Document:

EXHIBIT 4.6

 

EXHIBIT 4.6

CHRONIMED INC.

1997 STOCK OPTION PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     SECTION 1.1. Establishment. Chronimed Inc., a Minnesota Corporation (“Company”), hereby
establishes a stock option plan for employees and others providing services to the Company, as
described herein, which shall be known as the “1997 STOCK OPTION PLAN” (“Plan”). The Plan permits
the granting of Nonstatutory Stock Options and Incentive Stock Options.

     SECTION 1.2. Purpose. The purposes of this Plan are to enhance shareholder investment by
attracting, retaining, and motivating employees and consultants of the Company and to encourage
stock ownership by such employees and consultants by providing them with a means to acquire a
proprietary interest in the Company’s success.

ARTICLE II

DEFINITIONS

     SECTION 2.1. Definitions. Unless the context clearly requires otherwise, the following terms shall
have the respective meanings set forth below, and when said meaning is intended, the term shall be
capitalized.

     (a) “Board” means the Board of Directors of the Company.

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

     (c) “Committee” shall mean the Committee, as specified in Article IV hereof, appointed by the
Board to administer the Plan, or the Board if no Committee is appointed.

     (d) “Company” means Chronimed Inc., a Minnesota corporation (including any and all
subsidiaries).

     (e) “Consultant” means any person or entity, including an officer or director of the Company
who provides services (other than as an Employee) to the Company.

     (f) “Date of Exercise” means the date the Company receives notice by an Optionee of the
exercise of an Option pursuant to Section 8.1 of this Plan. Such notice shall indicate the number
of shares of Stock as to which the Optionee intends to exercise an Option.

     (g) “Employee” means any person, including an officer or director of the Company, who is
employed by the Company.

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

 

 

     (i) “Fair Market Value” means the closing price of the Stock as reported by NASDAQ on the
applicable day, or if there has been no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be specified by the Board.

     (j) “Incentive Stock Option” means an Option granted under this Plan which is designated as an
Incentive Stock Option and is intended to qualify as an “incentive stock option” within the meaning
of Section 422 of the Code.

     (k) “Insider” means a person who is, at the time of an Option grant hereunder, an officer,
director or holder of more than ten percent of the outstanding shares of the Stock, as defined in
Section 16 of the Exchange Act.

     (l) “Nonstatutory Option” means an Option granted under this Plan which is not intended to
qualify as an incentive stock option within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be granted at such times and subject to such
restrictions as the Board shall determine without conforming to the statutory rules of Section 422
of the Code applicable to incentive stock options.

     (m) “Option” means the right, granted under this Plan, to purchase Stock of the Company at the
option price for a specified period of time. For purposes of this Plan, an Option may be either an
Incentive Stock Option or a Nonstatutory Option.

     (n) “Optionee” means a person to whom an Option has been granted under the Plan.

     (o) “Parent Corporation” shall have the meaning set forth in Section 424(e) of the Code with
the Company being treated as the employer corporation for purposes of this definition.

     (p) “Subsidiary Corporation” shall have the meaning set forth in Section 424(f) of the Code
with the Company being treated as the employer corporation for purposes of this definition.

     (q) “Significant Shareholder” means an individual who, within the meaning of Section
422(b)(6)of the Code, owns Stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Parent Corporation or Subsidiary Corporation
of the Company. In determining whether an individual is a Significant Shareholder, an individual
shall be treated as owning Stock owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a shareholder, partnerships in which the
individual is a partner, and estates or trusts of which the individual is a beneficiary, all as
provided in Section 424(d) of the Code.

     (r) “Stock” means the common stock of the Company.

     SECTION 2.2. Gender and Number. Except when otherwise indicated by the context, any masculine
terminology when used in this Plan also shall include the feminine gender, and the definition of
any term herein in the singular also shall include the plural.

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     SECTION 2.3. Severability. In the event any provision of the Plan shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

     SECTION 3.1. Eligibility. All Employees are eligible to participate in this Plan and receive
Incentive Stock Options and/or Nonstatutory Options hereunder. All Consultants are eligible to
participate in this Plan and receive Nonstatutory Options hereunder.

     SECTION 3.2. Actual Participation. Subject to the provisions of the Plan, the Committee may, from
time to time, select from all Employees and Consultants those to whom Options shall be granted and
shall determine the nature of and number of shares of Stock subject to each such Option.

ARTICLE IV

ADMINISTRATION

     SECTION 4.1. The Committee. The Plan shall be administered by the Committee. If the entire Board
of Directors is not serving as the Committee, the Committee appointed by the Board shall meet the
requirements of Rule 16b-3 so that Options granted under the Plan may be considered “exempt” under
Rule 16b-3 and Section 16(b) of the Exchange Act. If for any reason the Committee does not qualify
to administer the Plan as contemplated by Rule 16b-3 of the Exchange Act, or as may be required
under applicable tax law to permit a deduction with respect to certain Options issued under the
Plan, the Board may appoint a new Committee so as to comply with the requirements of Rule 16b-3 and
such tax law.

     SECTION 4.2. Authority of the Committee. The Committee shall have full power except as limited by
law or by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions
herein, to determine the size and types of Options; to determine the terms and conditions of such
Options in a manner consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument
entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s
administration; and (subject to the provisions of Article XII herein) to amend the terms and
conditions of any outstanding Option to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as identified hereunder.

     SECTION 4.3. Decisions Binding. All determinations and decisions made by the Committee pursuant to
the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be
final, conclusive, and binding on all persons, including the Company, its shareholders, Employees,
Consultants, Optionees, and their respective successors.

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ARTICLE V

STOCK SUBJECT TO THE PLAN

     SECTION 5.1. Number. Subject to adjustment as provided in Section 5.3 below, the total number of
shares of Stock hereby made available for grant and reserved for issuance under the Plan shall be
1,000,000. The aggregate number of shares of Stock available under this Plan shall be subject to
adjustment as provided in Section 5.3 below. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the Board from time to
time in its discretion, to be used for issuance upon exercise of Options granted hereunder.

     SECTION 5.2. Lapsed Options. If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares of Stock subject thereto shall (unless the Plan
shall have terminated) become available for other Options under the Plan.

