EXHIBIT 10.5
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                              SETTLEMENT AGREEMENT

         THIS SETTLEMENT AGREEMENT AND RELEASE ("Agreement") made on this 26th
day of April, 2004, by and between Chattem, Inc. ("Chattem") and its directors,
officers, shareholders, agents and employees and assigns and persons and
entities acting through or under any of them, and any and all persons or
entities named as insureds or alleged to be an insured, and General Star
Indemnity Company and its directors, officers, shareholders, agents and
employees and persons and entities acting through or under any of them ("General
Star") (General Star and Chattem are hereinafter sometimes referred to
collectively as the "Parties");

         WHEREAS, General Star issued liability insurance policy No. IUG-358416B
to Chattem (the "Policy"); and

         WHEREAS, Chattem has asserted that General Star is responsible to pay
and indemnify Chattem pursuant to the Policy (the "Coverage Claim") for certain
claims in which third-parties assert that they have suffered injury as a result
of their ingestion of Chattem's Dexatrim product ("Dexatrim Claims"); and

         WHEREAS, there is a dispute between Chattem and General Star with
respect to the obligations of General Star under the Policy, if any, to defend
and indemnify Chattem with respect to the Dexatrim Claims; and

         WHEREAS, the Coverage Claim was made the subject of litigation
involving Chattem and General Star in an action entitled Kemper Indemnity
Insurance Company v. Chattem, Inc., et al., pending in the United States
District Court, Eastern District of Tennessee at Chattanooga, No. 1:03-CV264
(hereinafter "Coverage Litigation"); and

         WHEREAS, other insurers named as parties in the Coverage Litigation.
have asserted or may assert claims for contribution and/or related relief among
themselves and against General Star with respect to the Dexatrim Claims; and

         WHEREAS, the Parties believe that it is in their mutual interest to
reach an amicable resolution with respect to all c1aims, including but not
limited to the Coverage Claim and claims related to Dexatrim and the issues
raised in the Coverage Litigation, without admission or adjudication of any
issue of fact or law, and to resolve all past, present or future disputes
relating to the obligations of Genera1 Star to Chattem under the Policy;

         NOW, THEREFORE. in consideration of the mutual promises contained
herein and other good and valuable consideration Chattem and General Star hereby
agree as follows:

     1.   In full and final settlement of the Coverage Claim that Chattem has or
          may have, now or in the future, as well as all claims known or
          unknown, against General Star under the Policy, General Star will pay,
          on behalf of Chattem, twenty-two million, five hundred thousand
          dollars ($22,500,000), which payment is intended to, and shall,
          exhaust completely the Policy Aggregate limit of Insurance. Said
          payment shall be made as requited to fund the CLASS ACTION SETTLEMENT
          AGREEMENT between Chattem, Inc., and Class Counsel On Behalf Of Class
          Representatives In Re Phenylpropanolamine (PPA) Products Liability
          Litigation, Case No. 2:01-md-1407 (MDL No. 1407), dated as of April
          13, 2004, and attached hereto as Exhibit A (the "Class Settlement").

     2.   The payment described in Paragraph 1 shall be made by wire transfer on
          or before noon on May 3, 2004, provided that Preliminary Approval, as
          defined in the Class Settlement, has been obtained by Chattem.

     3.   The payment described in Paragraph 1 shall be made into the Initial
          Settlement Trust (the "Trust') created pursuant to the April 13, 2004
          Order Directing Chattem To Fund An Initial Settlement Trust issued by
          the Honorable Barbara Jacobs Rothstein, as described more ful1y
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          in the INITIAL SETTLEMENT TRUST AGREEMENT Among Chattem. Inc., As
          Settlor and AMSOUTH BANK, As Trustee, dated April 12, 2004, and
          attached hereto as Exhibit B (the "Trust Agreement").

