Exhibit 99.1
HEARING DATE: SEPTEMBER 14, 2005 AT 10:00 A.M.
OBJECTION DEADLINE: SEPTEMBER 9, 2005 AT 4:00 P.M.
Steven R. Gross [SG 1766]
Lorna G. Schofield [LS 5847]
James B. Roberts [JR 9441]
DEBEVOISE & PLIMPTON LLP
919 Third Avenue
New York, New York 10022
(212) 909-6000
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ----------------------------------------------
In re: )
) Case No. 01-13404 (AJG)
RELIANCE GROUP HOLDINGS, INC. )
) Chapter 11
Debtor. )
)
)
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DEBTOR'S MOTION FOR ORDER AUTHORIZING IT TO MAKE
SETTLEMENT OFFER TO SECURITIES AND EXCHANGE COMMISSION
Reliance Group Holdings, Inc. (the "Debtor") hereby moves this Court
for entry of an order authorizing the Debtor to make an offer of settlement to
the Securities and Exchange Commission ("SEC") whereby it would consent to the
entry of an order revoking the registration of each class of its registered
securities pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Entry of this Order would terminate the Debtor's reporting
obligations under applicable federal securities laws and would also effectively
terminate open market trading in its registered securities. In support hereof,
the Debtor respectfully represents as follows:
PRELIMINARY STATEMENT
By this Motion, the Debtor seeks this Court's approval to make an offer
of settlement to the SEC which would result in the institution and settlement of
an administrative proceeding by and before the SEC for the limited purpose of
revoking the registration of all classes of its securities registered under
Exchange Act Section 12 and to take such other and further actions as may be
necessary to terminate its registration and reporting obligations under the
Exchange Act (such actions collectively, the "Revocation").
Subject to this Court's approval pursuant to Bankruptcy Rule 9019(a),
the Revocation would be effected as a compromise and settlement, which would in
turn be approved pursuant to an administrative proceeding instituted by the SEC
under Exchange Act Section 12(j). Because such an administrative proceeding
would be brought to enforce the SEC's "police or regulatory power," the Debtor
believes that the SEC would not be prevented by the automatic stay from
commencing such administrative proceeding on an adversarial basis pursuant to
Section 362(b)(4) of the Bankruptcy Code.
The Debtor understands that the Official Unsecured Creditors' Committee
appointed herein supports the proposed Revocation.
The Debtor is filing this Motion to seek the Court's authorization to
make an offer of settlement to the SEC pursuant to Bankruptcy Rule 9019(a), and
to give interested parties herein notice and an opportunity to be heard on the
matter.
JURISDICTION AND VENUE
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C.
ss.ss. 157 and 1334(b). Venue is proper in this Court pursuant to 28 U.S.C.
ss.ss. 1408 and 1409(a).
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2. The bases for the relief sought herein are Section 105(a) of title
11 of the United States Code (the "Bankruptcy Code"), and Rule 9019(a) of the
Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
3. No prior request has been made to this Court or any other court for
the relief sought herein.
BACKGROUND
4. On June 12, 2001 (the "Petition Date"), the Debtor commenced this
case under Chapter 11 of the Bankruptcy Code. On June 22, 2001, the Office of
the United States Trustee appointed an Official Unsecured Creditors' Committee
(the "Committee") in this case pursuant to Section 1102 of the Bankruptcy Code.
5. The Debtor's Chapter 11 case was consolidated with the Chapter 11
case of Reliance Financial Services Corporation ("RFS") for procedural purposes
and jointly administered pursuant to an order of this Court. On January 25,
2005, this Court confirmed a plan of reorganization of RFS, which plan became
effective on April 22, 2005.
6. On August 18, 2005, the Committee filed a motion seeking approval of
a disclosure statement with respect to a proposed plan of reorganization of RGH.
A hearing to consider approval of the disclosure statement has been scheduled
for September 21, 2005.
