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U.S. Securities and Exchange Commission

Office of the Chief Accountant:
Letter to PricewaterhouseCoopers, LLP
Regarding PricewaterhouseCoopers, LLP/Unifi Transaction

December 21, 2001

Mr. Lawrence W. Keeshan
PricewaterhouseCoopers, LLP
1177 Avenue of the Americas
New York, New York 10036

Dear Mr. Keeshan:

The staff has reviewed your letter of December 21, 2001 concerning PricewaterhouseCoopers, LLP's (PwC) planned sale of its human resources outsourcing and consulting business (Unifi Business) to Buck Consultants, Inc. (Buck). In your letter, you detail key terms of the transaction and conditions that PwC will comply with following completion of the transaction. Your letter concludes that, following completion of the transaction and under the specified conditions, PwC would not have a "mutual or conflicting interest" or a "direct or material indirect business relationship" with, or a "direct financial interest or material indirect financial interest" in, any of its audit clients that are also clients of or enter into business relationships with or invest in Buck, or that are invested in by Buck or any Unifi Business partner or employee.

Assuming that the representations set forth in your letter are and continue to be accurate, and further assuming that PwC continues to comply with each of the conditions set forth in your letter, the Office of the Chief Accountant ("OCA" or the "staff") will not assert that PwC's independence from an audit client has been impaired solely because that audit client is also a client of, enters into a business relationship with or invests in Buck, or is invested in by Buck or any Unifi Business partner or employee. Of course, PwC otherwise remains fully subject to the Commission's independence requirements. OCA has taken this no-action position based on its evaluation of the relevant legal and policy considerations and does not hereby adopt or endorse the analysis or conclusions set forth in your letter.

The conditions detailed in your letter include, among other things, that: 1) the transaction is essentially a sale for cash, and PwC will not receive or retain any equity interest in Buck or the Unifi Business; 2) Buck will not use the "PricewaterhouseCoopers" name; 3) PwC will not have any corporate governance or management interest in Buck or the Unifi Business; 4) there will be no revenue or profit sharing between PwC and the Unifi Business; 5) shared services between PwC and the Unifi Business will be limited and transitional in nature; and 6) there will be no joint marketing agreements between PwC and the Unifi Business until Buck ceases to occupy space leased by PwC. OCA emphasizes that failure to comply with any of these conditions in your letter will vitiate this no-action position. This response expresses OCA's position only on these particular facts and circumstances and does not purport to express any legal conclusions on this or any other matter.

Sincerely,

John M. Morrissey
Deputy Chief Accountant

cc: Marc S. Rosenberg, Esq.
James C. Woolery, Esq.
Patrick M. Shea, Esq.


Original Inquiry

Lawrence W. Keeshan
PricewaterhouseCoopers
1177 Avenue of the Americas
New York, NY 10036
Telephone (646) 471-6770
Facsimile (646) 471-6971
General Counsel

December 21, 2001

CONFIDENTIAL TREATMENT REQUESTED

Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: PricewaterhouseCoopers LLP/Unifi Transaction

Ladies and Gentlemen:

We hereby request that the Staff of the Securities and Exchange Commission (the "Commission" or "SEC") advise that, based upon and subject to the matters referred to herein, it will not recommend that the Commission take enforcement action against PricewaterhouseCoopers LLP or any of its subsidiaries (collectively, "PwCUS"), or any other firms conducting audit activities outside the United States for SEC registrants under the name "PricewaterhouseCoopers" or derivations thereof or otherwise as part of the PricewaterhouseCoopers network of firms (together with PwCUS, "PwC"), asserting that PwC is not "independent" based upon the attribution to PwC of the activities of the human resources outsourcing and consulting business now owned by PwCUS and operated under the name Unifi Network ("Unifi") following completion of the sale of Unifi to Buck Consultants, Inc., to a newly-formed wholly-owned subsidiary of Mellon Financial Corporation or to their permitted assigns (collectively, "Buyer") described below. Unifi, subsequent to its acquisition by Buyer, is referred to herein as the Unifi division of Buyer. Buyer is not an audit client of PwC, and PwC is not otherwise required under applicable rules to maintain independence from Buyer.1

Legal Analysis

The federal securities laws require that financial statements filed with the Commission by public companies, investment companies, broker-dealers, public utilities, investment advisers and others be certified (audited) by independent public accountants.2 The federal securities laws also authorize the Commission to define "accounting, technical and trade" terms used in the federal securities laws.3

The Commission has adopted Rule 2-01 of Regulation S-X regarding independence of accountants.4 The general standard set forth in Rule 2-01(b) provides that:

"The Commission will not recognize an accountant as independent, with respect to an audit client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's judgment."5

Rule 2-01(b) further provides that:

"In determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client, and not just those relating to reports filed with the Commission."

