June 18, 2002

Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: Comments on the Proposed Rule: Form 8-K Disclosure of Certain Management Transactions File No. S7-09-02

Dear Mr. Katz:

With regard to the proposed amendments to Form 8-K requiring disclosure of certain management transactions, this letter presents the comments of Frederic W. Cook & Co., Inc.

Background

Frederic W. Cook & Co. provides consulting assistance to corporations in developing compensation plans for their executives and key employees. Formed in 1973, we have served over 1,300 clients from offices in New York, Chicago, and Los Angeles.

Our objective is to add value to our clients' compensation programs through an independent viewpoint that balances the design and competitive level of compensation with its resulting impact on shareholder-value creation. Our consultants are widely recognized as experts in the field of equity-based compensation. As such, we believe we are strongly qualified to comment on the proposed rule changes.

Comments

We are supportive of the move toward better disclosure. Arguably, investor confidence is at an all-time low given the recent events at such well-known companies as Enron, Tyco, and others. Much of this corporate malfeasance centers on management transactions with regard to corporate securities. Current reporting requirements under Section 16(a) do not place information in investors' hands fast enough for them to act on the information. Presently, gaps of one month to in excess of one year from the time of the event to its actual reporting are possible.

Revised disclosure by companies would promote fair dealing by enabling investors to ascertain more readily executive and director transactions in company equity securities (including derivatives), loan agreements and trading arrangements. With this knowledge, investors would be able to act on timely disclosure of potentially useful information as to management's views of the performance or prospects of the company.

A summary of our comments regarding the proposal is provided below:

1. On June 17, 2002, the SEC released a new proposal [Release Nos. 33-8106; 34-46084; File No. S7-22-02] adding 11 new items that would require a company to file Form 8-K under the Securities Exchange Act of 1934. In addition, the SEC proposed to move two disclosure items currently required to be included in companies' annual and quarterly reports to Form 8-K and to amend several of the existing Form 8-K disclosure items. These added items would be on top of the nine items currently requiring disclosure on Form 8-K and the newly proposed Item 10.

• In our opinion, the proposed Item 10 disclosure (which overlaps to a large degree with Form 3, 4 & 5 Filings) should be merged with section 16(a) filings. The overlap in the two filings seems inefficient and burdensome to companies. Requiring one form with the proposed accelerated filings dates would provide consistency in location of the information.

• This new or amended form should not be incorporated into Form 8-K due to the already expanding nature of this form as mentioned above. Instead, it should be set off on its own so that investors can associate the form with one issue (i.e., management transactions in equity securities, loans and 10b5-1 plans).

2. With regard to the definition of "executive officer", we believe that the broader definition as used under Section 16 should apply given the importance of such positions as principal financial officer and principal accounting officer. Most companies already include these executives but some may not and this would close the loophole.

3. Both employee and non-employee directors should be required to comply with the proposal.

- 10% beneficial owners who are not executives or directors of the company should not be required to comply with the proposal. They are not employees of the company, do not receive compensation from the company and are far enough removed from operations of the company to not warrant disclosure.

4. All transactions in company equity securities (including derivatives, hedges and collars) should have reporting periods based on the dollar threshold as proposed in the release.

• There may be some concern over manipulation of the $100,000 threshold by executives who sell shares repeatedly just under the threshold amount to avoid the two day reporting period.

  • For example, an executive could sell $99,999 worth of securities per day starting on Monday, January 1st and ending on the following Tuesday, January 9th. The Monday transaction would not have to be reported until the 9th. A total of $699,993 worth of securities could have been sold in that time with full disclosure of all transactions through the 9th not coming until January 16th.

  • To avoid this, all transactions in company securities that occur within the same two (or possibly three) business day period should be considered together for purposes of computing the dollar threshold for reporting under the earlier deadline

• For reporting of derivative securities, it would be helpful for investors to know both the grant date and the expiration date of an option that is being exercised. This would potentially give investors insight into management's view of the performance or prospects of the company.

5. Any agreement to enter into a loan or any agreement to forgive or foreclose on a loan, regardless of value, should be reported within two business days. Investors are extremely concerned about company loans to executives and directors and forgiveness on those loans. They should have this information as soon as possible so that they can make informed investment decisions.

• Loan disclosure should be broad enough to include loan forgiveness to executives conditioned on meeting certain financial targets or continued service such as company loans to executives for the purchase of company stock that will be forgiven if the executive remains employed for a designated number of years

• For reporting purposes, we believe that disclosure should apply with respect to any loan to members of the immediate family of a director or executive officer, to any corporation or organization in which a director or executive owner beneficially owns 10% or more of any class of equity security or to any trust or other estate in which the director or executive officer has a substantial beneficial interest or serves as trustee similar to the requirements under Item 404(a) of Regulation S-K.

6. All 10b5-1 plans should be disclosed by the end of the second business day of the following week. However, if any action is taken on the plan before the filing date, such as a sale or purchase of securities (regardless of value), then the plan must be disclosed within two business days of the sale or purchase

• Indicating which transactions are pursuant to Rule 10b5-1 would be extremely helpful to investors trying to determine why executives are buying or selling shares. However, this type of disclosure may be counter to the SEC's effort to provide only general information regarding these types of plans since investors could identify each transaction and, in essence, figure out what the terms of the plan are.

7. Current reporting requires companies to state whether officers, directors and 10% shareholders are in compliance with Section 16(a) of the Securities Exchange Act of 1934. If Item 10 is combined with Section 16 as discussed above, then this compliance statement would cover Item 10 transactions by management.

• If Item 10 remains part of Form 8-K, then we would be in favor of some type of disclosure (either on Form 10-K or in the proxy) that informs investors whether companies are, in fact, complying with the rules.

8. The content and format of the reports could be patterned after the Form 3, 4, 5 format. As discussed above, merging the two and altering the existing format to conform with certain Item 10 disclosures not currently required under Section 16 reporting would be most appropriate in our opinion.

• Failing to provide some type of uniform disclosure format for companies to follow would be a mistake. Investors seeking information would be best served with uniform and consistent filing practices.

9. Additional clarity from the SEC would be useful to executive compensation practitioners, specifically whether and how the following equity compensation transactions would be reported under the proposed Item 10 if the forms are not merged together as suggested above:

• Cashless exercises of options and immediate sale of shares,

• Exercise of options using a stock-for-stock exercise,

• Satisfaction of tax withholding requirements by withholding from shares exercised or vested or tender of shares owned,

• Grants of "reload" options,

• Modifications of option contracts that cause a new measurement date,

• Transfer of deferred account balances into or out of company deferred stock, and

• Payment of earned bonus or LTI awards in stock, whether currently restricted or deferred.

* * * * * * *

In summary, we are supportive of the move toward better disclosure. We believe that the new rules will provide meaningful, timely information to investors. However, we believe that the SEC's proposal should be streamlined to provide corporations with one type of disclosure regarding this issue as opposed to repetitious filings (i.e., Form 8-K overlapping with Section 16(a) filings). We welcome the opportunity to assist in any way, and I am available for questions at your request.

Sincerely,

Louis C. Taormina

LCT/mgh