S-3/A

As filed with the Securities and Exchange Commission on August 20, 2004.

Registration No. 333-117730

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1
to

FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

DANIELSON HOLDING CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 95-6021257
(I.R.S. Employer Identification No.)

2 North Riverside Plaza, Suite 600
Chicago, Illinois 60606
(312) 466-4030
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

David S. Stone, Esq.
Neal, Gerber & Eisenberg LLP
Two North LaSalle Street
Chicago, Illinois 60602
(312) 269-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

with copies to:

Philip G. Tinkler
Danielson Holding Corporation
2 North Riverside Plaza, Suite 600
Chicago, Illinois 60606
(312) 466-4030

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: o

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: o

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities will not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy those securities in any states where the offer or sale is not permitted.

PROSPECTUS (SUBJECT TO COMPLETION)

PROSPECTUS DATED ______________, 2004
DANIELSON HOLDING CORPORATION
17,711,491 SHARES OF COMMON STOCK

     The selling stockholders identified in this prospectus may sell up to 17,711,491 shares of our common stock. We will not receive any of the proceeds from the sale of the shares.

     Our common stock is listed on the American Stock Exchange under the symbol “DHC.” On August 19, 2004, the last reported sale price for the common stock was $5.93 per share.

     You should carefully consider the risk factors beginning on page 2 of this prospectus before purchasing any of the shares offered by this prospectus.

     In order to avoid an “ownership change” for federal tax purposes, our certificate of incorporation prohibits any person from becoming a beneficial owner of 5% or more of our outstanding common stock, except under limited circumstances. Consequently, no person may acquire shares of common stock from the selling stockholders if, after giving effect to that acquisition, the person would beneficially own, either directly or indirectly, 5% or more of our common stock.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is ____________, 2004.

TABLE OF CONTENTS

	Page
SUMMARY		1
RISK FACTORS		2
FORWARD-LOOKING STATEMENTS		18
DANIELSON’S BUSINESS		18
COVANTA’S BUSINESS		19
ACQUISITION OF COVANTA ENERGY CORPORATION		20
SUBSEQUENT EVENT REGARDING QUEZON POWER		25
USE OF PROCEEDS		26
SELLING STOCKHOLDERS		26
PLAN OF DISTRIBUTION		29
DESCRIPTION OF COMMON STOCK		30
EXPERTS		33
LEGAL MATTERS		34
WHERE YOU CAN FIND MORE INFORMATION		34
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE		35

     Unless the context otherwise requires, references in this prospectus to “Danielson,” and “we,” “our,” “us” and similar terms refer to Danielson Holding Corporation and its subsidiaries; references to “NAICC” refer to National American Insurance Company of California and its subsidiaries; references to “ACL” refer to American Commercial Lines, LLC and its subsidiaries; and references to “Covanta” refer to Covanta Energy Corporation and its subsidiaries.

SUMMARY

About Danielson Holding Corporation

     We are a holding company incorporated in Delaware. Substantially all of our current operations were conducted in the insurance services industry prior to our acquisition of Covanta Energy Corporation in March 2004. We engage in insurance operations through our indirect subsidiaries, National American Insurance Company of California and related entities. We also have investments in companies engaged in the marine transportation and services industry through our investment in ACL. We are the owners of all of the equity interests in ACL. ACL and certain of its related entities are currently subject to Chapter 11 bankruptcy proceedings.

     As a result of the consummation of the Covanta acquisition on March 10, 2004, our future performance will predominantly reflect the performance of Covanta’s operations which are significantly larger than our other operations. As a result, the nature of our business, the risks attendant to such business and the trends that it will face will be significantly altered by the acquisition of Covanta. Accordingly, our prior financial results will not be comparable to our future results.

     As of the end of 2003, we reported aggregate consolidated net operating loss tax carryforwards, which we refer to as “NOLs” in this prospectus, for federal income tax purposes of approximately $652 million. These losses will expire over the course of the next 19 years unless utilized prior thereto.

     Our principal executive offices are located at 2 North Riverside Plaza, Suite 600, Chicago, Illinois 60606, and our telephone number is (312) 466-4030.

About Covanta Energy Corporation

     Covanta develops, constructs, owns and operates for itself and others infrastructure for the conversion of waste to energy, independent power production and the treatment of water and wastewater in the United States and abroad. Covanta owns or operates 55 power generation facilities, 40 of which are in the United States and 15 of which are located outside of the United States. Covanta’s power generation facilities use a variety of fuels, including municipal solid waste, water (hydroelectric), natural gas, coal, wood waste, landfill gas and heavy fuel oil. Covanta also operates water or wastewater treatment facilities, all of which are located in the United States. Until September 1999, and under prior management, Covanta was also actively involved in the entertainment and aviation services industries. Covanta’s principal executive offices are located at 40 Lane Road, Fairfield, New Jersey and its telephone number is (973) 882-9000.

     Prior to March 10, 2004 when we acquired Covanta upon its emergence from bankruptcy proceedings, it and most of its domestic subsidiaries had been operating as debtors in possession under Chapter 11 of the United States Bankruptcy Code.

Risk Factors

     An investment in our common stock is very risky. You should consider carefully the risk factors beginning later on this page 2 of this prospectus.

Use of Proceeds

     We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders.

RISK FACTORS

     An investment in our common stock is very risky. You should carefully consider the following factors and all the information in this prospectus and the information incorporated by reference herein.

Danielson-Specific Risks

We Cannot Be Certain That The Net Operating Loss Tax Carryforwards Will Continue to Be Available to Offset Our Tax Liability.

     As of December 31, 2003, we had approximately $652 million of net operating loss tax carryforwards for Federal income tax purposes, which we refer to as “NOLs”. In order to utilize the NOLs, we must generate taxable income which can offset such carryforwards. The NOLs are also utilized by income from certain grantor trusts that were established as part of the Mission Insurance organization. The NOLs will expire if not used. The availability of NOLs to offset taxable income would be substantially reduced if we were to undergo an “ownership change” within the meaning of Section 382(g)(1) of the Internal Revenue Code. We will be treated as having had an “ownership change” if there is more than a 50% change in stock ownership during a three year “testing period” by “5% stockholders”.

     In order to help us preserve the NOLs, our certificate of incorporation contains stock transfer restrictions designed to reduce the risk of an ownership change for purposes of Section 382 of the Internal Revenue Code. The transfer restrictions were implemented in 1990, and we expect that the restrictions will remain in force as long as the NOLs are available. We cannot assure you, however, that these restrictions will prevent an ownership change.

     The NOLs will expire in various amounts, if not used, between 2004 and 2023. The Internal Revenue Service has not audited any of our tax returns for any of the years during the carryforward period including those returns for the years in which the losses giving rise to the NOLs were reported. We cannot assure you that we would prevail if the IRS were to challenge the availability of the NOLs. If the IRS was successful in challenging our NOLs, all or some portion of the NOLs would not be available to offset our future consolidated income and we may not be able to satisfy our obligations to Covanta under a tax sharing agreement, or to pay taxes that may be due from our consolidated tax group.

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     In addition to the foregoing, other possible reductions in our NOLs could occur in connection with ACL’s emergence from bankruptcy. Management anticipates that should ACL emerge from bankruptcy, while we will attempt to manage the tax consequences of that transaction, taxable income could result from ACL debt forgiveness and asset sales, which could materially reduce our NOLs.

The Market for Our Common Stock Has Been Historically Illiquid Which May Affect Your Ability to Sell Your Shares.

     The volume of trading in our stock has historically been low. Having a market for shares without substantial liquidity can adversely affect the price of the stock at a time an investor might want to sell his, her or its shares.

Future Sales of Our Common Stock May Depress Our Stock Price.

     No prediction can be made as to the effect, if any, that future sales of our common stock, or the availability of our common stock for future sales, will have on the market price of our common stock. Sales in the public market of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock. The potential effect of the sale of our shares of common stock pursuant to this prospectus may be to depress the price at which our common stock trades.

Reduced Liquidity and Price Volatility Could Result in a Loss to Investors.

     Although our common stock is listed on the AMEX, there can be no assurance as to the liquidity of an investment in our common stock or as to the price an investor may realize upon the sale of our common stock. These prices are determined in the marketplace and may be influenced by many factors, including the liquidity of the market for our common stock, the market price of our common stock, investor perception and general economic and market conditions.

SZ Investments Beneficially Owns Approximately 16.2% of Our Outstanding Common Stock.

     As of July 14, 2004, SZ Investments, L.L.C., a selling stockholder referred to in this prospectus as “SZ Investments,” beneficially owned 11,796,442 shares of our common stock for an aggregate beneficial ownership of approximately 16.2% of our common stock. In addition, our nine member board of directors includes two affiliates of SZ Investments, Samuel Zell, Chairman of the Board, and William Pate, and our Chief Financial Officer is also an affiliate of SZ Investments. Because of its large percentage of ownership, and board and officer representation, SZ Investments may have significant control over our management and policies.

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Concentrated Stock Ownership and Charter Provision May Discourage Unsolicited Acquisition Proposals.

     Assuming the issuance of 3.0 million shares of our Common Stock in a subsequent rights offering to a class of Covanta creditors, SZ Investments, Third Avenue Trust, on behalf of Third Avenue Value Fund, a selling stockholder referred to in this prospectus as “Third Avenue,” and D. E. Shaw Laminar Portfolios, L.L.C., a creditor of Covanta and a selling stockholder referred to in this prospectus as “Laminar,” separately own or will have the right to acquire approximately 15.6%, 6.0% and 18.4%, respectively, or when aggregated, 40.0% of our outstanding common stock. Although there are no agreements among them regarding their voting or disposition of shares of our common stock, the level of their combined ownership of shares of common stock could have the effect of discouraging or impeding an unsolicited acquisition proposal. In addition, the change in ownership limitations contained in Article Fifth of our charter could have the effect of discouraging or impeding an unsolicited takeover proposal.

Covanta-Specific Risks

Covanta Emerged from Bankruptcy with A Large Amount of Domestic Debt, And We Cannot Assure You That Its Cash Flow from Domestic Operations Will Be Sufficient to Pay This Debt.

     If a sufficient portion of NOLs are not available to Covanta and Danielson cannot meet its obligations under the tax sharing agreement to Covanta, it is likely that Covanta will not have sufficient cash flow from operations or other sources of liquidity to pay the principal and interest due with respect to its domestic debt.

     Covanta’s ability to service its domestic debt will also depend upon:

• its ability to continue to operate and maintain its facilities consistent with historical performance levels;

• its ability to maintain compliance with its debt covenants;

• its ability to avoid increases in overhead and operating expenses in view of the largely fixed nature of its revenues;

• its ability to maintain or enhance revenue from renewals or replacement of existing contracts, which begin to expire in October, 2007, and from new contracts to expand existing facilities or operate additional facilities; and

• market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after its existing contracts expire.

The Amount of Unsecured Claims for Which Covanta Is Liable Has Not Been Determined and Could Exceed Our Estimates.

     In connection with Covanta’s emergence from bankruptcy, Covanta authorized the issuance of $50 million of unsecured notes under an indenture. Although Covanta estimates that it will issue such notes in an amount less than $35 million, the ultimate amount of unsecured

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notes will not be determined until remaining claims are resolved through settlement or litigation in Bankruptcy Court. We cannot assure you that the final amount of such notes issued will be less that Covanta’s estimate, or that the ultimate resolution of such claims will result in liabilities of less than $50 million.

Covanta May Not Be Able to Refinance Its Domestic Debt Agreements Prior to Maturity.

     Covanta issued high yield notes which mature in 2011. Prior to maturity, Covanta is obligated to pay only interest, and no principal, with respect to these notes. Covanta’s cash flow may be insufficient to pay the principal at maturity, which will be $230 million at such time. Consequently, Covanta may be obligated to refinance these notes prior to maturity. Covanta may refinance the notes during the first two years after issuance without paying a premium, and thereafter may refinance these notes but must pay a premium to do so.

     Several of Covanta’s contracts require it to provide certain letters of credit to contract counterparties. The aggregate stated amount of these letters declines materially each year, particularly prior to 2010. Covanta’s financing arrangements under which these letters of credit are issued expire in 2009, and so it must refinance these arrangements in order to allow Covanta to continue to provide the letters of credit beyond the current expiration date.

     We cannot assure you that Covanta will be able to obtain refinancing on acceptable terms, or at all.

Covanta’s Ability to Grow Its Business Is Limited.

     Covanta’s ability to grow its domestic business by investing in new projects will be limited by debt covenants in its principal financing agreements, and from potentially fewer market opportunities for new waste-to-energy facilities.

     We cannot assure you that, when it seeks to refinance its domestic debt agreements, Covanta will be able to negotiate covenants that will provide it with more flexibility to grow its business.

Covanta’s Liquidity Is Limited by The Amount of Domestic Debt Issued When It Emerged from Bankruptcy.

     Covanta believes that its cash flow from domestic operations will be sufficient to pay for its domestic cash needs, including debt service on its domestic corporate debt, and that its revolving credit facility will provide a secondary source of liquidity. We cannot assure you that Covanta’s cash flow from domestic operations will not be adversely affected by adverse economic conditions or circumstances specific to one or more projects or that if such conditions or circumstances do occur, its revolving credit facility will provide Covanta with access to sufficient cash for such purposes.

