Document:

EXHIBIT 10.3
                                                                    ------------

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Between
                                 CHATTEM, INC.,
                                       and
                CLASS COUNSEL ON BEHALF OF CLASS REPRESENTATIVES
               IN RE PHENYLPROPANOLAMINE (PPA) PRODUCTS LIABILITY
                                   LITIGATION
                      Case No. 2:01-md-1407 (MDL No. 1407)
                                   dated as of
                                 April 13, 2004

                        CLASS ACTION SETTLEMENT AGREEMENT
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                                TABLE OF CONTENTS
                                -----------------

RECITALS ....................................................................  4

ARTICLE 1-DEFINITIONS .......................................................  5
     Section 1.1Definitions .................................................  5

ARTICLE 2 - CHATTEM SETTLEMENT TRUST AND FUNDS .............................. 12
     Section 2.1 Establishment Of Chattem Settlement Trust .................. 12
     Section 2.2 Funding .................................................... 12
     Section 2.3 Establishment Of Benefit Funds ............................. 13

ARTICLE 3- CLASS MEMBER RIGHTS AND BENEFITS ................................. 15
     Section 3.1 Benefit Payments To Class Members .......................... 15
     Section 3.2 Payment Of Benefits ........................................ 15
     Section 3.3 Extraordinary Damages Benefits ............................. 15
     Section 3.4 Opt-Out Rights ............................................. 15

ARTICLE 4- CLAIMS ADMINISTRATION ............................................ 16
     Section 4.1 Benefit Claim Forms ........................................ 16
     Section 4.2 Benefit Determination ...................................... 17
     Section 4.3 Extraordinary Damage Benefit Claim Form .................... 20
     Section 4.4 Extraordinary Damages Benefit Determination ................ 20
     Section 4.5 Liens ...................................................... 21
     Section 4.6 Claims Administration Procedures ........................... 22
     Section 4.7 General Claims Administration Matters ...................... 22
     Section 4.8 Fraudulent Claims .......................................... 23

ARTICLE 5- ATTORNEYS' FEES .................................................. 23
     Section 5.1 Existing Contingency Fee Agreements ........................ 23
     Section 5.2 Plaintiff's Litigation Expense Fund ........................ 23

ARTICLE 6- GENERAL TERMINATION AND RELEASE .................................. 24
     Section 6.1 Good Faith Settlement ...................................... 24
     Section 6.2 Release .................................................... 24
     Section 6.3 Requests to the Trial Court ................................ 25
     Section 6.4 No Recovery from Released Parties Outside This Agreement ... 25
     Section 6.5 Claim Forms ................................................ 25

ARTICLE 7 - CONTINUING JURISDICTION ......................................... 25
     Section 7.1 Trial Court Retains Jurisdiction ........................... 25

ARTICLE 8 - TERMINATION ..................................................... 26
     Section 8.1 Termination By Chattem ..................................... 26

ARTICLE 9 - SETTLEMENT IMPLEMENTATION ....................................... 27
     Section 9.1 General .................................................... 27
     Section 9.2 Approval Process Provisions ................................ 27
     Section 9.3 Conditions ................................................. 28

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ARTICLE 10 - ASSIGNMENT OF CLAIMS ........................................... 29
     Section 10.1 Class Members' Claims Against Alps ........................ 29
     Section 10.2 Recovery From Alps ........................................ 29
     Section 10.3 Duty To Cooperate With Assigned Claims .................... 29

ARTICLE 11- MISCELLANEOUS ................................................... 29
     Section 11.1 Confidential Information .................................. 29
     Section 11.2 Successors and Assigns .................................... 30
     Section 11.3 Use of Settlement and Negotiations in Other Proceedings ... 30
     Section 11.4 No Admission of Liability or Lack of Merit ................ 30
     Section 11.5 Titles and Headings ....................................... 30
     Section 11.6 Distribution of Remaining Funds ........................... 31
     Section 11.7 Notice to Parties ......................................... 31
     Section 11.8 Receipt of Documentation .................................. 32
     Section 11.9 No Third Party Beneficiaries .............................. 32
     Section 11.10 Entire Agreement ......................................... 32
     Section 11.11 Governing Law ............................................ 32
     Section 11.13 Original Signatures ...................................... 33
     Section 11.14 Severance of Agreement ................................... 33

                        CLASS ACTION SETTLEMENT AGREEMENT
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                        CLASS ACTION SETTLEMENT AGREEMENT

This SETTLEMENT AGREEMENT, dated as of April 13, 2004 (this "SETTLEMENT
AGREEMENT" or "CLASS ACTION SETTLEMENT" OR "SETTLEMENT") is entered into by and
between Chattem, Inc., a Tennessee corporation ("CHATTEM,") on behalf of itself
and the other Released Parties hereunder, and the undersigned Class Counsel on
behalf of the Class Representatives. The Class Representatives, together with
Chattem, are sometimes referred to herein as the "PARTIES."

                                    RECITALS

WHEREAS, Chattem and the Class Representatives hereby agree to a class action
settlement subject to the approval of the Trial Court, with respect to Class
Members in the United States which would resolve, on the terms set forth in this
Settlement Agreement, Settled Claims against Chattem and other Released Parties
arising from Dexatrim(R) Products, pending in various courts, including but not
limited to claims which have been made in the actions that have been or will be
transferred for coordinated or consolidated pretrial proceedings to the United
States District Court for the Western District of Washington at Seattle (In RE
PHENYLPROPANOLAMINE (PPA) products liability litigation (MDL No. 1407)), and in
numerous other federal and state courts.

WHEREAS, this Settlement Agreement shall not be construed as evidence of or as
an admission by any of the Released Parties of any liability or wrongdoing
whatsoever or as an admission by the Class Representatives or Class Members of
any lack of merit in their claims.

NOW, THEREFORE, Chattem and the Class Representatives hereby agree, subject to
Final Judicial Approval, compliance with applicable legal requirements, and
other conditions, all as set forth below, that the Settled Claims against
Chattem and other Released Parties, as defined herein, will be settled,
compromised and released, in accordance with the following terms.

                        CLASS ACTION SETTLEMENT AGREEMENT
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                             ARTICLE 1- DEFINITIONS

SECTION 1.1 DEFINITIONS

For purposes of this Settlement Agreement the following terms shall have the
meanings set forth in this Article 1. Terms used in the singular shall be deemed
to include the plural and vice versa.

(a.)     "$" shall denote United States dollars.

(b.)     "AGGREGATE OPT-OUT MATRIX VALUE" shall have the meaning set forth in
         Section 8.1 (b).

(c.)     "BUSINESS DAY" shall mean any day other than Saturday, Sunday or any
         U.S. federal holiday or any other day that the Trustee is closed.

(d.)     "BENEFIT CLAIM FORM" shall have the meaning set forth in Section 4.1
         (a).

(e.)     "BENEFIT CLAIM FORM DEADLINE" shall mean the date that the Trial Court
         sets as the last day for Class Members to submit a Benefit Claim Form.

(f.)     "BENEFIT FUND" shall have the meaning set forth in Section 2.3(a).

(g.)     "CASE SCORING COMPONENT(S)" shall mean one or more components on the
         applicable Case Scoring Worksheet.

(h.)     "CASE SCORING WORKSHEET" shall mean the "Matrix Scoring Worksheet for
         Hemorrhagic Stroke Cases," attached as Exhibit E to Annex I the "Matrix
         Scoring Worksheet for Ischemic Stroke Cases," attached as Exhibit F to
         Annex I, or the "Matrix Scoring Worksheet for Other Injuries and
         Cardiac Injuries," attached as Exhibit G to Annex I.

(i.)     "CHATTEM SETTLEMENT CLAIM NUMBER" shall have the meaning set forth in
         Section 4.2(b).

(j.)     "CHATTEM" shall mean Chattem, Inc., a Tennessee corporation.

(k.)     "CHATTEM CLAIMS COORDINATOR" shall mean Miller & Martin PLLC and its
         agents, and/or any other person(s), or entity (ies) selected by Chattem
         to coordinate the administration of claims on behalf of Chattem.

(l.)     "CLAIMS ADMINISTRATOR" shall mean the person(s) or entity (ies) to be
         appointed by the Court and his/her, or its agents, to administer claims
         under this Settlement Agreement.

(m.)     "CLASS ACTION SETTLEMENT" OR "SETTLEMENT" shall have the meaning set
         forth in the Preamble.

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(n.)     "CLASS COUNSEL" shall mean those attorneys executing this Settlement
         Agreement on behalf of the Class Representatives, or such other
         attorneys as shall be approved by the Court as counsel to the
         Settlement Class.

(o.)     "CLASS COUNSEL CLAIMS COORDINATOR" shall mean the person, persons, or
         entity selected by Class Counsel and approved by the Court, to
         coordinate the administration of claims on behalf of Class Members.

(p.)     "CLASS MEMBERS" shall mean members of the Settlement Class.

(q.)     "CLASS REPRESENTATIVES" shall mean Jon Park and Danza Honeyblue, or
         different persons as shall be designated by the Court as the
         Representative(s) of the Settlement Class, in the action in Federal
         District Court captioned IN RE PHENYLPROPANOLAMINE (PPA) products
         liability litigation (MDL No. 1407).

(r.)     "CONTINUING FUNDING DATE" shall have the meaning set forth in Section
         2.2(c).

(s.)     "CONTINUING FUNDING AMOUNT" shall have the meaning set forth in Section
         2.2(c).

(t.)     "COURT" and/or "TRIAL COURT" and/or "FEDERAL DISTRICT COURT" means the
         United States District Court for the Western District of Washington at
         Seattle.

(u.)     "DERIVATIVE CLAIMANT" shall mean any person asserting the right to sue
         Chattem independently or derivatively, by reason of their personal or
         family relationship with a Dexatrim(R) Product User.

(v.)     "DEXATRIM(R) CASE SCORING SYSTEM AND MATRIX" or "MATRIX" shall mean
         that document titled "Dexatrim(R) Case Scoring System and Matrix"
         attached hereto as Annex 1.

(w.)     "DEXATRIM(R) PRODUCT USERS" shall mean persons who ingested one or more
         Dexatrim(R) Products on or after December 21, 1998 and who were
         citizens or residents of the United States at the time of their alleged
         injury.

(x.)     "DEXATRIM(R) PRODUCTS" shall mean all appetite suppressant products
         bearing the trademark Dexatrim(R) marketed, distributed and/or
         manufactured by Chattem, Inc., and/or The Delaco Company, as successor
         by merger to Thompson Medical Company, Inc. that contained
         Phenylpropanolamine.

(y.)     "DOCUMENTED UNREIMBURSED OR UNREIMBURSABLE ECONOMIC DAMAGES" shall have
         the meaning set forth in Section 3.3(c).

(z.}     "EDF DISTRIBUTION RECOMMENDATION" shall have the meaning set forth in
         Section 4.4(a).

(aa.)    "EXTRAORDINARY DAMAGE FUND BENEFIT CLAIM FORM" and "EDF BENEFIT CLAIM

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         FORM" shall have the meaning set forth in Section 4.3(a).

(bb.)    "EXTRAORDINARY DAMAGES FUND" and "EDF" shall have the meaning set forth
         in Section 2.3(b). The Extraordinary Damages Fund is sometimes referred
         to in the Matrix as the "Extraordinary Injury Fund," and those two
         terms may be used interchangeably. It is expressly understood that,
         although the Matrix provides that an Extraordinary Injury Fund in the
         amount of $12.5 million will be established, Class Members under this
         Settlement Agreement are entitled to only $5.0 million and Chattem is
         not required to pay more than $5.0 million to the Extraordinary Damages
         Fund. Any amount greater than $5.0 million that is referenced in the
         Matrix is referring to an amount paid by another party for the benefit
         of persons other than Class Members.

(cc.)    "FAIRNESS HEARING DATE" means the date on which the Fairness Hearing
         takes place.

(dd.)    "FAIRNESS HEARING" means the hearing conducted by the Court to
         determine the fairness, adequacy and reasonableness of this Settlement
         Agreement under Fed. R. Civ. P. 23(e).

