## Facts

- EAC Industries acquired about 51% of Frantz Manufacturing Company’s voting stock, obtaining majority voting control.
- Using stockholder action by written consent under 8 Del. C. § 228, EAC and allied stockholders amended Frantz’s bylaws to require unanimous board approval for specified actions and elected EAC’s president to Frantz’s board.
- Four days after the consent-adopted bylaw changes, the incumbent Frantz board approved a transfer of 125,000 shares of treasury stock to an employee stock-ownership plan (ESOP).
- The ESOP issuance diluted EAC’s voting control by increasing voting power held through the ESOP associated with incumbent management.
- EAC contended the bylaw amendment was effective before the ESOP approval and that the ESOP issuance was invalid because it lacked unanimous director approval, including approval from EAC’s board representative.
- The Court of Chancery upheld the bylaw amendment and enjoined the ESOP stock transfer as not validly authorized under the unanimity requirement.
- Frantz appealed.

## Issues

1. Whether stockholders validly and effectively amended Frantz’s bylaws through written consents under 8 Del. C. § 228 before the ESOP transaction was approved.
2. Whether the Frantz board’s issuance of treasury shares to an ESOP was invalid for failure to obtain unanimous board approval required by the amended bylaws.
3. Whether incumbent directors, after a lawful change in voting control, may take board action that dilutes the new controlling stockholder’s voting power contrary to the corporation’s governing instruments.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery.
- The stockholder-adopted bylaw amendments by written consent were valid and effective when delivered in compliance with § 228.
- The ESOP stock issuance was invalid because it required unanimous board approval under the amended bylaws and was not unanimously approved.
- The injunction against the ESOP transaction was upheld.

## Legal Principles

- Stockholders may act by written consent under 8 Del. C. § 228 to the same extent they could act at a meeting; properly executed and delivered consents are effective without additional formalities.
- Valid bylaws adopted by stockholders bind the board; board actions taken in violation of those bylaws are unauthorized and invalid.
- Board measures affecting voting control must be taken within statutory, charter, and bylaw limits; directors cannot use corporate action to impair a lawful controller’s voting power while disregarding the governing framework.

## Conclusion

The court held that majority stockholders may promptly reshape corporate governance through written consents under § 228 and that a board cannot counter a newly established controller by issuing voting stock through an ESOP when the issuance violates an effective bylaw requiring unanimous board approval.


Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401 (Del. 1985)