IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE RIGGS NATIONAL CORPORATION
LITIGATION
X
:
:
:
:
:
X
CONSOLIDATED
C.A. No. 370-N
NOTICE OF PENDENCY OF CLASS AND DERIVATIVE ACTION, PROPOSED SETTLEMENT OF CLASS
AND DERIVATIVE ACTION, SETTLEMENT HEARING AND RIGHT TO APPEAR
TO:
ALL PERSONS, OTHER THAN INDIVIDUAL DEFENDANTS TO THE ABOVE-CAPTIONED LITIGATION AND THEIR
AFFILIATES, WHO OWNED COMMON STOCK OF RIGGS NATIONAL CORPORATION (“RIGGS” OR THE “COMPANY”)
AT ANY TIME FROM JULY 15, 2004 THROUGH MAY 13, 2005, INCLUSIVE:
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY.
PROCEEDINGS IN THIS LITIGATION.
YOUR RIGHTS WILL BE AFFECTED BY
IF YOU HELD SHARES OF RIGGS FOR THE BENEFIT OF ANOTHER, PLEASE PROMPTLY TRANSMIT THIS
DOCUMENT TO SUCH BENEFICIAL OWNER.
This Notice is given pursuant to Rules 23(e) and 23.1 of the Delaware Court of Chancery and pursuant to an Order of the
Court of Chancery of the State of Delaware in and for New Castle County (the “Court”). The purpose of this Notice is to inform you of
the above-captioned action pending in the Court (the “Consolidated Delaware Action”), the proposed settlement (the “Settlement”) of
the action, a hearing on the proposed Settlement (the “Settlement Hearing”), and your right, among other things, to participate in the
Settlement Hearing. The Settlement Hearing will be held before the Court in the Sussex County Court of Chancery Courthouse,
34 The Circle, Georgetown, Delaware 19947 on November 9, 2005, at 2:30 p.m. (i) to determine whether the terms and conditions of
the Settlement provided for in the Stipulation of Settlement, dated August 24, 2005 (the “Stipulation”), taken as a whole, are fair,
reasonable, adequate and in the best interests of the proposed Class (as defined herein) and Riggs Shareholders (as defined herein),
(ii) to determine whether a final judgment should be entered dismissing the Consolidated Delaware Action as to all Settling Defendants
(as defined herein) on the merits and with prejudice and extinguishing and releasing any and all Released Claims (as defined herein)
against the Released Parties (as defined herein) as against the Delaware Plaintiffs (as defined herein), Riggs, PNC as successor to
Riggs, Riggs Bank, the Class and Riggs Shareholders, (iii) to hear and determine any objections to the Settlement, and (iv) to
determine, if the Court approves the Settlement and enters its final judgment, whether it should award attorneys’ fees and expenses in
an amount not exceeding $1,100,000 to the Delaware Plaintiffs’ Counsel (as defined herein).
The Court has reserved the right to adjourn or continue the Settlement Hearing, including consideration of the application for
attorneys’ fees, without further notice to you other than by announcement at the Settlement Hearing or any adjournment thereof. The
Court has further reserved the right to approve the Stipulation and Settlement at or after the Settlement Hearing, with such
modifications as may be consented to by the parties to the Stipulation, and enter its final judgment dismissing the action on the merits
and with prejudice and order the payment of attorneys’ fees and expenses without further notice of any kind.
This notice is not an expression by the Court as to the merits of any claim or defense asserted by the parties in this litigation.
THE FACTUAL BACKGROUND
THE DESCRIPTION OF THE ACTION AND THE SETTLEMENT WHICH FOLLOW HAVE BEEN PREPARED BY COUNSEL FOR
THE PARTIES. THE COURT HAS MADE NO FINDINGS WITH RESPECT TO SUCH MATTERS, AND THIS NOTICE IS NOT AN
EXPRESSION BY THE COURT OF FINDINGS OF FACT.
1.
Riggs was a bank holding company headquartered in Washington D.C. Riggs’ major operating subsidiary was Riggs
Bank, N.A. (“Riggs Bank” or the “Bank”), which operated bank branches in the District of Columbia, Virginia and Maryland. Riggs was a
Delaware corporation and, as of February 10, 2005, had 31,799,270 shares outstanding.
2.
On July 16, 2003, Riggs Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “July
2003 Consent Order”) with the Office of the Comptroller of the Currency (the “OCC”). The Consent Order required Riggs Bank to take
various actions to ensure compliance and improve the monitoring of its compliance with the Bank Secrecy Act (the “BSA”) and related
rules and regulations.
3.
On March 2, 2004, the OCC advised Riggs Bank that it was considering whether to institute a civil money penalty
action against the Bank in which the OCC would allege that the Bank had violated the BSA and related rules and regulations, failed to
comply with the July 2003 Consent Order, and failed to implement adequate controls to insure that it complied with the BSA. That
same day, the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury also advised the
Bank that it was evaluating whether to assess a civil money penalty and/or to take additional enforcement action against the Bank for
alleged violations of the BSA and related rules and regulations.
4.
In March 2004, the board of directors of Riggs (the “Riggs Board”) formed a special committee of directors
(the “Special Committee”) to consider a preliminary proposal received from a large financial institution regarding a potential transaction
involving Riggs. The Special Committee retained legal and financial advisors to assist it in connection with its review of the preliminary
proposal. Although the financial institution decided not to proceed, with the concurrence of the full Riggs Board, the Special Committee
continued to meet to evaluate Riggs’ strategic options and in May 2004, authorized its financial advisors, Lehman Brothers Inc.
