<PAGE>
Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DANIELSON HOLDING CORPORATION
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
<PAGE>
DANIELSON HOLDING CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 20, 1999
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Danielson
Holding Corporation, a Delaware corporation (the 'Company'), will be held on
Tuesday, July 20, 1999, at The Roosevelt Hotel, Madison Avenue at 45th Street,
New York, New York 10017 at 10:00 a.m. local time (the 'Annual Meeting'), for
the following purposes:
1. To elect ten directors of the Company to serve for the ensuing year
and until their successors are elected;
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock, par value $.10 per share, from 20,000,000 shares to
100,000,000 shares;
3. To approve an amendment to the Company's Certificate of
Incorporation to eliminate the right of stockholders to cumulate their
votes for the election of directors;
4. To approve an amendment to the Company's Certificate of
Incorporation to eliminate the prohibition on the Company issuing
non-voting equity securities;
5. To confirm the appointment of KPMG LLP as the independent certified
public accountants for the Company for the year ending December 31, 1999;
and
6. To transact such other business as may properly come before the
Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on May 28, 1999 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
DANIELSON HOLDING CORPORATION
IAN M. KIRSCHNER
Secretary
New York, New York
June 1, 1999
YOUR VOTE IS IMPORTANT
To ensure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. To revoke a proxy, you must submit to the
Secretary of the Company, prior to voting, either a signed instrument of
revocation or a duly executed proxy bearing a date or time later than the proxy
being revoked. If you attend the meeting, you may vote in person even if you
previously returned a proxy.
<PAGE>
DANIELSON HOLDING CORPORATION
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 20, 1999
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VOTING RIGHTS AND SOLICITATION OF PROXIES.................................................................. 1
Record Date and Share Ownership....................................................................... 1
Voting and Quorum..................................................................................... 1
Proxies and Revocation of Proxies..................................................................... 2
Other Proposals....................................................................................... 2
PRINCIPAL STOCKHOLDERS..................................................................................... 2
Principal Stockholders................................................................................ 2
Officers and Directors................................................................................ 3
Section 16(a) Beneficial Ownership Reporting Compliance............................................... 5
PROPOSAL 1 -- ELECTION OF DIRECTORS........................................................................ 5
Committees............................................................................................ 8
Compensation of Directors............................................................................. 9
Attendance at Board of Directors Meeting.............................................................. 9
EXECUTIVE OFFICERS......................................................................................... 9
EXECUTIVE COMPENSATION..................................................................................... 10
Summary Compensation Table............................................................................ 10
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values..................... 10
Compensation Committee Interlocks and Insider Participation........................................... 10
Board of Directors Compensation Committee Report on Executive Compensation............................ 10
Agreements with Executive Officers.................................................................... 11
Performance Graph..................................................................................... 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 12
PROPOSAL 2 -- AMENDMENT OF CERTIFICATE OF INCORPORATION TO APPROVE INCREASE IN COMMON SHARES AUTHORIZED.... 13
General............................................................................................... 13
Description of Agreement with SZ Investments L.L.C. .................................................. 14
PROPOSAL 3 -- AMENDMENT OF CERTIFICATE OF INCORPORATION TO APPROVE ELIMINATION OF CUMULATIVE VOTING........ 15
PROPOSAL 4 -- AMENDMENT OF CERTIFICATE OF INCORPORATION TO ELIMINATE PROHIBITION ON ISSUING NON-VOTING
STOCK.................................................................................................... 16
PROPOSAL 5 -- CONFIRMATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS................................ 16
PROPOSALS AND NOMINATIONS BY STOCKHOLDERS.................................................................. 16
</TABLE>
<PAGE>
DANIELSON HOLDING CORPORATION
767 THIRD AVENUE
NEW YORK, NEW YORK 10017-2023
---------------------------------
ANNUAL MEETING OF STOCKHOLDERS
JULY 20, 1999
---------------------------------
PROXY STATEMENT
---------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Danielson Holding Corporation, a Delaware
corporation (the 'Company'), to be voted at the Annual Meeting of Stockholders
of the Company to be held on Tuesday, July 20, 1999, at The Roosevelt Hotel,
Madison Avenue at 45th Street, New York, New York 10017, at 10:00 a.m. local
time (the 'Annual Meeting'), and any postponement or adjournment thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders and described therein. This Proxy Statement and the enclosed form
of proxy are first being sent to stockholders commencing on or about Tuesday
June 1, 1999.
The expenses of soliciting proxies for the Annual Meeting are to be paid by
the Company. The Company has retained Beacon Hill Partners, Inc., as its
solicitation agent. Solicitation of proxies may also be made by means of
personal calls upon, or telephonic or electronic communications with,
stockholders or their personal representatives by Directors, officers, and
employees of the Company who will not be specially compensated for such
services. Although there is no formal agreement to do so, the Company may
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding this Proxy Statement to stockholders
whose common stock is held of record by such entities.
VOTING RIGHTS AND SOLICITATION OF PROXIES
RECORD DATE AND SHARE OWNERSHIP
The Board of Directors of the Company has fixed the close of business on
May 28, 1999 as the record date for the determination of the stockholders
entitled to receive notice of, and to vote at, the Annual Meeting (the 'Record
Date'). The only outstanding class of stock of the Company is its common stock,
par value $0.10 per share ('Common Stock'). On the Record Date, there were
15,576,276 shares of Common Stock issued and outstanding.
VOTING AND QUORUM
Each share of Common Stock will be entitled to one vote at the Annual
Meeting, except that, pursuant to the provisions of the Certificate of
Incorporation of the Company, voting for Directors may be cumulative if, not
less than 30 days prior to the voting, any stockholder gives notice of such
stockholder's intention to vote cumulatively. In the event of cumulative voting,
each stockholder may give any one candidate a number of votes equal to the
number of Directors to be elected multiplied by the number of shares held by
such stockholder, or may distribute such votes on the same principle among as
many candidates as the stockholder elects. The presence at the Annual Meeting,
in person or by proxy, of the holders of a majority of the total number of
shares of Common Stock outstanding on the Record Date will constitute a quorum
for the transaction of business by such holders at the Annual Meeting. Where a
quorum is present, (i) the vote of the holders of a majority of shares of Common
Stock voting will decide the election of Directors, and the ten nominees for
Director receiving the highest number of votes (i.e., a plurality) will be
elected as Directors, (ii) the vote of the holders of a majority of the shares
of Common Stock outstanding is required to approve each of the amendments to the
Certificate of Incorporation and (iii) the vote of the holders of a majority of
the shares voting will decide the ratification of the appointment of KPMG LLP as
the independent certified public accountants for the Company for 1999. If any
votes are withheld, such withheld votes will be excluded
<PAGE>
entirely from the vote and will have no effect except that with respect to the
votes for the amendments to the Certificate of Incorporation, a withheld vote
will have the same effect as a negative vote. Abstentions will have no effect on
the election of Directors but, for purposes of determining whether a proposal
has received a majority vote, abstentions will be included in the vote totals
with the result that an abstention will have the same effect as a negative vote.
In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy (so-called 'broker
non-votes'), those shares of Common Stock will not be included in the vote
totals and, therefore, will have no effect on the vote.
