EXHIBIT 10.1
------------
CHATTEM, INC.
-------------
STOCK INCENTIVE PLAN--2005
--------------------------
1. PURPOSE
The Chattem, Inc. Stock Incentive Plan--2005 (the "2005 Plan") is
designed to enable officers and key management employees of Chattem, Inc. (the
"Company") and its Subsidiaries to continue to acquire shares of the Company's
common stock and thus to share in the future success of the Company's business.
The 2005 Plan is also intended to provide the Board of Directors the added
flexibility to customize other forms of equity based compensation for management
if necessary based upon changing market and regulatory conditions. Accordingly,
the 2005 Plan is intended as a further means not only of attracting and
retaining outstanding management personnel, but also of promoting a closer
identity of interest between key management employees and the Company and its
shareholders.
2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms,
when used in the 2005 Plan, shall have the meanings set forth in this Section 2.
(a) "BENEFICIARY" means the person or persons designated in writing by
the Participant or, in the absence of such a designation or if the
designated person or persons predecease the Participant, the
Participant's Beneficiary shall be the person or persons who
acquire the rights to the Option or Other Plan Grant by bequest or
inheritance. In order to be effective, a Participant's designation
of a Beneficiary must be on file with the Committee before the
Participant's death. Any such designation may be revoked in
writing and a new written designation substituted therefor at any
time before the Participant's death.
(b) "BOARD OF DIRECTORS" or "BOARD" means the board of directors of
the Company.
(c) "Change in Control" means:
(i) Change of 1/3 or more of the directors of the Company within
any 12-month period; or
(ii) Change of 1/2 or more of the directors of the Company within
any 24-month period; or
(iii) Acquisition by any person of the ownership of or right to
vote 35% or more of the Company's outstanding voting stock.
For purposes of this paragraph (iii): (A) "person" shall
mean any person, corporation, partnership or other entity
and any affiliate or associate thereof and (B) "affiliate"
and "associate" shall have the meanings given to them in
Rule 12b-2 promulgated under the Exchange Act.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "COMMITTEE" means the Compensation Committee of the Board of
Directors or, in the event the Board of Directors terminates the
existence of the Compensation Committee, then Committee shall
refer to the Board as a whole.
(f) "COMPANY" means Chattem, Inc., a corporation incorporated under
the laws of the State of Tennessee, and its successors.
(g) "DISABILITY" means a disability that entitles the Participant to
benefits under the Company's Long-Term Disability Plan, as amended
from time to time.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means the closing sale price on the last
business day prior to the date on which Fair Market Value needs to
be determined as reported in The Wall Street Journal, or the
average of the high and low bids on such day if no sale exists.
(j) "GRANT AGREEMENT" means the written agreement to be entered into
by the Company and a Participant relating to Other Plan Grants, as
provided in Sections 9, 10 or 11 hereof.
(k) "INCENTIVE STOCK OPTION" means any Option intended to meet the
requirements of an incentive stock option as defined in Section
422 of the Code.
(l) "NON-QUALIFIED STOCK OPTION" means any Option not intended to be
an Incentive Stock Option.
(m) "OPTION" means an option to purchase a share or shares of the
Company's common stock, including both an Incentive Stock Option
and a Non-Qualified Stock Option.
(n) "OPTION AGREEMENT" means the written agreement to be entered into
by the Company and the Participant relating to an Option, as
provided in Section 8 hereof.
(o) "OTHER PLAN GRANT" means a grant, other than an Option, of the
Company's common stock, or that is valued in whole or in part by
reference to, or otherwise based upon, the Company's common stock,
including, without limitation, Restricted Stock and Stock
Appreciation Rights.
(p) "PARTICIPANT" means a person to whom an Option or Other Plan Grant
has been made under the 2005 Plan.
(q) "RESTRICTED STOCK" means Shares granted by the Committee subject
to restrictions as to transferability and conditions of forfeiture
in the hands of the grantee as determined by the Committee.
2
(r) "RETIREMENT" means retirement from employment with the Company and
its Subsidiaries, as determined by the Committee in its sole
discretion.
(s) "SHARES" means shares of the Company's common stock.
(t) "STOCK APPRECIATION RIGHT" means a right to receive a payment
equal to the excess of the (i) Fair Market Value of the shares of
common stock covered by such right as of the date of exercise or
termination over (ii) such amount as is determined by the
Committee at the time the Stock Appreciation Right is granted.
