Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from prospectus requirements to allow U.S. parent company to spin-off its wholy-owned U.S. subsidiary to shareholder of the U.S. parent company -- share distributions not covered by legislative exemptions -- U.S. parent company has a de minimis presence in Canada -- U.S. parent company is a public company in the U.S. but is not a reporting issuer in Canada -- following the spin-off, U.S. subsidiary will become an independent public company in the U.S. and will not be a reporting issuer in Canada -- no investment decision required from Canadian shareholders in order to receive share distributions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5., as am., s. 53.

June 9, 2015

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BAXTER INTERNATIONAL INC. (the "Filer")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for an exemption (the "Exemption Sought") from the prospectus requirement of section 53 of the Securities Act (Ontario) (the "Act") in connection with the proposed distribution (the "Spin-Off") by the Filer of the shares of common stock of Baxalta Incorporation ("Baxalta"), a direct wholly-owned subsidiary of the Filer, by way of a dividend in specie to holders ("Filer Shareholders") of shares of common stock of the Filer ("Filer Shares") resident in Canada ("Filer Canadian Shareholders").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in each of the other provinces and territories of Canada.

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer.

1. The Filer is a corporation incorporated in Delaware with principal executive offices in Deerfield, Illinois, U.S.A. The Filer is a global diversified healthcare company with expertise in medical devices, pharmaceuticals and biotechnology.

2. The Filer is not a reporting issuer under the securities laws of any province or territory of Canada and, currently, has no intention of becoming a reporting issuer under the securities laws of any province or territory of Canada.

3. The authorized capital of the Filer consists of 2 billion Filer Shares and 100 million shares of preferred stock. As of April 30, 2015, there were 544,254,211 Filer Shares issued and outstanding and no shares of preferred stock were outstanding.

4. Filer Shares are listed on the New York Stock Exchange (the "NYSE") and trade under the symbol "BAX". Filer Shares are not listed on any Canadian stock exchange and, currently, the Filer has no intention of listing its shares on any Canadian stock exchange.

5. The Filer is subject to the United States Securities Exchange Act of 1934 (the "1934 Act") and the rules, regulations and orders promulgated thereunder.

6. Based on a "Geographic Survey Breakdown Snapshot" that breaks down the Filer's record holders by domicile provided by Computershare Investor Services (the Filer's transfer agent), as of March 31, 2015, there were 499 registered Filer Canadian Shareholders holding approximately 88,646.84 Filer Shares, representing approximately 1.47% of the registered shareholders of the Filer worldwide and holdings of approximately 0.02% of the outstanding Filer Shares. The Filer does not expect these numbers to have materially changed since that date.

7. Based on a "Geographic Survey" of beneficial holders provided by Broadridge Financial Solutions Inc. obtained by the Filer as of May 7, 2015, there were 7,862 beneficial Filer Canadian Shareholders, representing approximately 2.94% of the beneficial holders of Filer Shares worldwide, holding approximately 8,863,401.61 Filer Shares, representing approximately 1.63% of the outstanding Filer Shares. The Filer does not expect these numbers to have materially changed since that date.

8. Based on the information above, the number of registered and beneficial Filer Canadian Shareholders and the proportion of Filer Shares held by such shareholders are de minimis.

9. The Filer is proposing to spin off its biopharmaceuticals business into a newly formed independent company, Baxalta, through a series of transactions. These transactions are expected to result in the Spin-Off by the Filer, pro rata to its shareholders, of more than 80% of the outstanding shares in the common stock of Baxalta ("Baxalta Shares").

10. Baxalta is a Delaware corporation with principal executive offices in Bannockburn, Illinois, U.S.A. It is currently a wholly-owned subsidiary of the Filer that, at the time of the Spin-Off, will hold the Filer's biopharmaceuticals business.

11. As of the date hereof, all of the issued and outstanding Baxalta Shares are held by the Filer, and no other shares or classes of stock of Baxalta are issued and outstanding.

12. Fractional shares of Baxalta Shares will not be distributed in connection with the Spin-Off. Fractional Baxalta Shares that Filer Shareholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate cash proceeds (net of discounts and commissions) of these sales will be distributed pro rata to those Filer Shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest thereon.