PROXIES AND REVOCATION OF PROXIES
Proxies in the enclosed form are solicited by the Board of Directors of the
Company in order to provide each stockholder an opportunity to vote on all
matters scheduled to come before the Annual Meeting, whether or not the
stockholder attends in person. All proxies received pursuant to this
solicitation will be voted except as to matters where authority to vote is
specifically withheld or the holder has elected to abstain and, where a choice
is specified as to a proposal, they will be voted in accordance with such
specification. In the absence of specific directions, properly executed proxies
will be voted 'FOR' (i) the nominees for election as Directors of the Company
listed below; (ii) all of the amendments to the Certificate of Incorporation;
and (iii) confirmation of the appointment of KPMG LLP as the Company's
independent certified public accountants for the current fiscal year. Any
stockholder giving a proxy has the power to revoke the proxy prior to its
exercise. A proxy may be revoked (a) by delivering to the Secretary of the
Company at or prior to the Annual Meeting an instrument of revocation or a duly
executed proxy bearing a date or time later than the date or time of the proxy
being revoked or (b) at the Annual Meeting if the stockholder is present and
elects to vote in person. Mere attendance at the Annual Meeting will not serve
to revoke a proxy.
OTHER PROPOSALS
The Board does not know of any matter other than the foregoing that is
expected to be presented for consideration at the Annual Meeting. However, if
other matters properly come before the Annual Meeting, the persons named in the
accompanying proxy intend to vote on those matters in accordance with their
judgment.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Common Stock as
of May 10, 1999 of (a) each Director and nominee for Director, (b) each
executive officer, and (c) each person known by the Company to own beneficially
more than five percent of the outstanding shares of Common Stock. The Company
believes that, except as otherwise stated, the beneficial holders listed below
have sole voting and investment power regarding the shares reflected as being
beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
-------------------- -------------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Commissioner of Insurance
of the State of California .............................. 1,803,235(2)(3) 11.6
c/o William Palmer
Chief of Staff
Mission Insurance Companies' Trusts
3333 Wilshire Boulevard -- 3rd Floor
Los Angeles, CA 90010
Martin J. Whitman ......................................... 2,321,941(2)(4)(5)(6) 14.7
c/o Danielson Holding Corporation
767 Third Avenue
New York, NY 10017-2023
James P. Heffernan ........................................ 1,372,980(2)(5)(6) 8.7
RR 1, Box 31D
Millbrook, NY 12545
</TABLE>
(table continued on next page)
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
-------------------- -------------------
<S> <C> <C>
Whitman Heffernan & Rhein Workout Fund, L.P. ............. 1,054,996(2) 6.8
c/o WHR Management Company, L.P.
RR 1, Box 31D
Millbrook, NY 12545
Third Avenue Value Fund ................................... 803,669(2) 5.2
767 Third Avenue
New York, NY 10017-2023
OFFICERS AND DIRECTORS
Martin J. Whitman.......................................... 2,321,941(2)(4)(5)(6) 14.7
David M. Barse............................................. 99,999(7) *
Samuel Zell................................................ 0(8) *
Joseph F. Porrino.......................................... 56,667(9) *
Frank B. Ryan.............................................. 48,667(9) *
Eugene M. Isenberg......................................... 69,924(10) *
Wallace O. Sellers......................................... 50,000(11) *
Stanley J. Garstka......................................... 37,674(12) *
William Pate............................................... 0 *
William W. Palmer.......................................... 0 *
Michael Carney............................................. 82,499(13) *
Ian M. Kirschner........................................... 13,999(14) *
All Officers and Directors as a Group (12 persons)......... 2,781,370(15) 17.2
</TABLE>
- ------------
* Percentage of shares beneficially owned does not exceed one percent of the
outstanding Common Stock.
(1) Share percentage ownership is rounded to nearest tenth of one percent and
reflects the effect of dilution as a result of outstanding options to the
extent such options are, or within 60 days will become, exercisable. As of
May 10, 1999 (the date as of which this table was prepared), there were
exercisable options outstanding to purchase 1,390,045 shares of Common
Stock. Shares underlying any option which was exercisable on May 10, 1999
or becomes exercisable within the next 60 days are deemed outstanding only
for purposes of computing the share ownership and share ownership
percentage of the holder of such option.
(2) In accordance with provisions of the Company's Certificate of
Incorporation, all certificates representing shares of Common Stock
beneficially owned by holders of five percent or more of the Common Stock
are owned of record by the Company, as escrow agent, and are physically
held by the Company in that capacity.
(3) Beneficially owned by the Commissioner of Insurance of the State of
California in his capacity as trustee for the benefit of holders of certain
deficiency claims against certain trusts which assumed liabilities of
certain present and former insurance subsidiaries of the Company.
(4) Includes 803,669 shares beneficially owned by Third Avenue Value Fund
('TAVF'), an investment company registered under the Investment Company Act
of 1940; 104,481 shares beneficially owned by Martin J. Whitman & Co., Inc.
('MJW&Co'), a private investment company; and 73,558 shares beneficially
owned by Mr. Whitman's wife and three adult family members. Mr. Whitman
controls the investment adviser of TAVF, and may be deemed to own
beneficially a five percent equity interest in TAVF. Mr. Whitman is the
principal stockholder in MJW&Co, and may be deemed to own beneficially the
shares owned by MJW&Co. Mr. Whitman disclaims beneficial ownership of the
shares of Common Stock owned by TAVF and Mr. Whitman's family members.
(5) Includes 1,054,996 shares of Common Stock beneficially owned by Whitman
Heffernan & Rhein Workout Fund, L.P. ('WHR Fund'), an investment limited
partnership. Each of Messrs. Whitman and Heffernan is a general partner of
the partnership that is the general partner of WHR Fund. Each disclaims
beneficial ownership of the shares owned by the WHR Fund.
(footnotes continued on next page)
3
<PAGE>
(6) Includes shares underlying currently exercisable options to purchase an
aggregate of 210,000 shares of Common Stock at an exercise price of $3.00
per share.
(7) Includes shares underlying options to purchase an aggregate of 41,666
shares of Common Stock at an exercise price of $5.6875 per share, 33,333
shares of Common Stock at an exercise price of $7.0625 per share, and
25,000 shares of Common Stock at an exercise price of $3.65625 per share,
which are currently exercisable or become exercisable within the next 60
days. Does not include shares underlying options to purchase an aggregate
of 8,334 shares of Common Stock at an exercise price of $5.6875 per share,
16,667 shares of Common Stock at an exercise price of $7.0625 per share or
25,000 shares of Common Stock at an exercise price of $3.65625 per share
which are not currently exercisable nor become exercisable within the next
60 days.
(8) Does not include 2,000,000 shares of Common Stock which SZ Investments,
L.L.C. ('SZ'), a company controlled by Mr. Zell, has agreed to purchase and
the Company has agreed to sell or 2,000,000 shares of Common Stock issuable
upon exercise of a Warrant which the Company has agreed to issue to SZ. The
purchase of the 2,000,000 shares and the issuance of the Warrant are
subject to certain conditions, including the approval by the stockholders
of the Company of the amendments to the Company's Certificate of
Incorporation which are included as Proposals 2 and 3 in this Proxy
Statement.
(9) Includes shares underlying currently exercisable options to purchase an
aggregate of 46,667 shares of Common Stock at an exercise price of $3.63
per share.
(10) Includes 20,088 shares owned by Mentor Partnership, a partnership
controlled by Mr. Isenberg, and 28 shares owned by Mr. Isenberg's wife.
Also includes shares underlying currently exercisable options to purchase
an aggregate of 46,666 shares of Common Stock at an exercise price of $3.63
per share.
(11) Includes shares underlying currently exercisable options to purchase an
aggregate of 40,000 shares of Common Stock at an exercise price of $7.00
per share.
