<PAGE>

                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                   
                                     FORM 10-K
                                          
                                   ANNUAL REPORT
                         PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934
                                          
For the fiscal year ended November 30, 1997       Commission file number 0-5905

                                   CHATTEM, INC.
                              A TENNESSEE CORPORATION
                   I.R.S. EMPLOYER IDENTIFICATION NO. 62-0156300
                               1715 WEST 38TH STREET
                           CHATTANOOGA, TENNESSEE 37409
                              TELEPHONE: 423-821-4571
                                          
            Securities registered pursuant to Section 12(b) of the Act:
                                          
                                      Name of Each Exchange on 
Title of Each Class                          Which Registered
     None                                          None


            Securities registered pursuant to Section 12(g) of the Act:
                                          
                          Common Stock, without par value
                                          
Registrant has filed all reports required to be filed by Section 13 or 15(d) 
of the Securities Exchange Act of 1934 during the preceding 12 months, and 
has been subject to such filing requirements for the past 90 days.

Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K will 
be contained in the definitive Proxy Statement incorporated by reference in 
Part III of this Form 10-K.

As of February 20, 1998, the aggregate market value of voting shares held by 
non-affiliates was $138,304,452. 
As of February 20, 1998, 9,090,854 common shares were outstanding.

                        DOCUMENTS INCORPORATED BY REFERENCE:
                                          
Portions of the registrant's Annual Report to Shareholders for Fiscal year 
ended November 30, 1997 (the "1997 Annual Report to Shareholders") are 
incorporated by reference in Parts I, II and IV of this Report.  Portions of 
the registrant's definitive Proxy Statement dated March 6, 1998 (the "Proxy 
Statement") are incorporated by reference in Part III of this Report.

<PAGE>
                                       PART I
                                          
                                          
Item 1.  Business

General

Chattem, Inc. (the "Company") was incorporated in Tennessee in 1909 after 
having commenced business operations in 1879.  The Company is a diversified 
manufacturer and marketer of consumer products.  The Company manufactures and 
markets branded over-the-counter ("OTC") pharmaceuticals, such as FLEXALL, 
ICY HOT, PAMPRIN, PREMSYN PMS, BENZODENT, NORWICH Aspirin, GOLD BOND and 
HERPECIN-L; functional toiletries and cosmetics, including CORNSILK, 
BULLFROG, ULTRASWIM, SUN-IN, MUDD and PHISODERM; dietary supplements 
represented by GARLIQUE, REJUVEX, MELATONEX, ECHINEX and PROPALMEX; and a 
small line of homeopathic medicines.  In the OTC drug market, the Company 
believes that its topical analgesic, menstrual and premenstrual internal 
analgesic brands and medicated powder and cream are among the market leaders 
in the U.S. in their categories.  Certain of the Company's functional 
toiletries and cosmetics products, such as SUN-IN and ULTRASWIM, are believed 
by the Company to be brand leaders in the U.S. in their categories.  The 
Company's dietary supplement products are also considered to be major brands 
in that U.S. market.

The Company's growth strategy is to seek continued growth through a 
combination of brand acquisitions and internal growth while maintaining high 
operating income.  As a part of this strategy, the Company continually 
evaluates its products and businesses, and in instances in which products or 
businesses fail to realize the Company's objectives, the Company will dispose 
of these products or businesses and redeploy resulting assets to products and 
businesses with greater growth potential or to reduce indebtedness.

The Company conducts certain aspects of its business through four wholly 
owned subsidiaries.  One subsidiary owns or licenses substantially all of the 
trademarks and intangibles associated with its domestic consumer products 
business and licenses the Company's use thereof.  Certain foreign sales 
operations are conducted through Canadian and United Kingdom subsidiaries. 
Product liability insurance is provided by a captive insurance subsidiary 
incorporated in Bermuda.

                                          2
<PAGE>


For purposes of this report, the "Company" refers to Chattem, Inc. and its 
wholly-owned subsidiaries.  Trademarks of the Company appear in this report 
in all capitalized letters.

Developments During Fiscal 1997

On June 26, 1997, the Company purchased certain assets of Sunsource 
International, Inc. and an affiliated company ("SUNSOURCE") including the 
exclusive worldwide rights to five leading branded dietary supplement 
products. The purchase price for the trademarks, inventory and receivables was 
approximately $32,000,000.  Additional payments may be earned by SUNSOURCE 
over a six year period from the date of closing if sales exceed certain 
levels as defined in the purchase agreement, but such additional payments are 
not to exceed $15,750,000 in the aggregate.  Financing of the SUNSOURCE 
acquisition was provided by an expansion of the Company's senior bank credit 
agreement and the issuance of 300,000 shares of Chattem, Inc. common stock to 
SUNSOURCE.

The Company expanded its existing credit agreement with a syndicate of banks 
on June 26, 1997 to finance the SUNSOURCE acquisition and repay all existing 
bank debt.  The credit agreement is divided into a $30,000,000 revolving line 
of credit for working capital purposes, a 5 year $30,000,000 Term A loan 
facility and a 6 3/4 year $35,000,000 Term B loan facility.

During June 1997, the Company prepaid previously outstanding long-term bank 
debt, with funds from the new credit agreement.  In connection with the 
prepayment of those borrowings, the Company incurred an extraordinary loss of 
$1,370,000 (net of income taxes), or $0.15 per share.  The loss primarily 
related to the write-off of debt issuance costs and the termination of two 
interest rate swap agreements.

Unless otherwise indicated, the following discussion relates only to the 
continuing operations of the Company, which are the domestic and 
international consumer products business.  The results of operations and the 
gain on disposal of the specialty chemical division in 1995 have been 
separately classified as discontinued operations in the accompanying 
consolidated statements of income.

                                          3
<PAGE>

The Company will continue to seek increases in sales through a combination of 
acquisitions and internal growth while maintaining high operating income.  As 
previously high growth brands mature, sales increases will become even more 
dependent on acquisitions and the development of successful line extensions. 
During the year ended November 30, 1997, new additions to the ICY HOT 
(Arthritis Therapy Gel), GOLD BOND (Medicated Foot Powder and CORNSTARCH PLUS 
Medicated Baby Powder), MUDD (5 Minute Mask) and PAMPRIN and PREMSYN PMS (Gel 
Caps) product lines as well as a newly repackaged CORNSILK line were 
introduced.
     