(“Lehman Brothers”), to seek indications of interest from a number of depository holding companies.
5.
On April 7, 2004, a purported shareholder derivative action captioned Horgan, et al. v. Allbritton, et al., Civil Action
No. 370-N (the “Horgan Action”), was filed in the Court. The Horgan Action asserted purported derivative claims on behalf of Riggs
against Joe L. Allbritton, Robert L. Allbritton, J. Carter Beese, Jr., Charles A. Camalier, Timothy C. Coughlin, Lawrence I. Hebert,
Steven B. Pfeiffer, Robert L. Sloan, Jack Valenti, William L. Walton and Eddie N. Williams as officers and directors of Riggs
(collectively, the “Individual Defendants”). Citing the July 2003 Consent Order and the March 27, 2004 actions by the OCC and
FinCEN, the Horgan Action alleged that the Individual Defendants breached their fiduciary duties of loyalty, honesty and care and
caused a waste of corporate assets and other harms to Riggs by failing to conduct appropriate due diligence of the Bank’s Middle
Eastern and Equatorial Guinea customers and by failing to exercise reasonable control and supervision over Riggs and its officers and
employees in connection with Riggs’ compliance with applicable banking laws, including the BSA and federal anti-money laundering
laws. The Horgan Action sought declaratory and injunctive relief, disgorgement of the Individual Defendants’ salaries and other
compensation, and an accounting for monetary damages.
6.
On April 17, 2004, a purported shareholder derivative action captioned Dickler v. Allbritton, et al., Civil Action
No. 04-0002978 was filed in the Superior Court of the District of Columbia, Civil Division (the “D.C. Action”). The D.C. Action asserted
purported derivative claims on behalf of Riggs against the Individual Defendants substantially similar to the purported derivative claims
asserted in the Horgan Action. The plaintiffs in the Horgan Action and the D.C. Action are represented by the same lead counsel.
7.
On April 28, 2004, a purported shareholder derivative action captioned Labaton v. Allbritton, et al., Civil Action No.
404-N, was filed in the Court (the “Labaton Action”). The Labaton Action asserted claims on behalf of Riggs against the Individual
Defendants substantially similar to those alleged in the Horgan Action. By Order dated May 21, 2004, the Horgan Action and the
Labaton Action were consolidated under the caption In re Riggs National Corporation Litigation, Consolidated Case No. 370-N
(the “Consolidated Delaware Action,” and collectively with the D.C. Action, the “Actions”) and the firm of Milberg Weiss Bershad &
Schulman LLP was designated plaintiffs’ “Lead Counsel” therein.
8.
On May 13, 2004, Riggs Bank entered into a second Stipulation and Consent to the Issuance of a Consent Order
with the OCC (the “May 2004 Consent Order”). At the same time, the Bank entered into a Consent Order of Civil Money Penalty and a
Consent to the Assessment of Civil Money Penalty with FinCEN and was assessed and paid a civil monetary penalty of $25 million (the
“May 2004 Consent to Civil Money Penalty”). These consents were entered into as a result of the banking regulators’ allegations that
Riggs Bank had violated the BSA and related rules and regulations, failed to comply with the July 2003 Consent Order and failed to
implement adequate controls to ensure that the Bank operated in a safe and sound manner with respect to BSA compliance. The May
2004 Consent Order required Riggs Bank to take a number of actions designed to ensure the Bank’s compliance with the BSA and
related rules and regulations.
9.
On May 14, 2004, Riggs and its subsidiary, Riggs International Banking Corporation (“RIBC”), consented to the
issuance of a Cease and Desist Order (the “May 2004 Cease and Desist Order”) by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Among other things, the May 2004 Cease and Desist Order required that RIBC submit a plan to the
Federal Reserve Bank of Atlanta to ensure compliance with all applicable provisions of the BSA and related rules and regulations. The
May 2004 Cease and Desist Order also required that Riggs obtain prior approval of the Federal Reserve Bank of Richmond and the
Federal Reserve’s Director of the Division of Banking Supervision and Regulation before declaring or paying dividends.
10.
On May 28, 2004, Riggs publicly announced that it was reviewing its strategic alternatives. By mid-June 2004,
preliminary proposals were received from seven potential acquirers of Riggs. On June 17, 2004 at a meeting to consider these
proposals, the Special Committee authorized due diligence by the five depository holding companies that had submitted the highest
preliminary proposals. Each of these companies then conducted due diligence of Riggs.
11.
On July 12 and 13, 2004, the five depository holding companies submitted their final proposals. On July 14, 2004,
the full Riggs Board met to consider the final proposals. The Riggs Board then asked three of the bidders, including The PNC Financial
Services Group, Inc. (“PNC”), to submit revised bids.
12.
On July 15, 2004, the Riggs Board decided to accept PNC’s bid to acquire Riggs for a combination of cash and PNC
common stock valued at approximately $24.25 per share of Riggs common stock. Although one of the revised bids submitted by
another potential acquirer was for an all-stock offer which had a value that was some 4 percent higher than PNC’s bid based on the
previous day’s closing prices, the Riggs Board concluded that based upon a variety of factors the PNC bid offered the highest value
reasonably attainable. At the Board meeting that evening, representatives of Lehman Brothers orally opined to the Riggs Board, and
confirmed by a written opinion dated July 16, 2004, that the aggregate consideration to be offered by PNC in the proposed merger with
Riggs (the “Merger”) was fair from a financial point of view to Riggs shareholders. The Riggs Board unanimously approved the Merger,
including the proposed merger agreement, and agreed to recommend its approval by Riggs shareholders.