     SECTION 5.3. Adjustment in Capitalization. In the event of any change in the outstanding shares of
Stock by reason of a stock dividend or split, recapitalization, reclassification, or other similar
corporate change, the aggregate number of shares of Stock set forth in Sections 5.1 and 7.1 below
shall be appropriately adjusted by the Committee, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole share. In any such
case, the number and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share shall be
proportionately and appropriately adjusted without any change in the aggregate Option price to be
paid therefor upon exercise of the Option.

ARTICLE VI

DURATION OF THE PLAN

     SECTION 6.1. Duration of the Plan. Subject to shareholder approval, the Plan shall be in effect for ten years from the date of its
adoption by the Committee. Any Options outstanding at the end of said period shall remain in
effect in accordance with their terms. The Plan shall terminate before the end of said period if
all Stock subject to it has been purchased pursuant to the exercise of Options granted under the
Plan.

ARTICLE VII

TERMS OF STOCK OPTIONS

     SECTION 7.1. Grant of Options. (a) Subject to Section 5.1, Options may be granted to Employees or
Consultants at any time and from time to time as determined by the Committee; provided, however,
that Consultants may receive only Nonstatutory Options, and may not receive Incentive Stock
Options. The Committee shall have complete discretion in determining the recipient of options
among the Employees or Consultants, the number of shares of Stock subject to an Option and the
number of Options granted to each Optionee. In making such determinations, the Committee may take
into account the nature of services rendered by such Employees or Consultants, their present and
potential contributions to the Company, and such other factors as the Committee in its discretion
shall deem relevant. The Committee also shall determine whether an Option is to be an Incentive
Stock Option or a Nonstatutory Option.

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     (b) The aggregate Fair Market Value (determined at the date of grant) of shares of Stock with
respect to which Incentive Stock Options are exercisable for the first time by the Optionee during
any calendar year under all plans of the Company under which Incentive Stock Options may be granted
(and all such plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.

     (c) The preceding paragraph shall not be deemed to prevent the grant of Options in excess of
the maximums established by the preceding paragraph where such excess amount is treated as a
Nonstatutory Option; provided, however, no Optionee may be granted Options in any fiscal year to
purchase an aggregate number of shares of Stock in excess of 250,000 shares per Optionee, subject
to adjustment under Section 5.3 above.

     (d) The Committee is expressly given the authority to issue amended Options with respect to
shares of Stock subject to an Option previously granted hereunder. An amended Option amends the
terms of an Option previously granted and thereby supersedes the previous Option.

     (e) No Options granted under the Plan may be exercisable before the approval of the Plan by
the shareholders of the Company pursuant to the Bylaws of the Company (“Shareholder Approval”).
The granting and vesting of an Option under the Plan by the Committee and the exercise of such
Option by the Optionee shall be subject to Shareholder Approval at the 1996 Annual Meeting of the
Company. If Shareholder Approval of the Plan does not occur at the 1996 Annual Meeting of the
Company any Option or Options held by any Optionee under the Plan shall terminate immediately and
shall be unexercisable.

     SECTION 7.2. No Tandem Options. Where an Option granted under this Plan is intended to be an Incentive Stock Option, the Option
shall not contain terms pursuant to which the exercise of the Option would affect the Optionee’s
right to exercise another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the regulations under
Section 422 of the Code.

     SECTION 7.3. Option Agreement. (a) As determined by the Committee on the date of grant, each
Option shall be evidenced by an Option agreement (the “Option Agreement”) that includes the
nontransferability provisions of Section 10.2 hereof and specifies: whether the Option is an
Incentive Stock Option or a Nonstatutory Option; the Option price; the duration of the Option; the
number of shares of Stock to which the Option applies; any vesting or serial exercise restrictions
which the Committee may impose; and any other terms or conditions which the Committee may impose.

     (b) All Option Agreements shall incorporate the provisions of this Plan by reference, with
certain provisions to apply depending upon whether the Option Agreement applies to an Incentive
Stock Option or to a Nonstatutory Option.

     SECTION 7.4. Option Price. No Incentive Stock Option granted pursuant to this Plan shall have an
Option price that is less than the Fair Market Value of Stock on the date the Option is granted.
Incentive Stock Options granted to Significant Shareholders shall have an Option price of not less
than 110 percent of the Fair Market Value of Stock on the date of grant. The

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Option price for
Nonstatutory Options shall be equal to the Fair Market Value of Stock on the date the Option is
granted and shall not be subject to the restrictions applicable to Incentive Stock Options.

     SECTION 7.5. Term of Options. Each Option shall expire at such time as the Committee shall
determine when it is granted, provided however that no Option shall be exercisable later than the
tenth anniversary date of its grant. By its terms, an Incentive Stock Option granted to a
Significant Shareholder shall not be exercisable after five years from the date of grant.

     SECTION 7.6. Exercise of Options. Options granted under the Plan shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for all Optionees.

     SECTION 7.7. Payment. Payment for all shares of Stock shall be made at the time that an Option, or
any part thereof, is exercised, and no shares shall be issued until full payment therefor has been
made. Payment shall be made (i) in cash, or (ii) if acceptable to the Committee, in Stock having a
Fair Market Value at the time of the exercise equal to the exercise price (provided that, in the
case of an Insider, the Stock that is tendered as payment upon exercise of the Option has been held
by the
Optionee for at least six months prior to its tender if such restriction is necessary to maintain
the exemption of the Option under Rule 16b-3), or in some other form, including a combination of
the above; provided, however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an “incentive stock option”
within the meaning of the Code. In addition, the Company may establish a cashless exercise program
in accordance with Federal Reserve Board Regulation T.

ARTICLE VIII

WRITTEN NOTICE, ISSUANCE OF

STOCK CERTIFICATES, SHAREHOLDER PRIVILEGES

     SECTION 8.1. Written Notice. An Optionee wishing to exercise an Option shall give written notice
to the Chief Financial Officer of the Company, in the form and manner prescribed by the Committee.
Except for approved “cashless exercises,” full payment for the shares exercised pursuant to the
Option must accompany the written notice.

     SECTION 8.2. Issuance of Stock Certificates. As soon as practicable after the receipt of written
notice and payment, the Company shall deliver to the Optionee or to a nominee of the Optionee a
certificate or certificates for the requisite number of shares of Stock. Such certificate may bear
a legend restricting transfer if required under Article XVI below.

