Document:

Exhibit 10.2

 

ELANCO ANIMAL HEALTH INCORPORATED

 

AND

 

ELI LILLY AND COMPANY

 

 

FORM OF TRANSITIONAL SERVICES AGREEMENT

 

 

Dated as of [·], 2018

 

 

Table of Contents

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
Article I
    	
DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    
	
Section 1.1
    	
Definitions
    	
1
    
	
 
    	
 
    	
 
    
	
Article II
    	
SERVICES;   STANDARD OF PERFORMANCE
    	
5
    
	
 
    	
 
    	
 
    
	
Section 2.1
    	
Services
    	
5
    
	
 
    	
 
    	
 
    
	
Section 2.2
    	
Standard   and Manner of Performance
    	
6
    
	
 
    	
 
    	
 
    
	
Section 2.3
    	
In-Flight   Projects
    	
7
    
	
 
    	
 
    	
 
    
	
Section 2.4
    	
Business   As Usual Services
    	
7
    
	
 
    	
 
    	
 
    
	
Section 2.5
    	
Program   Services
    	
7
    
	
 
    	
 
    	
 
    
	
Section 2.6
    	
Protection   of Lilly Information
    	
7
    
	
 
    	
 
    	
 
    
	
Section 2.7
    	
Governance
    	
8
    
	
 
    	
 
    	
 
    
	
Section 2.8
    	
Service   Changes
    	
8
    
	
 
    	
 
    	
 
    
	
Section 2.9
    	
Changes   to the Manner of Performance
    	
10
    
	
 
    	
 
    	
 
    
	
Section 2.10
    	
Third   Party Terms and Conditions; Consents
    	
10
    
	
 
    	
 
    	
 
    
	
Section 2.11
    	
Transitional   Nature of Services; Exit Plan and Assistance
    	
10
    
	
 
    	
 
    	
 
    
	
Section 2.12
    	
Cooperation
    	
11
    
	
 
    	
 
    	
 
    
	
Section 2.13
    	
Compliance
    	
12
    
	
 
    	
 
    	
 
    
	
Section 2.14
    	
Internal   Audits of Lilly Managed Controls and Processes
    	
12
    
	
 
    	
 
    	
 
    
	
Section 2.15
    	
Dependencies
    	
13
    
	
 
    	
 
    	
 
    
	
Article III
    	
CONFIDENTIALITY
    	
14
    
	
 
    	
 
    	
 
    
	
Section 3.1
    	
Confidentiality
    	
14
    
	
 
    	
 
    	
 
    
	
Article IV
    	
TERM;   TERMINATION
    	
15
    
	
 
    	
 
    	
 
    
	
Section 4.1
    	
Term and   Service Periods
    	
15
    
	
 
    	
 
    	
 
    
	
Section 4.2
    	
Termination
    	
16
    
	
 
    	
 
    	
 
    
	
Section 4.3
    	
Effect of   Expiration and Termination; Accrued Rights; Survival
    	
17
    
	
 
    	
 
    	
 
    
	
Article V
    	
COMPENSATION
    	
17
    
	
 
    	
 
    	
 
    
	
Section 5.1
    	
Compensation
    	
17
    
	
 
    	
 
    	
 
    
	
Section 5.2
    	
Taxes
    	
18
    
	
 
    	
 
    	
 
    
	
Article VI
    	
PAYMENT   TERMS
    	
19
    
	
 
    	
 
    	
 
    
	
Section 6.1
    	
Invoicing
    	
19
    
	
 
    	
 
    	
 
    
	
Section 6.2
    	
Interest
    	
20
    
				

 

i

 

Table of Contents

(continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
Article VII
    	
INTELLECTUAL   PROPERTY AND DATA
    	
20
    
	
 
    	
 
    	
 
    
	
Section 7.1
    	
Ownership   of Intellectual Property and Data
    	
20
    
	
 
    	
 
    	
 
    
	
Section 7.2
    	
License   Grants
    	
21
    
	
 
    	
 
    	
 
    
	
Article VIII
    	
INDEMNIFICATION;   LIMITATIONS OF LIABILITY; DISCLAIMERS
    	
21
    
	
 
    	
 
    	
 
    
	
Section 8.1
    	
Indemnification
    	
21
    
	
 
    	
 
    	
 
    
	
Section 8.2
    	
Procedures   for Indemnification of Third Party Claims
    	
21
    
	
 
    	
 
    	
 
    
	
Section 8.3
    	
Limitations   of Liability
    	
21
    
	
 
    	
 
    	
 
    
	
Article IX
    	
DISPUTE RESOLUTION
    	
23
    
	
 
    	
 
    	
 
    
	
Section 9.1
    	
Dispute   Resolution
    	
23
    
	
 
    	
 
    	
 
    
	
Article X
    	
LOCAL   SERVICE AGREEMENTS
    	
23
    
	
 
    	
 
    	
 
    
	
Section 10.1
    	
Local   Service Agreements
    	
23
    
	
 
    	
 
    	
 
    
	
Article XI
    	
MISCELLANEOUS
    	
23
    
	
 
    	
 
    	
 
    
	
Section 11.1
    	
Counterparts;   Entire Agreement; Conflicting Agreements
    	
23
    
	
 
    	
 
    	
 
    
	
Section 11.2
    	
No   Construction Against Drafter
    	
24
    
	
 
    	
 
    	
 
    
	
Section 11.3
    	
Governing   Law
    	
24
    
	
 
    	
 
    	
 
    
	
Section 11.4
    	
Assignability
    	
24
    
	
 
    	
 
    	
 
    
	
Section 11.5
    	
Third   Party Beneficiaries
    	
24
    
	
 
    	
 
    	
 
    
	
Section 11.6
    	
Notices
    	
24
    
	
 
    	
 
    	
 
    
	
Section 11.7
    	
Severability
    	
25
    
	
 
    	
 
    	
 
    
	
Section 11.8
    	
Force Majeure
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.9
    	
Headings
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.10
    	
Waivers   of Default
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.11
    	
Specific   Performance
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.12
    	
Amendments
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.13
    	
Interpretation
    	
26
    
	
 
    	
 
    	
 
    
	
Section 11.14
    	
Waiver of   Jury Trial
    	
27
    
	
 
    	
 
    	
 
    
	
Section 11.15
    	
Submission   to Jurisdiction; Waivers
    	
27
    
	
 
    	
 
    	
 
    
	
Section 11.16
    	
No Agency
    	
27
    
	
 
    	
 
    	
 
    
	
EXHIBIT A — LILLY SCHEDULED SERVICES
    	
29
    
	
 
    	
 
    
	
EXHIBIT B — LILLY EXCLUDED SERVICES
    	
30
    
	
 
    	
 
    
	
EXHIBIT C — COMPANY SCHEDULED SERVICES
    	
31
    
				

 

ii

 

Table of Contents

(continued)

 

	
 
    	
Page
    
	
 
    	
 
    
	
EXHIBIT D — IN-FLIGHT PROJECTS AND IN-FLIGHT PROJECT COSTS
    	
32
    
	
 
    	
 
    
	
EXHIBIT E — PROGRAM SERVICES AND PROGRAM CHARGES
    	
33
    
	
 
    	
 
    
	
EXHIBIT F — SERVICE CHANGE AND PROGRAM SERVICE REQUEST FORM
    	
34
    
	
 
    	
 
    
	
EXHIBIT G — TSA STEPDOWN TERMINATION APPROACH
    	
35
    
	
 
    	
 
    
	
EXHIBIT H — CURRENCY CONVERSION RATES
    	
36
    

 

iii

 

FORM OF TRANSITIONAL SERVICES AGREEMENT

 

This Transitional Services Agreement (this “Agreement”), dated as of [·], 2018, is entered into by and between Eli Lilly and Company, an Indiana corporation (“Lilly”) and Elanco Animal Health Incorporated, an Indiana corporation (the “Company”) (each, a “Party” and collectively, the “Parties”).

 

RECITALS

 

WHEREAS, pursuant to that certain Master Separation Agreement by and between Lilly and the Company, dated on or about the date hereof (the “Separation Agreement”), and the Ancillary Agreements, Lilly has transferred the Animal Health Business to the Company in contemplation of the Separation and IPO;

 

WHEREAS, in order to provide for an orderly transition from the Animal Health Business operating as a division of Lilly to operating as a standalone publicly-traded company, Lilly and the Company have agreed to enter into this Agreement, pursuant to which Lilly or a member of the Lilly Group will continue to provide certain services to the Company Group, and the Company or a member of the Company Group will continue to provide certain services to the Lilly Group, as applicable.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the signatories covenant and agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1                                             Definitions.  Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Separation Agreement.  The following terms used herein have the following meanings:

 

“Aggregate Scheduled Service Margin” means an aggregate dollar amount of annualized discrepancy mutually agreed upon by the Parties.

 

“Approval” shall have the meaning set forth in Section 2.10.

 

“Approved Service Change” shall have the meaning set forth in Section 2.8(c).

 

“BAU Services” shall have the meaning set forth in Section 2.4.

 

“BAU Service Costs” means the Company Group’s proportionate share of the Costs incurred by the Lilly Group after the Effective Date in connection with the Lilly Group’s provision of the relevant BAU Services.

 

“Breaching Party” shall have the meaning set forth in Section 4.2(b).

 

“Change of Control” means any (a) change in the ownership of a Party such that a third party acquires, directly or indirectly, more than fifty percent (50%) of the voting capital stock of such Party in one or more related transactions or (b) acquisition by a third party of the right to

 

 

direct management or operations of such Party whether through ownership or securities or otherwise.

 

“Charge Commencement Date” means October 1, 2018.

 

“Company Services” shall have the meaning set forth in Section 2.1(b).

 

“Compliance Service Change” shall have the meaning set forth in Section 2.8(d).

 

“Confidential Information” means, with respect to a Party, all confidential and proprietary information of such Party, any member of its Group or its or their Representatives that is provided to the other Party, any member of such other Party’s Group or its or their Representatives pursuant to this Agreement; provided that Confidential Information shall not include information that (i) is or becomes part of the public domain through no breach of this Agreement by the recipient Party or any member of its Group or its or their respective Representatives; (ii) was independently developed following the Effective Date by employees or agents of the recipient Party, any member of its Group or its or their respective Representatives who have not accessed or otherwise received the applicable information; provided that such independent development can be demonstrated by competent, contemporaneous written records of the recipient Party or any member of its Group; or (iii) becomes available to the recipient Party or any member of its Group following the Effective Date on a non-confidential basis from a third party who is not known by such Party or member of such Party’s Group to be bound directly or indirectly by a confidentiality agreement or other contractual, legal or fiduciary obligation of confidentiality to the disclosing Party of any member of the disclosing Party’s Group.

 

“Costs” means Internal Costs and Third-Party Costs, collectively.

 

“Effective Date” shall have the meaning set forth for such term in the Separation Agreement.

 

“EU VAT Directive” shall mean Council Directive 2006/112/EC.

 

“Exit Plan” shall have the meaning set forth in Section 2.11.

 

“In-Flight Projects” shall have the meaning set forth in Section 2.3.

 

“In-Flight Project Costs” shall have the meaning set forth in Section 2.3.

 

“Internal Costs” means, collectively, all:  (a) internal resource rates (as determined by the Service Provider) for employees of the Service Provider or a member of the Service Provider’s Group in the provision of the Services and; (b) all other overhead costs and other relevant indirect costs attributable to the performance of the Services (including any travel expenses).

 

“Lilly Excluded Services” shall have the meaning set forth in Section 2.1(a).

 

“Lilly Managed Control or Process” shall have the meaning set forth in Section 2.14.

 

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“Lilly Services” shall have the meaning set forth in Section 2.1(a).

 

“Lilly Service Addition” shall have the meaning set forth in Section 2.6(b).

 

“Local Service Agreement” shall have the meaning set forth in Section 10.1.

 

“Local Service Lead” shall have the meaning set forth in Section 2.7.

 

“Losses” means any and all damages, losses, deficiencies, Liabilities (as defined in the Separation Agreement), penalties, judgments, settlements, payments, fines, charges, interest, costs and expenses, whether or not resulting from third party claims, including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder.

 

“Non-Breaching Party” shall have the meaning set forth in Section 4.2(b).

 

“Omitted Service” shall have the meaning set forth in Section 2.1(c).

 

“Prime Rate” means the rate last quoted as of the time of determination by The Wall Street Journal as the “Prime Rate” in the United States or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate as of such time, or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by Lilly) or any similar release by the Federal Reserve Board (as determined by Lilly).

 

“Program Charges” means the charges for Program Services, as calculated in accordance with Exhibit E.

 

“Program Services” means the services identified in Exhibit E.

 

“Representatives” means, when used with respect to any Party, such Party’s directors, officers, employees, agents, accountants, attorneys, consultants and other advisors and representatives.

 

“Retained Business” shall have the meaning set forth in Section 2.1(b).

 

“Scheduled Fees” shall have the meaning set forth in Section 5.1(a).

 

“Scheduled Services” means the Lilly Scheduled Services as set forth on Exhibit A, the Company Services set forth on Exhibit C, or both of them, as the context requires.

 

“Scheduled Service Margin” means a dollar amount of annualized discrepancy mutually agreed upon by the Parties.

 

“Service Change” shall have the meaning set forth in Section 2.8(b).

 

3

 

“Service Exit Costs” means any Costs reasonably incurred by the Service Provider in planning and executing the migration of Services to the Service Recipient or a third party service provider or the termination or completion of Services, including joint migration planning, data extraction, final data migration, and de-commissioning or removal of any Lilly Service Addition, as applicable.  For the avoidance of doubt, any severance payments incurred by the Service Provider with respect to its employees shall not be considered Service Exit Costs.

 

“Service Fee” shall have the meaning set forth in Section 5.1(a).

 

“Service Noncompliance” shall mean the Service Provider’s failure to provide the Services in the manner set forth in Section 2.2(a) after receipt of written notice from the Service Recipient specifying the details of such noncompliance and the Service Provider’s failure to cure such noncompliance as soon as reasonably practicable but not later than thirty (30) calendar days after the Service Provider’s receipt of such notice; provided, that notwithstanding the foregoing, a Service Noncompliance shall not be deemed to occur if and to the extent the Service Provider is not able to provide the Services as a result of:  (a) acts, omissions or contingencies not under its control; or (b) the Service Provider’s performance being excused under Section 2.15.

 

“Service Period” shall have the meaning set forth in Section 4.1(b).

 

“Service Provider” means:  (a) in respect of Lilly Services, Lilly or the applicable member of the Lilly Group; and (b) in respect of Company Services, the Company or the applicable member of the Company Group.

 

“Service Recipient” means:  (a) in respect of Lilly Services, the Company or the applicable member of the Company Group; and (b) in respect of Company Services, Lilly or the applicable member of the Lilly Group.

 

“Service Recipient Change” shall have the meaning set forth in Section 2.8(e).

 

“Services” means Lilly Services (including Lilly Scheduled Services, In-Flight Projects, Program Services and BAU Services), Company Services, or both of them, as the context requires.

 

“Set-Up Costs” means any Costs incurred by the Service Provider after the Effective Date in connection with preparation activities reasonably required to make Services available to the Service Recipient.

 

“Term” shall have the meaning set forth in Section 4.1(a).

 

“Third Party Claim” shall have the meaning set forth in Section 8.1.

 

“Third-Party Costs” means all payments by the Service Provider to third parties, other third-party costs or fees, and any other out-of-pocket expenses of the Service Provider reasonably determined to be attributable to the provision of the Services.

 

“Third Party Recipient” shall have the meaning set forth in Section 2.8(e).

 

4

 

“TSA Executive” shall have the meaning set forth in Section 2.7.

 

“TSA Manager” shall have the meaning set forth in Section 2.7.

 

“VAT” means:  (a) any tax imposed in compliance with the EU VAT Directive; and (b) any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, the tax referred to in the foregoing clause (a), or imposed elsewhere.

 

ARTICLE II

 

SERVICES; STANDARD OF PERFORMANCE

 

SECTION 2.1                                             Services.

 

(a)                                 Subject to the terms and conditions of this Agreement, Lilly shall use reasonable efforts to provide, or cause a member of the Lilly Group to provide, to Company and the applicable members of the Company Group (i) the services identified in Exhibit A, as such Exhibit A may from time to time be supplemented or modified in accordance with the provisions of this Agreement, and (ii) all services historically attendant to the provision of such identified services in (i) to the Animal Health Business by Lilly in the ordinary course in the twelve (12) months preceding the Effective Date ((i) and (ii) the “Lilly Scheduled Services”), along with the BAU Services, Program Services (if approved in accordance with Section 2.5) and In-Flight Projects (identified in Exhibit D) (such BAU Services, Program Services and In-Flight Projects collectively with the Lilly Scheduled Services, the “Lilly Services”).  It is understood that the Lilly Services do not include, and Lilly will not be obligated hereunder to perform or provide to Company or any members of the Company Group, any services not described herein or expressly set forth in Exhibit A, including, but not limited to, those services set forth in Exhibit B (the “Lilly Excluded Services”).  The provision to the Company or any member of the Company Group of the Lilly Excluded Services shall be discontinued on the Effective Date.

 

(b)                                 Subject to the terms and conditions of this Agreement, Company shall use reasonable efforts to provide, or cause a member of the Company Group to provide, to Lilly and the Lilly Group (i) the services identified in Exhibit C, as such Exhibit C may from time to time be supplemented or modified in accordance with the provisions of this Agreement, and (ii) all services historically attendant to the provision of such identified services in (i) to any businesses of Lilly other than the Animal Health Business (the “Retained Business”) in the ordinary course in the twelve (12) months preceding the Effective Date ((i) and (ii) the “Company Services”).  It is understood that the Company Services do not include, and the Company will not be obligated hereunder to perform or provide to Lilly or any member of the Lilly Group, any services not described herein or expressly set forth in Exhibit C.  The provision to Lilly or any member of the Lilly Group of any such services shall be discontinued on the Effective Date.

