Company Name: Alex. Brown Inc.
Public Availability Date: Aug. 2, 1989

INQUIRY LETTER 1

PIPER & MARBURY
1100 CHARLES CENTER SOUTH, 36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201

July 18, 1989

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

Dear Sirs:

By this letter we request the concurrence of the Staff of the Securities and Exchange Commission (the "Commission") in our view that, on the basis of the facts and circumstances presented below, the stockholders agreement hereinafter described is not an agreement to "act in concert for the purpose of selling the securities of an issuer" and that the signatories thereto should not be required to aggregate sales of their shares for purposes of the volume limitations on resales of restricted securities imposed by Rule 144(e)(1).

Background Information

Alex. Brown Incorporated (the "Company") was formed in January 1986 by Alex. Brown Partners, a Maryland Limited Partnership (the "Partnership"), to act as a holding company for the investment banking, securities brokerage and related businesses operated by the Partnership and its predecessors since the early 1800s.

Since the Companys formation and the completion of its initial public offering of 2,000,000 shares of Common Stock on February 28, 1986, the partnership has owned approximately 52% of the Companys outstanding Common Stock. The partnership holds such shares for investment purposes only, and the principal business of the partnership as described in its Amended and Restated Limited partnership Agreement (the "partnership Agreement") is investment in the Common Stock of the Company. Pursuant to the terms of the partnership Agreement, the Company Stock held by the partnership has been allocated to the respective capital accounts of the general and limited partners for distribution upon their withdrawal from the partnership. As of the date of this letter, the partnership has distributed to the partners substantially all of the Company Common Stock held by the partnership. Such distribution has been effected in accordance with the capital accounts of each partner so that each partner has received the Common Stock allocated to his capital account.

In addition to being subject to the terms of the partnership Agreement, each partner under the age of sixty (60) who is a full-time employee of the Company or one of its subsidiaries is subject to the terms of the First Amended and Restated Stockholders Agreement (the "Stockholders" Agreement") executed by and among the Company, the partnership and the signatories thereto (the "Stockholders"). The Stockholders Agreement imposes certain restrictions on the transfer of Company Common Stock held by the Stockholders. The Stockholders Agreement also requires the Stockholders to vote all of the shares of Common Stock subject to the Stockholders Agreement in accordance with the results of a preliminary vote taken among the Stockholders on any matter subject to a vote of the stockholders of the Company. A copy of the Stockholders Agreement is enclosed as Exhibit A.

Generally, the Stockholders Agreement limits the number of Company shares which may be transferred by a Stockholder (other than pursuant to an effective Registration Statement filed with the Commission pursuant to the Act) in any calendar quarter. Depending upon the Stockholders age, 5,000, 10,000 or 15,000 shares may be transferred in any calendar quarter. If the Company so notifies the Stockholders, the Company has a right of first refusal with respect to all shares otherwise transferrable under the foregoing provision. Transfers made upon the death or disability of a Stockholder and gifts may be made in excess of the applicable limit.

Each Stockholder is permitted to make an independent decision to sell or not to sell his Company stock as provided for in the Stockholders Agreement without any required consultation with, or notice to, other Stockholders. The failure of a Stockholder to sell the maximum permissible number of shares in any calendar quarter, moreover, does not increase the number of shares that may be sold during that, or any other, quarter by any other Stockholder.

For the purposes of this letter, we have assumed that the signatories to the Stockholders Agreement are "affiliates" of the Company within the scope of Rule 144(a)(1) due to the fact that, pursuant to the Stockholders Agreement, they own approximately 41% of the Companys outstanding Common Stock and thus may be deemed to constitute a "control group" with respect to the Company.

Rule 144(e)(1) provides that the volume of shares that may be sold for the account of an affiliate during any three-month period is limited to the greater of (i) one percent of the shares of the class outstanding or (ii) the average weekly reported volume of trading in such securities during the preceding four calendar weeks. Rule 144(e)(3)(vi) states that "when two or more affiliates or other persons agree to act in concert for the purpose of selling securities of an issuer, all securities of the same class sold for the account of all such persons during any period of three months shall be aggregated for the purpose of determining the limitation on the amount of securities sold." Consequently, the issue is whether the Stockholders may be deemed to have agreed to act in concert pursuant to the Stockholders Agreement.

Analysis

Based on the foregoing facts and for the reason stated below, it is our view that the Stockholders Agreement is not an agreement to act in concert with any other person, and thus the sale of stock by one Stockholder should not be aggregated under Rule 144(e)(3)(vi) with sales by any other party to the Stockholders Agreement.

Although the Stockholders Agreement restricts the amount of shares a Stockholder may sell in a quarter, those restrictions operate on each Stockholder individually. The decision to sell, the amount to be sold (subject to the limitations) and the timing of the sale are all made by a Stockholder independently and without consulting with, or notifying, any other Stockholder. Moreover, the decision of one Stockholder has no effect on the rights of any other Stockholder. Accordingly, the failure to sell the maximum permissible number of shares has no impact whatsoever on the amount of shares any other Stockholder may sell.

