UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Transcription

1 UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA : Case No. 02-CV-271 IN RE PNC FINANCIAL SERVICES GROUP, : INC. SECURITIES LITIGATION : : JUDGE CERCONE : THIS DOCUMENT RELATES TO ALL : ACTIONS : : STIPULATION AND AGREEMENT OF SETTLEMENT WITH PNC DEFENDANTS, WITH AIG FINANCIAL PRODUCTS CORP., WITH ARNOLD & PORTER LLP, AND WITH BUCHANAN INGERSOLL PC This Stipulation and Agreement of Settlement (the Stipulation ) is submitted pursuant to Rule 23 of the Federal Rules of Civil Procedure. Subject to the approval of the Court, this Stipulation is entered into among Lead Plaintiffs Specialists DPM, LLC, Teamsters Local 272 Labor & Management Pension Fund, Joint Industry-Engineers Union Local 30 Pension Fund, and Teamsters Local 210 Pension Fund on behalf of themselves and the Class (as hereinafter defined) and Settling Defendants PNC Financial Services Group, Inc. ( PNC ), and James E. Rohr, Robert L. Haunschild, and Samuel R. Patterson (the Individual Defendants ) (PNC and the Individual Defendants are collectively referred to hereinafter as the PNC Defendants or the Settling Defendants ), AIG Financial Products Corp., Arnold & Porter LLP, and Buchanan Ingersoll PC 1, by and through their respective counsel. This settlement does not settle or release 1 AIG Financial Products Corp. is not currently named as a defendant in the Securities Litigation. However, an investigation has been conducted by Lead Plaintiffs and Lead Plaintiffs have advised AIG Financial Products Corp. that a federal securities law claim under Section 10(b) of the Securities Exchange Act of 1934 and all other claims released herein may be brought against it. In the context of the mediation, it was determined that these potential claims would be settled as well.

2 any claims against PNC s outside auditor and consultant during the Class Period, Non-Settling Defendant Ernst & Young LLP ( E&Y ). The PNC Defendants and E&Y are collectively referred to hereinafter as the Defendants. WHEREAS: A. Beginning on February 1, 2002, twelve class actions alleging violations of federal securities laws Johnson v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV271; Rose v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV289; Lang v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV295; Elovitz v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV308; Rassas v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV324; Markovitz v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV325; Market Street Securities, Inc. v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV326; Garcia v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV359; Zebarth v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV430; Teamsters Local 272 Labor & Management Pension Fund v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV472; Krain v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV538; and Merco & Co. v. PNC Financial Services Group, Inc., et al., Case No. 2:02CV555 were filed in Arnold & Porter LLP is not currently named as a defendant in the Securities Litigation. However, an investigation has been conducted by Lead Plaintiffs and Lead Plaintiffs have advised Arnold & Porter LLP that Plaintiffs would bring claims against Arnold & Porter LLP related to the PAGIC Transactions. Lead Plaintiffs and Arnold & Porter LLP agreed to settle these claims, including claims assigned to Lead Plaintiffs and the Class by PNC and its subsidiaries under the terms of the MOU on December 17, Buchanan Ingersoll PC is not currently named as a defendant in the Securities Litigation. However, an investigation has been conducted by Lead Plaintiffs and Lead Plaintiffs have advised Buchanan Ingersoll PC that Lead Plaintiffs would bring claims against Buchanan Ingersoll PC related to the PAGIC Transactions. Lead Plaintiffs and Buchanan Ingersoll PC agreed to settle these claims, including claims assigned to Lead Plaintiffs and the Class by PNC and its subsidiaries under the terms of the MOU on December 17,

3 this court and were subsequently consolidated under the caption above, and are hereinafter referred to as the Securities Litigation ; B. The Consolidated Class Action Complaint dated October 4, 2002 (the Complaint ) filed in the Securities Litigation sought to recover damages caused by the defendants alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Specifically, the Complaint alleged that PNC stock was artificially inflated throughout the Class Period July 19, 2001 through and including July 18, 2002 (the Class Period ) because the Defendants, over the course of three consecutive quarters, secretly removed more than $762 million in assets, $302 million of which consisted of volatile, troubled and non-performing loans and venture capital investments, from PNC s financial statements without disclosing this material fact to investors, bank regulators or the Securities and Exchange Commission (the SEC ); C. The Complaint further alleged that the sole purpose of the transactions, whereby non-performing assets of PNC were transferred to three special purpose entities ( SPEs ), was to artificially conceal losses in the value of the transferred assets that would otherwise have to be reported in PNC s earnings statements and thereby artificially inflate and maintain PNC s stock price. Plaintiffs alleged that, because of the sham, PNC bore 100% of the risk of the noncollectibility of the assets -- even though they were no longer reflected on PNC s financial statements. The Complaint also alleged that although on January 29, 2002, PNC announced that it would restate earnings for the second and third quarters of fiscal 2001 and revise its fourth quarter and year-end 2001 to reflect the consolidation of the SPEs, it was not until July 18, the day that the SEC announced that it had issued a Cease and Desist Order against PNC with respect to the accounting for the SPEs -- that the investing public was finally informed that 3

