FORM OF SECOND AMENDED AND RESTATED NON-COMPETITION AND SEVERANCE AGREEMENT
EXHIBIT
10.4
FORM OF
SECOND AMENDED AND
RESTATED
This
Second Amended and Restated Non-Competition and Severance Agreement (this
“Agreement”) is made and entered into as of the 8th day of July, 2008, by
and between CHATTEM, INC., a Tennessee corporation (the “Company”) and
__________________________ (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 ▇▇▇▇▇▇ 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 Company and the Executive have previously entered that certain
Non-Competition and Severance Agreement dated October 28, 2005, which provides
certain benefits in the event of a change in control of the
Company;
WHEREAS,
the Company desires to amend and restate the Agreement in the form hereinafter
set forth to comply with the provisions of Section 409A of the Internal Revenue
Code of 1986, as amended, (the “Code”) and to make certain other beneficial
changes; and
WHEREAS,
the Executive is willing to accept obligations of confidentiality and
non-competition and to agree to the changes set forth herein in exchange for
specified additional severance benefits provided hereunder.
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 with the termination of
the Executive’s employment with
the Company. Notwithstanding the foregoing, the expiration of the
term of this Agreement shall not affect any right or obligations continuing
thereafter as specifically set forth herein.
2. Confidentiality
Obligations. 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. The Executive agrees to maintain such
confidential information and trade secrets as confidential during the term of
this Agreement and, for confidential information for a period of twelve (12)
months thereafter and, for trade secrets for so long as the information remains
a trade secret. It is agreed that, for purposes of this Agreement,
the term “confidential information” shall mean any and all information relative
to the Company which is unpublished or not readily available to the general
public, and the term “trade secrets” means information, without regard to form,
that derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
persons other than the Company who can obtain economic value from its disclosure
or use, and is the subject of efforts by the Company that are reasonable under
the circumstances to maintain its secrecy.
3. Non-Compete. In
the event of a Change in Control (as hereinafter defined) while Executive is
employed by the Company and the termination of Executive’s employment entitling
Executive to the Severance Benefit, Executive will not, for a period of twelve
(12) months after such termination of employment, 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,
over-the-counter drugs, functional toiletries or dietary supplements which are
competitive with the products of the Company marketed and sold during the term
of this Agreement up through the date of termination of employment with annual
sales for the Company’s most recently completed fiscal year in excess of $10
million. This provision applies only to persons or entities selling
the above specified products in competition with the Company through food, drug
or mass merchandiser channels of distribution 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, the Executive shall
receive the Severance Benefit. If the Company’s shareholders approve
a merger or other transaction which results in a Change in Control and the
Company Discharges or Constructively Discharges the Executive on or after the
date of the related shareholder meeting but before the actual date of the Change
in Control, Executive shall be deemed to have been Discharged or Constructively
Discharged immediately following the Change in Control. In addition,
after a Change in Control, the Executive shall be entitled to resign his
employment with the Company and receive the Severance Benefit (a “Resignation”)
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:
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A.
