WWW.EXFILE.COM, INC. -- 888-775-4789 -- CHATTEM, INC. -- EXHIBIT 10.47 TO FORM 10-K


    EXHIBIT
10.47

     

    CHATTEM, INC. ANNUAL CASH
INCENTIVE PLAN

     

    1.   Purpose.  The purpose of
the Plan is to provide cash incentive compensation to Executive Officers and
other key employees within a pay-for-performance framework that enables the
Company to provide a total compensation opportunity that attracts, motivates and
retains such employees and contributes to the Company’s ability to maximize its
return to shareholders.  The Plan is intended to reward Participants
for achieving specified annual financial performance objectives, focuses
strongly on Company and individual performance, and is designed to ensure that
the Company’s total compensation package for Participants remains
competitive.  The Plan is also intended to qualify the compensation
paid under the Plan as “performance-based compensation” within the meaning of
Section 162(m) so as to exempt such eligible compensation from the
deduction limits imposed by Section 162(m) and to make such eligible
compensation deductible by the Company for federal income tax
purposes.

     

    2.   Definitions.  As used herein,
the following terms shall have the meanings ascribed to such terms
below:

     

    (a) “Authorized Officers”
means the Chairman and Chief Executive Officer of the Company and the President
and Chief Operating Officer of the Company.

     

    (b) “Award” means any cash
award payable under the Plan, including any Incentive Award and any
Discretionary Bonus.

     

    (c) “Board” means the
board of directors of the Company.

     

    (d) “Code” means the
Internal Revenue Code of 1986, as amended.

     

    (e) “Company” means
Chattem, Inc.

     

    (f) “Committee” means the
Compensation Committee of the Board, which shall be comprised solely of two or
more “outside directors” as defined in regulations promulgated under
Section 162(m).

     

    (g) “Corporate Performance
Levels” means the following levels of overall Company performance (or
such other levels as may be established by the Committee from time to time),
each of which shall correspond to a Performance Goal established by the
Committee in accordance with the Plan in respect of the Incentive
Awards:

     

    (i) “Level 1”, which term
when used herein shall mean “Minimal:  Results which are the lowest
permissible for the payment of an Incentive Award under the Plan.”

     

    (ii) “Level 2”, which term
when used herein shall mean “Good:  Results which are fully adequate
and expected.”

     

    (iii) “Level 3”, which term
when used herein shall mean “Outstanding:  Results which are
measurably above what could be expected as a norm.”

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (iv) “Level 4”, which term
when used herein shall mean “Exceptional:  Results which are
remarkable and extraordinary.”

     

    (h) “Disability” means a
disability that entitles the Participant to benefits under the Company’s
Long-Term Disability Plan, as amended from time to time.

     

    (i) “Discretionary Bonus”
means any cash bonus awarded to a Participant pursuant to Section 8
hereof.

     

    (j) “Executive Officer”
means an “executive officer” as defined in Rule 3b-7 promulgated under the
Securities Exchange Act of 1934, as amended.

     

    (k) “Incentive Award”
means any annual cash incentive award payable to a Participant under this Plan
based on the achievement of the Performance Goals associated with Corporate
Performance Levels with respect to a Performance Period.

     

    (l) “Participant” means
(i) each Executive Officer of the Company and (ii) each other key
employee of the Company recommended by the Authorized Officers and approved by
the Committee as a participant under the Plan, as determined from time to time
by the Committee.

     

    (m) “Participant Grouping”
means, with respect to Incentive Awards, the grouping to which a Participant is
assigned for a given Performance Period based upon the Participant’s position at
the Company, as more fully described in Section 5 hereof.

