SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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DANIELSON HOLDING CORPORATION
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DANIELSON HOLDING CORPORATION
2 North Riverside Drive, Suite 600
Chicago, Illinois 60606
(312) 466-4030
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 5, 2003
Notice is hereby given that the 2003 Annual Meeting of Stockholders (the
"Annual Meeting") of Danielson Holding Corporation (the "Company") will be held
on November 5, 2003 at the One North Franklin Street, Third Floor, Chicago,
Illinois at 9:00 a.m. Central Standard Time, for the following purposes:
1. To elect Class eight directors to a one year term;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the 2003 fiscal year; and
3. To consider such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors of the Company has fixed the close of business on
October 6, 2003 as the record date for the determination of Stockholders
entitled to notice of and to vote at the Annual Meeting and at any adjournment
or postponement thereof.
By Order of the Board of Directors
/s/ DAVID S. STONE
--------------------------------------
David S. Stone
Secretary
All Stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the meeting, please complete, date,
sign and return the enclosed proxy card as promptly as possible in order to
ensure your representation at the Annual Meeting. A return envelope (which is
postage pre-paid if mailed in the United States) is enclosed for that purpose.
Even if you have given your proxy, you may still vote in person if you attend
the Annual Meeting. Please note, however, that if your shares are held of record
by a broker, bank or other nominee and you wish to vote at the Annual Meeting,
you must obtain from the record holder a proxy issued in your name.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 5, 2003
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Danielson Holding Corporation, a Delaware corporation (the
"Company"), for use at the 2003 Annual Meeting of Stockholders to be held on
November 5, 2003 (the "Annual Meeting") at 9:00 a.m., Central Standard Time, or
any adjournment or postponement thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at
One North Franklin Street, Third Floor, Chicago, Illinois. This proxy statement
and accompanying proxy card were mailed on or about October 7, 2003 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the form enclosed herewith will be
paid by the Company. In addition to the solicitation of proxies by mail, the
directors, officers and employees of the Company may also solicit proxies
personally or by telephone without additional compensation for such activities.
Brokers and other nominees who held common stock of the Company at the close of
business on October 6, 2003 (the "Record Date") will be asked to contact the
beneficial owners of the shares that they hold to send proxy materials to and
obtain proxies from such beneficial owners. 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 OUTSTANDING SHARES
Only holders of record of the Company's Common Stock, par value $0.10 per
share (the "Common Stock"), at the close of business on the Record Date will be
entitled to notice of and to vote at the Annual Meeting. At the close of
business on the Record Date, the Company had outstanding and entitled to vote
30,754,095 shares of Common Stock. Each holder of record of Common Stock on such
date will be entitled to one vote for each share held on all matters to be voted
upon at the Annual Meeting. The presence in person or by proxy of stockholders
entitled to cast a majority of all of the votes entitled to be cast at the
Annual Meeting, including shares represented by proxies that reflect
abstentions, shall constitute a quorum. Abstentions and broker non-votes are
counted for the purposes of determining the presence or absence of a quorum for
the transaction of business. In the election for directors, the eight nominees
receiving the highest number of "FOR" votes will be elected to the Board. All
other proposals require the affirmative "FOR" vote of a majority of those shares
present and entitled to vote. An abstention as to any matter, when passage
requires the vote of a majority of the votes entitled to be cast at the Annual
Meeting, will have the effect of a vote "AGAINST." Broker non-votes (i.e., where
a broker or nominee submits a proxy specifically indicating the lack of
discretionary authority to vote on a matter) will not be considered, as they are
not entitled to vote, and will not be counted for any purpose in determining
whether a matter has been approved.
If there is not a quorum at the Annual Meeting, the stockholders entitled
to vote at the Annual Meeting, whether present in person or represented by
proxy, shall only have the power to adjourn the Annual Meeting until such time
as there is a quorum. The Annual Meeting may be reconvened without notice to
stockholders, other than an announcement at the prior adjournment of the Annual
Meeting, within 30 days after the Record Date, and a quorum must be present at
such reconvened meeting.
Representatives of American Stock Transfer & Trust Company, the Company's
transfer agent, will tabulate the votes and act as the inspector of the election
at the Annual Meeting.
If a proxy in the form enclosed is duly executed, dated and returned, and
it has not been revoked in accordance with the instructions set forth therein,
the shares of Common Stock represented thereby will be voted by Samuel Zell and
Philip G. Tinkler, the Board's proxy agents for the Annual Meeting, in
accordance with the specifications made thereon by the stockholder. If no such
specifications are made, such proxy will be voted (i) for the election of the
eight nominees for director to the Board for one year terms; (ii) for the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors; and (iii) at the discretion of Mr. Zell and Mr. Tinkler,
with respect to such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof. If for any unforeseen
reason, any of the Company's nominees is not available as a candidate for
director, the two proxy holders will vote the stockholder proxies for such other
candidate or candidates as may be nominated by the Board. Any proxy solicited
hereby may be revoked by the person or persons giving it at any time before it
has been exercised at the Annual Meeting by giving notice of revocation to the
Company in writing at the meeting. The Company requests that all such written
notices of revocation to the Company be addressed to Philip G. Tinkler,
Danielson Holding Corporation, 2 North Riverside Plaza, Suite 600, Chicago,
Illinois 60606. Mere attendance at the Annual Meeting will not serve to revoke a
proxy.
BOARD STRUCTURE AND COMPENSATION
The Board currently consists of eight members and one vacancy and has
standing Audit and Compensation Committees. The Board does not have a nominating
committee or a committee performing the functions of a nominating committee.
During the 2002 fiscal year, the Board held ten meetings and took four actions
by written consent. During the 2002 fiscal year, the Audit Committee held three
meetings and the Compensation Committee held one meeting. In addition the Board
also has an Acquisition Committee and, as a result of the bankruptcy of American
Commercial Lines LLC ("ACL") and certain of its subsidiaries and the ownership
of certain bonds issued by ACL by an affiliate of Samuel Zell, the Chairman and
Chief Executive Officer of the Company, and Philip Tinkler, the Chief Financial
Officer of the Company, the Board has established a Special Committee of
disinterested directors ("ACL Special Committee") to address matters involving
the restructuring of ACL. Committee membership during the 2002 fiscal year and
the function of the Audit and Compensation Committees are described below. Each
director attended at least 75% of all Board meetings and applicable committee
meetings.
COMMITTEES
The Audit Committee of the Board (the "Audit Committee") currently consists
of Messrs. Huber (Chairman), Sullivan and Yeutter. All of the current members
are Independent Directors, as defined by Section 121 (A) of the American Stock
Exchanges listing standards. The Audit Committee held three meetings in 2002.
The Audit Committee is responsible for the oversight of the quality and
integrity of the Company's financial statements, its compliance with legal and
regulatory requirements, the qualifications and independence of its independent
auditors, the performance of its audit function and independent auditors and
significant financial matters. In discharging its duties, the Audit Committee is
expected to do the following:
- have the sole authority to select, compensate, oversee, evaluate and
replace the independent auditors;
- review and approve the scope of the annual audit;
- review and pre-approve the engagement of the Company's independent
auditors to perform audit and non-audit services, as well as the related
fees for such services;
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- meet independently with the Company's independent auditors and senior
management;
- review the integrity of the Company's financial reporting process;
- review the Company's financial statements and disclosures and U.S.