     SECTION 8.3. Privileges of a Shareholder. An Optionee or any other person entitled to exercise an
Option under this Plan shall not have shareholder privileges with respect to any Stock covered by
the Option until the date of issuance of a stock certificate for such stock.

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ARTICLE IX

TERMINATION OF EMPLOYMENT

     SECTION 9.1. Death. If an Optionee’s employment in the case of an Employee, or provision of
services as a Consultant, in the case of a Consultant, terminates by reason of death, the Option
may thereafter be exercised at any time prior to the expiration date of the Option or within 12
months after the date of such death, whichever period is the shorter, by the person or persons
entitled to do so under the Optionee’s will or, if the Optionee shall fail to make a testamentary
disposition of an Option or shall die intestate, the Optionee’s legal representative or
representatives. The Option shall be exercisable only to the extent that such Option was
exercisable as of the date of death.

     SECTION 9.2. Termination Other Than For Cause Or Due to Death. (a) Unless otherwise determined by the Board, in the event of an Optionee’s termination of
employment, in the case of an Employee, or termination of the provision of services as a
Consultant, in the case of a Consultant, other than by reason of death or for cause (as defined in
Section 9.3 below), the Optionee may exercise such portion of his Option as was exercisable by the
Optionee at the date of such termination (the “Termination Date”) at any time within three (3)
months after the Termination Date; provided, however, that where the Optionee is an Employee, and
is terminated due to disability within the meaning of Code Section 422(c)(6), such Optionee may
exercise such portion of any Option as was exercisable by such Optionee on Optionee’s Termination
Date within one year after such Termination Date. In any event, the Option cannot be exercised
after the expiration of the term of the Option. Options not exercised within the applicable period
specified above shall terminate.

     (b) In the case of an Employee, a change of duties or position within the Company or an
assignment of employment in a Subsidiary Corporation or Parent Corporation of the Company, if any,
or from such a corporation to the Company, shall not be considered a termination of employment for
purposes of this Plan. The Option Agreements may contain such provisions as the Committee shall
approve with reference to the effect of approved leaves of absence upon termination of employment.

     SECTION 9.3. Termination for Cause. (a) In the event of an Optionee’s termination of employment,
in the case of an Employee, or termination of the provision of services as a Consultant in the case
of a Consultant, which termination is by the Company for cause (as defined below), any Option or
Options held by such Optionee under the Plan, to the extent not exercised before such termination,
shall terminate immediately.

     (b) The term “cause” means: (i) Optionee’s conviction of a felony which would materially
damage the reputation of the Company, (ii) material misappropriation by Optionee of the Company’s
property or other material acts of dishonesty by Optionee against the Company or (iii) Optionee’s
gross negligence or willful misconduct in the performance of Optionee’s duties, which has a
material adverse effect on the Company.

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ARTICLE X

RIGHTS OF OPTIONEES

     SECTION 10.1. Service. Nothing in this Plan shall interfere with or limit in any way the right of
the Company to terminate any Employee’s employment, or any Consultant’s services, at any time, nor
confer upon any Employee any right to continue in the employ of the Company, or upon any Consultant
any right to continue to provide services to the Company.

     SECTION 10.2. Nontransferability. Except as otherwise determined by the Committee in the case of
Nonstatutory Options, all Options granted under this Plan shall be nontransferable by the Optionee,
other than by will or the laws of descent and distribution, and shall be exercisable during the
Optionee’s lifetime only by the Optionee.

ARTICLE XI

OPTIONEE-EMPLOYEE’S

TRANSFER OR LEAVE OF ABSENCE

     SECTION 11.1. Optionee-Employee’s Transfer or Leave of Absence. For Plan purposes:

     (a) A transfer of an Optionee who is an Employee from the Company to a Subsidiary Corporation
or Parent Corporation, or from one such corporation to another, or

     (b) a leave of absence for such an Optionee (i) which is duly authorized in writing by the
Company, and (ii) if the Optionee holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case of incentive stock options, shall not
be deemed a termination of employment. However, under no circumstances may an Optionee exercise an
Option during any leave of absence, unless authorized by the Committee.

ARTICLE XII

AMENDMENT, MODIFICATION,

AND TERMINATION OF THE PLAN

     SECTION 12.1. Amendment, Modification, and Termination of the Plan. The Board may at any time
terminate, and from time to time may amend or modify the Plan, provided, however, that no such
action of the Board, without approval of the shareholders, may:

     (a) increase the total amount of Stock that may be purchased through Options granted under the
Plan, except as provided in Section 5.1 above; or

     (b) change the class of Employees or Consultants eligible to receive Options; or

     (c) change the provisions of Section 7.1 above to allow an Optionee to be granted Options in
any fiscal year to purchase an aggregate number of shares of Stock in excess of 250,000 shares per
Optionee, subject to adjustment under Section 5.3 above.

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     SECTION 12.2. Options Previously Granted. No amendment, modification, or termination of the Plan
shall in any manner adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.

ARTICLE XIII

MERGER, CONSOLIDATION OR ACCELERATION EVENT

     SECTION 13.1. Merger, Consolidation.

     (a) Subject to any required action by the shareholders, if the Company shall be the surviving
corporation in any merger or consolidation, any Option granted hereunder shall pertain to and apply
to the securities to which a holder of the number of shares of Stock subject to the Option would
have been entitled in such merger or consolidation.

     (b) A dissolution or a liquidation of the Company or a merger and consolidation in which the
Company is not the surviving corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution, liquidation, merger or consolidation.
However, unless the Optionee is offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option (the “Substitute
Option”) to purchase its shares on terms and conditions as to number of shares, exercisability and
otherwise, which will substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, then the Optionee shall have the right immediately
prior to such merger, or consolidation to exercise any unexercised Options whether or not then
exercisable, subject to the provisions of this Plan. The Board shall have absolute and
uncontrolled discretion to determine whether the Optionee has been offered a firm commitment and
whether the tendered Substitute Option will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder. In any event, any Substitute Option for an Incentive
Stock Option shall comply with the requirements of Code Section 424(a).

     SECTION 13.2. Impact of Acceleration Event. Subject to Shareholder Approval of the Plan, Options
granted hereunder will become fully exercisable and vested in the event of a “Acceleration Event”
as defined in Section 13.3 or a “Potential Acceleration Event” as defined in Section 13.4.