4 PNC s management had engaged in accounting improprieties and in particular, a misuse of special purpose entities ; D. On June 2, 2003, PNC ICLC Corp., an indirect non-bank subsidiary of PNC, entered into a Deferred Prosecution Agreement (the DPA ) with the United States Department of Justice (the DOJ ), Criminal Division, Fraud Section. Pursuant to the DPA, PNC ICLC Corp. paid $90 million into a fund (the Restitution Fund ) established for victim restitution, including for the settlement of any pending shareholder securities law litigation (DPA, paragraph 7). Under the terms of the DPA, none of the proceeds of the Restitution Fund may be payable as attorneys fees and all costs of administering the Restitution Fund are to be borne by PNC ICLC Corp. To the extent that any money in the Restitution Fund is not claimed within four years, the remaining amount will revert to the United States Treasury; E. On November 23, 2004, American International Group, Inc. ( AIG ), without admitting or denying the allegations asserted against it in a complaint filed by the SEC, consented to the issuance of a final judgment in Securities and Exchange Commission v. American International Group, Inc., No , ordering American International Group, Inc. to disgorge the $ million in fees AIG Financial Products Corp. received for entering into three SPE-related ( PAGIC ) transactions with PNC, plus pre-judgment interest of $6.545 million, to the Restitution Fund; F. The DOJ, pursuant to a deferred prosecution agreement dated November 30, 2004 entered into by DOJ and AIG-FP PAGIC Equity Holding Corp. and an agreement of even date entered into by DOJ and AIG Financial Products Corp., has directed that $20 million of the $80 4

5 million monetary penalty paid by AIG Financial Products Corp. be contributed to the Restitution Fund; G. The Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and/or Buchanan Ingersoll PC deny any wrongdoing whatsoever and this Stipulation shall in no event be construed or deemed to be evidence of or an admission or concession on the part of any of the Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and/or Buchanan Ingersoll PC with respect to any claim or of any fault or liability or wrongdoing or damage whatsoever, or any infirmity in the defenses that the Settling Defendants have asserted. The parties to this Stipulation recognize, however, that the Securities Litigation has been filed by the Lead Plaintiffs and defended by the Settling Defendants in good faith and with adequate basis in fact under Rule 11 of the Federal Rules of Civil Procedure, that the Securities Litigation is being voluntarily settled after advice of counsel, and that the terms of the settlement are fair, reasonable, and adequate. This Stipulation shall not be construed or deemed to be a concession by the Lead Plaintiffs of any infirmity in the claims asserted in the Securities Litigation; H. Plaintiffs Co-Lead Counsel have conducted an investigation relating to the claims and the underlying events and transactions alleged in the Complaint. Plaintiffs Co-Lead Counsel have, among other things: analyzed the evidence adduced during pretrial discovery; researched the applicable law with respect to the claims of Lead Plaintiffs, the Class, and all Class Members against the Settling Defendants and the potential defenses thereto; and analyzed the Order, as well as the DPA; I. With retired United States District Judge Nicholas V. Politan acting as a mediator, Lead Plaintiffs, by their counsel, have conducted discussions and arm s length negotiations with 5

6 counsel for Settling Defendants with respect to a compromise and settlement of the Securities Litigation as against the Settling Defendants with a view to settling the issues in dispute and achieving the best relief possible consistent with the interests of the Class; and J. Based upon their investigation and pretrial discovery as set forth above, Plaintiffs Co-Lead Counsel have concluded that the terms and conditions of this Stipulation are fair, reasonable and adequate to Lead Plaintiffs, the Class, and Class Members, and in their best interests, and have agreed to settle the claims raised in the Securities Litigation pursuant to the terms and provisions of this Stipulation, after considering (a) the substantial benefits that Lead Plaintiffs, the Class, and Class Members will receive from settlement of the Securities Litigation, (b) the attendant risks of litigation, and (c) the desirability of permitting the Settlement to be consummated as provided by the terms of this Stipulation. NOW THEREFORE, without any admission or concession on the part of Lead Plaintiffs of any lack of merit of the Securities Litigation whatsoever, and without any admission or concession of any liability or wrongdoing or lack of merit in the defenses whatsoever by the Settling Defendants, it is hereby STIPULATED AND AGREED, by and among the parties to this Stipulation, through their respective attorneys, subject to approval of the Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, in consideration of the benefits flowing to the parties hereto from the Settlement, that all Settled Claims (as defined below) as against the Released Parties (as defined below) and all Settled Defendants Claims (as defined below) shall be compromised, settled, released and dismissed with prejudice, upon and subject to the following terms and conditions: CERTAIN DEFINITIONS 6

7 meanings: 1. As used in this Stipulation, the following terms shall have the following (a) Arnold & Porter LLP means Arnold & Porter, Arnold & Porter LLP, and their current and former partners and employees. (b) Authorized Claimant means a Class Member who submits a timely and valid Proof of Claim form to the Claims Administrator. (c) Buchanan Ingersoll PC means Buchanan Ingersoll PC, Buchanan Ingersoll LLP, and their current and former employees, shareholders, and partners and their attorneys in this matter. (d) Claims Administrator means Louis W. Fryman, the administrator for the Restitution Fund, who shall administer the Settlement with the assistance of such agents as he determines, which may include the claims processing agent RSM McGladrey, Inc. (e) Class and Class Members means, for the purposes of this Settlement only, all persons who purchased PNC common stock, who purchased call options on PNC common stock, or who wrote (sold) put options on PNC common stock from July 19, 2001 through July 18, 2002, inclusive (the Class Period ), and PNC s Incentive Savings Plan on behalf of itself and its present and former participants and beneficiaries who purchased or otherwise acquired PNC common stock during the Class Period through the PNC Incentive Savings Plan. Excluded from the Class are Defendants, AIG Financial Products Corp., Arnold & Porter LLP, Buchanan Ingersoll PC, any entity in which Defendants, AIG Financial Products Corp., Arnold & Porter LLP, or Buchanan Ingersoll PC have a controlling interest or is a parent or subsidiary of or is controlled by PNC, AIG Financial Products Corp., Arnold & Porter LLP, or Buchanan Ingersoll PC, and the officers, directors, partners, members, employees, affiliates, 7

