UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995 COMMISSION FILE NUMBER 0-5905

CHATTEM, INC.
A TENNESSEE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 62-0156300
1715 WEST 38TH STREET
CHATTANOOGA, TENNESSEE 37409
TELEPHONE: 423-821-4571

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, WITHOUT PAR VALUE

REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K WILL
BE CONTAINED IN THE DEFINITIVE PROXY STATEMENT INCORPORATED BY REFERENCE IN
PART III OF THIS FORM 10-K.

AS OF FEBRUARY 21, 1996, THE AGGREGATE MARKET VALUE OF VOTING SHARES HELD BY
NON-AFFILIATES WAS $20,801,317.
AS OF FEBRUARY 21, 1996, 7,292,199 COMMON SHARES WERE OUTSTANDING.

DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL YEAR ENDED
NOVEMBER 30, 1995 (THE "1995 ANNUAL REPORT TO SHAREHOLDERS") ARE INCORPORATED BY
REFERENCE IN PARTS I, II AND IV OF THIS REPORT. PORTIONS OF THE REGISTRANT'S
DEFINITIVE PROXY STATEMENT DATED MARCH 8, 1996 (THE "PROXY STATEMENT") ARE
INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.

PART I

ITEM 1. BUSINESS

GENERAL

Chattem, Inc. (the "Company") was incorporated in Tennessee in 1909 after having
commenced business operations in 1879. The Company is a diversified
manufacturer and marketer of consumer products. The Company manufactures and
markets branded over-the-counter ("OTC") pharmaceuticals, such as FLEX-ALL 454,
ICY HOT, PAMPRIN, PREMSYN PMS, BENZODENT and NORWICH Aspirin, and functional
toiletries and cosmetics, including CORN SILK, BULLFROG, ULTRASWIM, SUN-IN,
MUDD and PHISODERM. In the OTC drug market, the Company believes that its
topical analgesic and menstrual and premenstrual internal analgesic brands are
among the market leaders in the U.S. in their categories. Certain of the
Company's functional toiletries and cosmetics products, such as SUN-IN and
ULTRASWIM, are believed by the Company to be brand leaders in the U.S. in their
categories.

The Company's growth strategy is to seek continued growth through a combination
of brand acquisitions and internal growth. As a part of this strategy, the
Company continually evaluates its products and businesses, and in instances in
which products or businesses fail to realize the Company's objectives, the
Company will dispose of these products or businesses and redeploy these assets
to products and businesses with greater growth potential.

The Company conducts certain aspects of its business through four wholly owned
subsidiaries. One subsidiary owns or licenses substantially all of the
trademarks and intangibles associated with its domestic consumer products
business and licenses the Company's use thereof. Certain foreign sales
operations are conducted through Canadian and United Kingdom subsidiaries.
Product liability insurance is provided by a captive insurance subsidiary
incorporated in Bermuda.

For purposes of this report, the "Company" refers to Chattem, Inc. and its
wholly-owned subsidiaries. Trademarks of the Company appear in this report in
all capitalized letters.

DEVELOPMENTS DURING FISCAL 1995

On May 26, 1995, the Company completed the sale of its specialty chemicals
division to privately- held Elcat, Inc. ("Elcat"). The Company received
$25,000,000 from the sale of the specialty chemicals division consisting of
$20,000,000 in cash and $5,000,000 of 13.125% cumulative, convertible preferred
stock of Elcat. The net cash proceeds were used to repay long-term debt of
approximately $12,000,000. The Company recognized a net gain of $9,334,000 (net
of tax)from the sale and an extraordinary charge (after tax) of $367,000
relating to the early extinguishment of the debt.

The results of operations and the gain on disposal of the specialty chemicals
division have been separately classified as discontinued operations in the
accompanying consolidated statements of income.

The Company's operations continue to be affected by the payment of a special
cash dividend ("Special Dividend") of $20.00 per share in June, 1993 to holders
of its common stock. In order to pay the Special Dividend and related fees and
expenses, the Company borrowed approximately $97,000,000. The funding of the
Special Dividend resulted in a substantial negative balance in the Company's
shareholders' equity and significantly increased the use of leverage in the
Company's capital structure. The consequences to the Company have been
significantly increased interest expense and repayment obligations and more
vulnerability to adverse business conditions.

PRODUCTS

The objective of the Company is to offer high quality brand name products in
niche market segments in which its products can be among the market leaders.
The Company strives to achieve its objective by identifying brands with
favorable demographic appeal, being flexible in modifying products and
promotions in response to changing consumer demands and developing creative and
cost-effective marketing and advertising programs. The Company manufactures
substantially all of its products at its manufacturing facility in Chattanooga,
Tennessee.