Products

The objective of the Company is to offer high quality brand name products in 
niche market segments in which its products can be among the market leaders. 
The Company strives to achieve its objective by identifying brands with 
favorable demographic appeal, being flexible in modifying products and 
promotions in response to changing consumer demands and developing creative 
and cost-effective marketing and advertising programs.  The Company 
manufactures substantially all of its products at its manufacturing facility 
in Chattanooga, Tennessee, with the exception of GOLD BOND, the SUNSOURCE 
brands and NORWICH Aspirin, which are manufactured by contract manufacturers.

                                          4
<PAGE>

     The Company's product brands are:

                    OTC Pharmaceuticals
                    --------------------
               - GOLD BOND - medicated powders and anti-itch cream
               - FLEXALL - topical analgesic
               - ICY HOT - topical analgesic
               - BENZODENT - topical oral analgesic
               - NORWICH Aspirin - internal analgesic
               - HERPECIN-L - cold sore and fever blister product
               - PAMPRIN - menstrual internal analgesic
               - PREMSYN PMS - premenstrual internal analgesic

                   Functional Toiletries and Cosmetics
                   ------------------------------------
               - CORNSILK - oil absorbing facial make-up
               - BULLFROG - sunscreen and sunblock
               - ULTRASWIM - chlorine removing shampoo
               - SUN-IN - spray-on hair lightener
               - MUDD - facial mask and cleanser
               - PHISODERM - facial and hand cleanser

                    Dietary Supplements
                   ---------------------
               - REJUVEX - menopausal supplement
               - GARLIQUE - garlic extract
               - MELATONEX - sleep aid
               - PROPALMEX - prostate health product
               - ECHINEX - infections resistance enhancer




                                          5
<PAGE>

The following table sets forth the Company's net sales attributable to 
domestic and international OTC pharmaceutical, functional toiletries and 
cosmetics, dietary supplement and homeopathic products, other products and 
total consumer products during the past three fiscal years (dollars in 
thousands):

<TABLE>
<CAPTION>

                                                               Fiscal Year Ended  November 30,
                                         ------------------------------------------------------------------------------

                                                   1997                      1996                        1995
                                                 -------                    ------                      ------
      Product Class                          Sales     Percentage      Sales      Percentage       Sales      Percentage 
                                           --------    ----------    --------     ----------     ---------    ---------- 
<S>                                        <C>         <C>           <C>          <C>            <C>           <C>
Domestic: 
  OTC Pharmaceuticals .................    $ 83,121          58.0%   $ 67,214           56.5%      $ 48,700       48.4%
  Functional Toiletries and 
    Cosmetics ..........................     33,887          23.7      36,232           30.5         37,519       37.3
  Dietary Supplements and
    Homeopathics*.......................      9,102           6.4         -               -            -            -
International: 
  OTC Pharmaceuticals ..................      3,053           2.1       2,255            1.9          2,463        2.5
  Functional Toiletries and                                           
    Cosmetics ..........................     12,154           8.5      12,204           10.3         10,885       10.8
Other Products .........................      1,918           1.3         998             .8          1,031        1.0
                                           --------    ----------    --------     ----------     ----------     ------
    Total Consumer Products ..........     $143,235         100.0%   $118,903          100.0%      $100,598      100.0%
                                           --------    ----------    --------     ----------     ----------     ------
                                           --------    ----------    --------     ----------     ----------     ------
</TABLE>
*From the date of acquisition, June 26, 1997.


                                                                      6
<PAGE>
 
 
Growth Strategy

       The Company seeks to expand its business through:

-    ACQUISITION OF ESTABLISHED BRANDS.  Brand acquisitions afford the 
     Company the opportunity to leverage its advertising and promotional 
     capabilities and utilize existing distribution channels to attain 
     incremental sales increases accompanied by higher operating margins.

     An example of this strategy is the Company's acquisition of GOLD BOND in 
     April 1996. GOLD BOND is the leading brand in the medicated powder market 
     with a rapidly growing presence in the anti-itch cream market. Annual 
     sales of GOLD BOND have increased by more than 20% from less than $30 
     million at the time of the acquisition, while operating margins have also
     increased during the same period.

     The Company's acquisition of the SUNSOURCE Products is another example 
     of this strategy. The SUNSOURCE Products are leaders in small to medium 
     sized markets that have an older and growing demographic profile. In 
     addition, the dietary supplements market is a media driven business that 
     is compatible with the Company's marketing and distribution 
     capabilities. The Company believes that growth of the SUNSOURCE brand 
     can be achieved through the utilization of television advertising, new 
     product introductions and improved distribution.

-    EXPANSION OF EXISTING PRODUCT LINES.  The Company seeks to increase its 
     market share in established markets through the introduction of new 
     product lines for existing brands. Product line extensions allow the 
     Company to maximize the value of the base brand through an increased 
     market presence and new market entry. Recent examples of product line 
     extensions include ICY HOT Arthritis Therapy Gel and two GOLD BOND line 
     extensions, GOLD BOND Medicated Foot Powder and GOLD BOND Cornstarch 
     Plus Medicated Baby Powder.

-    DEVELOPMENT OF BRANDS WITH UNREALIZED POTENTIAL.  The Company seeks to 
     acquire brands with unrealized potential that have been under-marketed 
     by larger firms or have achieved success in limited geographic regions. 
     The Company uses its marketing ability, sales force and manufacturing 
     capabilities to build on the unrealized potential of the brand. ICY HOT 
     was an under-marketed brand which the Company acquired from a major 
     consumer products company, while FLEXALL had only a regional market 
     presence when acquired by the Company. Both of these brands have 
     achieved significant sales growth following their acquisition by the 
     Company.