Securities and Exchange Commission ("SEC") filings relating thereto; and
- review disclosure from the Company's independent auditors regarding
Independence Standards Board Standard No. 1.
The Compensation Committee consists of Messrs. Sullivan (Chairman), Barse
and Isenberg, all non-employee directors. The Compensation Committee held two
meetings in 2002. The Compensation Committee reviews, and makes recommendations
to the Board concerning, the Company's executive compensation policy.
The Acquisition Committee consists of Messrs. Barse, Pate, Whitman and
Zell. The Acquisition Committee reviews, and makes recommendations to the Board
concerning potential transactions for the Company.
The ACL Special Committee consisted of Messrs. Barse, Huber and Isenberg.
Mr. Huber resigned from the ACL Special Committee on July 16, 2003 in connection
with his appointment to the ACL Board of Managers. The ACL Special Committee
addresses all matters involving the Company and the restructuring of ACL and its
subsidiaries.
COMPENSATION OF THE BOARD OF DIRECTORS
Prior to July 24, 2002, 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. Each eligible Director
prior to July 24, 2002 was paid $10,000. Audit Committee members each received
$2,500 in 2002 for their service on the Audit Committee. Directors who are
officers or employees of the Company or its subsidiaries receive no fees for
service on the Board. No attendance fee was paid to any Director with respect to
any committee meetings.
After July 24, 2002, the Board ratified an annual fee of $30,000 payable to
each Director who is not an officer or employee of the Company or its
subsidiaries. For 2002, and after July 24, 2002, each eligible Director was paid
$15,000, which is the $30,000 annual fee prorated for the shortened period.
Members of the Audit, Compensation and other Committees receive $1,500 per
meeting.
In addition, each non-employee director upon joining the Board of Directors
on July 24, 2002 received a grant of options to purchase an aggregate of 40,000
shares of Common Stock pursuant to the 1995 Stock and Incentive Plan. The
options had an exercise price of $4.26 per share and vest pro rata over a period
of three years.
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PROPOSALS TO BE VOTED ON
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A Board of eight 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. A ninth board seat will remain vacant with the intention that if
the California Commissioner of Insurance seeks to have board representation, the
other members of the Board will have the ability to appoint a suitable candidate
proposed by the Commissioner for that role. Management's nominees for the eight
Director positions to be filled by vote at the Annual Meeting are as follows
("Management Nominees"):
David M. Barse
Richard L. Huber
Eugene M. Isenberg
William C. Pate
Joseph P. Sullivan
Martin J. Whitman
Clayton Yeutter
Samuel Zell
Each of the Management Nominees currently is a Director of the Company and
was elected to their present terms as Directors by the stockholders at the
Annual Meeting of Stockholders of the Company held on July 24, 2002. Each
Management Nominee has consented to be named in this Proxy Statement and to
serve as a Director if elected. However, if any Management 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. It is intended that, unless authorization to
do so is withheld, the proxies will be voted "FOR" the election of the
Management Nominees.
The term of office of each Director will continue 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
Management Nominee for election as a Director and any other Management Nominee
for election as a Director or executive officer of the Company. The information
set forth below concerning the Management Nominees has been furnished by such
Management Nominees to the Company.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE FOLLOWING
MANAGEMENT NOMINEES TO THE BOARD AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED "FOR" THE ELECTION OF EACH OF THE NOMINATED DIRECTORS UNLESS INSTRUCTIONS
TO WITHHOLD OR TO THE CONTRARY ARE GIVEN.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DAVID M. BARSE has served as a Director since 1996. Mr. Barse is a member
of the Compensation and ACL Special Committees. Mr. Barse served as the
President and Chief Operating Officer of the Company from July 1996 until July
24, 2002. Since June 1995, Mr. Barse has been the President (and, since July
1999, Chief Executive Officer) of M.J. Whitman, Inc. ("MJWI"), a full service
broker-dealer. From April 1995 until February 1998 he served as the Executive
Vice President and Chief Operating Officer of Third Avenue Trust and its
predecessor, Third Avenue Value Fund, Inc. (together with its predecessor,
"Third Avenue Trust"), before assuming the position of President in May 1998 and
Chief Executive Officer in September 2003. Since February 1998, Mr. Barse has
served as President, and since June 2003, Chief Executive Officer of EQSF
Advisers, Inc. ("EQSF"), the investment adviser of Third Avenue Trust and
Variable Trust. Since July 1999, Mr. Barse has been the President and Chief
Operating
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Officer, and since September 2003, the Chief Executive Officer of Third Avenue
Variable Series Trust ("Variable Trust"), a registered open-end management
investment company. In 2001, Mr. Barse became Trustee of both the Third Avenue
Trust and Variable Trust. Mr. Barse joined the predecessor of MJWI in December
1991 as General Counsel. Mr. Barse also presently serves as a director of CGA
Group, Ltd., a Bermuda based financial services company, and American Capital
Access Holdings, a financial insurance company. Mr. Barse is 41 years old.
RICHARD L. HUBER has been a Director since July, 2002. Mr. Huber is the
Chairman of the Audit Committee. Mr. Huber has been Managing Director, Chief
Executive Officer and Principal of the Latin American direct investment group
Norte-Sur Partners, a direct private equity investment firm focused on Latin
America since January 2001. Mr. Huber held various positions with Aetna, Inc.
since 1995, most recently as the Chief Executive Officer until February, 2000.
Mr. Huber has approximately forty years of prior investment and merchant
banking, international business, and management experience, including executive
positions with Chase Manhattan Bank, Citibank, Bank of Boston, and Continental
Bank. Mr. Huber is also Chairman of UABL Ltd., a 50% owned subsidiary of the
Company, and a director of Opticare Health Systems, Inc., an integrated eye care
services company. Mr. Huber is 66 years old.
EUGENE M. ISENBERG has been a Director since 1990. Mr. Isenberg is a
member of the Compensation and ACL Special Committees. Mr. Isenberg has been
Chairman and Chief Executive Officer of Nabors Industries, Inc., the worlds
largest land and offshore platform drilling company since 1987. Prior to 1987,
Mr. Isenberg was Chairman of the Board and principal stockholder of Genimar
Inc., a steel trading and building products company and served in various
management capacities with Exxon Corp. Mr. Isenberg presently serves as a
director of the American Stock Exchange, the National Association of Securities
Dealers, Inc., and the National Petroleum Council. Mr. Isenberg founded and is
the principal sponsor of the Parkside School for children with learning
disabilities in New York City and The University of Massachusetts Eugene M.
Isenberg School of Management is named in recognition of his generous
contributions. Mr. Isenberg is 73 years old.
