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Questions and Answers About the Separation and Distribution

Tax Letter-Cost Basis

Spinoff FAQs
1. What is Halyard and why is Kimberly-Clark separating its health care business and distributing Halyard common stock?

Halyard currently is a wholly-owned subsidiary of Kimberly-Clark that was formed to hold Kimberly-Clark’s health care business. Following the distribution, Halyard will no longer be a wholly-owned subsidiary of Kimberly-Clark. The separation of our business from Kimberly-Clark and the distribution of Halyard common stock is intended to provide you with equity investments in two distinct companies—Kimberly-Clark and Halyard—that will each be able to focus on its own distinct operating needs, priorities and strategies. The separation and distribution is expected to result in improved long-term performance of our and Kimberly-Clark’s respective businesses for the reasons discussed in “The Separation and Distribution – Reasons for the Separation and Distribution” in the information statement.

2. How will the separation and distribution work?

The separation and distribution will be accomplished through a series of transactions in which Kimberly-Clark will transfer its health care business to us and then distribute all of the outstanding shares of Halyard common stock to the stockholders of Kimberly-Clark on a pro rata basis.

3. What will our relationship be with Kimberly-Clark after the distribution?

We will be a separate, publicly-traded company and Kimberly-Clark will not own Halyard common stock after the distribution. We will, however, enter into a distribution agreement and various other agreements with Kimberly-Clark to effect the separation and set forth our contractual relationships with Kimberly-Clark after the distribution. These agreements will provide for the allocation, between us and Kimberly-Clark, of Kimberly-Clark’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the distribution. These agreements also will govern certain relationships between us and Kimberly-Clark after the distribution. For additional information, see “Our Relationship with Kimberly-Clark after the Distribution” in the Information Statement

4. How will we be managed after the distribution?

Robert Abernathy is our Chief Executive Officer. Mr. Abernathy joined Kimberly-Clark in 1982 and has held senior management positions throughout Kimberly-Clark, including having overall responsibility for Kimberly-Clark’s health care business from 1997 to early 2004. He will be supported by an experienced management team that includes Christopher Lowery, Senior Vice President and Chief Operating Officer, and Steven Voskuil, Senior Vice President and Chief Financial Officer. For more information on our management team, see the “Management” section in the information statement.

5. When will the distribution occur?

We expect that Kimberly-Clark will distribute the shares of Halyard common stock on October 31, 2014 to holders of record of Kimberly-Clark common stock on the record date.

6. What is the record date for the distribution?

October 23, 2014.

7. What do I have to do to participate in the distribution?

You are not required to take any action to receive Halyard common stock in the distribution, but you are encouraged to read this entire information statement carefully. No vote will be taken for the distribution. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing Kimberly-Clark common stock or take any other action to receive your shares of Halyard common stock. If you own Kimberly-Clark common stock as of the close of business on the record date, a book-entry account statement reflecting your ownership of shares of Halyard common stock will be mailed to you, or your brokerage account will be credited for the shares. You should not and do not need to mail in Kimberly-Clark common stock certificates to receive Halyard common stock.

8. How many shares of Halyard common stock will I receive?

Kimberly-Clark will distribute one share of Halyard common stock for every eight shares of Kimberly-Clark common stock you own as of the close of business on the record date. For example, if you own 80 shares of Kimberly-Clark common stock on the record date, you will receive 10 shares of Halyard common stock in the distribution. Based on approximately 372,114,350 shares of Kimberly-Clark common stock that we expect to be outstanding on the record date, Kimberly-Clark will distribute a total of approximately 46,514,294 shares of Halyard common stock, representing 100% of the outstanding Halyard common stock. For more information, see section “The Separation and Distribution” in the information statement.

9. Will I receive physical stock certificates representing shares of Halyard common stock?

No, you will not receive a stock certificate in connection with the distribution. Instead, if you own Kimberly-Clark common stock as of the close of business on the record date, including shares owned in certificate form or through the Kimberly-Clark dividend reinvestment plan, Kimberly-Clark, with the assistance of Computershare Inc. (“Computershare”), the settlement and distribution agent, will electronically distribute shares of Halyard common stock to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of Halyard common stock, or your bank or brokerage firm will credit your account for the shares.

