EXHIBIT 10.4
 
FORM OF
SECOND AMENDED AND RESTATED
NON-COMPETITION AND SEVERANCE AGREEMENT

This Second Amended and Restated Non-Competition and Severance Agreement (this
“Agreement”) is made and entered into as of the 8th day of July, 2008, by and
between CHATTEM, INC., a Tennessee corporation (the “Company”) and
__________________________ (the “Executive”).

WITNESSETH

WHEREAS, the Company is desirous of assuring itself of continuity of management
through the hiring and retention of certain key executives, and to foster their
unbiased and analytical assessment of any offer to acquire control of the
Company; and

WHEREAS, the Company desires to impose upon the Executive obligations of
confidentiality and to restrict his ability to obtain employment with certain
competitors of the Company; and

WHEREAS, the Company and the Executive have previously entered that certain
Non-Competition and Severance Agreement dated October 28, 2005, which provides
certain benefits in the event of a change in control of the Company;

WHEREAS, the Company desires to amend and restate the Agreement in the form
hereinafter set forth to comply with the provisions of Section 409A of the
Internal Revenue Code of 1986, as amended, (the “Code”) and to make certain
other beneficial changes; and

WHEREAS, the Executive is willing to accept obligations of confidentiality and
non-competition and to agree to the changes set forth herein in exchange for
specified additional severance benefits provided hereunder.

NOW, THEREFORE, the Company and the Executive do hereby agree as follows:

1.    Term.  The term of this Agreement shall commence as of the day and year
first above written and continue indefinitely thereafter for a period ending
with the termination of the Executive’s employment with the
Company.  Notwithstanding the foregoing, the expiration of the term of this
Agreement shall not affect any right or obligations continuing thereafter as
specifically set forth herein.

2.    Confidentiality Obligations.  The Executive agrees to maintain all
confidential information and trade secrets obtained during the course of his
employment with the Company as confidential and to disclose the same to no one,
other than in the furtherance of the Company’s business in the normal course or
to a fellow employee with a reasonable need to know, unless the Executive can
demonstrate by documentary evidence that such information was (1) known to him
prior to his employment with the Company; (2) subsequently became part of
 

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the public domain through no fault of his own; or (3) was subsequently disclosed
to him by a third party not in violation of any obligation of confidentiality
and non-use with the Company.  The Executive agrees to maintain such
confidential information and trade secrets as confidential during the term of
this Agreement and, for confidential information for a period of twelve (12)
months thereafter and, for trade secrets for so long as the information remains
a trade secret.  It is agreed that, for purposes of this Agreement, the term
“confidential information” shall mean any and all information relative to the
Company which is unpublished or not readily available to the general public, and
the term “trade secrets” means information, without regard to form, that derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, persons other than
the Company who can obtain economic value from its disclosure or use, and is the
subject of efforts by the Company that are reasonable under the circumstances to
maintain its secrecy.

3.    Non-Compete.  In the event of a Change in Control (as hereinafter defined)
while Executive is employed by the Company and the termination of Executive’s
employment entitling Executive to the Severance Benefit, Executive will not, for
a period of twelve (12) months after such termination of employment, 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 the Company marketed and
sold during the term of this Agreement up through the date of termination of
employment with annual sales for the Company’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 the Company
through food, drug or mass merchandiser channels of distribution in the United
States.

4.    Severance Benefits.  If the Company Discharges or Constructively
Discharges the Executive during the term of this Agreement within twenty-four
(24) months after the occurrence of a Change in Control, the Executive shall
receive the Severance Benefit.  If the Company’s shareholders approve a merger
or other transaction which results in a Change in Control and the Company
Discharges or Constructively Discharges the Executive on or after the date of
the related shareholder meeting but before the actual date of the Change in
Control, Executive shall be deemed to have been Discharged or Constructively
Discharged immediately following the Change in Control.  In addition, after a
Change in Control, the Executive shall be entitled to resign his employment with
the Company and receive the Severance Benefit (a “Resignation”) at any time
during the period commencing one-hundred and eighty (180) days after the Change
in Control and ending two-hundred and forty (240) days after the Change in
Control notwithstanding that the fact that no Discharge or Constructive
Discharge has occurred. These terms are hereby defined as follows:

 
A.
“Change in Control” shall mean the occurrence of any one of the following
events:

 
(i)
the sale by the Company of all or substantially all of its assets or the
consummation by the Company of any merger,

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consolidation, reorganization, or business combination with any person, in each
case, other than in a transaction:

 
(a)
in which persons who were shareholders of the Company 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”);

 
(b)
in which the Successor Entity is an employee benefit plan sponsored or
maintained by the Company or any person controlled by the Company; or

 
(c)
after which more than 50% of the members of the board of directors of the
Successor Entity were members of the Board of Directors of the Company (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);