 

(c)                                  The Service Recipient may, during the five (5) month period following the Effective Date, request that the Service Provider provide any service (excluding Program Services, requests for which shall be governed by Section 2.5) that:  (i) is not a Scheduled Service set forth in Exhibit A or Exhibit C (as applicable) or an In-Flight Project in Exhibit D;

 

5

 

(ii) was provided to the Animal Health Business or the Retained Business, as applicable, in the twelve (12) month period preceding the Effective Date; (iii) the Service Recipient believes is necessary to ensure the continuity of the Animal Health Business or the Retained Business, as applicable; and (iv) is not a Lilly Excluded Service set forth in Exhibit B (each such service an “Omitted Service”) by providing such request in writing to the Service Provider.  The Service Provider shall have the right, in its sole discretion, to determine whether any Omitted Service request should be approved.  If the Service Provider does approve any such request, the Parties shall, as promptly as reasonably practicable, negotiate in good faith with respect to the scope and duration of such Omitted Service and any other terms as reasonably required, and upon reaching agreement in that negotiation, the Parties shall amend Exhibit A,  Exhibit C or Exhibit D to include the Omitted Service and the Omitted Service shall be deemed included in the definition of Lilly Services or Company Services, as applicable, from and after the date of such amendment. Unless otherwise expressly agreed by the Parties, the Service Fees for any Omitted Services shall be in accordance with the pricing principle set forth in Section 5.1.

 

SECTION 2.2                                             Standard and Manner of Performance.

 

(a)                                 Except as otherwise provided herein or set forth on Exhibit A, Exhibit C or Exhibit D, the Service Provider shall use reasonable efforts to provide:  (i) the Services in accordance with applicable Law, at standards of performance and with the degree of care and skill substantially consistent with the standards of performance and degree of care and skill used to provide the Services to the Animal Health Business or the Retained Business, as applicable, in the twelve (12) months preceding the Effective Date; and (ii) the Program Services in accordance with applicable Law, at standards of performance and with a degree of care and skill substantially consistent with the standards of performance and degree of care and skill used to provide similar services to the Retained Business in the twelve (12) months preceding the Effective Date.

 

(b)                                 The Service Provider shall have the right to perform its obligations under this Agreement through one or more of its Subsidiaries, and each of the foregoing may hire third party service providers to perform any of the Service Provider’s obligations hereunder, including to provide all or part of any Service hereunder; provided, however, that the Service Provider shall in all cases retain responsibility for the provision to the Service Recipient of the Services in accordance with this Agreement.

 

(c)                                  As between the Parties, except as otherwise agreed by the Parties in writing, the Service Provider shall have sole discretion and authority with respect to designating, employing, assigning, compensating and discharging personnel and third party service providers in connection with performance of the Services.  All such personnel and third party service providers so assigned to perform the Services shall be appropriately skilled and qualified to do so as reasonably determined by the Service Provider.

 

(d)                                 Notwithstanding anything to the contrary herein, but subject to the Service Provider’s obligations to provide Services under this Agreement, the Service Provider shall not be required to expand or modify any facilities, incur any capital expenditures, acquire any additional equipment or software, or retain any specific personnel or third party service providers in connection with its obligation to provide Services hereunder.

 

6

 

SECTION 2.3                                             In-Flight Projects.  Company shall, and shall procure that its Subsidiaries shall, participate in the projects set forth in Exhibit D (the “In-Flight Projects”).  Company shall pay Lilly a proportionate share of the Costs incurred by the Lilly Group in implementing the In-Flight Projects, as set forth in Exhibit D (the “In-Flight Project Costs”) in accordance with Section 5.1.

 

SECTION 2.4                                             Business As Usual Services.  As set forth in Section 2.1(a), Lilly or a member of the Lilly Group shall, as part of the provision of the Lilly Services, provide the services ordinarily carried out by the Lilly Group as business as usual activities and such other measures undertaken by the Lilly Group that are implemented across a material proportion of the Retained Business for the benefit of the Lilly Group and which are required to be provided in connection with the provision of the Lilly Services (the “BAU Services”).  Company shall pay Lilly BAU Service Costs in accordance with Section 5.1.

 

SECTION 2.5                                             Program Services.  To the extent that Company desires to receive (or desires that a member of the Company Group receive) a Program Service, it shall submit a written request to Lilly for the provision of such Program Service in the form set forth in Exhibit F.  Any such Program Service shall only be provided upon written consent of Lilly and shall be charged as a Program Charge in accordance with Exhibit E or as otherwise agreed upon by the Parties. Company shall pay Lilly Program Charges in accordance with Section 5.1.

 

SECTION 2.6                                             Protection of Lilly Information.

 

(a)                                 In providing Lilly Services to the Company Group, Lilly or the applicable member of the Lilly Group shall have the right to implement reasonable services, processes and business activities under which there will be no greater material risk or disruption to the relevant Service Provider than would exist in the absence of the provision of such Lilly Services.

 

(b)                                 If, in connection with the provision of any Lilly Service under this Agreement, Lilly or the applicable member of the Lilly Group needs to implement any modifications or enhancements, including information technology connections, firewalls or the like (“Lilly Service Additions”) prior to the provision of any such Lilly Service and specifically in connection with the provision of any such Lilly Service and that would otherwise not need to be implemented in the absence of the provision of such Lilly Service, Lilly shall provide the Company with written notice of such Lilly Service Addition and the Costs of such implementation ninety (90) calendar days prior to the implementation of such Lilly Service Addition.  The Company shall have thirty (30) calendar days from the date of receipt of such notice to provide Lilly with written confirmation as to whether it desires for such Lilly Service Addition to be implemented.  If the Company does not timely provide such confirmation or otherwise confirms that it does not desire such Lilly Service Addition to be implemented, Lilly shall not implement such Lilly Service Addition and shall thereafter have no obligation to provide the relevant Lilly Service under this Agreement.  If the Company does timely provide such confirmation that it desires such Lilly Service Addition to be implemented, the Costs of implementing such measures shall be borne by Company and incorporated into the relevant Service Fee.

 

7

 

SECTION 2.7                                             Governance.  Each Party shall designate:  (a) a local representative with overall responsibility for managing day-to-day service and dealing with operational matters at a local level with respect to each of the local jurisdictions in which Services shall be provided (each, a “Local Service Lead”); (b) global function leads for each functional category of Services (each, a “Global Function Lead”); and (c) one (1) individual to be the primary liaison between the Parties for the provision of and the transfer of responsibility for the Services (each, a “TSA Manager”).  A Party may replace any of its Local Service Leads, Global Function Leads or TSA Manager at any time upon written notice to the other Party.  The Parties agree that any issues arising under this Agreement (including in relation to a particular Service) will be raised first between the Local Service Leads responsible for the local jurisdiction of the relevant Service and then to the Global Function Leads responsible for the relevant Service function before being referred to the TSA Managers.  All of the Local Service Leads and Global Function Leads, under the direction of the TSA Managers, shall meet regularly in person, telephonically, or as they otherwise agree, at regular intervals agreed by the TSA Managers during the Term, to discuss any issues arising under this Agreement that have not been resolved by the Local Service Leads and Global Function Leads and the need for any modifications or additions to this Agreement.  Each Party shall designate a senior executive to supervise the activity of the relevant TSA Managers (the “TSA Executive”).  The TSA Executives shall meet at least quarterly during the Term in person, telephonically or as they otherwise agree, to review delivery of Services and resolve disputes (in accordance with Article IX) and perform such other activities as the TSA Executives may agree.

 

SECTION 2.8                                             Service Changes.

 

(a)                                 Subject to Section 2.8(b) and Section 2.8(c) (as applicable), the Service Provider shall be required to provide the Services only for the benefit of the Service Recipient, and if any Service was provided by the Service Provider to the Animal Health Business or the Retained Business, as applicable, only of the same scope, and only for the same volume of Services (plus any organic internal growth in such volume that is reasonably expected as of the Effective Date), and only to the same locations, that such Services were provided by the Service Provider to the Animal Health Business or the Retained Business, as applicable, in the ordinary course as of the Effective Date.

 

(b)                                 To the extent that Service Recipient desires a change to the scope or volume of a Scheduled Service from the scope or volume at which such Scheduled Service was provided by the Service Provider to the Animal Health Business or the Retained Business, as applicable, in the ordinary course as of the Effective Date (a “Service Change”), it shall submit such a written request for such Service Change to the Service Provider in the form set forth in Exhibit F.  Any Service Change shall only be implemented upon written consent of the Service Provider, to be granted in its sole discretion; such consent will include, if applicable, a good faith agreement in writing by both Parties of the increase or decrease in Service Fees as a result of such Service Change. All Costs incurred by Service Provider (other than those already included in any changed Service Fees) in providing such changed scope or volume of Scheduled Services shall be borne by the Service Recipient.

 

(c)                                  To the extent that Service Recipient desires to change the location to which:  (i) any Scheduled Service is provided from the location to which such Scheduled Service

 

8

 

was provided by the Service Provider to the Animal Health Business or the Retained Business, as applicable, in the ordinary course as of the Effective Date; or (ii) any In-Flight Project, BAU Service or Program Service is initially provided (each of (i) and (ii) an “Approved Service Change”), it shall submit written notice of such Approved Service Change to Service Provider, and the Parties will work together in good faith to implement such Approved Service Change, including agreeing in good faith in writing as to the increase or decrease in Service Fees as a result of such Approved Service Change. All Costs incurred by Service Provider (other than those already included in any changed Service Fees) in providing such relocation of Services shall be borne by the Service Recipient.

 

(d)                                 To the extent that the Service Recipient believes in good faith that a change to the term or scope of a Service or the relocation of a Service is required to remain in compliance with applicable Law (a “Compliance Service Change”), it shall submit a written request for such Compliance Service Change to the Service Provider in the form set forth in Exhibit F.  If the Service Provider agrees that such Compliance Service Change is so required, the Parties will work together in good faith to implement such Compliance Service Change, including agreeing in good faith in writing as to the increase or decrease in Service Fees as a result of such Compliance Service Change.  If the Service Provider does not agree that such Compliance Service Change is so required and the Service Recipient still desires such Compliance Service Change, the Service Recipient shall provide the Service Provider with a good faith written opinion from a relevant subject matter expert which confirms that such Compliance Service Change is so required.  After the Service Provider has had opportunity to review such opinion and engage, as necessary, with the subject matter expert, such Compliance Service Change shall only be implemented upon written consent of the Service Provider, to be granted in its sole discretion; such consent will include, if applicable, a good faith agreement in writing by both Parties of the increase or decrease in Service Fees as a result of such Compliance Service Change.  All Costs incurred by the Service Provider (other than those already included in any changed Service Fees) in providing any changed scope or volume or relocation of Services shall be borne by the Service Recipient.

 

(e)                                  To the extent that a Service Recipient desires to pass through its receipt of a Service to a third party (“Third Party Recipient”) in connection with a sale or divestiture of a business, product or asset to such Third Party Recipient (whether by sale, license or otherwise) (a “Service Recipient Change”), it shall submit a written request for such Service Recipient Change to the Service Provider in the form set forth in Exhibit F.  Any Service Recipient Change shall only be allowed upon written consent of the Service Provider, to be granted in its sole discretion; with the understanding that the Service Provider anticipates that any such consent would only be granted on condition that the Service Recipient enters into a written agreement (such agreement to be approved in advance by the Service Provider) with the Third Party Recipient whereby such Third Party Recipient agrees to be bound by terms and conditions that are no less restrictive than those set forth in this Agreement.  The Service Recipient shall continue to be fully liable to the Service Provider (including for the payment of all Service Fees related to the relevant Service being passed through to the Third Party Recipient) and, as between the Parties, to all other Persons, for the failure of any Third Party Recipient to comply with such written agreement to the same extent that the Service Recipient would have been had the Service Recipient failed to comply with this Agreement.  Any such written agreement shall automatically terminate upon the termination of this Agreement or the relevant Service that is being passed through to such

 

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Third Party Recipient.  The Service Provider’s consent of any Service Recipient Change shall also be conditioned upon a ten percent (10%) surcharge on the relevant Service Fees.  All Costs incurred by the Service Provider (other than those already included in any changed Service Fees) in allowing the Service Recipient’s pass-through of any Service to a Third Party Recipient (including the implementation of any new services or protections that are required by the Third Party Provider) shall be borne by the Service Recipient.

 

SECTION 2.9                                             Changes to the Manner of Performance.  The Service Provider may make changes from time to time in the manner of performing the Services if it is making similar changes in performing services for itself or its Subsidiaries; provided that the Service Provider: (a) may not terminate any Service, except pursuant to Article IV; and (b) will use reasonable efforts to provide the Service Recipient with at least ninety (90) calendar days’ prior written notice of any such changes that are material to the Service Recipient’s operation of its business.  Nothing in this Agreement shall require the Service Provider to provide Services at a level that is greater than the level at which the Service Provider is then providing comparable services to itself or its Subsidiaries; provided, however, that if the Service Provider ceases to provide such a comparable service to itself or its Subsidiaries, then the Service Provider shall, until expiration or termination in accordance with Article IV, continue to provide such Services to the Service Recipient at the same level at which such Services are then being provided to the Service Recipient.

 

SECTION 2.10                                      Third Party Terms and Conditions; Consents.  Each Service Recipient hereby acknowledges and agrees that the Services provided by the Service Provider through third party service providers or using third party assets, including Intellectual Property, are subject to the terms and conditions of any applicable agreements with such third parties.  Additionally, all Service Recipients shall cooperate with and assist each relevant Service Provider in obtaining any consent, authorization, order or approval of, or any exemption by, any third party (each an “Approval”) required to be obtained by the Service Provider (or its Subsidiaries) or made by third party service providers for the performance of the Service Provider’s obligations under this Agreement, including any Approval, the need for which may arise as the result of the Company no longer qualifying as a Subsidiary or Affiliate of Lilly from and after the Distribution or Other Disposition.  Notwithstanding the foregoing, (a) neither Party shall be obligated to incur any cost to obtain any such Approval, except that if any monies must be expended to pay for an Approval, or for the assignment of or for the purchase of any Intellectual Property or other assets to provide the Services to the Service Recipient, such costs shall be borne by the Service Recipient; (b) in no event shall the Service Recipient communicate directly with any relevant third party with respect to any Approval without the Service Provider’s written consent; and (c) with respect to any Service identified as a “Real Estate” Scheduled Service in Exhibit A or Exhibit C (as applicable), the Service Provider shall seek any relevant Approvals only to the extent such Service Provider, in good faith, deems such course of action to be advisable, taking into consideration certain business factors, including the relevant Service Period and the potential difficulty or consequence of requesting such Approvals.  If the Service Provider is unable to obtain any Approvals required hereunder, the Parties shall use commercially reasonable efforts to: (i) negotiate in good faith reasonable modifications of the Services, if practicable, such that such Approvals are not required; and (ii) implement any such modifications. The Service Provider will not be in breach of this Agreement as a result of any non-performance of, or other effect upon, any applicable Services as a result of any failure to obtain any Approvals, so long as it has otherwise complied with this Section 2.10.

 

SECTION 2.11                                      Transitional Nature of Services; Exit Plan and Assistance.  The Parties hereto acknowledge the transitional nature of the Services.  Accordingly, as promptly as

 

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practicable following the execution of this Agreement, each Party agrees to use its reasonable best efforts to make a transition of each Service to its own internal organization or to obtain alternate third party sources to provide the Services.  In connection therewith, each Party shall comply with all provisions of the detailed written exit plan which sets forth how all members of such Party’s Group will transition from each of the Scheduled Services provided to such Party hereunder in a timely and efficient manner without material risk or disruption to either Company or Lilly and no later than the expiration of the relevant Service Period for each such Scheduled Service (each, an “Exit Plan”).  Each Party’s Exit Plan for each Scheduled Service it receives hereunder shall be provided to the other Party no later than October 31, 2018, for any Scheduled Service scheduled to be terminated (in whole or in part) in calendar year 2019. For any Scheduled Service scheduled to be terminated (in whole or in part) on or after January 1, 2020, the Party receiving Services shall provide a preliminary Exit Plan to the other Party no later than March 31, 2019 (which contains, at a minimum, such Party’s good faith estimate of the exit or termination date for such Scheduled Service) and a final and binding Exit Plan no later than June 30, 2019 (which contains an exit or termination date that is substantially the same as the exit or termination date provided for such Scheduled Service in the preliminary Exit Plan).  Each Exit Plan shall be subject to the other Party’s written approval, which shall not be unreasonably withheld or delayed.  Each Party shall, at the other Party’s sole cost and expense, provide the other Party with assistance reasonably necessary to transition the Scheduled Services in accordance with the Exit Plan; provided that each Party shall only be obligated to provide such assistance that is set forth in the Exit Plan.  The specific services and timing in connection with such assistance shall be as mutually agreed to by the Parties.  Any Costs incurred by each Party in connection with providing such assistance shall be a Service Exit Cost and shall be paid by the other Party in accordance with Section 5.1.  For clarity, notwithstanding the foregoing, neither Party shall be obligated to provide any services that either: (a) such Party cannot provide using its then-current ordinary course resources and capabilities, giving due consideration to other obligations; or (b) the other Party is reasonably able to provide to itself or that are reasonably obtainable from third party service providers.  The foregoing assistance is deemed a “Service” for purposes of this Agreement.

 

SECTION 2.12                                      Cooperation.

 

(a)                                 The Service Recipient agrees that it shall timely provide to the Service Provider, at no cost to the Service Provider, access to such personnel, facilities, assets and information, books and records of the Service Recipient, and provide timely decisions, approvals and acceptances, in each case as may be reasonably necessary to enable the Service Provider to perform its obligations under this Agreement in a timely and efficient manner.

 

(b)                                 Without limiting the foregoing in this Section 2.12, each Party shall use commercially reasonable efforts to cooperate with the other Party in all matters relating to the provision and receipt of the Services and to minimize the expense, distraction and disturbance to each Party, and shall perform all obligations hereunder timely and in good faith and in accordance with principles of fair dealing.  Such cooperation shall include: (i) the execution and delivery of such further instruments or documents as may be reasonably requested by the other Party to enable the full performance of each Party’s obligations hereunder; and (ii) notification of the other Party in advance of any changes to a Party’s operating environment or personnel, and working with the other Party to minimize the effect of such changes.

 

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SECTION 2.13                                      Compliance.

 

(a)                                 The Services provided hereunder may be provided to all members of the Company Group or the Lilly Group, as applicable, and the receipt of the Services may involve the Company Group’s or the Lilly Group’s, as applicable, third party service providers, subcontractors and consultants.  Each Party shall be responsible for its Subsidiaries’, and its and their third party service providers’, subcontractors’ and consultants’, compliance with the terms and conditions of this Agreement.

 

(b)                                 Each Party acknowledges and agrees that the other Party shall not be required to provide any Service to the extent that the provision of such Service would require any member of the Lilly Group or the Company Group, as applicable, or any of their respective directors, officers, employees or agents to violate:  (i) any applicable Laws (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010); or (ii) any internal policies or procedures.  Each Party shall at all times comply with all applicable Laws in connection with the provision and receipt of Services.