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Operation of Covanta’s Facilities and the Construction of New or Expanded Facilities Involve Significant Risks That Cannot Always be Covered by Insurance or Contractual Protections.

     The operation of Covanta’s facilities and the construction of new or expanded facilities involve many risks, including:

• the inaccuracy of Covanta’s assumptions with respect to the timing and amount of anticipated revenues;

• supply interruptions;

• work stoppages;

• permitting and other regulatory issues;

• labor disputes;

• social unrest;

• weather interferences;

• unforeseen engineering and environmental problems;

• unanticipated cost overruns;

• catastrophic events including fires, explosions, earthquakes and droughts;

• changes in legal requirements;

• acts of terrorism;

• breakdown or failure of equipment or processes;

• performance below expected levels of output or efficiency;

• license revocation; and

• the exercise of the power of eminent domain.

     Expansions of existing plants and construction of new plants may require that Covanta incorporate recently developed and technologically complex equipment, especially in the case of newer environmental emission control technology.

     Although Covanta maintains insurance, obtains warranties from vendors, obligates contractors to meet certain performance levels, and attempts, where feasible, to pass risks, Covanta cannot control to the service recipient or output purchaser, the proceeds of such

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insurance, warranties, performance guarantees or risk sharing arrangements may not be adequate to cover lost revenues, increased expenses or liquidated damages payments.

Performance Reductions Could Materially And Adversely Affect Covanta.

     Any of the risks described in this prospectus or unforeseen problems could cause Covanta’s projects to operate below expected levels, which in turn could result in lost revenues, increased expenses, higher maintenance costs and penalties for defaults under Covanta’s service agreements and operating contracts. As a result, a project may operate at less than expected levels of profit or at a loss.

     Most of Covanta’s service agreements for waste-to-energy facilities provide for limitations on damages and cross-indemnities among the parties for damages that such parties may incur in connection with their performance under the contract. Such contractual provisions excuse Covanta from performance obligations to the extent affected by uncontrollable circumstances and provide for service fee adjustments if uncontrollable circumstances increase its costs.

     We cannot assure you that these provisions will prevent Covanta from incurring losses upon the occurrence of uncontrollable circumstances or that if Covanta were to incur such losses it would continue to be able to service its debt.

     Covanta and certain of its subsidiaries have issued performance guarantees, primarily pursuant to agreements to operate energy and waste-to-energy facilities. With respect to its domestic business, Covanta has issued guarantees to its municipal clients and other parties that Covanta’s operating subsidiaries will perform in accordance with contractual terms, including, where required, the payment of damages. Such damages may be material, and in circumstances where one or more subsidiary has incurred such damages, Covanta may not have sufficient sources of cash to pay such damages. Although it has not incurred material liability under energy and waste-to-energy guarantees previously, we cannot assure you that Covanta will be able to continue to avoid incurring material payment obligations under such guarantees or that if it did incur such obligations that it would have the cash resources to pay them.

     With respect to the international projects, Covanta Power International Holdings, Inc., referred to as “CPIH” in this prospectus, Covanta and certain of Covanta’s domestic subsidiaries have issued guarantees of CPIH’s operating obligations. The potential damages that may be owed under these guarantees may be material. Covanta is generally entitled to be reimbursed by CPIH for any payments it may make under guarantees related to international projects.

Covanta Generates Its Revenue Primarily under Long Term Contracts, and Must Avoid Defaults Under Its Contracts in Order to Service Its Debt and Avoid Material Liability to Contract Counterparties.

     Covanta must satisfy its performance and other obligations under its contracts to operate waste-to-energy facilities. These contracts typically require Covanta to meet certain performance criteria relating to amounts of waste processed, energy generation rates per ton of waste processed, residue quantity, and environmental standards. Covanta’s failure to satisfy these criteria may subject it to termination of its operating contracts. If such a termination were

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to occur, Covanta would lose the cash flow related to the project, and incur material termination damage liability. In circumstances where the contract of one or more subsidiaries has been terminated for Covanta’s default, Covanta may not have sufficient sources of cash to pay such damages.

     None of Covanta’s operating contracts for its waste-to-energy facilities previously have been terminated for Covanta’s default. We cannot assure you, however, that Covanta will be able to continue to be able to perform its obligations under such contracts in order to avoid such contract terminations, or damages related to any such contract termination, or that if it could not avoid such terminations that it would have the cash resources to pay amounts that may then become due.

Covanta May Face Increased Risk of Market Influences on Its Domestic Revenues After Its Contracts Expire.

     Covanta’s contracts to operate waste-to-energy projects begin to expire in 2007, and its contracts to sell energy output generally expire when the project’s operating contract expires. Expiration of these contracts will subject Covanta to greater market risk in maintaining and enhancing its revenues. As its operating contracts at municipally-owned projects approach expiration, Covanta will seek to enter into renewal or replacement contracts to continue operating such projects. Covanta will seek to bid competitively in the market for additional contracts to operate other facilities as similar contracts of other vendors expire. The expiration of Covanta’s existing energy sales contracts, if not renewed, will require Covanta to sell project energy output either into the electricity grid or pursuant to new contracts.

     At some of Covanta’s facilities, market conditions may allow Covanta to effect extensions of existing operating contracts along with facility expansions which would increase the waste processing capacity of these projects. Such extensions and expansions are currently being considered at a limited number of Covanta’s facilities in conjunction with its municipal clients. If Covanta were unable to reach agreement with its municipal clients on the terms under which it would implement such extensions and expansions, or if the implementation of these extensions and expansions is materially delayed, this may adversely affect Covanta’s cash flow and profitability.

     Covanta’s cash flow and profitability may be adversely affected if it is unable to obtain contracts acceptable to it for such renewals, replacements or additional contracts, or extension and expansion contracts. We cannot assure you that Covanta will be able to enter into such contracts, or that the terms available in the market at the time will be favorable to Covanta.

Concentration of Suppliers and Customers May Expose Covanta to Heightened Financial Exposure.

     Covanta often relies on single suppliers and single customers at Covanta’s facilities, exposing such facilities to financial risks if any supplier or customer should fail to perform its obligations.

     Covanta often relies on a single supplier to provide waste, fuel, water and other services required to operate a facility and on a single customer or a few customers to purchase all or a

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significant portion of a facility’s output or capacity. In most cases, Covanta has long-term agreements with such suppliers and customers in order to mitigate the risk of supply interruption. The financial performance of these facilities depends on such customers and suppliers continuing to perform their obligations under their long-term agreements. A facility’s financial results could be materially and adversely affected if any one customer or supplier fails to fulfill its contractual obligations and Covanta is unable to find other customers or suppliers to produce the same level of profitability. We cannot assure you that such performance failures by third parties will not occur, or that if they do occur, such failures will not adversely affect Covanta’s cash flow or profitability.

     In addition, for its waste-to-energy facilities, Covanta relies on its municipal clients as a source not only of waste for fuel but also of revenue from fees for disposal services Covanta provides. Because Covanta’s contracts with its municipal clients are generally long term (none expires prior to 2007), Covanta may be adversely affected if the credit quality of one or more of its municipal clients were to decline materially. We cannot assure you that such credit quality will not decline, or that if one or more of Covanta’s municipal clients’ credit quality does decline, that it would not adversely affect Covanta’s domestic cash flow or profitability.

Covanta’s International Businesses Emerged from Bankruptcy with A Large Amount of Debt, and We Cannot Assure You That Its Cash Flow from International Operations Will Be Sufficient to Pay This Debt.

     Covanta’s subsidiary holding the equity interests in its international businesses, CPIH, is also highly leveraged, and its debt will be serviced solely from the cash generated from the international operations. Cash distributions from international projects are typically less dependable as to timing and amount than distributions from domestic projects, and we cannot assure you that CPIH will have sufficient cash flow from operations or other sources to pay the principal or interest due on its debt.

     CPIH’s ability to service its debt will depend upon:

• its ability to continue to operate and maintain its facilities consistent with historical performance levels;

• stable foreign political environments that do not resort to expropriation, contract renegotiations or currency or exchange changes;

• the financial ability of the electric and steam purchasers to pay the full contractual tariffs on a timely basis;

• the ability of its international project subsidiaries to maintain compliance with their respective project debt covenants in order to make equity distributions to CPIH; and

• its ability to sell existing projects in an amount sufficient to repay CPIH indebtedness at or prior to its maturity in three years, or to refinance its indebtedness at or prior to such maturity.

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CPIH’s Debt Is Due in 2007, and It Will Need to Refinance Its Debt or Obtain Cash from Other Sources to Repay This Debt at Maturity

     Covanta believes that cash from CPIH’s operations, together with liquidity available under CPIH’s revolving credit facility, will provide CPIH with sufficient liquidity to meet its needs for cash, including cash to pay debt service on CPIH’s debt prior to maturity in 2007. Covanta believes that CPIH will not have sufficient cash from its operations and its revolving credit facility to pay off its debt at maturity, and so if it is unable to generate sufficient additional cash from asset sales or other sources, CPIH will need to refinance its debt at or prior to maturity. While CPIH’s debt is non-recourse to Covanta, it is secured by a pledge of Covanta’s stock in CPIH and CPIH’s equity interests in certain of its subsidiaries. We cannot assure you that such additional cash will be available to CPIH, or that it will be able to refinance its debt on acceptable terms, or at all.

CPIH’s Assets and Cash Flow Will Not Be Available to Covanta.

     Although CPIH’s results of operations are consolidated with Danielson’s and Covanta’s for financial reporting purposes, as long as the CPIH debt is outstanding, CPIH is restricted under its credit agreements from distributing cash to Covanta. Under these agreements, CPIH’s cash may only be used for CPIH’s purposes and to service CPIH’s debt. Accordingly, although reported on Danielson’s and Covanta’s consolidated financial statements, Covanta does not have access to CPIH’s revenues or cash flows and will have access only to Covanta’s domestically generated cash flows.

A Sale or Transfer of CPIH or Its Assets May Not Be Sufficient to Repay CPIH Indebtedness.

     Although CPIH’s results of operations are consolidated with Danielson’s and Covanta’s for financial reporting purposes, due to CPIH’s indebtedness and the terms of Covanta’s credit agreements, CPIH’s cash flow is available only to repay CPIH’s debt. Similarly, in the event that CPIH determines that it is desirable to sell or transfer all or any portion of its assets or business, the proceeds would first be applied to reduce CPIH’s debt. We cannot assure you that the proceeds of any such sale would be sufficient to repay all of CPIH’s debt, consisting of principal and accrued interest or, if sufficient to repay CPIH’s debt, that such proceeds would offset the loss of CPIH’s revenues and earnings as reported by Danielson and Covanta in their respective consolidated financial statements.

Exposure to International Economic and Political Factors May Materially And Adversely Affect Covanta’s Business.

     CPIH’s operations are entirely outside the United States and expose it to legal, tax, currency, inflation, convertibility and repatriation risks, as well as potential constraints on the development and operation of potential business, any of which can limit the benefits to CPIH of a foreign project.

     CPIH’s projected cash distributions from existing facilities over the next five years comes from facilities located in countries having sovereign ratings below investment grade, including Bangladesh, the Philippines and India. In addition, Covanta continues to provide operating

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guarantees and letters of credit for certain of CPIH’s projects, which if drawn upon would require CPIH to reimburse Covanta for any related payments it may be required to make. The financing, development and operation of projects outside the United States can entail significant political and financial risks, which vary by country, including:

• changes in law or regulations;

• changes in electricity tariffs;

• changes in foreign tax laws and regulations;

• changes in United States, federal, state and local laws, including tax laws, related to foreign operations;

• compliance with United States, federal, state and local foreign corrupt practices laws;

• changes in government policies or personnel;

• changes in general economic conditions affecting each country, including conditions in financial markets;

• changes in labor relations in operations outside the United States;

• political, economic or military instability and civil unrest; and

• expropriation and confiscation of assets and facilities.

     The legal and financial environment in foreign countries in which CPIH currently owns assets or projects also could make it more difficult for it to enforce its rights under agreements relating to such projects.

     The occurrence of any of these risks could substantially delay the receipt of cash distributions from international projects or reduce the value of the project concerned. In addition, the existence of the operating guarantees and letters of credit provided by Covanta for CPIH projects could expose it to any or all of the risks identified above with respect to the CPIH projects, particularly if CPIH’s cash flow or other sources of liquidity are insufficient to reimburse Covanta for amounts due under such instruments. As a result, these risks may have a material adverse effect on Covanta’s business, consolidated financial condition and results of operations and on CPIH’s ability to service its debt.

Exposure to Foreign Currency Fluctuations May Affect Covanta’s Costs of Operations.

     CPIH sought to participate in projects in jurisdictions where limitations on the convertibility and expatriation of currency have been lifted by the host country and where such local currency is freely exchangeable on the international markets. In most cases, components of project costs incurred or funded in the currency of the United States are recovered with limited exposure to currency fluctuations through negotiated contractual adjustments to the price

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charged for electricity or service provided. This contractual structure may cause the cost in local currency to the project’s power purchaser or service recipient to rise from time to time in excess of local inflation. As a result, there is a risk in such situations that such power purchaser or service recipient will, at least in the near term, be less able or willing to pay for the project’s power or service.

Exposure to Fuel Supply Prices May Affect CPIH’s Costs and Results of Operations.

     Changes in the market prices and availability of fuel supplies to generate electricity may increase CPIH’s cost of producing power, which could adversely impact our profitability and financial performance.