WILLIAM C. PATE has been a Director since 1999. Mr. Pate is Managing
Director of Equity Group Investments, L.L.C., a privately-held financial advisor
("EGI"). Mr. Pate has been employed by EGI or its predecessor in various
capacities since 1994. Mr. Pate is 39 years old.
JOSEPH P. SULLIVAN has been a Director since July 2002. Mr. Sullivan is the
Chairman of the Compensation Committee. Mr. Sullivan is a private investor and
is currently retired after serving as the Chairman of the Board of IMC Global
from July 1999 to November 2000, and as a Member of its Board of Directors and
Executive Committee from March 1996 through December 2000. Mr. Sullivan served
as Chairman of the Board of the Vigoro Corporation from March 1991 through
February 1996 and as its Chief Executive Officer from March 1991 to September
1994. Mr. Sullivan is 70 years old.
MARTIN J. WHITMAN has been a Director since 1990. Mr. Whitman is a member
of the ACL Special Committee and was formerly a member of the Audit Committee.
Mr. Whitman served as the Chief Executive Officer of the Company from July 1996
until July 24, 2002. 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. Since March 1990, Mr. Whitman has been the Chairman of the Board,
Chief Executive Officer (until September 2003) and a Trustee (and, from January
1991 to May 1998, the President) of Third Avenue Trust. Since July 1999, Mr.
Whitman has been the Chairman of the Board, Chief Executive Officer (until
September 2003) and a Trustee of Variable Trust. Since March 1990, Mr. Whitman
has been Chairman of the Board (and, until February 1998, the President and
until June 2003 Chief Executive Officer) of EQSF. Since March 1991, Mr. Whitman
has served as a Director of Nabors Industries, Inc. ("Nabors"), a
publicly-traded oil and gas drilling company. Mr. Whitman is 79 years old.
CLAYTON YEUTTER has served as a Director since July 2002. Mr. Yeutter is a
member of the Audit Committee. Mr. Yeutter has been Of Counsel to Hogan &
Hartson LLP, a law firm in Washington, D.C., since 1993 where he has an
international trade and agricultural law practice. From 1985 through 1991 he
served in the Reagan Administration as the U.S. Trade Representative and in the
first Bush
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Administration as Secretary of Agriculture. During 1991-92 he was Chairman of
the Republican National Committee and then returned to the Bush Administration
as Counselor to the President for most of 1992. He was President and Chief
Executive Officer of the Chicago Mercantile Exchange from 1978-1985. In the
1970s, Mr. Yeutter held several positions in the Nixon and Ford Administrations
as Assistant Secretary of Agriculture for Marketing and Consumer Services,
Assistant Secretary of Agriculture for International Affairs and Commodity
Programs, and Deputy Special Trade Representative. Mr. Yeutter is the Chairman
of the Board of Oppenheimer Funds, an institutional investment manager, a
director of Weyerhaeuser Company, a timber, forest products and real estate
company, Crop Solutions, Inc., a privately owned agricultural chemical company
and America First, a privately owned investment management company. Mr. Yeutter
is 72 years old.
SAMUEL ZELL has served as a Director since 1999 and as the President, Chief
Executive Officer and Chairman of the Board of the Company since July 24, 2002.
Mr. Zell has served as Chairman of the Board of Directors of EGI, a
privately-held financial advisor, since 1999, and had been Chairman of the Board
of its predecessor, Equity Group Investments, Inc., for more than five years.
Mr. Zell has been a trustee and Chairman of the Board of Trustees of Equity
Office Properties Trust, an equity real estate investment trust (a "REIT")
primarily focused on office buildings, since October 1996, and was named
President and Chief Executive Officer in April 2002. For more than the past five
years, Mr. Zell has served as Chairman of the Board of Anixter International,
Inc., a distributor of electrical and cable products; as Chairman of the Board
of Trustees of Manufactured Home Communities, an equity REIT primarily focused
on manufactured home communities; and as Chairman of the Board of Trustees of
Equity Residential Properties Trust, an equity REIT primarily focused on
multifamily residential properties. Since July 1997, Mr. Zell has been Chairman
of the Board of Capital Trust, Inc., a specialized finance company. Since March
1997, Mr. Zell has served as a Director of Chart House Enterprises, Inc., an
owner and operator of restaurants, and since May 1998 has been Chairman of the
Board. Mr. Zell was the Chairman of the Board of Directors of American Classic
Voyages, Inc., a cruise line company, that filed for bankruptcy on October 19,
2001. Mr. Zell is 62 years old.
In addition to Messrs. Zell, Whitman and Barse, the other executive
officers of the Company as of December 27, 2002 and the newly appointed Chief
Financial Officer of the Company were as follows:
MICHAEL C. HAGAN has served as President and Chief Executive Officer of ACL
and its subsidiaries and Chairman of the ACL Board of Managers since 1991. Mr.
Hagan was a director of the Company until his resignation on January 22, 2003
and has announced his retirement from the Company to be effective on October 31,
2003. ACL was acquired by the Company on May 22, 2002. Mr. Hagan is 56 years
old.
PAUL F. SOLOMON served as Executive Vice President, General Counsel and
Secretary of the Company from July 24, 2002 until his resignation as of July 15,
2003. From November 1999 to August 2001, Mr. Solomon was Vice President and
General Counsel of Blue Chip Broadcasting Company. From February 1997 through
May 1999, Mr. Solomon was Senior Vice President, General Counsel and Secretary
of Jacor Communications, Inc. Mr. Solomon is 43 years old.
PHILIP G. TINKLER has served as the Chief Financial Officer of the Company
since January 27, 2003. Mr. Tinkler is Chief Financial Officer of EGI and has
served in various other capacities for EGI or its predecessor since 1990. Mr.
Tinkler has been Vice President -- Finance and Treasurer of First Capital
Financial, LLC, a sponsor of public limited real estate partnerships, since
April 2001. Mr. Tinkler is 38 years old.
JAMES J. WOLFF served as Chief Financial Officer of the Company from May
2002 until January 22, 2003. He also served as a Member of the ACL Board of
Managers and as Senior Vice President, Finance and Chief Financial Officer of
ACL and its subsidiaries from August 1998 until May 2003. Mr. Wolff served as
Senior Vice President -- Finance of ACL from 1992 until 1996, chief of
international business development of ACL in 1996. ACL was acquired by the
Company on May 22, 2002. Mr. Wolff is 46 years old.
6
PROPOSAL 2
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has appointed Ernst & Young LLP as the Company's
independent auditors to audit its consolidated financial statements for the year
ending December 31, 2003, subject to ratification of the appointment by the
Company's stockholders. During the 2002 fiscal year, Ernst & Young LLP served as
the Company's independent auditors and also provided certain tax and other
consulting services. The Company has been advised by Ernst & Young LLP that
neither it nor any of its members has any direct or indirect financial interest
in the Company.
Although the Company is not required to seek stockholder approval of this
appointment, the Audit Committee and the Board believe it to be sound corporate
practice to do so. If the appointment is not ratified, the Audit Committee will
investigate the reasons for stockholder rejection and the Audit Committee will
reconsider the appointment. Representatives of Ernst & Young LLP are expected to
attend the Annual Meeting where they will be available to respond to appropriate
questions and, if they desire, to make a statement.