                                          7
<PAGE>

OTC Pharmaceuticals

The Company markets a diversified portfolio of brand name OTC pharmaceutical
products, many of which are among the market leaders in the U.S. in their
respective categories.

The GOLD BOND brand, which is approximately 100 years old, competes in the 
adult and baby medicated powder and anti-itch cream markets.  GOLD BOND is 
the leading brand in the medicated powder market and has a rapidly growing 
presence in the anti-itch cream market.  The product line is heavily 
supported by national television and radio advertising, as well as with 
consumer promotions. The Company believes GOLD BOND represents a major growth 
opportunity and is currently pursuing various line extensions.

FLEXALL is an aloe-vera based topical analgesic used primarily by people
with arthritic symptoms to alleviate pain and irritation in joints and
secondarily by persons suffering from muscle strain.  In fiscal 1996 FLEXALL
Ultra Plus, containing menthol, methyl salicylate and camphor as active
ingredients, was added to the line.  The Company believes that the advancing age
of the U.S. population and the emphasis on fitness and physical activity will
increase the overall market size of the topical analgesic market.  The Company
supports the brand with a marketing program that utilizes extensive television
and print media advertising. 

ICY HOT provides the Company with a second entry into the topical analgesic
market segment.  ICY HOT is an extra strength dual action product, as
distinguished from FLEXALL.  In fiscal 1997 ICY HOT Arthritis Therapy Gel,
containing capcaicin in an aloe vera based gel, was introduced.  The Company
supports this brand with national advertising and strong promotional programs.

BENZODENT is a dental analgesic cream in an adhesive base for use as an oral 
topical analgesic for pain related to dentures.  The Company acquired 
BENZODENT in 1994 and seeks to increase the market share of this brand by 
providing samples to consumers when they are initially fitted for dentures.

                                          8
<PAGE>

NORWICH is a pharmaceutical-quality, aspirin-based analgesic which complements
the Company's other OTC pharmaceuticals by offering consumers another choice in
the analgesic market segment and by permitting shared product promotions.  The
Company positions the brand as a reasonably priced alternative between private
label generic aspirin and high-priced, heavily-advertised brands.

In the lip care category, HERPECIN-L balm stick treats and protects cold sores
three ways.  The unique formula moisturizes lips to help prevent cracking,
reduce soreness and promote healing.  Also, HERPECIN-L contains an SPF 15
sunblock to help protect lips from the harmful rays of the sun.  The Company
supports the brand with television and radio advertising as well as consumer
promotions designed to generate trial during the peak winter and summer cold
sore seasons.

In the menstrual analgesic segment, the Company markets PAMPRIN, a combination
drug specifically designed for relief of menstrual symptoms, and PREMSYN PMS, a
product formulated to relieve mild to moderate symptoms of premenstrual
syndrome.  PAMPRIN was developed internally by the Company over 30 years ago,
while PREMSYN PMS was introduced by the Company in 1983.  In fiscal 1997 both
PAMPRIN and PREMSYN PMS were introduced in gel capsule form.  

Functional Toiletries and Cosmetics

The Company also markets a portfolio of brand name functional toiletries and
cosmetics, many of which are among the market leaders in the U.S. in their
respective categories.

The CORNSILK brand is a line of facial makeup products for women with oily or 
combination skin.  All CORNSILK products utilize an exclusive ingredient for 
absorbing the excess facial oils that break down the color and coverage of 
other makeup.  The CORNSILK brand includes powder used by women to fix and 
finish their makeup and also liquid makeup, blush and concealer.  Liquid 
makeup is used to even skin tone, blush to add color and concealer to cover 
blemishes.  The Company supports the brand by print advertising in selected 
women's magazines.  In fiscal 1997 the entire CORNSILK product line was 
relaunched in completely new packaging.

                                          9
<PAGE>


In the sunscreen and sunblock category, BULLFROG provides long-lasting, 
water-durable protection from the sun. Positioned as a line of highly 
efficacious sunblock products in a unique, highly concentrated formula, the 
Company believes that the BULLFROG brand should continue to benefit from this 
overall market growth as well as increasing brand awareness, broader product 
offerings and increased consumer advertising, promotion and sampling programs.

ULTRASWIM is a leading line of chlorine removing shampoo, conditioner and soap. 
ULTRASWIM has a patented formula that the Company believes makes it superior to
formulations of other products in removing chlorine.  ULTRASWIM has also
benefited as it has moved beyond the competitive swim segment to include
exercise and recreational swimmers. The Company supports this brand by 
selected television advertising companies by print advertising.

SUN-IN is a leading product line in the spray-on hair lightener market.  The
target customers within this market segment are light-haired women between the
ages of 12 and 24.  The Company supports SUN-IN's position as a market leader
through recent improvements in the formula and package, seasonal advertising to
teens and consumer promotions in retail stores.

MUDD is a line of clay-based products which provide deep cleansing of the face
for healthier, cleaner skin.  Target customers for MUDD are women between the
ages of 18 and 49.  In fiscal 1995, the Company relaunched MUDD with improved
formulas and updated packaging and added a 5 Minute Mask to the line in fiscal
1997.

PHISODERM is a line of facial cleansers consisting of several formulas of liquid
cleansers, including one for infants, and a bar soap.  Acquired in 1994,
PHISODERM is the Company's second entry into the facial cleanser category. 
Positioned as a deep cleaning but gentle facial cleanser, the Company, in fiscal
1995, improved the formula, updated the packaging and provided television
advertising and promotional support to enable this brand to regain the larger
market share it once enjoyed.  In fiscal 1996, PHISODERM Antibacterial Hand
Cleanser was introduced in the domestic and certain international markets.


                                          10
<PAGE>

DIETARY SUPPLEMENTS

The Company markets a line of predominantly herbal, branded dietary supplements
and homeopathic medicines under the SUNSOURCE name.  The SUNSOURCE line was
acquired by the Company in June 1997.

The dietary supplement products in the SUNSOURCE line have national 
distribution in food, drug and mass merchandiser accounts and are 
supported by national television and/or radio ad campaigns.  
SUNSOURCE dietary supplements are natural, drug-free aids to 
supporting and maintaining good health.