     The market prices and availability of fuel supplies of some of CPIH’s facilities fluctuate. Although CPIH believes that it has adequate and reliable fuel supplies and that its suppliers have adequate production and transportation systems to comply with their contractual requirements to supply CPIH’s facilities, any price increase, delivery disruption or reduction in the availability of such supplies could affect CPIH’s ability to operate CPIH’s facilities and impair its cash flow and profitability. CPIH may be subject to further exposure if any of its future operations are concentrated in facilities using fuel types subject to fluctuating market prices and availability. Covanta may not be successful in its efforts to mitigate its exposure to supply and price swings.

Covanta’s Inability to Obtain Resources for Operations May Adversely Affect Its Ability to Effectively Compete.

     Covanta’s waste-to-energy facilities depend on solid waste both for fuel and as a source of revenue. For most of Covanta’s facilities, the prices it charges for disposal of solid waste are fixed under long-term contracts and the supply is guaranteed by sponsoring municipalities. However, for some of Covanta’s waste-to-energy facilities, the availability of solid waste to Covanta, as well as the tipping fee that Covanta must charge to attract solid waste to its facilities, depends upon competition from a number of sources such as other waste-to-energy facilities, landfills and transfer stations competing for waste in the market area. In addition, Covanta may need to obtain waste on a short-term competitive basis as its long-term contracts expire at its owned facilities. There has been and may be further consolidation in the solid waste industry which would reduce the number of solid waste collectors or haulers that are competing for disposal facilities or enable such collectors or haulers to use wholesale purchasing to negotiate favorable below-market disposal rates. The consolidation in the solid waste industry has resulted in companies with vertically integrated collection activities and disposal facilities. Such consolidation may result in economies of scale for those companies as well as the use of disposal capacity at facilities owned by such companies or by affiliated companies. Such activities can affect both the availability of waste to Covanta for disposal at some of Covanta’s waste-to-energy facilities and market pricing.

Compliance with Environmental Laws Could Adversely Affect Covanta’s Results of Operations.

     Costs of compliance with existing and future environmental regulations by federal, state and local authorities could adversely affect Covanta’s cash flow and profitability. Covanta’s

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business is subject to extensive environmental regulation by federal, state and local authorities, primarily relating to air, waste (including residual ash from combustion) and water. Covanta is required to comply with numerous environmental laws and regulations and to obtain numerous governmental permits in operating Covanta’s facilities. Covanta may incur significant additional costs to comply with these requirements. Environmental regulations may also limit Covanta’s ability to operate Covanta’s facilities at maximum capacity or at all. If Covanta fails to comply with these requirements, Covanta could be subject to civil or criminal liability, damages and fines. Existing environmental regulations could be revised or reinterpreted, and new laws and regulations could be adopted or become applicable to Covanta or its facilities, and future changes in environmental laws and regulations could occur. This may materially increase the amount Covanta must invest to bring its facilities into compliance. In addition, lawsuits by the Environmental Protection Agency, commonly referred to as the EPA, and various states highlight the environmental risks faced by generating facilities. Stricter environmental regulation of air emissions, solid waste handling or combustion, residual ash handling and disposal, and waste water discharge could materially affect Covanta’s cash flow and profitability.

     Covanta may not be able to obtain or maintain, from time to time, all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals or if Covanta fails to obtain and comply with them, the operation of Covanta’s facilities could be jeopardized or become subject to additional costs.

Federal Energy Regulation Could Adversely Affect Covanta’s Revenues and Costs of Operations.

     Covanta’s business is subject to extensive energy regulations by federal and state authorities. The economics, including the costs, of operating Covanta’s generating facilities may be adversely affected by any changes in these regulations or in their interpretation or implementation or any future inability to comply with existing or future regulations or requirements.

     The Public Utility Holding Company Act of 1935, or “PUHCA,” and the Federal Power Act, or the “FPA,” regulate public utility holding companies and their subsidiaries and place constraints on the conduct of their business. The FPA regulates wholesale sales of electricity and the transmission of electricity in interstate commerce by public utilities. Under the Public Utility Regulatory Policies Act of 1978, known as “PURPA,” Covanta’s domestic facilities are qualifying facilities (facilities meeting statutory size, fuel and ownership requirements), which are exempt from regulations under PUHCA, most provisions of the FPA and state rate regulation. Covanta’s foreign projects are exempt from regulation under PUHCA.

     If Covanta becomes subject to either the FPA or PUHCA, the economics and operations of Covanta’s energy projects could be adversely affected, including rate regulation by the Federal Energy Regulation Commission, with respect to its output of electricity. If an alternative exemption from PUHCA was not available, Covanta could be subject to regulation by the SEC as a public utility holding company. In addition, depending on the terms of the project’s power purchase agreement, a loss of Covanta’s exemptions could allow the power purchaser to cease taking and paying for electricity or to seek refunds of past amounts paid. Such results could cause the loss of some or all contract revenues or otherwise impair the value of a project and

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could trigger defaults under provisions of the applicable project contracts and financing agreements. Defaults under such financing agreements could render the underlying debt immediately due and payable. Under such circumstances, Covanta cannot assure you that revenues received, the costs incurred, or both, in connection with the project could be recovered through sales to other purchasers.

Failure to Obtain Regulatory Approvals Could Adversely Affect Covanta’s Operations.

     Covanta is continually in the process of obtaining or renewing federal, state and local approvals required to operate Covanta’s facilities. Covanta may not always be able to obtain all required regulatory approvals, and Covanta may not be able to obtain any necessary modifications to existing regulatory approvals or maintain all required regulatory approvals. If there is a delay in obtaining any required regulatory approvals or if Covanta fails to obtain and comply with any required regulatory approvals, the operation of Covanta’s facilities or the sale of electricity to third parties could be prevented, made subject to additional regulation or subject Covanta to additional costs.

The Energy Industry Is Becoming Increasingly Competitive, and Covanta Might Not Successfully Respond to These Changes.

     Covanta may not be able to respond in a timely or effective manner to the changes resulting in increased competition in the energy industry in both domestic and international markets. These changes may include deregulation of the electric utility industry in some markets, privatization of the electric utility industry in other markets and increasing competition in all markets. To the extent U.S. competitive pressures increase and the pricing and sale of electricity assumes more characteristics of a commodity business, the economics of Covanta’s business may come under increasing pressure. Regulatory initiatives in foreign countries where Covanta has or will have operations involve the same types of risks.

Changes in Laws And Regulations Affecting The Solid Waste and The Energy Industries Could Adversely Affect Covanta’s Business.

     Covanta’s business is highly regulated. Covanta cannot predict whether the federal or state governments or foreign governments will adopt legislation or regulations relating to the solid waste or energy industries. We cannot assure you that the introduction of new laws or other future regulatory developments will not have a material adverse effect on Covanta’s business, financial condition or results of operations.

Insurance Services-Specific Risks

The Insurance Products Sold by NAICC Are Subject to Intense Competition.

     The insurance products sold by NAICC are subject to intense competition from many competitors, many of whom have substantially greater resources than NAICC. We can not assure you that NAICC will be able to successfully compete in these markets and generate sufficient premium volume at attractive prices to be profitable. This risk is enhanced by the reduction in the lines of business NAICC writes as a result of it decision to reduce underwriting operations.

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Insurance Regulations May Affect NAICC’s Operations.

     The insurance industry is highly regulated and it is not possible to predict the impact of future state and federal regulations on the operations of NAICC.

If NAICC’s Loss Experience Exceeds Its Estimates, Additional Capital May Be Required.

     Unpaid losses and loss adjustment expenses are based on estimates of reported losses, historical company experience of losses reported for reinsurance assumed, and historical company experience for unreported claims. Such liability is, by necessity, based on estimates that may change in the near term. NAICC cannot assure you that the ultimate liabilities will not exceed, or even materially exceed, the amounts estimated. If the ultimate liability materially exceeds estimates, then additional capital would be required to be contributed to some of our insurance subsidiaries. NAICC and the other insurance subsidiaries have received additional capital contributions in each of the past two years and they cannot provide any assurance that they will be able to obtain such additional capital on commercially reasonable terms or at all.

     In addition, due to the fact that NAICC and its other insurance subsidiaries are in the process of running off several significant lines of business, the risk of adverse development and the subsequent requirement to obtain additional capital is heightened.

Failure to Satisfy Capital Adequacy and Risk-Based Capital Requirements Would Require NAICC to Obtain Additional Capital.

     NAICC is subject to regulatory risk-based capital requirements. Depending on its risk-based capital, NAICC could be subject to four levels of increasing regulatory intervention ranging from company action to mandatory control. NAICC’s capital and surplus is also one factor used to determine its ability to distribute or loan funds to us. If NAICC has insufficient capital and surplus, as determined under the risk-based capital test, it will need to obtain additional capital to establish additional reserves. NAICC cannot provide any assurance that it will be able to obtain such additional capital on commercially reasonable terms or at all.

ACL Bankruptcy-Specific Risks

ACL’s Emergence From Bankruptcy Might Cause Our NOLs To Be Reduced.

     If ACL emerges from bankruptcy, taxable income could result from ACL debt forgiveness and asset sales which could materially reduce our NOLs.

ACL May Not Be Able To Reorganize in Chapter 11.

     Additional risks associated with the reorganization of ACL and its emergence from Chapter 11 include, but are not limited to, adverse developments with respect to ACL’s liquidity, poor results of operations limiting ACL’s ability to continue as a going concern, and the availability of exit financing to facilitate emergence from Chapter 11 pursuant to a plan of reorganization. In addition, third parties could seek and obtain court approval to terminate or shorten the exclusivity period for ACL, to propose and confirm one or more plans of reorganization, to appoint a Chapter 11 trustee or to convert ACL’s cases to Chapter 7 cases for

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the liquidation of its businesses. In the event of the liquidation and sale of ACL’s assets or other plan terminations, under certain circumstances, statutory obligations for ACL’s ERISA qualified pension plans could be imposed upon us.

Uncertainties in the Bankruptcy Process May Adversely Affect ACL.

     ACL’s future results are dependent upon successfully obtaining approval, confirmation and implementation of a plan of reorganization. ACL has not yet submitted such a plan to the Bankruptcy Court for approval and cannot make any assurance that it will be able to submit and obtain confirmation of any such plan in a timely manner. Failure to confirm a plan in a timely manner could adversely affect ACL’s operating results, as ACL’s ability to obtain financing to fund its operations and its relations with its customers may be harmed by protracted bankruptcy proceedings.

     ACL may, under certain circumstances, file motions with the Bankruptcy Court to assume or reject executory contracts. An executory contract is one in which the parties have mutual obligations to perform, such as contracts of affreightment, charters, equipment leases and real property leases. Unless otherwise agreed, the assumption of a contract will require ACL to cure or provide for the cure of all prior defaults under the related contract, including all pre-petition liabilities. Unless otherwise agreed, the rejection of a contract is deemed to constitute a breach of the agreement as of the moment immediately preceding the Chapter 11 filing, giving the counter party a right to assert a general unsecured claim for damages arising out of the breach. Additional liabilities subject to the proceedings may arise in the future as a result of the rejection of executory contracts, including leases, and from the determination of the Bankruptcy Court, or agreement by parties in interest, of allowed claims for contingencies and other disputed amounts. Conversely, the assumption of executory contracts and unexpired leases may convert liabilities shown as subject to compromise to post-petition liabilities. Due to the uncertain nature of many of the potential claims, ACL is unable to project the magnitude of such claims with any degree of certainty.

The Adverse Publicity of ACL’s Bankruptcy Could Adversely Affect Its Results of Operations.

     The potential adverse publicity associated with the Chapter 11 filing and the resulting uncertainty regarding ACL’s future prospects may hinder ACL’s ongoing business activities and its ability to operate, fund and execute its business plan by:

• impairing relations with existing and potential customers;

• negatively impacting the ability of ACL to attract, retain and compensate key executives and associates and to retain employees generally;

• limiting ACL’s ability to obtain trade credit; and

• impairing present and future relationships with vendors and service providers.

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Uncertainties in The Bankruptcy Process May Adversely Affect the Value of Our Investment in ACL.

     Currently, it is not possible to predict with certainty the length of time ACL will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of ACL or on the interests of the various creditors and stakeholders. Under the priority scheme established by the Bankruptcy Code, many post-petition liabilities and pre-petition liabilities need to be satisfied before equity holders can receive any distribution. We, directly and indirectly, hold 100% of the equity interests in ACL. The ultimate recovery to us, if any, will not be determined until confirmation of a plan of reorganization. There can be no assurance as to what value, if any, will be ascribed to our equity interests in ACL and the other debtors in the bankruptcy proceedings. It is likely that our equity will have little or no value.

The Ongoing Costs of the Bankruptcy Process May Affect ACL’s Results of Operations and Cash Flows.

     ACL has incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, are expected to have a significant adverse affect on its results of operations and cash flows.

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FORWARD-LOOKING STATEMENTS

     This prospectus and the documents incorporated by reference in this prospectus contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Any statements that express or involve discussions as to expectations, beliefs and plans involve known and unknown risks, uncertainties and other factors that may cause the actual results to materially differ from those considered by the forward-looking statements. Factors that could cause actual results to differ materially include: our ability to fund our capital requirements in the near term and in the long term; and other factors, risks and uncertainties that are described in this prospectus and Covanta Energy Corporation’s and our filings with the Securities and Exchange Commission. As a result, no assurances can be given as to future results, levels of activity and achievements. Any forward-looking statements speak only as of the date the statements were made. Neither we nor Covanta Energy Corporation undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, unless otherwise required by law.

