PricewaterhouseCoopers LLP - MRRS Decision

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Relief from registration and prospectusrequirements granted in connection with the distribution ofsecurities made in connection with the Canadian aspects of thesale of the management consulting and technology services businessesof an accounting firm to a foreign reporting issuer. Relieffrom the payment of certain duplicative fees.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).

Applicable Ontario Regulations

Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am., s. 59(1).

Applicable Multilateral Instruments

Multilateral Instrument 45-102 Resale of Securities.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,ONTARIO,

QUEBEC, NEW BRUNSWICK AND

NOVA SCOTIA

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

PRICEWATERHOUSECOOPERS LLP,

PWC CONSULTING,

INTERNATIONAL BUSINESS MACHINESCORPORATION AND

IBM ACQUISITION II INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Ontario, Québec, New Brunswickand Nova Scotia (the "Jurisdictions") has receivedan application from PricewaterhouseCoopers LLP ("PwC LLP"),PwC Consulting ("PwCC"), International Business MachinesCorporation ("IBM") and IBM Acquisition II Inc. ("CanadaCo")(collectively the "Applicants") for a decision pursuantto the securities legislation of the Jurisdictions (the "Legislation")that:

(a) the requirements contained in the Legislationto be registered to trade in a security and to file andobtain a receipt for a preliminary prospectus and a prospectus(the "Registration and Prospectus Requirements")shall not apply to certain trades of securities made inconnection with the Canadian aspects of the proposed globalsale (the "Global Sale") to IBM and its subsidiariesof a substantial part of the management consulting and technologyservices businesses (the "Consulting Business")currently carried on by the worldwide member firms of PricewaterhouseCoopersInternational Limited ("PwC");

(b) the Registration and Prospectus Requirementsshall not apply to certain trades of securities made inconnection with the exchange for IBM Shares (as definedbelow) of Exchangeable Shares (as defined below) issuedunder the Canadian portion of the Global Sale (the "CanadianRollup and Sale"); and

(c) the requirement of the Legislation ofthe province of Ontario to pay a fee in connection withthe trade of any securities made in reliance on this Decision(as defined below) shall only apply to certain of the tradescomprising the Canadian Rollup and Sale;

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,terms herein have the meaning set out in National Instrument14-101 Definitions, or in Quebec Commission Notice 14-101;

AND WHEREAS the Applicants have representedto the Decision Makers as follows:

1. PwC LLP is a limited liability partnershipformed under the laws of Ontario which provides audit, charteredaccountancy and certain other related services in Canada andhas approximately 420 partners.

2. PwCC is a partnership formed under thelaws of Ontario which acts as agent for Management CS LP ("MCSLP")in providing services of the Consulting Business in Canada(the "Canadian Consulting Business"). MCSLP is alimited partnership formed under the laws of Ontario whichholds the Canadian Consulting Business. PwC Company ("Sub"),an unlimited liability company incorporated under the lawsof Nova Scotia, is a general partner of MCSLP. Sub is a wholly-ownedsubsidiary of PwC LLP. The limited partners of MCSLP are PwCLLP, PwCA (as defined below) and PwCC.

3. PricewaterhouseCoopers Associates ("PwCA")is a partnership formed under the laws of Ontario and hasapproximately 120 partners. Such partners are resident ineach of the Jurisdictions other than Nova Scotia. PwCA providesconsulting services to PwC LLP and MCSLP.

4. PricewaterhouseCoopers Associates 2002("NewPwCA") is a partnership formed under the lawsof Ontario pursuant to a partnership agreement dated June1, 2002.

5. IBM is a corporation incorporated underthe laws of the State of New York. IBM common shares (the"IBM Shares") are listed on the New York Stock Exchange,the Chicago Stock Exchange and the Pacific Stock Exchange.IBM is a reporting issuer in the provinces of Ontario andQuébec and has no present intention of becoming a reportingissuer or the equivalent in any of the other Jurisdictions.

6. CanadaCo is a corporation incorporatedunder the laws of Canada for the purposes of the CanadianRollup and Sale. At Closing, the authorized share capitalof CanadaCo will include an unlimited number of common sharesand an unlimited number of Exchangeable Shares (as definedbelow) having the attributes described below, and may includean unlimited number of senior and junior preference sharesissuable in series. CanadaCo is an indirect wholly-owned subsidiaryof IBM.

7. 3065718 Nova Scotia Company ("CallRight PurchaseCo") is an unlimited liability companyincorporated under the laws of Nova Scotia for the purposesof holding all of the common shares of CanadaCo and participatingin the transactions described herein. Call Right PurchaseCois an indirect wholly-owned subsidiary of IBM.

8. Other than as set out in paragraph 5, theentities described above are not, and have no intention ofbecoming, reporting issuers or the equivalent in any of theJurisdictions. IBM has no intention of listing and postingfor trading the IBM Shares on a recognized Canadian stockexchange.