10. Will Kimberly-Clark distribute fractional shares?

No. In lieu of fractional shares of Halyard common stock, stockholders of Kimberly-Clark will receive cash. Fractional shares you would otherwise be entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed ratably to those stockholders who would otherwise have received fractional shares of Halyard common stock. If you own less than eight shares of Kimberly-Clark common stock on the record date, you will not receive any shares of Halyard common stock in the distribution, but you will receive cash in lieu of fractional shares. Cash you receive in lieu of fractional shares will generally be taxable.

11. What are the conditions to the distribution?

The distribution is subject to a number of conditions, including, among others:

  • the debt financing contemplated to be obtained by Halyard in connection with the distribution, as described in the distribution agreement, shall have been obtained,
  • the making of a cash distribution from Halyard to Kimberly-Clark prior to the distribution in an amount equal to all of Halyard’s available cash on the distribution date in excess of the minimum amount, 
  • the receipt of an opinion of Baker Botts, L.L.P. to the effect that the separation and the distribution will qualify as a “reorganization” under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (Code),
  • the receipt of an opinion from Houlihan Lokey, Inc. with respect to the solvency of Halyard in connection with the distribution, 
  • Kimberly-Clark shall have completed the transfer to us of assets and liabilities as well as the permits, licenses and registrations relating to our business as described in this information statement,
  • the U.S. Securities and Exchange Commission (SEC) shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended (Exchange Act), and no stop order relating to our registration statement shall be in effect, 
  • we and Kimberly-Clark shall have received all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of foreign jurisdictions in connection with the distribution,
  • the shares of Halyard common stock to be distributed shall have been accepted for listing on the New York Stock Exchange, subject to official notice of distribution,
  • execution and delivery of the transaction agreements relating to the separation as described in “Our Relationship with Kimberly-Clark after the Distribution,”
  • no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition shall be in effect that prevents consummation of the separation, distribution or any of the related transactions, including the transfers of assets and liabilities contemplated by the distribution agreement, and
  • no other event or development shall be in existence or have occurred that, in the judgment of Kimberly-Clark’s Board of Directors, in its sole discretion, makes it inadvisable to effect the distribution and other related transactions.

Neither we nor Kimberly-Clark can assure you that any or all of these conditions will be met. In addition, Kimberly-Clark can decline at any time to go forward with the separation and distribution. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution – Distribution Conditions and Termination” in the information statement.

12. Can Kimberly-Clark decide to cancel the distribution of Halyard common stock even if all of the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. Until the distribution has occurred, Kimberly-Clark’s Board of Directors has the right to cancel the distribution, even if all of the conditions are satisfied. See the section in the information statement entitled “The Separation and Distribution –Distribution Conditions and Termination.”

13. What if I want to sell my Kimberly-Clark common stock or my Halyard common stock?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

14. What is “regular-way” and “ex-distribution” trading of Kimberly-Clark stock?

Beginning on or shortly before the record date and continuing up to and through the distribution date, it is expected that there will be two markets in Kimberly-Clark common stock: a “regular-way” market and an “ex-distribution” market. Kimberly-Clark common stock that trades in the “regular-way” market will trade with an entitlement to shares of Halyard common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Halyard common stock distributed pursuant to the distribution. If you decide to sell your Kimberly-Clark common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Kimberly-Clark common stock with or without your entitlement to Halyard common stock pursuant to the distribution.

15. Is the distribution taxable for U.S. federal income tax purposes?

The distribution is conditioned on the receipt by Kimberly-Clark of an opinion from its outside tax counsel, Baker Botts L.L.P., to the effect that the contribution of our business to us by Kimberly-Clark and the distribution of our common stock will qualify as a “reorganization” under Sections 368(a)(1)(D) and 355 of the Code. Assuming the separation and the distribution qualify as a “reorganization” under Sections 368(a)(1)(D) and 355 of the Code, for U.S. federal income tax purposes, gain or loss generally will not be recognized by Kimberly-Clark on the distribution and, except for gain realized on the receipt of cash paid in lieu of fractional shares, no gain or loss will be recognized by you, and no amount will be included in your income for U.S. federal income tax purposes, upon the receipt of shares of Halyard common stock in the distribution. For more information regarding the potential U.S. federal income tax consequences to Kimberly-Clark and to you of the distribution, see “Material U.S. Federal Income Tax Consequences” in the information statement.

