EXHIBIT 10.4
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INITIAL SETTLEMENT TRUST AGREEMENT
AMONG
CHATTEM, INC.,
AS SETTLOR
AND
AMSOUTH BANK,
AS TRUSTEE
DATED APRIL 12, 2004
INITIAL SETTLEMENT TRUST AGREEMENT
This INITIAL SETTLEMENT TRUST AGREEMENT, dated as of the 12th day of April,
2004, (this "Trust Agreement") is entered into by and among Chattem, Inc., a
Tennessee corporation (the "Settlor"), and AmSouth Bank, a bank organized and
existing under the laws of the State of Alabama, (the "Trustee") to establish
the Initial Settlement Trust (the "Trust") to hold, administer and distribute
certain assets, as follows:
RECITALS
WHEREAS, simultaneously herewith, the Settlor has executed and
delivered that certain Class Action Settlement Agreement (the "Settlement
Agreement") whereby the Settlor has agreed to provide for certain payments to be
made to a final settlement trust in consideration of the compromise, settlement,
and release of claims of the class members in that certain class action
litigation in Federal District Court captioned In Re Phenylpropanlamine (PPA)
Products Liability Litigation (MDL No. 1407)(the "Class Action Litigation"); and
WHEREAS, the parties intend this Trust Agreement to be submitted to
the United States District Court for the Western District of Washington (the
"Court") for approval and to remain subject to the continuing jurisdiction of
the Court and that the Court will issue an order necessary to a effectuate the
Settlement Agreement; and
WHEREAS, the parties hereto intend that this Trust will be a "Qualified
Settlement Fund" within the meaning of Section 46813 of the Internal Revenue.
Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1- DEFINITIONS
SECTION 1.1 GLOSSARY OF TERMS
For purposes of this Trust Agreement, the following terms shall have the
meanings set forth in this Article 1. Terms used in the singular shall be deemed
to include the plural and vice versa.
(a) "ASSETS" shall mean all personal property conveyed to the Trust.
(b) "BENEFICIARIES" shall have the meaning set forth in section 2.2(a).
(c) "CLASS MEMBERS" shall have the meaning set forth in section 2.2(a).
(d) "INDEMNIFIED PARTIES" shall have the meaning set forth in section 3.5(a).
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(e) "TRIAL COURT APPROVAL" shall mean the granting, by order entered on the
docket thereof, of the approval of the Settlement Agreement by the Court.
(f) "TRIAL COURT APPROVAL DATE" shall mean the date upon which the Trial Court
Approval occurs.
(g) "TRUST ESTATE" shall mean the assets held by the Trustee under this
Agreement, including all additions to the Trust Estate made pursuant to the
provisions of this agreement by conveyance, assignment, or other transfer.
ARTICLE 2 - DECLARATION OF TRUST SECTION
2.1 CREATION OF TRUST
This Trust is hereby established as the initial Chattem Settlement Trust in
anticipation of the creation of the Final Chattem Settlement Trust in accordance
with the Trial Court Approval. This Trust shall be deemed subject to the control
of the Court and if terminated for any reason by the Court prior to the Trial
Court Approval Date, the Trust Assets, less compensation and expenses to the
Trustee as otherwise provided herein, shall be distributed in a manner directed
by the Corm Upon the Trial Court Approval Date, this Trust shall be amended and
continued as the Final Chattem Settlement Trust or the Trust Assets shall be
conveyed into the Final Chattem Settlement Trust and t Ws Trust terminated as
may be determined by the Court and set forth in the Trial Court Approval.
SECTION 2.2 BENEFICIARIES
(a) The Beneficiaries of the Trust are all Class Members, if any, in the Class
Action Litigation (the "Class Members") who may ultimately be determined to be
entitled to receive benefits under the Settlement Agreement ("Beneficiaries")
pursuant to the Trial Court Approval.