(ee.)    "FINAL BENEFIT DETERMINATION" shall have the meaning set forth in
         Section 4.2(d).

(ff.)    "FINAL CHATTEM SETTLEMENT TRUST" shall mean a trust established to
         receive funds to be transferred from the Initial Chattem Settlement
         Trust and paid by or on behalf of Chattem or the other Released
         Parties, pursuant to the terms of this Settlement Agreement and the
         Final Settlement Trust Agreement.

(gg.)    "FINAL EDF DISTRIBUTION DETERMINATION" shall have the meaning set forth
         in Section 4.4(c).

(hh.)    "FINAL JUDICIAL APPROVAL DATE" shall mean the date on which Final
         Judicial Approval occurs.

(ii.)    "FINAL JUDICIAL APPROVAL" refers to the approval of the Settlement
         Agreement by the Court and such approval becoming final by the
         exhaustion of all available appeals, including writs of certiorari to
         the United States Supreme Court. Final Judicial Approval shall be
         deemed not to have been obtained in the event that Trial Court Approval
         is denied, and the period for appealing such denial has expired without
         any such appeal having been taken.

(jj.)    "FINAL SETTLEMENT TRUST AGREEMENT" shall mean the Final Settlement
         Trust Agreement in the form to be agreed to by the Parties and approved
         by the Trial Court.

(kk.)    "INITIAL CHATTEM SETTLEMENT TRUST" shall mean a trust established to
         receive funds to be paid by or on behalf of Chattem and the other
         Released Parties as provided in this Settlement Agreement, pursuant to
         the Initial Settlement

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        Trust Agreement.

(ll.)    "INITIAL FUNDING DATE" shall have the meaning set forth in Section
         2.2(a).

(mm.)    "INITIAL FUNDING AMOUNT" shall have the meaning set forth in Section
         2.2(a).

(nn.)    "INITIAL SETTLEMENT TRUST AGREEMENT" shall mean the document attached
         hereto as Annex II.

(oo.)    "MATRIX LEVELS" shall mean the horizontal rows on the "Injury Matrix,"
         attached as Exhibit A to Annex I.

(pp.)    "NOTICE" shall have the meaning set forth in Section 9.2(a).

(qq.)    "OPT-OUT DEADLINE" shall mean the date and time preset by the Trial
         Court, which is the last day on which Class Members may exercise the
         Opt-Out Right.

(rr.)    "OPT-OUT RIGHT" shall have the meaning set forth in Section 3.4(a).

(ss.)    "PARTIES" shall have the meaning set forth in the preamble.

(tt.)    "PLAINTIFF'S' COUNSEL' and "CLASS MEMBER'S COUNSEL" shall mean any
         attorney who represents one or more individual Class Members.

(uu.)    "PRELIMINARY APPROVAL" shall mean the conditional certification of the
         proposed class for settlement purposes and the preliminary approval of
         this Settlement Agreement by the Trial Court.

(vv.)    "PRELIMINARY APPROVAL DATE" shall mean the date on which the
         Preliminary Approval occurs.

(ww.)    "PRELIMINARY BENEFIT DETERMINATION" shall have the meaning set forth in
         Section 4.2(a).

(xx.)    "RELEASED PARTIES" shall mean:

         (i)      Chattem, Inc. and each of its past, present and future direct
                  or indirect parent companies, subsidiaries, affiliates,
                  divisions, joint venturers, predecessors, successors, and
                  assigns;

         (ii)     The Delaco Company, as successor by merger to Thompson Medical
                  Company, Inc. ("DELACO") and each of its past, present and
                  future direct or indirect parent companies, subsidiaries,
                  affiliates, divisions, joint venturers, predecessors,
                  successors, and assigns;

         (iii)    Sidmak Laboratories, Inc. ("Sidmak") and each of its past,

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                  present and future direct or indirect parent companies,
                  subsidiaries, affiliates, divisions, joint venturers,
                  predecessors, successors, and assigns

         (iv)     suppliers of the raw material Phenylpropanolamine
                  hydrochloride used in the manufacture of Dexatrim(R) Products
                  (including, without limitation, Sidmak); however, it is
                  expressly understood that Alps Pharmaceutical Ind. Co., Ltd.
                  ("ALPS") is not a Released Party;

         (v)      suppliers of materials other than Phenylpropanolamine,
                  machines or equipment used in the manufacture of Dexatrim(R)
                  Products;

         (vi)     Chattem's contract manufacturers of finished Dexatrim(R)
                  Products (including, without limitation, Sidmak);

         (vii)    any and all distributors of Dexatrim(R) Products, including,
                  without limitation, wholesale distributors, private label
                  distributors, retail distributors, pharmacies and pharmacists;

         (viii)   any other person or entity (specifically including the
                  Consumer Healthcare Products Association and its predecessors
                  ("CHPA")) involved in the development, design, manufacture,
                  formulation, testing, distribution, marketing, labeling,
                  regulatory submissions, advertising or sale of Dexatrim(R)
                  Products (including, without limitation, consultants to Delaco
                  or Chattem); however, nothing in this sub-section shall affect
                  the rights of individuals from pursuing their claims against
                  CHPA to the extent those claims do not relate to a Dexatrim(R)
                  Product; and

         (ix)     for each entity identified above, all of its past, present and
                  future direct or indirect parent companies, subsidiaries,
                  affiliates, divisions, joint venturers, predecessors,
                  successors, and assigns and, collectively, all of their past,
                  present and future directors, officers, employees, agents,
                  attorneys, shareholders, underwriters and insurers, and for
                  each person identified above, all of his, her, or their
                  respective past, present or future heirs, estates and personal
                  representatives.

(yy.)    "REPRESENTATIVE CLAIMANT" shall mean an estate, administrator or other
         legal representative, trust or "special needs trust" of a Dexatrim(R)
         Product User or Derivative Claimant. For the purpose of clarity, the
         parties acknowledge that Representative Claimants are entitled to any
         and all rights and benefits under this Settlement Agreement that the
         represented Dexatrim(R) Product Users

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         and/or Derivative Claimant would have received hereunder regardless of
         any state law to the contrary.

         (zz.) "SETTLED CLAIMS" shall mean any and all claims, including
         assigned claims, whether known or unknown, asserted or unasserted,
         regardless of the legal theory, existing now or arising in the future
         by any or all members of the Settlement Class arising out of or
         relating to any of the Dexatrim(R)Products or their development,
         manufacture, formulation, testing, distribution, marketing, labeling,
         regulatory submissions, advertising, sale, or ingestion. These "SETTLED
         CLAIMS" include, without limitation and by way of example, all claims
         for damages or remedies of whatever kind or character, known or
         unknown, that are now recognized by law or that may be created or
         recognized in the future by statute, regulation, judicial decision, or
         in any other manner, for:

         (i)      personal injury and/or bodily injury, damage, death, fear of
                  disease or injury, mental or physical pain or suffering,
                  emotional or mental harm, or loss of enjoyment of life;

         (ii)     loss of wages, income, earnings, and earning capacity, medical
                  expenses, doctor, hospital, nursing, and drug bills;

         (iii)    loss of support, services, consortium, companionship, society
                  or affection, or damage to familial relations, by spouses,
                  parents, children, other relatives or "significant others" of
                  Class Members;

         (iv)     wrongful death and survival actions;

         (v)      medical screening and monitoring, injunctive and declaratory
                  relief,

         (vi)     consumer fraud, refunds, unfair business practices, deceptive
                  trade practices, Unfair and Deceptive Acts and Practices
                  ("UDAP,") unjust enrichment, disgorgement and other similar
                  claims whether arising under statute, regulation, or judicial
                  decision;

         (vii)    compensatory damages, punitive, exemplary, statutory and other
                  multiple damages or penalties of any kind including, without
                  limitation, economic or business losses or disgorgement of
                  profits arising out of personal injury;

         (viii)   pre-judgment or post-judgment interest; and/or

         (ix)     attorneys' fees, costs of court or litigation expenses.

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(aaa.)   "SETTLEMENT AGREEMENT" shall mean this document and all attachments,
         appendices, and annexes thereto.

(bbb.)   "SETTLEMENT CLASS" shall mean all Dexatrim(R)Product Users who
         sustained bodily injury on or after December 21, 1998 allegedly as a
         result of his or her ingestion of a Dexatrim(R)Product, and their
         associated Derivative Claimants and Representative Claimants. The
         Settlement Class shall expressly exclude any person or entity that
         entered into a settlement with Chattem (which included a release)
         related to claims arising out of the use of a Dexatrim(R)Product. THE
         Settlement Class shall also expressly exclude any individual (and their
         associated Derivative Claimants and Representative Claimants) against
         whom any court has entered judgment or dismissal with prejudice in an
         action related to a Dexatrim(R)Product on or before the Preliminary
         Approval Date, regardless of whether such judgment or dismissal is the
         subject of a motion for reconsideration, motion to alter, amend, or set
         aside the judgment or similar motion, or an appeal..

(ccc.)   "SPECIAL MASTER" shall have the meaning set forth in Section 4.2(e)
         and, in addition, shall perform the functions assigned to the
         "Administrator" and the "EIF Administrator" in the Matrix.

(ddd.)   "SUPPLEMENTAL BENEFIT CLAIM FORM" shall have the meaning set forth in
         Section 4.1(c).

(eee.)   "TOTAL MATRIX SCORE" shall have the meaning set forth in Section VI of
         Annex I.

(fff.)   "TRIAL COURT APPROVAL DATE" shall mean the date upon which Trial Court
         Approval occurs.

(ggg.)   "TRIAL COURT APPROVAL" shall mean the granting, by order entered on the
         docket thereof, of the approval of the Settlement Agreement by the
         Trial Court.

(hhh.)   "TRUSTEE" shall mean that person or entity approved by the Court as
         Trustee of the Initial Chattem Settlement Trust and/or the Final
         Chattem Settlement Trust in accordance with the Initial Settlement
         Trust-Agreement and the Final Settlement Trust Agreement, and any
         successor Trustee and will serve subject to the jurisdiction and
         supervision of the Court.

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                 ARTICLE 2 - CHATTEM SETTLEMENT TRUST AND FUNDS

Section 2.1 Establishment Of Chattem Settlement Trust

(a) Initial Chattem Settlement Trust. On or before the Preliminary Approval
Date, Chattem shall create the Initial Chattem Settlement Trust to receive
amounts to be paid by or on behalf of Chattem and the other Released Parties.
There shall be a single corporate Trustee of the Initial Chattem Settlement
Trust. Such Trustee shall be a bank organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $100,000,000, subject to supervision and
examination by federal or state authority and shall be appointed by Chattem
(with the consent of Class Counsel, such consent not to be unreasonably
withheld), subject to the approval of the Court. The Initial Settlement Trust
Agreement, attached hereto as Annex II, sets forth the duties and obligations of
the Trustee.

(b) Final Chattem Settlement Trust. No later than thirty (30) days after the
Trial Court Approval Date, the Final Chattem Settlement Trust will be
established on terms that are mutually agreeable to the Parties. The Final
Chattem Settlement Trust will receive and administer amounts to be transferred
from the Initial Chattem Settlement Trust in accordance with the terms of a
Final Settlement Trust Agreement agreed to by the Parties.

(c) In the event that this Settlement Agreement is terminated in accordance with
Article 8 hereunder or in the event that all conditions specified in Section 9.3
hereunder are not satisfied or waived by Chattem, Chattem shall have the
exclusive right to all funds deposited into or property transferred to the
Initial Chattem Settlement Trust.

(d) Chattem shall have the right to the funds deposited into or property
transferred to the Initial Chattem Settlement Trust and the Final Chattem
Settlement Trust in accordance with Section 11.6 hereunder.

SECTION 2.2 FUNDING

(a) Funding of Initial Chattem Settlement Trust. On or before the date that is
twenty (20) days after the Preliminary Approval Date (the "INITIAL FUNDING
DATE"), Chattem shall deliver to the Initial Chattem Settlement Trust
$60,885,000 (the "INITIAL FUNDING AMOUNT").