REJUVEX, first introduced in late 1991 and the oldest of the 
SUNSOURCE brands, is a dietary supplement for women in the peri- and 
post-menopausal age group.  REJUVEX helps women to maintain comfort 
during a phase of life that is often fraught with numerous 
discomforts.  Additionally, REJUVEX, high in magnesium, helps to 
promote strong healthy bones in a population that is at risk for 
development of osteoporosis.  REJUVEX provides an estrogen-free 
avenue of natural support.

GARLIQUE garlic tablets support cardiovascular health.  The tablets are 
uniquely positioned in the marketplace as a "one per day" high potency garlic 
supplement.  The major GARLIQUE competitor is a six per day product. 
Consumers have a strong and growing interest in this odor-less, drug-free, 
all natural approach to maintaining normal cholesterol levels.  GARLIQUE 
entered the market place in 1992 and has continued as a strong product.

MELATONEX is formulated to support a natural sleep cycle, by 
supplementing the body's natural production of melatonin, a hormone 
necessary for a good night's sleep.  As we age, we produce less and 
less melatonin, tend to sleep less and have more difficulty falling 
asleep and staying asleep. Supplementing our natural melatonin 
production is the sensible solution for people over forty.  
MELATONEX is a scored, time-release tablet offering important and 
desired dosage control to consumers.

                                          11
<PAGE>

PROPALMEX is an herbal supplement for men over forty.  PROPALMEX 
supports prostate health and promotes free urinary flow.  As men 
age, natural changes in hormone balance result in conditions which 
tend to precipitate a swelling of the prostate.  This benign 
condition plagues most men past middle age and PROPALMEX is the all 
natural, drug-free approach to maintenance of a healthy prostate.

ECHINEX is a standardized herbal complex of echinacea, ginger and 
Siberian ginseng.  This effective combination supports our natural 
resistance against infection helping us to stay well.  ECHINEX is a 
seasonal product that provides adults with added protection during 
times of high risk for cold and flu.

SUNSOURCE offers a line of nine homeopathic OTC products.  
Homeopathic medicines represent a growing segment of the OTC 
marketplace.  These all natural products are safe and effective and 
have no side effects.  The SUNSOURCE line includes six tablet 
products:  Sinus Relief, Cold Relief, Insomnia Relief, Allergy 
Relief, Flu Relief and Arthritis Relief; and three topical creams:  
Sports Injury Relief, Arthritis Relief and Psoriasis/Eczema Relief.

International

The Company's products are also sold in foreign countries.  This international
business is concentrated in Canada, Europe and Central and South America.

Sales in Canada and Europe are conducted by subsidiary companies located and
locally staffed in Canada and the United Kingdom.  General export sales are
handled by the Company from its offices in Chattanooga.  Most of the products
sold in international markets are manufactured by the Company at its Chattanooga
and United Kingdom facilities and are packaged by subsidiary companies in small
facilities in Canada and the United Kingdom with the assistance, from time to
time, of outside contract packagers.


                                          12
<PAGE>

Many of the Company's major domestic products are currently sold in Canada,
including the FLEXALL, PAMPRIN, SUN-IN, CORNSILK, MUDD, ULTRASWIM,
PHISODERM, BULLFROG and GOLD BOND brands.

Consumer product sales in the United Kingdom and on the continent of Western
Europe are currently limited to toiletry and cosmetic products.  The Company's
hair lightener product is sold on the continent under the SPRAY BLOND trademark
and in the United Kingdom as SUN-IN.  MUDD, CORNSILK and ULTRASWIM are the other
primary consumer products sold by the Company's international division in
Europe.

The Company's export division services various distributors primarily located in
the Caribbean, Mexico and Peru.  The Company sells various products into these
markets with the primary focus being the development of its OTC pharmaceuticals,
principally ICY HOT, PAMPRIN, PHISODERM and GOLD BOND.  The Company continues to
look for established distributors in Central and South America.


Manufacturing and Quality Control

The Company manufactures a substantial portion of its products at its 
Chattanooga plant, with the exception of GOLD BOND, the SUNSOURCE brands and 
NORWICH Aspirin, which are manufactured by contract manufacturers.  
Currently, the Company has adequate capacity to meet anticipated demand for 
its products.  New products can generally be manufactured with the adaptation 
of existing equipment and facilities, with the addition of new equipment at 
relatively small cost or through readily available contract manufacturers.  
For additional information about the extent of utilization of the Company's 
manufacturing facilities, see "Properties", Item 2 in this report.

To monitor the quality of its products, the Company maintains an internal
quality control system supported by an on-site microbiology laboratory.  Outside
consultants also are employed from time to time to monitor product development
and the effectiveness of the Company's operations.

The Company has not experienced any material adverse effect on its business as a
result of shortages of energy or other raw materials used in the manufacture of
its products.  At present, the Company does not foresee any significant problems
in obtaining its requirements at reasonable prices, but no assurances can be
given that raw material or energy shortages will not adversely affect its
operations in the future.


                                          13
<PAGE>

Research and Development

The Company's research and development expenditures were $1,207,000, $1,117,000,
and $1,140,000 in the fiscal years ended November 30, 1997, 1996 and 1995,
respectively.  No material customer-sponsored research and development
activities were undertaken during these periods.  The Company expects to
maintain the same general level of expenditures in fiscal 1998.

The research and development effort focuses on developing improved formulations
for existing products and on the creation of formulations for product line
extensions. The preservation and improvement of the quality of the Company's
products are also integral parts of its overall strategy.


Distribution

The Company's domestic products are sold primarily through thousands of food,
drug and mass merchandiser accounts.  Internationally, the products are sold by
a national broker in Canada and the Company's own sales force in the United
Kingdom and by exclusive distributors in Western Europe and Central and South
America to mass distribution channels.

Wal-Mart Stores, Inc. accounts for more than 10% of the sales of the Company's
consolidated net sales.  No other customer accounts for more than 10% of
consolidated net sales. Boots Plc, a U.K. retailer, and Shoppers Drug Mart, a
Canadian retailer, each account for more than 10% of the international consumer
products segment's sales.

