Document:

WWW.EXFILE.COM, INC. -- 888-775-4789 -- CHATTEM, INC. -- EXHIBIT 10.53 TO FORM 10-K

    EXHIBIT
      10.53

     

    SEPARATION
      AGREEMENT

    

    THIS
      SEPARATION AGREEMENT (hereinafter
“Agreement”) is made and entered into by and between Richard W. Kornhauser (“Mr.
      Kornhauser”) and Chattem, Inc. (“Chattem”) in order to reach an amicable
      termination of their employment relationship and to promote harmonious relations
      in the future.

    

    1.           Resignation.  Mr.
      Kornhauser agrees that his employment with Chattem will terminate by his
      resignation effective November 16, 2007 (the “Resignation
      Date”).  Thereafter, except as otherwise provided herein, no future
      compensation, allowances, or benefits will accrue in his favor.

    

    2.           Separation
      Pay.

    

    a.           Provided
      that Mr. Kornhauser signs this Agreement and does not revoke it, Chattem will
      voluntarily pay Mr. Kornhauser, the gross amount of Seven Thousand Nine Hundred
      Sixty-One and 54/100 ($7,961.54) Dollars per bi-weekly pay period, less
      appropriate withholding for FICA, Medicare, and federal and state (if
      applicable) taxes (hereinafter “Separation Pay”), for a period of six (6)
      consecutive months from the Resignation Date (November 17, 2007 through May
      16,
      2008), regardless of whether he obtains other employment during that period
      of
      time.

    

    b.           Provided
      that Mr. Kornhauser is not employed on or before May 16, 2008, he will be
      entitled to receive Separation Pay (as referenced above) for up to an additional
      six (6) consecutive months subject to the following express
      conditions:

    

    i.           Mr.
      Kornhauser must actively seek employment during the period of time commencing
      on
      the Resignation Date and continuing for the ensuing twelve (12) consecutive
      months or until he is employed, whichever occurs first;

    

    ii.           Mr.
      Kornhauser must complete and sign the form attached hereto as Exhibit A beginning during
      the
      first month following the Resignation Date and continuing during each month
      thereafter, and he must submit such form to Chattem’s President by the 15th
      of each month to
      certify that he is making diligent, good faith efforts to seek employment;
      and

    

    iii.           Mr.
      Kornhauser must notify Chattem’s President in writing immediately upon becoming
      employed.

    

    c.           For
      purposes of paragraphs 2 and 4 of this Agreement, the terms “employment” and
“employed” are defined to mean that Mr. Kornhauser is performing work or
      rendering services on behalf of some other person or entity (other than
      Chattem), in exchange for compensation, other than as a self-employed
      independent contractor/consultant.

    

    d.           In
      the event Mr. Kornhauser becomes employed before the Resignation Date, or at
      any
      point during the six (6) consecutive months following the 

     

     

    
      	_______
              Mr. Kornhauser	
              Chattem
                ________

            

    

    
       

      
        
          
          

        

        
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    Resignation
      Date, or he fails to meet the express conditions set forth in paragraph 2(b)
      of
      this Agreement during such six (6) month period, Mr. Kornhauser’s Separation Pay
      shall cease on May 16, 2008.

    

    e.           In
      the event Mr. Kornhauser is not employed on or before May 16, 2008, but he
      becomes employed during the period from May 17, 2008 through November 16, 2008,
      Chattem’s obligation to pay Mr. Kornhauser’s Separation Pay will immediately
      cease on the date Mr. Kornhauser becomes employed.  Similarly, in the
      event Mr. Kornhauser fails to meet the express conditions set forth in paragraph
      2(b) of this Agreement during the period from  May 17, 2008 through
      November 16, 2008, Chattem’s obligation to pay Mr. Kornhauser’s Separation Pay
      will immediately cease.

    

    f.           All
      payments of Separation Pay hereunder will be made by direct deposit to Mr.
      Kornhauser’s bank account according to Chattem’s normal payroll procedures and
      cycle.

