June 24, 2002

Via E-Mail

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

Re: SEC's Proposal to Require Form 8-K Disclosure of Certain Management Transactions (File No. S7-09-02)

Dear Mr. Katz:

We are submitting this letter on our own behalf and on behalf of a number of our publicly held clients, including Astoria Financial Corporation, Hudson City Bancorp, Inc., Hawthorne Financial Corporation, Roslyn Bancorp, Inc., and Dime Community Bancshares, Inc., in response to the Securities and Exchange Commission's (the "Commission") request for comments regarding the Commission's proposal to require Form 8-K disclosure of certain management transactions (the "Proposed Rule").

1. General

The Proposed Rule would require companies with a class of equity securities registered under Section 12 to report on Form 8-K in a new Item 10, (1) each director's and executive officer's transactions in company equity securities (including derivative securities transactions and transactions with the company), (2) each director's and executive officer's arrangements for the purchase or sale of company equity securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and (3) each loan of money to a director or executive officer made or guaranteed by the company or an affiliate of the company. The primary rationale for the Proposed Rule is to provide investors with timely and more extensive disclosure of potentially useful information as to management's views of the performance and prospects of the company. Our comments focus primarily on the first category of information to be reported under the Proposed Rule, transactions by directors and executive officers in company equity securities, which are currently reportable under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

While we understand the desire on the part of investors and the SEC for timely and readily accessible disclosure regarding transactions by directors and executive officers of reporting companies in company equity securities and respect the SEC's initiative and determination to address the concerns of the investing public in this regard, we are concerned that the Proposed Rule, in its current form, may not ultimately benefit investors, as accurate disclosure may be sacrificed to meet accelerated deadlines.

Our comments below separately address our concerns with regard to the proposed disclosure requirements (1) for transactions in company securities by outside directors, (2) for transactions in company securities by executive officers, and (3) for certain types of specific transactions. In addition, we note some general concerns we have with regard to implementation by companies of the proposed disclosure requirements and some miscellaneous concerns.

2. Disclosure of Transactions in Company Securities by Outside Directors

We do not believe that Item 10 reporting should apply to transactions in company securities by directors who are not also executive officers, referred to herein as outside directors. Outside directors of a company do not have access to the same day-to-day information about the company that is available to executive officers. Most outside directors are employed full-time by other companies, operate their own businesses or otherwise have a significant portion of their time taken up by other business endeavors. Accordingly, they focus the bulk of their professional attention on a day-to-day basis on their primary business interests. Typically, directors of a reporting company meet only once a month, absent unusual circumstances, and, in many cases, directors receive updated information about the company only shortly in advance of such meetings. Transactions in company securities by outside directors do not necessarily rise to the same level of interest for investors as transactions by executive officers.

While it is true that directors receive information in connection with monthly board meetings that is not available to shareholders generally, the prohibitions on insider trading prevent the directors from trading on the basis of such information. Given the severe penalties that may be imposed due to insider trading violations, most reporting companies have adopted insider trading policies that permit trading in company securities only during defined "window periods" after a public announcement of material information. We believe that both the law of insider trading, and company policies adopted in response, provide a satisfactory framework to protect investors from wrongdoing by insiders when engaging in transactions in company securities.

Furthermore, just as outside directors of a company do not have access to day-to-day information about the company, a company does not have ready access to information about the trading activities of its outside directors. Sales of company securities by outside directors must, in most cases, be made pursuant to the requirements of Rule 144 under the Securities Act of 1933, as amended, including the requirement that the securities be sold in brokers' transactions. Therefore, accurate reporting by a company of the details of such transactions is dependent on the accuracy and timeliness of information received from the brokers handling such transactions and from the various company insiders themselves. While technological developments may have reduced the timeframes for the capture and analysis of information for the marketplace as a whole, the same is not necessarily true for individual transactions. Based on our experience with all of our publicly-traded clients, the receipt by the companies of such information from brokers is slow at best, even with the technological developments of recent years, making accurate disclosure routinely within two business days following a transaction impossible for a company to achieve.

In light of the impossibility of compiling the required information with respect to transactions by outside directors within the time frames proposed for Item 10 reporting, the reality that outside directors do not have the same access to information about a company's operations and performance that executive officers do, and the protections afforded by the prohibitions against insider trading under current law and practice, we believe that Section 16 reporting by these directors provides sufficiently timely information for investors.

3. Disclosure of Transactions in Company Securities by Executive Officers

Requiring disclosure under Item 10 of transactions in company securities by executive officers (including insider directors) does not present all of the concerns that are presented by requiring such disclosure for outside directors. Executive officers are responsible for carrying out the day-to-day operations of a company and, therefore, have access to the most current information concerning the company's performance and prospects. Furthermore, the flow of information between executive officers and the persons who the new rule would make responsible for compliance with the requirements for reporting transactions in company securities by insiders is greater than it is for outside directors. However, reporting transactions by executive officers within two business days following such transactions would be unduly burdensome for most reporting companies.

