Subject: Comments on S7-5-98

Date:    5/13/98 3:28 PM
     
     
letter with comments follows, original + 2 copies in the mail.  Thank you
     
     
Bacon & Woodrow
St Olaf House
London
SE1  2PE
UK
     
Tel: +44 171 357 7171
Fax + 44 171 716 7411
email: alan.judes@bandw.co.uk
     
     
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| Mr Jonathan G Katz                    | 
| Secretary                             | 
| Securities and Exchange Commission    | 
| 450 5th Street NW                     | 
| Washington DC                         | 
| 20549                                 | 
| USA                                   | 
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  |                            13 May 1998 | 
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  | Our ref: g:\judith\letters\953katz.doc | 
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Dear Mr Katz
     
Proposed amendment to Rule 701 - File No S7-5-98
     
Bacon  & Woodrow is a UK based consulting firm that advises corporations on 
the  design  and  implementation of their employee stock plans.  Many large 
corporations  recognise the importance of their overseas employees and wish 
to  include  all  their employees in their plan offerings.  The most common 
type  of  all employee plan that is extended globally is the sharesave plan 
which combines a stock option with a savings plan.
     
When  such  a  corporation  has a small number of employees resident in the 
United  States  then  Rule 701 as presently formulated initially helps, but 
increases in employee numbers subsequently prevent the introduction of such 
plans because of the $5m limit.
     
The fixed $5m limit
     
We therefore welcome the proposed rule change that would effectively remove 
the  fixed  $5m limit.  We suggest further simplification in abolishing the 
15%  of  assets  formula.   Asset  values can be measured in many different 
ways,  for  example  cost  versus  market  value  and  it is much easier to 
understand  and  enforce the 15% of outstanding securities formula.  If you 
are  looking  for a reasonable limit to Rule 701 then a limit on percentage 
of  securities  should  be adequate for this purpose.  We see no need for a 
fixed monetary limit in the new rule.
     
     
Sales versus Offers
     
We  support  the  change  to  apply  the  limit  to  sales of securities to 
employees.  This will simplify matters for corporations.
     
Disclosure
     
We support the general requirement that disclosure is necessary, and indeed 
communication  is vital for a compensatory stock option plan to succeed and 
obtain  employee  enthusiasm.   There  are  two  aspects  that give us some 
concern.
     
The  first  is  minor.   Plan  rules are not, regrettably, written in plain 
English and a full set of plan rules would not be looked at nor read by 99% 
of  the employees.  We suggest that instead a summary of the material terms 
of  the  plan  be  required with employees being offered a full set of plan 
rules on request.
     
The  second  aspect  gives  us  a  major concern.  The financial statements 
required  to  be  furnished  by  Part  F/S  of Form 1-A must be prepared in 
accordance  with  US  generally  accepted  accounting  principles. In their 
1996-97 Report and Accounts, British Airways, which produces net income and 
shareholder  equity statements under US GAAP, noted significant differences 
between  UK  GAAP  and  US  GAAP  as  follows: deferred taxation, goodwill, 
property   and  fleet  valuation,  purchase  accounting,  forward  exchange 
contracts,  dividends,  foreign  currency  translation,  gains  in sale and 
leaseback   transactions,  pension  costs,  capitalised  operating  leases, 
associated   undertakings   and   provision  for  diminution  in  value  of 
investment.  This shows the size of the task. This will most probably be an 
unacceptable  burden  in  terms  of  time and cost to a UK corporation that 
simply  wishes to extend its stock plans to all its US employees, and, as a 
result,  the additional flexibility arising from changes of Rule 701 limits 
will not be used.
     
We  suggest  that  where  the  shares  of  the  corporation are listed on a 
recognised  stock  exchange such as London, Paris, Sydney or Frankfurt then 
the  financial  statements  of  the  corporation  as  filed with that stock 
exchange be considered adequate for the purposes of Part F/S of Form 1-A.
     
Timescale for disclosure
     
For  the  exercise of employee stock options we consider that more guidance 
would be of assistance as to what is considered a reasonable period of time 
prior to date of exercise. UK companies typically report twice a year, with 
interim  results  showing  the position after six months of their financial 
year  have elapsed being available by the end of month eight and with final 
results  showing  the  complete year being available within three months of 
the end of the year. An alternative to a 180 day framework is a requirement 
that  all  employee  option  holders be furnished with the same interim and 
annual  financial  statements  that  are  given  to  the home country stock 
exchange and shareholders.
     
Transition to new rules
     
There  will be companies who have relied on the present Rule 701 in respect 
of  option  grants  which may have many years to run.  The new rules should 
make  it clear whether additional disclosure is required in respect of such 
existing option grants.
     
Form 701
     
The  advantages for filing form 701 are that it enables the SEC to see that 
the 15% limit of share capital has been applied, and it provides a database 
for  the  SEC to call for documents to ensure that adequate disclosures are 
being  made.   From  the corporation?s perspective it provides confirmation 
that the reliance on Rule 701 has been communicated to the SEC.  We suggest 
that it be reintroduced for these reasons.
     
Thank  you for the opportunity to comment and also for sending me a copy of 
Form 1-A.
     
Yours sincerely
for Bacon & Woodrow
 
     
Alan M Judes