WWW.EXFILE.COM, INC. -- 888-775-4789 -- CHATTEM, INC. -- EXHIBIT 10.3 TO FORM 10-Q


    EXHIBIT
10.3

     

    SECOND AMENDED AND RESTATED
SEVERANCE AGREEMENT

    


    


    This
Second Amended and Restated Severance Agreement (the “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 ZAN
GUERRY (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;

    


    WHEREAS,
the Company believes it is in the best interests of the Company and its
stockholders to provide the Executive with adequate financial security and
sufficient encouragement to the Executive to remain with the Company
notwithstanding the possibility of a change of control of the
Company;

    


    WHEREAS,
the Company and the Executive have previously entered that certain
Non-Competition and Severance Agreement dated November 6, 1985, as amended May
31, 1995, and as further amended by that certain Amended and Restated Severance
Agreement dated August 1, 2000, 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 continue to provide services for the long-term
benefit of the Company and its shareholders and to agree to the changes set
forth herein in exchange for the 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 rights or obligations continuing
thereafter as specifically set forth herein.

    


    2.    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 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, 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 

              


      

    

    
      


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
        
          	
                	
                   

                	
                  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 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;

              


      

    

    


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
      
        	
              	
                (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 (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

              


      

    

    
      


      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      
        
          	
                	
                   

                	
                  written
      notice to the Company of the circumstances constituting a Constructive
      Discharge.

                


        

      

       

    

    
      
        	
              	
                D.

              	
                “Severance
      Benefit”:  a payment equal to two-hundred ninety-nine (299%)
      percent 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, unless, taking into
      account the applicable federal, state and local income taxes and the
      excise tax imposed by Section 4999, the payment of the full Severance
      Benefit results in the receipt by the Executive on an after-tax basis of
      the greatest amount of benefit under this Section 2D notwithstanding that
      all or some portion of such Severance Benefit may be taxable under Section
      4999 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 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, in
      accordance with the foregoing the Severance Benefit is reduced and,
      notwithstanding such reduction, 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

                

              


      

    

    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

        	 	 	

                
                  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. 

                

              


      

    

     

    3.    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.

    


    4.    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.

    


    5.    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.

    


    6.    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.

    


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

    


    8.    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.

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    9.    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.

    


    


    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.


    


     

    
      	 	

               

              _____________________________________

              Zan
      Guerry

              


              


              CHATTEM,
      INC.

              


              By:__________________________________

              Title:________________________________ 

            


    

    


    ATTEST:

    


    ____________________________

    Secretary

    (SEAL)

    
 

    
      
        
        

      

      
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