    

    g.           The
      Separation Pay outlined above will be in addition to Mr. Kornhauser’s regular
      salary through October 19, 2007 (Mr. Kornhauser will be on an unpaid suspension
      from October 20, 2007 through the Resignation Date), and fringe benefits and
      ten
      (10) days of unpaid earned and accrued vacation pay through the Resignation
      Date.  Mr. Kornhauser specifically acknowledges that the Separation
      Pay and other consideration specified in this Agreement, supplant any bonus,
      commissions, or other pay whatsoever to which he might otherwise be entitled,
      except as specifically provided in this Agreement.

    

    3.           Bonus
      Participation.  To the extent that bonuses are paid to active
      employees of Chattem under the fiscal 2007 Chattem Short Term Incentive
      Compensation Plan (“Chattem Corporate Bonus Plan”), the parties agree that,
      notwithstanding the terms of such Chattem Corporate Bonus Plan, Mr. Kornhauser
      shall participate in the Chattem Corporate Bonus Plan for all of fiscal 2007
      at
      the applicable bonus level based on the corporate performance
      level.  Any bonus payable to Mr. Kornhauser under this provision will
      be paid to him according to Chattem’s regular time-table for making such bonus
      payments to active employees.  Mr. Kornhauser acknowledges that he
      will not be eligible for any other bonus from Chattem under any other program,
      plan or policy, including, without limitation, the fiscal 2008 Chattem Corporate
      Bonus Plan.

    

    4.           Separation
      Benefits.

    

    a.           Health
      Insurance
      Benefits.  Mr. Kornhauser agrees that all of his employee
      benefits, including, without limitation, his Chattem group medical and dental
      insurance coverages, will cease as of the Resignation Date.  Mr.
      Kornhauser (and his dependents, if any) may be entitled to continue certain
      benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”)
      following the expiration of his group medical and dental insurance coverage
      on
      the Resignation Date.  Provided that Mr. Kornhauser signs this
      Agreement and does not revoke it, Chattem will pay the premiums for such
      coverage under COBRA for a period of six (6) consecutive months from the
      Resignation Date.  These Separation Benefits will be available to Mr.
      Kornhauser regardless of whether he obtains other employment 

     

    
       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
        

        
          
            
            

          

          
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    on
      or
      before May 16, 2008.  Provided that Mr. Kornhauser is not employed on
      or before May 16, 2008, and provided further that Mr. Kornhauser complies with
      the express provisions of paragraph 2(b) of this Agreement, Chattem will pay
      the
      premiums for COBRA continuation coverage for Mr. Kornhauser (and his dependents,
      if any) for an additional six (6) consecutive month period, from May 17, 2008
      through November 16, 2008, or until Mr. Kornhauser is employed or until he
      fails
      to comply with the express provisions of Paragrah 2(b) of this Agreement,
      whichever event occurs first.  At the point in time Chattem
      discontinues paying COBRA premiums for Mr. Kornhauser and his dependents, Mr.
      Kornhauser and his dependents may continue such coverage under COBRA at Mr.
      Kornhauser's own expense to the extent that they are otherwise eligible for
      such
      coverage.

    

    b.           Split
      Dollar Life
      Insurance.  Chattem owns New York Life Insurance and Annuity
      Corporation Policy No. 56 401 502 (the “Life Insurance Policy”), insuring Mr.
      Kornhauser’s life, which, as of September 30, 2007, had a death benefit of
      $283,519 and a cash value of $6,856.23.  To the extent such life
      insurance policy is transferable, Chattem will allow Mr. Kornhauser to purchase
      the Life Insurance Policy for the sum of $6,856.23, provided that Mr. Kornhauser
      exercises such right of purchase within sixty (60) days following the
      Resignation Date.  Thereafter, Mr. Kornhauser’s right to purchase the
      Life Insurance Policy shall expire.  Chattem shall have no further
      obligation to Mr. Kornhauser to pay any premiums in connection with the Life
      Insurance Policy.  In the event Mr. Kornhauser elects to purchase the
      Life Insurance Policy, he shall be solely responsible for any taxes assessed
      against him as a result of such transaction.

