CHRONIMED INC, DEF 14A, 2000-10-13

CHRONIMED INC
DEF 14A, 2000-10-13
CATALOG & MAIL-ORDER HOUSES

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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.)

Filed by the registrant [X]

Filed by a party other than the registrant [ ]

Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2) )
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11( c) or Rule 14a-12

CHRONIMED INC.
--------------------------------------------------------------------------------

(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check appropriate box):

[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6( i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transactions applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing party:

(4) Date filed:

<PAGE>

[LOGO] CHRONIMED

10900 RED CIRCLE DRIVE
MINNETONKA, MINNESOTA 55343

------------------

To Our Shareholders:

You are cordially invited to attend the 2000 Annual Meeting of Shareholders,
which will be held at the Lutheran Brotherhood Auditorium, 625 Fourth Avenue
South, Minneapolis, Minnesota on Tuesday, November 14, 2000, at 3:30 p.m.
Central Standard Time.

At the Annual Meeting, shareholders will elect directors of the Company and
transact such other items of business as are listed in the Notice of Annual
Meeting and more fully described in the Proxy Statement. The Board of Directors
and Management hope that you will be able to attend the meeting in person.

The formal Notice of Annual Meeting and the Proxy Statement follow. It is
important that your shares be represented and voted at the meeting, regardless
of the size of your holdings. Accordingly, please mark, sign, and date the
enclosed proxy and return it promptly in the enclosed envelope to ensure that
your shares will be represented. If you do attend the Annual Meeting, you may,
of course, withdraw your proxy should you wish to vote in person.

Sincerely yours,

/s/ Henry F. Blissenbach

Henry F. Blissenbach
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER

October 13, 2000

<PAGE>

CHRONIMED INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 14, 2000

TO THE SHAREHOLDERS OF CHRONIMED INC.:

Notice is hereby given to the holders of common shares of Chronimed Inc.
that the Annual Meeting of Shareholders of the Company will be held at the
Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota, on Tuesday, November 14, 2000, at 3:30 p.m. Central Standard Time, or
at any adjournments thereof, to consider and act upon the following matters:

1. To elect two directors to serve for terms of three years.

2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the current fiscal year.

3. To approve the Chronimed Inc. 2001 Stock Incentive Plan.

4. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on October 4, 2000,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the meeting or any adjournment thereof.

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. EVEN IF YOU PLAN TO ATTEND
THE MEETING, WE URGE YOU TO SIGN, DATE, AND RETURN THE PROXY AT ONCE IN THE
ENCLOSED ENVELOPE.

By Order of the Board of Directors

/s/ Kenneth S. Guenthner

Kenneth S. Guenthner
SECRETARY

October 13, 2000

<PAGE>

CHRONIMED INC.

ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 14, 2000

-----------------
PROXY STATEMENT
-----------------

GENERAL

The Annual Meeting of Shareholders of Chronimed Inc. ("Company") will be
held on Tuesday, November 14, 2000, at 3:30 p.m., Central Standard Time, at the
Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota, for the purposes set forth in the Notice of Annual Meeting of
Shareholders. This Proxy Statement, accompanying form of proxy, and Chronimed
Inc. annual report are first being mailed to shareholders on or about October
18, 2000.

The only matters the Board of Directors knows will be presented are those
stated in Items 1, 2 and 3 of the notice. THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF ITEMS 1, 2 AND 3. Should any other matter properly
come before the meeting, it is intended that the persons named in the enclosed
proxy will have authority to vote such proxy in accordance with their judgement
on such matter.

OUTSTANDING SHARES AND VOTING RIGHTS

The enclosed proxy is solicited on behalf of the Board of Directors for use
at the Annual Meeting. Such solicitation is being made by mail and may also be
made by directors, officers, and regular employees of the Company personally or
by telephone. Any proxy given pursuant to such solicitation may be revoked by
the shareholder at any time prior to the voting thereof by so notifying the
Company in writing or by appearing in person at the meeting. Subject to any such
revocation, all shares represented by properly executed proxies that are
received prior to the meeting will be voted in accordance with the directions on
the proxy. If no direction is made, the proxy will be voted (i) FOR the election
of the Board of Directors' nominees named in this Proxy Statement for the
respective terms described in this Proxy Statement, (ii) FOR ratification of the
appointment of Ernst & Young LLP as the independent auditors of the Company for
the current fiscal year, (iii) FOR approval of the Chronimed Inc. 2001 Stock
Incentive Plan, and (iv) in the Proxy's discretion on such other business as may
come before the Annual Meeting. So far as the management of the Company is
aware, no matters other than those described in this Proxy Statement will be
acted upon at the Annual Meeting.

Each shareholder will be entitled to cast one vote in person or by proxy
for each share of Common Stock held by the shareholder. Only shareholders of
record at the close of business on October 4, 2000 will be entitled to vote at
the meeting. Common Stock, $.01 par value per share, of which there were
12,147,021 shares outstanding on the record date, constitutes the only class of
outstanding voting securities issued by the Company. Each share is entitled to
cast one vote on each proposal before the meeting.

Under Chronimed's bylaws, at all stockholder meetings with a quorum (i.e.,
at least a majority of the shares entitled to vote at the meeting) present,
matters shall generally be decided by the vote of holders of a majority of our
shares present in person or by proxy and entitled to vote. Abstentions are not
counted as "for" or "against" votes, but are counted in the total number of
votes present and entitled to vote for passage of a proposal. This has the
effect of abstentions being treated as "no" votes. Broker nonvotes are
considered shares present for quorum purposes, but they are not considered
shares entitled to vote, are not counted in the total number of votes, and have
no effect on the outcome of voting.

All of the expenses involved in preparing, assembling, and mailing this
Proxy Statement and the material enclosed herewith will be paid by the Company.
The Company may reimburse banks, brokerage

1
<PAGE>

firms, and other custodians, nominees, and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to beneficial owners of stock.

PROPOSAL 1:
ELECTION OF DIRECTORS

As approved by the shareholders at the December 3, 1997 Annual Meeting, the
Company amended its Articles of Incorporation and Bylaws to divide the Board of
Directors into classes to allow for staggered terms of office, with one class of
directors elected each year and each director serving for a term of three years.
Commencing with the November 18, 1998 Annual Meeting of shareholders, the
shareholders elected only one class of directors each year, with each director
so elected to hold office for a term expiring at the third annual meeting of
shareholders following their election. This same procedure will be repeated each
year with the result that approximately one-third of the whole Board of
Directors will be elected each year.

Shares represented by proxy will be voted, if authority to do so is not
withheld, for the election of the two nominees named below, unless one or more
of such nominees should become unavailable for service by reason of death or
other unexpected occurrence, in which event such shares may be voted for the
election of such nominee as the Board of Directors may propose. The affirmative
vote of the holders of a majority of the shares of Common Stock, present or
represented at the meeting and entitled to vote on Proposal 1, is required to
approve Proposal 1. For this purpose, a shareholder (including a broker) who
does not give authority to a proxy to vote, or withholds authority to vote, on
the election of directors shall not be considered present and entitled to vote
on the election of directors.

NOMINEES FOR DIRECTOR

CLASS III DIRECTORS
(THREE YEAR TERM)

John Howell Bullion
David R. Hubers

Set forth below is information regarding the two nominees and the existing
directors not currently up for election, including information furnished by them
as to their principal occupations for the last five years, certain other
directorships held by them, and their ages as of the date hereof. The following
table also sets forth the Common Stock ownership of each of the Company's
directors. Unless otherwise indicated, all persons have sole or joint with
spouse voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Nominees may be contacted through the
headquarters of the Company.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE DIRECTOR NOMINEES.

2
<PAGE>

John Howell Bullion 48 Mr. Bullion is a co-founder of the Company 199,125 1.60%
DIRECTOR and has served as a director since 1985. He
has been Chief Executive Officer and a
director of Orphan Medical, Inc., a publicly
held pharmaceutical development company,
since its formation in June 1994. Since
September 1993, Mr. Bullion has also served
as President of Bluestem Partners, Ltd.,
which invests in and provides management
services to developing businesses.

David R. Hubers 57 Mr. Hubers is Chairman of American Express 0 *
NOMINEE Financial Advisors Inc. He joined American
Express Financial Advisors Inc. in 1965 and
held various positions until being named
Senior Vice President of Finance and Chief
Financial Officer in 1982. In August of 1993
he was appointed President and Chief
Executive Officer and served in that
capacity until June of this year. Mr. Hubers
serves on the boards of directors of the
Investment Company Institute, Carlson School
of Management at the University of
Minnesota, the Minnesota Business
Partnership, Fairview Hospitals, RTW, the
United Way and the National Council on
Economic Education. He is also chairman of
the Fairview Hospitals Human Resources
Committee, and a member of its Executive
Committee.
</TABLE>

3
<PAGE>

Henry F. Blissenbach(3) 58 Dr. Blissenbach was appointed Chairman of 165,141 1.33%
CHAIRMAN OF THE BOARD OF the Board and Chief Executive Officer of
DIRECTORS AND CHIEF Chronimed Inc. on July 1, 2000. Dr.
EXECUTIVE OFFICER Blissenbach was named President and Chief
Operating Officer of the Company in May
1997. He became a director of the Company in
September 1995. From 1992 to 1997, he served
as President of Diversified Pharmaceutical
Services, Inc. (DPS), a United HealthCare
subsidiary until 1994, and thereafter a
subsidiary of SmithKline Beecham Corp. DPS
is a pharmacy benefit management firm. Dr.
Blissenbach also serves as a director of
Ligand Pharmaceuticals Inc., a publicly held
biomedical development company, and
Opportunity Partners, Inc., a non-profit
company.

John H. Flittie(2) 64 Mr. Flittie was elected as a director in 1,200 *
DIRECTOR August 1998. He most recently served as
President and Chief Operating Officer of
ReliaStar Financial Corporation, a
NYSE-listed financial services holding
company, retiring June 30, 1999. He joined
ReliaStar (then Northwestern National Life)
in 1985 as Senior Vice President and Chief
Financial Officer. He served as a director
of ReliaStar until June 2000. Mr. Flittie is
a director of Community First Bankshares,
Inc., a Nasdaq-listed financial services
company. He is also a director of Universal
Pension, Inc., a privately owned company.
Mr. Flittie is a Fellow of the Society of
Actuaries and on the Advisory Board of the
College of Business Administration at Drake
University. He is an adjunct faculty member
of The Graduate School of Business of the
University of St. Thomas, and is a
self-employed consultant.
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON
STOCK OWNED PERCENT
NAME AND BENEFICIALLY AS OF OF
POSITIONS WITH THE COMPANY AGE PRINCIPAL OCCUPATION AUGUST 31, 2000(1) CLASS
-------------------------- --- -------------------------------------------- ------------------ -------
<S> <C> <C> <C>
Charles V. Owens, Jr.(3) 73 Mr. Owens has served as a director of the 52,185 *
DIRECTOR Company since 1991. Since 1988, Mr. Owens
has served as a consultant to several
medical device and diagnostic firms in the
United States and Japan. From 1985 to 1988,
he was Chief Executive Officer of Genesis
Labs, Inc. (which included DiaScreen
Corporation as a subsidiary), a
diagnostics manufacturing company. Before
his employment with Genesis Labs, Inc., Mr.
Owens was an executive officer with various
medical device companies, including
Executive Vice President of Miles
Laboratories, Inc. Mr. Owens is a past
director of St. Jude Medical, Inc., a
medical device company, and was a director
of Genesis Labs, Inc., from which the
Company acquired the assets of DiaScreen
Corporation in March 1998.
</TABLE>

------------------------
* Less than 1%

(1) Includes the following options exercisable within 60 days to acquire shares
of Common Stock: Dr. Blissenbach, 135,760; Mr. Bullion 16,000; and Mr.
Owens, 16,000.