     SECTION 13.3. Definition of “Acceleration Event.” For purposes of Section 13.2, an “Acceleration
Event” means the happening of any of the following:

     (a) When any “person” as defined in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange
Act, but excluding the Company or any subsidiary or parent or any employee benefit plan sponsored
or maintained by the Company or any subsidiary or parent (including any trustee of such plan acting
as trustee), directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company representing 20
percent or more of the combined voting power of the Company’s then outstanding securities;

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     (b) When, during any period of 24 consecutive months during the existence of the Plan, the
individuals who, at the beginning of such period, constitute the Board (“Incumbent Directors”)
cease for any reason other than death to constitute at least a majority thereof; provided, however,
that a Director who was not a Director at the beginning of such 24-month period will be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such Director was
elected by, or on the recommendation or, or with the approval of, at least 60% of the Directors who
then qualified as Incumbent Directors either actually (because they were Directors at the beginning
of such 24-month period) or by prior operation of this Section 13.3(b); or

     (c) The approval by the shareholders of any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all of the assets of the
Company or the adoption of any plan or proposal for the liquidation or dissolution of the Company.

     SECTION 13.4. Definition of “Potential Acceleration Event.” For purposes of Section 13.2, a
“Potential Acceleration Event” means the approval by the Board of an agreement by the Company the
consummation of which would result in an Acceleration Event of the Company as defined in Section
13.3.

ARTICLE XIV

SECURITIES REGISTRATION

     SECTION 14.1. Securities Registration. (a) In the event that the Company shall deem it necessary
or desirable to register under the Securities Act of 1933, as amended, or any other applicable
statute, any Options or any Stock with respect to which an Option may be or shall have been granted
or exercised, or to qualify any such Options or Stock under the Securities Act of 1933, as amended,
or any other statute, then the Optionee shall cooperate with the Company and take such action as is
necessary to permit registration or qualification of such Options or Stock.

     (b) Unless the Company has determined that the following representation is unnecessary, each
person exercising an Option under the Plan may be required by the Company, as a condition to the
issuance of the shares pursuant to exercise of the Option, to make a representation in writing (a)
that he or she is acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part
thereof, (b) that before any transfer in connection with the resale of such shares, he or she
will obtain the written opinion of counsel for the Company, or other counsel acceptable to the
Company, that such shares may be transferred. The Company may also require that the certificates
representing such shares contain legends reflecting the foregoing. The Company will only require
the foregoing investment representation from an Optionee, inscription of a legend on the Optionee’s
share certificate and placement of a stop order with the Company’s transfer agent if a registration
statement is not in effect with respect to the shares issued pursuant to the Plan at the time the
Optionee exercises the Option.

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ARTICLE XV

TAX WITHHOLDING

     SECTION 15.1. Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require an Optionee to remit to the Company, an amount sufficient to satisfy Federal,
state, and local taxes (including the Optionee’s FICA obligation) required by law to be withheld
with respect to any grant, exercise, or payment made under or as a result of the Plan.

     SECTION 15.2. Share Withholding. With respect to withholding required upon the exercise of
Options, or upon any other taxable event hereunder, Optionees may elect, subject to the approval of
the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company
withhold shares having a Fair Market Value, on the date the tax is to be determined, equal to the
minimum marginal tax which could be imposed on the transaction.

     Share withholding upon the exercise of an Option will be done if the Optionee makes a signed,
written election and either of the following occurs:

     (a) The Option exercise occurs during a “window period” and the election to use such share
withholding is made at any time prior to exercise. For this purpose, “window period” means the
period beginning on the third business day following the date of public release of the Company’s
quarterly financial information and ending after the twelfth business day following such date. An
earlier election can be revoked up until the exercise of the Option during the window period; or

     (b) An election to withhold shares is made at least six months before the Option is exercised.
If this election is made, then the Option can be exercised and shares may be withheld outside of
the window period.

ARTICLE XVI

INDEMNIFICATION

     SECTION 16.1. Indemnification. To the extent permitted by law, each person who is or shall have been a member of the Committee
or of the Board shall be indemnified and held harmless by the Company against and from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in settlement thereof, with
the Company’s approval, or paid by him or her in satisfaction of judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to handle and defend it on
his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the Company’s articles of
incorporation or bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.

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ARTICLE XVII

REQUIREMENTS OF LAW

     SECTION 17.1. Requirements of Law. The granting of Options and the issuance of shares of Stock
upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and
to such approvals by any governmental agencies or national securities exchanges as may be required.

     SECTION 17.2. Governing Law. To the extent not preempted by federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the laws of the State
of Minnesota.

     SECTION 17.3. Compliance with the Code. Incentive Stock Options granted hereunder are intended to
qualify as “incentive stock options” under Code Section 422. If any provision of this Plan is
susceptible to more than one interpretation, such interpretation shall be given thereto as is
consistent with Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code.

ARTICLE XVIII

EFFECTIVE DATE OF PLAN

     SECTION 18.1. Effective Date. Subject to Shareholder Approval of the Plan, the Plan shall be
effective as of July 1, 1996, the date of its adoption by the Board.

ARTICLE XIX

NO OBLIGATION TO EXERCISE OPTION

     SECTION 19.1. No Obligation to Exercise. The granting of an Option shall impose no obligation upon
the holder thereof to exercise such Option.

12EXHIBIT 4.7

 

EXHIBIT 4.7

CHRONIMED INC.

1999 STOCK OPTION PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     SECTION 1.1. Establishment. Chronimed, Inc., a Minnesota Corporation (“Company”), hereby
establishes a stock option plan for employees and others providing services to the Company, as
described herein, which shall be known as the “1999 STOCK OPTION PLAN” (“Plan”). The Plan permits
the granting of Nonstatutory Stock Options and Incentive Stock Options.

     SECTION 1.2. Purpose. The purposes of this Plan are to enhance shareholder investment by
attracting, retaining, and motivating employees and consultants of the Company and to encourage
stock ownership by such employees and consultants by providing them with a means to acquire a
proprietary interest in the Company’s success.

ARTICLE II

DEFINITIONS

     SECTION 2.1. Definitions . Unless the context clearly requires otherwise, the following terms
shall have the respective meanings set forth below, and when said meaning is intended, the term
shall be capitalized.

