Document:

EXHIBIT 10.1
                                  ------------

                      FOURTH AMENDMENT TO CREDIT AGREEMENT

     THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this  "Amendment"),  dated as of
November __, 2006, is by and among CHATTEM,  INC., a Tennessee  corporation (the
"Borrower"),  each  of the  Borrower's  Domestic  Subsidiaries  (individually  a
"Guarantor"  and  collectively  with the Borrower,  the "Credit  Parties"),  the
Persons  identified as lenders on the signature pages hereto (the "Lenders") and
BANK OF AMERICA, N.A., as agent for the Lenders (in such capacity, the "Agent").

                               W I T N E S S E T H

     WHEREAS,  the Credit Parties,  the Lenders, and the Agent have entered into
that  certain  Credit  Agreement  dated as of February 26, 2004 (as amended from
time to time, the "Credit Agreement");

     WHEREAS,  the  Borrower  has  requested  that the Lenders  amend the Credit
Agreement as provided herein; and

     WHEREAS, the Lenders have agreed to amend the Credit Agreement on the terms
and conditions hereinafter set forth.

     NOW, THEREFORE,  in consideration of the agreements  hereinafter set forth,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:

                                     PART I
                                   DEFINITIONS

       Unless otherwise defined herein or the context otherwise requires,
terms used in this Amendment, including its preamble and recitals, have the
meanings provided in the Credit Agreement (as amended hereby).

                                     PART II
                         AMENDMENTS TO CREDIT AGREEMENT

     SUBPART 2.1 The following definition is hereby added to Section 1.1 of
the Credit Agreement in the appropriate alphabetical order to read as follows:

          "Convertible  Senior Notes" means the unsecured  convertible notes due
     2013 issued by the Borrower  containing terms reasonably  acceptable to the
     Agent.

     SUBPART  2.2  The  following  definitions  in  Section  1.1 of  the  Credit
Agreement are hereby amended to read as follows:

          "Change of Control"  means any of the following  events:  either (i) a
     "person" or a "group" (within the meaning of Sections 13(d) and 14(d)(2) of
     the  Securities  Exchange Act of 1934) becomes the  "beneficial  owner" (as
     defined in Rule 13d-3 under the  Securities  Exchange  Act of 1934) of more
     than 35% of the then  outstanding  voting  stock  of the  Borrower,  (ii) a
     majority  of the  Board of  Directors  of the  Borrower  shall  consist  of
     individuals who are not Continuing Directors;  "Continuing Director" means,
     as of any  date of  determination,  (A) an  individual  who on the date two
     years prior to such determination date was a member of the Borrower's Board
     of Directors or (B) any new Director  whose  nomination for election by the
     Borrower's  shareholders  was  approved  by a vote of at  least  75% of the

<PAGE>

     Directors  then still in office who either were  Directors  on the date two
     years prior to such determination date or whose nomination for election was
     previously so approved,  (iii) the occurrence of a Change of Control (under
     and as defined in the  Subordinated  Indenture) or (iv) the occurrence of a
     "Change of Control (or any comparable  term) under,  and as defined in, the
     indenture governing the Convertible Senior Notes.

          "Pro Forma Basis" means, in connection with any Permitted Acquisition,
     any Asset  Disposition,  any Restricted Payment permitted by Section 8.7 or
     any prepayment of Subordinated Debt or repayment of the principal amount of
     Convertible  Senior Notes pursuant to Section 8.11,  that such  transaction
     shall be deemed to have  occurred  on the  first  day of the  twelve  month
     period ending on the last day of the  Borrower's  most  recently  completed
     fiscal   quarter  for  which  the  Borrower  has  delivered  the  officer's
     certificate pursuant to Section 7.1(c).

     SUBPART 2.3 Section 5.2 of the Credit  Agreement is hereby  amended to read
as follows:

5.2  Conditions to All Extensions of Credit.

     In  addition to the  conditions  precedent  stated  elsewhere  herein,  the
Lenders shall not be obligated to make, continue or convert Loans (nor shall the
Issuing Lender be obligated to issue any Letter of Credit) hereunder unless:

     (a) Notice.  The Borrower  shall have  delivered (i) in the case of any new
Revolving Loan, a Notice of Borrowing,  duly executed and completed, by the time
specified in Section 2.1, (ii) in the case of any Letter of Credit,  a Letter of
Credit  Application,  duly  executed  and  completed,  by the time  specified in
Section  2.2,  (iii) in the case of any new  Swingline  Loan,  a Swingline  Loan
Notice,  duly executed and  completed,  by the time specified in Section 2.3 and
(iv) in the case of any  continuation  or  conversion of a Loan, a duly executed
and completed Notice of Continuation/Conversion by the time specified in Section
2.4;

     (b) Representations and Warranties. The representations and warranties made
by the  Credit  Parties  in any  Credit  Document  are true and  correct  in all
material respects at and as if made as of such date;

     (c) No Default. No Default or Event of Default shall exist or be continuing
either prior to or after giving effect thereto;

     (d) No Material Adverse Effect.  There shall not have occurred any Material
Adverse Effect;

     (e)  Availability.  Immediately  after giving  effect to the making of such
Loan (and the  application  of the  proceeds  thereof)  or the  issuance of such
Letter  of  Credit,  the  sum  of  the  Revolving  Loans  outstanding  plus  LOC
Obligations  outstanding plus the Swingline Loans  outstanding  shall not exceed
the Revolving Commitment Amount; and

     (f) Compliance with Subordinated Indenture.  The incurrence by the Borrower
of the  Indebtedness  evidenced by such Loan or Letter of Credit is permitted by
the  Subordinated  Indenture,  including  Section 4.09 thereof,  and constitutes
"Senior Indebtedness" as defined therein.

<PAGE>

     The   delivery   of  each   Notice  of   Borrowing   and  each   Notice  of
Extension/Conversion  shall  constitute  a  representation  and  warranty by the
Borrower of the  correctness of the matters  specified in subsections  (b), (c),
(d), (e) and (f) above.

     SUBPART 2.4 Section  8.1(j) of the Credit  Agreement  is hereby  amended to
read as follows:

          (j) Indebtedness of the Borrower under the Convertible Senior Notes in
     an aggregate principal amount not to exceed $125,000,000.

     SUBPART 2.5 The  following  sentence is hereby  added at the end of Section
8.7 of the Credit Agreement to read as follows:

     For the  avoidance  of doubt,  the  parties  hereto  agree that (a) nothing
     contained  in this Section 8.7 shall  prohibit the Borrower  from using $26
     million of the proceeds from the issuance of the  Convertible  Senior Notes
     to fund a convertible  note hedge  transaction with an affiliate of Merrill
     Lynch & Co. on the date of the issuance of the  Convertible  Senior  Notes,
     which  transaction  is  designed  to  offset  the  Borrower's  exposure  to
     potential  dilution  of  its  common  stock  upon  the  conversion  of  the
     Convertible  Senior  Notes and (b) the use of such  proceeds  as  described
     above shall not be considered a Restricted Payment.

     SUBPART 2.6 Section 8.9 of the Credit  Agreement  is hereby  amended to add
the following sentence at the end of such Section to read as follows:

     The documentation governing the Convertible Senior Notes may not be amended
     or modified in any material manner without the prior written consent of the
     Required Lenders.

     SUBPART 2.7 Section 8.10 of the Credit  Agreement is hereby amended to read
as follows:

          (a)  8.10 Prepayments of Indebtedness.

          No Credit Party will, nor will it permit any of its  Subsidiaries  to,
     (a) amend or modify (or permit the amendment or modification of) any of the
     terms of any  Indebtedness if such amendment or  modification  would add or
     change any terms in a manner  adverse  to the  Lenders,  including  but not
     limited to,  shortening  final maturity or average life to maturity of such
     Indebtedness  or  requiring  any payment to be made sooner than  originally
     scheduled or increasing the interest rate applicable  thereto or change any
     subordination  provision thereof,  (b) during the existence of a Default or
     Event of Default,  or if a Default or Event of Default would be caused as a
     result  thereof,  make  (or give  any  notice  with  respect  thereto)  any
     voluntary or optional  payment or prepayment  or redemption or  acquisition
     for value of (including,  without limitation, by way of depositing money or
     securities with the trustee with respect thereto before due for the purpose
     of  paying  when  due),   refund,   refinance  or  exchange  of  any  other
     Indebtedness  and (c) make any  repayment  in cash for  Convertible  Senior
     Notes that are  surrendered  by the holders  thereof (or otherwise make any
     payment on the principal of any Convertible  Senior Notes) unless (i) prior
     to any such  repayment,  the Borrower has Sufficient  Liquidity (as defined
     below), (ii) prior to any such repayment, the Borrower shall deliver to the
     Agent a Pro Forma Compliance  Certificate  demonstrating  that after giving
     effect to any such  payment on a Pro Forma  Basis,  the Credit  Parties and
     their  Subsidiaries  would have been in  compliance  with all the financial
     covenants set forth in Section 7.12 and (ii) before and after giving effect
     to any such  repayment,  no Default or Event of Default shall have occurred
     and be continuing.

<PAGE>

          For  purposes  hereof,  "Sufficient  Liquidity"  means  cash  and Cash
     Equivalents   (including,   without  limitation,   availability  under  the
     Revolving Committed Amount) in an aggregate amount equal to 125% of the sum
     of the principal amount of the Convertible  Senior Notes contemplated to be
     paid by the Borrower in cash.

     SUBPART  2.8 A new clause (o) is hereby  added at the end of Section 9.1 of
the Credit Agreement following clause (n) thereof to read as follows:

          (o) Convertible  Senior Notes. There shall occur an "Event of Default"
     (or any  comparable  term)  under,  and as defined  in,  the  documentation
     governing the Convertible Senior Notes.

                                    PART III
                           CONDITIONS TO EFFECTIVENESS

     SUBPART 3.1 Effective Date.  This Amendment  shall be and become  effective
upon the Agent's receipt of counterparts of this Amendment,  which  collectively
shall have been duly executed on behalf of the  Borrower,  the  Guarantors,  the
Required Lenders and the Agent.

                                     PART IV
                                  MISCELLANEOUS

     SUBPART  4.1  Representations  and  Warranties.  Each Credit  Party  hereby
represents  and  warrants  to the Agent and the  Lenders  that (a) no Default or
Event of Default  exists  under the Credit  Agreement or any of the other Credit
Documents on and as of the date hereof,  (b) each Credit Party has the requisite
corporate power and authority to execute, deliver and perform this Amendment and
(c) the  representations  and  warranties  set forth in  Section 6 of the Credit
Agreement  are true and correct in all  material  respects as of the date hereof
(except for those which expressly relate to an earlier date).  Each Credit Party
acknowledges  and  confirms  that  the  Borrower's   obligations  to  repay  the
outstanding  principal amount of the Loans are  unconditional and not subject to
any offsets, defenses or counterclaims.

     SUBPART 4.2 Acknowledgment. Each Guarantor hereby acknowledges and consents
to all of the  terms and  conditions  of this  Amendment  and  agrees  that this
Amendment  does not operate to reduce or discharge the  Guarantors'  obligations
under the Credit Agreement or the other Credit Documents.