 

(c)                                  Unless otherwise agreed by the Parties in writing, each Party shall and shall cause each member of the Company Group or the Lilly Group, as applicable, receiving Services hereunder to follow the policies, procedures, regulations and/or good industry practice (e.g., in accordance with ISO 27001, ISO 27017, ISO 27018, or industry best standards) with respect to the Services followed by the Service Provider, including those in effect immediately prior to the Effective Date and any changes thereto required due to changes in applicable Law (or changes in the interpretation or enforcement of applicable Law) or due to the Transactions following the Effective Date.  Without limiting the foregoing, in connection with Services related to reimbursement of personnel time or expenses, each Party agrees that it shall audit and monitor such reimbursements for improper activity.  Without limiting the foregoing, the Service Recipient shall comply with all Service Provider policies, procedures, regulations, and good industry practice (e.g., in accordance with ISO 27001, ISO 27017, ISO 27018, or industry best standards) relating to the continuity of business, including information technology and security requirements and information protection reasonably requested by Service Provider.  Each Party shall comply with and shall cause each member of the Company Group or the Lilly Group, as applicable, to comply at all times with all applicable Laws in connection with the Services and the operation of the Animal Health Business or the Retained Business, as applicable, from and after the Effective Date.  Any costs or expenses associated with any compliance-related audit of a Party or any member of the Company Group or the Lilly Group, as applicable, shall be borne by such audited Party if any material non-compliance is found, and borne by such auditing Party if the audited Party is found to be materially compliant.

 

SECTION 2.14                                      Internal Audits of Lilly Managed Controls and Processes.  The Parties acknowledge and agree that Lilly will, in the ordinary course of its business, conduct audits and testing of certain controls, processes and procedures that relate to the Lilly Services provided to Company under this Agreement (a “Lilly Managed Control or Process”).  Lilly agrees that as soon as reasonably practicable following the completion of such audit and testing, Lilly will provide Company with reasonable access to the audit or controls testing documentation for any such Lilly Managed Control or Process that is material to the Company’s business.  Notwithstanding the foregoing, Lilly’s responsibility shall be limited to providing reasonable

 

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access to audit or controls testing documentation it creates in the ordinary course of its business and Lilly shall have no responsibility to conduct any particular audit or testing, create any specific documentation or to provide any interpretation of testing results, determination of the level of any potential deficiencies, risk assessments or materiality determinations (and, for clarity, the use of any such information provided by Lilly is solely Company’s responsibility, without limiting the last sentence of this Section 2.14).  To the extent required by Company in connection with its auditing requirements, Company shall have the right to perform or have Lilly perform, in each case at Lilly’s option and upon reasonable written notice, an audit and testing of any Lilly Managed Control or Process.  If Lilly agrees that Company may perform such audit and testing then, upon reasonable written notice to Lilly, Lilly shall permit Company representatives access during reasonable business hours and such audit may include reasonable testing procedures to cover key financial and information technology controls within Lilly Managed Controls or Processes, provided that, if any such audit or testing could provide or result in Company having access to any sensitive Information (as defined in the Separation Agreement) of Lilly (including CFR, tax and transfer pricing information), Lilly may request that Company appoint an independent third party audit firm reasonably acceptable to Lilly to conduct such audit and testing.  All costs of any such audits, including the costs of a third party audit firm, shall be borne by Company.  Within thirty (30) calendar days of completing such audit, Company shall submit a report to Lilly with its findings.  Any information obtained or observed by Company during an audit shall be subject to the confidentiality obligations set forth in Article III of this Agreement.  For clarity, unless the remediation or modification is necessitated by a change or discontinuation in Lilly Service or other action by Lilly, Lilly shall have no responsibility to conduct any remediation or modification of any Lilly Managed Control or Process unless otherwise agreed to by Lilly in advance in writing in each instance, and, if any such remediation or modification (to the extent so agreed by Lilly) is primarily for the benefit of Company, Company shall reimburse any Costs incurred by Lilly or a member of the Lilly Group in connection therewith.

 

SECTION 2.15                                      Dependencies.

 

(a)                                 To assist the Service Provider in performing the Services, each Service Recipient shall use reasonable efforts to satisfy any dependencies identified by the Service Provider to such Service Recipient that are applicable to the Service Provider’s performance of such dependent Services.

 

(b)                                 The Service Provider shall not be liable to the Service Recipient for any failure to perform a Service, in whole or in part, to the extent that:

 

(i)                                     such failure has been caused by the Service Recipient’s failure to satisfy a dependency identified to the Service Recipient; or

 

(ii)                                  the Service Recipient’s gross negligence or willful misconduct has otherwise caused or contributed to such failure.

 

(c)                                  If the Service Provider’s performance of its obligations under this Agreement is excused under Section 2.15(b), then the Service Provider shall:

 

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(i)                                     notify the Service Recipient of the Service Recipient’s failure to satisfy the dependency, or such other instance of gross negligence or willful misconduct, promptly after it becomes aware of them;

 

(ii)                                  continue to perform those of its obligations under this Agreement that are not prevented by the Service Recipient’s failure to satisfy the dependency or such other relevant instance of gross negligence or willful misconduct; and

 

(iii)                               no longer be obligated to provide such excused Service, in whole or in part, as applicable, during the period in which the relevant dependency(ies) are not satisfied in accordance with Section 2.15(a) or the Service Recipient’s gross negligence or willful misconduct continues.

 

(d)                                 The Service Provider may, in providing Services, rely on the provision of instructions, data and information to it by the Service Recipient. The Service Provider shall not have any liability to the Service Recipient in connection with this Agreement whether in contract, tort (including negligence) or otherwise for Costs suffered or incurred by either Party as a result of:  (i) the inaccuracy, insufficiency or incompleteness of the instructions, data or information provided by the Service Recipient; or (ii) the Service Provider’s fulfillment of any Service Recipient request in connection with this Agreement.

 

ARTICLE III

 

CONFIDENTIALITY

 

SECTION 3.1                                             Confidentiality.

 

(a)                                 Each Party shall (and shall cause its Subsidiaries to) keep confidential any Confidential Information of the other Party or its Subsidiaries disclosed in connection with this Agreement, except as expressly agreed upon in writing by the other Party.

 

(b)                                 The confidentiality obligations in Section 3.1(a) shall not apply to information which any Party or Subsidiary can demonstrate is required to be disclosed by applicable Law or the rules of any stock exchange or any Governmental Authority provided that in this event the Party which is obliged to disclose shall to the extent permitted by applicable Law use its commercially reasonable efforts to consult with the other Party in advance as to its form, content and timing.

 

(c)                                  Each of the Parties undertakes that it (and its respective Subsidiaries) shall only disclose Confidential Information to its Representatives if it is reasonably required for purposes connected with this Agreement and only if the Representatives are informed of the confidential nature of the Confidential Information and the confidentiality obligations related thereto.  Each Party shall, and shall cause its Subsidiaries and its and their Representatives not to use or permit the use of, any Confidential Information of the other Party, except in furtherance of the exercise of such Party’s (or its Subsidiary’s or its or their Representative’s) rights and the performance of such Party’s (or its Subsidiary’s or its or their Representative’s) obligations under this Agreement.

 

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(d)                                 If this Agreement terminates or expires, except as and solely to the extent required to remain in compliance with applicable Law, each Party shall (and shall cause its Subsidiaries and its and their Representatives to) as soon as practicable on request by the other Party:

 

(i)                                     return to the other Party all written documents and other materials relating to this Agreement (including any Confidential Information) which the other Party (or its Subsidiaries or its or their Representatives) has provided to it, its Subsidiaries or its or their Representatives, or which has been provided on the other Party’s (or its Subsidiaries’ or its or their Representatives’) behalf, without keeping any copies of them;

 

(ii)                                  destroy all information or other documents derived from the other Party’s or its Subsidiaries’ or its or their Representatives’ Confidential Information; and

 

(iii)                               so far as it is practicable to do so, expunge the other Party’s Confidential Information from any of its computers, word processors or other devices.

 

ARTICLE IV

 

TERM; TERMINATION

 

SECTION 4.1                                             Term and Service Periods.

 

(a)                                 This Agreement shall become effective upon the Effective Date and expire upon the expiration or termination of the last Service to expire or be terminated (the “Term”), unless earlier terminated in connection with Section 4.2(b) or Section 4.2(c).

 

(b)                                 The Parties agree that, except as otherwise provided in this Agreement, each Scheduled Service shall commence on the Effective Date and shall terminate at the expiration of the “Service Period” set forth in Exhibit A or Exhibit C with respect to such Scheduled Service (each a “Service Period”), unless earlier terminated pursuant to Section 4.2.

 

(c)                                  Unless otherwise agreed by the Parties in writing, at any time at least six (6) months prior to the expiration of the initial Service Period for a Scheduled Service, a Party may request that the initial Service Period for such Scheduled Service be extended, with any approval of such request for a Service Period extension being subject to the Service Provider’s sole discretion; provided, however, that the Service Provider shall have no obligation whatsoever to provide any Scheduled Service beyond a period of two (2) years after the expiration of the initial Service Period for such Scheduled Service.  If a Party desires to request that any approved extended Service Period be extended again, it must request such extension at least ninety (90) days prior to the expiration of the extended Service Period, and any approval of such request shall be subject to the Service Provider’s sole discretion.  In the event that Service Provider approves of either of the foregoing types of requests, the Parties shall amend Exhibit A or Exhibit C to extend the relevant Service Period and amend the Service Fees in accordance with Section 5.1(c), and such extended Service Period and amended Service Fees shall be deemed applicable from and after the date of such amendment.

 

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SECTION 4.2                                             Termination.

 

(a)                                 The Service Recipient may, in good faith, request termination of a Service (in whole or in part) by submitting a written request to the Service Provider at least ninety (90) calendar days (or any longer period that may be set forth for such Scheduled Service in Exhibit A or Exhibit C, if applicable) prior to the date that the Service Recipient desires such Service to terminate and cease being provided.  The Service Provider shall have thirty (30) calendar days (after receipt of such request) to review and provide the Service Recipient with a good faith estimate of the related Service Exit Costs (including the Service Exit Costs described in this Section 4.2(a)) that would be incurred in connection with such termination.  The Service Recipient shall then have thirty (30) calendar days (after receipt of such disclosed estimated Service Exit Costs) to provide the Service Provider with written confirmation as to whether it desires such requested termination of a Service.  If the Company does not timely provide such confirmation or otherwise confirms that it does not desire for such termination of a Service, the Service shall continue to be provided.  If the Company does timely provide such confirmation that it desires that such Service be terminated, the Service Provider shall have thirty (30) calendar days after receipt of such confirmation to approve such request in its sole discretion in accordance with the approach set forth in Exhibit G.  If the Service Provider approves any such request, the Service Recipient shall pay (in accordance with Section 5.1): (i) any Costs incurred by the Service Provider in connection with terminating such Service and (ii) in addition to the Costs set forth in (i), if such Service is identified as a “Real Estate” Scheduled Service in Exhibit A or Exhibit C (as applicable), any Service Fees the Service Recipient would have been required to pay in connection with its receipt of such “Real Estate” Scheduled Service under the relevant full Service Period.  Each of the foregoing in (i) and (ii) shall be treated as Service Exit Costs.  Upon the termination of a Service, the Service Recipient shall pay all undisputed amounts accrued for the relevant Service Fees that have not yet been paid.  In addition, the Service Recipient shall pay all Service Fees that it would have otherwise been required to pay for such Service for the entire calendar month in which the relevant termination takes effect.  For the avoidance of doubt, no Service Fees shall be charged for a terminated Service beginning on the first (1st) day of the calendar month following the calendar month in which such termination has taken effect.

 

(b)                                 Either Party (the “Non-Breaching Party”) may terminate this Agreement at any time upon prior written notice to the other Party (the “Breaching Party”) if the Breaching Party has failed (other than pursuant to Section 11.8) to perform any of its material obligations under this Agreement, and such failure shall have continued without cure for a period of thirty (30) calendar days (or with respect to any failure by the Service Recipient to make any undisputed payment as provided for under this Agreement, five (5) Business Days) after receipt by the Breaching Party of a written notice of such failure from the Non-Breaching Party seeking to terminate this Agreement.  For the avoidance of doubt, each Party’s obligations under Section 2.10 shall be deemed to be material obligations under this Agreement.

 

(c)                                  Either Party may terminate this Agreement at any time upon prior written notice to the other Party if the other Party undergoes a Change of Control.

 

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SECTION 4.3                                             Effect of Expiration and Termination; Accrued Rights; Survival.

 

(a)                                 Expiration and termination of this Agreement, in part or in its entirety, shall not extinguish any rights or obligations that have accrued to the benefit of either Party prior to such expiration or termination (as applicable), including any rights of the Service Provider to receive payment under Section 5.1.

 

(b)                                 The following provisions of this Agreement, together with all other provisions of this Agreement that expressly specify that they survive, shall survive expiration or termination of this Agreement, in part or in its entirety:  Article I, Section 2.15(b), Section 2.15(d), Article III, Article VIII, Article IX and Article XI, and Section 4.3, Section 5.2, and Section 7.1.  For the avoidance of doubt, Lilly shall be under no obligation to provide any technical support for any migrated data, systems or applications following the termination date of any Service in respect thereof except to the extent that the need for technical support is a direct result of Lilly’s breach of this Agreement.

 

ARTICLE V

 

COMPENSATION

 

SECTION 5.1                                             Compensation.

 

(a)                                 Beginning on the Charge Commencement Date, the Service Recipient shall pay to the Service Provider in accordance with the terms of this Agreement:  (i) the Set-Up Costs; (ii) the Service Exit Costs; (iii) the In-Flight Project Costs; (iv) BAU Service Costs; (v) Program Charges and (vi) a fee for each Scheduled Service provided to the Service Recipient hereunder in accordance with the charges for such Scheduled Service set forth in Exhibit A or Exhibit C ((vi) the “Scheduled Fees” and, together with (i) through (v), the “Service Fees”).  To the extent that any Third-Party Costs are not reflected in the Service Provider’s calculation of the Service Fees under this Section 5.1(a), such Third-Party Costs shall be in addition to the Service Fee.  For clarity, all such Third-Party Costs will be passed through to the Service Recipient at the Service Provider’s cost without markup in accordance with this Article V and the Parties hereby acknowledge and agree that the Service Recipient shall not be doubly billed for any Service Fees, Third-Party Costs, Internal Costs, or any other costs or expenses that are owed under this Agreement.

 

(b)                                 Pursuant to Section 5.1(a), it is the intent of the Parties that, for the calendar years 2018, 2019 and 2020 and January 1 through March 31, 2021, the Scheduled Fees be based on Costs.  On April 1, 2021, Lilly may by written notice increase all Scheduled Fees by a mark-up of seven percent (7%).  On and after January 1, 2022 and for each calendar year thereafter during the Term, all Scheduled Fees will have their price adjusted by a percentage equal to the percentage change in the Consumer Price Index (All Urban Consumers) issued by the United States Bureau of Labor Statistics over the prior year.  Notwithstanding the foregoing, if at any time a Party believes that (i) the Scheduled Fee contemplated by a specific Scheduled Service in Exhibit A or Exhibit C is materially insufficient or materially excessive, in each case by an amount equal to or greater than the Scheduled Service Margin with respect to compensation for the actual Cost (plus any applicable mark-up or surcharge after April 1, 2021)

 

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of providing such Scheduled Service it is obligated to provide hereunder or (ii) the aggregate total of the Scheduled Fees contemplated by all of the Scheduled Services in Exhibit A or Exhibit C, is materially insufficient or materially excessive, in each case by an amount equal to or greater than the Aggregate Scheduled Service Margin, in each case including as a result of a change in circumstances, it shall notify the other Party by or before the following August 1, and the Parties hereto will commence good-faith negotiations toward an agreement in writing as to the appropriate course of action with respect to pricing of such Scheduled Service(s) in the context of the annual discussions of each of the Parties’ business plans to ensure that the Service Provider is compensated in accordance with the foregoing principle.  If any such Scheduled Fee(s) are agreed to be adjusted as a result of such discussions, such adjusted Scheduled Fee(s) shall be effective as of the following January 1 and Exhibit A or Exhibit C, as applicable, shall be amended accordingly.  Without limitation of the foregoing, the Parties acknowledge and agree that additional employee hiring or retention costs not covered by any Service Fees may be reasonably incurred by a Service Provider to hire or retain necessary employees to provide a Service, which costs shall be for the account of the Service Recipient and shall be reimbursed by the Service Recipient to Service Provider in accordance with Section 5.1(a) as a Service Fee.  Prior to incurring any such employee hiring or retention costs, the Service Provider shall provide the Service Recipient with ninety (90) days’ written notice of the reasonable need to incur such costs.  The Service Recipient shall have thirty (30) calendar days from the date of receipt of such notice to provide the Service Provider with written confirmation as to whether it desires for such costs to be incurred in connection with the provision of the relevant Service.  If the Service Recipient does not timely provide such confirmation or otherwise confirms that it does not desire such costs to be incurred in connection with the provision of the relevant Service, the Service Provider shall not incur such costs and shall thereafter have no obligation to provide the relevant Service under this Agreement.  If the Service Recipient does timely provide such confirmation that it desires such costs to be incurred in connection with the provision of the relevant Service, such costs shall be borne by the Service Recipient and incorporated into the relevant Service Fee.

 

(c)                                  If the Service Period of a Scheduled Service has been extended pursuant to Section 4.1(c), or a Service Recipient otherwise fails to exit a Scheduled Service upon the expiration of the initial Service Period of such Scheduled Service, then the Scheduled Fees payable on the expiration date of the initial Service Period with respect to such Scheduled Service, shall be subject to:  (i) a ten percent (10%) surcharge for the three (3) months after the expiration date of such initial Service Period; (ii) a twenty percent (20%) surcharge for the three (3) months following the period set forth in (i); (iii) a thirty percent (30%) surcharge for the six (6) months following the period set forth in (ii); and (iv) a fifty percent (50%) surcharge thereafter.  For the avoidance of doubt, any such surcharges shall be applied in addition to any mark-up on Scheduled Fees pursuant to Section 5.1(b).

 

SECTION 5.2                                             Taxes.

