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EXHIBIT 10.5
FORM OF
NON-COMPETITION AND
SEVERANCE AGREEMENT
This
Agreement is made and entered into by and between Chattem, Inc., a Tennessee
corporation (“Chattem”) and _______________________ (the “Executive”) effective
on the Effective Date.
WITNESSETH
WHEREAS,
Chattem desires to enter into this Agreement with Executive; and
WHEREAS,
Executive desires to enter into this Agreement with Chattem;
NOW,
THEREFORE, Chattem and Executive for such consideration as each deems full and
adequate do hereby agree as follows:
§ 1. Term. The
initial term of this Agreement shall commence on the Effective Date and shall
expire on the third anniversary of such date; provided, however, the initial
term automatically shall extend for 1 additional year on each anniversary of the
Effective Date unless either Chattem or Executive delivers written notice to the
other no less than 90 days before such anniversary of the Effective Date to the
effect that there will be no such extension.
§ 2. Definitions.
Board. The
term “Board” for purposes of this Agreement means the Board of Directors of
Chattem.
Cause. The
term “Cause” for purposes of this Agreement means (i) willful or gross
misconduct by Executive that is materially detrimental to Chattem or a
Chattem Affiliate, including but not limited to, a violation of
Chattem’s trading policy or code of business conduct, (ii) acts of personal
dishonesty or fraud by an Executive toward Chattem or a Chattem Affiliate which
is materially detrimental to Chattem or a Chattem Affiliate, (iii) Executive’s
conviction of a felony, except for a conviction related to vicarious liability
based solely on Executive’s position with Chattem or a Chattem Affiliate,
provided that Executive had no involvement in actions leading to such liability
or had acted upon the advice of Chattem’s or a Chattem Affiliate’s counsel or
(iv) Executive’s refusal to cooperate in an investigation of Chattem if
requested to do so by the Board.
Change in
Control. The term “Change in Control” for purposes of this
Agreement means:
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(a)
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the
sale by Chattem of all or substantially all of its assets or the
consummation by Chattem of any merger, consolidation, reorganization, or
business combination with any person, in each case, other than in a
transaction:
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(i)
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in
which persons who were shareholders of Chattem immediately prior to such
sale, merger, consolidation, reorganization, or business combination own,
immediately thereafter, (directly or indirectly) more than 50% of the
combined voting power of the outstanding voting securities of the
purchaser of the assets or the merged, consolidated, reorganized or other
entity resulting from such corporate transaction (the “Successor
Entity”);
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(ii)
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in
which the Successor Entity is an employee benefit plan sponsored or
maintained by Chattem or any person controlled by Chattem;
or
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(iii)
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after
which more than 50% of the members of the board of directors of the
Successor Entity were members of the Board at the time of the action of
the Board approving the transaction (or whose nominations or elections
were approved by at least 2/3 of the members of the Board at that
time);
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(b)
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the
acquisition directly or indirectly by any “person” or “group” (as those
terms are used in Sections 13(d), and 14(d) of the Exchange Act, including
without limitation, Rule 13d-5(b)) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of securities
entitled to vote generally in the election of directors (“voting
securities”) of Chattem that represent 30% or more of the combined voting
power of Chattem’s then-outstanding voting securities, other
than:
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(i)
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an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by
Chattem or any person controlled by Chattem or by any employee benefit
plan (or related trust) sponsored or maintained by Chattem or any person
controlled by Chattem;
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(ii)
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an
acquisition of voting securities by Chattem or a person owned, directly or
indirectly, by the holders of at least 50% of the voting power of
Chattem’s then outstanding securities in substantially the same
proportions as their ownership of the stock of
Chattem;
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(iii)
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an
acquisition of voting securities from Chattem;
or
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(iv)
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an
acquisition of voting securities pursuant to a transaction described in
clause (a) of this definition that would not be a Change in Control under
clause (a); and
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for
purposes of clarification, an acquisition of Chattem’s securities by Chattem
that causes Chattem’s voting securities beneficially owned by a person or group
to represent 30% or more of the combined voting power of Chattem’s
then-outstanding voting securities is not to be treated as an “acquisition” by
any person or group for purposes of this clause (b);
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(c)
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a
change in the composition of the Board that causes less than a majority of
the directors of Chattem to be directors that meet one or more of the
following descriptions:
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(i)
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a
director who has been a director of Chattem for a continuous period of at
least 24 months;
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(ii)
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a
director whose election or nomination as director was approved by a vote
of at least 2/3 of the then directors described in clauses (c)(i), (ii) or
(iii) of this definition by prior nomination or election, but excluding,
for the purposes of this subclause (ii), any director whose initial
assumption of office occurred as a result of an actual or threatened (y)
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a person or group other than the Board or (z) tender offer,
merger, sale of substantially all of Chattem’s assets, consolidation,
reorganization, or business combination that would be a Change in Control
under clause (a) on the consummation thereof;
or
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(iii)
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a
director who was serving on the Board as a result of the consummation of a
transaction described in clause (a) that would not be a Change in Control
under clause (a); or
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(d)
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the
approval by Chattem’s shareholders of a liquidation or dissolution of
Chattem other than in connection with a transaction described in clause
(a) of this definition that would not be a Change in Control
thereunder.
