<PAGE>
<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] 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>
<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 55,000,000 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>
<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.................................................
Record Date and Share Ownership...................................................
Voting and Quorum.................................................................
Proxies and Revocation of Proxies.................................................
Other Proposals...................................................................
PRINCIPAL STOCKHOLDERS....................................................................
Principal Stockholders............................................................
Officers and Directors............................................................
Section 16(a) Beneficial Ownership Reporting Compliance...........................
PROPOSAL 1 - ELECTION OF DIRECTORS........................................................
Committees........................................................................
Compensation of Directors.........................................................
Attendance at Board of Directors Meeting..........................................
EXECUTIVE OFFICERS........................................................................
EXECUTIVE COMPENSATION....................................................................
Summary Compensation Table........................................................
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values........................................................................
Compensation Committee Interlocks and Insider Participation ......................
Board of Directors Compensation Committee Report on Executive Compensation........
Agreements with Executive Officers................................................
Performance Graph.................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...........................................
PROPOSAL 2 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO APPROVE
INCREASE IN COMMON SHARES AUTHORIZED..............................................
General...........................................................................
Description of Agreement with SZ Investments L.L.C................................
PROPOSAL 3 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO APPROVE
ELIMINATION OF CUMULATIVE VOTING..................................................
PROPOSAL 4 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO
ELIMINATE PROHIBITION ON ISSUING NON-VOTING STOCK.................................
PROPOSAL 5- CONFIRMATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.................
PROPOSALS AND NOMINATIONS BY STOCKHOLDERS ................................................
</TABLE>
<PAGE>
<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.
<PAGE>
<PAGE>
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 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.
-2-
<PAGE>
<PAGE>
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 1,803,235 (2)(3) 11.6
of the State of California
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
Whitman Heffernan & Rhein Workout 1,054,996 (2) 6.8
Fund, L.P.
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
</TABLE>
- -----------------------------
-3-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
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.
- ------------------
-4-
<PAGE>
<PAGE>
(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.
(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.
-5-
<PAGE>
<PAGE>
(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.
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
-6-
<PAGE>
<PAGE>
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 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.
-7-
<PAGE>
<PAGE>
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 1990
Officer of the Company
David M. Barse 36 President and Chief Operating Officer of the 1996
Company
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 1990
Officer of Nabors Industries, Inc.
Joseph F. Porrino 54 Counselor to the President of the New School 1990
for Social Research
Frank B. Ryan 62 Professor of Mathematics at Rice University 1990
Wallace O. Sellers 69 Vice Chairman and Director of Enhance 1995
Financial Services Group, Inc.
Stanley J. Garstka 55 Deputy Dean and Professor in the Practice of 1996
Management at Yale University School of
Management
William W. Palmer 37 Chief of Staff and General Counsel to the 1998
Commissioner 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,
-8-
<PAGE>
<PAGE>
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 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
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<PAGE>
<PAGE>
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 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
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
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<PAGE>
<PAGE>
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.
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.
-11-
<PAGE>
<PAGE>
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 TAVF 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.
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 TAVF 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.
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<PAGE>
<PAGE>
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 $100,000. Only those
columns which call for information applicable to the Company or the individual
named for the periods indicated have been included in such table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------
AWARDS
---------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY (a) BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Martin J. Whitman 1998 $ 200,000 -0- -0- -0-
-----------------------------------------------------------------
Chairman of the Board & Chief 1997 $ 200,000 -0- -0- -0-
Executive Officer
-----------------------------------------------------------------
1996 $ 200,000 -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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 VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL 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>
- ---------------------
(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.
-13-
<PAGE>
<PAGE>
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:
"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
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<PAGE>
<PAGE>
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).
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.
-15-
<PAGE>
<PAGE>
[PERFORMANCE GRAPH]
* 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.
<TABLE>
<CAPTION>
DATE DHC SPX NDF
---- --- --- ---
<S> <C> <C> <C>
12/31/1993 100.00 100.00 100.00
3/31/1994 80.30 95.57 97.26
6/30/1994 80.30 95.24 102.69
9/30/1994 109.09 99.20 103.31
12/31/1994 92.42 98.46 95.53
3/31/1995 80.30 107.34 105.75
6/30/1995 95.45 116.79 114.06
9/30/1995 90.91 125.29 128.63
12/31/1995 83.33 132.05 138.66
3/31/1996 92.42 138.39 142.99
6/30/1996 81.06 143.77 144.83
9/30/1996 66.67 147.35 158.31
12/31/1996 60.61 158.80 177.33
3/31/1997 83.33 162.32 184.32
6/30/1997 95.45 189.76 214.98
9/30/1997 109.09 203.08 250.81
12/31/1997 87.88 208.05 277.87
3/31/1998 90.91 236.20 290.65
6/30/1998 89.39 243.08 280.28
9/30/1998 53.03 218.03 231.25
12/31/1998 43.18 263.53 270.17
</TABLE>
-16-
<PAGE>
<PAGE>
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, 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.
-17-
<PAGE>
<PAGE>
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 65,000,000. 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 55,000,000. 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
55,000,000 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
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
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<PAGE>
<PAGE>
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, 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.
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
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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.
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
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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:
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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
55,000,000 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.