The preliminary note to Rule 2-01 states that, in considering the standard set forth in Rule 2-01(b), the Commission looks to, among other criteria, whether the relationship or the provision of service "creates a mutual or conflicting interest between the accountant and the audit client."6

Rule 2-01(c) applies the standards set forth in Rule 2-01(b) to particular circumstances that are considered to impair an accountant's independence.7 For example, Rule 2-01(c)(1) provides that an accountant will not be considered independent if "the accountant has a direct financial interest or a material indirect financial interest in the accountant's audit client . . .." In addition, Rule 2-01(c)(3) provides that:

"An accountant is not independent if, at any point during the audit and professional engagement period, the accounting firm or any covered person in the firm has any direct or material indirect business relationship with an audit client, or with persons associated with the audit client in a decision-making capacity, such as the audit client's officers, directors or substantial stockholders."

The Commission's interpretations of Rule 2-01 are collected in Section 600 of the Codification of Financial Reporting Policies (the "Codification"), entitled "Matters Relating to Independent Accountants."8 Section 602.02.c of the Codification restricts the independent accountant from performing "bookkeeping and related professional services" that might cause a "mutuality of interest" to develop between the auditor and its client. In addition, Section 602.02.e of the Codification addresses business relationships - such as joint ventures, limited partnership agreements, and investments - that may impair an auditor's independence. That section provides, in part, that:

"Direct and material indirect business relationships . . . with a client . . . will adversely affect the accountant's independence with respect to that client. Such a mutuality or identity of interests with the client would cause the accountant to lose the appearance of objectivity and impartiality in the performance of his audit because the advancement of his interest would, to some extent, be dependent upon the client."

PwC desires to obtain assurance that its independence will not be deemed impaired pursuant to Rule 2-01 or any other provisions of the Commission's independence rules to the extent that the Unifi division of Buyer provides certain outsourcing and consulting services for, or Buyer, the Unifi division of Buyer, or any departing Unifi partner or employee enters into business relationships with, PwC audit clients and/or makes investments in PwC audit clients, or to the extent that PwC audit clients invest in Buyer.

PwC believes that, under the conditions detailed in this letter, it would not have a "mutual or conflicting interest" or a "direct or material indirect business relationship" with, or a "direct financial interest or material indirect financial interest" in any of its audit clients that are also clients of or enter into business relationships with or invest in Buyer, or in which Buyer or any departing Unifi partner or employee invests. This conclusion is based on the conditions detailed in this letter, including, among other things, that: 1) PwC will not receive or retain any equity interest in Buyer or the Unifi division of Buyer; 2) Buyer will not use the "PricewaterhouseCoopers" name; 3) PwC will not have any corporate governance or management interest in Buyer or the Unifi division of Buyer; 4) there will be no revenue or profit sharing between PwC and the Unifi division of Buyer;9 and 5) shared services between PwCUS and the Unifi division of Buyer will be limited and transitional in nature.

Factual Background

Pursuant to the Asset Purchase Agreement dated as of November 28, 2001 (the "Unifi Purchase Agreement"), and other agreements specified therein (the "Ancillary Agreements" and, together with the Unifi Purchase Agreement, the "Agreements"), PwCUS will sell the assets of Unifi to Buyer.

The principal terms of the proposed transaction are:

  1. The Buyer shall pay a cash purchase price (the "Purchase Price") for the assets of Unifi, together with the PwCUS non-competition agreement referred to in paragraph 4 below, the PwCBPO non-competition agreement referred to in footnote 11 below and a fully-paid, worldwide, non-exclusive, perpetual, royalty-free license to use certain intellectual property of Unifi.10 PwCUS will retain all pre-closing liabilities of Unifi, other than current liabilities.
     
  2. A portion of the Purchase Price will be paid to PwCUS for payment on to the departing Unifi partners immediately following the closing (the "Exit Payment"); PwC will have no economic interest in the Exit Payment. PwCUS will also pay to the departing Unifi partners their capital and accrued earnings.
     