DANIELSON’S BUSINESS

     We are a holding company incorporated in Delaware. Substantially all of our current operations were conducted in the insurance services industry prior to our acquisition of Covanta in March 2004. We engage in insurance operations through our indirect subsidiaries, National American Insurance Company of California and related entities. We also have an equity interest in companies engaged in the marine transportation and services industry through our investment in ACL. We are the owners of all of the equity interests in ACL. ACL and certain of its related entities are currently subject to Chapter 11 Bankruptcy proceedings.

     Our strategy has been to grow by making strategic acquisitions. Such acquisitions have not and may not complement our existing operations. They also have not and may not be related to our current businesses. As part of this corporate strategy, we have sought acquisition opportunities, such as the recent acquisition of Covanta, which management believes will enable us to earn an attractive return on our investment.

     As a result of the consummation of the Covanta acquisition on March 10, 2004, our future performance will predominantly reflect the performance of Covanta’s operations which are significantly larger than our other operations. As a result, the nature of our business, the risks attendant to such business and the trends that it will face will be significantly altered by the acquisition of Covanta. Accordingly, our prior financial results will not be comparable to our future results.

     In May 2002, we acquired a 100% ownership interest in ACL, thereby entering into the marine transportation, construction and related service provider businesses. On January 31, 2003, ACL and many of its subsidiaries and its immediate direct parent entity, American Commercial Lines Holdings, LLC, referred to in this prospectus as “ACL Holdings,” filed a petition with the U.S. Bankruptcy Court to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Material uncertainty exists as to the impact of the bankruptcy on our equity interest in ACL upon the conclusion of ACL’s bankruptcy proceeding. While it cannot presently be determined, we believe that our investment in ACL is likely to have little or no value upon the

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completion of that bankruptcy proceeding. Accordingly, we attribute no value to our investment in ACL on our financial statements. Danielson, NAICC and our equity investees, operating in the marine services industries, are not guarantors of ACL’s debt, nor are they contractually liable for any of ACL’s liabilities. See “Risk Factors – ACL Bankruptcy – Specific Risks” for a more complete discussion of the risk associated with our investment in ACL.

     We currently own a direct 5.4% interest in Global Materials Services, LLC and a direct 50% interest in Vessel Leasing, LLC. ACL owns 50% of Global Materials Services and the remaining 50% of Vessel Leasing. Neither of these two companies filed for Chapter 11 protection. Global Materials Services is an owner and operator of marine terminals and warehouse operations, and Vessel Leasing leases barges to ACL’s barge transportation operations, which are in Chapter 11. We, Global Materials Services and Vessel Leasing are not guarantors of ACL’s debt nor are we, or they, contractually liable for any of ACL’s liabilities.

     As a result of the bankruptcy filing, while we continue to exercise influence over the operating and financial policies of ACL through our ownership of all of the equity interests in ACL, we no longer maintain control of ACL. Accordingly, beginning for the year ended December 31, 2003, we account for our investments in ACL, Global Materials Services and Vessel Leasing using the equity method of accounting. Under the equity method of accounting, we report our share of the equity investees’ income or loss based on our ownership interest. In determining the proper equity method earnings to be recognized for ACL, we do not recognize losses in excess of our investment carrying value of zero at December 31, 2003, as we are not liable either directly or as guarantor for such losses.

     As of the end of 2003, we reported aggregate consolidated NOLs for federal income tax purposes of approximately $652 million. These losses will expire over the course of the next 19 years unless utilized prior thereto.

     Our principal executive offices are located at 2 North Riverside Plaza, Suite 600, Chicago, Illinois 60606, and our telephone number is (312) 466-4030.

COVANTA’S BUSINESS

     Covanta develops, constructs, owns and operates for itself and others infrastructure for the conversion of waste to energy, independent power production and the treatment of water and wastewater in the United States and abroad. Covanta owns or operates 55 power generation facilities, 40 of which are in the United States and 15 of which are located outside of the United States. Covanta’s power generation facilities use a variety of fuels, including municipal solid waste, water (hydroelectric), natural gas, coal, wood waste, landfill gas and heavy fuel oil. Covanta operates water or wastewater treatment facilities, all of which are located in the United States. Until September 1999, and under prior management, Covanta was also actively involved in the entertainment and aviation services industries. Covanta’s principal executive offices are located at 40 Lane Road, Fairfield, New Jersey and its telephone number is (973) 882-9000.

     Covanta’s current principal business units are domestic energy and water, and international energy.

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     On March 10, 2004, Covanta and most of its domestic affiliates consummated a plan of reorganization and emerged from their reorganization proceedings under Chapter 11 of the Bankruptcy Code. As a result of the consummation of the plan, Covanta is our wholly-owned subsidiary. The Covanta bankruptcy commenced on April 1, 2002, when Covanta and 123 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. After the first petition date, 32 additional subsidiaries filed their Chapter 11 petitions for relief under the Bankruptcy Code. Prior to emergence, the debtors under the Chapter 11 cases operated their business as debtors-in-possession pursuant to the Bankruptcy Code.

ACQUISITION OF COVANTA ENERGY CORPORATION

     On December 2, 2003, we executed a definitive investment and purchase agreement to acquire Covanta in connection with Covanta’s emergence from Chapter 11 proceedings. The primary components of the transaction were: (1) the purchase by us of 100% of the equity of Covanta in consideration for a cash purchase price of $30.0 million, and (2) agreement as to new letter of credit and revolving credit facilities for Covanta’s domestic and international operations, provided by some of the existing Covanta lenders and three additional lenders arranged by us. We amended this agreement with Covanta as of February 23, 2004 to reduce the purchase price and release from an escrow account $175,000 so that a limited liability company formed by us and one of our subsidiaries could acquire an equity interest in Covanta Lake, Inc., a wholly-owned indirect subsidiary of Covanta, in a transaction separate and distinct from the acquisition of Covanta out of bankruptcy.

     As required by the investment and purchase agreement, Covanta filed a proposed plan of reorganization, a proposed plan of liquidation for specified non-core businesses, and the related draft disclosure statement, each reflecting the transactions contemplated under the investment and purchase agreement, with the Bankruptcy Court. On March 5, 2004, the Bankruptcy Court confirmed the proposed plans.

     Under the terms of the investment and purchase agreement, on March 10, 2004, we acquired 100% of Covanta’s equity in consideration for $30 million (net of $175,000 discussed above). As part of the investment and purchase agreement, we arranged for a new $118 million replacement letter of credit facility for Covanta, secured by a second lien on Covanta’s domestic assets. This financing was provided by each of SZ Investments, a selling stockholder, Third Avenue, a selling stockholder, and Laminar, a creditor of Covanta and a selling stockholder, who we refer to collectively in this prospectus as the “Bridge Lenders.” In addition, in connection with a note purchase agreement described below, Laminar arranged for a $10.0 million revolving loan facility for Covanta’s international assets that we acquired, secured by these assets.

     The purchase price recognized by us in our financial statements was $47.5 million which includes the cash purchase price of $29.8 million, an expense estimate of approximately $6.4 million for professional fees and other costs incurred in connection with the acquisition, and an estimated fair value of $11.3 million for our commitment to sell up to 3.0 million shares of our common stock at $1.53 per share to a class of creditors of Covanta, subject to certain limitations.

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Financing the Covanta Acquisition

     We obtained the financing necessary for the Covanta acquisition pursuant to a note purchase agreement dated December 2, 2003, with each of the Bridge Lenders. Pursuant to the note purchase agreement, the Bridge Lenders severally provided us with an aggregate of $40.0 million of bridge financing in exchange for notes issued by us, details of which are discussed under “Note Purchase Agreement” in this Section below.

     As part of our negotiations with Laminar and their becoming a 5% stockholder, pursuant to a letter agreement dated December 2, 2003, Laminar has agreed to additional restrictions on the transferability of the shares of our common stock that Laminar acquired pursuant to the note purchase agreement. Further in accordance with the transfer restrictions contained in Article Fifth of our charter restricting the resale of our common stock by 5% stockholders, we have agreed with Laminar to provide it with limited rights to resell such common stock. Finally, we agreed with each of the Bridge Lenders to file a registration statement, including this prospectus, with the SEC to register the shares of common stock issued to them under the note purchase agreement. Samuel Zell, Chairman of our board of directors, Philip Tinkler, our Chief Financial Officer, and William Pate, one of our directors, are affiliated with SZ Investments. Martin Whitman and David Barse, members of our board of directors, are officers and trustees of Third Avenue and also serve as officers of the management company that manages the investments of Third Avenue. The note purchase agreement and other transactions involving the Bridge Lenders were negotiated, reviewed and approved by a special committee of our board of directors composed solely of disinterested directors.

Description of Significant Covanta Acquisition Agreements

     The following summary is qualified by reference to each of these agreements and certain exhibits thereto, each of which is incorporated into this prospectus by reference.

Note Purchase Agreement

     We obtained the financing necessary for the Covanta acquisition pursuant to a note purchase agreement dated December 2, 2003, with each of the Bridge Lenders. Pursuant to the note purchase agreement, the Bridge Lenders severally provided us with an aggregate of $40.0 million of bridge financing in exchange for notes which were convertible under certain circumstances into shares of our common stock at a price of $1.53 per share, subject to agreed upon limitations. These notes were repaid on June 11, 2004 from the proceeds of a pro rata rights offering made to all of our stockholders on May 18, 2004.

     We used $30.0 million of the proceeds from the notes to post an escrow deposit prior to the closing of the transactions contemplated by the investment and purchase agreement. We amended the investment and purchase agreement as of February 23, 2004 to reduce the purchase price by $175,000 and release $175,000 from a purchase price escrow account so that a limited liability company formed by us and one of our subsidiaries could acquire an equity interest in Covanta Lake, Inc., a wholly-owned indirect subsidiary of Covanta in a transaction separate and distinct from the acquisition of Covanta out of bankruptcy. The acquisition of Covanta was completed on March 10, 2004, at which time the remainder of the escrowed purchase price funds

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were delivered to Covanta and used as our purchase price for Covanta. We have used and will continue to use the remaining proceeds from the sale of the bridge notes to pay transaction expenses and for general corporate purposes. In this regard, we have agreed to pay up to $0.9 million in the aggregate to the Bridge Lenders as reimbursement for expenses incurred by them in connection with the note purchase agreement.

     We issued to the Bridge Lenders an aggregate of 5,120,853 shares of our common stock primarily in consideration for the $40.0 million of bridge financing. As required under the note purchase agreement, each of the Bridge Lenders participated fully in the rights offering in respect of the rights accruing pursuant to these shares of common stock, as well as shares of our common stock owned by any of the Bridge Lenders prior to the execution of the note purchase agreement, at levels that did not exceed the level of public participation in the rights offering, as described in more detail below.

     The rights offering was completed on June 11, 2004. We issued a total of 27,438,118 additional shares of our common stock in the rights offering, constituting all of the shares offered for sale, with net proceeds to us of approximately $42.0 million. We repaid the notes with the proceeds from the rights offering and through the conversion of a portion of the notes held by Laminar. Remaining proceeds will be used for working capital purposes.

     Under the terms of the note purchase agreement between Danielson and the Bridge Lenders, we agreed with Laminar that in addition to any required prepayment under the note purchase agreement, we would prepay a portion of the $20.0 million in principal amount of notes held by Laminar through the conversion of a portion of the notes held by Laminar and the issuance of up to 8.75 million shares of our common stock at a price of $1.53 per share based upon the levels of public participation in a recent rights offering by Danielson. As defined in the note purchase agreement, the term “Public Participation” means the fraction, not to exceed one, equal to the total number of shares of our common stock purchased in the rights offering by persons other than the Bridge Lenders and the State of California Commissioner of Insurance divided by 16,388,017, calculated to the fourth decimal place. Based upon the participation in the rights offering, the Public Participation fraction was equal to one and we issued the maximum of 8.75 million shares to Laminar pursuant to the conversion of approximately $13.4 million in principal amount of notes.

     Consequently, the $20.0 million principal amount of notes held by Laminar plus accrued but unpaid interest was repaid in full on June 11, 2004 through the issuance of 8.75 million shares of our common stock to Laminar and proceeds from the rights offering.

     Following the consummation of the rights offering and the issuance of shares of our common stock to Laminar as described above, we will consider the number of shares of our common stock that could be sold without creating an unreasonable risk of an ownership change. Based on this determination, we have agreed to commence an offering of shares to a class of creditors of Covanta that are entitled to participate in an offering of up to 3.0 million shares of our common stock at a price of $1.53 per share pursuant to the plan of reorganization filed with the Bankruptcy Court in connection with our acquisition of Covanta.

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Laminar Letter Agreement

     Pursuant to a letter agreement dated December 2, 2003, Laminar has agreed to additional restrictions on the transfer of shares of common stock that Laminar acquired pursuant to the note purchase agreement. We have agreed with Laminar that, among other things, they will be permitted to sell such common stock over three years in the following amounts:

• up to 10% of our outstanding shares for a period of one year following March 10, 2004;

• up to an additional 5% of our outstanding shares, or an aggregate of 15% of our outstanding shares, during the period beginning one year following March 10, 2004 and ending two years following March 10, 2004;

• up to an additional 5% of our outstanding shares, or an aggregate of 20% of our outstanding shares, during the period beginning two years following March 10, 2004 and ending three years following March 10, 2004; and

• no restrictions thereafter other than restrictions included in our certificate of incorporation.