     SUBPART 4.3  Cross-References.  References in this Amendment to any Part or
Subpart  are,  unless  otherwise  specified,  to such  Part or  Subpart  of this
Amendment.

     SUBPART 4.4 Instrument  Pursuant to Credit  Agreement.  This Amendment is a
Credit  Document  executed  pursuant to the Credit  Agreement  and shall (unless
otherwise expressly indicated therein) be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement.

     SUBPART 4.5  References  in Other  Credit  Documents.  At such time as this
Amendment  shall  become  effective  pursuant to the terms of Subpart  3.1,  all
references in the Credit Documents to the "Credit  Agreement" shall be deemed to
refer to the Credit Agreement as amended by this Amendment.

     SUBPART 4.6  Counterparts/Telecopy.  This  Amendment may be executed by the
parties hereto in several  counterparts,  each of which shall be deemed to be an
original  and all of  which  shall  constitute  together  but  one and the  same
agreement.  Delivery of executed counterparts of the Amendment by telecopy shall
be  effective  as an original  and shall  constitute  a  representation  that an
original shall be delivered.

<PAGE>

     SUBPART 4.7 Governing Law. THIS AMENDMENT  SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TENNESSEE.

     SUBPART 4.8  Successors and Assigns.  This Amendment  shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and assigns.

     SUBPART 4.9 General. Except as amended hereby, the Credit Agreement and all
other Credit Documents shall continue in full force and effect.

<PAGE>

     IN WITNESS WHEREOF the Borrower, the Guarantors and the Lenders have caused
this Amendment to be duly executed on the date first above written.

BORROWER:                       CHATTEM, INC.,
--------                        a Tennessee corporation

                                By: /s/ Robert E. Bosworth
                                Name:  Robert E. Bosworth
                                Title: President and Chief Operating Officer

GUARANTORS:                     SIGNAL INVESTMENT & MANAGEMENT CO.,

                                By: /s/ Robert E. Bosworth
                                Name:  Robert E. Bosworth
                                Title: President

                                SUNDEX, LLC,
                                a Tennessee limited liability company

                                By: /s/ Robert E. Bosworth
                                Name:  Robert E. Bosworth
                                Title: President

                                CHATTEM (CANADA) HOLDINGS, INC.,
                                a Delaware corporation

                                By: /s/ Robert E. Bosworth
                                Name:  Robert E. Bosworth
                                Title: President

<PAGE>

AGENT:                          BANK OF AMERICA, N.A.,
-----                           in its capacity as Agent

                                By: /s/ Brian Chiappetta
                                Name:  Brian Chiappetta
                                Title: Assistant Vice President

LENDERS:                        BANK OF AMERICA, N.A.,
-------                         in its capacity as a Lender

                                By: /s/ John M. Hall
                                Name:  John M. Hall
                                Title: Senior Vice President

                                SUNTRUST BANK

                                By: /s/ Kap Yarbrough
                                Name:  Kap Yarbrough
                                Title: Banking Officer

                                BRANCH BANKING AND TRUST

                                By: /s/ R. Andrew Bream
                                Name:  R. Andrew Bream
                                Title: Senior Vice President

                                NATIONAL CITY BANK

                                By: /s/ Kevin L. Anderson
                                Name:  Kevin L. Anderson
                                Title: Sr. Vice PresidentEXHIBIT 10.2
                                  ------------

================================================================================

                                  CHATTEM, INC.
                                  -------------
                            (a Tennessee corporation)

                      2% Convertible Senior Notes due 2013

                          SECURITIES PURCHASE AGREEMENT

Dated:  November 16, 2006

================================================================================

<PAGE>

                                  Chattem, Inc.
                                  -------------

                            (a Tennessee corporation)
                            -------------------------

                                  $125,000,000
                                  ------------
                      2% Convertible Senior Notes due 2013
                      ------------------------------------

                          SECURITIES PURCHASE AGREEMENT
                          -----------------------------

                                                               November 16, 2006

Ladies and Gentlemen:

       Chattem,  Inc., a Tennessee corporation (the "Company"),  and the several
purchasers  named on the signature pages hereto (each a "Purchaser" and together
the  "Purchasers")  agree that each Purchaser will purchase from the Company and
the  Company  will  issue and sell to such  Purchaser,  subject to the terms and
conditions  set forth herein,  the aggregate  principal  amount of the Company's
Convertible  Senior  Notes  due  2013  (the  "Securities")  set  forth  on  such
Purchaser's  signature  page attached  hereto.  The  Securities are to be issued
pursuant to an indenture  to be dated as of November 22, 2006 (the  "Indenture")
between  the  Company  and U.S.  Bank,  National  Association,  as trustee  (the
"Trustee").  The Securities will be delivered  through book entry  facilities of
The Depository Trust Company ("DTC"),  to an account specified by each Purchaser
on its signature  page and will be released by U.S. Bank,  National  Association
(the  "Escrow  Agent") to such  Purchaser  at the Closing (as defined in Section
2(b)).

       The  Securities  are  convertible,   subject  to  certain  conditions  as
described in the Final Private Placement Memorandum (as defined below), prior to
maturity  into shares of common  stock,  without par value,  of the Company (the
"Common  Stock")  in  accordance  with  the  terms  of the  Securities  and  the
Indenture.

       The  Securities  are being  offered  to  qualified  institutional  buyers
("QIBs")  within the meaning of Rule 144A ("Rule 144A") under the Securities Act
of 1933, as amended (the "1933 Act"),  pursuant to a private placement exemption
from  registration  under  the 1933  Act.  On or prior to the  Closing  Time (as
defined in Section  2(b)),  the Company  will enter into a  registration  rights
agreement with the Purchasers (the "Registration Rights Agreement"), pursuant to
which, subject to the conditions set forth therein, the Company will be required
to file and use its commercially reasonable efforts to have declared effective a
registration  statement  (the  "Registration  Statement")  under the 1933 Act to
register  resales of the Securities and the shares of Common Stock issuable upon
conversion thereof.

       The Company has (a) prepared and delivered to each Purchaser  copies of a
preliminary  private  placement  memorandum  dated November 13, 2006 and (b) has
prepared and will deliver to each  Purchaser,  as promptly as possible  prior to
the Closing Time, copies of a final private placement  memorandum dated November
16,  2006  (the  "Final  Private  Placement  Memorandum").   "Private  Placement
Memorandum"  means,  with  respect  to any  date  or  time  referred  to in this
Agreement, the most recent private placement memorandum (whether the Preliminary
Private Placement Memorandum or the Final Private Placement  Memorandum,  or any
amendment or supplement to either such document), including exhibits thereto, if
any,  and any  documents  incorporated  therein  by  reference,  which  has been
prepared and delivered by the Company to the Purchasers.

       All  references in this  Agreement to financial  statements and schedules
and other  information  which is  "contained,"  "included"  or  "stated"  in the
Private  Placement  Memorandum  (or other  references  of like import)  shall be
deemed to

<PAGE>

mean  and  include  all  such  financial  statements  and  schedules  and  other
information  which  are  incorporated  by  reference  in the  Private  Placement
Memorandum; and all references in this Agreement to amendments or supplements to
the Private Placement  Memorandum shall be deemed to mean and include the filing
of any document under the Securities Exchange Act of 1934, as amended (the "1934
Act") which is incorporated by reference in the Private Placement Memorandum.

       The preliminary private placement  memorandum dated November 13, 2006, as
amended and supplemented, including any documents filed under the 1934 Act prior
to the date hereof and incorporated by reference therein,  is referred to herein
as the "Preliminary Private Placement Memorandum."

       SECTION 1. Representations and Warranties by the Company.

              (a)    Representations and Warranties.  The Company represents and
warrants to each Purchaser as of the date hereof and as of Closing Time referred
to in Section 2(b) hereof, and agrees with each Purchaser, as follows:

                     (i)  Preliminary  Private  Placement  Memorandum  and Final
              Private  Placement  Memorandum.  Neither the  Preliminary  Private
              Placement Memorandum,  as of the date of this agreement (exclusive
              of any  pricing  terms  and  related  information),  nor the Final
              Private Placement Memorandum, as of its date and as of the Closing
              Time,  includes or will include any untrue statement of a material
              fact or omit to state any material fact necessary in order to make
              the statements  therein,  in the light of the circumstances  under
              which they were made,  not  misleading.  The Company notes that it
              has not  filed,  and  will not file  prior to the  closing  of the
              transactions   contemplated  hereby,   historical  and  pro  forma
              financial  statements relating to the proposed  acquisition of the
              U.S. rights to five brands from Johnson & Johnson and the consumer
              health care  business of Pfizer with the  Securities  and Exchange
              Commission,  and in connection with the purchase of the Securities
              the Purchasers will not have access to such financial information.

                     (ii)   Incorporated   Documents.   The  Private   Placement
              Memorandum  as delivered  from time to time shall  incorporate  by
              reference  the most  recent  Annual  Report of the Company on Form
              10-K  filed  with the  Securities  and  Exchange  Commission  (the
              "Commission")  and each  Quarterly  Report of the  Company on Form
              10-Q and each Current Report of the Company on Form 8-K filed with
              the  Commission  since the end of the  fiscal  year to which  such
              Annual Report relates. The documents  incorporated or deemed to be
              incorporated by reference in the Private  Placement  Memorandum at
              the time they were or  hereafter  are  filed  with the  Commission
              complied  and  will  comply  in all  material  respects  with  the
              requirements  of the 1934 Act and the rules and regulations of the
              Commission thereunder (the "1934 Act Regulations").

                     (iii)   Independent   Accountants.   The   accountants  who
              expressed  their opinion with respect to the financial  statements
              and  supporting   schedules  included  in  the  Private  Placement
              Memorandum are a registered public accounting firm and independent
              public   accountants   with   respect  to  the   Company  and  its
              subsidiaries  within the meaning of the 1933 Act and the rules and
              regulations thereunder (the "1933 Act Regulations").

                                       2
<PAGE>

                     (iv)  Financial   Statements.   The  financial  statements,
              together  with the related  schedules  and notes,  included in the
              Private  Placement  Memorandum,  present  fairly  in all  material
              respects   the   financial   position   of  the  Company  and  its
              subsidiaries   at  the  dates   indicated  and  the  statement  of
              operations, shareholders' equity and cash flows of the Company and
              its subsidiaries for the periods specified, except as noted in the
              notes  thereto;  said financial  statements  have been prepared in
              conformity with generally accepted accounting  principles ("GAAP")
              applied on a consistent basis throughout the periods involved. The
              supporting  schedules,  if any,  included in the Private Placement
              Memorandum, present fairly in accordance with GAAP the information
              required  to  be  stated  therein.  The  selected  financial  data
              included in the Private Placement Memorandum present fairly in all
              material  respects  the  information  shown  therein and have been
              compiled on a basis consistent with that of the audited  financial
              statements included in the Private Placement Memorandum.