THE AUDIT COMMITTEE RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS UNLESS
INSTRUCTIONS TO WITHHOLD OR TO THE CONTRARY ARE GIVEN.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September 30, 2003,
concerning:
- beneficial ownership of the Company's Common Stock by SZ Investments LLC,
Martin J. Whitman, David M. Barse and the Commissioner of Insurance of
the State of California, the only beneficial owners of 5% or more of the
Company's Common Stock;
- beneficial ownership of the Company's Common Stock by all current
directors and executive officers named in the Summary Compensation Table
herein; and
- beneficial ownership of the Company's Common Stock by all current
directors and executive officers as a group.
The number of shares beneficially owned by each entity, person, current
director or Named Executive Officer is determined under the rules of the SEC,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has the right to acquire as of December 5, 2003, 60 days
after the record date of October 6, 2003, through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power, or shares such powers with his or her spouse, or
dependent children within his or her household with respect to the shares set
forth in the following table. Unless otherwise indicated, the address for all
current executive officers and directors is c/o Danielson Holding Corporation, 2
North Riverside Plaza, Suite 600, Chicago, Illinois 60606.
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AMOUNT AND NATURE
OF BENEFICIAL PERCENT
PRINCIPAL STOCKHOLDERS OWNERSHIP(1) OF CLASS
---------------------- ----------------- --------
SZ Investments LLC.......................................... 5,563,945(1)(5) 18.03
2 N. Riverside Plaza
Chicago, IL 60606
Martin J. Whitman........................................... 1,989,111(2) 6.47
c/o Third Avenue Management
622 Third Avenue
New York, NY 10017
Commissioner of Insurance................................... 1,803,235(1)(3) 5.86
of the State of California
c/o Loren Suter Special Deputy
Commissioner Mission Insurance
Companies' Trusts
425 Market Street
San Francisco, CA 94105
David M. Barse.............................................. 1,683,493(4) 5.42
c/o Third Avenue Management
622 Third Avenue
New York, NY 10017
OFFICERS AND DIRECTORS
Samuel Zell................................................. 5,563,945(1)(5) 18.03
David M. Barse.............................................. 1,683,493(4) 5.42
Michael C. Hagan (resigned as Director of the Company as of
January 22, 2003)......................................... 116,543(6) *
Richard L. Huber............................................ 33,333(7) *
Eugene M. Isenberg.......................................... 163,522(8) *
William Pate................................................ 92,438(9) *
Paul F. Solomon (resigned as Executive Vice President,
General Counsel and Secretary as of July 15, 2003)........ 100,000(10) *
Joseph P. Sullivan.......................................... 53,333(11) *
Philip G. Tinkler........................................... 16,066(12) *
James J. Wolff (resigned as Chief Financial Officer as of
January 22, 2003)......................................... 10,033(13) *
Martin J. Whitman........................................... 1,989,111(2) 6.47
Clayton Yeutter............................................. 13,333(14) *
All Officers and Directors as a Group (9 persons)........... 8,290,879 26.96
---------------
* Percentage of shares beneficially owned does not exceed one percent of the
outstanding Common Stock.
(1)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.
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(2) Includes 1,317,695 shares beneficially owned by Third Avenue Value Fund
Series ("TAVF") of the Third Avenue Trust, an investment company registered
under the Investment Company Act of 1940 and by separate accounts managed
by the investment adviser to TAVF; 170,509 shares beneficially owned by
Martin J. Whitman & Co., Inc. ("MJW&Co"), a private investment company; and
134,587 shares beneficially owned by Mr. Whitman's wife and three adult
family members. Mr. Whitman may be deemed to control 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,
in separate accounts managed by its investment adviser and owned by Mr.
Whitman's family members and, therefore, these shares are not held in
escrow by the Company.
(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 1,317,695 shares beneficially owned by TAVF and in separate
accounts managed by the investment adviser to TAVF, of which Mr. Barse is
the Chief Executive Officer. Includes shares underlying currently
exercisable options to purchase an aggregate of 50,000 shares of Common
Stock at an exercise price of $5.6875 per share, 50,000 shares of Common
Stock at an exercise price of $7.0625 per share, 25,000 shares of Common
Stock at an exercise price of $3.65625 per share, 50,000 shares of Common
Stock at an exercise price of $5.3125 per share, 50,000 shares of Common
Stock at an exercise price of $4.00 per share and 100,000 shares of Common
Stock at an exercise price of $3.37 per share. Mr. Barse disclaims
beneficial ownership of the shares of Common stock owned by TAVF or held in
accounts managed by its adviser and, therefore, these shares are not held
in escrow by the Company.
(5) Includes 5,460,612 shares of Common Stock owned by SZ Investments, LLC,
which is affiliated with Mr. Zell. Also includes shares underlying
currently exercisable options to purchase 103,333 shares of Common Stock at
an exercise price of $3.37 per share owned by Equity Group Investments,
LLC, also an affiliate of Mr. Zell ("EGI").
(6) Includes 90,293 shares of restricted stock issued to Mr. Hagan on May 29,
2002, of which 60,195 will lapse and terminate upon his retirement on
October 31, 2003. Also includes shares underlying currently exercisable
options to purchase 26,250 shares of Common Stock at an exercise price of
$5.00 per share.
(7) Includes 20,000 shares of restricted stock issued to Mr. Huber on May 29,
2002, of which one-third have vested. Also includes shares underlying
currently exercisable options to purchase 13,333 shares of Common Stock at
an exercise price of $4.26 per share.
(8) Includes 152,457 shares owned by Salmon Atlas, a partnership controlled by
Mr. Isenberg and his wife. Includes shares underlying options to purchase
an aggregate of 6,667 shares of Common Stock at an exercise price of $4.00
per share.
(9) Includes shares underlying currently exercisable options to purchase an
aggregate of 19,000 shares of Common Stock at an exercise price of $4.00
per share.
(10) Includes shares underlying currently exercisable options to purchase
100,000 shares of Common Stock at an exercise price of $5.06 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 $5.78
per share and an aggregate of 13,333 shares of Common Stock at an exercise
price of $4.26 per share.
(12) Includes shares underlying currently exercisable options to purchase an
aggregate of 4,166 shares of Common Stock at an exercise price of $4.00 per
share.
(13) Includes 10,033 shares of restricted stock issued to Mr. Wolff on May 29,
2002.
(14) Includes shares underlying currently exercisable options to purchase an
aggregate of 13,333 shares of Common Stock at an exercise price of $4.26
per share.
9
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. Executive 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.
