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PROSPECTUS
Filed under Rule 424(b)(1)
File No. 333-30538
DANIELSON HOLDING CORPORATION
900,000 Shares of Common Stock
This prospectus relates to the public offering of 900,000 shares of our common
stock which is held by the selling stockholders listed beginning on page 6. The
selling stockholders may offer their shares of common stock through public or
private transactions, on or off the American Stock Exchange, at prevailing
market prices, or at privately negotiated prices. We will not receive any of the
proceeds from the sale of the shares, and the sale of these shares is not being
underwritten.
Our common stock is listed on the American Stock Exchange under the symbol
"DHC." On February 14, 2000, the last reported sale price for the common stock
was $5.25 per share.
You should carefully consider the risk factors beginning on page 1 of this
prospectus before purchasing any of the shares offered by this prospectus.
In order to avoid an "ownership change" for federal tax purposes, our
certificate of incorporation prohibits any person from becoming a beneficial
owner of 5% or more of our outstanding common stock, except under limited
circumstances. Consequently, no person may acquire shares of common stock from
the selling stockholders if, after giving effect to that acquisition, the person
would beneficially own, either directly or indirectly, 5% or more of the
company's shares of common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
In this prospectus, "we," "us" and "our" refer to Danielson Holding Corporation
and our subsidiaries, unless the context specifically indicates otherwise.
The date of this prospectus is February 28, 2000.
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Table of Contents
Page
The Company.................................................................. 1
Risk Factors................................................................. 1
Where You Can Find More Information.......................................... 4
Forward-Looking Statements................................................... 5
Use of Proceeds.............................................................. 5
Selling Stockholders......................................................... 6
Plan of Distribution......................................................... 7
Legal Matters................................................................ 9
Experts...................................................................... 9
INFORMATION NOT REQUIRED IN PROSPECTUS.................................... II-1
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The Company
We are a holding company incorporated in Delaware. We offer a variety of
insurance products through our subsidiaries. Our largest subsidiary is National
American Insurance Company of California. NAICC and its subsidiaries write
workers' compensation, non-standard private passenger and commercial automobile
insurance in the western United States, primarily California. We believe that
through NAICC we can achieve underwriting success through refinement of various
risk profiles. This helps us divide the non-standard market into more defined
segments, which enables us to price our products more precisely.
We are seeking to build stockholder value while maintaining a strong
capital structure. We are also seeking to grow by developing business
partnerships and making strategic acquisitions, including acquisitions that will
both complement our existing operations and enable us to earn an attractive
return on our investment.
As of December 31, 1999, we have a consolidated federal net operating loss
carryforward, commonly referred to as an NOL, of approximately $1.1 billion. The
NOL will expire in various amounts, if not used, between 2000 and 2012. The NOL
is currently fully reserved (that is, valued at $0) on our financial statements
in accordance with applicable accounting rules. It will remain fully reserved
unless our estimates of our future taxable income during the NOL carryforward
period are increased. There is no guarantee that we will be able to increase
such estimates.
Our principal executive offices are located at 767 Third Avenue, New York,
New York, 10017. Our telephone number at that address is (212) 888-0347.
Risk Factors
Before purchasing the shares offered by this prospectus, you should
carefully consider the risks described below, in addition to the other
information presented in this prospectus or incorporated by reference into this
prospectus. Some or all of the following risks could seriously harm our
business, financial condition or results of operations. In such case, the
trading price of our common stock could decline and you may lose all or part of
your investment.
Provisions in our Certificate of Incorporation that limit ownership and
transferability of our stock may entrench current management and the current
stockholders. We are required to issue, in our name, as escrow agent,
certificates representing shares of common stock that are beneficially owned by
holders of 5% or more of our stock. In addition, when we receive the written
request from a 5% Stockholder to transfer their shares, we may refuse such
request upon the advice of our tax counsel that such transfer would create an
unreasonable risk of an "ownership change ". In no circumstances may anyone
acquire 5% or more of our stock without our consent.
Although we currently rely on cash and short term investments to meet our
liquidity needs, we may experience liquidity constraints in the future. In such
event, we may rely on dividends and tax sharing payments from our subsidiaries.
These dividends and tax sharing payments may not be available because, among
other things:
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o In some cases, our subsidiaries must first receive regulatory
approval before paying us dividends.
o There are business and regulatory considerations that affect our
subsidiaries, including the impact of dividends on surplus which
could affect a subsidiary's insurance ratings, its competitive
position, the amount of premiums that it can write and its
risk-based capital requirements.
o There may be a prolonged material decline in an insurance
subsidiary's profits or materially adverse insurance regulatory
developments.
