April 24, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Mr. Jonathan G. Katz, Secretary Re: Proposal to Amend Form S-8 -- File No. S7-2-98 BellSouth Corporation, like many other large corporations, has a number of employee benefit plans -- stock options, deferred compensation, qualified retirement plans and stock purchase plans, to name a few. In total, we have 7 benefit plans that are the subject of Form S-8 registration statements. While the Form S-8 registration process has been increasingly simplified over the years, there is still a significant maintenance effort necessary to register offerings, prepare prospectuses and other offering materials and constantly monitor compliance of these activities with the requirements of the Securities Act of 1933. Numerous personnel in our Controllers, Human Resources and Legal Departments are required to devote substantial time to these endeavors; therefore, Form S-8 proposals are of considerable interest to BellSouth. I. CONSULTANTS BellSouth does not currently issue securities to consultants, so our interest in this aspect of the proposal is less than that of some issuers. However, it is possible that at some point this option might be useful to our company, and we would like to offer our views of certain aspects of the proposal in this light. If the concern is really that financial consultants have inappropriately been used as conduits for issuing shares into the market, we believe that the abuses could be more directly addressed than by requiring more disclosure. While disclosure in most other contexts is an effective means to protect investors, we do not believe that it would serve this purpose in this context and would unnecessarily complicate what should be a simple registration/disclosure paradigm. Consultants (the buyers) obviously need no disclosure of their identity or the nature of their services, and the disclosure of much of that information might invade legitimate privacy concerns. Similarly, post-issuance disclosure would not directly address the practices. The Commission should not assume disclosure alone will eliminate or contribute to the elimination of offering abuses. Requiring registrants to check a box on the cover to indicate that offerees include consultants would be desirable, inasmuch as it would allow the staff to pull those registration statements for review. In this regard, denying immediate effectiveness to those registration statements or eliminating the presumption that they were filed on the correct form would be appropriate; however, we do not believe a generally applicable rule change is necessary. Similarly, registrants should be required to certify compliance with any new rules requiring consultant services to be bona fide and not evasive of Section 5. We see no rationale for limiting consultant issuances to any particular percentage of the public float. If the abuses underlying this proposal can be effectively curtailed by reasonably narrow means, this further limitation serves no particular purpose, and we do not believe that the Commission should create a limitation simply to reduce the likelihood that some sales to consultants may violate the Form S-8 standards. II. TRANSFERABILITY We are glad to see the Commission finally propose Form S-8 eligibility for transferable options. However, we do not agree that transferability should be limited to options that have been given to family members. We believe that the only limiting factor should be that the transfers be without consideration in order to eliminate the possible abuse by issuers in capital-raising transactions. Most donees (especially charitable organizations) immediately sell upon receiving the equity security, so their need for issuer information is virtually nil -- their only concern is whether there is a spread between the exercise and market prices. Other donees who plan to speculate on the security will normally refrain from exercising until they wish to cash out, because it is obviously in their economic interest to let the price run on the number of shares subject to option rather than on the far fewer number of shares resulting from the exercise. III. MISCELLANEOUS We are intrigued with the notion in the Regulation 701 proposal that the applicable limits apply to securities sold, not offered. It strikes us that this sort of registration paradigm would be appropriate for securities sold pursuant to employee benefit plans generally and not just those for which a Rule 701 exemption is claimed. If this approach is taken, Form S-8 should be understood to register sales, not offers, which would simplify a number of esoteric issues. Securities sold under benefit plans, such as option, purchase and deferred compensation plans, are unlike capital-raising offerings in many respects, one of which being that the issuer does not know how many securities will be actually sold and doesn't really care. According to the rules, it registers an estimated two years' worth of securities and then tracks sales to determine when the plan shelf needs to be "reloaded." If the "take" rate is higher than anticipated or if market movements drive more options in-the-money than are registered, an issuer may have a technical Section 5 violation resulting from unregistered offers. Also, there is the confusion of determining when offered securities can be reofferred without further registration. For instance, if an exercisable out-of-the-money option goes in-the-money and then out-of-the-money again, what is the impact on the option shelf registration statement? How does one keep track of offers of company stock available as an investment vehicle in a qualified retirement plan, especially where employee participants periodically move their investments into and out of the stock fund? How does one track offers of deferred compensation from year to year? A number of years ago, the staff of the Commission was also asked about a similar question relating to sales -- how are issuers supposed to keep track of securities registered on shelf registration statements for qualified plans that offer issuer stock as one of many investment choices? Prior to 1990, issuers registered a finite dollar amount of plan participations on which the registration fee was computed; an indefinite number of shares was also registered without the requirement to pay any additional fee. When the Form S-8 rules were last amended in 1990 (Release No. 33-6867), the scheme was reversed; now, under Rule 457(h) issuers register and pay a fee on a definite number of shares and register (but do not pay any fee on) an indefinite number of plan participations. This seemingly innocent change put the share counting methodology up in the air with absolutely no staff or regulatory guidance. Shares constantly "circulate" through 401(k) plans as participants elect to transfer their money into and out of and into again and out of again the issuer stock fund. Employees' accounts are credited with issuer stock in respect of old money (fund switches), new money (ongoing payroll deductions) and employer matching contributions. If each transfer in were counted as a purchase, Form S-8 shelves would be rapidly exhausted and the result would be terribly expensive as the same shares were deemed to be sold over and over again within the same plan and even over and over to the same participants. The easiest and cheapest methodology many issuers use in the absence of Commission guidance is the netting approach, which requires a comparison at some intervals of the number of shares in the plan, with net increases being considered sold off the Form S-8 shelf. In between these methodologies are more complex schemes that further differentiate between new money and old money and other subtleties. Since Form S-8 is supposed to be a simple arrangement, recognizing that employee benefit plans are essentially compensatory and the regulatory requirements should be minimized, we urge the Commission to authorize a netting approach. The big hang-up before was Section 5, since it was not clear that a netting approach was consistent with a literal reading of Section 5. However, with the National Securities Markets Improvement Act of 1996, the Commission now has the power to exempt offers and sales from Section 5 "to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors." Under this authority, we urge the Commission to take the following actions: (i) exempt offers under employee benefit plans that would qualify for registration on Form S-8 or an exemption under Rule 701; and (ii) adopt a netting approach for measuring shares sold pursuant to a registration statement or allow for post-issuance registration of shares deemed to be sold (similar to investment companies). As always, we would be happy to discuss these comments in more detail if it would be helpful. Very truly yours, Clarence B. Manning General Attorney