  3. PwCUS will retain certain obligations to the departing Unifi partners and employees under retirement and other benefit plans available to partners and employees of PwCUS for the amount of benefits accrued through closing (the "Accrued Benefits"), and may retain certain contractual commitments to certain departing Unifi partners. The length of service of departing Unifi partners and employees with Buyer subsequent to the closing will be counted toward the vesting of Accrued Benefits (i.e., eligibility to receive payment of those Accrued Benefits to which the partner or employee is entitled) but not for the purposes of accruing additional benefits or any other purpose. Such continued vesting of Accrued Benefits is not tied in any way to PwC's future financial or other performance.
     
  4. For three years following the closing of the transaction, PwCUS will not compete with the Unifi division of Buyer in accordance with the terms of the non-compete agreement between PwCUS and Buyer (the "Non-Compete Agreement", attached as Exhibit E to the Unifi Purchase Agreement).11 Possible payments under this agreement are described in Annex A hereto.
     
  5. PwC will not receive or retain any equity interest in Buyer or the Unifi division of Buyer, and after the closing of the transaction, there will be no corporate governance, management or direct or indirect financial ties between PwC and the Unifi division of Buyer (other than as described above or pursuant to the transitional services and other arrangements described below).
     
  6. As a continuation of the services currently provided by Unifi to PwCUS, PwCUS and Buyer will enter into a benefits outsourcing agreement (the "Total Benefits Outsourcing Agreement", attached as Exhibit G to the Unifi Purchase Agreement) under which Buyer will provide PwCUS, on an outsourced basis, certain administrative services for PwCUS's benefit plans (i.e., savings, retirement, health and welfare plans) in exchange for not less than arm's-length compensation. The initial term of the Total Benefits Outsourcing Agreement is three years. Possible payments under this agreement are described in Annex A hereto.
     
  7. PwCUS will in good faith consider retaining the Unifi division of Buyer to provide certain consulting services to PwCUS for its own internal use to the extent that these services are needed by PwCUS, as described in a separate letter agreement (the "Service Access Agreement"). The term of the Service Access Agreement will not exceed the duration of the Non-Compete Agreement.

Conditions to No-Action Confirmation

We request that, subject to compliance with the following conditions, the SEC Staff (the "Staff") not recommend enforcement action to the Commission based upon the attribution to PwC of the activities of the Unifi division of Buyer following completion of the transaction under the following conditions:

  • As a consequence of this transaction, PwC will not receive or retain any equity interest in the Unifi division of Buyer or Buyer.
     
  • Buyer will not be entitled to use the "PricewaterhouseCoopers" name or logo, and neither PwC nor the Unifi division of Buyer will represent in any publication, advertisement, press release, name plates, office signage, business cards or other similar material that it is the same firm, or controls, manages, governs or is affiliated with the other, or any affiliate, subsidiary or division of the other.
     
  • PwC and Buyer will maintain separate corporate governance, management and financial structures and interests, including: separate boards of directors (including no contractual right by PwC to representation on Buyer's Board of Directors and no service on the Buyer Board of Directors by any then-active PwC partner or employee or former partner or employee with continuing financial ties to PwC other than under pension and retirement and other benefit plans or other potential contractual commitments available to broad categories of former personnel), executives, employees, capital, credit lines or facilities, client bases, governing documents, operating policies, financial operations and financial and accounting policies. Buyer and PwC will not exert financial or other influence over the other party's corporate governance, management and financial structures or interests.
     
  • After the closing, PwC will not accrue, pay to or receive from the Unifi division of Buyer any royalty, interest, dividend or other payment, whether or not tied to the performance of the Unifi division of Buyer, except for payments required to be made under the Agreements (e.g., indemnity payments, liquidated damages payments, and payments for transitional and outsourcing services), which payments are described in Annex A hereto. Accordingly, PwC and the Unifi division of Buyer will not share profits or revenue from the provision of the Restricted Unifi Services, Restricted PwCBPO Services or any other engagements or agreements.12
  • After the closing, PwC will not make any payments to the departing Unifi partners and departing Unifi employees except as described in paragraph 3 of Factual Background, above, and except that PwCUS has agreed to indemnify the departing Unifi Partners with respect to litigation or other proceedings related to their performance of duties or responsibilities as members of the PwCUS partnership prior to closing, to the same extent that PwCUS would indemnify its continuing partners under the same circumstances.
     