 

(a)                                 Service Fees are exclusive of any VAT chargeable with respect to the supply of Services under this Agreement.  To the extent any such Service Fee is subject to any VAT, or in the event of any amendment to VAT legislation or for any other reason the sums invoiced without VAT in accordance with this Agreement become or are subject to VAT, then the Service Recipient receiving such supply (and the invoices relating thereto) shall, in addition

 

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to the sums payable, pay the Service Provider, or its invoicing Subsidiary, on receipt of a valid VAT invoice, the full amount of VAT chargeable thereon.

 

(b)                                 The Service Recipient shall be responsible for all goods and services, value added, sales, use, gross receipts, business, consumption and other similar taxes, levies and charges (other than income taxes) imposed by applicable taxing authorities attributable to the supply of Services or any payment hereunder, whether or not such taxes, levies or charges are shown on any invoices.  If the Service Provider is required to pay any part of such taxes, levies or charges, the Service Recipient shall promptly reimburse the Service Provider for such taxes, levies and charges.

 

(c)                                  If applicable Law requires that an amount in respect of any taxes, levies or charges be withheld from any payment by the Service Recipient to the Service Provider under this Agreement, the amount payable to the Service Provider shall be increased as necessary so that, after the Service Recipient has withheld amounts required by applicable Law, the Service Provider receives an amount equal to the amount it would have received had no such withholding been required, and the Service Recipient shall withhold such taxes, levies or charges and pay such withheld amounts over to the applicable taxing authority in accordance with the requirements of the applicable Law and provide the Service Provider with a receipt confirming such payment.  The Parties shall reasonably cooperate to determine whether any such deduction or withholding applies to the Services, and if so, shall further reasonably cooperate to minimize applicable withholding taxes.

 

(d)                                 Cross-border Services to be performed hereunder may fall within Article 44 of the EU VAT Directive or the relevant equivalent national provision or any similar provision applying outside the European Union, such that the Service Recipient, and not the Service Provider, is obliged to account for VAT chargeable in relation to the Services.  In such case, the Service Recipient hereby agrees that with respect to each applicable jurisdiction, the Service Recipient Party (whether Lilly or Company) will itself account for VAT in its own jurisdiction on the performance of such cross-border Services made to it hereunder and that the Service Provider Party (whether Lilly or Company) will (to the extent legally possible), issue invoices without local VAT.  The Service Recipient agrees that with respect to each such jurisdiction, it will provide on request to the Service Provider, a valid VAT registration number and certificate (or equivalent documentation) in the jurisdiction with respect to the receipt of such cross-border Services.

 

(e)                                  References in this Agreement to “Costs” or “costs” incurred by a Party shall include any amount of VAT comprised in such Costs or costs, other than any such amount of VAT which that Party (or, if relevant, any other member of such Party’s Group for VAT purposes) is entitled to recover (whether by credit, repayment or otherwise).

 

ARTICLE VI

 

PAYMENT TERMS

 

SECTION 6.1                                             Invoicing.  Except as otherwise provided herein or otherwise specified in Exhibit A, Exhibit C or Exhibit D, Lilly and Company shall each invoice the other Party for

 

19

 

the Scheduled Fees and In-Flight Project Costs for each of the applicable Services performed hereunder by it or a member of its Group as a Service Provider as of the Charge Commencement Date for such other Party or a member of its Group as a Service Recipient, and if applicable, any Third-Party Costs incurred in connection therewith and not included in such Scheduled Fees or In-Flight Project Costs, on a monthly basis at the end of each month.  Any Set-Up Costs, Service Exit Costs, BAU Service Costs and Program Charges shall be invoiced by either Party as soon as reasonably practicable after such Party (or a member of its Group) has incurred the relevant Costs as a Service Provider on or after the Charge Commencement Date; provided, however, that any such Set-Up Costs, Service Exit Costs, BAU Service Costs and Program Charges incurred shall, in any event, be invoiced at least on a quarterly basis.  The invoiced Party shall pay the invoicing Party all amounts as may be due hereunder within sixty (60) calendar days from the date of invoice in U.S. dollars; to the extent that any Service Fees are required to be converted into U.S. dollars in connection with the foregoing, such Service Fees shall be converted into U.S. dollars in accordance with the currency conversion rate mechanisms set forth in Exhibit H.  All such invoices shall be delivered to the invoiced Party.  Any correspondence concerning such invoices shall be made to contacts at each Party designated within thirty (30) calendar days after the Effective Date, or as the relevant Service Provider shall later designate to the Service Recipient.

 

SECTION 6.2                                             Interest.  Except as expressly provided to the contrary in this Agreement, any amounts not paid when due pursuant to this Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable) that are not paid within sixty (60) calendar days of such bill, invoice or other demand shall accrue interest a rate per annum equal to the Prime Rate plus five percent (5%) from but excluding the due date to and including the date of actual payment calculated on a daily basis until such payment is settled.

 

ARTICLE VII

 

INTELLECTUAL PROPERTY AND DATA

 

SECTION 7.1                                             Ownership of Intellectual Property and Data.

 

(a)                                 Each Party shall be the sole and exclusive owner of all Intellectual Property that it or any member of its Group, or any of its or their third party service providers, as applicable, creates under this Agreement, including any modifications to its systems and software, and any Intellectual Property created in performance of the Services (except as expressly provided in Section 7.1(b)).

 

(b)                                 All data collected or created pursuant to a Company Service and on behalf of Company shall be owned by Company, except that Lilly shall own technical data generated or created in providing the Company Services that relate to the operation of Lilly’s business infrastructure.

 

(c)                                  To the extent that any right, title or interest in or to any Intellectual Property or data vests in a member of a Group, by operation of Law or otherwise, in a manner contrary to the agreed upon ownership as set forth in this Agreement, either Lilly or Company, as applicable, shall, and hereby does, on behalf of itself and such member of its Group, perpetually

 

20

 

and irrevocably assign to the other Party or a member of such Party’s Group any and all such right, title and interest throughout the world in and to such Intellectual Property and data, free and clear of all liens and encumbrances, without the need for any further action by any Group.  Each Party shall execute any documentation reasonably requested by the other Party to memorialize such assignment.  Except as set forth in Section 7.1(a) and Section 7.1(b), Lilly, on the one hand, and Company, on the other hand, retains all right, title and interest in and to their respective Intellectual Property and data, and no other license or other right, express or implied, is granted to any member of either Group to the other Group’s Intellectual Property or data under this Agreement.

 

SECTION 7.2                                             License Grants.

 

(a)                                 Lilly hereby grants (and shall cause relevant members of the Lilly Group to grant) to the Company Group a non-exclusive, non-sublicensable, non-transferable, limited license to use during the Term the Intellectual Property provided by Lilly (or any relevant members of the Lilly Group) to the Company Group under this Agreement, solely to the extent required to receive or provide the Services, as applicable.

 

(b)                                 Company hereby grants (and shall cause relevant members of the Company Group to grant) to the Lilly Group a non-exclusive, non-sublicensable, non-transferable, limited license to use during the Term the Intellectual Property provided by Company (or any relevant members of the Company Group) to the Lilly Group under this Agreement, solely to the extent required to receive or provide the Services, as applicable.

 

ARTICLE VIII

 

INDEMNIFICATION; LIMITATIONS OF LIABILITY; DISCLAIMERS

 

SECTION 8.1                                             Indemnification.  Each Party agrees to indemnify, defend and hold harmless the other Party and any member of such other Party’s Group and its or their Representatives from and against all Losses resulting from or otherwise relating to a third party action, suit, proceeding or claim (“Third Party Claim”) involving gross negligence or willful misconduct by the first Party, any member of such first Party’s Group or its or their Representatives connection with the performance of its obligations under this Agreement.

 

SECTION 8.2                                             Procedures for Indemnification of Third Party Claims.  For the avoidance of doubt and subject to the provisions set forth in Section 8.1, the procedures for each Party’s indemnification obligations under this Agreement with respect to Third Party Claims shall be governed, mutatis mutandis, by Sections 4.05 and 4.06 of the Separation Agreement.

 

SECTION 8.3                                             Limitations of Liability.

 

(a)                                 Limitation of Liability for Service Noncompliance.  Except with respect to a Party’s gross negligence or willful misconduct, each Party’s maximum liability to, and the sole remedy of, the other Party under or in connection with Service Noncompliance under this Agreement (including any breach hereof) shall be a refund of the Service Fees paid for the particular Service, except that if the Service Provider completely fails to provide a Service in its entirety and fails to resume providing such service within thirty (30) calendar days following

 

21

 

written notice thereof from the Service Recipient, the Service Provider’s liability may also include:  (i) the Service Recipient’s incremental cost of performing the Service itself; or (ii) the Service Recipient’s incremental cost of obtaining the Service from a third party; provided that, in each case, the Service Recipient shall exercise its reasonable best efforts under the circumstances to minimize the cost of any such alternatives to the Services by selecting the most cost-effective alternatives which provide the functional equivalent of the Services replaced and in any event, the Service Provider’s maximum liability shall be subject to Section 8.3(b).  Each Party agrees that the receipt of Services shall be an unqualified acceptance of, and a waiver by, such Party of its rights to assert any claim with respect to Service Noncompliance unless it gives written notice of the Service Noncompliance to the other Party within the later of: (i) thirty (30) calendar days after the date on which such asserting Party became, or should have become, aware of the facts, events, occurrences or circumstances underlying such claim; or (ii) sixty (60) calendar days after receipt of the Service by such asserting Party.

 

(b)                                 General Limitation of Liability.  Notwithstanding anything to the contrary contained herein, in no event shall either Party’s liability under or in connection with this Agreement or the Services in the aggregate exceed the amount of Service Fees paid by the other Party to such Party under Section 5.1 in the twelve (12) months preceding the related breach, claim or action.

 

(c)                                  Special Damages.  Notwithstanding any other provision of this Agreement to the contrary, and except as provided below, in no event will either Party or any Person in its respective Group be liable for special, incidental, indirect, collateral, consequential or punitive damages or lost profits suffered by an indemnitee, however caused and on any theory of liability, in connection with any damages arising hereunder or thereunder; provided, however, that to the extent an indemnitee is required to pay any damages, including special, incidental, indirect, collateral, consequential or punitive damages or lost profits, to a Person who is not in either Group in connection with a Third Party Claim and is entitled to indemnification hereunder therefor, such damages will constitute direct damages and will not be subject to the exclusion set forth in this Section 8.3(c).

 

(d)                                 Disclaimer of Representations and Warranties.  EACH OF LILLY (ON BEHALF OF ITSELF AND EACH MEMBER OF THE LILLY GROUP) AND COMPANY (ON BEHALF OF ITSELF AND EACH MEMBER OF THE COMPANY GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE SEPARATION AGREEMENT OR IN ANY OTHER ANCILLARY AGREEMENT, NEITHER PARTY MAKES ANY EXPRESS REPRESENTATIONS OR WARRANTIES, AND NO REPRESENTATION OR WARRANTY SHALL BE IMPLIED UNDER THIS AGREEMENT OR AT LAW, WITH RESPECT TO THIS AGREEMENT, THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT OR OTHERWISE, INCLUDING WARRANTIES OF HABITABILITY, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, NON-INFRINGEMENT, VALIDITY AND ENFORCEABILITY, AND ALL OTHER WARRANTIES ARISING UNDER THE UNIFORM COMMERCIAL CODE (OR SIMILAR FOREIGN LAWS).

 

22

 

ARTICLE IX

 

DISPUTE RESOLUTION

 

SECTION 9.1                                             Dispute Resolution.  Prior to the initiation of any Action relating to this Agreement and subject to the obligations set forth in Section 2.7 and Section 5.1(b), any dispute, controversy or claim arising out of or in connection with this Agreement or the transactions contemplated hereby shall first be referred to the relevant Local Service Leads, Global Function Leads and TSA Managers (in the foregoing order), who shall attempt in good faith to resolve any such dispute, controversy or claim.  If such dispute, controversy or claim cannot be resolved by each of the relevant Local Service Leads, Global Function Leads and TSA Managers within three (3) consecutive thirty (30) calendar day resolution periods beginning on the relevant date of referral to such Local Service Lead, Global Function Lead or TSA Manager, it shall be referred to the TSA Executives, who shall attempt, in good faith, to resolve such dispute, controversy or claim.  Prior to the Distribution or Other Disposition, any dispute, controversy or claim that is not resolved by the TSA Executives may be resolved by Lilly in its sole discretion.  Following the Distribution or Other Disposition, any dispute, controversy or claim that is not resolved by the TSA Executive shall be referred to the Chief Executive Officer of Company and the Chief Financial Officer of Lilly for resolution.

 

ARTICLE X

 

LOCAL SERVICE AGREEMENTS

 

SECTION 10.1                                      Local Service Agreements.  Each of the Parties recognizes and agrees that there may be a need to document separately the Services provided hereunder in various countries from time to time to the extent necessary to comply with applicable Law or as otherwise agreed by the Parties.  If such an agreement is required by applicable Law in the reasonable mutual determination of the Parties, or the Parties mutually determine it is otherwise necessary or desirable, Lilly and the Company shall cause each of their appropriate Subsidiaries, respectively, to enter into local implementing agreements of this Agreement (each, a “Local Service Agreement”); provided, however, that the execution or performance of any such Local Service Agreement shall in no way alter or modify the principle of any term or condition hereof and the sole remedies under such Local Service Agreement shall be the remedies (subject to each and every limitation) set forth herein. Any references herein to this Agreement and the Services to be provided hereunder shall include any Local Service Agreement and the Local Services (as shall be defined in the Local Agreement) to be provided thereunder.

 

ARTICLE XI

 

MISCELLANEOUS

 

SECTION 11.1                                      Counterparts; Entire Agreement; Conflicting Agreements.

 

(a)                                 This Agreement may be executed in one (1) or more counterparts, all of which shall be considered one (1) and the same agreement, and shall become effective when one (1) or more counterparts have been signed by each Party and delivered to the other Party.  Execution

 

23

 

of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as being, executed by an original signature.

 

(b)                                 This Agreement, the Separation Agreement, the other Ancillary Agreements, the exhibits, the schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Parties with respect to such subject matter other than those set forth or referred to herein or therein.

 

(c)                                  In the event of any inconsistency between this Agreement and any other agreement entered into in connection with the Transaction (including the Separation Agreement), the Separation Agreement shall prevail.  In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Separation Agreement, the Separation Agreement shall control.

 

SECTION 11.2                                      No Construction Against Drafter.  The Parties acknowledge that this Agreement and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties.  Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of Law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of this Agreement.

 

SECTION 11.3                                      Governing Law.  This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of Indiana, without regard to the conflict of laws principles thereof that would result in the application of any Law other than the Laws of the State of Indiana.

 

SECTION 11.4                                      Assignability.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided, however, that no Party hereto may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the other Party or Parties hereto.

 

SECTION 11.5                                      Third Party Beneficiaries.  Except for the indemnification rights under this Agreement of any Lilly Indemnitee or the Company Indemnitee in their respective capacities as such: (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person (including employees of the Parties hereto) except the Parties any rights or remedies hereunder; and (b) there are no third party beneficiaries of this Agreement and this Agreement shall not provide any third person (including employees of the Parties hereto) with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

 

SECTION 11.6                                      Notices.  All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b)

 

24

 

deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

 

If to Lilly, to:

 

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, Indiana 46285

Attention:       Chief Financial Officer

 

With a copy to:

 

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, Indiana 46285

Attention:       General Counsel

 

If to Company to:

 

Elanco Animal Health Incorporated

2500 Innovation Way

Greenfield, Indiana 46140

Attention:       Chief Financial Officer

 

With a copy to:

 

Elanco Animal Health Incorporated

2500 Innovation Way

Greenfield, Indiana 46140

Attention:       General Counsel

 

Any Party may, by notice to the other Party, change the address to which such notices are to be given.

 

SECTION 11.7                                      Severability.  If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party.  Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the rights and obligations contemplated by this Agreement be fulfilled as originally contemplated to the greatest extent possible.

 

25

 

SECTION 11.8                                      Force Majeure.  No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment.  In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of such delay.

 

SECTION 11.9                                      Headings.  The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

SECTION 11.10                               Waivers of Default.  Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.

 

SECTION 11.11                               Specific Performance.  In the event of any actual or threatened default or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are or are to be thereby aggrieved shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in each case (a) without the requirement of posting any bond or other indemnity and (b) in addition to any other remedy to which it or they may be entitled, at Law or in equity.  Such remedies shall be cumulative with and not exclusive of and shall be in addition to any other remedies which any Party may have under this Agreement, or at Law or in equity or otherwise, and the exercise by a Party hereto of any one remedy shall not preclude the exercise of any other remedy.

 

SECTION 11.12                               Amendments.  No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

SECTION 11.13                               Interpretation.  Interpretation of this Agreement (except as specifically provided in this Agreement, in which case such specified rules of construction shall govern with respect to this Agreement) shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph and Exhibit are references to the Articles, Sections, paragraphs and Exhibits to this Agreement unless otherwise specified; (c) the terms “hereof”, “herein”, “hereby”, “hereto” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and words of similar import shall mean “including without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) provisions shall apply, when appropriate, to successive events and transactions; (i) a reference to any Person includes such Person’s permitted successors and permitted assigns; (j) any reference to “days” means calendar days unless Business Days are

 

26

 

expressly specified; and (k) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day.

 

SECTION 11.14                               Waiver of Jury Trial.  SUBJECT TO Article IX AND Section 11.11 AND Section 11.15 HEREIN, EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT.  EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 11.14.

 

SECTION 11.15                               Submission to Jurisdiction; Waivers.  With respect to any Action relating to or arising out of this Agreement, subject to the provisions of Article IX, each Party to this Agreement irrevocably (a) consents and submits to the exclusive jurisdiction of the courts of the State of Indiana and any court of the United States located in the State of Indiana, (b) waives any objection which such Party may have at any time to the laying of venue of any Action brought in any such court, waives any claim that such Action has been brought in an inconvenient forum and further waives the right to object, with respect to such Action, that such court does not have jurisdiction over such Party and (c) consents to the service of process at the address set forth for notices in Section 11.6 herein; provided, however, that such manner of service of process shall not preclude the service of process in any other manner permitted under applicable Law.

 

SECTION 11.16                               No Agency.  Nothing contained herein shall be construed to place the parties in the relationship of partners, joint venturers, principal and agent, or employer and employee.  Neither Party shall have the power to assume, create, or incur liability or any obligation of any kind, express or implied, in the name of or on behalf of the other Party by virtue of this Agreement.

 

[Signature page follows.]

 

27

 

IN WITNESS WHEREOF, the Parties have caused this Transitional Services Agreement to be executed by their duly authorized representatives.

