CHRONIMED INC
FORM OF INCENTIVE STOCK OPTION AGREEMENT
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<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>c71940exv10w1.txt
<DESCRIPTION>FORM OF INCENTIVE STOCK OPTION AGREEMENT
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                                                                    EXHIBIT 10.1



                                 CHRONIMED INC.

                        INCENTIVE STOCK OPTION AGREEMENT

                       UNDER THE 2001 STOCK INCENTIVE PLAN

                 (STOCK USE PERMITTED UNDER CERTAIN CONDITIONS)

Between:

CHRONIMED Inc. (the "Company") and  JOHN DOE (the "Employee"), dated __________

         The Company hereby grants to the Employee an option (the "Option")
under the CHRONIMED Inc. 2001 Stock Incentive Plan (the "Plan") to purchase
1,000 shares (the "Shares") of the Company's Common Stock under the following
terms and conditions set forth below. The terms and conditions applicable to the
Option are as follows:

         1. Incentive Stock Option - The Option shall be an Incentive Stock
Option, as defined in the Plan.

         2. Purchase Price - The purchase price of the Shares shall be $5.00 per
share, which is not less than the fair market value of the Common Stock on the
date of this Agreement.

         3. Period of Exercise - The Option will expire on the earlier of (i)
the seventh anniversary of this Agreement, or, (ii) the date five years after
the last date on which the Option fully vests under subsections (a) through (h)
below (the "Expiration Date"). The Option may be exercised only while the
Employee is actively employed by the Company (or a Subsidiary Corporation or
Parent Corporation, if any, of the Company) and as provided in Section 6,
dealing with termination of employment. Notwithstanding anything any other
provision under this Agreement or the Plan, this Option may not be exercised
prior to the six month anniversary of this Agreement.

               The Employee may exercise the Option in the amounts and in
accordance with the conditions set forth below:

               (a) If for five days during any consecutive 30-day period ending
on or before the first anniversary of this Agreement, the Fair Market Value of
the Shares has been equal to or greater than $6.00 per share (the "20%
Acceleration Trigger") then, on the first day following the 20% Acceleration
Trigger, this Option shall become exercisable as to 200 Shares.

               (b) If on the first anniversary of this Agreement, the 20%
Acceleration Trigger has not occurred, this Option shall become exercisable as
to 200 Shares.

               (c) If for five days during any consecutive 30-day period ending
on or before the third anniversary of this Agreement, the Fair Market Value of
the Shares has been equal to or greater than $8.00 per share (the "60%
Acceleration Trigger") then, on the first day following the 60% Acceleration
Trigger, this Option shall become exercisable for up to 600 Shares, inclusive of
any previously exercisable Options.



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               (d) If on the second anniversary of this Agreement, the 60%
Acceleration Trigger has not occurred, this Option shall become exercisable for
up to 400 Shares, inclusive of previously exercisable Options.

               (e) If on the third anniversary of this Agreement, the 60%
Acceleration Trigger has not occurred, this Option shall become exercisable for
up to 600 Shares, inclusive of previously exercisable Options.

               (f) If for five days during any consecutive 30-day period ending
on or before the fifth anniversary of this Agreement, the Fair Market Value of
the Shares has been equal to or greater than $10.00 per share (the "100%
Acceleration Trigger") then, on the first day following the 100% Acceleration
Trigger, this Option shall become exercisable as to 1,000 Shares.

               (g) If on the fourth anniversary of this Agreement, the 100%
Acceleration Trigger has not occurred, this Option shall become exercisable for
up to 800 Shares, inclusive of previously exercisable Options.

               (h) If on the fifth anniversary of this Agreement, the 100%
Acceleration Trigger has not occurred, this Option shall become exercisable for
up to 1,000 Shares.


         4. $100,000 Limitation - Notwithstanding anything to the contrary
contained herein, if the total Fair Market Value (determined as of the date of
grant of an option) of shares of stock with respect to which this Option and any
other incentive stock options granted after December 31, 1995 by the Company (or
any Subsidiary Corporations or Parent Corporations) becomes exercisable for the
first time during any calendar year exceeds $100,000, such option(s) shall be
treated as a Nonstatutory Option. The preceding sentence shall be applied by
taking options into account in the order in which they were granted.

         5. Transferability - This Option is not transferable except as
permitted under the Plan, or by will or the laws of descent and distribution,
and may be exercised during the lifetime of the Employee only by him.