    

    c.           Term
      Life
      Insurance.  Nothing in this Agreement will prejudice any right
      that Mr. Kornhauser may otherwise have to convert his Chattem group term life
      insurance policy to an individual policy owned by Mr. Kornhauser provided that
      Mr. Kornhauser pays all costs associated with such conversion.

    

    5.           Retirement
      Plans.  As of the date of this Agreement, Mr. Kornhauser may be
      participating in various Chattem Retirement Plans, including a 401(k) account
      (“Retirement Plans”).  For purposes of the Retirement Plans, the
      Resignation Date shall be Mr. Kornhauser’s Severance from Employment
      Date.

    

    6.           Job
      Reference and
      Non-Disparagement.  In the event that an Authorized
      Representative of Chattem (for purposes of this paragraph "Authorized
      Representative" means an officer of Chattem or any member of Chattem’s Human
      Resources Department) is contacted by any person or entity concerning Mr.
      Kornhauser’s employment by Chattem, such Authorized Representative of Chattem
      will refer such inquiry to Chattem’s President/Chief Operating Officer or Chief
      Executive Officer who will divulge Mr. Kornhauser’s dates of employment,
      position held and rate of pay, as well as other information that is generally
      consistent with the letter of reference attached as Exhibit B, an original, signed
      version of which will be provided to Mr. Kornhauser provided he signs this
      Agreement and does not revoke it.  Mr. Kornhauser agrees that he will
      not, directly or indirectly, make any disparaging, negative, or unfavorable
      verbal or written statements of any nature whatsoever about Chattem, its
      management, operations, products, services, directors, officers, employees
      or
      agents.

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

       

      
        
          
          

        

        
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    7.           Stock
      Options.  In
      accordance with the terms of Chattem’s Non-Statutory Stock Option Plans, the
      currently vested and exercisable options previously granted to Mr. Kornhauser,
      and Twelve Thousand Five Hundred (12,500) options granted to him in April 2005
      and vested on an accelerated basis in November 2005, but subjected at that
      time
      to transfer restrictions due to expire in 2008 and 2009, may be exercised and
      the underlying stock sold free of the transfer restrictions, at any time on
      or
      before thirty (30) days after the Resignation Date, after which date all such
      vested and unexercised options shall expire.  All other stock options
      previously granted to Mr. Kornhauser that are not vested as of the Resignation
      Date shall expire and terminate on such Resignation Date in accordance with
      the
      terms of Chattem's Non-Statutory Stock Option Plans.

    

    8.           Restricted
      Stock.  On January 26, 2005, Mr. Kornhauser was granted 3,000
      shares of restricted stock (the “Restricted Stock”).  As of the
      Resignation Date, 1,500 shares of the Restricted Stock will have vested and
      forfeiture restrictions will have terminated.  The
      remaining 1,500 shares of Restricted Stock, as to which restrictions will
      not have lapsed as of the Resignation Date, shall immediately be forfeited
      and
      cancelled, and Mr. Kornhauser shall tender to Chattem, for cancellation,
      certificates representing such shares.

     

    9.           Mr.
      Kornhauser’s
      Services.  Mr. Kornhauser agrees that, upon request by Chattem,
      he will respond fully to requests for information from Chattem, its attorneys
      or
      accountants, from the Resignation Date through the period of time during which
      he continues to receive Separation Pay.  Mr. Kornhauser acknowledges
      that he will receive no additional compensation in connection with his
      performance of these duties for Chattem, unless such duties require more than
      ten (10) hours in any week, in which case Chattem shall pay Mr. Kornhauser
      at
      the rate of One Hundred Fifty and No/100 ($150.00) Dollars per hour for all
      such
      hours exceeding ten in such week.