(b) Funding of Final Chattem Settlement Trust. Within five (5) days after the
later of: (i) the Trial Court Approval Date, and (ii) the date on which the
Final Chattem Settlement Trust is created, the Trustee of the Initial Chattem
Settlement Trust shall deliver all assets contained in the Initial Chattem
Settlement Trust to the Final Chattem Settlement Trust.

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(c) Continuing Funding. The Trustee of the Final Chattem Settlement Trust shall
notify Chattem immediately after the balance of the Benefit Fund falls below $5
million. Within fifteen (15) days after the date that the Trustee notifies
Chattem that the balance of the Benefit Fund has fallen below $5 million
("CONTINUING FUNDING DATE"), Chattem shall deposit into the Final Chattem
Settlement Trust the sum that will cause the balance of the Benefit Fund to be
at least the total of: (x) $5 million, plus (y) the sum that represents the
total dollar amount of all Final Benefit Determinations for which a payment has
not been issued as of the Continuing Funding Date ("CONTINUING FUNDING AMOUNT").

SECTION 2.3 ESTABLISHMENT OF BENEFIT FUNDS

(a) Benefit Fund. The Trustee of the Final Chattem Settlement Trust shall
initially allocate $60,885,000 of the Initial Funding Amount to the Benefit
Fund. The Trustee of the Final Chattem Settlement Trust shall allocate all
Continuing Funding Amounts to the Benefit Fund. The Trustee of the Final Chattem
Settlement Trust also shall allocate to the Benefit Fund that portion, if any,
of the Assigned Alps Claims expressly allocated to the Benefit Fund in Section
10.2.

(b) Extraordinary Damages Fund. Within fifteen (15) days after a Final Benefit
Determination is rendered for all Class Members who submitted a BENEFIT Claim
Form, the Trustee of the Final Chattem Settlement Trust shall allocate $5.0
million from the Benefit Fund to the Extraordinary Damages Fund. The Trustee of
the Final Chattem Settlement Trust also shall allocate to the Extraordinary
Damages Fund that portion, if any, of the Assigned Alps Claims expressly
allocated to the Extraordinary Damages Fund in Section 10.2. The Trustee of the
Final Chattem Settlement Trust also shall allocate any interest that accrues on
or after the Trial Court Approval Date on funds on deposit in either the Initial
Settlement Trust or the Final Chattem Settlement Trust to the Extraordinary
Damages Fund.

SECTION 2.4 FUNDING EXTENSIONS

(a) If Kemper Insurance Company fails to deliver all or any portion of $37.5
million and/or General Star Indemnity Company fails to deliver all or any
portion of $22.5 million to Chattem or the Initial Chattem Settlement Trust on
or before the Initial Funding Date, the Initial Funding Amount due on the
Initial Funding Date shall be reduced by that portion not delivered by Kemper
Insurance Company and/or General Star Indemnity Company; however, within ninety
(90) days after the Initial Funding Date, or longer if ordered by the Trial
Court, Chattem shall deposit into the Initial Chattem Settlement Trust an amount
equal to such reduced portion.

(b) If any action by a third party causes any portion of the amount deposited by
Kemper Insurance Company into the Initial Settlement Trust and/or the Final
Chattem Settlement Trust to be unavailable to pay claims, the Continuing Funding
Date specified in Section 2.2(c) shall be extended by ninety (90) days, or
longer if ordered by the Trial Court.

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SECTION 2.5 OTHER PROVISIONS

(a) The Parties agree that the Final Chattem Settlement Trust is being
established to resolve or satisfy one or more contested or uncontested claims
that have resulted or may result from an event (or related series of events)
that has occurred and has given rise to claims asserting liability arising out
of a tort. The Initial Chattem Settlement Trust and the Final Chattem Settlement
Trust shall be structured and managed pursuant to the Initial Settlement Trust
Agreement and the Final Settlement Trust Agreement, respectively, and will
contain customary provisions for such trusts including obligations of the Final
Chattem Settlement Trust to provide such information to Chattem and Class
Counsel as Chattem or Class Counsel shall reasonably request for financial,
legal, regulatory and tax purposes.

(b) The Parties agree that all of the amounts being paid to or on behalf of
Class Members pursuant to the terms of this Settlement Agreement are being paid
as damages (other than punitive damages) on account of alleged personal physical
injuries or alleged physical sickness of the members of the Settlement Class,
including physical injuries or physical sickness resulting from alleged
emotional harm, as described in 26 U.S.C. section 104(a)(2). The Parties further
agree that the claims set forth in the definition of Settled Claims in Article 1
have their origin in such alleged physical personal injuries or physical
sickness.

(c) Chattem shall not have any financial obligations under this Settlement
Agreement other than the payment obligations explicitly set forth in this
Settlement Agreement. Neither Chattem nor any of the other Released Parties
shall have any liability to any Class Member arising from the handling of claims
by the Trustee, the Claims Administrator, the Chattem Claims Coordinator, or the
Class Counsel Claims Coordinator.

(d) All cash and property transferred into the Initial Chattem Settlement Trust
and the Final Chattem Settlement Trust shall be the sole property of the Initial
Chattem Settlement Trust and the Final Chattem Settlement Trust, respectively,
and shall be exempt from Chattem's creditors. All of the assets in the Final
Chattem Settlement Trust shall be pledged to secure the performance of all of
Chattem's obligations under this Settlement Agreement.

(e) The Trustee shall withhold and pay over such taxes as may be required and
shall fulfill all tax filing obligations, including applicable reporting
obligations with respect to all distributions and payments pursuant to the terms
of this Settlement Agreement. The Initial Chattem Settlement Trust and the Final
Chattem Settlement Trust each shall be responsible for all fees, taxes and other
costs of administration of the respective Trusts, including, without limitation,
taxes on any income or gain earned on any assets in the respective Trusts.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 14
<PAGE>

                  ARTICLE 3 - CLASS MEMBER RIGHTS AND BENEFITS

SECTION 3.1 BENEFIT PAYMENTS TO CLASS MEMBERS

The portion, if any, of the Benefit Fund to which a Class Member is entitled
shall be determined pursuant to the terms of the Dexatrim(R) Case Scoring System
and Matrix, attached hereto as Annex 1.

SECTION 3.2 PAYMENT OF BENEFITS

Payments made pursuant to Section 3.1 shall be made as soon as practical, but in
no event later than thirty (30) days after the date on which a Final Benefit
Determination is made pursuant to Section 4.2(d) or Section 4.2(e).

SECTION 3.3 EXTRAORDINARY DAMAGES BENEFITS

(a) In addition to the benefits set forth in Section 3.1, Class Members may be
eligible to receive additional compensation under this Settlement Agreement
("EXTRAORDINARY DAMAGE FUND BENEFITS" or "EDF BENEFITS"). The EDF Benefits, if
any, to which a Class Member is entitled shall be determined pursuant to the
terms of the Dexatrim(R) Case Scoring System and Matrix, and are sometimes
referred to in the Matrix as the "EIF Award."

(b) Class Members are eligible to receive EDF Benefits if the Class Member: (1)
sustained a hemorrhagic stroke or an ischemic stroke, (2) has a Final
Determination Matrix Level of IV, V, or VI, and (3) has Documented Unreimbursed
or Unreimbursable Economic Damages of at least $250,000.

(C) "DOCUMENTED UNREIMBURSED OR UNREIMBURSABLE ECONOMIC DAMAGES" means the
following items, but only to the extent that they relate to a hemorrhagic or
ischemic stroke that was caused by the ingestion of a Dexatrim(R) Product: (1)
non-reimbursed out-of-pocket past medical expenses, (2) non-reimbursable future
medical expenses, (3) non-reimbursable future living expenses, (4)
non-reimbursed past lost wages; (5) non-reimbursable future lost wages, (6)
non-reimbursable loss of earning capacity (both past and future), and (7) the
amount that a Class Member is required to pay a third party to extinguish a lien
for medical expenses. Documentation may consist of medical records, billing
records, tax returns, social security earnings statements, expert reports (e.g.
economists, life care planners, neurologists, physiatrists, etc.) or any other
documentation or evidence found acceptable by the Class Counsel Claims
Coordinator.

SECTION 3.4 OPT-OUT RIGHTS

(a) All Class Members (except as provided in Section 3.4(b) below) are eligible
to opt out of the Settlement represented by this Settlement Agreement (the
"OPT-OUT RIGHT"). Each Class Member wishing to exercise an Opt-Out Right must
submit a written letter, signed by the Class Member, that includes the following
information: (i) his or her

                         CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 15

<PAGE>

name, address and telephone number; (ii) with respect to each Dexatrim(R)
Product, the date of ingestion; (iii) with respect to each Dexatrim(R) Product,
the lot number and product number, if available; (iv) whether such Class Member
is represented by counsel and if so, the name, address and telephone number of
his or her lawyer; and (v) the type of injury alleged (hemorrhagic stroke,
ischemic stroke, cardiac injury, or other injury). A copy of the letter must be
sent to an address that is set forth in the Notice and postmarked no later than
the Opt-Out Deadline, as set by the Trial Court. The Claims Administrator shall
promptly forward copies of all such letters to Chattem and to Class Counsel and
shall file a list of all such Class Members who exercise an Opt-Out Right with
the Court.

(b) In the event that there is both a Dexatrim(R) Product User or a
Representative Claimant and one or more Derivative Claimants, the Dexatrim(R)
Product User's or the Representative Claimant's exercise or failure to exercise
an Opt-Out Right shall be binding on the associated Derivative Claimant(s).

                        ARTICLE 4 - CLAIMS ADMINISTRATION

SECTION 4.1 BENEFIT CLAIM FORMS

(a) Each Class Member claiming benefits must submit a claim form ("BENEFIT CLAIM
FORM") attached hereto as Annex III, to the Claims Administrator on or before
the Benefit Claim Form Deadline. The Class Member must complete the portions of
the Benefit Claim Form relating to the category (ies) that the Class Member
believes entitle him or her to Benefits under Section 3.1. Any Class Member who
does not submit a Benefit Claim Form on or before the Benefit Claim Form
Deadline shall not be eligible to receive any benefits under this Settlement
Agreement.

(b) Within thirty (30) days after the Claims Administrator receives a Benefit
Claim Form, the Claims Administrator shall: (i) assign a unique identifying
number to the claim ("CHATTEM SETTLEMENT CLAIM NUMBER") where one has not
already been assigned; and (ii) if necessary, notify the Class Member or the
Class Member's Counsel regarding the nature of any deficiency in the Benefit
Claim Form. Benefit Claim Forms that fail to provide required information and/or
documentation shall not be considered "complete." Within thirty (30) days after
receiving a complete Benefit Claim Form, or earlier if requested by the Chattem
Claims Coordinator, the Claims Administrator shall provide a copy of the
complete Benefit Claim Form and any other information or documentation submitted
by the Class Member with the Benefit Claim Form to the Chattem Claims
Coordinator.

(c) Within thirty (30) days after the Chattem Claims Coordinator receives a
complete Benefit Claims Form from the Claims Administrator, or upon Final
Judicial Approval, whichever is later, the Claims Administrator shall, at the
request of the Chattem Claims Coordinator, request the additional information
and documentation specified in the Supplemental Benefit Claim Form attached
hereto as Annex IV ("SUPPLEMENTAL BENEFIT CLAIM FORM"). The Claims Administrator
shall establish a deadline by which the Class Member must complete the
Supplemental Benefit Claim Form. This deadline shall be a

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 16

<PAGE>

date that is no less than one hundred and twenty (120) days from the date the
Claims Administrator mails the Supplemental Benefit Claim Form to the Class
Member.

(d) Each Class Member to whom it is sent must complete the Supplemental Benefit
Claim Form and return it along with all requested documentation to the Claims
Administrator on or before the deadline set forth in the Supplemental Benefit
Claim Form. Any Class Member who is required to submit a Supplemental Claim Form
and who does not submit a Supplemental Claim Form on or before the deadline
shall not be eligible to receive any benefits under this Settlement Agreement.

