This excerpt taken from the NDAQ 8-K filed Feb 20, 2008.
A formal plan of demutualization was approved by the Board of Governors in October 2003 and by the seat owners and members, in separate votes, in November 2003. On January 16, 2004, the SEC approved the demutualization whereby the Exchange would be converted from a Delaware non-stock corporation whose certificate of incorporation prohibited the payment of dividends into a Delaware stock corporation that is permitted to pay dividends and the transaction was completed on January 20, 2004.
As a result of the demutualization, the Exchange is authorized to issue (i) 1,000,000 shares of common stock, 50,500 shares of which are designated Class A Common Stock and 949,500 shares
of which are designated Class B Common Stock (collectively, the Common Stock), and (ii) 100,000 shares of preferred stock, all with a par value of $.01 per share. Each Exchange membership was converted in the demutualization into 100 shares of Class A Common Stock of Philadelphia Stock Exchange, Inc., the surviving stock-form corporation, for an aggregate of 50,500 shares. In connection with the demutualization, no shares of Class B Common Stock were issued and, as described below, one share of Series A Preferred Stock was issued.
Off-floor and non-industry Governors of the Exchange are elected by the holders of the Common Stock. On-floor Governors are chosen, and their removal may be directed, by the members (permit holders) of the Exchange. All voting rights of a member are exercised through the member organization with which the member is primarily affiliated. The on-floor Governors who are chosen by the members are formally elected at the annual meeting of stockholders by the Phlx Member Voting Trust (the Trust), a Delaware statutory trust whose trustee is an independent institution that is required to vote in accordance with the vote of the Exchanges members. In connection with the demutualization, one share of Series A Preferred Stock of the Exchange was issued to the Trust, the sole purpose of which is to allow the Trust to vote for the election or removal of on-floor Governors as directed by a member vote. Except for the election and removal of on-floor Governors, and subject to the rights of any class or series of preferred stock if and when issued, the Common Stock retains all voting rights of the stockholders of the Exchange.
The holders of the Common Stock will have all dividend and other distribution rights of stockholders in the Exchange, subject to the rights of any class or series of preferred stock, if and when issued. The Series A Preferred Stock does not have any dividend rights. The Exchanges by-laws prohibit the payment of dividends from revenues received by the Exchange from regulatory fines, fees or penalties.
As a result of the demutualization, membership and trading privileges on the Exchange are represented by trading permits issued to qualified persons for a periodic fee. All members of the Exchange in good standing immediately prior to the demutualization were given the opportunity to obtain trading permits, and the Exchange is authorized to issue additional trading permits to individuals who seek membership and trading privileges.
As a result of the demutualization, members equity (totaling $45,492,000) and pre-demutualization net income generated through January 20, 2004 (totaling $1,117,000) were allocated to additional paid-in-capital, one share of Series A Preferred Stock, and 50,500 shares of Class A Common Stock.