    

    10.           General
      Release.  In
      consideration for the benefits conferred upon Mr. Kornhauser as outlined in
      this
      Agreement, Mr. Kornhauser agrees to release Chattem and each of its officers,
      directors, employees, agents, attorneys, subsidiaries and affiliates from any
      and all charges, complaints, claims, liabilities, obligations, actions, causes
      of action, suits, demands, costs, losses, damages and expenses, of any nature
      whatsoever, known or unknown, including, but in no way limited to, any claims
      under Title VII of the Civil Rights Act of 1964 (Title VII); The Age
      Discrimination in Employment Act (ADEA); the Americans with Disabilities Act
      (ADA); the Employee Retirement Income Security Act of 1974, as amended (ERISA)
      (other than any claim for benefits, vested or accrued, through the Severance
      from Employment date specified above, under a qualified retirement plan or
      welfare benefit plan); 42 U.S.C. §1981; the Occupational Safety and Health Act,
      29 U.S.C. §651 et seq.
      (OSHA); the federal False Claims Act; the Tennessee Human Rights Act; the
      Tennessee Public Protection Act; any claim based on express or implied contract;
      any claims of promissory estoppel; any action arising in tort, including, but
      in
      no way limited to, libel, slander, defamation, intentional infliction of
      emotional distress, or negligence; any claim for wrongful discharge, any
      constitutional claims, or any claim under all laws relating to the violation
      of
      public policy, retaliation or compensation; any claims arising under employment
      or disability discrimination or whistleblower laws; or any claims under other
      applicable federal, state or local law, regulation, ordinance or order, at
      common law or otherwise arising out of their employment relationship or the
      termination of their employment 

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
         

        
          
            
            

          

          
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    relationship,
      which Mr. Kornhauser now has, owns or holds, or claims to have, own or hold,
      or
      which he at any time heretofore had, owned or held, or claimed to have, own
      or
      hold against them.  It is agreed that this is a general release and it
      is to be broadly construed as a release of all claims; provided that, this
      paragraph expressly does not include a release of any claims that cannot be
      released hereunder by law.  Mr. Kornhauser hereby acknowledges that he
      has received from Chattem all wages and compensation which he is owed by Chattem
      or to which he is entitled by law as of his last pay period.  Mr.
      Kornhauser hereby acknowledges that Chattem has in no way interfered with his right
      to take any leave
      to which he may have been entitled by law or under Chattem’s
      policies.  Mr. Kornhauser further acknowledges that Chattem has
      allowed him to take any such leave for which he was eligible and which he
      requested.  Mr. Kornhauser further acknowledges that he has reported
      any and all workplace injuries that he has incurred or suffered to
      date.

    

    11.           Confidentiality
      of
      Agreement.  In further consideration for the above Separation
      Pay and Separation Benefits, Mr. Kornhauser agrees that he will keep the terms
      and amount of this Agreement completely confidential, and that he will not
      hereafter disclose any information concerning this Agreement to any person
      or
      entity other than his attorneys, his tax advisors and his spouse, except as
      required by law; provided, that those individuals will be deemed to be his
      agents and, therefore, also bound by this Agreement.  Mr. Kornhauser
      further recognizes and acknowledges that strict confidentiality is of the
      essence of this Agreement, and that Chattem would suffer immediate and
      irreparable harm in the event of any breach of that
      confidentiality.  Nothing in this Agreement shall prevent Mr.
      Kornhauser from responding to a subpoena or court order issued by any agency
      or
      court of competent jurisdiction.  Further, without divulging any other
      information concerning this Agreement, Mr. Kornhauser may disclose to any
      prospective employers the existence and terms of any restrictive covenants
      contained in paragraphs 12, 14 and 15 of this Agreement.  It is
      acknowledged that Chattem may be obligated to disclose the contents of this
      Agreement under applicable securities laws, NASDAQ rules and certain contractual
      relationships or as otherwise required by law; issue a press release and deal
      with the media in connection with the announcement of this Agreement; and
      respond to inquiries from shareholders, analysts and other appropriate
      parties.