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“Change
in Control” shall mean the occurrence of any one of the following
events:
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(i)
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the
sale by the Company of all or substantially all of its assets or the
consummation by the Company of any
merger,
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consolidation,
reorganization, or business combination with any person, in each case,
other than in a
transaction:
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(a)
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in
which persons who were shareholders of the Company immediately prior to
such sale, merger, consolidation, reorganization, or business combination
own, immediately thereafter, (directly or indirectly) more than 50% of the
combined voting power of the outstanding voting securities of the
purchaser of the assets or the merged, consolidated, reorganized or other
entity resulting from such corporate transaction (the “Successor
Entity”);
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(b)
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in
which the Successor Entity is an employee benefit plan sponsored or
maintained by the Company or any person controlled by the Company;
or
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(c)
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after
which more than 50% of the members of the board of directors of the
Successor Entity were members of the Board of Directors of the Company
(the “Board”) at the time of the action of the Board approving the
transaction (or whose nominations or elections were approved by at least
2/3 of the members of the Board at that
time);
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(ii)
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the
acquisition directly or indirectly by any “person” or “group” (as those
terms are used in Sections 13(d), and 14(d) of the Securities Exchange Act
of 1934 (the “Exchange Act”), including without limitation, Rule 13d-5(b))
of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the
Exchange Act) of securities entitled to vote generally in the election of
directors (“voting securities”) of the Company that represent 30% or more
of the combined voting power of the Company’s then-outstanding voting
securities, other than:
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(a)
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an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any person controlled by the Company or by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
person controlled by the Company;
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(b)
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an
acquisition of voting securities by the Company or a person owned,
directly or indirectly, by the holders of at least 50% of the voting power
of the Company’s then
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outstanding
securities in substantially the same proportions as their ownership of the
stock of the Company;
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(c)
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an
acquisition of voting securities from the Company;
or
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(d)
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an
acquisition of voting securities pursuant to a transaction described in
clause (i) of this definition that would not be a Change in Control under
clause (i); and
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for
purposes of clarification, an acquisition of the Company’s securities by
the Company that causes the Company’s voting securities beneficially owned
by a person or group to represent 30% or more of the combined voting power
of the Company’s then-outstanding voting securities is not to be treated
as an “acquisition” by any person or group for purposes of this clause
(ii);
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(iii)
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a
change in the composition of the Board that causes less than a majority of
the directors of the Company to be directors that meet one or more of the
following descriptions:
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(a)
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a
director who has been a director of the Company for a continuous period of
at least 24 months;
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(b)
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a
director whose election or nomination as director was approved by a vote
of at least 2/3 of the then directors described in clauses (iii)(a), (b)
or (c) of this definition by prior nomination or election, but excluding,
for the purposes of this subclause (b), any director whose initial
assumption of office occurred as a result of an actual or threatened
(i) election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf
of a person or group other than the Board or (ii) tender offer,
merger, sale of substantially all of the Company’s assets, consolidation,
reorganization, or business combination that would be a Change in Control
under clause (i) on the consummation thereof;
or
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(c)
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a
director who was serving on the Board as a result of the consummation of a
transaction described in clause
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(i)
that would not be a Change in Control under clause (i);
or
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(iv)
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the
approval by the Company’s shareholders of a liquidation or dissolution of
the Company other than in connection with a transaction described in
clause (i) of this definition that would not be a Change in Control
thereunder.
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Except as
otherwise specifically defined in this definition, the term “person” means an
individual, corporation, partnership, trust, association or any other entity or
organization.
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B.
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“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.
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C.
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“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,
any of which events shall be deemed to occur on the date the Executive
provides written notice to the Company of the circumstances constituting a
Constructive Discharge.
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D.
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“Severance
Benefit”: a payment equal to two-hundred percent (200%) of the
Executive’s “annualized includible compensation for the base period” as
defined in Section 280G(d) of the
Code.
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Notwithstanding
the foregoing Severance Benefit formula, any payments to which the
Executive is entitled upon Discharge or Constructive Discharge or
Resignation from the Company shall be adjusted so that the aggregate
present value of all “parachute payments” (as defined in Section
280G(b)(2) of 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 Section 280G(d) of 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 Resignation, by the Company’s independent accountants,
compensation consultants or legal
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counsel
(“Independent Advisor”) on the date of the Change in Control and shall be
final and binding on the Executive and the Company. The Company
shall furnish said Independent Advisor with all data required to make said
determination within ten (10) days after Discharge, or Constructive
Discharge or Resignation. If there is any such adjustment, the
Executive may request which payments or distributions shall be reduced and
the Company may acquiesce in such request if permitted under applicable
law.
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If,
notwithstanding the foregoing, it is established pursuant to the final
determination of a court or the Internal Revenue Service that payments
have been made to, or provided for the benefit of, Executive by the
Company which are subject to the excise tax of Section 4999, the Company
shall reimburse, or pay for the benefit of, the Executive such excise tax
and indemnify and hold the Executive harmless, on an after-tax basis, for
any additional excise, income or employment taxes, including interest and
penalties, imposed as a result of such final determination with any such
reimbursements being made no later than the end of the taxable year of the
Executive following the taxable year in which the excise tax is
remitted.
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5. Payment. The
Severance Benefit shall be paid to the Executive in a lump sum not later than
thirty (30) days after Discharge or Constructive Discharge or
Resignation. 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 Code.