The Company's product brands are:

OTC PHARMACEUTICALS
- FLEX-ALL 454 - topical analgesic
- ICY HOT - topical analgesic
- PAMPRIN - menstrual internal analgesic
- PREMSYN PMS - premenstrual internal analgesic
- NORWICH Aspirin - internal analgesic
- BENZODENT - topical oral analgesic
- SOLTICE - analgesic balm
- BLIS-TO-SOL - anti-fungal product

FUNCTIONAL TOILETRIES AND COSMETICS
- CORN SILK - oil absorbing facial make-up
- BULLFROG - sunscreen and sunblock
- ULTRASWIM - chlorine removing shampoo
- SUN-IN - spray-on hair lightener
- MUDD - facial mask and cleanser
- PHISODERM - facial cleanser

The following table sets forth the Company's net sales attributable to domestic
and international OTC pharmaceutical products, functional toiletries and
cosmetics products, other products and total consumer products during the past
three fiscal years (dollars in thousands):

FISCAL YEAR ENDED
--------------------------------------------------------------
NOVEMBER 30, 1995 NOVEMBER 30, 1994 NOVEMBER 30, 1993
----------------- ----------------- -----------------
PRODUCT CLASS SALES PERCENTAGE SALES PERCENTAGE SALES PERCENTAGE
- ------------- ----- ---------- ----- ---------- ----- ----------

Domestic:
OTC Pharmaceuticals................. $ 48,700 48.4% $51,673 54.8% $49,590 55.2%
Functional Toiletries and
Cosmetics.......................... 37,519 37.3 29,888 31.7 25,920 28.9
International:
OTC Pharmaceuticals................. 2,463 2.5 2,243 2.4 3,361 3.7
Functional Toiletries and
Cosmetics.......................... 10,885 10.8 9,484 10.0 9,908 11.0
Other Products....................... 1,031 1.0 1,082 1.1 1,082 1.2
-------- ----- ------- ----- ------- -----
Total Consumer Products............. $100,598 100.0% $94,370 100.0% $89,861 100.0%
-------- ----- ------- ----- ------- -----

GROWTH STRATEGY

The Company's consumer products have historically grown through acquisition of
new brands and expansion of existing brands. The Company seeks acquisitions of
embryonic brands which have achieved success in limited geographic regions or of
more developed brands with unrealized potential. With embryonic brands, the
Company utilizes its marketing ability, sales force and manufacturing
capabilities to build on the regional strength of the brand and launch the
product nationally. For example, prior to its acquisition by the Company, FLEX-
ALL 454 had developed a significant market share in Denver and Phoenix, but was
virtually unknown in the balance of the country. After its acquisition by the
Company in 1989, FLEX-ALL 454, which had sales of less than $1,000,000 at the
time of acquisition, had exceeded $15,000,000 in gross sales in each of 1995 and
1994. As to brands with unrealized potential, the Company seeks to acquire from
larger firms brands that have been undermarketed because the products are not of
sufficient size to warrant attention by the larger firms. Two products in this
category were acquired in 1994: BENZODENT, a dental analgesic cream acquired
from The Procter & Gamble Company ("Procter & Gamble"), and PHISODERM, a line of
facial cleaners acquired from Sterling Winthrop Inc. ("Sterling"). ICY HOT is
an earlier example of this type of acquisition and has experienced significant
growth since its acquisition in 1991. In considering product acquisitions, the
Company also seeks products that complement existing brands through increased
marketing presence, shared promotions and shared distribution channels.

The Company endeavors to expand its existing products through line extensions
of existing brands, which capitalize on consumer awareness of the brand
names. An example of this strategy was the introduction and national launch
of Maximum Strength FLEX-ALL 454 in August 1993. As another example, the
Company plans a national launch of PHISODERM Antibacterial skin cleanser
during 1996. Efforts are also made to develop new and creative marketing
strategies and executions to expand both trade distribution and consumer
usage.

OTC PHARMACEUTICALS

The Company markets a diversified portfolio of brand name OTC pharmaceutical
products, many of which are among the market leaders in the U.S. in their
respective categories.

FLEX-ALL 454 is an aloe-vera based topical analgesic used primarily by people
with arthritic symptoms to alleviate pain and irritation in joints and
secondarily by persons suffering from muscle strain. The Company believes that
the advancing age of the U.S. population and the emphasis on fitness and
physical activity will increase the overall market size of the topical analgesic
market. The Company supports the brand with a marketing program that features
Joe Namath and the endorsement of all the professional trainers of the National
Football League, the National Hockey League, the National Basketball Association
and Major League Baseball.

ICY HOT provides the Company with a second entry into the topical analgesic
market segment. ICY HOT is an extra strength dual action product, as
distinguished from FLEX-ALL 454. The Company supports this brand with
national advertising and strong promotional programs.