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THE DEBTOR'S PUBLIC SECURITIES AND PERIODIC REPORTING
7. The Debtor is a public corporation with issued and outstanding
common stock that has been registered under Exchange Act Section 12(b). Prior to
the Petition Date, the Debtor's common stock was delisted from trading on the
New York Stock Exchange and the Pacific Stock Exchange, and as of August 18,
2005, the common stock of Reliance was quoted on the Pink Sheets (current
symbol: RELHQ.PK).
8. Pursuant to separate Trust Indentures, each dated November 15, 1993,
the Debtor has also issued 9% Senior Notes due 2000 (the "Senior Notes"), and 9
3/4 % Senior Subordinated Debentures due 2003 (the "Debentures"). The Senior
Notes and the Debentures were also registered with the SEC pursuant to Exchange
Act Section 12(b) because they were listed on a national securities exchange.
Subsequently, these securities were also delisted.
9. Registration of the Debtor's securities gives rise to certain
periodic and other reporting obligations pursuant to Section 13(a) of the
Exchange Act. Because the Senior Notes and the Debentures are held by fewer than
300 holders of record, the registration of these securities has been terminated.
Accordingly, the Senior Notes and the Debentures currently do not give rise to
reporting obligations under Section 13 of the Exchange Act. However,
notwithstanding the delisting of the Debtor's common stock described above, the
Debtor continues to be subject to these reporting requirements, pursuant to
Sections 12(g) and 13 of the Exchange Act, because there are more than 300
holders of record of the Debtor's common stock.
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10. The Debtor has been unable to complete in a cost-effective manner
the work necessary to issue audited financial statements. In particular, as
previously disclosed to this Court and to other parties in interest, the Debtor
is not able to commission an audit of its financial statements or obtain an
audit opinion. Accordingly, the Debtor has not filed quarterly or annual reports
on forms 10-Q and 10-K subsequent to the quarterly period ending September 30,
2000. Instead, the Debtor has timely filed "Notifications of Late Filing" on
form 12b-25, notifying the SEC of the Debtor's inability to file timely reports
pursuant to Rule 12b-25(b) of the General Rules and Regulations under the
Exchange Act.
SEC COMPLIANCE DEMAND
11. By letter to the Debtor, dated April 7, 2005, the SEC asserted that
the Debtor was not in compliance with its periodic reporting obligations under
Section 13(a) of the Exchange Act. The SEC's April 7 letter stated that if the
Debtor did not come into compliance with such periodic reporting obligations,
the SEC's Division of Enforcement might, among other things, initiate an
administrative proceeding to revoke the Debtor's registration with the SEC
pursuant to Section 12(j) of the Exchange Act.
12. Pursuant to subsequent discussions between their respective
counsel, the Staff of the SEC's Division of Enforcement (the "Staff") and the
Debtor have reached an agreement in principle, according to which (a) the Debtor
would make an Offer of Settlement to the SEC which, if accepted, would result in
the entry of an order implementing the Revocation of the registrations each
class of the Debtor's securities which are registered pursuant to Exchange Act
Section 12 and (b) the Staff would recommend that the SEC accept the Offer of
Settlement. Copies of the proposed Offer of Settlement and proposed Revocation
Order are attached to this Motion as Exhibit A.
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RELIEF REQUESTED
13. By this Motion, the Debtor respectfully requests that this Court
enter an Order, substantially in the form attached hereto and filed herewith,
approving the Revocation, the form of the Offer of Settlement and the form of
Revocation Order, authorizing the Debtor to make the Offer of Settlement
consenting to the Revocation in the form provided and authorizing the Debtor to
take such actions as may be required by the Staff or the SEC in furtherance of
the Revocation.
LEGAL BASIS FOR RELIEF REQUESTED
14. Bankruptcy Rule 9019(a) allows for bankruptcy court approval of a
settlement after notice and a hearing. Settlements and compromises are "a normal
part of the process of reorganization," Protective Comm. for Independent
Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968),
quoting Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 130 (1939), and are
strongly favored over litigation:
[P]ublic policy strongly favors pretrial settlement in all
types of litigation because such cases, depending on their
complexity, "can occupy a court's docket for years on end,
depleting the resources of parties and taxpayers while
rendering meaningful relief increasingly elusive.". . .