(12) Includes shares underlying currently exercisable options to purchase an
aggregate of 26,666 shares of Common Stock at an exercise price of $5.50
per share. Does not include shares underlying options to purchase an
aggregate of 13,334 shares of Common Stock at an exercise price of $5.50
per share which are not currently exercisable nor become exercisable within
the next 60 days.
(13) Includes shares underlying options to purchase an aggregate of 41,666
shares of Common Stock at an exercise price of $5.6875 per share, 23,333
shares of Common Stock at an exercise price of $7.0625 per share, and
17,500 shares of Common Stock at an exercise price of $3.65625 per share,
which are currently exercisable or become exercisable within the next 60
days. Does not include shares underlying options to purchase an aggregate
of 8,334 shares of Common Stock at an exercise price of $5.6875 per share,
11,667 shares of Common Stock at an exercise price of $7.0625 per share or
17,500 shares of Common Stock at an exercise price of $3.65625 per share
which are not currently exercisable nor become exercisable within the next
60 days.
(14) Includes shares underlying currently exercisable options to purchase an
aggregate of 4,166 shares of Common Stock at an exercise price of $5.6875
per share, 3,333 shares of Common Stock at an exercise price of $7.0625 per
share and 5,000 shares of Common Stock at an exercise price of $3.65625 per
share, which are currently exercisable or become exercisable within the
next 60 days. Does not include shares underlying options to purchase an
aggregate of 834 shares of Common Stock at an exercise price of $5.6875 per
share, 1,667 shares of Common Stock at an exercise price of $7.0625 per
share or 5,000 shares of Common Stock at an exercise price of $3.65625 per
share which are not currently exercisable nor become exercisable within the
next 60 days.
(15) In calculating the percentage of shares owned by officers and Directors as
a group, the shares of Common Stock underlying all options which are
beneficially owned by officers and Directors and which are currently
exercisable or become exercisable within the next 60 days are deemed
outstanding.
4
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, Directors and greater than ten-percent
stockholders are required by Federal securities regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, except for one Form 3 with respect to Mr. Palmer (not
involving any transaction), all Section 16(a) filing requirements applicable to
the Company's officers, Directors and greater than ten percent beneficial owners
were complied with for the fiscal year ended December 31, 1998.
PROPOSAL 1
ELECTION OF DIRECTORS
A board of ten Directors will be elected at the Annual Meeting by the
holders of Common Stock, to hold office until their successors have been elected
and qualified. It is intended that, unless authorization to do so is withheld,
the proxies will be voted 'FOR' the election of the Director nominees named
below. With the exception of Samuel Zell and William Pate, each of the nominees
currently is a Director of the Company. Each nominee has consented to be named
in this Proxy Statement and to serve as a Director if elected. However, if any
nominee shall become unable to stand for election as a Director at the Annual
Meeting, an event not now anticipated by the Board, the proxy will be voted for
a substitute designated by the Board or, if no substitute is selected by the
Board prior to or at the Annual Meeting, for a motion to reduce the membership
of the Board to the number of nominees available. In the event that additional
persons are nominated for election as Directors and a stockholder elects to vote
shares cumulatively, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, with any required
selection among such nominees to be determined by the proxy holders.
The nominees are listed on the following pages with brief statements of
their principal occupation and other information. A listing of the nominees'
beneficial ownership of Common Stock appears on the preceding pages under
'PRINCIPAL STOCKHOLDERS.' All of the nominees for Director, other than Samuel
Zell and William Pate, who are not currently Directors, and William Palmer, who
was appointed by the other Directors on September 15, 1998 following the Annual
Meeting of Stockholders, were elected to their present terms as Directors by the
stockholders at the Annual Meeting of Stockholders of the Company held on
September 15, 1998. The term of office of each Director continues until the
election of Directors to be held at the next Annual Meeting of Stockholders or
until his successor has been elected. There is no family relationship between
any nominee for election as a Director and any other nominee for election as a
Director or executive officer of the Company. The information set forth below
concerning the Directors has been furnished by such Directors to the Company.
In connection with the proposed acquisition by SZ, an affiliate of Mr.
Zell, of 2,000,000 shares of Common Stock (see 'AMENDMENT OF CERTIFICATE OF
INCORPORATION TO APPROVE INCREASE IN COMMON SHARES AUTHORIZED -- DESCRIPTION OF
AGREEMENT WITH SZ INVESTMENTS, L.L.C.'), the Company has agreed to nominate Mr.
Zell and Mr. Pate to its Board of Directors, with Mr. Zell to become the
non-executive Chairman of the Company. Martin J. Whitman will continue as the
Company's Chief Executive Officer and Chief Investment Officer. In addition, as
long as SZ continues to directly or indirectly own at least 1,000,000 shares of
Common Stock, (i) SZ will have the right to continue to nominate two members
(which may include Mr. Zell and/or Mr. Pate) of the Company's Board of Directors
and (ii) Mr. Whitman has agreed to vote and use his best efforts to cause to be
voted the shares of Common Stock owned or controlled by him in favor of SZ's
designees. In addition, SZ has agreed that, so long as Mr. Whitman directly or
indirectly owns 500,000 shares of
5
<PAGE>
Common Stock and Mr. Whitman continues to be affiliated with TAVF and WHR Fund
in the same or substantially similar manner as his current affiliation (so long
as such entities continue to exist), SZ will vote the shares owned by it for the
election of Mr. Whitman and one other designee of Mr. Whitman. To make room for
Messrs. Zell and Pate on the Board of Directors, Anthony Petrello and Timothy
Collins have agreed to resign as Directors of the Company, effective on the date
of the Annual Meeting. The Company thanks Messrs. Petrello and Collins for their
service to the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
'FOR' THE NOMINEES LISTED BELOW:
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
- ----------------------------- --- ------------------------------------------------------- --------
<S> <C> <C> <C>
Martin J. Whitman............ 74 Chairman of the Board and Chief Executive Officer of 1990
the Company
David M. Barse............... 36 President and Chief Operating Officer of the Company 1996
Samuel Zell.................. 57 Chairman of the Board of Equity Group Investments, *
L.L.C.
Eugene M. Isenberg........... 69 Chairman of the Board and Chief Executive Officer of 1990
Nabors Industries, Inc.
Joseph F. Porrino............ 54 Counselor to the President of the New School for Social 1990
Research
Frank B. Ryan................ 62 Professor of Mathematics at Rice University 1990
Wallace O. Sellers........... 69 Vice Chairman and Director of Enhance Financial 1995
Services Group, Inc.
Stanley J. Garstka........... 55 Deputy Dean and Professor in the Practice of Management 1996
at Yale University School of Management
William W. Palmer............ 37 Chief of Staff and General Counsel to the Commissioner 1998
for the California Department of Insurance
William Pate................. 35 Director of Mergers and Acquisitions of Equity Group *
Investments, L.L.C.
</TABLE>
- ------------
* Nominee for Director, not currently serving.
Mr. Whitman is the Chairman of the Board, Chief Executive Officer and a
Director of the Company. Since 1974, Mr. Whitman has been the President and
controlling stockholder of M.J. Whitman & Co., Inc. (now known as Martin J.
Whitman & Co., Inc.) ('MJW&Co') which, until August 1991, was a registered
broker-dealer. From August 1994 to December 1994, Mr. Whitman served as the
Managing Director of M.J. Whitman, L.P. ('MJWLP'), then a registered
broker-dealer which succeeded to the broker-dealer business of MJW&Co. Since
January 1995, Mr. Whitman has served as the Chairman and Chief Executive Officer
(and, until June 1995, as President) of M. J. Whitman, Inc. ('MJW'), which
succeeded at that time to MJWLP's broker-dealer business. Also since January
1995, Mr. Whitman has served as the Chairman and Chief Executive Officer of M.J.