In the menstrual analgesic segment, the Company markets PAMPRIN, a combination
drug specifically designed for relief of menstrual symptoms, and PREMSYN PMS, a
product formulated to relieve mild to moderate symptoms of premenstrual
syndrome. PAMPRIN was developed internally by the Company over 30 years ago,
while PREMSYN PMS was introduced by the Company in 1983. Factors affecting the
menstrual analgesic segment include the introduction of competing general
analgesic brands of ibuprofen for OTC distribution in 1986, the introduction by
Procter & Gamble of another non-steroidal general analgesic product in 1994
along with demographic trends of target consumers, women aged 18 to 49.

NORWICH is a pharmaceutical-quality aspirin-based analgesic which complements
the Company's other OTC pharmaceuticals by offering consumers another choice in
the analgesic market segment and by permitting shared product promotions. The
Company positions the brand as a reasonably priced alternative between private
label generic aspirin and high-priced, heavily-advertised brands.

BENZODENT is a dental analgesic cream in an adhesive base for use as an oral,
topical analgesic for pain related to dentures. The Company acquired BENZODENT
from Procter & Gamble in 1994 and will seek to increase the market share of this
brand through advertising and promotional programs.

Additionally, the Company manufactures and markets on a regional basis two
smaller proprietary drug brands: SOLTICE, an external analgesic, and BLIS-TO-
SOL, an anti-fungal product.

FUNCTIONAL TOILETRIES AND COSMETICS

The Company also markets a portfolio of brand name functional toiletries and
cosmetics, many of which are among the market leaders in the U.S. in their
respective categories.

The CORN SILK brand is a line of facial makeup products for women with oily or
combination skin. All CORN SILK products utilize an exclusive ingredient for
absorbing the excess facial oils that break down the color and coverage of other
makeup. The CORN SILK brand includes powder used by women to fix and finish
their makeup and also liquid makeup, blush and concealer. Liquid makeup is used
to even skin tone, blush to add color and concealer to cover blemishes. The
Company supports the brand by a television advertising campaign complemented by
print advertising in selected women's magazines.

In the sunscreen and sunblock category, BULLFROG provides long-lasting, water-
durable protection from the sun. Due to escalating consumer awareness of skin
damage from sun exposure, the Company expects the sun protection segment of the
sun care market to continue to expand rapidly. Positioned as a line of highly
efficacious sunblock products in a unique, highly concentrated formula, the
Company believes that the BULLFROG brand should continue to benefit from this
overall market growth as well as increasing brand awareness, broader product
offerings and increased consumer advertising, promotion and sampling programs.

ULTRASWIM is a leading line of chlorine removing shampoo, conditioner and soap.
ULTRASWIM has a patented formula that the Company believes makes it superior to
formulations of other products in removing chlorine. ULTRASWIM has also
benefited as it has moved beyond the competitive swim segment to include
exercise and recreational swimmers.

SUN-IN is the number one product line in the spray-on hair lightener market.
The target customers within this market segment are light-haired women between
the ages of 12 and 24. The Company supports SUN-IN's position as the market
leader through recent improvements in the formula and package, seasonal
advertising to teens and consumer promotions in retail stores.

MUDD is a line of clay-based products which provide deep cleansing of the face
for healthier, cleaner skin. Target customers for MUDD are women between the
ages of 18 and 49. In fiscal 1995, the Company relaunched MUDD with improved
formulas and updated packaging. The relaunch was supported by television
advertising and promotional programs.

PHISODERM is a line of facial cleansers consisting of several formulas of liquid
cleansers, including one for infants, and a bar soap. Acquired in 1994,
PHISODERM is the Company's second entry into the facial cleanser category.
Positioned as a deep cleaning but gentle facial cleanser, the Company, in fiscal
1995, improved the formula, updated the packaging and provided television
advertising and promotional support to enable this brand to regain the larger
market share it once enjoyed.

INTERNATIONAL

The Company's products are also sold in foreign countries. This international
business is concentrated in Canada, Europe and Central and South America.

Sales in Canada and Europe are conducted by subsidiary companies located and
locally staffed in Canada and the United Kingdom. General export sales are
handled by the Company from its offices in Chattanooga. Most of the products
sold in international markets are manufactured by the Company at its Chattanooga
facilities and are packaged by subsidiary companies in small facilities in
Canada and the United Kingdom with the assistance, from time to time, of outside
contract packagers.

Many of the Company's major domestic products are currently sold in Canada,
including the FLEX-ALL 454, PAMPRIN, SUN-IN, CORN SILK, MUDD, ULTRASWIM and
PHISODERM brands.

Consumer product sales in the United Kingdom and on the continent of Western
Europe are currently limited to toiletry and cosmetic products. The Company's
hair lightener product is sold on the continent under the SPRAY BLOND trademark
and in the United Kindgom as SUN-IN. MUDD, CORN SILK and ULTRASWIM are the
other primary consumer products sold by the Company's international division in
Europe.