     (a) “Board” means the Board of Directors of the Company.

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

     (c) “Committee” shall mean the Committee, as specified in Article IV hereof, appointed by the
Board to administer the Plan, or the Board if no Committee is appointed.

     (d) “Company” means Chronimed Inc., a Minnesota corporation (including any and all
subsidiaries).

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

     (f) “Date of Exercise” means the date the Company receives notice by an Optionee of the
exercise of an Option pursuant to Section 8.1 of this Plan. Such notice shall indicate the number
of shares of Stock as to which the Optionee intends to exercise an Option.

     (g) “Employee” means any person, including an officer or director of the Company, who is
employed by the Company.

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

 

 

     (i) “Exercise Price” means the amount for which one share of Stock may be purchased upon
exercise of an Option, as specified in the applicable Option Agreement.

     (j) “Fair Market Value” means the closing price of the Stock as reported by NASDAQ on the
applicable day, or if there has been no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be specified by the Committee.

     (k) “Incentive Stock Option” means an Option granted under this Plan which is designated as an
Incentive Stock Option and is intended to qualify as an “incentive stock option” within the meaning
of Section 422 of the Code.

     (l) “Nonstatutory Option” means an Option granted under this Plan which is not intended to
qualify as an incentive stock option within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be granted at such times and subject to such
restrictions as the Board shall determine without conforming to the statutory rules of Section 422
of the Code applicable to incentive stock options.

     (m) “Option” means the right, granted under this Plan, to purchase Stock of the Company at the
Exercise Price for a specified period of time. For purposes of this Plan, an Option may be either
an Incentive Stock Option or a Nonstatutory Option.

     (n) “Optionee” means a person to whom an Option has been granted under the Plan.

     (o) “Parent Corporation” shall have the meaning set forth in Section 424(e) of the Code with
the Company being treated as the employer corporation for purposes of this definition.

     (p) “Subsidiary Corporation” shall have the meaning set forth in Section 424(f) of the Code
with the Company being treated as the employer corporation for purposes of this definition.

     (q) “Significant Shareholder” means an individual who, within the meaning of Section
422(b)(6)of the Code, owns Stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Parent Corporation or Subsidiary Corporation
of the Company. In determining whether an individual is a Significant Shareholder, an individual
shall be treated as owning Stock owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a shareholder, partnerships in which the
individual is a partner, and estates or trusts of which the individual is a beneficiary, all as
provided in Section 424(d) of the Code.

     (r) “Stock” means the common stock of the Company.

     SECTION 2.2. Gender and Number. Except when otherwise indicated by the context, any masculine
terminology when used in this Plan also shall include the feminine gender, and the definition of
any term herein in the singular also shall include the plural.

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     SECTION 2.3. Severability. In the event any provision of the Plan shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

     SECTION 3.1. Eligibility. All Employees are eligible to participate in this Plan and receive
Incentive Stock Options and/or Nonstatutory Options hereunder. All Consultants are eligible to
participate in this Plan and receive Nonstatutory Options hereunder.

     SECTION 3.2. Actual Participation. Subject to the provisions of the Plan, the Committee may, from
time to time, select from all Employees and Consultants those to whom Options shall be granted and
shall determine the nature of and number of shares of Stock subject to each such Option.

ARTICLE IV

ADMINISTRATION

     SECTION 4.1. The Committee. The Plan shall be administered by the Committee. If the entire Board
of Directors is not serving as the Committee, the Committee appointed by the Board shall consist of
two or more directors of the Company, as selected by the Board. The Board may also authorize one
or more officers or directors of the Company to administer the plan, acting as a secondary
committee within guidelines established from time to time by the Board. Within the limitations of
this Section 4.1, any reference in the Plan to the Committee shall include such secondary
committee.

     SECTION 4.2. Authority of the Committee. The Committee shall have full power except as limited by
law or by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions
herein, to determine the size and types of Options; to determine the terms and conditions of such
Options in a manner consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for
the Plan’s administration; and (subject to the provisions of Article XII herein) to amend the terms
and conditions of any outstanding Option to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as identified hereunder.

     SECTION 4.3. Decisions Binding. All determinations and decisions made by the Committee pursuant to
the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be
final, conclusive, and binding on all persons, including the Company, its shareholders, Employees,
Consultants, Optionees, and their respective successors.

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ARTICLE V

STOCK SUBJECT TO THE PLAN

     SECTION 5.1. Number. Subject to adjustment as provided in Section 5.3 below, the total number of
shares of Stock hereby made available for grant and reserved for issuance under the Plan shall be
1,500,000. The aggregate number of shares of Stock available under this Plan shall be subject to
adjustment as provided in Section 5.3 below. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the Board from time to
time in its discretion, to be used for issuance upon exercise of Options granted hereunder.

     SECTION 5.2. Lapsed Options. If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares of Stock subject thereto shall (unless the Plan
shall have terminated) become available for other Options under the Plan.

     SECTION 5.3. Adjustment in Capitalization. In the event of any change in the outstanding shares of
Stock by reason of a stock dividend or split, recapitalization, reclassification, or other similar
corporate change, the aggregate number of shares of Stock set forth in Sections 5.1 and 7.1 below
shall be appropriately adjusted by the Committee, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole share. In any such
case, the number and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Exercise Price per share shall be
proportionately and appropriately adjusted without any change in the aggregate Exercise Price to be
paid therefor upon exercise of the Option.

ARTICLE VI

DURATION OF THE PLAN

     SECTION 6.1. Duration of the Plan. Subject to shareholder approval, the Plan shall be in effect
for ten years from the date of its adoption by the Committee. Any Options outstanding at the end
of said period shall remain in effect in accordance with their terms. The Plan shall terminate
before the end of said period if all Stock subject to it has been purchased pursuant to the
exercise of Options granted under the Plan.

