Subject: File No. S7-07-97

Date:    04/26/2000 6:50 PM
     
     
Loeb & Loeb LLP
345 Park Ave.
New York NY 10154-0037
     
212-407-4827
     
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street N.W.
Washington DC  20459
     
                         Re:  Rel. No.  33-7391
                                  File No. S7-07-97
     
     
Gentlemen:
     
     Two recent experiences suggest to me that the idea of creating a
"bright line" test for affiliate status should receive very serious 
consideration and that the Commission's proposal is wholly inadequate.  In 
each case, an issuer treated a holder of more than 10% of the issuer's 
outstanding stock as an affiliate, solely because of the amount of stock 
held, although it is clear in each case that the holder neither controlled 
the issuer nor was a member of a controlling group.
     
     In one case,  a bank for several years had held common stock pledged
by a vice chairman of the issuer to secure a loan.  After the borrower 
defaulted on the loan and several extensions,  the bank  decided to 
"foreclose" on the shares and requested issuance of new certificates 
without Securities Act legends.  The bank had no connection with the 
issuer, except as pledgee of the borrower's stock; represented to the 
issuer that it had no intention of attempting to influence policy, wishing 
only to dispose of the shares in an orderly fashion; and offered to enter a 
voting agreement or trust, to prevent its stock holding from affecting 
management of the issuer.  Although the pledged shares represented about 
16% of the issuer's outstanding voting power, another stockholder held 
20.5% of the voting power, including a class of stock entitling him to 
elect a majority of the board (although he elected only half), and the 
issuer had entered a management agreement pursuant to which substantially 
all of the issuer's business was to be managed by a corporation controlled 
by the issuer's CEO.  Under the circumstances, it is inconceivable that the 
bank could have been an affiliate, unless a member of the controlling 
group, which it clearly was not, but the issuer declined to issue 
unlegended shares to the bank.
     
     In the second case, at the board's request, an issuer's co-CEO
resigned from all positions with the issuer, holding about 10% of the 
issuer's stock.  Two outside investors of the issuer owned a total of 
approximately 30% of the issuer's outstanding stock, in addition to 
currently exercisable warrants to acquire more shares, and two members of 
management together owned about 10%.  The holder received an offer to buy 
about one-third his shares, conditioned on the issuer's confirming to the 
offeror that the holder was not an affiliate.  If the circumstances under 
which the holder departed the company failed to demonstrate his absence of 
control,  the concentrated voting power eliminated any doubt.  Nonetheless, 
the issuer refused to give the confirmation that the offeror sought, with a 
financial effect to the holder, after recent market activity, that has been 
catastrophic.
     
     At least some issuers appear reluctant to apply the SEC's dictum that
determination of control or control group membership is a matter of fact, 
or that stock ownership alone should not necessarily be determinitive. 
Rather they seem to consider control or affiliate status as including some 
esoteric legal concept that can not be fully understood.  One is also led 
to suspect in some cases that more than an overabundance of caution is at 
work -- that an issuer might hide another agenda behind the imprecise 
borders of the definition of "affiliate" -- with an impact on the holder 
that is clearly unfair.
     
     In terms of distinctness, the Advisory Committee's proposed definition
is far preferable to the SEC's, but the unconditional exclusion of 
directors other than inside directors seems contrary to state corporate 
law.  An additional weakness is its failure to analyze a stockholder's 
ownership in light of ownership of other stockholders.  Ownership of a 
significant block should not create a presumption of affiliate status, when 
a larger block is concentrated in the hands of a small group of which a 
holder is not a member.  In some circumstances, an issuer might  be 
obligated to accept and rely on a stockholder's certification of his 
membership or lack of membership in a group of major stockholders.
     
Sincerely,
David C. Fischer