The Company's export division services various distributors primarily located in
the Caribbean, Mexico and Peru. The Company sells various products into these
markets with the primary focus being the development of its OTC pharmaceuticals,
principally ICY HOT and PAMPRIN. The Company continues to look for established
distributors in Central and South America.

MANUFACTURING

The Company manufactures a substantial portion of its products at its
Chattanooga plant. Currently, the Company has adequate capacity to meet
anticipated demand for its products. New products can generally be manufactured
with the adaptation of existing equipment and facilities, with the addition of
new equipment at relatively small cost or through readily available contract
manufacturers. For additional information about the extent of utilization of
the Company's manufacturing facilities, see "Properties", Item 2 in this report.

To monitor the quality of its products, the Company maintains an internal
quality control system supported by an on-site microbiology laboratory. Outside
consultants also are employed from time to time to monitor product development
and the effectiveness of the Company's operations.

The Company has not experienced any material adverse effect on its business as a
result of shortages of energy or other raw materials used in the manufacture of
its products. At present, the Company does not foresee any significant problems
in obtaining its requirements at reasonable prices, but no assurances can be
given that raw material or energy shortages will not adversely affect its
operations in the future.

RESEARCH AND DEVELOPMENT

The Company's research and development expenditures were $1,140,000, $893,000
and $930,000 in the fiscal years ended November 30, 1995, 1994 and 1993,
respectively. No material customer-sponsored research and development
activities were undertaken during these periods. The Company expects to
maintain the same general level of expenditures in fiscal 1996.

The research and development effort focuses on developing improved formulations
for existing products and on the creation of formulations for product line
extensions. The preservation and improvement of the quality of the Company's
products are also integral parts of its overall strategy.

DISTRIBUTION

The Company's domestic products are sold through thousands of food, drug and
mass merchandiser accounts. Internationally, the products are sold by a
national broker in Canada and the Company's own sales force in the United
Kingdom and by exclusive distributors in Western Europe and Central and South
America to mass distribution channels.

Wal-Mart Stores, Inc. accounts for more than 10% of the sales of the Company's
consolidated net sales. No other customer accounts for more than 10% of
consolidated net sales. Boots Plc, a U.K. retailer, accounts for more than 10%
of the international consumer products segment's sales.

The Company generally maintains sufficient inventories to meet customer orders
as received absent unusual and infrequent situations. At present, the Company
has no significant backlog of customer orders and is promptly meeting customer
requirements.

The Company does not generally experience wide variances in the amount of
inventory it maintains. Inventory levels were increased during fiscal 1995 to
support several promotions and normal buildup for orders on seasonal products.
In certain circumstances, the Company allows its customers to return unsold
merchandise and, for seasonal products, provides extended payment terms to its
customers.

MARKETING

The Company allocates a significant portion of its revenues to the
advertising and promotion of its products. Expenditures for these purposes
were 37.0%, 35.3%, and 40.4%, respectively, as a percentage of net sales
during each of the fiscal years ended November 30, 1995, 1994 and 1993. Due
to the maturation of the brand and the decision to strongly support other
brands, advertising and promotion expenses to support FLEX-ALL 454 were
reduced in fiscal 1995 by 18.9%.

The Company's marketing objective is to develop and execute creative and cost-
effective advertising and promotion programs. The manner in which the Company
executes promotional programs and purchases advertising time creates more
flexibility in terms of adjusting spending levels. The Company believes that
balancing advertising, trade promotions and consumer promotions expenditures on
a cost effective basis is an essential element in its ability to compete
successfully.

The Company develops advertising strategies and executions for each of its major
brands that focus on the particular attributes and market positions of the
products. The Company achieves cost-effective advertising by minimizing certain
expenses, such as production of commercials and payments to advertising
agencies.

The Company works directly with retailers to develop for each brand promotional
calendars and campaigns that are customized to the particular requirements of
the individual retailer. The programs, which include cooperative advertising,
temporary price reductions, in-store displays and special events, are designed
to obtain or enhance distribution at the retail level and to reach the ultimate
consumers of the product. The Company also utilizes consumer promotions such as
coupons, samples and trial sizes to increase the trial and consumption of the
products.

SEASONALITY

During recent fiscal years, the Company's first quarter net sales and gross
profit have trailed the other fiscal quarters on average from 25% to 35% because
of slower sales of international consumer products and the relative absence of
promotional campaigns during this quarter.

