5775 Morehouse Drive
San Diego, CA 92121-1714
VIA E-MAIL TO: firstname.lastname@example.org
June 21, 2002
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Attention: Mr. Jonathan G. Katz, Secretary
Re: Form 8-K Disclosure of Certain Management Transactions; File No. S7-09-02
Ladies and Gentlemen:
QUALCOMM Incorporated ("QUALCOMM," "we" or "us") is submitting this letter in response to the request of the United States Securities and Exchange Commission (the "Commission") in Release No. 33-8090 (April 12, 2002) (the "Release") for comments on proposals to file current reports under the Securities Exchange Act of 1934 (the "Exchange Act") describing directors' and executive officers' transactions in company equity securities, directors' and executive offices' arrangements for the purchase and sale of equity securities and loans of money to a director or executive officer made or guaranteed by the company or an affiliate of the company. QUALCOMM is a registrant under Section 12(g) of the Exchange Act. We have only one class of stock outstanding, Common Stock, $0.0001 per share par value, which currently trades on the Nasdaq National Market under the symbol "QCOM." Based on the number of shares outstanding as of April 22, 2002 and the closing price of QUALCOMM's common stock as of June 5, 2002, QUALCOMM has an approximate market capitalization of $25 billion.
I. Summary of New Item 10 of Form 8-K.
As set forth in the Release, among other implementing changes, a new Item 10 of Form 8-K is proposed to provide for reporting, for companies with a class of equity securities registered under Section 12 of the Exchange Act such as QUALCOMM:
1. Each director's and executive officer's transactions in company equity securities (whether or not of the class registered under Section 12) including the acquisition and disposition of derivative securities, and the exercise, termination or settlement of derivative securities;
2. Each director's and executive officer's adoption, modification or termination of a contract, instruction or written plan for the purchase or sale of company equity securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act; and
3. Each loan of money to a director or executive officer made or guaranteed by the company or an affiliate of the company.
Our comments will focus on item 1 above.
Overall, QUALCOMM supports the Commission's intentions and goals in the Release. QUALCOMM concurs that more timely disclosure of information about transactions that may reveal directors' and executive officers' views as to their companies' prospects should enable investors to make investment and voting decisions on a more timely and better informed basis. QUALCOMM is concerned, however, that in its particular case, compliance with certain aspects of the proposed changes to Form 8-K contained in the Release, particularly accelerated reporting for transactions with a value of over $100,000, will be unduly burdensome. QUALCOMM also believes that some transactions that would be reportable pursuant to proposed Item 10 of Form 8-K, such as transactions pursuant to Rule 10b5-1 arrangements, automatic grants pursuant to previously disclosed equity compensation plans and certain gifts, should be excluded from reporting on revised Form 8-K. In addition, we have concerns about the liabilities that would accrue to Exchange Act registrants for failure to timely file these reports, particularly when registrants such as QUALCOMM would be dependent on timely receipt of information from parties over whom they have little control. Finally, we suggest the creation of a new form for use in reporting these transactions to distinguish them from events already reportable on Form 8-K or amendments to Section 16 of the Exchange Act to accomplish the Commission's purposes in the Release.
II. Accelerated Reporting of Transactions with a Value over $100,000.
As set forth in the Release, most Item 10 events would be reportable early in the week following the event. However, transactions or loans with an aggregate value of $100,000 or more with respect to a director or executive officer, other than grants or awards pursuant to an employee benefit plan, would be reportable within two business days following the reportable event. QUALCOMM believes that compliance with this deadline would be unduly burdensome.
QUALCOMM believes that nearly all reportable transactions by its directors and executive officers, as well as the directors and executive officers of other registrants with a large market capitalization, will be over $100,000 in value. We believe the usefulness of information about such transactions to investors will be low if nearly all such transactions for a particular registrant are over $100,000 in value. We also estimate that QUALCOMM's costs of compliance with proposed Item 10 will be substantially higher than estimated by the Commission in the Release. We estimate that if Item 10 of Form 8-K were adopted as proposed, the number of additional QUALCOMM filings on Form 8-K per year would be approximately 100, and that the cost of making these filings would be a minimum of $103,000 annually, with $68,000 being spent in the use of internal resources and an additional $35,000 being spent for the advice of outside counsel and other service providers in the preparation and filing of additional Forms 8-K.
We believe that compliance with the proposed rules could force us to discourage our directors and executive officers from entering into Rule 10b5-1 arrangements because the administrative burden of reporting each 10b5-1 transaction could become overwhelming. Qualcomm could otherwise be required to make daily filings on Form 8-K for plans with daily trading provisions. While we support the Commission's proposal to require reporting of the adoption and amendment of a Rule 10b5-1 arrangement, we do not believe that execution of transactions under that arrangement will provide useful information to investors.
QUALCOMM therefore respectfully submits that transactions effected pursuant to 10b5-1 arrangements should not be subject to reporting under proposed Item 10 because of the anticipated cost of reporting such events and the relative usefulness of this information to investors. We contend that with the exception of transactions effected pursuant to a Rule 10b5-1 arrangement (and certain other exceptions noted below), which should not be reportable on revised Form 8-K, transactions covered by proposed Item 10 should be reportable by the third business day of the following week. This would provide for significantly more timely reporting than currently required under Section 16 of the Exchange Act, while allowing sufficient time to gather and report information accurately. Alternatively, should the Commission require accelerated reporting for transactions over a certain dollar threshold, that threshold should bear a rational relationship to the market capitalization of the registrant so as to only require accelerated reporting of transactions that are material to investors. For QUALCOMM and many other companies with substantial market capitalization, the $100,000 threshold is too low, while we recognize that for other registrants this amount may be appropriate. We further believe that should the Commission require reporting of transactions executed pursuant to Rule 10b5-1 arrangements on Form 8-K, they should not be subject to accelerated reporting and registrants should be permitted to indicate on Form 8-K that such transactions were made pursuant to 10b5-1 arrangements so as to distinguish these transactions from others that may be more indicative of changes in management's views as to the registrant's prospects. Finally, the Commission's proposed $10,000 de minimus exception should also be set at a level relevant to the market capitalization of the registrant.