                     (v) No  Material  Adverse  Change  in  Business.  Except as
              disclosed  in  the  Private   Placement   Memorandum,   since  the
              respective  dates as of which  information is given in the Private
              Placement  Memorandum,  except as otherwise  stated  therein,  (A)
              there  has  been no  material  adverse  change  in the  condition,
              financial or otherwise,  or in the earnings,  business  affairs or
              business prospects of the Company and its subsidiaries  considered
              as one  enterprise,  whether or not arising in the ordinary course
              of business (a "Material Adverse Effect"),  (B) there have been no
              transactions  entered  into by the  Company  or its  subsidiaries,
              other than those in the  ordinary  course of  business,  which are
              material  with  respect  to  the  Company  and  its   subsidiaries
              considered as one  enterprise,  and (C) there has been no dividend
              or distribution of any kind declared,  paid or made by the Company
              on any class of its capital stock.

                     (vi) Good  Standing of the  Company  and its  Subsidiaries.
              Each of the Company and its  subsidiaries  has been duly organized
              and is validly existing and in good standing under the laws of the
              jurisdiction  of  its   organization,   has  corporate  power  and
              authority to own,  lease and operate its properties and to conduct
              its business as described in the Private Placement  Memorandum and
              is duly qualified as a foreign  corporation  to transact  business
              and is in  good  standing  in  each  jurisdiction  in  which  such
              qualification  is required,  whether by reason of the ownership or
              leasing of property or the conduct of  business,  except where the
              failure so to qualify or to be in good  standing  would not result
              in a Material Adverse Effect; except as otherwise disclosed in the
              Private  Placement  Memorandum,  all of the issued and outstanding
              capital  stock of each  subsidiary  has been duly  authorized  and
              validly issued, is fully paid and  non-assessable  and is owned by
              the Company,  directly or through subsidiaries,  free and clear of
              any security interest, mortgage, pledge, lien, encumbrance,  claim
              or equity;  none of the outstanding shares of capital stock of any
              subsidiary  was issued in violation of any  preemptive  or similar
              rights of any securityholder of such subsidiary.

                     (vii)  Capitalization and Other Capital Stock Matters.  The
              total  shareholders'  equity of the Company is as set forth in the
              Private Placement Memorandum in the column entitled "Actual" under
              the caption  "Capitalization" as of the respective dates set forth
              therein, and the actual, authorized, issued and outstanding number
              of shares of Common  Stock of the  Company  is as set forth in the
              section  entitled  "Description  of Capital  Stock" in the Private
              Placement  Memorandum as of the date set forth therein,  and there
              have  been no  changes  to such  amounts  (except  for  subsequent
              issuances,  if  any,  pursuant  to  this  Agreement,  pursuant  to
              reservations,  agreements,  employee  benefit plans referred to in

                                       3
<PAGE>

              the Private  Placement  Memorandum  or pursuant to the exercise of
              convertible  securities  or  options  referred  to in the  Private
              Placement  Memorandum).  The Common Stock conforms in all material
              respects  to the  description  thereof  set  forth in the  Private
              Placement  Memorandum.  All of the  outstanding  shares  of Common
              Stock have been duly authorized and validly issued, are fully paid
              and  nonassessable and have been issued in compliance with federal
              and state  securities  laws.  Upon  issuance  and  delivery of the
              Securities in accordance  with this  Agreement and the  Indenture,
              the  Securities  will be  convertible  at the option of the holder
              thereof into shares of Common Stock in  accordance  with the terms
              of the Securities  and the  Indenture;  the shares of Common Stock
              issuable  upon   conversion  of  the  Securities  have  been  duly
              authorized  and reserved for issuance upon such  conversion by all
              necessary  corporate action and such shares, when issued upon such
              conversion in accordance with the terms of the Securities, will be
              validly  issued  and will be fully  paid  and  non-assessable;  no
              holder of such  shares will be subject to  personal  liability  by
              reason of being such a holder;  and the  issuance  of such  shares
              upon such  conversion  will not be  subject to the  preemptive  or
              other similar rights of any securityholder of the Company. None of
              the outstanding shares of Common Stock were issued in violation of
              any  preemptive  rights,  rights of first refusal or other similar
              rights to  subscribe  for or purchase  securities  of the Company.
              There  are  no  authorized  or  outstanding   options,   warrants,
              preemptive  rights,  rights of first  refusal  or other  rights to
              purchase,  or  equity  or  debt  securities  convertible  into  or
              exchangeable or exercisable  for, any capital stock of the Company
              or its  subsidiaries  other than those  described  in the  Private
              Placement  Memorandum  (except for subsequent  issuances,  if any,
              pursuant to this Agreement, pursuant to reservations,  agreements,
              employee  benefit  plans  referred  to in  the  Private  Placement
              Memorandum or pursuant to the exercise of  convertible  securities
              or options referred to in the Private Placement  Memorandum).  The
              description of the Company's  stock option,  stock bonus and other
              stock  plans or  arrangements,  and the  options  or other  rights
              granted thereunder,  set forth or incorporated by reference in the
              Private Placement Memorandum, accurately and fairly describes such
              plans, arrangements, options and rights in all material respects.

                     (viii)  Stock  Exchange   Listing.   The  Common  Stock  is
              registered pursuant to Section 12(b) of the 1934 Act and is listed
              on the Nasdaq  Global Market (the  "NASDAQ"),  and the Company has
              taken no action  designed  to, or  likely to have the  effect  of,
              terminating  the  registration  of the Common Stock under the 1934
              Act or  delisting  the Common  Stock from the NASDAQ,  nor has the
              Company  received  any  notification  that the  Commission  or the
              NASDAQ is contemplating terminating such registration or listing.

                     (ix)  Corporate  Power.  The Company has  corporate  right,
              power and  authority  to execute and deliver this  Agreement,  the
              Securities,   the   Indenture,   the  Escrow   Agreement  and  the
              Registration  Rights  Agreement  (collectively,  the  "Transaction
              Documents")   and  to  perform  its   obligations   hereunder  and
              thereunder;  and all action  required  to be taken for the due and
              proper  authorization,  execution  and  delivery  of  each  of the
              Transaction  Documents and the  consummation  of the  transactions
              contemplated thereby has been duly and validly taken.

                                       4
<PAGE>

                     (x)  Authorization  of Agreement.  This  Agreement has been
              duly  authorized,  executed and  delivered  by, and is a valid and
              binding agreement of, the Company,  enforceable in accordance with
              its terms,  except as the  enforcement  thereof  may be limited by
              bankruptcy,  insolvency (including,  without limitation,  all laws
              relating to fraudulent transfers),  reorganization,  moratorium or
              other  similar  laws  relating  to  or  affecting  enforcement  of
              creditors'  rights  generally and by general  principles of equity
              (regardless  of whether  enforcement is considered in a proceeding
              in equity or at law).

                     (xi) Authorization of the Indenture. The Indenture has been
              duly authorized by the Company and, when executed and delivered by
              the Company and the Trustee,  will  constitute a valid and binding
              agreement  of the  Company,  enforceable  against  the  Company in
              accordance with its terms,  except as the enforcement  thereof may
              be  limited  by   bankruptcy,   insolvency   (including,   without
              limitation,   all  laws   relating   to   fraudulent   transfers),
              reorganization,  moratorium  or other  similar laws relating to or
              affecting  enforcement  of  creditors'  rights  generally  and  by
              general principles of equity (regardless of whether enforcement is
              considered in a proceeding in equity or at law).

                     (xii)  Authorization of the Registration  Rights Agreement.
              The Registration  Rights Agreement has been duly authorized by the
              Company  and,  at the  Closing  Time,  will be duly  executed  and
              delivered  by, and will  constitute a valid and binding  agreement
              of, the Company,  enforceable in accordance with its terms, except
              as  the   enforcement   thereof  may  be  limited  by  bankruptcy,
              insolvency  (including,  without limitation,  all laws relating to
              fraudulent transfers), reorganization, moratorium or other similar
              laws relating to or affecting  enforcement  of  creditors'  rights
              generally,  by general principles of equity (regardless of whether
              enforcement  is  considered  in a proceeding  in equity or at law)
              and,  as to rights of  indemnification,  by  principles  of public
              policy.

                     (xiii) Authorization of the Securities. The Securities have
              been duly  authorized  and, at Closing  Time,  will have been duly
              executed  by the  Company  and,  when  authenticated,  issued  and
              delivered  in  the  manner  provided  for  in  the  Indenture  and
              delivered  against  payment  of the  purchase  price  therefor  as
              provided  in this  Agreement,  will  constitute  valid and binding
              obligations  of the  Company,  enforceable  against the Company in
              accordance with their terms, except as the enforcement thereof may
              be  limited  by   bankruptcy,   insolvency   (including,   without
              limitation,   all   laws   relating   to   fraudulent   transfers)
              reorganization,   moratorium  or  other  similar  laws   affecting
              enforcement  of  creditors'   rights   generally  and  by  general
              principles  of  equity  (regardless  of  whether   enforcement  is
              considered  in a proceeding  in equity or at law),  and will be in
              the form  contemplated  by, and  entitled to the  benefits of, the
              Indenture.

                     (xiv) Description of Transaction Documents. The description
              of the  Transaction  Documents  and the  rights,  preferences  and
              privileges  of the capital  stock of the  Company,  including  the
              shares of Common Stock issuable upon conversion of the Securities,
              contained in the Final Private Placement Memorandum,  are accurate
              in all material respects.

                                       5
<PAGE>

                     (xv) Absence of Defaults and Conflicts. Neither the Company
              nor any of its  subsidiaries  is in  violation  of its  charter or
              by-laws or in  default in the  performance  or  observance  of any
              obligation,  agreement,  covenant or  condition  contained  in any
              contract,  indenture,  mortgage,  deed of  trust,  loan or  credit
              agreement,  note,  lease or other agreement or instrument to which
              the Company or any of its  subsidiaries  is a party or by which or
              any of them may be  bound,  or to  which  any of the  property  or
              assets  of the  Company  or any of  its  subsidiaries  is  subject
              (collectively,  "Agreements  and  Instruments")  except  for  such
              defaults that would not result in a Material  Adverse Effect;  and
              the  execution,   delivery  and  performance  of  the  Transaction
              Documents and any other  agreement or  instrument  entered into or
              issued  or  to be  entered  into  or  issued  by  the  Company  in
              connection with the transactions contemplated hereby or thereby or
              in the Private  Placement  Memorandum and the  consummation of the
              transactions  contemplated  herein  and in the  Private  Placement
              Memorandum  (including the issuance and sale of the Securities and
              the  use of the  proceeds  from  the  sale  of the  Securities  as
              described in the Private  Placement  Memorandum  under the caption
              "Use  of  Proceeds")  and  compliance  by  the  Company  with  its
              obligations hereunder do not and will not, whether with or without
              the giving of notice or passage of time or both,  conflict with or
              constitute a breach of, or default or Repayment  Event (as defined
              below) under, or result in the creation or imposition of any lien,
              charge or  encumbrance  upon any property or assets of the Company
              or any  subsidiary  pursuant to, the  Agreements  and  Instruments
              except for such  conflicts,  breaches  or  defaults  or  Repayment
              Events or liens,  charges or encumbrances  that,  singly or in the
              aggregate, would not result in a Material Adverse Effect, nor will
              such  action  result in any  violation  of the  provisions  of the
              charter  or  by-laws of the  Company  or its  subsidiaries  or any
              applicable law, statute, rule, regulation,  judgment,  order, writ
              or decree of any government,  government instrumentality or court,
              domestic or foreign,  having  jurisdiction over the Company or any
              subsidiary or any of their assets,  properties or  operations.  As
              used  herein,  a  "Repayment  Event"  means any event or condition
              which gives the holder of any note, debenture or other evidence of
              indebtedness  (or any person acting on such  holder's  behalf) the
              right to require the repurchase, redemption or repayment of all or
              a portion of such indebtedness by the Company or any subsidiary.

