Jeff Mordock writes for Delaware Business Court Insider, an American Lawyer affiliate.

Google Inc. has settled a shareholder lawsuit alleging that the company's plan to create a nonvoting class of stock would unfairly entrench the company's co-founders Larry Page and Sergey Brin on the company's board. The settlement was reached shortly before the two parties were set to argue their positions in the Delaware Court of Chancery on Tuesday.

The Mountain View, Calif., search engine operator was said to have reached the settlement with shareholders, including the Brockton Contributory Retirement System, a Massachusetts pension fund, very late Saturday night. The lawsuit was captioned In re Google Class C Shareholder Litigation.

Under a memorandum of understanding, filed today with the Securities and Exchange Commission, Google will move forward with its plans to create the nonvoting stock class, identified as Class C. If the Class C share price is more than 1 percent less than the Class A share price, the company's board must issue a consideration to the Class C shareholders. The consideration may be cash, Class A shares and Class C shares or a combination of the three, according to the settlement.

Also, if Google issues more than 100 million Class C shares, the board is required to consider the effects of issuing so many shares on the Class A shareholders and the company itself. The provision will be in place for three years after the first shares of Class C stock are issued, according to the settlement.

The settlement also requires if the voting control of Page and Brin falls below 15 percent, the board must take steps to convert Class C stock into Class A shares if it determines, in good faith, that it is no longer in Google's best interest to maintain a class of nonvoting stock.

"I think this is a very fair and good result for Google and all of its shareholders," said Laurence D. Paskowitz, an attorney with the Paskowitz Law Firm, who was co-lead counsel for the plaintiffs. "We worked very hard and are very pleased with this outcome."

Jeffrey C. Block, of Boston's Block & Leviton, was the other co-lead counsel for the plaintiffs. He also said he was pleased with the settlement. "We think that with the inherent risk of litigation, it was a fair and appropriate settlement for Google and its shareholders," Block said.

Google's board is represented by William Chandler III, David Berger, and Gideon Schor of Wilson Sonsini Goodrich & Rosati, along with William Lafferty and Kevin Coen at Morris Nichols Arsht & Tunnell. Page and Brin have Ronald Olson and George Garvey of Munger Tolles & Olson; Stephen Lamb and Daniel Mason of Paul, Weiss, Wharton, Rifkin & Garrison; and Andre Bouchard and Joel Friedlander of Bouchard Margules & Friedlander.

The parties are now expected to ask Chancellor Leo E. Strine to grant the settlement's preliminary approval and then hold a hearing for a formal approval of the settlement. The process is expected to take two to three months with final approval occurring in early fall, according to sources.

Google has agreed in the settlement to pay the plaintiffs' attorney fees and expenses if the settlement is approved by the Chancery Court. Block declined to comment on the amount of attorney fees the plaintiffs are expected to request.

"Once the chancellor approves the settlement, then we will talk to Google about attorney fees," he said. "We have had zero discussions about attorney fees."

Google's board released a statement expressing satisfaction with the settlement.

"We are pleased to have reached an agreement to settle this litigation," the company said. "We've always believed our founder-led approach gives us the freedom to make long-term bets, like Android, Chrome and YouTube, that benefit consumers and shareholders alike."