    

    12.           Non-disclosure
      of Confidential
      Information.  As further consideration for the benefits
      conferred upon Mr. Kornhauser by this Agreement, Mr. Kornhauser agrees that
      he
      will not divulge, furnish or make accessible to anyone or use in any way any
      confidential or secret knowledge or information of Chattem that Mr. Kornhauser
      has acquired or become acquainted with during his employment by Chattem, whether
      communicated orally or in writing, and whether developed by himself or by
      others, concerning any products, product launches, financial information,
      techniques, data, ideas, trade secrets, confidential or secret designs,
      processes, formulae, plans, devices or material (whether or not patented or
      patentable) directly or indirectly useful in any aspect of the business of
      Chattem; any customer information, marketing information, media buying
      techniques and strategies, business plans, merchandising information, pricing
      information, strategies, or supplier lists of Chattem; any confidential or
      secret development or research work of Chattem; any other confidential
      information or secret aspects of the business of Chattem; any past or currently
      contemplated brand acquisition or divestiture, licensing opportunity or business
      transaction; or any information relating to personal or personnel matters,
      stock
      ownership, contracts, investments, legal matters or business affairs of

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
         

        
          
            
            

          

          
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    Chattem
      which are of a proprietary or confidential nature, or maintained as information
      not generally disclosed to the public, whether communicated orally or in writing
      (collectively, the “Confidential Information”).  Mr. Kornhauser
      acknowledges that Confidential Information constitutes a unique and valuable
      asset of Chattem and represents a substantial investment of time and expense
      by
      Chattem, and that any disclosure or other use of such Confidential Information
      other than for the sole benefit of Chattem would be wrongful and would cause
      irreparable harm to Chattem.  Mr. Kornhauser will refrain from any
      acts or omissions that would reduce the value of such Confidential Information
      to Chattem.  Mr. Kornhauser further acknowledges that this provision
      is of the essence of this Agreement, and that Chattem would suffer irreparable
      harm in the event of any breach of this provision.

    

    13.           Surrender
      of Materials Upon
      Resignation.  Mr. Kornhauser hereby agrees that, upon the
      Resignation Date, he will immediately surrender to Chattem all personal notes,
      drawings, manuals, documents, photographs, computer programs, disks or the
      like,
      including all copies thereof, comprising or including any Confidential
      Information.  In addition, Mr. Kornhauser agrees to return to Chattem,
      immediately upon the Resignation Date, all Chattem property, including, but
      not
      limited to, credit cards, computer hardware, computer software, cell phones,
      pagers, office and plant keys or cards, and office supplies.

    

    14.           Agreement
      Not to Interfere or
      Solicit.  Mr. Kornhauser agrees that, for a period of twelve
      (12) months following the Resignation Date (the “Non-Solicitation Period”), he
      will not, directly or indirectly, either for the benefit of himself or for
      the
      benefit of any other person, firm, corporation, or other entity, without the
      prior written consent of Chattem, which consent may be withheld by Chattem
      in
      its sole discretion, induce or attempt to induce any supplier, customer, client,
      business partner, or prospective acquisition candidate and/or licensing partner
      of Chattem to withdraw, curtail or cease doing business with
      Chattem.  Mr. Kornhauser also agrees that, during the Non-Solicitation
      Period, he will not, directly or indirectly, induce or attempt to induce any
      employee of Chattem to leave the employ of Chattem.  Finally, Mr.
      Kornhauser agrees that, during the Non-Solicitation Period, he will not,
      directly or indirectly, assist or encourage any other person in carrying out
      any
      activity that would be prohibited by the foregoing provisions of this paragraph
      14, if such activity were carried out by Mr. Kornhauser either directly or
      indirectly.

