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473 (perm. ed. 1990 rev.). Once a company's board of directors
(or its delegates) has exercised its power to incur debt, any
fixed payments of principal and interest on that debt that are
set forth in the debt instrument are not matters relating to that
board's management of the company's business and affairs. They
are matters relating to the contractual obligation that was
imposed on the company when its board of directors (or delegates)
decided to exercise its power to incur the debt. Unlike the
mandatory dividend provision which obligated the Alumax board to
declare and pay dividends to its stockholders to the extent of 35
percent of its net income and therefore restricted that board's
power to act with respect to one of the Alumax board management
matters, fixed-payment provisions in debt instruments do not
restrict the powers of a company's board of directors with
respect to management matters entrusted to it. We find that the
fixed-payment provisions in debt instruments to which petitioners
refer are materially different from the mandatory dividend
provision involved here.
As examples of preferential dividend provisions in preferred
stock certificates that petitioners claim are similar to the
mandatory dividend provision, they point to preferential dividend
provisions described in various cases and rulings (e.g., Rudolph
Wurlitzer Co. v. Commissioner, 81 F.2d 971 (6th Cir. 1936); Rev.
Rul. 71-83, 1971-1 C.B. 268; Priv. Ltr. Rul. 79-38-060 (June 21,
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