Based upon a review of filings with the Securities and Exchange Commission
and/or written representations from certain reporting persons, the Company
believes that all of its Directors, executive officers and other Section 16
reporting persons complied during fiscal 2002 with the reporting requirements of
Section 16(a) except as follows: Messrs. Whitman, former Company President and
Chief Operating Officer, David Barse, and former Company Chief Financial
Officer, Michael Carney, each filed one late Form 4 with respect to shares of
Common Stock purchased by them upon exercise of stock rights in connection with
the consummation of the transactions under the recapitalization agreement
regarding the acquisition and recapitalization of ACL by the Company (the
"Danielson Recapitalization"); W. James Hall, former Company general counsel,
filed one late Form 3 with respect to his being named general counsel and
secretary of the Company in December 2000 and one late Form 4 with respect to
shares of Common Stock purchased by him upon exercise of stock rights in
connection with the Danielson Recapitalization; Mr. Pate filed two late Forms 4
with respect to shares of Common Stock purchased by him in May 2002 and the
other with respect to his purchase of shares of Common Stock and receipt of
stock options from the Company in December 2000; Mr. Isenberg failed to file two
Forms 4, one with respect to shares of Common Stock purchased by him upon
exercise of stock rights in connection with the Danielson Recapitalization and
the other with respect to a change in beneficial ownership arising from a 1994
transfer of 28 shares of Common Stock into a partnership controlled by him; and
former Company Directors, Frank B. Ryan and Joseph F. Porrino, each filed one
late Form 4 with respect to their receipt of stock options from the Company in
December 2000.
10
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company, or its
subsidiary companies or their predecessors for 2000 through 2002 of those
persons who served as (i) the Chief Executive Officer during 2002 (two persons),
(ii) the two most highly compensated executive officers employed by the Company
as of December 27, 2002, (iii) the former President of the Company who was one
of the Company's four most highly compensated officers but who was not serving
as an executive officer of the Company at year end, and (iv) the Chief Executive
Officer of a significant the Company subsidiary (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(4) LONG-TERM COMPENSATION AWARDS
-------------------------- -----------------------------------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) OPTIONS COMPENSATION(4)
------------------ ---- -------- -------- --------------- ---------- ---------- ---------------
Samuel Zell.......... 2002 $ 87,949
President and Chief
Executive Officer
(July 24, 2002 --
Present)
Martin J. Whitman.... 2002 $130,047
Chief Executive 2001 $200,000
Officer (July 1996 2000 $200,000
to July 24, 2002)
David M. Barse....... 2002 $ 46,978 $300,000
President and Chief 2001 $ 75,000 $ 0 $100,000
Operating Officer 2000 $ 75,000 $150,000 $ 50,000
(July 1996 to
July 24, 2002)
Paul F. Solomon...... 2002 $ 87,500 $4,620 $150,000 $ 2,277
Former Executive
Vice President,
General Counsel
and Secretary
(July 24, 2002 to
July 15, 2003)
James J. Wolff(5).... 2002 $169,000 N/A $9,240 $185,404 $140,000 $13,592
Chief Financial
Officer (July 24,
2002 to
January 22, 2003)
Michael C. Hagan(5).. 2002 $315,000 N/A $9,240 $556,205 $210,000 $52,007
President and Chief
Executive Officer
ACL (a significant
subsidiary of the
Company from
May 29, 2002 to
October 31, 2003)
---------------
(1) No bonuses were paid to Named Executive Officers in 2002, other than Mr.
Barse's bonus in connection with the closing of the Danielson
Recapitalization and his resignation from service for the Company following
that transaction.
(2) Consists of automobile allowance only.
11
(3) Consists of the dollar value of restricted stock awards (calculated by
multiplying the number of shares awarded by the closing market price of the
Company's common stock on the date of the grant -- which was $6.16 as of the
May 29, 2002 grant date) to certain members of ACL management made in
restricted Company common stock as part of the Danielson Recapitalization
whereby each of the respective Named Executive Officers holding preferred
membership units in ACL Holdings at the time of Danielson Recapitalization
abandoned those units to American Commercial Holdings LLC ("ACL Holdings")
for no consideration and received certain amounts of restricted Company
common stock from the Company for their continued employment with ACL. ACL
management received a total of 339,039 shares of restricted stock, of which
Messrs. Hagan and Wolff received 90,293 and 30,098 shares, respectively. At
December 27, 2002, the aggregate value of Messrs. Hagan and Wolff's
restricted Company common stock was $173,363 (120,391 shares multiplied by
$1.44, the closing price of the Company common stock on December 27, 2002).
(4) Amounts shown include the 2002 above-market portion of earnings on a CSX
Corporation deferred compensation program available to Mr. Hagan through his
employment at ACL in the amount of $29,621. Amounts shown also include life
insurance premium payments made on behalf of Messrs. Solomon, Hagan, and
Wolff in the amounts of $90, $5,433 and $731, respectively; matching
contributions made by ACL in conjunction with deferral of salary or bonus to
a supplementary savings plan on behalf of Messrs. Hagan and Wolff in the
amounts of $9,450 and 5,070, respectively; and payment for the provision of
tax services for Mr. Hagan in the amount of $1,991 and Mr. Wolff in the
amount of $2,721. Amounts for 2002 also include matching contributions made
by ACL to Messrs. Solomon, Wolff and Hagan to the ACL 401(k) plan in the
following amounts: $2,187 for Mr. Solomon, $5,512 for Mr. Hagan, and $5,070
for Mr. Wolff.
(5) Amounts shown for Messrs. Hagan and Wolff were paid by ACL, a significant
subsidiary of the Company as of December 27, 2002.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/ SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS/ SARS EMPLOYEES IN OR BASE ---------------------------
NAME GRANTED FISCAL YEAR PRICE EXPIRATION DATE 5% 10%
---- ------------- ---------------- -------- --------------- ----------- -------------
Paul F. Solomon...... 150,000(1) 8.8% $5.06 July 1, 2012 $477,000 $1,209,000
James J. Wolff....... 140,000(1) 8.2% $5.00 July 24, 2012 $271,600 $ 847,000
Michael C. Hagan..... 210,000(1) 12.3% $5.00 July 24, 2012 $407,400 $1,270,500
---------------
(1) For Messrs. Wolff and Hagan, the options for 50% of the shares vest over
time in four equal annual installments; the remaining 50% of the options
vest in four annual installments subject to the achievement of financial
performance goals relating to EBITDA and ACL Senior Credit Facility
compliance. For Mr. Solomon, 50% of the options vested on January 1, 2003;
the remaining 50% of the options vest in three equal annual installments.
12
The following table sets forth the number of securities underlying
unexercised options held by each of the Named Executive Officers and the value
of such options at the end of fiscal 2002:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR- FISCAL YEAR-END
SHARES ACQUIRED VALUE END EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- --------- ------------------------- -------------------------
Samuel Zell.............. N/A N/A 0/0 $0/0
Martin J. Whitman........ N/A N/A 0/0 $0/0
David M. Barse........... 25,000 $107,250 325,000/0 $0/0
Paul F. Solomon.......... N/A N/A 75,000/75,000 $0/0
James J. Wolff........... N/A N/A 0/140,000 $0/0
Michael C. Hagan......... N/A N/A 0/210,000 $0/0
---------------
(1) Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding in-the-money options and
$1.44, the mean value of the Company common stock on December 27, 2002. All
outstanding options have exercise prices in excess of $1.44 and, as a
result, none of the options have value as of December 27, 2002.
