Company Name: Paine Webber Inc.
Public Availability Date: Feb. 12, 1979

INQUIRY LETTER

BEEKMAN & BOGUE

14 WALL STREET

NEW YORK, N.Y. 10005

(212) 227-8200

December 08, 1978

Securities and Exchange Commission

500 North Capitol Street, N.W.

Washington, D.C. 20549

Attention: Chief Counsel

Division of Corporation Finance

Dear Sirs:

Re: Paine Webber Incorporated

Restricted Stock Bonus Plan

Paine Webber Incorporated (the "Company") intends to initiate a Restricted Stock Bonus Plan (the "Plan") to reward key employees of Paine Webber Incorporated and its subsidiaries and to promote long-term growth by facilitating the receipt by such key employees of equity interests in the Company. The Plan has been approved by the Companys board of directors and is to be submitted to the Companys shareholders for their approval at the annual meeting to be held on or about January 22, 1979 (see the preliminary proxy material recently filed by the Company pursuant to Rule 14a-6(a) under the Securities Exchange Act of 1934). A copy of the Plan is attached.

Listing and Registration of the Companys Common Stock

The Company is subject to the reporting requirements of the 1934 Act. Its common shares and its $1.30 Series A Convertible Preferred Stock are registered under the 1934 Act and are listed on the New York and Pacific Stock Exchanges and are quoted on the NASDAQ automated quotation system. As of September 29, 1978 (fiscal year-end), the Company had outstanding 5,361,356 common shares held of record by 3,350 shareholders.

Description of the Plan

The Plan provides for the award to key employees of bonuses in shares of the Companys common stock. Although all full-time employees of the Company and its subsidiaries are eligible for awards under the Plan (including officers and directors other than those persons serving as directors only), it is presently contemplated that at least initially consideration for awards will be restricted to those employees (approximately 75 in number) who are also directors and/or key employees of the Companys two major subsidiaries, Paine, Webber, Jackson & Curtis Incorporated and Paine Webber Mitchell Hutchins Inc.

The Plan will be administered by the compensation committee of the Companys board of directors, no member of which will be eligible for an award under the Plan. The compensation committee, while taking into consideration the recommendations of management, shall have the sole authority to determine the persons who are to receive awards, the form and amount of the individual awards to be made, and the conditions (see the following paragraph) applicable to individual awards under which bonus shares previously delivered shall be forfeited to the Company. It is anticipated that the decision as to awards will be made by the compensation committee administering the Plan reasonably promptly after the end of September in each year (fiscal year-end), and that delivery of certificates representing shares in implementation of such awards will be made within a reasonable period thereafter (most likely, during the following January), except that for the initial year 1978 the awards (which the committee today, December 8, determined would aggregate 27,409 shares to 14 participants, with the largest single award 8,500 shares) will not be formally made until after shareholder approval of the Plan, with delivery of certificates to follow after completion of all requisite regulatory action.

Bonus shares delivered under the Plan are to be restricted for a period which may vary, as to individual awards, from not less than two to not more than ten years, during which the recipient of such shares may not sell, assign, transfer, pledge or otherwise encumber the bonus shares. Should any recipient cease (except by reason of death, disability or normal retirement) to be an employee of the Company or one of its subsidiaries during the applicable restricted period, all his or her bonus shares still subject to the restrictions shall (with limited exceptions) be forfeited and returned to the Company. During the restricted period, all certificates representing bonus shares are to be held in "good delivery" form by the Company.

Except for the restrictions on transfer and possibility of forfeiture above described, recipients of shares awarded under the Plan will have all the rights of other holders of shares of the Companys common stock, during and after the restriction period. In addition, recipients may be awarded the right to receive supplemental payments, in cash, during the restricted period, equal to the cash dividends paid by the Company during the preceding calendar year on bonus shares which were restricted during such calendar year. The right to receive such supplemental payments will not derogate from or substitute for the normal right (as a shareholder) to receive dividends as paid.