8 legal representatives, heirs, predecessors, successors and assigns of any of the Defendants, AIG Financial Products Corp., Arnold & Porter LLP, or Buchanan Ingersoll PC, except that this exclusion shall not apply to persons in their capacity as present or former participants or beneficiaries of the PNC Incentive Savings Plan. Also excluded from the Class are any putative Class Members who exclude themselves by filing a request for exclusion in accordance with the requirements set forth in the Notice. (f) Class Period means, for the purposes of this Stipulation only, the period of time from July 19, 2001 through and including July 18, (g) Effective Date means the date upon which the Settlement contemplated by this Stipulation shall become effective, as set forth in paragraph 24 below. (h) Final Order means an order as to which there is no pending appeal, stay, motion for reconsideration, motion to vacate or similar request for relief, and as to which the period of time for a party to seek any such appeal, stay, motion for reconsideration, motion to vacate or similar request for relief has expired, which for the purposes of this Settlement shall be deemed to be thirty-three (33) days after entry of the Order and Final Judgment, or if there has been an appeal, stay, motion for reconsideration, motion to vacate or similar request for relief, the appeal, stay, or motion has been decided in such a way as to leave the Order and Final Judgment in effect and the time for any further appeal or review by writ of certiorari has expired. (i) Individual Defendants means James E. Rohr (PNC s Chairman, President and Chief Executive Officer during the Class Period), Robert L. Haunschild (PNC s Senior Vice President and Chief Financial Officer during the Class Period), and Samuel R. Patterson (PNC s Controller during the Class Period). 8

9 (j) Insurers means the insurers subscribing to Policy No A issued to PNC. (k) Non-Settling Defendants means (i) E&Y, PNC s outside auditor and consultant during the Class Period, and (ii) in the event Lead Plaintiffs, the Class, or any Class Member sue(s) any individual or entity other than E&Y for claims arising out of the acts and transactions alleged in the Securities Litigation ( New Defendants ), solely for the purposes of paragraphs 8, 14, and 15 of the proposed Order and Final Judgment, each such New Defendant shall be deemed to be a Non-Settling Defendant; additionally, in the event any New Defendant, non-settling defendant, or any other individual or entity sued by a New Defendant or a Non- Settling Defendant sues any Settling Defendant for claims arising out of the acts and transactions alleged in the Securities Litigation, solely for the purposes of paragraphs 8, 14, and 15 of the proposed Order and Final Judgment, each such additional New Defendant shall be deemed to be a Non-Settling Defendant. (l) Notice means the Notice of Pendency of Class Action and Proposed Settlement with Certain Defendants, Motion for Attorneys Fees and Settlement Fairness Hearing and Notice of Proposed Plan of Distribution of Restitution Fund, which is to be sent to Class Members substantially in the form attached hereto as Exhibit 1 to Exhibit A. (m) Order and Final Judgment means the proposed order to be entered approving the Settlement substantially in the form attached hereto as Exhibit B. (n) Order for Notice and Hearing means the proposed order preliminarily approving the Settlement and directing notice thereof to the Class substantially in the form attached hereto as Exhibit A. 9

10 (o) Plaintiffs Counsel means Plaintiffs Co-Lead Counsel and all other counsel representing plaintiffs in the Securities Litigation. (p) Plaintiffs Co-Lead Counsel means the law firms of Milberg Weiss Bershad & Schulman LLP, Schiffrin & Barroway, LLP and Schoengold Sporn Laitman & Lometti, P.C. (q) Publication Notice means the summary notice of proposed Settlement and hearing for publication substantially in the form attached as Exhibit 3 to Exhibit A. (r) Released Parties means (a) Settling Defendants; (b) PNC and PNC s predecessors, successors, parents, subsidiaries, affiliates, and their respective present and former directors, officers, and employees, including PAGIC LLC, PAGIC II LLC, PAGIC Equity LLC, PAGIC Loans LLC, PAGIC Loans II, LLC, and PAGIC Equity Holding, LLC, as well as the heirs, executors and assigns of the individual Settling Defendants; (c) the Insurers; (d) AIG Financial Products Corp. and AIG Financial Products Corp. s predecessors, successors, parents, subsidiaries, affiliates and their respective present and former directors, officers, and employees; (e) Arnold & Porter, Arnold & Porter LLP, and their current and former partners and employees; and (f) Buchanan Ingersoll PC, Buchanan Ingersoll LLP, and their current and former employees, shareholders, and partners and their attorneys in this matter. Released Parties does not include Non-Settling Defendant E&Y, its predecessors, successors, assigns, partners, principals and employees and any divisions or affiliates of E&Y. (s) Settled Claims means any and all claims, debts, demands, rights or causes of action or liabilities whatsoever -- including, but not limited to, any claims for damages, interest, attorneys fees, expert or consulting fees, and any other costs, expenses or liability whatsoever -- whether based on federal, state, local, statutory or common law or any other law, 10