Whitman Holding Corp. ('MJWHC'), the parent of MJW and other affiliates. Since
March 1990, Mr. Whitman has been the Chairman of the Board, Chief Executive
Officer and a Trustee (and, from January 1991 to May 1998, the President) of
Third Avenue Trust and its predecessor, Third Avenue Value Fund, Inc. (together
with its predecessor, 'Third Avenue Trust'), an open-end management investment
company registered under the Investment Company Act of 1940 and containing four
investment series of which he is a trustee, and EQSF Advisers, Inc. ('EQSF'),
Third Avenue Trust's investment adviser (of which he was President until
February 1998). Until April 1994, Mr. Whitman also served as the Chairman of the
Board, Chief Executive Officer and a Director of Equity Strategies Fund, Inc.,
previously a registered investment company. Mr. Whitman is a Managing Director
of Whitman Heffernan Rhein & Co., Inc. ('WHR'), an investment and financial
advisory firm which he helped to found during the first quarter of 1987 and
which ceased operations in December, 1996. Since March 1991, Mr. Whitman has
served as a Director of Nabors Industries, Inc. ('Nabors'), a publicly-traded
oil and gas drilling company listed on the American Stock Exchange ('AMEX').
Since August, 1997, Mr. Whitman has served as a director of Tejon Ranch Co., an
agricultural and land management company listed on the New York Stock
6
<PAGE>
Exchange ('NYSE'). From March 1993 through February 1996, Mr. Whitman served as
a director of Herman's Sporting Goods, Inc., a retail sporting goods chain,
which filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code on April 26, 1996. Mr. Whitman also serves as a Director of the
Company's subsidiaries, including National American Insurance Company of
California ('NAICC') and KCP Holding Company ('KCP'). Mr. Whitman co-authored
the book THE AGGRESSIVE CONSERVATIVE INVESTOR. Mr. Whitman's second book, VALUE
INVESTING: A BALANCED APPROACH, is currently in bookstores. Mr. Whitman is a
Distinguished Faculty Fellow in Finance at the Yale University School of
Management ('Yale School of Management'). Mr. Whitman graduated from Syracuse
University magna cum laude in 1949 with a Bachelor of Science degree and
received his Masters degree in Economics from the New School for Social Research
in 1956. Mr. Whitman is a Chartered Financial Analyst.
Mr. Barse has been the President, Chief Operating Officer and a Director of
the Company since July 1996 and a director of NAICC since August 1996. Since
June 1995, Mr. Barse has been the President of each of MJW and MJWHC. From
April 1995 until May 1998 and February 1998, respectively, he was an Executive
Vice President and Chief Operating Officer of Third Avenue Trust and EQSF, at
which times he assumed the position of President. Mr. Barse joined the
predecessors of MJW and MJWHC in December 1991 as General Counsel. Mr. Barse was
previously an attorney with the law firm of Robinson Silverman Pearce Aronsohn &
Berman LLP. Mr. Barse received a Bachelor of Arts in Political Science from
George Washington University in 1984 and a Juris Doctor from Brooklyn Law School
in 1987.
Mr. Zell is Chairman of the Board of Directors of Equity Group Investments,
L.L.C. ('EGI'), an investment company since 1999 and had been Chairman of the
Board of Equity Group Investments, Inc. for more than five years. Mr. Zell is
also Chairman of the Board of American Classic Voyages Co., a provider of
overnight cruises in the United States; Anixter International Inc., a
distributor of electrical and cable products; Capital Trust, Inc., a specialized
finance company; Chart House Enterprises, Inc., an owner and operator of
restaurants, and Manufactured Home Communities, an equity real estate investment
trust ('REIT') primarily focused on manufactured home communities. Mr. Zell is
Chairman of the Board of Trustees of Equity Office Properties Trust, an equity
REIT primarily focused on office buildings and Equity Residential Properties
Trust, an equity REIT primarily focused on multifamily residential properties.
He is a director of Davel Communications, Inc., an operator of pay telephones in
the United States; Fred Meyer, Inc., an owner and operator of grocery stores and
discount stores; and Ramco Energy plc, an independent oil company in the United
Kingdom.
Mr. Isenberg, since 1987, has been Chairman and Chief Executive Officer of
Nabors. Beginning in 1996, Mr. Isenberg commenced his term as a Governor of the
AMEX. In 1998, Mr. Isenberg became a Director of the National Association of
Securities Dealers, Inc. and NASDAQ. From 1969 to 1982, Mr. Isenberg was
Chairman of the Board and principal stockholder of Genimar Inc., a steel trading
and building products manufacturing company. From 1955 to 1968, Mr. Isenberg was
employed in various management capacities with the Exxon Corp. Mr. Isenberg
graduated from the University of Massachusetts in 1950 with a Bachelor of Arts
degree in Economics and from Princeton University in 1952 with a Masters degree
in Economics.
Mr. Porrino has been the Counselor to the President of the New School for
Social Research (the 'New School') since February, 1998 and was the Executive
Vice President of the New School from September 1991 to February, 1998. Prior to
that time, Mr. Porrino was a partner in the New York law firm of Putney,
Twombly, Hall & Hirson, concentrating his practice in the area of labor law.
Mr. Porrino received a Bachelor of Arts degree from Bowdoin College in 1966, and
was awarded a Juris Doctor degree from Fordham University School of Law in 1970.
Dr. Ryan, since August 1990, has been a Professor of Mathematics at Rice
University (currently on leave). Since November, 1996, Dr. Ryan has served as a
Director of Siena Holdings, Inc., a real estate and health management company,
the capital stock of which is traded over-the-counter. Since March 1996, Dr.
Ryan has served as a Director of Texas Micro Inc., a computer systems company,
the capital stock of which is traded on NASDAQ. Until 1998, Dr. Ryan served as a
Director of America West Airlines, Inc., a publicly-traded company listed on the
NYSE, and now continues as an advisory director. From August 1990 to February
1995, Dr. Ryan also served as Vice President-External Affairs
7
<PAGE>
at Rice University. For two years ending August 1990, Dr. Ryan was the President
and Chief Executive Officer of Contex Electronics Inc., a subsidiary of Buffton
Corporation, the capital stock of which is publicly traded on the AMEX. Prior to
that, and beginning in 1977, Dr. Ryan was a Lecturer in Mathematics at Yale
University, where he was also the Associate Vice President in charge of
institutional planning. Dr. Ryan obtained a Bachelor of Arts degree in Physics
in 1958 from Rice University, a Masters degree in Mathematics from Rice in 1961,
and a Doctorate in Mathematics from Rice in 1965.
Mr. Sellers is Vice-Chairman and a Director of Enhance Financial Services
Group, Inc. ('Enhance Group'), a financial services corporation the capital
stock of which is publicly traded on the NYSE. Until December 31, 1994, Mr.
Sellers was the President and Chief Executive Officer of Enhance Group, from its
inception in 1986, as well as its principal subsidiaries, Enhance Reinsurance
Company and Asset Guaranty Insurance Company, from their inceptions in 1986 and
1988, respectively. From 1987 to 1994, Mr. Sellers served as a Director, and
from 1992 to 1993 as the Chairman, of the Association of Financial Guaranty
Insurors in New York. Mr. Sellers received a Bachelor of Arts degree from the
University of New Mexico in 1951 and a Masters degree in Economics from New York
University in 1956. Mr. Sellers attended the Advanced Management Program at
Harvard University in 1975 and is a Chartered Financial Analyst.