(2) Class I Directors -- will be up for election at the 2001 Annual Meeting of
shareholders

(3) Class II Directors -- will be up for election at the 2002 Annual Meeting of
shareholders

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

Messrs. Bullion, Owens, and Flittie are independent directors and the only
members of the Audit Committee of the Board of Directors. During fiscal 2000,
the Committee met five times. Governed by a written charter, the Audit Committee
represents the Board in discharging its responsibilities relating to accounting,
reporting, and financial control practices of the Company. The Committee has
general responsibility for review with management of the financial controls,
accounting, and audit and reporting activities of the Company. The Committee
also annually reviews the qualifications and objectivity of the Company's
independent auditors, makes recommendations to the Board as to their selection,
reviews the scope, fees, and results of their audit and reviews their management
comment letters.

Messrs. Owens and Flittie are the current members of the Compensation
Committee, which oversees compensation for directors, officers, and key
employees of the Company. During fiscal 2000, the Compensation Committee met
four times.

During fiscal 2000, the Board of Directors met eleven times, including five
telephone board meetings. Each director attended 75% or more of the meetings of
the Board of Directors and its committees on which he served during the times of
his appointment. The Board of Directors does not have a standing nominating
committee.

DIRECTOR COMPENSATION

For fiscal 2000, directors who were not employees of the Company received
an annual retainer of $20,000 plus fees of $1,000 for each board meeting
attended in person; $1,000 for each telephone board meeting attended; and $500
for each committee meeting attended whether in person or by telephone.

5
<PAGE>

Committee chairmen received an additional $200 per committee meeting. In fiscal
2000, directors were also reimbursed for out-of-pocket expenses incurred in
attending Board of Directors and committee meetings.

Pursuant to the Company's 1994 Stock Option Plan for Directors, each
non-employee director automatically receives an option to purchase 30,000 shares
on the date of the director's initial election to the Board of Directors. Each
option has an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. The option vests on the seventh anniversary
of the date of grant unless vesting is accelerated. The option will vest as to
5,000 shares if the Company's share price becomes 20 percent greater than the
exercise price on or before the third anniversary of the grant. The option will
vest to an additional 10,000 shares if the price per share becomes 60 percent
greater than the exercise price on or before the fourth anniversary of the
grant. The option will vest as to the final 15,000 shares if the price per share
becomes 100 percent greater than the exercise price on or before the fifth
anniversary of the grant. Acceleration requires the maintenance of share-price
benchmarks for at least five trading days during any consecutive 30-day period.
Further, these options may become immediately exercisable upon certain
change-in-control events as described in the Company's 1994 Stock Option Plan
for Directors. The options expire ten years after date of grant.

In addition to the above, each non-employee director receives an annual
option to purchase 5,000 shares pursuant to the 1994 Stock Option Plan for
Directors. The option vests on the seventh anniversary of the date of grant
unless vesting is accelerated. This accelerated vesting is similar to the
vesting schedule noted above for the initial option to purchase 30,000 shares.
The options expire ten years after date of grant.

Based on the above-noted terms and the price of the Company's Common Stock
during fiscal 2000, the following is a chart reflecting the unexercised
non-employee director option grants and related vesting as of August 31, 2000.

<TABLE>
<CAPTION>
OPTION GRANT EXERCISE PRICE # OPTIONS # OPTIONS
NAME DATE ($/SHARE) GRANTED(1) VESTED
---- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
John Howell Bullion ........... 9/29/94 12.500 30,000 15,000
11/13/96 14.625 5,000 0
12/3/97 11.750 5,000 1,000
11/18/98 10.750 5,000 0
2/23/00 9.000 5,000 0

John H. Flittie ............... 8/11/98 11.250 30,000 0
11/18/98 10.750 5,000 0
2/23/00 9.000 5,000 0

Charles V. Owens, Jr. ......... 9/29/94 12.500 30,000 15,000
11/13/96 14.625 5,000 0
12/3/97 11.750 5,000 1,000
11/18/98 10.750 5,000 0
2/23/00 9.000 5,000 0
</TABLE>

--------------------
(1) All non-qualified options are transferable by each director to his
immediate family members and family trusts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors of the Company
consists of two non-employee directors. Mr. Owens is the committee chair and
Mr. Flittie is the other member.

6
<PAGE>

EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION

COMPENSATION COMMITTEE CHARTER. The purpose of the Compensation Committee
of the Board of Directors is to oversee compensation of directors, officers, and
key employees of the Company. The Committee's policy is to insure that
compensation programs contribute directly to the success of the Company,
including enhanced share value. The Company's Compensation Committee is
comprised of two outside directors.

EXECUTIVE COMPENSATION POLICIES AND PROGRAMS. The Company's executive
compensation programs are designed to attract and retain highly qualified
executives and to motivate them to maximize shareholder investment by achieving
strategic Company goals. There are three basic components to the Company's
executive compensation program: base pay, annual incentive bonus, and long-term,
equity-based incentive compensation in the form of stock options. Each component
is established in light of Company and individual performance, compensation
levels at comparable companies, equity among employees, and cost effectiveness.
In addition, employees are eligible to participate in the Company's 401(k) plan
and certain insurance plans, as well as the Company's Employee Stock Purchase
Plan.

BASE PAY. Base pay is designed to be competitive as compared to salary
levels for equivalent positions at comparable companies. An executive's
actual salary within this competitive framework will depend on the
individual's performance, responsibilities, experience, leadership, and
potential future contribution. Base pay is administered to remain
competitive with the market, yet allow for significant emphasis on
incentive bonus compensation in proportion to total annual cash
compensation.

ANNUAL INCENTIVE BONUS. In addition to base pay, each executive is
eligible to receive an annual cash bonus based on a mix of the Company's
and the executive's performance. Performance targets are intended to
motivate the Company's executives by providing bonus payments for the
achievement of specific financial goals within the Company's business plan.
Bonuses were paid to all named executive officers with respect to fiscal
2000 performance.

LONG-TERM, EQUITY-BASED INCENTIVE COMPENSATION. The long-term,
equity-based compensation program is tied directly to shareholder return.
Long-term incentive compensation consists of stock options that generally
do not fully vest until after five years and are usually exercisable only
if an executive is then an employee of the Company. Stock options are
awarded with an exercise price equal to the fair market value of the Common
Stock on the date of grant. Accordingly, an executive is rewarded only if
Company shareholders receive the benefit of appreciation in the price of
the Common Stock. Because long-term options vest over time, the Company
periodically grants new options to provide continuing incentives for future
performance. The size of periodic option grants is a function of the
breadth of an executive's scope of accountability, recent performance as
determined by the Committee, and other factors.

SAVINGS AND INVESTMENT PLAN; BENEFITS. The Company maintains a 401(k)
Savings Plan ("Savings Plan"), which is funded by elective salary deferrals
by employees. The Savings Plan covers executive officers and substantially
all employees meeting minimum eligibility requirements. The Savings Plan
requires that the Company match up to 40% of the first 5% of an employee's
pay and provides for additional discretionary contributions by the Company.
Through June 30, 2000, the Company had not made any additional
discretionary contributions to the Savings Plan. In addition, the Company
provides medical and other miscellaneous benefits to its officers,
including a diagnostic services plan that provides significant coverage for
annual physicals and a financial services plan that reimburses officers for
various financial and tax services.

ANNUAL REVIEWS. Each year the Committee reviews its executive compensation
policies and programs and determines what changes, if any, are appropriate for
the following year. In addition, the Committee reviews the performance of the
Chief Executive Officer and, with the assistance of the Chief Executive Officer,
the individual performance of the other executive officers. The Committee makes
recommendations to the Board of Directors for final approval of all material
compensation matters.

7
<PAGE>

CHIEF EXECUTIVE OFFICER. Maurice R. Taylor was Chief Executive Officer of
the Company up to June 30, 2000. Pursuant to the terms of Mr. Taylor's July 1,
1999 employment agreement with the Company he received a base salary of $325,800
in fiscal 2000. His base salary was determined at the time of entering into the
employment agreement when the Committee considered compensation programs of
comparable companies, Mr. Taylor's individual performance and salary history,
and the Company's historical and planned performance. Mr. Taylor received
options to purchase 100,000 shares in fiscal 2000 (July 1999) related to his
performance in fiscal 1999. He did not receive additional Chronimed options in
fiscal 2000. Effective July 1, 2000, Mr. Taylor resigned his position and became
the Chief Executive Officer and Chairman of the Board for MEDgenesis Inc. He
will not receive Chronimed options in fiscal 2001. MEDgenesis will pay his
compensation in fiscal 2001. Mr. Taylor's employment agreement with Chronimed
has been assigned to and assumed by MEDgenesis.

Dr. Blissenbach became the Chairman of the Board and Chief Executive
Officer for Chronimed on July 1, 2000.

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986, as amended, should not affect the deductibility of
compensation paid to the Company's executive officers for the foreseeable
future. The majority of the options available for grant under the Company's
stock option plans will comply with Section 162(m), so that compensation
resulting from these stock options will not be counted toward the $1,000,000
limit on deductible compensation under Section 162(m). The Compensation
Committee has not formulated any policy with respect to qualifying other types
of compensation for deductibility under Section 162(m).

Members of the Compensation Committee: Charles V. Owens, Jr., Chairman
John H. Flittie

8
<PAGE>

EXECUTIVE OFFICERS

The executive officers of the Company and their ages as of August 31, 2000
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------------------------------
<S> <C> <C>
Henry F. Blissenbach 58 Chairman of the Board of Directors and Chief Executive Officer
Gregory H. Keane 45 Vice President, Chief Financial Officer and Treasurer
Perry L. Anderson 40 Senior Vice President -- Retail Business
Stephen T. Ritter 42 Senior Vice President -- Mail Order Business
Patrick L. Taffe 48 Chief Information Officer
Shawn L. Featherston 47 Vice President -- Human Resources
Kenneth S. Guenthner 44 Secretary and General Counsel
</TABLE>

Dr. Blissenbach was appointed Chairman of the Board and Chief Executive
Officer of Chronimed Inc. on July 1, 2000. Dr. Blissenbach was named President
and Chief Operating Officer of the Company in May 1997. He became a director of
the Company in September 1995. From 1992 to 1997, he served as President of
Diversified Pharmaceutical Services, Inc. (DPS), a United HealthCare subsidiary
until 1994, and thereafter a subsidiary of SmithKline Beecham Corp. DPS is a
pharmacy benefit management firm. Dr. Blissenbach also serves as a director of
Ligand Pharmaceuticals Inc., a publicly held biomedical development company,
and Opportunity Partners, a non-profit company.

Mr. Keane joined the Company as controller in April 1996. He was appointed
Vice President and Treasurer in March 1999. In February 2000 he was appointed
Chief Financial Officer. From 1983 to 1996, Mr. Keane served in a number of
financial management roles at National Computer Systems, a publicly held systems
and services company based in Minneapolis, Minnesota. Previous employment
included financial management positions in the software industry and public
accounting experience.

Mr. Anderson joined the Company as the divisional Vice President of
StatScript Pharmacy upon its acquisition in July 1996. In April 2000, Mr.
Anderson was promoted to Senior Vice President -- Retail Business. Mr. Anderson
was appointed Vice President of Chronimed in July 1997. From 1992 to 1996, Mr.
Anderson was the Vice President, Operations, of StatScript Pharmacy. Previous
employment included several years of sales and management experience in the
pharmaceutical industry.