13.
On July 15, 2004, the minority staff of the United States Senate Committee on Governmental Affairs Permanent
Subcommittee on Investigations issued a report entitled “Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the
Patriot Act; a Case Study Involving Riggs Bank” (the “Senate Subcommittee Report”). The Senate Subcommittee Report concluded,
among other things, that Riggs Bank had assisted former General Augusto Pinochet Ugarte of Chile in “evading legal proceedings related
to his Riggs Bank accounts and resisted OCC oversight of these accounts,” that Riggs had managed numerous accounts for Equatorial
Guinea and its officials for whom it “allowed numerous suspicious transactions to take place without notifying law enforcement,” and that
Riggs had “ignored repeated directives by federal bank regulators to improve its anti-money laundering program.”
2
14.
On July 16, 2004, Riggs entered into a merger agreement with PNC (the “Initial Merger Agreement”). The Initial
Merger Agreement included a provision requiring Riggs to pay a $30 million termination fee in the event that Riggs, inter alia, were
thereafter to agree to, or consummate an acquisition proposal with, an entity other than PNC. The Initial Merger Agreement contained
representations and warranties by Riggs that, among other things, since December 31, 2003, no event has occurred or circumstances
have arisen that, individually or taken together with all other facts, warranties or events, is reasonably likely to have a “Material Adverse
Effect” on Riggs. The Initial Merger Agreement further provided that PNC had the right to terminate the Merger in the event that any of
Riggs’ representations “shall have become untrue after the date of the [Initial Merger Agreement]” in circumstances that have or are
reasonably likely to have a “Material Adverse Effect” on Riggs.
15.
On August 11, 2004, Riggs filed with the Securities and Exchange Commission its preliminary proxy statement on
Form S-4 in connection with the proposed merger (the “Preliminary Proxy”).
16.
On September 10, 2004, an action captioned Vadhan, et al. v. Riggs National Corp., et al., 04 Civ. 7281 (RCC) (the
“Vadhan Action”) was filed in the United States District Court for the Southern District of New York (the “New York Federal Court”). The
Vadhan Action initially asserted claims against Riggs and the Bank on behalf of the purported class of persons who suffered physical injury
and/or represented persons who were killed as a result of the terrorist attacks of September 11, 2001, but on March 24, 2005, an amended
Complaint was filed on behalf of 2,440 named plaintiffs and the class allegations of the initial complaint were dropped. The Vadhan Action
seeks compensatory, punitive and/or exemplary damages on the alleged grounds that, because of Riggs’ deficient anti-money laundering
program, Riggs was, among other things, negligent in failing to alert the United States financial authorities to suspicious financial
transactions that the plaintiffs claim were related to the September 11, 2001 terrorist attacks. On June 13, 2005, PNC entered into a
resolution agreement with attorneys for the Vadhan plaintiffs under which the claims of all but one of the Vadhan plaintiffs were dismissed
in return for, among other things, PNC’s contribution to a charitable foundation.
17.
On September 13, 2004, an action was filed in the New York Federal Court captioned Cantor Fitzgerald & Co., et al. v.
American Airlines, et al., 04 Civ. 7318 (the “Cantor Action”). The Cantor Action asserts claims on behalf of several affiliated tenants in One
World Trade Center and seeks to recover compensatory, punitive and/or exemplary damages for the property losses that plaintiffs suffered
on September 11, 2001 against Riggs, the Bank and other defendants on substantially identical grounds to those asserted in the Vadhan
Action. In April 2005, PNC entered into a memorandum of understanding conditionally resolving the Cantor Action.
18.
On September 16, 2004, the Central Investigative Court Number 5 of the Audiencia Nacional in Spain allowed a
complaint to be brought against seven current or former directors and employees of Riggs for the alleged concealment of assets and
money laundering offenses (the “Spanish Action”). The Spanish Action was filed as part of an already existing summary proceeding
against General Pinochet brought by alleged victims of terrorism, genocide and torture of which General Pinochet is accused. The
complaint in the Spanish Action also added Riggs and Riggs Bank as defendants with subsidiary civil liability in the event that the
individual defendants named in the Spanish Action could not satisfy any monetary judgment against them. On January 27, 2005, Riggs
entered into a settlement with the plaintiffs who initiated the Spanish Action, pursuant to which Riggs agreed to pay $8 million and to
provide the plaintiffs, consistent with Riggs’ legal obligations, information concerning General Pinochet’s accounts at Riggs. On
February 25, 2005, the Spanish Action was dismissed against Riggs, Riggs Bank and the seven current or former directors and
employees of Riggs.
19.