(u) "SUBSIDIARY" means a subsidiary corporation as defined in Section
425(f) of the Code (or a successor provision of similar import).
(v) "TERM" means the period during which a particular Option may be
exercised in accordance with Section 8 hereof.
3. EFFECTIVE DATE OF THE 2005 PLAN
The 2005 Plan shall become effective when adopted by the Board of
Directors; provided, however, that if the 2005 Plan is not approved by the
holders of a majority of the outstanding Shares present, or represented, and
entitled to vote at the meeting before the first anniversary of its adoption by
the Board, the 2005 Plan and all Options or Other Plan Grants granted under the
2005 Plan prior to such anniversary shall be null and void and shall be of no
effect.
4. NUMBER AND SOURCE OF SHARES SUBJECT TO THE 2005 PLAN
(a) The Company may, in the aggregate, grant Options and make Other
Plan Grants involving the actual issuance of shares of common
stock under the 2005 Plan for not more than One Million, Five
Hundred Thousand (1,500,000) Shares (subject, however, to
adjustment as provided in Section 12 hereof) which shall be
provided by the issuance of Shares authorized but unissued.
(b) In the event that an Option shall for any reason lapse or be
terminated without being exercised in whole or in part or
Restricted Stock is forfeited back to the Company, the Shares
subject to the Option or underlying the Restricted Stock shall be
restored to the total number of Shares with respect to which
Options or Restricted Stock may be granted under the 2005 Plan,
but only to the extent that the Option has not been exercised or
the Restricted Stock has not vested previously.
(c) No individual may be granted awards under the 2005 Plan with
respect to more than 250,000 shares in any one fiscal year.
5. ADMINISTRATION OF THE 2005 PLAN
(a) The 2005 Plan shall be administered by the Committee.
3
(b) The Committee shall adopt such rules and regulations (including
amendments thereto) as it may deem proper; provided, however, that
it may take action only upon the agreement of a majority of its
members then in office. Any action that the Committee may take
through a written instrument signed by a majority of its members
then in office shall be as effective as though taken at a meeting
duly called and held.
(c) The powers of the Committee shall include plenary authority to
interpret the 2005 Plan, and, subject to the provisions hereof,
the Committee shall determine the persons to whom Options or Other
Plan Grants shall be granted, the number of Shares subject to each
Option or issued as Restricted Stock, the Term of each Option or
Other Plan Grant, the date on which each Option or Other Plan
Grant shall be granted, and the provisions of each Option
Agreement or Grant Agreement.
6. 2005 PLAN PARTICIPANTS ELIGIBLE TO RECEIVE OPTIONS AND OTHER PLAN
GRANTS
Options and Other Plan Grants may be granted under the 2005 Plan to key
management employees of the Company or any Subsidiary, including officers who,
in the judgment of the Committee, have a substantial impact on the Company's
attainment of corporate goals. All determinations by the Committee as to the
identity of the persons to whom Options and Other Plan Grants shall be granted
hereunder shall be conclusive.
7. TYPES OF GRANTS
The Committee may make such grants under the 2005 Plan as in its
discretion it deems advisable to effectuate the purpose of the Plan, including
without limitation grants of Options, whether Incentive Stock Options or
Non-Qualified Stock Options, and Other Plan Grants, which may include Restricted
Stock and Stock Appreciation Rights or other types of awards. Such grants may be
issued separately, in combination, or in tandem, and additional grants may be
issued in combination or in tandem with grants previously issued under the 2005
Plan or otherwise. As used in the 2005 Plan, references to grants in tandem
shall mean grants consisting of more than one type of grant where the exercise
of one element of the grant effects the cancellation of one or more other
elements of the grant.
8. OPTIONS
(a) GRANT OF OPTIONS.
(i) The Committee may grant Options entitling the Participant to
purchase shares of common stock on the terms noted herein.
Options granted may be either Incentive Stock Options or
Non-Qualified Stock Options, as determined in the discretion
of the Committee. To the extent that an Option is not
specifically designated as an Incentive Stock Option in the
Option Agreement by the Committee, it shall be deemed a
Non-Qualified Stock Option.
4
(ii) No Option shall be exercised by an Optionee unless the
Optionee shall have executed and delivered an Option
Agreement.