11 rule or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or unliquidated, at law or in equity, matured or un-matured, whether class, derivative, or individual in nature, including both known claims and Unknown Claims, (i) that have been asserted in the Securities Litigation by Lead Plaintiffs, the Class, or any Class Member (including, but not limited to, for this purpose the PNC Incentive Savings Plan and any current or former participant or beneficiary of the PNC Incentive Savings Plan) against any of the Released Parties, (ii) that could have been asserted in any forum by Lead Plaintiffs, the Class, or any Class Member (including, but not limited to, for this purpose the PNC Incentive Savings Plan and any current or former participant or beneficiary of the PNC Incentive Savings Plan) against any of the Released Parties which arise out of, relate to, or are based upon the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or referred to in the Consolidated Class Action Complaint filed by Lead Plaintiffs in the Securities Litigation and relate to the acquisition or ownership of shares of, or call or put options on, the common stock of PNC during the Class Period, or (iii) the claims against any of the Released Parties arising from or relating to the subject matter of the Securities Litigation asserted by Andrew J. Gosline in his demand letter dated June 10, 2003 and any other derivative demands that may be filed in connection with the PAGIC Transactions. Settled Claims includes the claims assigned under the terms of the December 17, 2004 MOU to Lead Plaintiffs and the Class that PNC and its subsidiaries had against Arnold & Porter LLP and against Buchanan Ingersoll PC which arise from or are related to the subject matter of the Securities Litigation. Settled Claims does not include claims against E&Y, its predecessors, successors, assigns, partners, principals and employees and any divisions or affiliates of E&Y. 11

12 (t) Settled Defendants Claims means any and all claims, rights or causes of action or liabilities whatsoever, whether based on federal, state, local, statutory or common law or any other law, rule or regulation, including both known claims and Unknown Claims, that have been or could have been asserted in the Securities Litigation or any forum by the Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, or Buchanan Ingersoll PC against any of the Lead Plaintiffs, the Class, Class Members solely in their capacity as Class Members, or their attorneys, relating to the institution, prosecution, or settlement of the Securities Litigation and/or the claims asserted by Andrew J. Gosline in his demand letter dated June 10, 2003 (except for claims to enforce the Settlement). (u) Settlement means the settlement contemplated by this Stipulation. (v) Settling Defendants means PNC and James E. Rohr, Robert L. Haunschild, and Samuel R. Patterson. (w) Settling Defendants Counsel means the law firm of Ballard Spahr Andrews & Ingersoll, LLP on behalf of PNC and Individual Defendants James E. Rohr and Samuel R. Patterson, and Gibson, Dunn & Crutcher, LLP on behalf of Individual Defendant Robert L. Haunschild. (x) Unknown Claims means any and all Settled Claims which any Lead Plaintiff, the Class, or any Class Member (including, but not limited to, for this purpose the PNC incentive Savings Plan and any current or former participant or beneficiary of the PNC Incentive Savings Plan) does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties, and any Settled Defendants Claims which any of the Settling Defendants does not know or suspect to exist in his or its favor, which if known by him, her or it might have affected his, her or its decision(s) with respect to the Settlement. With respect to any 12

13 and all Settled Claims and Settled Defendants Claims, the parties stipulate and agree that upon the Effective Date, the Lead Plaintiffs, the Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and Buchanan Ingersoll PC shall expressly waive, and each Class Member (including, but not limited to, for this purpose the PNC incentive Savings Plan and any current or former participant or beneficiary of the PNC Incentive Savings Plan) shall be deemed to have waived, and by operation of the Order and Final Judgment shall have expressly waived, any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to Cal. Civ. Code 1542, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Lead Plaintiffs, Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and Buchanan Ingersoll PC acknowledge, and Class Members by operation of law shall be deemed to have acknowledged, that the inclusion of Unknown Claims in the definition of Settled Claims and Settled Defendants Claims was separately bargained for and was a key element of the Settlement. SCOPE AND EFFECT OF SETTLEMENT 2. The obligations incurred pursuant to this Stipulation shall be in full and final disposition of the Securities Litigation as against the Settling Defendants and of any and all Settled Claims as against all Released Parties and any and all Settled Defendants Claims. 3. (a) Upon the Effective Date of this Settlement, Lead Plaintiffs, the Class, and Class Members on behalf of themselves, their heirs, executors, administrators, successors and assigns, shall, with respect to each and every Settled Claim, release and forever discharge, and 13

