law and the Corporation’s 1997 Stock Option Plan (“Plan”), the options will be qualified incentive stock options as defined under Section 422 of the Internal Revenue Code of 1986; the remainder of the options will be nonqualified stock options. During the Employment Period, the Executive shall be entitled to participate in additional equity compensation plans and programs as may be determined from time to time in the discretion of the Compensation Committee.

               (ii) Restricted Stock. On the date hereof, the Corporation shall grant to Executive 200,000 shares of restricted stock. Such grant shall be evidenced by a Letter of Restricted Stock Grant which shall provide that such restricted stock shall be subject to restrictions on, among other things, transferability, and that upon termination of employment all such restricted stock that is at that time subject to restrictions shall be forfeited and reacquired by the Corporation. The Letter of Restricted Stock Grant shall provide that the forfeiture provisions shall lapse as to 50% of the shares upon the acceptance by the FDA for filing of a New Drug Application for Chrysalin for fresh fracture indications and that the forfeiture provisions shall

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lapse as to the other 50% of the shares, upon the attainment of separate milestones to be established within 90 days after the Commencement Date in good faith consultation between Executive and the Compensation Committee and which are expected (or required) to be achieved prior to the initial New Drug Application filing.

               (iii) The Corporation shall use its reasonable best efforts to register with the United States Securities and Exchange Commission within ninety (90) days of the date hereof and maintain in effect at all times thereafter a registration statement under the Securities Act of 1933, as amended (“Securities Act”), covering (A) all shares issuable upon exercise of the Initial Option Grant and (B) all shares of restricted stock granted to Executive as described in Section 4(d)(ii) above; provided that this covenant shall not apply on or after the date on which Executive is entitled to sell such shares pursuant to Rule 144(k) under the Securities Act.

          (e) Future Adjustments. On or before March 3 of each calendar year during the term of this Agreement following the calendar year in which this Agreement commenced, the Compensation Committee will review the Executive’s Base Salary and other compensation, including Executive’s entitlement to participate in additional equity compensation plans, and may make adjustments in its absolute discretion to such base salary and determine such bonus or additional equity compensation based upon, among other factors: (i) Executive’s performance, (ii) the Corporation’s performance, (iii) changes in costs of living, (iv) changes in Executive’s responsibilities, and (v) the benefit to the Corporation of Executive’s efforts on its behalf; provided that Executive’s Base Salary shall not be less than $350,000 per year during the term of this Agreement.

          (f) Benefits. During the Employment Period, Executive shall receive such medical, dental and other fringe benefits as may be provided from time to time by the Corporation to senior management generally.

          (g) Vacation. During the Employment Period, Executive shall be entitled to four weeks paid vacation during each 12-month period worked.

          (h) Reimbursement of Expenses.

               (i) Business Expenses. During the Employment Period, the Corporation shall reimburse Executive, in accordance with the policies and practices of the Corporation in effect from time to time with respect to other members of senior management of the Corporation, for all reasonable and necessary traveling expenses and other disbursements incurred by him for or on behalf of the Corporation in connection with the performance of his duties hereunder upon presentation by the Executive to the Corporation of appropriate documentation therefor.

               (ii) Relocation Expense. The Corporation shall reimburse Executive for the following expenses relating to relocation to the Phoenix area:

                    (1) $15,000 for temporary housing expenses, and/or for the expense of temporarily maintaining two homes if the Executive purchases a home in the Phoenix area prior to the sale of Executive’s Boston residence;

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                    (2) $60,000 for the purchase of a home in the Phoenix area;

                    (3) reasonable costs of moving Executive’s household goods to the Phoenix area, in an amount to be determined by mutual agreement;

                    (4) the amount, if any, by which the gross sales price (without deduction for sales commissions or other expenses of sale) of Executive’s Boston condominium is less than $724,000, but such reimbursement shall not exceed $50,000.

               (iii) Special Travel Expenses. The Corporation shall reimburse Executive for up to $30,000 per year in airfare expenses for travel by Executive to Pennsylvania to visit family for so long as Executive’s immediate family maintains their primary residence is in Pennsylvania.

               (iv) The Corporation shall reimburse Executive for up to $5,000 in legal fees incurred in connection with the negotiation and execution of this agreement.

          (i) Deductions. The Corporation shall deduct from any payments to be made by it to the Executive under this Section 4 or Section 6 any amounts required to be withheld in respect of any federal, state or local income or other taxes.

     5. Termination and At-Will Employment.

          (a) Executive understands and acknowledges that the Employment Period with the Corporation is for an unspecified duration and constitutes “at-will” employment. Executive acknowledges that this employment relationship may be terminated at any time, with or without cause, at the option either of the Corporation or Executive, and with or without notice.

          (b) For convenience of reference, the date upon which any termination of the employment of the Executive pursuant to this Section 5 hereof shall be effective is hereinafter referred to as the “Termination Date.” If Executive dies during the Employment Period, the Termination Date shall be deemed to be the date of Executive’s death.

     6. Effect of Termination of Employment.

          (a) As used herein, the following defined terms shall have the following meanings:

               (i) “Cause” shall mean Executive’s (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 his commission of fraud or embezzlement; (ii) breach, other than an immaterial breach, by Executive of his fiduciary duties to the Corporation, as determined under the laws of the State of Delaware; (iii) gross insubordination or willful failure to discharge any of his duties or obligations under this Agreement, which failure, if curable, is not cured within thirty (30) days after receipt of written notice of such breach (the “Cure Period”), provided, however, that successive material failures involving the same conduct by Executive shall be deemed incapable of being cured; (iv) willful or knowing violation of any law, rule, or regulation of any

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governmental agency with jurisdiction over the Corporation which could reasonably be expected to impair the Corporation’s ability to conduct its business in its usual manner or could reasonably be expected to subject the Corporation to public disrespect, scandal or ridicule; (v) insobriety or non-therapeutic use of drugs, chemicals or controlled substances either (A) in the course of performing his duties and responsibilities under this Agreement or (B) in any other manner affecting his ability to perform his duties and responsibilities under this Agreement; or (vi) willful misconduct with respect to the business and affairs of the Corporation or any subsidiary or affiliate thereof, including, but not limited to Executive’s willful violation of the Corporation’s Code of Ethics, Insider Trading Policy or any other material Corporation policy applicable to all senior management.

               (ii) “Good Reason” shall mean with respect to Executive (i) without his consent, he is not the Chief Executive Officer of the Corporation; (ii) a material diminution in duties of Executive described in this Agreement, (iii) the failure of the Corporation to obtain the agreement from any successor to assume and agree to perform this Agreement or (iv) the material breach of this Agreement by the Corporation, which neglect or failure, if curable, is not cured within thirty (30) days after receipt of written notice of such breach.

               (iii) “Disability” shall mean Executive is incapacitated or disabled by accident, sickness or otherwise so as to render Executive mentally or physically incapable of performing the essential functions of his job required hereunder for six consecutive months.

          (b) If this Agreement is terminated by (i) the Corporation without Cause (other than by reason of Executive’s death or Disability) or (ii