 

	
 
    	
ELI   LILLY AND COMPANY
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:   
    
	
 
    	
 
    	
Title:   
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ELANCO   ANIMAL HEALTH INCORPORATED
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:   
    
	
 
    	
 
    	
Title:   
    

 

[Signature Page to Transitional Services Agreement]

 

28

 

EXHIBIT A — LILLY SCHEDULED SERVICES

 

29

 

EXHIBIT B — LILLY EXCLUDED SERVICES

 

30

 

EXHIBIT C — COMPANY SCHEDULED SERVICES

 

31

 

EXHIBIT D — IN-FLIGHT PROJECTS AND IN-FLIGHT PROJECT COSTS

 

32

 

EXHIBIT E — PROGRAM SERVICES AND PROGRAM CHARGES

 

33

 

EXHIBIT F — SERVICE CHANGE AND PROGRAM SERVICE REQUEST FORM

 

34

 

EXHIBIT G — TSA STEPDOWN TERMINATION APPROACH

 

35

 

EXHIBIT H — CURRENCY CONVERSION RATES

 

36Exhibit 10.3

 

FORM OF TAX MATTERS AGREEMENT

 

BY AND BETWEEN

 

ELI LILLY AND COMPANY

 

AND

 

ELANCO ANIMAL HEALTH INCORPORATED

 

Dated as of [·], 2018

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
Section 1.
    	
 
    	
Definition of Terms
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
Section 2.
    	
 
    	
Allocation of Tax   Liabilities
    	
10
    
	
Section 2.01
    	
 
    	
General Rule
    	
10
    
	
Section 2.02
    	
 
    	
Allocation of Taxes
    	
10
    
	
Section 2.03
    	
 
    	
Determination of Taxes   Attributable to the Animal Health Business
    	
11
    
	
Section 2.04
    	
 
    	
Certain Taxes Allocated   Under Other Transaction Documents
    	
12
    
	
Section 2.05
    	
 
    	
Company Liability
    	
12
    
	
Section 2.06
    	
 
    	
Lilly Liability
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
Section 3.
    	
 
    	
Preparation and Filing   of Tax Returns
    	
12
    
	
Section 3.01
    	
 
    	
Lilly’s Responsibility
    	
12
    
	
Section 3.02
    	
 
    	
Company’s   Responsibility
    	
12
    
	
Section 3.03
    	
 
    	
Tax Returns for   Separation Taxes
    	
12
    
	
Section 3.04
    	
 
    	
Tax Reporting Practices
    	
13
    
	
Section 3.05
    	
 
    	
Consolidated or   Combined Tax Returns
    	
14
    
	
Section 3.06
    	
 
    	
Right to Review Tax   Returns
    	
14
    
	
Section 3.07
    	
 
    	
Company Carrybacks and   Claims for Refund
    	
15
    
	
Section 3.08
    	
 
    	
Apportionment of Tax   Attributes
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
Section 4.
    	
 
    	
Tax Payments
    	
15
    
	
Section 4.01
    	
 
    	
Payment of Taxes With   Respect to Joint Returns
    	
15
    
	
Section 4.02
    	
 
    	
Payment of Taxes With   Respect to Separate Returns
    	
16
    
	
Section 4.03
    	
 
    	
Indemnification   Payments
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
Section 5.
    	
 
    	
Tax Refunds
    	
16
    
	
Section 5.01
    	
 
    	
Tax Refunds
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
Section 6.
    	
 
    	
Tax-Free Status
    	
17
    
	
Section 6.01
    	
 
    	
Restrictions on the   Company
    	
17
    
	
Section 6.02
    	
 
    	
Restrictions on Lilly
    	
19
    
	
Section 6.03
    	
 
    	
Procedures Regarding   Opinions and Rulings
    	
19
    
	
Section 6.04
    	
 
    	
Liability for   Tax-Related Losses
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
Section 7.
    	
 
    	
Assistance and   Cooperation
    	
22
    
	
Section 7.01
    	
 
    	
Assistance and   Cooperation
    	
22
    
	
Section 7.02
    	
 
    	
Income Tax Return   Information
    	
23
    
	
Section 7.03
    	
 
    	
Reliance by Lilly
    	
24
    
	
Section 7.04
    	
 
    	
Reliance by the Company
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
Section 8.
    	
 
    	
Tax Records
    	
24
    
	
Section 8.01
    	
 
    	
Retention of Tax   Records
    	
24
    
	
Section 8.02
    	
 
    	
Access to Tax Records
    	
24
    
	
Section 8.03
    	
 
    	
Preservation of   Privilege
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
Section 9.
    	
 
    	
Tax Contests
    	
25
    
																				

 

i

 

	
Section 9.01
    	
 
    	
Notice
    	
25
    
	
Section 9.02
    	
 
    	
Control of Tax Contests
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
Section 10.
    	
 
    	
Effective Date
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
Section 11.
    	
 
    	
Treatment of Payments
    	
27
    
	
Section 11.01
    	
 
    	
Treatment of Tax Indemnity   Payments
    	
27
    
	
Section 11.02
    	
 
    	
Interest Under This   Agreement
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
Section 12.
    	
 
    	
Disagreements
    	
27
    
	
Section 12.01
    	
 
    	
Discussion
    	
27
    
	
Section 12.02
    	
 
    	
Escalation
    	
27
    
	
Section 12.03
    	
 
    	
Referral to Tax Advisor
    	
27
    
	
Section 12.04
    	
 
    	
Injunctive Relief
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
Section 13.
    	
 
    	
General Provisions
    	
28
    
	
Section 13.01
    	
 
    	
Counterparts; Entire   Agreement; Conflicting Agreements
    	
28
    
	
Section 13.02
    	
 
    	
No Construction Against   Drafter
    	
29
    
	
Section 13.03
    	
 
    	
Governing Law
    	
29
    
	
Section 13.04
    	
 
    	
Assignability
    	
29
    
	
Section 13.05
    	
 
    	
Third Party Beneficiaries
    	
29
    
	
Section 13.06
    	
 
    	
Notices
    	
29
    
	
Section 13.07
    	
 
    	
Severability
    	
30
    
	
Section 13.08
    	
 
    	
Force Majeure
    	
30
    
	
Section 13.09
    	
 
    	
Late Payments
    	
30
    
	
Section 13.10
    	
 
    	
Expenses
    	
30
    
	
Section 13.11
    	
 
    	
Further Action
    	
30
    
	
Section 13.12
    	
 
    	
Headings
    	
31
    
	
Section 13.13
    	
 
    	
Survival
    	
31
    
	
Section 13.14
    	
 
    	
Waivers of Default
    	
31
    
	
Section 13.15
    	
 
    	
Specific Performance
    	
31
    
	
Section 13.16
    	
 
    	
Amendments
    	
31
    
	
Section 13.17
    	
 
    	
Interpretation
    	
31
    
	
Section 13.18
    	
 
    	
Waiver of Jury Trial
    	
32
    
	
Section 13.19
    	
 
    	
Submission to   Jurisdiction; Waivers
    	
32
    
	
Section 13.20
    	
 
    	
The Company   Subsidiaries
    	
32
    
						

 

ii

 

FORM OF TAX MATTERS AGREEMENT

 

This TAX MATTERS AGREEMENT (this “Agreement”), dated as of [·], 2018, is by and between Eli Lilly and Company, an Indiana corporation (“Lilly”), and Elanco Animal Health Incorporated, an Indiana corporation (the “Company”) (Lilly and the Company are sometimes collectively referred to herein as the “Parties” and, as the context requires, individually referred to herein as a “Party”). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in the Master Separation Agreement by and between Lilly and the Company, dated as of the date hereof (the “Separation Agreement”).

 

RECITALS

 

WHEREAS, the Company is a direct wholly-owned Subsidiary of Lilly;

 

WHEREAS, the Lilly Board has determined that it is appropriate and advisable to separate the Animal Health Business from the other businesses conducted by Lilly (the “Separation”);

 

WHEREAS, the Lilly Board and the Company Board have each approved the acquisition by the Company and its Subsidiaries of all Animal Health Assets, and the assumption by the Company and its Subsidiaries of the Animal Health Liabilities, all as more fully described in the Transaction Documents;

 

WHEREAS, the Lilly Board has further determined that it is appropriate and advisable, on the terms and conditions contemplated by the Separation Agreement, to cause the Company to offer and sell for its own account a number of shares of Company Common Stock in an initial public offering of the Company Common Stock, to be registered pursuant to a registration statement on Form S-1 (the “IPO”), immediately following the consummation of which Lilly will continue to own at least 80.1% of the outstanding shares of Company Common Stock;

 

WHEREAS, substantially simultaneously with the entry into this Agreement, pursuant to the Separation Agreement and the Corporate Reorganization, Lilly is contributing to the Company the outstanding Stock of the Specified Entities, which collectively own substantially all of the Animal Health Assets, and are responsible for substantially all of the Animal Health Liabilities (collectively, the “Contribution”);

 

WHEREAS, following the consummation of the IPO, Lilly intends at a time (or times) to be determined by Lilly, to transfer shares of Company Common Stock to holders of shares of Lilly Common Stock by means of (a) one or more dividend distributions by Lilly to holders of Lilly Common Stock of shares of Company Common Stock, (b) one or more offers to holders of Lilly Common Stock to exchange their shares of Lilly Common Stock for shares of Company Common Stock, or (c) any combination thereof (any such transaction, a “Distribution”);

 

WHEREAS, if Lilly determines not to effect a Distribution, Lilly may determine instead to effect a disposition of its Company Common Stock pursuant to one or more public or private offerings for sale or other similar transactions (any such transaction, an “Other Disposition”) or continue to hold its shares of Company Common Stock;

 

 

WHEREAS, for U.S. federal income Tax purposes, the Contribution and the Distribution, if effected, taken together, are intended to qualify as a tax-free spin-off under Section 355 and Section 368(a)(1)(D) of the Code;

 

WHEREAS, as of the date hereof, Lilly is the common parent of an affiliated group of corporations, including the Company, which has elected to file consolidated U.S. federal income Tax returns; and

 

WHEREAS, the Parties desire to provide for and agree upon the allocation between the Parties of liabilities for certain Taxes arising prior to, at the time of, and subsequent to the IPO, and to provide for and agree upon other matters relating to Taxes.

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

Section 1.                                          Definition of Terms. For purposes of this Agreement (including the recitals hereof), the following terms shall have the following meanings:

 

“Active Trade or Business” means, with respect to the Company, the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder) of the Animal Health Business as conducted immediately prior to the IPO, or, with respect to another Separation Transaction intended to qualify as tax-free pursuant to Section 355 of the Code or the analogous provisions of state or local Law, the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder, or the analogous provisions of state or local Law) by the relevant Company Entity of the Animal Health Business relating to such Company Entity as conducted immediately prior to such Separation Transaction.

 

“Adjustment Request” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (i) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (ii) any claim for equitable recoupment or other offset, and (iii) any claim for refund or credit of Taxes previously paid.

 

“Affiliate” of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used in this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, or the power to appoint and remove a majority of the directors, managers or persons holding similar power in respect of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. It is expressly agreed that, from and after the date of the closing of the IPO, solely for purposes of this Agreement, (i) no member of the Company Group shall be deemed to be an Affiliate of any member of the Lilly Group and (ii) no member of the Lilly Group shall be deemed to be an Affiliate of any member of the Company Group.

 

“Agreement” means this Tax Matters Agreement.

 

“Animal Health Assets” has the meaning set forth in the Separation Agreement.

 

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“Animal Health Business” has the meaning set forth in the Separation Agreement.

 

“Animal Health Liabilities” has the meaning set forth in the Separation Agreement.

 

“Board Certificate” has the meaning set forth in Section 6.01(d).

 

“Business Day” has the meaning set forth in the Separation Agreement.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

“Company” has the meaning set forth in the preamble hereto.

 

“Company Capital Stock” means all classes or series of capital stock of the Company, including (i) the Company Common Stock, (ii) all options, warrants and other rights to acquire such capital stock and (iii) all instruments properly treated as stock in the Company for U.S. federal income Tax purposes.

 

“Company Carryback” means any net operating loss, net capital loss, excess Tax credit, or other similar Tax Item of any member of the Company Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.

 

“Company Common Stock” has the meaning set forth in the Separation Agreement.

 

“Company Entity” means an entity which will be a member of the Company Group immediately after the IPO.

 

“Company Group” means (i) the Company and its Affiliates, as determined immediately after the IPO, (ii) the Transferred Entities, and (iii) any entity which (A) was an Affiliate of Lilly or an Affiliate of a member of the Company Group, (B) conducted solely or predominantly the Animal Health Business, and (C) is no longer an Affiliate of Lilly as of the IPO.

 

“Company Separate Return” means any Tax Return of or including any member of the Company Group (including any consolidated, combined or unitary return) that does not include any member of the Lilly Group.

 

“Company Tax Notice” has the meaning set forth in Section 4.01(b).

 

“Contribution” has the meaning set forth in the recitals hereto.

 

“Controlling Party” has the meaning set forth in Section 9.02(c).

 

“Corporate Reorganization” has the meaning set forth in the Separation Agreement.

 

“Deconsolidation Date” means the last date on which the Company qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which Lilly is the common parent.

 

“Dispute” has the meaning set forth in Section 12.

 

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“Distribution” has the meaning set forth in the recitals hereto.

 

“Distribution Date” means the date or dates on which the Distribution occurs.

 

“Effective Date” has the meaning set forth in the Separation Agreement.

 

“Fifty-Percent or Greater Interest” has the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.

 

“Filing Date” has the meaning set forth in Section 6.04(d).

 

“Final Determination” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (i) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the Laws of a state, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of a state, local, or foreign taxing jurisdiction; (iv) by any allowance of a refund or credit in respect of an overpayment of a Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (v) by a final settlement resulting from a treaty-based competent authority determination; or (vi) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the Parties.

 

“Gain Recognition Agreement” means a gain recognition agreement as described in Treasury Regulations Section 1.367(a)-8 or any successor provision thereto.

 

“Group” means the Lilly Group or the Company Group, or both, as the context requires.

 

“Income Tax” means all Taxes based upon, measured by, or calculated with respect to (i) net income or profits (including any capital gains, minimum Tax or any Tax on items of tax preference, but not including sales, use, real or personal property, gross or net receipts, value added, excise, leasing, transfer or similar Taxes), or (ii) multiple bases (including corporate franchise, doing business and occupation Taxes) if one or more bases upon which such Tax is determined is described in clause (i) of this definition, together with any interest, penalty, additions to tax, or additional amounts in respect of the foregoing.

 

“Indemnitee” has the meaning set forth in Section 11.02.

 

“Indemnitor” has the meaning set forth in Section 11.02.

 

“Internal Distribution” means any Separation Transaction or series of Separation Transactions (other than the Contribution and the Distribution) that is intended to qualify as a

 

4

 

tax-free transaction under Section 355 and/or Section 368(a)(1)(D) of the Code, as described in the Tax Opinions.

 

“Internal Restructuring” has the meaning set forth in Section 6.01(e).

 

“IPO” has the meaning set forth in the recitals hereto.

 

“IRS” means the U.S. Internal Revenue Service, or any successor agency.

 

“Joint Return” means any Tax Return that actually includes, by election or otherwise, one or more members of the Lilly Group together with one or more members of the Company Group.

 

“Lilly” has the meaning set forth in the preamble hereto.

 

“Lilly Affiliated Group” means the affiliated group (as that term is defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which Lilly is the common parent.

 

“Lilly Business” has the meaning set forth in the Separation Agreement.

 

“Lilly Federal Consolidated Income Tax Return” means any U.S. federal Income Tax Return for the Lilly Affiliated Group.

 

“Lilly Group” means Lilly and its Affiliates, excluding any entity that is a member of the Company Group, as determined immediately after the IPO.

 

“Lilly Separate Return” means any Tax Return of or including any member of the Lilly Group (including any consolidated, combined or unitary return) that does not include any member of the Company Group.

 

“Local Transfer Agreements” has the meaning set forth in the Separation Agreement.

 

“Non-Controlling Party” has the meaning set forth in Section 9.02(c).

 

“Notified Action” has the meaning set forth in Section 6.03(a).

 

“Other Disposition” has the meaning set forth in the recitals hereto.

 

“Parties” and “Party” have the meaning set forth in the preamble hereto.

 

“Past Practices” has the meaning set forth in Section 3.04(b).

 

“Payment Date” means (i) with respect to any Lilly Federal Consolidated Income Tax Return, (A) the due date for any required installment of estimated Taxes determined under Section 6655 of the Code, (B) the due date (determined without regard to extensions) for filing the return determined under Section 6072 of the Code, or (C) the date the return is filed, as the case may be, and (ii) with respect to any other Tax Return, the corresponding dates determined under the applicable Tax Law.

 

“Payor” has the meaning set forth in Section 4.03.

 

5

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. federal income Tax purposes.

 

“Post-Deconsolidation Period” means any Tax Period beginning after the Deconsolidation Date and, in the case of any Tax Period beginning before the Deconsolidation Date and ending after the Deconsolidation Date, the portion of such Tax Period beginning on the day after the Deconsolidation Date.

 

“Post-IPO Period” means any Tax Period beginning after the Effective Date and, in the case of any Straddle Period, the portion of such Straddle Period beginning on the day after the Effective Date.

 

“Pre-Deconsolidation Period” means any Tax Period ending on or before the Deconsolidation Date and, in the case of any Tax Period beginning before the Deconsolidation Date and ending after the Deconsolidation Date, the portion of such Tax Period ending on the Deconsolidation Date.

 

“Pre-IPO Period” means any Tax Period ending on or before the Effective Date and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Effective Date.

 

“Preliminary Tax Advisor” has the meaning set forth in Section 12.03.

 

“Prime Rate” has the meaning set forth in the Separation Agreement.

 

“Privilege” means any privilege that may be asserted under applicable Law, including any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

 

“Proposed Acquisition Transaction” means a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by the Company management or shareholders, is a hostile acquisition, or otherwise, as a result of which the Company would merge or consolidate with any other Person or as a result of which any Person or any group of related Persons would (directly or indirectly) acquire, or have the right to acquire, from the Company and/or one or more holders of outstanding shares of Company Capital Stock, a number of shares of Company Capital Stock that would, when combined with any other changes in ownership of Company Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (i) the value of all outstanding shares of stock of the Company as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (ii) the total combined voting power of all outstanding shares of voting stock of the Company as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (i) the adoption by the Company of a shareholder rights plan or (ii) issuances by the Company that satisfy Safe Harbor VIII (relating to

 

6

 

acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation. Solely for purposes of this definition, the “Company” shall include any member of the Company Group that was a “controlled corporation” within the meaning of Section 355(a)(1) of the Code in any of the Internal Distributions.