The following table sets forth information as of the end of the last fiscal
year regarding the number of securities which could be issued upon the exercise
of outstanding options, the weighted average exercise price of those options and
the number of securities remaining for future issuance under the 1995 Stock and
Incentive Plan. The Company does not have any equity compensation plans that
have not been approved by its security holders.
NUMBER OF SECURITIES
NUMBER OF SECURITIES WEIGHTED AVERAGE REMAINING AVAILABLE FOR
TO BE ISSUED UPON EXERCISE PRICE OF FUTURE ISSUANCE UNDER
EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN A)
------------- -------------------- ----------------- -------------------------
(A) (B) (C)
Equity Compensation
Plans Approved By
Security Holders..................... 3,343,918 $4.89 1,632,355
Equity Compensation
Plans Not Approved
By Security Holders.................. N/A N/A N/A
Total.............................. 3,343,918 $4.89 1,632,355
13
EMPLOYMENT ARRANGEMENTS
In connection with his announced retirement as of October 31, 2003, a
separation agreement to be entered into between Michael C. Hagan and ACL has
been approved by the bankruptcy court administering ACL's bankruptcy petition.
Under this proposed agreement, Mr. Hagan has agreed, among other things, that he
would (i) not compete with or solicit employees or customers from ACL during the
period from the date of his retirement through June 30, 2004, and (ii) release
ACL from all claims he may have against ACL, including any claims relating to
his employment with and his separation from ACL, arising under any employment
benefit program of ACL, relating to any severance or similar benefit program of
ACL, and arising under any age discrimination laws. Under this proposed
separation agreement, Mr. Hagan also would agree to provide certain consulting
services to ACL through June 30, 2004, including, advising ACL on asset
dispositions, its bankruptcy proceedings, and certain customer and business
transitional matters. In exchange for his agreements under this separation
agreement, including his agreement not to compete with ACL and his release of
claims, Mr. Hagan would receive $275,000 in addition to a $25,000 per month
payment for his consulting services to be performed thereunder. Mr. Hagan would
also participate in ACL's group medical and dental insurance plans for 2 years
after his separation and maintain his participation under ACL's pension plan and
401(k) plan.
Also in connection with his retirement from ACL, Mr. Hagan has agreed in
principle with the Company to extend the period during which Mr. Hagan can
exercise options to acquire 26,250 shares of the Company's Common Stock to the
one-year period running from his retirement date through October 31, 2004. Under
this proposed agreement, the Company and Mr. Hagan would mutually agree to waive
and release the other from all claims that may have existed between them, other
than any arising under the Company's or any of its subsidiaries' indemnification
obligations to its current and former directors, members, officers or board of
representative members.
In connection with his separation from ACL, James J. Wolff and ACL entered
into a release and waiver of employment and separation from employment claims
dated June 25, 2003 pursuant to which Mr. Wolff has agreed, among other things,
not to (i) compete with American Commercial Barge Line, LLC, a subsidiary of
ACL, during the two year period following his separation from ACL or (ii)
solicit employees or customers from ACL. Under this release and waiver, Mr.
Wolff also agreed to release ACL from all claims he may have against ACL,
including any claims relating to his employment with and his separation from
ACL, arising under any employment benefit program of ACL, relating to any
severance or similar benefit program of ACL, and arising under any age
discrimination laws and to provide certain consulting services to ACL for six
months following his separation to insure a smooth and orderly transition of his
duties and the continuance of ACL's operations without interruption or delay. In
exchange for his agreements under this release and waiver, including his
agreement not to compete with ACL and his release of claims, Mr. Wolff will
receive $170,000. This release and waiver agreement was approved by the
bankruptcy court administering ACL's bankruptcy petition.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has agreed to provide SZ Investments, LLC "(SZI") unlimited
demand registration rights with respect to the ACL Senior Notes and ACL PIK
Notes held by SZI and its affiliates. The selling noteholder, HY I Investments,
LLC ("HYI"), is an affiliate of SZI. Mr. Zell, the Company's President and Chief
Executive Officer and Chairman of the Company's Board, and Mr. Tinkler, the
Company's Chief Financial Officer, are affiliated with SZI and HYI. Mr. Pate, a
member of the Company's Board, is affiliated with SZI.
The Company has also entered into a non-exclusive investment advisory
agreement dated April 14, 1999 with Equity Group Investments, LLC ("EGI"), a
company affiliated with 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. For these services, in 2002
the Company paid a $0.06 million fee to EGI. In the event that a transaction is
consummated for which the Acquisition Committee of the Company's Board
determines that EGI provided material services, EGI would be
14
entitled to a fee from the Company in the amount of 1% of the aggregate
consideration in connection with such transaction (including indebtedness
assumed or outstanding). As a result of services provided to the Company during
the Danielson Recapitalization, the Company and EGI agreed that the fee for
EGI's services was $3.0 million. The Company has also agreed to reimburse, upon
request, EGI's out-of-pocket expenses related to services provided under the
investment advisory agreement. For providing a standby commitment to purchase
any of the Company shares that were unsubscribed in the rights offering
conducted by the Company as part of its acquisition of ACL, the Company paid SZI
a fee of $1.0 million. Messrs. Zell and Pate are members of the Acquisition
Committee, along with Messrs. Whitman and Barse, all of whom are Directors of
the Company.
On November 8, 2002, the Company, SZI and Martin J. Whitman terminated an
investment agreement existing between those parties, which provided certain
voting and registration rights to the parties, and entered into a new
registration rights agreement with SZI.
Prior to and shortly after the acquisition of ACL, the Company shared
certain personnel and facilities with several affiliated and unaffiliated
companies who have certain common directors and officers, and certain expenses
were allocated among the various entities. Personnel costs were allocated based
upon actual time spent on the Company business. Costs relating to office space
and equipment were allocated based upon actual usage. The Company believes the
methodology used for allocation was appropriate. Total expenses allocated to the
Company from affiliated entities were $1.7 million for the year ended December
27, 2002.
ACL has entered into certain non-material agreements with certain
affiliates of UABL Limited ("UABL"), a 50% owned subsidiary of the Company, for
ship management and chartering arrangements. The Company recorded charter income
from UABL of $5.9 million for the period May 29, 2002 through December 27, 2002.
The Company and all its subsidiaries, on a consolidated basis, also recorded
administrative fee expenses to UABL of $4.3 million for the period May 29, 2002
through December 27, 2002. Charter rates are established at fair market value
based upon similar transactions. As of December 27, 2002, the Company has
recorded $6.3 million in accounts receivable from UABL.
The Company has entered into a corporate services agreement dated as of
September 2, 2003 pursuant to which EGI has agreed to provide certain
administrative services to the Company, including, among others, shareholder
relations, insurance procurement and management, payroll services, cash
management and treasury functions, technology services, listing exchange
compliance and financial and corporate record keeping. Under the agreement, the
Company pays to EGI $20,000 per month plus certain out-of-pocket fees and
expenses incurred by EGI under this corporate services agreement. Either party
may terminate this corporate services agreement on 30 days written notice.
