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PUBLIC VERSION CT- COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, and the Competition Tribunal Rules, SOR/2008-141; AND IN THE MATTER OF the proposed acquisition by Elanco Animal Health Incorporated of the Animal Health Business of Bayer AG; AND IN THE MATTER OF the filing and registration of a consent agreement pursuant to sections 92 and 105 of the Competition Act. B E T W E E N : THE COMMISSIONER OF COMPETITION Applicant and ELANCO ANIMAL HEALTH INCORPORATED Respondent CONSENT AGREEMENT RECITALS: A. Elanco Animal Health Incorporated (“Elanco”) proposes to acquire the Animal Health Business of Bayer AG (the Transaction”). B. The Commissioner has concluded that the Transaction as originally proposed is likely to result in a substantial lessening and/or prevention of competition in the supply of low dose canine otic treatments, feline endoparasiticides with tapeworm coverage and poultry insecticides with darkling beetle coverage in Canada, and that the implementation of this Agreement is necessary to ensure that any substantial lessening and/or prevention of competition will not result from the Transaction. C. Elanco no longer proposes to acquire Canadian distribution rights to Bayers Tempo, Credo, QuickBayt and Annihilator Polyzone poultry insecticides in Canada, and Bayer intends to continue its poultry insecticide business. 1
PUBLIC VERSION D. Elanco does not admit but will not for the purposes of this Agreement, including execution, registration, enforcement, variation or rescission, contest the Commissioners conclusions that (i) the Transaction is likely to result in a substantial lessening and/or prevention of competition in the supply of low dose canine otic treatments, feline endoparasiticides with tapeworm coverage and poultry insecticides with darkling beetle coverage in Canada; and (ii) the implementation of this Agreement is necessary to ensure that any substantial lessening and/or prevention of competition will not result from the Transaction. E. Nothing in this Agreement affects any investigation, inquiry or proceeding other than under section 92 of the Act in respect of the Transaction. THEREFORE Elanco and the Commissioner agree as follows: I. DEFINITIONS [1] Whenever used in this Agreement, the following words and terms have the meanings set out below: (a) Act means the Competition Act, R.S.C. 1985, c. C-34, as amended; (b) Affiliate has the meaning given to it in subsection 2(2) of the Act; (c) Agreement means this Consent Agreement, including the schedules hereto, and references to a Part”, Section”, Paragraph or Schedule are, unless otherwise indicated, references to a part, section, paragraph or schedule of or to this Agreement; (a) Asset Purchase Agreement means the Asset Purchase Agreement made and executed as of 3 January 2020, by and between Elanco Tiergesundheit AG, Dechra Limited and Dechra Veterinary Products LLC; (b) Bayer means Bayer AG and its Affiliates and their directors, officers, employees, agents, representatives, successors and assigns; (c) Business Day means a day on which the Competition Bureaus Gatineau, Quebec office is open for business; (d) Closing means the completion of the Transaction under the Transaction Agreement; (e) Closing Date means the date on which Closing occurs”; (f) Commissioner means the Commissioner of Competition appointed under the Act and includes his authorized representatives; 2
PUBLIC VERSION (g) Confidential Information means competitively sensitive, proprietary and all other information that is not in the public domain, and that is owned by or pertains to a Person or a Persons business, and includes, but is not limited to, manufacturing, operations and financial information, customer lists, price lists, contracts, cost and revenue information, marketing methods, patents, technologies, processes, or other trade secrets; (h) Divested Business means: (i) Elancos low dose canine otic treatments business in Canada, carried on under the Osurnia brand name; and (ii) Bayers feline endoparasiticides business with tapeworm coverage in Canada, carried on under the Profender brand name; (i) Divestiture means the sale, conveyance, transfer, assignment or other disposal of the Divestiture Assets to a Purchaser or Purchasers pursuant to this Agreement and with the prior approval of the Commissioner, such that Elanco will have no direct or indirect interest in the Divestiture Assets; (j) Divestiture Agreement means a binding and definitive agreement between Elanco and a Purchaser to effect the Divestiture pursuant to this Agreement and subject to the prior approval of the Commissioner; (k) Divestiture Applicant means Elanco during the Initial Sale Period or the Divestiture Trustee during the Divestiture Trustee Sale Period; (l) Divestiture Assets means all of the right, title and interest in, to and under, or relating to, the tangible assets, Intangible Assets, property and undertaking owned or used by Elanco or held by Elanco for use in, or relating to, the Divested Business; (m) Divestiture Process Agreement means the agreement described in Section 6 of this Agreement; (n) Divestiture Trustee means the Person appointed pursuant to Part III of this Agreement (or any substitute appointed thereto) and any employees, agents or other Persons acting for or on behalf of the Divestiture Trustee; (o) Divestiture Trustee Sale means the Divestiture to be conducted by the Divestiture Trustee pursuant to Part III of this Agreement; (p) Divestiture Trustee Sale Period means the 6 month period commencing upon expiry of the Initial Sale Period; 3