  • PwC and Buyer may, but will be under no obligation to, refer clients to one another (other than as described below); and PwC and Buyer may not pay referral fees or other compensation for such referrals to each other nor to any subsidiary, affiliate, employee or agent of the other. PwC and Buyer may not enter into any co- or joint marketing, advertising or similar agreements or arrangements which are inconsistent with the foregoing conditions or which do not clearly state that PwC and Buyer (including the Unifi division of Buyer) are separate firms. At the date that all the offices of the Unifi division of Buyer cease to occupy space leased by PwC (as described in paragraph 8 below), Buyer and PwC will be free to contract and enter into business relationships with one another as would any other two independent entities, including compensated referral and joint marketing arrangements.
  • Either Unifi or PwC may purchase the other's services in exchange for customary arm's-length compensation or may agree to supply its services to the other upon demand or otherwise in exchange for such customary, arm's-length compensation, including but not limited to services purchased under the Total Benefits Outsourcing Agreement and the Service Access Agreement.
     
  • PwCUS and Buyer will enter into a transitional services agreement (the "Transitional Services Agreement", attached as Exhibit D to the Unifi Purchase Agreement) and other ancillary transitional services agreements in forms to be mutually agreed between PwCUS and Buyer prior to the closing including the Transitional Employees Lease Agreement referred to in Section 1 of the Unifi Purchase Agreement (together with the Transitional Services Agreement, the "Transitional Services Agreements") under which PwCUS will provide Buyer with certain transitional services, including finance, infrastructure, technology, knowledge management, risk management, human resources and other services specified in the schedules to the Transitional Services Agreements. The initial term of the Transitional Services Agreements (other than the Fort Lee Parking Lease referred to in Section 1 of the Unifi Purchase Agreement) will end on June 30, 2002, and will be renewable for one additional period not to exceed 6 months. The Fort Lee Parking Lease will end on the earliest of the end of the term of the current lease for the office building for which such lot is used (January 2012), the cessation of use by Buyer of such building or the exercise by Buyer of its option to purchase such parking lot. Transitional services and facilities will be provided in accordance with the Transitional Services Agreements so long as (i) the Unifi division of Buyer is separate from PwC's other businesses (as described below) and (ii) charges for the services and facilities are determined at arm's length (defined as not greater than cost, the basis historically used by PwCUS to allocate expenses to the global human resources line of service of which Unifi forms a part),13 and appropriate provision is made so that confidential information is not communicated between PwC and Buyer.
     
    Under the Transitional Services Agreements, PwCUS will not receive services from Buyer and PwCUS will not generate a profit on the services it provides to Buyer, except that under the Unifi Purchase Agreement, PwCUS will lease space for approximately 25 of its employees until the end of February 2002 at one of the Unifi facilities for which the lease is being assigned to Buyer. The term for the provision of the services pursuant to the Transitional Services Agreements will in no event extend beyond December 31, 2002 (except for the use of certain personal property leased by PwCUS (e.g., computers and other immaterial assets) which may extend through the term of such leases and the Fort Lee Parking Lease).
     
    PwCUS and Buyer have entered into or may enter into sublease or similar arrangements for all office space that Unifi currently shares with other PwCUS businesses.14 Under these arrangements, Buyer will pay an amount not greater than the cost of such space, including related services, based on the total square footage of each facility used by or allocated to Unifi. The sublease or similar arrangements with Buyer for each space will not extend beyond December 31, 2002.
     
    Until the date that all of the offices of the Unifi division of Buyer cease to occupy space leased by PwCUS, PwCUS and the Unifi division of Buyer (i) will have separate and distinct office signage and their offices will be clearly distinguishable from one another by third parties entering the offices although they will share certain common facilities, and (ii) will take steps to ensure the confidentiality of business communications and information. Employees of the Unifi division of Buyer will be clustered in an area of space within the facilities in each location rather than being interspersed among PwC employees, and the areas where Unifi division employees are clustered will be clearly marked with conspicuous signs. In addition, reception areas will be clearly marked with signs showing that two separate businesses share the area, and visitors of the Unifi division of Buyer will be physically escorted by Unifi division employees from the reception area through to the area where Buyer employees are clustered. Conference rooms will be clearly marked with signs noting that such facilities are shared. Standard firewall and password protections will be implemented to prevent the commingling of client data between PwC and the Unifi division of Buyer, and separate fax machines and printers will be dedicated to the Unifi division of Buyer to avoid disclosure of confidential information. A detailed set of confidentiality procedures which Buyer and PwCUS have agreed to follow is attached to the Transitional Services Agreement as Schedule I.
     