                     (xvi) Absence of Proceedings. Except as otherwise disclosed
              in the Private Placement  Memorandum,  there is no action, suit or
              proceeding  before or brought by any court or governmental  agency
              or body, domestic or foreign, now pending, or, to the knowledge of
              the Company,  threatened,  against or affecting the Company or its
              subsidiaries  which  would  reasonably  be expected to result in a
              Material Adverse Effect,  or which would reasonably be expected to
              materially   and  adversely   affect  the   consummation   of  the
              transactions  contemplated by this Agreement or the performance by
              the Company of its obligations hereunder.

                     (xvii) Absence of Manipulation.  Neither the Company nor to
              its  knowledge  any  affiliate,  as such term is  defined  in Rule
              501(b) under the 1933 Act ("Affiliate"), of the Company has taken,
              nor  will  the  Company  or any  Affiliate  of the  Company  take,
              directly or  indirectly,  any action which is designed to or which
              has constituted or which would  reasonably be expected to cause or
              result  in  stabilization  or  manipulation  of the  price  of any
              security  of the Company to  facilitate  the sale or resale of the
              Securities.

                                       6
<PAGE>

                     (xviii)  Possession  of  Intellectual  Property.  Except as
              otherwise  disclosed  in the  Private  Placement  Memorandum,  the
              Company  and its  subsidiaries  own or possess  adequate  patents,
              patent  rights,   licenses,   inventions,   copyrights,   know-how
              (including trade secrets and other unpatented and/or  unpatentable
              proprietary or confidential  information,  systems or procedures),
              trademarks,  service  marks,  trade  names or  other  intellectual
              property  (collectively,  "Intellectual  Property") related to the
              business  now  operated  by them,  and neither the Company nor its
              subsidiaries  has received any notice or is otherwise aware of any
              infringement  of or conflict with  asserted  rights of others with
              respect  to  any   Intellectual   Property  or  of  any  facts  or
              circumstances which would render any Intellectual Property invalid
              or inadequate to protect the interest of the Company or any of its
              subsidiaries  therein,  and which infringement or conflict (if the
              subject  of  any  unfavorable  decision,  ruling  or  finding)  or
              invalidity or inadequacy, singly or in the aggregate, would result
              in a Material Adverse Effect.

                     (xix) Absence of Further  Requirements.  No filing with, or
              authorization,  approval,  consent, license, order,  registration,
              qualification or decree of, any court or governmental authority or
              agency is necessary or required for the performance by the Company
              of its  obligations  hereunder,  in connection  with the offering,
              issuance or sale of the Securities  hereunder or the  consummation
              of the transactions  contemplated by the Transaction  Documents or
              for the due execution,  delivery or performance of the Transaction
              Documents  by the  Company,  except (A) such as have been  already
              obtained or will be made on or prior to the Closing  Time,  (B) as
              may be  required  under  the  securities  or blue  sky laws of the
              various states in which the Securities will be offered or sold and
              the 1933 Act and 1933 Regulations with respect to the registration
              of the resale of the Securities under the 1933 Act pursuant to the
              Registration Rights Agreement and the Trust Indenture Act of 1939,
              and (C) the listing  requirements  of NASDAQ,  except those which,
              singly or in the  aggregate,  if not made  would  not  result in a
              Material  Adverse  Effect or would have a  material  effect on the
              consummation of the  transactions  contemplated by the Transaction
              Documents.

                     (xx)  Possession  of Licenses and Permits.  The Company and
              each  subsidiary  possess  such  valid and  current  certificates,
              authorizations or permits issued by the appropriate state, federal
              or foreign  regulatory  agencies  or bodies  necessary  to conduct
              their  respective  businesses,  and  neither  the  Company nor any
              subsidiary has received any notice of proceedings  relating to the
              revocation or modification  of, or  non-compliance  with, any such
              certificate,  authorization  or  permit  which,  singly  or in the
              aggregate,  if the subject of an unfavorable  decision,  ruling or
              finding,  would  reasonably be expected to have a Material Adverse
              Effect.

                     (xxi)  Title  to  Property.  The  Company  and  each of its
              subsidiaries  has good and marketable  title to all the properties
              and assets reflected as owned in the financial statements referred
              to in Section 1(iv) above (or  elsewhere in the Private  Placement
              Memorandum),   in  each  case  free  and  clear  of  any  security
              interests,  mortgages,  liens, encumbrances,  equities, claims and
              other  defects,  except  (i) for  liens  for  taxes not yet due or
              payable,  (ii) as  otherwise  disclosed  in the Private  Placement
              Memorandum  or  (iii)  as  would  not,   individually  or  in  the

                                       7
<PAGE>

              aggregate,  reasonably  be  expected  to have a  Material  Adverse
              Effect.  The real property,  improvements,  equipment and personal
              property  held under  lease by the Company or any  subsidiary  are
              held under valid and enforceable  leases,  with such exceptions as
              are not material and do not materially interfere with the use made
              or  proposed  to be  made  of such  real  property,  improvements,
              equipment or personal  property by the Company or such  subsidiary
              to an extent that would  reasonably be expected to have a Material
              Adverse Effect.

                     (xxii)  Environmental  Laws.  Except  as  described  in the
              Private Placement Memorandum and except such matters as would not,
              singly or in the aggregate,  result in a Material  Adverse Effect,
              (A) neither the Company nor its  subsidiaries  is in  violation of
              any  federal,   state,  local  or  foreign  statute,   law,  rule,
              regulation,  ordinance,  code, policy or rule of common law or any
              judicial or administrative  interpretation thereof,  including any
              judicial or  administrative  order,  consent,  decree or judgment,
              relating  to  pollution  or  protection   of  human  health,   the
              environment (including,  without limitation,  ambient air, surface
              water,   groundwater,   land  surface  or  subsurface  strata)  or
              wildlife,  including,  without  limitation,  laws and  regulations
              relating  to the  release  or  threatened  release  of  chemicals,
              pollutants,  contaminants,  wastes,  toxic  substances,  hazardous
              substances,  petroleum or petroleum products,  asbestos-containing
              materials or mold (collectively,  "Hazardous Materials") or to the
              manufacture,  processing,  distribution,  use, treatment, storage,
              disposal,   transport   or   handling   of   Hazardous   Materials
              (collectively,  "Environmental  Laws"),  (B) the  Company  and its
              subsidiaries  have  all  permits,   authorizations  and  approvals
              required under any applicable  Environmental  Laws and are each in
              compliance   with   their   requirements,   (C)   there   are   no
              administrative,  regulatory or judicial actions,  suits,  demands,
              demand  letters,   claims,  liens,  notices  of  noncompliance  or
              violation,  or  proceedings  relating  to  any  Environmental  Law
              pending or, to the  Company's  knowledge,  threatened  against the
              Company  or its  subsidiaries  and  (D)  there  are no  events  or
              circumstances  that would reasonably be expected to form the basis
              of an order for  clean-up or  remediation,  or an action,  suit or
              proceeding  by any private party or  governmental  body or agency,
              against or affecting the Company or its  subsidiaries  relating to
              Hazardous Materials or Environmental Laws.

                     (xxiii) Accounting  Controls and Disclosure  Controls.  The
              Company and each of its subsidiaries maintain a system of internal
              accounting  controls  sufficient to provide reasonable  assurances
              that (A) transactions are executed in accordance with management's
              general or specific  authorization;  (B) transactions are recorded
              as necessary to permit  preparation  of  financial  statements  in
              conformity  with GAAP and to maintain  accountability  for assets;
              (C)  access  to  assets  is  permitted  only  in  accordance  with
              management's  general  or  specific  authorization;  and  (D)  the
              recorded  accountability  for assets is compared with the existing
              assets at  reasonable  intervals and  appropriate  action is taken
              with  respect  to any  differences.  Except  as  described  in the
              Private Placement Memorandum,  since the end of the Company's most
              recent  audited  fiscal  year,  there  has  been  (1) no  material
              weakness  in  the  Company's   internal   control  over  financial
              reporting  (as defined in Rules  13a-15 and 15d-15  under the 1934
              Act Regulations)  (whether or not remediated) and (2) no change in

                                       8
<PAGE>

              the Company's  internal control over financial  reporting that has
              materially affected, or is reasonably likely to materially affect,
              the  Company's  internal  control over  financial  reporting.  The
              Company and each of its subsidiaries  employ  disclosure  controls
              and  procedures  (as defined in Rules  13a-15 and 15d-15 under the
              1934 Act Regulations) that are designed to ensure that information
              required to be  disclosed  by the  Company in the reports  that it
              files  or  submits  under  the 1934  Act is  recorded,  processed,
              summarized and reported,  within the time periods specified in the
              Commission's  rules and forms, and is accumulated and communicated
              to the Company's  management,  including  its principal  executive
              officer or officers and principal  financial  officer or officers,
              as appropriate, to allow timely decisions regarding disclosure.

                     (xxiv) Compliance with the Sarbanes-Oxley  Act. The Company
              and its officers and  directors  are in compliance in all material
              respects with applicable  provisions of the  Sarbanes-Oxley Act of
              2002 and the  rules  and  regulations  promulgated  in  connection
              therewith  (the  "Sarbanes-Oxley  Act") that,  with respect to the
              Company, are effective as of the date hereof.

                     (xxv)  Payment of Taxes.  The Company and its  consolidated
              subsidiaries have filed all necessary  federal,  state and foreign
              income and franchise tax returns and have paid all taxes  required
              to be paid by any of them and, if due and payable,  any related or
              similar  assessment,  fine or penalty  levied against any of them,
              except such taxes that are being contested in good faith and as to
              which  adequate  reserves  have been  provided as set forth in the
              following sentence and except where the failure to file or failure
              to  pay  would  not,  individually  or in  the  aggregate,  have a
              Material  Adverse Effect.  The Company has made adequate  charges,
              accruals  and  reserves  in the  applicable  financial  statements
              referred  to in Section  1(iv)  above in  respect of all  federal,
              state and foreign income and franchise taxes for all periods as to
              which the tax liability of the Company or any of its  consolidated
              subsidiaries has not been finally determined.

                     (xxvi) Insurance. The Company and its subsidiaries carry or
              are  entitled to the  benefits of  insurance  in such  amounts and
              covering such risks as is generally  deemed adequate and customary
              for the  businesses  in which they are  currently  engaged and all
              such insurance is in full force and effect, except in each case as
              would  not  reasonably  be  expected  to have a  Material  Adverse
              Effect.  The  Company  has no  reason  to  believe  that it or its
              subsidiaries will not be able (A) to renew its existing  insurance
              coverage  as and  when  such  policies  expire  or  (B) to  obtain
              comparable coverage from similar  institutions as may be necessary
              or  appropriate  to conduct its business as now conducted and at a
              cost that would not result in a Material Adverse Change.

