- 29 -
corporations not in the ordinary course of business. Alumax,
Inc. v. Commissioner, supra at 823. Alumax could not take any of
these six actions without the approval of the majority of the
directors elected by the holders of each class of stock.13 Thus,
the Japanese shareholders had a veto power over the six areas
(six veto powers) because they owned a separate class of stock.
The six veto powers reduced Amax’s voting power relative to the
voting power of the Japanese shareholders. Id. at 823. The
Court held in Alumax that the veto powers caused Amax to have
less than 80 percent of the voting power. Id. at 826.
Petitioners contend that the veto powers here were less
important than those in Alumax. We disagree. A comparison of
the veto powers in the instant cases show that they are similar
to those in Alumax. See pp. 11-12, 27-29.
13 Petitioners point out that, in Alumax, Inc. v.
Commissioner, 165 F.3d 822, 823 (11th Cir. 1999), affg. 109 T.C.
133 (1997), if a director elected by a Japanese shareholder
objected to a board action and the Japanese corporation ratified
that objection within 14 days, the board vote would be
ineffective, unless a panel of arbitrators ruled within 14 days
that the vote would not have a material and adverse effect on the
Japanese interests’ investment. However, petitioners did not
discuss how that procedure compares to the arbitration provided
by par. j of the 1973 Basic Agreement. See p. 12. Further, the
U.S. Court of Appeals for the Eleventh Circuit said that “On the
six matters in which the directors voted by class, moreover, the
Amax-elected directors’ voting power effectively declined to
50%.” Id. at 826. As in the instant cases, the Court of Appeals
also said that veto provisions in Alumax, whether or not
exercised, generally discouraged directors from voting against
the Japanese interests. Id. n.4. Here, because of the six veto
powers, Burndy-US did not own more than 50 percent of the voting
power of Burndy-Japan.
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011