Mr. Garstka has been Deputy Dean at the Yale School of Management since
November, 1995 and has been a Professor in the Practice of Management at the
Yale School of Management since 1988. Mr. Garstka was the Acting Dean of the
Yale School of Management from August 1994 to October 1995, and an Associate
Dean of the Yale School of Management from 1984 to 1994. Mr. Garstka has served
on the Board of Trustees of MBA Enterprises Corps, a non-profit organization,
since 1991 and on the Board of Trustees of The Foote School in New Haven,
Connecticut since 1995. From 1988 to 1990, Mr. Garstka served as a director of
Vyquest, Inc., a publicly-traded company listed on the AMEX. Mr. Garstka was a
Professor in the Practice of Accounting from 1983 to 1988, and an Associate
Professor of Organization and Management from 1978 to 1983, at the Yale School
of Management. Mr. Garstka has also authored numerous articles on accounting and
mathematics. Mr. Garstka received a Bachelor of Arts degree in Mathematics from
Wesleyan University in Middletown, Connecticut in 1966, a Masters degree in
Industrial Administration in 1968 from Carnegie Mellon University and a
Doctorate in Operations Research in 1970 from Carnegie Mellon University.
Mr. Palmer has been the Chief of Staff and General Counsel to the
Commissioner for the California Department of Insurance (the 'Commissioner')
since March 1998. Mr. Palmer is also the Chief Executive Officer of the
California Conservation and Liquidation Office, where he oversees the management
of 69 insurance companies with combined assets exceeding $1.6 billion that have
been conserved or liquidated by the Commissioner. From January 1, 1995 to March
1998, Mr. Palmer was Chief Counsel to the Department of Insurance. Prior to
January 1, 1995, Mr. Palmer was in private practice as an attorney with Farmer &
Murphy. Mr. Palmer received a Bachelor of Arts degree in History and Political
Science from the University of California, Los Angeles in 1985 and a Juris
Doctor from the University of the Pacific, McGeorge School of Law in 1989.
Mr. Pate has served as a director of Mergers and Acquisitions for EGI or
its predecessor since February 1994. Mr. Pate serves on the Board of Directors
of CNA Surety Corporation. Prior to February 1994, Mr. Pate was an associate at
Credit Suisse First Boston.
COMMITTEES
The Board of Directors has an Audit Committee, a Compensation Committee, an
Executive Committee, and a Review Committee. The Board does not have a
nominating committee or a committee performing the functions of a nominating
committee.
The Audit Committee consists of Messrs. Porrino, Ryan and Garstka. The
Audit Committee held two meetings in 1998. The Audit Committee is primarily
responsible for reviewing and evaluating the Company's accounting principles and
its system of internal accounting controls. The Audit Committee also recommends
engagement of the Company's independent public accountants.
8
<PAGE>
The Compensation Committee consists of Messrs. Porrino, Ryan and Sellers.
The Compensation Committee held one meeting in 1998. The Compensation Committee
reviews, and makes recommendations to the Board of Directors concerning, the
Company's executive compensation policy.
The Executive Committee consisted of Mr. Whitman and James P. Heffernan and
C. Kirk Rhein, Jr. until the death of Mr. Rhein and the resignation of Mr.
Heffernan as a director of the Company and held no meetings in 1998. The
Executive Committee currently has vacancies and will not meet until such
vacancies have been filled. The Executive Committee has the authority to conduct
the business affairs of the Company, subject to the Company's Bylaws and
applicable law.
The Review Committee, which consists of Messrs. Porrino and Ryan, reviews
and determines potential conflicts of interest relative to investment
opportunities. The Review Committee held no meetings in 1998.
In connection with the acquisition of Common Stock by SZ, the Company has
agreed, subject to the approval of the Board of Directors, to form an
Acquisition Committee, to consist of Mr. Whitman (who will be chairman), Mr.
Barse, Mr. Zell and Mr. Pate, if elected. The Acquisition Committee would be
charged with seeking out and reviewing opportunities to enhance shareholder
value for the Company.
COMPENSATION OF DIRECTORS
During 1998, each Director who was not an officer or employee of the
Company or its subsidiaries received compensation of $2,500 for each Board
meeting attended, whether in person or by telephone. For attendance at Board
meetings during 1998, each of Mr. Porrino, Dr. Ryan, and Mr.Garstka received
$10,000 and each of Mr. Sellers and Mr. Isenberg received $7,500, plus, in each
case, reimbursement of reasonable expenses. Directors who are officers or
employees of the Company or its subsidiaries receive no fees for service on the
Board. No attendance fee is paid to any Directors with respect to any committee
meetings.
ATTENDANCE AT BOARD OF DIRECTORS MEETINGS
The Board held four meetings during 1998. No Director attended less than 75
percent of the aggregate number of meetings of the Board of Directors held
during 1998 and all committees of the Board on which he served.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION WITH THE COMPANY
- ---------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Martin J. Whitman................. 74 Chairman of the Board, Chief Executive Officer and a Director
David M. Barse.................... 36 President, Chief Operating Officer and a Director
Michael T. Carney................. 45 Chief Financial Officer and Treasurer
Ian M. Kirschner.................. 43 General Counsel and Secretary
</TABLE>
For additional information about Messrs. Whitman and Barse, see 'ELECTION
OF DIRECTORS' above.
Mr. Carney was the Chief Financial Officer ('CFO') of the Company from
August 1990 until March 1996 and has been the CFO of the Company and a director
of NAICC since August 1996. Since 1990, Mr. Carney has served as Treasurer and
CFO of Third Avenue Trust and EQSF and, since 1989, as CFO of WHR, as well as
MJW&Co., and MJW and MJWHC and their predecessors. From 1990 through April 1994,
Mr. Carney also served as CFO of Carl Marks Strategic Investments, L.P.; and
from 1989 through April 1994, Mr. Carney served as Treasurer and CFO of Equity
Strategies Fund. From 1988 to 1989, Mr. Carney was the Director of Accounting of
Smith New Court, Carl Marks, Inc., and, from 1986 to 1988, Mr. Carney served as
the Controller of Carl Marks & Co., Inc. Mr. Carney graduated from St. John's
University in 1981 with a Bachelor of Science degree in Accounting.
9
<PAGE>
Mr. Kirschner has been the General Counsel and Secretary of the Company
since August 1996. Mr. Kirschner has also served as General Counsel and
Secretary of MJWHC and MJW since January 1996 and of Third Avenue Trust and EQSF
since January 1997. From February 1993 to June 1995, Mr. Kirschner was a Vice
President, the General Counsel and Secretary of 2 I Inc., a then NASDAQ Small-
Cap listed holding company. Mr. Kirschner has been practicing law since 1979,
and was Of Counsel to Morgan, Lewis & Bockius, from October, 1990 to October,
1992. Mr. Kirschner obtained a Bachelor of Arts degree from the State University
of New York at Binghamton in 1976 and a Juris Doctor from Boston University
School of Law in 1979.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table presents certain information
relating to compensation paid by the Company for services rendered in 1998 by
the Chief Executive Officer. No other executive officers of the Company had cash
compensation for such year in excess of $100,000. Only those columns which call
for information applicable to the Company or the individual named for the
periods indicated have been included in such table.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
SALARY(a) BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------------------------------------------ ---- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Martin J. Whitman .................................... 1998 $ 200,000 0 0 0
Chairman of the Board & Chief Executive Officer 1997 $ 200,000 0 0 0
1996 $ 200,000 0 0 0
</TABLE>
- ------------
(a) Amounts shown indicate cash compensation earned and received by executive
officers in the year shown. Executive officers also participated in the
Company's group health insurance.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents certain information relating to the value of
unexercised stock options as of the end of 1998, on an aggregated basis, owned
by the named executive officer of the Company as of the last day of the fiscal
year. Such officer did not exercise any of such options during 1998. Only those
tabular columns which call for information applicable to the Company or the
named individual have been included in such table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Martin J. Whitman........................................ 210,000 0 $ 118,125 0
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, none of the persons who served as members of the Compensation
Committee of the Company's Board of Directors also was, during that year or
previously, an officer or employee of the Company or any of its subsidiaries or
had any other relationship requiring disclosure herein.
