-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EuUNlMeDzLtSmufuzx4g3H/nnqB3y+oIXy9Vx+XJH0bgUkrT66iVlyzroRrj/NHs uJRca1QJHfzplXvdTNC59g== 0000950123-03-013521.txt : 20031205 0000950123-03-013521.hdr.sgml : 20031205 20031205172728 ACCESSION NUMBER: 0000950123-03-013521 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20031202 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031205 FILER: 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06732 FILM NUMBER: 031041137 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 8-K 1 y92294e8vk.txt DANIELSON HOLDING CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 2, 2003 DANIELSON HOLDING CORPORATION - ------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1-6732 95-6021257 ----------- ---------- --------------- (STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 NORTH RIVERSIDE PLAZA SUITE 600 CHICAGO, ILLINOIS 60606 - ------------------------------------------------------------------------------- (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (312) 466-4030 - ------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) - ------------------------------------------------------------------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) INFORMATION TO BE INCLUDED IN THE REPORT ITEM 5. OTHER MATERIAL EVENTS AND REGULATION FD DISCLOSURES. On December 2, 2003, Danielson Holding Corporation (the "Company") issued a press release announcing that it had executed a definitive investment and purchase agreement ("Purchase Agreement") to acquire the energy and water businesses of Covanta Energy Corporation ("Covanta") in connection with Covanta's emergence from Chapter 11 proceedings in bankruptcy. The Company will not acquire Covanta's geothermal and other assets, the dispositions of which are already under contract with other buyers under Covanta's Chapter 11 process. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference thereto. To implement the proposed transaction, Covanta is required under the Purchase Agreement to file with the Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), where its Chapter 11 cases are pending a new, alternative proposed plan of reorganization, a new, alternative proposed plan of liquidation for certain non-core businesses (the "DHC Transaction Plans"), and an accompanying draft disclosure statement, each reflecting the transactions contemplated under the Purchase Agreement. The proposed transactions under the Purchase Agreement do not affect Covanta's plans to sell its geothermal assets to affiliates of Ormat Nevada, Inc. which were declared the winning bidders following the auction of those assets. The Purchase Agreement further requires Covanta to continue indefinitely the confirmation hearing for its pending reorganization and liquidation plans involving an Employee Stock Ownership Plan (the "ESOP Plans") while Covanta pursues confirmation of the DHC Transaction Plans. On December 3, 2003, the Bankruptcy Court continued the confirmation hearing for the ESOP Plans until January 14, 2004. This date coincides with the proposed date for approval of the disclosure statement related to the DHC Transaction Plans. On December 16, 2003, the Bankruptcy Court will hold a hearing regarding approval of the expense reimbursement, termination fee and exclusivity provisions of the Purchase Agreement, as well as procedures for giving notice of and setting a hearing date (proposed to be January 14, 2004) for approval of the disclosure statement related to the DHC Transaction Plans. The proposed transaction between the Company and Covanta remains subject to the completion and satisfaction of the terms thereof, of certain documentation, a favorable vote in favor of the DHC Transaction Plans by holders of claims against Covanta and certain of its affiliates entitled to vote thereon, and entry of an order by the Bankruptcy Court confirming the DHC Transaction Plans. There can be no assurance that the Bankruptcy Court will approve, or that the holders of claims against Covanta and certain of its affiliates will vote to support the DHC Transaction Plans or that final documentation will be reached on terms satisfactory to all parties. Subject to timely receipt of these approvals, the Company and Covanta anticipate the transaction to close near the end of the first calendar quarter of 2004. Under the terms of the Purchase Agreement, the Company would acquire 100% of Covanta's equity interests in consideration for $30 million. In addition, the Company would be required to arrange a new $118 million replacement letter of credit facility for Covanta, secured by a second lien on Covanta's domestic assets (the "Second Lien Facility"). The Company has obtained commitments from certain of its shareholders to arrange for or to provide the Second Lien Facility to Covanta. With respect to Covanta's domestic operations, the Purchase Agreement also contemplates the implementation of a new $139 million first lien secured letter of credit facility and the issuance of $205 million of senior notes accreting to $230 million by 2011 and secured by a third lien on Covanta's domestic assets. Finally, Covanta also would issue a yet to be determined amount of unsecured notes to other creditors. The summary of the transaction described above is qualified by reference to the Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1 and incorporated herein by referenced thereto. Upon consummation of the contemplated transactions with the Company, Covanta expects to emerge from bankruptcy with approximately $50 million in cash and revolving credit facility availability, subject to working capital fluctuations. D. E. Shaw Laminar Portfolios, L.L.C. ("Laminar"), a significant creditor of Covanta, has agreed with the Company to provide a $10 million secured revolving loan facility to Covanta's international operations (the "International Revolving Credit Facility"), which would also issue up to $95 million of 3-year term debt to Covanta's creditors, secured by Covanta's international assets. The Company has obtained the financing necessary for the Covanta acquisition from three of its shareholders: SZ Investments, L.L.C. ("SZI"), Third Avenue Trust, on behalf of Third Avenue Value Fund Series ("TAVF"), and Laminar, pursuant to a Note Purchase Agreement dated December 2, 2003 ("Note Purchase Agreement"). Pursuant to the Note Purchase Agreement, SZI, TAVF and Laminar have provided $40 million of bridge financing to the Company in exchange for notes convertible into shares of the Company's common stock at a price of $1.53 per share (the "Bridge Notes"). The Bridge Notes have a scheduled maturity date of January 2, 2005 and an extended maturity date as late as July 15, 2005, and bear interest at a rate of 12% through July 15, 2004 and 16% thereafter. In the event of a default or the failure to pay the Bridge Notes upon their maturity, the interest rate under the Bridge Notes increases by 2%. The Company is using $30 million of the proceeds from the Bridge Notes to post a deposit with Covanta. A deposit of $15 million was made with Covanta upon signing of the Purchase Agreement and the remaining $15 million is due within two business days following issuance of an order of the Bankruptcy Court approving the expense reimbursement, termination fee and exclusivity provisions of the Purchase Agreement. Upon closing of the transactions contemplated under the Purchase Agreement, the deposit would then be used as the Company's purchase price for Covanta's equity interests. The Company will use the remainder of the proceeds to pay certain transaction expenses and for general corporate purposes, subject to certain limitations. In consideration for the $40 million of bridge financing and the agreement by SZI, TAVF and Laminar to arrange or provide for the Second Lien Credit Facility and for Laminar to arrange or provide for the International Revolving Credit Facility, the Company has agreed to issue to SZI, TAVF and Laminar an aggregate of 5,120,853 shares of the Company's common stock. The Company expects to refinance the Bridge Notes through a rights offering to its shareholders following the closing of the Covanta acquisition. The Company intends to issue rights to purchase 0.75 shares for each outstanding share of the Company's common stock at an exercise price of $1.53 per share in a registered rights offering. If the Company does not refinance all of the outstanding Bridge Notes, the remainder of the Bridge Notes would be convertible into shares of Danielson common stock at the rights offering price of $1.53 per share, subject to certain agreed upon limitations. In addition, if the Bridge Notes are not refinanced due to an uncured default by SZI, TAVF or Laminar under the Note Purchase Agreement, $30 million of the Bridge Notes (including accrued interest relating thereto) will be forgiven and the remaining outstanding amounts under the Bridge Notes will convert into the Company's common stock. In addition, (1) Laminar is required under the Note Purchase Agreement to convert an amount of Bridge Notes to acquire up to an additional 8.75 million shares of the Company's common stock at $1.53 per share based upon the levels of public participation in the rights offering and subject to certain agreed upon limitations; and (2) the Company has agreed, in connection with the Purchase Agreement, to sell up to 3 million shares of the Company's common stock at $1.53 per share to certain creditors of Covanta based upon the levels of public participation in the rights offering and subject to certain agreed upon limitations. The summary of the transactions described above is qualified by reference to the Note Purchase Agreement, and certain exhibits thereto, a copy of which is attached hereto as Exhibit 2.2 and incorporated herein by reference thereto. In addition, Laminar has agreed to certain transfer restrictions upon the shares of the Company's common stock that it holds or will acquire and, in accordance with the transfer restrictions contained in Article Fifth of the Company's charter restricting the resale of the Company's common stock by 5% shareholders, the Company has agreed with Laminar to provide it with limited rights to resell the common stock that it holds pursuant to a letter agreement dated December 2, 2003, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference. Finally, the Company has agreed with Laminar, SZI and TAVF to file a registration statement with the Securities and Exchange Commission to register the shares of the Company's common stock issued to them under the Note Purchase Agreement not later than the earlier of June 30, 2004 and ten days after closing of the rights offering. The summary of the registration rights described above is qualified by reference to the Registration Rights Agreement, a copy of which is attached hereto as Exhibit 4.1 and incorporated by referenced herein. Sam Zell, Chairman of the Board of Directors and Chief Executive Officer of the Company, Philip G. Tinkler, Chief Financial Officer of the Company and William Pate, a Director of the Company, are affiliated with SZI. Martin Whitman and David Barse, Directors of the Company, are affiliated with TAVF. The Note Purchase Agreement and other transactions involving SZI, TAVF and Laminar were negotiated, reviewed and approved by a special committee of the Company's Board of Directors composed solely of disinterested directors (the "Special Committee") and advised by independent legal and financial advisors. Further, in response to a request by the Special Committee, Equity Group Investments, L.L.C., an entity affiliated with Messrs. Zell, Tinkler and Pate, has agreed to terminate its consulting and advisory agreement with the Company. A copy of the termination letter is attached hereto as Exhibit 10.2 and incorporated herein by reference. THIS CURRENT REPORT ON FORM 8-K SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF COVANTA ENERGY CORPORATION, DANIELSON HOLDING CORPORATION OR ANY OF THEIR AFFILIATES NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE OR JURISDICTION, OR, IF FOR THE ADMINISTRATIVE CONVENIENCE OF THE COURT SYSTEM, THE PROPOSED TRANSACTIONS ARE IMPLEMENTED THROUGH A VOLUNTARY PLAN UNDER THE BANKRUPTCY CODE, A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN UNDER THE BANKRUPTCY CODE. ANY SUCH OFFER OR SOLICITATION WILL BE MADE IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE BANKRUPTCY CODE. CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS Certain statements made herein may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission, all as may be amended from time to time. Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company and its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan", "believe", "expect", "anticipate", "intend", "estimate", "project", "may", "will", "would", "could", "should", "seeks", or "scheduled to", or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PLSRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, Covanta's and the Company's ability to successfully consummate the transactions contemplated by the proposed acquisition and financial restructuring, Covanta's ability to obtain the consent of its creditors; and other factors, risks and uncertainties that are described in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 27, 2002 and in other securities filings by Danielson or Covanta. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and neither the Company nor Covanta has any or has undertaken any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of business acquired: [Not applicable]. (b) Pro forma financial information: [Not applicable]. (c) Exhibits. The following exhibits are filed with this document: 2.1 Investment and Purchase Agreement between Danielson Holding Corporation and Covanta Energy Corporation dated December 2, 2003.* * All schedules to this Exhibit 2.1 filed herewith have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of this Exhibit 2.1. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 2.2 Note Purchase Agreement between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003.* * All schedules to this Exhibit 2.2 filed herewith have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of this Exhibit 2.2. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 4.1 Registration Rights Agreement between between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund Series, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. 10.1 Letter Agreement between Danielson Holding Corporation and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. 10.2 Letter Agreement between Danielson Holding Corporation and Equity Group Investments, L.L.C. dated December 1, 2003. 99.1 Press Release issued by Danielson Holding Corporation, dated December 2, 2003, regarding the agreement to acquire Covanta Energy Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 5, 2003 DANIELSON HOLDING CORPORATION (Registrant) By: /s/ Philip G. Tinkler ---------------------------- Name: Philip G. Tinkler, Title: Chief Financial Officer DANIELSON HOLDING CORPORATION EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 2.1 Investment and Purchase Agreement between Danielson Holding Corporation and Covanta Energy Corporation dated December 2, 2003.* * All schedules to this Exhibit 2.1 filed herewith have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of this Exhibit 2.1. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 2.2 Note Purchase Agreement between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. * All schedules to this Exhibit 2.2 filed herewith have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of this Exhibit 2.2. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. 4.1 Registration Rights Agreement between between Danielson Holding Corporation and SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund Series, and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. 10.1 Letter Agreement between Danielson Holding Corporation and D. E. Shaw Laminar Portfolios, L.L.C. dated December 2, 2003. 10.2 Letter Agreement between Danielson Holding Corporation and Equity Group Investments, L.L.C. dated December 1, 2003. 99.1 Press Release issued by Danielson Holding Corporation, dated December 2, 2003, regarding the agreement to acquire Covanta Energy Corporation.
EX-2.1 3 y92294exv2w1.txt INVESTMENT AND PURCHASE AGREEMENT EXHIBIT 2.1 EXECUTION COPY INVESTMENT AND PURCHASE AGREEMENT by and between DANIELSON HOLDING CORPORATION and COVANTA ENERGY CORPORATION Dated as of December 2, 2003 TABLE OF CONTENTS
PAGE 1. Defined Terms...........................................................................................1 2. Actions Upon Signing; Deposit..........................................................................15 2.1. Approval Order................................................................................15 2.2. Payment of Deposit............................................................................15 3. Closing; Closing Date; Expense Reimbursement...........................................................16 3.1. Issuance and Purchase of New Common Stock.....................................................16 3.2. Funding.......................................................................................16 3.3. Payment of Expense Reimbursement..............................................................16 3.4. Company Deliverables..........................................................................17 3.5. Purchaser Deliverables........................................................................17 4. Representations and Warranties of Company..............................................................18 4.1. Due Incorporation and Authority...............................................................18 4.2. Subsidiaries and Investment Entities..........................................................18 4.3. Foreign Qualification.........................................................................18 4.4. Outstanding Capital Stock.....................................................................19 4.5. Options or Other Rights.......................................................................19 4.6. Authority Relative to this Agreement..........................................................19 4.7. Financial Statements..........................................................................20 4.8. No Material Adverse Change....................................................................21 4.9. Compliance with Governmental Rules............................................................22 4.10. Governmental Approvals........................................................................22 4.11. No Breach.....................................................................................23 4.12. Environmental Matters.........................................................................24 4.13. Claims and Proceedings........................................................................25 4.14. Contracts.....................................................................................25 4.15. Tangible Property.............................................................................27 4.16. Intellectual Property.........................................................................27 4.17. Title to Properties...........................................................................28 4.18. Employee Benefit Plans........................................................................28 4.19. Employee Matters..............................................................................29 4.20. Insurance.....................................................................................30
i 4.21. No Brokers....................................................................................31 4.22. SEC Documents and Other Documents.............................................................31 4.23. Projects......................................................................................31 4.24. Qualifying Facility Status; Nature of Business................................................32 4.25. Certain Regulatory Matters....................................................................32 4.26. Agreements with Regulatory Agencies...........................................................33 4.27. Taxes.........................................................................................33 5. Representations and Warranties of Purchaser............................................................36 5.1. Due Incorporation and Authority...............................................................36 5.2. Authority to Execute and Perform Agreement....................................................36 5.3. Purchase for Investment.......................................................................36 5.4. Plan Acknowledgment...........................................................................36 5.5. Financing.....................................................................................37 5.6. Certain Tax Matters...........................................................................37 5.7. SEC Documents and Other Documents.............................................................37 5.8. Insurance Matters.............................................................................37 5.9. No Material Adverse Change....................................................................38 5.10. Utility Regulatory Status.....................................................................38 5.11. Marine Services Affiliates....................................................................39 6. Covenants and Agreements...............................................................................39 6.1. Conduct of Business...........................................................................39 6.2. Corporate Examinations and Investigations.....................................................41 6.3. Publicity.....................................................................................42 6.4. Efforts and Actions to Cause Closing to Occur.................................................42 6.5. Governmental Approvals........................................................................42 6.6. No Inconsistent Action........................................................................43 6.7. Bankruptcy Covenants..........................................................................43 6.8. ISRA..........................................................................................44 6.9. Connecticut Property Transfer Act.............................................................44 6.10. Exclusivity...................................................................................44 6.11. Tax Matters...................................................................................46 6.12. Pro Forma Taxes...............................................................................46 6.13. D&O Insurance.................................................................................47
ii 6.14. Financial Statements..........................................................................47 6.15. Benefit Plans.................................................................................47 7. Conditions Precedent to the Obligation of Purchaser....................................................47 7.1. Representations and Covenants.................................................................47 7.2. Required Consents and Required Governmental Approvals.........................................47 7.3. No Claims.....................................................................................48 7.4. Disclosure Statement Order....................................................................48 7.5. Liquidation Plan..............................................................................48 7.6. Confirmation Orders...........................................................................48 7.7. Approval Orders...............................................................................48 7.8. Exit Financing................................................................................48 7.9. International Reorganization and Arrangements.................................................48 7.10. Tax Sharing Agreement.........................................................................48 7.11. Cash Reserve..................................................................................49 7.12. ISRA..........................................................................................49 7.13. Qualifying Facility Recertifications..........................................................49 7.14. Tax Liability.................................................................................49 7.15. Opinion.......................................................................................49 7.16. Geothermal Sale...............................................................................49 7.17. Treatment of Certain Projects.................................................................49 8. Conditions Precedent to the Obligation of Company......................................................49 8.1. Representations and Covenants.................................................................50 8.2. Required Consents and Required Governmental Approvals.........................................50 8.3. Confirmation Orders...........................................................................50 8.4. Exit Financing................................................................................50 8.5. New Securities Issued.........................................................................50 8.6. Execution of Tax Sharing Agreement............................................................50 8.7. Geothermal Sale...............................................................................50 8.8. Net Operating Loss Carryforwards..............................................................51 9. Designation of Executory Contracts.....................................................................51 10. Representations and Warranties of Company..............................................................51 11. Termination of Agreement...............................................................................51 11.1. Termination...................................................................................51
iii 11.2. Survival After Termination; Termination Fee...................................................52 12. Miscellaneous..........................................................................................54 12.1. Consent to Jurisdiction and Service of Process................................................54 12.2. Notices.......................................................................................55 12.3. Entire Agreement..............................................................................56 12.4. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies....................56 12.5. Availability of Equitable Relief..............................................................56 12.6. Governing Law.................................................................................56 12.7. Binding Effect; Assignment....................................................................56 12.8. Usage.........................................................................................56 12.9. Counterparts..................................................................................57 12.10. Exhibits, Appendices and Disclosure Schedules; Cross References...............................57 12.11. Headings......................................................................................57 12.12. Interpretation................................................................................57 12.13. Severability of Provisions....................................................................57 12.14. Exclusivity of Representations................................................................57 12.15. Company's Knowledge...........................................................................57 12.16. No Third Party Beneficiaries..................................................................58
iv COMPANY DISCLOSURE SCHEDULE Section 4.2(i) Subsidiaries Section 4.2(ii) Investment Entities Section 4.2(iii) Organizational Chart Section 4.4(i) Outstanding Capital Stock Section 4.4(ii) Outstanding Liens on Capital Stock Section 4.5 Options or Other Rights Section 4.7 Financial Statements Section 4.8 Material Adverse Change Section 4.9 Compliance with Laws Section 4.10 Required Governmental Approvals Section 4.11(b) Required Consents Section 4.11(c) Restrictions on Indebtedness Section 4.12 Environmental Matters Section 4.13 Claims and Proceedings Section 4.14 Material Contracts Section 4.16 Intellectual Property Section 4.17(a) Real Property Section 4.17(b) Real Property Agreement Defaults Section 4.18 Employee Benefits Section 4.19 Employee Matters Section 4.20 Insurance Section 4.22 SEC Documents and Other Documents Section 4.23 Projects Section 4.24(a) Qualifying Small Power Production Facilities and Qualifying Cogeneration Facilities Section 4.24(b) Non-Exempt Qualifying Facility Projects Section 4.27 Taxes Section 6.1 Conduct of Business Section 6.11 Tax Matters Section 7.17 Treatment of Certain Projects PURCHASER DISCLOSURE SCHEDULE Section 5.7(a) SEC Documents and Other Documents Section 5.8(d) Insurance Laws THIS INVESTMENT AND PURCHASE AGREEMENT (this "Agreement"), dated as of December 2, 2003, by and between DANIELSON HOLDING CORPORATION, a Delaware corporation ("Purchaser"), and COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), as debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code. WHEREAS, Company and certain of its Affiliates (as indicated on Exhibit A hereto) are debtors and debtors-in-possession (collectively, the "Debtors" and each, a "Debtor") in Chapter 11 case numbers 02-40826 through 02-40949, 02-16322 et al (the "Case") pending before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"); and WHEREAS, subject to the terms and conditions set forth herein, and pursuant to the Plan, Purchaser desires to purchase from Company, and Company desires to sell to Purchaser, for $30,000,000, all shares of common stock (the "New Common Stock") of Company as reorganized under the Plan (Company as so reorganized, "Reorganized Covanta"), representing 100% of the equity of Reorganized Covanta immediately following the Closing. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, representations and warranties of the parties hereto as set forth herein, intending to be legally bound hereby the parties hereby agree as follows: 1. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meaning assigned thereto in the Bankruptcy Code or in the Plan, as applicable. In addition, as used in this Agreement, the following terms have the following meanings: "Affiliate" means, with respect to any Person, any other Person Controlling, Controlled by or under common Control with such Person. "Agreement" shall have the meaning set forth in the Preamble. "Alternative Transaction" shall have the meaning set forth in Section 6.10(a). "Approval Order" means an Order of the Bankruptcy Court approving Sections 3.3, 6.10, 11.2(b) and 11.2(d) of this Agreement. "Assumptions" shall have the meaning set forth in Section 4.18. "Audited Financials" shall have the meaning set forth in Section 4.7(a). "Balance Sheet" shall have the meaning set forth in Section 4.7(a). "Balance Sheet Date" shall have the meaning set forth in Section 4.7(a). "Bankruptcy Code" means title 11 of the United States Code, as amended from time to time, as applicable to the Case. "Bankruptcy Court" shall have the meaning set forth in the Recitals. "Bankruptcy-Related Requirements" shall have the meaning set forth in Section 6.10(b). "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under section 2075 of title 28 of the United States Code, as applicable to the Case. "Benefit Plans" shall have the meaning set forth in Section 4.18. "Business Day" means any day other than a Saturday, Sunday or "legal holiday" as defined in Bankruptcy Rule 9006(a). "Case" shall have the meaning set forth in the Recitals. "Cash Tax Reserve" shall have the meaning set forth in Section 6.12(b). "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.ss.9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Claims" means any actions, causes of action, suits, claims, complaints, demands, litigations or legal, administrative or arbitral proceedings or investigations. "Closing" shall have the meaning set forth in Section 3. "Closing Cash Balance" means $40,000,000 plus the cumulative Operational Cash Flow Adjustment for the period from January 3, 2004 through the Closing Date. "Closing Date" shall have the meaning set forth in Section 3. "Code" means the Internal Revenue Code of 1986, as amended. "Company" shall have the meaning set forth in the Preamble. "Company Disclosure Schedule" means the Company Disclosure Schedule attached hereto. "Company Failure" means a failure to consummate the closing of the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement as a result of (a) Company or any of its Affiliates failing to fulfill a condition precedent to such consummation that is solely within the control of Company or its Affiliates, (b) Company or any of its Affiliates failing to execute and deliver either of such Credit Agreements or any of the instruments contemplated by such Credit Agreements to be delivered by Company or any of its Affiliates or (c) any other reason within the sole control of Company or any of its Affiliates. "Confidentiality Agreement" shall have the meaning set forth in Section 6.2. 2 "Confirmation Date" means the date that the Confirmation Orders are entered by the Bankruptcy Court. "Confirmation Hearing" means the hearing held by the Bankruptcy Court pursuant to section 1128 of the Bankruptcy Code on confirmation of the Plan, as such hearing may be adjourned or continued from time to time. "Confirmation Orders" shall have the meaning set forth in Section 7.6. "Consideration" shall have the meaning set forth in Section 3.1. "Contemplated Transactions" means the transactions contemplated hereby, including without limitation, the transactions contemplated under the Plan. "Contingent Obligations" shall have the meaning set forth in the DIP Agreement. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Copyrights" means any foreign or United States copyright registrations and applications for registration thereof and any non-registered copyrights. "CPIH" means Covanta Power International Holdings, Inc. "CPIH Management Services & Reimbursement Agreement" means the Management Services & Reimbursement Agreement to be entered into by Reorganized Covanta, the other Company Entities party thereto and CPIH on the Closing Date, substantially in the form attached as Exhibit H hereto. "Covanta Tax Affiliate" shall mean any entity in respect of which Covanta or any Subsidiary is or has been or will be liable for Taxes. "Credit Agreements" means, collectively, the First Lien L/C Credit Facility Credit Agreement, the Second Lien L/C Credit Facility Credit Agreement, the International Term Loan Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement. "CTA" shall have the meaning set forth in Section 6.9. "Debtor" and "Debtors" shall have the meanings set forth in the Recitals. "Definitive Documents" means the following agreements and documents: this Agreement, the CPIH Management Services & Reimbursement Agreement, the Disclosure Statement, the Domestic Intercreditor Agreement, the First Lien L/C Credit Facility Credit Agreement, the International Intercreditor Agreement, the International Revolver Credit Facility Credit Agreement, the International Term Loan Credit Facility Credit Agreement, the Plan, the 3 Liquidation Plan, the Second Lien L/C Credit Facility Credit Agreement, the Senior Secured Notes Indenture, the Tax Note, the Tax Sharing Agreement and the Unsecured Notes Indenture. "Deposit" shall have the meaning set forth in Section 2.2. "Deposit Escrow Agreement" shall have the meaning set forth in Section 2.2. "Disclosure Schedules" means the Company Disclosure Schedule and the Purchaser Disclosure Schedule. "Disclosure Statement" means the disclosure statement, including all exhibits, appendices and attachments thereto (each in form and substance reasonably acceptable to Purchaser), filed in connection with the Plan approved by Order of the Bankruptcy Court in accordance with section 1125 of the Bankruptcy Code, as amended or supplemented. "Disclosure Statement Order" shall have the meaning set forth in Section 7.4. "DIP Agreement" means the Debtor-In-Possession Credit Agreement, dated as of April 1, 2002, among Company and each of its subsidiaries party thereto, the financial institutions listed therein as lenders, Bank of America, N.A., as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, as amended, supplemented or otherwise modified through the date hereof. "Distributable Cash" shall have the meaning set forth in the Plan. "Domestic Intercreditor Agreement" means the Intercreditor Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto and each of the financial institutions listed therein as lenders, agents and/or trustees on the Closing Date, substantially in the form attached as Exhibit C-5 hereto. "Domestic Power Project" means a Project located in the United States which generates electricity for sale. "Domestic Project" shall have the meaning set forth in Section 4.23. "D&O Insurance" means tail coverage for a period of three to six years under Company's existing or other directors and officers insurance policy covering Company's and its subsidiaries' current directors and officers. "D&O Insurance Cost" means the cost of the D&O Insurance. "Effective Date" means the date of effectiveness of the Plan specified in Section 10.2 of the Plan (subject to the terms and conditions of this Agreement), unless otherwise waived as provided in Section 10.3 of the Plan (subject to the terms and conditions of this Agreement), or such other date fixed by Company and Purchaser upon notice to the Bankruptcy Court. "Employee" means any former or current employee of Company or any of its subsidiaries. 4 "Environment" means navigable waters, waters of the contiguous zone, ocean waters, natural resources, surface waters, ground water, drinking water supply, land surface, subsurface strata, ambient air, both inside and outside of buildings and structures, man-made buildings and structures, and plant and animal life on earth. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (a) pursuant to or in connection with any actual or alleged violation of any Environmental Law or (b) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Approvals, or any other requirements of any Governmental Authority relating to (a) environmental matters, including those relating to any Hazardous Materials Activity; (b) the generation, use, storage, transportation or disposal of Hazardous Materials; or (c) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company, any of the Subsidiaries or any Facility. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporation that is a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) that is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (a) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation) that would reasonably be expected to result in a Material Adverse Effect on Company; (b) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (c) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination 5 described in Section 4041(c) of ERISA; (d) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in material current liability of Company or any of its Subsidiaries pursuant to Section 4063 or 4064 of ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA where such reorganization, insolvency or termination would reasonably be expected to result in a Material Adverse Effect on Company; (g) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if it would reasonably be expected that Company or any of its Subsidiaries will incur material liability therefor (in excess of the contribution that would otherwise have been due absent such withdrawal), or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (h) the assertion of a material claim (other than routine claims for benefits) against any Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Benefit Plan, if such assertion or the liability with respect thereto would reasonably be expected to result in a Material Adverse Effect on Company; (i) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or of the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code, in either case if such failure would reasonably be expected to result in a Material Adverse Effect on Company; or (j) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Escrow Agent" shall have the meaning set forth in Section 2.2. "EWG" means an exempt wholesale generator within the meaning of 15 U.S.C. Section 79z-5a of PUHCA. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exclusivity Provisions" shall have the meaning set forth in Section 6.10(a). "Exit Costs" shall have the meaning set forth in the Plan. "Exit Financing" means (a) the credit facilities for post-Effective Date operations, substantially on the terms set forth in the Credit Agreements and (b) the Senior Secured Notes issuance, substantially on the terms set forth in the Senior Secured Notes Indenture. 6 "Expense Reimbursement" means the payments by Company to Purchaser and Laminar, in accordance with the provisions of Section 3.3 and Section 11.2(d) hereof, on account of Purchaser's and Laminar's actual, documented out-of-pocket costs, fees and expenses (including, without limitation, the fees and expenses of consultants, financial advisors, accountants and counsel and the costs, fees and expenses relating to Purchaser's and Laminar's due diligence) incurred in connection with the negotiation and documentation of this Agreement, the other Definitive Documents, the consummation of the Contemplated Transactions, any of the costs, fees and expenses associated with the financing sources of Purchaser (other than any arrangement, transaction, commitment or other fees under the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement) and any and all related matters. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company or any of the Subsidiaries or any of their respective predecessors. "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. "FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.ss.136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Final Deposit" shall have the meaning set forth in Section 2.2. "Final Order" means an Order of the Bankruptcy Court that has not been reversed, stayed or modified and as to which the time to appeal or seek review, rehearing, reargument or certiorari has expired and as to which no appeal or petition for review, rehearing, reargument, stay or certiorari is pending, or as to which any right to appeal or to seek certiorari, review, or rehearing has been waived, or, if an appeal, reargument, petition for review, certiorari or rehearing has been sought, the order or judgment of the Bankruptcy Court that has been affirmed by the highest court to which the order was appealed or from which the reargument, review or rehearing was sought, or certiorari has been denied, and as to which the time to take any further appeal or seek further reargument, review or rehearing has expired. "First Lien Failure" means the failure of any of the following to be true at the Closing: (a) each of the First Lien L/C Credit Facility Credit Agreement and the International Term Loan Credit Facility Credit Agreement shall be executed and delivered by the parties thereto and in effect, and (b) all conditions precedent to consummation of the closings under such Credit Agreements shall have been satisfied or waived, other than the closing of the Second Lien L/C Credit Facility Credit Agreement, the International Revolver Credit Facility Credit Agreement or the delivery of the Tax Sharing Agreement by Purchaser. "First Lien L/C Credit Facility Credit Agreement" means the Credit Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers, the financial institutions listed therein as lenders, Deutsche Bank AG, New York Branch, as 7 Documentation Agent, and Bank of America, N.A., as Administrative Agent, on the Closing Date, substantially in the form attached as Exhibit C-1 hereto. "Foreign Utility Company" means a foreign utility company within the meaning of 15 U.S.C. Section 79z-5b(a)(3). "FPA" means the Federal Power Act, as amended. "FUCO" shall have the meaning set forth in Section 4.24(c). "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "Geothermal Sale" shall have the meaning set forth in the Plan. "Governmental Approval" means (a) any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, waiver, exemption, filing, variance, claim, Order of, by or with, (b) any required notice to, (c) any declaration of or with or (d) any registration by or with any Governmental Authority. "Governmental Authority" means any foreign, United States federal, state, municipal, local, territorial or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality or judicial or administrative body. "Governmental Rule" means any statute, law, regulation, ordinance, rule, Order, Governmental Approval, concession, grant, franchise, agreement, directive, requirement of, or other governmental restriction or any similar binding form of decision of or determination by, or any binding interpretation or administration of any of the foregoing by, any Governmental Authority, now in effect. "Hazardous Materials" means (a) any chemical, material or substance at any time defined as or included in the definition of (i) "hazardous wastes" or "mixed wastes" as defined in RCRA or in any other Environmental Law; (ii) "hazardous substances", "pollutants" or "contaminants" as defined in CERCLA or in any other Environmental Law; (iii) "chemical substances" or "mixtures" as defined in TSCA or any other substance which is tested pursuant to TSCA or any other Environmental Law, or the manufacture, processing, distribution, use or disposal of which is regulated or prohibited pursuant to TSCA or any other Environmental Law, including without limitation polychlorinated biphenyls and electrical equipment which contains any oil or dielectric fluid containing regulated concentrations of polychlorinated biphenyls; (iv) "insecticides", "fungicides", "pesticides" or "rodenticides" as defined in FIFRA or any other Environmental Law; or (v) "infectious waste" or "biohazardous waste" as defined in any Environmental Law; (b) asbestos or any asbestos-containing materials; (c) urea formaldehyde foam insulation; (d) any oil, petroleum, petroleum fraction or petroleum derived substance; (e) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (f) any flammable substances or explosives; (g) any radioactive materials; and (h) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a 8 hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "Hazardous Materials Activity" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "Heber Reorganization Plan" shall have the meaning set forth in the Plan. "Indebtedness" shall mean (a) all indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices); (b) any other indebtedness that is evidenced by a note, bond, debenture or similar instrument; (c) all obligations under financing leases; (d) all obligations in respect of acceptances issued or created; (e) all liabilities secured by any lien on any property; and (f) all guarantee obligations. "Intellectual Property" means all Patents, Trademarks, Copyrights, Software and Trade Secrets used in or necessary for the conduct of the business of Company and the Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and the Subsidiaries, taken as a whole. "Initial Deposit" shall have the meaning set forth in Section 2.2. "Insurance Regulator" means any Governmental Authority that regulates the insurance operations and business of an Insurer or an insurance holding company. "Insurer" means each of the insurance subsidiaries or Affiliates of Purchaser engaged in the business of insurance. "Interim Financials" shall have the meaning set forth in Section 4.7(a). "International Intercreditor Agreement" means the Intercreditor Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers and the financial institutions listed therein as lenders, agents and/or trustees on the Closing Date, substantially in the form attached as Exhibit C-6 hereto. "International Project" shall have the meaning set forth in Section 4.23. "International Power Project" means a Project located outside of the United States which generates electricity for sale. "International Revolver Credit Facility Credit Agreement" means the Credit Agreement to be entered into by reorganized CPIH, each of its subsidiaries party thereto as borrowers and the financial institutions listed therein or other financial institutions of sound reputation as 9 lenders and/or agents on the Closing Date, substantially in the form attached as Exhibit C-4 hereto. "International Term Loan Credit Facility Credit Agreement" means the Credit Agreement to be entered into by reorganized CPIH, each of its subsidiaries party thereto as borrowers, the financial institutions listed therein as lenders, Deutsche Bank AG, New York Branch, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, on the Closing Date, substantially in the form attached as Exhibit C-3 hereto. "Investment Entity" shall mean any corporation or other organization, whether incorporated or unincorporated, of which on the Effective Date and after giving effect to the Contemplated Transactions, Reorganized Covanta shall own any equity interest, directly or indirectly, which is not a direct or indirect Subsidiary, including but not limited to any foreign Investment Entity. "Investment Motion" shall have the meaning set forth in Section 6.7(c). "Investors" means SZ Investments, L.L.C., Laminar and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series. "IRS" means the Internal Revenue Service. "ISRA"shall have the meaning set forth in Section 6.8. "Laminar" means D. E. Shaw Laminar Portfolios, L.L.C. "Legal Proceeding" means any action, suit, proceeding, hearing or investigation of, in or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator. "Liabilities" shall have the meaning set forth in Section 4.7(a). "Lien" means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, license, charge, option, right of first refusal, easement, servitude, transfer restriction, encumbrance or any other restriction or limitation whatsoever. "Liquidation Plan" means the Amended Joint Plan of Liquidation in the form attached as Exhibit E-2 hereto. "Marine Services Affiliate" means each of the Affiliates of Purchaser engaged in integrated marine transportation services or the vessel leasing business. "Material Adverse Effect on Company" means, in each case after giving effect to the provisions of the Plan, (a) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Reorganized Covanta and the Subsidiaries, considered as a whole, or (b) the effect of preventing or materially interfering with Company's or Reorganized Covanta's ability to consummate the Contemplated Transactions; provided that no effect resulting, individually or in the aggregate, from macro-economic events or general market- 10 related changes shall be a Material Adverse Effect on Company unless Company is affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses. "Material Adverse Effect on Purchaser" means (a) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Purchaser and its subsidiaries, considered as a whole, or (b) the effect of preventing or materially interfering with Purchaser's ability to consummate the Contemplated Transactions; provided that no effect resulting, individually or in the aggregate, from macro-economic events or general market-related changes shall be a Material Adverse Effect on Purchaser unless Purchaser is affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses. "Material Contract" means (a) the principal lease agreement, if any, the principal service agreement, if any, and the principal operating agreement, if any, with respect to each Project that will be part of Reorganized Covanta to which Reorganized Covanta or any of the Subsidiaries will be a party on or after the Effective Date (after giving effect to the provisions of the Plan), and (b) any other material contract or other material arrangement with respect to each Project that will be part of Reorganized Covanta to which Reorganized Covanta or any Subsidiary will be a party on or after the Effective Date (after giving effect to the provisions of the Plan). "Monthly Management Reports" shall have the meaning set forth in Section 6.14(a). "Multiemployer Plan" means any Company Employee Benefit Plan that is a "multiemployer plan" as defined in Section 3(37) of ERISA. "New Common Stock" shall have the meaning set forth in the Recitals. "NJDEP"shall have the meaning set forth in Section 6.8. "Non-Exempt Qualifying Facility Project" shall have the meaning set forth in Section 4.24(b). "Operational Cash Flow Adjustment" means, for each completed calendar week from January 3, 2004 through the Closing Date, the difference between (A) operational cash flow for that week pertaining solely to the domestic operational cash flow of businesses of the Company and its subsidiaries (other than CPIH and its subsidiaries and the subsidiaries included in the Geothermal Sale (the "Geothermal Operations")) and (B) $500,000, with excess operational cash flows being reflected as a positive number and operational cash flow shortfalls being reflected as a negative number; provided that, all overhead expenditures of the Geothermal Operations shall be included in the determination of domestic operational cash flow. For the avoidance of doubt, international overhead incurred by the domestic operations, reorganization costs and other non-operational expenses shall not be included in domestic operational cash flow. "Order" means an order, judgment, injunction, award, decree or writ. "Patents" means any foreign or United States patents and patent applications, including any divisions, continuations, continuations-in-part, substitutions or reissues thereof, whether or 11 not patents are issued on such applications and whether or not such applications are modified, withdrawn or resubmitted. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Benefit Plan, other than a Multiemployer Plan, which is subject to section 412 of the Internal Revenue Code or section 302 of ERISA. "Performance Guarantees" shall have the meaning set forth in the DIP Agreement. "Permitted Liens" means "Permitted Encumbrances" as defined in the DIP Agreement. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other entity. "Petition Date" means each of April 1, 2002 and June 6, 2003. "Plan" means the Second Joint Plan of Reorganization (in form and substance reasonably acceptable to Purchaser) for Company and certain of the Debtors, and all exhibits and supplements thereto (each in form and substance reasonably acceptable to Purchaser), as amended, modified or supplemented by Company in accordance with the Bankruptcy Code, the Bankruptcy Rules and the terms of this Agreement (all such amendments, modifications or supplements in form and substance reasonably acceptable to Purchaser), pursuant to which the Contemplated Transactions will be authorized and approved in accordance with the terms of this Agreement, substantially in the form attached hereto as Exhibit E-1. "Pro Forma Income Tax Calculations" shall have the meaning set forth in Section 6.12(a). "Proceedings" shall have the meaning set forth in Section 4.13. "Project" means each Domestic Project and International Project. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "Purchased Shares" shall have the meaning set forth in Section 3.1. "Purchaser" shall have the meaning set forth in the Preamble. "Purchaser Disclosure Schedule" means the Purchaser Disclosure Schedule attached hereto. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended. "Qualifying Cogeneration Facility" means a cogeneration facility that satisfies the requirements of a "qualifying facility" set forth in 18 C.F.R. ss.292.203(b), as amended from time to time. 12 "Qualifying Small Power Production Facility" means a small power production facility that satisfies the requirements of a "qualifying facility" set forth in 18 C.F.R. ss.292.203(a), as amended from time to time. "Qualifying Facility" means either a Qualifying Small Power Production Facility or a Qualifying Cogeneration Facility. "Qualifying Facility Self Recertification" shall have the meaning set forth in Section 7.13. "RCRA" means the Resource Conservation and Recovery Act, as amended (42 U.S.C.ss.6901 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Real Property" means all real property that is owned, leased or used by Company, any Subsidiary or that is reflected as an asset of Company or any Subsidiary on the Balance Sheet. "Regulatory Agreement" shall have the meaning set forth in Section 4.26. "Release" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing or migrating of Hazardous Materials into the indoor or outdoor environment (including the abandonment, discarding or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "Reorganized Covanta" shall have the meaning set forth in the Recitals. "Required Consent" means a consent required so that the execution, delivery or performance by Company of this Agreement, the consummation of the Contemplated Transactions and the assumption or continued enforcement thereof by Reorganized Covanta or any Subsidiary will not (a) result in any breach of or constitute a default (or an event which with or without notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, a Material Contract or (b) result in the creation of any Lien, other than a Permitted Lien, on any property or asset of Company, Reorganized Covanta or any Subsidiary, with an individual value in excess of $1,000,000 or an aggregate value in excess of $5,000,000. "Required Governmental Approvals" shall have the meaning set forth in Section 4.10(a). "Restated Bylaws" means the bylaws of Reorganized Covanta, as amended and restated in connection with the Plan. "Restated Certificate of Incorporation" means the certificate of incorporation of Reorganized Covanta, as amended and restated in connection with the Plan. "Retained Cash" means, if Additional Distributable Cash (as defined in the Plan) is equal to $7.2 million, an amount of cash equal to twenty-five percent (25%) of Post-Closing Cash (as 13 defined in the Plan) in excess of the total of Distributable Cash (as defined in the Plan) plus Additional Distributable Cash. "SEC" means the Securities and Exchange Commission or successor agency thereto. "SEC Documents" shall have the meaning set forth in Section 4.22. "Second Lien L/C Credit Facility Credit Agreement" means the Credit Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers and the financial institutions listed therein as lenders and/or agents on the Closing Date, substantially in the form attached as Exhibit C-2 hereto; provided that there shall be an Issuing Lender (as defined therein) capable of issuing the $50 million letter of credit required by Company's Montgomery Project, that has a credit rating of at least Aa from Moody's or AA from Standard & Poor's, provided further that the Commitment Letter and related term sheet of Bank One, NA dated December 2, 2003, shall not be considered in determining whether conditions or covenants hereunder referencing the Second Lien L/C Credit Facility Credit Agreement are fulfilled or performed. "Senior Secured Notes" means, collectively, the notes to be issued on the Effective Date by Reorganized Covanta pursuant to the Senior Secured Notes Indenture in the face amount of $230 million and an initial accreted amount of $205 million. "Senior Secured Notes Indenture" means the Indenture to be entered into by Reorganized Covanta and each of its Subsidiaries party thereto and the trustee named therein, substantially in the form attached as Exhibit D hereto. "Software" means any computer software programs, source code, object code, data and documentation (other than commercially available "shrink wrap" software). "Subsidiary" means, any corporation or other organization, whether incorporated or unincorporated, of which, as of the Effective Date and after giving effect to the Contemplated Transactions, (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization will be held directly or indirectly, owned or controlled by Reorganized Covanta or (b) Reorganized Covanta or any Subsidiary will be a general partner or managing member, including but not limited to any foreign Subsidiaries. "Superior Proposal" shall have the meaning set forth in Section 6.10(b). "Tangible Property" shall have the meaning set forth in Section 4.15. "Tax Note" means the note(s) to be issued on the Effective Date by Reorganized Covanta in respect of certain tax claims pursuant to Section 2.4 of the Plan, which shall be in form and substance reasonably acceptable to Purchaser and Company. 14 "Tax Sharing Agreement" means that certain Tax Sharing Agreement to be entered into among Purchaser, Company and CPIH on the Closing Date, substantially in the form attached as Exhibit F hereto. "Taxes" means all taxes, however denominated, including any interest or penalties that may become payable in respect thereof, imposed by any federal, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income taxes (including, but not limited to, United States federal income taxes and state income Taxes), payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, environmental, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, withholding taxes, workers' compensation, and other obligations of the same or of a similar nature, whether arising before, on or after the Closing Date. "Termination Fee" shall have the meaning set forth in the Section 11.2(b). "Trade Secrets" means any trade secrets, research records, processes, procedures, manufacturing formulae, technical know-how, technology, blue prints, designs, plans, inventions (whether patentable and whether reduced to practice), invention disclosures and improvements thereto. "Trademarks" means any foreign or United States trademarks, service marks, trade dress, trade names, brand names, designs and logos, corporate names, product or service identifiers, whether registered or unregistered, and all registrations and applications for registration thereof. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C.ss.2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Unpaid Pro Forma Tax Liability" shall have the meaning set forth in Section 6.12(b). "Unsecured Notes" means the notes to be issued on or after the Effective Date pursuant to the Unsecured Notes Indenture by Reorganized Covanta in the amount of the Allowed Class 4 Claims (as defined in the Plan) plus $4 million. "Unsecured Notes Indenture" means the Indenture to be entered into by Reorganized Covanta and the trustee named therein on the Closing Date in accordance with the Plan, which shall be in form and substance reasonably acceptable to Purchaser and Company. 2. Actions Upon Signing; Deposit. 2.1. Approval Order. Promptly following the execution and delivery of this Agreement, and in accordance with the provisions of Section 6.7, Company shall use commercially reasonable efforts to obtain the Approval Order. 2.2. Payment of Deposit. Concurrent with the execution and delivery of this Agreement, Purchaser shall pay or cause to be paid by wire transfer of immediately available funds, $15,000,000 (the "Initial Deposit"), to a bank selected by Company and reasonably 15 acceptable to Purchaser (the "Escrow Agent") to be held pursuant to an escrow agreement substantially in the form of Exhibit B hereto (the "Deposit Escrow Agreement"). Within two (2) Business Days following the entry of the Approval Order, Purchaser shall pay or cause to be paid by wire transfer of immediately available funds, $15,000,000 (the "Final Deposit" and, together with the Initial Deposit, the "Deposit"), to the Escrow Agent to be held pursuant to the Deposit Escrow Agreement. Upon receipt of each of the Initial Deposit and the Final Deposit, the Escrow Agent shall immediately deposit such Deposit into an interest-bearing account. The Escrow Agent shall hold the Deposit until the earlier of (a) the Closing Date, at which time the Deposit shall be applied to the payment of the Consideration in accordance with Section 3.2 and (b) the termination of this Agreement, at which time the Deposit shall be applied in accordance with Section 11.2(c). The Escrow Agent's escrow fees and charges shall be paid one-half by Company and one-half by Purchaser. Purchaser and Company agree to provide written instructions to the Escrow Agent providing for the release of the Deposit in accordance with the terms of this Section 2.2. 3. Closing; Closing Date; Expense Reimbursement. The closing of the issuance and purchase of the Purchased Shares contemplated hereby (the "Closing") shall take place, on the terms and subject to the conditions set forth herein, at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006 (or such other place as Purchaser and Company may agree), at 9:30 a.m., New York City time, on the Effective Date, provided that all of the conditions to the Closing set forth in Sections 7 and 8 shall have been satisfied or waived by the party entitled to waive the same. The time and date upon which the Closing occurs is herein called the "Closing Date." 3.1. Issuance and Purchase of New Common Stock. At the Closing, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements contained herein, Reorganized Covanta shall issue, sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase and acquire from Reorganized Covanta, all the shares of New Common Stock (the "Purchased Shares"), representing 100% of the equity of Reorganized Covanta immediately following the Closing, for an aggregate purchase price of $30,000,000 (the "Consideration"), free and clear of any and all Liens. 3.2. Funding. At the Closing, the Escrow Agent shall release the Deposit to Company in accordance with the written instructions of Purchaser and Company pursuant to Section 2.2, and Company shall apply the Deposit to the Consideration. At the Closing, the Escrow Agent shall release the interest earned on the Deposit to Purchaser. 3.3. Payment of Expense Reimbursement. (a) As soon as commercially practicable (but in no event later than two (2) Business Days following the entry of the Approval Order), Company shall pay or cause to be paid to Purchaser up to a maximum of $3,000,000 of actual, documented costs, fees and expenses incurred by Purchaser and covered by the Approval Order, by wire transfer of immediately available funds to an account designated in writing by Purchaser. (b) From and after the entry of the Approval Order, Laminar may send periodic invoices to Company for out-of-pocket fees and expenses incurred by Laminar that are 16 covered by the Approval Order, and Company shall promptly reimburse Laminar (by payment in such manner as Laminar may reasonably direct) for such expenses, up to a maximum of $350,000. The $350,000 of Laminar Expense Reimbursement shall be incremental to any expense reimbursements to which Laminar may otherwise be contractually or otherwise entitled pursuant to an order of the Bankruptcy Court, except that Laminar shall not be entitled to any duplicative recovery of fees and expenses. Laminar shall be a third party beneficiary of this Section 3.3 with the full right to enforce it. (c) At Closing (or termination of this Agreement, if applicable, and so long as Company shall not have terminated, or shall not have the right to terminate, this Agreement pursuant to (i) Section 11.1(b) (solely in connection with a failure of the condition set forth in Section 8.1(a) or 8.4 (if such failure is not the result of a Company Failure and there has not been a First Lien Failure) or (ii) Section 11.1(d)), Company shall pay or cause to be paid to Purchaser by wire transfer of immediately available funds to an account designated in writing by Purchaser an amount equal to the actual, documented costs, fees and expenses incurred by Purchaser and covered by the Approval Order outstanding on the Closing Date or the date of such termination, in each case as set forth in an invoice from Purchaser, such amount not to exceed $1 million (in addition to any other amounts payable pursuant to this Agreement). 3.4. Company Deliverables. (a) At the Closing, upon delivery of the Consideration, Company agrees to deliver to Purchaser and/or its designees and assigns stock certificates representing the Purchased Shares, each such certificate to be duly and validly endorsed in favor of Purchaser and/or its designees and assigns sufficient to vest in Purchaser and/or its designees and assigns good and valid title to such Purchased Shares, free and clear of any and all Liens. (b) At the Closing, Company agrees to, and agrees to cause the Subsidiaries to, deliver to Purchaser (i) the certificate referred to in Section 7.1(c), (ii) evidence of the Required Consents and Required Governmental Approvals referred to in Section 7.2, (iii) the Qualifying Facility Self Recertifications referred to in Section 7.13, (iv) all other previously undelivered documents required to be delivered by Company (including Reorganized Covanta) or any Subsidiary to Purchaser at or prior to the Closing pursuant to the terms hereof, (v) executed copies of the forms referred to in Section 7.17 and (vi) any and all other documents reasonably requested by Purchaser. 3.5. Purchaser Deliverables. (a) At the Closing, upon delivery of the Purchased Shares, Purchaser agrees to pay, or cause to be paid pursuant to Section 3.2 of this Agreement, the Consideration to Company. (b) At the Closing, Purchaser agrees to (i) deliver to Company the certificate referred to in Section 8.1(c), (ii) (A) subject only to the conditions to Purchaser's obligations set forth in Section 7 of this Agreement, arrange for execution and delivery of (x) the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement by the lenders and/or agents thereunder and (y) the Tax Sharing Agreement by Purchaser and (B) if there has been no Company Failure and there has not been a First Lien Failure, cause the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement to be available at the Closing for issuance of letters of 17 credit and loans, (iii) deliver to Company all other previously undelivered documents required to be delivered by Purchaser to Company at or prior to the Closing pursuant to the terms hereof and (iv) deliver to Company any and all other documents reasonably requested by Company. 4. Representations and Warranties of Company. In the event of any inconsistency between statements in the body of this Agreement and statements in the Company Disclosure Schedule (excluding exceptions expressly set forth in the Company Disclosure Schedule), the statements in the body of this Agreement shall control. Matters disclosed in one section of the Company Disclosure Schedule shall be deemed disclosed for purposes of other representations and warranties (including, without limitation, the representations and warranties set forth in Section 4.8) of Company (and Reorganized Covanta) to the extent the applicability of such disclosure to such other representations and warranties is reasonably apparent. Company (including Reorganized Covanta) hereby represents and warrants, on behalf of itself and its Subsidiaries as follows: 4.1. Due Incorporation and Authority. Company is on the date hereof, and Reorganized Covanta will be on the Effective Date, a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Company has on the date hereof, and Reorganized Covanta will have on the Effective Date, all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted by Company. 4.2. Subsidiaries and Investment Entities. Section 4.2(i) of the Company Disclosure Schedule is a true and complete list of all Subsidiaries and Section 4.2(ii) of the Company Disclosure Schedule is a true and complete list of all Investment Entities (noting, (a) the jurisdiction of organization of each such Subsidiary and Investment Entity, (b) all domestic and foreign jurisdictions in which Reorganized Covanta, such Subsidiaries and, to the knowledge of Company, such Investment Entities are qualified to transact business, (c) the ownership interest therein of Reorganized Covanta, each Subsidiary and each Investment Entity, in each case as of the Effective Date and after giving effect to the Contemplated Transactions, (d) if not to be wholly-owned by Reorganized Covanta or the Subsidiaries, to the knowledge of Company, the identity and ownership interest of each of the other owners of such Subsidiary and each Investment Entity, and (e) the federal tax status of Reorganized Covanta, each Subsidiary and, to the knowledge of Company, each Investment Entity as a corporation, partnership or disregarded entity). Section 4.2(iii) of the Company Disclosure Schedule contains a complete and accurate organizational chart, as of the Effective Date and after giving effect to the Contemplated Transactions, of Reorganized Covanta, the Subsidiaries and the Investment Entities. Each of the Subsidiaries and, to the knowledge of Company, each of the Investment Entities is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate or equivalent power and authority to own, lease and operate its properties and carry on its business as currently conducted, except where failure to be in good standing, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. 4.3. Foreign Qualification. Company and each of the Subsidiaries is, Reorganized Covanta will be and, to the knowledge of Company, each of the Investment Entities is, duly qualified or otherwise authorized as a foreign entity to transact business and is in good 18 standing in each jurisdiction in which such qualification or authorization is required by Governmental Rule, except where failure to be so qualified, authorized or in good standing, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. 4.4. Outstanding Capital Stock. The authorized and issued shares of capital stock or other ownership interests of Reorganized Covanta and each Subsidiary and, to the knowledge of Company, each Investment Entity are set forth in Section 4.4(i) of the Company Disclosure Schedule. Except as set forth in Section 4.4(ii) of the Company Disclosure Schedule, as of the Effective Date and after giving effect to the Contemplated Transactions, Reorganized Covanta's or any of the Subsidiaries' equity interest in any Subsidiary or, to the knowledge of Company, any Investment Entity will be owned by Reorganized Covanta or such Subsidiary free and clear of any Liens, other than Liens under the Exit Financing and Liens set forth in Section 4.4(ii) of the Company Disclosure Schedule. At the Closing, after giving effect to the Contemplated Transactions, all of the outstanding shares of capital stock of Reorganized Covanta and the Subsidiaries will be, and Reorganized Covanta's or any of the Subsidiaries' equity interests in any Investment Entity will be, duly authorized and validly issued, fully paid and nonassessable. Except as set forth in Section 4.4(i) of the Company Disclosure Schedule, at the Closing, no other shares of capital stock or other ownership interests of Reorganized Covanta or any of the Subsidiaries will be authorized or outstanding. On the Closing Date, Reorganized Covanta will have full power and authority to issue and deliver free and clear of any Lien, the Purchased Shares, and, upon delivery of and payment for the Purchased Shares at the Closing as herein provided, Reorganized Covanta will convey to Purchaser good and valid title thereto, free and clear of any Liens. 4.5. Options or Other Rights. Except as set forth in Section 4.5 of the Company Disclosure Schedule, as of the Effective Date and after giving effect to the provisions of the Plan, there will be no outstanding right, subscription, warrant, call, preemptive right, option or other agreement of any kind to purchase or otherwise receive from Reorganized Covanta or any Subsidiary any of the outstanding, authorized but unissued, unauthorized or treasury shares of the capital stock or any other ownership interest of Reorganized Covanta or any Subsidiary, and there will be no outstanding security of any kind of Reorganized Covanta or any Subsidiary convertible into any such capital stock or other ownership interest. 4.6. Authority Relative to this Agreement. Except for any required approvals of the Bankruptcy Court, Company has all necessary corporate power and authority to execute and deliver this Agreement and, upon receipt of any required approval of the Bankruptcy Court, to perform its obligations hereunder. The execution and delivery of this Agreement by Company, the performance by Company (including Reorganized Covanta) of its obligations hereunder and the consummation by Company (including Reorganized Covanta) of the Contemplated Transactions have been duly authorized by all requisite corporate action on the part of Company. This Agreement has been duly and validly executed and delivered by Company and (assuming due authorization, execution and delivery hereof by Purchaser and upon receipt of any required approval of the Bankruptcy Court) will constitute the legal, valid and binding obligation of Company (including Reorganized Covanta) enforceable against Company (including Reorganized Covanta) in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or similar 19 laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.7. Financial Statements. (a) The consolidated balance sheets of Company as of December 31, 2000, 2001 and 2002 and the related consolidated statements of income, shareholders' equity and changes in financial position for the years then ended, including the notes thereto, audited by Deloitte & Touche LLP, independent certified public accountants, which have been delivered to Purchaser, set forth the consolidated financial position of Company and its consolidated subsidiaries as at such dates and the consolidated results of operations of Company and such subsidiaries for such periods, in each case in accordance with GAAP consistently applied for the periods covered thereby. The foregoing consolidated financial statements of Company as of December 31, 2000, 2001 and 2002 and for the years then ended are sometimes herein called the "Audited Financials." The unaudited consolidated balance sheet of Company as of September 30, 2003, and the related consolidated statements of income, shareholders' equity and changes in financial position for the quarter than ended, including the notes thereto, which have been delivered to Purchaser, set forth the consolidated financial position of Company and its consolidated subsidiaries as at such dates and the consolidated results of operations of Company and such subsidiaries for the quarter ended September 30, 2003, in each case in accordance with GAAP applied on a basis consistent with that of the Audited Financials (subject to normal year-end adjustments consistent with past practice). The foregoing unaudited consolidated financial statements of Company and its consolidated subsidiaries as of and for the quarter ended September 30, 2003 are sometimes herein called the "Interim Financials," the consolidated balance sheet included in the Interim Financials is sometimes herein called the "Balance Sheet", and September 30, 2003 is sometimes herein called the "Balance Sheet Date." Each of the financial statements referenced above have been prepared from, are in accordance with and accurately reflect the books and records of Company and its consolidated subsidiaries, comply in all material respects with applicable accounting requirements (including GAAP and fairly present the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of Company and its consolidated subsidiaries as of the times and for the periods referred to therein (subject, in the case of unaudited statements, to normally recurring year-end audit adjustments which are not material either individually or in the aggregate, consistent with past practice and in accordance with GAAP). Except as reflected in the Interim Financials or as set forth in Section 4.7 of the Company Disclosure Schedule, neither Company nor any consolidated subsidiary has any direct or indirect indebtedness, liability, Claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise ("Liabilities") except for (i) Liabilities that will be fully discharged in the Case at the Effective Date, (ii) Liabilities that have arisen since the Balance Sheet Date in the ordinary course of business of Company and its consolidated subsidiaries, (iii) Contingent Obligations and Performance Guarantees that are permitted under the DIP Agreement and (iv) unclaimed contingent liabilities that exist under the primary operating agreements with respect to Projects or insurance policies of Company. (b) The Monthly Management Reports which are to be delivered to Purchaser pursuant to Section 6.14(a), will (i) be prepared in good faith from and consistent with the books and records of Company and its subsidiaries and (ii) fairly present the consolidated 20 financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of Company and its consolidated subsidiaries as of the times and for the periods referred to therein (subject to normally recurring year end adjustments which are not material either individually or in the aggregate, consistent with past practice). (c) All accounts receivable of Company and each Subsidiary, whether reflected in the Balance Sheet or otherwise, represent sales actually made in the ordinary course of business and are valid and collectible net of any reserves shown on the Balance Sheet. 