On November 18, 2004, an action captioned Freeport Partners LLC v. Allbritton, Case No. 1-04 CV 02030 (the
“Freeport Partners Action”), was filed in the United States District Court for the District of Columbia (the “D.C. Federal Court”). After the
defendants in the Freeport Partners Action moved to dismiss the complaint, plaintiff amended its complaint on March 14, 2005. The
amended complaint is brought on behalf of the alleged class of all Riggs shareholders as of either July 16, 2004 or February 10, 2005
(other than the named defendants, members of their immediate families and their respective representatives, heirs, successors,
assigns or affiliated entities) against certain current and former officers and directors of Riggs and the Bank. Citing the July 2003
Consent Order, the March 2, 2004 actions by OCC and FinCEN, the May 2004 Consent Order and the Senate Subcommittee Report,
the amended complaint alleges that Riggs’ deficient anti-money laundering program generally, and the defendants’ alleged role in the
facilitation of money laundering by General Pinochet and government officials in Equatorial Guinea specifically, constituted violations by
defendants of the Racketeering Influenced and Corrupt Organization Act (“RICO”). The amended complaint further alleges that
defendants’ purported racketeering activity “was the proximate cause of a decline in value of Riggs … and therefore resulted in injury to
Plaintiff’s property” in that defendants’ acts “both made the sale of Riggs necessary and reduced the price at which that sale could be
made.” The amended complaint seeks treble damages on behalf of the alleged class.
20.
On November 19, 2004, the plaintiffs in the Consolidated Delaware Action (the “Delaware Plaintiffs”) filed a class
action and amended derivative complaint (the “Amended Complaint”). The Amended Complaint alleged purported derivative claims on
behalf of Riggs against the Individual Defendants and purported direct claims on behalf of plaintiffs and a putative class of all public
shareholders of Riggs and their successors in interest against the Individual Defendants. Citing the July 2003 Consent Order, the May
2004 Consent Order, the May 2004 Consent to Civil Money Penalty, and the Senate Subcommittee Report, the Amended Complaint
alleged that the Individual Defendants breached their fiduciary duty of care by failing to prevent Riggs and the Bank from engaging in
illegal banking activities, including anti-money laundering provisions, thereby causing Riggs to incur substantial penalties, fees and
other costs. The Amended Complaint further alleged that, in an effort to avoid the consequences of their claimed misconduct by
extinguishing the derivative claims pending against them, the Individual Defendants sought to sell Riggs to PNC in a “fire sale” and at
an “unfair price” in further breach of other fiduciary duties of care and loyalty. In addition, the Amended Complaint alleged that in the
Preliminary Proxy was materially false and misleading in breach of the Individual Defendants’ duty of candor because, among other
things: (a) it failed to disclose to Riggs stockholders that defendants’ true motivation for the Merger was to protect the Individual
Defendants from liability for their misconduct by extinguishing the derivative claims pending against them in the Actions; (b) it failed to
disclose the value of the derivative claims that might be lost in the event the Merger was consummated; and (c) it stated that the Riggs
Board had unanimously determined that the Merger was in the best interests of Riggs and its shareholders, when the Individual
3
Defendants allegedly knew that the timing and structure of the Merger did not benefit Riggs’ shareholders. The Amended Complaint
further alleged that the Individual Defendants had engaged in waste of corporate assets by authorizing the Merger and using Riggs’
assets to solicit shareholder approval thereof, making personal use of Riggs’ corporate jet and London apartment, and causing Riggs to
pay fines and sanctions imposed by government agencies and to incur the expenses of complying with regulatory inquiries. The
Amended Complaint also alleged that, in connection with the Merger, the Individual Defendants approved excessive change-in-control
payments to Riggs’ senior officers and/or directors. Plaintiffs also asserted that the Initial Merger Agreement contained extraordinary
provisions to protect the Individual Defendants from the consequences of their misconduct by requiring PNC not only to indemnify the
Individual Defendants, but also to provide liability insurance for the Individual Defendants for a period of six years. The Amended
Complaint sought declaratory and injunctive relief preventing consummation of the Merger, an order requiring the Individual Defendants
to disgorge all benefits unjustly obtained by them, and an award of monetary damages.
21.
On January 27, 2005, pursuant to an agreement with the United States Attorney for the District of Columbia and the
Department of Justice, Riggs Bank pled guilty to a single felony count of failing to file timely and/or accurate Suspicious Activity Reports as
required by the BSA and its implementing regulations and agreed to pay a $16 million fine to federal authorities (the “January 2005 Guilty
Plea”). On March 29, 2005, the D.C. Federal Court approved the January 2005 Guilty Plea, and Riggs Bank paid the $16 million fine.
22.
On January 27, 2005, Riggs also announced that Riggs and PNC anticipated making an announcement regarding the
status of the Initial Merger Agreement on or about February 4, 2005. Riggs thereafter provided PNC with updated financial and legal
due diligence information. In early February 2005, Riggs and PNC held discussions regarding a potential revised transaction, which
resulted in PNC making a proposal valued at approximately $19.32 per share of Riggs common stock (subject to a possible downward
adjustment), plus a contingent security that could pay up to approximately $0.83 per Riggs share. PNC’s revised proposal included
closing conditions requiring Riggs to settle or reserve against certain litigation and indicated that PNC might require Riggs to agree to
maintain minimum loan, deposit and customer levels.
23.
On February 7, 2005, the Riggs Board rejected PNC’s revised proposal and authorized Riggs management to file suit
against PNC for breach of the Initial Merger Agreement. Later that day, Riggs filed suit against PNC in the Superior Court for the
District of Columbia for anticipatory repudiation and breach of the Initial Merger Agreement (the “Riggs-PNC Action”).
24.
On the evening of February 7, 2005, a representative of PNC advised Lehman Brothers that PNC would be willing to
proceed with a transaction at a purchase price of $20.00 per share of Riggs common stock and without the above-referenced
conditions or contingencies contained in PNC’s revised proposal.