We cannot be certain that our business plan will be achieved. Although we
have sought to grow through entering into strategic partnerships or making
acquisitions, we have limited financial resources and there are constraints on
our ability to issue additional stock or otherwise raise capital to finance
transactions. This may prevent us from successfully consummating any future
transactions.
Our insurance business is affected by many factors outside of our control
such as weather conditions and economic activity that can cause fluctuations in
the results of our operations. Our business is concentrated primarily in the
Western United States. If this area experiences an economic downturn, there
could be fewer car sales, less demand for automobile insurance and lower policy
amounts in addition to increased workers' compensation claims. Severe adverse
weather conditions could also adversely affect our business. These factors,
together with competitive pricing, could result in increases in our loss ratios
and fluctuations in our underwriting results and net income.
We compete both with large national writers and with smaller regional
companies in each state in which we operate. Some of these competitors are
larger and have greater financial resources than us. Some of these competitors
in the workers' compensation line of business have, from time to time, decreased
their prices significantly to gain market share. Our ability to grow depends on
our ability to expand in the states in which we already do business and to
expand into other states.
We are subject to insurance laws and regulations established by the states
in which we transact business. The agencies established pursuant to these state
laws have broad administrative and supervisory powers which can impact our
insurance business including:
o the granting and revocation of licenses to transact insurance
business
o regulation of trade practices
o establishment of guaranty associations
o licensing of agents
o approval of policy forms
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o premium rate filing requirements
o reserve requirements
o the form and content of required regulatory financial statements
o periodic examinations of insurers' records
o capital and surplus requirements and the maximum concentrations
of certain classes of investments
These laws, in general, also require approval of the particular insurance
regulators prior to certain actions by the insurance companies, including the
payment of dividends in excess of statutory limitations and certain transactions
and continuing service arrangements with affiliates. The laws of most states
provide for the filing of premium rate schedules and other information with the
insurance commissioner of a particular state, either directly or through rating
organizations. The insurance commissioner of each state generally has powers to
disapprove such filings or make changes to the rates if they are found to be
excessive, inadequate or unfairly discriminatory. The determination of rates is
based on various factors, including loss and loss adjustment expense experience.
The failure to obtain, or delay in obtaining, the required approvals could have
an adverse impact on the operations of our insurance subsidiaries. We are also
required by insurance regulators to maintain certain minimum amounts of capital.
We are required to estimate liability for losses and loss adjustment
expenses. Our insurance subsidiaries establish provisions to cover their
estimated liability for losses and loss adjustment expenses ("LAE") with respect
to both reported and unreported claims as of the end of each accounting period.
By their nature, these provisions for unpaid losses and LAE do not represent an
exact calculation of liabilities. Rather, they are estimates involving
management's projections as to the ultimate settlement and administration of
claims. These expectations are, in turn, based on, among other things:
o facts and circumstances known at the time
o predictions of future events
o estimates of future trends in the severity and frequency of claims
o judicial theories of liability
o inflation
Our insurance subsidiaries regularly review their respective reserve
techniques and reserve positions and believe that adequate provision has been
made for their respective unpaid losses and LAE. We cannot insure that currently
established provisions for unpaid losses and LAE will prove adequate in light of
subsequent actual experience. Future earnings could be adversely impacted should
future loss development require increases in provisions for unpaid losses and
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LAE previously established for prior periods.
The volume of trading in our stock has historically been low. Having a
market for shares without substantial liquidity can adversely affect the price
of the stock at a time an investor might want to sell his shares.
We can not be certain that the NOL will continue to be available to
offset our tax liability. We believe, based in part upon the views of our tax
advisors, that our NOL calculations are reasonable and that it is reasonable to
conclude that some or all of our NOL would be available to offset our future
federal taxable income, if any. The Internal Revenue Service ("IRS") has not
examined our tax returns for the years in which the losses giving rise to the
NOL were reported. The IRS may attempt to challenge the amount or availability
of the NOL in the event of a future tax audit. If the IRS disallows all or a
portion of the NOL, the disallowance, if sustained by the courts, could have an
adverse impact on our financial condition. In addition, if were to undergo an
"ownership change" as such term is used in Section 382 of the Internal Revenue
Code, the use of our NOL would be severely limited. Our Certificate of
Incorporation contains stock transfer restrictions which were designed to help
us preserve the NOL by avoiding an ownership change. We cannot be certain,
however, that these restrictions will prevent an ownership change.