(e) Within thirty (30) days after the Claims Administrator receives a
Supplemental Benefit Claim Form, the Claims Administrator shall notify the Class
Member or the Class Member's Counsel of any additional information that is
necessary to make a preliminary determination as to the benefit, if any, to
which the Class Member is entitled. A Supplemental Benefit Claim Form shall be
deemed "complete" when the Class Member has submitted all information and
documentation specified in the Supplemental Claim Form Completeness Checklist,
attached hereto as Annex V. Within thirty (30) days after receiving a complete
Supplemental Benefit Claim Form, or earlier if requested by the Chattem Claims
Coordinator, the Claims Administrator shall provide to the Chattem Claims
Coordinator a copy of the complete Supplemental Benefit Claim Form and any other
information or documentation submitted by the Class Member with the Supplemental
Benefit Claim Form.

SECTION 4.2 BENEFIT DETERMINATION

(a) As soon as practicable, but in no event more than one hundred and twenty
(120) days after receiving a complete Benefit Claim Form and, if applicable, a
complete Supplemental Benefit Claim Form, the Chattem Claims Coordinator shall
meet and confer with the Class Member or the Class Member's Counsel to make a
preliminary determination as to whether the Class Member is entitled to any
benefits, and if so, the benefit to which the Class Member is entitled (the
"PRELIMINARY BENEFIT DETERMINATION"). The Preliminary Benefit Determination
shall be determined pursuant to the terms of the Dexatrim(R) Case Scoring System
and Matrix. If, after meeting and conferring in good faith pursuant to this
Section 4.2(a), the Chattem Claims Coordinator and the Class Member or Class
Member's Counsel are unable to agree on a Preliminary Benefit Determination, the
Chattem Claims Coordinator shall provide the Claims Administrator with a
completed Case Scoring Worksheet representing the Chattem Claims Coordinator's
Preliminary Benefit Determination.

(b) Within ten (10) days of receiving the Chattem Claims Coordinator's
Preliminary Benefit Determination described in Section 4.2(a), the Claims
Administrator shall mail, via Certified Mail - Return Receipt Requested, notice
to the Class Member or the Class Member's Counsel of such determination, and
shall attach the completed Case Scoring Worksheet.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 17
<PAGE>

(c) Within thirty (30) days after the date on which the Claims Administrator
mails notice of the Chattem Claims Coordinator's Preliminary Benefit
Determination to the applicable Class Member or the Class Member's Counsel, the
Class Member may challenge the Chattem Claims Coordinator's Preliminary Benefit
Determination. To challenge the Chattem Claims Coordinator's Preliminary Benefit
Determination, the Class Member must submit a complete Case Scoring Worksheet
along with a narrative description that is no more than ten (10) pages in
length, excluding exhibits, and that: (i) identifies the specific Case Scoring
Component(s) in the Chattem Claims Coordinator's Preliminary Benefit
Determination that the Class Member is challenging; and (ii) for each Case
Scoring Component that the Class Member is challenging, states the Total Matrix
Score the Class Member believes is accurate and sets forth all facts and
arguments in support of the Total Matrix Score that the Class Member believes is
accurate.

(d) If the Class Member does not challenge the Chattem Claims Coordinator's
Preliminary Benefit Determination within the time frame set forth in Section
4.2(c), the Chattem Claims Coordinator's Preliminary Benefit Determination shall
constitute a final and binding determination of all benefits (except, if
applicable, EDF Benefits pursuant to Section 3.3) to which that Class Member is
entitled ("FINAL BENEFIT DETERMINATION"). The Final Benefit Determination shall
be determined pursuant to the terms of the Dexatrim(R) Case Scoring System and
Matrix. If the Class Member challenges the Chattem Claims Coordinator's
Preliminary Benefit Determination as set forth in Section 4.2(c), the Special
Master described in Section 4.2(e) shall make a Final Benefit Determination in
accordance with Section 4.2(e).

(e) The Parties shall request that the Trial Court appoint Judge John Keefe
(Ret.) as a Special Master to, among other things, make final determinations
when a Class Member challenges the Chattem Claims Coordinator's Preliminary
Benefit Determination ("SPECIAL MASTER"). The Trial Court has the authority to
remove the Special Master and to appoint more than one Special Master. The
Special Master shall be compensated a reasonable fee for his time from the
Benefit Fund. For each challenge of a Preliminary Benefit Determination, the
Special Master shall meet and confer with the Chattem Claims Coordinator and the
applicable Class Member or Class Member's Counsel and shall determine the scope
of discovery and schedule an arbitration hearing at a date, time, and place of
the Special Master's choosing, which should be no later than one hundred and
twenty (120) days after the "meet and confer" with the Special Master. Neither
the Class Member nor the Chattem Claims Coordinator need personally appear at
the "meet and confer" with the Special Master or the arbitration hearing, and
either side may appear by telephone. The Special Master shall have the
discretion to create reasonable and ordinary procedural rules and requirements
for the arbitration. Within thirty (30) days after the arbitration hearing set
forth in this Section 4.2(e), the Special Master shall render a Final Benefit
Determination based on the application of the Matrix and the guidelines set
forth in this Agreement.

(f) The Chattem Claims Coordinator shall be entitled to obtain reasonable
discovery related to any Class Member who challenges a Preliminary Benefit
Determination. The scope of such discovery shall be limited to the Case Scoring
Component(s) challenged by

                          CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 18

<PAGE>

the Class Member and may specifically include, but is not limited to, access to
the Class Member's medical records and the ability to take oral depositions of
the Class Member and the medical providers that diagnosed and treated the injury
for which the Class Member seeks benefits. Class Members are also entitled to
obtain reasonable discovery limited to the Case Scoring Component(s) challenged
by the Class Member; however, it is expressly understood that Class Members are
not entitled to obtain any discovery from any Released Parties. The Special
Master shall resolve any disputes regarding the scope of the Chattem Claims
Coordinator's right to discovery. The Special Master shall allow a reasonable
time for the Chattem Claims Coordinator to conduct discovery prior to the
arbitration hearing date described in Section 4.2(e).

(g) The arbitration pursuant to Section 4.2(e) shall be limited to deciding
only the Case Scoring Component(s) challenged by the Class Member at the time he
or she submitted his or her challenge pursuant to Section 4.2(c). All Case
Scoring Components not challenged by the Class Member in the time permitted by
Section 4.2(c) shall be deemed conclusively established. The Special Master
shall conduct a de novo review of the Case Scoring Component(s) challenged by
the Class Member, and neither party bears any higher burden than the other
party.

(h) The Special Master shall have the sole discretion to exclude any evidence
from the arbitration hearing described in Section 4.2(e). The Special Master
shall exclude all evidence that would have been responsive to the Benefit Claim
Form or the Supplemental Benefit Claim Form, but was not submitted by the Class
Member to the Claims Administrator on or before the date that the Class Member's
Benefit Claim Form or Supplemental Benefit Claim Form was due; however, the
Special Master has the authority to make exceptions to this exclusionary rule
upon the showing of good cause.

(i) When making a Final Determination, the Special Master shall make a decision
with respect to each Case Scoring Component(s) challenged by the Class Member.
The Special Master shall then complete a Case Scoring Worksheet and arrive at
Matrix Level to which the Class Member is assigned and the Settlement
Compensation Amount to which the Class Member is entitled. After determining the
Settlement Compensation Amount to which the Class Member is entitled, the
Special Master shall choose between: (a) the Settlement Compensation Amount in
the Case Scoring Worksheet submitted with the Chattem Claims Coordinator's
Preliminary Benefit Determination, and (b) the Settlement Compensation Amount in
the Case Scoring Worksheet submitted by the Class Member at the time he or she
challenged the Chattem Claims Coordinator's Preliminary Benefit Determination.
The Special Master shall select the one of the two Settlement Compensation
Amounts that the Special Master finds most reasonable and appropriate pursuant
to the application of the Dexatrim(R) Case Scoring System and Matrix and the
guidelines set forth in this Agreement. If the Special Master chooses the amount
submitted by the Chattem Claims Coordinator, the Class Member shall pay a
penalty to the Final Chattem Settlement Trust, and if the Special Master chooses
the amount submitted by the Class Member, Chattem shall pay a penalty to the
Final Chattem Settlement Trust. Such penalty shall be decided by the Special
Master, but in no event shall the penalty be less than $10,000.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 19

<PAGE>

SECTION 4.3 EXTRAORDINARY DAMAGE BENEFIT CLAIM FORM

(a) Each Class Member claiming benefits under Section 3.3 must submit a complete
claim form for payment of benefits out of the Extraordinary Damage Fund ("EDF
BENEFIT CLAIM FORM") attached hereto as Annex VI, to the Claims Administrator.
The deadline to submit an EDF Benefit Claim Form shall be the date the Class
Member is required to submit a Supplemental Benefit Claim Form. Any Class Member
who does not submit an EDF Benefit Claim Form on or before this deadline shall
not be eligible to receive EDF Benefits.

(b) Within thirty (30) days after the Claims Administrator receives an EDF
Benefit Claim Form, the Claims Administrator shall: (i) if necessary, notify the
Class Member or the Class Member's Counsel regarding the nature-of any
deficiency in the EDF BENEFIT Claim Form; and (ii) serve a copy of the EDF
Benefit Claim Form and any other information or documentation submitted by the
Class Member with the EDF Benefit Claim Form to the Class Counsel Claims
Coordinator and the Chattem Claims Coordinator. EDF Benefit Claim Forms shall be
deemed "complete" when the Class Member has submitted all information and
documentation specified on the EDF Benefit Claim Form Completeness Checklist,
attached hereto as Annex VIII Class Members shall be required to correct any
deficiencies within thirty (30) days after they are notified of such
deficiencies.

(c) Within sixty (60) days after the Chattem Claims Coordinator and the Class
Counsel Claims Coordinator receive an EDF Benefit Form from the Claims
Administrator, the Chattem Claims Coordinator and the Class Counsel Claims
Coordinator shall meet and confer to determine if sufficient information exists
to make a preliminary determination as to the EDF Benefit, if any, to which the
Class Member is entitled. If either the Class Counsel Claims Coordinator or the
Chattem Claims Coordinator believes that additional information is required
before making such determination, such information shall be requested from the
Class Member or Class Member's Counsel, if any. When the Chattem Claims
Coordinator and the Class Counsel Claims Coordinator agree that sufficient
information exists to make a preliminary determination as to the EDF Benefit, if
any, to which the Class Member is entitled, the EDF Benefit Claim Form shall be
considered "complete."

SECTION 4.4 EXTRAORDINARY DAMAGES BENEFIT DETERMINATION

(a) Within thirty (30) days after a Final Benefit Determination is rendered for
all Class Members who submitted a Benefit Claim Form, the Chattem Claims
Coordinator and the Class Counsel Claims Coordinator shall meet and confer and
make a recommendation as to the distribution of the Extraordinary Damages Fund
(the "EDF DISTRIBUTION RECOMMENDATION"). The EDF Distribution Recommendation
shall be determined pursuant to the terms of the Dexatrim(R) Case Scoring System
and Matrix.

(b) Within five (5) days of making the EDF Distribution Recommendation described
in Section 4.4(a), the Class Counsel Claims Coordinator shall provide the
Special Master

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 20
<PAGE>

with a copy of the EDF Distribution Recommendation and a copy of all EDF Benefit
Claims Forms submitted by Class Members. The Class Counsel Claims Coordinator
shall also serve a copy of the EDF Distribution Recommendation on all Class
Members who submitted an EDF Benefit Claim Form. Any such Class Member may
submit an alternative recommendation to the Special Master.

(c) Within sixty (60) days after the date that the Class Counsel Claims
Coordinator mails notice of the EDF Distribution Recommendation, the Special
Master shall make a final and binding determination as to the distribution of
the Extraordinary Damages Fund ("FINAL EDF DISTRIBUTION DETERMINATION"). The
Final EDF Distribution Determination shall be determined pursuant to the terms
of the Dexatrim(R) Case Scoring System and Matrix.

SECTION 4.5 LIENS

(a) Liens In General. Class Members are each responsible for any and all claims
or liens, past, present or future, known or unknown, by any person, entity,
insurance carrier, company, business, firm, corporation or governmental entity
or agency (including, but not limited to government liens) as a result of any
injury the Class Member alleges arises out of the Class Member's ingestion of a
Dexatrim(R) Product.

