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.
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.
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 competitive with the products of
Chattem marketed and sold during the term of this Agreement
up through the date of termination of employment with annual
sales for Chattem's most recently completed fiscal year in
excess of $10 million. This provision applies only
to persons or entities selling the above-specified products
in competition with Chattem through food, drug or mass
merchandiser channels of distribution in the United
States.
3.2
No
Solicitation of Customers or Clients
. Executive shall not during the Restricted Period
solicit any customer or client of Chattem or any Chattem
Affiliate with whom Executive had any material business
contact during the 2 year period which ends on the date
Executive has a Separation from Service on behalf of any
business that engages directly or indirectly in the sale of
health and beauty aid products over-the-counter, either
individually, or as an owner, partner, employee, agent,
consultant, advisor, contractor, stockholder, investor,
officer or director of, or service provider to, any
corporation, partnership, venture or other business
entity.
3.3
Antipirating of
Employees Absent the Compensation
Committee's written consent, Executive will not during the
Restricted Period solicit to employ on Executive's own behalf
or on behalf of any other person, firm or corporation, any
person who was employed by Chattem or a Chattem Affiliate
during the term of Executive’s employment by Chattem or
a Chattem Affiliate (whether or not such employee would
commit a breach of contract) unless at the time of such
solicitation such person had not been employed by Chattem or
a Chattem Affiliate for a period of at least 1
year.
3.4
Trade Secrets
and Confidential Information . Executive
agrees that Executive will hold in a fiduciary capacity for
the benefit of Chattem and each Chattem Affiliate, and will
not directly or indirectly use or disclose, any Trade Secret
that Executive may have acquired during the term of
Executive's employment by Chattem or a Chattem Affiliate for
so long as such information remains a Trade
Secret. Executive in addition agrees that during
the Restricted Period Executive will hold in a fiduciary
cap