13. Filer Shareholders will not be required to pay any consideration for the Baxalta Shares, or to surrender or exchange Filer Shares or take any other action to receive their Baxalta Shares. The Spin-Off will occur automatically and without any investment decision on the part of Filer Shareholders.

14. Following the Spin-Off, Baxalta will cease to be a subsidiary of the Filer.

15. Baxalta will apply to have the Baxalta Shares listed on the NYSE before the Spin-Off.

16. After the completion of the Spin-Off, the Filer will continue to be listed and traded on the NYSE.

17. Baxalta is not a reporting issuer in any province or territory in Canada nor are its securities listed on any stock exchange in Canada. To the knowledge of the Filer, Baxalta has no intention to become a reporting issuer in any province or territory in Canada or to list its securities on any stock exchange in Canada after the completion of the Spin-Off.

18. The Spin-Off will be effected under the laws of the State of Delaware.

19. Because the Spin-Off will be effected by way of a dividend of Baxalta Shares to Filer Shareholders, no shareholder approval of the proposed transaction is required (or being sought) under Delaware law.

20. In connection with the Spin-Off, Baxalta has filed with the United States Securities and Exchange Commission (the "SEC") a registration statement on Form 10 (the "Registration Statement") under the 1934 Act, detailing the proposed Spin-Off. Baxalta initially filed the Registration Statement with the SEC on December 10, 2014 and subsequently filed amendments to the Registration Statement on January 26, 2015, April 10, 2015, May 19, 2015 and May 28, 2015.

21. After the SEC has completed its review of the Registration Statement, Filer Shareholders will receive a copy of an information statement (the "Information Statement") detailing the terms and conditions of the Spin-Off and forming part of the Registration Statement. All materials relating to the Spin-Off sent by or on behalf of the Filer and Baxalta in the United States (including the Information Statement) will be sent concurrently to Filer Canadian Shareholders.

22. The Information Statement will contain prospectus level disclosure about Baxalta.

23. Filer Canadian Shareholders who receive Baxalta Shares pursuant to the Spin-Off will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin-Off that are available to Filer Shareholders resident in the United States.

24. Following the completion of the Spin-Off, Baxalta will send concurrently to Baxalta Shareholders resident in Canada the same disclosure materials required to be sent under applicable U.S. securities laws to Baxalta Shareholders resident in the United States.

25. There will be no active trading market for the Baxalta Shares in Canada following the Spin-Off and none is expected to develop. Consequently, it is expected that any resale of Baxalta Shares distributed in connection with the Spin-Off will occur through the facilities of the NYSE.

26. The Filer intends to retain the remainder of the Baxalta Shares for a limited period of time. The Filer plans to dispose of all such remaining Baxalta Shares after the Spin-Off, which disposition could include one or more subsequent exchanges for debt or equity within the 18-month period following the Spin-Off or otherwise be used to satisfy the Filer's outstanding obligations. Any Baxalta Shares not disposed of by the Filer during such 18-month period will be otherwise disposed of, including potentially through secondary offerings of Baxalta Shares by the Filer consistent with the business reasons for the retention, but in no event later than five years after the Spin-Off. It is anticipated that the Filer and Baxalta will enter into a shareholder's and registration rights agreement with the Filer wherein Baxalta will agree, upon the request of the Filer, to use reasonable best efforts to effect a registration under applicable federal and state securities laws of any Baxalta Shares retained by the Filer.

27. The Spin-Off to Filer Canadian Shareholders would be exempt from the prospectus requirements pursuant to subsection 2.31(2) of National Instrument 45-106 -- Prospectus Exemptions but for the fact that Baxalta is not a reporting issuer under the securities legislation of any jurisdiction in Canada.

28. To the knowledge of the Filer, neither the Filer nor Baxalta is in default of any securities legislation in any jurisdiction of Canada.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the first trade in the Baxalta Shares acquired pursuant to the Spin-Off will be deemed to be a distribution unless the conditions in Section 2.6 or subsection 2.14(1) of National Instrument 45-102 -- Resale of Securities are satisfied.

"Deborah Leckman"
Commissioner
Ontario Securities Commission
 
"Janet Leiper"
Commissioner
Ontario Securities Commission