ARTICLE VII

TERMS OF STOCK OPTIONS

     SECTION 7.1. Grant of Options. (a) Subject to Section 5.1, Options may be granted to Employees
or Consultants at any time and from time to time as determined by the Committee; provided, however,
that Consultants may receive only Nonstatutory Options, and may not receive Incentive Stock
Options. The Committee shall have complete discretion in determining the recipient of options
among the Employees or Consultants, the number of shares of Stock subject to an Option and the
number of Options granted to each Optionee. In making such determinations, the Committee may take
into account the nature of services rendered by such Employees or Consultants, their present and
potential contributions to the Company, and such other factors as the Committee in its discretion
shall deem relevant. The Committee also shall determine whether an Option is to be an Incentive
Stock Option or a Nonstatutory Option.

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     (b) The aggregate Fair Market Value (determined at the date of grant) of shares of Stock with
respect to which Incentive Stock Options are exercisable for the first time by the Optionee during
any calendar year under all plans of the Company under which Incentive Stock Options may be granted
(and all such plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.

     (c) The preceding paragraph shall not be deemed to prevent the grant of Options in excess of
the maximums established by the preceding paragraph and any such excess will be treated as a
Nonstatutory Option; provided, however, no Optionee may be granted Options in any fiscal year to
purchase an aggregate number of shares of Stock in excess of 250,000 shares per Optionee, subject
to adjustment under Section 5.3 above.

     (d) The Committee is expressly given the authority to issue amended Options with respect to
shares of Stock subject to an Option previously granted hereunder. An amended Option amends the
terms of an Option previously granted and thereby supersedes the previous Option.

     (e) No Options granted under the Plan may be exercisable before the approval of the Plan by
the shareholders of the Company pursuant to the Bylaws of the Company (“Shareholder Approval”).
The granting and vesting of an Option under the Plan by the Committee and the exercise of such
Option by the Optionee shall be subject to Shareholder Approval at the 1998 Annual Meeting of the
Company. If Shareholder Approval of the Plan does not occur at the 1998 Annual Meeting of the
Company any Option or Options held by any Optionee under the Plan shall terminate immediately and
shall be unexercisable.

     SECTION 7.2. No Tandem Options. Where an Option granted under this Plan is intended to be an
Incentive Stock Option, the Option shall not contain terms pursuant to which the exercise of the
Option would affect the Optionee’s right to exercise another Option, or vice versa, such that the
Option intended to be an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.

     SECTION 7.3. Option Agreement. (a) As determined by the Committee on the date of grant, each
Option shall be evidenced by an Option agreement (the “Option Agreement”) that includes the
nontransferability provisions of Section 10.2 hereof and specifies: whether the Option is an
Incentive Stock Option or a Nonstatutory Option; the Exercise Price; the duration of the Option;
the number of shares of Stock to which the Option applies; any vesting or serial exercise
restrictions which the Committee may impose; and any other terms or conditions which the Committee
may impose. The Committee may require an Optionee to sign the Option Agreement.

     (b) All Option Agreements shall incorporate the provisions of this Plan by reference, with
certain provisions to apply depending upon whether the Option Agreement applies to an Incentive
Stock Option or to a Nonstatutory Option.

     SECTION 7.4. Exercise Price. No Incentive Stock Option granted pursuant to this Plan shall have an
Exercise Price that is less than the Fair Market Value of Stock on the date the Option is granted.
Incentive Stock Options granted to Significant Shareholders shall have an

5

 

Exercise Price of not less than 110 percent of the Fair Market Value of Stock on the date of grant.
The Exercise Price for Nonstatutory Options shall be equal to the Fair Market Value of Stock on
the date the Option is granted and shall not be subject to the restrictions applicable to Incentive
Stock Options.

     SECTION 7.5. Term of Options. Each Option shall expire at such time as the Committee shall
determine when it is granted, provided however that no Option shall be exercisable later than the
tenth anniversary date of its grant. By its terms, an Incentive Stock Option granted to a
Significant Shareholder shall not be exercisable after five years from the date of grant.

     SECTION 7.6. Exercise of Options. Options granted under the Plan shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for all Optionees.

     SECTION 7.7. Payment. Payment for all shares of Stock shall be made at the time that an Option, or
any part thereof, is exercised, and no shares shall be issued until full payment therefor has been
made. Payment shall be made in cash, cash equivalents, or other form acceptable to the Committee,
including without limitation, in Stock having a Fair Market Value at the time of the exercise equal
to the Exercise Price; provided, however, in the case of an Incentive Stock Option, that said other
form of payment does not prevent the Option from qualifying for treatment as an “incentive stock
option” within the meaning of the Code. In addition, the Company may establish a cashless exercise
program in accordance with Federal Reserve Board Regulation T.

ARTICLE VIII

WRITTEN NOTICE, ISSUANCE OF

STOCK CERTIFICATES, SHAREHOLDER PRIVILEGES

     SECTION 8.1. Written Notice. An Optionee wishing to exercise an Option shall give written notice
to the Chief Financial Officer of the Company, in the form and manner prescribed by the Committee.
Except for approved “cashless exercises,” full payment for the shares exercised pursuant to the
Option must accompany the written notice.

     SECTION 8.2. Issuance of Stock Certificates. As soon as practicable after the receipt of written
notice and payment, the Company shall deliver to the Optionee or to a nominee of the Optionee a
certificate or certificates for the requisite number of shares of Stock. Such certificate may bear
a legend restricting transfer if required under Article XVI below.

     SECTION 8.3. Rights of a Shareholder. An Optionee or any other person entitled to exercise an
Option under this Plan shall not have dividend rights, voting rights or other rights or privileges
of a shareholder with respect to any Stock covered by an Option until the date of issuance of a
stock certificate for such Stock. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such date of issuance, except as expressly provided in the
Plan.

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ARTICLE IX

TERMINATION OF EMPLOYMENT

     SECTION 9.1. Death. Unless otherwise determined by the Committee, if an Optionee’s employment in
the case of an Employee, or provision of services as a Consultant, in the case of a Consultant,
terminates by reason of death, the Option may thereafter be exercised at any time prior to the
expiration date of the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee’s will or, if the
Optionee shall fail to make a testamentary disposition of an Option or shall die intestate, the
Optionee’s legal representative or representatives. The Option shall be exercisable only to the
extent that such Option was exercisable as of the date of death.