(iii) Appropriate officers of the Company are hereby authorized to
execute and deliver Option Agreements in the name of the
Company as directed from time to time by the Committee.
(b) OPTION PRICE. The Option price to be paid by the Optionee to the
Company for each Share purchased upon the exercise of the Option
shall be determined by the Committee and shall be not less than
the Fair Market Value of the Share on the date the option is
granted but may exceed Fair Market Value in the sole discretion of
the Committee, and, for the grant of an Incentive Stock Option to
an Employee that currently owns more than 10 percent of the common
stock of the Company, shall not be less than 110 percent of the
Fair Market Value of the Shares as of the date on which the Option
is granted.
(c) TERM OF OPTION; EXERCISE OF OPTION.
(i) Each Option granted under the 2005 Plan shall be exercisable
as provided in this Section 8(c). In no event may an Option
be exercised before the approval of the 2005 Plan by the
shareholders of the Company at the meeting within the period
specified by Section 3 hereof. The Term of each Option shall
extend for a period of no more than ten (10) years from the
date of grant of the Option, provided, that no Incentive
Stock Option granted to an Employee that currently owns more
than 10 percent of the common stock of the Company shall
have a term of more than five (5) years.
(ii) Each Option shall become exercisable at such time or times,
and on such conditions, as the Committee may specify.
Notwithstanding the foregoing vesting schedule (i) each
Option shall become exercisable in full immediately upon a
Change in Control and (ii) upon the death, disability or
retirement of an Optionee or termination of an Optionee's
employment pursuant to Section 8(e), any Option held by such
Optionee shall be exercisable in full in accordance with the
provisions of Section 8(e). In addition, to the extent that
the aggregate Fair Market Value (determined at the time of
grant) of Company common stock with respect to which
Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year under all plans of
the Company exceeds one hundred thousand dollars ($100,000),
the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be
treated as Non-Qualified Stock Options. When exercising an
Option, the Optionee may purchase less than the full number
of Shares then available under the Option.
(iii) Options shall be exercised by delivering or mailing to the
Committee:
5
(1) a notice, in the form and in the manner prescribed by
the Committee, specifying the number of Shares to be
purchased, and
(2) payment in full of the Option price for the Shares in
cash and/or by the tender of Shares (by delivering the
appropriate stock certificates) to the Committee;
provided, however, that (i) the Committee shall
determine acceptable methods for tendering shares to
exercise an Option under the 2005 Plan, and may impose
such limitations and prohibitions on the use of Shares
to exercise an Option as it deems appropriate and (ii)
the Committee may permit Optionees to pay for any
Shares subject to an option by delivering to the
Committee a properly executed exercise notice together
with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or
loan proceeds to pay the purchase price. The value of
any Shares tendered in accordance with this Section
8(c) (iii) shall be determined on the basis of their
Fair Market Value on the date of exercise.
(iv) Subject to the provisions of Section 8(d) hereof, upon
receipt of the notice of exercise and upon payment of the
Option price, the Company shall promptly deliver to the
Optionee a certificate or certificates for the Shares
purchased, without charge to the Optionee for issue or
transfer tax.
(d) CONDITIONS ON EXERCISE.
(i) The exercise of each Option granted under the 2005 Plan
shall be subject to the condition that if at any time the
Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration or
qualification of any Shares otherwise deliverable upon such
exercise upon any securities exchange or under any State or
Federal law, or the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase
of Shares, then in any such event such exercise or payment
shall not be effective or be made unless such withholding,
listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions
not acceptable to the Company. Any such postponement shall
not extend the time within which the Option may be
exercised; and neither the Company nor its directors or
officers shall have any obligation or liability to the
Optionee or to a Beneficiary with respect to any Shares as
to which the option shall lapse because of such
postponement.
(ii) Except with the prior written approval of the Committee, all
Options granted under the 2005 Plan shall be nontransferable
other than by will or by the laws of descent and
distribution in accordance with Section 8(e)(i)
6
hereof, and an Option may be exercised during the lifetime
of the Optionee only by the Optionee.
(iii) Subject to the provisions of Section 8(e) (i) upon the
purchase of Shares under an option, the stock certificate or
certificates may, at the request of the Optionee (or the
Optionee's Beneficiary, where the Option is exercised by the
Beneficiary), be issued in the name of the Optionee (or
Beneficiary) and the name of another person as joint tenants
with the right of survivorship.