(b) Government Liens. If the Chattem Claims Coordinator or the Class Counsel
Claims Coordinator is aware that a state or federal government agency may have a
lien on benefits due to a Class Member, the Claims Administrator shall withhold
that amount, as ordered by the Trial Court, that is reasonably necessary to
satisfy such lien(s). In order to facilitate this process and to ensure
government liens are identified, the name, date of birth, and social security
number of each class member shall be made available for the inspection of the
appropriate government agency.

(c) Lien Hearing. The Parties shall request that the Trial Court hold a hearing
for the purpose of determining the amounts owed to state or federal governmental
agencies to satisfy liens related to any Settled Claim.

(d) Attorney Liens. If the Class Member states that he or she is represented by
counsel in the Benefit Claim Form, the Claims Administrator shall endeavor to
make all benefits payable made in the name of the Class Member and the
attorney(s) identified by the Class Member in the Benefit Claim Form. However,
none of the Released Parties nor the Claims Administrator shall be responsible
for any failure to do so. Any notice of representation or change in
representation other than that which is made in the Benefit Claim Form shall not
change the application of this section.

(e) Indemnity. Any Class Member who receives Benefits from this Settlement
Agreement shall be required to indemnify and hold harmless the Released Parties
and Class Counsel (but only in their capacity as Class Counsel) from any and all
claims, demands, causes of action, of any and every nature whatsoever, made by
any person, entity, firm or corporation claiming by, through or under such Class
Member, by right of

                         CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 21

<PAGE>

assignment or subrogation, in connection with the Released Claims, or by virtue
of having paid or reimbursed medical expenses or other compensation arising out
of or related to such Class Member's alleged use of a Dexatrim Product.

SECTION 4.6 CLAIMS ADMINISTRATION PROCEDURES

(a) Any disagreement as to the interpretation of the Settlement Agreement or the
Matrix as they relate to deciding the benefits, if any, to which a Class Member
is entitled shall be resolved by the Special Master. Class Counsel, the Claims
Administrator, and Chattem may request that the Special Master issue an opinion
to resolve an actual controversy regarding the interpretation of the Settlement
Agreement or the Matrix.

(b) The Special Master shall, where necessary, create Claims Administration
Procedures that provide specific details about how claims are administered. The
Claims Administration Procedures promulgated by the Special Master shall comply
with the terms set forth in the Settlement Agreement and the Matrix.

SECTION 4.7 GENERAL CLAIMS ADMINISTRATION MATTERS

(a) Any and all materials submitted by a Class Member pursuant to this Article 4
shall be deemed submitted on the date that such material is post-marked. In the
absence of a post-mark or if such post-mark is illegible, the date of receipt
shall be the date such material is deemed submitted.

(b) None of Chattem, the Claims Administrator, the Initial Chattem Settlement
Trust, the Final Chattem Settlement Trust, the Chattem Claims Coordinator, or
the Class Counsel Claims Coordinator shall be responsible for or in any way
accept any liability with respect to deficient Claim Forms.

(c) None of the Claims Administrator, the Chattem Claims Coordinator nor the
Class Counsel Claims Coordinator shall be liable to the Initial Chattem
Settlement Trust or the Final Chattem Settlement Trust to any person holding a
personal injury claim or to any other person except for the Claims
Administrator's, the Chattem Claims Coordinator's or the Class Counsel Claims
Coordinator's own breach of trust committed in bad faith or for willful
misconduct. None of the Claims Administrator, the Chattem Claims Coordinator or
the Class Counsel Claims Coordinator shall be liable for any act or omission of
any of their respective officers, agents, employees, consultants, or other
Representative unless the Claims Administrator, the Chattem Claims Coordinator
or the Class Counsel Claims Coordinator acts with bad faith or willful
misconduct in the selection or retention of such officer, agent, employee,
consultant, or other representative.

(d) The provisions of this Section 4.7 shall apply to all persons or entities
engaged by the Claims Administrator, the Chattem Claims Coordinator, and the
Class Counsel Claims Coordinator to render services relating to the Settlement.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 22

<PAGE>

(e) The Claims Administrator shall be compensated reasonable fees from the
Benefit Fund.

SECTION 4.8 FRAUDULENT CLAIMS

(a) In the event that the Special Master determines that any Class Member has
submitted a fraudulent claim or allegation, the Special Master may reduce the
benefits to which the Class Member may be entitled under this Settlement
Agreement by any amount deemed appropriate by the Special Master. In addition to
reducing or eliminating a Class Member's benefits, the Special Master, in his or
her discretion, may refer and recommend to the Trial Court or any other
appropriate court, monetary or injunctive sanctions against the Class Member
and/or the Class Member's Counsel including, but not limited to, forfeiture of
attorney fees and costs, or the institution of grievance proceedings.

(b) Nothing in this Settlement Agreement shall restrict the Chattem Claims
Coordinator from obtaining discovery related to suspected fraudulent claims, as
permitted by the Special Master.

                           ARTICLE 5 - ATTORNEYS' FEES

SECTION 5.1 EXISTING CONTINGENCY FEE AGREEMENTS

(a) Attorneys who entered into contingency fee agreements with Class Members
after December 21, 2003 are entitled only to reasonable fees for filling out
claim forms and consulting with their clients, up to a cap of 10% of the Class
Member's Total Settlement Compensation, or $10,000, whichever is less. It is
hereby understood that any date that any different provision in the Matrix is
replaced with this provision.

(b) Except as set forth in Section 5.1(a), nothing in this agreement is intended
to void or to otherwise alter reasonable contingent fee contracts.

SECTION 5.2 PLAINTIFF'S LITIGATION EXPENSE FUND

(a) Before making any payment to any Class Member under this Settlement
Agreement, the Trustee of the Final Chattem Settlement Trust shall deduct that
amount, if any, required by MDL 1407 Amended Case Management Order No. 8 and 16
Establishing Plaintiffs Litigation Expense Fund.

(b) The Trustee of the Final Chattem Settlement Trust shall deposit all amounts
deducted in accordance with Section 5.2(a) to the MDL 1407 Fee and Cost Account
in accordance with MDL 1407 Amended Case Management Order No. 8 and 16
Establishing Plaintiff's Litigation Expense Fund.

                          CLASS ACTION SETTLEMENT AGREEMENT
                                     PAGE 23
<PAGE>

(c) For the purposes of applying MDL 1407 Amended Case Management Order No. 8
and 16 Establishing Plaintiffs Litigation Expense Fund, all claims settled by
this Settlement Agreement are deemed to be settled within the jurisdiction of
the Trial Court.

SECTION 5.3 ANY OTHER ATTORNEYS FEES OR COSTS

Class Counsel agree that they will not seek any attorneys fees or costs from any
of the Released Parties; however, the Released Parties agree that they will not
object to any reasonable application by Class Counsel for common benefit fees
from other sources.

                   ARTICLE 6 - GENERAL TERMINATION AND RELEASE

SECTION 6.1 GOOD FAITH SETTLEMENT

The Parties agree that this Settlement Agreement is made in good faith and in
accordance with the laws of the jurisdictions in which Dexatrim(R) Products
Related lawsuits have been filed. If required by any court or tribunal, Class
Counsel agree to cooperate with Chattem and the other Released Parties by
providing affidavits and/or testimony concerning the circumstances of the
settlement contemplated by this Settlement Agreement and attesting to the fact
that it is a good faith settlement.

SECTION 6.2 RELEASE

(a) Unless this Settlement Agreement shall have been terminated in accordance
with Article 8 hereof, after the Court approves this Settlement Agreement as a
good faith, fair, adequate and reasonable settlement, the Parties hereby agree
that every Settled Claim of each Class Member (other than a Class Member who
exercises an Opt-Out Right pursuant to Section 3.4) shall be conclusively
compromised, settled and released as to Chattem and each other Released Party.
Such releases shall remain effective regardless of changes in the circumstances
or condition of Chattem, the other Released Parties or such Class Members,
discovery of new or additional facts, or changes in applicable law. In making
such releases each Class Member (other than a Class Member who exercises an
Opt-Out Right pursuant to Section 3.4) shall be deemed to expressly acknowledge
and waive all rights that such Class Member may have under any statute,
regulation or common law principle that would limit the effect of the release
provided in this Settlement Agreement to those claims actually known and/or
suspected to exist at the time the release is giving, including, without
limitation, the provisions of Section 1542 of the Civil Code of the State of
California (notwithstanding that this Settlement Agreement does not provide for
the application of California law), which provides that "[a] general release
does not extend to claims which the creditor does not know or suspect exist in
his favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." Consistent with the
provisions of Article 8 of this Settlement Agreement, the releases herein shall
extinguish any claims for contribution and/or indemnification against Chattem or
the other Released Parties.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 24

<PAGE>

(b) By entering into this Settlement Agreement, Class Members agree that they
have no standing to pursue claims under any of the Released Parties' insurance
policies or rights under those policies with regard to any insurance proceeds or
any other obligations owed or potentially owed under the policies, and any
agreement between the Released Party(ies) and any of their insurers regarding
such policies, coverage limits and payments of insurance proceeds shall be
binding on the Class Members.

SECTION 6.3 REQUESTS TO THE TRIAL COURT

The Parties hereby agree to request that the Court enter an order finding this
Settlement Agreement to be a good faith settlement and barring and enjoining, to
the extent permitted by applicable law, the commencement and prosecution of any
contribution and/or indemnification claim or action by or on behalf of any Class
Member (other than a Class Member who exercises an Opt-Out Right pursuant to
Section 3.4) or entity against Chattem or any other Released Party for
reimbursement for payments made or to be made to or on behalf of any such Class
Member for Dexatrim(R) Products Related claims, actions or injuries, or for
expenses incurred in defending against any such claims, actions or proceedings.
The Parties agree that Chattem and the other Released Parties shall be entitled
to dismissal with prejudice of any claims against them by or on behalf of any
Class Member (other than a Class Member who exercises an Opt-Out Right pursuant
to Section 3.4) that violate or are inconsistent with this bar.

SECTION 6.4 NO RECOVERY FROM RELEASED PARTIES OUTSIDE THIS AGREEMENT

The Parties agree that no Class Member (other than Class Members who properly
and timely exercise their Opt-Out Rights) may recover, directly or indirectly,
any sums from Chattem or any other Released Party other than those received
under this Settlement Agreement.

SECTION 6.5 CLAIM FORMS

Each Class Member (other than a Class Member who exercises an Opt-Out Right
pursuant to Section 3.4) otherwise entitled to receive benefits under this
Settlement Agreement shall be required, as a further condition to receive
benefits hereunder, to execute and deliver a complete Benefit Claim Form and, if
applicable, a complete Supplemental Claim Form and, if applicable, a complete
EDF Benefit Claim Form by the deadlines set forth in Article 4.

                       ARTICLE 7 - CONTINUING JURISDICTION

SECTION 7.1 TRIAL COURT RETAINS JURISDICTION

The Court shall retain exclusive and continuing jurisdiction of the Complaint,
the Parties, all Class Members (other than a Class Member who exercises an
Opt-Out Right pursuant to Section 3.4), Chattem and the other Released Parties,
and over this Settlement Agreement with respect to the performance of the terms
and conditions of the Settlement

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 25
<PAGE>

Agreement, to assure that all disbursements are properly made in accordance with
the terms of the Settlement Agreement, and to interpret and enforce the terms,
conditions and obligations of this Settlement Agreement. Other than provided
herein, the Court shall have the power to approve the designation, appointment
and removal of auditors, consultants and disbursing agents, the Chattem Claims
Coordinator, the Class Counsel Claims Coordinator, and the execution of
contracts as necessary and appropriate to assure the administration of this
Settlement Agreement. Any dispute that arises under this Settlement Agreement
shall be submitted to the Court. If any dispute is so submitted, each party
concerned shall be entitled to seven (7) days' written notice (or otherwise as
the Court may for good cause direct) and the opportunity to submit evidence and
to be heard on oral argument as the Court may direct. To the extent that
additional or different procedures for dispute resolution are provided, or
standards to be applied in connection therewith are devised, under any other
provision of this Settlement Agreement, such other provisions shall control.

