0001104659-03-028469.txt : 20031212 0001104659-03-028469.hdr.sgml : 20031212 20031212172927 ACCESSION NUMBER: 0001104659-03-028469 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20031212 GROUP MEMBERS: MARTIN J WHITMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DANIELSON HOLDING CORP CENTRAL INDEX KEY: 0000225648 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 956021257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-02837 FILM NUMBER: 031052713 BUSINESS ADDRESS: STREET 1: 767 THIRD AVE 5TH FL CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128880347 MAIL ADDRESS: STREET 1: 767 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017-2023 FORMER COMPANY: FORMER CONFORMED NAME: MISSION INSURANCE GROUP INC DATE OF NAME CHANGE: 19900826 FORMER COMPANY: FORMER CONFORMED NAME: MISSION EQUITIES CORP DATE OF NAME CHANGE: 19770921 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: THIRD AVENUE MANAGEMENT LLC CENTRAL INDEX KEY: 0001099281 IRS NUMBER: 010690900 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 622 THIRD AVENUE STREET 2: 32ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128885222 MAIL ADDRESS: STREET 1: 622 THIRD AVENUE STREET 2: 32ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: EQSF ADVISERS INC DATE OF NAME CHANGE: 19991118 SC 13D 1 a03-6238_1sc13d.htm SC 13D

SEC 1746
(11-02)

Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

	UNITED STATES	OMB APPROVAL
	SECURITIES AND EXCHANGE COMMISSION	OMB Number: 3235-0145
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	SCHEDULE 13D	Estimated average burden hours per response. . 15

Under the Securities Exchange Act of 1934
(Amendment No. )*

Danielson Holding Corporation

(Name of Issuer)

Common Stock, Par Value $0.10 per share

(Title of Class of Securities)

236274106

(CUSIP Number)

Third Avenue Management LLC
Attn: Mr. David Barse
622 Third Avenue, 32nd Floor
New York, New York 10017
(212) 888-5222

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

December 2, 2003

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ X ]

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

^* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 236274106

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Third Avenue Management LLC (EIN 01-0690900)

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			[ ]
		(b)			[ ]

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) OO (See Item 3.)

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ]

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 2,596,272

			8.	Shared Voting Power 0

			9.	Sole Dispositive Power 2,600,372

			10.	Shared Dispositive Power 0

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 2,600,372

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ]

	13.	Percent of Class Represented by Amount in Row (11) 7.3% (1)

	14.	Type of Reporting Person (See Instructions) IA

(1) Based on a total of 35,814,749 outstanding shares of Common Stock derived from (i) 30,693,896 shares of Common Stock outstanding as of November 7, 2003, as set forth in the Issuer’s Quarterly Report on Form 10-Q for the period ended September 30, 2003, and (ii) 5,120,853 shares of Common Stock issued on December 2, 2003 pursuant to the Note Purchase Agreement.

CUSIP No. 236274106

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Martin J. Whitman

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			[ ]
		(b)			[ ]

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) PF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ]

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 671,416 (1)

			8.	Shared Voting Power 0

			9.	Sole Dispositive Power 671,416 (1)

			10.	Shared Dispositive Power 0

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 671,416 (1)

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ X ] (1)

	13.	Percent of Class Represented by Amount in Row (11) 1.9% (2)

	14.	Type of Reporting Person (See Instructions) IN

(1) Excludes 2,600,372 shares of Common Stock beneficially owned by TAM.

(2) Based on a total of 35,814,749 outstanding shares of Common Stock derived from (i) 30,693,896 shares of Common Stock outstanding as of November 7, 2003, as set forth in the Issuer’s Quarterly Report on Form 10-Q for the period ended September 30, 2003, and (ii) 5,120,853 shares of Common Stock issued on December 2, 2003 pursuant to the Note Purchase Agreement.

Item 1.	Security and Issuer
This statement on Schedule 13D relates to the Common Stock, par value $0.10 per share (“Common Stock”), of Danielson Holding Corporation, a Delaware corporation (the “Issuer”). The address of the principal executive offices of the Issuer is Two North Riverside Plaza, Suite 600, Chicago, Illinois 60606.

Item 2.	Identity and Background
(a)-(c) and (f)
This statement is filed by Third Avenue Management LLC (“TAM”) and Martin J. Whitman, the Co-Chief Investment Officer of TAM (TAM and Mr. Whitman, each a “Reporting Person” and collectively, the “Reporting Persons”). Attached hereto as Exhibit 5 is a copy of the joint Schedule 13D filing agreement between the Reporting Persons.
The principal business of TAM, a registered investment advisor under Section 203 of the Investment Advisors Act of 1940, as amended, is to invest funds on a discretionary basis on behalf of investment companies registered under the Investment Company Act of 1940, as amended, and on behalf of individually managed separate accounts. In particular, TAM acts as sole investment adviser to the Third Avenue Value Fund Series (“TAVF”) of the Third Avenue Trust, an investment company registered under the Investment Company Act of 1940, as amended.
The executive officers of TAM are as follows:
• Martin J. Whitman: Co-Chief Investment Officer of TAM. Mr. Whitman also serves as the Chairman of the Board and a Trustee of Third Avenue Trust.
• Curtis Jensen: Co-Chief Investment Officer of TAM.
• David Barse: Chief Executive Officer of TAM.
• Michael T. Carney: Chief Financial Officer and Treasurer of TAM.
• W. James Hall: General Counsel and Secretary of TAM.
The address of the principal business and the principal office of TAM and the business address of Mr. Whitman and the other persons named in this Item 2 is: 622 Third Avenue, 32nd Floor, New York, New York 10017.
TAM is a limited liability company organized under the laws of the State of Delaware. Each of Mr. Whitman and the other persons named in this Item 2 is a citizen of the United States of America.
(d) and (e)
Neither of the Reporting Persons nor, to the best knowledge of the Reporting Persons, any of the other persons named in this Item 2, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was, or is, subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
Item 3.	Source and Amount of Funds or Other Consideration
The Reporting Persons originally acquired shares of Common Stock for investment purposes and previously reported their beneficial ownership of such shares on Schedule 13G. The Reporting Persons are now reporting their beneficial ownership of the shares of Common Stock on Schedule 13D to reflect the shares issued to TAVF in the transaction described below.
On December 2, 2003, TAVF executed a Note Purchase Agreement (the “Note Purchase Agreement”) among the Issuer, Third Avenue Trust, on behalf of TAVF, D.E. Shaw Laminar Portfolios, L.L.C. (“Laminar”) and SZ Investments, L.L.C. (“SZI”), pursuant to which each of TAVF, Laminar and SZI has agreed, severally, to provide the Issuer with a bridge loan in the aggregate principal amount of $40,000,000 (the “Bridge Loan”). In connection with such transaction, the Issuer issued (i) an aggregate of 5,120,853 shares of its Common Stock which represent consideration for TAVF, Laminar and SZI agreeing to provide the Bridge Loan, to TAVF, Laminar and SZI (the “Allocation Shares”), of which 1,280,213 were issued to TAVF (the “TAVF Allocation Shares”), and (ii) convertible notes, which are convertible for the Issuer’s Common Stock in certain specified and limited circumstances, in an aggregate principal amount of $40,000,000 to TAVF, Laminar and SZI, including $10,000,000 to TAVF (the “TAVF Note”), which were issued in consideration for the Bridge Loan. Pursuant to the Note Purchase Agreement, the Issuer has agreed to use the proceeds of the Bridge Loan (a) to purchase the equity of Covanta Energy Corporation (“Covanta”) pursuant to a reorganization plan under Chapter 11 proceedings in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), (b) to pay fees and expenses related to the acquisition of Covanta and (c) for general corporate purposes. In the event the purchase of Covanta does not occur for any reason other than any default of the Issuer, the Issuer has the right to redeem all of the Allocation Shares issued to TAVF, Laminar and SZI pursuant to the Note Purchase Agreement for aggregate consideration of $4.00.
The Note Purchase Agreement is referenced herein as Exhibit 1 and is incorporated by reference herein.
All funds used in providing TAVF’s portion of the Bridge Loan were obtained from the working capital of TAVF.