4.8. No Material Adverse Change. (a) Except as set forth in Section 4.8 of the Company Disclosure Schedule, as disclosed in Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 or as disclosed in materials filed with the Bankruptcy Court, since December 31, 2002, there has been no change, event or occurrence which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Company, and none of Company or any of the Subsidiaries knows of any such change, event or occurrence which is threatened, nor has there been any damage, destruction or loss which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Company, whether or not covered by insurance. (b) Except as set forth in Section 4.8 of the Company Disclosure Schedule, as disclosed in Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as disclosed in materials filed with the Bankruptcy Court or as specifically contemplated herein or in the Plan, (x) since December 31, 2002, Company and each Subsidiary has conducted its respective business only in the ordinary and usual course consistent with past practice, and (y) neither Company nor any Subsidiary has: (i) paid, discharged or satisfied any Claim, liability or obligation (whether absolute, accrued, contingent or otherwise) with a value in excess of $1,000,000 in the aggregate, other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of Claims, liabilities and obligations reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date; (ii) permitted or allowed any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any Lien (other than Permitted Liens); (iii) cancelled any debts or waived any claims or rights with a value in excess of $1,000,000 in the aggregate; (iv) sold, transferred or otherwise disposed of any of its properties or assets (real, personal or mixed, tangible or intangible) with a value in excess of $1,000,000 in the aggregate, except in the ordinary course of business and consistent with past practice; (v) disposed of or permitted to lapse any rights to the use of any material Intellectual Property, or, to the knowledge of Company, disclosed 21 to any Person other than representatives of Purchaser any trade secret, formula, process, know-how or other Intellectual Property material to its business not theretofore a matter of public knowledge; (vi) made any capital expenditure or commitment that was not permitted under the DIP Agreement; (vii) except as required by FASB 143, made any change in any method of accounting or accounting practice; (viii) paid, loaned or advanced any amount to, or sold, transferred or leased any individual property or asset (real, personal or mixed, tangible or intangible) with an aggregate value in excess of $1,000,000 to, or entered into any agreement or arrangement with, any of its officers or directors or any Affiliate or associate of any of its officers or directors; or (ix) agreed, whether in writing or otherwise, to take any action described in this section. 4.9. Compliance with Governmental Rules. Except as set forth in Section 4.9 of the Company Disclosure Schedule, none of Company, any Subsidiary, nor, to the knowledge of Company, any Investment Entity, is in material violation of any material applicable Governmental Rule (other than Governmental Rules relating to the environment, which are addressed in Section 4.12, Governmental Rules relating to Taxes, which are addressed in Section 4.27, and Governmental Rules relating to Benefit Plans, which are addressed in Section 4.18) and none of Company, any Subsidiary, and to the knowledge of Company, any Investment Entity, has received notice that any such violation is being or may be alleged. 4.10. Governmental Approvals. (a) Except for Governmental Approvals set forth in Section 4.10 of the Company Disclosure Schedule (the "Required Governmental Approvals"), (i) no action by Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, is required under any Governmental Rule for the execution, delivery or performance of this Agreement by Company, Reorganized Covanta, any Subsidiary or any Investment Entity and consummation of the Contemplated Transactions and (ii) no action by Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, or Purchaser is required in order that all Governmental Approvals will remain in full force and effect following the consummation of the Contemplated Transactions. (b) All Governmental Approvals that are required for the conduct of the business of, or the use of any property of, Company (including Reorganized Covanta), any of the Subsidiaries or, to the knowledge of Company, any Investment Entity (i) have been duly obtained, (ii) are in full force and effect, (iii) are not subject to appeal or all applicable appeal periods have expired (except Governmental Approvals that do not have limits on appeal periods under Governmental Rules), (iv) have not been suspended or cancelled and, to the knowledge of Company, no suspension or cancellation has been threatened, (v) are held in the name of Company (including Reorganized Covanta) or any of the Subsidiaries or, to the knowledge of 22 Company, any of the Investment Entities, as applicable, and (vi) are free from conditions or requirements that would materially limit the conduct of the business of, or the use, consistent with past practice, of any property of, Company (including Reorganized Covanta) or any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities except for such matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. (c) Company and each of the Subsidiaries are in compliance in all material respects with, all applicable material Governmental Approvals. 4.11. No Breach. (a) The execution and delivery of this Agreement by Company does not, and, assuming approval of this Agreement and confirmation of the Plan by the Bankruptcy Court, the performance of this Agreement by Company (including Reorganized Covanta) and the consummation of the Contemplated Transactions will not: (i) conflict with or violate any provision of any certificate of incorporation or by-laws of Company or Reorganized Covanta (to the extent that such document is then governing such entity) or any equivalent organizational documents of any Subsidiary or, to the knowledge of Company, Investment Entity; (ii) conflict with or violate any material Governmental Rule or Governmental Approval applicable to Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, or by which any property or asset of Company, Reorganized Covanta, any Subsidiary with an aggregate value in excess of $1,000,000 is or may be bound or affected; or (iii) assuming that all Required Consents have been obtained or deemed by operation of the Plan or the Confirmation Orders to be given, result in any breach of or constitute a default (or an event which with or without notice or lapse of time or both would become a default) under, result in the acceleration of, or give to others any right of termination, amendment, modification, acceleration or cancellation of, or result in the creation of an Lien, other than Liens under the Credit Agreements and Senior Secured Notes Indenture and any Liens permitted under the Credit Agreements, or require any notice, consent or waiver under any Material Contract. (b) Section 4.11(b) of the Company Disclosure Schedule identifies each Material Contract in respect of which a Required Consent must be obtained. (c) Except as noted in Section 4.11(c) of the Company Disclosure Schedule, no Material Contract contains any restriction upon (i) the prepayment of any Exit Financing, (ii) the incurrence of Indebtedness by Company or any Subsidiary or (iii) the ability of Company or any Subsidiary to grant any Lien on the properties or assets of Company or any Subsidiary. Section 4.11(c) of the Company Disclosure Schedule sets forth the amount of principal and unpaid interest outstanding under each instrument evidencing Indebtedness of 23 Company and any Subsidiary, if any, that will accelerate or become due or result in a right on the part of the holder of such Indebtedness (with or without due notice or lapse of time) to require prepayment, redemption or repurchase as a result of the execution of this Agreement or the consummation of any of the Contemplated Transactions. 4.12. Environmental Matters. (a) Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have obtained all Governmental Approvals which are required under the Environmental Laws for the operation of their respective businesses and the ownership, use and operation of each of their current Facilities, all such Governmental Approvals are in effect, no appeal nor any other action is pending to revoke any such Governmental Authorization, and Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities are in full compliance with all terms and conditions of all such Governmental Approvals. Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, to the extent required by applicable Environmental Laws, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have filed (or will have filed by the Closing Date) all applications necessary to renew or obtain any necessary Governmental Approvals in a timely fashion so as to allow Company, the Subsidiaries and the Investment Entities to continue to operate their businesses in compliance with applicable Environmental Laws, and Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities know of no reason to expect that any such new, transferred or renewed Governmental Approval (i) will not be obtained or approved in a timely fashion, and (ii) will include any terms or conditions that would reasonably be expected to result in a Material Adverse Effect on Company. (b) Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have been and are in compliance with all applicable Environmental Laws. (c) Except as set forth in Section 4.12 of the Company Disclosure Schedule, neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim or (c) any Hazardous Materials Activity, in the case of each of the foregoing, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; (d) Except as set forth in Section 4.12 of the Company Disclosure Schedule, neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities has received any letter or request for information under Section 104 of CERCLA or any comparable state law regarding any condition, occurrence or activity that could reasonably be expected to form the basis of an Environmental Claim against Company, any of 24 the Subsidiaries or, to the knowledge of Company, any of the Investment Entities that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose material liability on Purchaser; (e) Except as set forth in Section 4.12 of the Company Disclosure Schedule, there are and, to Company's knowledge, have been no conditions, occurrences, or Hazardous Materials Activities that could reasonably be expected to form the basis of an Environmental Claim against Company or any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; (f) Except as set forth in Section 4.12 of the Company Disclosure Schedule, (i) neither Company, any of its Subsidiaries nor, to the knowledge of Company, any of the Investment Entities nor, to the knowledge of Company, any predecessor of Company, any of the Subsidiaries or any of the Investment Entities has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, (ii) none of Company's or any of its Subsidiaries' Facilities constitute facilities for the treatment, storage or disposal of Hazardous Materials under RCRA or any state equivalent, and (iii) none of Company's or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste in violation of RCRA or any state equivalent that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; and (g) Compliance with all current requirements pursuant to or under Environmental Laws would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser. 4.13. Claims and Proceedings. Except as set forth in Section 4.13 of the Company Disclosure Schedule and except as to claims arising prior to the Petition Date that are within the jurisdiction of the Bankruptcy Court and are to be resolved in the Case or by force of the discharge granted to Company in connection with the Case, there are no actions, suits, proceedings (whether administrative, judicial or otherwise), governmental investigations or arbitrations ("Proceedings") (whether or not purportedly on behalf of Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities) at law or in equity, or before or by any court or other Government Authority (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities or any property of Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities and that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. Neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or other Government Authority that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. 4.14. Contracts. (a) Section 4.14(a) of the Company Disclosure Schedule sets forth all of the Material Contracts as of the date hereof. 25 (b) All of the Material Contracts (i) to which Company or any Subsidiary which is a Debtor is a party, upon the assumption thereof by Company or such Subsidiary pursuant to section 365 of the Bankruptcy Code, will be valid and binding upon Company or such Subsidiary and, to the knowledge of Company, the other party or parties thereto in accordance with their terms and (ii) to which any other Subsidiary is a party are valid and binding upon such Subsidiary and, to the knowledge of Company, the other party or parties thereto in accordance with their terms. Except as set forth in Section 4.14(b) of the Company Disclosure Schedule, neither Company nor any of the Subsidiaries is in default in any material respect under any of such Material Contracts, nor does any condition exist that with notice or lapse of time or both would constitute such a default thereunder. Except as set forth in Section 4.14(b) of the Company Disclosure Schedule, to the knowledge of Company, no other party to any such Material Contract is in default thereunder in any material respect nor does any condition exist that with notice or lapse of time or both would constitute such a default thereunder. To the knowledge of Company, no event of force majeure or other event or condition exists that permits or requires any party to a Material Contract to cancel, suspend or terminate its performance under any Material Contract to which it is a party in accordance with the terms thereof or that would excuse any such party from liability for non-performance thereunder. (c) Except as set forth in Section 4.14(c) of the Company Disclosure Schedule, Company (including Reorganized Covanta), the Subsidiaries and, to the knowledge of Company, the Investment Entities, previously have assumed in the Case or will assume on or prior to the Effective Date or pursuant to the Plan all Material Contracts necessary to continue to operate their respective businesses subsequent to the Closing as such businesses were operated on the date hereof. (d) Except as set forth in Section 4.14(d) of the Company Disclosure Schedule, there are no purchase contracts or commitments of more than twelve (12) months of Company, any Subsidiary or, to the knowledge of Company, any Investment Entity, that are not terminable by Company or such Subsidiary or, to the knowledge of Company, such Investment Entity on notice of 90 days or less, other than purchase contracts or commitments entered in the ordinary course of business that require payments by Company of less than $1,000,000 individually or in respect of substantially similar contracts with the same vendor, $1,000,000 in the aggregate. (e) Except as set forth in Section 4.14(e) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has any outstanding contracts with directors, officers or employees that are not cancelable by it on notice of not longer than thirty (30) days and without liability, penalty or premium or any agreement or arrangement providing for the payment of any bonus or commission based on sales or earnings. (f) Except as set forth in Section 4.14(f) of the Company Disclosure Schedule and except for employment or similar agreements, neither Company, any Subsidiary nor to the knowledge of Company, any Investment Entity, is restricted by agreement in any material respect from carrying on, anywhere in the world, the businesses of the development and/or operation of waste to energy projects, independent power projects or water projects. 26 (g) Except as set forth in Section 4.14(g) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has outstanding any agreement to acquire any debt obligations of others in an amount in excess of $100,000 in the aggregate. (h) Except as indicated in Section 4.14(h) of the Company Disclosure Schedule, neither Company nor any Subsidiary has any outstanding loan to any Person for an amount in excess of $1,000,000 in the aggregate. (i) Except as indicated in Section 4.14(i) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has any commitment or obligation to continue to utilize the services of, or otherwise do business with, any licensor, agent, consultant, advisor, vendor, supplier or licensee of Company, any Subsidiary or any Investment Entity that is not terminable on notice of 90 days or less, except for such services having an aggregate value less than $1,000,000. (j) All material instruments, records, agreements and other documents (including but not limited to all Material Contracts) relating to Company, any Subsidiary and, to the knowledge of Company and to the extent available to Company, any Investment Entity, have been made available to Purchaser in the data rooms in New York, New York, Fairfax, Virginia and Fairfield, New Jersey. Further, all minute books and records of Company and its Subsidiaries relating to proceedings of their respective shareholders, boards of directors and committees of their respective boards of directors other than those specific portions concerning any Alternative Transaction proposed prior to the date hereof have been made available to Purchaser, and are their original minute books and records or are true, correct and complete copies thereof (excluding those portions concerning any such Alternative Transaction), through the date hereof. In the event that definitive minutes have not been prepared with respect to any such proceedings of such shareholders, boards of directors or committees, Company and the Subsidiaries have made available to Purchaser with originals or true, correct and complete copies of draft minutes, to the extent they exist, or written agendas relating thereto, which drafts and agendas, if any, reflect all events that occurred in connection with such proceedings (excluding those portions concerning any such Alternative Transactions). 4.15. Tangible Property. The facilities, machinery, equipment, furniture, buildings and other improvements, fixtures, vehicles, structures, any related capitalized items and other tangible property material to the business of Company, its Subsidiaries and, to the knowledge of Company, the Investment Entities, taken as a whole, whether owned, leased, managed, developed or operated by Company, any Subsidiaries or any Investment Entities (the "Tangible Property") are in good operating condition and repair, subject to ordinary wear and tear and continued repair and replacement in accordance with accepted good practices for the particular industry, and are suitable for their intended use. 4.16. Intellectual Property. As of the date hereof, Section 4.16 of the Company Disclosure Schedule contains a true, accurate and complete list of all material Intellectual Property other than Trade Secrets and, in the case of foreign Intellectual Property, as determined solely on the basis of searches of publicly available computer databases. Each of Company and the Subsidiaries owns or has the right to use all material Intellectual Property used in the conduct 27 of its business, and none of such Intellectual Property conflicts with a right of any other Person to the extent such conflict would not reasonably be expected to result in a Material Adverse Effect on Company. 4.17. Title to Properties. (a) Company (including Reorganized Covanta), the Subsidiaries and, to the knowledge of Company, the Investment Entities and Projects have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective material properties and assets reflected in the most recent financial statements referred to in Section 4.7 or in the Monthly Management Reports and financial statements delivered pursuant to Section 6.14, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.1. Except as set forth in Section 4.17 of the Company Disclosure Schedule, all such properties and assets are free and clear of Liens. (b) As of the date hereof, Section 4.17(a) of the Company Disclosure Schedule contains a true, accurate and complete list of (i) all fee interests in any Real Property and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property, regardless of whether Company, one of the Subsidiaries or, to the knowledge of Company, one of the Investment Entities is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as specified in Section 4.17(b) of the Company Disclosure Schedule, each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Company has no knowledge of any material default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of Company, such Subsidiary or, to the knowledge of Company, such Investment Entity, enforceable against Company, such Subsidiary or, to the knowledge of Company, such Investment Entity in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 4.18. Employee Benefit Plans. (a) Company, each of the Subsidiaries, to the knowledge of Company, each of the Investment Entities and, with respect to Pension Plans and Multiemployer Plans, each of their ERISA Affiliates, are in material compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each "employee benefit plan" as defined in Section 3(3) of ERISA which is maintained or contributed to by Company, any of the Subsidiaries or any of their respective ERISA Affiliates (the "Benefit Plans"), and have performed all of their material obligations under each Benefit Plan. Each Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such Benefit Plan's qualification. (b) No ERISA Event has occurred or is reasonably expected to occur. 28 (c) Except to the extent required under Section 4980B of the Internal Revenue Code or except as set forth in Section 4.18 of the Company Disclosure Schedule, no Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities. (d) As of the most recent January 1 (based on, with respect to each Pension Plan, the actuarial valuation of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as which the valuation was so performed), the amount of unfounded benefit liabilities (as defined in Section 4001(a)(18) of ERISA, but determined on the basis of the actuarial assumptions used for funding purposes with respect to a Pension Plan (as set forth in Section 412 of the Code, including, where applicable, the interest rate assumptions set forth in Section 412(j) of the Code), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000 in the event the applicable law (including statutorily prescribed actuarial assumptions) used in determining such unfounded benefit liabilities (the "Assumptions") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. (e) To the knowledge of Company, as of the most recent valuation date for each Multiemployer Plan for which the actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, the potential withdrawal liability of Company, the Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with the potential liability for a complete withdrawal from all other Multiemployer Plans for which such actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, based on the information contained in such reports or estimates, would not reasonably be expected to exceed $7,500,000. (f) Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of the Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities. 4.19. Employee Matters. Except as set forth in Section 4.19 of the Company Disclosure Schedule: (a) Neither Company nor any of the Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Company or any of the Subsidiaries. 29 (b) None of the employees of Company or any of the Subsidiaries is represented by any labor organization and Company has no knowledge of any current union organizing activities among the employees of Company or any of the Subsidiaries, nor, to the knowledge of Company, does any dispute concerning representation exist concerning such employees. (c) There are no material labor strikes, labor disputes, work stoppages, lockouts or material grievances pending or, to the knowledge of Company, threatened involving the employees of Company or any of the Subsidiaries, and during the past five (5) years there has not been any such actions with respect to Reorganized Covanta or its Subsidiaries. (d) There are no complaints, charges or claims against Company or any of the Subsidiaries pending or, to the knowledge of Company, threatened to be brought or filed with any Governmental Authority in connection with the employment by Company or any of the Subsidiaries of any individual, including, without limitation, any claim relating to employment discrimination, equal pay, sexual harassment, employee safety and health, wages and hours or workers' compensation which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. (e) Neither Company nor any of the Subsidiaries has received notice of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to Company or any of the Subsidiaries and no such investigation is in progress where such investigation, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. (f) To the knowledge of Company, neither Company nor any of the Subsidiaries has incurred any material liability as the result of failure to comply with the Worker Adjustment and Retraining Notification Act. (g) None of the employees of Company or any of the Subsidiaries has suffered an "employment loss" (as defined in the WARN Act) during the 90 day period prior to the date of this Agreement. The listing on Schedule 4.19(g) shall be updated at the Closing for employment losses occurring during the 90 day period prior to the Closing. 4.20. Insurance. Section 4.20 of the Company Disclosure Schedule sets forth a true and complete list of (a) all insurance policies currently held by Company and the Subsidiaries, and in force as of the date hereof with respect to the assets, properties, business, employees, officers, representatives and directors of Company and the Subsidiaries, setting forth as to each policy a general description of type of coverage, carrier, policy number, coverage limit and expiration date and (b) the total amount of annual premiums for Company and the Subsidiaries for all policies referred to in this Section 4.20. Such policies of Company and the Subsidiaries are in full force and effect as of the date hereof, except in each case, where the failure of such policies to be in full force and effect would not reasonably be expected to result in a Material Adverse Effect on Company; and, except as set forth in Section 4.20 of the Company Disclosure Schedule, such policies of Company and the Subsidiaries and, to the knowledge of Company, such policies of any of the Investment Entities will remain in effect following the 30 Closing or be replaced by at least substantially comparable policies, except where the failure of such policies to so remain or be so replaced would not reasonably be expected to result in a Material Adverse Effect on Company. The holders of those policies of Company and the Subsidiaries listed on Section 4.20 of the Company Disclosure Schedule are in compliance with the terms and conditions thereof in all material respects. All premiums on such policies of Company and the Subsidiaries have been paid when due except where the failure to pay such premiums when due would not reasonably be expected to result in a Material Adverse Effect on Company. 4.21. No Brokers. Except for Chilmark Partners, no broker, finder, financial advisor, agent or similar intermediary has acted on behalf of Company, any Subsidiary or, to the knowledge of Company, any Investment Entity, in connection with this Agreement or the Contemplated Transactions, and, except for fees to Chilmark Partners and Houlihan, Lokey, Howard & Zukin payable pursuant to a Final Order of the Bankruptcy Court and except for fees payable in connection with the Exit Financing there are no brokerage commissions, finder's fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with Company or any Subsidiary or, to the knowledge of Company, any Investment Entity, or any action taken by Company or any Subsidiary or, to the knowledge of Company, any Investment Entity. 4.22. SEC Documents and Other Documents. (a) Except as set forth in Section 4.22 of the Company Disclosure Schedule, since January 1, 2000, Company has filed with the SEC all reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) required to be filed with the SEC pursuant to the Exchange Act, and the rules and regulations of the SEC thereunder (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents when filed contained any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No representation or warranty by Company contained in this Agreement and no statement contained in any document (including financial statements and the Company Disclosure Schedule), certificate, or other writing furnished or to be furnished by Company (including Reorganized Covanta) or any Subsidiary to Purchaser or any of its representatives pursuant to the provisions hereof or in connection with the Contemplated Transactions, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading that has not been corrected. 4.23. Projects. Section 4.23 of the Company Disclosure Schedule is a true and complete list of all projects to be owned, leased, managed or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity (noting, (a) the state or country in which it is located, (b) the type of fuel, (c) the type of project (i.e., power Project, water Project or steam Project), (d) the nature of the interest, (e) the regulatory status of power Projects located in the United States (i.e., as a Qualifying Small Power Production Facility or a 31 Qualifying Cogeneration Facility), and (f) the regulatory status of power Projects located outside the United States (i.e., "exempt wholesale generators" pursuant to Section 32 of PUHCA and the FERC regulations implemented thereunder or a foreign utility company pursuant to Section 33 of PUHCA). Any domestic project is referred to herein as a "Domestic Project" and any international project is referred to herein as an "International Project." 4.24. Qualifying Facility Status; Nature of Business. (a) All Domestic Power Projects owned, leased or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity are listed in Section 4.24(a) of the Company Disclosure Schedule and each Domestic Power Project identified in Section 4.24(a) of the Company Disclosure Schedule is a Qualifying Small Power Production Facility or a Qualifying Cogeneration Facility. Each Domestic Power Project has since the first generation or sale of electricity met all requirements for, and except for the Domestic Power Project operated by Covanta Mid-Conn, Inc., has been either, (i) certified by FERC or (ii) self certified by the Domestic Project in accordance with PURPA and the FERC regulations issued thereunder, in each case as either a Qualifying Small Power Production Facility or Qualifying Cogeneration Facility, as applicable, the FERC regulations implemented thereunder and all administrative and judicial precedents relating thereto. Each such certification is in full force and effect. Each Domestic Power Project meets all ownership requirements for a Qualifying Facility under PURPA (and such regulations and precedents). (b) Each Domestic Power Project identified on Section 4.24(b) of the Company Disclosure Schedule is a Qualifying Small Power Production Facility that is not exempt from the FPA pursuant to 18 C.F.R. ss. 292.601 (each a "Non-Exempt Qualifying Facility Project"). Each Non-Exempt Qualifying Facility Project has received all Governmental Approvals necessary under the FPA for the operation and ownership of such Non-Exempt Qualifying Facility Project, including, without limitation (i) blanket authorization for the issuance of securities and assumptions of liabilities under Section 204 of the FPA, (ii) for the sale of power at wholesale under Section 205 of the FPA, as applicable, and (iii) any and all authorizations required under Section 203 of the FPA or Section 8 of the FPA, in each case that are necessary to the conduct of its business and the fulfillment of its obligation under applicable Material Contracts and Governmental Rules. (c) The Subsidiaries owning or operating each Domestic Power Project that is a Qualifying Facility and the Subsidiaries that are EWGs or Foreign Utility Companies ("FUCO") do not conduct any business or own any interest in another entity that would cause such projects that are Qualifying Facilities and such Subsidiaries that are EWGs or FUCOs to fail to satisfy the legal requirements that must be met to obtain and retain status as a Qualifying Facility, an EWG or a FUCO, respectively. 4.25. Certain Regulatory Matters. (a) All utility services necessary for the development, ownership, operation, and financing of each Project, including, as necessary, fuel supply, water supply, storm and sanitary sewer, gas, electric and telephone services and facilities, are available to the Project on commercially reasonable terms. (b) None of Company (including Reorganized Covanta), any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities is now and will not 32 be after giving effect to the Contemplated Transactions and Purchaser will not, solely as a consequence of the Contemplated Transactions, be: (i) a "public utility company," a "holding company" or either a "subsidiary company" or an "affiliate" of either a "holding company" or an "public utility company," as such terms are defined in PUHCA; (ii) subject to regulation under PUHCA, except pursuant to Sections 9(a)(2), 32 and 33 thereof; (iii) except for Non-Exempt Qualifying Facility Projects, an "electric utility" as such term is used in 18 C.F.R. ss. 292.206, or subject to regulation as a "public utility" under the FPA, provided that, Qualifying Facilities are not exempt from regulation under Sections 1-18, 21-30, 202(c), 210, 211, 212, 213, 214 and 305(c) of the FPA and any Governmental Rules promulgated with respect thereto, including, without limitation, any enforcement provisions applicable thereto; (iv) subject to regulation under the applicable Governmental Rules of any state respecting the rates of electric utilities, or subject to material financial and organizational regulation of electric utilities under such Governmental Rules; or (v) subject to regulation under the applicable Governmental Rules of any state as a gas utility. (c) No Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 or an "investment advisor" within the meaning of the Investment Company Act of 1940. (d) All International Power Projects owned, leased or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity are listed in Section 4.23(d) of the Company Disclosure Schedule. Each of the International Power Projects has obtained from FERC exempt wholesale generator status under Section 32 of PUHCA and FERC's applicable regulations relating thereto or foreign utility company status under Section 33 of PUHCA and regulations applicable thereto. Each of the International Power Projects is (i) located outside the United States, (ii) not a public utility holding company within the meaning of PUHCA and (iii) not subject to regulation under PUHCA. 4.26. Agreements with Regulatory Agencies. Neither Company, the Subsidiaries nor, to the knowledge of Company, the Investment Entities is subject to any cease-and-desist or other order issued by, or is a party to any currently effective written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each a "Regulatory Agreement") any Governmental Authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its management or its business, and that, with respect to all others mentioned above, relates to the Projects, nor has Company, any Subsidiary or, to the knowledge of Company, any Investment Entity been advised in writing by any Governmental Authority that it is considering issuing or requesting any Regulatory Agreement, excluding in all such cases orders that are applicable to the power generation industry in general. 