 
(ii)
the acquisition directly or indirectly by any “person” or “group” (as those
terms are used in Sections 13(d), and 14(d) of the Securities Exchange Act of
1934 (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 the Company that represent 30% or more of the combined
voting power of the Company’s then-outstanding voting securities, other than:

 
(a)
an acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company or by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any person controlled
by the Company;

 
(b)
an acquisition of voting securities by the Company or a person owned, directly
or indirectly, by the holders of at least 50% of the voting power of the
Company’s then

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outstanding securities in substantially the same proportions as their ownership
of the stock of the Company;

 
 
(c)
an acquisition of voting securities from the Company; or

 
(d)
an acquisition of voting securities pursuant to a transaction described in
clause (i) of this definition that would not be a Change in Control under clause
(i); and

 
for purposes of clarification, an acquisition of the Company’s securities by the
Company that causes the Company’s voting securities beneficially owned by a
person or group to represent 30% or more of the combined voting power of the
Company’s then-outstanding voting securities is not to be treated as an
“acquisition” by any person or group for purposes of this clause (ii);

 
(iii)
a change in the composition of the Board that causes less than a majority of the
directors of the Company to be directors that meet one or more of the following
descriptions:

 
(a)
a director who has been a director of the Company for a continuous period of at
least 24 months;

 
(b)
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 (iii)(a), (b) or (c) of
this definition by prior nomination or election, but excluding, for the purposes
of this subclause (b), any director whose initial assumption of office occurred
as a result of an actual or threatened (i) 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
(ii) tender offer, merger, sale of substantially all of the Company’s assets,
consolidation, reorganization, or business combination that would be a Change in
Control under clause (i) on the consummation thereof; or

 
(c)
a director who was serving on the Board as a result of the consummation of a
transaction described in clause

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(i) that would not be a Change in Control under clause (i); or

 
 
(iv)
the approval by the Company’s shareholders of a liquidation or dissolution of
the Company other than in connection with a transaction described in clause (i)
of this definition that would not be a Change in Control thereunder.

Except as otherwise specifically defined in this definition, the term “person”
means an individual, corporation, partnership, trust, association or any other
entity or organization.

 
B.
“Discharges”:  terminates the Executive for any reason other than indictment or
conviction for a felony or other crime involving substantial moral turpitude,
disability, death, alcoholism, drug addiction or the gross, active misfeasance
of the Executive with regard to his duties with the Company.

 
C.
“Constructively Discharges”:  changes location or reduces the Executive’s
status, duties, responsibilities or direct or indirect compensation, (including
future increases commensurate with those given other managers of the Company),
or so alters the style or philosophy of the conduct of the Company’s business,
in the opinion of the Executive, as to cause it to be undesirable to the
Executive to remain in the employ of the Company, any of which events shall be
deemed to occur on the date the Executive provides written notice to the Company
of the circumstances constituting a Constructive Discharge.

 
D.
“Severance Benefit”:  a payment equal to two-hundred percent (200%) of the
Executive’s “annualized includible compensation for the base period” as defined
in Section 280G(d) of the Code.

 
    Notwithstanding the foregoing Severance Benefit formula, any payments to
which the Executive is entitled upon Discharge or Constructive Discharge or
Resignation from the Company shall be adjusted so that the aggregate present
value of all “parachute payments” (as defined in Section 280G(b)(2) of the Code)
to which the Executive is entitled is less than 300% of the Executive’s
“annualized includible compensation for the base period” as defined in Section
280G(d) of the Code.  The determination as to whether there is any adjustment
(and the extent thereof) in the payments due the Executive because of this
paragraph shall be made in writing within thirty (30) days after Discharge or
Constructive Discharge or Resignation, by the Company’s independent accountants,
compensation consultants or legal

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counsel (“Independent Advisor”) on the date of the Change in Control and shall
be final and binding on the Executive and the Company.  The Company shall
furnish said Independent Advisor with all data required to make said
determination within ten (10) days after Discharge, or Constructive Discharge or
Resignation.  If there is any such adjustment, the Executive may request which
payments or distributions shall be reduced and the Company may acquiesce in such
request if permitted under applicable law.

 
 
    If, notwithstanding the foregoing, it is established pursuant to the final
determination of a court or the Internal Revenue Service that payments have been
made to, or provided for the benefit of, Executive by the Company which are
subject to the excise tax of Section 4999, the Company shall reimburse, or pay
for the benefit of, the Executive such excise tax and indemnify and hold the
Executive harmless, on an after-tax basis, for any additional excise, income or
employment taxes, including interest and penalties, imposed as a result of such
final determination with any such reimbursements being made no later than the
end of the taxable year of the Executive following the taxable year in which the
excise tax is remitted.

5.    Payment.  The Severance Benefit shall be paid to the Executive in a lump
sum not later than thirty (30) days after Discharge or Constructive Discharge or
Resignation.  No interest shall be due upon the Severance Benefit unless it is
not paid when due and in which case interest shall accrue thereon at the
applicable Federal rate used to determined present value under Section 280G of
the Code.