                     (xxvii)   Investment   Company  Act.  The  Company  is  not
              required,  and after giving effect to the issuance and sale of the
              offered  Securities  and  the  application  of  the  net  proceeds
              therefrom as described in the Private  Placement  Memorandum under
              "Use  of  Proceeds,"  will  not be  required,  to  register  as an
              "investment  company" under the Investment Company Act of 1940, as
              amended (the "1940 Act").

                     (xxviii)  Registration  Rights.  There are no persons  with
              registration rights or other similar rights to have any securities
              registered  by the  Company  under the 1933 Act,  other  than with

                                       9
<PAGE>

              respect to the  registration of the resale of the Securities under
              the 1933 Act pursuant to the Registration Rights Agreement.

                     (xxix)  Similar  Offerings.  Neither the Company nor to its
              knowledge  any of its  Affiliates  has,  directly  or  indirectly,
              solicited  any offer to buy,  sold or offered to sell or otherwise
              negotiated  in respect of, or will solicit any offer to buy,  sell
              or offer to sell or  otherwise  negotiate  in  respect  of, in the
              United  States or to any United  States  citizen or resident,  any
              security  which  is or would  be  integrated  with the sale of the
              Securities in a manner that would  require the offered  Securities
              to be registered under the 1933 Act.

                     (xxx) Rule 144A  Eligibility.  The  Securities are eligible
              for resale pursuant to Rule 144A and will not be, at Closing Time,
              of the same class as  securities  listed on a national  securities
              exchange  registered under Section 6 of the 1934 Act, or quoted in
              a U.S. automated interdealer quotation system.

                     (xxxi) No General  Solicitation.  Subject to  compliance by
              Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Placement
              Agent") with its  representations  and warranties in the Placement
              Agent  Agreement  dated  November  13,  2006   ("Placement   Agent
              Agreement"), none of the Company, to its knowledge, its Affiliates
              or any person  acting on its or any of their behalf has engaged or
              will  engage,  in  connection  with the  offering  of the  offered
              Securities,  in  any  form  of  general  solicitation  or  general
              advertising within the meaning of Rule 502(c) under the 1933 Act.

                     (xxxii) No Registration Required.  Subject to compliance by
              the  Purchasers  with the  representations  and  warranties of the
              Purchasers  and the  procedures  set forth in Section 6 hereof and
              the Placement Agent with its representations and warranties in the
              Placement Agent Agreement,  it is not necessary in connection with
              the offer,  sale and  delivery  of the offered  Securities  to the
              Purchasers in the manner  contemplated  by this  Agreement and the
              Private Placement  Memorandum to register the Securities under the
              1933  Act  or,  until  the  Registration   Statement  is  declared
              effective by the  Commission,  to qualify the Indenture  under the
              Trust Indenture Act of 1939, as amended (the "1939 Act").

                     (xxxiii) ERISA Compliance. The Company and its subsidiaries
              and any  "employee  benefit  plan" (as defined  under the Employee
              Retirement  Income  Security  Act of  1974,  as  amended,  and the
              regulations    and    published     interpretations     thereunder
              (collectively, "ERISA")) established or maintained by the Company,
              its  subsidiaries  or their "ERISA  Affiliates" (as defined below)
              are in  compliance  in all material  respects  with ERISA.  "ERISA
              Affiliate" means, with respect to the Company or its subsidiaries,
              any member of any group of  organizations  described  in  Sections
              414, or of the Internal Revenue Code of 1986, as amended,  and the
              regulations and published interpretations  thereunder (the "Code")
              of  which  the  Company  or  its  subsidiaries  is  a  member.  No
              "reportable  event" (as defined  under  ERISA) has  occurred or is
              reasonably expected to occur with respect to any "employee benefit
              plan"  established or maintained by the Company,  its subsidiaries
              or any of their  ERISA  Affiliates.  No  "employee  benefit  plan"
              subject  to Title IV of ERISA  established  or  maintained  by the
              Company,  its  subsidiaries or any of their ERISA  Affiliates,  if
              such  "employee  benefit  plan"  were  terminated,  would have any

                                       10
<PAGE>

              "amount of unfunded benefit liabilities" (as defined under ERISA).
              Neither  the  Company,  its  subsidiaries  nor any of their  ERISA
              Affiliates  has  incurred  or  reasonably  expects  to  incur  any
              liability  under (i) Title IV of ERISA with respect to termination
              of,  or  withdrawal  from,  any  "employee  benefit  plan" or (ii)
              Sections  412,  4971,  4975 or 4980B of the Code.  Each  "employee
              benefit  plan"  established  or  maintained  by the  Company,  its
              subsidiaries or any of their ERISA  Affiliates that is intended to
              be qualified  under  Section 401 of the Code is so  qualified  and
              nothing has occurred,  whether by action or failure to act,  which
              would cause the loss of such qualification.

                     (xxxiv)  Regulatory  Matters.  The  statements  made in the
              Private  Placement  Memorandum  under the captions "Risk Factors -
              Risk  Factors  Related to Our Business - Our business is regulated
              by numerous federal,  state and foreign governmental  authorities,
              which  subjects  us to  elevated  compliance  costs  and  risk  of
              non-compliance"   and   "Business   -   Government    Regulation,"
              (collectively,  the "Regulatory  Sections")  fairly present in all
              material  respects  the federal food and drug  regulatory  related
              laws  and  regulations,  and  all  pending  or  to  the  Company's
              knowledge threatened legal or governmental proceedings relating to
              such  laws or  regulations  that  are  material  to the  Company's
              business in light of the applicable disclosure  requirements under
              the 1934 Act. The Company's business,  as described in the Private
              Placement Memorandum,  is being conducted in all material respects
              in compliance with applicable requirements under the Federal Food,
              Drug and Cosmetics Act (the "FDC Act") and any regulations  issued
              thereunder and to the best of the Company's  knowledge there is no
              reason  for the Food and Drug  Administration  (the  "FDA") or the
              Federal  Trade  Commission  (the  "FTC") to  initiate  enforcement
              proceedings against the Company, its agents, employees or products
              for any act or omission related to the Company's business.  Except
              as disclosed  in the Private  Placement  Memorandum,  there are no
              administrative enforcement or legal actions pending or to the best
              of the Company's knowledge threatened,  against the Company by the
              FDA or by the FTC and no material  administrative  enforcement  or
              legal actions  pending or to the best of the  Company's  knowledge
              threatened,  against  the Company by any other  federal,  state or
              local regulatory  agency. To the best of the Company's  knowledge,
              all of the facilities contracted by the Company to manufacture the
              Company's products are in compliance in all material respects with
              the applicable  portions of the FDA's good manufacturing  practice
              regulations   and  with   any   similar   manufacturing   practice
              regulations  imposed by any state,  local,  or foreign  government
              authority which are applicable to such  facilities.  The execution
              and delivery of the Purchase Agreement and the consummation of the
              transaction  contemplated  in the  Purchase  Agreement,  in and of
              themselves, (A) do not and will not (1) violate any requirement of
              the FDC Act or any regulation issued thereunder, (2) result in the
              creation of a lien,  charge or  encumbrance  upon any  property or
              assets  of the  Company  or any  of  its  subsidiaries  due to the
              operation of the FDC Act or any regulation issued thereunder,  and
              (B) do not require any consent or approval by the FDA,  the FTC or
              any other federal, state or local regulatory agency.

                     (xxxv) Public Officials. Neither the Company nor any of its
              subsidiaries  nor,  to the best of the  Company's  knowledge,  any
              employee or agent of the Company or any  subsidiary,  has made any
              contribution  or other  payment to any  official  of, or candidate
              for, any federal, state or foreign office in violation of any law,
              which  violation  would  reasonably  be expected  to have,  either

                                       11
<PAGE>

              individually or in the aggregate, a Material Adverse Effect, or of
              the character  necessary to be disclosed in the Private  Placement
              Memorandum in order to make the statements  therein not misleading
              in any material respect.

              (b)    Officer's  Certificates.  Any  certificate  signed  by  any
officer of the Company or its  subsidiaries  delivered to Sidley Austin LLP (the
"Designated  Investor's  Counsel") shall be deemed a representation and warranty
by the Company to each Purchaser as to the matters covered thereby.

       SECTION 2. Sale and Delivery to the Purchasers; Closing.

              (a)    Securities. On the basis of the representations, warranties
and agreements  herein contained and subject to the terms and conditions  herein
set forth,  the  Company  agrees to sell to each  Purchaser,  severally  and not
jointly, and each Purchaser,  severally and not jointly, agrees to purchase from
the Company,  up to the aggregate  principal  amount of Securities  set forth on
such  Purchaser's  signature  page hereto,  at a price of 100% of the  principal
amount  thereof.  Each  Purchaser  acknowledges  that,  in  accordance  with the
provisions  of this  Section 2, the Company may sell to the  Purchaser,  and the
Purchaser  will  purchase,  less than all of the aggregate  principal  amount of
Securities set forth on such Purchaser's signature page hereto.

              (b)    Payment.  The  completion  of the  purchase and sale of the
Securities (the "Closing") shall occur at the offices of the Company's  counsel,
Miller & Martin,  PLLC, on November 22, 2006, (the "Scheduled  Closing Date") at
10 A.M. (Eastern),  unless the Closing is delayed by the Company pursuant to the
following  paragraph  (the time at which the Closing  occurs  being the "Closing
Time"). At the Closing,  (i) the Company shall cause the Escrow Agent to deliver
to the  Purchasers  the  Securities  registered  in the  name of the  applicable
Purchasers,  and (ii) the aggregate  purchase price for the Securities  shall be
delivered by the Escrow Agent on behalf of the Purchasers to the Company.

       The  Closing  shall  occur  at  the  Scheduled  Closing  Date  (i) if the
aggregate  amount of funds  deposited by the Purchasers with the Escrow Agent is
at least $125 million on such date and (ii) the  conditions set forth in Section
5 are satisfied.  If the aggregate  amount of funds  deposited by the Purchasers
with the Escrow Agent is less than $125 million on the  Scheduled  Closing Date,
the Company may either (a) proceed with the Closing on such date  provided  that
the  aggregate  funds on deposit with the Escrow Agent exceed $50 million or (b)
delay the Closing  until a date that is no later than  November 30,  2006,  (the
"Delayed Closing Date"), at which time the Closing shall occur if, at such time,
at least $125 million in aggregate  amount of funds shall have been deposited by
the  Purchasers  with the Escrow  Agent.  If the Closing is delayed  pursuant to
clause (b) above and the aggregate  amount of funds  deposited by the Purchasers
with the Escrow  Agent  remains  less than $125  million on the Delayed  Closing
Date, the Company may either (x) proceed with the Closing on the Delayed Closing
Date provided  that the aggregate  funds on deposit with the Escrow Agent exceed
$50 million or (y) terminate this Agreement on the Delayed  Closing Date without
liability  on the part of the  non-defaulting  Purchasers  or on the part of the
Company,  except  for the  Company's  obligation  to pay  Purchaser's  fees  and
expenses in accordance with Section 4. Nothing  contained herein shall relieve a
defaulting  Purchaser  of any  liability  it may  have  to  the  Company  or any
non-defaulting Purchaser for damages caused by its default.