25.
On February 10, 2005, the Riggs Board decided to accept PNC’s bid to acquire Riggs for a combination of cash and
PNC common stock valued at approximately $20.00 per share of Riggs common stock. At a meeting of the Riggs Board that day,
representatives of Lehman Brothers orally opined to the Riggs Board and later confirmed by a written opinion dated February 10, 2005,
that the aggregate consideration to be offered by PNC under that revised proposal was fair from a financial point of view to Riggs
shareholders. That same day, Riggs voluntarily dismissed the Riggs-PNC Action without prejudice.
26.
On February 10, 2005, PNC and Riggs entered into the Amended and Restated Agreement and Plan of Merger (the
“Amended Merger Agreement”). Pursuant to the terms of the Amended Merger Agreement, Riggs agreed to be acquired by PNC for a
combination of cash and PNC common stock valued at $20.00 per common share (based on PNC’s closing stock price shortly before
the announcement of the Amended Merger Agreement). The Amended Merger Agreement continued to provide for a termination fee of
up to $30 million (the “Termination Fee”) in the event that Riggs were thereafter to agree to, or consummate an acquisition proposal
with, an entity other than PNC.
27.
On February 22, 2005, the Delaware Plaintiffs filed a second amended shareholder class action and derivative
complaint in the Consolidated Delaware Action (the “Second Amended Complaint”). The Second Amended Complaint repeats the
allegations of the Amended Complaint and adds allegations regarding the January 2005 Guilty Plea and the Amended Merger
Agreement. The Delaware Plaintiffs allege that in the wake of the January 2005 Guilty Plea, PNC pressured Riggs to extract a lower
price and that, by agreeing to that lower price and failing to auction the Company, the Individual Defendants breached their duty to
maximize shareholder value. The Delaware Plaintiffs further allege that the Amended Merger Agreement contained a $30 million
termination fee provision and continued to provide for “extraordinary indemnification protections” for the Individual Defendants. The
Second Amended Complaint was filed on behalf of a putative class consisting of all public shareholders of Riggs as of the last trading
day before the public announcement of the Initial Merger Agreement and their successors in interest and/or assignees, except for the
Individual Defendants and their affiliates. The Second Amended Complaint seeks declaratory and injunctive relief against the
consummation of the Merger, damages and an award of reasonable attorneys’ fees.
28.
Beginning in February 2005, counsel for each of Riggs, the Individual Defendants, PNC and the Delaware Plaintiffs
on behalf of themselves, on behalf of Class Members and/or derivatively on behalf of Riggs and Riggs Shareholders (collectively, the
“Settling Parties”) engaged in arm’s-length negotiations concerning a possible settlement of the Consolidated Delaware Action. On or
about March 1, 2005, the Settling Parties executed a Memorandum of Understanding providing for the proposed settlement of the
Consolidated Delaware Action on the terms and conditions set forth below.
29.
On March 3, 2005, PNC and Riggs issued a joint press release announcing, among other things, their agreement as
part of the Settlement to reduce the maximum amount of the Termination Fee that PNC would potentially be entitled to recover from
Riggs under the Amended Merger Agreement from $30 million to $23 million.
4
30.
On May 6, 2005, Riggs’ shareholders voted to approve the Amended Merger Agreement. On May 13, 2005, Riggs
was merged with and into PNC, with PNC surviving the Merger. Shortly thereafter, PNC’s banking subsidiary acquired the assets of
Riggs Bank.
31.
On July 21, 2005, the parties in the Freeport Partners Action reached an agreement in principle with respect to the
proposed settlement of that action. The terms and conditions of such settlement, which will be described in a separate notice to the
proposed class in that action, will be presented to the D.C. Federal Court for approval.
32.
On August 24, 2005, the Settling Parties entered into the Stipulation. On August 31, 2005, the Court entered a
Scheduling Order in which the Court preliminarily certified the Class (as defined below), preliminarily determined that the Delaware
Action was properly brought as a shareholder derivative action, and preliminarily found that the Delaware Plaintiffs were adequate
representatives of the Class and of the interests of Riggs Shareholders in enforcing the rights of Riggs.
DISCOVERY, INVESTIGATION, AND RESEARCH CONDUCTED BY DELAWARE PLAINTIFFS’ COUNSEL
33.
Counsel for the Delaware Plaintiffs in the Consolidated Delaware Action (“Delaware Plaintiffs’ Counsel”) have
conducted a thorough investigation into the substance of the claims asserted herein, including analyzing hundreds of pages of public
and non-public documents, analyzing case law and other authorities, conducting confirmatory discovery (including taking the
depositions of William L. Walton, a member of the Riggs Board, David J. Williams, PNC’s Vice President and Manager of the Merger
and Acquisitions Department, and P. Sean Burke, a Senior Vice President of Lehman Brothers, Riggs’ financial advisor) and consulting
with financial and banking advisors.
SETTLING DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY
34.
The Individual Defendants and Riggs (collectively, the “Settling Defendants”) have denied and continue to deny that
they have committed or attempted to commit any violations of law or breaches of duty to Riggs or its stockholders or otherwise acted in
any improper manner with respect to any and all facts alleged or which could have been alleged in this litigation. The Settling
Defendants deny and continue to deny the allegations concerning any alleged breach of fiduciary duty, waste of corporate assets, or
unjust enrichment. The Settling Defendants have further asserted and continue to assert that, at all relevant times, they acted in good
faith and in a manner they reasonably believed to be in the best interests of Riggs, Riggs Shareholders and the members of the Class.
