PNC Bank 2005 Annual Report Download - page 13

13
In December 2004 and January and March 2005, we entered
into settlement agreements relating to certain of the lawsuits
and other claims arising out of the PAGIC transactions. These
settlements are described below, following a description of
each of these pending proceedings and other matters.
The several putative class action complaints filed during 2002
in the United States District Court for the Western District of
Pennsylvania arising out of the PAGIC transactions were
consolidated in a consolidated class action complaint brought
on behalf of purchasers of our common stock between July 19,
2001 and July 18, 2002 (the “Class Period”). The consolidated
class action complaint names PNC, our Chairman and Chief
Executive Officer, our former Chief Financial Officer, our
Controller, and our independent auditors for 2001 as
defendants and seeks unquantified damages, interest,
attorneys’ fees and other expenses. The consolidated class
action complaint alleges violations of federal securities laws
related to disclosures regarding the PAGIC transactions and
related matters.
In August 2002, the United States Department of Labor began
a formal investigation of the Administrative Committee of our
Incentive Savings Plan (“Plan”) in connection with the
Administrative Committee’ s conduct relating to our common
stock held by the Plan. Both the Administrative Committee
and PNC have cooperated fully with the investigation. In June
2003, the Administrative Committee retained Independent
Fiduciary Services, Inc. (“IFS”) to serve as an independent
fiduciary charged with the exclusive authority and
responsibility to act on behalf of the Plan in connection with
the pending securities litigation referred to above and to
evaluate any legal rights the Plan might have against any
parties relating to the PAGIC transactions. This authority
includes representing the Plan’ s interests in connection with
the Restitution Fund set up under the Deferred Prosecution
Agreement. The Department of Labor has communicated with
IFS in connection with the engagement.
We received a letter in June 2003 on behalf of an alleged
shareholder demanding that we take appropriate legal action
against our Chairman and Chief Executive Officer, our former
Chief Financial Officer, and our Controller, as well as any
other individuals or entities allegedly responsible for causing
damage to PNC as a result of the PAGIC transactions. The
Board referred this matter to a special committee of the Board
for evaluation. The special committee completed its evaluation
and reported its findings to the Board of Directors and to
counsel for the alleged shareholder. The special committee
recommended against bringing any claims against our current
or former executive officers but made certain
recommendations with respect to resolution of potential claims
we had with respect to certain other third parties.
In July 2003, the lead underwriter on our Executive Blended
Risk insurance coverage filed a lawsuit for a declaratory
judgment against PNC and PNC ICLC in the United States
District Court for the Western District of Pennsylvania. The
complaint seeks a determination that the defendants breached
the terms and conditions of the policy and, as a result, the
policy does not provide coverage for any loss relating to or
arising out of the Department of Justice investigation or the
PAGIC transactions. Alternatively, the complaint seeks a
determination that the policy does not provide coverage for the
payments made pursuant to the Deferred Prosecution
Agreement. The complaint also seeks attorneys’ fees and
costs. In July 2004, the court granted our motion to stay the
action until resolution of the claims against PNC in the
pending consolidated class action described above.
On December 17, 2004, we entered into a tentative settlement
of the consolidated class action. On March 25, 2005, the
parties filed a stipulation of settlement of this lawsuit with the
United States District Court for the Western District of
Pennsylvania. This settlement also covered claims by the
plaintiffs against AIG Financial Products and others related to
the PAGIC transactions.
On December 17, 2004, we also settled all claims between us,
on the one hand, and AIG Financial Products and its affiliate,
American International Surplus Lines Insurance Company
(“AISLIC”), on the other hand, related to the PAGIC
transactions. AIG Financial Products was our counterparty in
the PAGIC transactions, and AISLIC is one of the insurers
under our Executive Blended Risk insurance coverage.
Subsequently, we settled claims against two of the other
insurers under our Executive Blended Risk insurance
coverage, as described below. Each of the amounts in these
settlements represents a portion of the insurer’ s share of our
overall claim against our insurers with respect to any amounts
disbursed out of the Restitution Fund. We are preserving our
claim against our insurers with which we have not settled.
The tentative settlement of the consolidated class action
remains subject to court approval. The court held a hearing on
August 4, 2005 to determine whether to approve the proposed
settlement agreement of the consolidated class action.
The following are the key elements of these settlements that
remain conditional at present, pending court approval of the
tentative settlement of the consolidated class action:
• Payments into Settlement Fund. The insurers under
our Executive Blended Risk insurance coverage have
funded $30 million to be used for the benefit of the
class. AIG Financial Products has funded an
additional $4 million to be used for the same purpose.
The plaintiffs have been in contact with Mr. Fryman,
the administrator of the Restitution Fund, and intend
to coordinate the administration and distribution of
these settlement funds with the distribution of the
Restitution Fund. Neither PNC nor any of our current
or former officers, directors or employees will be
required to contribute any funds to this settlement.
• Assignment of Claims . We have assigned to the
plaintiffs claims we may have against the non-settling
defendant in the consolidated class action and all