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Petitioners also contend that the preferential dividend
rights of the preferred stockholders in Erie Lighting Co. v.
Commissioner, 93 F.2d 883 (1st Cir. 1937), are similar to the
mandatory dividend provision involved here. We disagree. The
preferential dividend provision in Erie Lighting Co. stated:
"The holders of preference shares shall be enti-
tled to receive out of the surplus or net profits of
the said corporation, and the said corporation shall be
bound to pay, quarterly cumulative dividends at the
rate of $2.00 per share per annum, which quarterly
dividends shall be paid, or set aside for payment, for
each quarter before any dividend shall be declared or
paid upon any other stock of said corporation; * * *
After all accumulated and accrued dividends on the
preference shares have been declared and paid, or set
aside for payment, dividends may be declared and paid
out of the remaining surplus or net profits to holders
of common shares at the rate of $2.00 per share per
annum, and all additional distribution of surplus or
net profits as dividends shall be made at the same rate
per share to holders of stock of both classes. * * *
The holders of said preference shares shall have
no power to vote the same at any election for directors
unless the dividends on the said preference shares for
two quarterly periods, whether consecutive or not,
shall remain unpaid." [Id. at 884.]
We do not construe the preferential dividend provision
involved in Erie Lighting Co. v. Commissioner, supra, as limiting
the discretion of ELC's board of directors by requiring it to
declare and pay dividends to the extent of a specified amount of
ELC's net income with respect to its two classes of outstanding
stock (viz, ELC preferred stock and ELC common stock). Rather,
pursuant to the preferential dividend provision involved in Erie
Lighting Co., once the ELC board of directors exercised its power
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