16. How will the distribution affect my tax basis in Kimberly-Clark common stock?

For U.S. federal income tax purposes, your basis in the Kimberly-Clark common stock will be allocated between the Kimberly-Clark common stock and Halyard common stock received in the distribution in proportion to their relative fair market values on the date of the distribution. Within a reasonable time after the distribution is completed, Kimberly-Clark will provide to U.S. taxpayers information to enable them to compute their tax bases in both Kimberly-Clark and Halyard common stock and other information they will need to report their receipt of Halyard common stock on their 2014 U.S. federal income tax return as a tax-free transaction. See “Material U.S. Federal Income Tax Consequences” in the information statement for a more complete description of the effects on your tax basis.

17. Are there risks associated with owning Halyard common stock?

Yes. Ownership of Halyard common stock is subject to both general and specific risks relating to our business, the industry in which we operate, our ongoing contractual relationships with Kimberly-Clark and our status as a separate, publicly-traded company. Ownership of Halyard common stock is also subject to risks relating to the distribution. These risks are described in the “Risk Factors” section in the information statement. You are encouraged to read that section carefully.

18. Will I be paid any dividends on Halyard common stock?

We currently do not anticipate paying cash dividends on Halyard common stock. See “Dividend Policy” for additional information on our dividend policy after the distribution.

19. Where will I be able to trade shares of Halyard common stock?

We have been authorized to list the Halyard common stock on the New York Stock Exchange under the symbol “HYH.” We anticipate that trading in shares of Halyard common stock will begin on a “when-issued” basis on or around the record date and will continue up to and through the distribution date, and that “regular-way” trading will begin on the first trading day after the distribution date. If trading does begin on a “when-issued” basis, you may purchase or sell Halyard common stock after that time, but your transaction will not settle until after the distribution date. We cannot predict the trading prices of Halyard common stock before, on or after the distribution date.

20. Will the number of Kimberly-Clark shares I own change as a result of the distribution?

No. The number of shares of Kimberly-Clark common stock you own will not change as a result of the distribution.

21. What will happen to the listing of Kimberly-Clark common stock?

Kimberly-Clark common stock will continue to be traded on the New York Stock Exchange under the symbol “KMB” following the distribution.

22. Will Halyard incur any debt prior to or at the time of the distribution?

Yes. We anticipate having approximately $640.0 million of indebtedness upon completion of the distribution. Prior to the distribution, we expect to borrow approximately $640.0 million through the issuance of senior unsecured notes and a secured term loan. We also anticipate entering into a revolving credit facility allowing borrowings of up to $250.0 million. 

23. Who will be the distribution agent, transfer agent and registrar for the Halyard common stock?

The distribution agent, transfer agent and registrar for Halyard common stock will be Computershare. For questions relating to the transfer or mechanics of the stock distribution, you should contact:

Computershare Trust Company, N.A.
(866) 286-9199
www.computershare.com/investor

If your shares are held by a bank, broker or other nominee please call them directly.

 

24. Where can I find more information about Kimberly-Clark and Halyard?

Before the distribution, if you have any questions relating to Kimberly-Clark, you should contact:
Kimberly-Clark Corporation
P.O. Box 619100
Dallas, Texas 75261-9100
Attention: Stockholder Services
(972) 281-1522
www.kimberly-clark.com

After the distribution, Halyard stockholders who have any questions relating
to Halyard should contact us at:
Halyard Health, Inc.
5405 Windward Parkway
Suite 100, South
Alpharetta, GA 30004
Attention: Stockholder Services
(678) 425-9273
www.halyardhealth.com