    Because of the nature of Unifi's business, the frequency of visits by clients to Unifi offices has historically been very low, and PwC and Buyer anticipate that such visits will continue to be infrequent following the closing of the acquisition. A high percentage of the consulting services provided by Unifi are provided at client sites. In connection with the preparation of this no-action request, PwCUS surveyed the partners who are the practice leaders of Unifi in each office concerning the frequency of client visits to Unifi offices, and those partners confirmed that in their experience clients tended to visit their offices on average approximately four times per year per partner. In order to mitigate any ongoing concern about client confusion on this point, Buyer has agreed to use reasonable efforts, to the extent practicable, to arrange to have client meetings occur outside of Unifi offices for so long as PwC and Unifi continue to share space in a particular location.
     
  • 9. After the closing, PwCUS will continue to provide services (other than services presently offered by Unifi) to clients of Unifi whose engagements are transferred to Buyer if required to do so by the transferred engagement letters between PwCUS and such clients, and the Unifi division of Buyer will continue to provide services to clients of the PwCUS business under the terms of existing engagement letters between PwCUS and such PwCUS clients.
     
  • PwC will consent to periodic reviews by the Staff or an independent party designated by the Commission or the Staff to ascertain that PwC is complying with the conditions herein provided.
     
  • At the closing, PwCUS will cease providing the Restricted Unifi Services, except to the extent permitted by Section 1 of the Non-Compete Agreement and Exhibits A-D thereto.15 Notwithstanding the previous sentence, PwCUS may, after three years, provide Restricted Unifi Services, and may provide such services to audit clients that file reports with the Commission to the extent permitted by Commission independence requirements.

Certain Confirmations

In connection with its request herein, PwC hereby confirms to the Staff that:

  • After the closing, PwC will continue to be subject to the independence requirements of the securities laws and the SEC's independence rules and interpretations issued thereunder to the same extent as it was so subject prior to the closing.
     
  • PwC agrees to the above conditions and has furnished a copy of this letter (and will furnish any final agreement on this subject) to Buyer. Buyer will expressly acknowledge that it has been furnished a copy of this letter. PwC further represents to the Staff that it is not aware of any provisions of the Unifi Purchase Agreement or any agreement or instrument referred to therein that is inconsistent with this no-action letter in any material respect.
     
  • PwC has furnished the Staff with the executed Unifi Purchase Agreement (as amended) and attached forms of Ancillary Agreements (including without limitation the schedules, exhibits and annexes thereto).

Confirmation Requested

Based upon the foregoing representations and subject to compliance with the foregoing conditions, we hereby request that the Staff of the Securities and Exchange Commission advise that if an audit client of PwC is also a client of, enters into a business relationship with, invests in, or is invested in by Buyer or any departing Unifi partner or employee, the Office of the Chief Accountant will not assert, on any of those grounds, that PwC's independence from an audit client has been impaired.

* * * * *

Certain matters described above have not yet been publicly announced. Accordingly, pursuant to 17 C.F.R. § 200.81(b), we hereby request confidential treatment of the contents of our communications with the Staff with respect to all issues relating to this letter (the "Confidential Material") until a date 120 days after release of your response to us, or such earlier date as the Staff is advised by us that all of the information contained in the Confidential Material has been made public. However, we understand and agree that the letter itself and the text of your response to the letter may be made public immediately. In addition to this request for confidential treatment, we will request, under separate cover, confidential treatment for the transaction documentation and the other materials furnished to you in connection with this letter pursuant to the provisions of 17 C.F.R. § 200.83.

If for any reason you do not concur with the views expressed in this letter, we respectfully request an opportunity to discuss this matter with the Staff prior to any written response to our letter. If you have any questions or need any additional information concerning the foregoing, please do not hesitate to call me at 646-471-6770, or Marc S. Rosenberg and James C. Woolery of Cravath, Swaine & Moore at 212-474-1676 and 212-474-1912, respectively, or James Modlin of Hughes Hubbard & Reed LLP at 212-837-6817, PwC's outside counsel in this matter.