35.
The Settling Defendants, however, also have taken into account the uncertainty and risks inherent in any litigation,
especially in complex litigation such as this action. The Settling Defendants have, therefore, determined that it is desirable and
beneficial that the Consolidated Delaware Action be settled in the manner described herein to eliminate the burden and expense of
further litigation.
CLAIMS OF THE DELAWARE PLAINTIFFS AND BENEFITS OF SETTLEMENT
36.
The Delaware Plaintiffs believe that the Settlement set forth in the Stipulation confers substantial benefits upon Riggs,
Riggs Shareholders and the members of the Class including, as described more fully below, a reduction in the Termination Fee,
supplemental disclosures by Riggs, and the creation of a fund of $2.7 million for distribution to Riggs Shareholders. Based upon their
thorough investigation into the claims asserted by or on behalf of Riggs Shareholders and the members of the Class, the Delaware
Plaintiffs have determined that under the circumstances, the terms and conditions of the Settlement are fair, reasonable, and adequate,
and that it is in the best interests of the Delaware Plaintiffs, Riggs, Riggs Shareholders and the members of the Class to settle the
Consolidated Delaware Action as set forth below.
37.
The Delaware Plaintiffs have entered into the Stipulation after taking into account, among other things, the benefit of the
Settlement, the expense and length of continued proceedings necessary to prosecute the Consolidated Delaware Action, the uncertain
outcome and the risk of any litigation, especially litigation of this complexity, as well as the difficulties and delays inherent in such litigation,
and the inherent problems of proof under and possible defenses to the claims asserted in the Consolidated Delaware Action.
THE CLASS
38.
The Class consists of all Persons who held Riggs common stock at any time during the period from July 15, 2004
through the consummation of the Merger on May 13, 2005 inclusive, and the representatives, trustees, executors, heirs, administrators,
transferees, successors or assigns of all such holders, immediate or remote, in each case solely in their capacities as public
shareholders of Riggs common stock. Excluded from the Class are the Individual Defendants, their immediate family members, and
their affiliates, successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, assigns or transferees,
immediate or remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of them.
SUMMARY OF THE SETTLEMENT
39.
The principal terms, conditions, and other matters which are part of the Stipulation are summarized below. This
summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation and the exhibits
thereto which have been filed with the Court and may be examined by you or your attorney, as set forth in paragraph 53 below.
40.
In consideration for the full and complete settlement of the Released Claims (as defined below), and contingent upon,
the final dismissal of the Consolidated Delaware Action with prejudice and without costs to any party to the Stipulation (except as
specified therein), the parties agreed to settle and compromise the Action by providing the following benefits to Riggs Shareholders:
5
a.
Within five (5) business days after the Court approves the Settlement, the Settling Defendants and PNC, as
successor to Riggs, will pay $2,700,000 (the “Settlement Fund”) into escrow with the Delaware Plaintiffs’
Lead Counsel acting as escrow agent (the “Escrow Agent). Within five (5) business days after the
Settlement has become effective (as detailed in paragraph 41 below), the Escrow Agent will deposit the
Settlement Fund in an interest-bearing account, which is intended to be a Qualified Settlement Fund within
the meaning of Treasury Regulation § 1.468B-1. The Settlement Fund, including any income or interest
earned thereon and net of any taxes paid thereon, will be allocated among all public shareholders of Riggs
common stock immediately prior to the moment the Merger was consummated on May 13, 2005 (excluding
the Individual Defendants, their immediate family members, and their affiliates, successors in interest,
predecessors, representatives, trustees, executors, administrators, heirs, assigns or transferees, immediate
or remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of
them) (“Riggs Shareholders”) in proportion to the number of shares of Riggs common stock held by each
Riggs Shareholder immediately prior to the moment the Merger was consummated on May 13, 2005, as a
percentage of the outstanding shares of Riggs common stock held by all Riggs Shareholders at that time.
The Settlement Fund will be distributed to Riggs Shareholders who were record holders of Riggs common
stock, as shown on the stock records maintained by or on behalf of PNC, as successor to Riggs,
immediately prior to the consummation of the Merger, with appropriate instructions to record holders with
respect to their obligations to beneficial holders, except where record holders submit appropriate instructions
to pay beneficial holders directly.
b.
PNC and Riggs reduced the maximum amount of the Termination Fee that PNC is entitled to recover from
Riggs in accordance with Section 7.5(a) or Section 7.5(b) of the Amended Merger Agreement from $30
million to $23 million. PNC and Riggs announced such agreement by nationally disseminated press release
on March 3, 2005; and
c.
Delaware Plaintiffs’ Counsel was afforded the opportunity to review a draft of the Amendment No. 1 to
Form S-4 Registration Statement under the Securities Act of 1933 (the “Draft S-4”) with respect to the
Merger and to suggest additions or amendments to the Draft S-4 to counsel for Riggs and/or PNC prior to
the public filing of a final version thereof on February 25, 2005. The Draft S-4 was amended in certain
respects in response to Plaintiffs’ counsel’s suggestions.
41.