         6. Termination of Employment - In the event that employment of the
Employee with the Company and any Subsidiary Corporations of the Company is
terminated, the Option may be exercised (only to the extent exercisable at the
date of termination of employment) by the Employee within three months after the
date of termination; provided, however, that:

               (a) If the Employee's employment is terminated because employee
is disabled within the meaning of Internal Revenue Code ss. 422, the Employee
shall have one year rather than three months to exercise the Option (only to the
extent exercisable at the date of termination of employment).

               (b) If the Employee dies, the Option may be exercised (only to
the extent exercisable by the Employee at the date of death) by Employee's legal
representative or by a person who acquired the right to exercise such option by
bequest or inheritance or by reason of the death of the Employee, but the Option
must be exercised within one year after the date of the Employee's death.

               (c) If the Employee's employment is terminated for "cause" (as
defined in this Section 6), this Option shall terminate immediately. The term
"cause" as used in this Section 6, means: (i) Employee's conviction of a felony
which would materially damage the reputation of the Company, (ii) a material
misappropriation by Employee of the Company's property or other material acts of
dishonesty by Employee against the Company or (iii) Employee's gross negligence
or willful misconduct in the performance of Employee's duties, which has a
material adverse effect on the Company.

               (d) Notwithstanding the foregoing, in no event (including
disability or death of the Employee) may this Option be exercised after the
Expiration Date.



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         7. No Guarantee of Employment - This Agreement shall in no way restrict
the right of the Company or any Subsidiary Corporation to terminate Employee's
employment at any time.

         8. Investment Representation - The Company will require an investment
representation from Employee, a restrictive legend on certificates issued for
the Shares and a stop order with the Company's transfer agent if a registration
statement under applicable securities laws is not in effect with respect to the
Shares issued at the time Employee exercises the Option.

         9. Method of Exercise; Use of Common Stock - The Option may be
exercised, subject to the terms and conditions of this Agreement, by written
notice to the Company. The notice shall be in the form attached to this
Agreement and will be accompanied by payment (in such form as the Company may
specify) of the full purchase price of the Shares to be issued, and in the event
of an exercise under the terms of paragraph 6(b) hereof, appropriate proof of
the right to exercise the Option. The Company will issue and deliver
certificates representing the number of Shares purchased under the Option,
registered in the name of the Employee (or other purchaser under paragraph 6(b)
hereof) as soon as practicable after receipt of the notice.

               When exercising this Option Employee may make payment either in
money or by tendering unencumbered shares of the Common Stock owned by the
Employee, or by a combination of the two; provided, however, that (a) shares of
the Common Stock may be utilized only if, at the time of exercise, the Common
Stock is publicly traded, either on a stock exchange or nationally or locally
over the counter, and (b) the right to pay in the form of the Common Stock can
be utilized only twice in any calendar year. Where shares of Common Stock are
employed to pay all or part of the exercise price, the shares of said Common
Stock shall be valued at their Fair Market Value at the time of payment.

         10. Withholding - In any case where withholding is required or
advisable under federal, state or local law in connection with any exercise by
Employee hereunder, the Company is authorized to withhold appropriate amounts
from amounts payable to Employee, or may require Employee to remit to the
Company an amount equal to such appropriate amounts.

         11. Adjustment Event - The terms of this Agreement are subject to
modification upon the occurrence of certain events as described in Section 8.2
of the Plan.

         12. Incorporation of Plan - This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
used herein shall have the meaning employed in the Plan, unless the context
clearly requires otherwise. In the event of a conflict between the provisions of
the Plan and the provisions of this Agreement, the provisions of the Plan shall
govern.


CHRONIMED INC.:


By ________________________________
      Chairman and Chief Executive Officer



EMPLOYEE:


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                                 CHRONIMED INC.
               NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION ISSUED
                       UNDER THE 2001 STOCK INCENTIVE PLAN

To:      CHRONIMED INC.
         10900 Red Circle Drive
         Minnetonka, MN  55343


         I hereby exercise my Option dated _______________ to purchase
__________ shares of Common Stock of the Company at the option exercise price of
$_________ per share. Enclosed is a certified or cashier's check in the total
amount of $_________, or payment in such other form as the Company has
specified.

         I request that my shares be issued to me as follows:


--------------------------------------------------------------------------------
  (Print your name in the form in which you wish to have the shares registered)


--------------------------------------------------------------------------------
                            (Social Security Number)


--------------------------------------------------------------------------------
                               (Street and Number)


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         (City)                       (State)                  (Zip Code)



Dated:  _______________, 20___.

                                         Signature:
                                                   -----------------------------

                                         Printed Name:
                                                       -------------------------


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