     

    (n) “Performance Goals”
means, with respect to each Performance Period, one or more targeted levels of
performance based on one or more of the following objective business
criteria:  revenues, sales, earnings before interest, taxes,
depreciation and amortization (EBITDA), earnings per share, earnings,
price/earnings ratio, debt or debt-to-equity, expenses, cost of goods sold, cost
reductions and savings, assets, operating income, operating margins, stock
price, working capital and components thereof, return on revenues or
productivity, return on capital, equity or assets, cash flow, market share,
total shareholder return (stock price increase plus dividends), accounts
receivable, manufacturing, production or inventory, customer satisfaction,
economic value added or any increase or decrease of one or more of the foregoing
over a specified period.  The Committee may, after taking into account
whether such action would result in the loss of an otherwise available exemption
for performance-based compensation under Section 162(m), appropriately adjust
any evaluation of performance in respect of a Performance Goal to eliminate or
offset the effect of unusual, unplanned, non-recurring or extraordinary items or
occurrences affecting the Company or the financial statements of the Company,
including, without limitation, the effect of mergers, acquisition, divestitures,
changes in laws, regulations or accounting principles or such other objective
adjustments as may be consistent with the purposes of the Performance Goals set
for the given Performance Period and specified by the Committee within the
Performance Period.  The Performance Goals may be expressed in terms
of overall Company performance or the performance of any business unit,
division, subsidiary, acquired business, partnership or joint venture of the
Company.  The portion of any Award paid under the Plan based on the


     

    
      
         

      

      
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    achievement
of the Performance Goals is intended to constitute “performance-based
compensation” within the meaning of Section 162(m).

     

    (o) “Performance Period”
means the Plan Year or such other shorter or longer period as may be designated
by the Committee, during which performance will be measured in order to
determine a Participant’s eligibility to receive payment of an
Award.  The Committee may establish different Performance Periods for
different Participants, and the Committee may establish concurrent or
overlapping Performance Periods.

     

    (p) “Plan” means the
Chattem, Inc. Annual Cash Incentive Plan, as set forth herein and as may be
amended from time to time.

     

    (q) “Plan Year” means the
12-month period beginning on the first day of the Company’s fiscal year and
ending on the last day of such fiscal year.

     

    (r) “Retirement” means
separation from service with the Company and its subsidiaries, by a Participant
at or after age 65, or as otherwise approved by the Committee in its sole
discretion.

     

    (s) “Section 162(m)” means
Section 162(m) of the Code and any regulations promulgated
thereunder.

     

    3.   Administration
of the Plan.  The Plan shall be
administered by and under the direction of the Committee.  The
Committee shall review the Plan on a periodic basis.  The Committee
shall have full, exclusive and final authority in all determinations and
decisions affecting the Plan and Participants, including sole authority to
interpret and construe any provision of the Plan, to adopt, amend and rescind
such rules and regulations for administering the Plan as it may deem necessary
or appropriate under the circumstances and to make any other determination it
deems necessary or appropriate for the administration of the Plan, in each case
subject to and consistent with the provisions of the Plan.  Without
limiting the generality of the foregoing, the Committee shall have the power,
duty and authority (a) to establish Performance Periods and the Performance
Goals, the performance measurement and evaluation criteria and guidelines to be
used to determine Awards and the maximum potential Incentive Awards payable to
Participants for such Performance Periods, (b) to designate or approve eligible
persons to become Participants and the Participant Groupings that may apply to
Participants each Performance Period, (c) to resolve all questions relating to
the eligibility of Participants, Participant Groupings and the right of any
Participant to receive an Award under the Plan, (d) to calculate the amount
(including any reduction thereof pursuant to Section 7(a) hereof) and
approve the payment of the Incentive Award payable to each Participant each
Performance Period, (e) to determine the extent to which the Performance Goals
actually were achieved each Performance Period, (f) to correct defects, supply
omissions or reconcile inconsistencies with respect to the Plan, (g) to engage
any administrative, legal, consulting, clerical or other services it deems
appropriate in administering the Plan, and (h) to approve the grant of
Discretionary Bonuses and the Performance Goals, Performance Periods and all
other criteria thereunder.  All actions taken or determinations made
by the Committee with respect to the Plan shall be final, binding and conclusive
upon all parties.  The Committee, in its sole discretion and on such
terms and conditions as it may provide, may delegate all or part of its
administrative authority and 

     

     

    
      
         

      

      
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    powers
under the Plan to one or more directors or employees of the Company to the
extent permitted under the exemption for performance-based compensation under
Section 162(m).  Any expenses relating to administration of the Plan
shall be borne by the Company.