    

    15.           Non-Compete.  For
      a
      period of twelve (12) months from the Resignation Date, Mr. Kornhauser covenants
      and agrees that he will not directly or indirectly, offer or provide any
      marketing services, including on a consulting basis, to any person, company,
      partnership, joint venture or other entity in a capacity involving, in whole
      or
      in part, over-the-counter drugs, functional toiletries or dietary supplements
      which are competitive with the product categories of Chattem listed in Exhibit C to this
      Agreement.  This provision applies only to persons or entities selling
      the above specified products in competition with Chattem in any Food, Drug
      and
      Mass merchandiser stores in the United States.

    

    16.           Standstill.  For
      a
      period of five (5) years from the Resignation Date (“the Standstill Period”),
      Mr. Kornhauser shall not, directly or indirectly, and Mr. Kornhauser shall
      cause
      any affiliate of his not to:  (i) except pursuant to currently held
      stock options and restricted stock described in paragraphs 7 and 8 herein,
      acquire, or offer or agree to acquire, directly or 

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
         

        
          
            
            

          

          
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    indirectly,
      by purchase or otherwise, any securities of Chattem (or direct or indirect
      rights or options to acquire any securities of Chattem), except by way of stock
      dividends or other distributions made on a pro rata basis with respect to
      securities of Chattem acquired by Mr. Kornhauser prior to the date of this
      Agreement; (ii) solicit proxies or consents or become a "participant" in a
      "solicitation" (as such terms are defined in Regulation 14A under the Securities
      Exchange Act of 1934, as amended) of proxies or consents with respect to
      securities of Chattem with regard to any matter; (iii) seek to control or
      influence the management, Board of Directors or policies of Chattem, or seek
      to
      advise, encourage or influence any person with respect to the voting of any
      securities of Chattem, or induce, attempt to induce or in any manner assist
      any
      other person in initiating any shareholder proposal or a tender or exchange
      offer for securities of Chattem or any change of control of Chattem, or for
      the
      purpose of convening a shareholders' meeting of Chattem; (iv) make any public
      announcement or make any written or oral proposal or invitation to discuss
      any
      possibility, intention, plan or arrangement, relating to a tender or exchange
      offer for securities of Chattem or a business combination (or other similar
      transaction which would result in a change of control), sale of assets,
      liquidation or other extraordinary corporate transaction between Mr. Kornhauser
      or any of his affiliates and Chattem or take any action which might require
      Chattem to make a public announcement regarding any of the foregoing; or (v)
      form, join or in any way participate in a partnership, limited partnership,
      syndicate or other group (or otherwise act in concert with any other person)
      for
      the purpose of acquiring, holding, voting or disposing of securities of Chattem
      or taking any other actions restricted or prohibited under clauses (i) through
      (iv) of this paragraph 16, or announce an intention to do, or enter into any
      arrangement or understanding with others to do, any of the actions restricted
      or
      prohibited under clauses (i) through (iv) of this paragraph
      16.  Notwithstanding the foregoing, the parties agree that Mr.
      Kornhauser’s ownership of less than a two percent (2%) interest in a mutual fund
      registered under the Investment Company Act of 1940, as amended, shall not
      be a
      violation of clauses (i) through (iv) of this paragraph 16.  The
      parties further agree that Mr. Kornhauser’s acquisition or ownership of shares
      of Chattem stock shall not be a violation of paragraph 16 of this Agreement
      so
      long as his total holdings of Chattem stock do not exceed 20,000
      shares.

    

    17.           Litigation.  Mr.
      Kornhauser agrees that it is an essential term and condition of this Agreement
      that he cooperate with Chattem and its counsel in any claims and/or lawsuits
      involving Chattem of which he may have particular knowledge or in which he
      may
      be a witness.  Such cooperation includes meeting with Chattem
      representatives and counsel to disclose such facts as Mr. Kornhauser may know;
      preparing with Chattem counsel for any deposition, trial, hearing or other
      proceeding; attending any deposition, trial, hearing or other proceeding to
      provide truthful testimony; and providing other assistance to Chattem and to
      Chattem’s counsel in the defense or prosecution of litigation as may, in the
      judgment of Chattem’s counsel, be necessary.  Chattem agrees to
      reimburse Mr. Kornhauser for reasonable and necessary expenses incurred by
      Mr.
      Kornhauser in the course of complying with this obligation of
      cooperation.