BOARD OF DIRECTORS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the 'Committee'),
during 1998, was comprised of three independent (i.e., non-employee) directors.
The Committee provided the following report on executive compensation during
1998 as required by applicable securities regulations:
10
<PAGE>
'The Committee's overriding goal continues to be to structure
compensation in a way that will attract and retain highly qualified
executives who will conduct the business of the Company in a manner that
will maximize stockholder value.
The annual base salary of each of the Company's executive officers
remained the same as for 1996 and 1997, $200,000 for Mr. Whitman, $75,000
each for Messrs. Barse and Carney and $50,000 for Mr. Kirschner. The
Company continues to try to balance its desire not to take significant
additional cash out of the Company in the form of executive compensation
while the Company continues to search for appropriate opportunities to meet
its goal of maximizing stockholder values with the reality of the extensive
efforts which each of these executives undertakes in identifying and
negotiating potential opportunities on behalf of the Company. The Company
is able to retain these executives at this level of compensation in part
because they are also employed by affiliates of the Company, and the
Committee continues to believe that it was appropriate to maintain these
compensation levels for its executive officers.
In addition to the cash compensation of its executives, the Company
granted stock options during the year under its 1995 Stock and Incentive
Plan (the '1995 Plan'). On December 2, 1998, the Committee granted options
to purchase an aggregate of 167,500 shares of the Company's Common Stock at
an exercise price of $3.65625 per share (the mean of the high and low
prices of the Common Stock on the American Stock Exchange on the date of
grant). The options were granted to employees of the Company (including
Messrs. Barse, Carney and Kirschner), as well as to certain key employees
of NAICC. Of these options, 50,000 were granted to Mr. Barse, 35,000 were
granted to Mr. Carney and 10,000 were granted to Mr. Kirschner. The
Committee believed that these option grants were reasonable, particularly
in light of the extensive efforts undertaken by these executives compared
to their limited cash compensation levels.
In making determinations regarding compensation, the Committee does
not rely upon quantitative measures or other measurable objective indicia,
such as earnings or specifically weighted factors or compensation formulae.
In light of the fact that the Company, at the parent-company level, is a
holding company with a small staff responsible for numerous and diverse
areas of the Company's business and management, and given the high level of
awareness each executive has of the others' activities and contributions,
the Committee evaluates executive performance and reaches compensation
decisions based, in part, upon the recommendations of the Company's
executives.
Finally, the Committee notes that Section 162(m) of the Internal
Revenue Code, in most circumstances, limits to $1 million the deductibility
of compensation, including stock-based compensation, paid to top executives
by public companies. None of the 1998 compensation paid to the executive
officers named in the Summary Compensation Table exceeded the threshold for
deductibility under Section 162(m).'
The Compensation Committee:
JOSEPH F. PORRINO
FRANK B. RYAN
WALLACE O. SELLERS
AGREEMENTS WITH EXECUTIVE OFFICERS
Effective April 14, 1998, the Company entered into written two-year
employment agreements with David Barse, President, and Michael Carney, Chief
Financial Officer. The agreements provide for the payment of base salary to each
of Mr. Barse and Mr. Carney of not less than $75,000 per annum. If either
executive officer's employment is terminated by the Company without cause (as
defined), the Company is required to pay to him an amount equal to the balance
of his base salary for the remainder of the term of the agreement plus, if he
received a bonus with respect to the prior fiscal year, an amount equal to that
bonus (or pro-rated portion thereof).
11
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth a comparison of the quarterly percentage
change in the Company's cumulative total stockholder return on Common Stock with
the Standard & Poor's 500 Stock Index* and the NASDAQ Financial Sub Index.** The
foregoing cumulative total returns are computed assuming (i) an initial
investment of $100, and (ii) the reinvestment of dividends at the frequency with
which dividends were paid during the applicable years. The Company has never
paid any dividend on shares of Common Stock. The graph below reflects
comparative information for the five fiscal years of the Company beginning with
the close of trading on December 31, 1993 and ending December 31, 1998. The
stockholder return reflected below is not necessarily indicative of future
performance.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C> <C> <C>
12/92 100 100 100
3/93 80.03 95.57 97.26
6/93 80.3 95.24 102.69
9/93 109.09 99.2 103.31
12/93 92.42 98.46 95.53
3/94 80.3 107.34 105.75
6/94 95.45 116.79 114.06
9/94 90.91 125.29 128.63
12/94 83.33 132.05 138.66
3/95 92.42 138.39 142.99
6/95 81.06 143.77 144.83
9/95 66.67 147.35 158.31
12/95 60.61 158.8 177.33
3/96 83.33 162.32 184.32
6/96 95.45 189.76 214.98
9/96 109.09 203.08 250.81
12/96 87.88 208.05 277.87
3/97 90.91 236.2 290.65
6/97 89.39 243.08 280.28
9/97 53.03 218.03 231.25
12/97 43.18 263.53 270.17
</TABLE>
- ------------
* The Standard & Poor's 500 Stock Index is a capitalization-weighted index of
500 stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all
major industries.
** The NASDAQ Financial Sub Index ('NFSI') is maintained by NASDAQ. As described
by NASDAQ, the NFSI consists of 100 large financial organizations listed on
the NASDAQ National Market.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company shares certain personnel and facilities with several affiliated
and unaffiliated companies (including M.J. Whitman, Inc. and EQSF Advisers,
Inc., of which Mr. Whitman is the Chairman and Chief Executive Officer, Mr.
Barse is the President and Chief Operating Officer, Mr. Carney is the Chief
Financial Officer and Mr. Kirschner is the General Counsel and Secretary), and
certain expenses are allocated among the various entities. Personnel costs are
allocated based upon actual time spent on the Company's business or upon fixed
percentages of compensation. Costs relating to office space and equipment are
allocated based upon fixed percentages. Inter-company balances are reconciled
and reimbursed on a monthly basis.
In connection with the proposed purchase of Common Stock by SZ, the Company
has also entered into a non-exclusive investment advisory agreement with EGI, a
company controlled by Mr. Zell,
12
<PAGE>
pursuant to which EGI has agreed to provide, at the request of the Company,
certain investment banking services to the Company in connection with potential
transactions. In the event that any transaction is consummated for which the
Acquisition Committee of the Company's Board of Directors determines that EGI
provided material services, the Company will pay to EGI a fee in the amount of
1% of the consideration paid by the Company in connection with such transaction.
Mr. Zell and Mr. Pate will be members of the Acquisition Committee in the event
that the Company consummates the transaction with SZ. The Company has also
agreed to reimburse, upon request, EGI's out-of-pocket expenses related to the
investment advisory agreement.
