PNC Bank 2005 Annual Report Download - page 82

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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
other unaffiliated third parties (other than AIG
Financial Products and its predecessors, successors,
parents, subsidiaries, affiliates and their respective
directors, officers and employees (collectively,
“AIG”)) relating to the subject matter of this lawsuit.
• Insurance Claims . In March 2005, we settled our
claim against one of our insurers under our Executive
Blended Risk insurance coverage related to our
contribution of $90 million to the Restitution Fund.
Under this settlement, the insurer has paid us $11.25
million, but we are obligated to return this amount if
the settlement of the consolidated class action referred
to above does not receive court approval, does not
become effective or becomes unenforceable. The
amount of this settlement will not be recognized in
our income statement until the potential obligation to
return the funds has been eliminated. This settlement
was in addition to settlements with AISLIC in
December 2004 and with another of our insurers
under the Executive Blended Risk policy in January
2005.
• Other Claims . In connection with the settlement of the
consolidated class action, the claims of IFS on behalf
of our Incentive Savings Plan and its participants are
being resolved and the class covered by the settlement
is being expanded to include participants in the Plan.
The Department of Labor is not, however, a party to