4.27. Taxes. Except as indicated in Section 4.27 of the Company Disclosure Schedule: (a) Company and each of the Covanta Tax Affiliates have filed (or there have been filed on such Persons' behalf) all federal and all foreign, state and local tax 33 returns required to be filed by each of them under applicable Governmental Rule. All such tax returns were and are true, complete and correct in all material respects and filed on a timely basis (after giving effect to any filing extension properly granted by a Governmental Authority having the authority to do so). (b) Company and each of the Covanta Tax Affiliates have paid all Taxes (other than Taxes to be discharged pursuant to the Plan or included in the Tax Note) that are currently due and payable for all periods through and including the Closing Date within the time and in the manner prescribed by applicable Governmental Rules. (c) Company and the Covanta Tax Affiliates have established on their books and records reserves adequate to pay all Taxes and reserves for deferred income Taxes in accordance with GAAP. (d) There are no Tax liens upon the assets of Company or any of the Covanta Tax Affiliates, except liens for Taxes not yet due. (e) Company and each of the Covanta Tax Affiliates have complied with the provisions of the Code relating to the withholding of Taxes (including, without limitation, pursuant to Sections 1441 and 1442 of the Code and withholding from employee wages), as well as similar provisions under any other applicable Governmental Rules, and have withheld and paid over to the proper Governmental Authorities all amounts required within the time and in the manner prescribed by applicable Governmental Authority. (f) Neither Company nor any Covanta Tax Affiliate has requested any extension of time within which to file any tax return, which tax return has not since been filed. (g) Company has filed, as a common parent corporation of an "affiliated group" (within the meaning of Section 1504(a) of the Code), a consolidated return for federal income tax purposes on behalf of itself and all of those Covanta Tax Affiliates which are "includible corporations" (within the meaning of Section 1504(b) of the Code). (h) Prior to the Closing (assuming the Tax Note will be paid according to its terms), (i) the statute of limitations for the assessment of federal income taxes will have expired for all consolidated federal income tax returns of Company (and any members of its group) or such returns shall have been examined and resolved by the IRS for all periods through 2001; (ii) except for Taxes relating to taxable periods that close after April 1, 2002 and Taxes relating to Covanta Tax Affiliates that have not filed for voluntary relief under Chapter 11 of the Bankruptcy Code, the statute of limitations for the assessment of state, local and foreign income taxes has expired for all applicable returns of Company and the Covanta Tax Affiliates or those returns have been examined and resolved by the appropriate taxing authorities for all periods; and (iii) no deficiency for any Taxes (other than as reflected in the Tax Note) has been proposed, asserted or assessed against Company or the Covanta Tax Affiliates which has not been resolved and paid in full. (i) No material audits or other administrative or court proceedings are presently pending with regard to any Taxes or Tax Returns of Company or any of the Covanta 34 Tax Affiliates and no power of attorney or similar document which is currently in force has been granted by Company or any Covanta Tax Affiliate with respect to any matter relating to Taxes. (j) Neither Company nor any of the Covanta Tax Affiliates has applied for, received, or has pending a Tax Ruling or commenced negotiations or entered into a Closing Agreement with any taxing authority. (k) Neither Company nor any Covanta Tax Affiliate is a party to any agreement relating to indemnifying for, allocating or sharing Taxes. (l) Neither Company nor any Covanta Tax Affiliate has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. (m) Neither Company nor any of the Covanta Tax Affiliates has any liability for Taxes of any Person other than Company and the Covanta Tax Affiliates (i) under Treasury Reg. Section 1.1502-6 (or any similar provision of state, local or foreign law), (ii) by Contract, or (iii) otherwise. (n) Neither Company nor any of the Covanta Tax Affiliates has, with regard to any assets or property held or acquired by any of them, filed a consent to the application of Section 341(f)(2) of the Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition of a "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by Company or any of the Covanta Tax Affiliates. (o) No deficiencies for any Taxes have been proposed, asserted or assessed against Company, or any Covanta Tax Affiliate, and there is no outstanding waiver of the statute of limitations with respect to any Taxes or Tax Returns of Company or any Covanta Tax Affiliate. (p) Neither Company nor any of the Covanta Tax Affiliates is required to include in income any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary change in accounting method or has knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method. (q) Neither Company nor any Covanta Tax Affiliate is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code and the acquisition of the stock of Company will not be a factor causing any payments to be made by Company or any Covanta Tax Affiliate which payments are not deductible (in whole or in part) pursuant to Section 280G of the Code. (r) None of the Covanta Tax Affiliates have an "investment in United States property" within the meaning of Section 956 of the Code. (s) None of the Covanta Tax Affiliates have income which is includible in computing the taxable income of a United States person (as determined under Section 7701 of the Code) under Section 951 of the Code. 35 (t) To the knowledge of Company, all transactions which could give rise to an understatement of federal income tax (within the meaning of Section 6662 of the Code) were adequately disclosed on the returns as required in accordance with Section 6662(d)(2)(B) of the Code. (u) Neither Company nor any Covanta Tax Affiliate has entered into any transactions or other arrangements which could give rise to a material accrual of taxable income subsequent to the Closing without a contemporaneous receipt of cash. 5. Representations and Warranties of Purchaser. Purchaser represents and warrants to Company as follows: 5.1. Due Incorporation and Authority. Purchaser is duly organized, validly existing and in good standing under the Governmental Rules of the jurisdiction under which it was organized and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being and as heretofore conducted. 5.2. Authority to Execute and Perform Agreement. Purchaser has the full legal right and power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which Purchaser is or will be a party or by which Purchaser will be bound and to perform fully its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by Purchaser, and on the Closing Date each and every agreement and instrument contemplated hereby to which Purchaser is a party will be duly executed and delivered by Purchaser and (assuming due execution and delivery hereof and thereof by the other parties hereto and thereto) this Agreement and each such other agreement and instrument will be valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their respective terms. The execution and delivery by Purchaser of this Agreement and each and every other agreement and instrument contemplated hereby to which Purchaser is a party, the consummation of the transactions contemplated hereby and thereby and the performance by Purchaser of this Agreement and each such other agreement and instrument in accordance with their respective terms and conditions will not (a) violate any provision of Purchaser's governing or organizational documents; (b) require Purchaser to obtain any consent, approval, authorization or action of, or make any filing with or give any notice to, any Governmental Authority or any other Person; (c) violate, conflict with or result in the breach of any of the terms and conditions of, result in a material modification of the effect of, otherwise cause the termination of or give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any contract to which Purchaser is a party or by or to which Purchaser or any of its properties is or may be bound or subject; or (d) violate any Governmental Rule applicable to Purchaser. 5.3. Purchase for Investment. Purchaser is purchasing the Purchased Shares for its own account for investment and not with a view to public resale or distribution thereof. 5.4. Plan Acknowledgment. The Plan substantially in the form attached hereto as Exhibit E-1 is satisfactory to Purchaser in all material respects. 36 5.5. Financing. At the Closing, Purchaser will have the financial ability to purchase the Purchased Shares for the Consideration pursuant to Section 3.1. 5.6. Certain Tax Matters. (a) As of December 31, 2002, Purchaser had net operating loss carryforwards and other tax attributes in the amount set forth in Appendix 1 hereto, which, as adjusted for current year results, as of the Closing Date, are not subject to limitations under Section 382 or other provisions of the Code. (b) For U.S. federal income tax purposes, as of the date hereof, Purchaser projects that it will have a net operating loss for its consolidated group for its 2003 taxable year. 5.7. SEC Documents and Other Documents. (a) Except as set forth in Section 5.7(a) of Purchaser Disclosure Schedule, since January 1, 2000, Purchaser has filed all SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents when filed contained any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No representation or warranty by Purchaser contained in this Agreement and no statement contained in any document (including the Purchaser Disclosure Schedule), certificate or other writing furnished or to be furnished by Purchaser to Company or any of its representatives pursuant to the provisions hereof or in connection with the Contemplated Transactions, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 5.8. Insurance Matters. (a) Unless exempted by applicable law, neither Purchaser nor any Insurer has transacted any insurance business in any jurisdiction requiring an insurance license in which it did not possess such an insurance license and each of Purchaser and the Insurers are in compliance in all material respects with all applicable insurance statutes, laws, regulations, rules, injunctions, decrees, permits, orders and licenses (including, without limitation, laws relating to insurance holding companies), except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser, and neither Purchaser nor any Insurer has received notice of any alleged violation of any such law, statute, rule, regulation, injunction, decree, permit, order or license except for notices of alleged violations which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. (b) Each of the Insurers and Purchaser has timely filed all reports, data, registrations, filings, other information and applications required to be filed with any Insurance Regulator, except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. True and genuine copies of all material filings for the past two years have been made available to Company or its representatives. 37 (c) There are no intercompany agreements or understandings (written or oral) between Purchaser or any subsidiary of Purchaser, on the one hand, and any of the Insurers on the other hand (or between Purchaser or an Insurer on the one hand and a third party on the other hand) relating to loans or investments of any sort (including without limitation, surplus notes, guarantees, keep-well arrangements that could affect the solvency of an Insurer), or that could otherwise be reasonably be expected to result in the imposition of any material liability on either Purchaser or any Insurer (such agreements or understandings being referred to herein collectively as "Inter-Purchaser Agreements") currently in effect. Except as disclosed in statutory financial statements, or in Purchaser's SEC Documents, Schedule 5.8(c) sets forth a list of all Inter-Purchaser Agreements that were in effect at any time within the last six (6) years. All existing Inter-Purchaser Agreements have been disclosed, to the extent required by law, to the appropriate Insurance Regulator on the appropriate form, and all required consents of the appropriate Insurance Regulator relating thereto have been obtained. (d) Except as set forth in Section 5.8(d) of the Purchaser Disclosure Schedule, the execution, delivery and performance of this Agreement by the Purchaser does not and will not: (i) conflict with or violate any insurance law, statute, rule, regulation or policy of any jurisdiction applicable to Purchaser or any Insurer; or (ii) require any consent, approval, authorization or permit of, action by, filing with or notification to, any Insurance Regulator, except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. (e) There are no Proceedings, at law or in equity, or before or by any court or other Government Authority that are pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser, any of the Insurers or their subsidiaries, which have been, are or will be initiated by an Insurance Regulator or other Governmental Authority that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Purchaser. 5.9. No Material Adverse Change. Except as disclosed in the Purchaser's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, since December 31, 2002, there has been no change, event or occurrence which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Purchaser, and Purchaser does not know of any such change, event or occurrence which is threatened, nor has there been any damage, destruction or loss which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Purchaser, whether or not covered by insurance. 5.10. Utility Regulatory Status. None of Purchaser nor any of its subsidiaries is: (a) a "public utility company," a "holding company" or either a "subsidiary company" or an "affiliate" of either a "holding company" or a "public utility company," as such terms are defined in PUHCA; (b) subject to regulation under PUHCA except pursuant to Section 9(a)(2) thereof; (c) an "electric utility" or "public utility" as such terms are defined under the FPA, or subject to regulation under the FPA; or (d) an "electric utility" or "electric utility holding company" as such terms are defined in PURPA and the FERC regulations issued thereunder. 38 5.11. Marine Services Affiliates. There are no intercompany agreements or understandings (written or oral) between Purchaser or any subsidiary of Purchaser other than the Marine Services Affiliates, on the one hand, and any of the Marine Services Affiliates, on the other hand, relating to loans or investments of any sort, including without limitation guarantees or keep-well arrangements, or that could otherwise reasonably be expected to result in the imposition of any material liability on Purchaser with respect to the liabilities of the Marine Services Affiliates. There are no Proceedings, at law or in equity, or before or by any court or other Governmental Authority that are pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser (or any of the Affiliates of Purchaser other than the Marine Services Affiliates), that purport to establish liability of Purchaser for the liabilities of the Marine Services Affiliates which Proceedings, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Purchaser. 6. Covenants and Agreements. 6.1. Conduct of Business. From the date hereof through the Closing Date, except as (w) set forth in Section 6.1 of the Company Disclosure Schedule, (x) contemplated by the Plan, (y) authorized by the Bankruptcy Court or (z) required under the DIP Agreement, Company agrees that (i) it shall (and shall cause the Subsidiaries to) use commercially reasonable efforts to preserve intact its business relationships with third parties; (ii) it shall use commercially reasonable efforts to conduct its (and shall cause the Subsidiaries to use commercially reasonable efforts to conduct their) businesses and maintain its (and shall cause the Subsidiaries to maintain their) assets in a manner consistent with good industry practice and such that the representations and warranties contained in Section 4 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date; (iii) it shall give Purchaser prompt written notice of any event, condition or circumstance occurring that would constitute a violation or breach of (x) any representation or warranty, whether made as of the date hereof or as of the Closing Date, or (y) any covenant or agreement of Company contained in this Agreement; and (iv) without limiting the generality of the foregoing, without the prior written consent of Purchaser: (a) neither Company nor any Subsidiary shall: (i) amend its certificate of incorporation or by-laws or similar organizational documents, (ii) issue, sell, transfer, pledge, dispose of or encumber any shares of any class or series of its capital stock or Indebtedness, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of its capital stock or any Indebtedness, (iii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to any shares of any class or series of its capital stock; (iv) split, combine or reclassify any shares of any class or series of its stock; or (v) redeem, purchase or otherwise acquire directly or indirectly any shares of any class or series of its capital stock, or any instrument or security which consists of or includes a right to acquire such shares; (b) neither Company nor any Subsidiary shall organize any new Subsidiary or acquire any capital stock or other equity securities, or equity or ownership interest in the business, of any other Person; 39 (c) except as set forth in Section 6.1(c) of the Company Disclosure Schedule, neither Company nor any Subsidiary shall make any material change in the operations of the Projects; (d) except as set forth in Section 6.1(d) of the Company Disclosure Schedule, neither Company nor any Subsidiary shall modify, amend or terminate any of its Material Contracts or waive, release or assign any material rights or claims, except in the ordinary course of business and consistent with past practice; (e) except as set forth in Section 6.1(e) of the Company Disclosure Schedule and except for loans or payments pursuant to the DIP Agreement, neither Company nor any Subsidiary shall: (i) incur or assume any Indebtedness, except in the ordinary course of business in an amount not to exceed $100,000 in the aggregate, from the date hereof until the Closing; (ii) pay, repay, discharge, purchase, repurchase or satisfy any Indebtedness issued or guaranteed by Company or any Subsidiary except for any Project limited recourse debt; (iii) modify the terms of any Indebtedness or other liability except for any Project limited recourse debt; (iv) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, except as described in the Company Disclosure Schedule as being in the ordinary course of business and consistent with past practice; (v) make any loans, advances or capital contributions to, or investments in, any other Person; (vi) enter into any material commitment or transaction (including any capital expenditure or purchase, sale or lease of assets or real estate), except in the ordinary course of business; or (vii) dispose of or permit to lapse any rights to any Intellectual Property; (f) neither Company nor any Subsidiary shall lease, license, mortgage, pledge or encumber any assets other than in the ordinary and usual course of business and consistent with the past practice as described in Section 6.1(f) of the Company Disclosure Schedule or transfer, sell or dispose of any assets other than in the ordinary and usual course of business and consistent with past practice described in Section 6.1(f) of the Company Disclosure Schedule or dispose of or permit to lapse any rights to any Intellectual Property; (g) neither Company nor any Subsidiary shall increase any compensation payable or to become payable to any of its officers, directors or employees (other than normal recurring increases in the ordinary course of business of compensation payable to employees who are not contemplated to participate in any broad based management incentive plan of Company and other than increases made pursuant to the terms of any Benefit Plan), or enter into or amend any employment, severance, consulting, termination agreement with, or employee benefit plan for, or make any loan or advance to, any of its officers, directors or employees or make any change in its existing borrowing or lending arrangements for or on behalf of any of such Persons pursuant to an employee benefit plan or otherwise; (h) neither Company nor any Subsidiary shall (i) adopt or pay, grant, issue, accelerate or accrue payments or benefits pursuant to any pension, profit-sharing, extra compensation, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, with or for the benefit of any director, officer or employee, whether past or present, except as described in Section 6.1(h) of the Company Disclosure Schedule or in accordance with 40 the terms of any plan, agreement or arrangement as in effect on the date hereof or (ii) amend any of the foregoing in any material respect or enter into any material consulting agreement with any former employee; (i) neither Company nor any Subsidiary shall enter into any contract or transaction relating to the purchase of assets other than in the ordinary and usual course of business consistent with past practices; (j) neither Company nor any Subsidiary shall pay, repurchase, discharge or satisfy any of its claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice; (k) other than as contemplated by the Plan or herein, neither Company nor any Subsidiary shall adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Company or any Subsidiary; (l) neither Company nor any Subsidiary shall (i) change any of the accounting methods used by it unless required by GAAP or (ii) make any election relating to Taxes, change any election relating to Taxes already made, adopt any accounting method relating to Taxes or change any accounting method relating to Taxes; (m) neither Company nor any Subsidiary shall take, or agree to or commit to take, any action that would or would be reasonably likely to result in any of the conditions to the Closing set forth in Section 8 not being satisfied or that would materially impair the ability of Company to consummate the Closing in accordance with the terms hereof or materially delay such consummation; (n) neither Company nor any of Subsidiary shall enter into any agreement, contract, commitment or arrangement to do any of the foregoing or authorize, recommend, propose or announce an intention to do any of the foregoing; and (o) neither Company nor any Subsidiary shall take, or commit to take, any action outside the ordinary course of business that would or would reasonably be likely to result in a material increase in current liabilities or a material decrease in current assets. 6.2. Corporate Examinations and Investigations. Prior to the Closing Date, Company shall, and shall cause each of the Subsidiaries to, permit any authorized representatives of Purchaser to visit and inspect any of the properties of Company or of any of the Subsidiaries, to inspect, copy and take extracts from its and their financial, accounting and tax records (excluding information relating to any Alternative Transaction), and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested. Without limiting the foregoing, Purchaser and its representatives shall be allowed to conduct an environmental investigation of the Facilities owned or operated by Company or any Subsidiary, including, at the reasonable 41 discretion of Purchaser, the undertaking of environmental testing at the Facilities, subject to consultation with Company and subject to customary indemnification arrangements. Both parties agree and acknowledge that they will continue to be bound by the terms of the confidentiality agreement, dated January 21, 2003, (the "Confidentiality Agreement") between Purchaser and Company. 6.3. Publicity. The parties agree that no publicity release or public statement or public communication concerning this Agreement or the Contemplated Transactions shall be made without written advance approval thereof by Company and Purchaser; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may, upon the advice of counsel, be required by applicable Governmental Rule or any listing agreement with any national securities exchange. Notwithstanding anything herein to the contrary, except as reasonably necessary to comply with applicable securities laws, each party to this Agreement (and each employee, representative or other agent of such party) may (a) consult any tax advisor regarding the U.S. federal income tax treatment or tax structure of the transaction, and (b) disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the taxpayer relating to such tax treatment and tax structure; provided that clause (b) shall not apply until the earliest of (i) the date of the public announcement of discussions relating to the transaction, (ii) the date of the public announcement of the transaction or (iii) the date of the execution of an agreement, with or without conditions, to enter into the transaction. For this purpose, "tax structure" is limited to any facts relevant to the U.S. federal income tax treatment of the transaction and does not include information relating to the identity of the parties. 6.4. Efforts and Actions to Cause Closing to Occur. Prior to the Closing, upon the terms and subject to the conditions of this Agreement, each of Company and Purchaser shall, and Company shall cause the Subsidiaries to, use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done and cooperate with each other in order to do, all things necessary (subject to applicable laws) to satisfy the conditions to Closing set forth in Sections 7 and 8 and consummate the Closing and the Contemplated Transactions, including, but not limited to (a) the preparation and filing of all forms, registrations and notices required to be filed to consummate the Closing and the Contemplated Transactions, and the taking of such actions as are necessary to obtain any requisite approvals, authorizations, consents, orders, licenses, permits, qualifications, exemptions or waivers by any third party, including the Required Consents, and (b) the preparation of any disclosure documents requested by Purchaser in order to facilitate the financing of any of the Contemplated Transactions. 6.5. Governmental Approvals. (a) Each of the parties shall take all actions necessary to file as soon as practicable all notifications, filings and other documents required to obtain all Governmental Approvals including, without limitation, under the FPA, and to respond as promptly as practicable to any inquiries and requests received from the Federal Trade Commission, the Antitrust Division of the Department of Justice, FERC and any other Governmental Authority for additional information or documentation in connection therewith. (b) Company shall use best efforts, at and as of the Closing, at its sole expense, to cause the transfer, reissuance or modification of any Governmental Approvals to the 42 extent that such is required to cause the Governmental Approvals to remain in full force and effect in the possession of Reorganized Covanta or any of the Subsidiaries, as the case may be, after the Closing. 6.6. No Inconsistent Action. Neither party shall take any action that is materially inconsistent with its obligations under this Agreement, except for (and as follows from) the Approval Order and except as required by the Bankruptcy Court. 6.7. Bankruptcy Covenants. (a) As soon as practicable following the execution of this Agreement (and in no event later than December 5, 2003), Company shall, and shall cause each of the other Debtors to, file the Plan. As soon as practicable thereafter (and in no event later than December 18, 2003), Company shall, and shall cause each of the other Debtors to, file a Disclosure Statement with respect to the Plan. Thereafter, without the prior written consent of Purchaser, Company shall not, and shall cause each of the other Debtors not to, amend or modify any material provision of the Plan or the Disclosure Statement with respect to the business, operations, assets, condition (financial or otherwise) or prospects of Reorganized Covanta and its Subsidiaries or withdraw the Plan or file any other plan of reorganization of the Debtors. Company shall, and shall cause each of the other Debtors to, promptly provide Purchaser with (i) proposed final drafts of all documents, motions, orders, filings, pleadings, supplements or amendments that Company or any other Debtor proposes to file with the Bankruptcy Court which relate to the consummation or approval of the Plan, this Agreement or any provision therein or herein, and will provide Purchaser with reasonable opportunity to review and comment upon such filings and (ii) any objections to the Plan or Disclosure Statement. Company shall, and shall cause each of the other Debtors to, consult and cooperate with Purchaser, and consider in good faith the views of Purchaser, as contemplated by the Plan, with respect to all such filings and the acceptance or rejection prior to Closing of any unexpired lease or other executory contract. Company shall, and shall cause each of the other Debtors to, promptly (and, in any event, within two (2) Business Days after receipt of such pleadings by the Debtors) provide Purchaser with copies of all pleadings (other than proofs of claim below $10,000 in amount) received by or served by or upon any of the Debtors in connection with the Case after the date hereof. (b) In the event an appeal is taken, or a stay pending appeal is requested or reconsideration is sought, from either the Confirmation Orders or the Disclosure Statement Order, Company shall promptly after becoming aware thereof notify Purchaser of such notice of appeal, request for a stay pending appeal or motion for reconsideration. Company shall also provide Purchaser with written notice (and copies) of any other or further notice of appeal, motion or application filed in connection with any appeal from or application for reconsideration of, either of such orders and any related briefs. (c) Promptly after the execution of this Agreement (and in no event later than two (2) Business Days following the execution of this Agreement), Company shall, and shall cause each of the other Debtors to, file a motion (the "Investment Motion") for expedited determination of the approval of the Exclusivity Provisions (as defined in Section 6.10(a)), the Termination Fee and the Expense Reimbursement provided for in this Agreement in form and substance reasonably acceptable to Purchaser. Company shall, and shall cause each of the other Debtors to, use commercially reasonable efforts to obtain the Approval Order by 43 December 18, 2003, which order shall be in form and substance reasonably acceptable to Purchaser and Company, with only such changes as shall be agreed to by Purchaser and Company in writing. (d) Promptly after the execution of this Agreement (and in no event later than five (5) Business Days following execution of this Agreement), Company shall file a motion to seek authorization to pay, with respect to the Second Lien L/C Credit Facility Credit Agreement, a commitment fee of up to $125,000, and cost reimbursement of up to $75,000. Company shall use commercially reasonable efforts to obtain an order granting such authorization as soon as practicable. 6.8. ISRA. Company shall seek a determination from the New Jersey Department of Environmental Protection ("NJDEP") that the Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"), is not applicable to the transactions contemplated by this Agreement. Company shall allow Purchaser and its representatives to review and comment on any filings made in connection with this request. If the NJDEP determines that ISRA is applicable to this transaction, Company shall ensure that it obtains any approval necessary in order to comply with the requirements of ISRA in connection with the closing of the transaction. 6.9. Connecticut Property Transfer Act. Company and Purchaser shall make an evaluation to determine whether the Connecticut Transfer Act, Conn. Gen. Stat.ss.22a-134, et seq. ("CTA"), applies to the Contemplated Transactions. If Company and Purchaser determine that CTA applies to the Contemplated Transactions, Company shall undertake all actions required to (a) determine which form(s) must be prepared pursuant to the CTA and delivered to Purchaser prior to Closing and (b) ensure that such form(s) are prepared correctly and delivered to Purchaser prior to Closing. 6.10. Exclusivity. (a) From and after the date of this Agreement, Company shall not, and shall cause each Subsidiary and each of their respective directors, officers, employees, financial advisors, representatives and agents not to, directly or indirectly, (i) solicit, initiate, engage or participate in or encourage discussion or negotiations with any Person or entity (other than Purchaser) concerning any merger, consolidation, sale of material assets, tender offer for, recapitalization of or accumulation or acquisition of securities issued by Company or any Subsidiary, proxy solicitation, other business combination involving Company or any Subsidiary or any other plan of reorganization of Company or any Subsidiary (including, without limitation, any Employee Stock Ownership Plan structure) (collectively, "Alternative Transaction"), or (ii) provide any non-public information concerning the business, properties or assets of Company or any Subsidiary to any Person or entity (other than to Purchaser). Company shall, and shall cause each of its Subsidiaries to, immediately cease any and all existing activities, discussions and negotiations with any Person other than Purchaser with respect to any Alternative Transaction and the Company shall, and shall cause its Subsidiaries to, continue indefinitely the confirmation hearing for their pending reorganization and liquidation plans involving an Employee Stock Ownership Plan. Company shall immediately notify Purchaser of, and shall disclose to Purchaser all details of, any inquiries, discussions or negotiations described in the first sentence 44 of this Section 6.10. The provisions of this Section 6.10 are referred to in this Agreement as the "Exclusivity Provisions." (b) Notwithstanding the provisions of subsection (a) above, prior to entry of the Confirmation Orders, the Debtors may, to the extent required by the Bankruptcy Code, the Bankruptcy Rules, the operation and information requirements of the Office of the United States Trustee, or any orders entered or approvals or authorizations granted by the Bankruptcy Court in the Case during the period prior to Closing (collectively, the "Bankruptcy-Related Requirements"), or to the extent that the board of directors of Company determines, in good faith after consultation with outside legal counsel, that such board's fiduciary duties under applicable Governmental Rule require it to do so, participate in discussions or negotiations with, and, subject to the requirements of subsection (c) below, furnish information to any Person, entity or group after such Person, entity or group has delivered to the Debtors, in writing, an unsolicited bona fide offer to effect an Alternative Transaction that the board of directors of Company in its good faith judgment determines, after consultation with its independent financial advisors, would result in a transaction more favorable to the stakeholders of the Debtors from a financial point of view than the transactions contemplated hereby and for which financing, to the extent required, is then committed (or which, in the good faith judgment of the board of directors, is reasonably capable of being obtained) and which (in the good faith judgment of the board of directors) is likely to be consummated (a "Superior Proposal"). In the event the Debtors receive a Superior Proposal, nothing contained in this Agreement (but subject to the terms hereof) will prevent the board of directors of Company from approving such Superior Proposal or requesting authorization of such Superior Proposal from the Bankruptcy Court, if such board determines, in good faith, after consultation with outside legal counsel, that such action is required by its fiduciary duties under applicable Governmental Rule; and in such case, the board of directors of Company may terminate this Agreement pursuant to Section 11.1(f) hereof; provided, however, that Company shall not terminate this Agreement until at least five (5) Business Days after Purchaser's receipt of a copy of such Superior Proposal. (c) Debtors shall, within one (1) Business Day of the occurrence thereof, notify Purchaser orally and in writing of the receipt of a Superior Proposal. Such notice to Purchaser shall indicate in reasonable detail the identity of the potential acquirer and the material terms and conditions of such Superior Proposal, to the extent known. (d) Notwithstanding anything to the contrary in this Section 6.10, Company shall not, and shall cause each of its Subsidiaries not to, provide any non-public information to a third party unless: (i) Company and its Subsidiaries provide such non-public information pursuant to a non-disclosure agreement entered into subsequent to the date hereof with terms regarding the protection of confidential information at least as restrictive as such terms in the Confidentiality Agreement or pursuant to confidentiality agreements existing on the date hereof; and (ii) such non-public information has been delivered previously or made available to Purchaser. (e) Notwithstanding anything to the contrary in this Section 6.10, Company shall be permitted to continue the solicitation of expressions of interest in its international operations. 45 6.11. Tax Matters. (a) Except as disclosed in Section 6.11 of the Company Disclosure Schedule and except to the extent reflected on Appendix 2 hereto, Company shall not, nor shall Company permit any Covanta Tax Affiliate to, without the written consent of Purchaser, (i) make or rescind any election relating to Taxes if such action would materially adversely affect Company's tax position, (ii) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, (iii) materially change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal income tax return for the taxable year ending December 31, 2001 or (iv) undertake any transactions or enter into any arrangements that could (A) result in the receipt of cash or other consideration prior to the Closing Date but an accrual of taxable income subsequent to the Closing Date, (B) otherwise defer the recognition of income or gain to a period subsequent to the Closing Date or (C) accelerate a loss or deduction to a period prior to the Closing Date. Notwithstanding any other provision of this Agreement, and except as disclosed in Section 6.11 of the Company Disclosure Schedule and except to the extent reflected on Appendix 2 hereto, in the event that, after the date hereof, Company or any Covanta Tax Affiliate seeks a "Closing Agreement" from the IRS or a definitive settlement agreement from the IRS or any state, local or foreign taxing authority on a matter that is subject to a representation, warranty or covenant set forth in this Agreement (including with respect to the Tax Note), then: (A) Company shall, or shall cause such Covanta Tax Affiliate to, keep Purchaser informed as to the status of such agreement and any discussions, negotiations or arrangements related thereto, and (B) Company shall not, and shall cause any such Covanta Tax Affiliate not to, file or submit any document to any taxing authority in connection with any such agreement without first providing Purchaser with (1) copies of any such document and (2) an opportunity to review and comment on any such document prior to such filing or submission. (b) From the date hereof through the Closing Date, Purchaser shall not undertake any action that would cause the net operating loss carryforwards and other tax attributes in the amount set forth in Appendix 1 hereto, as adjusted for current year results and anticipated ordinary course results up and until the Closing Date, not to be available for the use by Company and its Subsidiaries. 6.12. Pro Forma Taxes. (a) Company shall prepare pro forma U.S. federal, state and local income tax calculations (including for any taxes determined by reference to gross or net income or revenue) for all relevant jurisdictions reflecting the liabilities of Company and the Covanta Tax Affiliates for all taxable periods (including 2003 and 2004 through the Closing Date) for which the Taxes have not been paid or discharged pursuant to the Plan (other than payment of the Tax Note) taking into account the consummation of all transactions included in the Plan, any prior transactions and the transactions required by Section 7.17 of this Agreement (the "Pro Forma Income Tax Calculations"). Such Pro Forma Income Tax Calculations shall be delivered to Purchaser at least twenty (20) Business Days prior to Closing for review and approval. (b) Prior to Closing, Company shall have established a cash reserve (the "Cash Tax Reserve") for the unpaid aggregate tax liability reflected on the Pro Forma Income Tax Calculations (the "Unpaid Pro Forma Tax Liability"). 