                                       12
<PAGE>

       If, (i) on the  Scheduled  Closing  Date or (ii) on the  Delayed  Closing
Date, any Purchaser  defaults on its obligation to purchase the Securities  that
it has agreed to purchase, the Company and the non-defaulting  Purchasers may in
their discretion arrange for the purchase of such Securities by any Purchaser on
the terms  contained in this  Agreement,  which  purchase shall occur (a) if the
Closing occurs on the Scheduled  Closing Date, on the Scheduled  Closing Date or
at any time  thereafter  until the  Delayed  Closing  Date or (b) if the Closing
occurs on the Delayed  Closing  Date,  on the Delayed  Closing Date, or (c) with
respect  to  defaults  that  occur  on the  Delayed  Closing  Date,  as  soon as
practicable after the Delayed Closing Date.

       If the Company accepts the  Purchaser's  offer to buy Securities in whole
or in part,  the Company or its  representatives  shall notify each Purchaser at
the telephone number provided on such Purchaser's  signature page thereto of the
precise  amount of Securities  that the Company shall sell to such Purchaser and
such Purchaser  shall buy.  Payment by a Purchaser for the  Securities  shall be
made by wire  transfer of  immediately  available  funds to the Escrow  Agent in
accordance  with  instructions  below.  If the Escrow Agent  determines that the
conditions  to the Closing are  satisfied,  it shall  deliver  each  Purchaser's
payment to the  Company  and the  corresponding  Securities  to the DTC  account
specified in the Purchaser  signature  pages hereto.  If such  conditions to the
Closing are not satisfied,  the Escrow Agent shall return each Purchaser's funds
to the applicable Purchaser promptly following the termination of this Agreement
and the Delayed  Closing  Date but in any extent not later than the business day
following the Delayed Closing Date.

       Subject to the provisions of the second and third  preceding  paragraphs,
the  Company's  obligation to issue and sell the  Securities  to the  Purchasers
shall be subject only to the accuracy of the representations and warranties made
by the Purchasers and the fulfillment of those undertakings of the Purchasers to
be fulfilled  prior to the Closing.  The Purchasers'  respective  obligations to
purchase the accepted Securities shall be subject to the conditions set forth in
Section 5 hereof.

       Promptly after the Company notifies each Purchaser of the Securities that
the  Company  shall sell to such  Purchaser,  but in any event no later than one
business day prior to the Scheduled  Closing Date, such Purchaser shall remit by
wire transfer the amount of funds equal to the aggregate  purchase price for the
Securities being purchased by such Purchaser to the following account designated
by the  Company  pursuant  to the terms of the  Escrow  Agreement  (the  "Escrow
Agreement")  a copy of which is  attached  hereto as Exhibit C  relating  to the
offering of the  Securities  and  entered  into by and among the Company and the
Escrow Agent:

              Bank Name:                U.S. Bank, N.A.
              Bank ABA:                 091000022
              BNF Acct.:                USBANK CT SOUTHEAST WIRE CLRG
              BNF A/C:                  173103781824
              OBI Acct.:                A/C 107192000
              Ref Acct. Name:           Chattem Conv Notes Escrow
              Re:                       Chattem, Inc. {Exact Name of Account to
                                        be Credited with Securities}
              Attn:                     Jaci L. Kitch
              Tel. No.:                 (615) 251-0718

                                       13
<PAGE>

       Such funds shall be held in escrow until the Closing and delivered by the
Escrow Agent on behalf of the Purchasers to the Company upon the satisfaction of
the  conditions  to the  obligations  of the  Purchasers  set forth in Section 5
hereof.

              (c)    Settlement.  Prior to or promptly  after the  execution  of
this Agreement by the Purchasers  and the Company,  each Purchaser  shall direct
the  broker-dealer  at which the account or  accounts  to be  credited  with its
Securities are maintained  (which  broker/dealer  shall be a DTC participant) to
set up a Deposit/ Withdrawal at Custodian ("DWAC")  instructing the Escrow Agent
to credit such account or accounts with the Securities by means of an electronic
book-entry  delivery.  Such DWAC  shall  indicate  the  settlement  date for the
deposit  of the  Securities,  which date shall be  provided  to the  Purchasers.
Simultaneously with the delivery to the Company by the Escrow Agent of the funds
held in escrow  described in Section  2(b),  the Company shall direct the Escrow
Agent to  credit  each  Purchaser's  account  or  accounts  with the  Securities
pursuant to the information contained in the DWAC.

       SECTION 3.  Covenants of the  Company.  The Company  covenants  with each
Purchaser as follows:

              (a)    Qualification of Securities for Offer and Sale. The Company
will  use  its  commercially   reasonable   efforts,  in  cooperation  with  the
Purchasers, to qualify the Securities for offering and sale under the applicable
securities  laws of such states and other  jurisdictions  as the  Purchasers may
designate and to maintain such  qualifications in effect as long as required for
the sale of the  Securities;  provided,  however,  that the Company shall not be
obligated  to file any general  consent to service of process or to qualify as a
foreign corporation or as a dealer in securities business in any jurisdiction in
which it is not otherwise so subject in any  jurisdiction  in which it is not so
qualified or to subject itself to taxation in respect of doing so.

              (b)    Restriction  on Sale of  Securities.  Except  as  otherwise
contemplated by the Private Placement Memorandum and the Transaction  Documents,
during  a  period  of 90 days  from  the  date of the  Final  Private  Placement
Memorandum  (the "Lock-up  Period"),  the Company  shall not,  without the prior
written consent of the Placement Agent, directly or indirectly, (i) issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise  transfer
or dispose of, any other debt  securities  of the Company,  or securities of the
Company that are convertible  into, or exchangeable  for, the Securities or such
other debt securities, (ii) offer, pledge, announce the intention to sell, sell,
contract to sell,  sell any option or contract to purchase,  purchase any option
or contract to sell, grant any option, right or warrant for the sale of, lend or
otherwise  transfer  or  dispose  of any  shares of Common  Stock or  securities
convertible  into or  exchangeable  or exercisable  for or repayable with Common
Stock or (iii) enter into any swap or other  agreement or any  transaction  that
transfers,  in whole or in part, the economic  consequences  of ownership of the
Common Stock, or any securities  convertible into or exchangeable or exercisable
for or  repayable  with  Common  Stock,  whether  any such  swap or  transaction
described  in clause  (ii) or (iii) above is to be settled by delivery of Common
Stock or such other securities,  in cash or otherwise;  provided,  however, that

                                       14
<PAGE>

the  Company  may offer,  issue and sell  shares of Common  Stock or  securities
convertible  into or  exchangeable or exercisable for shares of Common Stock, or
debt  securities  (A)  pursuant to any  employee,  officer or director  stock or
benefit  plan,  (B)  upon  the  conversion  or  exercise  of the  Securities  or
securities  outstanding  on the date  hereof,  (C) issued or to be issued by the
Company in connection with an  acquisition,  provided that (1) in the case of an
acquisition  of a private  company,  the  recipient of such shares or securities
shall enter into a lock-up  agreement for the balance of the Lock-up  Period and
(2) in the case of an acquisition of a public company, such shares or securities
shall not be issued until the expiration of the Lock-up Period,  or (D) relating
in any way to the  financing  of the  Acquisition  (as  defined  in the  Private
Placement Memorandum) or entered into in connection with such financing.

              (c)    PORTAL  Designation.  The Company will use its commercially
reasonable  efforts to permit the Securities to be designated  PORTAL securities
in accordance with the rules and regulations adopted by the National Association
of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market.

              (d)    Listing on  Securities  Exchange.  The Company will use its
commercially  reasonable  efforts to cause all shares of Common  Stock  issuable
upon  conversion  of the  Securities  to be  listed  on the  NASDAQ or listed on
another "national  securities  exchange"  registered under Section 6 of the 1934
Act on which shares of its Common Stock are then listed.

              (e)    Reservation  of Shares of Common  Stock.  The Company shall
reserve and keep available at all times,  free of preemptive  rights,  shares of
Common Stock for the purpose of enabling the Company to satisfy any  obligations
to issue shares of Common Stock upon conversion of the Securities.

              (f)    DTC.  The Company will use its  reasonable  best efforts to
permit the  Securities to be eligible for clearance and  settlement  through the
facilities of DTC.

       SECTION 4. Payment of Expenses.

              (a)    Expenses. The Company will pay all expenses incident to the
performance  of  its  obligations  under  this  Agreement,   including  (i)  the
preparation,  printing,  and delivery to the Purchasers of the Private Placement
Memorandum (including financial statements and any schedules or exhibits and any
document  incorporated therein by reference) and of each amendment or supplement
thereto,  (ii) the preparation,  printing and delivery to the Purchasers of this
Agreement,  any  agreement  among the  Purchasers,  the Indenture and such other
documents as may be required in connection  with the offering,  purchase,  sale,
issuance or delivery of the  Securities,  (iii) the  preparation,  issuance  and
delivery  of the  certificates  for the  Securities  to the  Purchasers  and the
certificates  for the Common Stock issuable upon conversion  thereof,  including
any transfer  taxes,  any stamp or other duties payable upon the sale,  issuance
and delivery of the Securities to the  Purchasers,  the issuance and delivery of
the Common  Stock  issuable  upon  conversion  thereof and any charges of DTC in
connection therewith,  (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors,  (v) the qualification of the Securities and the
shares of Common Stock issuable upon conversion thereof under securities laws in

                                       15
<PAGE>

accordance  with  the  provisions  of  Section  3(a)  hereof,  (vi) the fees and
expenses of the  Trustee,  including  the  reasonable  and  documented  fees and
disbursements  of counsel for the Trustee in  connection  with the Indenture and
the Securities, (vii) the costs and expenses of the Company relating to investor
presentations  on any "road show" undertaken in connection with the marketing of
the Securities  including,  without  limitation,  expenses  associated  with the
production  of  road  show  slides  and  graphics,  fees  and  expenses  of  any
consultants engaged in connection with the road show  presentations,  travel and
lodging expenses of the representatives and officers of the Company and any such
consultants,  (viii)  any fees  payable  in  connection  with the  rating of the
Securities,  (ix) any fees and expenses  payable in connection  with the initial
and  continued  designation  of the  Securities as PORTAL  securities  under the
PORTAL  Market  Rules  pursuant  to NASD Rule 5322,  (x) any fees of the NASD in
connection with the Securities, (xi) the fees and expenses of any transfer agent
or  registrar  for the  Common  Stock,  and (xii) the fees and  expenses  of the
Designated Investor's Counsel.

       SECTION 5. Conditions of Purchasers' Obligations.  The obligations of the
Purchasers  hereunder  are subject to the  accuracy of the  representations  and
warranties  of the Company  contained  in Section 1 hereof as of the date hereof
and as of the Closing Time or in  certificates  of any officer of the Company or
its subsidiaries delivered pursuant to the provisions hereof, to the performance
by the Company of its  covenants  and other  obligations  hereunder,  and to the
following further conditions:

              (a)    Opinions  of Counsel  for  Company.  At Closing  Time,  the
Purchasers shall have received the favorable opinions, dated as of Closing Time,
of (1) Miller & Martin PLLC, counsel for the Company, to the effect set forth in
Exhibit A-1 hereto and (2) King & Spalding LLP, special counsel for the Company,
to the effect set forth in Exhibit A-2 hereto. Such counsel may also state that,
insofar as such opinion  involves  factual  matters,  they have  relied,  to the
extent they deem proper,  upon  certificates  of officers of the Company and its
subsidiaries and certificates of public officials.

