June 24, 2002

Via E-mail to:


Subject: File No. S7-09-02

Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary

Re: File No. S7-09-02 - Proposed Form 8-K
Disclosure of Management Transactions

Dear Sirs:

We respectfully submit the following comments on the proposed amendments to require public companies to file Form 8-K reports describing director and executive officer transactions in company equity securities and Rule 10b5-1 plans relating to company equity securities.

We support the SEC's overall goal of accelerating the reporting of insider transactions in company equity securities. We continue to believe that the preferred solution would be a Congressional grant of authority for the SEC to establish new deadlines for Section 16(a) reports, but recognize that statutory limitations have forced the SEC to develop an indirect approach to achieving this result.

However, we respectfully suggest that the proposals should be revised to address the following concerns:

We also believe the requirement to report establishment of or amendments to Rule 10b5-1 plans is unnecessary and potentially confusing to investors, given that any transactions under the plan will also be reported.

1. The reporting burden need not be shifted to issuers.

Allow insiders to undertake accelerated reporting to relieve issuer obligations. We believe the SEC could accomplish the goal of accelerated insider transaction reporting under the existing statutory framework without shifting as much of the burden to issuers. This could be accomplished by providing that the issuer's new Section 13(a) reporting obligations for an insider's transactions are deemed satisfied if the issuer files a signed undertaking of the insider, in a form prescribed by the SEC, agreeing to file his or her Section 16(a) reports within the new deadlines. The compliance by the issuer with its Section 13(a) obligations would continue until the insider withdrew the undertaking by notice to the SEC and the issuer. Any such withdrawal would be effective only with respect to transactions occurring a specified period (such as 30 days) after the giving of the notice. The undertaking would provide that while it remains in effect the SEC could enforce the undertaking for untimely or inaccurate filings. The issuer would not be responsible for the content or timeliness of an insider's filings, or of any omissions.

The undertaking approach would be no more burdensome on insiders than the SEC's proposal. We believe most issuers would be able to obtain such undertakings from their officers and directors. The informational and timing burdens on them would remain substantially the same whether or not they provide an undertaking. Furthermore, issuers would continue to have the existing incentives to act as a service bureau to assist insiders in completing and submitting required reports.

The undertaking approach would have the advantage of placing direct compliance pressure on those possessing the relevant information - the insiders. They would have a further incentive to comply in light of the potential of direct SEC action for noncompliance.

Avoid Director Cross-Liability and Excessive Issuer Liability. The new 8-K Item 10 disclosures would be considered "filed" for Exchange Act Section 18 liability purposes and incorporated by reference into Securities Act registration statements for Securities Act Section 11 liability purposes. We respectfully suggest that this is excessive and unfair, particularly where the information comes from third parties. Instead, we urge the SEC to treat Item 10 information the same as it has treated Item 9 information reported in compliance with Regulation FD - in other words, the information is not deemed "filed" for Section 18 purposes and not incorporated by reference into Securities Act filings. In any event, the information should not be deemed incorporated into Securities Act filings. Given the data-oriented nature of the information, it is inappropriate to make it part of Securities Act registration statements and to subject directors to cross-liability under Section 11 for each others' Item 10 information (essentially, each others' Form 4 reports).

2. The new 8-K reports should be harmonized with the existing Section 16 reporting system.

The compliance burden of the new proposal is unnecessarily high on reporting persons, and the quality of the information available to the public is unnecessarily confusing, because of differences in the nature of the information required under new 8-K Item 10 and the existing Section 16(a) reporting system.

First, the existence of duplicate reports - one by the issuer and one by the insider - may confuse investors, who may be unsure whether an insider's report discloses new or previously reported information. The undertaking approach described in the previous section of this letter would generally eliminate duplicate reports.

Even if that approach is not adopted, duplicate reporting could be avoided. For example, if the issuer attached a completed and signed Form 4 to its Form 8-K, and filed the Form 8-K within the new deadlines, that should serve to fulfill not only its Section 13(a) obligations but also the Section 16(a) obligations of the insider. It should also be permissible for the issuer to attach its signature to a Form 4 filed within the new 8-K Item 10 deadlines.

In any event, the persons covered and the information items required in Form 8-K and Form 4 should be the same.

We support the provisions of new 8-K Item 10 that exclude matters eligible for deferred Form 5 reporting (such as director and officer trust transactions covered by Rule 16a-8 and 16b-3-exempt employee benefit plan option grants). Given that the purpose of new Item 10 is to accelerate reporting of monthly Form 4 information, it appears to us inconsistent to require accelerated Item 10 reporting of any category of information the SEC has concluded may be reported only annually on Form 5 for Section 16 purposes.