The Plan provides that the maximum number of shares of the Companys common stock to be used thereunder shall be 250,000 shares. Such shares may be authorized but unissued shares or may be shares reacquired by the Company by purchases on the open market. Shares awarded under the Plan which are subsequently reacquired by the Company as a result of forfeiture will again be available for award under the Plan. In any event all shares awarded under the Plan will be fully paid and non-assessable shares. The Plan will terminate by its terms after the fifth fiscal year in respect of which awards may be considered thereunder unless earlier terminated or suspended by the board of directors of the Company.

Discussion of Issues Presented

1. In the context of employee benefit plans, the "no sale" theory has generally been applied to exempt, from the registration requirements of the Securities Act of 1933, shares (and interests in shares) delivered to employees under non-contributory plans. The absence of any requirement for an investment judgement or an investment decision on the part of the employees participating in a non-contributory plan (such as the Plan proposed to be initiated by the Company) eliminates the underlying disclosure function to which registration is addressed, with the result that no practical purpose is served by applying the mandates of Section 5 of the 1933 Act in such circumstances. Members of the Staff of the Commission have reflected their concurrence in the foregoing analysis in many "no action" letters. While, at an earlier time, there was concern that non-contributory plans intended to provide incentive to employees might be regarded as eliciting "value" in the form of additional effort expended in the performance of employment duties, it is now broadly accepted that the full and proper performance of employment responsibilities may be expected and encouraged by employers, and may be rewarded in appropriate circumstances through the issuance of employer shares consistent with the "no sale" analysis above set forth. Again, members of the Staff of the Commission have reflected their concurrence in that view in "no action" letters relating to non-contributory bonus or incentive plans. See, for example, American Telephone & Telegraph Company, publicly available May 8, 1978. We recognize that the forfeiture possibility provided for in the Companys Plan could be deemed to add an element of investment decision-making on the part of a participating employee presented with other employment opportunities; we believe, however, that the practical considerations bearing upon prospective changes in, or termination of, employment, particularly in the financial and investment field, are measured to a far greater extent in terms of traditional employment-related factors (prospective position, responsibilities, salary or commission arrangements, cash and non-cash payments, etc.) than in terms of retention or loss of small amounts of equity in the previous employer. (We do not, and need not for this purpose, take the position that the same considerations would apply in determining whether any such forfeiture would involve a "sale" for purposes of the anti-fraud provisions of the federal securities laws.) It is therefore our opinion that the determination of awards under the Companys Plan, the delivery of shares in implementation of such awards, and the subjection of such shares to a possibility of forfeiture during a specified period, will not involve a "sale" as such term and its derivatives are used for purposes of Section 5 of the 1933 Act and may be effected without compliance with the registration requirements thereof.

2. In Securities Act Release Pounds Sterling 5750, dated October 8, 1976, the Commission published an interpretation clarifying the applicability of the definition of "restricted securities", set forth in Rule 144(a)(3) under the 1933 Act, to certain shares issued under employee stock ownership plans. The criteria determining that such shares would not be "restricted securities" and would therefore be susceptible of sale by the recipients thereof without compliance with Rule 144, were articulated in that Release and in subsequent "no action" letters to include the status of the issuer as a reporting company under the 1934 Act, the trading activity in the particular class of securities, the relationship of the number of shares issuable under the particular plan to the total number of common shares outstanding, and the limited anticipated impact on the trading markets resulting from potential sales by employee recipients of such shares. The "no action" letters above referred to have extended the applicability of these criteria to incentive and bonus plans; see, again, American Telephone & Telegraph Company, publicly available May 8, 1978. As has already been stated, the Company is a reporting company and the shares of its common stock are traded on two national securities exchanges and are quoted on NASDAQ; the aggregate number of shares available for award and delivery under the Plan, over a period of five fiscal years, is less than 5% of the number of shares presently outstanding, with the result that there is little mathematical likelihood that any single one of the employees expected to participate will be awarded more than a fraction of 1% thereof; and the effect of the restrictive condition provided for in the Plan is to defer the possibility of sale until the period commencing in 1981 and ending as late as 1993. We are therefore of the opinion that shares issued pursuant to awards made under the Companys Plan will not be deemed to be "restricted securities" within the definition thereof set forth in Rule 144(a)(3) and that sale thereof may be effected without registration under the 1933 Act (1) by persons who are not "affiliates" of the Company as that term is defined in Rule 144(a)(1), without compliance with Rule 144, and (2) by persons who are "affiliates" of the Company at the time of sale in compliance with the applicable provisions of Rule 144 (paragraph (d) of such Rule being inapplicable thereto) as in effect at the time of sale.