     In connection with this letter agreement, a special committee of disinterested members of our Board of Directors has determined that sales of our common stock in accordance with the foregoing limitations will not create an unreasonable risk of an ownership change under Article Fifth of our charter, subject to confirmation at the time of such transfers by our tax counsel.

Registration Rights Agreement

     Pursuant to a registration rights agreement dated as of December 2, 2003, we have agreed with each of the Bridge Lenders to file, at our expense, a registration statement, including this prospectus, with the SEC to register the shares of our common stock issued to each of them under the note purchase agreement. Each of the Bridge Lenders were also granted certain “piggy-back” registration rights with respect to such shares of our common stock.

Bridge Lender Arranged Financing

     Covanta has entered into a letter of credit facility, secured by a second priority lien on Covanta’s available domestic assets, consisting of commitments for the issuance of standby letters of credit in the aggregate face amount of up to $118 million, which was arranged for Covanta by the Company. This financing was provided by the Bridge Lenders. This second lien credit facility provides that of the total commitments available, up to $10 million may be used for cash borrowings, on a revolving basis to fund working capital requirements and for general corporate purposes. Among other things, the second lien credit facility provides Covanta with the ability to issue letters of credit as may be required with respect to various domestic waste-to-energy facilities and to continue to provide existing letters of credit required in connection with various international facilities. This second lien credit facility has a term of five years. The letter of credit component of the second lien credit facility requires cash collateral to be posted for issued letters of credit in the event Covanta has cash in excess of specified amounts.

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Amounts borrowed under the revolving loan component of the second lien credit facility bear interest at either (1) 4.5% over a base rate or (2) 6.5% over a formula Eurodollar rate, the applicable rate to be determined by Covanta, increasing by 2% over the then applicable rate in specified default situations. Covanta also paid an upfront fee of $2.36 million upon entering into the second lien credit agreement, and will pay (1) a commitment fee equal to 0.5% per annum of the daily calculation of available credit, (2) an annual agency fee of $30,000, and (3) with respect to each issued letter of credit an amount equal to 6.5% per annum of the daily amount available to be drawn under such letter of credit. Amounts paid with respect to drawn letters of credit bear interest at the rate of 4.5% over the Base Rate on issued letters of credit, increasing to 6.5% over the base rate in specified default situations. Subsequent to the signing of the investment and purchase agreement, each of Third Avenue, Laminar and SZ Investments assigned approximately 30% of their participation in the second lien letter of credit facility to Goldman Sachs Credit Partners, L.P. and Laminar assigned the remainder of its participation in the second lien letter of credit facility to TRS Elara, LLC.

     International Facilities

     CPIH, a subsidiary of Covanta which holds the assets and operations of Covanta’s international independent power production business, entered into a new revolving credit facility secured by a first priority lien on substantially all of CPIH’s assets, junior only to duly perfected and unavoidable prior liens, consisting of commitments for cash borrowings of up to $10.0 million for purposes of supporting the international independent power production business, which was arranged for Covanta by Laminar.

     The CPIH revolving credit facility has a maturity date of three years following execution and bears interest at the rate of either (1) 7% over a base rate or (2) 8% over a formula Eurodollar rate, the applicable rate to be determined by CPIH, increasing by 2% over the then applicable rate in specified default situations. CPIH also paid a 2% upfront fee, $0.2 million, upon entering into the international revolving credit facility, and will pay (1) a commitment fee equal to 0.5% per annum of the daily calculation of available credit, and (2) an annual agency fee of $30,000.

     For a more complete description of the credit arrangements summarized above and other credit arrangements entered into by Covanta, please see (i) our Current Report on Form 8-K/A as filed with the SEC on May 11, 2004 which is incorporated into this prospectus by reference thereto and which includes Covanta’s financial statements and portions of Covanta’s Annual Report on Form 10-K for the year ended December 31, 2003, and (2) our Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the SEC on March 15, 2004, as amended on Form 10-K/A, as filed with the SEC on May 18, 2004, and our Quarterly Report on Form 10-Q for the period ended March 31, 2004, as filed with the SEC on May 7, 2004, as amended on Form 10-Q/A as filed with the SEC on May 18, 2004, each of which has been filed with the SEC and is incorporated into this prospectus by reference herein.

SUBSEQUENT EVENT REGARDING QUEZON POWER

     On April 27, 2004, Quezon Power (Philippines) Ltd. Co., a Philippines limited partnership, and a subsidiary of Quezon Power, Inc., proposed a refined third amendment to the

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power purchase agreement and transmission line agreement with the Manila Electric Company, which we refer to as “Meralco” in this prospectus. Covanta’s subsidiary, CPIH, holds an indirect 26.125% equity interest in Quezon Power (Philippines) Ltd. Co. through its interest in Quezon Power, Inc. As of July 27, 2004, Meralco had not approved the proposed amendment, which must also be approved by the Philippine Energy Regulatory Commission.

     The details of this transaction with Meralco were set forth in detail in Note 8 to the notes to the consolidated financial statements of Quezon Power, Inc., both of which should be read in conjunction with this discussion and were provided as supplemental financial information, attached to Covanta’s Annual Report on Form 10-K, dated March 30, 2004, and incorporated by reference into our filings pursuant to a Current Report on Form 8-K/A filed with the SEC on May 11, 2004. As a result of this proposed amendment, the general manager of Quezon Power (Philippines) Ltd. Co. determined to provide for certain deferred revenues. The general manager of Quezon Power (Philippines) Ltd. Co. is not an affiliate of Covanta or us.

     As of June 30, 2004, the aggregate amount reserved by Quezon Power (Philippines) Ltd. Co. relating to the transmission line agreement was approximately $5.2 million, of which Covanta’s equity share was approximately $1.4 million.

     The impact of this reserve to Covanta’s consolidated statement of operations was a $1.2 million reduction in equity income from unconsolidated investments for the six months ended June 30, 2004. Additionally, a corresponding reduction was reflected on Covanta’s consolidated balance sheet in investments in advances to investees and joint ventures.

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USE OF PROCEEDS

     The selling stockholders are offering all of the shares of common stock covered by this prospectus. We will not receive any proceeds from the sale of the shares by the selling stockholders.

SELLING STOCKHOLDERS

     As more fully described in “Acquisition of Covanta Energy Corporation,” elsewhere in this prospectus, the selling stockholders are the Bridge Lenders who provided the $40.0 million of aggregate bridge financing for the Covanta acquisition. We issued to the Bridge Lenders an aggregate of 5,120,853 shares of our common stock primarily in consideration for the $40.0 million of aggregate bridge financing.

     In addition, under the note purchase agreement and based upon the levels of public participation in the rights offering, Laminar converted approximately $13.4 million of the notes to acquire an additional 8.75 million shares of our common stock at $1.53 per share.

     As part of our negotiations with Laminar and its becoming a 5% stockholder, pursuant to a letter agreement dated December 2, 2003, Laminar has agreed to additional restrictions on the transferability of the shares of our common stock that Laminar acquired pursuant to the note purchase agreement. Further in accordance with the transfer restrictions contained in Article Fifth of our charter restricting the resale of our common stock by 5% stockholders, we have agreed with Laminar to provide it with limited rights to resell such common stock. See “Acquisition of Covanta Energy Corporation – Laminar Letter Agreement” for a more complete discussion of Laminar’s ability to transfer such common stock.

     Finally, we agreed with the Bridge Lenders to file a registration statement, which includes this prospectus, with the SEC to register the shares of common stock issued to or acquired by each of the Bridge Lenders under the note purchase agreement. These shares included the shares of our common stock issued in consideration of providing financing to us under the note purchase agreement and shares acquired in the recent rights offering relating to those shares, as well as the 8.75 million shares issued to Laminar pursuant to the note purchase agreement. In connection with these registration rights, we are required to use our commercially reasonable effort to keep the registration statement effective until all the shares covered by the registration statement have been sold.

     The selling stockholders are not making any representation that any shares covered by the prospectus will be offered for sale. The selling stockholders reserve the right to accept or reject, in whole or in part, any proposed sale of shares. The following table sets forth the number of shares of our common stock owned by the selling stockholders as of July 14, 2004, and the number of shares of our common stock that will be owned assuming the sale of all the shares offered hereby.

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Number of

Percentage of

Number of

Percentage

Shares of

Number of

Common

Shares of

of Common

Common

Shares of

Stock

Common Stock

Stock

Stock

Common Stock

Beneficially

Name of Selling

Beneficially

Beneficially

Available for

Beneficially

Owned After

Stockholder

Owned

Owned (1)

Sale

Owned After Sale

Sale

SZ Investments, L.L.C.(2) 2 N. Riverside Plaza Chicago, IL 60606

11,796,442

16.2

%

2,240,372

9,556,070

13.1

%

Third Avenue Management LLC(3) 622 Third Avenue, 32nd Floor New York, NY 10017

4,535,622

(4)

6.2

%

2,240,372

2,295,250

3.2

%

D. E. Shaw Laminar Portfolios, L.L.C. 120 West Forty-Fifth Street Floor 39, Tower 45 New York, NY 10036

13,629,222

18.7

%

13,230,747

398,475

*

* Less than 1%

     (1) In accordance with provisions of our certificate of incorporation, all certificates representing shares of Common Stock beneficially owned by holders of five percent or more of the Common Stock are owned of record by DHC, as escrow agent, and are physically held by us in that capacity.

     (2) Samuel Zell, Chairman of our board of directors, was our President and Chief Executive Officer from July, 2002 until his resignation as of April 27, 2004 and has been a director since 1999. Philip Tinkler has been our Chief Financial Officer since January, 2003. William Pate has been a director since 1999. Each of Messrs. Zell, Tinkler and Pate is an executive officer of EGI and SZ Investments.

     (3) Third Avenue Management LLC (referred to in this prospectus as “TAM”), a registered investment advisor under Section 203 of the Investment Advisors Act of 1940, as amended, invests funds on a discretionary basis on behalf of investment companies registered under the Investment Company Act of 1940, as amended, and on behalf of individually managed separate accounts. Martin J. Whitman and David M. Barse, who are members of our board of directors, serve as officers of TAM. Mr. Whitman also serves as a director and a trustee of Third Avenue Trust. Mr. Whitman was Chairman of our board of directors and Chief Executive Officer from July, 1996 until July, 2002. Mr. Barse was our President and Chief Operating Officer from July, 1996 until July, 2002.

     (4) The shares beneficially owned by TAM are held by Third Avenue Value Fund Series of the Third Avenue Trust. These shares do not include the following shares held by each of Messrs. Whitman and Barse: (i) 1,254,145 shares beneficially owned by Mr. Whitman

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(including 166,426 shares owned by Mr. Whitman’s wife and 318,496 shares beneficially owned by a private investment company of which Mr. Whitman is the principal shareholder), and (ii) 486,932 shares beneficially owned by Mr. Barse (including shares underlying currently exercisable options to purchase an aggregate of 138,425 shares of common stock).

Transactions with Selling Stockholders

     In addition to the registration rights agreement described above, we have also previously agreed to provide SZ Investments unlimited demand registration rights with respect to ACL senior notes and ACL PIK notes held by SZ Investments and its affiliates. SZ Investments, a selling stockholder and a company affiliated with Sam Zell, our Chairman of the board of directors, William Pate, a member of our board of directors and Philip Tinkler, our Chief Financial Officer, is a holder through its affiliate, HY I Investments, L.L.C., of approximately 42% of ACL’s senior notes and payment-in-kind notes. As a result, a special committee of our board of directors was formed in November 2002, composed solely of disinterested directors, to oversee our investment in ACL and its related Chapter 11 bankruptcy proceedings.

     We have entered into a corporate services agreement dated as of September 2, 2003, pursuant to which Equity Group Investments, L.L.C., referred to in this prospectus as “EGI” has agreed to provide certain administrative services to us, including, among others, shareholder relations, insurance procurement and management, payroll services, cash management, tax and treasury functions, technology services, listing exchange compliance and financial and corporate record keeping. Samuel Zell, Chairman of our board of directors is also the Chairman of EGI, Philip Tinkler, our Chief Financial Officer, is also an executive officer of EGI and William Pate is a member of our board of directors. Under the agreement, we pay to EGI $20,000 per month plus specified out-of-pocket fees and expenses incurred by EGI under this corporate services agreement. Either party may terminate this corporate services agreement on 30 days written notice.

     We also had entered into a non-exclusive investment advisory agreement dated April 14, 1999 with EGI pursuant to which EGI had agreed to provide upon our request, investment banking services in connection with potential transactions. For these services, in 2002 we paid a $60,000 fee to EGI. In addition, in the event that a transaction was consummated for which our board of directors determined that EGI provided material services, EGI would be entitled to a fee from us in the amount of 1% of the aggregate consideration in connection with such transaction, including indebtedness assumed or outstanding. As a result of services provided to us during our recapitalization in 2002, we agreed with EGI that a fee of $3.0 million was payable to EGI. We also agreed to reimburse, upon request, EGI’s out-of-pocket expenses related to services provided under the investment advisory agreement. For providing a standby commitment to purchase any of our shares that were unsubscribed in a prior rights offering conducted by us as part of our acquisition of ACL, we paid SZ Investments a fee of $1.0 million. On December 1, 2003, prior to entering into the note purchase agreement with SZ Investments and the other Bridge Lenders, we terminated this agreement with EGI.