COMPETITION

The OTC pharmaceutical and functional toiletry products' markets in which the
Company competes are highly competitive. The markets are characterized by the
frequent introduction of new products including the movement of prescription
drugs to the OTC market, often accompanied by major advertising and promotional
programs. The Company competes primarily on the basis of product quality,
price, brand loyalty and consumer acceptance. The Company's competitors include
other OTC pharmaceutical companies and large consumer products companies, many
of which have considerably greater financial and marketing resources than the
Company. The products offered by these companies are often supported by much
larger advertising and promotional expenditures and are generally backed by
larger sales forces. In addition, the Company's competitors have often been
willing to use aggressive spending on trade promotions as a strategy for
building market share at the expense of their competitors, including the
Company. The private label or generic category has also become more competitive
in certain of the Company's product markets. Another factor affecting the OTC
pharmaceutical and toiletry products business is the consolidation of retailers
and increasingly more competitive negotiations for access to shelf space.

TRADEMARKS AND PATENTS

The Company's trademarks are of material importance to its business and are
among its most important assets, although, except in the case of the FLEX-ALL
454 trademark, its business as a whole is not materially dependent upon
ownership of any one trademark. The Company, either through a wholly-owned
subsidiary or directly, owns or licenses all of the trademarks associated with
its business. All of the Company's brands have recognized trademarks associated
with them, and the Company's significant domestic trademarks have been
registered on the principal register of the United States Patent and Trademark
Office. Federally registered trademarks have a perpetual life as long as they
are timely renewed and used properly as trademarks, subject to the right of
third parties to seek cancellation of the marks.

The Company also owns patents related to the ULTRASWIM shampoo and CORN SILK
facial powder, both of which expire in 1998, and ICY HOT stick topical
analgesic, which expires in 2007. After expiration of the patents, the
Company expects that these products will continue to compete in the market
primarily on the basis of the goodwill associated with the brands.

GOVERNMENT REGULATION

The Company's products are generally subject to government regulations,
primarily those of the U.S. Food and Drug Administration ("FDA"). Certain of
the Company's consumer products are regulated by the FDA as OTC drugs, with
the rest of the products being regulated as "cosmetics". All such products
must comply with FDA regulations governing the safety of the products
themselves or the ingredients used in their manufacture. FDA regulations for
all pharmaceutical products also include requirements for product labeling
and for adherence to "current good manufacturing practices".

All of the Company's OTC drug products are regulated pursuant to the FDA's
"monograph" system for OTC drugs. The monographs set out the active ingredients
and labeling indications that are permitted for certain broad categories of OTC
drug products (e.g., topical analgesics). Compliance with monograph provisions
means that the product is generally recognized as safe and effective, and is not
misbranded. Future changes in the monographs could result in the Company having
to revise product labeling and formulations.

The Company responded to certain questions received from FDA early in 1995 in
connection with clinical studies for pyrilamine maleate, one of the active
ingredients used in PAMPRIN and PREMSYN PMS. While the Company addressed all
of the FDA questions in detail, the final monograph for menstrual drug
products will determine if the FDA considers pyrilamine maleate safe and
effective for menstrual relief products. Additional clinical testing of this
ingredient may be required.

The Company has been actively monitoring the process and does not believe
that PAMPRIN and PREMSYN PMS will be materially adversely affected by the FDA
review. The Company believes that any adverse finding by the FDA would
likewise affect the Company's principal competitors in the menstrual product
category.

With regard to all of the Company's products, the FDA may revise applicable
regulations or provide new interpretations of existing regulations which could
necessitate product labeling changes, reformulations or other changes in the
Company's products or the conduct of its business. While it is impossible to
predict the impact of future FDA actions, to date the Company has not been
adversely affected as a result of compliance with FDA regulations.

In addition to the FDA regulations discussed above, the Company is subject to
numerous other statutory and regulatory restrictions, including regulations
relating to product packaging. The application of these product packaging
regulations has required the Company to convert certain of its PAMPRIN products
sold in foil pouches to bottles with child resistant caps. This conversion was
completed in 1995 and involved plant modification and the installation of
additional packaging equipment.

ENVIRONMENTAL

The Company is continuously engaged in assessing compliance of its operations
with applicable federal, state and local environmental laws and regulations.
The Company's policy is to record liabilities for environmental matters when
loss amounts are probable and reasonably determinable. The Company's
manufacturing site utilizes chemicals and other potentially hazardous materials
and generates both hazardous and non-hazardous waste, the transportation,
treatment, storage and disposal of which are regulated by various governmental
agencies. The Company is a member of the Chattanooga Manufacturers Association,
a trade association which promotes industry awareness of developments in
environmental matters, has engaged environmental consultants on a regular basis
to assist its compliance efforts, is currently in compliance with all applicable
environmental permits and is aware of its responsibilities under applicable
environmental laws. Any expenditures necessitated by changes in law and
permitting requirements cannot be predicted at this time, although such costs
are not expected to be material to the Company's financial position or results
of operations.

