EXHIBIT 10.1
------------
NON-COMPETITION AND SEVERANCE AGREEMENT
---------------------------------------
This Agreement is made and entered into as of the 28th of October, 2005,
by and between CHATTEM, INC., a Tennessee corporation (the Company") and Xxxxxx
X. Xxxxxxxx (the "Executive").
WITNESSETH
----------
WHEREAS, the Company is desirous of assuring itself of continuity of
management through the hiring and retention of certain key executives, and to
xxxxxx their unbiased and analytical assessment of any offer to acquire control
of the Company; and
WHEREAS, the Company desires to impose upon the Executive obligations of
confidentiality and to restrict his ability to obtain employment with certain
competitors of the Company; and
WHEREAS, the Executive is willing to accept obligations of confidentiality
and non-competition in exchange for specified severance benefits;
NOW, THEREFORE, the Company and the Executive do hereby agree as follows:
1. Term. The term of this Agreement shall commence as of the day and year
first above written and continue indefinitely thereafter for a period ending
three (3) years after the termination of the Executive's employment with the
Company.
2. Confidentiality Obligations. During the term of this Agreement, the
Executive agrees to maintain all confidential information and trade secrets
obtained during the course of his employment with the Company as confidential
and to disclose the same to no one, other than in the furtherance of the
Company's business in the normal course or to a fellow employee with a
reasonable need to know, unless the Executive can demonstrate by documentary
evidence that such information was (1) known to him prior to his employment with
the Company; (2) subsequently became part of the public domain through no fault
of his own; or (3) was subsequently disclosed to him by a third party not in
violation of any obligation of confidentiality and non-use with the Company.
3. Non-Compete. In the event of a Change in Control (as hereinafter
defined) while Executive is employed by the Company and during the term of this
Agreement, Executive will not accept compensation or anything of value from, nor
offer or provide any services, including consulting services, to any person,
company, partnership, joint venture or other entity which has or does a
significant business involving, in whole or in part, health and beauty aid
products sold over the counter. This provision applies only to entities selling
the above specified products in competition with the Company in the United
States.
4. Severance Benefits. If the Company Discharges or Constructively
Discharges the Executive during the term of this Agreement within twenty-four
(24) months after the occurrence of a Change in Control, he shall receive a
Severance Benefit. In addition, after a Change in Control, the Executive shall
be entitled to resign his position with the Company and elect to receive the
Severance Benefit (the "Election") at any time during the period commencing
one-hundred and eighty (180) days after the Change in Control and ending
two-hundred and forty (240) days after the Change in Control notwithstanding
that the fact that no Discharge or Constructive Discharge has occurred. These
terms are hereby defined as follows:
A. "Change in Control":
(i) Change of one-third (1/3) or more of any directors of
the Company within any twelve (12) month period; or
(ii)Change of one-half (1/2) or more of the directors of the
Company within any twenty-four (24) month period; or
(iii)Acquisition by any person of the ownership or right to
vote of thirty-five (35%) percent or more of the Company's
outstanding voting shares. "Person" shall mean any person,
corporation, partnership, or any entity and any affiliate or
associate thereof. "Affiliate" and "associate" shall have the
meanings assigned to them in Rule 12(b)(2) of the General Rules
and Regulations under the Securities Exchange Act of 1934.
B. "Discharges": terminates the Executive for any reason other than
indictment or conviction for a felony or other crime involving
substantial moral turpitude, disability, death, alcoholism, drug
addiction or the gross, active misfeasance of the Executive with
regard to his duties with the Company.
C. "Constructively Discharges": changes location or reduces the
Executive's status, duties, responsibilities or direct or
indirect compensation, (including future increases commensurate
with those given other managers of the Company), or so alters the
style or philosophy of the conduct of the Company's business, in
the opinion of the Executive, as to cause it to be undesirable to
the Executive to remain in the employ of the Company.
D. "Severance Benefit": a payment equal to two hundred (200%)
percent of the Executive's average annual includible compensation
from the Company during the five (5) most recently completed
taxable years before the date on which the Change in Control
occurs. Any partial taxable years shall be annualized. If the
event that the Executive's employment is less than five (5)
years, the average annual compensation should be calculated based
on the rate of compensation for the actual term of employment.
Notwithstanding the foregoing Severance Benefit formula, any payments to
which the Executive is entitled upon Discharge or Constructive Discharge from
the Company shall be adjusted so that the aggregate present value of all
"parachute payments" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended from time to time (the "Code") to which the Executive is
entitled is less than 300% of the Executive's "annualized includible
compensation for the base period" as defined in the Code. The determination as
to whether there is any adjustment (and the extent thereof) in the payments due
the Executive because of this paragraph shall be made in writing within thirty
(30) days after Discharge or Constructive Discharge or Election, by the
Company's independent certified public accountants on the date of the Change in
Control and shall be final and binding on the Executive and the Company. The
2
Company shall furnish said independent certified public accountants with all
data required to make said determination within ten (10) days after Discharge or
Constructive Discharge or Election. If there is any such adjustment, the
Executive may elect in the Executive's sole discretion which payments or
distributions shall be reduced and/or which payments or distributions shall be
deferred and promptly notify the Company in writing of such election.
5. Payment. The Severance Benefit shall be paid to the Executive in a lump
sum or, at the Executive's election, in two (2) equal installments with the
first to be made not later than thirty (30) days after Discharge or Constructive
Discharge or Election and the second installment one (1) year after the first
installment was paid. No interest shall be due upon the Severance Benefit unless
it is not paid when due and in which case interest shall accrue thereon at the
applicable Federal rate used to determined present value under Section 280G of
the Internal Revenue Code of 1986, as amended.
6. Continuation of Benefits. The Company shall continue to provide to the
Executive at its cost and expense health, medical and life insurance benefits at
substantially the same level of benefits as the Executive has at the date he
becomes entitled to the Severance Benefit in accordance with Section 4 hereof
for a period of two (2) years following the date the Executive becomes entitled
to such Severance Benefit.
7. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, shall be settled by
arbitration in the City of Chattanooga in accordance with the laws of the State
of Tennessee by three (3) arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or the Executive shall be entitled to recover
from the Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with the enforcement of his said rights (including
the enforcement of any arbitration award in court), regardless of the final
outcome, unless the arbitrators shall determine that under the circumstances
recovery by the Executive of all or a part of any such fees and costs and
expenses would be unjust.
8. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
executive offices addressed to the President.
9. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by operation
of law. Notwithstanding the foregoing provisions, in the event that the
Executive dies following Discharge or Constructive Discharge after a Change in
Control but before receiving all of his Severance Benefit, the unpaid Severance
Benefit shall be paid to his Estate in accordance with the terms of this
Agreement.
3
10. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Tennessee.
11. Amendment. This Agreement may not be amended or cancelled except by the
mutual agreement of the parties in writing.
12. Successors to the Company. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company and any
successor of the Company.
13. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ Xxxxxx X. Xxxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxxx
CHATTEM, INC.
By: /s/ Xxx Xxxxxx
-------------------------------------
` Xxx Xxxxxx
Chairman and Chief Executive Officer
4