     On November 8, 2002, we, SZ Investments and Martin J. Whitman terminated an investment agreement existing between those parties, which provided voting and registration rights to the parties.

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     Prior to and shortly after the acquisition of ACL, we shared some personnel and facilities with several affiliated and unaffiliated companies who have common directors and officers, and a portion of expenses were allocated among the various entities. Personnel costs were allocated based upon actual time spent on our business. Costs relating to office space and equipment were allocated based upon actual usage. We believed the methodology that was used for allocation was appropriate. Total expenses allocated to us from affiliated entities were $1.8 million and $1.3 million for the years ended December 2002 and 2001, respectively.

     The note purchase agreement and other transactions involving the Bridge Lenders described under “Acquisition of Covanta Energy Corporation” above were negotiated, reviewed and approved by a special committee of our board of directors composed solely of disinterested directors and advised by independent legal and financial advisors.

     The arrangements described above are each on terms and conditions that we believe are in the aggregate not materially more burdensome to us than would be obtained on an arm’s-length basis among unaffiliated parties.

PLAN OF DISTRIBUTION

     The selling stockholders and any of their donees, pledgees, assignees or other successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

• block trades in which the broker dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker dealer as principal and resale by the broker dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• settlement of short sales;

• broker dealers may agree with the selling stockholders to sell a specified number of shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

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     Broker dealers engaged by the selling stockholders may arrange for other broker dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling stockholders (or, if any broker dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is typically in the types of transactions involved.

     The selling stockholders and any broker dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker dealers or agents and any profit on the resale of the shares by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

     Our certificate of incorporation prohibits any person from becoming a beneficial owner of 5% or more of our outstanding common stock. This restriction may significantly limit the marketability of our common stock as fewer investors will be able to acquire it than if the restriction did not exist.

     Pursuant to the registration rights agreement with the selling stockholders, all expenses of the registration of the common stock will be paid by us, including, without limitation, the SEC filing fees; provided, however, that the selling stockholders will pay all underwriting discounts and selling commissions, if any. The selling stockholders will be indemnified by us against certain civil liabilities, including certain liabilities under the Securities Act of 1933, or will be entitled to contribution in connection therewith. We will be indemnified by the selling stockholders severally against certain civil liabilities, including certain liabilities under the Securities Act of 1933, or will be entitled to contribution in connection therewith.

DESCRIPTION OF COMMON STOCK

     We are authorized to issue 160,000,000 shares of capital stock. The number of shares of common stock authorized is 150,000,000 with each share having a par value of $0.10.

Voting Rights

     Each holder of an outstanding share of our common stock is entitled to cast one vote for each share registered. Any consolidation or merger pursuant to which shares of our common stock would be converted into or exchanged for any securities or other consideration, would require the affirmative vote of a majority of the outstanding shares of the common stock holders.

Dividends

     Subject to the rights and preferences of any outstanding preferred stock and limitations imposed by the note purchase agreement, we will award dividends on common stock payable out of our funds if and when our board of directors declares them. However, we will not pay any dividend, set aside payment for dividends, or distribute on common stock unless:

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• we have paid or set apart all accrued and unpaid dividends for the preferred stock and any stock ranking on its parity; and

• we have set apart sufficient funds for the payment of the dividends for the current dividend period with respect to the preferred stock and any of the stock ranking on its parity.

Rights in Liquidation

     Upon our liquidation, dissolution or winding up, all holders of our common stock are entitled to share ratably in any assets available for distribution to holders of our common stock, after payment of any preferential amounts due to the holders of any series of our preferred stock.

Preemptive Rights

     Shares of our common stock do not entitle a stockholder to any preemptive rights to purchase additional shares of our common stock.

Transfer Restrictions

     Our common stock is subject to the following transfer restrictions: No holder of 5% or more of our common stock, including any holder who proposes to acquire common stock which would result in that holder owning 5% or more of our common stock, may purchase or receive additional shares of our common stock, or sell or transfer any of our shares of common stock, without our determining that the transaction will not result in, or create an unreasonable risk of, an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code, or any similar provisions relating to preservation of our NOLs. This 5% limitation on ownership of stock may preserve effective control of us by our principal stockholders and preserve our board’s and management’s tenure.

     In order to ensure compliance with this restriction, and to establish a procedure for processing the requests of a 5% stockholder to acquire or transfer common stock, as described in Article Fifth of our certificate of incorporation the following provisions apply to all 5% stockholders:

     Delivery of Shares and Escrow Receipts. We will issue all shares of common stock of a 5% stockholder in the name of “Danielson Holding Corporation, as Escrow Agent” and we will hold them in escrow. In lieu of certificates reflecting ownership of the escrowed common stock, we will issue the 5% stockholders an escrow receipt reflecting their beneficial ownership of common stock and recording ownership of the escrowed stock. Escrow receipts are non-transferable. The 5% stockholders retain full voting and dividend rights for all escrowed stock.

     Duration of Our Holding the Escrowed Stock. As escrow agent, we hold all shares of escrowed stock until the termination of the escrow account. If a 5% stockholder desires to transfer escrowed stock to a non-5% stockholder, we will hold all shares of escrowed stock until we receive a favorable opinion from our tax counsel that the transfer may be made without creating an unreasonable risk of resulting in an ownership change under the tax law.

31

     Acquisitions and Transfers. We will treat all requests by 5% stockholders to acquire or transfer escrowed stock on a “first to request, first to receive” basis. All requests must be in writing and delivered to us at our principal executive office, attention General Counsel, by registered mail, return receipt requested, or by hand. In the event that we are unable to conclude that a requested acquisition or transfer can be made without an ownership change under the tax law, then provided the 5% stockholder has acquired our common stock in accordance with the procedures set forth in our certificate of corporation:

• we will advise the requesting party in writing; and

• we will approve any subsequent request by other 5% stockholders of a type that we had previously denied only after we give all previously denied requests (in the order denied) the opportunity to complete the previously desired transaction. In addition, we may approve any requested transaction in any order of receipt if, in our business judgment, the transaction is in our best interests.

As discussed under “Acquisition of Covanta Energy Corporation – Laminar Letter Agreement,” our Board of Directors has authorized sales of our common stock by Laminar subject to review by our tax counsel.

     Termination of the Stock Escrow Account. The stock escrow will terminate upon the first to occur of the following:

• we conclude that the restrictions are no longer necessary in order to avoid a loss of the NOLs;

• the NOLs are no longer available to us; or

• our board concludes, in its business judgment, that preservation of the NOLs are no longer in our interest.

     Upon termination of the stock escrow, each 5% stockholder will receive a notice that the stock escrow has been terminated and will receive a common stock certificate evidencing ownership of the previously escrowed stock.

     Our certificate of incorporation provides that we are held harmless and released from any liability to 5% stockholders arising from our actions as escrow agent, except for liabilities arising from our intentional misconduct. In performing our duties we are entitled to rely upon the written advice of our tax counsel and our other experts. In the event that we require further advice regarding our role as escrow agent, we may deposit the escrowed stock at issue with a court of competent jurisdiction and make further transfers in a manner consistent with the rulings of the court.

32

EXPERTS

     The consolidated financial statements and schedules of Danielson Holding Corporation at December 31, 2003, and for each of the two years in the period then ended, incorporated by reference in this prospectus and registration statement have been audited by Ernst & Young LLP, an independent registered public accounting firm, and at December 31, 2001, and for the year then ended, by KPMG, LLP, an independent registered public accounting firm as set forth in their respective reports thereon incorporated by reference in this prospectus and registration statement, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing. We have agreed to indemnify and hold KPMG harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the incorporation by reference of its report on our past financial statements incorporated by reference in this registration statement.

     The consolidated financial statements and the related financial statement schedules of Covanta Energy Corporation (Debtor in Possession) and subsidiaries as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, incorporated into this prospectus and registration statement by reference to the Current Report on Form 8-K/A of Danielson Holding Corporation filed on May 11, 2004, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report (which report expresses an unqualified opinion and includes explanatory paragraphs relating to Covanta Energy Corporation and various domestic subsidiaries having filed voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code, the Bankruptcy Court having entered an order confirming Covanta Energy Corporation’s plan of reorganization which became effective after the close of business on March 10, 2004, substantial doubt about Covanta Energy Corporation’s ability to continue as a going concern, and Covanta Energy Corporation’s adoption of Statement of Financial Accounting Standards, referred to in this prospectus as “SFAS”, No. 143, “Accounting for Asset Retirement Obligations” in 2003, SFAS No. 142, “Goodwill and Other Intangible Assets”, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” in 2002, and SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, in 2001) which is incorporated by reference herein, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

     The consolidated financial statements of Quezon Power, Inc. at December 31, 2003 and 2002, and for each of the years then ended, incorporated by reference in this prospectus and registration statement have been audited by Sycip Gorres Velayo & Co., an independent registered public accounting firm, and at December 31, 2001, and for the year then ended, by Arthur Andersen LLP, independent auditors who have ceased operations, as set forth in their respective reports thereon incorporated by reference in this prospectus and registration statement, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

     The consolidated financial statements of American Commercial Lines LLC at December 26, 2003 and December 27, 2002, and for the year ended December 26, 2003, and for the periods from May 29, 2002 to December 27, 2002 and December 29, 2001 to May 28, 2002,

33

incorporated by reference in this prospectus and registration statement have been audited by Ernst & Young LLP, an independent registered public accounting firm, and for the year ended December 28, 2001 by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as set forth in their respective reports thereon incorporated by reference in this prospectus and registration statement, and are incorporated in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

LEGAL MATTERS

     The validity of the securities offered hereby will be passed upon for the Company by Neal, Gerber & Eisenberg, LLP of Chicago, Illinois. David S. Stone, a partner of Neal, Gerber & Eisenberg, LLP, is Secretary and Acting General Counsel of the Company.

WHERE YOU CAN FIND MORE INFORMATION

Danielson Holding Corporation

     This prospectus is part of a registration statement on Form S-3 we filed with the SEC under the Securities Exchange Act of 1934. You should rely only on the information or representations provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

     We are subject to the information and reporting requirements of the Securities Exchange Act, under which we file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material also can be obtained at the SEC’s website, www.sec.gov or by mail from the public reference room of the SEC, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public on our corporate website, www.danielsonholding.com. Our common stock is traded on the American Stock Exchange. Material filed by us can be inspected at the offices of the American Stock Exchange at 86 Trinity Place, New York, NY 10006.

Covanta Energy Corporation

     Covanta also files periodic reports and other information with the SEC. Such reports and other information filed by Covanta with the SEC can be read and copied at the public reference room of the SEC at the address set forth above. Copies of such material also can be obtained at the SEC’s website, www.sec.gov or by mail from the public reference room of the SEC, at prescribed rates. Please call the SEC at the number set forth above for further information on the public reference room. Covanta’s SEC filings are also available to the public on their corporate website at www.covantaenergy.com.

34

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     The SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act prior to the termination of the offering described in this prospectus:

     1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 15, 2004, as amended by our Annual Report on Form 10-K/A filed on May 18, 2004;

     2. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 filed on August 9, 2004 and our Quarterly Report for the quarter ended March 31, 2004 filed on May 7, 2004, as amended by our Quarterly Report on Form 10-Q/A filed on May 18, 2004; and

     3. Our Current Reports on Form 8-K filed on March 11, 2004, as amended by our Current Reports on Form 8-K/A filed on May 11, 2004 and May 18, 2004, and our Current Reports on Form 8-K filed on April 5, 2004, April 27, 2004, May 18, 2004, June 15, 2004 and July 23, 2004.

     The consolidated financial statements of Quezon Power, Inc. included in the Form 8-K/A incorporated by reference herein should be read in conjunction with the disclosure appearing on page 25 of this prospectus regarding developments during 2004 with respect to pre-existing contract disputes.

     You may request a copy of these filings, at no cost, by writing or telephoning as follows: Danielson Holding Corporation, 2 North Riverside Plaza, Suite 600, Chicago, Illinois, 60606 and our telephone number is (312) 466-4030.

35

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The following table sets forth the various expenses in connection with the sale and distribution of securities being registered, other than discounts, concessions and brokerage commissions. All amounts set forth below are estimates, other than the SEC registration fee.

SEC registration fee	$	13,050
Legal fees and expenses	$	75,000
Accounting fees and expenses	$	75,000
Miscellaneous	$	11,950
Total	$	175,000

     Danielson will bear all of the foregoing expenses.

Item 15. Indemnification of Directors and Officers.

     Under Section 145 of Delaware General Corporation Law (“DGCL”), a corporation has the authority to indemnify any person who was or is a party or is threatened to be made a party to an action (other than an action by or in the right of the corporation) by reason of such person’s service as a director of officer of the corporation, or such person’s service, at the corporation’s request, as a director, officer, employee or agent of another corporation or other enterprise, against amounts paid and expenses incurred in connection with the defense or settlement of such action, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such person’s conduct was unlawful. If such person has been judged liable to the corporation in any action or proceeding brought by or in the right of the corporation, however, indemnification is only permitted to the extent that the adjudicating court (or the court in which the action was brought) determines, despite the adjudication of liability, that such indemnification is proper.