Mr. Ritter joined the Company as the divisional Vice President of Pharmacy
Contracting, Purchasing, and Distribution in December 1997. In April 2000, Mr.
Ritter was promoted to Senior Vice President -- Mail Order Business. From 1992
to 1997, Mr. Ritter held several positions within Diversified Pharmaceutical
Services, most recently as Senior Director of Pharmaceutical Industry
Operations. A registered pharmacist, Mr. Ritter's prior employment included
several years of hospital pharmacy, group purchasing, and consulting practice.

Mr. Taffe joined the Company in July 1996 as Vice President of Information
Systems. In May 2000 he was appointed Chief Information Officer. From 1992 to
1996, he was Vice President, Information Systems and Operations, with MedPower
Information Systems, Inc., a business that consults with companies implementing
health care information systems and processes. Previous employment included
senior MIS positions with Carlson Travel Group, Damark, and CVN Companies.

Mr. Featherston joined the Company in October 1998 as Vice President,
Human Resources. From 1993 to 1998, he was employed by Empi, Inc., a medical
products manufacturer, as Director and Vice President, Human Resources, and
Vice President, Sales Operations. Previous employment includes 20 years of
Human Resources experience in consulting and industry.

Mr. Guenthner joined the Company in February 1998 as corporate counsel and
was appointed Secretary in March 1999. He was named General Counsel on July 1,
2000. Prior to joining the Company, Mr. Guenthner maintained a private legal
practice representing both public and private companies.

9
<PAGE>

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid for the Company's
fiscal year ended June 30, 2000, and for fiscal 1999 and 1998, where applicable,
to the Company's Chairman of the Board of Directors and Chief Executive Officer,
four other most highly paid executive officers, and two individuals who would
have fallen under the previous two categories but were not serving at the end of
the year, (collectively, "named executive officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- -------------
ALL OTHER SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS($)(1) ($)(2) OPTIONS(#)(3)
--------------------------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Henry F. Blissenbach(4) 2000 232,200 60,000 4,025 --
CHAIRMAN OF THE BOARD 1999 232,200 25,000 5,900 116,800
AND CHIEF EXECUTIVE OFFICER 1998 200,000 65,000 500 --

Perry L. Anderson 2000 162,500 99,900 5,020 --
VICE PRESIDENT 1999 145,000 58,500 3,600 46,720
1998 135,000 34,000 3,000 --

Patrick L. Taffe(5) 2000 160,000 76,800 4,167 --
VICE PRESIDENT 1999 145,000 25,000 3,600 46,720
1998 130,000 33,000 2,800 --

Gregory H. Keane(6) 2000 146,600 80,000 2,911 --
VICE PRESIDENT, CHIEF FINANCIAL 1999 -- -- -- --
OFFICER AND TREASURER 1998 -- -- -- --

Shawn L. Featherston(7) 2000 130,000 55,000 -- --
VICE PRESIDENT 1999 -- -- -- --
1998 -- -- -- --

Maurice R. Taylor, II(8) 2000 325,000 60,000 -- 100,000
DIRECTOR, FORMER CHAIRMAN OF THE 1999 325,800 50,000 4,900 116,800
BOARD AND CHIEF EXECUTIVE OFFICER 1998 304,500 123,000 4,000 --

Steven B. Russek(9) 2000 130,300 30,000 -- --
SENIOR VICE PRESIDENT 1999 114,000 40,500 60,000 70,000
1998 -- -- -- --
</TABLE>

--------------------
(1) 1998 and 1999 bonus amounts were earned for the fiscal year shown but paid
in the next fiscal year. Bonus amounts for fiscal 2000 include retention
bonuses paid in January 2000 in addition to amounts earned for the fiscal
year but paid in fiscal 2001.

(2) All other compensation consists of Company 401(k) contribution matches, and
relocation expenses in the amount of $60,000 for Mr. Russek.

(3) Upon shareholder approval of the Company's 1999 Stock Option Plan,
executive officers were granted options in November 1998, and then in June
1999 for fiscal 1999. Executive officers were not granted options in fiscal
1998 due to the lack of options available in the Company's then-existing
stock option plans. For fiscal 2000, options were granted August 29, 2000
to all officers and employees and, because they were granted after the
Company's June 30, 2000 fiscal year-end, are not reflected as fiscal 2000
results. These grants will be reflected in next year's proxy statement.
Also, all non-qualified stock options are transferable by each officer to
his immediate family members and family trusts.

(4) Dr. Blissenbach was hired as President and Chief Operating Officer in May
1997. Dr. Blissenbach became Chief Executive Officer and Chairman of the
Board effective July 1, 2000.

(5) Mr. Taffe was hired as Vice President in July 1996.

(6) Mr. Keane was hired in April 1996 and was promoted to Vice President in
March 1999.

(7) Mr. Featherston was hired in October 1998 as Vice President of Human
Resources.

(8) Mr. Taylor received no additional cash compensation for service as a
director for fiscal years 1998, 1999, and 2000. MEDgenesis Inc. paid Mr.
Taylor's fiscal 2000 bonus in August 2000. Mr. Taylor resigned as Chairman
of the Board and Chief Executive Officer as of June 30, 2000.

(9) Mr. Russek was hired as Senior Vice President in November 1998 and resigned
his position with the Company on March 17, 2000.

10
<PAGE>

STOCK OPTIONS

The following tables summarize stock option grants and exercises during
fiscal 2000 to or by the named executive officers and the value of all options
held by the named executive officers at June 30, 2000.

All executives, other than Mr. Taylor, received fiscal 1999 options during
that fiscal year, in June 1999. Mr. Taylor received fiscal 1999 options in July
1999, which was during the fiscal 2000 year. Executive options for fiscal 2000
performance were not granted until August 2000, during the fiscal 2001 year.

Total options granted during fiscal 2000 are noted below.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARs EXERCISE OR APPRECIATION FOR OPTION TERM
OPTIONS/SARs GRANTED TO BASE PRICE EXPIRATION -----------------------------
NAME GRANTED(1) EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($)
---- ------------ ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Henry F. Blissenbach ......... 0 0% 0 0
Perry L. Anderson ............ 0 0% 0 0
Patrick L. Taffe ............. 0 0% 0 0
Gregory H. Keane ............. 0 0% 0 0
Shawn L. Featherston ......... 0 0% 0 0
Maurice R. Taylor, II(1) ..... 100,000 75.2% 9.25 7/24/06 376,568 877,563
Steven B. Russek ............. 0 0% 0 0
</TABLE>

--------------------
(1) The options were granted under the Company's 1999 Stock Option Plan. These
options generally vest with respect to 20% of such shares on the first year
anniversary date and become exercisable with respect to an additional 20%
of the shares on each of the next four anniversary dates. The options may
become immediately exercisable upon certain change-in-control events as
described in the Company's 1999 Stock Option Plan.

AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2000
AND OPTION VALUES AT JUNE 30, 2000

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARs OPTIONS AT
AT JUNE 30, 2000 JUNE 30, 2000(1)
SHARES ------------------------ --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
---- ------------ ------------ ------------------------ --------------------
<S> <C> <C> <C> <C>
Henry F. Blissenbach .......... 0 0 124,080/156,720 0/0
Perry L. Anderson ............. 0 0 35,707/62,738 0/0
Patrick L. Taffe .............. 0 0 32,672/66,048 0/0
Gregory H. Keane .............. 0 0 23,034/41,431 0/0
Shawn L. Featherston .......... 0 0 4,000/28,000 0/0
Maurice R. Taylor, II ......... 0 0 326,000/447,800 0/0
Steven B. Russek .............. 0 0 0/0 0/0
</TABLE>

--------------------
(1) The value of unexercised in-the-money options was determined by multiplying
the number of shares subject to such options by the favorable difference,
if any, between the exercise price per share and $7.375, the closing price
per share on June 30, 2000.

The Company's stock option director plans generally provide that upon the
occurrence of certain "acceleration events," the options will become fully
vested. An acceleration event occurs (i) when a person, or group of persons
acting together, becomes the beneficial owner of 20% or more of the Company's
outstanding shares; (ii) when a change in a majority of the Board occurs without
the approval of at least 60% of the prior Board; or (iii) upon the approval by
shareholders of a sale of all or substantially all the assets or of a
liquidation or dissolution of the Company.

11
<PAGE>

EMPLOYMENT AND SEVERANCE AGREEMENTS

Effective July 1, 2000, concurrent with his appointment as Chief Executive
Officer and election as Chairman of the Board, Henry F. Blissenbach entered a
new employment agreement with the Company. The contract runs through June 2003
and, subject to termination provisions, contains automatic two-year renewals.
Under the agreement, Dr. Blissenbach receives a base salary of $295,000 per year
and bonuses, stock options, and benefits commensurate with his position and
responsibilities. His compensation package is subject to increase based on
performance and Board review.

Dr. Blissenbach's employment agreement includes a non-competition provision
for up to one year following termination of employment. Upon a termination
without cause, Dr. Blissenbach is entitled to receive (i) base salary payments
for a period of twenty four months after such termination at the rate in effect
prior to such termination, (ii) the average of any incentive compensation paid
or payable by the Company for the most recent two fiscal years, plus (iii) all
unvested options held by Dr. Blissenbach shall immediately vest. Upon
termination due to change in control, if termination occurs within two years
subsequent to the change in control, Dr. Blissenbach will receive payment of
base salary equal to thirty six (36) months of current annualized base salary,
and the average bonus compensation paid in the three most recent fiscal years.

The Company's former Chief Executive Officer and Chairman of the Board,
Maurice R. Taylor, resigned these positions and became Chairman of the Board and
Chief Executive Officer of MEDgenesis Inc. on July 1, 2000. His existing
employment agreement with the Company, which was in effect during fiscal 2000,
was assigned to and assumed by MEDgenesis on that date.

Under that agreement, Mr. Taylor received a base salary from the Company
during fiscal 2000 in the amount of $325,800. The agreement included a
non-competition provision for up to two years following termination of
employment. Upon termination without cause, Mr. Taylor would have been entitled
to receive (i) base salary payments for a period of twelve months after such
termination at the rate in effect prior to such termination, and (ii) a bonus
payment equal to the average bonus payment for the two most recent fiscal years,
and (iii) a pro rata share of other benefits as specified in the contract, and
(iv) all unvested options held by Mr. Taylor would immediately vest. Upon
termination due to change in control, if termination occurred within two years
subsequent to the change in control, he would have received payment of base
salary equal to thirty six months of current annualized base salary, and the
average of bonus compensation paid in the three most recent years. The Company
has no further obligations to Mr. Taylor under the assigned employment
agreement. However, the Chronimed Board has established that Mr. Taylor's
Chronimed stock options will continue to vest and may be exercised up to June
30, 2001, at which time all options will terminate.

The Company has an employment agreement with Gregory H. Keane, Chronimed's
Vice President, Chief Financial Officer and Treasurer, under which he received a
base annual salary of $160,000 in fiscal 2000. The agreement began March 1, 2000
and expires on June 30, 2001. Under the agreement, Mr. Keane participates in the
Company's management incentive bonus and stock option plans. The severance terms
and conditions are such that if the Company terminates Mr. Keane's employment
without cause during the agreement term, he will receive severance payments in
an amount equal to what he would have received in salary for twelve months
following the date of termination, plus the average of any incentive
compensation for the most recent two fiscal years. As of July 1, 2000, Mr.
Keane's base annual salary was adjusted to $180,000 and incorporated into his
employment agreement.