Notwithstanding the foregoing, in the
event the Executive is a “specified employee” within the meaning of Section 409A
of the Code and the regulations thereunder as of the date of Discharge,
Constructive Discharge or Resignation, the Severance Benefit under this Section
3 shall be paid six (6) months after the date of Discharge, Constructive
Discharge or Resignation as required by Section 409A, or, if earlier, the date
of death of the Executive.
6. Continuation of
Benefits. If the Executive becomes entitled to the Severance
Benefit in accordance with Section 4 hereof, the Company shall continue to
provide health, medical and life insurance in accordance with the following
rules:
A. General
Rule. If Executive is eligible for the Severance Benefit under
Section 4 and timely elects COBRA coverage under the provisions of Section 4980B
of the Code in connection with Executive’s termination of employment, the
Company shall reimburse Executive for the COBRA coverage premiums Executive pays
each month to purchase such coverage from the Company for Executive and, if so
elected, for Executive’s eligible dependents, and the reimbursement for one
month shall be made no later than the end of the immediately following month;
provided, however, such reimbursement shall be made for no more than 24 months
of COBRA coverage.
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B. Special
Rules.
(i). COBRA Coverage
Expires. If Executive’s COBRA coverage expires in less than 24
months and Executive elects before the expiration of such COBRA coverage to
continue to purchase from the Company coverage identical to COBRA coverage under
this Section 6.B(i) at 100% of the then COBRA coverage premium, Executive may
purchase such coverage until the total number of months of coverage
Executive has purchased under Section 6.A and this Section 6.B(i)
equals 24. The Company shall reimburse Executive for such premiums,
and the reimbursement for premiums paid for one month shall be made no later
than the end of the following month.
(ii). Additional
Coverage. If Executive elects before the expiration of
Executive’s coverage under Section 6.A or Section 6.B(i), whichever comes last,
to continue to purchase from the Company coverage identical to COBRA coverage
under this Section 6.B(ii), Executive may purchase such coverage at Executive’s
expense at 100% of the then COBRA coverage premium for a period which shall not
exceed 18 additional months, provided Executive pays such premiums at the same
time and in the same manner as the Company then requires for premium payments to
purchase COBRA coverage.
C. Life
Insurance. In addition, if Executive is eligible for the
Severance Benefit under Section 4, the Company shall reimburse Executive for
life insurance premiums Executive pays each month to purchase life insurance
coverage at substantially the same level of benefits as the Executive has at the
date of termination of employment, and the reimbursement for one month shall be
made no later than the end of the immediately following month. Such
payments shall continue through the twenty-fourth (24th) month
following Executive’s termination of employment. Notwithstanding the
foregoing subsections, in the event the Executive is a “specified employee”
within the meaning of Section 409A of the Code and the regulations thereunder as
of the date of termination of employment, the reimbursements under this
subsection 6C shall accrue during the first six (6) months after the date of
termination of employment and be paid on the first day of the seventh (7th) month
after the date of termination of employment as required by Section 409A, or, if
earlier, the date of death of the Executive. Thereafter, subsequent
reimbursements shall be made in the time and manner set forth in this subsection
6C.
7. Injunction. Executive
expressly recognizes that any breach of the provisions of this Agreement is
likely to result in irreparable injury to Company and that monetary damages may
not adequately compensate Company for such breach. Therefore,
Executive agrees that Company shall be entitled, if it so elects, to institute
and prosecute proceedings in any court of competent jurisdiction not only to
obtain damages for any breach of this Agreement, but also to enforce the
specific performance of this Agreement by Executive and to enjoin Executive from
activities in violation of this Agreement. Further, Executive agrees
that any breach of the provisions of this Agreement shall automatically toll and
suspend the period of restraint for the amount of time that the breach
continues.
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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 or Resignation
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.
10. Governing
Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Tennessee. Executive and the
Company agree that any proceeding arising out of or in connection with this
Agreement may be brought in the courts of ▇▇▇▇▇▇▇▇ County, Tennessee, and
Executive and the Company waive, to the fullest extent permitted by applicable
law, any objection either may have to the appropriate venue of such court in any
such proceeding.
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.
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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, and its corporate seal to be hereunto
affixed and attested by its Secretary, all as of the day and year first above
written.
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_____________________________________
CHATTEM,
INC.
By:
__________________________________
Name: _______________________________
Title:
_________________________________
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