Item 4.	Purpose of Transaction
The acquisition of the TAVF Allocation Shares and the TAVF Note were effected for the purpose of investing in the Issuer. Pursuant to the Note Purchase Agreement, the Issuer intends to use such funds to purchase the equity of Covanta, pay fees and expenses related thereto and for the Issuer’s general corporate purposes.
Upon the Bankruptcy Court’s approval of the reorganization plan and after closing of the acquisition of Covanta, the Issuer has agreed to use all commercially reasonable efforts to initiate a rights offering (the “Possible Rights Offering”). In connection with the Possible Rights Offering, each of TAVF, Laminar and SZI would have the right to acquire additional shares of the Issuer’s Common Stock and each has agreed to fully exercise such right, if available. The Issuer has agreed to use the proceeds of the Possible Rights Offering to prepay the convertible notes. To the extent the proceeds of the Possible Rights Offering are insufficient to prepay all of the principal amount of the convertible notes outstanding, the convertible notes will automatically convert into shares of the Issuer’s Common Stock at a conversion price of $1.53 per share; provided, however, that the notes will remain outstanding to the extent conversion would result in an “ownership change” of the Issuer under the Internal Revenue Code. TAVF’s ability to acquire additional Common Stock of the Issuer pursuant to the Note Purchase Agreement, as set forth above, is conditional upon several factors, including in certain circumstances, the closing of the acquisition of Covanta and the consummation of the Possible Rights Offering by the Issuer. The total number of shares TAVF would be able to acquire pursuant to the Note Purchase Agreement is based on facts to be determined in the future. Pursuant to the Note Purchase Agreement, after the closing of the acquisition of Covanta and the completion of the Possible Rights Offering by the Issuer, TAVF believes it would own a maximum of approximately 14.75% of the Common Stock of the Issuer (including the Subject Shares (as defined in Item 5 below)), assuming 0% public participation in the Possible Rights Offering.
In connection with the Note Purchase Agreement, the Issuer has granted TAVF, Laminar and SZI certain registration rights, as set forth in a Registration Rights Agreement dated as of December 2, 2003, by and among the Issuer, TAVF, Laminar and SZI (the “Registration Rights Agreement”). The Registration Rights Agreement is referenced herein as Exhibit 2 and is incorporated by reference herein.
The Note Purchase Agreement provides that, prior to the Possible Rights Offering, TAVF will not acquire Common Stock otherwise than pursuant to such agreement.
The Note Purchase Agreement contains certain restrictive covenants pursuant to which the Issuer has agreed not to, without the consent of holders of 66 2/3% of the principal amount of the convertible notes issued to TAVF, Laminar and SZI, among other things, pay dividends on any of its securities until the convertible notes are converted or repaid in full.
As is applicable to all holders of 5% or more of Issuer’s Common Stock, TAVF (and thereby TAM) will be subject to restrictions contained in Issuer’s Certificate of Incorporation, which limit stock transfers by 5% or greater shareholders and prohibits parties from acquiring 5% or more of Issuer’s Common Stock without the Issuer’s consent.
The summaries contained in this Schedule 13D of certain provisions of each of the Note Purchase Agreement, the Registration Rights Agreement and all other documents attached hereto as exhibits are not intended to be complete and are qualified in their entirety by each respective agreement incorporated herein by reference. The summary contained in this Schedule 13D of certain provisions of the Issuer’s Certificate of Incorporation is not intended to be complete and is qualified in its entirety by the Certificate of Incorporation, as amended, filed by the Issuer as an exhibit to the Issuer’s Annual Report on Form 10-K for the period ended December 31, 1999.
Subject to the Issuer’s Certificate of Incorporation, TAVF intends to continue to review its investment in the Common Stock and, from time to time depending upon certain factors, including without limitation the financial performance of the Issuer, the availability and price of shares of Common Stock, other general market and investment conditions, and any restrictions under applicable law may determine to acquire through open market purchases or otherwise additional shares of Common Stock, or may determine to sell through the open market or otherwise, in each case, subject to the limitations of the Note Purchase Agreement.
Except as stated above, neither of the Reporting Persons nor, to the best knowledge of the Reporting Persons, any of the other persons named in Item 2 hereto, has any plans or proposals of the types referred to in clauses (a) through (j) of Item 4 of Schedule 13D, as promulgated by the Securities and Exchange Commission.
Item 5.	Interest in Securities of the Issuer
(a) and (b) To the knowledge of the Reporting Persons, based upon the Issuer’s Quarterly Report on Form 10-Q for the period ended September 30, 2003, there were 30,693,896 shares of Common Stock outstanding as of November 7, 2003. Based upon the foregoing, the 2,600,372 shares of Common Stock beneficially owned by TAM (the “Subject Shares”) represent approximately 7.3% of the issued and outstanding Common Stock, after giving effect to the 5,120,853 Allocation Shares issued pursuant to the Note Purchase Agreement.
TAM has beneficial ownership of the Subject Shares pursuant to the Note Purchase Agreement; provided, however, that it is not able to transfer such shares prior to the earlier of July 15, 2004 and the closing of the Possible Rights Offering.
TAM possesses voting and dispositive control over shares of Common Stock held by TAVF under its discretionary authority. TAM is the sole investment adviser that manages TAVF. In the case of certain separately managed accounts, voting authority is retained by the account holder, which is under no obligation to follow TAM’s advice.
TAM has the power to vote and dispose of the Subject Shares as follows:
(i) Sole power to vote or direct the vote: 2,596,272
(ii) Shared power to vote or direct the vote: 0
(iii) Sole power to dispose or direct the disposition: 2,600,372
(iv) Shared power to dispose or direct the disposition: 0
Information with respect to the other persons named in Item 2 hereto is as follows (based on the total of 35,814,749 outstanding shares of Common Stock as described above):

• Mr. Whitman

(a) Amount beneficially owned: 671,416 shares of Common Stock (excludes 2,600,372 shares of Common Stock beneficially owned by TAM).

(b) Percent of class: 1.9%

(i) Sole power to vote or direct the vote: 671,416

(ii) Shared power to vote or direct the vote: 0

(iii) Sole power to dispose or direct the disposition: 671,416

(iv) Shared power to dispose or direct the disposition: 0

• Mr. Barse

(a) Amount beneficially owned: 365,798 shares of Common Stock, including shares underlying currently exercisable options to purchase an aggregate of 325,000 shares of Common Stock at an exercise prices ranging from $3.37 per share to $7.0625 per share.

(b) Percent of class: 1.0%

(i) Sole power to vote or direct the vote: 365,798

(ii) Shared power to vote or direct the vote: 0

(iii) Sole power to dispose or direct the disposition: 365,798

(iv) Shared power to dispose or direct the disposition: 0

• Mr. Hall

(a) Amount beneficially owned: 22,000 shares of Common Stock, including shares underlying currently exercisable options to purchase an aggregate of 15,000 shares of Common Stock at an exercise price ranging from $3.37 per share to $4.00 per share.

(b) Percent of class: 0.01%

(i) Sole power to vote or direct the vote: 22,000

(ii) Shared power to vote or direct the vote: 0

(iii) Sole power to dispose or direct the disposition: 22,000

(iv) Shared power to dispose or direct the disposition: 0

Each of the Reporting Persons disclaims beneficial ownership of any securities of the Issuer beneficially owned by Laminar or SZI.

Each of the Reporting Persons disclaims beneficial ownership of any of the Issuer’s Common Stock issuable to TAVF upon conversion of the TAVF Note or otherwise pursuant to the Note Purchase Agreement other than the TAVF Allocation Shares.

Mr. Whitman disclaims beneficial ownership of TAM share holdings. The Reporting Persons have not acted and do not act in concert or as a group in acquiring, holding or disposing of the Common Stock.