     

    4.   Participation.  Eligibility for
participation in any Incentive Award for any Performance Period is limited to
Participants, as determined on the first day of such Performance
Period.  Any person who is hired or promoted into a position
qualifying such person as a Participant or who is otherwise designated or
approved by the Committee as a Participant eligible for an Incentive Award after
the commencement of such Performance Period but prior to the date on which 25%
of the Performance Period has elapsed shall be eligible to receive a pro rata
portion (based on the number of days in the Performance Period during which such
person was such a Participant) of the Incentive Award such person would have
received if he or she had participated for the entire Performance Period
provided attainment of the Performance Goal is substantially uncertain at the
date of eligibility.  No person shall participate in any Incentive
Award for a Performance Period in which such person first becomes a
Participant on or after the date on which 25% of the Performance Period has
elapsed or when the attainment of a Performance Goal is not substantially
uncertain unless otherwise approved by the Committee based upon (i) a
determination that satisfaction of the Performance Goal is substantially
uncertain, or (ii) such alternative Performance Period or Performance Goal as
may be determined by the Committee in compliance with the exemption for
performance-based compensation under Section 162(m).  In the event a
Participant’s employment with the Company is terminated due to his or her
Retirement, Disability or death during a Performance Period, the Participant (or
his or her beneficiary or estate) will be eligible to receive a pro rata portion
(based on the number of days in the Performance Period during which such
Participant was a Participant) of the Incentive Award the Participant would have
received if he or she had participated for the entire Performance Period
provided the Performance Goals are met and certified by the Committee for such
Performance Period and payment is made at such time as payments are made to
other Participants with respect to the Performance Period.  In the
event a Participant’s employment with the Company is terminated for any other
reason during a Performance Period, the Participant shall not be entitled to any
Incentive Award for such Performance Period, except that the Committee may in
its sole discretion, and to the extent permissible without resulting in the loss
of an otherwise available exemption for performance-based compensation under
Section 162(m), determine such Participant is entitled to an Incentive Award
payment (but which shall not exceed, nor be paid earlier than, the amount
determined in the preceding sentence as if the Participant’s termination was due
to Retirement, Disability or death).

     

    5.   Participant
Groupings.  No later than the
90th day of each Performance Period (but in no event after 25% of such
Performance Period has elapsed), the Committee shall assign each Participant to
a Participant Grouping, or approve the Participant Groupings recommended by the
Authorized Officers, based on the Participant’s position at the Company on the
first day of such Performance Period (or on the day on which such Participant
first becomes a Participant during such Performance Period in accordance with
the provisions of Section 4 above).  Except as otherwise determined by
the Committee, (a) each of the Authorized Officers shall be assigned to separate
Participant Groupings, with the Company’s Chairman and Chief Executive Officer
being the sole member of one Participant Grouping and the Company’s President
and Chief Operating Officer being the sole member of a second Participant
Grouping, (b) all other Executive Officers and certain other key employees shall
be assigned to a third Participant 

     

     

    
      
         

      

      
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    Grouping,
and (c) all other Participants shall be assigned to a fourth, fifth or
additional Participant Grouping, as determined by the Committee from time to
time based on its assessment of the relative impact such Participants are likely
to have on achieving the Performance Goals.  The range of potential
Incentive Awards for which a Participant may be entitled shall be based on the
Participant Grouping assigned to such Participant, as set forth in the Table of
Maximum Potential Incentive Awards attached hereto as Exhibit A, as
may be amended from time to time.  As a general rule, the higher a
Participant’s position within the Company, the higher the Participant Grouping
assigned to such Participant and the higher the range of potential Incentive
Awards the Participant will be eligible to receive.