PUBLIC VERSION (q) Elanco means Elanco Animal Health Incorporated and its Affiliates and their directors, officers, employees, agents, representatives, successors and assigns; (r) First Reference Date shall have the meaning set out in Paragraph 22(d) of this Agreement; (s) Initial Sale Period means the period that commences at Closing and ends at the time set out in Confidential Schedule A to this Agreement; (t) Intangible Assets means intellectual property of any nature and kind, including: (i) patents, copyrights, trademarks and software; (ii) trade dress, industrial designs, distinguishing guises, trade secrets, know-how, techniques, data, inventions, practices, methods and other confidential or proprietary technical, business, research, development and other information, and all rights in any jurisdiction to limit the use or disclosure thereof; (iii) rights to obtain and file for patents and registrations thereof; and (iv) rights to sue and recover damages or obtain injunctive relief for infringement, dilution, misappropriation, violation or breach of any of the foregoing; (u) Monitor means the Person appointed pursuant to Part IX of this Agreement (or any substitute appointed thereto), and any employees, agents or other Persons acting for or on behalf of the Monitor, provided that if no Monitor is appointed, other than in Part IX of this Agreement Monitor means the Commissioner; (v) Monitor Agreement means the agreement described in Section 31 of this Agreement; (w) Person means any individual, corporation or partnership, sole proprietorship, trust or other unincorporated organization capable of conducting business, and any Affiliates thereof; (x) Purchaser means a Person that acquires Divestiture Assets pursuant to this Agreement and a Divestiture Agreement; (y) Records means records within the meaning of subsection 2(1) of the Act; (z) Second Reference Date shall have the meaning set out in Paragraph 22(e) of this Agreement; 4
PUBLIC VERSION (aa) Third Party means any Person other than the Commissioner, Elanco or a Purchaser; (bb) Transaction means the transaction described in the first recital to this Agreement; (a) Transaction Agreement means the Share and Asset Purchase Agreement between Elanco and Bayer dated August 20, 2019; and (b) Tribunal means the Competition Tribunal established by the Competition Tribunal Act, R.S.C. 1985, c.19 (2 nd Supp.). II. OBLIGATION TO COMPLETE DIVESTITURE [2] Elanco shall use commercially reasonable efforts to complete the Divestiture. [3] During the Initial Sale Period, Elanco shall use commercially reasonable efforts to complete the Divestiture in accordance with the provisions of this Part and Confidential Schedule A and subject to Part IV. [4] During the Initial Sale Period, Elanco shall provide to the Commissioner and to the Monitor every 30 days a written report describing the progress of its efforts to effect the Divestiture. The report shall include a description of contacts, negotiations, due diligence and offers regarding the Divestiture Assets, the name, address and phone number of all parties contacted and of prospective Purchasers who have come forward. Elanco shall, within 3 Business Days, respond to any request by the Commissioner for additional information regarding the status of Elancos efforts to complete the Divestiture. An officer or other duly authorized representative of Elanco shall certify that he or she has examined the information provided in any such response and that such information is, to the best of his or her knowledge and belief, correct and complete in all material respects. III. DIVESTITURE TRUSTEE SALE PROCESS [5] In the event that Elanco fails to complete the Divestiture during the Initial Sale Period, the Commissioner shall appoint a Divestiture Trustee to complete the Divestiture in accordance with this Agreement. Such appointment may be made at any time prior to the expiry of the Initial Sale Period or on such later date as the Commissioner determines. [6] Within 5 Business Days after the appointment of the Divestiture Trustee, Elanco shall submit to the Commissioner for approval the terms of a proposed Divestiture Process Agreement with the Divestiture Trustee and the Commissioner that confers on the Divestiture Trustee all rights and powers necessary to permit the Divestiture Trustee to effect the Divestiture. [7] Within 5 Business Days after receipt of the proposed Divestiture Process Agreement referred to in Section 6, the Commissioner shall advise Elanco whether 5