Assuming approval by the Court, the Settlement will become effective only when the Court has entered a final
judgment approving the Settlement (the “Order and Final Judgment”) that has been finally affirmed on appeal or is no longer subject to
appeal and the time for any petition for re-argument, appeal or review has expired. At that time, the Settling Parties will jointly move to
dismiss the D.C. Action on the grounds of res judicata.
42.
PNC shall pay the reasonable fees and expenses of the Settlement Administrator, including the costs of preparing
and mailing this Notice and distributing the Settlement Fund and related functions.
43.
If the Settlement does not become effective or if the Stipulation is terminated pursuant to its terms, unless the parties
agree otherwise, then the Consolidated Delaware Action shall revert forthwith to its status prior to the Settlement and shall proceed in
all material respects as if this Stipulation and related orders and papers had not been executed, and those papers shall not be used for
any purpose except in connection with the enforcement of the terms of the Stipulation.
THE RELEASES
44.
If the Stipulation and the Settlement are approved by the Court: (i) the Consolidated Delaware Action will be
dismissed with prejudice in accordance with the terms of the Settlement as to the Delaware Plaintiffs, members of the Class, Riggs
(or PNC, as successor to Riggs) and Riggs Shareholders, and (ii) the Delaware Plaintiffs, members of the Class (solely in their
capacities as public shareholders), Riggs (or PNC, as successor to Riggs), Riggs Bank and Riggs Shareholders (solely in their
capacities as public shareholders) will be deemed to have fully, finally and forever settled or released any and all Released Claims and
will be barred from prosecuting a class, derivative or other action encompassing a Released Claim (as defined below) against a
Released Person (as defined below).
45.
As defined in the Stipulation, “Released Claims” means any and all claims or causes of action, whether based on
federal, state, local, statutory, common, foreign or international law, rule or regulation, whether fixed or contingent, accrued or
unaccrued, liquidated or unliquidated, matured or unmatured (including any unknown claims, claims within the exclusive jurisdiction of
the federal courts, and claims as to which the Court lacks subject matter jurisdiction), that Riggs (or PNC, as successor to Riggs), Riggs
Bank, members of the Class or Riggs Shareholders have asserted or could have asserted, either on their own behalf or derivatively on
behalf of Riggs or Riggs Bank, that arise out of or are related to, in whole or in part: (a) any of the subject matters described in the
Second Amended Complaint in the Consolidated Delaware Action or the Stipulation; (b) Riggs’ or Riggs Bank’s banking practices or
any alleged or actual violations by Riggs, Riggs Bank or any of the officers, directors or employees thereof, of federal or state banking
or financial reporting policies, laws or regulations; and (c) the entry by Riggs and PNC into the Initial Merger Agreement and the
Amended Merger Agreement, and the Individual Defendants’ vote thereon or approval thereof, including claims relating to any of the
facts, negotiations, transactions, agreements, disclosures or omissions with respect thereto; provided, however, that the Released
Claims shall not include (i) any claims for statutory appraisal pursuant to Section 262 of the Delaware General Corporation Law; (ii) any
claim that Riggs, Riggs Bank or PNC (as successor to Riggs) may have against any current or former officer, director, employee or
agent of Riggs or Riggs Bank for repayment of any amounts advanced as legal fees or expenses in the event that it is ultimately
6
determined that such person is not entitled to be indemnified by Riggs, Riggs Bank, or PNC (as successor to Riggs); (iii) any defenses
that Riggs, Riggs Bank or PNC (as successor to Riggs) may have to any claim for indemnification or advancement of expenses by any
current or former officer, director, employee or agent of Riggs or Riggs Bank; or (iv) the claims asserted in the amended complaint in
the Freeport Partners Action.
46.
“Released Persons” means the Settling Defendants, PNC, and any or all of their respective predecessors,
successors, parents, subsidiaries, affiliates, agents or representatives (including, without limitation, any past or present officers,
directors, employees, investment bankers, accountants or attorneys of Riggs, PNC or any subsidiary of Riggs or PNC), and any or all of
their respective representatives, trustees, heirs, executors, administrators, successors, assigns or spouses.
THE COURT HAS NOT DETERMINED THE MERITS OF ANY OF THE CLAIMS MADE BY THE DELAWARE
PLAINTIFFS AGAINST, OR THE DEFENSES OF, THE SETTLING DEFENDANTS. THIS NOTICE DOES NOT
IMPLY, THEREFORE, THAT THERE HAS BEEN OR WOULD BE ANY FINDING OF VIOLATION OF ANY LAW
OR THAT RELIEF IN ANY FORM OR RECOVERY IN ANY AMOUNT COULD BE HAD IF THE LITIGATION WERE
NOT SETTLED.
ATTORNEYS’ FEES AND EXPENSES
47.
If the Court approves the Settlement, including any modifications thereto made with the consent of the Settling Parties,
Delaware Plaintiffs’ Counsel intend to apply to the Court for an award of fees and expenses in an amount not exceeding $1,100,000. PNC,
as successor to Riggs, has agreed to pay the attorneys’ fees and expenses awarded by the Court up to such amount. The Settling
Defendants and PNC have agreed not to oppose such application for fees and expenses, but retain the right to oppose any other
application for fees or expenses by Delaware Plaintiffs’ Counsel or any other person. Except as expressly provided herein, the Settling
Defendants and PNC shall bear no other expenses, costs, damages or fees alleged or incurred by the Delaware Plaintiffs, by any member
of the Class and/or by any Riggs Shareholder, or by any of their attorneys, experts, advisors, agents or representatives.
48.