(b) Nothing in this Agreement is intended to acknowledge the claims of the Class
Members in the Class Action Litigation or to confer any rights or benefits on
any individual Class Member, Neither Settlor nor Trustee shall have any
obligation or duty hereunder to any individual Class Member, and no individual
Class Member shall have direct right to exercise rights, claims or remedies
against the Settlor or the Trustee under this Trust Agreement or the Settlement
Agreement.
(c) The Trust Assets, if any, to which a Class Member is entitled shall be
determined only if and when the Court enters, and in accordance with, the Trial
Court Approval. The Trustee shall have no authority under this Agreement or
otherwise to make benefit determinations with respect to, or distribute Trust
Assets to, Class Members.
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SECTION 2.3 PURPOSES OF THE TRUST
The sole purpose of the Trust is to receive, hold and invest funds in accordance
with, and subject to, the provisions of this Trust Agreement, pending the Trial
Court Approval, and to take all such other actions directed by the Court. In
addition, the Trustee is authorized to pay out of the Trust Estate all costs
related to the Settlement Agreement (including notice costs and the fees of an
administrator) as may be directed by the Court. The Trustee hereby consents to
the jurisdiction of the Court for all purposes related to the control of the
Trust Estate and the performance under or Interpretation of this Trust
Agreement. The Trustee shall have no authority or duty to exercise discretion
with respect to the performance of obligations under, or the interpretation of,
the Settlement Agreement. Any questions of performance or interpretation under
the Settlement Agreement shall be determined by the Court.
SECTION 2.4 FUNDING
The Settlor will deliver (or cause to be delivered) to the Trustee the Assts as
envisioned by the Settlement Agreement. The Trustee hereby agrees to accept the
Assets and to receive, hold, invest, manage, and distribute the Assets in
accordance with the Trust Agreement.
SECTION 2.5 ADDITIONS TO THE TRUST ESTATE
The Trustee shall receive, hold, administer and distribute hereunder, as part of
the Trust Estate: (i) the Assets delivered to it from time to time by, or at the
direction of, the Settlor; (ii) any recoveries with respect to amounts
previously expensed by the Trust (such as, without limitation, refunds of taxes
or administrative expenses previously paid by the Trust); and (iii) any interest
or other earnings on any of the foregoing.
SECTION 2.6 DISTRIBUTION OF THE TRUST ESTATE
Until the Trial Court Approval Date, all amounts in the Trust Estate that are
not used to satisfy the obligations of the Trust, including the compensation and
expenses of the Trustee, shall, upon termination of the Trust, be distributed in
a manner directed by the Court. Upon Trial Court Approval, the Court shall make
a determination with respect to the disposition of any amounts remaining in the
Trust Estate which determination may include the continuation of the Trust as
the Final Chattem Settlement Trust as set forth in the Settlement Agreement upon
such terms as may be determined by the Court, the distribution of the Trust
Estate to a new trust or fund created for the purpose of serving as the Final
Chattem Settlement Trust, or as may otherwise be determined or administered by
the Court and set forth in the Trial Court Approval.
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ARTICLE 3 - TRUSTEE
SECTION 3.1 QUALIFICATION TO SERVE
The Trustee hereby accepts the nomination and appointment to serve as trustee
and agrees to act in accordance with the Terms of this Trust Agreement. The
Trustee is, and shall continue to be, a bank organized and doing business under
the laws of the United States of America or under the laws of any state thereof,
authorized under such laws to exercise corporate trust powers, with a combined
capital and surplus of at least $100,000,000. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 3.1, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article 3. There shall at all times only be a single trustee of the
Trust. The Trustee shall act in accordance with the terms of this Trust
Agreement and upon the direction of the Court. The Trustee may not assign its
rights or obligations hereunder without the prior written consent of the Settlor
and the Court, provided, however, that the merger or consolidation, or other
assumption of assets and liabilities of, the Trustee with or by another bank
otherwise qualifying hereunder with such bank being the legal successor to the
Trustee shall not be deemed an assignment and shall not require the consent of
the Settlor or the Court.
SECTION 3.2 TERM OF SERVICE
The Trustee shall serve for the duration of the Trust, subject to its
resignation or removal as set forth herein.