12
<PAGE>

COMPARABLE STOCK PERFORMANCE

The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return of the NASDAQ Total Return Index (U.S. Companies) and the NASDAQ Health
Services Stock Index for the period June 30, 1995 through June 30, 2000. The
graph and table assume the investment of $100 on June 30, 1995, in the Company's
Common Stock, the NASDAQ Total Return Index, and the NASDAQ Health Services
Stock Index. The cumulative return calculations were performed by the Center for
Research in Security Prices, University of Chicago.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

[PLOT POINTS CHART]

<TABLE>
<CAPTION>
JUNE 30, JUNE 28, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chronimed ....................... 100.0 148.5 68.2 104.0 62.6 59.6
NASDAQ Health Services Stock .... 100.0 152.6 141.0 137.4 130.5 101.6
NASDAQ Total Return Index ....... 100.0 128.4 156.2 205.6 296.0 437.3
</TABLE>

13
<PAGE>

OWNERSHIP OF CHRONIMED COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND EXECUTIVE OFFICERS

The following table shows information concerning each person or group who
to the knowledge of the Company was the beneficial owner of more than 5% of the
Company's Common Stock, the number of shares of Common Stock beneficially owned
by the Company's named executive officers, and all directors and executive
officers as a group, as of August 31, 2000. All persons have sole or joint with
spouse voting and investment power with respect to all shares shown as
beneficially owned by them.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS OF BENEFICIAL OWNERSHIP(1) CLASS
------------------------------------- -------------------------- ----------
<S> <C> <C>
Heartland Advisors, Inc. . ................. 1,596,300 12.8%
789 North Water Street
Milwaukee, WI 53202-3508

Henry F. Blissenbach ....................... 165,141 1.3%
Perry L. Anderson .......................... 45,903 *
Patrick L. Taffe ........................... 42,810 *
Gregory H. Keane ........................... 33,130 *
Shawn L. Featherston ....................... 10,400 *
Maurice R. Taylor, II ...................... 494,120 4.0%
Steven B. Russek ........................... -- *

All directors and executive officers
as a group (10 persons) ................... 577,687 4.6%

Current directors and executive officers
may be contacted through the address below:

Chronimed Inc.
10900 Red Circle Drive
Minnetonka, MN 55343
</TABLE>

--------------------
* Less than 1%

(1) Includes the following options exercisable within 60 days to acquire shares
of Common Stock: Dr. Blissenbach, 135,760; Mr. Anderson, 43,379; Mr. Taffe,
41,344; Mr. Keane, 28,063; Mr. Featherston, 10,400; Mr. Taylor, 372,600;
and all directors and executive officers as a group, 314,288.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and certain shareholders to file reports of
ownership and changes in ownership of the Company's Common Stock with the
Securities and Exchange Commission. To the Company's knowledge, based on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, all Section 16(a) filing
requirements were met during fiscal 2000.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATED PARTY TRANSACTIONS

On April 9, 1997, the Company entered into a guaranty of indebtedness of
Mr. Maurice R. Taylor, II, Chronimed's Chairman and Chief Executive Officer,
with US Bank. On July 1, 2000, MEDgenesis Inc., a wholly owned subsidiary of the
Company, assumed Chronimed's guaranty and on July 24, 2000, MEDgenesis loaned
Mr. Taylor funds sufficient to pay off his debt to US Bank. US Bank has released
the Chronimed guaranty. Mr. Taylor has given MEDgenesis a promissory note,
bearing market based interest, a residential mortgage, and a pledge agreement to
secure repayment.

14
<PAGE>

PROPOSAL 2:
APPOINTMENT OF INDEPENDENT AUDITORS

Based on the recommendation of the Audit Committee, the Board of Directors
has unanimously voted to retain Ernst & Young LLP to serve as independent
auditors for the Company for fiscal year 2001 and is submitting its appointment
of such firm to the shareholders for ratification. Ernst & Young LLP has served
as the Company's independent auditors since the Company's inception. If the
appointment is not ratified, the Board of Directors will reconsider its
selection. Ernst & Young LLP will have a representative at the meeting who will
have an opportunity to make a statement if he or she so desires and who will be
available to answer appropriate questions. The affirmative vote of a majority of
the voting power of the shares of Common Stock, present or represented at the
meeting and entitled to vote on Proposal 2, is required to approve Proposal 2.
Unless otherwise instructed, shares represented by proxy will be voted for
ratification of the appointment of Ernst & Young LLP.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR
THE CURRENT FISCAL YEAR.

PROPOSAL 3:
APPROVAL OF THE CHRONIMED INC. 2001 STOCK INCENTIVE PLAN

At the Annual Meeting, stockholders will be asked to approve the Chronimed
Inc. 2001 Stock Incentive Plan (the "Plan"). The Board of Directors believes
that stock-based incentives play an important role in encouraging key employees
to have a greater financial stake in the success of the Company.

The Plan is attached as Exhibit A to the Proxy Statement. The major
provisions of the Plan, including a description of the types of awards that may
be granted thereunder, are summarized below.

ADMINISTRATION. The Plan is administered by the Compensation Committee of
the Board or any other Committee of Directors appointed by the Board for
purposes of serving as the committee under the Plan ("Administrator"). The
Administrator has considerable discretion under the Plan.

GRANTS OF AWARDS TO EMPLOYEES. The Administrator, in its capacity as
grantor of awards, may grant awards to any officer or employee of Chronimed and
its subsidiaries. Potentially all full-time Chronimed employees, including
officers who are also Directors, are considered eligible at the present time for
discretionary awards under the plan if the Administrator determines that they
are able to make key contributions to the success of Chronimed. The
Administrator also determines which employees will actually receive awards.
Similar to prior Chronimed option plans, the maximum number of shares subject to
options that may be granted to an employee during any given fiscal year will be
300,000 shares.

Typically, the only consideration received by Chronimed for the grant of an
award will be past and/or the expectation of future services. The number and
type of awards under the Plan to be received by any eligible person cannot be
determined at this time because no determination has been made as to any
specific award.

SHARES THAT MAY BE ISSUED UNDER THE PLAN. Shares available for issuance
under the Plan will be comprised of two pools. First, the Plan directs that all
shares previously authorized for use in prior option plans, but not yet awarded,
will be accumulated and deemed available for issuance under the 2001 Plan. There
are 760,296 un-issued shares already authorized under existing plans. The 2001
Plan also designates 1,000,000 newly authorized shares for grant issuance. The
total shares available under the 2001 Plan will be 1,760,296 and, upon approval
of the 2001 Plan, no new shares may be issued under prior plans. Shares already
issued but later forfeited under prior plans, due to termination of employment
or other forfeiture events, may still be re-issued under the prior plans and
will not be included in the 2001 Plan pool. The 1994 Stock Option Plan for
Directors, and the 150,000 remaining shares available under that plan, are not
affected by the 2001 Plan. If the 2001 Plan is not approved, all previous plans
will remain unaffected and shares may continue to be issued as governed by those
plans. Reload options, described below, may be granted without regard to the
1,760,296 limit.

15
<PAGE>

The number and kind of shares available under the Plan, as well as shares
issued under outstanding awards, are subject to adjustment in the event of a
reorganization or merger in which Chronimed is the surviving entity, or a
combination, recapitalization, stock split, stock dividend or other similar
event which would change the number or kind of shares outstanding. Shares
relating to options (other than reload options) or SARs which are not exercised
and lapse or are terminated, shares relating to restricted stock awards which do
not vest, and shares relating to performance share awards which are not issued
will again be available for purposes of the Plan.

AWARDS UNDER THE PLAN

OPTIONS. An option is the right to purchase shares of Chronimed Common
Stock at a future date at the exercise price (which may be less than fair market
value) fixed by the Administrator on the date the option is granted. The
purchase price may be paid in cash, with shares of Chronimed Common Stock or
with such other lawful consideration as the Administrator may approve. The
Administrator will designate each option as a "non-qualified" or an "incentive
stock option." For a summary of the differences in the tax treatment of the two
types of options, please refer to "Federal Income Tax Consequences" below.
Incentive stock options may be subsequently amended in a manner that
disqualifies them from such treatment.

Subject to early termination or acceleration provisions (which are
summarized below), an option is exercisable from the date specified in the
related award agreement until the expiration date determined by the
Administrator. In no event, however, is an option exercisable prior to six
months or after ten years from its date of grant. The Administrator may in its
discretion permit a holder of a non-qualified option to defer the receipt of any
shares upon the exercise of such option.

STOCK APPRECIATION RIGHTS. A stock appreciation right ("SAR") is a right to
receive payment based on the appreciation in the fair market value of Chronimed
Common Stock from the date of grant to the date of exercise. In its discretion,
the Administrator may grant a SAR concurrently with the grant of an option or
independent of the grant of an option. A SAR granted concurrently with the grant
of an option may extend to all or a portion of the shares covered by such
option. A SAR granted concurrently with an option is only exercisable at such
time, and to the extent, that the related option is exercisable. The number of
shares with respect to which SARs are exercised will be charged against the
aggregate amount of Chronimed Common Stock available under the Plan.

RESTRICTED STOCK AWARDS. A Restricted Stock Award is an award of a fixed
number of shares of Chronimed Common Stock subject to restrictions. The
Administrator specifies the price, if any, the recipient must pay for such
shares and the restrictions imposed on such shares. The recipient typically is
entitled to dividends and voting rights pertaining to such shares even though
they have not vested, so long as such shares have not been forfeited.

PERFORMANCE SHARE AWARDS. A performance share award is an award of a fixed
number of shares of Chronimed Common Stock, the issuance of which is contingent
upon the attainment of such performance objectives, and the payment of such
consideration, if any, as specified by the Administrator.

RELOAD OPTIONS. A reload option, if granted at the discretion of the
Administrator, gives the optionee the right to purchase a number of shares of
Common Stock equal to the number of shares surrendered to pay the exercise price
or used to pay the withholding taxes applicable to an option exercise. Reload
options do not increase the net equity position of a participant. Their purpose
is to facilitate continued stock ownership in the Company by the participant.
Reload options may be any type of option permitted under the Internal Revenue
Code and will be granted subject to such terms, conditions, restrictions and
limitations as may be determined by the Administrator from time to time. Reload
options may be granted only as non-qualified options and may be granted without
regard to the limit on the maximum number of shares which may be issued under
the Plan. Reload options may not be granted in connection with incentive stock
options that have already been granted.

TAX-OFFSET BONUSES. A tax-offset bonus, if awarded, is a cash payment that
the Company makes upon the exercise of an option equal to a percentage of the
difference between the fair market value of the shares upon exercise and the
exercise price. The purpose of the bonus is to partially offset the income taxes
owed as a result of the exercise.

16
<PAGE>

CONTINUATION OF EMPLOYMENT. Except under certain circumstances more
specifically described in the Plan, no option or SAR will be exercisable, no
shares subject to a restricted stock award will vest and no performance share
award will be paid unless the recipient remains in the continuous employment of
Chronimed or its subsidiaries for at least six months following the applicable
date of grant.

TERMINATION OF EMPLOYMENT. Upon a termination of employment, shares subject
to the recipient's restricted stock awards which have not become vested by that
date or shares subject to the recipient's performance share awards which have
not been issued usually will be forfeited in accordance with the terms of the
related award agreements. In addition, on such date, the recipient's options
which have not yet become exercisable usually will terminate, while options
which have become exercisable usually must be exercised within three months from
such date or one year from such date if the termination of employment is a
result of death, total disability or, in the case of incentive stock options,
retirement. Such periods, however, cannot exceed the expiration dates of the
options and are subject to extension, acceleration of ability to exercise or
amendment in the discretion of the Administrator. SARs have the same termination
provisions as the options to which they relate.

OTHER ACCELERATION OF AWARDS; CHANGE IN CONTROL. Upon the occurrence of a
merger, liquidation, sale of all the assets, or change in control, which
constitutes an "Event" (as defined in the Plan), each option and each SAR will
immediately become exercisable, each share covered by a restricted stock award
will immediately vest, and each share covered by a performance share award will
be issued to the recipient.