     3A.  In the event that Chattem shall exercise its option to terminate and
          withdraw from the Class Settlement, as set forth at Section 8.1 of the
          Class Settlement, it shall provide notice of such exercise to General
          Star within five business days from such exercise, and in no event
          later than November 15, 2004. In the event of such termination and
          withdrawal, Chattem shall not take any action inconsistent with the
          treatment of the Trust as a "Qualified Settlement Fund" within the
          meaning of Section 468B of the Internal Revenue Code of 1986, as
          amended, and the Treasury Regulation promulgated thereunder. Chattem
          shall provide to General Star, on or prior to December 1, 2004,
          written confirmation of the satisfaction of the provisions of this
          Paragraph 3A, or in the alternative. confirmation that Chattem has not
          exercised its right to terminate and withdraw from the Class
          Settlement, and is no longer entitled to do so under Section 8.1
          thereof, such time having expired.

     4.   Regardless of whether Chattem exercises its right to terminate and
          withdraw from the Class Settlement pursuant to Section 8.1 thereof, it
          is agreed and understood that General Star's obligation under the
          Policy, if any, to defend Chattem against any claim or suit, is fully
          and finally extinguished upon General Star's making of the payment
          described in Paragraph 1 above. Notwithstanding Paragraph 1 above,
          Chattem will pay General Star two million, two hundred forty-nine
          thousand, six hundred thirty-nine dollars and seventy cents
          ($2,249,639.70), which is intended to, and shall, reimburse General
          Star for its past defense costs incurred and paid in connection with
          Dexatrim Claims. Such payment shall be made by wire transfer on or
          prior to five business days subsequent to notice given by General
          Star, but not earlier than the date upon which General Star makes its
          payment as described in Paragraph 1 above.

     5.   Chattem does hereby covenant not to sue General Star and forever fully
          and completely releases General Star from any liability under the
          Policy for any and all, claims, demands, rights, causes of action or
          liabilities arising out of any past, present or future claims which it
          has or may have, now or in the future, known or unknown, for damages
          and costs of any kind, including punitive or other legal, statutory or
          equitable relief, or for costs and expenses arising from or related
          to any and all claims, whether past, present or future. It is
          expressly agreed and understood by and between the parties hereto that
          this release is not limited to those claims actually known and/or
          suspected to exist at the time the release is given, including,
          without limitation, as set forth in the provisions of Section 1542 of
          the Civil Code of the State of California, which provides that "[a]
          general release does not extend to claims which the creditor does not
          know or suspect exist in his favor at the time of executing the
          release, which if known by him must have material1y affected his
          settlement with the debtor." It is further expressly agreed and
          understood by and between the parties hereto that should any future
          obligations on the part of General Star arise out of or be alleged to
          arise out of any Dexatrim Claim, Chattem win not assert that those
          obligations must be met by General Star, since the release provided in
          this Agreement is full, complete and final.

     6.   Chattem will defend, hold harmless and indemnify General Star against
          any claims made by Kemper Indemnity Insurance Company, Interstate Fire
          & Casualty Company, and any Dexatrim claimant or government lienholder
          that al1eged or alleges that General Star improperly settled Chattem's
          claim against General Star, or that the Policy's Aggregate Limit of
          Insurance is not exhausted. Should a claim be made against General
          Star for any obligation recited in this paragraph General Star agrees
          to so notify Chattem, and further agrees to cooperate in the defense
          of such claim, including making its underwriters and claims handlers,
          and all non-privileged parts of its claim and underwriting files,
          available to Chattem. General Star acknowledges that Chattem has the
          right to compromise and settle such claim(s) as Chattem deems
          appropriate, at Chattem's sole cost and expense.

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     7.   General Star is responsible for all fees, costs and expenses it has
          incurred, or may in the future incur, in connection with the Coverage
          Litigation except as are inconsistent with paragraph 6.

     8.   General Star agrees to cooperate with Chattem in its defense of the
          Coverage litigation including making its underwriters and claim
          handlers, and all non-privileged parts of its claim and underwriting
          files, available to Chattem.

     9.   General Star covenants not to sue Chattem's insurers or any other
          entity to recover the payment set forth in Paragraph 1 above. General
          Star will dismiss its claims, if any, against any other insurance
          company that is or was a party to the Coverage Litigation.

