The Philadelphia Stock Exchange says it has settled a lawsuit alleging that members of its board breached their fiduciary duties to the exchange’s shareholders.

The exchange reported that parties to the suit, Ginsburg v. Philadelphia Stock Exchange, et al. have filed with the court a Stipulation of Settlement that memorializes the previously announced settlement agreement. The settlement remains subject to approval by the Delaware Court of Chancery.

The lawsuit, brought on behalf of a class of the exchange’s shareholders, alleged that the members of its board of governors breached their fiduciary duties, and that its strategic investors aided and abetted those alleged breaches of fiduciary duties, in connection with strategic transactions that the PHLX announced in June and August 2005.

PHLX and the strategic investors have vigorously denied any wrongdoing and the settlement does not constitute an admission of any wrongdoing.

Under the terms of the proposed settlement:

  • the strategic investors each shall contribute 14% of their respective equity interests in PHLX into a settlement fund;
  • PHLX shall cause certain of its director and officer insurers to pay US$14 million into the settlement fund;
  • PHLX shall pay US$3.1 million into the settlement fund;
  • PHLX chairman and CEO Meyer “Sandy” Frucher shall cancel his interest in 14% of the PHLX restricted stock units awarded to him; and
  • future issuances of stock by PHLX, if any, will dilute all then-existing shareholders equally on a pro rata basis.

In exchange for the settlement consideration, the defendants shall be released from all claims arising from and relating to the subject matter of the lawsuit, the exchange said. If the court approves the terms of the settlement, the proceeds of the settlement will be distributed in accordance with a plan to be proposed by class counsel subject to court approval.

Frucher said that the PHLX is pleased to have the litigation resolved. “With this settlement behind us, the exchange will continue to vigorously pursue strategic opportunities while building on its record-setting growth in the options market.”