              (b)    Officers'  Certificate.  At Closing  Time,  there shall not
have  been,  since the date  hereof or since  the  respective  dates as of which
information  is given in the  Private  Placement  Memorandum  (exclusive  of any
amendments or supplements thereto subsequent to the date of this Agreement), any
material  adverse  change in the  condition,  financial or otherwise,  or in the
earnings,  business  affairs  or  business  prospects  of the  Company  and  its
subsidiaries  considered  as  one  enterprise,  whether  or not  arising  in the
ordinary course of business,  and the Designated  Investor's  Counsel shall have
received  a  certificate  of the  President  of  the  Company  and of the  chief
accounting officer of the Company,  dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the representations and
warranties  in Section 1 hereof are true and  correct in all  material  respects
with the same  force and  effect as though  expressly  made at and as of Closing
Time,  and (iii) the Company  has  complied in all  material  respects  with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time.

              (c)    PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.

              (d)    Lock-up Letter.  On or prior to the date of this Agreement,
Merrill  Lynch (as defined in Exhibit B attached  hereto) shall have received an
agreement  substantially  in the form of Exhibit B attached hereto signed by the
persons listed in Schedule A attached hereto.

                                       16
<PAGE>

              (e)    Indenture and Registration Rights Agreement. At or prior to
the Closing  Time,  each of the Company and the Trustee  shall have executed and
delivered the Indenture,  and the Company and the Purchasers shall have executed
and delivered the Registration Rights Agreement.

              (f)    Additional  Documents.  On or before the Scheduled  Closing
Date, the Company shall have delivered to the Designated Investor's Counsel, for
the benefit of the Purchasers, such further documents, certificates, letters and
schedules  or  instruments  relating  to  the  business,  corporate,  legal  and
financial  affairs of the Company and its  subsidiaries as the Purchasers  shall
have  reasonably  requested  from  the  Company  reasonably  in  advance  of the
Scheduled Closing Date so long as such further documents,  certificates, letters
and schedules or instruments  are reasonable and customary for the  transactions
contemplated  by this Agreement.  Delivery of any such documents,  certificates,
letters and schedules or instruments to the Designated  Investor's Counsel shall
be deemed to constitute  delivery to the applicable  Purchasers for all purposes
hereunder.

       All  such  documents,  opinions,  certificates,   letters,  schedules  or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably  satisfactory in all material respects to the
Designated  Investor's Counsel. The Company shall furnish to the Purchasers such
conformed  copies  of  such  documents,  certificates,  letters,  schedules  and
instruments in such quantities as the Purchasers shall reasonably request.

       SECTION 6. Subsequent Offers and Resales of the Securities.

       (a)    Offer and Sale  Procedures.  Each Purchaser and the Company hereby
establish and agree to observe the following  procedures in connection  with the
offer and sale of the Securities:

                     (i) Offers and  Sales.  Offers and sales of the  Securities
              shall  be made  only  to such  persons  and in such  manner  as is
              contemplated by the Private Placement Memorandum.

                     (ii) No General  Solicitation.  No general  solicitation or
              general  advertising  (within the meaning of Rule 502(c) under the
              1933 Act) will be used in the United States in connection with the
              offering or sale of the Securities.

                     (iii) Purchases by Non-Bank  Fiduciaries.  In the case of a
              non-bank  subsequent  purchaser  ("Subsequent   Purchaser")  of  a
              Security acting as a fiduciary for one or more third parties, each
              third party shall, in the judgment of the Purchasers, be a QIB.

                     (iv) Subsequent Purchaser Notification. Each Purchaser will
              take  reasonable  steps  to  inform,  and  cause  each of its U.S.
              Affiliates to take reasonable steps to inform,  persons  acquiring
              Securities  from such Purchaser or its Affiliate,  as the case may
              be, in the United States that the Securities (A) have not been and
              will not be  registered  under the 1933 Act, (B) are being sold to
              them without  registration  under the 1933 Act in reliance on Rule
              144A or in accordance  with another  exemption  from  registration

                                       17
<PAGE>

              under  the  1933  Act,  as the  case  may  be,  and (C) may not be
              offered,  sold or otherwise  transferred except (1) to the Company
              or one of its  subsidiaries,  (2)  outside  the  United  States in
              accordance with Regulation S under the 1933 Act, or (3) inside the
              United  States in  accordance  with (x) Rule 144A to a person whom
              the seller  reasonably  believes is a QIB that is purchasing  such
              Securities for its own account or for the account of a QIB to whom
              notice is given that the offer,  sale or transfer is being made in
              reliance  on  Rule  144A  or (y)  pursuant  to  another  available
              exemption from registration under the 1933 Act.

                     (v) Minimum  Principal Amount. No sale of the Securities to
              any one  Subsequent  Purchaser  will be for less than U.S.  $1,000
              principal  amount  and no  Security  will be  issued  in a smaller
              principal  amount.  If  the  Subsequent  Purchaser  is a  non-bank
              fiduciary  acting on behalf of others,  each person for whom it is
              acting must purchase at least U.S. $1,000  principal amount of the
              Securities.

                     (vi) Transfer  Restriction.  The transfer  restrictions and
              the other provisions set forth in the Private Placement Memorandum
              under the caption  "Transfer  Restrictions,"  including the legend
              required  thereby,  shall apply to the  Securities.  Following the
              sale  of the  Securities  by the  Purchasers  to  each  Subsequent
              Purchaser pursuant to and in compliance with the terms hereof, the
              Purchasers  shall not be liable or  responsible to the Company for
              any  losses,  damages or  liabilities  suffered or incurred by the
              Company,  including any losses,  damages or liabilities  under the
              1933 Act,  arising  from or relating to any  subsequent  resale or
              transfer of any Security

       (a)    Covenants  of  the  Company.   The  Company  covenants  with  each
Purchaser as follows:

                     (i)  Integration.  The Company  agrees that it will not and
              will cause its Affiliates not to, directly or indirectly,  solicit
              any offer to buy,  sell or make any offer or sale of, or otherwise
              negotiate  in respect of,  securities  of the Company of any class
              if, as a result of the  doctrine of  "integration"  referred to in
              Rule 502 under  the 1933  Act,  such  offer or sale  would  render
              invalid the exemption from the  registration  requirements  of the
              1933  Act  provided  by  Section  4(2)  thereof  or by  Rule  144A
              thereunder or otherwise.

                     (ii) Rule 144A  Information.  The Company  agrees that,  in
              order  to  render  the  offered  Securities  eligible  for  resale
              pursuant to Rule 144A under the 1933 Act, while any of the offered
              Securities  remain  outstanding,  it  will  make  available,  upon
              request,  to any  holder  of  offered  Securities  or  prospective
              purchasers  of  Securities  the  information   specified  in  Rule
              144A(d)(4),  unless  the  Company  furnishes  information  to  the
              Commission pursuant to Section 13 or 15(d) of the 1934 Act.

                     (iii)  Restriction  on Resales.  The Company  will not, and
              will cause its  Affiliates  not to, resell any offered  Securities
              which are  "restricted  securities" (as such term is defined under
              Rule 144(a)(3) under the 1933 Act), whether as beneficial owner or
              otherwise (except as agent acting as a securities broker on behalf
              of and for the  account of  customers  in the  ordinary  course of
              business  in  unsolicited  broker's  transactions)  that have been
              reacquired by any of them and shall  immediately upon any purchase
              of any such  Securities  submit such Securities to the Trustee for
              cancellation.

                                       18
<PAGE>

       (b)    Representations,  Warranties and Covenants of the Purchasers. Each
Purchaser  severally,  and not jointly,  hereby  represents and warrants to, and
covenants with, the Company, that:

                     (i) The  Purchaser is (a) a QIB, (b) aware that the sale to
              it is being made in reliance on a private placement exemption from
              registration  under the 1933 Act and (c) acquiring the  Securities
              for its own  account  or for the  account  of a QIB and not with a
              view to the distribution thereof.

                     (ii) The Purchaser  understands that the Securities and the
              Common Stock issuable upon  conversion of the Securities are being
              offered in a transaction  not involving any public offering within
              the meaning of the 1933 Act,  that the  Securities  and the Common
              Stock  issuable upon  conversion of the  Securities  have not been
              and, except as described in the Private Placement Memorandum, will
              not be registered  under the 1933 Act and that (a) if prior to the
              expiration  of the  applicable  holding  period  specified in Rule
              144(k)  of the 1933 Act it  decides  to offer,  resell,  pledge or
              otherwise  transfer any of the  Securities  or Common Stock issued
              upon  conversion of the  Securities,  such  Securities  and Common
              Stock may be offered,  resold,  pledged or  otherwise  transferred
              only (i) to a person whom the seller reasonably  believes is a QIB
              in a  transaction  meeting  the  requirements  of Rule 144A,  (ii)
              pursuant  to an  exemption  from  registration  under the 1933 Act
              provided by Rule 144 thereunder (if available),  (iii) pursuant to
              an effective  registration statement under the 1933 Act or (iv) to
              the  Company  or one of its  subsidiaries,  in each of  cases  (i)
              through (iv) in accordance with any applicable  securities laws of
              any state of the United States,  and that (b) the Purchaser  will,
              and each  subsequent  holder of the  Securities  is  required  to,
              notify any  subsequent  purchaser of the  Securities or the Common
              Stock  issued  upon  conversion  of the  Securities  of the resale
              restrictions  referred to in clause (a) above and will provide the
              Company  and  the  transfer  agent  such  certificates  and  other
              information  as they may  reasonably  require to confirm  that the
              transfer  by it  complies  with  the  foregoing  restrictions,  if
              applicable.

                     (iii) The Purchaser understands that the Securities and the
              Common Stock  issuable  upon  conversion of the  Securities  will,
              until the expiration of the applicable holding period set forth in
              Rule  144(k)  of  the  1933  Act,   unless  sold   pursuant  to  a
              registration  statement that has been declared effective under the
              1933  Act  or  in   compliance   with  Rule  144,  bear  a  legend
              substantially to the following effect:

                     THIS SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
              FROM  REGISTRATION  UNDER  THE U.S.  SECURITIES  ACT OF  1933,  AS
              AMENDED  (THE  "SECURITIES  ACT"),  AND THIS  SECURITY  MAY NOT BE
              OFFERED,  SOLD OR  OTHERWISE  TRANSFERRED  IN THE  ABSENCE OF SUCH
              REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.  EACH PURCHASER
              OF THIS  SECURITY  IS  HEREBY  NOTIFIED  THAT THE  SELLER  OF THIS
              SECURITY MAY BE RELYING ON THE  EXEMPTION  FROM THE  PROVISIONS OF
              SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

                     THE HOLDER OF THIS  SECURITY  AGREES FOR THE BENEFIT OF THE
              COMPANY THAT (A) THIS SECURITY MAY BE OFFERED,  RESOLD, PLEDGED OR
              OTHERWISE  TRANSFERRED,  ONLY  (I) TO A  PERSON  WHOM  THE  SELLER

                                       19
<PAGE>

              REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
              IN RULE 144A UNDER THE  SECURITIES  ACT) IN A TRANSACTION  MEETING
              THE  REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM
              REGISTRATION  UNDER  THE  SECURITIES  ACT  PROVIDED  BY  RULE  144
              THEREUNDER  (IF   AVAILABLE),   (III)  PURSUANT  TO  AN  EFFECTIVE
              REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR (IV) TO THE
              COMPANY OR ANY OF ITS  SUBSIDIARIES,  IN EACH OF CASES (I) THROUGH
              (IV) IN  ACCORDANCE  WITH ANY  APPLICABLE  SECURITIES  LAWS OF ANY
              STATE OF THE  UNITED  STATES,  AND (B) THE HOLDER  WILL,  AND EACH
              SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT  PURCHASER
              OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN
              CLAUSE (A) ABOVE.