     10.  This Agreement shall be binding upon and inure to the benefit of the
          Parties hereto, as well as their successors, assigns, representatives,
          present and future direct or indirect parent companies, subsidiaries,
          affiliates, divisions, joint venturers, and, collectively, all of
          their past, present and future directors, officers, employees, agents,
          attorneys, shareholders, underwriters and insurers, and others
          entitled to make claim on behalf of the Parties hereto. Nothing in
          this Agreement is intended nor shall be construed to confer any
          benefit whatsoever on any persons other than the Parties. By entering
          into this Agreement, Chattem expressly does not release, compromise or
          waive its claims against any other insurance companies that issued its
          policies of insurance and reserves its rights to pursue any claim for
          coverage against other insurance companies.

     11.  This Agreement does not constitute an admission by General Star of an
          obligation to defend or indemnify Chattem with respect to any Policy
          or any claim.

     12.  This Agreement shall not be admissible in any legal proceeding except
          to enforce its terms.

     13.  Each of the parties has participated in the drafting of this Agreement
          after consulting with counsel. Therefore, the language of this
          Agreement shall not presumptively be construed in favor or against
          either party.

     14.  This Agreement represents the entire understanding between the parties
          and, without limitation, the Parties expressly agree that any previous
          communications, correspondence, or previous agreements are not to be
          employed to construe this Agreement. Any other provisions of this
          Agreement to the contrary notwithstanding, this Agreement can only be
          modified by writing signed by both parties and this provision cannot
          be orally waived.


     15.  Chattem and General Star respectively warrant and represent that they
          are authorized to enter into this Agreement on their own behalf and on
          behalf of their respective shareholders, directors, officers,
          employees, and agents, assigns and all persons or entities acting
          through or under any of them, and that they respectively have the
          authority to bind such persons and entities to the terms of this
          Agreement Chattem and General Star also represent and warrant that the
          persons whose signatures are affixed hereto are authorized to sign
          this Agreement on behalf of their respective corporations and have the
          legal authority to bind their respective corporations hereto.

     16.  This Agreement will be construed in accordance with the law of the
          state of Tennessee, with out regard to conflicts of law principles.

     17.  If any terms or provisions of this Agreement, other than the
          provisions of Paragraphs 1-9, or the application of any term or
          provision of this Agreement to any person or circumstance, other than
          the provisions of Paragraphs 1-9 shall, to any extent be invalid or
          unenforceable the remainder of this Agreement, or the application of
          such term or provision to persons or circumstances other than those as
          to which it is held invalid or unenforceable, shall not be

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          affected thereby and each such provision of this Agreement shall be
          valid and be enforceable to the fullest extent permitted by the law.

     18.  Any notice, request, instruction or other documents to be given by any
          Party to any other Party shall be in writing and delivered personally
          or sent by Federal Express, or by facsimile, or by e-mail (which such
          facsimile or e-mail notice shall be deemed effective as of the time of
          receipt of confirmation by the sending party) as follows, or as
          otherwise instructed by a notice delivered to the other Party pursuant
          to this subsection:

If to Chattem:

Miller & Martin PLLC
Suite 1000 Volunteer Building
832 Georgia Avenue
Chattanooga, TN 37402-2289
Attention: Roger Dickson, Esq.
C. Crews Townsend, Esq.
Facsimile (423) 785-8480

McCarter & English
Four Gateway Center
100 Mulberry Street
P.O. Box 652
Newark, NJ 07101-0652
Attention: Andrew Berry, Esq.
Facsimile (973) 624-7070
Email: aberry@mccarter.com

If to General Star:
The Coverage Law Firm PLLC
Suite 1150
1629 K Street, N.W.
Washington D.C. 20006-1676
Attention: B. Gerard Cordelli
Facsimile: (202) 393.3390
Email: bgerardcordelli@thecoveragelawfirm.com


     19.  This Agreement shall be executed in two (2) duplicate originals, with
          Chattem to retain one (1) original and General Star to retain one (1)
          original.

         IN WITNESS WHEREOF, the parties, by their duly authorized
representatives, affix their signatures hereto


                                   CHATTEM, INCORPORATED

                                   By:__________________________________


                                   Its:_________________________________




                                   GENERAL STAR INDEMNITY COMPANY

                                   By:__________________________________


                                   Its:_________________________________




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