46 6.13. D&O Insurance. The D&O Insurance Cost shall have been paid by Company on or prior to the Closing Date, and the D&O Insurance shall be in full force and effect. 6.14. Financial Statements. (a) As promptly as practicable, and in any event no later than thirty (30) days after the end of each monthly period ending after the date hereof and before the Closing Date, Company shall deliver to Purchaser true and complete copies of (in the case of any such monthly period) the unaudited consolidated statements of income and cash flows of Company and its Subsidiaries as of and for each such monthly period and the portion of the fiscal year then ended (each set, the "Monthly Management Reports"). (b) Company shall, and shall cause its Subsidiaries and certified public accountants to, cooperate with Purchaser in connection with the preparation of the financial statements required by Rule 3-05 of Regulation S-X and the financial statements and other information required by Article 11 of Regulation S-X with respect to Reorganized Covanta and its Subsidiaries. 6.15. Benefit Plans. Purchaser generally intends to maintain the existing Benefit Plans, subject to Purchaser's right to amend, terminate or modify the Benefit Plans as permitted by such Benefit Plans or applicable law. 7. Conditions Precedent to the Obligation of Purchaser. The obligation of Purchaser to purchase the Purchased Shares from Company is subject, at the option of Purchaser acting in accordance with the provisions of Section 11 with respect to termination of this Agreement, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Purchaser (unless the non-fulfillment of any condition is the result of the action or inaction of Purchaser): 7.1. Representations and Covenants. (a) The representations and warranties of Company contained in (i) this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect on Company" qualifiers set forth therein) on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not reasonably be expected to result in a Material Adverse Effect on Company and (ii) Section 4.8(a) shall be true and correct on and as of the Closing Date. (b) Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Company on or prior to the Closing Date. (c) Company shall have delivered to Purchaser a certificate, dated as of the Closing Date and signed by the Chief Executive Officer and Chief Financial Officer of Company, certifying as to (a) and (b) above. 7.2. Required Consents and Required Governmental Approvals. All Required Consents and Required Governmental Approvals shall have been obtained or deemed by operation of the Plan or the Confirmation Order to be given and be in full force and effect, and 47 Purchaser shall have been furnished with evidence reasonably satisfactory to it that such Required Consents and Required Governmental Approvals have been granted and obtained. 7.3. No Claims. No Claims shall be pending or, to the knowledge of Purchaser or Company, threatened, before any Governmental Authority (including investigations instituted by the United States Department of Justice or the Federal Trade Commission in connection with antitrust regulations) to restrain or prohibit, or to obtain damages in respect of, this Agreement or the consummation of the Contemplated Transactions or which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. 7.4. Disclosure Statement Order. The Bankruptcy Court shall have entered an order in form and substance satisfactory to Purchaser (the "Disclosure Statement Order") approving the Disclosure Statement for the Plan. 7.5. Liquidation Plan. The final Liquidation Plan shall be in form and substance satisfactory to Purchaser except for modifications that would not have an adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Reorganized Covanta and the Subsidiaries. 7.6. Confirmation Orders. The Bankruptcy Court shall have entered orders in form and substance reasonably satisfactory to Purchaser (the "Confirmation Orders") confirming the Plan and the Liquidation Plan pursuant to Section 1129 of the Bankruptcy Code and the Confirmation Orders shall have become Final Orders. 7.7. Approval Orders. The Bankruptcy Court shall have entered the Approval Order and the Approval Order shall be in full force and effect, and shall not have been stayed, vacated, modified or supplemented without Purchaser's prior written consent. 7.8. Exit Financing. All conditions precedent to the closing of the Exit Financing shall have been satisfied or waived and the Exit Financing shall have been consummated in accordance with the material terms contained in the Credit Agreements and the Senior Secured Notes Indenture; provided that failure of this condition precedent shall not affect the obligations of the Purchaser under, or the terms of, Section 3.5(b)(ii) or Section 11.2(c). 7.9. International Reorganization and Arrangements. (a) The reorganization of the International Projects and the international operations and entities of Company and Subsidiaries shall have been consummated on the terms and conditions set forth in Exhibit G and otherwise on terms and conditions satisfactory to Purchaser. (b) The CPIH Management Services & Reimbursement Agreement shall have been authorized, executed and delivered by each of the parties thereto on terms substantially as set forth in Exhibit H and otherwise on terms and conditions satisfactory to Purchaser and shall be in full force and effect. 7.10. Tax Sharing Agreement. The Tax Sharing Agreement shall have been authorized, executed and delivered by Company on terms as set forth in Exhibit F and shall be in full force and effect. 48 7.11. Cash Reserve. On the Effective Date, Company shall, (i) have established a fully funded cash reserve for Exit Costs and (ii) in addition, have a cash balance, after giving effect to payment of the Consideration, in an amount equal to the Closing Cash Balance plus Retained Cash. 7.12. ISRA. For any Facility subject or potentially subject to ISRA, (a) Company shall have obtained a letter of non-applicability from the NJDEP or (b) if ISRA is applicable to one or more of such Facilities, with respect to each such Facility, Company shall have obtained an approval of a Remedial Action Workplan (as such term is defined by ISRA) from the NJDEP, entered into a Remediation Agreement (as such term is defined by ISRA) with the NJDEP or obtained such other approval as authorized by ISRA to allow for the closing of this transaction. 7.13. Qualifying Facility Recertifications. Company shall cause each of its Subsidiaries directly owning a Qualifying Facility to have prepared and filed at FERC a self-recertification using FERC Form 556 updating the prior certification or self certification, as applicable, to include any changes that have occurred prior to Closing and the change in upstream ownership effected by the Contemplated Transactions at Closing (each a "Qualifying Facility Self Recertification"). Each such Qualifying Facility Self Recertification shall fully comply with all applicable FERC rules and regulations, including but not limited to, fully updating all changes that have occurred to the relevant Project since the last certification for which FERC's rules and regulations require a recertification or self-recertification, including, without limitation, its ownership, technical characteristics, fuel use, size and ability to meet applicable operating and efficiency requirements. 7.14. Tax Liability. Company shall have established the Cash Tax Reserve for the Unpaid Pro Forma Tax Liability. 7.15. Opinion. Company shall have delivered an opinion of regulatory counsel in a form reasonably satisfactory to Purchaser and its counsel. 7.16. Geothermal Sale. The closing of the Geothermal Sale shall have occurred on substantially the same terms as set forth in the Heber Reorganization Plan. 7.17. Treatment of Certain Projects. Prior to Closing, Company and Purchaser shall have mutually agreed upon the treatment under the Plan of, and all arrangements with respect to, the waste-to-energy-Projects in Haverhill, Massachusetts, Lake County, Florida, Warren County, New Jersey, the Town of Babylon, New York, and the water Project in Tampa, Florida. Company and Purchaser agree that various mutually agreed arrangements for each of such Projects as described in Section 7.17 of the Company Disclosure Schedule shall be acceptable arrangements, which if consummated by the Company, subject to the reasonable approval of Purchaser, shall satisfy this condition precedent. 8. Conditions Precedent to the Obligation of Company. The obligation of Company to issue and sell the Purchased Shares is subject, at the option of Company acting in accordance with the provisions of Section 11 with respect to termination of this Agreement, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be 49 waived by Company (unless the non-fulfillment of any condition is a result of the action or inaction of Company, the Subsidiaries or their Affiliates): 8.1. Representations and Covenants. (a) The representations and warranties of Purchaser contained in (i) this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "material adverse effect" qualifiers set forth therein) on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not reasonably be expected to result in a Material Adverse Effect on Purchaser and (ii) Section 5.9 shall be true and correct on and as of the Closing Date. (b) Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (c) Purchaser shall have delivered to Company a certificate, dated the date of the Closing and signed by an officer of Purchaser, certifying as to (a) and (b) above and satisfaction of the condition set forth in Section 8.8. 8.2. Required Consents and Required Governmental Approvals. All Required Consents and Required Governmental Approvals shall have been obtained or deemed by operation of the Plan or the Confirmation Orders to have been given and shall be in full force and effect. 8.3. Confirmation Orders. The Confirmation Orders shall have been entered by the Bankruptcy Court and shall not be stayed, reversed, amended, ordered to be reconsidered, or modified in a manner not approved by Company. 8.4. Exit Financing. All conditions precedent to closing the Exit Financing (other than any failure of a condition precedent due to the breach, action or inaction of Company) shall have been satisfied or waived and the Exit Financing shall have been consummated in accordance with the material terms contained in the Credit Agreements and the Senior Secured Notes Indenture; provided that the failure to consummate is not the result of the breach, action or inaction of Company. 8.5. New Securities Issued. All conditions precedent to the issuance of each of the Unsecured Notes and the Tax Note (other than the Closing hereunder) shall have been satisfied. 8.6. Execution of Tax Sharing Agreement. The Tax Sharing Agreement shall have been authorized, executed and delivered by Purchaser on terms as set forth in Exhibit F and shall be in full force and effect. 8.7. Geothermal Sale. The Closing of the Geothermal Sale shall have occurred on substantially the same terms as set forth in the Heber Reorganization Plan. 50 8.8. Net Operating Loss Carryforwards. Purchaser's good faith estimate of the amount of net operating loss carryforwards projected to be available to Company and its Subsidiaries at Closing shall not be less than $325 million. 9. Designation of Executory Contracts. Company and Purchaser shall determine in good faith the executory contracts and Leases that Company will assume or reject. At least thirty (30) days before the Confirmation Hearing, Company shall provide to Purchaser a schedule identifying the executory contracts and Leases that it proposes to assume or reject for Purchaser's approval. 10. Representations and Warranties of Company. Notwithstanding any right of Purchaser to investigate fully the affairs of Company and the Subsidiaries and notwithstanding any knowledge of facts determined or determinable by Purchaser pursuant to such investigation or right of investigation, prior to the Closing, Purchaser has the right to rely fully upon the representations and warranties of Company contained in Section 4 of this Agreement. 11. Termination of Agreement. 11.1. Termination. This Agreement may be terminated prior to the Closing as follows: (a) at the election of Purchaser, if any one or more of the conditions to the obligation of Purchaser to close set forth in Section 7 has not been fulfilled as of June 15, 2004; (b) at the election of Company, if any one or more of the conditions to the obligation of Company to close set forth in Section 8 has not been fulfilled as of June 15, 2004; (c) at the election of either party, if there is any Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or otherwise prohibits the consummation of the Contemplated Transactions; (d) at the election of Company, if Purchaser has materially breached any material covenant or agreement contained in this Agreement, which breach cannot be or is not cured prior to June 15, 2004, provided that Company is not then in material breach of any material covenant or agreement contained in this Agreement; (e) at the election of Purchaser, if Company has materially breached any material covenant or agreement contained in this Agreement, which breach cannot be or is not cured prior to June 15, 2004, provided that Purchaser is not then in material breach of any material covenant or agreement contained in this Agreement; (f) at the election of Company, if (i) Company accepts a Superior Proposal or (ii) the Bankruptcy Court approves an Alternative Transaction, provided that Company has complied with its obligations under Section 6.10 and provided further that Company shall not terminate this Agreement pursuant to this paragraph (f) until the expiration of five (5) Business Days following Purchaser's receipt of written notice advising Purchaser that 51 Company has received an offer for an Alternative Transaction specifying the material terms and conditions of such an Alternative Transaction (and including a copy thereof with all accompanying documentation), identifying the Person making such an offer for an Alternative Transaction and stating whether Company intends to enter into a definitive agreement with respect thereto. After providing the notice referred to in the preceding sentence, Company shall provide a reasonable opportunity to Purchaser during such five (5) Business Day period to make any adjustments in the terms and conditions of this Agreement as are necessary to cause the Contemplated Transactions to proceed on terms and conditions equivalent to or better than such Alternative Transaction; (g) at the election of Purchaser, if (i) Company enters into an agreement with respect to an Alternative Transaction or (ii) the Bankruptcy Court approves an Alternative Transaction; (h) at any time after December 18, 2003, at the election of Purchaser, if by such date the Approval Order has not been entered or if such order has been vacated, reversed or materially modified or amended or stayed; or (i) at any time on or prior to the Closing Date, by mutual written consent of Company and Purchaser. 11.2. Survival After Termination; Termination Fee. (a) If this Agreement terminates pursuant to Section 11.1 and the Contemplated Transactions are not consummated, this Agreement shall become null and void and have no further force or effect, except that (i) any such termination shall be without prejudice to the rights of (A) Purchaser and Laminar, as applicable, to receive the damages and payments described in Section 3.3, Section 11.2(b), Section 11.2(c) and Section 11.2(d) and (B) if applicable, Company to receive the payment set forth in Section 11.2(c) and (ii) the provisions of Section 11.2(g) shall survive. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 6.2 relating to the Confidentiality Agreement shall remain in full force and effect. (b) The parties agree that if (i) this Agreement is terminated under Section 11.1 for any reason by a party which has the right to terminate this Agreement (other than by Company pursuant to (A) Section 11.1(b) (x) solely in connection with a failure of the condition set forth in Section 8.1(a) or 8.2 to be satisfied other than as a result of any breach, action or inaction of Company or (y) solely in connection with a failure of the condition set forth in Section 8.4 if such failure is not the result of a Company Failure and a First Lien Failure has not occurred or (B) Section 11.1(d)) and (ii) Company closes an Alternative Transaction within 6 months of such termination, or contracts to close an Alternative Transaction within 6 months of such termination and subsequently closes such an Alternative Transaction, Purchaser shall be entitled to payment of $12,000,000 as a termination fee (the "Termination Fee"), which Company shall pay or cause to be paid to Purchaser by wire transfer of immediately available funds within two (2) Business Days of the closing of such an Alternative Transaction to an account designated in writing by Purchaser; provided that if Purchaser terminates pursuant to Section 7.6 solely because an appeal is pending against the Confirmation Order, and there is no stay of the Confirmation Order, no Termination Fee shall be payable under this Section 11.2(b). 52 (c) The parties agree that if this Agreement is terminated pursuant to Section 11.1 for any reason, the parties will instruct the Escrow Agent to return the Deposit to Purchaser with interest within two (2) Business Days of termination by wire transfer of immediately available funds to an account designated in writing by Purchaser; provided that, notwithstanding the foregoing, if (i) Company terminates this Agreement pursuant to (A) Section 11.1(b) in connection with a failure of the condition set forth in (x) Section 8.1(a) solely as a result of a knowing breach of the representations and warranties set forth in Section 5 by Purchaser or (y) Section 8.4 if such failure is not the result of a Company Failure and a First Lien Failure has not occurred or (B) Section 11.1(d) and (ii) Purchaser has not terminated, or has no right to terminate, this Agreement pursuant to any clause of Section 11.1 (other than pursuant to Section 11.1(a) solely in connection with a failure of the condition precedent set forth in (x) Section 7.2 that is the result of any intentional breach, action or inaction of Purchaser or (y) Section 7.8 solely in connection with the failure of Purchaser to perform its obligation under Section 3.5(b)(ii)), the parties shall instruct the Escrow Agent to transfer the Deposit to Company with interest within two (2) Business Days of termination by wire transfer of immediately available funds to an account designated in writing by Company. (d) In the event that this Agreement is terminated because of a failure of Company to consummate the Geothermal Sale, Purchaser may submit invoices to Company for reimbursement of out-of-pocket fees and expenses incurred by Purchaser, and Company shall pay or cause to be paid by wire transfer of immediately available funds to an account designated in writing by Purchaser up to an additional $1 million over the amounts payable by Company in respect of Purchaser Expense Reimbursement under Section 3.3; provided that Company has not terminated, and has no right to terminate, this Agreement pursuant to (i) Section 11.1(b) (solely in connection with a failure of the condition in Section 8.1(a) or 8.2 to be satisfied other than as a result of any breach, action or inaction of Company) or (ii) Section 11.1(d). (e) If Purchaser receives payment of the Termination Fee under Section 11.2(b), such payment, together with the Expense Reimbursement, shall (i) be full consideration for Purchaser's efforts and expenses in connection with this Agreement and the Contemplated Transactions, including the substantial due diligence efforts of Purchaser and its professionals and advisors and (ii) constitute liquidated and agreed damages to Purchaser in respect of this Agreement and the Contemplated Transactions, and Company and Reorganized Covanta shall have no further obligations under this Agreement or further liability to Purchaser. Purchaser and Company believe that it is impossible to determine accurately the amount of all damages that Purchaser would incur by virtue of the failure to proceed with the Contemplated Transactions, and Purchaser's sole and exclusive remedy for any such failure shall be to receive payment of the Expense Reimbursement and payment of the Termination Fee. Except as provided in this Section, Purchaser shall have no right or remedy against Company, at law or in equity, by reason of a breach by Company of its obligation to proceed with the Contemplated Transactions. (f) The parties agree that if the Deposit is paid to Company pursuant to Section 11.2(c), such payment shall (i) be full consideration for Company's efforts and expenses in connection with this Agreement and the Contemplated Transactions, and (ii) constitute liquidated and agreed damages to Company in respect of this Agreement and the Contemplated Transactions, including failure to close the Second Lien L/C Credit Facility Credit 53 Agreement or the International Revolver Credit Facility Credit Agreement, and Purchaser shall have no further obligation under this Agreement or further liability to Company. Company and Purchaser believe that it is impossible to determine accurately the amount of all damages that Company would incur by virtue of a breach by Purchaser of their obligations to proceed with the Contemplated Transactions, including failure to close the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement, and Company's sole and exclusive remedy for any such breach shall be to retain the Deposit, if applicable, pursuant to the provisions of this Section 11.2. Except as provided in this Section 11.2, Company shall have no right or remedy against Purchaser, at law or in equity, by reason of a breach by Purchaser of its obligation to proceed with the Contemplated Transactions, including failure to arrange for or close the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement. For the avoidance of doubt, notwithstanding anything in this Agreement to the contrary, the parties to this Agreement hereby agree that a breach by Purchaser of its obligations under Section 3.5(b)(ii) or a failure of the condition precedent in Sections 7.8 or 8.4 with respect to the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement will not result in any liability to Purchaser in an amount greater than the amount of the Deposit (in accordance with, and to the extent provided in, Section 11.2(c) above). (g) Notwithstanding any provision of this Agreement or any other agreement, instrument or document executed in connection with the Contemplated Transactions or otherwise, Company acknowledges and hereby covenants with the Investors that each such Investor, the lenders under the First Lien L/C Credit Facility Credit Agreement, International Revolver Credit Facility Credit Agreement and Second Lien L/C Credit Facility Credit Agreement and any indemnitee of each Investor shall have no responsibility, obligation or liability under or in connection with this Agreement and the Contemplated Transactions, whether in contract, under tort law or otherwise. The parties agree that each of the Investors severally shall be a third party beneficiary of this Section 11.2(g) with the full right to enforce it. (h) The parties hereby agree that there shall be no liability for lost profits (save for forfeiture of the Deposit under this Agreement, if applicable) or punitive, incidental or consequential damages under this Agreement. (i) The Expense Reimbursement and Termination Fee shall constitute administrative expenses of Company under section 364(c)(i) of the Bankruptcy Code with priority over any and all administrative expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy Code. (j) Company acknowledges that Purchaser would not have invested efforts in negotiating and documenting the Contemplated Transactions and incurring duties to pay its legal and financial representatives if Purchaser were not entitled to the Termination Fee plus Expense Reimbursement, as provided for herein. 12. Miscellaneous. 12.1. Consent to Jurisdiction and Service of Process. All disputes arising out of or related to this Agreement, including, without limitation, any dispute relating to the 54 interpretation, meaning or effect of any provision hereof, will be resolved in the Bankruptcy Court and the parties hereto each submit to the exclusive jurisdiction of the Bankruptcy Court for the purpose of adjudicating any such dispute. 12.2. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails, as follows: (a) if to Purchaser, to: Danielson Holding Corporation 2 North Riverside Plaza Suite 600 Chicago, Illinois 60606 Attention: Philip Tinkler Telephone: (312) 466-3842 Facsimile: (312) 470-1126 with a copy to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 W. Wacker Drive, Suite 2100 Chicago, IL 60606 Attention: Peter C. Krupp Timothy R. Pohl Telephone: (312) 407-0855 (312) 407-0772 Facsimile: (312) 407-0411 (b) if to Company, to: Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007-2615 Attention: Anthony Orlando, President and CEO Telephone: (973) 882-7152 Facsimile: (973) 882-4148 with a copy to: Cleary Gottlieb Steen & Hamilton One Liberty Plaza New York, NY 10006-1470 55 Attention: Filip Moerman Deborah Buell Telephone: (212) 225-2770 (212) 225-2940 Facsimile: (212) 225-3999 Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notices hereunder. 12.3. Entire Agreement. This Agreement and any other collateral agreements executed in connection with the consummation of the Contemplated Transactions contain the entire agreement among the parties with respect to the purchase of the Purchased Shares and supersede all prior agreements, written or oral, with respect thereto. 12.4. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by Purchaser and Company or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. 12.5. Availability of Equitable Relief. The parties acknowledge that damages following termination may not be an adequate remedy and accordingly agree that prior to the Closing a party shall be entitled to equitable relief for any breach (or anticipatory breach) of this Agreement by any other party. The parties further agree that equitable relief shall be the only relief available prior to delivery of a notice of termination of this Agreement by any party in accordance with Section 11. 12.6. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York. 12.7. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. Purchaser may not assign its rights or delegate its obligations hereunder without the prior written consent of Company, which may be withheld in Company's sole discretion. Any purported assignment by Purchaser without prior written consent of Company shall be deemed void. 12.8. Usage. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms have correlative meanings when used herein in their plural or singular forms, respectively. Unless otherwise expressly provided, the words "include," "includes" and "including" do not limit the preceding words or terms and shall be deemed to be followed by the words "without limitation." 56 12.9. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 12.10. Exhibits, Appendices and Disclosure Schedules; Cross References. The Exhibits, Appendices and the Disclosure Schedules are a part of this Agreement as if fully set forth herein and all references to this Agreement shall be deemed to include the Exhibits, Appendices and the Disclosure Schedules. All references herein to Sections, Exhibits, Appendices and the Disclosure Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 12.11. Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 12.12. Interpretation. The parties acknowledge and agree that (a) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto, regardless of which party was generally responsible for the preparation of this Agreement. 12.13. Severability of Provisions. (a) If any provision or any portion of any provision of this Agreement shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement shall not be affected thereby. (b) If the application of any provision or any portion of any provision of this Agreement to any person or circumstance shall be held invalid or unenforceable, the application of such provision or portion of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby. 12.14. Exclusivity of Representations. Except for the representations and warranties contained in Sections 4 and 5, (a) neither Company, Reorganized Covanta, Purchaser nor any other Person has made any representation or warranty (whether express or implied) on behalf of Company, Reorganized Covanta, Purchaser, any of their respective Affiliates or any of their respective employees, agents or representatives regarding Company or any of its Affiliates, Reorganized Covanta, the Subsidiaries, Purchaser or any of its Affiliates, the New Common Stock (or the value thereof) or the Contemplated Transactions and (b) Company and Purchaser hereby disclaim any such representation or warranty, notwithstanding the delivery or disclosure to the other party or its employees, agents or representatives of any information, documents or other material, including without limitation any projections, estimates or budgets. 12.15. Company's Knowledge. For purposes of any representation or warranty of Company set forth in this Agreement, the words "to Company's knowledge" or "to the knowledge of Company" shall mean the actual knowledge without due inquiry as of the date of 57 such representation or warranty of any of Anthony Orlando, Timothy Simpson and Jeffrey Horowitz. 12.16. No Third Party Beneficiaries. Except as set forth in Section 11.2(g) and Section 3.3, nothing in this Agreement, express or implied, shall be construed to confer upon any Person (other than the parties hereto and their respective successors and assigns permitted hereby) any legal or equitable right, remedy or claim under or by reason of this Agreement. 58 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. PURCHASER: DANIELSON HOLDING CORPORATION By: /s/ Philip G. Tinkler ------------------------------------- Name: Philip G. Tinkler Title: Chief Financial Officer COMPANY: COVANTA ENERGY CORPORATION By: /s/ A.J. Orlando ------------------------------------- Name: A.J. Orlando Title: President COMPANY DISCLOSURE SCHEDULE Section 4.2 (i) Subsidiaries Section 4.2 (ii) Investment Entities Section 4.2 (iii) Organizational Chart Section 4.4 (i) Outstanding Capital Stock Section 4.4 (ii) Outstanding Liens on Capital Stock Section 4.5 Options or Other Rights Section 4.7 Financial Statements Section 4.8 Material Adverse Change Section 4.9 Compliance with Laws Section 4.10 Required Governmental Approvals EX-2.2 4 y92294exv2w2.txt NOTE PURCHASE AGREEMENT EXHIBIT 2.2 EXECUTION --------------------------------------------------------- NOTE PURCHASE AGREEMENT BY AND BETWEEN DANIELSON HOLDING CORPORATION AND THE PURCHASERS NAMED HEREIN DATED AS OF DECEMBER 2, 2003 --------------------------------------------------------- This NOTE PURCHASE AGREEMENT (this "Agreement"), is dated as of the 2nd day of December, 2003, by and among Danielson Holding Corporation, a Delaware corporation, with its principal office at Two North Riverside Plaza, Suite 600, Chicago, IL 60606 (the "Company"), and each of the purchasers named in EXHIBIT A attached hereto (each, a "Purchaser" and collectively, the "Purchasers"). WHEREAS, the Company seeks financing (a) to facilitate the timely funding of the Deposit, the Acquisition and related fees and expenses prior to the consummation of the Rights Offering and (b) for general corporate purposes; and WHEREAS, in connection therewith, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally, desires to purchase from the Company, pursuant to this Agreement, the aggregate principal amount of Notes set forth opposite its respective name in EXHIBIT A hereto; and WHEREAS, the Company desires to issue and sell to D. E. Shaw, and D. E. Shaw desires to purchase from the Company, the Additional Equity; and WHEREAS, the Company desires to issue to each Purchaser, as part of its inducement to, among other things, purchase the Notes being purchased by such Purchaser and provide, directly or indirectly, a portion of the Exit Financing, the total number of shares of common stock of the Company set forth opposite its respective name in EXHIBIT A hereto. NOW THEREFORE, in consideration of the mutual agreements, representations, warranties and covenants herein contained, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings: 1.1. "ACL" means American Commercial Lines LLC, a Delaware limited liability company and an indirect subsidiary of the Company. 1.2. "Acquisition" shall have the meaning assigned to such term in the Covanta Agreement. 1.3. "Additional Equity" shall have the meaning set forth in Section 5.5 hereof. 1.4. "Affiliate" as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person), whether through the ownership of voting securities or by contract or otherwise. 1.5. "Agreement" shall have the meaning set forth in Recitals hereof. 1.6. "AMEX" means the American Stock Exchange. 1.7. "Bankrupt Subsidiaries" shall have the meaning assigned to such term in the First Lien L/C Credit Facility Credit Agreement. 1.8. "Breakup Fee" means the Termination Fee as defined in the Covanta Agreement. 1.9. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized to or required by law or governmental action to close. 1.10. "Change of Control" means: (a) the sale or other disposition of all or substantially all of the Company's assets to any Person; (b) the direct or indirect acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company entitled to vote generally in the election of directors; or (c) the first day on which a majority of members of the Company's Board of Directors (the "Board of Directors") are not Continuing Directors. 1.11. "Closing" shall have the meaning set forth in Section 2.4 hereof. 1.12. "Closing Date" shall have the meaning set forth in Section 2.4 hereof. 1.13. "Code" means the Internal Revenue Code of 1986, as amended. 1.14. "Common Stock" means shares of common stock, par value $.10 per share, of the Company. 1.15. "Company" shall have the meaning set forth in Recitals hereof. 1.16. "Company Non-Performance" means any circumstance in which the Deposit becomes due and payable to Covanta pursuant to Section 11.2(c)(i)(A)(x) or 11.2(c)(i)(B) of the Covanta Agreement. 1.17. "Consideration" shall have the meaning assigned to s uch term in the Covanta Agreement. 1.18. "Contemplated Transactions" shall have the meaning assigned to such term in the Covanta Agreement. 1.19. "Continuing Directors" means, as of any date of determination, those members of the Board of Directors of the Company who: (a) were members of the Board of Directors on the date of this Agreement; or (b) were nominated for election or elected to the Board of Directors with the affirmative vote of, or whose election or appointment was -2- otherwise approved or ratified (whether before or after nomination or election) by, at least a majority of the Continuing Directors who were members of the Board of Directors at the time of the nomination, election or approval, as applicable. 1.20. "Covanta" means Reorganized Covanta as defined in the Covanta Agreement. 1.21. "Covanta Agreement" means that certain Investment and Purchase Agreement (including the exhibits and appendices thereto), by and between Covanta Energy Corporation and the Company, dated as of even date herewith, a copy of which is attached hereto as EXHIBIT D. 1.22. "CPIH" means Covanta Power International Holdings, Inc., a Delaware corporation. 1.23. "CSFB" means Credit Suisse First Boston. 1.24. "Deposit" shall have the meaning set forth in the Agreement. 1.25. "D. E. Shaw" means D. E. Shaw Laminar Portfolios, L.L.C., a Delaware limited liability company. 1.26. "Disclaimer" shall have the meaning set forth in Section 7.3(e) hereof. 1.27. "Disclosure Documents" means the Company's Annual Report on Form 10-K for the period ended December 28, 2002, the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2003, any Current Reports on Form 8-K filed by the Company on or after December 29, 2002 but on or before the date hereof, and the Company's Schedule 14A Proxy Statement for its Annual Meeting of Stockholders, filed on October 6, 2003. 1.28. "Disclosure Schedule" shall have the meaning set forth in Section 3 hereof. 1.29. "Escrow Account" shall have the meaning set forth in Section 2.4 hereof. 1.30. "Escrow Agent" shall have the meaning set forth in Section 2.4 hereof. 1.31. "Escrow Agreement" shall have the meaning set forth in Section 2.4 hereof. 1.32. "Escrow Receipts" shall have the meaning set forth in Section 2.3(a) hereof. 1.33. "Escrowed Stock" shall have the meaning set forth in Section 2.3(a) hereof. 1.34. "Event of Default" shall have the meaning set forth in Section 8 hereof. 1.35. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and all of the rules and regulations promulgated thereunder. -3- 1.36. "Exit Financing" shall have the meaning set forth in the Covanta Agreement. 1.37. "Extended Maturity Date" means the earlier of (x) July 15, 2005 and (y) the issuance of a non-appealable binding decision by a court of competent jurisdiction to the effect that either (a) Covanta is entitled to retain the Deposit under the Covanta Agreement or (b) Covanta is obligated to pay the Breakup Fee under the Covanta Agreement. 1.38. "Extension Fee" shall have the meaning set forth in EXHIBIT F. 1.39. "Final Deposit" shall have the meaning set forth in the Covanta Agreement. 1.40. "Financial Statements" shall have the meaning set forth in Section 3.6 hereof. 1.41. "First Lien L/C Credit Facility Credit Agreement" shall have the meaning set forth in the Covanta Agreement. 1.42. "GAAP" shall have the meaning set forth in Section 3.6 hereof. 1.43. "GMS" means Global Material Services, LLC, a Tennessee limited liability company. 1.44. "Initial Deposit" shall have the meaning set forth in the Covanta Agreement. 1.45. "International Revolver Credit Facility Credit Agreement" shall have the meaning set forth in the Covanta Agreement. 1.46. "International Term Loan Credit Facility Credit Agreement" shall have the meaning set forth in the Covanta Agreement. 1.47. "Investment Entity" shall have the meaning set forth in the Covanta Agreement. 1.48. "Investor Expense Reimbursement" shall have the meaning set forth in Section 12.6 hereof. 1.49. "Material Adverse Effect" means (a) a material adverse effect on the properties, assets, businesses, affairs, results of operations or financial condition of the Company and its Subsidiaries, considered as a whole or (b) the effect of preventing or materially interfering with the Company's ability to consummate the Transactions; provided, however, that no effect resulting, individually or in the aggregate, from macro-economic events or general market-related changes shall be a Material Adverse Effect unless the Company is affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses. -4- 1.50. "Maturity Date" means the Scheduled Maturity Date or, if there is a bona fide dispute concerning either Covanta's retention of the Deposit or its payment of the Breakup Fee, the Extended Maturity Date, if later. 