     SECTION 9.2. Termination Other Than For Cause Or Due to Death. (a) Unless otherwise determined by
the Committee, in the event of an Optionee’s termination of employment, in the case of an Employee
(except when an Employee becomes a Consultant), or termination of the provision of services as a
Consultant, in the case of a Consultant, other than by reason of death or for cause (as defined in
Section 9.3 below), the Optionee may exercise such portion of his Option as was exercisable by the
Optionee at the date of such termination (the “Termination Date”) at any time within three (3)
months after the Termination Date; provided, however, when the termination occurs due to
disability, as defined in the Code, such Optionee may exercise such portion of any Option as was
exercisable by such Optionee on Optionee’s Termination Date within one year after such Termination
Date. In any event, the Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall terminate.

     (b) In the case of an Employee, a change of duties or position within the Company or an
assignment of employment in a Subsidiary Corporation or Parent Corporation of the Company, if any,
or from such a corporation to the Company, shall not be considered a termination of employment for
purposes of this Plan. The Option Agreements may contain such provisions as the Committee shall
approve with reference to the effect of approved leaves of absence upon termination of employment.

     SECTION 9.3. Termination for Cause. (a) In the event of an Optionee’s termination of
employment, in the case of an Employee, or termination of the provision of services as a Consultant
in the case of a Consultant, which termination is by the Company for cause (as defined below), any
Option or Options held by such Optionee under the Plan, to the extent not exercised before such
termination, shall terminate immediately.

     (b) The term “cause” means: (i) Optionee’s conviction of a felony which would materially
damage the reputation of the Company, (ii) material misappropriation by Optionee of the Company’s
property or other material acts of dishonesty by Optionee against the Company or (iii) Optionee’s
gross negligence or willful misconduct in the performance of Optionee’s duties, which has a
material adverse effect on the Company.

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ARTICLE X

RIGHTS OF OPTIONEES

     SECTION 10.1. Service. Nothing in this Plan shall interfere with or limit in any way the right of
the Company to terminate any Employee’s employment, or any Consultant’s services, at any time, nor
confer upon any Employee any right to continue in the employ of the Company, or upon any Consultant
any right to continue to provide services to the Company.

     SECTION 10.2. Restrictions on Transfer. (a) Except as otherwise provided by this Section 10.2,
all Options granted under this Plan shall be nontransferable by the Optionee, other than by will or
the laws of descent and distribution, and shall be exercisable during the Optionee’s lifetime only
by the Optionee. The Committee may, in its sole discretion and with the consent of the Optionee:
(i) grant Nonstatutory Options which are transferable within the restrictions of this Section 10.2,
(ii) amend a then existing Nonstatutory Option to allow for transferability of such Option within
the restrictions of this Section 10.2 or (iii) amend a then existing Incentive Stock Option
(whereby such Option will become a Nonstatutory Option) to allow for transferability of such Option
within the restrictions of this Section 10.2 (collectively, the “Transferable Options”).

     (b) The Committee may, in its sole discretion, authorize all or a portion of the Transferable
Options to be on terms which permit transfer of such Option by the initial Optionee of such Option
(the “Initial Optionee”) to (i) the spouse, children, step-children, grandchildren,
step-grandchildren, siblings or parents of the Initial Optionee (“Immediate Family Members”), (ii)
a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership
or other entity in which such Immediate Family Members are the only partners or equity owners (iv)
a former spouse of the Initial Optionee pursuant to a qualified domestic relations order
(collectively, a “Permitted Transferee”), provided that:

               (1) there may be no consideration for any such transfer;

               (2) the stock option agreement pursuant to which such Options are granted, or any amendment
thereto, must be approved by the Committee, and must expressly provide for transferability in a
manner consistent with this Section 10.2;

               (3) any option or portion thereof transferred by an Initial Optionee to a Permitted Transferee
may be exercised by the Permitted Transferee only to the same extent as the Initial Optionee would
have been entitled to exercise it, and shall remain subject to all of the terms and conditions that
would have applied to such Option under the provisions of the Plan and option agreement, if the
Initial Optionee had not transferred such option or portion thereof to the Permitted Transferred;

               (4) subsequent transfers of transferred Options (including sale, assignment, pledge or other
transfer) shall be prohibited except by will or the laws of descent and distribution;

               (5) the Initial Optionee shall remain subject to applicable withholding taxes upon exercise of
options transferred to a Permitted Transferee;

8

 

               (6) the Company shall have no obligation to notify the Permitted Transferee of the expiration
or early termination of any option;

               (7) the Committee may, in its sole discretion, require as a condition to the transfer of an
option, that the Permitted Transferee execute an agreement under which the Permitted Transferee
would become a party to the applicable option agreement and agree that in the event the Company
merges into or consolidates with another entity, the Company sells all or a substantial part of its
assets, or the Company’s common stock is subject to a tender or exchange offer, the Permitted
Transferee will consent to the transfer or assumption of the option, or accept a new option in
substitution therefor, if the Company requests the Permitted Transferee to do so; and

               (8) such transfer shall not be effective unless and until the Initial Optionee has furnished
the Committee written notice of the transfer, copies of all requested documents evidencing the
transfer, and such other agreements as may be required by the Committee.

ARTICLE XI

OPTIONEE-EMPLOYEE’S

TRANSFER OR LEAVE OF ABSENCE

     SECTION 11.1. Optionee-Employee’s Transfer or Leave of Absence. For Plan purposes:

     (a) A transfer of an Optionee who is an Employee from the Company to a Subsidiary Corporation
or Parent Corporation, or from one such corporation to another, or

     (b) a leave of absence for such an Optionee (i) which is duly authorized in writing by the
Company, and (ii) if the Optionee holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case of incentive stock options, shall not
be deemed a termination of employment. However, under no circumstances may an Optionee exercise an
Option during any leave of absence, unless authorized by the Committee.

ARTICLE XII

AMENDMENT, MODIFICATION,

AND TERMINATION OF THE PLAN

     SECTION 12.1. Amendment, Modification, and Termination of the Plan. The Board may at any time
terminate, and from time to time may amend or modify the Plan, provided, however, that no such
action of the Board, without approval of the shareholders, may:

     (a) increase the total amount of Stock that may be purchased through Options granted under the
Plan, except as provided in Section 5.1 above; or

     (b) change the class of Employees or Consultants eligible to receive Options; or

9

 

     (c) change the provisions of Section 7.1 above to allow an Optionee to be granted Options in
any fiscal year to purchase an aggregate number of shares of Stock in excess of 250,000 shares per
Optionee, subject to adjustment under Section 5.3 above.