PROPOSAL 2
AMENDMENT OF CERTIFICATE OF INCORPORATION TO APPROVE
INCREASE IN COMMON SHARES AUTHORIZED
GENERAL
The Company's Certificate of Incorporation currently authorizes the
issuance of 30,000,000 shares of stock, consisting of 10,000,000 shares of
Preferred Stock, par value $.10 per share ('Preferred Stock'), and 20,000,000
shares of Common Stock. As of May 10, 1999, no shares of Preferred Stock were
issued and outstanding. As of that date, 15,586,994 shares of Common Stock were
issued (of which 15,576,276 shares were outstanding and 10,718 shares were held
in the Company's treasury) and 1,587,717 were reserved for issuance upon
exercise of outstanding stock options, leaving a balance of 2,825,289
authorized, unissued and unreserved shares of Common Stock.
As described in more detail below, effective April 14, 1999, the Company
entered into a Stock Purchase and Sale Agreement with Samstock, L.L.C.
('Samstock'), which agreement was assigned with the Company's consent by
Samstock to its sole member, SZ, pursuant to an amendment and assignment
agreement (such Purchase and Sale Agreement, as amended and assigned, the
'Purchase Agreement'). Pursuant to the Purchase Agreement, the Company agreed to
sell to SZ 2,000,000 shares of Common Stock and a four year warrant (subject to
extension in certain circumstances) to purchase an additional 2,000,000 shares
of Common Stock. Since the Company does not currently have sufficient shares of
Common Stock available to issue upon the full exercise of the warrant, the
Certificate of Incorporation must be amended in order for the transactions
contemplated by the Purchase Agreement to be consummated.
Therefore, the Board of Directors has unanimously approved, and recommends
that the Company's stockholders also approve, the proposed amendment to the
Certificate of Incorporation, which will amend Section 4.1 of the Certificate of
Incorporation to read as follows:
'4.1. The Corporation is authorized to issue two classes of shares
designated 'Preferred Stock' and 'Common Stock,' respectively. The total
number of shares of capital stock the Corporation is authorized to issue is
110,000,000. The number of shares of Preferred Stock authorized to be
issued is 10,000,000 and the number of shares of Common Stock authorized to
be issued is 100,000,000. The par value of each share in each class is
$.10.'
Except for the shares to be issued or reserved for issuance to SZ, the
Company does not have any present intention, commitment or agreement to issue
additional shares of Common Stock authorized by the proposed amendment. However,
the increase in the number of authorized shares of Common Stock to 100,000,000
will provide the Company with greater flexibility in connection with possible
future financing or other corporate transactions. It also avoids the expense and
delay of further seeking stockholder approval to amend the Certificate of
Incorporation in the event additional shares of Common Stock are sought to be
issued in the future.
Since the holders of Common Stock are not entitled to preemptive rights or,
assuming Proposal 3 is approved, cumulative voting, the issuance of additional
shares of Common Stock would dilute, under certain circumstances, the ownership
and voting rights of stockholders. The proposed increase in the number of shares
of Common Stock is not intended to inhibit a change of control of the Company.
The Company's Certificate of Incorporation currently contains provisions
limiting transfers by holders of 5% or more of the Common Stock and prohibiting
parties from acquiring 5% of the Common Stock without the Company's consent,
which are intended to prevent an unreasonable risk of an 'ownership
13
<PAGE>
change' of the Company within the meaning of Section 382(g) of the Internal
Revenue Code of 1986, as amended, so as to preserve the Company's net operating
loss carryforward.
DESCRIPTION OF AGREEMENT WITH SZ INVESTMENTS, L.L.C.
During the course of the many discussions the Company has had with third
parties in seeking to enhance stockholder value, it became apparent that
important limiting factors in the Company's ability to capitalize on
opportunities were (1) the relatively small amount of cash at the parent
company, (2) constraints on issuing large amounts of Common Stock as all or part
of the consideration for an acquisition, and (3) a probable inability to issue
material amounts of debt. These and other factors were reviewed by the Board of
Directors and it was determined that the proposed transaction with Samstock,
whose rights and obligations were subsequently transferred to SZ, would help
alleviate many of these concerns by providing the Company with additional cash
while retaining the flexibility to issue additional shares in the future and by
gaining access to EGI's experience and contacts in the capital markets. The
Board of Directors therefore unanimously approved the Purchase Agreement and the
related agreements entered into in connection with the Purchase Agreement.
Pursuant to the Purchase Agreement, the Company agreed to sell to SZ (i)
2,000,000 shares of Common Stock at $4.50 per share, and (ii) a common stock
purchase warrant (the 'Warrant') to purchase up to an additional 2,000,000
shares of Common Stock, at $4.75 per share. (The closing price of the Common
Stock on the AMEX on April 14, 1998 was $3.125.) The exercise price of the
Warrant is subject to adjustment in the event that, among other things, payments
and reserves for losses and loss adjustment expenses relating to the Company's
insurance subsidiaries' run-off environmental liabilities exceed the reserves
for such losses and loss adjustment expenses at December 31, 1998 by more than
$5,000,000 and the Company has not obtained reinsurance for excess losses
exceeding $10,000,000; provided that in no event can the exercise price of the
Warrant be reduced to the lesser of $3.00 per share or the market price of the
Common Stock at the time of the adjustment. The Warrant will be exercisable for
four years, subject to a one year extension in the event that the exercise price
would be subject to adjustment in accordance with the previous sentence on the
expiration date. The Company has agreed to provide to SZ certain demand and
piggyback registration rights with respect to the 2,000,000 primary shares and
the shares issuable upon exercise of the Warrant.
The consummation of the transaction is subject to, among other things,
approvals by insurance regulators of the transaction and the approval by the
Company's stockholders of the amendments to the Certificate of Incorporation
contemplated by Proposal 2 and Proposal 3. Mr. Whitman has agreed to vote and to
use his best efforts to cause to be voted all of the shares owned or controlled
by him in favor of the amendments to the Certificate of Incorporation.
The Company has agreed to pay SZ's expenses, up to a maximum of $250,000,
in the event that it is unable to obtain the requisite stockholder approvals. In
addition, the Company has agreed that, in the event it materially breaches the
Purchase Agreement, it will pay SZ a termination fee of $1 million and reimburse
SZ for its expenses in connection with the transaction, up to a maximum of
$250,000, and SZ has agreed that, in the event that it materially and
intentionally breaches the Purchase Agreement, it will pay the Company a
termination fee of $1 million and reimburse the Company for its expenses in
connection with the transaction.
Until the consummation of the transaction with SZ or the termination of the
Purchase Agreement, the Company has agreed not to solicit or discuss any
competing transactions.
As described elsewhere in this Proxy Statement, in connection with the
Purchase Agreement, the Company has also entered into (i) an agreement with SZ
pursuant to which the Company agreed to nominate two nominees of SZ to the
Company's Board of Directors (who for purposes of this election are Messrs. Zell
and Pate) and (ii) an agreement with EGI pursuant to which EGI has agreed to
provide certain non-exclusive investment banking services to the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
'FOR' APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING
THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE.
14
<PAGE>
PROPOSAL 3
AMENDMENT OF CERTIFICATE OF INCORPORATION TO
APPROVE ELIMINATION OF CUMULATIVE VOTING
As described under 'Voting Rights and Solicitation of Proxies,' the
Company's Certificate of Incorporation currently allows stockholders to cumulate
their votes for the election of Directors. With cumulative voting, each
stockholder is entitled to as many votes as is equal to the number of Directors
to be elected, multiplied by the number of shares held by the stockholder, and
all such votes may be cast for a single Director or distributed among the number
of Directors to be elected as the stockholder sees fit. No stockholder is
entitled to cumulate votes for any candidate unless such candidate's name has
been placed in nomination prior to commencement of the voting and the
stockholder has given the Company at least 30 days prior notice of his intention
to cumulate votes. If any stockholder gives such notice, all stockholders would
then be entitled to cumulate their votes in that election.