3. Rule 16b-3 under the 1934 Act exempts, from the operation of Section 16(b) of the 1934 Act, inter alia, "_any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant or right), pursuant to a plan" which meets the definition of the term "plan" set forth in paragraph (d)(1) of such Rule and meets the further conditions set forth in paragraphs (a), (b) and (c) of such Rule.

The Plan, by its name, intent, and proposed effect, is a "bonus,...incentive,...or similar plan" as required by paragraph (d)(1) of the Rule. See American Express Company, publicly available July 28, 1976. It is set forth in a written document (copy attached) which includes a description of the basis of eligibility for participation therein. No offering price, as such, is specified since shares are to be delivered thereunder as a bonus, without cash consideration by any recipient. If, during the period in each year between the date of determination of persons who are to receive awards (generally in October or November), or (for the initial year 1978) the date of formal making of awards, and the subsequent date of delivery of certificates representing shares in implementation of such awards, any "right" is created in shares of participating employees, such right could not, within the purview of the Plan, be deemed to be transferable by such participant except, possibly, by will or pursuant to the laws of descent and distribution.

The term "exercise of an option, warrant or right" (appearing in paragraph (a) and in paragraph (d)(2) of the Rule), which operates as an exclusionary term from the exemption afforded by the Rule, clearly contemplates some voluntary act on the part of a holder of any right putatively included in such term. Certain particular voluntary elections, as well as acts and occurrences not effected by the recipient employee, are excluded from the scope of such term; certain other actions by a participating employee (the only acts which employees participating in the Companys Plan will be able to take), namely, (i) the entry into restrictive agreements with the issuer in fulfillment of a condition to receipt of the shares and (ii) acceptance of certificates for shares delivered under a plan, are also excluded.

As has been set forth above, no member of the compensation committee of the Companys board of directors (the committee administering the Plan) will be eligible for an award under the Plan. The compensation committee is made up of persons serving as directors only, who are not full-time employees of the Company and have not, at any time during the past year, been full-time employees of the Company. Each such member qualifies as a "disinterested person", within the meaning prescribed in paragraph (d)(3) of the Rule, who may properly exercise discretion, pursuant to paragraph (b) of the Plan, with respect to participation in the Plan by directors and by officers who are not directors.

A maximum number of 250,000 shares of the Companys common stock is provided in the Plan for award of shares thereunder during the five-year duration of the Plan. As is permitted by paragraph (c) of the Rule, such maximum number of shares is subject to adjustment to prevent dilution.

The Plan is to be submitted for approval by the requisite vote of the holders of shares of the Companys common stock at their annual meeting to be held in January 1979.

It is therefore our opinion that, assuming favorable action by the shareholders of the Company at their January meeting, the determination and/or formal making of awards under the Plan and the issuance and receipt of shares pursuant to such awards will be exempt from the operation of Section 16(b) of the 1934 Act, by virtue of Rule 16b-3 thereunder, as transactions pursuant to a plan meeting the definition and conditions set forth in such Rule.

4. Section 16(a) requires the filing, by each officer and director of the Company, of Statements reflecting the number of common shares of the Company of which the reporting officer or director was the "beneficial owner" (within 10 days after having been elected an officer or director) and, if there has been a change in "such ownership", reflecting such changes (within 10 days after the close of a subsequent calendar month, during incumbency in office, in which such change occurs). While the concept of "beneficial ownership" takes on differing content in the different contexts in which it is used in the federal securities laws, the Commission has cited certain factors with particular reference to "the reporting of beneficial ownership of securities under Section 16(a)", namely:

"application of the income derived from such securities to maintain a common home, to meet expenses which such person otherwise would meet from other sources, or the ability to exercise a controlling influence over the purchase, sale, or voting of such securities" (Securities Exchange Act Release Pounds Sterling 7793, dated January 19, 1966, as restated in Release Pounds Sterling 7824, dated February 14, 1966).

