June 24, 2002
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20529
Attention: Jonathan G. Katz
Re: Proposed Rule: Form 8-K Disclosure of Certain Management Transactions (File Reference No. S7-09-02)
By Electronic Mail
Dear Mr. Katz:
Bank of America Corporation is pleased to submit this letter in response to the request of the United States Securities and Exchange Commission (the "Commission") for comments regarding the Commission's proposed rule to require Form 8-K disclosure of certain management transactions. We appreciate the opportunity to comment on the proposed rule.
Bank of America Corporation is one of the nation's largest financial holding companies, and we support the Commission's efforts to provide investors access to information on a more timely basis. We agree with the Commission that technological advances and changes in the marketplace "necessitate a new consideration of the timing of mandated disclosure to the markets." We also agree that prompter public disclosure of information regarding certain management transactions will "enable investors to make investment and voting decisions on a more timely and better informed basis." However, we are concerned that the proposed disclosure requirements are overly broad and place unnecessarily heavy burdens on reporting companies. We believe the proposed rules can be modified to limit the burden to companies while still providing investors with meaningful disclosure on a timely basis. We have discussed our concerns and proposed alternatives below.
I. Reporting of Transactions in Company Stock
We agree that investors should be able to obtain information regarding management transactions in a company's equity securities more quickly and easily than they are able to do under the current Section 16 reporting system. Still, the Section 16 reporting system provides a solid, existing framework for providing public disclosure of these types of transactions. We believe that adding additional company disclosure requirements on Forms 8-K of these same types of transactions is duplicative and potentially confusing for both issuers and investors. The most appropriate way to improve investors' access to information regarding management transactions in a company's equity securities is to reform the Section 16 reporting system and to require prompter disclosure under Section 16.
However, if the Commission determines to proceed with its proposal to require company disclosure on Form 8-K of certain management transactions, Bank of America proposes several modifications which are discussed herein. Our suggested modifications provide for disclosure that is of most relevance to investors making voting and investment decisions while balancing that goal with the increased burden on issuers. First, a company should not be required to report transactions in equity securities entered into by non-employee directors of the company. While companies should be able to implement reasonable policies and procedures to promptly obtain and report information on executive officers' transactions, it is much more difficult to obtain and report the same information regarding transactions by outside directors, particularly transactions by affiliated parties of outside directors, on such a short time frame. In addition, disclosure of executive officers' transactions is likely to be most useful to investors, and, of course, information regarding outside directors' transactions in company securities would still be disclosed under Section 16(a).
We also propose that reports of a transaction with an aggregate value not exceeding $100,000 should be deferrable until the aggregate cumulative value of unreported transactions with respect to the same individual exceeds $100,000. All transactions with an aggregate value of $100,000 or more should be reportable not later than the close of business on the second business day of the week following the week in which the event occurred. Under such reporting deadlines, companies would be able to file a weekly Form 8-K reporting all events for that time period instead of potentially filing new Forms 8-K almost daily.
We further request the Commission to consider narrowing the categories of reportable transactions under the new Item 10 Form 8-K. We understand that the Commission seeks to require reporting of transactions which "reflect management's views of the company's prospects." We recognize that open market purchase and sales as well as certain transactions currently exempt under Section 16 (e.g. repurchases of executive officer stock by a company, repricing of options and volitional intraplan transfers in an employee benefit plan) may provide investors with information regarding management's view of company performance or prospects. However, we believe most transactions which are exempt under Section 16 (including gifts, grants of stock and options under employee benefit and director plans and the exercise of tax withholding rights in connection with the vesting of restricted stock) do not provide investors with information regarding management's view of company performance or prospects, and thus should be exempt from Item 10 Form 8-K reporting requirements.
II. Reporting of Rule 10b5-1 Arrangements
We agree that public disclosure of the existence of Rule 10b5-1 arrangements is appropriate. However, we believe that a company's obligations should be limited to reporting arrangements entered into with its executive officers, and that, for many of the reasons discussed above, companies should not be required to report on Forms 8-K those Rule 10b5-1 arrangements entered into by their outside directors. With respect to the reporting of modifications of Rule 10b5-1arrangements, we believe reporting obligations should be limited to material modifications to the basic terms of a Rule 10b5-1 arrangement as described in the original Form 8-K. Although we recognize that the Commission's proposed rules do not require disclosure of the prices and intervals at which transactions would occur and require that modifications to these terms be reported only in "general terms," we believe no disclosure of prices and intervals is appropriate. We believe that disclosure of specific prices and intervals leads to both serious privacy and market manipulation concerns and that providing nonspecific information regarding pricing and intervals would be misleading and ineffective in communicating meaningful information to investors.
III. Reporting of Company Loans
We agree with the Commission that information regarding loans of money to a director or executive officer made or guaranteed by the company or an affiliate of the company should be disclosed to investors. However, we understand that the Commission's intent is to disclose those loan arrangements that are "not available to shareholders generally." We note that for financial institutions in the business of banking, lending arrangements are generally available to shareholders. Thus, we believe that the extension of credit to directors and executive officers in the ordinary course of business which would not be reportable pursuant to Instruction 3 of Item 404(c) of Regulation S-K should be exempt from the reporting requirements of new Item 10(c) of Form 8-K.
IV. Filed Status of Reports
Under the proposal, Item 10 Forms 8-K would be considered "filed" for purposes of liability under Section 18 of the Exchange Act. We strongly object to this portion of the Commission's proposed rules. The information required to be reported under new Item 10 relates to transactions entered into by individuals (not the company itself), and the information contained within these Forms 8-K would be based solely on information provided by such individuals. A company should not bear liability for information provided solely by an individual. As an alternative, we propose the information reported under new Item 10 should be treated similarly to information filed under Item 9 of Form 8-K. The Commission's objectives to use company Forms 8-K to provide more timely information to investors on management transactions can be achieved without unfairly placing Section 18 liability on registrants with respect to these filings.
In conclusion, we believe that the potential benefits to investors of requiring company Form 8-K disclosure of management transactions must be balanced against the additional filing burdens placed on the companies and the practical abilities of companies to comply with the proposed filing requirements. This letter contains suggested modifications to the Commission's proposed rules which we believe accomplish the Commission's goals and are fair to both companies and investors.
We thank you for the opportunity to submit this comment letter. We would be happy to discuss with you any of the comments described above or any other matters you feel would be helpful in your review of the proposal.
/s/ Rachel R. Cummings
Rachel R. Cummings
Associate General Counsel and Corporate Secretary