Interpretive advice given by the Staff in connection with stock transfer restriction agreements supports our view that the Stockholders Agreement should not be deemed an agreement "to act in concert for the purpose of selling securities." In In re Carnation Co. (available February 3, 1980), the Staff advised that the stock transfer restriction agreement itself did not constitute an agreement among the stockholders to act in concert for purposes of Rule 144(e)(3)(vi). In Carnation, a family-owned holding company which owned approximately 44% of Carnations outstanding stock liquidated and distributed its Carnation stock to its 76 stockholders. In connection with the plan of liquidation, the holding company entered into an agreement with Carnation whereby restrictions were imposed on the transfer of the Carnation shares distributed in the liquidation. The agreement limited the number of shares that a stockholder could sell in any of twenty consecutive six-month periods to 4.5% of the total number of Carnation shares received in the distribution. This restriction applied to each stockholder individually so that the amount which could be sold by any stockholder was unaffected by other stockholders sales, and each stockholder could make sales within the limitations of the agreement without consultation with, or approval by, other stockholders. As in the Carnation stock transfer restriction agreement, the terms of the Stockholders Agreement provide that (i) each Stockholder is permitted to make independent selling decisions without any required consultation with other Stockholders and (ii) the failure of a Stockholder to sell the maximum permissible number of shares will not increase the number of shares that may be sold by any other affiliate.

In I.M.S. International, Inc. (available June 10, 1988), affiliates of I.M.S. International, Inc. ("I.M.S.") received restricted securities from I.M.S. in a merger between it and a wholly-owned subsidiary. In connection with the merger, the affiliates were required to execute "Affiliate Letters" which restricted the transferability of the securities received by them. The Affiliate Letters constituted written agreements between the affiliates and the Dun & Bradstreet Corporation (the "Issuer") stating that the affiliate would not dispose of any Issuer shares, except pursuant to a registration statement or in compliance with Rule 145, and would not dispose of more than the threshold number of shares of the Issuer that would cause the criteria for pooling-of-interests accounting treatment to be violated. In I.M.S., the Staff took the position that the affiliates would not be deemed to have "acted in concert for the purpose of selling the securities of an issuer" within the meaning of Rule 144(e)(3)(vi) solely by reason of their execution and compliance with the terms of the Affiliate Letters.

In those situations in which the Staff has concluded that Stockholders were "acting in concert," the decisions of one Stockholder to sell have generally affected the rights of other Stockholders. For example, in Bangor Punta Corp. (available March 3, 1973), members of a family entered into a written agreement with the Internal Revenue Service to sell Bangor Punta stock in order to pay the tax liability of the family members incurred in a taxable exchange in which the Bangor Punta stock was received. The net result of the transaction was that each family member, in essence, agreed to share the proceeds of his sales in order to pay the tax liability of all the family members. The Staff maintained that sales by all family members who were parties to the agreement with the Internal Revenue Service were, in fact, sales by persons acting in concert.

Similarly, in Stroock & Stroock & Lavin (available April 25, 1972), affiliates proposed the implementation of an "orderly method" of selling restricted securities under Rule 144. Under their proposal, they agreed to regulate the timing of all sales among themselves so that the amount of securities that could be sold by any affiliate would be dependent on the amount sold by the others. As a result, the Staff advised that the affiliates would be deemed to be acting in concert if they were to implement the proposed plan.

The Stockholders Agreement in the instant situation differs from the agreement in Bangor Punta in that the proceeds of sales by a Stockholder do not benefit any other Stockholder, and from Stroock & Stroock & Lavin in that the number of Company shares that may be sold by a Stockholder is not dependent on the number sold by any other Stockholder.

Conclusion

We respectfully request the Staffs concurrence in our view that the Stockholders Agreement does not constitute an agreement to "act in concert" within the meaning of Rule 144(e)(3)(vi) and that, as a consequence, sales of Company stock by any of the Stockholders are not required to be aggregated for purposes of the volume limitations on resales of restricted securities in Rule 144(e)(1). Should you require additional information, please contact the undersigned or Stephen A. Riddick of this office at the above address or by telephone at (301) 539-2530.

Very truly yours,

Elizabeth G. Webb

INQUIRY LETTER 2

PIPER & MARBURY
1100 CHARLES CENTER SOUTH, 36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
TELEPHONE(301) 539-2530

July 24, 1989

Catherine T. Dixon, Esquire
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549

RE: Alex. Brown Incorporated

Dear Ms. Dixon:

Pursuant to our telephone conversation of July 21, 1989, I am enclosing herewith the following:

1. Six copies of the Amended and Restated Stockholders Agreement by and among Alex. Brown Incorporated and the signatories thereto; and

2. Stroock & Stroock & Lavan No Action Letter.

Very truly yours,

Elizabeth G. Webb

STAFF REPLY LETTER

August 2, 1989

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE

Re: Alex. Brown Inc. (the "Company")

Incoming letters dated July 18 and 24, 1989

Based on the facts presented in your letters and discussion with the staff, and noting in particular that the provisions of the Stockholders Agreement (the "Agreement") relating to a binding preliminary vote of affiliates of the Company who are signatories thereto do not govern or otherwise affect disposition of Company securities by such affiliates under the Agreement, the Division is of the view that these affiliates will not be deemed, solely by reason of their execution of and compliance with the Agreement, to have agreed to act in concert for purposes of selling Company securities within the meaning of Rule 144(e)(3)(vi) under the Securities Act of 1933 (the "1933 Act"), and therefore need not aggregate all securities sold for the accounts of all such affiliates in order to comply with the limitation on the amount of the securities that may be sold by any such affiliate prescribed by Rule 144 (e)(1) under the 1933 Act.

Because this position is based upon the representations made to the Division in your letters, the form of the Agreement, and your discussion with the staff, it should be noted that any different facts or conditions might require a different conclusion.

Sincerely,

Catherine Dixon

Special Counsel