3. The new deadlines should be simplified.

We believe the deadlines for new 8-K Item 10 reports are too aggressive and complicated. Coupled with the substantive differences between the information required by Form 4 and Item 10, as discussed above, these proposed deadlines would in our view involve a high probability that issuers will be unable effectively to comply. There is a significant chance of unintentional mistakes given that much of the reported information would come from third parties.

At our company there currently are over 30 directors and officers subject to Section 16(a) reporting. We require officers to file their reports through our Department of Law and Corporate Affairs, and encourage all our outside directors to do so as well (and all currently do). This group made over 100 Form 4 or 5 filings in the past year, many of which involved multiple transactions and reflected well over 500 transactions exceeding $100,000 that would be subject to the two-day deadline under proposed Item 10.

We respectfully suggest that the new system be established in a manner more consistent with a regular reporting and compliance system. We believe an ad hoc two-day deadline is unworkable. Instead, the deadline should be at a predictable period (such as weekly). This will make it easier for covered persons, on whom the system depends, to remember the deadlines. This approach would also allow the issuer's compliance personnel to send a reminder inquiry to covered persons at the end of each week. The deadline should also allow a reasonable period for the information to be collected and the required reports prepared. We believe the reporting period for transactions under $100,000, modified to allow filing three business days after the end of the reporting week, would be an appropriate deadline.

We recognize that a single deadline approach will result in some transactions being disclosed later than under the SEC's proposal (e.g., over-$100,000 transactions), and some earlier (e.g., under-$10,000 transactions). Using a single deadline would still produce significant improvement in timeliness over the current Section 16 reporting, while allowing issuers to adopt reasonable, uniform procedures that we respectfully suggest are more likely to produce accurate, reliable reports. We believe the benefits of filing under a single and, importantly, predictable deadline outweigh the somewhat later public release of some information.

In general, we urge that modifications to the proposed rule aim to simplify the rule rather than increase its complexity, as would be suggested by the questions at footnote 38 of Release No. 33-8090.

4. EDGAR should be updated to facilitate electronic filing of the new information.

Currently, the EDGAR system makes the filing of tabular data cumbersome. Most filers probably create their original reports involving tabular data using the tables function in word processing software or using spreadsheet software. While this software can generally readily convert to HTML or ASCII (e.g., Microsoft Word and Excel), the filer must perform additional steps before the file is EDGAR-compliant. The EDGAR system does not accept current HTML version 4 commands but instead requires a subset of the older HTML version 3.2 commands. In practice filers would need to build up to the HTML 3.2 subset from ASCII. For ASCII filers, EDGAR table codes must be inserted throughout. While commercial software can help, both of these processes involve significant manual effort and the potential for error.

The information required for Form 4 and proposed Item 10 information is table-intensive. Before requiring electronic submission of this information, the SEC should upgrade the EDGAR system to accept current HTML table codes, or to accept directly the file formats of popular spreadsheet programs. We believe that most members of the public who will be viewing or printing the information from the SEC's EDGAR system will do so using software that is fully capable of accepting these formats.

Even if the SEC decides not to postpone mandated electronic filing of the Item 10 information, we suggest that the above enhancements to the EDGAR system be implemented as soon as possible.

5. Other comments.

Issuer website posting. We believe that actual posting of the Item 10 information on the issuer's website is unnecessary. Instead, the approach proposed by the SEC for Form 10-Q/10-K reports would be preferable. In other words, the issuer would include in its annual report a statement about whether the issuer posts the information on its website and, if not, a statement about same-day availability on a third party website. We believe this change is especially appropriate in view of the SEC's recent announcement about real-time availability of EDGAR filings through the SEC's own website.

Rule 10b5-1 plans. We believe that the market could misunderstand that reports about an executive officer or director entering into 10b5-1 plans would not involve actual trading, especially in view of the independent requirement to report those trades. We also question the usefulness of that information to investors and believe officers and directors are entitled to a degree of privacy regarding entering into these plans. Accordingly, we respectfully urge that the SEC not require disclosure about insiders' Rule 10b5-1 plans, other than reports of actual transactions in issuer equity securities executed under those plans as at present.

* * *

We are pleased to be able to submit these comments on the proposals. Please feel free to contact the undersigned if you wish to discuss any of them with us.


Microsoft Corporation


By ____________________________
John A. Seethoff
Deputy General Counsel,
Finance & Operations