                             ARTICLE 8 - TERMINATION

SECTION 8.1 TERMINATION BY CHATTEM

(a) In the event that more than one hundred and ninety (190) Class Members
submit a Benefit Claim Form that alleges either an ischemic stroke or a
hemorrhagic stroke, Chattem shall have the option to terminate and withdraw from
this Settlement Agreement at any time prior to 5:00 p.m. Pacific Time on the
date that is five (5) days prior to the Fairness Hearing Date. The Fairness
Hearing shall be set on a date that is at least 50 days after the Benefit Claim
Form Deadline.

(b) In the event that the aggregate benefits which all persons who exercised the
Opt-Out Right and who allege either a hemorrhagic stroke or an ischemic stroke
would have received pursuant to the Dexatrim(R) Case Scoring System and Matrix
if those persons had not exercised the Opt-Out Right ("Aggregate Opt-Out Matrix
Value") exceed $13,750,000, Chattem shall have the option to terminate and
withdraw from this Settlement Agreement at any time prior to 5:00 p.m. Pacific
Time on the date that is five (5) days prior to the Fairness Hearing Date.

(c) If Chattem intends to terminate this Settlement Agreement pursuant to
Section 8.1(b), Chattem shall file a Notice of Termination with the Trial Court
and serve it on Class Counsel by fax and U.S. mail on or before the date that is
five (5) days prior to the Fairness Hearing Date. If Chattem terminates this
Settlement Agreement under any provision, the Fairness Hearing shall be
cancelled. If Class Counsel believes that the Aggregate Opt-Out Matrix Value
does not exceed $13,750,000, Class Counsel may object to Chattem's termination
of this Agreement by filing a Notice of Objection to Termination with the Trial
Court and serving it on the Special Master and Chattem by fax and U.S. Mail
within three (3) days of the date on which Chattem filed and served its Notice
of Termination. If Class Counsel files a Notice of Objection to Termination, the
Special Master shall, after a hearing with the Chattem Claims Coordinator and
Class Counsel, make a final and binding determination of the Aggregate Opt-Out
Matrix Value.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 26
<PAGE>

If the Special Master determines that the Aggregate Opt-Out Matrix Value did not
exceed $13,750,000, the Trial Court shall re-schedule the Fairness Hearing to an
appropriate date and make all orders necessary and related thereto.

(d) Any proceedings before the Special Master to determine the Aggregate Opt-Out
Matrix Value, as well as all documents related thereto, shall remain
confidential and shall not be used for any purpose other than to determine the
Aggregate Opt-Out Matrix Value for purposes of this termination provision.

(e) If Chattem exercises its right to terminate and withdraw from this
Settlement Agreement, it shall give written notice to the Court and to Class
Counsel.

(f) In the event that any of the conditions set forth in Section 9.3 have not
been satisfied or waived by Chattem, as applicable (and such conditions are no
longer capable of being satisfied), Chattem shall have the right to terminate
and withdraw from this Settlement Agreement by written notice to the Court and
Class Counsel.

(g) In the event that Chattem terminates and withdraws from this Settlement
Agreement in accordance with this Section 8, no Party shall have any further
obligations hereunder.

                      ARTICLE 9 - SETTLEMENT IMPLEMENTATION

SECTION 9.1 GENERAL

(a) In order to become effective, this Settlement Agreement must receive Final
Judicial Approval.

SECTION 9.2 APPROVAL PROCESS PROVISIONS

(a) After the date of this Settlement Agreement, the Parties shall file a joint
motion requesting preliminary approval of the Settlement Agreement and approval
of the forms of notice (the "NOTICE").

(b) Chattem shall consent to class certification for settlement purposes only;
however, Chattem shall retain its right to contest class certification for any
purposes other than the approval of this Settlement Agreement.

(c) The Parties shall cooperate and assist in all of the filings and proceedings
relating to the obtaining Trial Court Approval and in any further filings and
proceedings necessary to obtain Final Judicial Approval of the Settlement, and
in any related appeals.

(d) Upon Final Judicial Approval, the Class Counsel and all Class Members shall
cooperate with Chattem and any other Released Party to cause the dismissal, with
prejudice and without costs, of any action against Chattem or any Released Party

                         CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 27
<PAGE>

asserting a Settled Claim brought by or on behalf of any Class Member (other
than a Class Member who exercises an Opt-Out Right pursuant to Section 3.4)
entitled to benefits hereunder, including but not limited to class actions,
whether or not certified as such, which are pending in any State or federal
court. Upon Trial Court Approval, the Class Counsel and all such Class Members
shall cooperate with Chattem and any other Released Party to cause further
proceedings in all such settled actions to be stayed pending Final Judicial
Approval.

SECTION 9.3 CONDITIONS

(a) Chattem's obligations under this Settlement Agreement will be subject to the
following conditions:

         (i)      Trial Court Approval of the Settlement, which approval order
                  or orders shall:

                  (1)      Confirm the certification of the Settlement Class,
                           under Fed. R. Civ. P. 23(a), 23(b)(2) and 23(b)(3)
                           for settlement purposes only;

                  (2)      Confirm the appointment of the Class Representatives
                           as the Representatives of the Settlement Class;

                  (3)      Approve this Settlement Agreement in its entirety
                           pursuant to Fed. R. Civ. P. 23(e) as fair,
                           reasonable, adequate, and non-collusive;

                  (4)      Dismiss with prejudice and without costs all claims
                           and actions asserting Settled Claims against any
                           Released Party pending before the Court (other than
                           claims and actions of a Class Member who exercises an
                           Opt-Out Right pursuant to Section 3.4);

                  (5)      Bar and enjoin all Class Members (other than a Class
                           Member who exercises an Opt-Out Right pursuant to
                           Section 3.4) entitled to benefits hereunder from
                           asserting and/or continuing to prosecute against
                           Chattem or any other Released Party any and all
                           Settled Claims which the Class Member (other than a
                           Class Member who exercises an Opt-Out Right pursuant
                           to Section 3.4) had, has, or may have in the future
                           in any federal or State court;

                  (6)      Reserve the Court's continuing and exclusive
                           jurisdiction over the Parties, including Chattem and
                           the Class Members (other than a Class Member who
                           exercises an Opt-Out Right pursuant to Section 3.4),
                           to administer, supervise, interpret, and enforce this
                           Settlement Agreement in accordance with its terms and
                           to supervise the operation of the Initial Chattem
                           Settlement Trust and the Final Chattem Settlement
                           Trust; and

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 28

<PAGE>

                  (7)      Enter such other orders as are needed to effectuate
                           the terms of the Settlement Agreement; and

         (ii)     Final Judicial Approval of this Settlement Agreement.

                        ARTICLE 10 - ASSIGNMENT OF CLAIMS

SECTION 10.1 CLASS MEMBERS' CLAIMS AGAINST ALPS

Class Members hereby assign to Chattem, effective upon Final Judicial Approval,
any and all claims against Alps Pharmaceutical Ind. Co., Ltd., regardless of
legal theory, that arise out of or relate to any of the Dexatrim(R) Products or
their development, manufacture, formulation, testing, distribution, marketing,
labeling, regulatory submissions, advertising, sale, or ingestion ("ASSIGNED
ALPS CLAIMS").

SECTION 10.2 RECOVERY FROM ALPS

Class Counsel may reach a settlement agreement of the Assigned Alps Claims at
any time prior to the date that is fourteen (14) days prior to Trial Court
Approval, provided that Alps agrees to pay a sum acceptable to Chattem (in
consultation with Class Counsel) into the Initial Chattem Settlement Trust. Half
of any amount paid by Alps in satisfaction of such agreement shall be allocated
to the Extraordinary Damages Fund and the other half shall be allocated to the
Benefit Fund.

SECTION 10.3 DUTY TO COOPERATE WITH ASSIGNED CLAIMS

Other than expressly provided in Section 10.2, Class Members and Class Counsel
shall take no action that compromises Chattem's ability to prosecute the
Assigned Alps Claims. Class Members and Class Counsel shall use reasonable
efforts to cooperate with Chattem in the prosecution of these claims.

                       ARTICLE 11- MISCELLANEOUS

SECTION 11.1 CONFIDENTIAL INFORMATION

Any information provided by or regarding a Class Member or otherwise obtained
pursuant to this Settlement Agreement shall be kept confidential and shall not
be disclosed except to appropriate persons to the extent necessary to process
Claims or provide benefits under this Settlement Agreement or as otherwise
expressly provided in this Settlement Agreement (including, but not limited to,
information to be released in connection with the determination of government
liens in accordance with Section 4.5(b). All Class Members shall be deemed to
have consented to the disclosure of this information for these purposes.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 29
<PAGE>

SECTION 11.2 SUCCESSORS AND ASSIGNS

This Settlement Agreement shall be binding on the successors and assigns of the
Parties.

SECTION 11.3 USE OF SETTLEMENT AND NEGOTIATIONS IN OTHER PROCEEDINGS

The Parties to the Settlement, including Chattem, the other Released Parties, or
any Class Member, shall not seek to introduce and/or offer the terms of the
Settlement Agreement, any statement, transaction or proceeding in connection
with the negotiation, execution or implementation of this Settlement Agreement,
any statements in the Notice documents delivered in connection with this
Settlement Agreement, stipulations, agreements, or admissions made or entered
into in connection with the fairness hearing or any finding of fact or
conclusion of law made by the Trial Court, or otherwise rely on the terms of
this Settlement Agreement, in any judicial proceeding, except insofar as it is
necessary to enforce the terms of the Settlement Agreement (or in connection
with the determination of any income tax liability of a Party). 1f a Class
Member who is not entitled to benefits hereunder seeks to introduce and/or offer
any of the matters described herein in any proceeding, the restrictions of this
Section 11.3 shall not be applicable to Chattem and the other Released Parties
with respect to that Class Member. If a Class Member who has timely and properly
exercised an Opt-Out Right seeks to introduce and/or offer any of the matters
described herein in any proceeding, the restrictions of this Section 11.3 shall
not be applicable to Chattem and the other Released Parties with respect to that
Class Member.

SECTION 11.4 NO ADMISSION OF LIABILITY OR LACK OF MERIT

Neither this Settlement Agreement nor any Annex, document or instrument
delivered hereunder nor any of the statements in the notice documents in
connection herewith, nor any statement, transaction or proceeding in connection
with the negotiation, execution or implementation of this Settlement Agreement,
is intended to be or shall be construed as or deemed to be evidence of an
admission or concession by Chattem, or the Released Parties of any liability or
wrongdoing or of the truth of any allegations asserted by any plaintiff against
it or them, or as an admission by the Class Representatives or members of the
Settlement Class of any lack of merit in their claims, and no such statement,
transaction or proceeding shall be admissible in evidence for any such purpose
except for purposes of obtaining approval of this Settlement Agreement in this
or any other proceeding.

SECTION 11.5 TITLES AND HEADINGS

The headings of the sections and paragraphs of this Settlement Agreement are
included for convenience only and shall not be deemed to constitute part of this
Settlement Agreement or to affect its construction.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 30
<PAGE>

SECTION 11.6 DISTRIBUTION OF REMAINING FUNDS

(a) After all claims are paid in accordance with Section 3.2 and all appeals are
resolved in accordance with Section 4.2(f), any funds remaining in the Benefit
Fund shall be paid to Chattem.

(b) If, after all claims are paid in accordance with Section 3.3, any funds
remain in the Extraordinary Damages Fund, Class Counsel shall propose an
equitable distribution plan for approval by the Trial Court.