 

“Representation Letters” means the statements of facts and representations, officer’s certificates, representation letters and any other materials delivered or deliverable by Lilly, the Company, or any Affiliates or representatives thereof in connection with the rendering by Tax Advisors of the Tax Opinions.

 

“Required Party” has the meaning set forth in Section 4.03.

 

“Responsible Party” means, with respect to any Tax Return, the Party having responsibility for preparing and filing such Tax Return under this Agreement.

 

“Retention Date” has the meaning set forth in Section 8.01.

 

“Ruling” means a private letter ruling issued by the IRS to Lilly to the effect that a transaction will not affect the Tax-Free Status. Any such ruling must assume that the Contribution and the Distribution would have qualified for the Tax-Free Status if the transaction in question did not occur.

 

“Ruling Request” means any letter filed by Lilly with the IRS requesting a Ruling (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter.

 

“Section 336(e) Election” has the meaning set forth in Section 3.04(d).

 

“Section 336(e) Tax Basis” has the meaning set forth in Section 3.04(d).

 

“Section 6.01(d) Acquisition Transaction” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 25% instead of 40%.

 

“Separate Return” means a Lilly Separate Return or a Company Separate Return, as the case may be.

 

“Separation” has the meaning set forth in the recitals hereto.

 

“Separation Agreement” has the meaning set forth in the preamble hereto.

 

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“Separation Taxes” means any Taxes (including, for the avoidance of doubt, Income Taxes and Transfer Taxes) imposed on any member of the Lilly Group or the Company Group arising from, or attributable to, any transfer of assets or liabilities pursuant to the Separation Transactions, other than any Taxes which are Tax-Related Losses.

 

“Separation Transactions” means those transactions undertaken by the Parties and their Affiliates pursuant to the Corporate Reorganization to separate ownership of the Animal Health Business from ownership of the Lilly Business.

 

“Straddle Period” means any Tax Period that begins on or before, and ends after, the Effective Date.

 

“Tax” or “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, value added, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax), imposed by any governmental entity or political subdivision thereof, and any interest, penalty, additions to tax, or additional amounts in respect of the foregoing.

 

“Tax Advisor” means a Tax counsel or accountant of recognized national standing.

 

“Tax Attribute” means a net operating loss, net capital loss, unused investment credit, unused foreign Tax credit, excess charitable contribution, general business credit, research and development credit or any other Tax Item that could reduce a Tax or create a Tax Benefit.

 

“Tax Authority” means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

 

“Tax Benefit” means any refund, credit, or other reduction in otherwise required liability for Taxes.

 

“Tax Contest” means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

 

“Tax-Free Status” means the qualification of (i) the Contribution and the Distribution, taken together, as (A) a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code, (B) a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code, and (C) a transaction in which Lilly, the Company and the shareholders of the Company recognize no income or gain for U.S. federal income Tax purposes pursuant to Sections 355, 361 and 1032 of the Code, other than, in the case of Lilly and the Company, intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated under Section 1502 of the Code, and (ii) each Internal Distribution as a tax-free transaction under Section 355 and/or Section 368(a)(1)(D) of the Code, as described in the Tax Opinions.

 

8

 

“Tax Item” means any item of income, gain, loss, deduction, or credit, or any other item which increases or decreases Taxes paid or payable in any Tax Period.

 

“Tax Law” means the Law of any governmental entity or political subdivision thereof relating to any Tax.

 

“Tax Opinions” means the opinions of Tax Advisors deliverable to Lilly in connection with the Contribution and the Distribution or otherwise with respect to the Separation Transactions.

 

“Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

 

“Tax Records” means any (i) Tax Returns, (ii) Tax Return workpapers, (iii) documentation relating to any Tax Contests, and (iv) any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority, in each case filed with respect to or otherwise relating to Taxes.

 

“Tax-Related Losses” means (i) all Taxes (including interest and penalties thereon) imposed pursuant to any settlement, Final Determination, judgment or otherwise; (ii) all accounting, legal and other professional fees, and court costs incurred in connection with such Taxes, as well as any other out-of-pocket costs incurred in connection with such Taxes; and (iii) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by Lilly (or any Lilly Affiliate) or the Company (or any Affiliate of the Company) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in each case, resulting from the failure of the Contribution and the Distribution, or any Internal Distribution, to qualify for the Tax-Free Status.

 

“Tax Return” means any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Tax Law with respect to Taxes, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

 

“Transfer Pricing Adjustment” means any proposed or actual allocation by a Tax Authority of any Tax Item between or among any member of the Lilly Group and any member of the Company Group with respect to any Tax Period ending prior to or including the final Distribution Date or the date of any Other Disposition, as the case may be.

 

“Transfer Taxes” means all transfer, sales, use, excise, stock, stamp, stamp duty, stamp duty reserve, stamp duty land, documentary, filing, recording, registration, value-added and other similar Taxes (excluding, for the avoidance of doubt, any income, gains, profit or similar Taxes, however assessed), together with any interest, penalty, additions to tax, or additional amounts in respect of the foregoing.

 

“Transferred Entities” has the meaning set forth in the Separation Agreement.

 

9

 

“Treasury Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

 

“Unqualified Tax Opinion” means an unqualified “will” opinion of a Tax Advisor, which Tax Advisor is acceptable to Lilly and upon which Lilly may rely, to the effect that a transaction will not affect the Tax-Free Status. Any such opinion must assume that the Contribution and the Distribution would have qualified for the Tax-Free Status if the transaction in question did not occur.

 

Section 2.                                          Allocation of Tax Liabilities.

 

Section 2.01                            General Rule.

 

(a)                                 Lilly Liability. Lilly shall be liable for, and shall indemnify and hold harmless the Company Group from and against any liability for, Taxes which are allocated to Lilly under this Section 2.

 

(b)                                 Company Liability. The Company shall be liable for, and shall indemnify and hold harmless the Lilly Group from and against any liability for, Taxes which are allocated to the Company under this Section 2.

 

Section 2.02                            Allocation of Taxes Except as provided in Section 2.04, Section 2.05 or Section 2.06, Taxes shall be allocated as follows:

 

(a)                                 Allocation of Taxes Relating to Joint Returns.

 

(i)                                     Allocation for Pre-IPO Periods. With respect to any Joint Return, Lilly shall be responsible for any and all Taxes due with respect to or required to be reported on any such Tax Return (including any increase in such Tax as a result of a Final Determination) for all Pre-IPO Periods;

 

(ii)                                  Allocation to the Company for Post-IPO Periods. The Company shall be responsible for any and all Taxes attributable to the Animal Health Business that are due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) for all Post-IPO Periods.

 

(iii)                               Allocation to Lilly for Post-IPO Periods. Lilly shall be responsible for any and all Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those Taxes described in Section 2.02(a)(ii) for all Post-IPO Periods.

 

(b)                                 Allocation of Taxes Relating to Separate Returns.

 

(i)                                     Lilly shall be responsible for any and all Taxes due with respect to or required to be reported on any Lilly Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

 

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(ii)                                  The Company shall be responsible for any and all Taxes due with respect to or required to be reported on any Company Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

 

Section 2.03                            Determination of Taxes Attributable to the Animal Health Business. For purposes of Section 2.02(a)(ii):

 

(a)                                 The amount of U.S. federal Income Taxes attributable to the Animal Health Business shall be as determined by Lilly on a pro forma Company Group consolidated return prepared:

 

(i)                                     assuming that the members of the Company Group were not included in the Lilly Affiliated Group;

 

(ii)                                  including only Tax Items of members of the Company Group that were included in the relevant Lilly Federal Consolidated Income Tax Return;

 

(iii)                               except as provided in Section 2.03(a)(v), using all elections, accounting methods and conventions used on the Lilly Federal Consolidated Income Tax Return for such Tax Period;

 

(iv)                              applying the highest statutory marginal corporate income Tax rate in effect for such Tax Period;

 

(v)                                 assuming that the Company Group elects not to carry back any net operating losses; and

 

(vi)                              assuming that the Company Group’s utilization of any Tax Attribute carryforward or carryback is limited to the Tax Attributes of the Company Group that would be available if the U.S. federal Income Tax of the Company Group for each taxable year ending after December 31, 2017 were determined in accordance with this Section 2.03(a).

 

(b)                                 The amount of Income Taxes attributable to the Animal Health Business with respect to any Joint Return other than a Lilly Federal Consolidated Income Tax Return shall be as determined by Lilly in a manner consistent with the principles set forth in Section 2.03(a).

 

(c)                                  The amount of Taxes attributable to the Animal Health Business with respect to any Joint Return not described in Section 2.03(a) or (b) shall be as determined by Lilly on a pro forma basis taking into account only the assets and operations of the Animal Health Business reflected on such Joint Return and in a manner consistent with the past return filing practices of the Lilly Group with respect to such Joint Return (including any past accounting methods, elections and conventions), except as otherwise required by applicable Law.

 

(d)                                 In the case of any Joint Return for any Straddle Period, the allocation of any Tax Items required to determine any Taxes or other amounts attributable to the Pre-IPO Period and the Post-IPO Period shall be as determined by Lilly in a manner consistent with the past return filing practices of the Lilly Group with respect to such Joint Return (including any past

 

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accounting methods, elections and conventions), except as otherwise required by applicable Law; provided, that property Taxes and other similar periodic Taxes shall be apportioned on a per diem basis.

 

(e)                                  The amount of Taxes attributable to the Animal Health Business with respect to any Joint Return for any Tax Period shall not be less than zero.

 

The Company shall reimburse Lilly for all reasonable costs and expenses paid or incurred by the Lilly Group in connection with determining the amount of Taxes attributable to the Animal Health Business with respect to any Joint Return.

 

Section 2.04                            Certain Taxes Allocated Under Other Transaction Documents. The Parties acknowledge and agree that, notwithstanding anything contained herein to the contrary, this Agreement, including Section 2 hereof, shall not (i) apply with respect to any and all Taxes that are expressly allocated pursuant to any Ancillary Agreement (other than this Agreement), for which such other Ancillary Agreement shall govern, or (ii) in any way affect or modify the Parties’ rights and obligations under Section 2.04(c) of the Separation Agreement.

 

Section 2.05                            Company Liability. The Company shall be liable for, and shall indemnify and hold harmless the Lilly Group from and against, any liability for:

 

(a)                                 any Tax resulting from a breach by the Company of any covenant in this Agreement, the Separation Agreement or any Ancillary Agreement; and

 

(b)                                 any Tax-Related Losses for which the Company is responsible pursuant to Section 6.04.

 

Section 2.06                            Lilly Liability. Lilly shall be liable for, and shall indemnify and hold harmless the Company Group from and against, any liability for:

 

(a)                                 any Separation Tax;

 

(b)                                 any Tax resulting from a breach by Lilly of any covenant in this Agreement, the Separation Agreement or any Ancillary Agreement; and

 

(c)                                  any Tax-Related Losses for which Lilly is responsible pursuant to Section 6.04.

 

Section 3.                                          Preparation and Filing of Tax Returns.

 

Section 3.01                            Lilly’s Responsibility. Lilly has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed:

 

(a)                                 All Joint Returns; and

 

(b)                                 Lilly Separate Returns.

 

Section 3.02                            Company’s Responsibility. The Company shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members

 

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of the Company Group other than those Tax Returns which Lilly is required to prepare and file under Section 3.01 or Section 3.03. The Tax Returns required to be prepared and filed by the Company under this Section 3.02 shall include any Company Separate Returns.

 

Section 3.03                            Tax Returns for Separation Taxes. Tax Returns relating to Separation Taxes shall be prepared and filed when due (including extensions) by Lilly. The Company shall provide, and shall cause its Affiliates to provide, assistance and cooperation to Lilly and its Affiliates in accordance with Section 7 with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Section 7 and, where required by applicable Law and at Lilly’s request, filing any such Tax Returns as prepared by Lilly.

 

Section 3.04                            Tax Reporting Practices.

 

(a)                                 Lilly General Rule. Except as provided in Section 3.04(c), Lilly shall prepare any Tax Return which it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 3.01, in accordance with reasonable Tax accounting practices selected by Lilly.

 

(b)                                 Company General Rule. Except as provided in Section 3.04(c), with respect to any Tax Return for a Tax Period that begins on or before the date that is two (2) years following the Distribution Date that the Company has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 3.02, such Tax Return shall be prepared in accordance with past practices, accounting methods, elections or conventions (“Past Practices”) used with respect to the Tax Returns in question (unless (i) the Company reasonably determines, upon advice from counsel, that there is no reasonable basis for the use of such Past Practices or (ii) there is no adverse effect to Lilly, as determined in Lilly’s reasonable discretion), and to the extent any items are not covered by Past Practices (or in the event that (i) the Company reasonably determines, upon advice from counsel, that there is no reasonable basis for the use of such Past Practices or (ii) there is no adverse effect to Lilly, as determined in Lilly’s reasonable discretion), in accordance with reasonable Tax accounting practices selected by the Company.

 

(c)                                  Reporting of Separation Transactions. The Tax treatment of the Separation Transactions reported on any Tax Return shall be consistent with the treatment thereof in the Tax Opinions, taking into account the jurisdiction in which such Tax Returns are filed, unless the Responsible Party reasonably determines, upon advice from counsel, that there is no reasonable basis for such Tax treatment. Such treatment reported on any Tax Return for which the Company is the Responsible Party shall be consistent with that on any Tax Return filed or to be filed by Lilly or any member of the Lilly Group or caused or to be caused to be filed by Lilly, unless the Company reasonably determines, upon advice from counsel, that there is no reasonable basis for such Tax treatment. In the event that a Party shall reasonably determine, upon advice from counsel, that there is no reasonable basis for the Tax treatment described in either of the preceding two sentences, such Party shall notify the other Party 20 Business Days prior to filing the relevant Tax Return and the Parties shall attempt in good faith to agree on the manner in which the relevant portion of the Separation Transactions shall be reported.

 

(d)                                 Protective Section 336(e) Election. After the date hereof, Lilly shall determine, in its sole and absolute discretion, whether to make a protective election under Section 336(e) of the Code and the Treasury Regulations thereunder (and any corresponding or analogous provisions

 

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of state and local Law) in connection with the Distribution with respect to the Company and each other member of the Company Group that is a domestic corporation for U.S. federal Income Tax purposes (a “Section 336(e) Election”). If Lilly determines that a Section 336(e) Election would be beneficial:

 

(i)                                     Lilly, the Company and their respective Affiliates shall cooperate in making the Section 336(e) Election, including by filing any statements, amending any Tax Returns or taking such other actions reasonably necessary to carry out the Section 336(e) Election;

 

(ii)                                  if the Distribution fails to qualify (in whole or in part) for the Tax-Free Status and the Company or any member of the Company Group realizes an increase in Tax basis as a result of the Section 336(e) Election (the “Section 336(e) Tax Basis”), then the cash Tax savings realized by the Company and each member of the Company Group as a result of the Section 336(e) Tax Basis shall be shared between Lilly and the Company in the same proportion as the Taxes giving rise to the Section 336(e) Tax Basis were borne by Lilly and the Company (after giving effect to the indemnification obligations in this Agreement); and

 

(iii)                               to the extent the Section 336(e) Election becomes effective, each Party agrees not to take any position (and to cause each of its Affiliates not to take any position) that is inconsistent with the Section 336(e) Election on any Tax Return, in connection with any Tax Contest or otherwise, except as may be required by a Final Determination.

 

(e)                                  Exception Where Required by a Final Determination. Notwithstanding any provision herein to the contrary, this Section 3.04 shall not require any Party to file a Tax Return reflecting a particular treatment or in accordance with a particular Past Practice where such treatment or Past Practice, as applicable, is proscribed by a Final Determination.

 

Section 3.05                            Consolidated or Combined Tax Returns. The Company will elect and join, and will cause its respective Affiliates to elect and join, in filing any Joint Returns that Lilly determines are required to be filed or that Lilly chooses to file pursuant to Section 3.01(a).

 

Section 3.06                            Right to Review Tax Returns.

 

(a)                                 General. The Responsible Party with respect to any material Tax Return shall make the portion of such Tax Return and related workpapers which are relevant to the determination of the other Party’s rights or obligations under this Agreement available for review by the other Party, if requested, to the extent (i) such Tax Return relates to Taxes for which the requesting Party would reasonably be expected to be liable, (ii) the requesting Party would reasonably be expected to be liable in whole or in part for any additional Taxes owing as a result of adjustments to the amount of the Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the requesting Party would reasonably be expected to have a claim for Tax Benefits under this Agreement, or (iv) the requesting Party reasonably determines that it must inspect such Tax Return to confirm compliance with the terms of this Agreement. The Responsible Party shall (i) use its reasonable best efforts to make such portion of such Tax

 

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Return available for review as required under this paragraph sufficiently in advance of the due date for filing of such Tax Return to provide the requesting Party with a meaningful opportunity to analyze and comment on such Tax Return and (ii) use reasonable efforts to have such Tax Return modified before filing to reflect reasonable comments of the requesting Party, taking into account the person responsible for payment of the Tax (if any) reported on such Tax Return and whether the amount of Tax liability allocable to the requesting Party with respect to such Tax Return is material. The Parties shall attempt in good faith to resolve any issues arising out of the review of such Tax Return.

 

(b)                                 Material Tax Returns. For purposes of Section 3.06(a), a Tax Return is “material” if it could reasonably be expected to reflect (A) Tax liability equal to or in excess of $1 million, (B) a credit or credits equal to or in excess of $1 million or (C) a loss or losses equal to or in excess of $3 million, in each case with respect to the requesting Party.

 

Section 3.07                            Company Carrybacks and Claims for Refund. The Company hereby agrees that, unless Lilly consents in writing, (i) no Adjustment Request with respect to any Joint Return shall be filed, and (ii) any available elections to waive the right to claim in any Pre-Deconsolidation Period with respect to any Joint Return any Company Carryback arising in a Post-Deconsolidation Period shall be made, and no affirmative election shall be made to claim any such Company Carryback.