Since the early 1980's, the U.S. Environmental Protection Agency ("EPA") has
been investigating the extent of, and the health effects resulting from,
contamination of Chattanooga Creek, which runs through a major manufacturing
area of Chattanooga in the vicinity of the Company's manufacturing
facilities. The contamination primarily stems from the dumping of coal tar
into the creek during World War II when the federal government was leasing
and operating a coke and chemical plant adjacent to the creek. However, the
EPA has been investigating virtually all businesses that have discharged any
wastewater into the creek. A 2 1/2 mile stretch of Chattanooga Creek was
placed on the National Priorities List as a Superfund site under the
Comprehensive Environmental Response, Compensation and Recovery Act in
September of 1995. The Company could be named as a potentially responsible
party in connection with such site due to the Company's historical discharge
of wastewater into the creek. However, considering the nature of the
Company's wastewater, as well as the fact that the Company's discharge point
is downstream from the old coke and chemical plant that was operated by the
government, and the availability of legal defenses and expected cost sharing,
the Company does not believe that any liability associated with such site
will be material to its financial position or results of operations.

PRODUCT LIABILITY AND INSURANCE

An inherent risk of the Company's business is exposure to product liability
claims brought by users of the Company's products or by others. The Company has
not had any material claims in the past and is not aware of any material claims
pending or threatened against the Company or its products. While the Company
will continue to attempt to take what it considers to be appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. The Company maintains product liability insurance,
principally through a captive insurance subsidiary, that it believes to be
adequate; however, there can be no assurance that it will be able to retain its
existing coverage or that such coverage will be cost-justified or sufficient to
satisfy future claims, if any.

EMPLOYEES

The Company employs approximately 305 persons on a full-time basis in the U.S.
and 27 persons at its foreign subsidiaries' offices. The Company's employees
are not represented by any organized labor union, and management considers its
labor relations to be good.

ITEM 2. PROPERTIES

The Company's headquarters and administrative offices are located at 1715 West
38th Street, Chattanooga, Tennessee. The Company's primary production
facilities are adjacent to the Company's headquarters on land owned by the
Company. The Company leases the primary warehouse and distribution center,
located at 3100 Williams Street, Chattanooga, Tennessee, for its domestic
consumer products. The following table describes in detail the principal
properties owned and leased by the Company:

FACILITY
TOTAL --------------------------
TOTAL AREA BUILDINGS SQUARE
ACRES (SQUARE FEET) USE FEET
---------- ------------- ----- ------

Owned Properties:
Chattanooga, Tennessee 10 109,800 Manufacturing 72,700
Warehousing 1,900
Office &
Administration 35,200
Leased Properties:
Chattanooga, Tennessee (1) 2.0 100,000 Warehousing 100,000
Chattanooga, Tennessee (2) 0.1 9,600 Warehousing &
Manufacturing 9,600
Mississauga, Ontario,
Canada (3) 0.3 15,000 Warehousing 10,500
Office &
Administration 3,000
Packaging 1,500
Basingstoke, Hampshire,
England (4) 0.3 21,900 Warehousing 13,900
Office &
Administration 6,500
Packaging 1,500

NOTES:
(1) Leased under a five year lease ending January 31, 2001 for a monthly rental
of $23,750.
(2) Leased under a five year lease ending January 31, 2001 for a monthly rental
of $2,280.
(3) Leased under a lease ending November 1996, with an option to extend the
lease until November 2004, at a monthly rental including property taxes
and other incidentals of approximately $6,433.
(4) Leased under leases ending in 2014 and 2015 at a monthly rental including
property taxes and other incidentals of approximately $18,960.

The Company is currently operating its facilities at approximately 70% of total
capacity. These facilities are FDA registered and are capable of further
utilization through the use of full-time second and third shifts.

ITEM 3. LEGAL PROCEEDINGS

Note 10 to the Consolidated Financial Statements on page 30 of the
Company's 1995 Annual Report to Shareholders is incorporated herein by
reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

The information found on pages 15, 28 and 29 of the Company's 1995 Annual Report
to Shareholders is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information found on page 15 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information found on pages 9 to 14 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information found on pages 15 to 35 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT

(a) DIRECTORS
The information found in the Company's 1996 Proxy Statement under the
heading "Information about Nominees and Continuing Directors" is
hereby incorporated by reference.

(b) EXECUTIVE OFFICERS
The following table lists the names of the executive officers of the
Company as of February 21, 1996, their ages, their positions and
offices with the Company and the year in which they were first
elected to these positions:

POSITION WITH FIRST
NAME AGE REGISTRANT ELECTED
- ---- --- ------------- -------

Zan Guerry 47 Chairman of the Board;
President and Chief
Executive Officer;
Director 1990

Robert E. Bosworth 48 Executive Vice President
and Chief Financial Officer;
Director 1990

Mr. Guerry was elected to his present positions with the Company in June
1990. Previously he served as Vice President and Chief Financial Officer from
1980 until 1983, as Executive Vice President from 1983 to 1990, as President of
Chattem Consumer Products from 1989 to 1994 and as Chief Operating Officer from
1989 to 1990. Mr. Guerry was first elected as a director of the Company in
1981.