SECTION 11.7 NOTICE TO PARTIES

Any notice, request, instruction or other document to be given by any Party to
another Party shall be in writing and delivered personally or sent by Federal
Express or facsimile (which such facsimile notice shall be deemed effective as
of the time of receipt of confirmation by the sending party) as follows, or as
otherwise instructed by a notice delivered to the other Party pursuant to this
subsection:

IF TO CHATTEM:
--------------

Miller & Martin PLLC
Suite 1000 Volunteer Building 832
Georgia Avenue
Chattanooga, TN 37402-2289
Attention: Roger Dickson, Esq.
C. Crews Townsend, Esq.
Facsimile: (423) 785-8480

If to the Class Representatives or Class Counsel:
-------------------------------------------------

Christopher Seeger and Stephen Weiss
Seeger Weiss LLP
One William Street
New York, NY 10004
Facsimile: (212) 584-0799

With copies to:
James Green and Mike Heaviside
Ashcraft & Gerel LLP
2000 L Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile: (202) 416-6392

Ramon Rossi Lopez
Lopez, Hodes, Restaino, Milman & Skikos
450 Newport Center Drive

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 31

<PAGE>

Second Floor
Newport Beach, California 92660
Facsimile: (949) 640-8294

Ron Michael Meneo
Early, Ludwick & Sweeney, LLC
One Century Tower
265 Church Street
New Haven, CT 06508-1866
Facsimile: (203) 785-1671

SECTION 11.8 RECEIPT OF DOCUMENTATION

Unless otherwise specified, any form or other documentation required to be
submitted under this Settlement Agreement shall be deemed timely if it is
postmarked on or before the date by which it is required to be submitted under
this Settlement Agreement.

SECTION 11.9 NO THIRD PARTY BENEFICIARIES

No provision of this Settlement Agreement or any Annex hereto is intended to
create any third-party beneficiary to this Settlement Agreement, except the
Released Parties.

SECTION 11.10 ENTIRE AGREEMENT

This Settlement Agreement contains the entire agreement between the Parties with
respect to the subject matter hereof and, except as specifically set forth
herein or therein, supersedes and cancels all previous agreements, negotiations,
and commitments in writings between the Parties hereto with respect to the
subject matter hereof. This Settlement Agreement may not be changed or modified
in any manner unless in writing and signed by a duly authorized officer of
Chattem and by a duly authorized representative of the Class Representatives.

SECTION 11.11 GOVERNING LAW

This Settlement Agreement shall be governed by and construed in accordance with
the laws of the State of Tennessee without regard to conflict of laws principles
thereunder.

Section 11.12 Certification of Different Classes

In the event that the Court approves a certification of the Settlement Class
other than that contemplated by this Settlement Agreement, the parties hereby
agree that they shall amend this Settlement Agreement to reflect such
certification.

                        CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 32

<PAGE>

SECTION 11.13 ORIGINAL SIGNATURES

This Settlement Agreement may be signed in multiple counterparts, each of which
shall be deemed to be an original and all of which shall be deemed to be one and
the same instrument.

SECTION 11.14 SEVERANCE OF AGREEMENT

Chattem, prior to Trial Court Approval and with the mutual consent of the other
Parties and the Court, may separate the Settlement Class and this Settlement
Agreement into separate Settlement Classes and Settlement Agreements.

IN WITNESS WHEREOF, the Parties have duly executed this Class Action Settlement
Agreement among Chattem and the Class Representatives, by their respective
counsel as set forth below, as of the 13`h day of April, 2004.

COUNSEL FOR CHATTEM, INC:
-------------------------

MILLER & MARTIN PLLC

By:                                                      Date:      4-13-04
    ----------------------------------------                   -----------------

COUNSEL FOR CLASS MEMBERS:
--------------------------

SEEGER WEISS LLP

By:                                                      Date:      4-13-04
    ----------------------------------------                   -----------------

ASHCRAFT & GEREL

By:                                                      Date:      4-13-04
    ----------------------------------------                   -----------------

LOPEZ, HODES, RESTAINO, MILMAN & SKIKOS

By:                                                      Date:      4-13-04
    ----------------------------------------                   -----------------

EARLY, LUDWICK & SWEENEY, LLC

By:                                                      Date:      4-13-04
    ----------------------------------------                   -----------------

                         CLASS ACTION SETTLEMENT AGREEMENT
                                     Page 33EXHIBIT 10.4
                                                                    ------------

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                      AMONG

                                 CHATTEM, INC.,

                                   AS SETTLOR
                                       AND
                                  AMSOUTH BANK,

                                   AS TRUSTEE

                              DATED APRIL 12, 2004
<PAGE>

                       INITIAL SETTLEMENT TRUST AGREEMENT

     This INITIAL SETTLEMENT TRUST AGREEMENT, dated as of the 12th day of April,
2004, (this "Trust Agreement") is entered into by and among Chattem, Inc., a
Tennessee corporation (the "Settlor"), and AmSouth Bank, a bank organized and
existing under the laws of the State of Alabama, (the "Trustee") to establish
the Initial Settlement Trust (the "Trust") to hold, administer and distribute
certain assets, as follows:

                                    RECITALS

             WHEREAS, simultaneously herewith, the Settlor has executed and
delivered that certain Class Action Settlement Agreement (the "Settlement
Agreement") whereby the Settlor has agreed to provide for certain payments to be
made to a final settlement trust in consideration of the compromise, settlement,
and release of claims of the class members in that certain class action
litigation in Federal District Court captioned In Re Phenylpropanlamine (PPA)
Products Liability Litigation (MDL No. 1407)(the "Class Action Litigation"); and

             WHEREAS, the parties intend this Trust Agreement to be submitted to
the United States District Court for the Western District of Washington (the
"Court") for approval and to remain subject to the continuing jurisdiction of
the Court and that the Court will issue an order necessary to a effectuate the
Settlement Agreement; and

     WHEREAS, the parties hereto intend that this Trust will be a "Qualified
Settlement Fund" within the meaning of Section 46813 of the Internal Revenue.
Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

             NOW, THEREFORE, it is agreed as follows:

                             ARTICLE 1- DEFINITIONS

SECTION 1.1 GLOSSARY OF TERMS

For purposes of this Trust Agreement, the following terms shall have the
meanings set forth in this Article 1. Terms used in the singular shall be deemed
to include the plural and vice versa.

(a) "ASSETS" shall mean all personal property conveyed to the Trust.

(b) "BENEFICIARIES" shall have the meaning set forth in section 2.2(a).

(c) "CLASS MEMBERS" shall have the meaning set forth in section 2.2(a).

(d) "INDEMNIFIED PARTIES" shall have the meaning set forth in section 3.5(a).

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 2 of 11
<PAGE>

(e) "TRIAL COURT APPROVAL" shall mean the granting, by order entered on the
docket thereof, of the approval of the Settlement Agreement by the Court.

(f) "TRIAL COURT APPROVAL DATE" shall mean the date upon which the Trial Court
Approval occurs.

(g) "TRUST ESTATE" shall mean the assets held by the Trustee under this
Agreement, including all additions to the Trust Estate made pursuant to the
provisions of this agreement by conveyance, assignment, or other transfer.

                    ARTICLE 2 - DECLARATION OF TRUST SECTION

2.1 CREATION OF TRUST

This Trust is hereby established as the initial Chattem Settlement Trust in
anticipation of the creation of the Final Chattem Settlement Trust in accordance
with the Trial Court Approval. This Trust shall be deemed subject to the control
of the Court and if terminated for any reason by the Court prior to the Trial
Court Approval Date, the Trust Assets, less compensation and expenses to the
Trustee as otherwise provided herein, shall be distributed in a manner directed
by the Corm Upon the Trial Court Approval Date, this Trust shall be amended and
continued as the Final Chattem Settlement Trust or the Trust Assets shall be
conveyed into the Final Chattem Settlement Trust and t Ws Trust terminated as
may be determined by the Court and set forth in the Trial Court Approval.

SECTION 2.2 BENEFICIARIES

(a) The Beneficiaries of the Trust are all Class Members, if any, in the Class
Action Litigation (the "Class Members") who may ultimately be determined to be
entitled to receive benefits under the Settlement Agreement ("Beneficiaries")
pursuant to the Trial Court Approval.

(b) Nothing in this Agreement is intended to acknowledge the claims of the Class
Members in the Class Action Litigation or to confer any rights or benefits on
any individual Class Member, Neither Settlor nor Trustee shall have any
obligation or duty hereunder to any individual Class Member, and no individual
Class Member shall have direct right to exercise rights, claims or remedies
against the Settlor or the Trustee under this Trust Agreement or the Settlement
Agreement.

(c) The Trust Assets, if any, to which a Class Member is entitled shall be
determined only if and when the Court enters, and in accordance with, the Trial
Court Approval. The Trustee shall have no authority under this Agreement or
otherwise to make benefit determinations with respect to, or distribute Trust
Assets to, Class Members.

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 3 of 11
<PAGE>

SECTION 2.3 PURPOSES OF THE TRUST

The sole purpose of the Trust is to receive, hold and invest funds in accordance
with, and subject to, the provisions of this Trust Agreement, pending the Trial
Court Approval, and to take all such other actions directed by the Court. In
addition, the Trustee is authorized to pay out of the Trust Estate all costs
related to the Settlement Agreement (including notice costs and the fees of an
administrator) as may be directed by the Court. The Trustee hereby consents to
the jurisdiction of the Court for all purposes related to the control of the
Trust Estate and the performance under or Interpretation of this Trust
Agreement. The Trustee shall have no authority or duty to exercise discretion
with respect to the performance of obligations under, or the interpretation of,
the Settlement Agreement. Any questions of performance or interpretation under
the Settlement Agreement shall be determined by the Court.

SECTION 2.4 FUNDING

The Settlor will deliver (or cause to be delivered) to the Trustee the Assts as
envisioned by the Settlement Agreement. The Trustee hereby agrees to accept the
Assets and to receive, hold, invest, manage, and distribute the Assets in
accordance with the Trust Agreement.

SECTION 2.5 ADDITIONS TO THE TRUST ESTATE

The Trustee shall receive, hold, administer and distribute hereunder, as part of
the Trust Estate: (i) the Assets delivered to it from time to time by, or at the
direction of, the Settlor; (ii) any recoveries with respect to amounts
previously expensed by the Trust (such as, without limitation, refunds of taxes
or administrative expenses previously paid by the Trust); and (iii) any interest
or other earnings on any of the foregoing.

SECTION 2.6 DISTRIBUTION OF THE TRUST ESTATE

Until the Trial Court Approval Date, all amounts in the Trust Estate that are
not used to satisfy the obligations of the Trust, including the compensation and
expenses of the Trustee, shall, upon termination of the Trust, be distributed in
a manner directed by the Court. Upon Trial Court Approval, the Court shall make
a determination with respect to the disposition of any amounts remaining in the
Trust Estate which determination may include the continuation of the Trust as
the Final Chattem Settlement Trust as set forth in the Settlement Agreement upon
such terms as may be determined by the Court, the distribution of the Trust
Estate to a new trust or fund created for the purpose of serving as the Final
Chattem Settlement Trust, or as may otherwise be determined or administered by
the Court and set forth in the Trial Court Approval.

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 4 of 11
<PAGE>

                               ARTICLE 3 - TRUSTEE

SECTION 3.1 QUALIFICATION TO SERVE

The Trustee hereby accepts the nomination and appointment to serve as trustee
and agrees to act in accordance with the Terms of this Trust Agreement. The
Trustee is, and shall continue to be, a bank organized and doing business under
the laws of the United States of America or under the laws of any state thereof,
authorized under such laws to exercise corporate trust powers, with a combined
capital and surplus of at least $100,000,000. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 3.1, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article 3. There shall at all times only be a single trustee of the
Trust. The Trustee shall act in accordance with the terms of this Trust
Agreement and upon the direction of the Court. The Trustee may not assign its
rights or obligations hereunder without the prior written consent of the Settlor
and the Court, provided, however, that the merger or consolidation, or other
assumption of assets and liabilities of, the Trustee with or by another bank
otherwise qualifying hereunder with such bank being the legal successor to the
Trustee shall not be deemed an assignment and shall not require the consent of
the Settlor or the Court.

SECTION 3.2 TERM OF SERVICE

The Trustee shall serve for the duration of the Trust, subject to its
resignation or removal as set forth herein.