Except as set forth above, as of the date hereof, neither the Reporting Persons, nor to the best knowledge of the Reporting Persons, any of the other persons named in Item 2 hereto, owns any shares of Common Stock.

(c) Except as set forth above, during the last 60 days, no transactions in the Common Stock were effected by any of the Reporting Persons, nor to the best knowledge of the Reporting Persons, any of the other persons named in Item 2 hereto.

(d) TAVF has the right to receive dividends from, and the proceeds from the sale of, 2,591,784 of the shares reported by TAM. Various other separately managed clients for whom TAM acts as investment adviser have the right to receive dividends from, and the proceeds from the sale of, 8,588 of the shares reported by TAM. Mr. Whitman has the right to receive dividends from, and the proceeds from the sale of 671,416 shares reported by Mr. Whitman. Mr. Barse has the right to receive dividends from, and the proceeds from the sale of, the 365,798 shares beneficially owned by Mr. Barse. Mr. Hall has the right to receive dividends from, and the proceeds from the sale of, the 22,000 shares beneficially owned by Mr. Hall.

(e) Not applicable.

Item 6.	Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
Pursuant to the Note Purchase Agreement, TAVF and Laminar, severally and not jointly, have agreed with the Issuer that upon acquisition by each of TAVF and Laminar respectively of 10% or more of the Common Stock, such entity shall not vote or direct the vote with respect to issues directly affecting the Issuer’s insurance company subsidiaries, including the management, policies and operations of the Issuer’s insurance subsidiaries. Each of TAVF and Laminar has filed, severally and not jointly, a Disclaimer of Affiliation and Control with each of the insurance regulators in the States of California and Montana. Copies of the Disclaimer of Affiliation and Control filed by TAVF in the States of California and Montana are attached hereto as Exhibits 3 and 4 respectively and are incorporated by reference herein.
Except for the matters described herein, neither of the Reporting Persons nor, to the best knowledge of the Reporting Persons, any of the other persons named in Item 2 hereto, has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Issuer.
Item 7.	Material to Be Filed as Exhibits
Exhibit 1*		Note Purchase Agreement among Danielson Holding Corporation, SZ Investments, L.L.C., D. E. Shaw Laminar Portfolios, L.L.C. and Third Avenue Trust, on behalf of Third Avenue Value Fund Series, dated as of December 2, 2003 (incorporated by reference from Exhibit 2.2 to Danielson Holding Corporation’s Current Report on Form 8-K filed on December 5, 2003).
Exhibit 2*		Registration Rights Agreement among Danielson Holding Corporation, SZ Investments, L.L.C., D. E. Shaw Laminar Portfolios, L.L.C. and Third Avenue Trust, on behalf of Third Avenue Value Fund Series, dated as of December 2, 2003 (incorporated by reference from Exhibit 4.1 to Danielson Holding Corporation’s Current Report on Form 8-K filed on December 5, 2003).
Exhibit 3		Disclaimer of Affiliation and Control, submitted by Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, to the Insurance Commissioner of the State of California, dated December 2, 2003, as amended by the Amendment and Supplement to Disclaimer of Affiliation and Control, dated December 12, 2003.
Exhibit 4		Disclaimer of Affiliation and Control, submitted by Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, to the Insurance Commissioner of the State of Montana, dated December 2, 2003, as amended by the Amendment and Supplement to Disclaimer of Affiliation and Control, dated December 12, 2003.
Exhibit 5		Joint Filing Agreement between Third Avenue Management LLC and Martin J. Whitman, dated December 12, 2003.

* Incorporated herein by reference as indicated.

Signature

After reasonable inquiry and to the best of each of the undersigned's knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

DATED: December 12, 2003

	THIRD AVENUE MANAGEMENT LLC

	By:	/s/ MARTIN J. WHITMAN
		Name:	Martin J. Whitman
		Title:	Co-Chief Investment Officer


	MARTIN J. WHITMAN

		/s/ MARTIN J. WHITMAN
		Martin J. Whitman

EXHIBIT INDEX

EXHIBIT NUMBER		DESCRIPTION

Exhibit 3		Disclaimer of Affiliation and Control, submitted by Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, to the Insurance Commissioner of the State of California, dated December 2, 2003, as amended by the Amendment and Supplement to Disclaimer of Affiliation and Control, dated December 12, 2003.

Exhibit 4		Disclaimer of Affiliation and Control, submitted by Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, to the Insurance Commissioner of the State of Montana, dated December 2, 2003, as amended by the Amendment and Supplement to Disclaimer of Affiliation and Control, dated December 12, 2003.

Exhibit 5		Joint Filing Agreement between Third Avenue Management LLC and Martin J. Whitman, dated December 12, 2003.

EX-3 3 a03-6238_1ex3.htm EX-3

Exhibit 3

To the Insurance Commissioner of the State of California:

AMENDMENT and SUPPLEMENT

to the DISCLAIMER (Insurance Code Section 1215.4(l)), filed December 2, 2003

by THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES

of affiliation with

NATIONAL AMERICAN INSURANCE COMPANY OF CALIFORNIA

19100 Susana Road

Rancho Dominguez, California 90221

DANIELSON INSURANCE COMPANY;

19100 Susana Road

Rancho Dominguez, California 90221

DANIELSON NATIONAL INSURANCE COMPANY

19100 Susana Road

Rancho Dominguez, California 90221

Dated as of December , 2003 at New York, New York.

Reference is made to that certain disclaimer filed pursuant to California Insurance Code Section 1215.4(l) made in connection with the purchase and sale of securities convertible into voting common stock of Danielson Holding Corporation (“DHC”), filed by Third Avenue Trust, On Behalf Of The Third Avenue Value Fund Series (“TAT”) on December 2, 2003 (the “Disclaimer”). This filing supplements and amends the Disclaimer as provided herein. All capitalized terms used but not defined herein shall have the meanings assigned to them in the Disclaimer.

1. The Disclaimer, when filed on December 2, 2003, contained certain references to the contents of the draft Note Purchase Agreement that are no longer accurate in light of the final, executed version of the Note Purchase Agreement agreed upon by the parties. Accordingly, Paragraph 2(D) of the Disclaimer is deleted in its entirety and replaced with the following:

D. TAT’s Voluntary Voting Restriction

insurance company subsidiaries, including, without limitation, the California Insurers. Specifically, pursuant to Section 7.3(e) of the Note Purchase Agreement, TAT agrees not to vote on matters: (i) that directly affect the management, policies and operations of the Company's insurance subsidiaries including the election of directors and appointment of officers of the insurance subsidiaries of DHC, including the California Insurers; (ii) that directly affect the policies and business operations of the insurance subsidiaries, including matters involving the business plans or strategies of the insurance subsidiaries, including the California Insurers, underwriting and claims handling standards and procedures, arrangements with insurance agents and brokers, regulatory compliance filings, or reinsurance arrangements of the insurance subsidiaries, including the California Insurers; and (iii) directly regarding the management or operations of the insurance subsidiaries that insurance regulators in the jurisdictions where TAT has filed a Disclaimer advise would constitute the exercise of control over the management, policies and operations of the insurance subsidiaries under the applicable Insurance Holding Company Act.(1) TAT has effectively agreed, pursuant to Section 7.3(e) of the Note Purchase Agreement, not to exercise control over the business operations of DHC’s insurance subsidiaries, including the California Insurers.

2. The last two sentences of Section 4(B) of the Disclaimer are deleted in their entirety and replaced with the following:

DHC has amended its By-Laws to provide that any holder of 20% or more of the voting power of DHC shall have the right to nominate a candidate for election to the DHC Board of Directors. However, while it is likely that Laminar and SZ will each hold over 20% of the voting power of DHC after the closing of the Transaction, TAT almost certainly will never acquire the voting power necessary to enable it to nominate a director.