     

    6.   Potential
Incentive Awards.  To make an
Incentive Award to any Participant for any Performance Period, the Committee
shall, no later than the 90th day of that Performance Period (but in no event
after 25% of such Performance Period has elapsed), establish Performance Goals
for each of the Corporate Performance Levels applicable to Participants (based
on each Participant’s Participant Grouping) for such Performance
Period.  The Level 1 Corporate Performance Level must be achieved
as a condition to the payment of any Incentive Award under the
Plan.  So long as the Level 1 Corporate Performance Level is met or
exceeded, each Participant shall be eligible for a range of potential Incentive
Awards, each of which shall be equal to the product of (a) a percentage (as set
forth in the Table of Maximum Potential Incentive Awards attached hereto as
Exhibit A)
of the Participant’s annual base salary on the first day of the applicable
Performance Period, and (b) a fraction, the numerator of which is the number of
days in the applicable Performance Period and the denominator of which is
365.  The percentages are based both on the Corporate Performance
Level achieved and the Participant Grouping to which the Participant has been
assigned.  If actual performance for a Performance Period falls
between any two of the Performance Goals associated with the Corporate
Performance Levels, the associated potential Incentive Award will be determined
by means of straight-line interpolation.  The potential Incentive
Award associated with the Level 4 Corporate Performance Level may not be
increased, even if actual performance for a Performance Period exceeds the
Performance Goal associated with that Corporate Performance
Level.  The potential Incentive Award associated with each specified
Corporate Performance Level (including any interpolated point between Corporate
Performance Levels) and Participant Grouping represents the maximum Incentive
Award that a Participant will be eligible to receive.  The Committee
may increase, decrease, or otherwise amend the Corporate Performance Levels and
corresponding percentages as may be determined by the Committee from time to
time.

     

    7.   Award
Procedures.

     

    (a) Calculation of Incentive
Awards.  Following the completion of each Performance Period,
the Committee shall calculate for each Participant the amount of such
Participant’s Incentive Award based on the level of attainment of the
Performance Goals (as reduced, if at all, pursuant to the following sentence),
and the total amount of the Award payable to such Participant.  The
Committee may, in its sole discretion, reduce (but not increase) the resulting
Incentive Award otherwise payable to any Participant for a particular
Performance Period, regardless of the level of attainment of the Performance
Goals, at any time prior to the payment of Awards pursuant to Section 7(c)
below, if the Committee determines that the Participant’s individual performance
for such Performance Period warrants such a reduction.  However, any
such reduction shall be limited to the following percentages based
on

     

     

    
      
         

      

      
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    the
Participant’s Participant Grouping (as may be amended by the Committee from time
to time) of the resulting Incentive Award otherwise payable to such
Participant:

     

    
      	
              Participant
      Grouping

            	 
      	
              Possible
      Reduction

            
	
              Chairman
      & CEO (I)

            	 
      	
              30%

            
	
              President
      & COO (II)

            	 
      	
              40%

            
	
              Other
      Executive Officers and Certain Other Key Employees (III)

            	 
      	
              40%

            
	
              Other
      Participants (IV)

            	 
      	
              50%

            
	
              Other
      Participants (V)

            	 
      	
              50%

            


    

     

    Evaluation
of a Participant’s individual performance will be assessed in a non-formula
fashion relative to various qualitative objectives and criteria, such as the
Participant’s overall contribution to the Company’s success and successful
implementation of business strategy.  The goals relative to individual
performance for each Performance Period shall be set (i) by the Authorized
Officers for all other Participants; and (ii) by the Compensation Committee for
the Authorized Officers.

     

    (b) Certification of
Awards.  Following the completion of each Performance Period,
prior to the payment of any Awards under the Plan with respect to such
Performance Period, the Committee shall certify (to the extent required by
Section 162(m)) the extent to which the Performance Goals for such Performance
Period actually were achieved or exceeded and the amount of the Award payable to
each Participant for such Performance Period.  Approved minutes of a
meeting of the Committee may be used for this purpose.

     

    (c) Timing of
Awards.  The Company shall distribute Awards payable to
Participants under the Plan as soon as is administratively practicable following
the end of each Performance Period, but in no event later than the 15th day of
the third month following the end of the later of (i) the Company’s taxable year
in which such Award was earned or (ii) the Participant’s taxable year in which
such Award was earned, or as otherwise as may be required to qualify under the
short-term deferral exception from the provisions of Section 409A of the
Code.

     

    (d) Maximum Incentive
Award.  Notwithstanding anything to the contrary in this Plan,
under no circumstances shall the aggregate amount of all Awards payable to any
single Participant with regard to any Plan Year exceed the lesser of (i) 200% of
the Participant’s annual base salary on the first day of any Plan Year (or the
first day of the applicable Performance Period if not employed on the first day
of any Plan Year) or (ii) $2,000,000.

