## Facts

- Milliken Enterprises, Inc. was a closely held, family-dominated Delaware corporation with a long-standing confidentiality policy.
- Minority shareholders (the Stroud group) held roughly 17% of the shares and opposed governance changes proposed by the board and supported by the controlling family bloc.
- The board proposed charter amendments, including an amendment creating a new method for qualifying directors, and adopted “By-law 3,” an advance-notice bylaw governing shareholder nominations and permitting the board to disqualify nominees.
- A prior effort to keep the company private included a general option agreement (rights of first refusal favoring family/company on transfers to outsiders); most shareholders signed, but the Stroud group refused.
- For the 1989 annual meeting, the company mailed notice stating the board would not solicit proxies and urged shareholders to attend in person; the board did not solicit proxies.
- Extraordinary attendance occurred: approximately 93% of eligible voters attended in person and 97.8% of voting shares were represented.
- Shareholders approved the amendments and By-law 3 by an overwhelming vote, representing about 78% of the shares entitled to vote.
- The Stroud group sued (individually and derivatively), alleging misleading notice/disclosure, fiduciary-duty breaches, and invalidity of the amendments and By-law 3 as entrenching and interfering with voting and nominations.

## Issues

1. Whether recommending and adopting the amendments and By-law 3 was a defensive measure triggering enhanced scrutiny under Unocal.
2. Whether the meeting notice and disclosures were legally inadequate or misleading, and whether additional disclosure beyond statutory requirements was required absent proxy solicitation.
3. Whether the corporation could condition access to confidential corporate information on execution of a reasonable confidentiality agreement.
4. Whether the amendments and especially By-law 3 impermissibly interfered with stockholder voting and nomination rights such that Blasius “compelling justification” review applied and required invalidation.

## Decision

- The Delaware Supreme Court held Unocal inapplicable because the board was not responding to a threat to corporate control and the actions were not defensive.
- The Court held the meeting notice legally sufficient and rejected an expanded disclosure duty beyond the requirements of the Delaware General Corporation Law where no proxies were solicited and shareholders were urged to attend in person.
- The Court affirmed that the corporation could require a reasonable confidentiality agreement as a condition to receiving confidential information.
- The Court upheld the charter amendments as fair and approved by fully informed shareholders.
- The Court reversed the Court of Chancery’s invalidation of By-law 3, holding Blasius was misapplied and there was no evidentiary showing that the bylaw unfairly restricted shareholder nominations.
- Disposition: affirmed in part and reversed in part, resulting in validation of the amendments and By-law 3 and dismissal of the Stroud group’s challenges.

## Legal Principles

- Unocal enhanced scrutiny applies to board actions that are defensive responses to a threat to corporate control; it does not apply to non-defensive governance measures presented for stockholder approval absent a control threat.
- When a corporation does not solicit proxies and provides statutory notice of matters to be acted on, disclosure obligations are anchored in statutory requirements and general fiduciary principles; an expansive proxy-style disclosure regime is not imposed without more.
- A closely held corporation may condition dissemination of confidential corporate information on a reasonable confidentiality agreement, where the condition serves legitimate confidentiality interests and is not used to defeat proper stockholder rights.
- Blasius “compelling justification” review is limited to board action primarily intended to interfere with the effectiveness of a stockholder vote; advance-notice and qualification bylaws are not invalid per se and require evidence of disenfranchising purpose or effect.
- Fully informed, uncoerced stockholder approval by a substantial majority strongly supports upholding board-proposed governance changes against fiduciary-duty and voting-interference challenges.

## Conclusion

The Delaware Supreme Court upheld Milliken’s charter amendments and advance-notice/qualification nomination bylaw, finding no defensive control threat requiring Unocal review, no disclosure violation beyond statutory notice in the absence of proxy solicitation, permissible use of reasonable confidentiality agreements, and no basis to apply Blasius to invalidate By-law 3 where shareholders overwhelmingly approved the changes on an informed basis.


Stroud v. Grace, 606 A.2d 75 (Del. 1992)