The fairness, reasonableness and adequacy of the Settlement may be considered and ruled upon by the Court
independently of any award of attorneys’ fees and expenses.
RIGHT TO APPEAR AT THE SETTLEMENT HEARING
49.
Any member of the Class and any Riggs Shareholder who objects to the Stipulation, the Settlement, the judgment
proposed to be entered herein and/or the application for an award of attorneys’ fees and expenses, or who otherwise wishes to be
heard, may appear in person or by his, her or its attorney at the Settlement Hearing and present any evidence or argument that may be
proper and relevant. To do so, however, an objector must, no later than ten (10) days prior to the Settlement Hearing (unless the Court
otherwise directs, upon application and for good cause shown), file with the Register in Chancery in the New Castle County
Courthouse, 500 North King Street, Wilmington, Delaware 19801-3759, (i) a notice of the objector’s intention to appear, (ii) a detailed
statement of the objector’s objections to any matter before the Court, and (iii) a detailed statement of all of the grounds therefor or the
reasons for the objector’s desire to appear and be heard, as well as all documents or writings which the objector desires the Court to
consider. On or before such filing, the objector also must deliver these documents by hand or overnight delivery to each of the
following counsel of record:
Seth D. Rigrodsky
Milberg Weiss Bershad & Schulman LLP
919 N. Market Street, Suite 411
Wilmington, Delaware 19801
(302) 984-0597
Lead Counsel for the Class
Lisa Zwally
Richards, Layton & Finger, P.A.
One Rodney Square, P.O. Box 551
Wilmington, Delaware 19899
(302) 651-7582
Attorneys for PNC, as successor to Riggs, and Individual Defendants other
than Joe L. Allbritton and Robert L. Allbritton
Thomas J. Allingham II
Skadden, Arps, Slate, Meagher & Flom, LLP
One Rodney Square, P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Individual Defendants Joe L. Allbritton
and Robert L. Allbritton
7
Eric M. Roth
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
(212) 403-1257
Attorneys for PNC, as successor to Riggs
Attendance at the Settlement Hearing is not necessary in order for the objection to be considered by the Court; however, persons
wishing to be heard orally in opposition to the approval of the Settlement are required to indicate in their written objection their intention
to appear at the hearing. All written objections shall indicate the basis upon which the person submitting the objections claims to be a
member of the Class and/or a Riggs Shareholder and shall clearly identify any and all witnesses, documents and other evidence of any
kind that are to be presented at the Settlement Hearing in connection with such objections and shall further set forth the substance of
any testimony to be given by such witnesses.
50.
Any person who fails to object in the manner prescribed above shall be deemed to have waived such objection and
forever shall be barred from raising such objection or otherwise contesting the Settlement or the application for an award of attorneys’
fees and expenses in this or any other action or proceeding.
INTERIM INJUNCTION
51.
Pending final determination of whether the Settlement should be approved, all proceedings in the Consolidated
Delaware Action other than proceedings necessary to carry out the terms and conditions of the Settlement are preliminarily enjoined,
and the Delaware Plaintiffs, all other members of the Class, and all Riggs Shareholders, and each of them, and any of their respective
representatives, trustees, successors, heirs and assigns, are enjoined from commencing or prosecuting any action in any forum
asserting any of the Released Claims, directly, derivatively or in any other capacity, against any of the Released Persons.
NOTICE TO PERSONS OR ENTITIES HOLDING RECORD OWNERSHIP ON BEHALF OF OTHERS
52.
Brokerage firms, banks and other persons or entities who held shares of Riggs common stock in their capacities as
record owners, but not as beneficial owners, are requested to send this Notice promptly to the beneficial owners. PNC will reimburse
the record holders for the reasonable cost of forwarding this Notice to beneficial owners. To obtain reimbursement, forward reasonably
satisfactory proof of your expenses to:
Riggs National Corporation Securities Litigation
c/o The Garden City Group, Inc.
Settlement Administrator
P.O. Box 9000 # 6326
Merrick, NY 11566-9000
1-800-291-1699
If additional copies of the Notice are needed for forwarding to such beneficial owners, any request for such additional copies may be
made to the Settlement Administrator at the following address:
Riggs National Corporation Securities Litigation
c/o The Garden City Group, Inc.
Settlement Administrator
P.O. Box 9000 # 6326
Merrick, NY 11566-9000
1-800-291-1699
Alternatively, such brokerage firms, banks and other persons or entities may request that the Settlement Administrator mail this Notice to
such beneficial owners. In such event, such brokerage firms, banks and other persons or entities may forward the names and addresses
of such beneficial owners to the above address, and the Settlement Administrator will cause the Notice to be sent to such beneficial
owners.
SCOPE OF THIS NOTICE
53.
This Notice does not purport to be a comprehensive description of the Consolidated Delaware Action or the
pleadings, the terms of the proposed Settlement or the scheduled Settlement Hearing. For more complete information concerning the
litigation and the proposed Settlement, you may inspect the pleadings, the Stipulation and other papers and documents filed with the
Court in the Action, during normal business hours at the New Castle County Courthouse, 500 North King Street, Wilmington, Delaware
19801-3759. Further information regarding the Consolidated Delaware Action, the Settlement and this Notice should not be sought
from the Court, but may be obtained by contacting Lead Counsel for Plaintiffs named above.
BY ORDER OF THE COURT:
/s/
Register in Chancery
Dated: September 14, 2005
8