1.51. "Non-Ownership Change Rollover Terms" means the terms of the Notes set forth on EXHIBIT E. 1.52. "Non-Performing Purchaser" means (a) any Purchaser that fails in connection with the Second Lien L/C Credit Facility Credit Agreement (i) to execute and deliver such credit agreement and all other documents contemplated thereby to be delivered by such Purchaser as a lender thereunder, (ii) to provide required collateral, or (iii) to satisfy the absence of a Material Adverse Change condition applicable to such Purchaser, in each case as set forth in the commitment letter dated as of December 2, 2003 among Covanta, the Purchasers and Bank One, NA, as issuing bank and agent; or (b) D. E. Shaw, if D. E. Shaw fails, in connection with the International Revolver Credit Facility Credit Agreement, to cause Deutsche Bank, A.G. or its Affiliates or another financial institution of sound reputation, to execute, deliver and make available such International Revolver Credit Facility Credit Agreement. 1.53. "Notes" means one or more note(s) containing the same terms and conditions, and with the same conversion features, as set forth herein and in the form of note attached hereto as EXHIBIT B; provided, however, that the terms of the Notes may be modified pursuant to the Ownership Change Rollover Terms or the Non-Ownership Change Rollover Terms, as applicable. 1.54. "Ownership Change" has the meaning ascribed thereto in Section 382(g) of the Code. 1.55. "Ownership Change Limitation" means any issuance of Common Stock that would otherwise result in an Ownership Change under Section 382(g) of the Code, computed by substituting "48.75 percentage points" for "50 percentage points" where such phrase appears in Section 382(g)(1)(A) of the Code. 1.56. "Ownership Change Rollover Terms" means the terms of the Notes set forth on EXHIBIT F. 1.57. "Permitted Liens" means: (a) liens on the stock of Covanta to secure the debt comprising the Exit Financing; (b) liens in favor of any Subsidiary; (c) liens incurred or deposits made to secure the performance of statutory or regulatory obligations, bankers' acceptances, surety or appeal bonds, performance bonds, deposits to secure the performance of tenders, bids, trade contracts, government contracts, import duties, performance, and return-of-money bonds, leases or licenses or other obligations of a like nature incurred in the ordinary course of business, including, without limitation, landlord liens on leased properties; (d) existing on the date of this Agreement (other than liens to secure debt for borrowed money); (e) liens for taxes, assessments or governmental charges or claims that (i) are not yet delinquent, (ii) that are not yet subject to penalties or interest for non-payment or (iii) that are being contested in good faith by appropriate proceedings promptly instituted and diligently -5- concluded, provided that in the case of clause (iii), any reserve or other appropriate provision as is required in conformity with GAAP has been made therefore, (f) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's, suppliers' or other like liens arising in the ordinary course of business and deposits made to obtain the release of such liens and with respect to obligations not overdue for a period in excess of 60 days or which are being contested in good faith by appropriate proceedings; provided that any reserve or other appropriate provision as shall be required to conform with GAAP shall have been made; (g) liens incurred or pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (h) deposits made in the ordinary course of business to secure liability to insurance carriers; (i) any attachment or judgment lien not constituting an Event of Default under this Agreement and liens arising from the rendering of a judgment that is not a final judgment or order against the Company or any Subsidiary with respect to which the Company or such Subsidiary is then proceeding with an appeal or other proceeding for review or in connection with surety or appeal bonds in connection with such attachment or judgment; (j) any interest or title of a lessor or sublessor under any operating lease; (k) liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business; and (l) rights of set-off of banks and other Persons. 1.58. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association or joint venture. 1.59. "Plan" shall have the meaning set forth in the Covanta Agreement. 1.60. "Plan Shares" shall have the meaning set forth in Section 3.3(b) hereof. 1.61. "Preferred Stock" shall have the meaning set forth in Section 3.3(a) hereof. 1.62. "Public Participation" means the following fraction, not to exceed one: total number of shares of Common Stock purchased by Persons other than the Purchasers and the State of California Commissioner of Insurance pursuant to the Rights Offering, divided by 16,388,017, calculated to the fourth decimal place. 1.63. "Purchaser" shall have the meaning set forth in Recitals hereof. 1.64. "Purchaser Group Non-Performance" means any circumstance in which the Deposit becomes due and payable to Covanta pursuant to Section 11.2(c)(i)(A)(y) of the Covanta Agreement. 1.65. "Registration Rights Agreement" shall have the meaning set forth in Section 5.7 hereof. 1.66. "Required Majority" shall mean (i) in connection with any reduction in the Reserve Amount or any increase in the Consideration, all Purchasers and (ii) in all other cases, Purchasers holding at least 66 2/3 % of the aggregate outstanding principal amount of Notes. -6- 1.67. "Reserve Amount" shall mean $7,000,000 of the aggregate principal amount of Notes. 1.68. "Restated Certificate of Incorporation" means the Company's Restated Certificate of Incorporation filed on July 20, 1999, as amended on September 6, 2001. 1.69. "Rights Offering" shall have the meaning set forth in Section 5.4(a) hereof. 1.70. "Rollover Terms" means the Ownership Change Rollover Terms and the Non-Ownership Change Rollover Terms. 1.71. "Scheduled Maturity Date" means January 2, 2005. 1.72. "SEC" means the Securities and Exchange Commission. 1.73. "Second Lien L/C Credit Facility Credit Agreement" shall have the meaning set forth in the Covanta Agreement. 1.74. "Securities" shall mean the Notes, the shares of Common Stock issuable upon conversion of the Notes, and the Escrowed Stock. 1.75. "Securities Act" shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder. 1.76. "Significant Subsidiary" means any Subsidiary that, or any group of Subsidiaries (if treated as a single Subsidiary with the revenues or assets of its members) that, would constitute a "significant subsidiary", as defined in Section 1-02(w) of Regulation S-X under the Securities Act, as in effect on the date of this Agreement. 1.77. "Subsidiaries" means, any corporation or other organization, whether incorporated or unincorporated, of which, as of the date of this Agreement, (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization will be held directly or indirectly, owned or controlled by the Company or (b) the Company or any of the Subsidiaries will be a general partner or managing member; provided, however, that in no event will ACL, Covanta or any of their subsidiaries be deemed to be Subsidiaries of the Company for purposes of this Agreement. 1.78. "TAT" means Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, a Delaware business trust. 1.79. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed, including interest, penalties, additions to tax and any similar liabilities with respect thereto. 1.80. "Tax Returns" shall mean returns, reports, information statements and other documentation (including any additional or supporting material) filed or maintained, or -7- required to be filed or maintained, in connection with the calculation, determination, assessment or collection of any Tax and shall include any amended returns required as a result of examination adjustments made by the Internal Revenue Service or other Tax authority. 1.81. "Transactions" means the Contemplated Transactions and the transactions contemplated by this Agreement, including the Rights Offering. 1.82. "Vessel Leasing" means Vessel Leasing, LLC, a Delaware limited liability company. 2. Authorization, Purchase and Sale of Notes. 2.1. Authorization of Securities. The Company has (i) authorized the issuance and sale of the Notes, (ii) authorized the issuance of and reserved the shares of Common Stock issuable upon conversion of the Notes and (iii) authorized the issuance of the Escrow Receipts and the Escrowed Stock. 2.2. Purchase and Sale of Notes. Subject to and upon the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to each Purchaser, and each Purchaser, severally, shall purchase from the Company the aggregate principal amount of Notes set forth opposite the name of such Purchaser under the heading "Principal Amount of Notes to be Purchased" on EXHIBIT A hereto, at a purchase price equal to the principal amount of Notes purchased, in an aggregate principal amount of $40,000,000. 2.3. Issuance of Escrowed Stock and Escrow Receipts. (a) Subject to and upon the terms and conditions of this Agreement, at the Closing, the Company hereby agrees to issue to each Purchaser, as part of its inducement to purchase the Notes being purchased by such Purchaser and provide, directly or indirectly, a portion of the Exit Financing, the number of shares of Common Stock set forth opposite such Purchaser's name under the heading "Escrowed Stock" on EXHIBIT A hereto, such shares to be held by the Company in escrow pursuant to its Restated Certificate of Incorporation (the "Escrowed Stock") as set forth in this Section 2.3. The Company shall deliver to the Escrow Agent, with respect to the certificates reflecting the Purchasers' ownership of the Escrowed Stock, escrow receipts (the "Escrow Receipts") evidencing the Purchasers' beneficial ownership of the Escrowed Stock represented thereby and record ownership of such Escrowed Stock. The Purchasers shall retain full voting and dividend rights for all Escrowed Stock unless redeemed as provided herein or unless voting is restricted pursuant to Section 7.3(e) hereof. Promptly following the Closing, the Company shall deliver to each Purchaser a certificate of a duly authorized officer of the Company confirming that the Escrowed Stock and the Escrow Receipt of such Purchaser have been issued and are being held by the Company and the Escrow Agent, respectively, in accordance with this Section 2.3(a). On the date the Escrowed Stock ceases to be subject to redemption pursuant to Section 2.3(b), the Company shall cause the Escrow Receipts or, to the extent permitted by the Restated Certificate of Incorporation, the Escrowed Stock, to be released to the Purchasers. (b) In the event the Covanta Agreement is terminated for any reason other than as a result of a Company Non-Performance, the Purchasers agree to allow the Company to redeem -8- the Escrowed Stock, upon written notice from the Company to each Purchaser, at an aggregate price of $4.00 for all of the Escrowed Stock. If the Company has a right to redeem the Escrowed Stock pursuant to this Section 2.3(b), and has not given written notice of such redemption within 90 days of the date the Covanta Agreement is terminated, the Escrowed Stock shall cease to be subject to redemption by the Company. The Company's right to redeem the Escrowed Stock is subject to its compliance with the provisions of Section 7.5(a)(i), if then applicable; provided, that in such case if at the time the Escrowed Stock becomes subject to redemption there is a dispute described in Section 7.5(b), such redemption right shall not terminate until the earlier of (x) 90 days following the resolution of such dispute with respect to the Deposit and (y) the Extended Maturity Date. When the Escrowed Stock ceases to be subject to redemption, the Company shall cause the Escrow Receipts or, to the extent permitted by the Restated Certificate of Incorporation, the Escrowed Stock, to be released to the Purchasers. 2.4. Closing. The closing of the purchase and sale of the Notes (the "Closing") shall take place at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019, on the date the Initial Deposit is scheduled to be paid by the Company pursuant to the Covanta Agreement or such other date as may be mutually agreed to by the Company and the Purchasers (the "Closing Date"). At the Closing, the Company shall deliver (i) to each Purchaser, one or more Note(s) in the principal amount set forth opposite such Purchaser's name on EXHIBIT A hereto and (ii) to the Escrow Agent, the Escrow Receipts. At the Closing, each Purchaser shall pay to the Company the purchase price for the Notes set forth opposite the name of such Purchaser under the heading "Principal Amount of Notes to be Purchased" on EXHIBIT A hereto by wire transfer as designated by the Company of immediately available funds; provided, however, that proceeds of the purchase price for the Notes required to fund the Final Deposit plus the Reserve Amount shall be credited to an escrow account (the "Escrow Account") held by The Bank of Nova Scotia Trust Company (the "Escrow Agent") pursuant to the escrow agreement attached hereto as EXHIBIT G (the "Escrow Agreement"). The Final Deposit and the Reserve Amount shall be held by the Escrow Agent in an interest-bearing account. The Final Deposit shall be released to the Company on the date the Final Deposit is scheduled to be paid by the Company pursuant to the Covanta Agreement. The Reserve Amount shall remain in the Escrow Account until the earlier of (a) the Closing of the Acquisition (at which time it shall be released to the Company) and (b) such time as provided in Sections 7.4 and 7.5 hereof. 2.5. Use of Proceeds. The Company shall apply the proceeds from the sale of the Notes to fund (i) the Initial Deposit in the amount of $15,000,000 and the Final Deposit in the amount of $15,000,000, in each case to the extent required to be given by the Company to Covanta in connection with the Acquisition as provided in the Covanta Agreement, (ii) the Consideration, (iii) the payment of fees and expenses related to the Transactions, and (iv) general corporate purposes of the Company. -9- 3. Representations and Warranties of the Company. Except as set forth in a corresponding numbered section of the disclosure schedule attached hereto as EXHIBIT H (the "Disclosure Schedule") or as disclosed in the Disclosure Documents, as of the date of this Agreement, the Company hereby represents and warrants to each of the Purchasers as follows: 3.1. Incorporation. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification, except where the failure to so qualify would not reasonably be expected to result in a Material Adverse Effect. The Company has all requisite corporate power and authority to carry on its business as now conducted. 3.2. Subsidiaries. Each Subsidiary of the Company has been duly organized, is validly existing in good standing under the laws of the jurisdiction of its formation, has the organizational power and authority to own its properties and to conduct its business and is duly registered, qualified and authorized to transact business and is in good standing in each jurisdiction in which the conduct of its business or the nature of its properties requires such registration, qualification or authorization, except where such failure would not reasonably be expected to result in a Material Adverse Effect. All of the issued and outstanding capital stock or other equity interests of each Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable, and are owned by the Company free and clear of any mortgage, pledge, lien, encumbrance, security interest, claim, except for any Permitted Lien. 3.3. Capitalization. (a) The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, par value $.10 per share (the "Preferred Stock"). The total number of outstanding shares of Common Stock as of November 13, 2003 was 30,673,831, and the total number of shares of Common Stock issuable pursuant to stock options outstanding at November 13, 2003 was 1,952,253. Since November 13, 2003, the Company has not issued any shares of Common Stock. There are no outstanding shares of Preferred Stock. All such shares of Common Stock have been duly authorized, and all such issued and outstanding shares of Common Stock have been validly issued and are fully paid and nonassessable. No such outstanding shares of Common Stock were issued in violation of any preemptive rights, "poison pill" provisions, rights of first offer or refusal or similar rights. (b) Except for the issuance of shares of Common Stock pursuant to the exercise of outstanding options granted pursuant to the Company's option plans, the Company has not issued any capital stock since May 29, 2002, except as contemplated by this Agreement or the Covanta Agreement. Except (i) as set forth in or contemplated by this Agreement or the Covanta Agreement, (ii) for the issuance of options to purchase shares of the Company's Common Stock pursuant to the Company's option plans and (iii) for the issuance and sale of up to 3,000,000 shares of Common Stock to certain claimholders as contemplated by the Plan (the "Plan Shares"), there are no existing options, warrants, calls, preemptive (or similar) rights, subscriptions or other rights, agreements, arrangements or commitments of any character obligating the Company to issue, transfer or sell, or cause to be issued, transferred or sold, any shares of the capital stock of the Company or other equity interests in the Company or any -10- securities convertible into or exchangeable for such shares of capital stock or other equity interests, and there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock or other equity interests. 3.4. Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization of the Securities, the authorization, execution, delivery and performance of this Agreement and the consummation of the Transactions has been taken. The Board of Directors has authorized the Transactions, has fulfilled all obligations to complete the Transactions pursuant to Paragraph FIFTH of the Company's Restated Certificate of Incorporation and has received an opinion of tax counsel that the issuance of the Securities would not result in, or create an unreasonable risk of, an Ownership Change. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, and except as may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally and by general equitable principles. The Company has all requisite corporate power to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement. The Board of Directors has taken all action necessary to render inapplicable, as it relates to Purchasers, the provisions of Section 203 of the General Corporation Law of the State of Delaware in connection with this Agreement. 3.5. Valid Issuance. (a) On the date hereof, the Escrowed Stock is, and upon their issuance in accordance with the terms of the Notes, the shares of Common Stock issued upon conversion of the Notes will be, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock, free of all preemptive or similar rights, but subject to the restrictions set forth in the Company's Restated Certificate of Incorporation. (b) Subject to the accuracy of the representations made by the Purchasers in Section 4 hereof, the Securities will be issued to the Purchasers in compliance with applicable exemptions from the registration and prospectus delivery requirements of the Securities Act. The Company is current in its filings with the SEC under Section 13(a) of the Exchange Act. 3.6. Financial Statements. The financial statements of the Company included in the Disclosure Documents (collectively, the "Financial Statements") fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated, and the results of its operations and cash flows for the periods therein specified. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP") throughout the period therein specified except as may be otherwise indicated in such Financial Statements or the notes thereto (except in the case of quarterly financial statements for the absence of footnote disclosure and subject, in the case of interim periods, to normal year-end adjustments). -11- 3.7. No Material Adverse Change. Except as set forth in Section 3.7 of the Disclosure Schedule or as disclosed in the Disclosure Documents, there has been no change, event or occurrence which has had, individually or in the aggregate, a Material Adverse Effect, and Company does not know of any such change, event or occurrence which is threatened, nor has there been any damage, destruction or loss which would reasonably be expected to have or has had, individually or in the aggregate, a Material Adverse Effect. 3.8. Absence of Litigation. There is no action, suit, proceeding, arbitration or claim, pending or, to the Company's knowledge, threatened nor, to the Company's knowledge, is there any investigation or inquiry pending or threatened, by or before any governmental body against the Company which, for all such matters taken as a whole, would reasonably be expected to result in a Material Adverse Effect. The foregoing includes, without limitation, any such action, suit, proceeding or investigation that seeks to delay or prevent the Transactions or the right of the Company to execute, deliver and perform under same. The Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality that would reasonably be expected to result in a Material Adverse Effect. 3.9. Disclosure Documents. The information contained or incorporated by reference in the Disclosure Documents was true and correct in all material respects as of the respective dates of the filing thereof with the SEC, and, as of such respective dates, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent updated or superseded by any report subsequently filed by the Company with the SEC. 3.10. Books and Records. The minute books and other records of the Company and its Subsidiaries accurately reflect approval by the Board of Directors thereof of the Transactions and accurately reflect, in all material respects the corporate action of the stockholders and directors and any committees thereof of the Company and its Subsidiaries with respect to the Transactions. 3.11. Consents. All consents, approvals, orders and authorizations required on the part of the Company in connection with the execution, delivery or performance of this Agreement and the consummation of the Transactions have been obtained and will be effective as of the Closing Date, other than such filings required to be made after the Closing under applicable federal and state securities laws and except for failures which would not be reasonably expected to result in a Material Adverse Effect. The execution, delivery or performance of this Agreement and the consummation of the Transactions do not require the approval of the Company's stockholders under applicable United States or Delaware law. 3.12. No Conflict. The execution and delivery of this Agreement by the Company and the consummation of the Transactions will not conflict with or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the Restated Certificate of Incorporation or by-laws of the Company or (ii) any agreement or instrument, permit, franchise, license, judgment, order, -12- statute, law, ordinance, rule or regulations, applicable to the Company or its properties or assets, except, in the case of clause (ii), as would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect. 3.13. Brokers or Finders. Other than with respect to CSFB, the fees of which will be borne by the Company, the Company has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders' fees or agents' commissions or any similar charges in connection with the Transactions. 3.14. American Stock Exchange. The Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on AMEX, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from AMEX, nor has the Company received any notification that the SEC or AMEX is contemplating terminating such registration or listing. The execution, delivery or performance of this Agreement and the consummation of the Transactions do not require any approval by the stockholders of the Company under AMEX rules or the Company's listing or other agreements with AMEX. 3.15. Company Not an "Investment Company". The Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 3.16. Title to Property and Assets. The Company owns or possesses the necessary right to use or title to all properties, assets, licenses, permits and the like required to operate its business as currently operated, except for such properties, assets, licenses, permits and the like, the absence of which would not reasonably be expected to result in a Material Adverse Effect. The properties and assets of the Company owned by them are owned free and clear of all mortgages, deeds of trust, liens, charges, encumbrances and security interests except (i) for statutory liens for the payment of current taxes that are not yet delinquent, (ii) liens, encumbrances and security interests that arise in the ordinary course of business and (iii) Permitted Liens. 3.17. Taxes. (a) Except for certain late filings previously made as disclosed in Section 3.17 of the Disclosure Schedule: (i) the Company has filed (or joined in the filing of) when due all Tax Returns required by applicable law to be filed with respect to the Company and all Taxes shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns were true, correct and complete in all material respects as of the time of such filing; and (iii) any liability of the Company for Taxes not yet due and payable, or which are being contested in good faith, in each case as of December 2, 2003, has been accrued or reserved for on the financial statements of the Company in accordance with GAAP. Since January 1, 1997, the Company has not incurred any material Taxes other than in the ordinary course of business. (b) Except as set forth in Section 3.17 of the Disclosure Schedule, no current or former subsidiary of the Company has ever been a member of any "affiliated group" (within the meaning of Section 1504(a) of the Code) included in any consolidated federal income Tax -13- Return filed with the Internal Revenue Service other than an affiliated group of which the Company is the common parent anytime during the five years immediately preceding the date hereof. 3.18. Insurance. All insurance policies carried by, or covering the Company's or its Subsidiaries' properties are in full force and effect, and no notice of cancellation has been given with respect to any such policy except when such failure would not reasonably be expected to result in a Material Adverse Effect. All premiums due on such policies have been paid in a timely manner and the Company and its Subsidiaries have complied in all material respects with the terms and provisions of such policies except when such failure would not reasonably be expected to result in a Material Adverse Effect. The insurance coverage provided by such policies is in such amount and types which are adequate and customary for the industries in which the Company and its Subsidiaries operate except when such failure would not reasonably be expected to result in a Material Adverse Effect. 3.19. Accounting Controls. The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain assets accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 3.20. Compliance with Law. Since January 1, 1997, the operations of the businesses of the Company and its Subsidiaries have been conducted in all material respects in accordance with all applicable laws, regulations, orders and other requirements of all courts and other governmental or regulatory authorities having jurisdiction over the Company and its Subsidiaries and their respective assets, properties and operations except when such failure would not reasonably be expected to result in a Material Adverse Effect. Since January 1, 1997, neither the Company nor any Subsidiary has received written notice of any violation of any such law, regulation, order or other legal requirement, and is not in default with respect to any order, writ, judgment, award, injunction or decree of any governmental authority or arbitrator, domestic or foreign, applicable to the Company or any Subsidiary or any of their respective assets, properties or operations except those that would not reasonably be expected to result in a Material Adverse Effect. 3.21. Insurance Regulation. The Company has no Subsidiaries that either are licensed as an insurance company or required to be licensed in connection with the conduct of an insurance business in the State of Missouri. -14- 4. Representations and Warranties of Each Purchaser. Each Purchaser, severally for itself and not jointly with the other Purchasers, represents and warrants to the Company as to itself as follows: 4.1. Organization. Such Purchaser is duly and validly existing and, to the extent relevant and necessary to enter into a binding agreement, is in good standing under the jurisdiction of its organization. 4.2. Authorization. All action on the part of such Purchaser necessary for the authorization, execution, delivery and performance of this Agreement and the consummation of the Transactions has been taken. This Agreement constitutes the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally and by general equitable principles. Such Purchaser has all requisite power to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement. 4.3. Purchase Entirely for Own Account, Etc. Such Purchaser is acquiring the Securities for its own account, and not with a view to, or for sale in connection with, any distribution of the Securities in violation of the Securities Act. Except as contemplated by this Agreement, such Purchaser has no present agreement, undertaking, arrangement, obligation or commitment providing for the sale or other disposition of the Securities. Such Purchaser, has not been organized, reorganized or recapitalized specifically for the purpose of investing in the Securities. 4.4. Investor Status; Etc. Such Purchaser certifies and represents to the Company that at the time such Purchaser acquires any of the Securities, such Purchaser will be an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser's financial condition is such that it is able to bear the risk of holding the Securities for an indefinite period of time and the risk of loss of its entire investment. Such Purchaser has been afforded the opportunity to ask questions of and receive answers from the management of the Company concerning this investment and has sufficient knowledge and experience in investing in companies similar to the Company so as to be able to evaluate the risks and merits of its investment in the Company. Such Purchaser has made an independent investment decision with respect to the Securities and such decision has been made without regard to the investment decision of any other Person who may purchase Securities. 4.5. Securities Not Registered. Such Purchaser understands that the Securities have not been registered under the Securities Act, by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act, and that the Securities must continue to be held by such Purchaser unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration. Such Purchaser understands that the exemptions from registration afforded by Rule 144 (the provisions of which are known to it) promulgated under the Securities Act depend on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales only in limited amounts. -15- 4.6. No Conflict. The execution and delivery of this Agreement by such Purchaser and the consummation of the Transactions will not conflict with or result in any violation of or default by such Purchaser (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the organizational documents of such Purchaser or (ii) any agreement or instrument, permit, franchise, license, judgment, order, statute, law, ordinance, rule or regulations, applicable to such Purchaser or its respective properties or assets. 4.7. Brokers. Such Purchaser has not retained, utilized or been represented by any broker or finder in connection with the transactions contemplated by this Agreement. 4.8. Consents. All consents, approvals, orders and authorizations required on the part of such Purchaser in connection with the execution, delivery or performance of this Agreement and the consummation of the Transactions have been obtained and will be effective as of the Closing Date. 5. Covenants of the Company and Purchasers. 5.1. Certain Affirmative Covenants. Until the Notes are repaid in full, or converted in full pursuant to Section 7.3 hereof, the Company shall, and shall cause each of its Subsidiaries to, at all times: (a) comply with all applicable laws, regulations, orders and other requirements of all courts and other governmental or regulatory authorities having jurisdiction over the Company and its Subsidiaries and their respective assets, properties and operations, except where failure to comply would not reasonably be expected to result in a Material Adverse Effect; (b) preserve and keep in full force and effect its corporate existence and rights and franchises material to the business of the Company and its Subsidiaries taken as a whole; provided, however, that the Company and its Subsidiaries shall not be required to preserve and keep in full force and effect any rights or franchises or the corporate existence of any of its Subsidiaries if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, and that the loss thereof is not materially adverse to the Purchasers or such action is otherwise permitted by this Agreement; and (c) duly and timely file all Tax Returns required to be filed in compliance with all applicable laws with respect to the Company and its Subsidiaries and shall pay all Taxes imposed on the Company or any Subsidiary before any material penalty or interest in a material amount accrues thereon; provided, however, that no such Tax assessment or other charge need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. 5.2. Negative Covenants. Except as contemplated hereby, until the Notes are repaid in full, or converted in full pursuant to Section 7.3 hereof, the Company shall not, without the prior written consent of the Required Majority: -16- (a) (i) pay dividends on or repurchase any of its outstanding securities, whether or not accrued, other than redemptions pursuant to employee benefit plans in the ordinary course of business, (ii) prior to conversion of the Notes (other than Notes outstanding subject to Ownership Change Rollover Terms), make any distribution in shares of Common Stock or, except in connection with the Rights Offering or the Plan Shares or as otherwise contemplated herein, issue Common Stock or securities convertible into Common Stock, or (iii) prior to conversion of the Notes (other than Notes outstanding subject to Ownership Change Rollover Terms), subdivide, combine or reclassify its outstanding shares of Common Stock into a smaller number of shares; (b) amend its certificate of incorporation, enter into any transaction of merger or consolidation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or convey, sell, lease, transfer, or otherwise dispose of, in one transaction or a series of related transactions, any material assets, directly or through the sale of capital stock of Subsidiaries, whether now owned or hereafter acquired, or agree to or effect any asset acquisition or stock acquisition (except pursuant to the Covanta Agreement) other than asset acquisitions in the ordinary course of business not exceeding an aggregate of $250,000 per year and other than asset dispositions not exceeding an aggregate of $250,000 per year; provided, however that the foregoing shall not apply to (i) the sale or other disposition of the equity interests in or the assets of any of ACL, GMS or Vessel Leasing or any of their subsidiaries; (ii) the granting of Permitted Liens; or (iii) the disposition of marketable securities not issued by any of its Subsidiaries for cash; (c) enter into any transaction with or create or redomesticate any entity regulated by any federal, state, municipal or foreign governmental, regulatory or other public body, agency or authority (including self-regulatory organizations) in any manner that would subject any Purchaser to any regulatory review, oversight or approvals of any kind, in any state, including but not limited to any entity regulated by an insurance department, banking commission or similar body (other than the Transactions); (d) incur any debt for borrowed money, other than debt in an aggregate principal amount not exceeding $250,000 at any time outstanding; (e) engage in any business other than the business currently conducted by the Company as of the Closing and other lines of business reasonably incidental or related thereto or as a result of the Transactions; (f) directly or indirectly, create, incur, assume, agree to provide or permit to exist any lien, or file, execute or agree to the execution of any financing statement, on or with respect to any asset of the Company, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens; (g) enter into any material transaction or series of transactions with any Affiliate that is not (x) a Subsidiary of the Company, (y) Covanta, or (z) a subsidiary of Covanta, except (i) this Agreement and the other agreements related hereto, the Covanta Agreement, the Exit Financing and the Transactions, (ii) pursuant to agreements in effect on the date hereof, as such agreements (other than the Covanta Agreement) may be amended, renewed, extended or replaced -17- as long as not materially less favorable to the Company taken as a whole, (iii) in the ordinary course of business, (iv) any issuance of equity or other payments, awards or grants in cash, equity or otherwise pursuant to, or the funding of employment arrangements, stock options and stock ownership plans or (v) any transaction with an Investment Entity or ACL and any of its subsidiaries; and (h) at all times have authorized and reserved for the purpose of issue upon exercise of the conversion rights evidenced by the Notes, a sufficient number of shares of Common Stock to provide the exercise of the rights represented by the Notes. In the event there is an insufficient amount of Common Stock reserved for issuance pursuant to the conversion of Notes, the Company will take appropriate action to authorize an increase in Common Stock to allow for such issuance. 5.3. Other Covenants of the Company (a) The Company covenants to pay to each Purchaser in cash the Extension Fee with respect to any Notes held by such Purchaser that are subject to the Ownership Change Rollover Terms, on the date such terms become applicable. (b) Between the date of this Agreement and the date of the closing of the Acquisition, the Company will promptly advise each Purchaser of any action or event of which it becomes aware which has the effect of rendering any of the Company's covenants hereunder incapable of performance. (c) Immediately following the execution of this Agreement, the Company shall execute and deliver the Covanta Agreement. (d) Between the date of this Agreement and the date of the closing of the Acquisition, the Company shall not amend the Covanta Agreement or waive any condition, representation or warranty of the Covanta Agreement without the Required Majority's prior written consent. (e) The Company shall deliver to the Purchaser a certificate, dated at least 12 Business Days prior to the closing of the Acquisition, signed by the Chief Financial Officer of the Company, certifying on behalf of the Company that there has been no Event of Default pursuant to this Agreement as of such date. (f) Prior to the closing of the Rights Offering, the Company shall use commercially reasonable efforts to cause all Common Stock issuable to the Purchasers hereunder to be approved for listing on AMEX, subject to issuance. 