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Settlement Agreement

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SETTLEMENT AGREEMENT
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This SETTLEMENT AGREEMENT, dated as of the Execution Date(1) ("Agreement") is entered into by and between CHATTEM, INC., a Tennessee corporation ("Chattem"), and THE DELACO COMPANY, a Delaware corporation and Chapter 11 debtor-in-possession, and successor by merger to Thompson Medical Company, Inc.


RECITALS


WHEREAS, on December 21, 1998 (the "Sale Date"), Chattem purchased the Dexatrim(R) products line from Thompson Medical Company, Inc., the predecessor to Delaco ("Thompson") pursuant to the Purchase and Sale Agreement dated November 16, 1998 (the "Sale Agreement");


WHEREAS, in the Sale Agreement, Thompson agreed to hold harmless and indemnify Chattem from claims related to injuries arising from Dexatrim(R) products sold by Thompson prior to the Sale Date, and Chattem agreed to hold harmless and indemnify Thompson from claims related to injuries arising from Dexatrim(R) products sold by Chattem on or after the Sale Date;


WHEREAS, Delaco has succeeded to the rights and obligations of Thompson under the Sale Agreement;


WHEREAS, Chattem and Delaco have been named, either individually or as codefendants, in numerous lawsuits and/or claims filed in the United States by individuals on their own behalf who allege to have suffered injuries as a result of the ingestion of Dexatrim(R) products, or by others claiming independently or derivatively by reason of a personal or family relationship with a Dexatrim Product User ("Dexatrim Litigation");


WHEREAS, (i) Thompson distributed Dexatrim Products before the Sale Date which remained in the market for a period after the Sale Date, (ii) Chattem contends that Delaco has all of the exposure for the claims of Plaintiffs who allege injuries occurring before the Sale Date and has substantial exposure for the claims of Plaintiffs who allege injuries occurring after the Sale Date, and (iii) Delaco contends that Chattem may have substantial exposure for the claims of Plaintiffs who allege injuries occurring before and after the Sale Date;


WHEREAS, issues and disputes have arisen between the Parties regarding (i) which company distributed the Dexatrim(R) products that allegedly were ingested by the Plaintiffs in the Dexatrim Litigation and (ii) the Parties' indemnification obligations under the Sale Agreement to each other;


WHEREAS, the Parties generally have coordinated their defense efforts but are pursuing different means to resolve each of their respective potential liabilities in the Dexatrim Litigation


- ---------- (1) Capitalized terms shall have the meanings set forth in Section 1 - Definitions.


and are now seeking to coordinate their efforts to resolve and settle globally their respective potential liabilities in connection with the claims of the Plaintiffs and Codefendant Claimants as well as the disputed indemnification claims between the Parties;


WHEREAS, the Parties have agreed, subject to the terms of this Agreement, that (i) the potential liability to the Plaintiffs and Codefendant Claimants alleging claims against Delaco and/or Chattem to the extent based on injuries occurring before the Sale Date ("Pre-Sale Date Dexatrim Claims") would be allocated to the Trust, (ii) the potential liability to the Plaintiffs and Codefendant Claimants alleging claims against Delaco and/or Chattem to the extent based on injuries occurring on or after the Sale Date ("Post-Sale Date Dexatrim Claims") would be allocated to Chattem, and (iii) Delaco would provide in the Plan for the Trust to assume the responsibility to pay, indirectly through payment to Chattem of a set sum, the Post-Sale Date Dexatrim Claims of Plaintiffs and Codefendant Claimants to the extent arising from allegations of injury occurring during the time period between the Sale Date and June 30, 1999;


WHEREAS, Chattem, with Delaco's cooperation, has pursued a class action in the Class Action Court and obtained approval of a Class Action Settlement which provides for the payment of Dexatrim(R)-related claims of Class Members; and through that Class Action Settlement has provided Delaco with a release from the Dexatrim(R)-related claims of Class Members and a release from the indemnification claims of other parties except Chattem and Sidmak to the extent such indemnification claims arise from the Dexatrim(R)-related claims of Class Members;


WHEREAS, on February 12, 2004, Delaco filed for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court;


WHEREAS, Chattem has filed a claim in the Bankruptcy Case based on, INTER ALIA, its indemnification rights pursuant to the Sale Agreement and has advised Delaco that it has expended in excess of $60,000,000 to fund the Settlement Trust and has started paying the claims of Class Members pursuant to the terms of the Class Action Settlement so that that it now asserts liquidated claims in excess of $8,750,000 and unliquidated claims against the bankruptcy estate of Delaco;


WHEREAS, Chattem and Delaco both recognized early in their negotiations that attempts to determine the source of the Dexatrim(R) products allegedly ingested by each Plaintiff would be costly and time consuming; and Chattem and Delaco now seek to resolve this disputed issue in an equitable fashion;


WHEREAS, Delaco is seeking to confirm a plan of reorganization which will resolve and satisfy Delaco's obligations to the Plaintiffs;


WHEREAS, Chattem and Delaco desire to resolve their respective rights, claims and obligations to one another; and


WHEREAS, Delaco seeks approval of certain settlements with insurance carriers that were reached, in part, because Dexatrim Claims with injury dates on or after the Sale Date trigger insurance coverage under one or more insurance policies. Consummation of Delaco's insurance settlement agreements with certain of its insurers will provide funds to the estate on


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account of Post-Sale Date Dexatrim Claims which will exceed the amount to be paid by the Trust to Chattem under this Agreement. In addition, the agreement Delaco reached with Sidmak was, in part, based upon Chattem taking responsibility within its Class Action Settlement for all Dexatrim(R)-related claims based on injury occurring on or after the Sale Date.