14 shall forever be enjoined from prosecuting, any Settled Claims against any of the Released Parties. (b) Upon the Effective Date of this Settlement, each of the Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and Buchanan Ingersoll PC shall release and forever discharge each and every of the Settled Defendants Claims, and shall forever be enjoined from prosecuting the Settled Defendants Claims. THE SETTLEMENT CONSIDERATION 4. (a) PNC has caused its Insurers to pay the sum of $30,000,000 (the PNC Cash Settlement Amount ) into a joint interest-bearing escrow account for the benefit of the Class. (b) AIG Financial Products Corp. has paid the sum of $4,000,000 (the AIG Cash Settlement Amount ) into a joint interest-bearing escrow account for the benefit of the Class. (c) On or before April 1, 2005, Arnold & Porter LLP will pay the sum of $700,000, representing approximately 75% of the fees Arnold & Porter LLP received from PNC in connection with the PAGIC Transactions, plus interest at 5.50% [the prime rate as reported in The Wall Street Journal on February 16, 2005] (the Arnold & Porter Refund ) into a joint interest-bearing escrow account for the benefit of the Class. (d) On or before April 17, 2005, Buchanan Ingersoll PC will pay or cause to be paid the sum of $1,900,000 (the Buchanan Ingersoll Cash Settlement Amount ) into a joint interest-bearing escrow account for the benefit of the Class. (e) The PNC Cash Settlement Amount, the AIG Cash Settlement Amount, the Arnold & Porter Refund, and the Buchanan Ingersoll Cash Settlement Amount (collectively, the 14

15 Cash Settlement Amounts ), and any interest earned thereon, shall be the Gross Settlement Fund. (f) While not given as consideration for this Settlement, an important benefit is being provided to the Class in the form of the Restitution Fund. $2,050,000 of the Restitution Fund will be paid to the trustee of the PNC Incentive Savings Plan. The balance of the Restitution Fund after such payment together with any interest earned thereon less any taxes payable on such interest (the Net Restitution Fund ) shall be paid to Authorized Claimants herein less a reserve for opt-outs. (g) PNC shall pay all reasonable Notice and Administration Costs of this Settlement which shall be coordinated with the notice and administration of the Restitution Fund. The Notice and Administration Costs referred to in paragraph 8 hereof and the remaining administration expenses referred to in paragraph 10 hereof shall be timely paid out of the Gross Settlement Fund as incurred. PNC shall reimburse the Gross Settlement Fund for these costs and expenses upon receipt of an affidavit from Plaintiffs Counsel and/or the Claims Administrator specifying in detail every amount and element of these costs and expenses for which reimbursement is sought. (h) PNC has assigned to Lead Plaintiffs and the Class any and all claims that PNC and its subsidiaries have against E&Y and any persons or entities other than the Released Parties, which claims arise from or are related to the subject matter of the Securities Litigation. The assigned claims shall revert to PNC and its subsidiaries in the event that the Settlement is finally disapproved by the Court or on appeal. Lead Plaintiffs shall take such steps as may be necessary to preserve the assigned claims pending final approval or disapproval of the Settlement. Lead Plaintiffs will not settle any assigned claims without PNC s consent before the 15

16 Order approving this Settlement becomes final. Any such settlement will include judgment reduction provisions substantially equivalent to the provisions of paragraph 15 of the proposed Order and Final Judgment. (i) Under the terms of the December 17, 2004 MOU, PNC has previously assigned to Lead Plaintiffs and the Class any and all claims that PNC and its subsidiaries had against Arnold & Porter LLP which arise from or are related to the subject matter of the Securities Litigation. Under the terms of this Settlement, Lead Plaintiffs and the Class are settling those assigned claims with PNC s consent and with judgment reduction provisions substantially equivalent to the provisions of paragraph 15 of the proposed Order and Final Judgment. The assigned claims shall revert to PNC and its subsidiaries in the event that the Settlement is finally disapproved by the Court or on appeal. (j) Under the terms of the December 17, 2004 MOU, PNC has previously assigned to Lead Plaintiffs and the Class any and all claims that PNC and its subsidiaries had against Buchanan Ingersoll PC which arise from or are related to the subject matter of the Securities Litigation. Under the terms of this Settlement, Lead Plaintiffs and the Class are settling those assigned claims with PNC s consent and with judgment reduction provisions substantially equivalent to the provisions of paragraph 15 of the proposed Order and Final Judgment. The assigned claims shall revert to PNC and its subsidiaries in the event that the Settlement is finally disapproved by the Court or on appeal. (k) The PNC Defendants agree to provide Lead Plaintiffs with documents as is reasonably necessary with respect to Lead Plaintiffs prosecution of the assigned claims. 5. This is not a claims-made settlement. Settling Defendants, AIG Financial Products Corp, Arnold & Porter LLP, and Buchanan Ingersoll PC shall have no ability to get 16

17 back any of the settlement monies or assigned claims once the Settlement becomes final. Defendants shall have no involvement in reviewing or challenging claims submitted by Class Members. 6. (a) The Gross Settlement Fund, net of any Taxes (as defined below) on the income thereof, shall be used to pay (i) the Notice and Administration Costs referred to in paragraph 8 hereof (which amounts shall be reimbursed by PNC to the Gross Settlement Fund), (ii) the attorneys fee and expense award referred to in paragraph 9 hereof, and (iii) the remaining administration expenses referred to in paragraph 10 hereof (which amounts shall be reimbursed by PNC to the Gross Settlement Fund). The balance of the Gross Settlement Fund including reimbursements paid by PNC under paragraph 4(g) hereof shall be the Net Settlement Fund which shall be distributed to the Authorized Claimants as provided in paragraphs hereof, together with the Net Restitution Fund. Any sums required to be held in escrow hereunder prior to the Effective Date shall be held by Plaintiffs Co-Lead Counsel and PNC s Counsel as Escrow Agents for the Settlement Fund. All funds held by the Escrow Agents shall be deemed to be in the custody of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds shall be distributed or returned to the persons paying the same pursuant to this Stipulation and/or further order of the Court. The Escrow Agents shall invest any funds in excess of $100,000 in short term United States Agency or Treasury Securities (or a mutual fund invested solely in such instruments), and shall collect and reinvest all interest accrued thereon. Any funds held in escrow in an amount of less than $100,000 may be held in an interest bearing bank account insured by the FDIC. The parties hereto agree that the Gross Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation 1.468B-1 and that the Escrow Agents, as administrator of the Settlement Fund 17