     As permitted by Section 145 of DGCL, the restated certificate of incorporation and by-laws of Danielson authorize Danielson to indemnify any officer, director and employee of Danielson against amounts paid or expenses incurred in connection with any action, suit or proceeding (other than any such action by or in the right of the corporation) to which such person is or is threatened to be made a party as a result of such position if the Board of Directors or stockholders of or independent legal counsel to, Danielson, in a written opinion, determine that indemnification is proper.

II-i

Item 16. Exhibits.

     (a) Exhibits

Exhibit No.	Description
4.1	Registration Rights Agreement 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 as filed on Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 5, 2003 and incorporated by reference herein.
5.1	Opinion of Neal, Gerber & Eisenberg LLP
10.1	Employment Agreement, dated as of April 24, 2004 between the Company and Jeffrey R. Horowitz
10.2	Covanta Power International Holdings, Inc. First Amendment to Credit Agreement dated as of April 20, 2004 among Covanta Power International Holdings, Inc. (“CPIH”), the subsidiaries of CPIH listed on the signature pages thereto, Wells Fargo Bank, N.A. as Debenture Disbursing Agent, Bank of America, N.A. as Administrative Agent for the Lenders, and Deutsche Bank Securities, Inc., as Documentation Agent for the Lenders
10.3	First Amendment to Credit Agreement, dated as of August 13, 2004 among CPIH and the subsidiaries of CPIH listed on the signature pages thereto, Covanta Energy Americas, Inc. (“CEAI”) as a Loan Party, the Lenders party thereto and Deutsche Bank Securities, Inc., as Administrative Agent for the Lenders.
10.4	Second Amendment to Credit Agreement dated as of August 13, 2004 among CPIH and the subsidiaries of CPIH listed on the signature pages thereto, CEAI as a Loan Party, the Lenders party thereto, Bank of America, N.A., as Administrative Agent for the Lenders and Deutsche Bank AG, New York Branch, as Documentation Agent for the Lenders
23.1	Consent of Independent Registered Public Accounting Firm of Danielson Holding Corporation and Subsidiaries, dated August 18, 2004, by Ernst & Young LLP.
23.2	Consent of Independent Registered Public Accounting Firm of American Commercial Lines, LLC and Subsidiaries, dated August 18, 2004, by Ernst & Young LLP.
23.3	Consent of Independent Registered Public Accounting Firm of Covanta Energy Corporation and Subsidiaries, dated August 20, 2004, by Deloitte & Touche LLP.
23.4	Consent of Independent Registered Public Accounting Firm of Quezon Power, Inc. and Subsidiary, dated August 19, 2004, Sycip Gorres Velayo & Co., a Member Practice of Ernst & Young Global.
23.5	Consent of Independent Registered Public Accounting Firm of Danielson Holding Corporation and Subsidiaries dated August 20, 2004 by KPMG LLP.
23.6	Consent of Independent Registered Public Accounting Firm of American Commercial Lines, LLC, dated August 20, 2004, by PricewaterhouseCoopers LLP.
23.7	Consent of Neal, Gerber & Eisenberg LLP (included in Exhibit 5.1)
24.1	Powers of Attorney (included as part of the signature page of this Registration Statement filed on July 28, 2004)

     (b) Supplemental Financial Statement Schedules:

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Item 17. Undertakings.

     (a) The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

     (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

     (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;

     (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

     Provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement.

     (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

     (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than insurance payments and the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on August 20, 2004.

DANIELSON HOLDING CORPORATION
By:	/s/ Philip G. Tinkler
	Philip G. Tinkler
	Chief Financial Officer

     Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement on Form S-3 has been signed on August 20, 2004 by the following persons in the capacities indicated:

Signature	Title
/s/ Jeffrey R. Horowitz* Jeffrey R. Horowitz	President and Chief Executive Officer (Principal Executive Officer)
/s/ Philip G. Tinkler Philip G. Tinkler	Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ David M. Barse* David M. Barse	Director
/s/ Peter C. B. Bynoe* Peter C. B. Bynoe	Director
/s/ Richard L. Huber* Richard L. Huber	Director
/s/ Eugene M. Isenberg* Eugene M. Isenberg	Director
/s/ William C. Pate* William C. Pate	Director
/s/ Jean Smith* Jean Smith	Director

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Signature	Title
/s/ Joseph P. Sullivan* Joseph P. Sullivan	Director
/s/ Martin J. Whitman* Martin J. Whitman	Director
/s/ Clayton Yeutter* Clayton Yeutter	Director
/s/ Samuel Zell* Samuel Zell	Director

*/s/ Philip G. Tinkler
Attorney-In-Fact

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EXHIBIT INDEX

Exhibit No.	Description
5.1	Opinion of Neal, Gerber & Eisenberg LLP
10.1	Employment Agreement, dated as of April 27, 2004, between the Company and Jeffrey R. Horowitz
10.2	Covanta Power International Holdings, Inc. First Amendment to Credit Agreement dated as of April 20, 2004 among Covanta Power International Holdings, Inc. (“CPIH”), the subsidiaries of CPIH listed on the signature pages thereto, Wells Fargo Bank, N.A. as Debenture Disbursing Agent, Bank of America, N. A. as Administrative Agent for the Lenders and Deutsche Bank Securities, Inc. as Documentation Agent for the Lenders
10.3	First Amendment to Credit Agreement, dated as of August 13, 2004 among CPIH and the subsidiaries of CPIH listed on the signature pages thereto, Covanta Energy Americas, Inc. (“CEAI”) as a Loan Party, the Lenders party thereto and Deutsche Bank Securities, Inc., as Administrative Agent for the Lenders.
10.4	Second Amendment to Credit Agreement dated as of August 13, 2004 among CPIH and the subsidiaries of CPIH listed on the signature pages thereto, CEAI as a Loan Party, the Lenders party thereto, Bank of America, N.A., as Administrative Agent for the Lenders and Deutsche Bank AG, New York Branch, as Documentation Agent for the Lenders
23.1	Consent of Independent Registered Public Accounting Firm of Danielson Holding Corporation and Subsidiaries, dated August 18, 2004, by Ernst & Young LLP.
23.2	Consent of Independent Registered Public Accounting Firm of American Commercial Lines, LLC and Subsidiaries, dated August 18, 2004, by Ernst & Young LLP.
23.3	Consent of Independent Registered Public Accounting Firm of Covanta Energy Corporation and Subsidiaries, dated August 20, 2004, by Deloitte & Touche LLP.
23.4	Consent of Independent Registered Public Accounting Firm of Quezon Power, Inc. and Subsidiary, dated August 19, 2004, Sycip Gorres Velayo & Co., a Member Practice of Ernst & Young Global.
23.5	Consent of Independent Registered Public Accounting Firm of Danielson Holding Corporation and Subsidiaries dated August 20, 2004 by KPMG LLP.
23.6	Consent of Independent Registered Public Accounting Firm of American Commercial Lines, LLC, dated August 20, 2004, by PricewaterhouseCoopers LLP.
23.7	Consent of Neal, Gerber & Eisenberg LLP (included in Exhibit 5.1)

EX-5.1

EXHIBIT 5.1

[Letterhead of Neal, Gerber & Eisenberg LLP]

July 28, 2004

Danielson Holding Corporation
2 North Riverside Plaza, Suite 600
Chicago, Illinois 60606

          Re: Registration Statement on Form S-3

     Ladies and Gentlemen:

     We are acting as counsel for Danielson Holding Corporation, Inc., a Delaware corporation (the “Company”), in connection with the Registration Statement on Form S-3 (such Registration Statement, as it may be amended from time to time, is herein referred to as the “Registration Statement”) filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to the 17,711,491 shares (the “Shares”) of Common Stock, $0.10 par value per share, of the Company, previously issued to the selling stockholders named in the Registration Statement.

     In connection herewith, we have examined and relied without independent investigation as to matters of fact upon such certificates of public officials, such statements and certificates of officers of the Company and originals or copies certified to our satisfaction of the Registration Statement, the certificate of incorporation and bylaws of the Company as amended and now in effect, proceedings of the board of directors of the Company and such other corporate records, documents, certificates and instruments as we have deemed necessary or appropriate in order to enable us to render this opinion. In rendering this opinion, we have assumed the genuineness of all signatures on all documents examined by us, the due authority of the parties signing such documents, the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies.

     We are members of the Bar of the State of Illinois, and we do not express any opinion herein concerning any law other than the Delaware General Corporation Law and the federal law of the United States of America.

     This opinion speaks only at and as of its date and is based solely on the facts and circumstances known to us at and as of such date. In addition, in rendering this opinion, we assume no obligation to revise, update or supplement this opinion should the present aforementioned laws of the State of Delaware or federal laws of the United States of America be changed by legislative action, judicial decision or otherwise.

     Based upon and subject to the foregoing, we are of the opinion that the Shares are validly issued, fully paid and nonassessable.

     We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption “Legal Matters” in the Registration Statement and the Prospectus included therein.

Sincerely,

NEAL, GERBER & EISENBERG,
LLP
 

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (“Agreement”), is made and entered into as of this 27th day of April, 2004 by and between Danielson Holding Corporation, a Delaware corporation (“Corporation”) and Jeffrey R. Horowitz, an individual residing at 11 Laurel Lane, Bernardsville, New Jersey    (the “Executive”).

RECITALS

     WHEREAS, the Corporation desires to employ Executive as the interim President and Chief Executive Officer of the Corporation;

     WHEREAS, the Executive desires to be employed by the Corporation as the interim President and Chief Executive Officer at the salary and for the benefits provided herein;

     WHEREAS, the Executive acknowledges and understands that during the course of his employment, the Executive has and will become familiar with certain confidential information of the Corporation which is exceptionally valuable to the Corporation and vital to the success of the Corporation’s business; and

     WHEREAS, the Corporation and the Executive each desire to protect such confidential information from disclosure to third parties or use of such information to the detriment of the Corporation.

AGREEMENT

     NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. Employment. The Corporation hereby agrees to employ the Executive, and the Executive hereby accepts such employment, as the interim President and Chief Executive Officer the Corporation.

     2. Term. The term of this Agreement shall commence on April 27, 2004 and shall continue until March 2, 2005 (the “Term”), unless earlier terminated pursuant to Section 12 of this Agreement.

     3. Duties. The Executive shall have the duties and responsibilities as determined by the Board of Directors of the Corporation in accordance with the Articles of Incorporation and the By-Laws of the Corporation in effect from time to time, provided that such duties shall at all times be consistent with the duties normally performed by Presidents and Chief Executive

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Officers of companies engaged in businesses similar to the business of the Corporation. The Executive agrees to devote substantially all of his business time, attention and energies to the diligent performance of his duties hereunder and will not, during the Term hereof, engage in, accept employment from, or provide services to any other person, firm, corporation, governmental agency or other entity that engages in any activities which, in the opinion of the Board of Directors, would conflict with or detract from the Executive’s capable performance of such duties. The Corporation recognizes that during the Term of this Agreement, the Executive may make passive investments which will not interfere with or detract from the Executive’s performance of his duties and obligations hereunder, subject to the policies applicable to senior executive of the Corporation.

     4. Compensation.

     (a) Base Salary. During the Term of this Agreement, the Executive shall receive compensation equal to the annual rate of $300,000 payable in equal bi-weekly installments or as otherwise agreed to by the parties. The annual amount of salary payments to the Executive during the Term of this Agreement shall be referred to herein as the “Base Salary.”

     (b) Bonus. During the Term of this Agreement and commencing as of the date hereof, the Executive shall participate in a bonus program to be adopted by the Corporation providing the Executive with the opportunity to earn a cash bonus equal to up to 80% of the Executive’s Base Salary (the “Bonus”). The Bonus shall payable as follows: 75% of the Bonus shall be payable upon termination of employment other than pursuant to Sections 12(a) or 12(e) and 25% of the Bonus shall be payable at the discretion of the Corporation’s Compensation Committee of the Board of Directors of the Corporation.

     5. Benefits. During the Term of this Agreement, the Executive shall be entitled to receive benefits as are provided generally to other senior executives of the Corporation from time to time. As soon as practicable, the Corporation shall use its reasonable best efforts to cause its subsidiary, Covanta Energy Corporation, to amend its retirement, supplemental retirement and 401(k) plans to permit employees of the Corporation, including the Executive, to participate therein. Executive shall be entitled to four (4) weeks of vacation during each twelve (12) month period hereunder.

     6. Expenses. During the Term of this Agreement, the Executive shall be reimbursed by the Corporation for all reasonable, ordinary and necessary out-of-pocket expenses for travel, lodging, meals, entertainment expenses, or any other similar expenses incurred by the Executive in performing services for the Corporation to the extent that such expenditures are substantiated and documented by the Executive as reasonably requested or required by the Corporation.