3. Additionally, TAT supplements the Disclaimer with the following documents:

A. The original executed version of the Disclaimer (attached hereto as Exhibit A).

B. A copy of the executed Note Purchase Agreement, dated as of December 2, 2003, with attachments (attached hereto as Exhibit B).

C. DHC’s amended By-Laws providing that any holder of twenty percent (20%) or more of the voting power of DHC shall have the right to nominate a candidate for election the DHC Board of Directors (attached hereto as Exhibit C).

(1) Pursuant to Section 5.2(c) of the Note Purchase Agreement, DHC agrees not to enter into any transaction with a regulated entity that would subject any of the Investor Parties to regulatory approval. This provision is intended to apply to a new acquisition of a regulated entity that may affect the Investor Parties rather than transactions affecting the California Insurers.

IN WITNESS WHEREOF, the undersigned has hereunto signed its name at the City of New York in the State of New York this 12^th day of December, 2003.

THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES

/s/ David M. Barse
By:	David M. Barse
Title:		Chief Executive Officer
Must be an executive officer.

To the Insurance Commissioner of the State of California:

DISCLAIMER (Insurance Code Section 1215.4(l))

by THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES
(“TAT”) of affiliation with

NATIONAL AMERICAN INSURANCE COMPANY OF CALIFORNIA

19100 Susana Road

Rancho Dominguez, California 90221

DANIELSON INSURANCE COMPANY;

19100 Susana Road

Rancho Dominguez, California 90221

DANIELSON NATIONAL INSURANCE COMPANY

19100 Susana Road

Rancho Dominguez, California 90221

Dated November , 2003 at New York, New York

This disclaimer filed pursuant to California Insurance Code Section 1215.4(l) (the “Disclaimer”) is made in connection with the purchase and sale of securities convertible into voting common stock of Danielson Holding Corporation (“DHC”) and related transactions (the “Transaction”). DHC is a Delaware corporation and the indirect parent of National American Insurance Company of California (“NAICC”); Danielson Insurance Company (“DICO”); and Danielson National Insurance Company (“DNIC”) (collectively, the “California Insurers”), all of Rancho Dominguez, California.

As set forth in greater detail below, pursuant to an agreement (the “Note Purchase Agreement”) (attached hereto in substantially final form as Exhibit A)(1) by and among DHC and several purchasers, including TAT, TAT will acquire notes issued by DHC convertible into voting common stock of DHC (the “Notes”). It is possible that pursuant to Section 1215(b) of the California Insurance Code,(2) TAT’s acquisition of such notes could trigger the presumption of

(1) Given the complexity of this transaction, some of the transaction documents are still subject to negotiation. Exhibits that are not in final form will be supplemented with final versions of the applicable documents as soon as final forms are agreed upon by the relevant parties. This Disclaimer is being filed on the same day, but prior to, the execution of the Note Purchase Agreement described herein.

(2) Section 1215(b) of the California Insurance Code provides that “control” shall be presumed to exist “if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of any other person.” The California Insurance Code does not specifically define the term “voting securities.” However, Section 1215.2 governing tender offers treats tender offers of securities convertible to voting securities as offers that may trigger the registration requirements of the holding company act, providing as follows: “No person shall make a tender offer for, or a request or invitation for tenders of, or enter into an agreement to exchange securities for or acquire in the open market, any voting security, or any security convertible into a voting security, of a domestic insurer or of any other person controlling a domestic insurer . . . if, as a result of the consummation thereof, such person would, directly or indirectly, acquire control of such insurer … unless, at the time copies of the offer or purchase or request or invitation are first published or sent or given to security holders or the agreement or transaction is entered into, [approval of the proposed acquisition has been sought from the Calfornia Insurance Commissioner].” This Disclaimer is therefore filed on the basis of TAT’s acquisition of the Notes.

control over DHC’s wholly owned indirect subsidiaries, the California Insurers, based on TAT’s present holdings and the maximum number of shares that TAT may receive on conversion of the Notes or upon consummation of an anticipated rights offering. The purpose of this Disclaimer is to disclaim, pursuant to Section 1215.4(l) of the California Insurance Code, affiliation with and control of DHC and the California Insurers by TAT and its direct and indirect affiliates. TAT does not now, and will not upon the completion of the Transaction, control directly or indirectly within the meaning of Section 1215(b) of the California Insurance Code, DHC or the California Insurers.

Although upon completion of the Transaction TAT may control up to 14.85% of the voting shares of DHC, it is likely that TAT will control less that 10% of the voting shares, and could feasibly end up controlling as little as 6.55%. Moreover, TAT has agreed to certain restrictions on the exercise of its voting powers. Pursuant to Section 8.3(e) of the Note Purchase Agreement, and as described in this Disclaimer, TAT will agree not to vote or direct the vote of DHC with respect to issues directly affecting DHC’s insurance company subsidiaries, including the management, policies and operations of DHC’s insurance subsidiaries, including the California Insurers. TAT’s interest in DHC arises from its economic interests in a business that is wholly unrelated to the insurance business, as discussed in greater detail below. Upon consummation of the proposed Transaction, TAT would be principally an arm’s length investor in DHC with an economic interest in the Notes and the underlying common stock of DHC into which the Notes would convert. As set forth herein, pursuant to agreed restrictions to its voting rights in DHC, TAT would not have the power to direct or cause the direction of the management, policies and operations of DHC or the DHC insurance company subsidiaries, including the California Insurers.

1. The Parties

A. TAT

TAT is a business trust organized under the laws of the State of Delaware, and is a registered investment company under the Investment Company Act of 1940.

TAT’s address and principal office is:

Third Avenue Trust, on behalf of the Third Avenue Value Fund Series

622 Third Avenue, 32nd Floor

New York, New York 10017

B. The California Insurers

DICO, DNIC and NAICC are California domestic insurers. DICO and DNIC are wholly owned subsidiaries of NAICC. DICO has 3,125 issued and outstanding voting shares of common stock. NAICC owns 3,125 shares, constituting all of DICO’s issued and outstanding voting common stock. DNIC has 20,000 issued and outstanding voting shares of common stock. NAICC owns 20,000 shares, constituting all of DNIC’s voting common stock.

NAICC has 13,000 issued and outstanding shares of voting common stock, all of which are owned by Danielson Indemnity Company (“DIND”). DIND has 170,000 issued and outstanding voting shares of common stock. DHC owns 170,000 shares of common stock, constituting all of DIND’s issued and outstanding voting shares of common stock. DICO, DNIC, NAICC, and DIND are directly or indirectly the wholly owned subsidiaries of DHC.

Through its control of DIND, DHC controls with the power to direct the vote of one hundred percent (100%) of the shares of the California Insurers. Accordingly, DHC is a controlling person of the California Insurers within the meaning of Section 1215(b) of the California Insurance Code.

DHC is a public company whose current stock ownership is as follows: SZ Investments, L.L.C. (“SZ”) is the beneficial owner of 5,460,612 shares of DHC’s common stock, representing 17.81% of the voting power of DHC. SZ was permitted to take this position in DHC by approval of the California Insurance Department dated July 19, 1999. D.E. Shaw Laminar Portfolios, L.L.C. (“Laminar”) is the beneficial owner of 227,700 shares of DHC’s common stock, representing less than 1% of the voting power of DHC. The remaining outstanding shares of DHC are publicly held by over 1,300 stockholders, with no stockholders other than the Commissioner of Insurance of the State of California, on behalf of the Mission Insurance Companies’ Trusts, owning more than 5% of the voting power.

TAT is not directly or indirectly controlled by or under common control with NAICC, DNIC, DICO or DHC. The only relationship between TAT and the California Insurers results from the Transaction described below.