18 within the meaning of Treasury Regulation 1.468B-2(k)(3), shall be responsible for filing tax returns for the Gross Settlement Fund and paying from the Gross Settlement Fund any Taxes owed with respect to the Gross Settlement Fund. The parties hereto agree that the Settlement fund shall be treated as a Qualified Settlement Fund from the earliest date possible, and agree to any relation-back election required to treat the Settlement Fund as a Qualified Settlement Fund from the earliest date possible. Counsel for Settling Defendants, for AIG Financial Products Corp., and for Buchanan Ingersoll PC, and Arnold & Porter LLP agree to provide promptly to the Escrow Agents the statement described in Treasury Regulation 1.468B-3(e). After the Effective Date, PNC s Counsel shall resign as Escrow Agent and Plaintiffs Co-Lead Counsel shall remain as Escrow Agents. (b) All (i) taxes on the income of the Gross Settlement Fund and (ii) expenses and costs incurred in connection with the taxation of the Gross Settlement Fund (including, without limitation, expenses of tax attorneys and accountants) (collectively Taxes ) shall be paid out of the Gross Settlement Fund, shall be considered to be a cost of administration of the settlement and shall be timely paid by the Escrow Agents without prior Order of the Court. ADMINISTRATION 7. The Claims Administrator shall administer the Settlement subject to the jurisdiction of the Court. PNC shall reimburse the Gross Settlement Fund for the costs and expenses in connection with the administration of the Settlement Fund as set forth in paragraphs 4(g), 6(a), 8, and 14 herein. Settling Defendants Counsel shall cooperate in the administration of the Settlement to the extent reasonably necessary to effectuate its terms, including providing without charge all information from PNC s transfer records concerning the identity of Class Members and their transactions. 18

19 8. Plaintiffs Co-Lead Counsel may pay from the PNC Cash Settlement Amount, without further approval from the Settling Defendants, AIG Financial Products Corp., Arnold & Porter LLP, and/or Buchanan Ingersoll PC or the Court, the reasonable costs and expenses associated with identifying Class Members and effecting mail Notice and Publication Notice to the Class, and the administration of the Settlement, including without limitation, the actual costs of publication, printing and mailing the Notice, reimbursements to nominee owners for forwarding notice to their beneficial owners, and the administrative expenses incurred and fees charged by the Claims Administrator in connection with providing notice and processing the submitted claims and distributing the Net Settlement Fund to Authorized Claimants (the Notice and Administration Costs ). Under paragraph 4(g) hereof, PNC shall be responsible, from time to time, upon notice from Plaintiffs Co-Lead Counsel, to reimburse the Gross Settlement Fund for all reasonable Notice and Administration Costs upon receipt of an affidavit from Plaintiffs Counsel and/or the Claims Administrator specifying in detail every amount and element of these costs and expenses for which reimbursement is sought. ATTORNEYS FEES AND EXPENSES 9. Plaintiffs Co-Lead Counsel may apply to the Court for an award from the Gross Settlement Fund of attorneys fees not to exceed one-third (33 1/3%) of the Gross Settlement Fund and reimbursement of expenses, plus interest. Such attorneys fees, expenses, and interest as are awarded by the Court shall be payable from the Gross Settlement Fund to Plaintiffs Counsel immediately upon award, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof, subject to Plaintiffs Co-Lead Counsel s obligations to make appropriate refunds or repayments to the Settlement Fund plus accrued interest at the same rate as is earned by the 19

20 Settlement Fund, if and when, as a result of any appeal and/or further proceedings on remand, or successful collateral attack, the fee or cost award is reduced or reversed. If the fee award is to be paid prior to the Effective Date, Plaintiffs Co-Lead Counsel, before any such fee award is paid, shall provide undertakings sufficient to PNC, the Insurers, and AIG Financial Products Corp. to repay such fees to the Settlement Fund if the Settlement is terminated, or the fee award is later modified, reversed or for any other reason the Order and Final Judgment does not become a final order. Pursuant to the terms of the Deferred Prosecution Agreement, none of the proceeds of the Restitution Fund shall be payable as attorneys fees, nor shall Plaintiffs Counsel seek a fee award based upon any sums that may be disbursed from the Restitution Fund to Lead Plaintiffs, the Class, or any Class Member. ADMINISTRATION EXPENSES 10. Plaintiffs Co-Lead Counsel will apply to the Court, on notice to Settling Defendants Counsel, for an order (the Class Distribution Order ) approving the Claims Administrator s administrative determinations concerning the acceptance and rejection of the claims submitted herein and to the extent, if any, that there is any dispute concerning the Notice and Administration Costs that PNC is liable for, determining the balance of any fees and expenses of the Claims Administrator, and, if the Effective Date has occurred, directing payment of the Net Settlement Fund and the Net Restitution Fund to Authorized Claimants. DISTRIBUTION TO AUTHORIZED CLAIMANTS 11. The Claims Administrator shall determine each Authorized Claimant s pro rata share of the Net Settlement Fund (and, if the application described in paragraph 29 below is approved, the Net Restitution Fund) based upon each Authorized Claimant s Recognized Claim (as defined in the Plan of Allocation described in the Notice annexed hereto as Exhibit 1 to 20