The Company generally maintains sufficient inventories to meet customer orders
as received absent unusual and infrequent situations.  At present, the Company
has no significant backlog of customer orders and is promptly meeting customer
requirements.


The Company does not generally experience wide variances in the amount of
inventory it maintains.  Inventory levels were increased during fiscals 1997 and
1996 largely as a result of product acquisitions and line extensions in both
years.  In certain circumstances, the Company allows its customers to return
unsold merchandise and, for seasonal products, provides extended payment terms
to its customers.


                                          14
<PAGE>

Marketing

The Company allocates a significant portion of its revenues to the advertising
and promotion of its products.  Expenditures for these purposes were 39.2%,
38.3% and 37.0%, respectively, as a percentage of net sales during each of the
fiscal years ended November 30, 1997, 1996 and 1995.

The Company's marketing objective is to develop and execute creative and
cost-effective advertising and promotional programs.  The manner in which the
Company executes promotional programs and purchases advertising time creates
more flexibility in terms of adjusting spending levels.  The Company believes
that balancing advertising, trade promotions and consumer promotions
expenditures on a cost effective basis is an essential element in its ability to
compete successfully.

The Company develops for each of its major brands advertising strategies and
executions that focus on the particular attributes and market positions of the
products.  The Company achieves cost-effective advertising by minimizing certain
expenses, such as production of commercials and payments to advertising
agencies.

The Company works directly with retailers to develop for each brand promotional
calendars and campaigns that are customized to the particular requirements of
the individual retailer.  The programs, which include cooperative advertising,
temporary price reductions, in-store displays and special events, are designed
to obtain or enhance distribution at the retail level and to reach the ultimate
consumers of the product.  The Company also utilizes consumer promotions such as
coupons, samples and trial sizes to increase the trial and consumption of the
products.


Seasonality

During recent fiscal years, the Company's first quarter net sales and gross
profit have trailed the other fiscal quarters on average from 25% to 35% because
of slower sales of international consumer products and the relative absence of
promotional campaigns during this quarter.


                                          15
<PAGE>

Competition

The OTC pharmaceutical, functional toiletry and dietary supplements products'
markets in which the Company competes are highly competitive.  The markets are
characterized by the frequent introduction of new products including the
movement of prescription drugs to the OTC market, often accompanied by major
advertising and promotional programs.  The Company competes primarily on the
basis of product quality, price, brand loyalty and consumer acceptance.  The
Company's competitors include other OTC pharmaceutical companies and large
consumer products companies, many of which have considerably greater financial
and marketing resources than the Company.  The products offered by these
companies are often supported by much larger advertising and promotional
expenditures and are generally backed by larger sales forces.  In addition, the
Company's competitors have often been willing to use aggressive spending on
trade promotions as a strategy for building market share at the expense of their
competitors, including the Company.  The private label or generic category has
also become more competitive in certain of the Company's product markets. 
Another factor affecting the OTC pharmaceutical, toiletry and dietary supplement
products' business is the consolidation of retailers and increasingly more
competitive negotiations for access to shelf space.

     
Trademarks and Patents

The Company's trademarks are of material importance to its business and are 
among its most important assets, although, except in the case of the GOLD 
BOND, SUNSOURCE, FLEXALL, PHISODERM and ICY HOT trademarks, its business as 
a whole is not materially dependent upon ownership of any one trademark.  The 
Company, either through a wholly-owned subsidiary or directly, owns or 
licenses all of the trademarks associated with its business.  All of the 
Company's brands have recognized trademarks associated with them, and the 
Company's significant domestic trademarks have been registered on the 
principal register of the United States Patent and Trademark Office.  
Federally registered trademarks have a perpetual life as long as they are 
timely renewed and used properly as trademarks, subject to the right of third 
parties to seek cancellation of the marks.

The Company also owns patents related to the ULTRASWIM shampoo and CORNSILK
facial powder, both of which expire in 1998, and ICY HOT stick topical
analgesic, which expires in 2007.  After expiration of the patents, the Company
expects that these products will continue to compete in the market primarily on
the basis of the goodwill associated with the brands.


                                          16
<PAGE>

Government Regulation

The manufacturing, processing, formulation, packaging, labeling and 
advertising of the Company's products are subject to regulation by one or 
more federal agencies, including the FDA, the FTC, the Consumer Product 
Safety Commission, the United States Department of Agriculture, the United 
States Postal Service, the United States Environmental Protection Agency and 
the Occupational Safety and Health Administration. These activities are also 
regulated by various agencies of the states, localities and foreign countries 
in which the Company's products are sold. In particular, the FDA regulates 
the safety, manufacturing, labeling and distribution of dietary supplements, 
including vitamins, minerals and herbs, food additives, OTC and prescription 
drugs and cosmetics. The regulations that are promulgated by the FDA relating 
to the manufacturing process are known as GMPs, and are different for drug 
and food products. In addition, the FTC has overlapping jurisdiction with the 
FDA to regulate the promotion and advertising of OTC pharmaceuticals, 
functional toiletries and cosmetics, dietary supplements and foods.

All of the Company's OTC drug products are regulated pursuant to the FDA's 
monograph system for OTC drugs. The monographs set out the active ingredients 
and labeling indications that are permitted for certain broad categories of 
OTC drug products, such as topical analgesics. Compliance with the monograph 
provisions means that the product is generally recognized as safe and 
effective and is not misbranded. Future changes in the monographs could 
result in the Company having to revise product labeling and formulations. The 
Company responded to certain questions with respect to efficacy received from 
the FDA in connection with clinical studies for pyrilamine maleate, one of 
the active ingredients used in certain of the PAMPRIN and PREMSYN PMS 
products. While the Company addressed all of the FDA questions in detail, the 
final monograph for menstrual drug products will determine if the FDA 
considers pyrilamine maleate safe and effective for menstrual relief 
products. The Company has been actively monitoring the process and does not 
believe that either PAMPRIN or PREMSYN PMS will be materially adversely 
affected by the FDA review. The Company believes that any adverse finding by 
the FDA would likewise affect the Company's principal competitor in the 
menstrual product category.

