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Exhibit 99
CHATTEM, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial information which will be provided to the Securities and Exchange
Commission or the public, the systems of internal controls which management and
the Board of Directors have established, and the auditing, accounting and
financial reporting processes generally. It shall be the responsibility of the
Audit Committee to maintain free and open means of communication between the
Board of Directors, the independent auditor and management of the Company.
The Audit Committee will seek to fulfill these responsibilities by
carrying out the responsibilities and duties enumerated in Section V. of this
Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be "independent directors" as
defined by the rules of the National Association of Securities Dealers, Inc.
("NASD") on or before June 2001, unless the Board, under exceptional and limited
circumstances, determines that membership on the Audit Committee by an
individual who is not independent as defined by NASD rules is required by the
best interests of the Company and its shareholders, and the Board discloses in
the next annual proxy statement subsequent to such determination the nature of
the relationship and the reasons for that determination. All members of the
Audit Committee shall have a working familiarity with basic finance and
accounting practices and shall be able to read and understand fundamental
financial statements, and at least one member of the Audit Committee shall have
accounting or related financial management expertise. Audit Committee members
and the Committee Chairman shall be designated by the full Board of Directors.
III. MEETINGS
The Audit Committee shall meet at least two times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee shall meet at least annually with management
and the independent auditor in separate executive sessions to discuss any
matters that the Audit Committee or each of these groups believe should be
discussed privately. In addition, the Audit Committee or at least its Chairman
shall have discussions with the independent auditor and management quarterly to
review the Company's financial statements.
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IV. AUTHORITY
To discharge its oversight responsibilities effectively, the Audit
Committee will maintain open lines of communication with management and the
independent auditor, each of whom will have free and direct access to the Audit
Committee. The Audit Committee has the authority to institute, at its
discretion, investigations of suspected improprieties, including the standing
authority to retain special counsel or experts.
V. RESPONSIBILITIES AND DUTIES
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the Board and shareholders of the Company
that the accounting and reporting practices of the Company are in accordance
with all requirements and are of a high quality.
In carrying out its responsibilities, the Audit Committee shall take
the following actions:
(a) OVERSIGHT OF AUDIT PROCESS
1. Select, evaluate and, where appropriate, replace the
independent auditor who is ultimately accountable to
the Board of Directors and the Audit Committee.
2. Ensure that the independent auditor submits a formal
written statement regarding relationships and
services which may impact the objectivity and
independence of the independent auditor, consistent
with Independence Standards Board Standard 1; discuss
with the independent auditor any disclosed
relationships or services that may impact the
objectivity and independence of the independent
auditor; and recommend that the Board of Directors
take appropriate action to oversee the independence
of the independent auditor.
3. Meet with the independent auditor and financial
management of the Company to review the scope of the
proposed audit for the current year and the audit
procedures to be utilized, and at the conclusion
thereof, to review such audit, including any comments
or recommendations of the independent auditor.
4. Review the internal audit function of the Company
including the independence and authority of its
reporting obligations, the proposed audit plans for
the coming year and the coordination of such plans
with the independent auditor.
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5. Provide sufficient opportunity for the independent
auditor to meet with the members of the Audit
Committee without members of management present.
Among the items to be discussed in these meetings are
the independent auditor's evaluation of the Company's
financial and accounting personnel, and the
cooperation that the independent auditors received
during the course of the audit.
6. Following completion of the annual audit, review
separately with management and the independent
auditor any significant difficulties encountered
during the course of the audit, including any
restrictions on the scope of work or access to
required information.
7. Discuss with the independent auditor the matters
required to be discussed by Statement on Auditing
Standards No. 61, as may be modified or supplemented.
(b) FINANCIAL REPORTING
1. Ensure that the Audit Committee, or at least its
Chairman or an appointed designee from the Audit
Committee, reviews the Company's quarterly and annual
financial statements and determines that the
independent auditor is satisfied with the disclosure
and content of the financial statements to be
presented to the Securities and Exchange Commission
or the public.
2. In consultation with the independent auditor and
management review the integrity of the Company's
financial reporting processes, both internal and
external.
3. Consider the independent auditor's judgments about
the quality and appropriateness (and not just
acceptability) of the Company's accounting principles
and judgments as applied in its financial reporting,
on both an annual and quarterly basis.
4. Consider and recommend to the Board, if appropriate,
major changes to the Company's auditing and
accounting principles and practices as suggested by
the independent auditor or management.
5. Establish regular and separate systems of reporting
to the Audit Committee by management and the
independent auditor regarding any significant
judgments made in management's preparation of the
financial statements and the view of each as to the
appropriateness of such judgments.
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6. Review with the independent auditor and the Company's
legal counsel, compliance matters and any legal or
regulatory matter that could have a significant
impact on the Company's financial statements.
7. Report Committee actions to the Board of Directors
with such recommendations as the Committee may deem
appropriate.
8. Prepare a report for inclusion in the Company's proxy
statement.
(c) PROCESS IMPROVEMENT
1. Review with the independent auditor and the Company's
financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial
controls of the Company, and elicit any
recommendations for the improvement of such internal
control procedures for particular areas where new or
more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy
of such internal controls to expose any payments,
transactions or procedures that might be deemed
illegal or otherwise improper.
2. Review with the independent auditor and management
the extent to which changes or improvements in
financial or accounting practices, as approved by the
Audit Committee, have been implemented.
3. Investigate any matter brought to its attention
within the scope of its duties, with the power to
retain outside counsel for this purpose if, in its
judgment, that is appropriate.
4. Review activities, organizational structure and
qualifications of the financial and accounting
personnel of the Company.
5. Annually review and assess the adequacy of this
Charter, amend it as appropriate, and seek and
receive Board approval of the proposed changes.
6. Provide Audit Committee Members with appropriate
educational opportunities to assure an understanding
of the business and environment in which the Company
operates.
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