SECTION 3.3 APPOINTMENT OF SUCCESSOR TRUSTEE
(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article 3 shall become effective until the acceptance
of appointment by the successor Trustee under Section 3.3(c) below. The Trustee
may resign at any time by giving written notice thereof to the Settlor and the
Court, and may be removed at any time with the approval of the Court. In
addition, if at any time: (i) the Trustee shall fail to comply with the
requirements contained in Section 3.1, or (ii) the Trustee shall become
incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation, or liquidation, then the Trustee may be
removed by the Court. At any time prior to the Trial Court Approval Date, a
successor Trustee may be appointed by the Court if an instrument of acceptance
by a successor Trustee shall not have been delivered to the Trustee within
thirty (30) days after the giving of such notice of resignation, the resigning
Trustee may petition the Court for the appointment of a successor Trustee. A
successor Trustee must meet the qualifications set forth in Section 3.1 of this
Trust Agreement.
(b) Upon the acceptance of office by any successor Trustee, all rights, titles,
duties, powers, and authority of the predecessor Trustee under this Trust
Agreement shall be
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vested in and undertaken by the successor Trustee without any further act being
required. No successor Trustee shall be liable for any act or omission of its
predecessor.
(c) Every successor Trustee appointed hereunder shall execute, acknowledge, and
deliver to the Court and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed, or conveyance, shall become vested with all the rights, powers, trusts,
and duties of the retiring Trustee; but, on request of the Court or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all of
the rights, powers, and trusts of the retiring Trustee, and shall duly assign,
transfer, and deliver to each successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Settlor shall execute any and all instruments reasonably necessary for more
fully and certainly vesting in and confirming to each such successor Trustee all
such rights, powers, and trusts. No successor Trustee shall accept its
appointment unless at the time of such acceptance such successor Trustee shall
be qualified and eligible under this Article 3, to the extent operative.
SECTION 3.4 COMPENSATION AND EXPENSES OF TRUSTEE
The Trustee shall be entitled to receive a fee and also shall be reimbursed for
any reasonable out-of-pocket expenditures, and ordinary and customary expenses,
disbursements, and advancements related to performing its services during the
period of the continuation of the Trust as set forth in Annex A. The parties
agree that this compensation represents reasonable compensation for services to
be rendered by the Trustee hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust). The fees and expenses of the Trustee shall be paid out of the Trust
Estate.
SECTION 3.5 INDEMNIFICATION / LIABILITY OF TRUSTEE
(a) So long as the Trustee (or former Trustee) and its officers, directors,
employees and agents (collectively, the "Indemnified Parties" or individually,
an "Indemnified Party") act or have acted in accordance with the terms of this
Trust Agreement, and/or upon the direction of the Court, the indemnified Parties
who were or are a party, or are threatened to be made a party, to any
threatened, pending, or completed action, suit or proceeding of any kind,
whether civil, administrative, or arbitrative. and whether brought (i) against
the Trust, or (iii) with respect to a Trustee, by reason of such Trustee being
or having been a Trustee of the Trust, shall be indemnified and held harmless by
the Settlor and the Trust from and against all costs, damages, judgments,
attorneys' fees (whether such attorneys shall be regularly retained or
specifically employed), expenses, obligations, and liabilities of every kind and
nature which the Indemnified Party or indemnified parties may insure, sustain,
or be required to pay in connection with or arising out of this Trust Agreement,
and to pay to the Indemnified Party or Indemnified Parties on demand the amount
of all such costs, damages, judgments, attorneys' fees,
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expenses, obligations and liabilities. To secure said indemnification and to
satisfy its compensation hereunder, the Trustee is hereby given the right to
reimburse itself therefore out of the Trust Estate.
(b) The Trustee shall have no liability or obligation, nor shall any person have
a legal or equitable claim, remedy or cause of action for any act or omission by
the Trustee with respect to the Trust Estate except for Trustees willful
misconduct or gross negligence in breach of the terms of this Trust Agreement.