The Company's provision for cumulative voting is a vestige of its charter
from when it was incorporated in California and cumulative voting was required.
Under Delaware law, cumulative voting is optional. The Board of Directors
believes that cumulative voting is not an appropriate method of corporate
governance for the Company because of the potential for concentrating too much
power in the hands of too few stockholders, and has unanimously approved, and
recommends that the stockholders approve, an amendment to the Certificate of
Incorporation to eliminate Article SEVENTH which provides for cumulative voting.
Under cumulative voting, stockholders representing a relatively small
number of voting shares have the power to nominate and elect one or more
Directors. For example, if ten Directors are to be elected at an annual meeting,
stockholders holding approximately 10% of the Common Stock could nominate and
elect one Director by casting all of their shares, multiplied by the number of
Directors to be elected, for a single candidate. This would be the result even
if the stockholders holding the remaining 90% of the Common Stock were opposed
to the election of that candidate and cast their votes to elect ten other
Directors.
The Board of Directors believes that Directors elected by a minority group
of stockholders through cumulative voting are likely to be partisans of the
particular group who elected them. Such partisanship could be disruptive to
management of the Company and prevent it from operating in the most effective
manner. By potentially introducing an element of discord to the Board of
Directors, a minority group of stockholders could also impair the ability of the
Board to work together effectively and discourage qualified individuals from
serving as Directors.
Without cumulative voting, Directors can only be elected with relatively
wide support. Under majority rule voting, stockholders are entitled to vote only
one vote per share in connection with the election of Directors and each
Director is voted on separately. Consequently, the only Director candidates who
could be elected are those who receive support from a majority of shares voting,
and the stockholders holding in excess of 50% of the Common Stock would be able
to elect all of the Directors.
It is a condition to the closing under the Purchase Agreement that the
stockholders approve Proposal 3. The Board of Directors believes that the
advantages of the proposed amendment greatly outweigh the disadvantages and that
the amendment is in the best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
'FOR' APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION ELIMINATING
CUMULATIVE VOTING.
15
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PROPOSAL 4
AMENDMENT OF CERTIFICATE OF INCORPORATION TO
ELIMINATE PROHIBITION ON ISSUING NON-VOTING STOCK
Article SIXTH of the Company's Certificate of Incorporation provides the
following:
'Provisions of this Article SIXTH are included in this Certificate of
Incorporation as required by United States Bankruptcy Code Section
1123(a)(6). The Corporation is prohibited from issuing non-voting equity
securities. As to all classes of securities of the Corporation possessing
voting power, there shall be a distribution of such power among such
classes, including, in the case of any class of any equity securities
having a preference over another class of equity securities with respect to
dividends, provisions for the election of directors representing such
preferred class in the event of default in the payment of such dividends.'
That prohibition on the issuance of non-voting stock by the Company was
included in the Company's Certificate of Incorporation at the time of the
conclusion of the Mission Insurance Group reorganization proceedings in 1990
(out of which the Company emerged) in order to comply with certain provisions of
federal bankruptcy law. The Company is not required at this time to retain that
provision in its Certificate of Incorporation, and its ability to issue
non-voting stock would not otherwise be restricted if its Certificate of
Incorporation were amended to delete that provision. The Company's Board
believes that the removal of that provision from the Company's Certificate of
Incorporation would give the Company the flexibility of issuing non-voting
equity securities in future transactions and, consequently, would be beneficial
to the Company and its stockholders. In light of the other amendments that are
being proposed, the Company believed that this was an appropriate time to seek
approval for this amendment as well. Approval of this amendment is not a
condition to the proposed transaction with SZ.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
'FOR' APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION ELIMINATING
THE PROHIBITION ON ISSUING NON-VOTING EQUITY SECURITIES.
PROPOSAL 5
CONFIRMATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company has selected KPMG LLP as independent certified public
accountants to audit the books and records of the Company for the current fiscal
year and recommends that the stockholders confirm such selection. KPMG LLP
served in that capacity with respect to 1998. In the event of a negative vote,
the Board of Directors will reconsider its selection. A representative of KPMG
LLP is expected to be present at the Annual Meeting, to have the opportunity to
make a statement and to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
'FOR' CONFIRMATION OF KPMG LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR
THE CURRENT FISCAL YEAR.
PROPOSALS AND NOMINATIONS BY STOCKHOLDERS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders of the Company must be received by the Company for
inclusion in the Proxy Statement and form(s) of proxy relating to such Annual
Meeting no later than January 31, 2000. Stockholder proposals should be directed
to the attention of the Secretary of the Company at the address of the Company
set forth on the first page of this Proxy Statement. Timely receipt of a
stockholder's proposal will satisfy only one of various conditions established
by the SEC for inclusion in the Company's proxy materials.
By Order of the Board of Directors
DANIELSON HOLDING CORPORATION
IAN M. KIRSCHNER
Secretary
June 1, 1999
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APPENDIX 1
DANIELSON HOLDING CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints David M. Barse and Ian M. Kirschner, or
either of them, with power of substitution, attorneys and proxies to
represent the undersigned at the Annual Meeting of Stockholders of
DANIELSON HOLDING CORPORATION ("Danielson"), to be held on July 20, 1999 at
The Roosevelt Hotel, New York, New York at 10:00 a.m., New York time, or at
any adjournment thereof, to vote all shares of Danielson common stock,
$0.10 par value per share, which the undersigned is entitled to vote as
designated on the reverse side and upon such other business that may
properly come before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS HEREON. IN THE ABSENCE OF
SUCH SPECIFICATION, THE PROXY WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS, "FOR" ALL AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND
"FOR" CONFIRMATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
DANIELSON HOLDING CORPORATION
JULY 20, 1999
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. The election of the persons listed at right as Directors of Danielson to
serve until the next Annual Meeting of Stockholders and until their
respective successors shall be duly elected and qualified.
[ ] FOR all [ ] AGAINST as to
nominees all nominees
[ ] FOR, except vote withheld from the following nominees:
----------------------------------------------------------
NOMINEES: Martin J. Whitman
Samuel Zell
David M. Barse
Joseph F. Porrino
Eugene M. Isenberg
Frank B. Ryan
Wallace O. Sellers
Stanley J. Garstka
William W. Palmer
William Pate
2. Approval of the amendment to the Certificate of Incorporation to
increase the number of shares of Common Stock from 20,000,000 shares to
100,000,000 shares. [ ]FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the amendment to the Certificate of Incorporation to
eliminate the right of stockholders to cumulate their votes for the
election of Directors. [ ]FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the amendment to the Certificate of Incorporation to
eliminate the prohibition on the Company issuing non-voting equity
securities. [ ]FOR [ ] AGAINST [ ] ABSTAIN
5. Confirmation of the selection of KPMG LLP as independent certified
public accountants for Danielson for the fiscal year ending December
31, 1999. [ ]FOR [ ] AGAINST [ ] ABSTAIN
6. To vote and otherwise represent the shares on any other matters
which may properly come before the meeting or any adjournments
thereof, according to their decision and in their discretion.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR THE PROPOSALS AND, IN THE DISCRETION OF THE
PROXY HOLDERS, ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S)__________________________ __________________________ DATE_________
NOTE: Please sign exactly as name appears hereon and date. If the shares are
held jointly, each holder should sign. When signing as an attorney,
executor, administrator, trustee or guardian or as an officer for a
corporation, please give full title under signature.