Subsequent Event
In January 1999, NAICC (and its subsidiaries) entered into a workers'
compensation reinsurance agreement with Reliance Insurance Company. The
reinsurance agreement was to be effective from January 1,1999 through December
31, 2000, and covered workers' compensation losses in excess of $10,000 per
claim, with a maximum loss per claim of $18,000. In January 2000, NAICC agreed
to rescind the reinsurance agreement in exchange for a payment of $8,000,000
plus the return of all net premiums remitted to Reliance Insurance during the
term of the agreement.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file with the Commission at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our Commission filings are also available to the public at the
Commission's web site at http://www.sec.gov.
The common shares are traded on the American Stock Exchange. Material
filed by us can be inspected at the offices of the American Stock Exchange at 86
Trinity Place, New York, NY 10006.
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those
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documents. The information incorporated by reference is considered to be
part of this prospectus, and information that we file later with the Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act prior to the termination of the offerings described in this
prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(SEC file number 001-06732 and filing date of March 30, 1999);
2. Quarterly Report on Form 10-Q, for the quarterly period ended March 31,
1999 (SEC file number 001-06732 and filing date of May 17, 1999);
3. Quarterly Report on Form 10-Q, for the quarterly period ended June 30,
1999 (SEC file number 001-06732 and filing date of August 13, 1999);
4. Quarterly Report on Form 10-Q/A for the quarterly period ended June 30,
1999 (SEC file number 001-06732 and filing date of August 18, 1999);
5. Quarterly Report on Form 10-Q, for the quarterly period ended September
30, 1999 (SEC file number 001-06732 and filing date of November 15, 1999);
6. Proxy Statement on Schedule 14A for the 1999 Annual Meeting (SEC file
number 001-06732 and filing date of June 1, 1999);
7. Current Report on Form 8-K dated April 14, 1999 (SEC file number 001-06732
and filing date of May 26, 1999);
8. Current Report on Form 8-K/A dated April 14, 1999 (SEC file number
001-06732 and filing date of May 26, 1999).
You may request a copy of these filings, at no cost, by writing or
telephoning as follows: Danielson Holding Corporation, 767 Third Avenue, New
York, New York, 10017 (212) 888-0347, Attention: Ian M. Kirschner, Esq.
This prospectus is part of a registration statement on Form S-3 we filed
with the SEC under the Securities Act. You should rely only on the information
or representations provided in this prospectus. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
Forward-Looking Statements
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, management's beliefs and certain
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assumptions made by us. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and variations of these words or
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Therefore,
our actual results could differ materially from those expressed or forecasted in
any forward-looking statements as a result of a variety of factors, including
those set forth in "Risk Factors" above and elsewhere in, or incorporated by
reference into, this prospectus. We undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Use of Proceeds
The selling stockholders received all of their shares of common stock in a
private placement that closed in December 1999. Each selling shareholder also
received registration rights when they purchased their shares. In connection
with these registration rights, we are required to use our best efforts to keep
the registration statement effective for no more than two years subsequent to
the last date the shares were subscribed for and sold.
The selling stockholders are offering all of the shares of common stock
covered by this prospectus. We received gross proceeds of $4,162,500, and net
proceeds of $4,108,500 as a result of the private placement pursuant to which
the selling stockholders purchased their shares. The $54,000 difference between
gross and net proceeds is a result of brokerage fees paid to an affiliated
broker-dealer as more fully described in "Plan of Distribution," on page 7
below. We will not receive any proceeds from the sale of the shares by the
selling stockholders.
Selling Stockholders
The following table sets forth the number of shares owned by each of the
selling stockholders. All information contained in the table below is based upon
their beneficial ownership as of February 11, 1999. We are not able to estimate
the amount of shares that will be held by the selling stockholders after the
completion of this offering because the selling stockholders may offer all or
some of their shares and because there currently are no agreements, arrangements
or understandings with respect to the sale of any of their shares. The following
table assumes that all of the shares being registered will be sold. The selling
stockholders are not making any representation that any shares covered by the
prospectus will be offered for sale. The selling stockholders reserve the right
to accept or reject, in whole or in part, any proposed sale of shares.