Sincerely,

Lawrence W. Keeshan

copies to:
Marc S. Rosenberg, Esq.
James C. Woolery, Esq.
Cravath, Swaine & Moore
James Modlin, Esq.
Hughes Hubbard & Reed LLP

Annex A

Possible Payments Under the Agreements

Unifi Purchase Agreement (Section 2.4)

The Purchase Price (as defined in the Unifi Purchase Agreement) will be adjusted, dollar for dollar, by a post-closing working capital adjustment, by the amount which (x) current assets to be acquired by Buyer minus current liabilities to be assumed by Buyer plus (y) all capital expenditures between June 30, 2001 and the closing exceeds or is less than a specified amount, excluding inter-company liabilities.

For each specified Unifi partner who terminates, rescinds or cancels his or her employment agreement prior to the closing or does not accept an offer of employment, the Purchase Price will be decreased by a mutually agreed amount, as set forth on Schedules 2.4(b)(ii) and 3.1.22 of the Unifi Purchase Agreement.

The timing of the working capital adjustment and the Purchase Price adjustment described above works as follows: At least 2 business days prior to the closing, PwCUS will deliver to Buyer an estimated closing statement reflecting the working capital adjustment and the Purchase Price adjustment. Buyer will pay the estimated Purchase Price. Within 90 days of the closing, Buyer will deliver a final closing statement again reflecting the working capital adjustment and the Purchase Price adjustment. PwCUS will have 30 days to review and either accept or reject the final closing statement. To the extent PwCUS objects, the parties will have an additional 45 days to mutually resolve their dispute. Thereafter, if not resolved, the dispute will be referred to an arbitrator for conclusive and binding resolution as soon as practicable. Undisputed amounts will be paid when due (the second business day following PwCUS's acceptance of the final closing statement) and disputed amounts will be paid on the second business day following resolution of the dispute.

Unifi Purchase Agreement (Section 2.7)

If PwCUS does not obtain consents to assign 4 out of 5 outsourcing agreements set forth on Schedule 2.7, the Purchase Price will be reduced by an additional amount at the closing.

Unifi Purchase Agreement (Section 2.10)

If the amount of accounts receivable included in working capital set forth on the final closing statement exceeds the amount of accounts receivable included in working capital collected in the 180 day period following the closing, PwCUS will pay Buyer 50% of the difference between the two amounts; conversely, if the latter amount exceeds the former amount, Buyer will pay 50% of that difference to PwCUS.

Unifi Purchase Agreement (Section 8.2(a)(ii))

If there is an overfunding (as defined in Section 8.2(a)(ii)) of the Kwasha Lipton Retirement Plan, Buyer will pay to PwCUS the amount of such overfunding. If there is an underfunding (as defined in Section 8.2(a)(ii)) of the Kwasha Lipton Retirement Plan, PwCUS will pay to Buyer the amount of such underfunding. Any payment pursuant to Section 8.2(a)(ii) will be made not later than 45 days following the closing.

Unifi Purchase Agreement (Section 9)

Customary cross-indemnity provisions for breaches of representations, warranties and covenants.

Transitional Services Agreement (Section 3)

Buyer will make payments to PwCUS for the provision of certain services and facilities after the end of the third month of the transition period and for certain payroll tax reporting and account reconciliation services throughout the entire period.

Transitional Services Agreement (Section 7)

Customary cross-indemnity provisions for certain breaches.

Total Benefits Outsourcing Agreement (Sections 3, 5, 11 and 17)

PwCUS will make payments to Buyer for the provision of certain benefit plan administrative services. Fees are subject to annual review. Service changes and out-of-scope services will be negotiated at fees mutually acceptable to Buyer and PwCUS. The agreement has an initial term of three years, subject to early termination under certain circumstances.

Total Benefits Outsourcing Agreement (Section 19)

Customary cross-indemnity provisions for certain breaches.

Non-Compete Agreement (Sections 1 and 5)

PwCUS may be required to make liquidated damages payments to Buyer upon breach of the Non-Compete Agreement or upon exceeding certain dollar limitations on consulting services provided to clients set forth on Exhibit B to the Non-Compete Agreement.

Escrow Agreement

Pursuant to Section 1 of the Unifi Purchase Agreement, PwCUS and Buyer will enter into an escrow agreement under which a portion of the Purchase Price will be held in escrow, of which one portion will secure PwCUS's indemnification obligations under the Transitional Services Agreement and will be held until July 30, 2002 and another portion will secure PwCUS's indemnification obligations with respect to the representation in Section 3.1.3(a) of the Unifi Purchase Agreement and will be held until 6 months following the closing.