The arrangements described above are each on terms and conditions that the
Company believes are in the aggregate not materially more burdensome to the
Company than would be obtained on an arm's-length basis among unaffiliated
parties.
BOARD OF DIRECTORS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
during 2002, was comprised of three independent (i.e., non-employee) directors,
with Mr. Barse joining the Committee following his resignation as an executive
officer of the Company. The Committee provided the following report on executive
compensation during 2002 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 2002 annual base salary of Mr. Whitman, the Chief Executive Officer of
the Company prior to his resignation, was $200,000; an amount which had remained
the same as in each of the prior three years. Upon becoming the Chief Executive
Officer of the Company, Mr. Zell's annual base salary was also
15
established at $200,000. In addition, the 2002 annual base salary of Mr. Barse,
the President and Chief Operating Officer prior to his resignation remained at
$75,000; the same as in previous years.
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
searching for opportunities to meet its goal of maximizing stockholder values
with the reality of the extensive efforts which each of these executives
undertakes in overseeing the Company's operations as well as identifying and
negotiating potential opportunities on behalf of the Company. The Company was
able to retain Messrs. Whitman and Barse and, upon his succession to Mr.
Whitman, Mr. Zell, at their levels of base compensation in part because each of
them were (or in Mr. Zell's case is) also employed by affiliates of the Company.
The Committee continues to believe that it was appropriate to maintain these
compensation levels for its executive officers. The Committee will continue to
review bonus compensation in light of the Company's achievements in any given
year and the role the executives play in those achievements.
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").
In making determinations regarding compensation for its chief executive
officer in particular, and its other executive officers, in general, the
Committee does not rely upon quantitative measures or other measurable objective
indicia, such as earnings or specifically weighted factors or compensation
formulae. In light of the fact that the Company, at the parent-company level, is
a holding company with a small staff responsible for numerous and diverse areas
of the Company's business and management, and given the high level of awareness
each executive has of the others' activities and contributions, the Committee
evaluates executive performance and reaches compensation decisions based, in
part, upon the recommendations of the Company's executives.
Finally, the Committee notes that Section 162(m) of the Internal Revenue
Code, in most circumstances, limits to $1 million the deductibility of
compensation, including stock-based compensation, paid to top executives by
public companies. None of the 2002 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 P. Sullivan (Chairman)
Eugene Isenberg
David M. Barse
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002, none of the persons who served as members of the Compensation
Committee of the Company's Board 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, other than Mr. Barse who was the
President and Chief Operating Officer of the Company until July 24, 2002.
PENSION PLANS
The Company does not offer a pension benefit. ACL, National American
Insurance Company of California ("NAICC") and the other the Company insurance
subsidiaries offer certain pension and retirement benefits.
BENEFIT PLANS
The Company does not offer employee benefits. However, Mr. Solomon
participated in the ACL 401(k) Plan and received health benefits through ACL.
ACL, NAICC and the other Company insurance subsidiaries offer certain benefit
plans.
16
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Company's Board is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee is composed of three directors. Each of
the current directors is independent as defined by the American Stock Exchange
listing standards. The Audit Committee operates under a written charter approved
by the Board. A copy of the charter is attached to the 2001 Proxy Statement and
on file with the Securities and Exchange Commission.
Management is responsible for the Company's internal controls and financial
reporting process. Ernst & Young LLP, the Company's independent auditors for
2002, are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to issue a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes.
In connection with these responsibilities, the Audit Committee met with
management and Ernst & Young LLP to review and discuss the December 27, 2002
financial statements. The Audit Committee also discussed with Ernst & Young LLP
the matters required by Statement on Auditing Standards No. 61 (Communication
with Audit Committees). The Audit Committee also received written disclosure
from Ernst & Young LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committee), and the Audit Committee
discussed with Ernst & Young LLP the firm's independence.
Based upon the Audit Committee's discussions with management and Ernst &
Young LLP, and the Audit Committee's review of the representations of management
and Ernst & Young LLP, the Audit Committee recommended that the Board include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 27, 2002.
THE AUDIT COMMITTEE
Richard L. Huber, Chairman
Joseph P. Sullivan
Clayton Yeutter
INDEPENDENT AUDITORS FEES
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for audit services, including the audit of the Company's consolidated
financial statements and its subsidiaries for the year ended December 27, 2002
and for the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year, were $1,020,592.
FINANCIAL INFORMATION SYSTEM'S DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Ernst & Young LLP for professional services
rendered for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 27, 2002.
ALL OTHER FEES
The aggregate fees billed by Ernst & Young, LLP for services rendered to
the Company, other than the services described above under "Independent
Auditor's Fees" for the fiscal year ended December 27, 2002 were $291,015,
consisting of $124,860 for tax services and $166,155 for certain audit-related
services.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the independent auditors' independence,
and has approved those services.
17
CHANGE IN INDEPENDENT ACCOUNTING FIRM
During 2001 and 2002, KPMG LLP ("KPMG") served as the Company's principal
independent accounting firm until July 25, 2002. On July 25, 2002, KPMG's
appointment as the Company's principal independent accounting firm was
terminated and Ernst & Young was engaged as the Company's principal independent
accounting firm. The decision to change accounting firms was made by the Audit
Committee of the Board. Prior to such change, the Company actively considered
whether it was advisable to change firms following the Company's acquisition of
ACL, whose business is different from the Company's traditional areas. The
Company solicited bids from a group of accounting firms, including KPMG, and on
the basis of that information the Audit Committee determined that the Company
should change accounting firms.
In connection with the audits of the two fiscal years ended December 31,
2001 and December 31, 2000, and during the subsequent interim period through
July 25, 2002, there were no disagreements with KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference to the subject matter of the disagreement in
connection with their reports.
The audit reports of KPMG on the consolidated financial statements of the
Company and its subsidiaries for the years ended December 31, 2001 and December
31, 2000, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the Company's fiscal years ended December 31, 2001 and December 31,
2000 and the subsequent interim period through July 25, 2002, the Company did
not consult with Ernst & Young regarding any of the matters or events set forth
in Items 304(a)(2)(i) and (ii) of Regulation S-K.
Ernst & Young has reviewed the disclosures contained in this Proxy
Statement under the heading "Change in Independent Accounting Firm" and concurs
with the statements regarding Ernst & Young set forth herein. The Company has
also provided KPMG with a copy of the disclosures contained herein. KPMG
previously has furnished a letter to the Securities and Exchange Commission
attached as Exhibit 16.1 to the Company's Current Report on Form 8-K filed on
August 1, 2002.
18
PERFORMANCE GRAPH
The following graph sets forth a comparison of the semiannual 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 dividends 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, 1997 and ending December 31, 2002. The
stockholder return reflected below is not necessarily indicative of future
performance.