     

    (e) Form of
Payment.  All Awards under the Plan shall be paid in cash in a
single lump sum amount.

     

     

    
      
         

      

      
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    8.   Discretionary
Bonuses.  Incentive Awards
are not the exclusive means for the Committee to award compensation to
Participants under the Plan.  In addition, the Committee may, in its
sole discretion, make other Awards to Participants consistent with the
provisions of this Plan.  Such other Awards may only take the form of
Awards based on the achievement of objective Performance Goals pre-established
by the Committee for an applicable Performance Period and otherwise designed to
qualify for the exemption for performance-based compensation under
Section 162(m).  Nothing contained in this Plan shall preclude
the Committee from awarding incentive compensation or other discretionary
bonuses to employees, including Participants, under other Company plans or
arrangements, except that any such compensation or bonus shall not be for the
purpose of replacing amounts that were not earned under this Plan.

     

    9.   General
Provisions.

     

    (a) Effective Date; Shareholder
Approval.  The Plan shall become effective upon adoption by the
Board and shall apply beginning with Awards earned in respect of performance
during the Company’s fiscal year in which the Plan is so adopted, provided,
however, the Plan is subject to approval by the Company’s shareholders and shall
be submitted for such approval at the 2008 Annual Meeting of
Shareholders.  If the Plan is not approved by the shareholders at that
meeting, the Plan shall cease to be effective and no payments shall be made with
respect to any Awards hereunder.

     

    (b) Term; Amendment and
Termination.  The Plan shall remain in effect until the earlier
to occur of (i) termination by the Committee, or (ii) the date of the first
shareholder meeting that occurs in the fifth year after the year in which the
shareholders approve the Plan if the Plan is not re-approved by the shareholders
at that meeting.  The Committee may amend, suspend or terminate the
Plan, in whole or in part, at any time and from time to time, for any
reason.  An amendment to the Plan will be subject to the approval of
the Company’s shareholders only if such approval is necessary to maintain the
Plan in compliance with Section 162(m).  In the event of the
termination of the Plan, no further Awards or other benefits shall accrue under
the Plan, and amounts which are then payable with respect to a prior Performance
Period shall continue to be an obligation of the Company and shall be paid as
scheduled.  No Awards shall be made with respect to the Performance
Period during which the Plan is terminated, except in accordance with the
express provisions of the Plan or as otherwise provided by the
Committee.

     

    (c) Code Section
409A.  The payments under this Plan are intended to constitute
short-term deferral payments for purposes of Code Section 409A and the Committee
shall interpret and construe the Plan in accordance with such
intent.  In carrying out such intent, the Committee may take any and
all actions it determines necessary or appropriate to preserve the intended tax
treatment of the payments under this Plan.

     

    (d) No Employment
Rights.  Nothing in this Plan shall be construed as conferring
upon any Participant any legal or other right for a continuation of employment
with the Company, nor shall it interfere with rights of the Company to discharge
any Participant or otherwise act with relation to the
Participant.  The Company may take any action (including discharge)
with respect to any person who is a Participant and may treat such person
without 

     

     

     

    
      
         

      

      
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    regard to
the effect which such action or treatment might have upon such person as a
Participant under this Plan.

     

    (e) Nonalienation of Benefits;
No Additional Rights.  No Award payable at any time under the
Plan shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, attachment, garnishment or encumbrance of any kind, and shall not be
subject to or reached by any legal or equitable process (including execution,
garnishment, attachment, pledge or bankruptcy) in satisfaction of any debt,
liability or obligation, prior to the payment of the Award.  Any
attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any
such Award, whether presently or thereafter payable, shall be
void.  No person shall have claim to an Award under this Plan, except
as otherwise provided for herein, or to continued participation under this
Plan.  There is no obligation for uniformity of treatment of
Participants under this Plan.