As a practical matter, in order to meet the proposed deadline, companies would have to require pre-approval of transactions in company securities by all persons subject to Item 10 reporting. Requiring such pre-approval would create a significant administrative burden for the company, without any benefit to investors. Even if a pre-approval process was put into place by a company, accurate reporting of the details of transactions by executive officers, who typically use brokers to effect their transactions (and in many instances must sell in brokers' transactions pursuant to Rule 144), would be subject to the accuracy and timeliness of information received from the brokers executing such transactions. As noted above, the receipt of such information from brokers is slow at best. In short, the proposal places a significant compliance burden upon persons who do not control the information to be reported.

Furthermore, we note that it is unlikely that some companies, particularly small and medium-size companies, will be able to implement sufficient procedures for compliance with the proposed two-day deadline. In many public companies, particularly small and medium-size companies, a single officer performs multiple functions, including monitoring insider transactions and facilitating the required disclosure of such transactions under Section 16, which is extraordinarily complex in its application. These responsibilities, in many cases, also are in addition to such officers' other substantive duties unrelated to securities compliance. Adding the responsibility of compliance with a requirement for additional disclosure within two days of a transaction to such officer's duties would simply not be realistic in many cases. The two-day timeframe would also result in unnecessary difficulty for a company if the officer responsible was out sick or on vacation when an insider transaction occurred.

Further, we do not believe that investors are greatly benefited by requiring disclosure of transactions within two days. While we understand investors' interest in transactions by insiders, the best source for determining management's views of the performance and prospects of the company is the MD&A section of the company's periodic reports, the completeness and accuracy of which is required by the securities laws. An insider's transactions in company securities, on the other hand, could be motivated by many factors wholly unrelated to that insider's view of the company's performance or prospects. In particular, insiders of small and medium-size companies often hold their company's securities as their largest individual investment and may desire to engage in transactions in the securities for personal financial planning. In many cases, for example, sales are made to raise funds for payment of income tax obligations arising in connection with a vesting of shares under a stock benefit plan. In such cases, dispositions by insiders - like dispositions by investors generally - are made out of the individual's personal necessity at a time when he or she might otherwise desire to hold the shares. Accordingly, the disposition would not reveal a shift in the alignment between management's and shareholder's economic interests and it would be imprudent for investors to draw such conclusions.

We also believe that, although investors are clearly interested in transactions by insiders, the Proposal seems to indicate that insider transactions may be more significant to investors then substantive information about the Company itself. As indicated above, a transaction in company securities may not be an indicator of any significant information about the Company or its prospects. Further, so long as the insider is not violating the securities law by trading on material nonpublic information the market is not harmed by an insider's transaction. However, requiring accelerated reporting of all large insider transactions is the equivalent of telling the marketplace that all such transactions are material when, in fact, they may not be. As a result, the Proposal itself inadvertently may be heightening the materiality to investors of non-material transactions. We believe that information concerning the company remains the most material information and the SEC should not look to insider transactions as an indicator of the existence of material information concerning the company itself. Rather, the SEC should continue its focus on company disclosure of material information.

The foregoing notwithstanding, if the Commission continues to believe that some form of additional disclosure is required, in order to assure accurate but timely disclosure without altering the significance of insider transactions, we suggest a slightly delayed basis for Item 10 reporting by executive officers than that proposed. A more realistic deadline for the reporting of such transactions would be the third business day of the week following the week in which the transaction occurred. The shorter deadline proposed simply does not give the company sufficient time to compile the required information. In addition, we suggest the adoption of specific requirements for the accurate and timely dissemination of information to the company and the insider by brokers executing transactions for insiders. Imposing requirements on brokers would help to avoid the unjust result of the company or the insider being held liable for a violation of their reporting obligations under the securities laws due to a broker's untimeliness or inaccuracy. Such requirements for brokers, coupled with a slightly longer deadline for reporting, would better balance the tension between providing investors with the most timely information and providing investors with the most accurate information.

4. Types of Transactions Subject to Item 10 Reporting

(a) Gifts to Family Members

We do not believe that gifts to family members should be reportable transactions under Item 10, even if the family member is not in the same household. An insider's gift to a family member is often done for estate planning purposes (e.g., a method for making distributions from what, in many cases, amounts to the principal source of personal assets for insiders) and is not a function of that insider's views of the company's prospects. Gifts to family members differ from other gifts that insiders may make, such as gifts to charitable organizations, as such other types of gifts may reflect the insider's views as to the future value of company securities. Gifts to family members simply do not rise to that same level of interest to investors.