Notwithstanding the foregoing, in the event the Executive is a “specified
employee” within the meaning of Section 409A of the Code and the regulations
thereunder as of the date of Discharge, Constructive Discharge or Resignation,
the Severance Benefit under this Section 3 shall be paid six (6) months after
the date of Discharge, Constructive Discharge or Resignation as required by
Section 409A, or, if earlier, the date of death of the Executive.

6.    Continuation of Benefits.  If the Executive becomes entitled to the
Severance Benefit in accordance with Section 4 hereof, the Company shall
continue to provide health, medical and life insurance in accordance with the
following rules:

A.           General Rule.  If Executive is eligible for the Severance Benefit
under Section 4 and timely elects COBRA coverage under the provisions of Section
4980B of the Code in connection with Executive’s termination of employment, the
Company shall reimburse Executive for the COBRA coverage premiums Executive pays
each month to purchase such coverage from the Company for Executive and, if so
elected, for Executive’s eligible dependents, and the reimbursement for one
month shall be made no later than the end of the immediately following month;
provided, however, such reimbursement shall be made for no more than 24 months
of COBRA coverage.

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B.           Special Rules.

(i).           COBRA Coverage Expires.  If Executive’s COBRA coverage expires in
less than 24 months and Executive elects before the expiration of such COBRA
coverage to continue to purchase from the Company coverage identical to COBRA
coverage under this Section 6.B(i) at 100% of the then COBRA coverage premium,
Executive may purchase such coverage until the  total number of months of
coverage Executive has purchased under Section 6.A and  this Section 6.B(i)
equals 24.  The Company shall reimburse Executive for such premiums, and the
reimbursement for premiums paid for one month shall be made no later than the
end of the following month.

(ii).           Additional Coverage.  If Executive elects before the expiration
of Executive’s coverage under Section 6.A or Section 6.B(i), whichever comes
last, to continue to purchase from the Company coverage identical to COBRA
coverage under this Section 6.B(ii), Executive may purchase such coverage at
Executive’s expense at 100% of the then COBRA coverage premium for a period
which shall not exceed 18 additional months, provided Executive pays such
premiums at the same time and in the same manner as the Company then requires
for premium payments to purchase COBRA coverage.

C.           Life Insurance.  In addition, if Executive is eligible for the
Severance Benefit under Section 4, the Company shall reimburse Executive for
life insurance premiums Executive pays each month to purchase life insurance
coverage at substantially the same level of benefits as the Executive has at the
date of termination of employment, and the reimbursement for one month shall be
made no later than the end of the immediately following month.  Such payments
shall continue through the twenty-fourth (24th) month following Executive’s
termination of employment.  Notwithstanding the foregoing subsections, in the
event the Executive is a “specified employee” within the meaning of Section 409A
of the Code and the regulations thereunder as of the date of termination of
employment, the reimbursements under this subsection 6C shall accrue during the
first six (6) months after the date of termination of employment and be paid on
the first day of the seventh (7th) month after the date of termination of
employment as required by Section 409A, or, if earlier, the date of death of the
Executive.  Thereafter, subsequent reimbursements shall be made in the time and
manner set forth in this subsection 6C.

7.    Injunction.  Executive expressly recognizes that any breach of the
provisions of this Agreement is likely to result in irreparable injury to
Company and that monetary damages may not adequately compensate Company for such
breach.  Therefore, Executive agrees that Company shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction not only to obtain damages for any breach of this Agreement, but
also to enforce the specific performance of this Agreement by Executive and to
enjoin Executive from activities in violation of this Agreement.  Further,
Executive agrees that any breach of the provisions of this Agreement shall
automatically toll and suspend the period of restraint for the amount of time
that the breach continues.

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8.    Notices.  Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
executive offices addressed to the President.

9.    Non-Alienation.  The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by operation
of law.  Notwithstanding the foregoing provisions, in the event that the
Executive dies following Discharge or Constructive Discharge or Resignation
after a Change in Control but before receiving all of his Severance Benefit, the
unpaid Severance Benefit shall be paid to his Estate in accordance with the
terms of this Agreement.

10.    Governing Law.  The provisions of this Agreement shall be construed in
accordance with the laws of the State of Tennessee.  Executive and the Company
agree that any proceeding arising out of or in connection with this Agreement
may be brought in the courts of Hamilton County, Tennessee, and Executive and
the Company waive, to the fullest extent permitted by applicable law, any
objection either may have to the appropriate venue of such court in any such
proceeding.

11.    Amendment.  This Agreement may not be amended or cancelled except by the
mutual agreement of the parties in writing.

12.    Successors to the Company.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company and any
successor of the Company.

13.    Severability.  In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.

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IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Secretary, all as of the day and year first above
written.

 

 
_____________________________________
 

CHATTEM, INC.

By: __________________________________
Name:  _______________________________
Title: _________________________________ 

 
 
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