PUBLIC VERSION or not he approves the terms of the proposed Divestiture Process Agreement. If the Commissioner does not approve the terms of the proposed Divestiture Process Agreement, he shall prescribe alternative terms that Elanco shall incorporate into a final Divestiture Process Agreement with the Divestiture Trustee and the Commissioner. [8] Without limiting the Commissioners discretion to require additional terms, Elanco consents to the following terms and conditions regarding the Divestiture Trustees rights, powers and duties, and shall include such terms in the Divestiture Process Agreement: (a) The Divestiture Trustee shall complete the Divestiture as expeditiously as possible, and in any event prior to expiry of the Divestiture Trustee Sale Period. (b) The Divestiture Trustee shall use reasonable efforts to negotiate terms and conditions for the Divestiture that are as favourable to Elanco as are reasonably available at that time; however, the Divestiture shall not be subject to any minimum price. The Divestiture Trustees opinion of what constitutes favourable terms and conditions and what constitutes reasonably available terms and conditions, is subject to review and approval by the Commissioner. (c) Subject to oversight and approval by the Commissioner, the Divestiture Trustee shall have full and exclusive authority during the Divestiture Trustee Sale Period: (i) to complete the Divestiture in accordance with the provisions of this Part and Confidential Schedule A; (ii) to solicit interest in a possible Divestiture by whatever process or procedure the Divestiture Trustee believes is suitable to allow a fair opportunity for one or more prospective good faith Purchasers to offer to acquire the Divestiture Assets, and for greater certainty, in determining whether to pursue negotiations with a prospective Purchaser, may have regard to the approval criteria in Section 23; (iii) to enter into a Divestiture Agreement with a Purchaser that will be legally binding on Elanco; (iv) to negotiate reasonable commercial covenants, representations, warranties and indemnities to be included in a Divestiture Agreement; and (v) to employ, at the expense of Elanco, such consultants, accountants, legal counsel, investment bankers, business brokers, appraisers, and other representatives and assistants as the Divestiture Trustee 6
PUBLIC VERSION believes are necessary to carry out the Divestiture Trustees duties and responsibilities. (d) Where any Person makes a good faith inquiry respecting a possible purchase of Divestiture Assets, the Divestiture Trustee shall notify such Person that the Divestiture is being made and shall provide to such Person a copy of this Agreement, with the exception of the provisions hereof that are confidential pursuant to Section 57 of this Agreement. (e) Where, in the opinion of the Divestiture Trustee, a Person has a good faith interest in purchasing Divestiture Assets and has executed a confidentiality agreement, in a form satisfactory to the Commissioner, with the Divestiture Trustee protecting any Confidential Information that such Person may receive in the course of its due diligence review of the Divestiture Assets, the Divestiture Trustee shall: (i) promptly provide to such Person all information respecting the Divestiture Assets that is determined by the Divestiture Trustee to be relevant and appropriate; (ii) permit such Person to make reasonable inspection of the Divestiture Assets and of all financial, operational or other non-privileged Records and information, including Confidential Information, that may be relevant to the Divestiture; and (iii) give such Person as full and complete access as is reasonable in the circumstances to the personnel involved in managing the Divestiture Assets. (f) The Divestiture Trustee shall have no obligation or authority to operate or maintain the Divestiture Assets. (g) The Divestiture Trustee shall provide to the Commissioner and to the Monitor, within 14 days after the later of the Divestiture Trustees appointment and the commencement of the Divestiture Trustee Sale Period and thereafter every 30 days, a written report describing the progress of the Divestiture Trustees efforts to complete the Divestiture. The report shall include a description of contacts, negotiations, due diligence and offers regarding the Divestiture Assets, the name, address and phone number of all parties contacted and of prospective Purchasers who have come forward. The Divestiture Trustee shall, within 3 Business Days, respond to any request by the Commissioner for additional information regarding the status of the Divestiture Trustees efforts to complete the Divestiture. (h) The Divestiture Trustee shall notify Elanco and the Commissioner immediately upon the signing of any letter of intent or agreement in principle relating to the Divestiture Assets, and shall provide to Elanco a 7
PUBLIC VERSION copy of any executed Divestiture Agreement upon receipt of the Commissioners approval of the Divestiture contemplated in such Divestiture Agreement. [9] Elanco shall not be involved in the Divestiture process during the Divestiture Trustee Sale Period or in any negotiations with prospective Purchasers undertaken by the Divestiture Trustee, nor will Elanco have contact with prospective Purchasers during the Divestiture Trustee Sale Period. [10] Subject to any legally recognized privilege, Elanco shall provide to the Divestiture Trustee full and complete access to all personnel, Records, information (including Confidential Information) and facilities relating to the Divestiture Assets, to enable the Divestiture Trustee to conduct its own investigation of the Divestiture Assets and to provide access and information to prospective Purchasers. [11] Elanco shall take no action that interferes with or impedes, directly or indirectly, the Divestiture Trustees efforts to complete the Divestiture. [12] Elanco shall fully and promptly respond to all requests from the Divestiture Trustee and shall provide all information the Divestiture Trustee may request. Elanco shall identify an