2. The Transaction

A. Background: The Covanta Acquisition

DHC is negotiating to acquire Covanta Energy Corporation’s (“Covanta”) equity pursuant to a reorganization plan (the “Plan”) under chapter 11 proceedings pending in the

United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (the “Covanta Acquisition”).(3)

B. TAT’s Acquisition of Notes

Pursuant to the terms of (and subject to certain conditions set forth in) the Note Purchase Agreement, TAT, Laminar and SZ, severally (the “Investor Parties”), will provide a portion of the funding necessary for DHC to consummate the Covanta Acquisition through various financing arrangements to DHC and Covanta in connection with the Covanta Acquisition. Pursuant to the Note Purchase Agreement, the Investor Parties have the following percentage participations in the investment: TAT 25%, Laminar 50%, and SZ 25%, except that Laminar will have 100% of the responsibility for providing an international revolver to CPIH as described in footnote 3.

Pursuant to the terms of the Note Purchase Agreement, to be entered into between DHC and the Investor Parties, the Investor Parties will provide DHC with a loan in the form of a convertible bridge loan in the amount of $40 million (the “Convertible Bridge Loan”), the proceeds of which DHC shall use to pay the full consideration for the Covanta Acquisition, to pay expenses in connection with the transaction and for general corporate purposes. The Investor Parties will receive the Notes, convertible into common stock of DHC. In consideration for their agreement to provide the Convertible Bridge Loan and the other financing arrangements, including an $118 million letter of credit facility and a $10 million revolving credit facility, the Investor Parties will receive from DHC, in accordance with their percentage participation, 5.12 million shares of DHC common stock. (the “Allocation Shares”).(4) For clarification, the description set forth in this Section 2.B of this Disclaimer focuses on the issue of control under the California Insurance Code, but is a summary description of the Transaction and does not document the full scope of the proposed Transaction contemplated by the Note Purchase Agreement, or the DHC acquisition agreement with Covanta.

C. Rights Offering—TAT’s Acquisition of DHC Common Stock

(3) Under DHC’s agreement with Covanta, in order to acquire the Covanta stock, DHC is required to make deposits totalling $30 million, and in addition, the Investor Parties shall provide Covanta a letter of credit facility with a mixed use revolver of $118 million on a second prior lien basis (the “Second Lien LOC”) and Laminar will provide Covanta’s subsidiary Covanta Power International Holdings, Inc. (“CPIH”) a revolving credit facility for international operations of $10 million (the “Revolving Note”).

(4) In addition, the Investor Parties will receive up front cash fees of 2% (and other fees) from Covanta for the Second Lien LOC and Laminar shall receive up front cash fees of 2% (and other fees) from Covanta for the Revolving Note.

schedule annexed hereto as Exhibit B, based upon the levels of public participation in the rights offering.(5) On a fully diluted basis, the amount of DHC common stock acquired by TAT as a result of the Allocation Shares, rights offering and conversion of the Notes would range between 6.55% (assuming 100% public participation) and 14.85% (assuming 0% public participation) of all of DHC’s outstanding common stock. DHC intends to repay the Notes out of the proceeds of the rights offering. In the event that the proceeds are insufficient to pay off the Notes, then the terms of the loan will change with respect to unpaid amounts, as set forth in the Note Purchase Agreement.

D. TAT’s Voluntary Voting Restriction

Under the terms of the Note Purchase Agreement, TAT has agreed not to exercise its voting power in DHC stock to direct or cause the direction of the management, policies or operations of DHC’s insurance company subsidiaries, including, without limitation, the California Insurers. Specifically, Section 8.3(e) of the Note Purchase Agreement restricts TAT’s ability to vote on matters that directly affect: (i) the management, policies and operations of the Company’s insurance Subsidiaries including the election of directors and appointment of officers of the California Insurers; (ii) the policies and business operations of the insurance subsidiaries, including matters involving the business plans or strategies of the California Insurers, underwriting and claims handling standards and procedures, arrangements with insurance agents and brokers, regulatory compliance filings, or reinsurance arrangements of the California Insurers; and (iii) the management or operations of the insurance subsidiaries that insurance regulators in the jurisdictions where TAT has filed a Disclaimer advise would constitute the exercise of control over the management, policies and operations of the insurance subsidiaries under the applicable Insurance Holding Company Act.(6) By the terms of the Note Purchase Agreement, TAT will generally exercise its voting power in DHC to protect its investment in DHC with respect to issues such as the transferability of the Notes or common stock, approval of DHC’s issuance of common stock, pari passu ranking equity, changes to DHC’s organizational and constituent documents, and tax treatment of TAT and DHC. Pursuant to Section 8.3(e) of the Note Purchase Agreement, TAT will not direct the business operations of DHC’s insurance subsidiaries, including the California Insurers.

(5) If, after using all proceeds of the rights offering to repay the Notes, notes are still outstanding, the remaining notes shall be converted into common stock of DHC on a pro rata basis, provided, however, that the Notes will remain outstanding to the extent conversion for stock would result in an “ownership change” of DHC (e.g. if the percentage of such conversion exceeds 47.5% of the DHC common stock).

(6) Pursuant to Section 5.2(c) of the Note Purchase Agreement, DHC agrees not to enter into any transaction with a regulated entity that would subject any of the Investor Parties to regulatory approval. This provision is intended to apply to a new acquisition of a regulated entity that may affect the Investor Parties rather than transactions affecting the California Insurers.

3. Voting Power of TAT

A. Shares Controlled by TAT

Currently, TAT directly owns 1,311,571 shares of DHC and directly owns no shares in any of the California Insurers. Upon completion of the conversion, TAT would own additional common stock of DHC, which is a controlling person of the California Insurers.

B. Issued and Outstanding Shares of DHC

As of the date of the Note Purchase Agreement, on a fully diluted basis, DHC had 30,673,831 outstanding shares of common stock and 1,952,253 options to purchase common stock are outstanding. On a fully diluted basis, there will be 74,355,657 shares of common stock issued and outstanding after the rights offering, assuming 100% public participation.

C. Acquisition of Shares by TAT in the Transaction

Assuming full conversion, after the rights offering depending upon the extent of public participation, TAT will own between approximately 6.55% (assuming 100% public participation) and 14.85% (assuming 0% public participation) of the outstanding shares of common stock of DHC.

4. TAT will not exercise control of DHC and the California Insurers

After the Transaction closes, although TAT may hold, with the power to vote, ten percent (10%) or more of the voting shares of DHC, pursuant to the restrictions set forth in the Note Purchase Agreement, TAT will not have the power to direct or cause the direction of the management, policies and operations of DHC or the California Insurers as contemplated by Section 1215(b) of the California Insurance Code. For the reasons set forth below, TAT disclaims affiliation with and control of DHC and the California Insurers as contemplated by Section 1215.4(l) of the California Insurance Code.

A. Influence of Other DHC Shareholders Over DHC and the California Insurers

The corporate structure and interests of DHC’s major shareholders result in significantly restricting TAT’s ability to direct or cause the direction of the management and policies of DHC even after full conversion of the notes to voting common stock. SZ is the registered insurance holding company of the California Insurers pursuant to California Insurance Department letter dated July 19, 1999. SZ will own between 16.32% (assuming 100% public participation) and 21.48% (assuming 0% public participation) of the post – conversion vote of DHC. Laminar will control between 19.24% (assuming 100% public participation) and 25.88% (assuming 0% public participation) of the post – conversion vote of DHC.

B. Board Representation

The DHC Board of Directors currently consists of eight (8) directors (the “Directors”). A ninth Board seat remains 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. Of the eight current Directors, only two (2) are affiliated with TAT: Martin J. Whitman is a Director of DHC and is the Chairman of the Board and a Trustee of TAT; David Barse is a Director of DHC and is the President and Chief Executive Officer and a Trustee of TAT. TAT’s limited representation on the Board is not sufficient to give TAT control over Board actions. DHC has agreed to amend its By-Laws to provide that any holder of 20% or more of the voting power of DHC shall have the right to nominate a candidate for election to the DHC Board. However, while it is likely that Laminar and SZ will each hold over 20% of the voting power of DHC after the closing of the Transaction, TAT almost certainly will never acquire the voting power necessary to enable it to nominate a director.