Second, litigation costs are particularly burdensome on a
bankrupt estate given the financial instability of the estate.
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In re Munford, Inc., 97 F.3d 449, 455 (11th Cir. 1996), quoting In re U.S. Oil &
Gas Litig., 967 F.2d 489, 493 (11th Cir. 1992); accord Hicks, Muse & Co. v.
Brandt (In re Healthco Int'l, Inc.), 136 F.3d 45, 50 n.5 (1st Cir. 1998)
("[c]ompromises are favored in bankruptcy"); In re Drexel Burnham Lambert Group,
Inc., 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991).
15. Under Bankruptcy Rule 9019(a), the approval of a compromise
settlement is within the sound discretion of the bankruptcy court. See, e.g.,
Conn. Gen. Life Ins. Co. v. United Cos. Fin Corp. (In re Foster Mortgage Corp.),
68 F.3d 914, 917-18 (5th Cir. 1995); LaSalle Nat'l Bank v. Holland (In re Am.
Reserve Corp.), 841 F.2d 159, 162 (7th Cir. 1987).
16. In approving a settlement, the court does not have to be convinced
that the settlement is the best possible compromise. Nellis v. Shugrue, 165 B.R.
115, 123 (S.D.N.Y. 1994). The court need only conclude that the compromise or
settlement falls within the reasonable range of litigation possibilities. In re
Penn Central Transp. Co., 596 F.2d 1102, 1114 (3d Cir. 1979). In that regard, a
settlement should be approved unless it "fall[s] below the lowest point in the
range of reasonableness." In re Teltronics Servs., Inc., 762 F.2d 185, 189 (2d
Cir. 1985). See also Cosoff v. Rodman, (In re W.T. Grant Co.), 699 F.2d 599, 608
(2d Cir. 1983) cert. denied, 464 U.S. 822, 104 S. Ct. 89 , L.Ed.2d 97 (1983);
Healthco Int'l, 136 F.3d at 51; In re Ionosphere Clubs, Inc., 156 B.R. 414, 426
(S.D.N.Y. 1993), aff'd sub nom. Sobchack v. American Nat'l Bank & Trust Co., 17
F.3d 600 (2d Cir. 1994); In re Best Prods. Co., 168 B.R. 35, 51 (Bankr. S.D.N.Y.
1994), aff'd, 68 F.3d 26 (2d Cir. 1995).
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17. The Debtor submits that the Revocation is in the best interests of
the Debtor, its estates and it creditors. Compliance with the SEC reporting
requirements would require the Debtor to prepare and issue costly audited
financial statements in order to file quarterly or annual reports on forms 10-Q
and 10-K. The Debtor would not derive any corresponding material benefit from
the preparation and filing of these reports. As a result, continued registration
represents an unnecessary financial hardship.
18. A consensual Revocation process will permit the Debtor to avoid the
costs associated with litigating an adversary proceeding before the SEC under
Section 12(j) of the Exchange Act. The Debtor believes that such costs would be
substantial. In addition, the Debtor understands that actions of the SEC to
revoke the Exchange Act registration of the Debtor's public securities fall
within the exception to the automatic stay provided under Section 362(b)(4) of
the Bankruptcy Code. See SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000), quoting
H.R. Rep. No. 95-595, at 343 (1977), reprinted in 1978 U.S.C.C.A.N. 6300; see
also In re Wolf Fin. Group, Inc., 1994 Bankr. LEXIS 2350 (Bankr. S.D.N.Y. 1994)
(unpublished opinion). Accordingly, the automatic stay would not bar the Staff
and the SEC from commencing administrative proceedings to effect the Revocation
on an adversarial basis.
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NOTICE
19. Notice of this Motion has been provided to all parties on the
Debtors' Master Service List (as defined in the Order Establishing Notice
Procedures entered by this Court on June 22, 2001), including: (a) the United
States Trustee; (b) Blank Rome LLP, counsel to Reliance Insurance Company, in
liquidation; (c) the Securities and Exchange Commission, Division of
Enforcement, and (d) all other parties who have filed a notice of appearance
and/or requested notice in this case. The Debtor submits that no other or
further notice need be provided.