individual who shall have primary responsibility for fully and promptly responding to such requests from the Divestiture Trustee on behalf of Elanco. [13] Elanco will do all such acts and execute all such documents, and will cause the doing of all such acts and the execution of all such documents as are within its power to cause the doing or execution of, as may be reasonably necessary to ensure that the Divestiture Assets are divested in the Divestiture Trustee Sale Period and that agreements entered into by the Divestiture Trustee are binding upon and enforceable against Elanco. [14] Elanco shall be responsible for all reasonable fees and expenses properly charged or incurred by the Divestiture Trustee in the course of carrying out the Divestiture Trustees duties and responsibilities under this Agreement. The Divestiture Trustee shall serve without bond or security, and shall account for all fees and expenses incurred. Elanco shall pay all reasonable invoices submitted by the Divestiture Trustee within 30 days after receipt and, without limiting this obligation, Elanco shall comply with any agreement it reaches with the Divestiture Trustee regarding interest on late payments. In the event of any dispute: (i) such invoice shall be subject to the approval of the Commissioner; and (ii) Elanco shall promptly pay any invoice approved by the Commissioner. Any outstanding monies owed to the Divestiture Trustee by Elanco shall be paid out of the proceeds of the Divestiture. [15] Elanco shall indemnify the Divestiture Trustee and hold the Divestiture Trustee harmless against any losses, claims, damages, liabilities or expenses arising out of, or in connection with, the performance of the Divestiture Trustees duties, 8
PUBLIC VERSION including all reasonable fees of counsel and other expenses incurred in connection with the preparation or defence of any claim, whether or not resulting in any liability, except to the extent that such losses, claims, damages, liabilities, or expenses result from malfeasance, gross negligence or bad faith by the Divestiture Trustee. [16] Elanco shall indemnify the Commissioner and hold the Commissioner harmless against any losses, claims, damages, liabilities or expenses arising out of, or in connection with, the performance of the Divestiture Trustees duties, including all reasonable fees of counsel and other expenses incurred in connection with the preparation or defence of any claim, whether or not resulting in any liability. [17] If the Commissioner determines that the Divestiture Trustee has ceased to act or has failed to act diligently, the Commissioner may remove the Divestiture Trustee and appoint a substitute Divestiture Trustee. The provisions of this Agreement respecting the Divestiture Trustee shall apply in the same manner to any substitute Divestiture Trustee. [18] Elanco may require the Divestiture Trustee and each of the Divestiture Trustees consultants, accountants, legal counsel, investment bankers, business brokers, appraisers, and other representatives and assistants to sign an appropriate confidentiality agreement in a form satisfactory to the Commissioner; provided, however, that such agreement shall not restrict the Divestiture Trustee from providing any information to the Commissioner. [19] The Commissioner may require the Divestiture Trustee and each of the Divestiture Trustees consultants, accountants, legal counsel, investment bankers, business brokers, appraisers, and other representatives and assistants to sign an appropriate confidentiality agreement relating to materials and information the Divestiture Trustee may receive from the Commissioner in connection with the performance of the Divestiture Trustees duties. [20] Notwithstanding any term of this Agreement, the rights, powers and duties of the Divestiture Trustee under this Agreement shall not expire until the Divestiture is completed. IV. COMMISSIONER APPROVAL OF DIVESTITURE [21] The Divestiture may proceed only with the prior approval of the Commissioner in accordance with this Part. For greater certainty, if a Divestiture is a notifiable transaction nothing in this Agreement affects the operation of Part IX of the Act. The Commissioner approves a Divestiture of Elancos low dose canine otic treatments business to Dechra Limited and Dechra Veterinary Products LLC pursuant to the Asset Purchase Agreement, and this Part IV and Part VI of this Agreement shall not apply to that Divestiture. 9
PUBLIC VERSION [22] The Divestiture Applicant shall comply with the following process for seeking and obtaining a decision of the Commissioner regarding his approval of a proposed Divestiture: (a) The Divestiture Applicant shall promptly: (i) inform the Commissioner of any negotiations with a prospective Purchaser that may lead to a Divestiture; and (ii) forward to the Commissioner copies of any agreement that is signed with a prospective Purchaser, including non-binding expressions of interest. (b) The Divestiture Applicant shall immediately notify the Commissioner that it intends to enter a Divestiture Agreement with a prospective Purchaser, or has entered into an agreement that, if approved by the Commissioner, will be a Divestiture Agreement within the meaning of this Agreement. If the Divestiture Applicant has entered into or intends to enter into more than one agreement in respect of the same Divestiture Assets, the Divestiture Applicant shall