See also Release Pounds Sterling 15348, dated November 22, 1978: "The overriding concern under Section 16 is with the economic incidents of ownership."

No economic benefits of ownership and no form of voting or investment power will result to employees participating in the Companys Plan solely by virtue of the determination and/or formal making of awards by the committee administering the Plan; nothing more than an "expectancy interest" is created thereby. Even if each award were to be treated for this purpose as granting a "presently exercisable...right...to buy securities from _{the Company}," it is to be noted that no statement would need to be filed by employees named in such awards by virtue of paragraph (c) of Rule 16a-6 under the 1934 Act. By contrast, both economic benefits and voting power do result to employees participating in the Plan upon delivery of certificates representing shares in implementation of awards previously made. While, after such delivery, what the Commission has recently denominated "investment power" (Rule 13d-3(a)(2) under the 1934 Act: "the power to dispose, or to direct the disposition of, such securities") will still await the termination of the restricted period prescribed in individual awards, members of the Staff of the Commission have, in comparable circumstances, treated ownership of restricted shares as equivalent to beneficial ownership of the particular registrants ordinary shares for reporting purposes under Section 16(a). See Citicorp, publicly available April 3, 1978, and California Microwave, Inc., publicly available November 6, 1978. To the extent that Staff interpretations of paragraph (d) of Rule 144 under the 1933 Act postpone commencement of "beneficial ownership" until termination of restrictions on "investment power", those conclusions are not persuasive in relation to the instant analysis since they are directed in large part to avoidance of conduits-in-distribution, a purpose in many respects the opposite of the inside-interest-disclosure purpose of Section 16(a). We are therefore of the opinion that (1) officers and directors of the Company participating in the Plan are required to file Statements on Form 4 under Section 16(a) reflecting acquisition of beneficial ownership of shares received under the Plan with respect to the calendar month in which certificates representing such shares are delivered in their respective names by the Company, and (2) employees participating in the Plan who become officers or directors of the Company are required to reflect, on their Statements on Form 3 under Section 16(a), beneficial ownership of shares received under the Plan as to which certificates representing such shares have previously been delivered in their respective names by the Company, even though in each case such shares remain subject to forfeiture upon premature termination of employment and, in that connection, the Company retains possession of the certificates representing such shares.

Request

We respectfully request your indication that (1) the Division of Corporation Finance will not recommend enforcement action to the Commission if shares of the Companys common stock are distributed under the Plan without compliance with the registration requirements of the 1933 Act, and (2) you concur in our opinions above set forth, relating to (i) the status of shares delivered under the Plan as securities which are not "restricted securities", (ii) exemption of the award and receipt of shares under the Plan from the operation of Section 16(b), and (iii) the time of commencement of beneficial ownership for purposes of reporting under Section 16(a).

********************

We are simultaneously addressing a letter (copy attached) to the Division of Market Regulation as to questions, relating to the Plan, arising under Rule 10b-6.

Please address any questions with respect to this letter to Edward H. Fleischman or Robert L. Kohl of our Firm.

Very truly yours,

BEEKMAN & BOGUE

EHF:mz

Attachment

cc: Mr. Sam Scott Miller

Ms. Patricia Flynn

Paine Webber Incorporated

STAFF REPLY LETTER

January 10, 1979

Edward H. Fleischman, Esq.

Beekman & Bogue

14 Wall Street

New York, New York 10005

Re: Paine Webber Incorporated

Dear Mr. Fleischman:

This is in response to your letter of December 8, 1978 and subsequent telephone conversations with the staff regarding the applicability of the registration requirements of the Securities Act of 1933 (the "Securities Act") to the Restricted Stock Bonus Plan (the "Plan") of Paine Webber Incorporated (the "Company"). You have also raised certain questions regarding the applicability of Sections 16(a) and 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act").