TERMINATION OR CHANGES TO THE PLAN. The Board may, at any time, amend,
modify, suspend or terminate the Plan, but any amendment must be approved by the
stockholders if required by law. Unless previously terminated by the Board, the
Plan will terminate on November 12, 2010, and no awards will be granted under it
thereafter, but such termination will not affect any award previously granted.

TAX CONSEQUENCES OF THE PLAN. The federal income tax consequences of the
Plan under current federal law, which is subject to change, are summarized in
the following discussion which deals with the general tax principles applicable
to the Plan. State and local tax consequences are beyond the scope of this
summary.

NON-QUALIFIED STOCK OPTIONS. No taxable income will be realized by an
optionee upon the grant of a non-qualified stock option. Upon exercise of a
nonqualified stock option, the optionee will realize ordinary income in an
amount measured by the excess of the fair market value of the shares on the
date of exercise over the option price, and Chronimed will be entitled to a
corresponding deduction. Upon a subsequent disposition of the shares, the
participant will realize short-term or long-term capital gain or loss
measured by the difference between the fair market value of the shares on
the date of exercise and the amount realized upon disposition of the
shares. Chronimed will not be entitled to any further deduction at that
time.

If an optionee elects to defer the receipt of shares upon exercise of
a non-qualified option, the optionee will not be treated as having received
taxable income in respect of such shares until the end of the deferral
period. The amount of taxable income will equal the value of the shares at
the end of such period over the exercise price, and the optionee's holding
period will commence at the end of such period. Chronimed will be entitled
to a deduction at such time and in such amount as the optionee recognizes
taxable income.

INCENTIVE STOCK OPTIONS. An optionee who receives an incentive stock
option will not be treated as receiving taxable income upon the grant of
the option or upon the exercise of the option. However, any appreciation in
share value from the date of grant to the date of exercise will be an item
of tax preference in determining liability for the alternative minimum tax.
If stock acquired pursuant to an incentive stock option is not sold or
otherwise disposed of within two years from the date of grant of the option
or within one year after the date of exercise, any gain or loss resulting
from disposition of the stock will be treated as long-term capital gain or
loss. If stock acquired upon exercise of an incentive stock option is
disposed of prior to the expiration of such holding periods (a
"disqualifying disposition"), the optionee will realize ordinary income in
the year of such disposition in an amount equal to the excess of the fair
market value of the stock on the date of

17
<PAGE>

exercise over the exercise price. Any gain in excess of that ordinary
income amount generally will be capital gain. However, under a special
rule, the ordinary income realized upon a disqualifying disposition will
not exceed the amount of the optionee's gain.

Chronimed will not be entitled to any deduction as a result of the
grant or exercise of an incentive stock option, or on a later disposition
of the stock received, except that in the event of a disqualifying
disposition Chronimed will be entitled to a deduction equal to the amount
of ordinary income realized by the optionee.

TAX-OFFSET BONUSES. Payments made pursuant to tax-offset bonuses will
constitute ordinary income to an employee when received by the employee.
The Company generally will be entitled to a deduction equal to the amount
of the payment included in the employee's income.

STOCK APPRECIATION RIGHTS. At the time of receiving a SAR, the
participant will not recognize any taxable income. Likewise, Chronimed will
not be entitled to a deduction for the SAR. Upon the exercise of a SAR, the
participant will generally recognize ordinary income in an amount equal to
the cash and/or fair market value of the shares received. If a participant
receives stock, then the amount recognized as ordinary income becomes the
participant's tax basis for determining gains or losses (taxable either as
short-term or long-term capital gain or loss, depending on whether or not
the shares are held for more than one year) on the subsequent sale of such
stock. The holding period for such shares commences as of the date ordinary
income is recognized. Chronimed will be entitled to a deduction in the
amount and at a time that the participant first recognizes ordinary income.

RESTRICTED STOCK. The recipient of restricted stock will recognize
ordinary income equal to the excess of the fair market value of the
restricted stock at the time the restrictions lapse over the amount which
the recipient paid for the restricted stock. However, the recipient may
elect, within 30 days after the date of receipt, to report the fair market
value of the stock (less the amount paid therefor by the recipient) as
ordinary income at the time of receipt. Chronimed may deduct an amount
equal to the income recognized by the recipient at the time the recipient
recognizes the income.

The tax treatment of restricted stock that is disposed of will depend
upon whether the recipient made an election to include the net value of the
stock in income when awarded. If the recipient made such an election, any
disposition after the restrictions lapse will result in a long-term or
short-term capital gain or loss depending upon the period the restricted
stock is held. If, however, such election is made and for any reason the
restrictions imposed on the restricted stock fail to lapse, and a
forfeiture results, the individual will not be entitled to a deduction as
to any such forfeiture, even though the election will have resulted in an
acceleration of taxable income. A capital loss will be available to the
extent of any amount paid for the restricted stock. If an election is not
made, disposition after the lapse of restrictions will result in short-term
or long-term capital gain or loss equal to the difference between the
amount received on disposition and the greater of the amount paid for the
stock by the recipient or its fair market value at the date the
restrictions lapsed.

PERFORMANCE AWARDS. A participant who has been granted a performance
award will not realize taxable income at the time of the grant, and
Chronimed will not be entitled to a deduction at that time. When an award
is paid, whether in cash or shares, the participant will have ordinary
income, and Chronimed will have a corresponding deduction. The measure of
such income and deduction will be the amount of cash and the fair market
value of the shares at the time the award is paid.

SPECIAL RULES GOVERNING PERSONS SUBJECT TO SECTION 16(b). Under the
federal tax law, special rules may apply to participants in the Plan who
are subject to the restrictions on resale of Chronimed Common Stock under
Section 16(b) of the Securities Exchange Act. These rules, which
effectively take into account the Section 16(b) restrictions, apply in
limited circumstances and may impact the timing and/or amount of income
recognized by these persons with respect to certain stock-based awards
under the Plan.

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LIMITATIONS ON DEDUCTIBILITY. If, as a result of certain changes in
control in Chronimed, a participant's options or SARs become immediately
exercisable, or if restrictions immediately lapse on restricted stock, or
if shares covered by a performance award are immediately issued, the
additional economic value, if any, attributable to the acceleration may be
deemed a "parachute payment." The additional value will be deemed a
parachute payment if such value, when combined with the value of other
payments which are deemed to result from the change in control, equals or
exceeds a threshold amount equal to 300 percent of the participant's
average annual taxable compensation over the five calendar years preceding
the year in which the change in control occurs. In such case, the excess of
the total parachute payments over such participant's average annual taxable
compensation will be subject to a 20 percent non-deductible excise tax in
addition to any income tax payable. Chronimed will not be entitled to a
deduction for that portion of any parachute payment that is subject to the
excise tax. A "change in control" for those purposes is defined in Section
2.1 (h) of the Plan.

The amount which may be deducted by Chronimed with respect to
compensation paid to the Chief Executive Officer and four other most highly
compensated executives is limited to $1 million per tax year for each
individual. However, certain awards under the Plan may be exempt from the
$1 million limit because of a "performance-based" exception.

STOCK PAYMENTS. A participant who receives a stock payment in lieu of
a cash payment that would otherwise have been made will be taxed as if the
cash payment has been received and Chronimed will have a deduction in the
same amount.

The affirmative vote of the holders of a majority of the shares present and
voting on this proposal at the Annual Meeting is required to approve the
proposal. Proxies solicited by the Board of Directors will be voted for approval
of the Chronimed Inc. 2001 Stock Incentive Plan unless stockholders specify
otherwise in their proxies.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE CHRONIMED INC. 2001 STOCK INCENTIVE PLAN.

SHAREHOLDER PROPOSALS

The Company must receive any shareholder proposal, intended to be
considered for inclusion in the Proxy Statement for presentation at next year's
2001 Annual Meeting, by June 15, 2001. The proposal must be in accordance with
the provisions of Rule 14a-8 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934. It is suggested the
proposal be submitted by certified mail, return receipt requested. Shareholders
who intend to present a proposal at the 2001 Annual Meeting without including
such proposal in the Company's proxy statement must provide the Company notice
of such proposal no later than August 11, 2001. The Company reserves the right
to reject, rule out of order, or take other appropriate action with respect to
any proposal that does not comply with these and other applicable requirements.

ANNUAL REPORT

The Company's Annual Report to shareholders for fiscal year 2000 is being
mailed with this Proxy Statement to shareholders entitled to notice of Annual
Meeting.

The Company will furnish without charge to each person whose proxy is being
solicited, upon the written request of any such person, a copy of the Company's
Annual Report on Form 10-K for fiscal year 2000, as filed with the Securities
and Exchange Commission. Requests for copies of such Annual Report on Form 10-K
should be directed to Investor Relations at the address below.

Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall be deemed to constitute
a part hereof except as so modified or superseded.

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OTHER MATTERS

Your Board of Directors does not intend to bring before the meeting any
business other than the election of directors, the ratification of our
independent auditors and approval of the stock incentive plan as set forth in
this Proxy Statement and has not been informed that any other business is to be
presented at the meeting. However, if any matters other than those referred to
above should properly come before the meeting, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
best judgement.

If any matters properly come before our 2000 Annual Meeting, but we did not
receive notice of the matters prior to August 11, 2000, the persons named in our
proxy card for that Annual Meeting will have the discretion to vote the proxies
on such matters in accordance with their best judgement.

Please vote, sign and return promptly the enclosed proxy in the envelope
provided. The signing of a proxy will not prevent you from attending the meeting
and voting in person.

By Order of the Board of Directors

/s/ Kenneth S. Guenthner

Kenneth S. Guenthner
SECRETARY

Chronimed Inc.
10900 Red Circle Drive
Minnetonka, MN 55343

October 13, 2000

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EXHIBIT A

CHRONIMED INC.

2001 STOCK INCENTIVE PLAN

I. THE PURPOSE; EFFECT ON PRIOR PLANS

The purpose of this Plan is to promote the success of the Company by
providing an additional means to attract, motivate and retain employees and,
through the grant of Options and other Awards that provide added long term
incentives for high levels of performance, to improve the financial performance
of the Company. The Plan is intended to replace prior stock option plans that
have been previously approved by the shareholders of the Company. The Company
will not issue additional options under such plans except that the Company may,
in accordance with such plans, issue new options to the extent that any
currently issued options are unexercised at the time they terminate or are
forfeited.

II. DEFINITIONS.

2.1 Definitions.

(a) "Administrator" shall mean the Compensation Committee or any other
Committee of directors appointed by the Board for purposes of serving as the
Committee under this Plan.

(b) "Award" shall mean a Nonqualified Stock Option, an Incentive Stock
Option, a Performance Stock Option, a Reload Option, a Stock Appreciation Right,
a Restricted Stock Award, a Performance Share Award, or any other stock award
granted under this Plan.

(d) "Award Date" shall mean the date upon which the Administrator took the
action granting an Award or such later date as is prescribed by the
Administrator.

(e) "Award Period" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.

(f) "Beneficiary" shall mean the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death, and shall mean
the Award holder's executor or administrator in such circumstances if no other
Beneficiary is identified and able to act.

(g) "Board" shall mean the Board of Directors of the Corporation.

(h) "Change in Control" shall be deemed to have occurred if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporation's then
outstanding securities; or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the election, or
the nomination for election by the Corporation's shareholders, of each new Board
member was approved by a vote of at least three-fourths of the Board members
then still in office who were Administrator members at the beginning of such
period.

(i) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

(j) "Commission" shall mean the Securities and Exchange Commission.

(k) "Committee" shall mean a committee appointed by the Board of Directors

(l) "Common Stock" shall mean the Common Stock of the Corporation.

(m) "Company" shall mean, collectively, Chronimed Inc. and its
Subsidiaries.