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Except as
otherwise specifically defined in this definition, the term “person” means an
individual, corporation, partnership, trust, association or any other entity or
organization.
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Chattem. The
term “Chattem” for purposes of this Agreement means Chattem, Inc. and any
successor to Chattem, Inc.
Chattem
Affiliate. The term “Chattem Affiliate” for purposes of this
Agreement means any organization whose employees are treated as employed by
Chattem under § 414(c) of the Code.
COBRA
Coverage. The term “COBRA Coverage” means the health, vision
and dental care coverage which Chattem is required to provide pursuant to §4980B
of the Code.
Code. The
term “Code” for purposes of this Agreement means the Internal Revenue Code of
1986, as amended.
Compensation
Committee. The term “Compensation Committee” for purposes of
this Agreement means the Compensation Committee of the Board or any successor to
such committee.
Confidential or Proprietary
Information. The term “Confidential or Proprietary
Information” for purposes of this Agreement means any secret, confidential, or
proprietary information of Chattem or a Chattem Affiliate (not otherwise
included in the definition of Trade Secret in this Agreement) that has not
become generally available to the public by the act of one who has the right to
disclose such information without violating any right of Chattem or a Chattem
Affiliate.
Current Cash Compensation
Package. The term “Current Cash Compensation Package” for
purposes of this Agreement means the sum of the following:
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(a)
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Executive’s
highest annual base salary from Chattem and any Chattem Affiliate which
(but for any salary deferral election) is in effect at any time during the
1 year period which ends on the date Executive has a Separation from
Service under the circumstances described in § 4.1;
and
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(b)
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The
greater of (i) Executive’s bonus for the calendar year which immediately
precedes the calendar year in which Executive has a Separation from
Service under the circumstances described in § 4.1 or (ii) 100% of
Executive’s target bonus for the calendar year in which Executive has a
Separation from Service under the circumstances described in §
4.1.
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Effective
Date. The term “Effective Date” for purposes of this Agreement
means the date shown in the signature section of this Agreement as the date
Chattem signs this Agreement.
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Equity
Grants. The term “Equity Grants” for purposes of this
Agreement means any equity or equity-type grant made by Chattem or by a Chattem
Affiliate, including stock option grants, restricted stock grants, stock
appreciation right grants and restricted stock unit grants.
Exchange
Act. The term “Exchange Act” for purposes of this Agreement
means the Securities Exchange Act of 1934, as amended.
Good
Reason. The term “Good Reason” for purposes of this Agreement
means (i) a material demotion or a material diminution of Executive’s duties,
responsibilities and status; (ii) a material reduction in base salary or annual
incentive opportunities; (iii) the assignment to a primary workplace which is
more than 50 miles from Executive’s primary workplace on the date of this
Agreement, unless Executive voluntarily consents to the applicable change
described in clause (i), (ii), or (iii) of this definition; or (iv) any material
breach of this Agreement by Chattem.
Gross Up
Payment. The term “Gross Up Payment” for purposes of this
Agreement means a payment to or on behalf of Executive which shall be sufficient
to pay (i) any excise tax described in § 4.4(c)(3) in full, (ii) any
federal, state and local income tax and social security and other employment tax
on the payment made to pay such excise tax as well as any additional taxes,
including excise taxes, on such payment and (iii) any interest or penalties
assessed by the Internal Revenue Service on Executive which are related to the
payment of such excise tax unless such interest or penalties are attributable to
Executive’s willful misconduct or negligence.
Restricted
Period. The term “Restricted Period” for purposes of this
Agreement means the period which starts on the effective date of a Change in
Control and ends on the first anniversary of the date of Executive’s Separation
from Service following such Change in Control.
Separation from
Service. The term “Separation from Service” means a
“separation from service” within the meaning of §409A of the Code from Chattem
and from any Chattem Affiliate.
Trade
Secret. The term “Trade Secret” for purposes of this Agreement
means information, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
or a list of actual or potential customers or suppliers that:
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(a)
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derives
economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use,
and
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(b)
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is
the subject of reasonable efforts by Chattem or a Chattem Affiliate to
maintain its secrecy.
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§ 3. Restrictive
Covenants
3.1 No Competitive
Activity. Absent the Compensation Committee’s written consent,
Executive shall not, during the Restricted Period accept compensation or
anything of value from, nor offer or provide any services, including consulting
services, to any person, company, partnership, joint venture or other entity
which has or does a significant business involving, in whole or in part,
over-the-counter drugs, functional toiletries or dietary supplements which are
c