Mr. Bosworth was elected to his present positions with the Company in June 1990.
Previously he served as Vice President and Chief Financial Officer of the
Company from 1985 to 1990. Mr. Bosworth was first elected as a director of the
Company in 1986.

ITEM 11. EXECUTIVE COMPENSATION

The information found in the Company's 1996 Proxy Statement under the heading
"Executive Compensation and Other Information" is hereby incorporated by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information found in the Company's 1996 Proxy Statement under the heading
"Voting Securities and Principal Holders Thereof" is hereby incorporated by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A. Alexander Taylor II, a director of the Company, is a partner in the law firm
of Miller & Martin, general counsel to the Company.

Robert M. Boyd, Jr., a director and former executive officer of the Company,
received $84,167 in consulting fees during Fiscal 1995 for services rendered
to the Company in a capacity other than as a director.

Louis H. Barnett, a director of the Company, received $33,000 in consulting
fees during Fiscal 1995 for services rendered to the Company other than as a
director.

Scott L. Probasco, Jr., a director of the Company, is the Chairman of the
Executive Committee of SunTrust Bank, Tennessee, N.A. (SunTrust). SunTrust
provides routine banking services to the Company and participates in the
Company's credit facility.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K

(a) 1. The consolidated financial statements and the related report of
independent public accountants required to be filed with this Report are
incorporated by reference from pages 16 to 33 of the Company's 1995 Annual
Report to Shareholders.

2. The following documents are filed or incorporated by reference as
exhibits to this report:

Exhibit
NUMBER Description of Exhibit References
------- ----------------------------------------- ----------

3 Amended and Restated Charter of
Chattem, Inc. (7)

4 Amended and Restated By-Laws of
Chattem, Inc. (16)

Form of Indenture dated August 3, 1994
between Chattem, Inc. and SouthTrust
Bank of Alabama, N.A. relating to the
12.75% Series B Senior Subordinated
Notes due 2004 (10)

10 Material Contracts -

ULTRASWIM License Agreement (1)

BULLFROG Purchase Agreement (2)

Purchase and Sale Agreement dated
March 6, 1989 between Chattem, Inc.
and Ari-Med Pharmaceuticals, Inc.
relating to the products FLEX-ALL
454 and FLEX-ALL 5000 (3)

Chattem, Inc. Employee Stock Ownership
Plan dated August 25, 1989 (4)

Exhibit
NUMBER Description of Exhibit References
------- ----------------------------------------- ----------

10 Chattem, Inc. Savings and Investment
Plan dated June 11, 1990 (5)

Non-Competition and Severance Agree-
ments as Amended -
Zan Guerry
Robert E. Bosworth (6) and (16)

Lease Agreement between Atlantis Real
Estate Corporation and Chattem
(Canada) Inc. and Chattem, Inc. for Unit
1, 2220 Argentia Road, Mississauga,
Ontario, Canada (7)

Lease Agreement between Guildhall
Property Holdings Limited and Chattem
(U.K.) Limited for Unit 7, Ringway
Centre, Edison Road, Basingstoke,
Hampshire, England (7)

Chattem, Inc. Non-Statutory Stock Option
Plan - 1993 (8)

Manufacturing Agreement dated May 12, 1993
between Chattem, Inc. and Procter & Gamble
Pharmaceuticals, Inc. relating to NORWICH
Aspirin products (9)

Stock Purchase Agreement dated June 11,
1993 between Chattem, Inc. and First
Union Capital Partners, Inc. (10)

Registration Agreement dated June 11, 1993
between Chattem, Inc. and First Union
Capital Partners, Inc. (10)

Exhibit
NUMBER Description of Exhibit References
------- ----------------------------------------- ----------

10 Chattem, Inc. Non-Statutory Stock Option
Plan - 1994 (10)

Chattem, Inc. Non-Statutory Stock Option
Plan for Non-Employee Directors - 1994 (11)

Asset Purchase and Sale Agreement dated
May 12, 1994 between The Procter & Gamble
Company and Signal Investment & Management
Co. for the BENZODENT Business (12)

Purchase and Sale Agreement dated June 3,
1994 between Chattem (Canada) Inc. and
Cosmetic Import Company Limited (13)

Purchase Agreement dated June 10, 1994
between Chattem, Inc.and Kidder, Peabody
& Co. Incorporated (13)

Note Registration Rights Agreement dated
June 17, 1994 between Chattem, Inc.and
Kidder, Peabody & Co. Incorporated (13)

Warrant Registration Rights Agreement
dated June 17, 1994 between Chattem, Inc.
and Kidder, Peabody & Co. Incorporated (13)

Asset Purchase and Sale Agreement dated
June 17, 1994 between Sterling Winthrop Inc.
and Signal Investment & Management Co. (13)