C. Management Control

TAT will not be entitled to appoint the management of DHC or the California Insurers as a result of its stock ownership. Samuel Zell is the President and Chief Executive Officer of DHC and in that position oversees the management and operations of DHC. Through his influence as the President of SZ (the registered holding company of the California Insurers) over the DHC board members affiliated with SZ and his influence as the Chairman of EGI over the board members affiliated with EGI, the entity that provides administrative services to DHC (as described below), and his positions as Chairman of the Board of Directors, President, and Chief Executive Officer of DHC, Mr. Zell’s influence over the management, policies and operations of DHC will be greater than the influence TAT would have to direct the management of DHC.

D. Contractual Arrangements.

TAT will have no contractual arrangements with DHC to provide goods or services. Pursuant to a corporate services agreement (the “Services Agreement”) dated as of September 2, 2003 between DHC and EGI, EGI has agreed to provide certain administrative services to DHC, 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. As noted above, EGI and SZ are affiliated entities with substantially similar ownership, and both are affiliated with Mr. Zell.

Although the Notes owned by TAT might trigger the presumption of control under Section 1215(b) of the California Insurance Code, given the existing board composition, the identities of the current officers, and the affiliated status of many board members and the executive officers with other significant shareholders, as a practical matter, TAT’s voting power will not enable it to direct the management, policies, or operations of DHC or the California Insurers. On a combined basis, Laminar and SZ will hold up to 47.36% of the common stock of DHC, significantly more than the maximum amount that could be held by TAT (giving effect to the Transaction).

E. TAT’s Voluntary Voting Restriction

Pursuant to Section 8.3(e) of the Note Purchase Agreement, TAT has agreed not to exercise its voting power in DHC stock in votes relating to the management, policies and operations of the DHC insurance subsidiaries. Consequently, as a practical matter, TAT’s voting power in DHC will not enable it to appoint management or vote on board members of the California Insurers, and TAT will be unable to influence management decisions of the California Insurers involving insurance operations, business strategies, underwriting and claims handling, reinsurance programs, or regulatory compliance. TAT’s equity position in DHC will be passive with respect to the management, policies and operations of the California Insurers.

5. Summary

The proposed Transaction by TAT relating to the California Insurers will not result in affiliation, within the meaning of California Insurance Code Section 1215, of TAT with the California Insurers, or vice versa, because:

A. Other Shareholders Control DHC

Even after the completion of the contemplated Transaction, TAT will be unable to assert functional control over DHC because the interests of other major shareholders, including share ownership and service as directors and executive officers by individuals affiliated with other shareholders will aggregate to greater influence over the management, polices, and operations of DHC than TAT could assert.

B. Officers Control Daily Operations

Management and control of the daily operations of the DHC insurance subsidiaries, including the California Insurers is vested in the officers of such insurance companies and will not be within the control of TAT.

C. TAT Will Exercise Only Passive Ownership

TAT will exercise only passive ownership of DHC’s shares on all issues affecting the management, policies and operations of the California Insurers, and will not vote its shares in DHC or cause such shares to be voted on issues that directly affect the management or operations of the California Insurers.

For the reasons set forth above, TAT respectfully requests your acceptance of this disclaimer of affiliation and control.

IN WITNESS WHEREOF, the undersigned has hereunto signed its name and affixed its corporate seal at the City of New York in the State of New York this 30^th day of November, 2003.

THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES




/s/ David M. Barse
By:	David M. Barse
Title:		Chief Executive Officer
Must be an executive officer.

(1) DISCLAIMER ALLOWED this day of , 20 , on the basis of the evidence presented herein.

	Insurance Commissioner of the State of California
By		Deputy

(2) NOTICE OF HEARING — RE DISALLOWANCE

You are hereby notified that there will be a public hearing in my offices, Room at on, 20 , commencing at o’clock M for the purpose of determining whether the within disclaimer should be disallowed. At such hearing all parties in interest may appear and present relevant evidence and argument to that end.

Dated	, 20	.	Insurance
Commissioner of the State of California By
Deputy

Exhibits

Note Purchase Agreement		A

Chart of Equity Positions in DHC		B

EX-4 4 a03-6238_1ex4.htm EX-4

Exhibit 4

To the Insurance Commissioner of the State of Montana:

AMENDMENT and SUPPLEMENT

to the DISCLAIMER (Insurance Code Section 33-2-1112), filed December 2, 2003

by THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES

of affiliation with

VALOR INSURANCE COMPANY, INCORPORATED

2727 Central Avenue

Billings, Montana 59102

Dated as of December , 2003 at New York, New York

Reference is made to that certain disclaimer filed pursuant to Montana Insurance Code Section 33-2-1112 made in connection with the purchase and sale of securities convertible into voting common stock of Danielson Holding Corporation (“DHC”), filed by Third Avenue Trust, On Behalf Of The Third Avenue Value Fund Series (“TAT”) on December 2, 2003 (the “Disclaimer”). This filing supplements and amends the Disclaimer as provided herein. All capitalized terms used but not defined herein shall have the meanings assigned to them in the Disclaimer.

D. TAT’s Voluntary Voting Restriction

Under the terms of the Note Purchase Agreement, TAT has agreed, upon the acquisition of common stock resulting in a holding of ten percent (10%) or more of DHC common stock, not to exercise its voting power in DHC stock to direct or cause the direction of the management, policies or operations of DHC’s insurance company subsidiaries, including, without limitation, Valor. Specifically, pursuant to Section 7.3(e) of the Note Purchase Agreement, TAT agrees not to vote on matters: (i) that directly affect the management, policies and operations of the Company’s insurance subsidiaries including the election of directors and appointment of officers of the insurance subsidiaries of DHC, including Valor; (ii) that directly affect the policies and business operations of the insurance subsidiaries, including matters involving the business plans or strategies of the insurance subsidiaries, including Valor, underwriting and claims handling standards and procedures, arrangements with insurance agents and brokers, regulatory compliance filings, or reinsurance arrangements of the insurance

subsidiaries, including Valor; and (iii) directly regarding the management or operations of the insurance subsidiaries that insurance regulators in the jurisdictions where TAT has filed a Disclaimer advise would constitute the exercise of control over the management, policies and operations of the insurance subsidiaries under the applicable Insurance Holding Company Act.(1) TAT has effectively agreed, pursuant to Section 7.3(e) of the Note Purchase Agreement, not to exercise control over the business operations of DHC’s insurance subsidiaries, including Valor.

2. The last two sentences of Section 4(B) of the Disclaimer are deleted in their entirety and replaced with the following:

3. Additionally, TAT supplements the Disclaimer with the following documents:

A. A copy of the executed Note Purchase Agreement, dated as of December 2, 2003, with attachments (attached hereto as Exhibit A).

B. DHC’s amended By-Laws providing that any holder of twenty percent (20%) or more of the voting power of DHC shall have the right to nominate a candidate for election the DHC Board of Directors (attached hereto as Exhibit B).

IN WITNESS WHEREOF, the undersigned has hereunto signed its name at the City of New York in the State of New York this 12^th day of December, 2003.

THIRD AVENUE TRUST, on behalf of the THIRD
AVENUE VALUE FUND SERIES

/s/ David M. Barse
By:	David M. Barse
Title:		Chief Executive Officer
Must be an executive officer.

To the Insurance Commissioner of the State of Montana:

DISCLAIMER (Insurance Code Section 33-2-1112)

by THIRD AVENUE TRUST, on behalf of the THIRD AVENUE VALUE FUND SERIES
(“TAT”) of affiliation with

VALOR INSURANCE COMPANY, INCORPORATED

2727 Central Avenue

Billings, Montana 59102

Dated November , 2003 at New York, New York

This disclaimer filed pursuant to Montana Insurance Code Section 33-2-1112 (the “Disclaimer”) is made in connection with the purchase and sale of securities convertible into voting common stock of Danielson Holding Corporation (“DHC”) and related transactions (the “Transaction”). DHC is a Delaware corporation and the indirect parent of Valor Insurance Company, Incorporated (“Valor”), of Billings, Montana.