MEMORANDUM OF LAW
20. Pursuant to Local Bankruptcy Rule 9013-1(b), because there are no
novel issues of law presented herein, the Movants respectfully request that the
Court waive the requirement that the Movants file a memorandum of law in support
of this Motion.
[SIGNATURE PAGE FOLLOWS]
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WHEREFORE, the Debtor respectfully requests that this Court enter an
order, substantially in the form annexed hereto, (a) approving the Revocation,
the form of Offer of Settlement and the form of Revocation Order, (b)
authorizing the Debtor to take all such actions as are necessary to submit and
implement the Offer of Settlement and take such actions as may be required by
the Staff and the SEC in furtherance thereof; and (c) granting such other relief
as this Court deems just and proper.
Dated: New York, New York
August 25, 2005 Respectfully submitted,
DEBEVOISE & PLIMPTON LLP
By: /s/ James B. Roberts
-----------------------
Steven R. Gross [SG 1766]
Lorna G. Schofield [LS 5847]
James B. Roberts [JR 9441]
919 Third Avenue
New York, New York 10022
Tel: (212) 909-6000
Counsel for the Debtor
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ----------------------------------------------
In re: )
) Case No. 01-13404 (AJG)
RELIANCE GROUP HOLDINGS, INC. )
) Chapter 11
Debtor. )
)
)
- ----------------------------------------------
ORDER AUTHORIZING DEBTOR TO MAKE SETTLEMENT
OFFER TO SECURITIES AND EXCHANGE COMMISSION
Upon the Debtor's Motion For Order Authorizing it to Make Settlement
Offer to Securities and Exchange Commission (the "Motion")(1); and due and
proper notice of the Motion having been given, and after due deliberation, and
sufficient cause appearing therefore, it is hereby
ORDERED, that the Motion is granted; and it is further
ORDERED, that the Debtor is authorized to (i) submit to the Securities
and Exchange Commission (the "SEC") the Offer of Settlement, in the form
attached to the Motion, by which it would agree to the institution and
settlement of an administrative proceeding before the SEC for the limited
purpose of revoking the registration of each class of its securities registered
under Section 12 of the Securities Exchange Act of 1934, (the "Exchange Act")
and (ii) take such other and further actions as may be necessary to revoke its
registration and terminate its reporting obligations with respect to each class
of the Debtor's securities registered with the SEC under Exchange Act Section 12
(such actions collectively, the "Revocation"); and it is further
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(1) Capitalized terms used in this Order have the meanings specified in the
Motion.
ORDERED, that the form of Offer of Settlement and the form of
Revocation Order attached as exhibits to the Motion are approved in all
respects; and it is further
ORDERED, that the requirement set forth in Local Bankruptcy Rule
9013-1(b) for submission of a separate memorandum of law is hereby waived; and
it is further
ORDERED, that this Court retains jurisdiction with respect to all
matters arising out of or related to this Order.
Dated: New York, New York
________________, 2005
------------------------------------
Honorable Arthur J. Gonzalez
United States Bankruptcy Judge
2
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
FILE NO.
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IN THE MATTER OF
OFFER OF SETTLEMENT
RELIANCE GROUP HOLDINGS, INC., OF RELIANCE GROUP HOLDINGS, INC.
RESPONDENT.
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I.
Reliance Group Holdings, Inc. ("Reliance" or "Respondent"), pursuant to
Rule 240(a) of the Rules of Practice of the Securities and Exchange Commission
("Commission") [17 C.F.R. ss. 201.240(a)] submits this Offer of Settlement
("Offer") in anticipation of proceedings to be instituted against it by the
Commission, pursuant to Section 12(j) of the Securities Exchange Act of 1934
("Exchange Act").
II.