21 Exhibit A, or in such other Plan of Allocation as the Court approves), compared to the total Recognized Claims of all Authorized Claimants. 12. The Plan of Allocation proposed in the Notice is not a necessary term of this Stipulation and it is not a condition of this Stipulation that any particular Plan of Allocation be approved. ADMINISTRATION OF THE SETTLEMENT 13. Any Class Member who does not submit a valid Proof of Claim will not be entitled to receive any of the proceeds from the Net Settlement Fund or the Restitution Fund but will otherwise be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Securities Litigation and the releases provided for herein, and will be barred from bringing any action against the Released Parties concerning the Settled Claims. 14. The Claims Administrator shall process the Proofs of Claim and, after entry of the Class Distribution Order, distribute the Net Settlement Fund and the Net Restitution Fund to the Authorized Claimants. With respect to the administration of the Settlement or disbursement of the Net Settlement Fund, (i) the Settling Defendants, AIG Financial Products Corp, Arnold & Porter LLP, and Buchanan Ingersoll PC shall be responsible for the payment of their respective Cash Settlement Amounts; (ii) PNC shall be responsible for reimbursing the Settlement Fund for the Notice and Administration Costs referred to in paragraph 8 hereof and the remaining administration expenses referred to in paragraph 10 hereof; and (iii) the PNC Defendants shall cooperate in the production of information with respect to the identification of Class Members from PNC s shareholder transfer records. The Settling Defendants, AIG Financial Products 21

22 Corp, Arnold & Porter LLP, and Buchanan Ingersoll PC, however, shall have no further liability, obligation or responsibility for the administration of the Settlement or disbursement of the Net Settlement Fund except as provided herein. Plaintiffs Co-Lead Counsel shall have the right, but not the obligation, to advise the Claims Administrator to waive what Plaintiffs Co-Lead Counsel deem to be formal or technical defects in any Proofs of Claim submitted in the interests of achieving substantial justice. 15. For purposes of determining the extent, if any, to which a Class Member shall be entitled to be treated as an Authorized Claimant, the following conditions shall apply: (a) Each Class Member shall be required to submit a Proof of Claim (see attached Exhibit 2 to Exhibit A), supported by such documents as are designated therein, including proof of the transactions claimed and the losses incurred thereon, or such other documents or proof as the Claims Administrator, in its discretion may deem acceptable; (b) All Proofs of Claim must be submitted by the date specified in the Notice unless such period is extended by Order of the Court. Any Class Member who fails to submit a Proof of Claim by such date shall be forever barred from receiving any payment pursuant to this Stipulation (unless, by Order of the Court, a later submitted Proof of Claim by such Class Member is approved), but shall in all other respects be bound by all of the terms of this Stipulation and the Settlement including the terms of the Judgment to be entered in the Securities Litigation and the releases provided for herein, and will be barred from bringing any action against the Released Parties concerning the Settled Claims. Provided that it is received before the motion for the Class Distribution Order is filed, a Proof of Claim shall be deemed to have been submitted when posted, if received with a postmark indicated on the envelope and if mailed by first-class mail and addressed in accordance with the instructions thereon. In all other cases, 22

23 the Proof of Claim shall be deemed to have been submitted when actually received by the Claims Administrator; (c) Each Proof of Claim shall be submitted to and reviewed by the Claims Administrator, who shall determine in accordance with this Stipulation and the approved Plan of Allocation the extent, if any, to which each claim shall be allowed, subject to review by the Court pursuant to subparagraph (e) below; (d) Proofs of Claim that do not meet the submission requirements may be rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate with the Claimant in order to remedy the curable deficiencies in the Proof of Claims submitted. The Claims Administrator shall notify, in a timely fashion and in writing, all Claimants whose Proofs of Claim they propose to reject in whole or in part, setting forth the reasons therefor, and shall indicate in such notice that the Claimant whose claim is to be rejected has the right to a review by the Court if the Claimant so desires and complies with the requirements of subparagraph (e) below; (e) If any Claimant whose claim has been rejected in whole or in part desires to contest such rejection, the Claimant must, within twenty (20) days after the date of mailing of the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice and statement of reasons indicating the Claimant s grounds for contesting the rejection along with any supporting documentation, and requesting a review thereof by the Court. If a dispute concerning a claim cannot be otherwise resolved, Plaintiffs Co-Lead Counsel shall thereafter present the request for review to the Court; and 23