     

    (f) Beneficiary
Designation.  A Participant may designate a beneficiary who
upon his or her death is to receive an Award that otherwise would have been paid
to the Participant under the Plan.  All beneficiary designations shall
be in writing and on a form approved by the Committee for such purpose, and any
such designation shall only be effective if and when delivered to the Committee
or its representative during the lifetime of the Participant.  In the
event there is not a beneficiary designated on file for the Participant, such
Participant’s beneficiary shall be deemed to be the Participant’s surviving
spouse or, if there is no such spouse, the Participant’s estate.

     

    (g) Withholding.  The
Company may withhold from any Award payable under this Plan any applicable
federal, state and local income and employment taxes and any other amounts which
the Company is required by law to deduct and withhold from such Award or which
the Company may reasonably estimate to be necessary to cover any taxes for which
the Company may be liable and which may be assessed with regard to such
Award.

     

    (h) Plan
Unfunded.  All amounts paid under the Plan shall be paid from
the general assets of the Company.  The rights of any Participant or
beneficiary to receive an Award or other benefit under the Plan shall be only
those of a general unsecured creditor, and neither the Company nor the Board or
the Committee shall be responsible for the adequacy of the general assets of the
Company to meet and discharge Plan liabilities.  Awards under the Plan
shall be reflected on the accounting records of the Company, but neither this
Plan nor the maintenance of such accounting records shall be construed to
create, or require the creation of, a trust, custodial account or escrow account
with respect to any Participant.  No Participant shall have any right,
title or interest whatsoever in or to any investment reserves, accounts or funds
that the Company may purchase, establish or accumulate to aid in providing the
unfunded Awards or other benefits described in the Plan.

     

    (i) Binding
Effect.  The Plan shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the Participants, their
heirs, executors, administrators and legal representatives.

     

    (j) Severability.  If
any provision of this Plan is held unenforceable, the remainder of the Plan will
continue in full force and effect without regard to such unenforceable provision
and will be applied as though the unenforceable provision were not contained in
the Plan.

     

    (k) Governing
Law.  The Plan will be construed in accordance with and
governed by the laws of the State of Tennessee, without reference to the
principles of conflict of laws.

     

    (l) Headings.  Headings
are inserted in this Plan for convenience of reference only and are to be
ignored in any construction of the provisions of the Plan.

     

    


     

    
      
         

      

      
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    EXHIBIT
A

     

    Table of Maximum Potential
Incentive Awards

     

    
      	 
      	 
      	
              Participant
      Grouping

            
	
              Corporate
      Performance Level

            	 
      	
              Chairman
      & CEO

              (I)

            	 
      	
              President
      & COO

              (II)

            	 
      	
              Other
      Executive Officers and Certain Other Key Employees

              (III)

            	 
      	
              Other
      Participants

              (IV)

            	 
      	
              Other
      Participants

              (V)

            
	 	 	 	 	 	 	 	 	 	 	 
	
              4

            	 
      	
              150.0%

            	 
      	
              100.0%

            	 
      	
              60.0%

            	 
      	
              50.0%

            	 
      	
              40.0%

            
	 	 	 	 	 	 	 	 	 	 	 
	
              3

            	 
      	
              100.0%

            	 
      	
                75.0%

            	 
      	
              45.0%

            	 
      	
              37.5%

            	 
      	
              30.0%

            
	 	 	 	 	 	 	 	 	 	 	 
	
              2
      (target)

            	 
      	
                50.0%

            	 
      	
                50.0%

            	 
      	
              30.0%

            	 
      	
              25.0%

            	 
      	
              20.0%

            
	 	 	 	 	 	 	 	 	 	 	 
	
              1

            	 
      	
                25.0%

            	 
      	
                25.0%

            	 
      	
              15.0%

            	 
      	
              12.5%

            	 
      	
              10.0%

            


    

    _______________

     

    
      	
              Note:

            	
              The
      maximum potential Incentive Award payable to
      each Participant under the Plan each Performance Period, based upon the
      Corporate Performance Level achieved and such Participant’s Participant
      Grouping for such Performance Period, is equal to the product of (i) a
      percentage (as set forth in the table above) of the Participant’s annual
      base salary on the first day of the applicable Performance Period, and
      (ii) a fraction, the numerator of which is the number of days in the
      applicable Performance Period and the denominator of which is
      365.

            


    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
         

      

      
        A-1