We understand the facts, as more fully set forth in your letter and attached copy of the Plan, to be as follows. The Plan provides for the award of bonuses to key employees in shares of the Companys common stock, which is registered under Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange. As of its fiscal year ended September 29, 1978, the Company had outstanding 5,361,356 shares of common stock held of record by 3,350 shareholders.

The Plan has been approved by the Companys Board of Directors and is to be submitted to shareholders for approval at the annual meeting to be held on January 22, 1979. Any subsequent amendment to the Plan which materially increases the benefits to participants or materially modifies eligibility requirements will also be submitted to shareholders. The Plan will be administered by the compensation committee of the Board of Directors, no member of which will be eligible for an award under the Plan. The committee will have the sole authority to determine the individuals who are to receive awards, the form and amount of the award, and conditions applicable to individual awards. Although all full-time employees of the Company and its subsidiaries will be eligible to participate, initial consideration for awards will be restricted to those employees (approximately 75) who are also directors and/or key employees of the Companys two major subsidiaries, Paine Webber, Jackson and Curtis Incorporated, and Paine Webber Mitche11 Hutchins Incorporated.

Certificates representing shares awarded pursuant to the Plan will be registered in the recipients name but will be retained by the Company as agent for a period of not less than two and not more than ten years. During this restricted period, the recipient may not sell, assign, transfer, pledge, or otherwise encumber the shares. If a recipient ceases to be an employee of the Company or one of its subsidiaries during the restricted period (except by reason of death, disability, or normal retirement) all of his shares still subject to the restrictions shall be forfeited and returned to the Company. However, if his employment is terminated by the Company without cause, the committee may, but need not, determine that some or all of the shares which remain restricted shall be free of restrictions and shall not be forfeited. Except for the restrictions, recipients of the bonus shares will have all the rights of other shareholders of the Companys stock, including, but not limited to, the right to vote the shares and to receive dividends thereon. In addition, they may be awarded the right to receive supplemental cash payments during the restricted period equal to cash dividends paid by the Company during the preceding calendar year on bonus shares which were restricted during that year. This right will be in addition to their right as shareholders to receive dividends on the shares.

The Plan provides that a maximum number of 250,000 shares of the Companys stock may be used thereunder and that such number may not be increased by amendment to the Plan. The shares may be authorized but unissued shares or may be shares reacquired by the Company by purchases on the open market or as a result of forfeiture pursuant to the Plan. The Plan will terminate after its fifth fiscal year unless earlier terminated or suspended by the Board of Directors. The committee has made an initial award, subject to shareholder approval of the Plan, of 27,409 shares to 14 participants, the largest single award being 8,500 shares.

Based upon the facts presented and policy considerations, this Division will not recommend any enforcement action to the Commission if the Plan is implemented as described without compliance with the registration requirements of the Securities Act in reliance on your opinion as counsel that registration is not required. Especially noting that (1) the issuer is a reporting company under the Exchange Act, (2) there is an active public market for its shares, and (3) the number of shares to be issued to Plan participants will be small in relation to the number of shares outstanding and will not have a significant impact on the existing public market for the shares, it appears that the shares would not be "restricted securities" within the meaning of Rule 144. Of course, resales of the shares by participants who might be deemed "affiliates" must comply with provisions of Rule 144, except the two year holding period.

It is our view that the Plan would be a bonus or incentive plan within Rule 16b-3 under the Exchange Act. Consequently, if all provisions of that Rule are satisfied, an acquisition of shares pursuant to the Plan by a company officer or director will be exempt from the operation of Section 16(b) of the Exchange Act. However, it is our view that Section 16(a) reports should be filed at the time that share certificates are issued in the recipients name, even though restricted, since voting power and the right to receive dividends on the shares will vest at that time.

Because this letter is based upon the representations made to the Division in your letter and telephone conversations, it should be noted that any different facts or conditions may require a different conclusion. Further, this letter only expresses the Divisions position on enforcement action and does not purport to express any legal conclusion on the questions presented.

Sincerely,

Consuela M. Washington

Attorney Adviser