Fort Lee Parking Lease

Pursuant to Section 1 of the Unifi Purchase Agreement, PwCUS and Buyer will enter into a standard triple net lease agreement, under which Buyer will reimburse PwCUS and pay for all costs associated with the Fort Lee Parking Lot.

Fort Lee Parking Lease

Customary cross-indemnity provisions.

Endnotes

1 Certain other subsidiaries of Mellon Financial Corporation act as investment adviser to a number of registered investment companies that are audit clients of PwC. Buyer is not affiliated with these audit clients, as it is not part of any investment company complex (17 C.F.R. 210.2-01(f)(14)).

2 See, e.g., 15 U.S.C. 77aa(25), (26), 15 U.S.C. 781, 78q, and 78m, 15 U.S.C. 79e(b), 79j, 79n, 15 U.S.C. 80a-8, 80a-29, 15 U.S.C. 80b-3(c)(1).

3 See 15 U.S.C. 77s(a), 15 U.S.C. 78c(b), 15 U.S.C. 79t(a), and 15 U.S.C. 80a-37(a).

4 Rule 2-01 has recently been amended. See Revision of the Commission's Auditor Independence Requirements, Exchange Act Release No. 43602, Fed. Sec. L. Rep. (CCH) ¶ 86,406 (Nov. 21, 2000) (effective Feb. 5, 2001).

5 17 C.F.R. 210.2-01(b) (2001). Under Rule 2-01, the term "accountant" includes "any accounting firm with which the certified public accountant or public accountant is affiliated." Id. § 210.2-01(f).

6 Id. § 2.10.2-01 (para. 2 of Preliminary Note).

7 See id.

8 Codification of Financial Reporting Policies, Section 600-Matters Relating to Independent Accountants, reprinted in Fed. Sec. L. Rep. (CCH) ¶73,251, et. seq.

9 In certain limited circumstances in connection with the Non-Compete Agreement (as defined below in paragraph 4 on page 4), PwCUS may make certain contractual payments to Buyer, the size of which payments will be based on the amount of work done for certain clients, as described in Annex A hereto.

10 A portion of the Purchase Price will be held in escrow, as described in Annex A hereto.

11 As more fully set forth in the Non-Compete Agreement, PwCUS has agreed, with certain exceptions as set forth in Section 1 and Exhibits A-D thereto, that for three years it will not, and will cause its subsidiaries not to, provide strategic human resources outsourcing services and total benefits outsourcing services in the United States. The foregoing business which is to be restricted is referred to in this letter as the "Restricted Unifi Services". In addition, the business process outsourcing business of PwC, which is conducted through PwC Global Holdings B.V. and its subsidiaries as well as, among others, subsidiaries of PwCUS ("PwCBPO"), will enter into a separate non-competition agreement with Buyer (the "PwCBPO Non-Compete Agreement", attached as Exhibit I to the Unifi Purchase Agreement) under which PwCBPO will not provide strategic human resources outsourcing services and total benefits outsourcing services in the United States (the "Restricted PwCBPO Services") for three years, on the terms and subject to the exceptions set forth in that agreement. In addition, the Non-Compete Agreement will impose limited restrictions on PwCUS's ability to provide human resources consulting services to specified clients of Unifi.

12 In certain limited circumstances in connection with the Non-Compete Agreement, PwCUS may make certain contractual payments to Buyer, the size of which payments will be based on the amount of work done for certain clients, as described in Annex A hereto.

13 PwCUS will provide such services and facilities at no charge for the first three months of the transitional services period, except with respect to certain payroll tax reporting and account reconciliation services.

14 Only 8.5% of the office space currently occupied by Unifi is office space that Unifi shares with other PwCUS businesses. In addition, only 4.2% of Unifi employees currently work in office space that they share with other PwCUS employees. The leases for the office space currently occupied by Unifi that is not shared with other PwCUS businesses will be assigned to Buyer as of the closing. The conditions set forth below pertain to the 8.5% of office space that is currently shared.

15 In addition and as set forth in footnote 11 above, at the closing PwCBPO will cease providing the Restricted PwCBPO Services, except to the extent permitted by the PwCBPO Non-Compete Agreement, and PwCUS's provision of human resources consulting services to specified Unifi clients will be limited by the Non-Compete Agreement.

 

http://www.sec.gov/info/accountants/noaction/pwcunifi122101.htm


Modified: 02/04/2002