The Trustee's sole responsibility shall be for the receipt, administration,
investment, and disbursement of the Trust Estate in accordance with the terms of
this Trust Agreement. The Trustee shall have no implied duties or obligations
and shall not be charged with knowledge or notice of any fact or circumstance
not specifically set forth herein. The Trustee may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which the Trustee shall
in good faith believe to be genuine, to have been signed or presented by the
person or parties purporting to sign. the same and to conform to the provisions
of this Trust Agreement. In no event shall the Trustee be liable for incidental,
indirect, special, consequential or punitive damages. The Trustee shall not be
obligated to take any legal action or commence any proceeding in connection with
the Trust Estate, this Trust Agreement or o Settlement Agreement, or to appear
in, prosecute or defend any such legal action or proceeding. The Trustee may
consult legal counsel selected by it in the event of any dispute or question as
to the construction of any of the provisions hereof or of any other agreement or
of its duties hereunder, and shall incur no liability and shall be fully
indemnified from any liability whatsoever in acting in accordance with the
opinion or instruction of such counsel.
ARTICLE 4 - POWERS OF THE TRUSTEE
SECTION 4.1 POWERS.
To carry out the purposes of this Agreement, subject to any limitation in this
Agreement; the Trustee is vested with the following powers, in addition to those
now or hereafter conferred by law or court order acting the Trust Estate:
(a) To continue to hold any Assets other than cash contributed to the Trust,
whether or not of the type or quality, nor constituting a diversification,
considered proper for trust investments.
(b) To invest and reinvest the principal of the Trust Estate; provided, however,
that all investments made by the Trustee shall be in U.S. Government Treasury
bills or in other obligations guaranteed by the U.S. Goat, with maturities of no
more than six (6) months or shares of a money market mutual fund registered
under the Investment Company Act of 1940, as amended, the principal of which is
invested solely in U.S. Government or agency obligations and repurchase
agreements (including such funds advised, managed or sponsored by the Trustee or
any of its affiliates), and shall include no more than $50,000 to be held in a
bank checking and/or interest bearing time deposit account.
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(c) To initiate or defend at the expense of the Trust Estate, any litigation
relating to the Trust Estate or property of the Trust Estate, and to compromise,
arbitrate, or otherwise adjust claims in favor of or against the Trust Estate
and to carry such insurance as the Trustee may deem advisable. The Trustee shall
have the authority to initiate, defend and participate in, at the expense of the
Trust Estate, all proceedings related to or affecting the Trust, the Trustee or
Settlor s obligations fonder the Settlement Agreement involving the Trust, and
the Trustee shall be a puny in interest entitled to notice of all such
proceedings.
(d) To have, respecting securities, all the rights, powers, and privileges of an
owner.
(e) To employ any custodian, attorney, accountant or other agent reasonably
necessary to assist the Trustee in administration of the Trust Estate, and to
rely on the advice given by such person.
SECTION 4.2 NO SEGREGATION PER BENEFICIARY
The Trustee may hold all trust property as a single segregated trust and is
under no obligation to separate, or segregate or account for trust property for
the benefit of individual Beneficiaries.
SECTION 4.3 RIGHT TO NON-PERFORM IN CASE OF DISPUTE.
In the event of any disagreement between the Settlor and Beneficiaries, or
between them and any other person, resulting in adverse claims or demands being
made in connection with the assets to be administered hereunder, or in the event
that the Trustee, in good faith, be in doubt as to what action it would take
hereunder, the Trustee may, at its option, refuse to comply with any claims or
demands or it may refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event, the Trustee
shall not be or become liable in any way or to any person for its failure or
refusal to act, and the Trustee shall be entitled to continue so to refrain
from acting until (i) otherwise directed by the Court, or another court of
competent jurisdiction, or (ii) there exists an agreement between the Settlor
and Beneficiaries, and the Trustee shall have been notified thereof in writing
signed by or on behalf of all such persons. The rights of the trustee under this
paragraph are in addition to all other rights which it may have by law or
otherwise.