SECTION 3.3 APPOINTMENT OF SUCCESSOR TRUSTEE

(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article 3 shall become effective until the acceptance
of appointment by the successor Trustee under Section 3.3(c) below. The Trustee
may resign at any time by giving written notice thereof to the Settlor and the
Court, and may be removed at any time with the approval of the Court. In
addition, if at any time: (i) the Trustee shall fail to comply with the
requirements contained in Section 3.1, or (ii) the Trustee shall become
incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation, or liquidation, then the Trustee may be
removed by the Court. At any time prior to the Trial Court Approval Date, a
successor Trustee may be appointed by the Court if an instrument of acceptance
by a successor Trustee shall not have been delivered to the Trustee within
thirty (30) days after the giving of such notice of resignation, the resigning
Trustee may petition the Court for the appointment of a successor Trustee. A
successor Trustee must meet the qualifications set forth in Section 3.1 of this
Trust Agreement.

(b) Upon the acceptance of office by any successor Trustee, all rights, titles,
duties, powers, and authority of the predecessor Trustee under this Trust
Agreement shall be

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 5 of 11
<PAGE>

vested in and undertaken by the successor Trustee without any further act being
required. No successor Trustee shall be liable for any act or omission of its
predecessor.

(c) Every successor Trustee appointed hereunder shall execute, acknowledge, and
deliver to the Court and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed, or conveyance, shall become vested with all the rights, powers, trusts,
and duties of the retiring Trustee; but, on request of the Court or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all of
the rights, powers, and trusts of the retiring Trustee, and shall duly assign,
transfer, and deliver to each successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Settlor shall execute any and all instruments reasonably necessary for more
fully and certainly vesting in and confirming to each such successor Trustee all
such rights, powers, and trusts. No successor Trustee shall accept its
appointment unless at the time of such acceptance such successor Trustee shall
be qualified and eligible under this Article 3, to the extent operative.

SECTION 3.4 COMPENSATION AND EXPENSES OF TRUSTEE

The Trustee shall be entitled to receive a fee and also shall be reimbursed for
any reasonable out-of-pocket expenditures, and ordinary and customary expenses,
disbursements, and advancements related to performing its services during the
period of the continuation of the Trust as set forth in Annex A. The parties
agree that this compensation represents reasonable compensation for services to
be rendered by the Trustee hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust). The fees and expenses of the Trustee shall be paid out of the Trust
Estate.

SECTION 3.5 INDEMNIFICATION / LIABILITY OF TRUSTEE

(a) So long as the Trustee (or former Trustee) and its officers, directors,
employees and agents (collectively, the "Indemnified Parties" or individually,
an "Indemnified Party") act or have acted in accordance with the terms of this
Trust Agreement, and/or upon the direction of the Court, the indemnified Parties
who were or are a party, or are threatened to be made a party, to any
threatened, pending, or completed action, suit or proceeding of any kind,
whether civil, administrative, or arbitrative. and whether brought (i) against
the Trust, or (iii) with respect to a Trustee, by reason of such Trustee being
or having been a Trustee of the Trust, shall be indemnified and held harmless by
the Settlor and the Trust from and against all costs, damages, judgments,
attorneys' fees (whether such attorneys shall be regularly retained or
specifically employed), expenses, obligations, and liabilities of every kind and
nature which the Indemnified Party or indemnified parties may insure, sustain,
or be required to pay in connection with or arising out of this Trust Agreement,
and to pay to the Indemnified Party or Indemnified Parties on demand the amount
of all such costs, damages, judgments, attorneys' fees,

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<PAGE>

expenses, obligations and liabilities. To secure said indemnification and to
satisfy its compensation hereunder, the Trustee is hereby given the right to
reimburse itself therefore out of the Trust Estate.

(b) The Trustee shall have no liability or obligation, nor shall any person have
a legal or equitable claim, remedy or cause of action for any act or omission by
the Trustee with respect to the Trust Estate except for Trustees willful
misconduct or gross negligence in breach of the terms of this Trust Agreement.
The Trustee's sole responsibility shall be for the receipt, administration,
investment, and disbursement of the Trust Estate in accordance with the terms of
this Trust Agreement. The Trustee shall have no implied duties or obligations
and shall not be charged with knowledge or notice of any fact or circumstance
not specifically set forth herein. The Trustee may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which the Trustee shall
in good faith believe to be genuine, to have been signed or presented by the
person or parties purporting to sign. the same and to conform to the provisions
of this Trust Agreement. In no event shall the Trustee be liable for incidental,
indirect, special, consequential or punitive damages. The Trustee shall not be
obligated to take any legal action or commence any proceeding in connection with
the Trust Estate, this Trust Agreement or o Settlement Agreement, or to appear
in, prosecute or defend any such legal action or proceeding. The Trustee may
consult legal counsel selected by it in the event of any dispute or question as
to the construction of any of the provisions hereof or of any other agreement or
of its duties hereunder, and shall incur no liability and shall be fully
indemnified from any liability whatsoever in acting in accordance with the
opinion or instruction of such counsel.

                        ARTICLE 4 - POWERS OF THE TRUSTEE
SECTION 4.1 POWERS.

To carry out the purposes of this Agreement, subject to any limitation in this
Agreement; the Trustee is vested with the following powers, in addition to those
now or hereafter conferred by law or court order acting the Trust Estate:

(a) To continue to hold any Assets other than cash contributed to the Trust,
whether or not of the type or quality, nor constituting a diversification,
considered proper for trust investments.

(b) To invest and reinvest the principal of the Trust Estate; provided, however,
that all investments made by the Trustee shall be in U.S. Government Treasury
bills or in other obligations guaranteed by the U.S. Goat, with maturities of no
more than six (6) months or shares of a money market mutual fund registered
under the Investment Company Act of 1940, as amended, the principal of which is
invested solely in U.S. Government or agency obligations and repurchase
agreements (including such funds advised, managed or sponsored by the Trustee or
any of its affiliates), and shall include no more than $50,000 to be held in a
bank checking and/or interest bearing time deposit account.

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                                  Page 7 of 11
<PAGE>

(c) To initiate or defend at the expense of the Trust Estate, any litigation
relating to the Trust Estate or property of the Trust Estate, and to compromise,
arbitrate, or otherwise adjust claims in favor of or against the Trust Estate
and to carry such insurance as the Trustee may deem advisable. The Trustee shall
have the authority to initiate, defend and participate in, at the expense of the
Trust Estate, all proceedings related to or affecting the Trust, the Trustee or
Settlor s obligations fonder the Settlement Agreement involving the Trust, and
the Trustee shall be a puny in interest entitled to notice of all such
proceedings.

(d) To have, respecting securities, all the rights, powers, and privileges of an
owner.

(e) To employ any custodian, attorney, accountant or other agent reasonably
necessary to assist the Trustee in administration of the Trust Estate, and to
rely on the advice given by such person.

SECTION 4.2 NO SEGREGATION PER BENEFICIARY

The Trustee may hold all trust property as a single segregated trust and is
under no obligation to separate, or segregate or account for trust property for
the benefit of individual Beneficiaries.

SECTION 4.3 RIGHT TO NON-PERFORM IN CASE OF DISPUTE.

In the event of any disagreement between the Settlor and Beneficiaries, or
between them and any other person, resulting in adverse claims or demands being
made in connection with the assets to be administered hereunder, or in the event
that the Trustee, in good faith, be in doubt as to what action it would take
hereunder, the Trustee may, at its option, refuse to comply with any claims or
demands or it may refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event, the Trustee
shall not be or become liable in any way or to any person for its failure or
refusal to act, and the Trustee shall be entitled to continue so to refrain
from acting until (i) otherwise directed by the Court, or another court of
competent jurisdiction, or (ii) there exists an agreement between the Settlor
and Beneficiaries, and the Trustee shall have been notified thereof in writing
signed by or on behalf of all such persons. The rights of the trustee under this
paragraph are in addition to all other rights which it may have by law or
otherwise.

                     ARTICLE 5 - ADMINISTRATIVE, PROVISIONS

SECTION 5.1 BOND.

No bond, or other security, shall be required of the Trustee named in this
Agreement.

SECTION 5.2 SITUS AND VENUE.

This Trust Estate has been created and accepted by the Trustee in the State of
Tennessee and its validity, construction, and interpretation, and all rights
created hereunder shall be governed by the laws of the State of Tennessee.
Notwithstanding the foregoing, any

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 8 of 11
<PAGE>

action to enforce, interpret or adjudicate the rights and responsibilities
hereunder shall be in the first instance commenced in the Court.

SECTION 5.3 PARTIAL INVALIDITY.

Each provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law. If any provision of this Agreement or the application
of such provision to any person or circumstance shall, to any extent, be invalid
or unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected by such invalidity or
unenforceability, unless such provision or such application of suck provision is
essential to this Agreement.

SECTION 5.4 HEADINGS.

The headings of the various Sections of this Agreement have been inserted only
for convenience, and shall not be deemed in any manner to modify or limit any of
the provisions of this Agreement, or be used in any manner in the interpretation
of this Agreement.

SECTION 5.5 INTERPRETATION

Whenever the context so requires, all words used in the singular shall be
construed to have been used in the plural (and vice versa), and each gender
shall be construed to include the other gender.

SECTION 5.6 TAX MATERS

In addition to all of the Trustee's other obligations tinder this Agreement, the
Trustee shall handle all federal and state tax matters related to the Trust. The
Trustee shall cause a Federal Employer Identification Number for the Trust to be
obtained and shall cause the annual income tax returns to be filed on the basis
of a December 31 fscal year end. The Trustee shall take all steps necessary to
ensure that any tax obligations imposed upon the Trust are paid. To the extent
necessary to satisfy this objective, the Trust is hereby authorized to, among
other things, (1) communicate with the Internal Revenue Service and any state
agency on behalf of the Trust, (ii) make payment of taxes on half of the Trust
(which taxes will be paid out of the Trust assets), and (iii) file all
applicable tax returns for the Trust. Ail ordinary and necessary expenses
incurred in connection with the preparation of such tax returns shall be paid
from the Trust Estate.

SECTION 5.7 REPORTS

The Trustee shall furnish a report to the Settlor and the Court on a monthly
basis setting forth the principal of the Trust Estate, any earnings of the Trust
Estate and all ordinary and necessary expenses incurred by the Trustee in
connection with the management and administration of the Trust Estate.

SECTION 5.8 AMENDMENT

Until the Trial Court Approval Date, any or all of the provisions of this
Agreement may be amended at any time and from time to time, in whole or in part,
by an instrument in writing executed by the Settlor and approved by the Court.
No such amendment shall

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 9 of 11
<PAGE>

authorize or permit any part of the Trust Estate to be used for or diverted for
purposes other than as envisioned by the Settlement Agreement and no such
amendment which affects the rights or duties of the Trustee may be made without
the Trustees written consent. On and after the Trial Court Approval Date, the
Settlor shall not have any right whatsoever to amend, modify, revoke or alter
this Agreement, in whole or in part, except by order of the Court.

SECTION 5.9 FINAL TERMINATION

Notwithstanding any provision in this Agreement to the contrary, neither this
Trust nor any other trust established in accordance with this Agreement shall
continue beyond the date that is twenty-one years after the death of the
survivor of all of the Beneficiaries living on the date of this Agreement.

 IN WITNESS WHEREOF, the parties hereto have duly executed this Trust Agreement
 as OF THE DATE FIRST set forth above.

CHATTEM INC.:

By:                                               DATE:
   -------------------------------                      -----------------------

AMSOUTH BANK:

By:                                               DATE:
   -------------------------------                      -----------------------

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 10 of 11
<PAGE>

                                    ANNEX A
                                    -------

                                SCHEDULE OF FEES

The Trustee shall be paid a fee for all Trustee, Investment Management and
Administrative Services equal to 25 basis points (0.25 Of 1.00%) of the market
value of the Trust Estate on an annual basis billed monthly in arrears.

The fee is based upon the limited Trustee, Investment Management and
Administrative Services envisioned by the Trust Agreement and AmSouth Bank
reserves the right to adjust the fee upon a change in-the scope of the duties
required under the Trust Agreement.

                       INITIAL SETTLEMENT TRUST AGREEMENT

                                  Page 11 of 11

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