(n) "Consultant" means any person or entity, other than an officer or
director of the Company, who provides consulting or advisory services (other
than as an Employee) to the Company.

(o) "Corporation" shall mean Chronimed Inc. and its successors.

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(p) "Eligible Employee" shall mean an officer or employee of the Company.

(q) "Event" shall mean any of the following:

(1) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;

(2) Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities which are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are,
or are to be, owned by former shareholders of the Corporation;

(3) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person
or entity which is not a Subsidiary; or

(4) A Change in Control.

(r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(s) "Fair Market Value" shall mean (i) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Midwest Edition of The Wall Street
Journal, of the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD; or (iv) if the stock is not listed or
admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Administrator for purposes of the Plan.

(t) "Incentive Stock Option" shall mean an option which is designated as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions as are necessary to comply with that section.

(u) "Nonqualified Stock Option" shall mean an option which is designated as
a Nonqualified Stock Option or an option that fails (or to the extent that it
fails) to satisfy the applicable requirements under the Code for an Incentive
Stock Option.

(v) "Option" shall mean an option to purchase Common Stock under this Plan.
An Option shall be designated by the Administrator as a Nonqualified Stock
Option, an Incentive Stock Option, or a Performance Stock Option.

(w) "Optionee" shall mean the person to whom an Option is granted.

(x) "Participant" shall mean an Eligible Employee who has been granted an
Award.

(y) "Performance Share Award" shall mean an award of shares of Common
Stock, issuance of which is contingent upon attainment of performance objectives
specified by the Administrator.

(z) "Performance Stock Option" shall mean an option granted under Section
4.6 of this Plan, the exercise of which is contingent upon the attainment of
specified performance objectives.

(aa) "Personal Representative" shall mean the legal representative or
representatives who, upon the disability or incompetence of a Participant, shall
have acquired on behalf of the Participant by legal proceeding or otherwise the
power to exercise the rights and receive the benefits specified in this Plan.

(bb) "Plan" shall mean this 2001 Stock Incentive Plan.

(cc) "Reload Option" shall have the meaning set forth in Section 4.8 of
this Plan.

(dd) "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.

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(ee) "Restricted Stock Award" shall mean an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.

(ff) "Retirement" shall mean retirement at age 65.

(gg) "Rule l6b-3" means Rule l6b-3 under Section 16 of the Exchange Act, as
applicable to this Plan (taking into consideration relevant transition period
provisions) and as the same may be amended from time to time.

(ii) "Section l6 Person" means a person subject to the reporting
requirements of Section 16(a) of the Exchange Act.

(jj) "Securities Act" shall mean the Securities Act of 1933.

(hh) "Stock Appreciation Right" shall mean a right to receive a number of
shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in the applicable Section of this Plan or in the
Award Agreement with respect thereto.

(ii) "Subsidiary" shall mean any corporation or other entity a majority or
more of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

(jj) "Tax-Offset Bonus" shall mean a bonus payable upon exercise of a
nonstatutory Option or upon a disqualifying disposition of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, determined as provided in
the applicable Section of this Plan or in an Award Agreement providing for such
Bonus.

(kk) "Total Disability" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.

III. THE PLAN

3.1 Administration.

(a) This Plan shall be administered by the Administrator. The Administrator
may delegate ministerial, nondiscretionary functions to individuals who are
officers or employees of the Company.

(b) Subject to the express provisions of this Plan, the Administrator shall
have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan; to identify among Eligible Employees and Consultants those to whom Awards
will be granted and (consistent with express limits of this Plan) the terms of
such Awards; to further define the terms used in this Plan and prescribe, amend
and rescind rules and regulations relating to the administration of this Plan;
either generally or on a case by case base to establish terms and conditions
pertaining to termination of employment, modify or amend any outstanding Award
or waive any condition or restriction of an Award, or extend (up to a maximum
term of ten (10) years after the initial Award Date) the term or
post-termination exercise period of any outstanding Award, or reduce (subject to
Sections 4.4, 5.2(d) and 8.5) the minimum vesting period after initial grant to
a Participant; to determine the duration and purposes of leaves of absence which
may be granted to Participants without constituting a termination of their
employment for purposes of this Plan; and to make all other determinations
necessary or advisable for the administration of this Plan. The determinations
of the Administrator on the foregoing matters shall be conclusive.

(c) Any action taken by, or inaction of, the Corporation, any Subsidiary,
the Board or the Administrator relating to this Plan shall be within the
absolute discretion of that entity or body. No member of the Administrator, or
officer of the Corporation or any Subsidiary, shall be liable for any such
action or inaction.

3.2 Participation. Awards of Incentive Stock Options may be granted only to
Eligible Employees. All other Awards may be granted to Eligible Employees and
Consultants. Any individual who has been granted an Award may, if otherwise
eligible, be granted additional Awards if the Administrator shall so determine.

3.3 Stock Subject to the Plan. The maximum aggregated amount of Common
Stock that may be issued pursuant to Awards granted under this Plan shall not
exceed 1,760,296 shares, subject to

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adjustment as set forth in Section 8.2. Reload Options, however, may be granted
pursuant to Section 4.8 without regard to the limit in the preceding sentence.
The maximum aggregate amount of Common Stock includes 760,296 shares previously
authorized for issuance by the shareholders under prior stock option plans for
which awards have not been granted.

3.4 Grant of Awards. Subject to the express provisions of the Plan, the
Administrator shall determine from the class of Eligible Employees and
Consultants those individuals to whom Awards under the Plan shall be granted,
the terms of Awards (which need not be identical) and the number of shares of
Common Stock subject to each Award. Each Award shall be subject to the terms and
conditions set forth in the Plan and such other terms and conditions established
by the Administrator as are not inconsistent with the purpose and provisions of
the Plan.

3.5 Exercise of Awards. Notwithstanding any other provision of this Plan,
the Administrator may impose, by rule and in Award Agreements, such conditions
upon the exercise of Awards (including, without limitation, conditions limiting
the time of exercise to specified periods) as may be required to satisfy
applicable regulatory requirements, including without limitation Rule l6b-3.

3.6 Share Reservation. No Award may be granted under this Plan unless, on
the date of grant, the sum of (i) the maximum number of shares issuable at any
time pursuant to such Award, plus (ii) the number of shares that previously have
been issued pursuant to Awards granted under this Plan, other than reacquired
shares available for reissue consistent with any applicable limitations under
Rule 16b-3, plus (iii) the maximum number of shares that may be issued after
such date of grant pursuant to Awards granted under this Plan that remain
outstanding on such date, does not exceed the share limit in Section 3.3.

3.7 Provisions for Certain Cash Awards. The number of Awards under this
Plan that are payable solely in cash that would constitute derivative securities
("Cash Only Awards") shall be determined by reference to the number of shares
referenced for purpose of determining the value or price of the Cash Only Award
(the "underlying shares"). The maximum number of Cash Only Awards under this
Plan shall not, together with the number of shares previously issued and subject
to then outstanding Awards payable (or deemed payable) in shares under this
Plan, exceed the share limit in Section 3.3. To the extent that any Cash Only
Awards expire or are terminated without the cash payment being made, the
underlying shares shall again be available under this Plan.

3.8 Reissue of Awards and Shares. Other Awards payable in cash or payable
in cash or shares that are forfeited or for any reason are not so paid under
this Plan, as well as shares subject to Awards that expire or for any reason are
terminated and are not issued, shall again, to the extent permitted under Rule
l6b-3, be available for subsequent Awards under the Plan. The foregoing shall
not apply to any forfeited or unexercised Reload Options.

3.9 Plan Not Exclusive. Nothing in this Plan shall limit or be deemed to
limit the authority of the Board or the Administrator to grant awards or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority.

IV. OPTIONS.

4.1 Grants. One or more Options may be granted to any Eligible Employee or
Consultant. Each Option so granted shall be designated by the Administrator as
either a Nonqualified Stock Option, an Incentive Stock Option (but only if the
Award is to an Eligible Employee) or a Performance Stock Option. The maximum
number of shares underlying Options that may be granted to any one person during
any given fiscal year of the Corporation shall be 300,000 shares.

4.2 Option Price.

(a) Subject to applicable law, the purchase price per share of the Common
Stock covered by each Option shall be determined by the Administrator, but in
the case of any Incentive Stock Option, unless otherwise permitted under the
Code, shall not be less than 100% (or 110% in the case of a Participant who owns
or under applicable Code provisions is deemed to own more than 10% of the total
combined voting power of all classes of stock of the Company) of the Fair Market
Value of the Common Stock on

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the date the Incentive Stock Option is granted. The purchase price of any shares
purchased on exercise of any Option shall be paid in full at the time of each
purchase in one or a combination of the following methods:

(i) in cash, or by check payable to the order of the Corporation,

(ii) if authorized by the Administrator or specified in the Option
being exercised, by a promissory note made by the Participant in favor of
the Corporation, upon the terms and conditions determined by the
Administrator, bearing interest at a rate sufficient to avoid imputed
interest under the Code, and secured by the Common Stock issuable upon
exercise in compliance with applicable law (including, without limitation,
state corporate law and federal margin requirements), or

(iii) by shares of Common Stock of the Corporation already owned by
the Participant; provided, however, the Administrator may in its absolute
discretion limit the Participant's ability to exercise an Option by
delivering shares, and any shares delivered which were initially acquired
upon exercise of a stock option must have been owned by the Participant at
least six months as of the date of delivery.

Shares of Common Stock used to satisfy the exercise price of an Option
shall be valued at their Fair Market Value on the date of exercise.

(b) In addition to the payment methods described in subsection (a), the
Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Corporation the
amount of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Administrator, any applicable tax withholding under
Section 8.6. The Corporation shall not be obligated to deliver certificates for
the shares unless and until it receives full payment of the exercise price
therefor.

(c) An Option shall be deemed to be exercised when the Secretary of the
Corporation receives written notice of such exercise from the Participant,
together with payment of the purchase price made in accordance with Section
4.2(a) and satisfaction of any applicable tax withholding under Section 6.6,
except to the extent payment may be permitted to be made following delivery of
written notice of exercise in accordance with Section 4.2(b).

(d) At the discretion of the Committee, an Optionee may also arrange to
have the appropriate number of shares otherwise issuable upon exercise withheld
or sold to cover the withholding tax liability associated with the Option
exercise.

(e) Notwithstanding any other provision of the Plan, at the sole discretion
of the Committee, an Optionee may, at least six months before exercising any
Nonqualified Stock Option granted to him or her under the Plan, elect to defer
the receipt of any shares upon the exercise of such Option by entering into a
deferred compensation agreement approved by the Committee.

4.3 Option Period. Each Option and all rights or obligations thereunder
shall expire on such date as shall be determined by the Administrator, but not
later than 10 years after the Award Date, and shall be subject to earlier
termination as hereinafter provided.

4.4 Exercise of Options. Except as otherwise provided in Section 8.4 or in
the case of death or Total Disability, no Option shall be exercisable for at
least six months after the Award Date. The Administrator may, at any time after
grant of the Option and from time to time, increase the number of shares
purchasable on or after any particular date so long as the total number of
shares then subject to the Option is not increased. No Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 10 shares of Common Stock may be purchased
at one time unless the number purchased is the total number at the time
available for purchase under the terms of the Option.

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4.5 Limitations on Grant of Incentive Stock Options.

(a) To the extent that the aggregate Fair Market Value of stock with
respect to which an Option intended as an Incentive Stock Option first
exercisable by a Participant in any calendar year exceeds $100,000, such options
shall be treated as Nonqualified Stock Options. To the extent any discretionary
action is necessary to meet any such limits, the Administrator on behalf of the
Corporation may, in the manner and to the extent permitted by law, take such
action.