9. The Canadian Rollup and Sale will initiallyinvolve a reorganization of certain Canadian PwC member firmsin order to facilitate the sale of the Canadian ConsultingBusiness to CanadaCo. As a part of this reorganization, immediatelybefore completion of the sale of the Canadian Consulting Businessto CanadaCo described below ("Closing"), PwCC willwithdraw as a limited partner of MCSLP and PwCA will be woundup. The property of PwCA, including its limited partnershipinterests in MCSLP, will be distributed to its partners. Immediatelythereafter those partners of PwCA who will not become employeesof a Canadian subsidiary of IBM immediately following Closing,will transfer their limited partnership interests in MCSLPto NewPwCA. As a result, the limited partnership interestsin MCSLP will then be held by PwC LLP, NewPwCA and those partnersof PwCA who will become employees of a Canadian subsidiaryof IBM immediately following closing (the "PwCA ConsultingPartners"). In addition, as part of the reorganization,certain wholly-owned subsidiaries of MCSLP which carry onpart of the Canadian Consulting Business (the "TransferredSubsidiaries") will be transferred from MSCLP to eitherPwC LLP alone or to both PwC LLP and New PwCA.

10. Upon completion of the foregoing preliminaryreorganization, the following steps of the Canadian Rollupand Sale will occur sequentially on the Closing date:

(a) The limited partners of MCSLP, namelyPwC LLP, NewPwCA and the PwCA Consulting Partners, willtransfer their respective limited partnership interestsin MCSLP to Sub in consideration of common shares of Sub("Sub Shares");

(b) Certain partners of PwC LLP will receivea distribution of Sub Shares from PwC LLP. These partnersof PwC LLP will also become employees of a Canadian subsidiaryof IBM immediately following the Closing and together withthe PwCA Consulting Partners are referred to herein as the"Canadian Consulting Partners". There are approximately76 Canadian Consulting Partners who are resident in theprovinces of British Columbia, Alberta, Ontario and Québec;

(c) PwC LLP, NewPwCA and the individualCanadian Consulting Partners will sell their Sub Shares(and in the case of PwC LLP and NewPwCA, the shares of anyTransferred Subsidiaries) to CanadaCo. In consideration,Canadian Consulting Partners will be entitled to elect toreceive either IBM Shares, shares of CanadaCo (the "ExchangeableShares") which are economically equivalent to, andmay be exchanged for, IBM Shares, or a combination thereof.The sale of Sub Shares in consideration for ExchangeableShares will permit the Canadian Consulting Partners to takeadvantage of certain tax deferral provisions under the IncomeTax Act (Canada). In the case of PwC LLP and NewPwCA,the consideration received on the sale will consist of cash(or debt that will be converted to cash). The Canadian Rollupand Sale may also include the sale to CanadaCo or an affiliateof certain interests held by PwC LLP in connection withthe PwC global business process outsourcing business.

11 The issuance of the Exchangeable Shareswill result in the creation, pursuant to the terms of theExchangeable Shares and the various agreements relating thereto,of rights on the part of IBM and Call Right PurchaseCo toacquire Exchangeable Shares in certain circumstances and rightson the part of the holders of Exchangeable Shares to causesuch shares to be purchased by IBM or Call Right PurchaseCoin certain circumstances.

12. The Exchangeable Shares will be retractableat any time at the option of the holder on a one-for-one basisfor IBM Shares, subject to the overriding call right of CallRight PurchaseCo to purchase the retracted Exchangeable Sharesin consideration of IBM Shares on a one-for-one basis (the"PurchaseCo Call Right"). The Exchangeable Shareswill be redeemable at the option of CanadaCo in specifiedcircumstances in consideration of IBM Shares on a one-for-onebasis, subject to the PurchaseCo Call Right. In certain othercircumstances (including on a liquidation, dissolution orinsolvency of CanadaCo or the liquidation or dissolution ofIBM), IBM will be required to purchase or may be requiredby the holders of Exchangeable Shares to purchase ExchangeableShares on a one-for-one basis for IBM Shares, subject to thePurchaseCo Call Right. IBM or Call Right PurchaseCo will alsohave a call right to acquire the Exchangeable Shares in considerationof IBM Shares, on a one-for-one basis, if there has been achange in Canadian tax law that allows substantially all ofthe Canadian resident holders of Exchangeable Shares who holdsuch shares as capital property to exchange such shares forIBM Shares on a tax deferred basis.

13. The holders of Exchangeable Shares willbe entitled to receive dividends and other distributions fromCanadaCo, on a per share basis, in amounts (or property inthe case of non-cash dividends or distributions) which areequivalent to, and which are payable at the same time as,dividends and distributions that are declared and paid onthe IBM Shares.