[Performance Graph]
DANIELSON HOLDING STANDARD & POOR'S 500 NASDAQ FINANCIAL SUB
COMPANY STOCK INDEX INDEX
----------------- --------------------- --------------------
31-Dec-97 100.0000 100.0000 100.0000
30-Jan-98 108.6900 101.0150 96.1505
27-Feb-98 96.5517 108.1310 101.2110
31-Mar-98 103.4480 113.5320 105.5420
30-Apr-98 106.8970 114.5650 107.0750
29-May-98 101.6550 112.4060 102.8450
30-Jun-98 101.6550 116.8390 103.4750
31-Jul-98 82.7586 115.4820 100.7280
31-Aug-98 56.0000 98.6707 81.6941
30-Sep-98 60.2759 104.8040 85.6184
30-Oct-98 53.5172 113.2150 92.0126
30-Nov-98 49.9310 119.9090 95.2821
31-Dec-98 49.1034 126.6690 103.8990
29-Jan-99 62.0690 131.8630 119.8200
26-Feb-99 48.2759 127.6060 111.1320
31-Mar-99 39.5862 132.5570 121.6370
30-Apr-99 68.1379 137.5860 170.0260
28-May-99 73.2414 134.1510 147.5100
30-Jun-99 79.3103 141.4490 151.7820
30-Jul-99 102.6210 136.9210 130.6760
31-Aug-99 90.4828 136.0640 120.2510
30-Sep-99 82.7586 132.1800 111.2050
29-Oct-99 77.5172 140.4460 114.0670
30-Nov-99 68.9655 143.1400 132.7650
31-Dec-99 79.3103 151.4020 135.0150
31-Jan-00 72.4138 143.6950 125.4290
29-Feb-00 79.3103 140.8060 127.8840
31-Mar-00 88.0000 154.4240 131.0990
28-Apr-00 75.8621 149.6690 106.1570
31-May-00 64.6897 146.3890 94.8068
30-Jun-00 67.3103 149.8920 100.5920
31-Jul-00 68.9655 147.4430 100.4190
31-Aug-00 60.4138 156.3930 115.8890
29-Sep-00 56.8276 148.0280 116.9060
31-Oct-00 54.3448 147.2960 109.7140
30-Nov-00 53.5172 135.5020 90.2547
29-Dec-00 62.8966 136.0510 97.3367
31-Jan-01 66.8966 140.7630 105.0670
28-Feb-01 58.6207 127.7720 98.8932
30-Mar-01 63.4483 119.5690 89.0849
30-Apr-01 56.9655 128.7530 99.1269
31-May-01 64.8276 129.4090 100.7350
29-Jun-01 61.3793 126.1330 103.4750
31-Jul-01 56.5517 124.8140 99.9413
28-Sep-01 51.4483 107.2660 81.8200
31-Oct-01 49.1034 109.2070 80.9956
30-Nov-01 50.8966 117.4170 89.2702
31-Dec-01 61.2414 118.3060 95.2997
31-Jan-02 68.9655 116.4640 93.4157
28-Feb-02 82.7586 114.0450 91.8336
28-Mar-02 94.4828 118.2350 96.7915
30-Apr-02 103.0350 110.9740 93.6122
31-May-02 86.8966 109.9660 94.8332
28-Jun-02 67.8621 101.9980 85.6180
31-Jul-02 64.8276 93.9398 75.0711
30-Aug-02 57.1034 94.3984 78.2912
30-Sep-02 45.2414 84.0122 69.2924
31-Oct-02 40.0000 91.2750 73.5829
29-Nov-02 26.8966 96.4840 80.1736
31-Dec-02 19.3103 90.6629 77.4132
INCORPORATION BY REFERENCE
The Report of the Compensation Committee of the Board on Executive
Compensation, the Audit Committee Report (including reference to the
independence of the members of the Audit Committee) and the Stock Price
Performance Graph above are not deemed to be filed with the SEC and shall not be
deemed incorporated by reference into any prior or future filings made by the
Company under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, except to the extent that the Company specifically
incorporates such information by reference.
---------------
* 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.
19
PROPOSALS AND NOMINATIONS BY STOCKHOLDERS
Proposals of stockholders intended to be presented at the 2003 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 June 23, 2004. Proposals to be timely submitted for
stockholder action at the Company's 2003 Annual Meeting must be received by the
Company at its principal executive offices not less than 45 days prior to
October 6, 2004. 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.
ANNUAL REPORT
The Annual Report of the Company on Form 10-K for the year ended December
27, 2002 has been previously mailed to all stockholders of record.
By Order of the Board of Directors
DANIELSON HOLDING CORPORATION
DAVID S. STONE
Secretary
Dated: October 6, 2003
20
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PROXY - DANIELSON HOLDING CORPORATION
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ONE NORTH FRANKLIN, THIRD FLOOR, CHICAGO, ILLINOIS
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned shareholder of Danielson Holding Corporation, a Delaware
corporation (the "Company"), hereby appoints SAMUEL ZELL and PHILIP G. TINKLER,
or either of them, with full power of substitution in each of them, to attend
the 2002 Annual Meeting of Stockholders of the Company (the "Meeting") to be
held on November 5, 2003, at 9:00 A.M., Central Standard Time, and any
adjournment or postponement thereof, to cast on behalf of the undersigned all
votes that the undersigned is entitled to cast at the Meeting and otherwise to
represent the undersigned at the Meeting with all powers possessed by the
undersigned if personally present at the Meeting. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and of the
accompanying Proxy Statement and revokes any proxy heretofore given with respect
to the Meeting.
The votes entitled to be cast by the undersigned will be cast as instructed on
the reverse side hereof. If this proxy is executed but no instruction is given,
the votes entitled to be cast by the undersigned will be cast "for" each of the
nominees for director as described in the Proxy Statement and "for" the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors and in the discretion of the proxy holder on any other
matter that may properly come before the Meeting or any adjournment or
postponement thereof.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
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Annual Meeting Proxy Card
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A ELECTION OF DIRECTORS
1. The Board of Directors recommends a
vote FOR the listed nominees MARK THIS BOX WITH AN [ ]
X IF YOU PLAN TO ATTEND
For Withhold THE MEETING
01-David M. Barse [ ] [ ]
02-Richard L. Huber [ ] [ ]
03-Eugene M. Isenberg [ ] [ ]
04-William C. Pate [ ] [ ]
05-Joseph P. Sullivan [ ] [ ]
06-Martin J. Whitman [ ] [ ]
07-Clayton Yeutter [ ] [ ]
08-Samuel Zell [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following resolutions.
2. To ratify the appointment of Ernst & Young LLP For Against Abstain
as the Company's independent auditors for the [ ] [ ] [ ]
2003 fiscal year.
3. Any other matters which may properly come For Against Abstain
before the Meeting or any adjournment or [ ] [ ] [ ]
postponement thereof in the discretion of
the proxy holder.
2
C. AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign as name appears hereon. Joint owners should both sign. When
signing as attorney, executor, administrator, guardian or officer, please give
full title under signature. If this proxy is being submitted by a corporation,
it should be executed in the full corporate name by a duly authorized officer.
If a partnership, please sign in the partnership name by an authorized person.
Signature 1 Signature 2 Date (dd/mm/yyyy)
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3