Working Capital Credit Agreement dated
June 17, 1994 among Chattem, Inc., the
lenders named therein and The First
National Bank of Chicago, as Agent. (13)

Exhibit
NUMBER Description of Exhibit References
------- ----------------------------------------- ----------

10 Acquisition Credit Agreement dated
June 17, 1994 among Chattem, Inc., the
lenders named therein and The First
National Bank of Chicago, as Agent. (13)

Renewal Lease Agreement dated December 5,
1994 between Atlantis Real Estate
Corporation and Chattem (Canada) Inc. and
Chattem, Inc. for Unit 1, 2220 Argentia
Road, Mississauga, Ontario, Canada (14)

Agreement of Purchase and Sales dated
April 11, 1995, by and among Chattem
Chemicals, Inc., as buyer, Elcat, Inc.,
as parent, and Chattem, Inc., as seller,
of Specialty Chemicals division (15)

Lease Agreements dated February 1, 1996
between Tammy Development Company and
Chattem, Inc. for warehouse space at
3100 Williams Street, Chattanooga,
Tennessee (16)

Non-Competition and Severance Agreements -
Gary M. Galante
Joey B. Hogan
Howard E. Ottley
B. Derrill Pitts
Charles M. Stafford (16)

11 Computation of Per Share Earnings (16)

13 1995 Annual Report to Shareholders of
Chattem, Inc. (16)

22 Subsidiaries of the Company (16)

24 Consent of Independent Public Accountants (16)

REFERENCES:
Previously filed as an exhibit to and incorporated by reference from:
(1) Form 10-K for the year ended May 31, 1986.
(2) Form 10-Q for the quarter ended February 28, 1987.
(3) Form 10-K for the year end May 31, 1989.
(4) Form S-8 Registration Statement (No. 33-30742).
(5) Form S-8 Registration Statement (No. 33-35386).
(6) Form 10-K for the year ended November 30, 1991.
(7) Form 10-K for the year ended November 30, 1992.
(8) Form S-8 Registration Statement (No. 33-55640).
(9) Form 10-K for the year ended November 30, 1993.
(10) Form S-8 Registration Statement (No. 33-78524).
(11) Form S-8 Registration Statement (No. 33-78522).
(12) Form 8-K dated May 12, 1994.
(13) Form S-2 Registration Statement (No. 33-80770).
(14) Form 10-K for the year ended November 30, 1994.
(15) Form 8-K dated April 11, 1995.
(16) Filed as an exhibit to this Form 10-K for the year ended
November 30, 1995.

(b) There were no Form 8-K's filed with the Securities and Exchange
Commission during the three months ended November 30, 1995.

(d) The Financial Statements and the related report of independent public
accountants required to be filed with this report pursuant to Rule 3-10(a)
of Article 3 of Regulation S-X are incorporated by reference from
pages 6 to 13 of Signal Investment & Management Co.'s Form 10-K for the
fiscal year ended November 30, 1995.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated: February 22, 1996 CHATTEM, INC.
By: /S/ Robert E. Bosworth
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ Zan Guerry Chairman of the Board, 2/22/96
- ------------------------- President and Director
Zan Guerry (Chief Executive Officer)

/s/ Samuel E. Allen Director 2/22/96
- -------------------------
Samuel E. Allen

/s/ Louis H. Barnett Director 2/22/96
- --------------------------
Louis H. Barnett

/s/ Robert E. Bosworth Executive Vice President and 2/22/96
- --------------------------- Chief Financial Officer and
Robert E. Bosworth Director (Principal Financial
and Accounting Officer)

/s/ Robert M. Boyd, Jr. Director 2/22/96
- --------------------------
Robert M. Boyd, Jr.

/s/ Richard E. Cheney Director 2/22/96
- --------------------------
Richard E. Cheney

/s/ Scott L. Probasco, Jr. Director 2/22/96
- --------------------------
Scott L. Probasco, Jr.

/s/ A. Alexander Taylor, II Director 2/22/96
- --------------------------
A. Alexander Taylor, II

CHATTEM, INC. AND SUBSIDIARIES
EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

4 Amended and Restated By-Laws of Chattem, Inc.

10.1 Admendment to Non-Competition and Severance Agreements -
Zan Guerry
Robert E. Bosworth

10.2 Lease agreements dated February 1, 1996 between Tammy
Development Company and Chattem, Inc. for warehouse
space at 3100 Williams Street, Chattanooga, Tennessee

10.3 Non-Competition and Severance Agreements -
Gary M. Galante
Joey B. Hogan
Howard E. Ottley
B. Derrill Pitts
Charles M. Stafford

11 Computation of per share earnings

13 1995 Annual Report to Shareholders of Chattem, Inc.

22 Subsidiaries of the Company

24 Consent of Independent Public Accountants