As set forth in greater detail below, pursuant to an agreement (the “Note Purchase Agreement”) (attached hereto in substantially final form as Exhibit A)(1) by and among DHC and several purchasers, including TAT, TAT will acquire notes issued by DHC convertible into voting common stock of DHC (the “Notes”). It is possible that pursuant to Section 33-2-1101(2) of the Montana Insurance Code,(2) TAT’s acquisition of such notes could trigger the presumption of control over DHC’s wholly owned subsidiary, Valor, based on TAT’s present holdings and the maximum number of shares that TAT may receive on conversion of the Notes or upon consummation of an anticipated rights offering. The purpose of this Disclaimer is to disclaim, pursuant to Section 33-2-1112 of the Montana Insurance Code, affiliation with and control of DHC and Valor by TAT and its direct and indirect affiliates. TAT does not now, and will not upon the completion of the Transaction, control directly or indirectly within the meaning of Section 33-2-1101(2) of the Montana Insurance Code, DHC or Valor.

(2) Section 33-2-1101(2) of the Montana Insurance Code provides that “control” shall be presumed to exist “if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of any other person.” Section 33-2-1101(6) of the Montana Insurance Code defines “securityholder” as “one who owns any security . . . including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.” This Disclaimer is therefore filed on the basis of TAT’s acquisition of the Notes.

Although upon completion of the Transaction TAT may control up to 14.85% of the voting shares of DHC, it is likely that TAT will control less that 10% of the voting shares, and could feasibly end up controlling as little as 6.55%. Moreover, TAT has agreed to certain restrictions on the exercise of its voting powers. Pursuant to Section 8.3(e) of the Note Purchase Agreement, and as described in this Disclaimer, TAT will agree not to vote or direct the vote of DHC with respect to issues directly affecting DHC’s insurance company subsidiaries, including the management, policies and operations of DHC’s insurance subsidiaries, including Valor. TAT’s interest in DHC arises from its economic interests in a business that is wholly unrelated to the insurance business, as discussed in greater detail below. Upon consummation of the proposed Transaction, TAT would be principally an arm’s length investor in DHC with an economic interest in the Notes and the underlying common stock of DHC into which the Notes would convert. As set forth herein, pursuant to agreed restrictions to its voting rights in DHC, TAT would not have the power to direct or cause the direction of the management, policies and operations of DHC or the DHC insurance company subsidiaries, including Valor.

1. The Parties

A. TAT

TAT is a business trust organized under the laws of the State of Delaware, and is a registered investment company under the Investment Company Act of 1940.

TAT’s address and principal office is:

Third Avenue Trust, on behalf of the Third Avenue Value Fund Series

622 Third Avenue, 32nd Floor

New York, New York 10017

B. Valor

National American Insurance Company of California (“NAICC”) is a California insurer. Valor is a wholly owned subsidiary of NAICC. Valor has 6,050 issued and outstanding voting shares of common stock. NAICC owns 6,050 shares, constituting all of Valor’s issued and outstanding voting common stock.

NAICC has 13,000 issued and outstanding shares of voting common stock, all of which are owned by Danielson Indemnity Company (“DIND”). DIND has 170,000 issued and outstanding voting shares of common stock. DHC owns 170,000 shares of common stock, constituting all of DIND’s issued and outstanding voting shares of common stock. Valor, NAICC, and DIND are directly or indirectly the wholly owned subsidiaries of DHC.

Through its control of DIND, DHC controls with the power to direct the vote of one hundred percent (100%) of the shares of Valor. Accordingly, DHC is a controlling person of Valor within the meaning of Section 33-2-1101 of the Montana Insurance Code.

DHC is a public company whose current stock ownership is as follows: SZ Investments, L.L.C. (“SZ”) is the beneficial owner of 5,460,612 shares of DHC’s common stock,

representing 17.81% of the voting power of DHC. SZ was permitted to take this position in DHC by approval of the Montana Insurance Department dated August 10, 1999. D.E. Shaw Laminar Portfolios, L.L.C. (“Laminar”) is the beneficial owner of 227,700 shares of DHC’s common stock, representing less than 1% of the voting power of DHC. The remaining outstanding shares of DHC are publicly held by over 1,300 stockholders, with no stockholders other than the Commissioner of Insurance of the State of California, on behalf of the Mission Insurance Companies’ Trusts, owning more than 5% of the voting power.

TAT is not directly or indirectly controlled by or under common control with NAICC, DHC or Valor. The only relationship between TAT and Valor results from the Transaction described below.

2. The Transaction

A. Background: The Covanta Acquisition

DHC is negotiating to acquire Covanta Energy Corporation’s (“Covanta”) equity pursuant to a reorganization plan (the “Plan”) under chapter 11 proceedings pending in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (the “Covanta Acquisition”).(3)

B. TAT’s Acquisition of Notes

credit facility, the Investor Parties will receive from DHC, in accordance with their percentage participation, 5.12 million shares of DHC common stock. (the “Allocation Shares”).(4) For clarification, the description set forth in this Section 2.B of this Disclaimer focuses on the issue of control under the Montana Insurance Code, but is a summary description of the Transaction and does not document the full scope of the proposed Transaction contemplated by the Note Purchase Agreement, or the DHC acquisition agreement with Covanta.

C. Rights Offering—TAT’s Acquisition of DHC Common Stock

Upon the Bankruptcy Court’s approval of the Plan and after the closing of the Covanta Acquisition, DHC will initiate a pro rata rights offering to all of its stockholders. The Investor Parties will convert the Notes for shares of DHC equal to up to a maximum number of shares as agreed among the parties. During the rights offering, TAT and the other Investor Parties shall acquire additional DHC shares of increasing amounts in accordance with the schedule annexed hereto as Exhibit B, based upon the levels of public participation in the rights offering.(5) On a fully diluted basis, the amount of DHC common stock acquired by TAT as a result of the Allocation Shares, rights offering and conversion of the Notes would range between 6.55% (assuming 100% public participation) and 14.85% (assuming 0% public participation) of all of DHC’s outstanding common stock. DHC intends to repay the Notes out of the proceeds of the rights offering. In the event that the proceeds are insufficient to pay off the Notes, then the terms of the loan will change with respect to unpaid amounts, as set forth in the Note Purchase Agreement.

D. TAT’s Voluntary Voting Restriction

the insurance subsidiaries under the applicable Insurance Holding Company Act.(6) By the terms of the Note Purchase Agreement, TAT will generally exercise its voting power in DHC to protect its investment in DHC with respect to issues such as the transferability of the Notes or common stock, approval of DHC’s issuance of common stock, pari passu ranking equity, changes to DHC’s organizational and constituent documents, and tax treatment of TAT and DHC. Pursuant to Section 8.3(e) of the Note Purchase Agreement, TAT will not direct the business operations of DHC’s insurance subsidiaries, including Valor.

3. Voting Power of TAT

A. Shares Controlled by TAT

Currently, TAT directly owns 1,311,571 shares of DHC and directly owns no shares in any of Valor. Upon completion of the conversion, TAT would own additional common stock of DHC, which is a controlling person of Valor.

B. Issued and Outstanding Shares of DHC

C. Acquisition of Shares by TAT in the Transaction

4. TAT will not exercise control of DHC and Valor

After the Transaction closes, although TAT may hold, with the power to vote, ten percent (10%) or more of the voting shares of DHC, pursuant to the restrictions set forth in the Note Purchase Agreement, TAT will not have the power to direct or cause the direction of the management, policies and operations of DHC or Valor as contemplated by Section 33-2-1101 of the Montana Insurance Code. For the reasons set forth below, TAT disclaims affiliation with and control of DHC and Valor as contemplated by Section 33-2-1112 of the Montana Insurance Code.