(e) EXERCISE OF OPTION AFTER DEATH, DISABILITY, RETIREMENT, OR OTHER
TERMINATION OF EMPLOYMENT.
(i) DEATH. If an Optionee's employment with the Company or a
Subsidiary shall cease due to the Optionee's death, any
Option held by the Optionee on the date of the Optionee's
death may be exercised only within three (3) years after the
Optionee's death (within one (1) year if an Incentive Stock
Option) and only by the Optionee's Beneficiary. If an
Optionee shall die within three (3) years after cessation of
employment (within one (1) year if an Incentive Stock
Option) while the Option is exercisable pursuant to
Paragraph (ii) below, or if the Optionee shall die within
three (3) years after cessation of employment (within one
(1) year if an Incentive Stock Option) while the Option is
exercisable pursuant to Paragraph (iii) below, any Option
held by the Optionee on the date of his death may be
exercised after the Optionee's death only within the
remainder of the period prescribed by Paragraph (ii) or
Paragraph (iii), as the case may be, and only by the
Optionee's Beneficiary. Notwithstanding the foregoing, in no
event shall the Option be exercisable after the expiration
date thereof specified in the Option Agreement.
(ii) DISABILITY. If an Optionee's employment with the Company or
a Subsidiary ceases due to Disability, the Optionee may
exercise the Option at any time within three (3) years after
the Optionee shall so cease to be an employee (within one
(1) year if an Incentive Stock Option); provided, however,
that in no event shall the Option be exercisable after the
expiration date thereof specified in the Option Agreement.
(iii) RETIREMENT. If an Optionee's employment with the Company or
a Subsidiary ceases due to Retirement, the Optionee may
exercise the Option at any time within three (3) years after
the Optionee shall so cease to be an employee (within 90
days if an Incentive Stock Option); provided, however, that
in no event shall the Option be exercisable after the
expiration date thereof specified in the Option Agreement.
(iv) LEAVE OF ABSENCE. The Committee shall have the sole
authority to determine whether, in any particular case, a
leave of absence shall result in a termination of employment
for purposes of this Section 8.
7
(v) DIVESTITURE. If an Optionee's employment with the Company or
a Subsidiary ceases due to divestiture of a Subsidiary or
other distinct business unit of the Company, the Optionee
may exercise the Option at any time within ninety (90) days
after the divestiture, provided that the Optionee is an
employee on the actual date of the divestiture; and further
provided, that in no event shall the Option be exercisable
after the expiration date thereof specified in the Option
Agreement.
(vi) TERMINATION FOR OTHER REASONS. Upon termination of an
Optionee's employment with the Company or a Subsidiary for
any reason other than those specified in Paragraphs (i)
through (v) above, the Optionee may exercise the Option (to
the extent vested) at any time within thirty (30) days after
such termination; provided, however, that in no event shall
the Option be exercisable after the expiration date thereof
specified in the Option Agreement.
(f) SHAREHOLDER RIGHTS. No person shall have any rights of a
shareholder by virtue of an Option except with respect to Shares
actually issued to him or her, and the issuance of Shares shall
confer no retroactive right to dividends.
(g) INCENTIVE STOCK OPTIONS. All the provisions of Section 422 of the
Code and the regulations thereunder as in effect from time to time
are hereby incorporated by reference herein with respect to
Incentive Stock Options to the extent that their inclusion in this
Plan is necessary from time to time to preserve their status as
incentive stock options for purposes of Section 422. Each
provision of the 2005 Plan and each agreement relating to an
Incentive Stock Option shall be construed so that it shall be an
incentive stock option for purposes of Section 422, but to the
extent that such grants for any reason fail to qualify as
Incentive Stock Options then such grants shall be deemed
Non-Qualified Stock Options.
9. RESTRICTED STOCK
The Committee may issue Restricted Stock upon such terms and conditions
as it may determine from time to time. Each grant of Restricted Stock shall be
pursuant to an agreement which specifies the restrictions thereon and the terms
and conditions governing the termination of such restrictions. Each certificate
representing Restricted Stock shall at the Committee's discretion either bear a
legend as to the restrictions thereon or be deposited by the grantee, together
with a stock power endorsed in blank, with the Company. Unless otherwise limited
as provided by the Committee, the grantee shall have the right to receive
dividends from and to vote the shares of Restricted Stock owned by the grantee
unless and until such shares are forfeited back to the Company.
10. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights, either alone or in
tandem with Options or Other Plan Grants, to Participants as it may determine
from time to time. Each grant of a Stock Appreciation Right shall be credited to
the grantee's account on the books of the Plan
8
and shall have such terms and conditions as the Committee may determine. Payment
may be made in whole or in part in cash, shares of common stock, or such other
form as the Committee may determine. Each Stock Appreciation Right shall be
payable at such time or times, or upon the occurrence of such event or events,
as the Committee shall specify. A Stock Appreciation Rights shall not be
transferable or assignable, except by will or by the laws of descent and
distribution, and shall be payable during the Participant's lifetime only to the
Participant, or upon death of disability, to the Participant's Beneficiary.
11. OTHER PLAN GRANTS
The Committee may make such Other Plan Grants upon such terms and
conditions as it may determine from time to time. Other Plan Grants, subject to
limitations under applicable law, may be payable in, valued in whole or in part
by reference to, or otherwise based on or related to shares of the common stock
of the Company, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, shares of common stock awarded solely
as a bonus and not subject to any restrictions or conditions, performance shares
issuable upon the attainment of certain criteria determined by the Committee,
phantom shares reflecting increases in the value of the equity of the Company,
dividend equivalents for holders of Options or others, all as may be determined
from time to time by the Committee and set forth in the specific terms and
conditions of a Grant Agreement.
12. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event that there is any change in the Shares through merger,
consolidation, reorganization, recapitalization or otherwise, or if there shall
be any dividend on the Company's Shares, payable in such Shares, or if there
shall be a stock split or combination of Shares, the aggregate number of Shares
available for Options and Other Plan Grants, the number of Shares subject to
outstanding Options and Other Plan Grants, and the Option price per share of
each outstanding Option shall be proportionately adjusted by the Committee as it
deems equitable in its absolute discretion, to prevent dilution or enlargement
of the rights of the Optionee or the holder of Other Plan Grants; provided, that
any fractional Shares resulting from such adjustments shall be eliminated. The
Committee's determination with respect to any such adjustments shall be
conclusive.
13. EFFECT OF MERGER OR OTHER REORGANIZATION
If the Company shall be the surviving corporation in a merger or other
reorganization, Options and Other Plan Grants shall extend to stock and
securities of the Company to the same extent that a holder of that number of
Shares immediately before the merger or consolidation corresponding to the
number of Shares covered by the Option or Other Plan Grant would be entitled to
have or obtain stock and securities of the Company under the terms of the merger
or consolidation.
14. TERMINATION, SUSPENSION OR MODIFICATION OF THE 2005 PLAN
The Committee may at any time terminate, suspend, amend or modify the
2005 Plan, except that the Committee shall not, without the authorization of the
holders of a majority of the Company's Shares voting at a shareholders' meeting
duly called and held, change (other than
9
through adjustment for changes in capitalization as provided in Section 12
hereof): (a) the aggregate number of Shares with respect to which Options and
Other Plan Grants may be granted; (b) the class of persons eligible for Options
and Other Plan Grants; (c) the Option price; or (d) the maximum duration of the
2005 Plan. No termination, suspension or modification of the 2005 Plan shall
adversely affect any right acquired by an Optionee, or by any Beneficiary, or by
the holder of Other Plan Grants under the terms of an Option or Other Plan Grant
granted before the date of such termination, suspension or modification, unless
such Optionee or Beneficiary shall consent; but it shall be presumed
conclusively that any adjustment for changes in capitalization in accordance
with Section 12 hereof does not adversely affect any such right.
15. DURATION OF THE 2005 PLAN
Unless sooner terminated in accordance with Section 14 hereof, the 2005
Plan shall remain in effect for a period of five (5) years from the date of its
adoption by the Board of Directors. Expiration of such five (5) year period
shall not affect the vesting of previously granted Options pursuant to Section
8(c) hereof or the vesting of previously granted Other Plan Grants.
16. GOVERNING LAW
The 2005 Plan shall be construed and its provisions enforced and
administered in accordance with the laws of the State of Tennessee except to the
extent that such laws may be superseded by any Federal law.
10