 

Section 3.08                            Apportionment of Tax Attributes. Lilly may in good faith advise the Company in writing of the amount, if any, of any Tax Attributes which Lilly determines, in its sole and absolute discretion, shall be allocated or apportioned to the Company Group under applicable Law; provided, that this Section 3.08 shall not be construed as obligating Lilly to undertake any such determination. The Company and all members of the Company Group shall prepare all Tax Returns in accordance with such written notice. The Company agrees that it shall not dispute Lilly’s allocation or apportionment of Tax Attributes. The Company may request that Lilly undertake a determination of the portion, if any, of any particular Tax Attribute to be allocated or apportioned to the Company Group under applicable Law; to the extent that Lilly determines, in its sole and absolute discretion, not to undertake such determination, or does not otherwise advise the Company of its intention to undertake such determination within 20 Business Days of the receipt of such request, the Company shall be permitted to undertake such determination at its own cost and expense and shall notify Lilly of its determination, which determination shall not be binding upon Lilly.

 

Section 4.                                          Tax Payments.

 

Section 4.01                            Payment of Taxes With Respect to Joint Returns. In the case of any Joint Return:

 

(a)                                 Computation and Payment of Tax Due. At least three Business Days prior to any Payment Date for any such Tax Return, Lilly shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 3.04 relating to consistent accounting practices, as applicable) with respect to such Tax Return on such Payment Date. Lilly shall pay such amount to such Tax Authority on or before such Payment Date (and provide notice and proof of payment to the Company).

 

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(b)                                 Computation and Payment of Liability With Respect To Tax Due. Within 20 Business Days following the earlier of (i) the due date (including extensions) for filing any Joint Return (excluding any Joint Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file) or (ii) the date on which such Joint Return is filed, Lilly shall provide the Company with a written notice setting forth the amount of Taxes shown on such Joint Return that are allocable to the Company Group under the provisions of Section 2 (the “Company Tax Notice”). The Company shall pay to Lilly the amount of Taxes set forth on the Company Tax Notice, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the earlier of (i) the due date of the Tax Return (including extensions) or (ii) the date on which such Tax Return is filed, to the date of payment.

 

(c)                                  Adjustments Resulting in Underpayments. In the case of any adjustment pursuant to a Final Determination with respect to any Joint Return, Lilly shall pay to the applicable Tax Authority when due any additional Tax due with respect to such Joint Return required to be paid as a result of such adjustment pursuant to a Final Determination. Lilly shall compute the amount attributable to the Company Group in accordance with Section 2 and the Company shall pay to Lilly any amount due Lilly (or Lilly shall pay the Company any amount due the Company) under Section 2 within 20 Business Days from the later of (i) the date the additional Tax was paid by the Responsible Party or (ii) the date of receipt of a written notice and demand from the Responsible Party for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Any payments required under this Section 4.01(c) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by the Responsible Party to the date of the payment under this Section 4.01(c).

 

Section 4.02                            Payment of Taxes With Respect to Separate Returns. Each Party shall pay, or shall cause to be paid, to the applicable Tax Authority when due all Taxes owed by such Party or a member of such Party’s Group with respect to a Separate Return.

 

Section 4.03                            Indemnification Payments.

 

(a)                                 If any Party (the “Payor”) is required under applicable Tax Law to pay to a Tax Authority a Tax that another Party (the “Required Party”) is liable for under this Agreement, the Required Party shall reimburse the Payor within 20 Business Days of delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 4.03.

 

(b)                                 All indemnification payments under this Agreement shall be made by Lilly directly to the Company or by the Company directly to Lilly, as applicable; provided, however, that if the Parties mutually agree with respect to any such indemnification payment, any member of the Lilly Group, on the one hand, may make such indemnification payment to any member of the Company Group, on the other hand, and vice versa. All indemnification payments shall be treated in the manner described in Section 11.01.

 

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Section 5.                                          Tax Refunds.

 

Section 5.01                            Tax Refunds. Lilly shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes for which Lilly is liable hereunder, and the Company shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes for which the Company is liable hereunder. A Party receiving a refund to which another Party is entitled hereunder shall pay over such refund to such other Party within 20 Business Days after such refund is received (together with interest computed at the Prime Rate based on the number of days from the date the refund was received to the date the refund was paid over).

 

Section 6.                                          Tax-Free Status.

 

Section 6.01                            Restrictions on the Company.

 

(a)                                 The Company agrees that it will not take or fail to take, or permit any Affiliate of the Company, as the case may be, to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any statement, information, covenant or representation in any Representation Letters or the Tax Opinions. The Company agrees that it will not take or fail to take, or permit any Affiliate of the Company, as the case may be, to take or fail to take, any action which adversely affects or could reasonably be expected to adversely affect the Tax-Free Status.

 

(b)                                 The Company agrees that, from the date hereof until the first Business Day after the two-year anniversary of the final Distribution Date, it will (i) maintain its status as a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, (ii) not engage in any transaction that would result in it ceasing to be a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, (iii) cause each Affiliate of the Company whose Active Trade or Business is relied upon in the Tax Opinions for purposes of qualifying a transaction as tax-free pursuant to Section 355 of the Code or other Tax Law to maintain its status as a company engaged in such Active Trade or Business for purposes of Section 355(b)(2) of the Code and any such other applicable Tax Law, (iv) not engage in any transaction or permit an Affiliate of the Company to engage in any transaction that would result in an Affiliate of the Company described in clause (iii) hereof ceasing to be a company engaged in the relevant Active Trade or Business for purposes of Section 355(b)(2) or such other applicable Tax Law, taking into account Section 355(b)(3) of the Code for purposes of clauses (i) through (iv) hereof, and (v) not dispose of or permit an Affiliate of the Company to dispose of, directly or indirectly, any interest in an Affiliate of the Company described in clause (iii) hereof or permit any such Affiliate of the Company to make or revoke any election under Treasury Regulations Section 301.7701-3.

 

(c)                                  The Company agrees that, from the date hereof until the first Business Day after the two-year anniversary of the final Distribution Date, it will not and will not permit any Affiliate of the Company described in clause (iii) of Section 6.01(b) to (i) enter into any Proposed Acquisition Transaction or, to the extent the Company has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (A) redeeming rights under a shareholder rights plan, (B) finding a tender offer to be

 

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a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction, (C) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the Delaware General Corporation Law or any similar corporate statute, any “fair price” or other provision of the Company’s charter or bylaws, (D) amending its certificate of incorporation to declassify its Board of Directors or approving any such amendment, or (E) otherwise); (ii) merge or consolidate with any other Person or liquidate or partially liquidate; (iii) in a single transaction or series of transactions sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets that were transferred to the Company pursuant to the Contribution or sell or transfer 25% or more of the gross assets of any Active Trade or Business or 25% or more of the consolidated gross assets of the Company and its Affiliates (such percentages to be measured based on fair market value as of the initial Distribution Date); (iv) redeem or otherwise repurchase (directly or through an Affiliate of the Company) any Company stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48); (v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of the Company Capital Stock (including, without limitation, through the conversion of one class of Company Capital Stock into another class of Company Capital Stock); or (vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation made in the Representation Letters or the Tax Opinions) which in the aggregate (and taking into account any other transactions described in this subparagraph (d)) would be reasonably likely to have the effect of causing or permitting one or more persons (whether or not acting in concert) to acquire directly or indirectly stock representing a Fifty-Percent or Greater Interest in the Company or otherwise jeopardize the Tax-Free Status, unless prior to taking any such action set forth in the foregoing clauses (i) through (vi), (x) the Company shall have requested that Lilly obtain a Ruling in accordance with Section 6.03(a) and Section 6.03(b) to the effect that such transaction will not affect the Tax-Free Status and Lilly shall have received such Ruling in form and substance satisfactory to Lilly in its sole and absolute discretion, (y) the Company shall have provided to Lilly an Unqualified Tax Opinion in form and substance satisfactory to Lilly in its sole and absolute discretion (and in determining whether an opinion is satisfactory, Lilly may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the opinion and Lilly may determine that no opinion would be acceptable to Lilly) to the effect that such transaction will not affect the Tax-Free Status or (z) Lilly shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.

 

(d)                                 Certain Issuances of Company Capital Stock. If the Company proposes to enter into any Section 6.01(d) Acquisition Transaction or, to the extent the Company has the right to prohibit any Section 6.01(d) Acquisition Transaction, proposes to permit any Section 6.01(d) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first Business Day after the two-year anniversary of the final Distribution Date, the Company shall provide Lilly, no later than ten Business Days following the signing of any written agreement with respect to the Section 6.01(d) Acquisition Transaction, with a written description of such transaction (including the type and amount of any stock to be issued in such transaction) and a certificate of the Board of Directors of the Company to the effect that such Section 6.01(d)

 

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Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 6.01(c) apply (a “Board Certificate”).

 

(e)                                  Company Internal Restructuring. The Company shall not engage in, cause or permit any internal restructuring (including by making or revoking any election under Treasury Regulations Section 301.7701-3) involving a member of the Company Group or any contribution, sale or other transfer to the Company or any of its Affiliates of any of the assets directly or indirectly contributed to the Company as described in the Separation Agreement, apart from sales in the ordinary course of business or transactions described in the Corporate Reorganization (any such action, an “Internal Restructuring”), during or with respect to any Tax Period (or portion thereof) ending on or prior to the final Distribution Date without obtaining the prior written consent of Lilly. The Company shall provide written notice to Lilly describing any Internal Restructuring proposed to be taken during or with respect to any Tax Period (or portion thereof) beginning after the final Distribution Date and ending on or prior to the two-year anniversary of such Distribution Date, and shall consult with Lilly regarding any such proposed actions reasonably in advance of taking any such proposed actions and shall consider in good faith any comments from Lilly relating thereto.

 

(f)                                    Gain Recognition Agreements. The Company shall not (i) take any action (including, but not limited to, the sale or disposition of any stock, securities, or other assets), (ii) permit any member of the Company Group to take any such action, (iii) fail to take any action, or (iv) permit any member of the Company Group to fail to take any action, in each case that would cause Lilly or any member of the Lilly Group to recognize gain under any Gain Recognition Agreement. In addition, the Company shall file, and shall cause any member of the Company Group to file, any Gain Recognition Agreement reasonably requested by Lilly which Gain Recognition Agreement is determined by Lilly to be necessary so as to (i) allow for or preserve the tax-free or tax-deferred nature, in whole or part, of any Separation Transaction, or (ii) avoid Lilly or any member of the Lilly Group recognizing gain under any Gain Recognition Agreement.

 

Section 6.02                            Restrictions on Lilly. Lilly agrees that it will not take or fail to take, or permit any Lilly Affiliate, as the case may be, to take or fail to take, any action (i) where such action or failure to act would be inconsistent with or cause to be untrue any statement, information, covenant or representation in any Representation Letters or the Tax Opinions, or (ii) which adversely affects or could reasonably be expected to adversely affect the Tax-Free Status; provided, however, that this Section 6.02 shall not be construed as obligating Lilly to consummate the Distribution nor shall it be construed as preventing Lilly from terminating the Separation Agreement pursuant to Section 10.1 thereof.

 

Section 6.03                            Procedures Regarding Opinions and Rulings.

 

(a)                                 If the Company notifies Lilly that it desires to take one of the actions described in clauses (i) through (vi) of Section 6.01(c) (a “Notified Action”), Lilly and the Company shall reasonably cooperate to attempt to obtain the Ruling or Unqualified Tax Opinion referred to in Section 6.01(c), unless Lilly shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.

 

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(b)                                 Rulings or Unqualified Tax Opinions at the Company’s Request. Lilly agrees that at the reasonable request of the Company pursuant to Section 6.01(c), Lilly shall cooperate with the Company and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a Ruling from the IRS or an Unqualified Tax Opinion for the purpose of permitting the Company to take the Notified Action. Further, in no event shall Lilly be required to file any Ruling Request under this Section 6.03(b) unless the Company represents that (i) it has read the Ruling Request, and (ii) all information and representations, if any, relating to any member of the Company Group, contained in the Ruling Request documents are (subject to any qualifications therein) true, correct and complete. The Company shall reimburse Lilly for all reasonable costs and expenses, including expenses relating to the utilization of Lilly personnel, incurred by the Lilly Group in obtaining a Ruling or Unqualified Tax Opinion requested by the Company within ten Business Days after receiving an invoice from Lilly therefor.

 

(c)                                  Rulings or Unqualified Tax Opinions at Lilly’s Request. Lilly shall have the right to obtain a Ruling or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If Lilly determines to obtain a Ruling or an Unqualified Tax Opinion, the Company shall (and shall cause each Affiliate of the Company to) cooperate with Lilly and take any and all actions reasonably requested by Lilly in connection with obtaining the Ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS or Tax Advisor; provided, that the Company shall not be required to make (or cause any Affiliate of the Company to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control). Lilly shall reimburse the Company for all reasonable costs and expenses, including expenses relating to the utilization of the Company personnel, incurred by the Company Group in connection with such cooperation within ten Business Days after receiving an invoice from the Company therefor.

 

(d)                                 The Company hereby agrees that Lilly shall have sole and exclusive control over the process of obtaining any Ruling, and that only Lilly shall apply for a Ruling. In connection with obtaining a Ruling pursuant to Section 6.03(b), (i) Lilly shall keep the Company informed in a timely manner of all material actions taken or proposed to be taken by Lilly in connection therewith; (ii) Lilly shall (A) reasonably in advance of the submission of any Ruling Request documents provide the Company with a draft copy thereof, (B) reasonably consider the Company’s comments on such draft copy, and (C) provide the Company with a final copy; and (iii) Lilly shall provide the Company with notice reasonably in advance of, and the Company shall have the right to attend, any formally scheduled meetings with the IRS (subject to the approval of the IRS) that relate to such Ruling. Neither the Company nor any Affiliate of the Company directly or indirectly controlled by the Company shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Contribution or the Distribution (including the impact of any transaction on the Contribution or the Distribution).

 

Section 6.04                            Liability for Tax-Related Losses.

 

(a)                                 Notwithstanding anything in this Agreement or the Separation Agreement to the contrary (and in each case regardless of whether any Ruling, Unqualified Tax Opinion or waiver referred to in Section 6.01(c) may have been provided), subject to Section 6.04(c), the Company

 

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shall be responsible for, and shall indemnify and hold harmless Lilly and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to or result from any one or more of the following: (i) the acquisition (other than pursuant to the Contribution, the IPO, or the Distribution) of all or a portion of the Company’s stock and/or its or its Subsidiaries’ assets by any means whatsoever by any Person; (ii) any negotiations, understandings, agreements or arrangements by the Company with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly stock of the Company representing a Fifty-Percent or Greater Interest therein; (iii) any action or failure to act by the Company after the Distribution (including, without limitation, any amendment to the Company’s certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of the Company stock (including, without limitation, through the conversion of one class of Company Capital Stock into another class of Company Capital Stock); (iv) any act or failure to act by the Company or any Affiliate of the Company described in Section 6.01 (regardless whether such act or failure to act may be covered by a Ruling, Unqualified Tax Opinion or waiver described in Section 6.01(c), a Board Certificate described in Section 6.01(d), or a consent described in Section 6.01(e)); or (v) any breach by the Company of its agreement and representation set forth in Section 6.01(a).

 

(b)                                 Notwithstanding anything in this Agreement or the Separation Agreement to the contrary, subject to Section 6.04(c), Lilly shall be responsible for, and shall indemnify and hold harmless the Company and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to, or result from any one or more of the following: (i) the acquisition (other than pursuant to the Contribution, the IPO, or the Distribution) of all or a portion of Lilly’s stock and/or its assets by any means whatsoever by any Person; (ii) any negotiations, agreements or arrangements by Lilly with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly stock of Lilly representing a Fifty-Percent or Greater Interest therein; (iii) any act or failure to act by Lilly or a member of the Lilly Group described in Section 6.02; or (iv) any breach by Lilly of its agreement and representation set forth in Section 6.02.

 

(c)

 

(i)                                     To the extent that any Tax-Related Loss is subject to indemnity under both Section 6.04(a) and Section 6.04(b), responsibility for such Tax-Related Loss shall be shared by Lilly and the Company according to relative fault.

 

(ii)                                  Notwithstanding anything in Section 6.04(b) or Section 6.04(c)(i) or any other provision of this Agreement or the Separation Agreement to the contrary:

 

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(A)                               with respect to (I) any Tax-Related Loss resulting from Section 355(e) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in Lilly) and (II) any other Tax-Related Loss resulting (for the absence of doubt, in whole or in part) from an acquisition after the Distribution of any stock or assets of the Company (or any Affiliate of the Company) by any means whatsoever by any Person or any action or failure to act by the Company affecting the voting rights of the Company stock, the Company shall be responsible for, and shall indemnify and hold harmless Lilly and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of such Tax-Related Loss; and

 

(B)                               for purposes of calculating the amount and timing of any Tax-Related Loss for which the Company is responsible under this Section 6.04, Tax-Related Losses shall be calculated by assuming that Lilly, the Lilly Affiliated Group and each member of the Lilly Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year.

 

(iii)                               Notwithstanding anything in Section 6.04(a) or Section 6.04(c)(i) or any other provision of this Agreement or the Separation Agreement to the contrary, with respect to (A) any Tax-Related Loss resulting from Section 355(e) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in the Company) and (B) any other Tax-Related Loss resulting (for the absence of doubt, in whole or in part) from an acquisition after the Distribution of any stock or assets of Lilly (or any Lilly Affiliate) by any means whatsoever by any Person, Lilly shall be responsible for, and shall indemnify and hold harmless the Company and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of such Tax-Related Loss.

 

(d)                                 The Company shall pay Lilly the amount of any Tax-Related Losses for which the Company is responsible under this Section 6.04: (A) in the case of Tax-Related Losses described in clause (i) of the definition of Tax-Related Losses no later than two Business Days prior to the date Lilly files, or causes to be filed, the applicable Tax Return for the year of the Contribution or Distribution, as applicable (the “Filing Date”) (provided, that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (i), (ii) or (iii) of the definition of Final Determination, then the Company shall pay Lilly no later than two Business Days after the date of such Final Determination with interest calculated at the Prime Rate plus two percent, compounded semiannually, from the date that is two Business Days prior to the Filing Date through the date of such Final Determination) and (B) in the case of Tax-Related Losses described in clause (ii) or (iii) of the definition of Tax-Related Losses, no later than two Business Days after the date Lilly pays such Tax-Related Losses. Lilly shall pay the Company the amount of any Tax-Related Losses (described in clause (ii) or (iii) of the definition of Tax-Related Loss) for which Lilly is responsible under this Section 6.04 no later than two Business Days after the date the Company pays such Tax-Related Losses.

 

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Section 7.                                          Assistance and Cooperation.