    

    18.           Remedies.  Mr.
      Kornhauser agrees that the covenants specifically set forth in paragraphs 6,
      7,
      8, 9, 10, 11, 12, 13, 14, 15, 16 and 17 of this Agreement are of the essence
      of
      this Agreement; that each of such covenants is reasonable and necessary to
      protect and preserve the interests and properties of Chattem; and that
      irreparable loss and damage will be suffered by Chattem should Mr. Kornhauser
      breach any of such covenants.  In the event of a breach of any

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
         

        
          
            
            

          

          
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    of
      these
      provisions, this Agreement shall not be void; however, Chattem will thereafter
      have no further obligations to Mr. Kornhauser pursuant to this Agreement, and
      Chattem may bring an action in a court of appropriate jurisdiction to enforce
      the applicable provision and to recover appropriate damages and attorney
      fees.  The parties further agree that the covenants contained in
      paragraphs 14, 15 and 16 of this Agreement are of particular importance to
      Chattem.  In the event of a breach of any of the restrictive covenants
      contained in paragraphs 14, 15 or 16 of this Agreement, this Agreement shall
      not
      be void; however, Mr. Kornhauser agrees that, in addition to the remedies
      provided above, upon demand by Chattem, he will be under an obligation to
      immediately return and/or refund seventy-five percent (75%) of the Separation
      Pay (specified in paragraph 2) and bonus (specified in paragraph 3) previously
      paid by Chattem hereunder and that Chattem will thereafter have no further
      obligations to him pursuant to this Agreement.  In addition, Mr.
      Kornhauser agrees and consents that, in addition to all other remedies provided
      at law or in equity, Chattem shall be entitled to a temporary restraining order
      and temporary and permanent injunctions to prevent a breach or contemplated
      breach of any of the aforementioned covenants.  The existence of any
      claim, demand, action or cause of action of Mr. Kornhauser against Chattem
      shall
      not constitute a defense to the enforcement by Chattem of any of the covenants
      or agreements herein.

    

    19.           Opportunity
      to
      Review.  Mr. Kornhauser represents and acknowledges that he has
      carefully read and understands all of the provisions of this Agreement, and
      that
      he is voluntarily entering into this Agreement.  Mr. Kornhauser represents
      and acknowledges that he has been advised in writing to, and has been afforded
      the right and opportunity to consult with an attorney prior to executing this
      Agreement; that he has twenty-one (21) days within which to consider this
      Agreement; that he has seven (7) days following its execution within which
      to
      revoke this Agreement; and that this Agreement, and any consideration due
      hereunder, will not become effective until after the revocation period has
      expired.  Mr. Kornhauser further acknowledges and confirms that
      the only consideration for him signing this Agreement are the terms and
      conditions stated in writing in this Agreement, and that no other promise or
      agreement of any kind, other than those set out in writing in this Agreement,
      has been made to him by any person to cause him to sign this
      Agreement.

    

    20.           Indemnification. 
      In further
      consideration for the above, Mr. Kornhauser agrees to indemnify and hold Chattem
      harmless from and against any and all loss, cost, damage or expense, including,
      without limitation, attorney fees, incurred by Chattem arising out of any breach
      of this Agreement by Mr. Kornhauser.  Chattem agrees to indemnify and
      hold Mr. Kornhauser harmless from and against any and all loss, cost, damage
      or
      expense, including, without limitation, attorney fees, incurred by Mr.
      Kornhauser arising out of any breach of this Agreement by Chattem.