ARTICLE 5 - ADMINISTRATIVE, PROVISIONS
SECTION 5.1 BOND.
No bond, or other security, shall be required of the Trustee named in this
Agreement.
SECTION 5.2 SITUS AND VENUE.
This Trust Estate has been created and accepted by the Trustee in the State of
Tennessee and its validity, construction, and interpretation, and all rights
created hereunder shall be governed by the laws of the State of Tennessee.
Notwithstanding the foregoing, any
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action to enforce, interpret or adjudicate the rights and responsibilities
hereunder shall be in the first instance commenced in the Court.
SECTION 5.3 PARTIAL INVALIDITY.
Each provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law. If any provision of this Agreement or the application
of such provision to any person or circumstance shall, to any extent, be invalid
or unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected by such invalidity or
unenforceability, unless such provision or such application of suck provision is
essential to this Agreement.
SECTION 5.4 HEADINGS.
The headings of the various Sections of this Agreement have been inserted only
for convenience, and shall not be deemed in any manner to modify or limit any of
the provisions of this Agreement, or be used in any manner in the interpretation
of this Agreement.
SECTION 5.5 INTERPRETATION
Whenever the context so requires, all words used in the singular shall be
construed to have been used in the plural (and vice versa), and each gender
shall be construed to include the other gender.
SECTION 5.6 TAX MATERS
In addition to all of the Trustee's other obligations tinder this Agreement, the
Trustee shall handle all federal and state tax matters related to the Trust. The
Trustee shall cause a Federal Employer Identification Number for the Trust to be
obtained and shall cause the annual income tax returns to be filed on the basis
of a December 31 fscal year end. The Trustee shall take all steps necessary to
ensure that any tax obligations imposed upon the Trust are paid. To the extent
necessary to satisfy this objective, the Trust is hereby authorized to, among
other things, (1) communicate with the Internal Revenue Service and any state
agency on behalf of the Trust, (ii) make payment of taxes on half of the Trust
(which taxes will be paid out of the Trust assets), and (iii) file all
applicable tax returns for the Trust. Ail ordinary and necessary expenses
incurred in connection with the preparation of such tax returns shall be paid
from the Trust Estate.
SECTION 5.7 REPORTS
The Trustee shall furnish a report to the Settlor and the Court on a monthly
basis setting forth the principal of the Trust Estate, any earnings of the Trust
Estate and all ordinary and necessary expenses incurred by the Trustee in
connection with the management and administration of the Trust Estate.
SECTION 5.8 AMENDMENT
Until the Trial Court Approval Date, any or all of the provisions of this
Agreement may be amended at any time and from time to time, in whole or in part,
by an instrument in writing executed by the Settlor and approved by the Court.
No such amendment shall
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authorize or permit any part of the Trust Estate to be used for or diverted for
purposes other than as envisioned by the Settlement Agreement and no such
amendment which affects the rights or duties of the Trustee may be made without
the Trustees written consent. On and after the Trial Court Approval Date, the
Settlor shall not have any right whatsoever to amend, modify, revoke or alter
this Agreement, in whole or in part, except by order of the Court.
SECTION 5.9 FINAL TERMINATION
Notwithstanding any provision in this Agreement to the contrary, neither this
Trust nor any other trust established in accordance with this Agreement shall
continue beyond the date that is twenty-one years after the death of the
survivor of all of the Beneficiaries living on the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Trust Agreement
as OF THE DATE FIRST set forth above.
CHATTEM INC.:
By: DATE:
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AMSOUTH BANK:
By: DATE:
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ANNEX A
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SCHEDULE OF FEES
The Trustee shall be paid a fee for all Trustee, Investment Management and
Administrative Services equal to 25 basis points (0.25 Of 1.00%) of the market
value of the Trust Estate on an annual basis billed monthly in arrears.
The fee is based upon the limited Trustee, Investment Management and
Administrative Services envisioned by the Trust Agreement and AmSouth Bank
reserves the right to adjust the fee upon a change in-the scope of the duties
required under the Trust Agreement.
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