5.4. Rights Offering. (a) The Company shall use all commercially reasonable efforts to (i) commence a rights offering of Common Stock, pursuant to an effective registration statement on the appropriate form, in the amount of .75 rights per each outstanding share of Common Stock and offered at a price of $1.53 per share (the "Rights Offering") within 75 days of the closing of the Acquisition and (ii) cause the registration statement to be declared effective within 45 days of filing with the SEC. The Company shall cause the consummation of the Rights Offering within 45 days of -18- the date the Rights Offering registration statement is declared effective. (b) Each Purchaser shall participate fully in the Rights Offering in respect of rights accruing to the Escrowed Stock then held by such Purchaser. (c) Except as otherwise set forth herein, no Purchaser shall participate in the Rights Offering in respect of shares of Common Stock owned by such Purchaser on or before the date of this Agreement in excess of the level of Public Participation. Each Purchaser shall participate fully in the Rights Offering to the extent permitted pursuant to the immediately preceding sentence. (d) On the date of the closing of the Rights Offering, the Company shall apply all proceeds of the Rights Offering to prepay each Purchaser's Notes (including accrued interest thereon) pro-rata according to the principal amount of Notes outstanding at such time; provided that the cash otherwise payable to D. E. Shaw pursuant to this clause (d) shall be reduced by an amount (to be retained by the Company) equal to the D. E. Shaw Reserved Principal (as defined below) and a principal amount of the Notes (including accrued interest) held by D. E. Shaw equal to the D. E. Shaw Reserved Principal that would otherwise have been prepaid pursuant to this clause (d) shall remain outstanding, to be prepaid by conversion in accordance with Section 5.5. 5.5. D. E. Shaw Additional Equity. As soon as practicable after giving effect to Section 5.4(d), the Company shall prepay Notes held by D. E. Shaw (including accrued interest) in an aggregate principal amount equal to the D. E. Shaw Reserved Principal by conversion in accordance with Section 7.3 (Common Stock so issued, the "Additional Equity"). The D. E. Shaw Reserved Principal shall mean that amount equal to $1.53 multiplied by the following: (1) if Public Participation is .30 or less: (x) Public Participation, multiplied by (y) 50,000, multiplied by (z) 100; (2) if Public Participation is greater than .30 but equal to or less than .50: (x) 1,500,000, plus (y) (i) Public Participation minus .30, multiplied by (ii) 75,000, multiplied by (iii) 100; (3) if Public Participation is greater than .50 but equal to or less than .70: (x) 3,000,000, plus (y) (i) Public Participation minus .50, multiplied by (ii) 100,000, multiplied by (iii) 100; and -19- (4) if Public Participation is greater than .70: (x) 5,000,000, plus (y) (i) Public Participation minus .70, multiplied by (ii) 125,000, multiplied by (iii) 100. 5.6. Prepayment of Remaining Notes. (a) After giving effect to Sections 5.4(d) and 5.5, the Company shall prepay any remaining Notes (including accrued interest thereon) pro rata according to the principal amount of Notes outstanding at such time by conversion in accordance with Section 7.3. (b) After giving effect to Sections 5.4(d), 5.5 and 5.6(a), the Ownership Change Rollover Terms shall apply to the principal of, and accrued interest on, any Notes that remain outstanding. For the avoidance of doubt, proceeds of the Rights Offering equal to the D. E. Shaw Reserved Principal shall be available to the Company for general corporate purposes. 5.7. Registration Rights Agreement. The Purchasers shall be entitled to the benefits of the registration rights agreement for all shares of Common Stock received upon conversion of the Notes and all Escrowed Stock not subject to redemption hereunder (the "Registration Rights Agreement"), a copy of which is attached hereto as EXHIBIT C for the term of such agreement. Pursuant to the Registration Rights Agreement, the Company shall file with the SEC, under the circumstances set forth therein, a shelf registration statement pursuant to Rule 415 under the Securities Act or a registration statement on the appropriate form the Company is qualified to use, no later than the earlier of June 30, 2004, and ten days after the date of the closing of the Rights Offering, and shall use commercially reasonable efforts to cause such shelf registration statement or other registration statement to be declared effective. 6. Covenants of Parties. 6.1. Other Governmental Approvals. As soon as practicable after the execution of this Agreement, the Company and each Purchaser shall file all applications and reports and take such other action which is reasonably required to be taken or filed by it with any governmental authority in connection with the transactions contemplated by this Agreement. The Company and each Purchaser shall give all additional notices to third parties and take other action reasonably required to be or taken by it under any authorization, lease, note, mortgage, indenture, agreement or other instrument or any law, rule, regulation, demand or court or administrative order in connection with the transactions contemplated by this Agreement. 6.2. Insurance Regulatory Approvals. Each Purchaser agrees as to itself, to the extent required by law, to file a Disclaimer in Montana and California. The Company agrees to provide all necessary documents, information and other assistance as reasonably may be requested by any Purchaser in connection with any state filing of a Disclaimer or other insurance documents. -20- 6.3. Information for Ownership Change Analysis. Each Purchaser severally agrees to disclose to the Company, upon the Company's reasonable request, the number of shares of Common Stock owned directly by such Purchaser and to respond to reasonable requests by the Company for information relating to such Purchaser necessary to calculate an Ownership Change. 6.4. International Revolving Credit Facility. D. E. Shaw commits to the Company to cause Deutsche Bank, A.G. or its Affiliates or another financial institution of sound reputation, to execute, deliver and make available the proposed $10,000,000 revolving credit facility to be provided to CPIH and to deliver, subject to an escrow arrangement mutually satisfactory to the lender and D. E. Shaw, such agreements and consideration as may be required by such lender to be delivered in connection therewith, all on terms and conditions satisfactory to the lender. 6.5. Further Assurances. Each party agrees to cooperate with each other and their respective officers, employees, attorneys, accountants and other agents, and, generally, do such other acts and things in good faith as may be reasonable or appropriate to timely effectuate the intents and purposes of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, taking any action reasonably requested by another party to facilitate the filing of any document or the taking of any action to assist the other parties hereto in complying with the terms of Sections 6.1, 6.2, 6.3 and 6.4 hereof. 6.6. Release from Escrow. Whenever any assets held by the Escrow Agent are permitted to be released pursuant hereto, the parties shall jointly instruct the Escrow Agent to effect such release. 6.7. No Purchases. Prior to the closing of the Rights Offering, no Purchaser will, or will permit any of its controlled Affiliates to, acquire Common Stock otherwise than pursuant to this Agreement. 7. Terms of Notes. 7.1. General Terms. Each Note shall bear interest, commencing on the date of issuance thereof, payable on the Maturity Date or upon prior prepayment and shall mature on the Maturity Date. The Notes shall bear interest on their outstanding amount (and any interest compounded pursuant to Section 7.5(b) hereof) at a rate of 12% per annum for period from the date of issuance through July 15, 2004 and 16% thereafter until paid or converted in full, in each case calculated on the basis of a 360-day year for the actual number of days elapsed; provided, however, that the terms of the Notes shall be modified pursuant to the Ownership Change Rollover Terms and the Non-Ownership Change Rollover Terms, as applicable, as set forth herein. Except pursuant to the Rollover Terms, all amounts due on each Note (including accrued interest) shall be payable in cash unless payment by conversion into shares of Common Stock is otherwise authorized or required herein. The terms of the Notes shall remain unchanged upon application of the Rollover Terms, except as expressly provided in the applicable Rollover Terms. Notwithstanding any other provision of this Agreement, the Purchasers do not intend to charge, and the Company shall not be required to pay, any interest or other fees or charges in excess of the maximum permitted by applicable law, and any -21- payments in excess of such maximum shall be refunded to the Company or credited to reduce the principal under the Notes at the election of each Purchaser. 7.2. Payments; Waiver of Set-Offs, Etc. Any payments in respect of the Notes shall be made to each Purchaser by wire transfer to an account designated by any Purchaser in writing. All payments by the Company under the Notes shall be made without set-off, defense or counterclaim and shall be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is imposed by law. 7.3. Payment by Conversion. (a) In cases in which Notes (including accrued interest thereon) are authorized or required by this Agreement to be paid or prepaid by conversion, such payment shall be effected by the issuance of shares of Common Stock valued at $1.53 per share in exchange for the principal of and accrued interest on the Notes; provided, however, no shares of Common Stock will be issued by the Company for payment of the Notes by conversion to the extent the issuance of such Common Stock would result (based on the reasonable determination by the Company and its tax advisors) in an Ownership Change Limitation. In the event the Ownership Change Limitation prevents the payment in full by conversion of the Notes required to be paid or prepaid by conversion, the Ownership Change Rollover Terms shall apply to the Notes in an original principal amount equal to the principal of, and accrued interest on, the Notes not so paid or prepaid by conversion. (b) No fractional shares of the Common Stock will be issued upon payment of a Note by conversion. In lieu of any fractional share to which a Purchaser would otherwise be entitled, the Company will pay to the Purchaser in cash the amount of the unconverted principal balance of the Note that would otherwise be converted into such fractional share. (c) The Company will pay any and all documentary, stamp or similar taxes payable to the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of shares of Common Stock on conversion of Notes therefor. (d) Upon payment or prepayment of a Note by conversion, the Purchaser shall surrender the Note, duly endorsed, at the principal offices of the Company or any transfer agent of the Company. At its expense, the Company will, as soon as practicable thereafter, issue and deliver to such Purchaser, at such principal office, a certificate or certificates for the number of shares or Escrow Receipts as required by the Restated Certificate of Incorporation to which such Purchaser is entitled upon such conversion, including a check payable to the Purchaser for cash in lieu of fractional shares. Upon conversion of a Note and payment for fractional shares as provided above, the Company will be forever released from its payment obligations and liabilities under such Note to the extent of the portion thereof paid or prepaid by conversion. (e) Upon acquisition by each of D. E. Shaw and TAT, respectively, resulting in a holding of ten percent (10%) or more of the Common Stock of the Company, respectively, each of D. E. Shaw and TAT agrees with, and for the benefit of, the Company and not any other -22- Purchaser, severally and not jointly, not to vote its shares of Common Stock in the Company 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, (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, underwriting and claims handling standards and procedures, arrangements with insurance agents and brokers, regulatory compliance filings, or reinsurance arrangements of the insurance Subsidiaries, and (iii) directly regarding the management or operations of the insurance Subsidiaries that insurance regulators in the jurisdictions where each of D. E. Shaw and TAT, respectively, has filed a Disclaimer of Affiliation and Control ("Disclaimer") of the insurance Subsidiaries advise would constitute the exercise of control over the management, policies and operations of the insurance Subsidiaries under the applicable Insurance Holding Company Act in such jurisdictions. 7.4. Mandatory Prepayment upon the Non-Occurrence of the Contemplated Transactions. (a) If there is at least one, but no more than two, Non-Performing Purchaser(s), and another Purchaser elects to assume the obligations of the Non-Performing Purchaser(s), each Non-Performing Purchaser shall be automatically deemed to have assigned, without charge or recourse, to the Purchaser assuming the Non-Performing Purchaser's obligations hereunder, all right, title and interest in the Notes held by such Non-Performing Purchaser, and the Non-Performing Purchaser's Escrowed Stock. Except as otherwise agreed among the assuming Purchaser(s), if more than one Purchaser elects to assume such obligations, the assumption shall be in proportion to the assuming Purchasers' ownership percentages of the Notes hereunder. Upon any such assignment of a Non-Performing Purchaser's Note and Escrowed Stock and assumption by another Purchaser that performs all of its obligations and such assumed obligations hereunder, the Non-Performing Purchaser shall have no further liability hereunder to the Company or to the other Purchasers. (b) If the Deposit is not returned to the Company by Covanta solely as a result of a Purchaser Group Non-Performance: (i) 75% of the original principal of and accrued interest on each Note shall automatically be deemed to be cancelled and forgiven by the Purchasers; (ii) subject to the next sentence, the remaining principal of and accrued interest on the Notes, as well as the amount of the Investor Expense Reimbursement then due and payable, shall be converted into shares of Common Stock of the Company at a price of $1.53 per share on the second Business Day following the date the Covanta Agreement is terminated and the Reserve Amount shall be released to the Company; (iii) the Escrowed Stock shall be subject to redemption by the Company pursuant to Section 2.3(b); and (iv) the Purchasers shall have all right, title and interest in and to all of the Deposit or any portion thereof received from Covanta by the Company at any time after the date the Transactions are terminated, pursuant to Section 7.5(b). If $3,000,000 is not due and payable by the Company to CSFB in connection with the Acquisition: (x) the amount converted in Section 7.4(b)(ii) above shall be reduced by $3,000,000; (y) $3,000,000 of the Reserve Amount shall be released from the Escrow Account to the Purchasers to repay the Notes by such amount; and (z) the remainder of the Reserve Amount shall be released to the Company. Upon any such cancellation and conversion of the Notes, and redemption of the -23- Escrowed Stock, the Purchasers shall have no further liability to the Company in connection with this Agreement. (c) If the Covanta Agreement is terminated or the closing of the Acquisition does not occur on or before June 30, 2004, and the Deposit is not returned to the Company by Covanta solely as a result of a Company Non-Performance: (i) the Reserve Amount shall be released from the Escrow Account to the Purchasers immediately in order to repay the Notes by such amount; (ii) the Escrowed Stock shall immediately cease to be subject to redemption by the Company and the Escrow Receipts, or the Escrowed Stock if permitted by the Restated Certificate of Incorporation, shall immediately be released to the Purchasers; and (iii) the remaining outstanding principal of and accrued interest on the Notes, as well as the amount of the Investor Expense Reimbursement then due and payable shall be immediately due and payable in cash. (d) The parties expressly acknowledge that neither the Company nor any Purchaser has any liability to any other party under this Agreement for any lost profits or losses or indirect, punitive, incidental or consequential damages in connection with this Agreement or the Transactions. (e) The Company hereby expressly acknowledges that no Purchaser has any obligation to perform or discharge any obligation or commitment of any other Purchaser. The Company and the Purchasers further agree that the remedies set forth in this Section 7.4 shall be the sole remedies in connection with Non-Performing Purchaser(s) or a Purchaser Group Non-Performance or a Company Non-Performance in connection with this Agreement or the Transactions. 7.5. Mandatory Prepayment in Cash. (a) In the event the Deposit under the Covanta Agreement is, or is required to be, returned to the Company, then the following shall apply: (i) the Company shall prepay the aggregate principal amount of $30,000,000 of the Notes in cash on July 15, 2004 or, if earlier, the third Business Day following the return of such Deposit under the Covanta Agreement, the Reserve Amount shall be released from the Escrow Account to the Purchasers in repayment of the Notes in such amount, and the remaining $3,000,000 outstanding principal amount of the Notes, if any, together with any accrued interest, shall remain outstanding subject to the Non-Ownership Change Rollover Terms; provided, that such outstanding principal amount shall be deemed increased by the amount of Investor Expense Reimbursement then due and payable; or (ii) if the Breakup Fee is due and payable, then the Company shall prepay the Notes in accordance with the provisions of Section 7.5(a)(i) above and then apply the proceeds of the Breakup Fee to payments in the following order of priority: (FIRST) to outstanding principal of and then accrued and unpaid interest on the Notes; (SECOND) to documented out-of-pocket expenses of the Purchasers incurred in connection with the Transactions, subject to the Investor Expense Reimbursement; (THIRD) to documented out-of-pocket expenses of the Company incurred in connection with the Transactions to the extent not otherwise reimbursed; and (FOURTH) 50% of the remainder to be divided among each Purchaser in proportion to -24- their respective ownership percentages of the Notes and 50% of the remainder to the Company. Any principal amount and accrued interest on the Notes that remains outstanding after all payments have been made pursuant to this Section 7.5(a)(ii), shall remain outstanding subject to Non-Ownership Change Rollover Terms. (b) In the event of any bona fide dispute about the return of the Deposit under the Covanta Agreement or the payment of the Breakup Fee, the prepayment date with respect to the amount of the dispute only, shall be extended until not later than the Extended Maturity Date, and interest on the Notes shall compound as of July 15, 2004, and, if then still outstanding, as of January 2, 2005. Upon resolution of any such dispute, any and all proceeds received by the Company shall be applied immediately in accordance with Section 7.5(a). If the proceeds of any such resolution are not sufficient to prepay all of the outstanding Notes, any remaining principal amount on the Notes, plus accrued interest thereon shall remain outstanding subject to the Non-Ownership Change Rollover Terms. (c) Immediately after each issuance, if any, of Common Stock otherwise than pursuant to this Agreement (including the Plan Shares) and prior to or in connection with the Rights Offering, the Company shall prepay Notes (and accrued interest) in an amount equal to the net proceeds of such issuance. 8. Events of Default. Upon the occurrence of any of the following (each an "Event of Default"), the Company agrees (i) with respect to any Event of Default described in Sections 8(a) or 8(b), that all unpaid principal of and accrued interest on the Notes shall become immediately due and payable in cash without presentment, demand, protest, notice or other requirements of any kind, all of which are hereby expressly waived by the Company and its Subsidiaries; and (ii) with respect to all other Events of Default, the Required Majority may by written notice to the Company, declare all or any portion of the unpaid principal of and accrued interest on the Notes to be, and the same shall forthwith become, immediately due and payable, subject to the cure periods specified herein, if capable of cure: (a) (i) commencement by the Company or any of its Significant Subsidiaries or Covanta or any of its Significant Subsidiaries (except CPIH, its subsidiaries and the Bankrupt Subsidiaries) of any voluntary proceeding under any provision of Title 11 of the United States Code, as now or hereafter amended, or the commencement by the Company or any of its Significant Subsidiaries or Covanta or any of its Significant Subsidiaries (other than CPIH, its subsidiaries and the Bankrupt Subsidiaries) of any other proceeding, under any law, now or hereafter in force, relating to bankruptcy, insolvency, reorganization, liquidation, or otherwise to the relief of debtors or the readjustment of indebtedness, (ii) the Company or any of its Significant Subsidiaries or Covanta or any of its Significant Subsidiaries (other than CPIH, its subsidiaries and the Bankrupt Subsidiaries) makes any general assignment for the benefit of creditors or a composition or similar arrangement with such creditors, or (iii) the Company or any of its Significant Subsidiaries or Covanta or any of its Significant Subsidiaries (other than CPIH, its subsidiaries and the Bankrupt Subsidiaries) appoints a receiver, trustee or similar judicial officer or agent to take charge of or liquidate any of its property or assets; (b) commencement against the Company or any of its Significant Subsidiaries or Covanta or any of its Significant Subsidiaries (except CPIH, its subsidiaries and the Bankrupt -25- Subsidiaries) of any involuntary proceeding of the kind described in subsection (a) which is not dismissed or stayed within 60 days; (c) acceleration due to default by the Company of any other indebtedness of the Company or any of its Subsidiaries for borrowed money in excess of $5,000,000 which indebtedness is not paid off or acceleration not cancelled within 30 days; (d) rendering of a judgment or judgments against the Company or any of its Subsidiaries involving an amount in excess of $5,000,000, to the extent not covered by insurance, and such judgment or judgments shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; (e) any representation or warranty contained in Section 3 was untrue or incorrect in any material respect as of the date hereof or such other date specified therein; (f) the Company breaches Sections 5.1, 5.3, 5.4, 5.5, 5.6 or 5.7 of this Agreement and such breach is not cured within 30 days of notice thereof; (g) the Company breaches Section 5.2 of this Agreement and such breach is not cured within 10 days of notice thereof; or (h) a Change of Control occurs, unless caused solely by the Purchasers acting as a group (within the meaning of Rule 13d-3 of the Exchange Act). 9. Conditions Precedent. 9.1. Conditions to the Obligation of the Purchasers to Consummate the Closing. The several obligations of each Purchaser to consummate the transactions to be consummated at the Closing, and to purchase and pay for the Notes being purchased by it at such Closing pursuant to this Agreement, are subject to the satisfaction of the following conditions precedent: (a) The representations and warranties of Company contained in this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect " qualifiers set forth therein) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not, individually or in the aggregate, result in a Material Adverse Effect. (b) Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Company on or prior to the Closing Date. (c) Each Purchaser shall have received a certificate, dated the Closing Date, signed by the Chief Financial Officer of the Company, certifying on behalf of the Company that the conditions specified in the foregoing Sections 9.1(a) and (b) have been fulfilled. -26- (d) The purchase of and payment for the Notes by each Purchaser shall not be prohibited or enjoined by any law or governmental or court order or regulation. (e) All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. (f) All consents and waivers identified on Schedule 9.1(f) of the Disclosure Schedule shall have been obtained. (g) The Covanta Agreement shall have been executed and delivered by each of the parties thereto and shall be in full force and effect. (h) Each Purchaser's obligations under this Section 9.1 shall be several and independent from the obligations of each other Purchaser; provided, however, that if any Purchaser is unwilling or fails to fulfill or comply with any of the conditions set forth in this Section 9.1, any other Purchaser shall have the immediate right to replace such Purchaser's commitment by increasing its own commitment, as set forth in EXHIBIT A; provided, further that if the remaining purchasers both desire to replace such Purchaser's commitment, each may do so in proportion to the percentage of their existing commitment hereunder. 9.2. Conditions to the Obligation of the Company to Consummate the Closing. The obligation of the Company to consummate the Transactions at the Closing, and to issue and sell to each Purchaser the Notes to be purchased by it at the Closing pursuant to this Agreement, is subject to the satisfaction of the following conditions precedent: (a) The representations and warranties of such Purchaser contained in this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" qualifiers set forth therein) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not, individually or in the aggregate, result in a Material Adverse Effect. (b) Such Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by such Purchaser on or prior to the Closing Date. (c) The Company shall have received from each Purchaser a certificate dated the Closing Date, signed by an appropriate officer of such Purchaser, certifying on behalf of such Purchaser that the conditions specified in the foregoing Sections 9.2(a) and (b) have been fulfilled. (d) The sale of the Notes by the Company shall not be prohibited or enjoined by any law or governmental or court order or regulation. -27- 10. Registration of the Securities; Compliance with the Securities Act. 10.1. Securities Law Transfer Restrictions. No Purchaser shall sell, assign, pledge, transfer or otherwise dispose or encumber any of the Securities being purchased by it hereunder, except (i) pursuant to an effective registration statement under the Securities Act or (ii) pursuant to an available exemption from registration under the Securities Act and applicable state securities laws and, if requested by the Company, upon delivery by such Purchaser of an opinion of counsel reasonably satisfactory to the Company to the effect that the proposed transfer is exempt from registration under the Securities Act and applicable state securities laws. The Company shall not register any transfer of the Securities in violation of this Section 10.1. The Company may, and may instruct any transfer agent for the Company to, place such stop transfer orders as may be required on the transfer books of the Company in order to ensure compliance with the provisions of this Section 10.1. Notwithstanding the foregoing, without the prior written consent of the Company: (i) the Notes shall not be transferable, except for transfers to Affiliates of the Purchasers that agree not to further transfer the Notes and expressly agree to assume such Purchaser's obligations hereunder, and (ii) the Escrowed Stock shall not be transferable prior to the earlier of July 15, 2004 and the closing of the Rights Offering. 10.2. Legends. Each certificate representing any of the Securities shall be endorsed with the legend set forth below, and each Purchaser covenants that, except to the extent such restrictions are waived by the Company, it shall not transfer the Securities represented by any such certificate without complying with the restrictions on transfer described in this Agreement and the legends endorsed on such certificate: "THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] [NOTE] [AND THE SECURITIES ISSUABLE UPON ITS CONVERSION] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT OR SUCH LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE ACT OR SUCH LAWS." 11. Termination. 11.1. Conditions of Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time before the Closing (a) by mutual consent of the Company and the Purchasers, or (b) by either party hereto if the Closing shall not have occurred on or prior to June 30, 2004. 11.2. Effect of Termination. In the event of termination pursuant to Section 11.1 hereof, this Agreement shall become null and void and have no effect, with no liability on the -28- part of the Company or the Purchasers, or their directors, officers, agents or stockholders, with respect to this Agreement, except for liability for any willful breach of this Agreement. 12. Miscellaneous Provisions. 12.1. Public Statements or Releases. Neither the Company nor any Purchaser shall make any public announcement with respect to the existence or terms of this Agreement or the transactions provided for herein without the prior approval of the other parties, which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, nothing in this Section 12.1 shall prevent any party from making any public announcement it considers necessary in order to satisfy its obligations under the law or the rules of any national securities exchange, provided such party, to the extent practicable, provides the other parties with an opportunity to review and comment on any proposed public announcement before it is made. 12.2. Rights Cumulative. Subject to the terms and conditions of Section 5, each and all of the various rights, powers and remedies of the parties shall be considered to be cumulative with and in addition to any other rights, powers and remedies which such parties may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy shall neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party. 12.3. Pronouns. All pronouns or any variation thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require. 12.4. Notices. (a) Any notices, reports or other correspondence (hereinafter collectively referred to as "correspondence") required or permitted to be given hereunder shall be sent by postage prepaid first class mail, courier or facsimile or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder. The date of giving any notice shall be the date of its actual receipt. (b) All correspondence to the Company shall be addressed as follows: Danielson Holding Corporation 2 North Riverside Plaza, Suite 600 Chicago, IL 60606 Attention: Philip Tinkler Facsimile: (312) 454-9678 (c) All correspondence to any Purchaser shall be sent to such Purchaser at the address set forth in EXHIBIT A. (d) Any Person may change the address to which correspondence to it is to be addressed by notification as provided for herein. -29- 12.5. Captions. The captions and paragraph headings of this Agreement are solely for the convenience of reference and shall not affect its interpretation. 12.6. Expenses. The Company agrees to pay all documented reasonable costs and expenses incurred by the Purchasers (including reasonable attorneys' fees) in connection with the issuance of the Notes and the other Transactions, to the extent not otherwise reimbursed, in an amount not to exceed $900,000 (the "Investor Expense Reimbursement"); provided, however, that no Non-Performing Purchaser shall be entitled to its share of the Investor Expense Reimbursement, as determined by the other Purchasers in accordance with existing arrangements among themselves. Subject to Section 7.4(b), such payment shall be made in cash to such accounts as the Purchasers shall jointly specify in writing to the Company. 12.7. Severability. Should any part or provision of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any jurisdiction, the invalid or unenforceable part or provisions shall be replaced with a provision which accomplishes, to the extent possible, the original business purpose of such part or provision in a valid and enforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto. 12.8. Governing Law; Injunctive Relief. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 12.9. Waiver. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or be construed as, a further or continuing waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement. 12.10. Assignment. The rights and obligations of the parties hereto shall inure to the benefit of and shall be binding upon the authorized successors and permitted assigns of each party. None of the parties may assign its rights or obligations under this Agreement or designate another person (i) to perform all or part of its obligations under this Agreement or (ii) to have all or part of its rights and benefits under this Agreement, in each case without the prior written consent of the other parties. In the event of any assignment in accordance with the terms of this Agreement, the assignee shall specifically assume and be bound by the provisions of the Agreement by executing and agreeing to an assumption agreement reasonably acceptable to the Company. 12.11. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one instrument 12.12. Transaction Disclosure. Nothing in this Agreement shall prohibit the disclosure of the tax treatment and tax structure, each as defined in Treasury Regulations Section 1.6011-4, of the Transactions (but no other details about the matters covered by this Agreement, including, without limitation, the identities of the parties) from and after the date of the public announcement of the Transactions. -30- 12.13. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto respecting the subject matter hereof and supersedes all prior agreements, negotiations, understandings, representations and statements respecting the subject matter hereof, whether written or oral. No modification, alteration, waiver or change in any of the terms of this Agreement shall be valid or binding upon the parties hereto unless made in writing and duly executed by the Company and Required Majority. -31- IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. DANIELSON HOLDING CORPORATION By: /s/ Philip G. Tinkler -------------------------------- Name: Philip G. Tinkler Title: Chief Financial Officer PURCHASERS: D. E. SHAW LAMINAR PORTFOLIOS, L.L.C. By: /s/ Max Holmes -------------------------------- Name: Max Holmes Title: Authorized Signatory SZ INVESTMENTS, L.L.C. By: /s/ William Pate -------------------------------- Name: William Pate Title: Vice President THIRD AVENUE TRUST, ON BEHALF OF THE THIRD AVENUE VALUE FUND SERIES By: /s/ David M. Barse -------------------------------- Name: David M. Barse Title: Chief Executive Officer [Signature Page to Note Purchase Agreement] -32- EXHIBIT A PURCHASERS
Purchaser Principal Amount of Name and Address Escrowed Stock Notes to be Purchased D. E. SHAW LAMINAR PORTFOLIOS, L.L.C 2,560,427 $ 20,000,000.00 120 West Forty-Fifth Street Floor 39, Tower 45 New York, NY 10036 Attention: Max Holmes Facsimile: (212) 478-0100 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Attention: Steven Wilamowsky, Esq Facsimile: (212) 728-8111 SZ INVESTMENTS, L.L.C 1,280,213 $ 10,000,000.00 2 N. Riverside Plaza, Suite 600 Chicago, IL 60606 Attention: Joseph Paolucci, Esq Facsimile: (312) 559-1280 with a copy to: Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, IL 60603 Attention: Imad I. Qasim, Esq Jeffrey S. Rothstein, Esq Facsimile: (312) 853-7036 THIRD AVENUE TRUST, ON BEHALF OF THE 1,280,213 $ 10,000,000.00 THIRD AVENUE VALUE FUND SERIES 622 Third Avenue, 32nd Floor New York, NY 10017 Attention: Willard J. Hall Facsimile: (212) 735-0003