(b) There shall be imposed in any Award Agreement relating to Incentive
Stock Options such terms and conditions as are required in order that the Option
be an "incentive stock option" as that term is defined in Section 422 of the
Code.

(c) Unless otherwise permitted under applicable provisions of the Code, no
Incentive Stock Option may be granted to any person who, at the time the
Incentive Stock Option is granted, owns or under applicable Code provisions is
deemed to own shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

4.6 Performance Stock Options. The Administrator may grant Performance
Stock Options to Eligible Employees and Consultants who are deemed by the
Administrator to be members of senior management whose performance has a direct
relationship to improvement of the earnings of the Company. Vesting of such
Options shall be contingent upon attainment of performance objectives measured
by compounded earnings growth and such other criteria as may be established by
the Administrator.

4.7 Tax Offset Bonuses. In its discretion the Administrator may, in the
Award Agreement, provide for a Tax-Offset Bonus to Participants upon exercise of
Nonqualified or Performance Stock Options or to any Participant who elects to
make a disqualifying disposition (as defined in Section 422(a)(l) of the Code)
of Common Stock acquired pursuant to the exercise of an Incentive Stock Option.
The Tax-Offset Bonus shall be in the form of a cash payment equal to a
percentage of the difference between the exercise price and the Fair Market
Value on the date of exercise of the Common Stock with respect to which the
Bonus is payable. Such percentage shall be designed to offset the impact of
additional taxes which result from the exercise of the Option or the
disqualifying disposition, as the case may be.

4.8 Reload Options. If an Optionee tenders shares of Common Stock to pay
the exercise price of an Option in accordance with Section 4.2(a)(iii) or
arranges to have a portion of the shares otherwise issuable upon exercise
withheld or sold to pay the applicable withholding taxes in accordance with
Section 4.2(d), the Optionee may receive, at the discretion of the Committee, a
new "Reload Option" equal to the number of shares tendered to pay the exercise
price and the number of shares used to pay withholding taxes. Reload Options
shall be issued only as Nonqualified Stock Options and will be granted under
such terms, conditions, restrictions and limitations as may be determined by the
Committee from time to time. Reload Options may also be granted in connection
with the exercise of options granted under any other plan of the Company which
may be designated by the Committee from time to time, except as to Incentive
Stock Options which have already been granted.

V. STOCK APPRECIATION RIGHTS.

5.1 Grants. In its discretion, the Administrator may grant Stock
Appreciation Rights concurrently with the grant of Options. A Stock Appreciation
Right shall extend to all or a portion of the shares covered by the related
Option. A Stock Appreciation Right shall entitle the Participant who holds the
related Option, upon exercise of the Stock Appreciation Right and surrender of
the related Option, or portion thereof, to the extent the Stock Appreciation
Right and related Option each were previously unexercised, to receive payment of
an amount determined pursuant to Section 5.3. Any Stock Appreciation Right
granted in connection with an Incentive Stock Option shall contain such terms as
may be required to comply with the provisions of Section 422 of the Code and the
regulations

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promulgated thereunder. In its discretion, the Administrator may also grant
Stock Appreciation Rights independently of any Option subject to such conditions
as the Administrator may in its absolute discretion provide.

5.2 Exercise of Stock Appreciation Rights.

(a) A Stock Appreciation Right granted concurrently with an option shall be
exercisable only at such time or times, and to the extent, that the related
Option shall be exercisable and only when the Fair Market Value of the stock
subject to the related Option exceeds the exercise price of the related Option.

(b) In the event that a Stock Appreciation Right granted concurrently with
an Option is exercised, the number of shares of Common Stock subject to the
related Option shall be charged against the maximum amount of Common Stock that
may be issued or transferred pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall also be reduced by such number of shares.

(c) If a Stock Appreciation Right granted concurrently with an Option
extends to less than all the shares covered by the related Option and if a
portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if and
to the extent that the remaining number of shares covered by such related Option
is less than the remaining number of shares subject to such Stock Appreciation
Right.

(d) A Stock Appreciation Right granted independently of any Option shall be
exercisable pursuant to the terms of the Award Agreement but in no event earlier
than six months after the Award Date, except in the case of death or Total
Disability.

5.3 Payment.

(a) Upon exercise of a Stock Appreciation Right and surrender of an
exercisable portion of the related Option, the Participant shall be entitled to
receive payment of an amount determined by multiplying:

(1) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Option from the Fair Market Value
of a share of Common Stock on the date of exercise of the Stock
Appreciation Right, by

(2) the number of shares with respect to which the Stock Appreciation
Right shall have been exercised.

(b) The Administrator, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided that
the Administrator shall have determined that such exercise and payment are
consistent with applicable law. In any event, cash shall be paid in lieu of
fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of the related Option. Notwithstanding the foregoing, the
Administrator may, in the Award Agreement, determine the maximum amount of cash
or stock or a combination thereof which may be delivered upon exercise of a
Stock Appreciation Right.

(c) Upon exercise of a Stock Appreciation Right granted independently of
any Option, the Participant shall be entitled to receive payment of an amount
based on a percentage, specified in the Award Agreement, of the difference
obtained by subtracting the Fair Market Value per share of Common Stock on the
Award Date from the Fair Market Value per share of Common Stock on the date of
exercise of the Stock Appreciation Right. Such amount shall be paid as described
in paragraph (b) above.

VI. RESTRICTED STOCK AWARDS.

6.1 Grants. Subject to Section 3.3, the Administrator may, in its
discretion, grant one or more Restricted Stock Awards to any Eligible Employee
or Consultant. Each Restricted Stock Award Agreement shall specify the number of
shares of Common Stock to be issued to the Participant, the date of such
issuance, the consideration to be paid for such shares by the Participant and
the restrictions

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imposed on such shares, which restrictions shall not terminate earlier than six
(6) months nor later than ten (10) years after the Award Date.

6.2 Restrictions.

(a) Except as provided in or pursuant to Section 8.12, shares of Common
Stock comprising Restricted Stock Awards may not be sold, assigned, transferred,
pledged or otherwise disposed of or encumbered, either voluntarily or
involuntarily, until such shares have vested.

(b) Unless the Administrator otherwise provides, Participants receiving
Restricted Stock shall be entitled to dividend and voting rights for the shares
issued even though they are not vested, provided that such rights shall
terminate immediately as to any forfeited Restricted Stock.

(c) In the event that the Participant shall have paid cash in connection
with the Restricted Stock Award, the Award Agreement shall specify whether and
to what extent such cash shall be returned upon a forfeiture (with or without an
earnings factor).

(d) Restricted Stock Awards may include performance or other conditions to
vesting as the Administrator deems appropriate.

VII. PERFORMANCE SHARE AWARDS.

7.1 Grants. The Administrator may, in its discretion, grant other types of
performance-based Awards related to equity of the Company or any part thereof
("Performance Share Awards") to Eligible Employees or Consultants based upon
such factors as the Administrator shall determine. A Performance Share Award
Agreement shall specify the number of shares of Common Stock subject to the
Performance Share Award, the price, if any, to be paid for such shares by the
Participant and the conditions upon which issuance to the Participant shall be
based, which issuance shall not be earlier than six (6) months nor later than
ten (10) years after the Award Date.

VIII. OTHER PROVISIONS.

8.1 Rights of Eligible Employees, Participants and Beneficiaries.

(a) Adoption of this Plan shall not be construed as a commitment that any
Award will be made under this Plan to an Eligible Employee or to Eligible
Employees generally.

(b) Nothing contained in this Plan (or in Award Agreements or in any other
documents related to this Plan or to Awards) shall confer upon any Eligible
Employee or Participant any right to continue in the employ of the Company or
constitute any contract or agreement of employment, or interfere in any way with
the right of the Company to reduce such person's compensation or other benefits
or to terminate the employment of such Eligible Employee or Participant, with or
without cause. Nothing contained in this Plan or any document related thereto
shall affect any other contractual right of any Eligible Employee or
Participant.

8.2 Adjustments Upon Changes in Capitalization.

(a) If the outstanding shares of Common Stock are changed into or exchanged
for cash or a different number or kind of shares or securities of the
Corporation or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Corporation is a party,
or through a combination, consolidation, recapitalization, reclassification,
stock split, stock dividend, reverse stock split, stock consolidation or other
capital change or adjustment, an appropriate proportionate, equitable adjustment
shall be made in the number and kind of shares or other consideration that is
subject to or may be delivered under this Plan and pursuant to outstanding
Awards. Corresponding adjustments to the consideration payable with respect to
Awards granted prior to any such change and to the price, if any, paid in
connection with or the criteria applicable to Restricted Stock Awards or
Performance Share Awards shall also be made. Any such adjustments, however,
shall be made without change in the total payment, if any, applicable to the
portion of the Award not exercised but with a corresponding adjustment in the
price for each share. Corresponding adjustments shall be made with respect to
Stock Appreciation Rights based upon the adjustments made to the Options to
which they are related or, in the case of Stock Appreciation Rights granted
independently of any Option, based upon the adjustments made to Common Stock.

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(b) Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation with one or more
corporations as a result of which the Corporation is not the surviving
corporation, the Plan shall terminate. The Administrator may provide in writing
in connection with, or in contemplation of, any such transaction for any or all
of the following alternatives (separately or in combination): (i) for the
assumption by the successor corporation (if any) of the Awards theretofore
granted or the substitution by such corporation for such Awards of grants
covering the stock of the successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of securities
and/or other property and prices; (ii) for the continuance of the Plan by such
successor corporation in which event the Plan and the Awards shall continue in
the manner and under the terms so provided; or (iii) for the payment in cash,
securities and/or other property in lieu of and in complete satisfaction of such
Awards.

(c) In adjusting Awards to reflect the changes described in this Section
8.2, or in determining that no such adjustment is necessary, the Administrator
may rely upon the advice of independent counsel and accountants of the
Corporation, and the determination of the Administrator shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.

8.3 Termination of Employment. Unless the Administrator otherwise expressly
provides, either in the applicable Award Agreement or by subsequent modification
thereof:

(a) If the Participant's employment by the Company terminates for any
reason other than Retirement (except in cases involving Incentive Stock
Options), death or Total Disability, the Participant shall have, subject to
earlier termination pursuant to or as contemplated by Section 4.3, three (3)
months from the date of termination of employment to exercise any Option to the
extent it shall have become exercisable on the date of termination of
employment, and any Option not exercisable on that date shall terminate.
Notwithstanding the preceding sentence, in the event the Participant is
discharged for cause as determined by the Administrator in its sole discretion,
all Options shall terminate immediately upon receipt of the notice of
termination of employment.

(b) If the Participant's employment by the Company terminates as a result
of Retirement (except in cases involving Incentive Stock Options) or Total
Disability, the Participant or Participant's Personal Representative, as the
case may be, shall have, subject to earlier termination pursuant to or as
contemplated by Section 4.3, twelve (12) months from the date of termination of
employment to exercise any Option to the extent it shall have become exercisable
by the date of termination of employment, and any Option not exercisable on that
date shall terminate.

(c) If the Participant dies while employed by the Company or during the
twelve (12) month period referred to in subsection (b) above, the Participant's
Option shall be exercisable by the Participant's Beneficiary, subject to earlier
termination pursuant to or as contemplated by Section 4.3, during the twelve
(12) month period following the Participant's death, as to all or any part of
the shares of Common Stock covered thereby to the extent exercisable on the date
of death (or earlier termination).

(d) Each Stock Appreciation Right granted concurrently with an Option shall
have the same termination provisions and exercisability periods as the Option to
which it relates. The termination provisions and exercisability periods of any
Stock Appreciation Right granted independently of an Option shall be established
in accordance with Section 5.2(d). The exercisability period of a Stock
Appreciation Right shall not exceed that provided in Section 4.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.