24 (f) The administrative determinations of the Claims Administrator accepting and rejecting claims shall be presented to the Court, on notice to Settling Defendants Counsel, for approval by the Court in the Class Distribution Order. 16. It is agreed that the PNC Incentive Savings Plan (the Plan ) may file an omnibus Proof of Claim in this Securities Litigation on behalf of the Plan s present and former participants and beneficiaries who purchased or otherwise acquired PNC common stock during the Class Period through the Plan and it is agreed that such Proof of Claim shall be processed and allowed on the same basis as other claims. The Plan may submit a claim on behalf of itself and its present and former participants and beneficiaries based on purchases at the participant level. The Plan trust shall receive a single aggregate payment that shall be based on the sum of the PNC shares acquired (and sold, if applicable) by the Plan or by each and every Plan participant or beneficiary for their accounts within the Plan during the Class Period, including: (i) shares acquired through payroll deductions; (ii) shares acquired through the reallocation of participant investment holdings; (iii) matching shares contributed by PNC on the participants behalf; (iv) shares acquired by repayment of participant loans; (v) shares acquired by investment of rollover contributions; and (vi) all of the aforementioned methods of acquisition of PNC shares during the Class Period by or on behalf of participants of the PNC Retirement Savings Plan, which was merged into the Plan in September The aforementioned shares shall be treated, for purposes of the Settlement, no differently than shares purchased on the open market. The parties to this Stipulation believe that this will treat the Plan and its participants and their beneficiaries the same as other Class Members. 17. Each Claimant shall be deemed to have submitted to the jurisdiction of the Court with respect to the Claimant s claim, and the claim will be subject to investigation and discovery 24

25 under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to that Claimant s status as a Class Member and the validity and amount of the Claimant s claim. No discovery shall be allowed on the merits of the Securities Litigation or Settlement in connection with processing of the Proofs of Claim. 18. Payment pursuant to this Stipulation shall be deemed final and conclusive against all Class Members. All Class Members whose claims are not approved by the Court shall be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Securities Litigation and the releases provided for herein, and will be barred from bringing any action against the Released Parties concerning the Settled Claims. 19. All proceedings with respect to the administration, processing and determination of claims described by paragraph 15 of this Stipulation and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the validity of claims, shall be subject to the jurisdiction of the Court. 20. The Net Settlement Fund and the Net Restitution Fund shall be distributed to Authorized Claimants by the Claims Administrator only after the Effective Date and after: (i) all Claims have been processed, and all Claimants whose Claims have been rejected or disallowed, in whole or in part, have been notified and provided the opportunity to be heard concerning such rejection or disallowance; (ii) all objections with respect to all rejected or disallowed claims have been resolved by the Court, and all appeals therefrom have been resolved or the time therefor has expired; (iii) all matters with respect to attorneys fees, costs, and disbursements have been 25

26 resolved by the Court, all appeals therefrom have been resolved or the time therefor has expired; and (iv) all costs of administration have been paid. TERMS OF ORDER FOR NOTICE AND HEARING 21. Promptly after this Stipulation has been fully executed, Plaintiffs Co-Lead Counsel and Settling Defendants Counsel jointly shall apply to the Court for entry of an Order for Notice and Hearing, substantially in the form annexed hereto as Exhibit A. TERMS OF ORDER AND FINAL JUDGMENT 22. If the Settlement contemplated by this Stipulation is approved by the Court, counsel for the parties shall request that the Court enter an Order and Final Judgment substantially in the form annexed hereto as Exhibit B. The Settlement is contingent on the entry of an Order and Final Judgment substantially in the form annexed hereto as Exhibit B. SUPPLEMENTAL AGREEMENT 23. Simultaneously herewith, Plaintiffs Co-Lead Counsel, Settling Defendants Counsel, and Counsel for AIG Financial Products Corp. are executing a Supplemental Agreement setting forth certain conditions under which this Settlement may be terminated by Settling Defendants or AIG Financial Products Corp. if potential Class Members who purchased in excess of a certain number of shares of PNC common stock traded during the Class Period exclude themselves from the Class. The Supplemental Agreement shall not be filed prior to the Settlement Fairness Hearing unless a dispute arises as to its terms. In the event of a termination of this Settlement pursuant to the Supplemental Agreement, this Stipulation shall become null and void and of no further force and effect and the provisions of paragraph 26 shall apply. Notwithstanding the foregoing, the Stipulation shall not become null and void as a result of the 26

27 election by the Settling Defendants or AIG Financial Products Corp. to exercise their option to terminate the Stipulation pursuant to the Supplemental Agreement until the conditions set forth in the Supplemental Agreement have been satisfied. occurred: EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION 24. The Effective Date of Settlement shall be the date when the following shall have (a) approval by the Court of the Settlement, following notice to the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil Procedure; and (b) entry by the Court of an Order and Final Judgment, substantially in the form set forth in Exhibit B annexed hereto, and such Order and Final Judgment becoming a Final Order, or, in the event that the Court enters an order and final judgment in a form other than that provided above ( Alternative Judgment ) and none of the parties hereto elect to terminate this Settlement, the date that such Alternative Judgment becomes a Final Order. 25. Settling Defendants Counsel, Counsel for AIG Financial Products Corp., Arnold & Porter LLP, Buchanan Ingersoll PC, or Plaintiffs Co-Lead Counsel shall have the right to terminate the Settlement and this Stipulation by providing written notice of their election to do so ( Termination Notice ) to all other parties hereto within thirty (30) days of: (a) the Court s declining to enter the Order for Notice and Hearing in any material respect; (b) the Court s refusal to approve this Stipulation or any material part of it; (c) the Court s declining to enter the Order and Final Judgment in any material respect; (d) the date upon which the Order and Final Judgment is modified or reversed in any material respect by the Court of Appeals or the Supreme Court; or (e) the date upon which an Alternative Judgment is modified or reversed in any material respect by the Court of Appeals or the Supreme Court. 27