As a result of an order issued by the Consumer Products Safety Commission, 
there are new packaging requirements for products containing lidocaine. The 
Company has until January 1998 to develop child resistant packaging for its 
GOLD BOND Cream products that are sold in tubes or change the product 
formulation.

DSHEA was enacted on October 25, 1994. DSHEA amends the Federal Food, Drug 
and Cosmetic Act by defining dietary supplements, which include vitamins, 
minerals, nutritional supplements, herbs and botanicals, as a new category of 
food separate from conventional food. DSHEA provides a regulatory framework 
to ensure safe, quality dietary supplements and to foster the dissemination 
of accurate information about such products. Under DSHEA, the FDA is 
generally prohibited from regulating dietary supplements as food additives or 
as drugs unless product claims, such as claims that a product may diagnose, 
mitigate, cure or prevent an illness, disease or malady, trigger drug status.

DSHEA provides for specific nutritional labeling requirements for dietary 
supplements effective January 1, 1997, although final regulations have not 
been published and the FDA has indicated that implementation will be delayed. 
DSHEA permits substantiated, truthful, and non-misleading statements of 
nutritional support to be made in labeling, such as statements describing 
general well-being resulting from consumption of a dietary ingredient or the 
role of a nutrient or dietary ingredient in affecting or maintaining a 
structure or function of the body. The Company anticipates that the FDA will 
promulgate GMPs which are specific to dietary supplements and require at 
least some of the quality control provisions contained in the GMPs for drugs, 
which are more rigorous than the GMPs for foods.

The FDA has proposed, but not finalized, regulations to implement DSHEA, 
including those relating to nutritional labeling requirements. The Company 
cannot determine what effect such regulations, when promulgated, will have on 
its business in the future. Such regulations are likely to require expanded 
or different labeling for the Company's vitamin and nutritional dietary 
supplement products and could, among other things, require the recall, 
reformulation or discontinuance of certain products, additional 
recordkeeping, warnings, notification procedures and expanded documentation 
of the properties of certain products and scientific substantiation regarding 
ingredients, product claims, safety or efficacy. Failure to comply with 
applicable FDA requirements can result in sanctions being imposed on the 
Company or the manufacture of its products, including warning letters, 
product recalls and seizures, injunctions or criminal prosecution.

                                          17

<PAGE>


Environmental

The Company is continuously engaged in assessing compliance of its operations
with applicable federal, state and local environmental laws and regulations. 
The Company's policy is to record liabilities for environmental matters when
loss amounts are probable and reasonably determinable.  The Company's
manufacturing site utilizes chemicals and other potentially hazardous materials
and generates both hazardous and non-hazardous waste, the transportation,
treatment, storage and disposal of which are regulated by various governmental
agencies.  The Company is a member of the Chattanooga Manufacturers Association,
a trade association which promotes industry awareness of developments in
environmental matters, and has engaged environmental consultants on a regular
basis to assist its compliance efforts.  The Company is currently in compliance
with all applicable environmental permits and is aware of its responsibilities
under applicable environmental laws.  Any expenditures necessitated by changes
in law and permitting requirements cannot be predicted at this time, although
such costs are not expected to be material to the Company's financial position
or results of operations.

Since the early 1980's, the U.S. Environmental Protection Agency ("EPA") has
been investigating the extent of, and the health effects resulting from,
contamination of Chattanooga Creek, which runs through a major manufacturing
area of Chattanooga in the vicinity of the Company's manufacturing facilities. 
The contamination primarily stems from the dumping of coal tar into the creek
during World War II when the federal government was leasing and operating a coke
and chemical plant adjacent to the creek.  However, the EPA has been
investigating virtually all businesses that have discharged any wastewater into
the creek.  A 2 1/2 mile stretch of Chattanooga Creek was placed on the National
Priorities List as a Superfund site under the Comprehensive Environmental
Response, Compensation and Recovery Act in September of 1995 and remediation of
the creek bed commenced in mid-1997.  The Company could be named as a
potentially responsible party in connection with such site due to the Company's
historical discharge of wastewater into the creek.  However, considering the
nature of the Company's wastewater, as well as the fact that the Company's
discharge point is downstream from the old coke and chemical plant that was
operated by the government, and the availability of legal defenses and expected
cost sharing, the Company does not believe that any liability associated with
such site will be material to its financial position or results of operations.


                                          18
<PAGE>

Product Liability and Insurance

An inherent risk of the Company's business is exposure to product liability
claims brought by users of the Company's products or by others.  The Company has
not had any material claims in the past and is not aware of any material claims
pending or threatened against the Company or its products.  While the Company
will continue to attempt to take what it considers to be appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure.  The Company maintains product liability insurance,
principally through a captive insurance subsidiary, that it believes to be
adequate; however, there can be no assurance that it will be able to retain its
existing coverage or that such coverage will be cost-justified or sufficient to
satisfy future claims, if any.


Employees

The Company employs approximately 303 persons on a full-time basis in the U.S.
and 37 persons at its foreign subsidiaries' offices.  The Company's employees
are not represented by any organized labor union, and management considers its
labor relations to be good.