This Offer is submitted solely for the purpose of settling these
proceedings, with the express understanding that it will not be used in any way
in these or any other proceedings, unless the Offer is accepted by the
Commission. If the Offer is not accepted by the Commission, the Offer is
withdrawn without prejudice to Respondent and shall not become a part of the
record in these or any other proceedings, except for the waiver expressed in
Section V. with respect to Rule 240(c)(5) of the Commission's Rules of Practice
[17 C.F.R. ss. 201.240(c)(5)].
III.
On the basis of the foregoing, the Respondent hereby:
A. Admits the jurisdiction of the Commission over it and over the
matters set forth in the Order Instituting Proceedings, Making Findings, and
Revoking Registration of Securities Pursuant to Section 12(j) of the Securities
Exchange Act of 1934 ("Order");
B. Solely for the purpose of these proceedings and any other
proceedings brought by or on behalf of the Commission or in which the Commission
is a party prior to a hearing pursuant to the Commission's Rules of Practice, 17
C.F.R. ss. 201.1 et seq., and without admitting or denying the findings
contained in the Order, except as to the Commission's jurisdiction over it and
the subject matter of these proceedings, which are admitted, Respondent consents
to the entry of an Order by the Commission containing the following findings and
order set forth below:
1. Reliance (CIK No. 0000356395) is a Delaware corporation
based in New York, New York. At all times relevant to this proceeding,
the common stock of Reliance has been registered under Exchange Act
Section 12(g). As of July 25, 2005, the common stock of Reliance was
quoted on the Pink Sheets (current symbol: RELHQ.PK). The Respondent
filed a Chapter 11 bankruptcy case on June 12, 2001.
2. Reliance has failed to comply with Exchange Act Section
13(a) and Rules 13a-1 and 13a-13 thereunder, while its common stock was
registered with the Commission, in that it has not filed quarterly or
annual reports on forms 10-Q and 10-K subsequent to the quarterly
period ending September 30, 2000.
IV.
Section 12(j) of the Exchange Act provides as follows:
The Commission is authorized, by order, as it deems necessary
or appropriate for the protection of investors to deny, to
suspend the effective date of, to suspend for a period not
exceeding twelve months, or to revoke the registration of a
security, if the Commission finds, on the record after notice
and opportunity for hearing, that the issuer of such security
has failed to comply with any provision of this title or the
rules and regulations thereunder. No member of a national
securities exchange, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce
to effect any transaction in, or to induce the purchase or
sale of, any security the registration of which has been and
is suspended or revoked pursuant to the preceding sentence.
On the basis of the foregoing, Respondent hereby consents to the entry
of an Order by the Commission that:
Pursuant to Section 12(j) of the Exchange Act, revokes registration of
each class of Respondent's securities registered pursuant to Section 12 of the
Exchange Act.
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V.
By submitting this Offer, Respondent hereby acknowledges its waiver of
those rights specified in Rules 240(c)(4) and (5) [17 C.F.R. ss.201.240(c)(4)
and (5)] of the Commission's Rules of Practice. Respondent also hereby waives
service of the Order.
VI.
Respondent understands and agrees to comply with the Commission's
policy "not to permit a defendant or respondent to consent to a judgment or
order that imposes a sanction while denying the allegations in the complaint or
order for proceedings." 17 C.F.R. ss.202.5(e). In compliance with this policy,
Respondent agrees: (i) not to take any action or to make or permit to be made
any public statement denying, directly or indirectly, any finding in the Order
or creating the impression that the Order is without factual basis; and (ii)
that upon the filing of this Offer of Settlement, Respondent hereby withdraws
any papers previously filed in this proceeding to the extent that they deny,
directly or indirectly, any finding in the Order. If Respondent breaches this
agreement, the Division of Enforcement may petition the Commission to vacate the
Order and restore this proceeding to its active docket. Nothing in this
provision affects Respondent's: (i) testimonial obligations; or (ii) right to
take legal or factual positions in litigation or other legal proceedings in
which the Commission is not a party.
VII.
Consistent with the provisions of 17 C.F.R. ss. 202.5(f), Respondent
waives any claim of Double Jeopardy based upon the settlement of this
proceeding, including the imposition of any remedy or civil penalty herein.
VIII.