 

Section 7.01                            Assistance and Cooperation.

 

(a)                                 The Parties shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other’s agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Parties and their Affiliates including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making all information and documents in their possession relating to the other Party and its Affiliates available to such other Party as provided in Section 8. Each of the Parties shall also make available to the other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Parties or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. The Parties shall cooperate pursuant to this Section 7 to seek any competent authority relief that may be available with respect to any Tax detriment that would be suffered by a member of the Lilly Group, on the one hand, or a member of the Company Group, on the other hand, absent such competent authority relief. The Company shall cooperate with Lilly and take any and all actions reasonably requested by Lilly in connection with obtaining the Tax Opinions (including, without limitation, by making any new representation or covenant, confirming any previously made representation or covenant or providing any materials or information requested by any Tax Advisor or Tax Authority; provided, that the Company shall not be required to make or confirm any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control).

 

(b)                                 Any information or documents provided under this Section 7 shall be kept confidential by the Party receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. Notwithstanding any other provision of this Agreement or any other agreement, (i) neither Lilly nor any Lilly Affiliate shall be required to provide the Company or any Affiliate of the Company or any other Person access to or copies of any information, documents or procedures (including the proceedings of any Tax Contest) other than information, documents or procedures that relate to the Company, the business or assets of the Company or any Affiliate of the Company and (ii) in no event shall Lilly or any Lilly Affiliate be required to provide the Company, any Affiliate of the Company or any other Person access to or copies of any information or documents if such action could reasonably be expected to result in the waiver of any Privilege. In addition, in the event that Lilly determines that the provision of any information or documents to the Company or any Affiliate of the Company could be commercially detrimental, violate any Law or agreement or waive any Privilege, the Parties shall use reasonable best efforts to permit compliance with its obligations under this Section 7 in a manner that avoids any such harm or consequence.

 

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Section 7.02                            Income Tax Return Information. The Company and Lilly acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by Lilly or the Company pursuant to Section 7.01 or this Section 7.02. The Company and Lilly acknowledge that failure to conform to the reasonable deadlines set by Lilly or the Company could cause irreparable harm. Each Party shall provide to the other Party information and documents relating to its Group required by the other Party to prepare Tax Returns, including, but not limited to, any pro forma returns required by the Responsible Party for purposes of preparing such Tax Returns. Any information or documents the Responsible Party requires to prepare such Tax Returns shall be provided in such form as the Responsible Party reasonably requests and at or prior to the time reasonably specified by the Responsible Party so as to enable the Responsible Party to file such Tax Returns on a timely basis.

 

Section 7.03                            Reliance by Lilly. If any member of the Company Group supplies information to a member of the Lilly Group in connection with a Tax liability and an officer of a member of the Lilly Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Lilly Group identifying the information being so relied upon, the chief financial officer of the Company (or any officer of the Company as designated by the chief financial officer of the Company) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.

 

Section 7.04                            Reliance by the Company. If any member of the Lilly Group supplies information to a member of the Company Group in connection with a Tax liability and an officer of a member of the Company Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Company Group identifying the information being so relied upon, the chief financial officer of Lilly (or any officer of Lilly as designated by the chief financial officer of Lilly) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.

 

Section 8.                                          Tax Records.

 

Section 8.01                            Retention of Tax Records. Each Party shall preserve and keep all Tax Records exclusively relating to the assets and activities of its Group for Pre-Deconsolidation Periods, and Lilly shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Deconsolidation Tax Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitations, or (ii) seven years after the Deconsolidation Date (such later date, the “Retention Date”). After the Retention Date, each Party may dispose of such Tax Records upon 60 Business Days’ prior written notice to the other Party. If, prior to the Retention Date, a Party reasonably determines that any Tax Records which it would otherwise be required to preserve and keep under this Section 8 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Party agrees, then such first Party may dispose of such Tax Records upon 60 Business Days’ prior notice to the other Party. Any notice of an intent to dispose given pursuant to this Section 8.01 shall include a list of the Tax Records to be disposed of describing in reasonable detail each file, book, or other record accumulation being disposed. The notified Party shall have

 

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the opportunity, at its cost and expense, to copy or remove, within such 60 Business Day period, all or any part of such Tax Records.

 

Section 8.02                            Access to Tax Records. The Parties and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records (and, for the avoidance of doubt, any pertinent underlying data accessed or stored on any computer program or information technology system) in their possession and shall permit the other Party and its Affiliates, authorized agents and representatives and any representative of a Taxing Authority or other Tax auditor direct access, at the cost and expense of such other Party, during normal business hours upon reasonable notice to any computer program or information technology system used to access or store any Tax Records, in each case to the extent reasonably required by the other Party in connection with the preparation of Tax Returns or financial accounting statements, audits, litigation, or the resolution of items under this Agreement.

 

Section 8.03                            Preservation of Privilege. No member of the Company Group shall provide access to, copies of, or otherwise disclose to any Person any documentation relating to Taxes existing prior to the final Distribution Date to which Privilege may reasonably be asserted without the prior written consent of Lilly, such consent not to be unreasonably withheld.

 

Section 9.                                          Tax Contests.

 

Section 9.01                            Notice. Each of the Parties shall provide prompt notice to the other Party of any written communication from a Tax Authority regarding any pending Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware related to Taxes for Tax Periods for which it is indemnified by the other Party hereunder or for which it may be required to indemnify the other Party hereunder. Such notice shall attach copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If an indemnified Party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such Party fails to give the indemnifying Party prompt notice of such asserted Tax liability and the indemnifying Party is entitled under this Agreement to contest the asserted Tax liability, then (i) if the indemnifying Party is precluded from contesting the asserted Tax liability in any forum as a result of the failure to give prompt notice, the indemnifying Party shall have no obligation to indemnify the indemnified Party for any Taxes arising out of such asserted Tax liability, and (ii) if the indemnifying Party is not precluded from contesting the asserted Tax liability in any forum, but such failure to give prompt notice results in a material monetary detriment to the indemnifying Party, then any amount which the indemnifying Party is otherwise required to pay the indemnified Party pursuant to this Agreement shall be reduced by the amount of such detriment.

 

Section 9.02                            Control of Tax Contests.

 

(a)                                 Separate Returns. In the case of any Tax Contest with respect to any Separate Return, the Party having liability for the Tax pursuant to Section 2 hereof shall have exclusive

 

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control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(c) and Section 9.02(d) below.

 

(b)                                 Joint Return. In the case of any Tax Contest with respect to any Joint Return, Lilly shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(c) and Section 9.02(d) below.

 

(c)                                  Settlement Rights. The Controlling Party shall have the sole right to contest, litigate, compromise and settle any Tax Contest without obtaining the prior consent of the Non-Controlling Party. Unless waived by the Parties in writing, in connection with any potential adjustment in a Tax Contest as a result of which adjustment the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment to the Controlling Party under this Agreement: (i) the Controlling Party shall keep the Non-Controlling Party informed in a timely manner of all actions taken or proposed to be taken by the Controlling Party with respect to such potential adjustment in such Tax Contest; (ii) the Controlling Party shall timely provide the Non-Controlling Party copies of any written materials relating to such potential adjustment in such Tax Contest received from any Tax Authority; (iii) the Controlling Party shall timely provide the Non-Controlling Party with copies of any correspondence or filings submitted to any Tax Authority or judicial authority in connection with such potential adjustment in such Tax Contest; (iv) the Controlling Party shall consult with the Non-Controlling Party and offer the Non-Controlling Party a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such potential adjustment in such Tax Contest; and (v) the Controlling Party shall defend such Tax Contest diligently and in good faith. The failure of the Controlling Party to take any action specified in the preceding sentence with respect to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Non-Controlling Party was actually harmed by such failure, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party. In the case of any Tax Contest described in Section 9.02(a) or Section 9.02(b), “Controlling Party” means the Party entitled to control the Tax Contest under such Section and “Non-Controlling Party” means the other Party.

 

(d)                                 Tax Contest Participation. Unless waived by the Parties in writing, the Controlling Party shall provide the Non-Controlling Party with written notice reasonably in advance of, and the Non-Controlling Party shall have the right to attend, any formally scheduled meetings with Tax Authorities or hearings or proceedings before any judicial authorities in connection with any potential adjustment in a Tax Contest pursuant to which the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment to the Controlling Party under this Agreement. The failure of the Controlling Party to provide any notice specified in this Section 9.02(d) to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Non-Controlling Party was actually harmed by such failure, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party.

 

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(e)                                  Power of Attorney. Each member of the Company Group shall execute and deliver to Lilly (or such member of the Lilly Group as Lilly shall designate) any power of attorney or other similar document reasonably requested by Lilly (or such designee) in connection with any Tax Contest (as to which Lilly is the Controlling Party) described in this Section 9. Each member of the Lilly Group shall execute and deliver to the Company (or such member of the Company Group as the Company shall designate) any power of attorney or other similar document requested by the Company (or such designee) in connection with any Tax Contest (as to which the Company is the Controlling Party) described in this Section 9.

 

Section 10.                                   Effective Date. This Agreement shall be effective as of the date hereof.

 

Section 11.                                   Treatment of Payments.

 

Section 11.01                     Treatment of Tax Indemnity Payments. In the absence of any change in Tax treatment under the Code or except as otherwise required by other applicable Tax Law, any Tax indemnity payments made by a Party under this Agreement shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the Deconsolidation (but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Section 1552 of the Code or the Treasury Regulations thereunder or Treasury Regulations Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws)) or as payments of an assumed or retained liability. Except to the extent provided in Section 11.02, any Tax indemnity payment made by a Party under this Agreement shall be increased as necessary so that after making all payments in respect of Taxes imposed on or attributable to such indemnity payment, the recipient Party receives an amount equal to the sum it would have received had no such Taxes been imposed.

 

Section 11.02                     Interest Under This Agreement. Notwithstanding anything herein to the contrary, to the extent one Party (“Indemnitor”) makes a payment of interest to another Party (“Indemnitee”) under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by Law) and as interest income by the Indemnitee (includible in income to the extent provided by Law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee.

 

Section 12.                                   Disagreements.

 

Section 12.01                     Discussion. The Parties mutually desire that friendly collaboration will continue between them. Accordingly, they will use good faith efforts, and they will cause their respective Group members to use good faith efforts, to resolve in an amicable manner all disagreements and misunderstandings connected with their respective rights and obligations under this Agreement, including any amendments hereto. In furtherance thereof, in the event of any dispute or disagreement (a “Dispute”) between any member of the Lilly Group and any member of the Company Group as to the interpretation of any provision of this Agreement or the

 

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performance of obligations hereunder, the Tax departments of the Parties shall negotiate in good faith to resolve the Dispute.

 

Section 12.02                     Escalation. If such good faith negotiations do not resolve the Dispute, then the matter, upon written request of either Party, will be referred for resolution to representatives of the Parties at a senior level of management of the Parties pursuant to the procedures set forth in Section 8.02(a) of the Separation Agreement.

 

Section 12.03                     Referral to Tax Advisor. If the Parties are not able to resolve the Dispute through the escalation process referred to above, then the matter will be referred to a Tax Advisor acceptable to each of the Parties to act as an arbitrator in order to resolve the Dispute. In the event that the Parties are unable to agree upon a Tax Advisor within 15 Business Days following the completion of the escalation process, the Parties shall each separately retain an independent, nationally recognized law or accounting firm (each, a “Preliminary Tax Advisor”), which Preliminary Tax Advisors shall jointly select a Tax Advisor on behalf of the Parties to act as an arbitrator in order to resolve the Dispute. The Tax Advisor may, in its discretion, obtain the services of any third-party appraiser, accounting firm or consultant that the Tax Advisor deems necessary to assist it in resolving such disagreement. The Tax Advisor shall furnish written notice to the Parties of its resolution of any such Dispute as soon as practical, but in any event no later than 30 Business Days after its acceptance of the matter for resolution. Any such resolution by the Tax Advisor will be conclusive and binding on the Parties. Following receipt of the Tax Advisor’s written notice to the Parties of its resolution of the Dispute, the Parties shall each take or cause to be taken any action necessary to implement such resolution of the Tax Advisor. Each Party shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Tax Advisor (and the Preliminary Tax Advisors, if any). All fees and expenses of the Tax Advisor (and the Preliminary Tax Advisors, if any) in connection with such referral shall be shared equally by the Parties.

 

Section 12.04                     Injunctive Relief. Nothing in this Section 12 will prevent either Party from seeking injunctive relief if any delay resulting from the efforts to resolve the Dispute through the process set forth above could result in serious and irreparable injury to either Party. Notwithstanding anything to the contrary in this Agreement, Lilly and the Company are the only members of their respective Group entitled to commence a dispute resolution procedure under this Agreement, and each of Lilly and the Company will cause its respective Group members not to commence any dispute resolution procedure other than through such Party as provided in this Section 12.

 

Section 13.                                   General Provisions.

 

Section 13.01                     Counterparts; Entire Agreement; Conflicting Agreements.

 

(a)                                 This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. Execution of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic copy of a signature shall be deemed to be, and shall have the same effect as being, executed by an original signature.

 

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(b)                                 The Transaction Documents and the exhibits, the schedules and appendices thereto contain the entire agreement between the Parties with respect to Taxes, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Parties with respect to such subject matter other than those set forth or referred to herein or therein. All such other agreements shall be of no further effect between the Parties and any rights or obligations existing thereunder shall be fully and finally settled, calculated as of the date hereof.

 

(c)                                  In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any other Ancillary Agreement or a Local Transfer Agreement with respect to Taxes, this Agreement shall control.

 

Section 13.02                     No Construction Against Drafter. The Parties acknowledge that this Agreement and all the terms and conditions contained herein have been fully reviewed and negotiated by the Parties. Having acknowledged the foregoing, the Parties agree that any principle of construction or rule of Law that provides that, in the event of any inconsistency or ambiguity, an agreement shall be construed against the drafter of the agreement shall have no application to the terms and conditions of this Agreement.

 

Section 13.03                     Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of Indiana, without regard to the conflict of laws principles thereof that would result in the application of any Law other than the Laws of the State of Indiana.

 

Section 13.04                     Assignability. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that no Party may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the other Party; provided, further, that this Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to either of the Parties (including but not limited to any successor of Lilly or the Company succeeding to any Tax Attributes of either Party under Section 381 of the Code), to the same extent as if such successor had been an original party to this Agreement.

 

Section 13.05                     Third Party Beneficiaries. Except for the indemnification rights under this Agreement of any Affiliate of Lilly or the Company in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person (including employees of the Parties) except the Parties any rights or remedies hereunder, and (b) there are no third party beneficiaries of this Agreement and this Agreement shall not provide any third person (including employees of the Parties) with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

 

Section 13.06                     Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows:

 

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If to Lilly, to:

 

Eli Lilly and Company

Lilly Corporate Center

Indianapolis, Indiana 46285

Attention:                                         General Counsel

 

If to the Company to:

 

Elanco Animal Health Incorporated

2500 Innovation Way

Greenfield, Indiana 46140

Attention:                                         General Counsel

 

Any Party may, by notice to the other Party, change the address to which such notices are to be given.

 

Section 13.07                     Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the greatest extent possible.

 

Section 13.08                     Force Majeure. No party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

 

Section 13.09                     Late Payments. Except as expressly provided to the contrary in this Agreement, any amount not paid when due pursuant to this Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus 5%.

 

Section 13.10                     Expenses. Except as otherwise specified in this Agreement and except as otherwise agreed in writing between Lilly and the Company, Lilly and the Company shall each be responsible for its own fees, costs and expenses paid or incurred in connection with

 

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preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.

 

Section 13.11                     Further Action. The Parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other Parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other Parties in accordance with Section 9.

 

Section 13.12                     Headings. The table of contents and article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

Section 13.13                     Survival. The covenants and other agreements contained herein and the indemnification obligations and liability for the breach of any obligations contained herein, shall survive the Separation and the IPO, and shall remain in full force and effect.

 

Section 13.14                     Waivers of Default. Waiver by either Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.

 

Section 13.15                     Specific Performance. In the event of any actual or threatened default or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are or are to be thereby aggrieved shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in each case (a) without the requirement of posting any bond or other indemnity and (b) in addition to any other remedy to which it or they may be entitled, at Law or in equity. Such remedies shall be cumulative with and not exclusive of and shall be in addition to any other remedies which any party may have under this Agreement, or at Law or in equity or otherwise, and the exercise by a party hereto of any one remedy shall not preclude the exercise of any other remedy.

 

Section 13.16                     Amendments. No provision of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

Section 13.17                     Interpretation. Interpretation of this Agreement (except as specifically provided in this Agreement, in which case such specified rules of construction shall govern with respect to this Agreement) shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph and Exhibit are references to the Articles, Sections, paragraphs and Exhibits to this Agreement unless otherwise specified; (c) the terms “hereof”, “herein”, “hereby”, “hereto” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and

 

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words of similar import shall mean “including without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) provisions shall apply, when appropriate, to successive events and transactions; (i) a reference to any Person includes such Person’s permitted successors and permitted assigns; (j) any reference to “days” means calendar days unless Business Days are expressly specified; and (k) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day.

 

Section 13.18                     Waiver of Jury Trial. SUBJECT TO ARTICLE VIII AND SECTIONS 11.15 AND 11.19 OF THE SEPARATION AGREEMENT, EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.18.

 

Section 13.19                     Submission to Jurisdiction; Waivers. With respect to any Action relating to or arising out of this Agreement, subject to the provisions of Section 12, each Party irrevocably (a) consents and submits to the exclusive jurisdiction of the courts of the State of Indiana and any court of the United States located in the State of Indiana; (b) waives any objection which such Party may have at any time to the laying of venue of any Action brought in any such court, waives any claim that such Action has been brought in an inconvenient forum and further waives the right to object, with respect to such Action, that such court does not have jurisdiction over such Party; and (c) consents to the service of process at the address set forth for notices in Section 13.06 herein; provided, however, that such manner of service of process shall not preclude the service of process in any other manner permitted under applicable Law.

 

Section 13.20                     The Company Subsidiaries. If, at any time, the Company acquires or creates one or more Subsidiaries that are includable in the Company Group, they shall be subject to this Agreement and all references to the Company Group herein shall thereafter include a reference to such Subsidiaries.

 

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IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on its behalf by a duly authorized officer on the date first set forth above.

 

	
 
    	
ELI LILLY AND COMPANY
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
ELANCO ANIMAL HEALTH INCORPORATED
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

[Signature Page to Tax Matters Agreement]

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