                                          19
<PAGE>

 Item 2.  Properties

The Company's headquarters and administrative offices are located at 1715 
West 38th Street, Chattanooga, Tennessee.  The Company's primary production 
facilities are adjacent to the Company's headquarters on land owned by the 
Company.  The Company leases the primary warehouse and distribution center, 
located at 3100 Williams Street, Chattanooga, Tennessee, for its domestic 
consumer products.  The following table describes in detail the principal 
properties owned and leased by the Company:

<TABLE>
<CAPTION>

                                                                 FACILITY
                                            TOTAL        ----------------------------
                             TOTAL AREA    BUILDINGS                        (SQUARE
                               (ACRES)   (SQUARE FEET)        USE             FEET)
                            -----------  -------------   ---------------  -----------
<S>                          <C>           <C>            <C>              <C>
Owned Properties:   
  Chattanooga, Tennessee             10      111,200      Manufacturing     71,800
                                                          Office &    
                                                          Administration    39,400

Leased Properties:
  Chattanooga, Tennessee (1)        4.0      100,000     Warehousing       103,800
  Chattanooga, Tennessee (2)        1.0       35,200     Warehousing &            
  Chattanooga, Tennessee (3)        0.1        3,800       Manufacturing    35,200

  Mississauga, Ontario,
    Canada               (4)        0.3       15,000     Warehousing        10,500
                                                         Office & 
                                                          Administration     3,000
                                                         Packaging           1,500
Basingstoke, Hampshire,
    England              (5)        0.3       21,900     Warehousing        13,900
                                                         Office &
                                                          Administration     6,500
                                                         Packaging           1,500 
</TABLE>

NOTES:
 (1) Leased under a five year lease ending January 31, 2001 for a monthly 
     rental of $25,000.
 (2) Leased under a five year lease ending January 31, 2001 for a monthly
     rental of $9,547.
 (3) Leased under a one year lease ending in July 1998 for a monthly rental
     of $1,575.
 (4) Leased under a lease ending November 1999 at a monthly rental, including
     property taxes and other incidentals, of approximately $5,397.
 (5) Leased under leases ending in 2014 and 2015 at a monthly rental, including
     property taxes and other incidentals, of approximately $22,707.  


                                          20
<PAGE>

The Company is currently operating its facilities at approximately 70% of 
total capacity.  These facilities are FDA registered and are capable of 
further utilization through the use of full-time second and third shifts.

 Item 3.  Legal Proceedings

Note 10 to the Consolidated Financial Statements on page 32 of the Company's 
1997 Annual Report to Shareholders is incorporated herein by reference.

Item 4.  Submission of Matters to a Vote of Security Holders

None.


                                          21
<PAGE>

                                      PART II

Item 5.  Market for the Registrant's Common Equity and Related Shareholder 
         Matters

The information found on pages 17, 30 and 31 of the Company's 1997 Annual 
Report to Stockholders is incorporated herein by reference.

On June 26, 1997, the Company issued to the sellers of the SUNSOURCE product 
line 300,000 shares of its common stock at a value of $13.50 per share as a 
portion of the purchase price for the brand.

Item 6.  Selected Financial Data

The information found on page 17 of the Company's 1997 Annual Report to 
Stockholders is incorporated herein by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations

The information found on pages 11 to 15 of the Company's 1997 Annual Report to
Stockholders is incorporated herein by reference.


Item 8.  Financial Statements and Supplemental Data

The information found on pages 17 to 37 of the Company's 1997 Annual Report 
to Stockholders is incorporated herein by reference.

Item 9.  Changes In and Disagreements With Accountants on Accounting and 
         Financial Disclosure

None.



                                          22
<PAGE>

                                      PART III
                                          
Item 10.  Directors, Executive Officers, Promoters and Control Persons of the
          Registrant

    (a)  Directors
    The information found in the Company's 1998 Proxy Statement under the
    heading "Information about Nominees and Continuing Directors" is hereby
    incorporated by reference.

    (b) Executive Officers
    The following table lists the names of the executive officers of the
    Company as of February 20, 1998, their ages, their positions and offices
    with the Company and the year in which they were first elected to these
    positions:
    
<TABLE>
<CAPTION>
                                         POSITION WITH                       FIRST
   NAME                    AGE             REGISTRANT                       ELECTED
----------------------    ----        -------------------------------     ------------
<S>                       <C>         <C>                                  <C>
Zan Guerry                  49        Chairman of the Board and     
                                      Chief Executive Officer; Director       1990
              
A. Alexander Taylor II      44        President and Chief Operating 
                                       Officer; Director                      1998
              
</TABLE>

Mr. Guerry was elected to his present positions with the Company in June 
1990. Previously he served as Vice President and Chief Financial Officer from 
1980 until 1983, as Executive Vice President from 1983 to 1990, as President 
of Chattem Consumer Products from 1989 to 1994, as Chief Operating Officer 
from 1989 to 1990 and as President of the Company from 1990 to 1998.  Mr. 
Guerry was first elected as a director of the Company in 1981.   

Mr. Taylor was elected to his present positions with the Company in January 
1998.  Previously he was a partner from 1983 to 1998 with the law firm of 
Miller & Martin, general counsel to the Company.  Mr. Taylor was first 
elected as a director of the Company in 1993.

    (c) Promoters and Control Persons
    Not applicable.


                                          23
<PAGE>

 
Item 11.  Executive Compensation

The information found in the Company's 1998 Proxy Statement under the heading 
"Executive Compensation and Other Information" is hereby incorporated by 
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management  

The information found in the Company's 1998 Proxy Statement under the heading 
"Voting Securities and Principal Holders Thereof" is hereby incorporated by 
reference.

Item 13.  Certain Relationships and Related Transactions

Louis H. Barnett, a director of the Company, received $33,000 in consulting 
fees during fiscal 1997 for services rendered to the Company in a capacity 
other than as a director.

                                          24
<PAGE>

                                      PART IV

Item 14.  Exhibits, Financial Statement Schedules and Report on Form 8-K

    (a)  1.  The consolidated financial statements and the related report of 
independent public accountants required to be filed with this Report are 
incorporated by reference from pages 18 to 37 of the Company's 1997 Annual 
Report to Shareholders.