14. The Exchangeable Shares will not haveany voting rights, except as required by law and in otherlimited circumstances. There will not be any voting rightsin IBM provided to holders of Exchangeable Shares. The informationprovided to partners in connection with the Partner Vote referredto in paragraph 17 below included a description of these limitedvoting rights. Assuming the maximum consideration to whichCanadian Consulting Partners may become entitled and thatall of such consideration is taken in Exchangeable Shares,the percentage vote which Canadian Consulting Partners wouldbe entitled to cast at a meeting of holders of IBM Shareswould be less than 0.03% if the holders of Exchangeable Shareswere entitled to equivalent voting rights in IBM. Implementingprocedures to permit the holders of Exchangeable Shares tovote at meetings of IBM shareholders and the costs of administeringsuch mechanics on an ongoing basis are excessive in relationto the de minimis number of votes that holders of ExchangeableShares would have.

15. IBM, CanadaCo and Call Right PurchaseCowill enter into a support agreement in which, among otherthings, IBM will covenant to ensure that CanadaCo satisfiesthe terms of the Exchangeable Shares, to ensure that CallRight PurchaseCo is able to satisfy its obligations underthe various call rights and to provide for adjustments tomaintain the economic equivalence of the Exchangeable Sharesto IBM Shares in the event of certain actions, such as thesubdivision, consolidation or reclassification of the IBMShares or the distribution of stock dividends, bonus shares,options, rights or warrants in respect of the IBM Shares.In addition, IBM will enter into an exchange rights agreementwith the holders of Exchangeable Shares that will providefor various exchange rights and obligations of IBM.

16. The Exchangeable Shares will not be listedon any stock exchange. IBM and the Canadian Consulting Partnerswill enter into Redemption and Non-Competition Agreementswhich will impose certain restrictions on the ability of CanadianConsulting Partners to transfer the Exchangeable Shares andIBM Shares (including IBM Shares received on the exchangeof Exchangeable Shares) for a period of up to five years followingClosing.

17. The PwC member firms in Canada held avote of their partners (the "Partner Vote") withrespect to the Canadian Rollup and Sale and over 90% of thepartners eligible to vote approved the Canadian Rollup andSale and related transactions. Prior to the Partner Vote,detailed information with respect to the Global Sale and theCanadian Rollup and Sale (including some of IBM's most recentSEC filings) was made available to the partners, includingCanadian Consulting Partners. Such information contained certainfinancial statements relating to the Consulting Business thatwere not audited or reported on by an independent auditorand were prepared generally in accordance with U.S. generallyaccepted accounting principles ("GAAP"), withoutany reconciliation to Canadian GAAP.

18. On completion of the Canadian Rollup andSale, it is anticipated that residents of Canada will owndirectly or indirectly less than 0.3% of the outstanding IBMShares and represent in number less than 4% of the total numberof owners directly or indirectly of IBM Shares.

19. Holders of Exchangeable Shares will beconcurrently provided with all of the disclosure materialsprovided by IBM to holders of IBM Shares resident in Canada.

20. There is presently no intention to haveIBM Shares qualified for sale to the public in Canada. TheIBM Shares will be issued pursuant to various exemptions fromregistration under U.S. securities law and accordingly theywill not be freely tradeable in the United States for a periodof up to two years after completion of the Canadian Rollupand Sale.

AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each of theDecision Makers (the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Makers with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers pursuantto the Legislation is that the Registration and Prospectus Requirementsshall not apply to any trades of securities made in connectionwith the various steps involved in the Canadian Rollup and Saleas described in paragraphs 9, 10, 11 and 12 above, includingany trades made in connection with the issuance of IBM Sharesand Exchangeable Shares under the Canadian Rollup and Sale andin connection with the exchange for IBM Shares of the ExchangeableShares issued under the Canadian Rollup and Sale, provided thatthe first trade in IBM Shares or Exchangeable Shares: (i) issuedin connection with the Canadian Rollup and Sale; or (ii) acquiredby Canadian Consulting Partners on the exchange of ExchangeableShares, will be deemed a distribution or a primary distributionto the public under the Legislation of each Jurisdiction unless:

(a) the issuer of the relevant securitiesis and has been a reporting issuer in a Jurisdiction forthe 12 months immediately preceding the trade;

(b) except in Québec, such tradeis not a "control distribution" as defined inMultilateral Instrument 45-102 Resale of Securities;

(c) no unusual effort is made to preparethe market or to create a demand for the shares that arethe subject of such trade;

(d) no extraordinary commission or otherconsideration is paid in respect of such trade; and

(e) if the selling security holder is aninsider or officer of the issuer of the relevant securities,such selling security holder has no reasonable grounds tobelieve that the issuer is in default of the Legislation.

AND THE FURTHER DECISION of the DecisionMaker in Ontario is that no fee shall be payable pursuant tothe Legislation of Ontario in connection with the trade of anysecurities made in reliance on this Decision Document exceptfor the trade of IBM Shares and Exchangeable Shares to CanadianConsulting Partners as described in paragraph 10(c) above.

September 27, 2002.

"Howard I. Wetston"                    "H.Lorne Morphy"