(h) that the debenture holders will suffer deprivation of presently due accumulated interest.
The Findings of Fact adequately dispose of the plaintiffs' contention as above stated. The plaintiffs have utterly failed to substantiate by their evidence the allegations in their complaint. Finally, the plaintiffs' own testimony established that the company intends to use the proceeds of the $ 1,400,000 mortgage loan to either make payment on account of the principal outstanding debentures or to purchase the debentures by calling for a tender to the company. Of this it might be stated that in conformity with the Amended Plan of Reorganization of 1936, the Indenture Article VII, Section II, gives the company the right to borrow funds on mortgage subject to certain provisions as stated in Finding of Fact No. 12. Also Section V of Article III of the indenture entitled 'Redemption from Proceedings of Loans' evidences the original intention in the Amended Reorganization Plan of 1936 to enable the procedure now contemplated by the company with respect to utilization of the proceeds of the proposed $ 1,400,000 mortgage.
With respect to the proposed mortgage, the directors of the company have after consideration determined that the refinancing is in the best interest of its shareholders. There is no evidence that the directors failed to act in good faith and with diligence, care and skill and honest judgment. It is well settled that the Court will not interfere with the internal management of corporation, and therefore will not substitute its judgment for that of the officers and directors. Bowman v. Gum, Inc., 1937, 327 Pa. 403, 193 A. 271.
Finally, there is no merit in the plaintiffs' contention that debenture holders face loss of accumulated unpaid interest. The record discloses that there has been no change in the original undertaking and liability to pay debenture holders accumulated unpaid interest.
In consonance with the above, I state the following conclusions of law:
1. The debentures, indenture, Voting Trust Agreement, Voting Trust Certificates, and Certificates of Stock, are the instruments which, in addition to the applicable laws of the Commonwealth of Pennsylvania, fix the rights and obligations of the parties under the reorganization, these instruments having been made and issued under the Plan, and the provisions of the latter having been merged therein.
2. The instruments and certificates mentioned above are consistent with and conform to the provisions of the Amended Plan of Reorganization.
3. The proposed mortgage loan of $ 1,400,000 of the company, the proposed amendment of the Debentures and Indenture, the proposed increase of the authorized indebtedness to $ 5,000,000, and the termination of the Voting Trust, were and are lawful and proper and within the rights and powers of the parties exercising or proposing to exercise the same, under the laws of the Commonwealth of Pennsylvania, and the said instruments and certificates made or issued under the reorganization plan.
4. The burden of proof of any unlawful act, committed or imminent, by any of the parties defendant, or any other persons in connection with any of the proceedings mentioned above, rested upon the plaintiffs, and the plaintiffs have failed to meet such burden of proof.
5. The transaction by which the individual defendants acquired a large majority of the Debentures or Voting Trust Certificates or Stock of the company consisted merely of a sale by the prior holders thereof to the individual defendants.
6. The individual defendants had the lawful right to purchase Debentures and Voting Trust Certificates of the company to any amount, and the sellers had the lawful right to sell the same, and thereafter the purchasers possessed all the rights, as owners of said securities, given by law and by the instruments and certificates mentioned above.
7. The individual defendants, as the purchasers of the Debentures and Voting Trust Certificates, lawfully and properly obtained the rights incident to the amount of such respective securities which they acquired, namely, as the holders of an amount in excess of eighty percent of each of said classes of security.
8. Plaintiffs failed to meet the burden of proof, in that they failed to produce any evidence, of any scheme, fraudulent or otherwise, on the part of any of the defendants, or any officers or directors or others connected with either of the defendant corporations, in respect to the company or any of its debentures, stock or otherwise.
9. The plaintiffs failed to meet the burden of proof, in that they failed to present any evidence, that the individual defendants have used, or propose to use, any of the assets of the corporation for their individual use or benefit, or for the individual use or benefit of any other person or persons, but, on the contrary, the evidence presented by the plaintiffs establishes that any use of the assets of the corporation will be and are required to be for the pro rata benefit of all debenture holders and the pro rata benefit of stockholders, according to the respective legal priorities of said two classes of securities.
10. Plaintiffs have failed to meet the burden of proof, in that they did not produce evidence, that the proposed mortgage loan of $ 1,400,000 was not the exercise of sound judgment and was in violation of any of the provisions of the applicable instruments or of law, but, on the contrary, the evidence produced establishes that said proposed mortgage loan can be readily supported by the company, and will constitute a reasonable financial operation.
11. The letter of January 8, 1935, accompanying the original proposed Plan of Reorganization, did not constitute representations by the company, but only a statement of the purposes and an analysis of the proposed terms of the Plan.
12. Plaintiffs have failed to meet the burden of proof, in that they have failed to establish, that any statements contained in the company's letter of January 8, 1935 were in fact then false, or now not true, or that there has been any violation of any such statements.
13. Plaintiffs have failed to meet the burden of proof, in that they have failed to establish by any evidence that there has been any fraudulent or other scheme or violations of any rights of the plaintiffs or any persons in the same position as the plaintiffs, or that there has been or is imminent any wrongdoing of any kind by any of the defendants, as alleged in their Complaint or otherwise.
14. That no cause of action has been established against Tradesmens National Bank and Trust Company, indenture trustee.
15. That Tradesmens National Bank and Trust Company, indenture trustee, is not a necessary party to any transactions involving the indenture dated as of March 2, 1936, under which debentures have been issued to holders of old B and C Bonds of Philadelphia Warwick Company.
16. That Tradesmens National Bank and Trust Company, indenture trustee, has not done or permitted any acts, or participated in any acts, on the part of the Philadelphia Warwick Company, or any of its officers, directors, stockholders or debenture holders, with respect to a proposed increase in indebtedness or the execution of a mortgage in the sum of $ 1,400,000 by said Philadelphia Warwick Company.
In accordance with the above, the plaintiffs having failed to establish a cause of action, the defendants' motions to dismiss must be and they are hereby granted, plaintiffs to pay the costs.
An order may be submitted in accordance with this opinion.
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