         2.  The following documents are filed or incorporated by reference 
as exhibits to this report:

Exhibit
Number     Description of Exhibit                          References
-------    ----------------------                          ----------
  3        Amended and Restated Charter of
            Chattem, Inc.                                      (1)

  4        Form of Indenture dated August 3, 1994 
            between Chattem, Inc. and SouthTrust
            Bank of Alabama, N.A. relating to the 
            12.75% Series B Senior Subordinated  
            Notes due 2004                                     (2)

           Amended and Restated By-Laws of  
            Chattem, Inc.                                      (3)

  10       Material Contracts -

           Non-Competition and Severance Agreements 
            as amended - 
             Zan Guerry
             Robert E. Bosworth
             Gary M. Galante
             B. Derrill Pitts
             Charles M. Stafford
             A. Alexander Taylor II                            (3)

                                          25

<PAGE>

Exhibit
Number     Description of Exhibit                          References
-------    ----------------------                          ----------

           Lease Agreements as amended dated   
            February 1, 1996 between Tammy   
            Development Company and Chattem,   
            Inc. for warehouse space at 3100   
            Williams Street, Chattanooga, Tennessee        (3) and (5)

           Asset Purchase Agreement dated April 29,
            1996 between Martin Himmel Inc., seller,
            and Chattem, Inc. and Subsidiaries, 
            purchaser, for the GOLD BOND business              (4)

           Credit Agreement dated April 29, 1996   
            among Chattem, Inc., as borrower, Signal   
            Investment & Management Co., 
            as guarantor, NationsBank, N.A., as 
            agent, and the Lenders named therein               (5)

           Credit Agreement dated April 29, 1996,   
            (secondary working capital facility)    
            among Chattem, Inc., as borrower, Signal   
            Investment & Management Co.,   
            as guarantor, NationsBank, N.A., as   
            agent, and the Lenders named therein.              (5)

           Asset Purchase Agreement dated June 6,
            1996 between Campbell Laboratories, 
            Inc., seller, and Chattem, Inc. and Signal
            Investment & Management Co.,   
            purchasers, for the HERPECIN-L business.           (5)

           Amendment to the Credit Agreement
            (HERPECIN-L Acquisition) dated 
            June 6, 1996 among Chattem, Inc., as   
            borrower, Signal Investment &   
            Management Co., as guarantor,
            NationsBank, N.A., as agent and the
            Lenders named therein.                             (5)

                                          26

<PAGE>

Exhibit
Number     Description of Exhibit                          References
-------    ----------------------                          ----------
  10       Asset Purchase and Sale Agreement dated   
            May 23, 1997 by and among Chattem,  
            Inc., Signal Investment & Management Co.
            and Sunsource International, Inc. and
            Mindbody, Inc. (without schedules and
            exhibits)                                          (6)

           Amended and Restated Credit Agreement
            (New Credit Agreement) dated June 26, 1997
            by and among Chattem, Inc., Signal 
            Investment & Management Co. and the 
            Lenders identified therein                         (6)

           Amended and Restated Credit Agreement 
            (Supplemental Credit Agreement) dated 
            June 26, 1997 by and among Chattem, Inc., 
            Signal Investment & Management Co. and 
            the Lenders identified therein                     (6)

           First Amended and Restated Master
            Trademark License Agreement between
            Signal Investment & Management Co.  
            and Chattem, Inc., effective June 30, 1992         (7)

           Chattem, Inc. Non-Statutory Stock
            Option Plan - 1998                                 (7)

  11       Computation of Per Share Earnings  

  13       1997 Annual Report to Shareholders of Chattem, Inc. 

  22       Subsidiaries of the Company

  24       Consent of Independent Public Accountants

                                          27

<PAGE>

References:

Previously filed as an exhibit to and incorporated by reference from:

    (1) Form 10-K for the year ended November 30, 1992.
    (2) Form S-2 Registration Statement (No. 33-80770).
    (3) Form 10-K for the year ended November 30, 1995.
    (4) Form 8-K dated April 29, 1996.
    (5) Form 10-K for the year ended November 30, 1996.
    (6) Form 8-K dated June 26, 1997.
    (7) Form 10-K for the year ended November 30, 1997

(b) There were no Form 8-K's filed with the Securities and Exchange
    Commission during the three months ended November 30, 1997.

(d) The Financial Statements and the related report of independent public
    accountants required to be filed with this report pursuant to Rule 3-10(a)
    of Article 3 of Regulation S-X are  incorporated by reference from pages 6
    to 14 of Signal Investment & Management Co.'s Form 10-K for the fiscal year
    ended November 30, 1997.

                                          28

<PAGE>

                                     SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized.

Dated:  February 23, 1998              CHATTEM, INC.
                                       By: /s/ Zan Guerry
                                           ---------------------
                                           Zan Guerry
                                             Title: Chairman and Chief 
                                             Executive Officer

                                       By: /s/ Stephen M. Powell   
                                           ---------------------
                                           Stephen M. Powell
                                             Title: Controller (Chief
                                             Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
Report has been signed below by the following persons on behalf of the 
Registrant in the capacities and on the dates indicated:

         Signature                       Title                    Date
         ---------                       -----                    ----

/s/ Zan Guerry                    Chairman of the Board          2/22/98
---------------------------       and Director                   -------
Zan Guerry                        (Chief Executive Officer)


/s/ A. Alexander Taylor, II       President and                  2/22/98
---------------------------       Director                       -------
A. Alexander Taylor, II           (Chief Operating officer)


/s/ Samuel E. Allen               Director                       2/22/98
---------------------------                                      -------
Samuel E. Allen


/s/ Louis H. Barnett                                             2/22/98
---------------------------       Director                       -------
Louis H. Barnett                  


/s/ Robert E. Bosworth            Director                       2/22/98
---------------------------                                      -------
Robert E. Bosworth


/s/ Richard E. Cheney             Director                       2/22/98
---------------------------                                      -------
Richard E. Cheney


/s/ Scott L. Probasco, Jr.        Director                       2/22/98
---------------------------                                      -------
Scott L. Probasco, Jr.




                                          29
<PAGE>

                         CHATTEM, INC. AND SUBSIDIARIES
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

 EXHIBIT
  NUMBER                DESCRIPTION OF EXHIBIT
---------  --------------------------------------------------------------------
<S>        <C>

  10.1     First Amended and Restated Master Trademark Agreement between 
            Signal Investment & Management Company and Chattem, Inc., effective
            June 30, 1992

  10.2     Chattem, Inc. Non-Statutory Stock Option Plan--1998

  11       Computation of per share earnings

  13       1997 Annual Report to Shareholders of Chattem, Inc.

  22       Subsidiaries of the Company

  24       Consent of Independent Public Accountants

  27       Financial Data Schedule

</TABLE>