Reliance Group Formally Opposes Icahn Tender Offer; Company Expects Plan of Reorganization Soon; Company Files Suit Against Icahn

Reliance Group Formally Opposes Icahn Tender Offer; Company Expects Plan of Reorganization Soon; Company Files Suit Against Icahn

Business Editors

NEW YORK–(BUSINESS WIRE)–Jan. 5, 2001

Reliance Group Holdings, Inc. (“RGH”) today announced that its Board of Directors has unanimously recommended that holders of Reliance’s 9% Senior Notes due 2000 reject the partial tender offer for up to $40 million of the Senior Notes (“the Icahn offer”) commenced on December 22, 2000 by High River Limited Partnership, a limited partnership controlled by Carl C. Icahn.

Additionally, the Board of Directors also unanimously recommended that holders of the Senior Notes not sell their bonds to Mr. Icahn in the open market.

After carefully considering both the terms and the disclosures contained in the Icahn offer, RGH said that it believes that it is not in the best interests of holders of the Senior Notes to tender their notes prior to the announcement of the terms of the Company’s proposed plan of reorganization, which provides for a complete resolution to a restructuring of the Company. The Board said that noteholders should have the opportunity to review and compare the terms of the expected restructuring proposal of the Company to those of the Icahn offer prior to tendering their notes. As previously announced, the Company has been in discussions since last August with its bank lenders, an ad hoc committee of its bondholders (representing approximately 55% of the outstanding Senior Notes), as well as state insurance regulators regarding a restructuring of RGH and its subsidiary, Reliance Financial Services Corporation (“RFS”). The Company said that it has tentatively agreed on a plan of reorganization with representatives of its creditor groups and has submitted this plan to various state insurance regulators for their review. The Company expects to announce its plan of reorganization on or before January 24, 2001, the termination date of the Icahn offer.

RGH said that Mr. Icahn has publicly stated that the purpose of the tender offer is to provide Mr. Icahn with a “blocking position” with respect to the adoption of the proposed reorganization plan or any alternative plan not supported by him. RGH noted that the Icahn offer by itself does not provide a restructuring alternative for the Company or its various constituencies. Prior to the commencement of the Icahn offer, Mr. Icahn had submitted to the Company his own restructuring proposals, the terms of which were not disclosed in the Icahn offer documents or viewed favorably by representatives of either RFS’ bank lenders or the ad hoc committee of RGH’s bondholders in comparison to the terms of the plan that the Company and its creditor groups were then negotiating and currently expect to announce in the next few weeks. The Board believes that if Mr. Icahn achieves his blocking position, it is likely to lead to protracted negotiations that could further delay or even jeopardize the adoption of any plan of restructuring.

Another reason the Board believes that Mr. Icahn’s acquisition of a blocking position in the Senior Notes is not in the best interests of the holders of Senior Notes is because Mr. Icahn is believed to control or to be in the process of acquiring, either directly or indirectly, approximately 29 percent of RFS’ $237.5 million of outstanding bank debt. The Company believes that his investment in this debt constitutes a potential conflict with the interests of the bondholders and that it is possible that Mr. Icahn may favor his interests as a bank debt holder over the interests of bondholders.

The Board said that it believes that the Icahn offer documents contain numerous material misstatements and omissions that should be corrected prior to any holder of Senior Notes making a decision to sell its notes to Mr. Icahn. Given such belief and the Company’s understanding that Mr. Icahn is purchasing Senior Notes outside of the offer, RGH said that it has today filed a lawsuit in federal court seeking to enjoin Mr. Icahn, High River Limited Partnership, Icahn Associates Corp. and their affiliates from, among other things, (a) proceeding with the offer until the related documents are amended to correct misstatements of fact and other misleading statements and omissions and (b) purchasing notes outside of the offer. A federal judge today scheduled a hearing on RGH’s request for a temporary restraining order for January 8, 2001, and Mr. Icahn, High River Limited Partnership, Icahn Associates Corp. and their affiliates consented to refrain from purchasing or taking any steps toward purchasing any Senior Notes pending the January 8 hearing and determination.

Given the Company’s understanding that Mr. Icahn has been purchasing Senior Notes outside of the Icahn offer, and the fact that the Icahn offer is a partial tender offer, the purpose of which is to secure a blocking position for Mr. Icahn, where holders tendering their Senior Notes will be compensated on a pro rata basis, the RGH Board believes that the real purpose of the Icahn offer is to induce noteholders to sell their Senior Notes to Mr. Icahn outside of the Icahn offer without any of the protections provided under the terms of the offer or under applicable U.S. securities laws and without allowing such holders an opportunity to wait and see what the terms of the Company’s restructuring plan will offer.

RGH said that it also questions whether the Icahn offer is currently in effect, since the Icahn offer is conditioned on Reliance Insurance Company (“RIC”) not entering into any “agreement or arrangement for the runoff of any substantial portion of the rights, claims or obligations of (RIC) relating to insurance.” On December 21, 2000, the Company announced that RIC had entered into an agreement with Cambridge Integrated Services Group, Inc., which is to provide claims management services for the runoff of RIC. RGH believes that, under the terms of the Icahn offer, unless Mr. Icahn waives or amends the condition in his offer, the Icahn offer cannot be consummated.

Any statements in this communication which may be considered to be “forward looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 are subject to certain risks and uncertainties. The factors which could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company’s public filings with the Securities and Exchange Commission, and more generally, general economic conditions, including changes in interest rates and the performance of the financial markets; changes in domestic and foreign laws, regulations and taxes; changes in competition and pricing environments; and regional or general changes in asset valuations.

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