NOW, THEREFORE, Chattem and Delaco hereby agree to the following, subject to compliance with applicable legal requirements and other conditions, all as set forth below:


SECTION 1 - DEFINITIONS


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


a) "$" shall denote United States dollars.


b) "Agreement" shall mean this document and all attachments, appendices, and annexes thereto, as amended and supplemented from time to time.


c) "Bankruptcy Case" shall mean the proceeding instituted by Delaco under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court styled In re Delaco, Case No. 04-10899.


d) "Bankruptcy Code" shall mean Title 11 of the United States Code, 11 U.S.C. ss.ss.101-1330.


e) "Bankruptcy Court" shall mean the United States Bankruptcy Court for the Southern District of New York.


f) "Bankruptcy Court Approval" shall mean the Bankruptcy Court's approval of this Agreement, evidenced by order entered on its docket.


g) "Chattem" shall mean Chattem, Inc., a Tennessee corporation.


h) "Chattem Bankruptcy Claim" shall mean the proof of claim filed by Chattem and SIMC in the Bankruptcy Case, designated as Claim No. 626, as it may be amended.


i) "Chattem Pre-Sale Date Claimant" shall mean a Plaintiff asserting a Pre-Sale Date Dexatrim Claim who has sued Chattem, but has not filed a claim in the Bankruptcy Case.


j) "Chattem Released Parties" shall mean Chattem, SIMC, and their respective past, present and future, direct or indirect parent companies, subsidiaries, affiliates, divisions, joint venturers, predecessors, successors and assigns, and their directors, officers, attorneys and other professionals.


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k) "Class Action Court" shall mean the United States District Court for the Western District of Washington at Seattle presiding over the case IN RE: PHENYLPROPANOLAMINE (PPA) PRODUCTS LIABILITY LITIGATION, MDL No. 1407.


l) "Class Action Settlement" shall mean that Settlement Agreement approved by the Class Action Court on November 12, 2004.


m) "Class Member" shall mean a Plaintiff who alleges injuries occurring on or after the Sale Date from the ingestion of a Dexatrim(R) product.


n) "Class Member Bankruptcy Creditor" shall mean a Class Member who has filed a claim in the Bankruptcy Case.


o) "Class Member Claimant" shall mean a Class Member who has not filed a claim in the Bankruptcy Case.


p) "Codefendant Claimant" shall mean a person or entity holding a Codefendant Claim.


q) "Codefendant Claim" shall mean a claim asserted or that could be asserted by a codefendant in the Dexatrim Litigation against Chattem and/or Delaco, including without limitation, claims for indemnification or contribution whether created by contract, statute, law or equity.


r) "Delaco" or "Debtor" shall mean The Delaco Company, a Delaware corporation, which is the successor by merger to Thompson Medical Company, Inc. and debtor-in-possession in the Bankruptcy Case.


s) "Delaco Bankruptcy Creditor" shall mean a Plaintiff asserting a Pre-Sale Date Dexatrim Claim who has filed a claim in the Bankruptcy Case and who also has sued, or could sue, Chattem.


t) "Derivative Claimant" shall mean any person asserting the right to sue Chattem or Delaco, independently or derivatively, by reason of their personal or family relationship with a Dexatrim Product User.


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


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


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


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


iv) wrongful death and survival actions;


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


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


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


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


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


v) "Dexatrim Litigation" shall have the meaning set forth in the Recitals.


w) "Dexatrim Product User" shall mean any person who allegedly ingested one or more Dexatrim Products.


x) "Dexatrim Products" shall mean all appetite suppressant products marketed, distributed, formulated and/or manufactured by or on behalf of Chattem, Delaco and/or Thompson that contained phenylpropanolamine, including without limitation, products with the brand names "Dexatrim(R)," "Control(R)," "Appedrine(R)," "Prolamine(R)," "Anorexin(R)," "Coffee, Tea and a New Me(R)," "Grapefruit Plus(R)," and "Vita-Slim(R)."


y) "Effective Date" shall mean the first Business Day after which all conditions to the consummation of the Plan set forth in the Plan have been satisfied or waived, and is the date on which the Plan is substantially consummated.


z) "Execution Date" shall mean the date of the last signature of either of the Parties placed on this Agreement.


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aa) "Final Order" shall mean an order of the Bankruptcy Court: (i) as to which no appeal, notice of appeal, motion to amend or make additional findings of fact, motion to alter or amend judgment, motion for rehearing or motion for new trial has been timely filed or, if any of the foregoing has been timely filed, it has been disposed of in a manner that upholds and affirms the subject order
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