III. Transactions Less Significant for Investors
The Release lists a number of transactions that are excluded from the reporting requirement of proposed Item 10 because they do not "appear to reflect management's views of the company's prospects or sever the link between executive compensation and company equity securities performance." We respectfully submit that at least three other types of transactions should be added to the list of exceptions for the same reasons.
First, we suggest, as noted above, that transactions executed pursuant to Rule 10b5-1 arrangements should be excepted from reporting under proposed Item 10. Once such an arrangement is put in place, execution of its terms does not reflect a change in management's views of the company's prospects. We support the Commission's proposal to require reporting of the adoption or amendment of such arrangements, also as noted above. Should the Commission ultimately require reporting of these transactions on Form 8-K, we suggest that they not be reportable on an accelerated basis regardless of the size of the transaction.
Second, QUALCOMM maintains an equity compensation plan that makes non-discretionary grants to non-employee directors. Because these grants are pursuant to a previously disclosed equity compensation plan, QUALCOMM's investors are already aware of the upcoming grants before they are made and their disclosure on a Form 8-K is duplicative. In addition, because these options are granted automatically, their grant does not represent any change in insiders' view as to QUALCOMM's prospects. We respectfully submit that grants pursuant to previously-disclosed employee benefit plans such as QUALCOMM's be excepted from reporting on revised Form 8-K, particularly if such grants are non-discretionary.
Finally, we submit that gifts of a registrant's equity securities, whether from or to a director or executive officer, provide less insight as to the insider's views of the company's prospects than do sales or purchases of equity securities or derivative securities. As a result, we suggest that gifts, regardless of size, should not be reportable under proposed Item 10, but should remain solely governed by Section 16 reporting.
IV. Liability Issues.
We are concerned that liability for failure to timely file reports on Form 8-K is not properly placed on the persons with access to the reportable information.
Publicly traded companies such as QUALCOMM often have a large number of non-employee members of the Board of Directors. QUALCOMM, for example, has a Board of twelve Directors, of which eleven are not QUALCOMM employees. QUALCOMM believes many public companies like itself will have a limited ability to require non-employee directors to provide timely information with respect to their transactions in their equity securities. If proposed Item 10 is adopted as set forth in the release, registrants could suffer because of the actions or inactions of directors over which they have little control. In addition, outside directors generally have less insight into the day-to-day operations of the companies over which they preside than do employee directors and executive officers, and therefore transactions by these individuals are not as meaningful to investors.
Failure to file a Form 8-K when required may also result in a short form registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), and the incorporated prospectus, being deemed incomplete, with liability under the Securities Act attaching to the registrant and any party using the prospectus.
As a result, QUALCOMM believes that proposed Item 10 should only apply to transactions entered into by employee directors and executive officers. QUALCOMM believes that the current monthly reporting required by Section 16 of the Exchange Act adequately informs the securities markets of changes in outside directors' views as to companies' prospects, and it maintains the liability for failure to file these reports with the parties that have primary access to the reportable information. In the alternative, QUALCOMM believes that registrants should have the option to designate reports of covered transactions as "not filed" for purposes of Section 18 of the Exchange Act and incorporation by reference into registration statements filed under the Securities Act. QUALCOMM does not believe that registrants, and indirectly all of the holders of their securities, should bear the liability for failure to timely or accurately report transactions by persons over which they have little control. QUALCOMM further supports the Commission's position in the Release that failure to file a Form 8-K with respect to Item 10 transactions should not affect the availability of Rule 144 or short form registration statements (such as Form S-2 and Form S-3) under the Securities Act.
In addition to the foregoing, QUALCOMM suggests that the Commission create a new form for reporting the types of transactions contemplated by the Release. This would permit investors to easily distinguish between disclosure currently required on Form 8-K and what we believe would otherwise be a dramatic number of Item 10 filings, and potentially a number of additional filings on Form 8-K to amend the foregoing. QUALCOMM agrees that the use of the transaction codes currently required in Section 16 filings would also improve and streamline disclosure.
Finally, the intent of the Release is to promote more timely reporting of the transactions which, to a significant extent, are already reportable under Section 16 of the Exchange Act. QUALCOMM supports the Commission's goals and understands that making the changes necessary to Section 16 to achieve all of the goals of the Release may require action by Congress. Notwithstanding, because of the liability accruing to issuers rather than the parties effecting the reportable transactions, we respectfully submit that the Commission consider proposing changes to Section 16 to accomplish its purposes. We also believe that the creation of an alternative reporting structure that is similar to but not completely consistent with Section 16 is likely to introduce inefficiencies in the reporting process as registrants and their counsel familiarize themselves with the new rules. Prior to action by Congress, the Commission could implement certain changes to achieve its goals, such as requiring Section 16 filings to be made electronically to provide easier access and more timely disclosure to the investing public.
QUALCOMM endorses the Commission's efforts to provide more timely disclosure to investors of the transactions described in the Release. We believe it is important for the efficient function of capital markets that information be made available to investors in a meaningful timeframe. Notwithstanding, we are concerned with the proposals contained in the Release for the reasons we have specified above. We appreciate the opportunity to submit comments. We are available to meet with the Commission or the Staff and to respond to any questions.
Irwin Mark Jacobs
Chairman of the Board of Directors and
Chief Executive Officer