(e) In the event of termination of employment with the Company for any
reason, (i) shares of Common Stock subject to a Participant's Restricted Stock
Award shall be forfeited in accordance with the provisions of the related Award
Agreement to the extent such shares have not become vested on that date; and
(ii) shares of Common Stock subject to the Participant's Performance Share Award
shall be forfeited in accordance with the provisions of the related Award
Agreement to the extent such shares have not been issued or become issuable on
that date.

(f) In the event of (or in anticipation of) a Participant's termination of
employment with the Company for any reason, other than discharge for cause, the
Administrator may, in its discretion, accelerate the exercisability of or
increase the portion of the Participant's Award available to the

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<PAGE>

Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, or (subject to the ten (10)-year limit) extend the period after
termination during which the Award may continue to vest and/or be exercisable
upon such terms and subject to such conditions as the Administrator shall
determine.

(g) If an entity ceases to be a Subsidiary, such action shall be deemed for
purposes of this Section 8.3 to be a termination of employment of each employee
of that entity who does not continue as an employee of another entity within the
Company.

8.4 Acceleration of Awards. Upon the occurrence of an Event (i) each Option
and each related Stock Appreciation Right shall become immediately exercisable
to the full extent theretofore not exercisable, (ii) Restricted Stock shall
immediately vest free of restrictions and (iii) the number of shares covered by
each Performance Share Award shall be issued to the Participant; subject,
however, to compliance with applicable regulatory requirements, including
without limitation Rule l6b-3 promulgated by the Commission pursuant to the
Exchange Act and Section 422 of the Code.

8.5 Government Regulations. This Plan, the granting of Awards under this
Plan and the issuance or transfer of shares of Common Stock (and/or the payment
of money) pursuant thereto are subject to all applicable federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency (including without limitation "no action" positions of the Commission)
which may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Without limiting the generality of the
foregoing, no Awards may be granted under this Plan, and no shares shall be
issued by the Corporation, nor cash payments made by the Corporation, pursuant
to or in connection with any such Award, unless and until, in each such case,
all legal requirements applicable to the issuance or payment have, in the
opinion of counsel to the Corporation, been complied with. In connection with
any stock issuance or transfer, the person acquiring the shares shall, if
requested by the Corporation, give assurances satisfactory to counsel to the
Corporation in respect of such matters as the Corporation may deem desirable to
assure compliance with all applicable legal requirements.

8.6 Tax Withholding.

(a) Upon the disposition by a Participant or other person of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option or a Performance Stock
Option, the exercise of a Stock Appreciation Right, the vesting of a Restricted
Stock Award, the payment of a Performance Share Award, payment pursuant to a
Stock Depreciation Right or payment of a Tax-Offset Bonus, the Company shall
have the right to require such Participant or such other person to pay by cash,
or certified or cashier's check payable to the Company, the amount of any taxes
which the Company may be required to withhold with respect to such transactions.
The above notwithstanding, in any case where a tax is required to be withheld in
connection with the issuance or transfer of shares of Common Stock under this
Plan, the Participant may elect, pursuant to such rules as the Administrator may
establish, to have the Company reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding;
provided, the Administrator may impose such conditions on the payment of any
withholding obligation as may be required to satisfy applicable regulatory
requirements, including, without limitation, Rule 16b-3 promulgated by the
Commission pursuant to the Exchange Act.

(b) The Administrator may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with respect to shares of Common Stock received pursuant to
a transaction described in subsection (a) above. Such a loan will be for a term,
at a rate of interest and pursuant to such other terms and rules as the
Administrator may establish.

8.7 Amendment, Termination and Suspension.

(a) The Board may, at any time, terminate or, from time to time, amend,
modify or suspend this Plan. The amendment shall be approved by the stockholders
to the extent then required by Rule 16b-3, Section 424 of the Internal Revenue
Code or any successors thereto, or any other applicable law or rules.

(b) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of this Plan shall not, without

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<PAGE>

specific action of the Administrator and the consent of the Participant, in any
manner materially adverse to the Participant, modify, amend, alter or impair any
rights or obligations under any Award previously granted under this Plan.

(c) No Awards may be granted during any suspension of this Plan or after
its termination, but Awards theretofore granted may be amended to the same
extent as if this Plan had not been terminated or suspended, provided no
additional shares become the subject of the Award by reasons of the amendment.

(d) The Administrator may, subject to the consent of the Participant in the
case of an amendment that might have a material adverse effect on the
Participant, make such modifications of the terms and conditions of such
Participant's Award as it shall deem advisable, including an amendment to the
terms of any Option to provide that the Option price of the shares remaining
subject to the original Award shall be established at a price not less than 100%
of the Fair Market Value of the Common Stock on the effective date of the
amendment. No modification of any other term or provision of any Option which is
amended in accordance with the foregoing shall be required, although the
Administrator may, in its discretion, make such other modifications of any such
Option as are not inconsistent with or prohibited by this Plan.

(e) Adjustments pursuant to Section 8.2 shall not be deemed amendments
requiring the consent of the Participant.

8.8 Privileges of Stock Ownership; Nondistributive Intent. A Participant
shall not be entitled to the privilege of stock ownership as to any shares of
Common Stock not actually issued to him or her. Upon the issuance and transfer
of shares to the Participant, unless a registration statement is in effect under
the Securities Act, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of Section
10 of the Securities Act, the Common Stock may be issued and transferred to the
Participant only if he or she represents and warrants in writing to the
Corporation that the shares are being acquired for investment and not with a
view to the resale or distribution thereof. No shares shall be issued and
transferred unless and until there shall have been full compliance with any then
applicable regulatory requirements (including those of exchanges upon which any
Common Stock of the Corporation may be listed).

8.9 Effective Date of the Plan. This Plan shall be effective upon its
approval by the shareholders of the Corporation.

8.10 Term of the Plan. Unless previously terminated by the Board, this Plan
shall terminate at the close of business on November 12, 2010, and no Awards
shall be granted under it thereafter, but such termination shall not affect any
Award theretofore granted or the authority of the Administrator with respect to
then outstanding Awards.

8.11 Governing Law. This Plan and the documents evidencing Awards and all
other related documents shall be governed by, and construed in accordance with,
the laws of the State of Minnesota. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue to be fully effective.

8.12 Transfer Restrictions.

(a) Awards constituting derivative securities shall be exercisable only by,
and shares, cash or other property payable pursuant to such Awards shall be paid
only to, the Participant (or, in the event of the Participant's death, to the
Participant's Beneficiary or, in the event of the Participant's Total
Disability, to the Participant's Personal Representative or, if there is none,
to the Participant). Other than by will or the laws of descent and distribution,
no such Awards, or interest in or under any such Award or this Plan, shall be
transferable or subject in any manner to encumbrance or other charge and any
such attempted transfer or charge shall be void.

(b) The restrictions on exercise, transfer and payment in Section 8.12 (a)
shall not be deemed to prohibit (l) "cashless exercise" procedures through
unaffiliated third parties which provide financing for the purpose of exercising
an Award consistent with applicable legal restrictions and Rule 16b-3, nor (2)
to the extent permitted by the Administrator and expressly set forth in the
Award Agreement or an amendment thereto, transfers (other than transfers of
Incentive Stock Options) without consideration

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<PAGE>

for estate or financial planning purposes, notwithstanding that the inclusion of
such features may render the particular Awards ineligible for the benefits of
Rule l6b-3, nor (3) in the case of Participants who are not Section 16 Persons,
transfers in such other circumstances as the Administrator may (to the extent
consistent with Rule 16b-3, applicable provisions of the Code and applicable
securities or other laws) in the applicable Award Agreement or other writing
expressly provide, nor (4) the subsequent transfer of shares issued on exercise
of a derivative security or the vesting of a Restricted Stock or Performance
Share Award (except to the extent that the Award, this Plan or the Administrator
otherwise expressly provides).

(c) No Participant, Beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including shares of Common
Stock) of the Company by reason of any Award granted hereunder. Neither the
provisions of this Plan (or of any documents related hereto), nor the creation
or adoption of this Plan, nor any action taken pursuant to the provisions of
this Plan shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant, Beneficiary or
other person. To the extent that a Participant, Beneficiary or other person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.

8.13 Limitations as to Section 16 Persons; Plan Construction.

It is the intent of the Corporation that this Plan and Awards hereunder
satisfy and be interpreted in a manner that in the case of persons who are or
may be subject to Section 16 of the Exchange Act satisfies the applicable plan
requirements of Rule l6b-3, so that such persons will be entitled (unless
otherwise expressly acknowledged in writing) to the benefits of the Rule 16b-3
or other exemptive rules under Section 16 Exchange Act and will not be subjected
to avoidable liability thereunder. In furtherance of such intent, any provision
of this Plan or of any Award would otherwise frustrate or otherwise conflict
with the intent expressed above, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid conflict, but to the extent of any
remaining irreconcilable conflict with such intent as to such persons in the
circumstances, such provision may be deemed void.

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[LOGO] CHRONIMED

CHRONIMED INC.

ANNUAL MEETING OF SHAREHOLDERS

TUESDAY, NOVEMBER 14, 2000
3:30 P.M. CENTRAL STANDARD TIME

LUTHERAN BROTHERHOOD AUDITORIUM
625 FOURTH AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55415

CHRONIMED INC.
10900 RED CIRCLE DRIVE, MINNETONKA, MN 55343 PROXY
--------------------------------------------------------------------------------

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON TUESDAY, NOVEMBER 14, 2000.

The shares of stock you hold in your account will be voted as you specify below.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF ITEMS 1, 2
AND 3.

The undersigned, having duly received the Notice of Annual Meeting and the Proxy
Statement dated October 13, 2000, hereby appoints the Chairman and Chief
Executive Officer, Henry F. Blissenbach, and the Secretary, Kenneth S.
Guenthner, as proxies (each with the power to act alone and with the power of
substitution and revocation), to represent the undersigned and to vote, as
designated below, all common shares of Chronimed Inc. held of record by the
undersigned on October 4, 2000, at the Annual Meeting of Shareholders to be held
on Tuesday, November 14, 2000, at the Lutheran Brotherhood Auditorium, 625
Fourth Avenue South, Minneapolis, Minnesota, at 3:30 p.m. Central Standard Time,
and at any adjournment thereof.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED BUSINESS REPLY ENVELOPE.

SEE REVERSE FOR VOTING INSTRUCTIONS.

<PAGE>

[ARROW] PLEASE DETACH HERE [ARROW]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.

<TABLE>
<S> <C>
1. Election of directors: 01 John Howell Bullion 02 David R. Hubers [ ] Vote FOR [ ] Vote WITHHELD
Class III (Three- all nominees from all nominees
Year Term) (except as marked)

___________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) |___________________________________________|

2. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors for the 2001 fiscal year. [ ] For [ ] Against [ ] Abstain

3. Proposal to approve the Chronimed Inc. 2001 Stock Incentive Plan. [ ] For [ ] Against [ ] Abstain

4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.

This Proxy, when properly executed, will be voted in the manner directed on the Proxy by the undersigned shareholder. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF EACH OF THE NOMINEES TO THE BOARD LISTED IN PROPOSAL 1, FOR
PROPOSAL 2 AND FOR PROPOSAL 3.

Address Change? Mark Box [ ] Indicate changes below: Date ___________________________, 2000

___________________________________________
| |
| |
|___________________________________________|

Signature(s) in Box
Please sign exactly as the name appears on
this card. When shares are held by joint
tenants, both should sign. If signing as
attorney, executor, administator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate
name by president or other authorized officer.
If a partnership, please sign in partnership
name by an authorized person.
</TABLE>