    

    21.           Non-admission.  This
      Agreement will not in any way be construed as an admission by Chattem of any
      acts of discrimination or misconduct whatsoever against Mr. Kornhauser or any
      other person, and Chattem specifically disclaims any liability to or
      discrimination against Mr. Kornhauser or any other person, on the part of
      itself, its employees or its agents.  Similarly, this Agreement will
      not in any way be construed as an admission by Mr. Kornhauser of any acts of
      misconduct whatsoever against Chattem or any other person or
      entity,

    
       

       

      
        	_______
                Mr. Kornhauser	
                Chattem
                  ________

              

      

      
         

        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

    and
      Mr.
      Kornhauser specifically disclaims any liability to or misconduct against Chattem
      or any other person or entity.

    

    22.           Governing
      Law.  This
      Agreement is made and entered into in the State of Tennessee, and will in all
      respects be interpreted, enforced and governed under the laws of that
      State.

     

    23.           Binding
      Effect.  All
      covenants, representations, and agreements made by or on behalf of Mr.
      Kornhauser and Chattem contained in the Agreement will be binding upon the
      parties and their respective spouses, successors, representatives, assigns,
      heirs and estates.

    

    24.           Entire
      Agreement.  This Agreement sets forth the entire agreement
      between the parties, and fully supersedes any and all prior agreements or
      understandings between them pertaining to the subject matter
      hereof.  It is agreed that this Agreement may be modified only by a
      subsequent, written agreement, executed by both parties.

    

    25.           Arbitration.  Mr.
      Kornhauser and Chattem expressly waive any right to a jury trial or to go to
      court concerning any and all disputes arising regarding the interpretation,
      enforcement, or performance of this Agreement, other than for injunctive relief
      pursuant to paragraph 18 of this Agreement.  Any and all disputes
      arising regarding the interpretation, enforcement, or performance of this
      Agreement shall be resolved by binding, confidential arbitration in Chattanooga,
      Tennessee, which arbitration shall be governed by the Arbitration Rules
      established by the American Arbitration Association.  The arbitrator
      shall have full authority to enforce the Agreement, including injunctive or
      other equitable relief.

    

    This
      Agreement includes a waiver and general
      release of all known and unknown claims.  Mr. Kornhauser acknowledges
      that he has carefully read and understands this Agreement.  Mr.
      Kornhauser is advised to consult an attorney before executing this waiver and
      general release of all claims.

    

    The
      undersigned have executed this
      Agreement on the dates reflected by their signatures.

     

     

    
      	 	 	 	CHATTEM,
              INC.	 
	 	 	 	 	 
	 	 	 	 	 
	
              By:

            	 	 	
              
                By:

              

            	 
	
              Richard
                W.
                Kornhauser

            	 	 	
              Robert
                E.
                Bosworth

            	 
	
               

            	 	 	
              President
                and
                Chief Operating Officer

            	 
	 	 	 	 	 
	 	 	 	 	 
	Date:	 	 	Date:	 

    

    
 

    

    
      
        
        

      

      
        9WWW.EXFILE.COM, INC. -- 888-775-4789 -- CHATTEM, INC. -- EXHIBIT 10.54 TO FORM 10-K

    EXHIBIT
      10.54

     

    Incentive
      Compensation
      Plan

     

    The
      Company’s annual incentive compensation plan is intended to assist the Company
      in rewarding and motivating key employees, focuses strongly on Company and
      individual performance, and provides a fully competitive compensation package
      to
      plan participants.  As a pay-for-performance plan, cash incentive
      awards are paid annually based on the achievement of performance objectives
      for
      the year.  Under the plan, each plan participant is provided a range
      of potential annual incentive awards based on competitive award levels in the
      marketplace.  Actual awards paid under the plan are based on the
      Company’s corporate performance.  Individual performance is also
      considered in determining actual award levels, but is assessed in a
      non-formulaic fashion.  The incentive compensation plan performance
      objective is earnings per share performance against plan.  The maximum
      incentive awards that could be awarded to the Company’s named executive officers
      pursuant to the incentive compensation plan are as follows: chairman and chief
      executive officer – (150% x annual base salary); president and chief operating
      officer - (100% x annual base salary); vice presidents - (60% x annual base
      salary).

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