identify the agreement in respect of which it seeks the Commissioners approval and the remainder of this Part shall apply only to that agreement unless the Divestiture Applicant designates a substitute agreement. (c) The notice described in Paragraph 22(b) shall be in writing and shall include: the identity of the proposed Purchaser; the details of the proposed Divestiture Agreement and any related agreements; and information concerning whether and how the proposed Purchaser would, in the view of the Divestiture Applicant, likely satisfy the terms of this Agreement. (d) Within 14 days following receipt of the notice described in Paragraph 22(b), the Commissioner may request additional information concerning the proposed Divestiture from any or all of Elanco, the Monitor, the prospective Purchaser and, in the Divestiture Trustee Sale Period, the Divestiture Trustee. These Persons shall each provide any additional information requested from them. When they have provided a complete response to the Commissioners request, these Persons shall comply with the following procedures: (i) the Divestiture Trustee shall provide written confirmation to the Commissioner that the Divestiture Trustee has provided to the Commissioner all additional information requested from the Divestiture Trustee; (ii) the Monitor shall provide written confirmation to the Commissioner that the Monitor has provided to the Commissioner all additional information requested from the Monitor; 10
PUBLIC VERSION (iii) an officer or other duly authorized representative of Elanco shall certify that he or she has examined the additional information provided by Elanco in response to the Commissioners request and that such information is, to the best of his or her knowledge and belief, correct and complete in all material respects; (iv) an officer or other duly authorized representative of the prospective Purchaser shall certify that he or she has examined the additional information provided by the prospective Purchaser in response to the Commissioners request and that such information is, to the best of his or her knowledge and belief, correct and complete in all material respects. The date on which the last of the Divestiture Trustee, Elanco, the Monitor and the prospective Purchaser provides to the Commissioner a confirmation or certification required under this Paragraph is the First Reference Date”. (e) Within 7 days after the First Reference Date, the Commissioner may request further additional information concerning the proposed Divestiture from any or all of the Persons identified in Paragraph 22(d). These Persons shall each provide any further additional information requested from them. When they have provided a complete response to the Commissioners request, if any, these Persons shall comply with the procedures outlined in Paragraph 22(d) in regard to the further additional information provided. The date on which the last of the Divestiture Trustee, Elanco, the Monitor and the prospective Purchaser provides to the Commissioner a confirmation or certification required under this Paragraph is the Second Reference Date”. (f) The Commissioner shall notify the Divestiture Applicant of the approval of, or the objection to, the proposed Divestiture as soon as possible, and in any event within 14 days after the date on which the Commissioner receives the notice described in Paragraph 22(b) or, if he requests any additional information under Paragraph 22(d) or further additional information under Paragraph 22(e), within 14 days after the later of: (i) the First Reference Date; and (ii) the Second Reference Date, if any. (g) The Commissioners determination as to whether to approve a proposed Divestiture shall be in writing. [23] In exercising his discretion to determine whether to approve a proposed Divestiture, the Commissioner shall take into account the likely impact of the Divestiture on competition, and may consider any other factor he considers 11
PUBLIC VERSION relevant. Prior to granting his approval, the Commissioner must also be satisfied that: (a) the proposed Purchaser is fully independent of and operates at arms length from Elanco; (b) Elanco will have no direct or indirect interest in the Divestiture Assets following the Divestiture; (c) the proposed Purchaser is committed to carrying on the Divested Business; (d) the proposed Purchaser has the managerial, operational and financial capability to compete effectively in the supply of low dose canine otic treatments and/or feline endoparasiticides with tapeworm coverage in Canada, as applicable; and (e) the proposed Purchaser will (i) if the Commissioner grants his approval during the Initial Sale Period, complete the Divestiture prior to the expiry of the Initial Sale Period; or (ii) if the Commissioner grants his approval during the Divestiture Trustee Sale Period, complete the Divestiture during the Divestiture Trustee Sale Period. V. PRESERVATION OF DIVESTITURE ASSETS [24] In order to preserve the Divestiture Assets pending completion of the Divestiture, Elanco shall maintain the economic viability, marketability and competitiveness of the Divestiture Assets and Divested Business, and shall comply with any decision of or direction given by the Monitor that relates to preservation of the Divestiture Assets. Without limiting the generality of the foregoing, Elanco shall: (a) maintain and hold the Divestiture Assets