Respondent hereby waives any rights under the Equal Access to Justice
Act, the Small Business Regulatory Enforcement Fairness Act of 1996 or any other
provision of law to seek from the United States, or any agency, or any official
of the United States acting in his or her official capacity, directly or
indirectly, reimbursement of attorney's fees or other fees, expenses or costs
expended by Respondent to defend against this action. For these purposes,
Respondent agrees that Respondent is not the prevailing party in this action
since the parties have reached a good faith settlement.
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IX.
Respondent states that it has read and understands the foregoing Offer,
that this Offer is made voluntarily, and that no promises, offers, threats, or
inducements of any kind or nature whatsoever have been made by the Commission or
any member, officer, employee, agent, or representative of the Commission in
consideration of this Offer or otherwise to induce it to submit to this Offer.
RELIANCE GROUP HOLDINGS, INC.
By:_____________________________
Paul W. Zeller
President and Chief Executive Officer
I declare under penalty of perjury that the foregoing is true and
correct.
Executed on _________________, 2005.
---------------------------
Paul W. Zeller
4
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
RELEASE NO.
ADMINISTRATIVE PROCEEDING
FILE NO.
- ----------------------------------------------
IN THE MATTER OF ORDER INSTITUTING PROCEEDINGS,
MAKING FINDINGS, AND REVOKING
RELIANCE GROUP HOLDINGS, INC., REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(J) OF THE
RESPONDENT. SECURITIES EXCHANGE ACT OF 1934
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I.
The Securities and Exchange Commission ("Commission") deems it
necessary and appropriate for the protection of investors that proceedings be,
and hereby are, instituted pursuant to Section 12(j) of the Securities Exchange
Act of 1934 ("Exchange Act"), against Reliance Group Holdings, Inc. ("Reliance"
or "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has
submitted an Offer of Settlement (the "Offer") which the Commission has
determined to accept. Solely for the purpose of these proceedings and any other
proceedings brought by or on behalf of the Commission, or to which the
Commission is a party and without admitting or denying the findings herein,
except as to the Commission's jurisdiction over it and the subject matter of
these proceedings, Respondent consents to the entry of this Order Instituting
Proceedings, Making Findings, and Revoking Registration of Securities Pursuant
to Section 12(j) of the Securities Exchange Act of 1934 ("Order"), as set forth
below.
III.
On the basis of the foregoing, the Commission finds that:
1. Reliance (CIK No. 0000356395) is a Delaware corporation
based in New York, New York. At all times relevant to this proceeding,
the common stock of Reliance has been registered under Exchange Act
Section 12(g). As of July 25, 2005, the common stock of Reliance was
quoted on the Pink Sheets (current symbol: RELHQ.PK). The Respondent
filed a Chapter 11 bankruptcy case on June 12, 2001.
2. Reliance has failed to comply with Exchange Act Section
13(a) and Rules 13a-1 and 13a-13 thereunder, while its common stock was
registered with the Commission, in that it has not filed quarterly or
annual reports on forms 10-Q and 10-K subsequent to the quarterly
period ending September 30, 2000.
IV.
Section 12(j) of the Exchange Act provides as follows:
The Commission is authorized, by order, as it deems necessary
or appropriate for the protection of investors to deny, to
suspend the effective date of, to suspend for a period not
exceeding twelve months, or to revoke the registration of a
security, if the Commission finds, on the record after notice
and opportunity for hearing, that the issuer of such security
has failed to comply with any provision of this title or the
rules and regulations thereunder. No member of a national
securities exchange, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce
to effect any transaction in, or to induce the purchase or
sale of, any security the registration of which has been and
is suspended or revoked pursuant to the preceding sentence.
In view of the foregoing, the Commission finds that it is necessary and
appropriate for the protection of investors to impose the sanction specified in
Respondent's Offer.
Accordingly, it is hereby ORDERED, pursuant to Section 12(j) of the
Exchange Act, that registration of each class of Respondent's securities
registered pursuant to Section 12 of the Exchange Act be, and hereby is,
revoked.
By the Commission.
Jonathan G. Katz
Secretary
2