                     (iv) The  Purchaser  (a) is able to fend for  itself in the
              transactions contemplated by the Private Placement Memorandum, (b)
              has such  knowledge  and  experience  in  financial  and  business
              matters as to be capable of evaluating the merits and risks of its
              prospective  investment in the  Securities and (c) has the ability
              to bear the economic  risks of its  prospective  investment in the
              Securities and can afford the complete loss of such investment.

                     (v) The  Purchaser  has received a copy of the  Preliminary
              Private  Placement  Memorandum  and upon  delivery  by the Company
              prior to Closing of the Final Private  Placement  Memorandum  will
              have received a copy of the Final Private Placement Memorandum and
              acknowledges  that (a) it has conducted its own  investigation  of
              the Company and the terms of the Securities and, in conducting its
              examination,  it has not  relied  on,  and will  not rely on,  the
              Placement Agent, any statements or other  information  provided by
              the Placement  Agent  concerning  the Company or the terms of this
              offering or any due  diligence  investigation  that the  Placement
              Agent or its affiliates,  or any person acting on behalf of any of
              them,  may  conduct  or may have  conducted  with  respect  to the
              Securities or the Company,  (b) it has had access to the Company's
              public filings with the Securities and Exchange  Commission and to
              such financial and other information as it deems necessary to make
              its decision to purchase the  Securities,  (c) it has been offered
              the  opportunity  to ask  questions  of the Company  and, if asked
              questions,  received  answers  thereto,  as it deemed necessary in
              connection with the decision to purchase the Securities and (d) it
              is aware that there may be additional non-public  information with
              respect to the Securities,  the Company and developments  relating
              to the Company,  including non-public  information relating to the
              proposed  acquisition  of the  U.S.  rights  to five  brands  from
              Johnson & Johnson and the consumer  healthcare business of Pfizer,
              that the Company has agreed to make  available  to or discuss with
              the   Purchaser   upon   execution   by   such   Purchaser   of  a
              confidentiality  agreement,  and that  the  Purchaser  has  either
              executed   such   confidentiality   agreement  and  received  such
              information   or   participated   in  such   discussions   as  are
              satisfactory  to it or has elected in its sole  discretion  not to
              request such information or discussions.

                     (vi) The Purchaser, its affiliates and any of its and their
              directors,  officers,  employees, agents, advisors and controlling
              persons  are aware  that the U.S.  securities  laws  prohibit  any
              person that has material  non-public  information  about a company
              from purchasing or selling, directly or indirectly,  securities of
              such  company  (including   entering  into  hedging   transactions

                                       20
<PAGE>

              involving such securities) or from  communicating such information
              to any other person under  circumstances in which it is reasonably
              foreseeable  that such other  person is likely to purchase or sell
              such securities.

                     (vii)  The  Purchaser  understands  that the  Company,  the
              Placement  Agent and others will rely upon the truth and  accuracy
              of the foregoing representations,  acknowledgements and agreements
              and agrees that if any of the representations and acknowledgements
              deemed to have been made by it by its  purchase of the  Securities
              are no longer  accurate,  the Purchaser  shall promptly notify the
              Company and each Placement Agent. The Purchaser hereby consents to
              such  reliance.  If the Purchaser is acquiring the Securities as a
              fiduciary  or  agent  for  one  or  more  investor  accounts,   it
              represents that it has sole investment  discretion with respect to
              each  such  account  and it has full  power to make the  foregoing
              representations, acknowledgements and agreements on behalf of such
              account.

                     (viii) The  Purchaser  has not  solicited  offers  for,  or
              offered or sold,  and will not  solicit  offers  for,  or offer to
              sell, the Securities by means of any form of general  solicitation
              or  general  advertising  within  the  meaning  of Rule  502(c) of
              Regulation  D under  the 1933  Act or in any  manner  involving  a
              public  offering  within the  meaning of Section  4(2) of the 1933
              Act.

                     (ix) The Purchaser  acknowledges that no action has been or
              will be taken in any jurisdiction outside the United States by the
              Company or any  Placement  Agent that would  permit an offering of
              the   Securities,   or  possession  or  distribution  of  offering
              materials in connection with the issue of the  Securities,  in any
              jurisdiction  outside  the  United  States  where  action for that
              purpose is required. Each Purchaser outside the United States will
              comply with all  applicable  laws and  regulations in each foreign
              jurisdiction  in which it  purchases,  offers,  sells or  delivers
              Securities or has in its  possession or  distributes  any offering
              material, in all cases at its own expense.

                     (x) The Purchaser  further  represents and warrants to, and
              covenants  with,  the Company that the  Purchaser  has full right,
              power,  authority and capacity to enter into this Agreement and to
              consummate the transactions  contemplated hereby and has taken all
              necessary   action  to  authorize  the  execution,   delivery  and
              performance of this Agreement.

                     (xi) The Purchaser  understands that nothing in the Private
              Placement Memorandum, this Agreement, the Company's public filings
              with  the  Commission  or any  other  materials  presented  to the
              Purchaser  in  connection  with  the  purchase  and  sale  of  the
              Securities  constitutes  legal,  tax  or  investment  advice.  The
              Purchaser has consulted such legal,  tax and  investment  advisors
              and made its own  assessments as it, in its sole  discretion,  has
              deemed necessary or appropriate in connection with its purchase of
              Securities.

       The  Purchasers  understand  that the  Company,  and for  purposes of the
opinions to be  delivered  to it  pursuant  to Section 5 hereof,  counsel to the
Company will rely upon the accuracy and truth of the foregoing  representations,
and the Purchasers hereby consent to such reliance.

                                       21
<PAGE>

       SECTION 7.  Representations,  Warranties and  Agreements to Survive.  All
representations,  warranties  and  agreements  contained in this Agreement or in
certificates of officers of the Company or its subsidiaries  submitted  pursuant
hereto shall remain  operative  and in full force and effect,  regardless of (i)
any  investigation  made by or on behalf of any  Purchaser or its  Affiliates or
selling agents, any person controlling any Purchaser,  its officers or directors
or any person  controlling  the Company and (ii) delivery of and payment for the
Securities.

       SECTION 8. Tax  Disclosure.  Notwithstanding  any other provision of this
Agreement,  immediately  upon  commencement  of discussions  with respect to the
transactions contemplated hereby, the Company (and each employee, representative
or other agent of the  Company)  may  disclose to any and all  persons,  without
limitation of any kind, the tax treatment and tax structure of the  transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax  analyses)  that are  provided to the Company  relating to such tax
treatment  and tax  structure.  For  purposes  of the  foregoing,  the term "tax
treatment"  is the  purported  or claimed  federal  income tax  treatment of the
transactions contemplated hereby, and the term "tax structure" includes any fact
that may be relevant to  understanding  the purported or claimed  federal income
tax treatment of the transactions contemplated hereby.

       SECTION 9. Notices. All notices and other communications  hereunder shall
be in  writing  and  shall be  deemed  to have  been  duly  given if  mailed  or
transmitted by any standard form of telecommunication. Notices to the Purchasers
shall be directed to Sidley Austin LLP, attention of Robert Mandell  (Facsimile:
(212) 839-5599);  and notices to the Company shall be directed to it at Chattem,
Inc.,  1715 West 38th Street,  Chattanooga,  TN 37409,  attention of Theodore K.
Whitfield, Jr., General Counsel and Secretary (Facsimile:  (423) 821-0395), with
a copy to Miller & Martin,  LLP,  Suite 1000  Volunteer  Building,  832  Georgia
Avenue,  Chattanooga,  TN 37402,  attention of Hugh F. Sharber, Esq. (Facsimile:
(423) 785-8480).

       SECTION 10. Integration.  This Agreement  supersedes all prior agreements
and  understandings  (whether  written  or oral)  between  the  Company  and the
Purchasers, or any of them, with respect to the subject matter hereof.

       SECTION 11. Parties.  This Agreement shall inure to the benefit of and be
binding upon the  Purchasers  and the Company and their  respective  successors.
Nothing  expressed  or  mentioned  in this  Agreement  is  intended  or shall be
construed to give any person, firm or corporation, other than the Purchasers and
the Company and their  respective  successors  and the  controlling  persons and
officers and directors and their heirs and legal  representatives,  any legal or
equitable  right,  remedy or claim under or in respect of this  Agreement or any
provision  herein  contained.  This  Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive  benefit of the  Purchasers
and the Company and their respective  successors,  and said controlling  persons
and officers and  directors and their heirs and legal  representatives,  and for
the benefit of no other person, firm or corporation.  No purchaser of Securities
from any  Purchaser  shall be deemed to be a successor by reason  merely of such
purchase.

       SECTION  12.  GOVERNING  LAW.  THIS  AGREEMENT  SHALL BE  GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                                       22
<PAGE>

       SECTION 13. TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT.  EXCEPT
AS OTHERWISE  SET FORTH  HEREIN,  SPECIFIED  TIMES OF DAY REFER TO NEW YORK CITY
TIME.

       SECTION 14. Counterparts. This Agreement may be executed in any number of
counterparts,  each of which  shall be  deemed to be an  original,  but all such
counterparts shall together constitute one and the same Agreement.

       SECTION  15.  Effect of  Headings.  The Section  headings  herein are for
convenience only and shall not affect the construction hereof.

       SECTION  16.  Severability.  In  case  any  provision  contained  in this
Agreement  should be  invalid,  illegal or  unenforceable  in any  respect,  the
validity,  legality and  enforceability  of the remaining  provisions  contained
herein shall not in any way be affected or impaired thereby.

                                       23
<PAGE>

       If  the  foregoing  is in  accordance  with  your  understanding  of  our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument,  along with all  counterparts,  will become a binding agreement
between the Purchaser and the Company in accordance with its terms.

                                        Very truly yours,

                                        CHATTEM, INC.

                                        By
                                           -------------------------------------
                                           Name:
                                           Title:

                                       24
<PAGE>

Please confirm that the foregoing  correctly sets forth the agreement between us
by signing in the space provided below for that purpose.

Name of Purchaser:
                   ----------------------------------

By:
    -------------------------------------------------

Print Name:
            -----------------------------------------

Title:
       ----------------------------------------------

Address:
         --------------------------------------------

Tax ID No.:
            -----------------------------------------

Contact Name:
              ---------------------------------------

Telephone:
           ------------------------------------------

Back office contact:
                     --------------------------------

Aggregate Principal Amount of Securities Allocated to Purchaser:

                                       25

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