A. Influence of Other DHC Shareholders Over DHC and Valor

The corporate structure and interests of DHC’s major shareholders result in significantly restricting TAT’s ability to direct or cause the direction of the management, policies and operations of DHC even after full conversion of the notes to voting common stock. SZ is the registered insurance holding company of NAICC, Valor’s parent, pursuant to a ruling of the California Insurance Department dated July 19, 1999. SZ will own between 16.32% (assuming 100% public participation) and 21.48% (assuming 0% public participation) of the post – conversion vote of DHC. Laminar will control between 19.24% (assuming 100% public participation) and 25.88% (assuming 0% public participation) of the post – conversion vote of DHC.

B. Board Representation

The DHC Board of Directors currently consists of eight (8) directors (the “Directors”). (A ninth Board seat remains 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.) Of the eight current Directors, only two (2) are affiliated with TAT: Martin J. Whitman is a Director of DHC and is the Chairman of the Board and a Trustee of TAT; David Barse is a Director of DHC and is the President and Chief Executive Officer and a Trustee of TAT. TAT’s limited representation on the Board is not sufficient to give TAT control over Board actions. DHC has agreed to amend its By-Laws to provide that any holder of 20% or more of the voting power of DHC shall have the right to nominate a candidate for election to the DHC Board. However, while it is likely that Laminar and SZ will each hold over 20% of the voting power of DHC after the closing of the Transaction, TAT almost certainly will never acquire the voting power necessary to enable it to nominate a director.

C. Management Control

TAT will not be entitled to appoint the management of DHC or Valor as a result of its stock ownership. Samuel Zell is the President and Chief Executive Officer of DHC and in that position oversees the management and operations of DHC. Through his influence as the President of SZ over the DHC board members affiliated with SZ and his influence as the Chairman of EGI over the board members affiliated with EGI, the entity that provides administrative services to DHC (as described below), and his positions as Chairman of the Board of Directors, President, and Chief Executive Officer of DHC, Mr. Zell’s influence over the management, policies and operations of DHC will be greater than the influence TAT would have to direct the management of DHC.

D. Contractual Arrangements.

listing exchange compliance and financial and corporate record keeping. As noted above, EGI and SZ are affiliated entities with substantially similar ownership, and both are affiliated with Mr. Zell.

Although the Notes owned by TAT might trigger the presumption of control under Section 33-2-1101(2) of the Montana Insurance Code, given the existing board composition, the identities of the current officers, and the affiliated status of many board members and the executive officers with other significant shareholders, as a practical matter, TAT’s voting power will not enable it to direct the management, policies, or operations of DHC or Valor. On a combined basis, Laminar and SZ will hold up to 47.36% of the common stock of DHC, significantly more than the maximum amount that could be held by TAT (giving effect to the Transaction).

E. TAT’s Voluntary Voting Restriction

Pursuant to Section 8.3(e) of the Note Purchase Agreement, TAT has agreed not to exercise its voting power in DHC stock in votes relating to the management, policies and operations of the DHC insurance subsidiaries. Consequently, as a practical matter, TAT’s voting power in DHC will not enable it to appoint management or vote on board members of Valor, and TAT will be unable to influence management decisions of Valor involving insurance operations, business strategies, underwriting and claims handling, reinsurance programs, or regulatory compliance. TAT’s equity position in DHC will be passive with respect to the management, policies and operations of Valor.

5. Summary

The proposed Transaction by TAT relating to Valor will not result in affiliation, within the meaning of Montana Insurance Code Section 33-2-1101, of TAT with Valor, or vice versa, because:

A. Other Shareholders Control DHC

Even after the completion of the contemplated Transaction, TAT will be unable to assert functional control over DHC because the interests of other major shareholders, including share ownership and service as directors and executive officers by individuals affiliated with other shareholders will aggregate to greater influence over the management, polices, and operations of DHC than TAT could assert.

B. Officers Control Daily Operations

Management and control of the daily operations of the DHC insurance subsidiaries, including Valor is vested in the officers of such insurance companies and will not be within the control of TAT.

C. TAT Will Exercise Only Passive Ownership

TAT will exercise only passive ownership of DHC’s shares on all issues affecting

the management, policies and operations of Valor, and will not vote its shares in DHC or cause such shares to be voted on issues that directly affect the management or operations of Valor.

For the reasons set forth above, TAT respectfully requests your acceptance of this disclaimer of affiliation and control.

IN WITNESS WHEREOF, the undersigned has hereunto signed its name and affixed its corporate seal at the City of New York in the State of New York this 30^th day of November, 2003.

THIRD AVENUE TRUST, on behalf of the THIRD
AVENUE VALUE FUND SERIES

/s/ David M. Barse
By:	David M. Barse
Title:		Chief Executive Officer
Must be an executive officer.

DISCLAIMER ALLOWED this day of , 20 , on the basis of the evidence presented herein.

	Insurance Commissioner of the State of Montana

By		Deputy

Exhibits

Note Purchase Agreement		A

Chart of Equity Positions in DHC		B

EX-5 5 a03-6238_1ex5.htm EX-5

Exhibit 5

JOINT FILING AGREEMENT

Each of the undersigned acknowledges and agrees that the foregoing statement on Schedule 13D with respect to the common stock, $.10 par value per share, of Danielson Holding Corporation is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D or Schedule 13G shall be filed on behalf of each of the undersigned without the necessity of filing additional joint filing agreements. This Agreement may be executed in any number of counterparts all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned hereby execute this Agreement this 12^th day of December, 2003.

THIRD AVENUE MANAGEMENT LLC

By:	/s/ MARTIN J. WHITMAN
	Name:	Martin J. Whitman
	Title:	Co-Chief Investment Officer


MARTIN J. WHITMAN

	/s/ MARTIN J. WHITMAN
	Martin J. Whitman

Under the Securities Exchange Act of 1934 (Amendment No. )*

Signature

1. The Parties

A. TAT

TAT is a business trust organized under the laws of the State of Delaware, and is a registered investment company under the Investment Company Act of 1940.

B. The California Insurers

2. The Transaction

3. Voting Power of TAT

A. Shares Controlled by TAT

B. Issued and Outstanding Shares of DHC

C. Acquisition of Shares by TAT in the Transaction

4. TAT will not exercise control of DHC and the California Insurers

A. Influence of Other DHC Shareholders Over DHC and the California Insurers

B. Board Representation

The DHC Board of Directors currently consists of eight (8) directors (the “Directors”). A ninth Board seat remains vacant with the intention that if the California Commissioner of Insurance

C. Management Control

D. Contractual Arrangements.

E. TAT’s Voluntary Voting Restriction

5. Summary

A. Other Shareholders Control DHC

B. Officers Control Daily Operations

C. TAT Will Exercise Only Passive Ownership

1. The Parties

A. TAT

TAT is a business trust organized under the laws of the State of Delaware, and is a registered investment company under the Investment Company Act of 1940.

B. Valor

2. The Transaction

3. Voting Power of TAT

A. Shares Controlled by TAT

B. Issued and Outstanding Shares of DHC

C. Acquisition of Shares by TAT in the Transaction

4. TAT will not exercise control of DHC and Valor

A. Influence of Other DHC Shareholders Over DHC and Valor

B. Board Representation

C. Management Control

D. Contractual Arrangements.

E. TAT’s Voluntary Voting Restriction

5. Summary

The proposed Transaction by TAT relating to Valor will not result in affiliation, within the meaning of Montana Insurance Code Section 33-2-1101, of TAT with Valor, or vice versa, because:

A. Other Shareholders Control DHC

B. Officers Control Daily Operations

Management and control of the daily operations of the DHC insurance subsidiaries, including Valor is vested in the officers of such insurance companies and will not be within the control of TAT.

C. TAT Will Exercise Only Passive Ownership

TAT will exercise only passive ownership of DHC’s shares on all issues affecting

Under the Securities Exchange Act of 1934
(Amendment No. )*