(b) Option Grants and Exercises

The grant of options to an insider and the insider's exercise of such options should not be reportable on an accelerated basis under Item 10. Option grants and exercises are purely compensation matters and, as such, do not rise to the same level of interest to investors as other transactions by insiders. An insider's subsequent sale of company securities acquired through the exercise of an option is a different matter, and we are not arguing against Item 10 reporting for such sales, except as stated elsewhere herein.

(c) De Minimis Transactions

We do not believe that $10,000 is an appropriate threshold for permitting deferred reporting of smaller transactions. Given typical trading volumes for public companies, $10,000 is quite low, particularly given the significant ownership interest of most insiders. For a company whose shares are trading at $10 per share, a 1000 share block transaction would not meet the deferred reporting threshold, but could very well be a routine transaction by an insider as opposed to a transaction that investors interpret as sending a signal to the marketplace. A threshold based on a percentage ownership calculation would be a more relevant measure of the significance of an insider's transaction. Therefore, in order to require accelerated reporting, we suggest a threshold of $50,000 coupled with a requirement that the transaction equal a certain percentage of the insider's total holdings or a certain percentage of the total shares outstanding.

5. General Concerns Regarding Implementation of the Proposed Rule

(a) Electronic Reporting

The costs for a company to compile information and convert it into electronic format for filing could be significant and should not be underestimated. Most companies' existing procedures for gathering information for Section 16 compliance would have to be significantly altered to comply with electronic reporting requirements. Currently, for companies that assist insiders in meeting their Section 16 obligations, the monitoring, analysis and reporting process occurs more or less pursuant to a regular cycle consistent with the monthly Section 16 filing requirements. With the adoption of this proposal, the process would be haphazard, abrupt and inefficient. For many companies, an officer would have to be assigned responsibility for dealing with compliance in this area exclusively.

As a result, some companies may be inclined as a matter of policy to restrict insiders' transactions in company securities. Insiders of a company may then be discouraged from investing in company securities due solely to concerns with regard to compliance and liability under the securities laws. This chill on investment by insiders would be contrary to the primary market interest that the interests of a company's insiders be aligned with those of the company's shareholders.

(b) Filed Status of Reports

We do not believe that Item 10 Forms 8-K should be considered "filed" for purposes of liability under Section 18 of the Exchange Act. To do so would undercut the stated purpose of making the reportable information readily available to the public. For example, instead of looking to a share ownership table as a single source of information, investors would also have to look to potentially numerous Forms 8-K that modify the share ownership table.

In addition, the accuracy of any information disclosed in Item 10 will be entirely dependent on the accuracy of the information provided to the company by the insider and the broker. The company should not be exposed to additional liability under Section 18 due to inaccuracies over which it has no control. To this end, we believe the Commission should affirm that it is the insider who is ultimately responsible for accurately reporting the insider's transactions in company securities.

(c) Proposed Commission Finding With Regard to Item 10 Compliance Procedures

While we generally support the proposed Commission finding that it is not in the public interest to impose any sanction on a company that demonstrates that it had appropriate compliance procedures in place for reporting insider transactions, we believe that judging the sufficiency of such procedures based on whether they provide "reasonable assurances" of compliance is too vague of a standard. The standard should be modified to recognize that insiders are ultimately responsible for reporting their transactions and that insiders are reliant on brokers for obtaining transaction information.

6. Miscellaneous

(a) "Other Material Information"

Proposed Item 10 paragraphs (a)(1)(vii), (a)(2)(ix) and (a)(3)(vi) require the disclosure of "other material information." In the context of the transactions required to be disclosed, this language is quite vague and unlikely to result in meaningful disclosure. Therefore, we suggest it be deleted from the list of information required to be disclosed.

(b) Date Triggering Disclosure Deadlines

In proposed Item 10 paragraphs (b)(1)(iii) and (b)(2)(iii), the referenced date should be the effective date of the contract, instruction or plan, not the date upon which such agreement was entered.

(c) Inclusion of Price in Item 10 Rule 10b5-1 Disclosure

Please conform proposed Item 10 paragraph (b)(2)(iii) to the preamble of the Proposed Rule, which states that information regarding modifications in the price under a Rule 10b5-1 arrangement need only be reported in general terms, without requiring disclosure of the specific price.

We hope the comments set forth herein are helpful in your efforts to modify the reporting requirements applicable to transactions by insiders of public companies. We would be pleased to discuss these comments in greater detail at your convenience. Please call the undersigned at (212) 789-1438 if you have any questions regarding the foregoing.

Very truly yours,

Thacher Proffitt & Wood

By: Robert C. Azarow
Robert C. Azarow