<TABLE>
<CAPTION>
Number of Shares
Registered for Number of Shares
Name of Selling Stockholder Sale Hereby Beneficially Owned
<S> <C> <C>
Bedford Oak Advisors, LLC 150,000 300,000
Terry Diamond Trust 75,000 75,000
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The Diamond Family Foundation 25,000 25,000
Bernard Osher, Trustee, Bernard 50,000 50,000
Osher Trust U/T/D 3/8/88
Jerome Blank 50,000 50,000
Rod Dammeyer 80,000 80,000
William Pate(1) 20,000 20,000
5 BF Partners 5,000 5,000
Mr. Harvey Becker 10,000 41,281
Homestead Ltd. 50,000 50,000
George E. Crapple 10,000 10,000
Michael G. Jesselson 12/18/80 50,000 50,000
Trust
October 1983 Grandchildren Trust 100,000 100,000
Martin S. Kimmel 50,000 100,000(2)
Adam P. Kimmell Minority Trust II 50,000 50,000
Milton Cooper 25,000 25,000
Robert Wueste 10,000 15,000
Long Meadow Holdings LP 90,000 450,000
Total 900,000 1,496,281
</TABLE>
(1) William Pate is also one of our directors.
(2) Includes 50,000 shares owned by Adam P. Kimmell Minority Trust II of which
Mr. Kimmell is trustee.
Each of the selling stockholders will own less than 1% of our common
stock, either directly or beneficially, after the offering.
Plan of Distribution
We are registering the common stock on behalf of the selling stockholders.
As used in this prospectus, the term "selling stockholders" includes pledgees,
transferees or other successors-in-interest selling shares received from the
selling stockholders as pledgor, borrower or in connection with other
non-sale-related transfers after the date of this prospectus. This prospectus
may also be used by transferees of the selling stockholders, including
broker-dealers or other transferees who borrow or purchase the shares to settle
or close out short sales of shares of common stock. The selling stockholders
will act independently of us in making decisions with respect to the timing,
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manner, and size of each sale or non-sale related transfer. We will not receive
any of the proceeds of this offering.
We paid MJ Whitman Inc. $54,000 in commissions for placing the common
stock with certain selling shareholders. MJ Whitman Inc. is a registered
broker-dealer. All of our executive officers are also executive officers and
indirect owners of MJ Whitman Inc.
The selling stockholders are offering shares of common stock that they
received in the private placement. This prospectus covers their resale of up to
900,000 shares of common stock.
The selling stockholders may sell their shares of common stock directly to
purchasers from time to time. Alternatively, they may from time to time offer
the common stock to or through underwriters, broker/dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders or the purchasers of such securities
for whom they may act as agents. The selling stockholders and any underwriters,
broker/dealers or agents that participate in the distribution of common stock
may be deemed to be "underwriters" within the meaning of the Securities Act and
any profit on the sale of such securities and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The common stock may be sold from time to time in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The sale of the
common stock may be effected by means of one or more of the following
transactions (which may involve crosses or block transactions):
o on any national securities exchange, such as the AMEX, or
quotation service on which the common stock may be listed or
quoted at the time of sale,
o in the over-the-counter market,
o in transactions otherwise than on such exchanges or services or
in the over-the-counter market
o through the purchase and sale of over-the-counter options.
In connection with sales of the common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker/dealers, which may
in turn engage in short sales of the common stock in the course of hedging the
positions they assume. The selling stockholders may also sell common stock short
and deliver common stock to close out such short positions, or loan or pledge
common stock to broker/dealers that in turn may sell such securities.
At the time a particular offering of the common stock is made, a
prospectus supplement, if required, will be distributed which will set forth the
aggregate amount common stock being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers or agents, any
discounts, commissions and other terms constituting compensation
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from the selling stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the common stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers.
The selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the common stock by the
selling stockholders. The foregoing may affect the marketability of such
securities.
Our certificate of incorporation prohibits any person from becoming a
beneficial owner of 5% or more of our outstanding common stock. This restriction
may significantly limit the marketability of our common stock as fewer investors
will be able to acquire it than if the restriction did not exist.
Pursuant to the Purchase Agreement with the selling stockholders, all
expenses of the registration of the common stock will be paid by us, including,
without limitation, the SEC filing fees; provided, however, that the selling
stockholders will pay all underwriting discounts and selling commissions, if
any. The selling stockholders will be indemnified by us against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith. We will be indemnified by the
selling stockholders severally against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
Legal Matters
The validity of the Securities offered hereby is being passed upon by
Zukerman, Gore and Brandeis, LLP. As of the date of this prospectus, certain
members of in Zukerman Gore & Brandeis, LLP who have worked on substantive
matters for us or our subsidiaries will own an aggregate of 7,000 shares of
common stock.
Experts
KPMG LLP, independent auditors, have audited our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1998, as set forth in their reports, which are incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on KPMG LLP's
reports, given on their authority as experts in accounting and auditing.
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