     SECTION 12.2. Options Previously Granted. No amendment, modification, or termination of the Plan
shall in any manner adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.

ARTICLE XIII

MERGER, CONSOLIDATION OR

ACCELERATION EVENT

     SECTION 13.1. Merger, Consolidation.

     (a) Subject to any required action by the shareholders, if the Company shall be the surviving
corporation in any merger or consolidation, any Option granted hereunder shall pertain to and apply
to the securities to which a holder of the number of shares of Stock subject to the Option would
have been entitled in such merger or consolidation.

     (b) A dissolution or a liquidation of the Company or a merger and consolidation in which the
Company is not the surviving corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution, liquidation, merger or consolidation.
However, unless the Optionee is offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option (the “Substitute
Option”) to purchase its shares on terms and conditions as to number of shares, exercisability and
otherwise, which will substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, then the Optionee shall have the right immediately
prior to such merger, or consolidation to exercise any unexercised Options whether or not then
exercisable, subject to the provisions of this Plan. The Board shall have absolute and
uncontrolled discretion to determine whether the Optionee has been offered a firm commitment and
whether the tendered Substitute Option will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder. In any event, any Substitute Option for an Incentive
Stock Option shall comply with the requirements of Code Section 424(a).

     SECTION 13.2. Impact of Acceleration Event. Subject to Shareholder Approval of the Plan, Options
granted hereunder will become fully exercisable and vested in the event of a “Acceleration Event”
as defined in Section 13.3 or a “Potential Acceleration Event” as defined in Section 13.4.

     SECTION 13.3. Definition of “Acceleration Event.” For purposes of Section 13.2, an “Acceleration
Event” means the happening of any of the following:

     (a) When any “person” as defined in Section 3(a) (9) of the Exchange Act and as used in
Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange
Act, but excluding the Company or any subsidiary or parent or any employee benefit plan sponsored
or maintained by the Company or any subsidiary or parent (including any trustee

10

 

of such plan acting as trustee), directly or indirectly, becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the
Company representing 20 percent or more of the combined voting power of the Company’s then
outstanding securities;

     (b) When, during any period of 24 consecutive months during the existence of the Plan, the
individuals who, at the beginning of such period, constitute the Board (“Incumbent Directors”)
cease for any reason other than death to constitute at least a majority thereof; provided, however,
that a Director who was not a Director at the beginning of such 24-month period will be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such Director was
elected by, or on the recommendation or, or with the approval of, at least 60% of the Directors who
then qualified as Incumbent Directors either actually (because they were Directors at the beginning
of such 24-month period) or by prior operation of this Section 13.3(b); or

     (c) The approval by the shareholders of any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all of the assets of the
Company or the adoption of any plan or proposal for the liquidation or dissolution of the Company.

     SECTION 13.4. Definition of “Potential Acceleration Event.” For purposes of Section 13.2, a
“Potential Acceleration Event” means the approval by the Board of an agreement by the Company the
consummation of which would result in an Acceleration Event of the Company as defined in Section
13.3.

ARTICLE XIV

SECURITIES REGISTRATION

     (a) In the event that the Company shall deem it necessary or desirable to register under the
Securities Act of 1933, as amended, or any other applicable statute, any Options or any Stock with
respect to which an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other statute, then the
Optionee shall cooperate with the Company and take such action as is necessary to permit
registration or qualification of such Options or Stock.

     (b) Unless the Company has determined that the following representation is unnecessary, each
person exercising an Option under the Plan may be required by the Company, as a condition to the
issuance of the shares pursuant to exercise of the Option, to make a representation in writing (a)
that he or she is acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof, (b) that before any
transfer in connection with the resale of such shares, he or she will obtain the written opinion of
counsel for the Company, or other counsel acceptable to the Company, that such shares may be
transferred. The Company may also require that the certificates representing such shares contain
legends reflecting the foregoing. The Company will only require the foregoing investment
representation from an Optionee, inscription of a legend on the Optionee’s share certificate and
placement of a stop order with the Company’s transfer

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agent if a registration statement is not in effect with respect to the shares issued pursuant
to the Plan at the time the Optionee exercises the Option.

ARTICLE XV

TAX WITHHOLDING

     SECTION 15.1. Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require an Optionee to remit to the Company, an amount sufficient to satisfy Federal,
state, and local taxes (including the Optionee’s FICA obligation) required by law to be withheld
with respect to any grant, exercise, or payment made under or as a result of the Plan. The Company
shall not be required to issue any Stock under the Plan until such obligations are satisfied.

     SECTION 15.2. Share Withholding. With respect to withholding required upon the exercise of
Options, or upon any other taxable event hereunder, Optionees may elect, subject to the approval of
the Committee and compliance with applicable laws and regulation, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares having a Fair Market Value,
on the date the tax is to be determined, equal to the minimum marginal tax which could be imposed
on the transaction.

ARTICLE XVI

INDEMNIFICATION

     SECTION 16.1. Indemnification. To the extent permitted by law, each person who is or shall have
been a member of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be involved by reason of any
action taken or failure to act under the Plan and against and from any and all amounts paid by him
or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of
judgment in any such action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company’s articles of incorporation or bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them harmless.

ARTICLE XVII

REQUIREMENTS OF LAW

     SECTION 17.1. Requirements of Law. The granting of Options and the issuance of shares of Stock
upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and
to such approvals by any governmental agencies or national securities exchanges as may be required.

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     SECTION 17.2. Governing Law. To the extent not preempted by federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the laws of the State
of Minnesota.

     SECTION 17.3. Compliance with the Code. Incentive Stock Options granted hereunder are intended to
qualify as “incentive stock options” under Code Section 422. If any provision of this Plan is
susceptible to more than one interpretation, such interpretation shall be given thereto as is
consistent with Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code.

ARTICLE XVIII

EFFECTIVE DATE OF PLAN

     SECTION 18.1. Effective Date. Subject to Shareholder Approval of the Plan, the Plan shall be
effective as of August 11, 1998, the date of its adoption by the Board.

ARTICLE XIX

NO OBLIGATION TO EXERCISE OPTION

     SECTION 19.1. No Obligation to Exercise. The granting of an Option shall impose no obligation upon
the holder thereof to exercise such Option.

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