-33- with a copy to: Pillsbury Winthrop LLP One Battery Park Plaza New York, NY 10004 Attention: Richard L. Epling, Esq Facsimile: (212) 858-1500 TOTAL 5,120,853 $ 40,000,000.00 ----- -34- EXHIBIT B FORM OF NOTE EXHIBIT C REGISTRATION RIGHTS AGREEMENT EXHIBIT D COVANTA AGREEMENT EXHIBIT E NON-OWNERSHIP CHANGE ROLLOVER TERMS EXTENDED MATURITY DATE The last day of the calendar quarter ending immediately prior to the second anniversary of the date on which the Non-Ownership Change Rollover Terms first apply. CONVERSION The Notes are not convertible. INTEREST The Notes will bear interest at 18% per annum. Interest will compound quarterly on the last day of each calendar quarter. Interest will be on a 30/360 basis. EXHIBIT F OWNERSHIP CHANGE ROLLOVER TERMS AGGREGATE PRINCIPAL AMOUNT $8 million. Amounts in excess of this amount shall be subject to the Non-Ownership Change Rollover Terms, unless prepaid in full in cash. EXTENSION FEE 2% flat fee payable in cash on the date the Ownership Change Rollover Terms first apply. EXTENDED MATURITY DATE The last day of the calendar quarter ending immediately prior to the second anniversary of the date on which the Ownership Change Rollover Terms first apply. INTEREST RATE In the first year in which Notes are outstanding under the Ownership Change Rollover Terms, interest will be 12% per annum. Thereafter, until the Extended Maturity Date, interest will be 14.5% per annum. Interest shall be calculated quarterly on a 30/360 basis and shall be payable in arrears on the last day of each calendar quarter (the interest rate in effect on a given date, the "Effective Rate"). PAYMENT IN KIND At the Company's option upon written notice to the holder, at the beginning of each quarter, the Company may pay interest for such quarter in the form of increased principal on the Note (in lieu of cash), in which case the interest rate for such quarter shall be the Effective Rate plus 200 bps. CONVERSION The Notes are not convertible. EXHIBIT G ESCROW AGREEMENT DISCLOSURE SCHEDULE Note Purchase Agreement Disclosure Schedule - ------------------------------------------- Schedule 3 Authorization Schedule 3.7 No Material Adverse Change Schedule 3.17 Taxes Schedule 9.1(f) Consents EX-4.1 5 y92294exv4w1.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement, dated as of December 2, 2003, (as amended, supplemented or otherwise modified from time to time, this "Agreement"), by and between Danielson Holding Corporation, a Delaware corporation (the "Company"), and D. E. Shaw Laminar Portfolios, L.L.C., a Delaware limited liability company ("DES"), SZ Investments, L.L.C., a Delaware limited liability company ("SZI"), and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, a Delaware business trust ("TAT"), severally (each of DES, SZI and TAT, an "Investor" and collectively, the "Investors"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Note Purchase Agreement. WITNESSETH: WHEREAS, the Investors are parties to that certain Note Purchase Agreement of even date herewith, among the Company and the Investors, severally (the "Note Purchase Agreement"), and pursuant thereto the Company has agreed to execute and deliver this Agreement for the benefit of the Investors; NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows: ARTICLE I REGISTRATION RIGHTS 1.1 Definitions. For purposes of this Article I: (a) The term "Common Stock" means the Company's common stock, par value $.10 per share. (b) The term "Company Voting Securities" shall mean Common Stock and any other equity securities of the Company entitled to vote generally for the election of directors (c) The term "Exchange Act" means the Securities Exchange Act of 1934, as amended. (d) The term "Holder" shall mean any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been transferred. (e) The term "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended (the "Act"). (f) The term "Registrable Securities" means shares of Common Stock acquired by the Investors pursuant to the Note Purchase Agreement. In the case of SZI, Registrable Securities of SZI shall be governed by the provisions of this Agreement and not by the provisions of the registration rights agreement, dated as of November 8, 2002, between the Company and SZI. (g) The term "Rule 415 Offering" means an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Act. (h) The term "Shelf Registration Statement" means a registration statement intended to effect a shelf registration in connection with a Rule 415 Offering. 1.2 Shelf Registrations and Piggy-Back Registrations. (a) Pursuant to Section 5.7 of the Note Purchase Agreement, on the earlier of June 30, 2004, or ten days after the date of the closing of the Rights Offering, the Company shall file with the SEC a Shelf Registration Statement, or such other registration statement as the Company may qualify to file, and shall use commercially reasonable efforts to cause such registration statement to be declared effective as promptly as practicable, on behalf of the Holders with respect to all of the Registrable Securities and shall use its commercially reasonable efforts to keep such registration statement effective until such time as all such Registrable Securities covered thereby have been sold or disposed of thereunder or sold, transferred or otherwise disposed of to a Person that is not a Holder. (b) Piggyback Registration. If (but without any obligation to do so) the Company proposes to register any of its Common Stock under the Act in connection with the public offering of such Common Stock by the Company solely for cash (other than a registration relating solely to the sale of securities to participants in a dividend reinvestment plan, stock plan or employee benefit plan; a registration relating solely to the issuance of securities to the security holders of an acquired company in connection with an acquisition; or a registration on any form which does not permit inclusion of selling stockholders), or the Company proposes to register any of its securities on behalf of a holder exercising demand registration rights, the Company shall, at such time, promptly give each Investor written notice of such registration. Upon the written request any Investor given within 15 days after mailing of such notice by the Company, the Company shall cause to be registered under the Act all of the Registrable Securities that such Investor has requested to be registered. Notwithstanding anything to the contrary in this Section 1.2(b), in connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under this Section 1.2(b) to include any of the Holders' Registrable Securities in such underwriting or the registration statement relating thereto unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company. If the total amount of securities, including Registrable Securities, requested by Holders and other stockholders to be included in such offering exceeds the amount of securities offered other than by the Company that the underwriters reasonably believe can be offered without jeopardizing the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering. To achieve any necessary reduction in the securities to be sold, the securities to be excluded from the offering shall first be selected (in each case, pro rata among such class of holders according to the total amount of securities proposed to be included in the registration statement or in such other proportions as shall mutually be agreed to by such class of holders) in the following order: 2 (i) first, securities being included on behalf of holders other than either the Investors or other holders of Registrable Securities shall be excluded; (ii) next, if additional securities must be excluded, Registrable Securities included pursuant to Section 1.2(b) shall be excluded; (iii) finally, if additional securities must be excluded, securities offered by the Company shall be excluded. 1.3 Additional Obligations of the Company. Whenever the Company has filed a registration statement under this Article I, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered thereby. (b) Furnish to the holders of Registrable Securities such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities covered by such registration statement owned by them. (c) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such states or other jurisdictions as shall be reasonably requested by the holders of Registrable Securities, provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions where it is not so subject. (d) Notify each holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and then use its best efforts to promptly correct such statement or omission. Notwithstanding the foregoing and anything to the contrary set forth in this Section 1.3, each holder of Registrable Securities acknowledges that the Company shall have the right to suspend the use of the prospectus forming a part of a registration statement if such offering would interfere with a pending corporate transaction or for other reasons involving material non-public information, until such time as an amendment to the registration statement has been filed by the Company and declared effective by the SEC, or until such time as the Company has filed an appropriate report with the SEC pursuant to the Exchange Act. Each holder of Registrable Securities hereby covenants that it will (a) keep any such notice strictly confidential, and (b) not sell any shares of Common Stock pursuant to such prospectus during the period commencing at the time at which the Company gives the holder of Registrable Securities notice of the suspension of the use of such prospectus and ending at the time the Company gives the holder of Registrable Securities notice that it may thereafter effect sales pursuant to such prospectus. The Company shall only be able to suspend the use of such prospectus for not more than two periods of not more than 90 days each in respect of any registration in any 12 month period. 3 (e) Use its best efforts to cause all Registrable Securities to be listed on all securities exchanges on which similar securities issued by the Company are then listed. 1.4 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Article I with respect to the Registrable Securities of any selling holder of Registrable Securities that such holder of Registrable Securities shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such holder's Registrable Securities and as may be required from time to time to keep such registration current. 1.5 Expenses of Registration. All expenses incurred by or on behalf of the Company in connection with registrations, filings or qualifications pursuant to Section 1.2, including, without limitation, all registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company, shall be borne by the Company. In no event shall the Company be obligated to bear any underwriting discounts or commissions or brokerage fees or commissions relating to Registrable Securities or the actual fees and expenses of more than one counsel for each selling Investor; provided that such fees and expenses in the aggregate shall not exceed $60,000. 1.6 Indemnification. In the event any Registrable Securities are included in a registration statement under this Article I: (a) To the extent permitted by law, the Company will indemnify and hold harmless each holder and the affiliates of such holder, and their respective directors, officers, general and limited partners, agents and representatives (and the directors, officers, affiliates and controlling persons thereof), and each other person, if any, who controls such holder within the meaning of the Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus (but only if such statement is not corrected in the final prospectus) contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading (but only if such omission is not corrected in the final prospectus), or (iii) any violation or alleged violation by the Company in connection with the registration of Registrable Securities under the Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, affiliate or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and 4 in conformity with written information furnished expressly for use in connection with such registration by any such holder or controlling person. Each indemnified party shall furnish such information regarding itself or the claim in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (b) To the extent permitted by law, each selling holder of Registrable Securities will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other holder selling securities in such registration statement and any controlling person of any such underwriter or other holder, against any losses, claims, damages or liabilities Joint or several) to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such holder expressly for use in connection with such registration; and each such holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 1.6(b) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 1.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this Section 1.6(b) exceed the net proceeds from the offering received by such holder. Each indemnified party shall furnish such information regarding itself or the claim in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (c) Promptly after receipt by an indemnified party under this Section 1.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties. The failure to deliver written notice to the indemnifying party within a reasonable time after the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.6 to the extent of such prejudice, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.6. The indemnified party shall have the right, but not the obligation, to participate in the defense of any action referred to above through counsel of its own choosing and shall have the right, but not the obligation, to assert any and all separate defenses, cross claims or counterclaims which it may have, and the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel has been specifically authorized in advance by the indemnifying party , (ii) there is a conflict of interest that prevents counsel for the indemnifying party from adequately representing the interests of the indemnified party or there are defenses available to the indemnified party that are different from, or additional to, the defenses that are 5 available to the indemnifying party, (iii) the indemnifying party does not employ counsel that is reasonably satisfactory to the indemnified party within a reasonable period of time, or (iv) the indemnifying party fails to assume the defense or does not reasonably contest such action in good faith, in which case, if the indemnified party notifies the indemnifying party that it elects to employ separate counsel, the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party and the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party; provided, however, that, the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to one firm acting as local counsel) for all indemnified parties. (d) The obligations of the Company and the holders under this Section 1.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Article I. 1.7 Reports Under the Exchange Act. With a view to making available to the holders of Registrable Securities the benefits of Rule 144 promulgated under the Exchange Act and any other rule or regulation of the SEC that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required under the Act and the Exchange Act; and (c) furnish to any Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, or as to whether it qualifies as a registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information (and the Company shall take such action) as may be reasonably requested in availing any holder of Registrable Securities of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.8 No Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Article I may only be assigned by a holder of Registrable Securities to a transferee or assignee of any Registrable Securities if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 1.9 Waiver Procedures. The observance by the Company of any provision of this Article I may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the holders of at least 66 2/3% of the Registrable 6 Securities, and any waiver effected in accordance with this paragraph shall be binding upon each holder of Registrable Securities. 1.10 "Market Stand-off" Agreement. Any holder of Registrable Securities, if requested by an underwriter of any registered public offering of Company securities being sold in a firm commitment underwriting, agrees not to sell or otherwise transfer or dispose of any Common Stock (or other Company Voting Securities) held by such holder other than shares of Registrable Securities included in the registration during the seven days prior to, and during a period of up to 180 days following, the effective date of the registration statement. Such agreement shall be in writing in a form reasonably satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the securities subject to the foregoing restriction until the end of the required stand-off period. ARTICLE II MISCELLANEOUS 2.1 Remedies. Each of the Investors and the Company acknowledge and agree that (i) the provisions of this Agreement are reasonable and necessary to protect the proper and legitimate interests of the parties hereto, and (ii) the parties would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that any party shall be entitled to seek preliminary and permanent injunctive relief to prevent breaches of the provisions of this Agreement by any other party (or its Affiliates) without the necessity of proving actual damages or of posting any bond, and to enforce specifically the terms and provisions hereof and thereof in any court of the United States or any state thereof having jurisdiction, which rights shall be cumulative and in addition to any other remedy to which the parties may be entitled hereunder or at law or equity. 2.2 Notices. All notices, and other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, facsimile, to the appropriate address or facsimile number set forth below (or at such other address or facsimile number for a party as shall be specified by like notice): (i) if to the Company, to Danielson Holding Corporation, 2 North Riverside Plaza, Suite 600, Chicago, IL 60606, Attention: Philip Tinkler, Facsimile: (312) 454-9678 and (ii) if to any Investor, to such Investor at the address set forth in EXHIBIT A. 2.3 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The parties hereto agree that they will use their best efforts at all times to support and defend this Agreement. 2.4 Amendments. This Agreement may be amended only by an agreement in writing signed by each of the parties hereto. 7 2.5 Governing Law. This Agreement shall be governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the internal laws of the State of Delaware applicable to contracts made in that State. 2.6 Descriptive Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement 2.7 Counterparts; Facsimile Signatures. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, bears the signatures of each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be an original as against the party whose signature appears thereon, or on whose behalf such counterpart is executed, but all of which taken together shall be one and the same agreement. A facsimile copy of a signature of a party to this Agreement or any such counterpart shall be fully effective as if an original signature. 2.8 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. 2.9 Assignments. This Agreement may not be assigned without the prior written consent of each party hereto, and any attempt to effect an assignment hereof without such consent shall be void. 2.10 Jurisdiction and Service of Process. THE COMPANY AND EACH OF THE INVESTORS, HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREE THAT, SUBJECT TO THE OTHER PROVISIONS OF THIS AGREEMENT, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT WHICH MAY BE LITIGATED SHALL BE LITIGATED IN SUCH COURTS. THE COMPANY AND EACH OF THE INVESTORS ACCEPT FOR SUCH PARTY AND IN CONNECTION WITH SUCH PARTY'S PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE COMPANY AND EACH OF THE INVESTORS AGREE TO ACCEPT SERVICE OF ALL PROCESS, BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH SUCH PARTY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. IF ANY AGENT APPOINTED BY THE COMPANY OR ANY OF THE INVESTORS REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY AGREES THAT SERVICE UPON SUCH PARTY BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COMPANY OR ANY INVESTOR TO BRING PROCEEDINGS AGAINST THE COMPANY OR ANY INVESTOR IN THE COURTS OF ANY OTHER JURISDICTION. 8 2.11 Trial. THE COMPANY AND EACH OF THE INVESTORS HEREBY WAIVE SUCH PARTY'S RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. THE COMPANY AND EACH OF THE INVESTORS ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY TO THIS AGREEMENT WITH RESPECT TO ANY ACTION COMMENCED BY ONE OF THEM AGAINST THE OTHER OF THEM. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND EACH OF THE INVESTORS ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF THE COMPANY AND EACH OF THE INVESTORS FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH SUCH PARTY'S LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES SUCH PARTY'S JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. DANIELSON HOLDING CORPORATION By: /s/ Philip G. Tinkler -------------------------------------------- Name: Philip G. Tinkler Title: Chief Financial Officer D. E. SHAW LAMINAR PORTFOLIOS, L.L.C. By: /s/ Max Holmes -------------------------------------------- Name: Max Holmes Title: Authorized Signatory SZ INVESTMENTS, L.L.C. By: /s/ William Pate -------------------------------------------- Name: William Pate Title: Vice President THIRD AVENUE TRUST, ON BEHALF OF THE THIRD AVENUE VALUE FUND SERIES By: /s/ David M. Barse -------------------------------------------- Name: David M. Barse Title: Chief Executive Officer EXHIBIT A PURCHASERS Purchaser Name and Address D. E. SHAW LAMINAR PORTFOLIOS, L.L.C. 120 West Forty-Fifth Street Floor 39, Tower 45 with a copy to: New York, NY 10036 Attention: Max Holmes Willkie Farr & Gallagher Facsimile: (212) 478-0100 787 Seventh Avenue New York, NY 10019 Attention: Steven Wilamowsky, Esq. Facsimile: (212) 728-8111 SZ INVESTMENTS, L.L.C. 2 N. Riverside Plaza, Suite 600 Chicago, IL 60606 with a copy to: Attention: Joseph Paolucci, Esq. Facsimile: (312) 559-1280 Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, IL 60603 Attention: Imad I. Qasim, Esq. Jeffrey S. Rothstein, Esq. Facsimile: (312) 853-7036 THIRD AVENUE TRUST, ON BEHALF OF THE THIRD AVENUE VALUE FUND SERIES 622 Third Avenue, 32nd Floor with a copy to: New York, NY 10017 Attention: Willard J. Hall Pillsbury Winthrop LLP Facsimile: (212) 735-0003 One Battery Park Plaza New York, NY 10004 Attention: Richard L. Epling, Esq. Facsimile: (212) 858-1500 EX-10.1 6 y92294exv10w1.txt LETTER AGREEMENT EXHIBIT 10.1 D. E. Shaw Laminar Portfolios, L.L.C. 120 West Forty-Fifth Street Floor 39, Tower 45 New York, NY 10036 December 2, 2003 Danielson Holding Corporation Two North Riverside Plaza, Suite 600 Chicago, IL 60606 Ladies and Gentlemen: Reference is hereby made to that certain Note Purchase Agreement, dated the date hereof (the "Note Purchase Agreement"), among Danielson Holding Corporation (the "Company"), and SZ Investments, L.L.C., Third Avenue Trust, on behalf of the Third Avenue Value Fund Series, and D. E. Shaw Laminar Portfolios, L.L.C. ("DES"). As a condition to entering into the Note Purchase Agreement, DES has requested that the Company enter into this Letter Agreement (this "Letter Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Note Purchase Agreement. In consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein and in the Note Purchase Agreement, the Company and DES hereby agree as follows: I. Transfer of Common Stock by DES and the Transferees. Subject to Paragraph III below, DES and each Transferee may Transfer the shares of Common Stock acquired by DES pursuant to the Note Purchase Agreement, including the Escrowed Stock and the Common Stock to be received upon conversion of the Notes (collectively, the "Subject Shares"), pursuant to the following terms and conditions: A. DES shall be permitted to Transfer, in one or multiple transactions and without obtaining any additional consent from the Company pursuant to Article FIFTH of the Restated Certificate of Incorporation, an aggregate number of Subject Shares under this Paragraph A up to but not exceeding an amount equal to (i) 10% of the outstanding Common Stock of the Company (calculated at the time of such Transfer) during the period beginning on the date of the closing of the Acquisition (the "Closing Date") through the first anniversary of the Closing Date; (ii) 15% of the outstanding Common Stock of the Company (calculated at the time of such Transfer) less the percentage of shares sold pursuant to clause I.A.(i) during the period beginning on the first anniversary of the Closing Date and ending on the second anniversary of the Closing Date; and (iii) 20% of the outstanding Common Stock of the Company (calculated at the time of such Transfer) less the percentage of shares sold pursuant to clauses I.A.(i) and (ii) during the period beginning on the second anniversary of the Closing Date and ending on the third anniversary of the Closing Date; B. anytime after the third anniversary of the Closing Date, DES shall be permitted to Transfer any such remaining Subject Shares then owned by it free and clear of any limitations on Transfer and without obtaining any additional consent from the Company; C. anytime after the Closing Date, if DES becomes subject to any filings or other requirements of any federal, state, municipal or foreign governmental, regulatory or other public body, agency or authority (including self-regulatory organizations), including without limitation any insurance or banking authority (collectively, "Regulations"), (other than the Disclaimer(s) filed by DES with the State Insurance Departments and any filing required under any federal or state securities laws (including without limitation Form 3, Form 4, Schedule 13d or 13g, and registration statements)) that requires any disclosures of the identity of, or other confidential information related to DES's direct or indirect investors or any other identifying facts or features or would otherwise limit DES's ability to make future investments as a result of being made subject to new Regulations, DES shall be permitted to Transfer all Subject Shares free and clear of any limitations on Transfer and without obtaining any additional consent from the Company; and D. each Transferee from a prior Authorized Transfer shall be permitted to Transfer any Subject Shares free and clear of any limitations on Transfer and without obtaining any additional consent from the Company; provided, that, in each case, such Transfer constitutes an Authorized Transfer. As used herein, "Transfer" shall mean any sale, assignment, transfer, disposition, exchange, mortgage, pledge, grant, hypothecation or other transfer, absolute or as a security or encumbrance, in any manner whatsoever, from any transaction or transactions, including without limitation, via secondary market or over-the-counter transactions; "Transferee" shall mean any Person that receives Subject Shares in an Authorized Transfer; "Authorized Transfer" shall mean a Transfer by (i) DES pursuant to Paragraphs A, B or C above or (ii) any Transferee pursuant to Paragraph D above, in each case that satisfies the procedures described in Paragraph III below; provided further, that any Transfer must comply with applicable federal and state securities laws and insider trading policies. II. Representations and Warranties of Company. The Company hereby represents and warrants to DES that: A. The Special Committee of the Board of Directors of the Company, on behalf of the Board of Directors, has authorized the agreements set forth in this Letter Agreement in resolutions of the Special Committee of the Board of Directors adopted at a Special Meeting held on November 24, 2003 and determined that: (i) it is in the best interest of the Company to pre-approve the Authorized Transfers and (ii) subject to the requirements in Paragraph III below, all obligations of the Board of Directors and the Company pursuant to Article FIFTH of the Restated Certificate of Incorporation have been satisfied -2- in full with regard to the Authorized Transfers, subject to receipt of a Bring-Down Opinion (defined below); B. the Company has received the Nixon Peabody Letter substantially in the form of Exhibit A hereto; C. based on current law and circumstances, the Bring-Down Opinion (as described below) would be available for the Transfers described in Paragraph I, unless (i) the Transferee owns other Common Stock that the Transferee acquired within the testing period that includes the date of the Proposed Transfer, (ii) the Transferee becomes a "5-percent shareholder" as a result of the Transfer and (iii) DES or the Transferee receives a Blocking Opinion; D. each of the Transfers described in Paragraph I shall be treated by the Company as "previously approved subsequent transactions" for purposes of Article FIFTH of the Restated Certificate of Incorporation. III. Procedures for Authorized Transfers. DES and each Transferee intending to effect a Transfer of Subject Shares that, but for this Paragraph III, would otherwise qualify as an Authorized Transfer, shall provide the Company written notice in the form of Exhibit B hereto (the "Notice of Transfer") of such Transfer (a "Proposed Transfer") no less than seven Business Days before the date of such Proposed Transfer. The Notice of Transfer shall include the number of Subject Shares to be Transferred pursuant to such Proposed Transfer and the anticipated date of such Proposed Transfer. In the case of a Transferee or intended recipient, as the case may be, that either is or would become a "5-percent shareholder" (within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended and the applicable Treasury regulations thereunder (the "Code")) immediately after the Proposed Transfer, the Notice of Transfer shall also include the name of the Transferee, in the case of a Proposed Transfer by DES, or the intended recipient of the Subject Shares, in the case of a Proposed Transfer by a Transferee , the number of shares of Common Stock owned, directly or constructively, by such Transferee or intended recipient within the past three years and the number of shares of Common Stock acquired within such three year period. The Company shall promptly use all commercially reasonable efforts to obtain an opinion substantially in the form of Exhibit C hereto (a "Bring-Down Opinion"), and in no event later than five Business Days after receipt of the Notice of Transfer, give appropriate instructions to the transfer agent for the Common Stock (the "Transfer Agent"), in full satisfaction of the provisions of Article FIFTH of the Restated Certificate of Incorporation, and shall direct the Transfer Agent to effectuate the Proposed Transfer; provided, however, that if such Bring-Down Opinion cannot be delivered, the Company shall deliver to DES or the Transferee, as applicable, within five Business Days after the receipt of the Notice of Transfer, an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, Nixon Peabody LLP or other nationally recognized tax counsel reasonably acceptable to DES or the Transferee, as applicable, that the Proposed Transfer would result in, or create an unreasonable risk of, (i) an aggregate increase in the percentage ownership of the stock of the Company by its "5-percent shareholders" and (ii) that such aggregate increase in ownership of the stock of the Company would constitute an "ownership change" under Section 382(g) of the Code, determined by substituting "48.75 percentage points" for "50 percentage points" where such phrase appears in Section 382(g)(1)(A) of the Code (the "Blocking Opinion"), and such Proposed Transfer shall -3- not qualify as an Authorized Transfer. For the avoidance of doubt, any Blocking Opinion issued upon receipt of a Notice of Transfer shall apply solely to the Proposed Transfer and not to any subsequent Transfer of Subject Shares pursuant to this Letter Agreement. IV. Cooperation Under FPA. A. DES agrees to use commercially reasonable efforts, to the extent required by law, to cooperate in providing information required to be furnished as part of any required filing under Section 203 of the Federal Power Act, as amended, by Covanta, the Company or DES. B. The Company agrees to use commercially reasonable efforts, to cooperate with DES in minimizing the information to be furnished by DES and to provide to DES information required in any such filing required to be made by DES. V. Miscellaneous. A. The Company and DES agree that the provisions of this Letter Agreement will be amended to equitably reflect the effect of any issuance or redemption of stock of the Company, stock split or reverse stock split with respect to stock of the Company, recapitalization of the Company or any other adjustment to the capital structure of the Company. B. All notices or other communications required or authorized to be given hereunder shall be made pursuant to Section 12.4 of the Note Purchase Agreement. C. This Letter Agreement may not be amended, supplemented, modified or revoked unless agreed to in writing by the parties hereto. D. This Letter Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to its conflicts-of-law provisions. E. The Company and DES hereby acknowledge that damages may not be an adequate remedy in the event that any of the provisions of this Letter Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that DES shall be entitled to an injunction or injunctions to prevent breaches of this Letter Agreement and to enforce specifically the terms and provisions hereof in any court in the United States or any state having jurisdiction, this being in addition to any other remedy to which DES is entitled at law or in equity. -4- If you are in agreement with the foregoing, please sign in the space provided below and return a copy of this Letter Agreement to DES. D. E. SHAW LAMINAR PORTFOLIOS, L.L.C. By: /s/ Max Holmes ------------------------------------ Name: Max Holmes Title: Authorized Signatory Agreed: DANIELSON HOLDING CORPORATION By: /s/ Philip G. Tinkler --------------------------------- Name: Philip G. Tinkler Title: Chief Financial Officer Date: December 2, 2003 -5- EX-10.2 7 y92294exv10w2.txt LETTER AGREEMENT Exhibit 10.2 DANIELSON HOLDING CORPORATION 2 North Riverside Plaza Suite 600 Chicago, IL 60606 December 1, 2003 Equity Group Investments, L.L.C. 2 North Riverside Plaza, Suite 600 Chicago, IL 60606 Ladies and Gentlemen: Pursuant to the action and request of the Special Committee of Disinterested Directors of the Board of Directors of Danielson Holding Corporation (the "Company"), in connection with the Company's negotiation of an agreement to acquire certain businesses of Covanta Energy Corporation, this letter confirms your agreement to terminate, effective immediately, that certain letter agreement dated April 19, 1999 between you and the Company relating to the provision of consulting and advisory services to the Company, other than your rights to indemnification under paragraph 4 of that letter agreement, which rights shall continue. Danielson Holding Corporation /s/ Philip G. Tinkler ------------------------------- By: Philip G. Tinkler Chief Financial Officer ACKNOWLEDGED AND AGREED as of this 1st day of December, 2003 Equity Group Investments, L.L.C. By: /s/ Donald Liebentritt ---------------------- Its: President --------------------- EX-99.1 8 y92294exv99w1.txt PRESS RELEASE EXHIBIT 99.1 DANIELSON HOLDING CORPORATION TO ACQUIRE COVANTA ENERGY CORPORATION CHICAGO, IL AND FAIRFIELD, NJ - DECEMBER 2, 2003- Danielson Holding Corporation (AMEX:DHC) and Covanta Energy Corporation today announced that they have signed a definitive agreement under which Danielson will acquire Covanta's energy and water businesses in connection with Covanta's emergence from bankruptcy. Danielson will not acquire Covanta's geothermal and other assets, the dispositions of which are already under contract with other buyers under Covanta's Chapter 11 process. In addition, Danielson and Covanta have agreed on principal terms of new credit arrangements for Covanta's domestic and international businesses. Covanta will remain headquartered in Fairfield, New Jersey. Anthony J. Orlando will continue to serve as the company's Chief Executive Officer and the company's existing management structure will stay in place. "This acquisition by Danielson offers a superior deal to Covanta's creditors and is supported by Covanta's management, the agents for its secured bank group, its ad hoc committee of 9.25% debenture holders and its official unsecured creditors' committee," stated Covanta Chief Executive Officer Tony Orlando. "We believe that, under the Danielson plan, Covanta will be in a better position from which to emerge from Chapter 11 than under the prior plan, which is being superseded by the Danielson plan. We are confident that the Danielson acquisition will be advantageous to the company's clients and employees," concluded Mr. Orlando. Under the terms of the proposed transaction, Danielson would acquire 100% of Covanta's equity in consideration for $30 million. In addition, Danielson has obtained commitments from certain of its shareholders to provide a new $118 million replacement letter of credit facility to Covanta, secured by a second lien on Covanta's domestic assets. With respect to Covanta's domestic operations, the transaction also provides for a new $139 million first lien secured letter of credit facility and $205 million of senior secured notes accreting to $230 million by 2011, and an unspecified amount of unsecured notes. As a result of the transaction, Covanta expects to emerge from bankruptcy with approximately $50 million in cash and revolving credit facility availability. D. E. Shaw Laminar Portfolios, L.L.C. ("Laminar"), a significant creditor of Covanta, has agreed with Danielson to provide a $10 million secured revolving loan facility to Covanta's international operations, which would also issue up to $95 million of secured 3-year term debt to Covanta's creditors. To implement the proposed transaction, Covanta anticipates filing a revised proposed plan of reorganization, a revised proposed plan of liquidation for certain non-core businesses, and an accompanying draft disclosure statement, each reflecting this transaction, with the Bankruptcy Court for the Southern District of New York, where its Chapter 11 cases are pending. The proposed Danielson transaction does not affect Covanta's recently filed plans to sell its geothermal assets to Ormat Nevada, Inc. which was declared the winning bidder following the auction of those assets. The proposed transaction between Covanta and Danielson remains subject to the completion of certain documentation, approval by holders of claims against Covanta, and entry of an order by the Bankruptcy Court confirming Covanta's revised proposed reorganization plan necessary to implement this transaction. There can be no assurance that the Bankruptcy Court will approve, or that the holders of claims against Covanta will vote to support, the new reorganized proposed plan embodying the transaction with Danielson or that final documentation will be reached on terms satisfactory to all parties. Subject to receipt of these approvals, the companies expect the transaction to close in the first quarter of 2004. Danielson has obtained the financing necessary for the Covanta acquisition from three of its shareholders: SZ Investments, L.L.C., Third Avenue Trust, on behalf of Third Avenue Value Fund, and Laminar have provided $40 million of bridge financing to Danielson in exchange for a note convertible into shares of Danielson common stock at a price of $1.53 per share. Danielson will use $30 million of the proceeds from the bridge financing first to post a deposit with Covanta. The deposit would then be used as Danielson's purchase price for Covanta's equity interests. Danielson will use the remainder of the proceeds to pay certain transaction expenses and for general corporate purposes. Danielson expects to refinance the convertible note through a pro rata rights offering to its shareholders following the closing of the Covanta acquisition. Danielson intends to issue rights to purchase 0.75 shares for each outstanding share of Danielson common stock at an exercise price of $1.53 per share in a registered rights offering. If Danielson does not refinance the entire convertible note, the remainder of the note would be convertible into shares of Danielson common stock at the rights offering price of $1.53 per share. In addition, Laminar has agreed to purchase up to an additional 8.75 million shares of Danielson common stock at $1.53 per share based upon the levels of public participation in the rights offering. The financing and other related party transactions were approved by a special committee of independent directors of Danielson. THIS PRESS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF COVANTA ENERGY CORPORATION, DANIELSON HOLDING CORPORATION OR ANY OF THEIR AFFILIATES NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE OR JURISDICTION, OR, IF FOR THE ADMINISTRATIVE CONVENIENCE OF THE COURT SYSTEM, THE PROPOSED TRANSACTIONS ARE IMPLEMENTED THROUGH A VOLUNTARY PLAN UNDER THE BANKRUPTCY CODE, A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN UNDER THE BANKRUPTCY CODE. ANY SUCH OFFER OR SOLICITATION WILL BE MADE IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE BANKRUPTCY CODE. Covanta Energy Corporation is an internationally recognized designer, developer, owner and operator of power generation projects and provider of related infrastructure services. Its waste-to-energy facilities convert municipal solid waste into energy for numerous communities, predominantly in the United States. The Company also operates water and wastewater treatment infrastructures. Danielson Holding Corporation is an American Stock Exchange listed company, engaging in the financial services and specialty insurance business through its subsidiaries. Danielson's charter contains restrictions that prohibit parties from acquiring 5% or more of Danielson's common stock without its prior consent. CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission, all as may be amended from time to time. Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Danielson and its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan", "believe", "expect", "anticipate", "intend", "estimate", "project", "may", "will", "would", "could", "should", "seeks", or "scheduled to", or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PLSRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Danielson cautions investors that any forward-looking statements made by Danielson are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Danielson, include, but are not limited to, Covanta's and Danielson's ability to successfully consummate the transactions contemplated by the proposed acquisition and financial restructuring, Covanta's ability to obtain the consent of its creditors; and other factors, risks and uncertainties that are described in Item 1 of Danielson s Annual Report on Form 10-K for the year ended December 27, 2002 and in other securities filings by Danielson or Covanta. Although Danielson believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. Danielson's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and neither Danielson nor Covanta has any or has undertaken any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law. For more information generally, please contact: FOR DANIELSON HOLDING CORPORATION Philip G. Tinkler Chief Financial Officer Danielson Holding Corporation (312) 466-4030 FOR COVANTA ENERGY CORPORATION Kent Burton Senior Vice President Covanta Energy Corporation (703) 246-0833 # # # -----END PRIVACY-ENHANCED MESSAGE-----