     7. Non-Disclosure of Confidential Information.

     a. The Executive, except in furtherance of the business of the Corporation, or otherwise with the prior authorization of the Corporation, will not during, or for a period of three (3) years after termination of, this Agreement, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of the Executive’s employment hereunder), or utilize for the

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Executive’s personal benefit or for the benefit of any competitor of the Corporation, any Confidential Information (as hereinafter defined).

     b. For the purposes of this Agreement, the term “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of the Corporation or which are licensed by the Corporation, any financial data or lists of actual or potential customers or suppliers (including contacts thereat) of the Corporation, and any information regarding the Corporation’s contracts, marketing and sales plans, which is not generally known to the public through legitimate origins. The Corporation and the Executive acknowledge and agree that such Confidential Information is extremely valuable to the Corporation and shall be deemed to be a “trade secret.” In the event that any part of the Confidential Information becomes generally known to the public through legitimate origins (other than by the breach of this Agreement by the Executive or by misappropriation), is required to be disclosed by legal, administrative or judicial process (provided that the Executive has provided to the Corporation reasonable prior notice of such request and the Corporation has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for the purposes of this Agreement, but the Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

     c. Upon termination of this Agreement for any reason, the Executive will promptly deliver to the Corporation all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents, including all copies in any form or media, concerning the Corporation’s customers, marketing strategies, products or processes and/or which contain any Confidential Information.

     8. Covenant-Not-To-Compete. The Executive will not without the consent of the Corporation, at its sole discretion, during, or for a period of one (1) year after termination of, this Agreement, in any form or manner, directly or indirectly, on his own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Securities Exchange Act of 1934, and then only to the extent of owning not more than two percent (2%) of the issued and outstanding securities of such corporation), or provide services similar to those provided to the Corporation for, any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Corporation within the United States and any foreign country in which the Corporation or any of its subsidiaries conducts business during the term of this Agreement. For purposes of this Agreement, the “Business” of the Corporation shall mean (i) the specialty insurance businesses currently conducted by the Corporation’s subsidiaries, (ii) the ownership and operation of waste-to-energy power generation projects, and (iii) the ownership and operation of water and wastewater treatment facilities; provided, however, that notwithstanding the foregoing, the Executive shall be permitted to engage in the practice of law (other than in the legal department of an entity that would otherwise result in a violation of this Section 8).

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     9. Covenant Not to Solicit.

     (a) Covenant Not to Solicit Employees. During Executive’s employment by the Corporation and for a period of one (1) year following termination or cessation of Executive’s employment pursuant to this Agreement, Executive agrees and covenants that he will not, for any reason, directly or indirectly, employ, solicit or endeavor to entice away from the Corporation or any of its subsidiaries (whether for his own benefit or on behalf of another person or entity), or facilitate the solicitation, employment or enticement of, any employees of Corporation to work for Executive, any affiliate of Executive or any competitor of Corporation, nor will Executive otherwise attempt to interfere (to the Corporation’s detriment) in the relationship between the Corporation or any of its subsidiaries and any such employees.

     (b) Covenant Not to Solicit Customers. During Executive’s employment pursuant to this Agreement and for a period of one (1) year following termination or cessation of Executive’s employment, Executive agrees and covenants that he will not directly or indirectly in any form or manner, contact, solicit, or facilitate the contacting or solicitation of any Customer of the Corporation, for the purpose of competing with the Business of the Corporation. For purposes of this Agreement, a “Customer” of the Corporation shall mean and refer to (i) each person, entity, municipality or other governmental entity that has received services or operated project with the Corporation or any of its affiliates during the period of Executive’s employment hereunder and (ii) each person, entity, municipality, or other governmental entity formally solicited by the Corporation to provide services or operate projects during the period of Executive’s employment hereunder; provided, however, that notwithstanding the foregoing, the Executive shall be permitted to act as an advisor or director of a business, provided that such advise and business is not directly competitive with the Business.

     10. Equitable Remedies. In the event that the Executive breaches any of the terms contained in Sections 7, 8 or 9 of this Agreement, the Executive stipulates that said breach will result in immediate and irreparable harm to the business and goodwill of the Corporation and that damages, if any, and remedies at law for such breach would be inadequate. The Corporation shall therefore be entitled to apply for and receive from any court of competent jurisdiction an injunction to restrain any violation of this Agreement and for such further relief as the court may deem just and proper. Following judgment or other final determination by such court, the non-prevailing party in such proceeding shall pay the costs and expenses (including court costs and reasonable attorneys’ fees) of the prevailing party.

     11. Continuing Obligation. The obligations, duties and liabilities of the Executive pursuant to Sections 7, 8 or 9 of this Agreement are continuing, absolute and unconditional and shall remain in full force and effect as provided therein despite any termination of this Agreement for any reason whatsoever, including, without limitation, the expiration of the Term of this Agreement. Notwithstanding anything else contained in this Agreement to the contrary, the parties hereto agree that in the event the Executive breaches any of the terms contained in Sections 7, 8 or 9 of this Agreement, the obligation of the Corporation to pay any Base Salary or Bonus under this Agreement (or pursuant to any severance payment set forth in Section 12 of this Agreement) shall terminate as of the date of such breach by the Executive.

     12. Termination of Employment.

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     a. Termination by Corporation of Executive for Cause. The Corporation shall have the right to terminate the Executive’s employment at any time for “cause.” For purposes hereof, “cause” shall mean that the Executive has:

i.	been convicted of, or plead nolo contendere to, a felony or crime involving moral turpitude; or
ii.	committed an act of personal dishonesty or fraud involving personal profit in connection with the Executive’s employment by the Corporation; or
iii.	committed a breach of any covenant, provision, term, condition, understanding or undertaking set forth in this Agreement, including, without limitation, the provisions contained in Sections 7, 8 or 9 hereof, where such breach results in or is reasonably likely to result in a material adverse affect on the Corporation; or
iv.	committed an act which the Board of Directors of the Corporation has properly found to have involved willful misconduct or gross negligence on the part of the Executive, which results in or is reasonably likely to result in a material adverse affect on the Corporation; or
v.	exhibited documented habitual absenteeism or been unable or repeatedly failed to perform any reasonable or customary tasks typically required in connection with the Executive’s employment and position with the Corporation or its subsidiaries;

provided, however, that no termination under clause (iii), (iv) or (v) of this Section 12(a) shall be effective unless the Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice the Executive shall have failed to cure such alleged behavior constituting “cause,” provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured. If the Corporation shall terminate the Executive’s employment pursuant to this Section 12(a), the Corporation shall only be obligated to pay to the Executive the Base Salary, but not any Bonus, payable to the Executive pursuant to this Agreement, accrued up to and including the date on which the Executive’s employment is so terminated. Thereafter, the Corporation shall have no further obligation whatsoever to the Executive.

     b. Termination by Corporation of Executive Because of Executive’s Disability, Injury or Illness. The Corporation shall have the right to terminate the Executive’s employment if the Executive is unable to perform the duties assigned to him by the Corporation because of the Executive’s disability, injury or illness; provided, however, that in the event of such disability, injury or illness, the Executive’s inability to perform such duties must have existed for a total of three (3) months during the Term of this Agreement before such termination can be made effective. If the Corporation shall terminate the Executive’s employment pursuant to this Section 12(b), the Corporation shall be obligated to pay to the Executive the Base Salary and the Bonus payable to the Executive under this Agreement. Payments of the Base Salary for the remaining term of the Agreement shall be paid in equal bi-weekly installments, unless otherwise agreed to by the parties. The Bonus, if any, payable to the Executive shall be paid to Executive

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30 days following the termination of Executive’s employment, unless otherwise agreed to by the parties. Thereafter, the Corporation shall have no further obligation whatsoever to the Executive.

     c. Termination by Corporation as a Result of Executive’s Death. The obligations of the Corporation to the Executive under this Agreement (except as provided in this Section 12(c)) shall automatically terminate upon the Executive’s death and the Corporation shall pay to the Executive’s estate the Base Salary and the Bonus payable to the Executive under this Agreement. Payments of the Base Salary for the remaining term of the Agreement shall be paid in equal bi-weekly installments, unless otherwise agreed to by the Corporation and the Executive’s estate. The Bonus, if any, payable to the Executive’s estate shall be paid 30 days following the termination of Executive’s employment, unless otherwise agreed to by the Corporation and the Executive’s estate. Thereafter, the Corporation shall have no further obligation whatsoever to the Executive’s estate.

     d. Termination of Executive by the Corporation for Any Other Reason. The Corporation shall have the right to terminate the Executive’s employment for any other reason upon ten (10) days prior written notice to the Executive. In the event of a termination by the Corporation of the Executive’s employment for any reason other than the reasons set forth in Sections 12(a), 12(b) or 12(c) hereof, the Corporation shall be obligated to pay to the Executive the Base Salary and the Bonus payable to the Executive under this Agreement. Payments of the Base Salary for the remaining term of the Agreement shall be paid in equal bi-weekly installments, unless otherwise agreed to by the parties. The Bonus, if any, payable to the Executive shall be paid 30 days following the termination of Executive’s employment, unless otherwise agreed to by the parties. Thereafter, the Corporation shall have no further obligation whatsoever to the Executive.

     e. Termination by Executive. The Executive may resign and terminate his employment by the Corporation for any reason whatsoever upon thirty (30) days prior written notice to the Corporation. Thereafter, the Corporation shall have no obligation to the Executive, except for paying the Executive the portion of the Base Salary accrued up to and including the date of termination and those obligations provided as a matter of federal or state law.

     f. Good Reason. If, during the Term of this Agreement, the Executive resigns for Good Reason (as defined below), the Corporation shall be obligated to pay to the Executive the Base Salary and the Bonus payable to the Executive under this Agreement. Payments of the Base Salary for the remaining term of the Agreement shall be paid in equal bi-weekly installments, unless otherwise agreed to by the parties. The Bonus, if any, payable to the Executive shall be paid 30 days following the termination of Executive’s employment, unless otherwise agreed to by the parties. Thereafter, the Corporation shall have no further obligation whatsoever to the Executive. For purposes of this Agreement, “Good Reason” shall mean (i) a requirement by the Corporation that the Executive report for the performance of his services hereunder on a regular or permanent basis at any location or office more than fifty (50) miles from the current principal executive offices of Covanta Energy Corporation in Fairfield, New Jersey, (ii) the assignment to the Executive of duties and responsibilities materially inconsistent with the intents and purposes of Executive’s employment pursuant to this Agreement, or (iii) a material breach by the Corporation of its obligations to the Executive pursuant to this Agreement.

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     13. Capacity. The Executive hereby represents and warrants that, in entering into this Agreement, he is not in violation of any contract or agreement, whether written or oral, with any other person, firm, partnership, corporation or other entity to which he is a party or by which he is bound and will not violate or interfere with the rights of any other person, firm, partnership, corporation or other entity. In the event that such a violation or interference does occur, or is alleged to occur, notwithstanding the representation and warranty made hereunder, the Executive shall indemnify the Corporation from and against any and all manner of expenses and liabilities incurred by the Corporation or any affiliated company of the Corporation in connection with such violation or interference or alleged violation or interference.

     14. Entire Agreement. This Agreement and the other agreements described herein contains the entire agreement between the parties with respect to the subject matter hereof and shall not be modified except in writing by the parties hereto. Furthermore, the parties hereto specifically acknowledge and agree that this Agreement and the other agreements described herein supersedes all prior agreements between the Executive and the Corporation in whatever capacity so entered into, whether written or oral, and all such prior agreements, whether written or oral, shall be of no further force or effect from and after the date hereof; provided, however, that this provision shall not apply to any agreements between the Executive and any subsidiary of the Corporation.

     15. Severability. If any phrase, clause or provision of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, such phrase, clause or provision shall be deemed severed from this Agreement, but will not affect any other provisions of this Agreement, which shall otherwise remain in full force and effect. If any restriction or limitation in this Agreement is deemed to be unreasonable, onerous and unduly restrictive by a court of competent jurisdiction, it shall not be stricken in its entirety and held totally void and unenforceable, but shall remain effective to the maximum extent permitted by such court.

     16. Notices. Any notice, request or other communication required to be given pursuant to the provisions hereof shall be in writing and shall be deemed to have been given when delivered in person, on the next business day after being delivered to a nationally-recognized overnight courier service (for such next-day delivery) or five (5) days after being deposited in the United States mail, certified or registered, postage prepaid, return receipt requested and addressed to the other party at its or his last known address. The address of any party may be changed by notice in writing to the other party duly served in accordance herewith.

     17. Waiver. The waiver by the Corporation or the Executive of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition hereof.

     18. Governing Law. This Agreement and the enforcement hereof shall be governed and controlled in all respects by the internal laws, and not the laws of conflict, of the State of Illinois.

     19. Assignment of Inventions. The Executive shall disclose promptly in writing to a designated representative of the Corporation all material of a proprietary nature, including, but not limited to, ideas, inventions, discoveries, improvements, developments, designs, methods,

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systems, computer programs, trade secrets or any other intellectual property whether or not patentable or copyrightable, specifically including, but not limited to, copyright and mask works, formulae, compositions, products, processes, apparatus, and new uses of existing materials or machines (hereafter collectively called “Inventions”) made, conceived or first reduced to practice by the Executive solely or jointly with others while employed by the Corporation and which relate to or result from the actual or anticipated business, work, research or investigation of the Corporation or any of its affiliates or which are suggested by or result from any task assigned to or performed by the Executive for the Corporation or any of its affiliates. The Corporation shall be the owner of all property rights in any such Inventions, including, but not limited to, rights arising from the obtaining of letters of patent or copyright in respect thereof, which shall be vested in the Corporation. The Executive will at the Corporation’s request execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Corporation, and will assist in drafting of any description or specification of the Inventions as may be required by the Corporation to protect the Corporation’s rights in and to the Inventions, including, but not limited to, application(s) for letters of patent. The Corporation’s rights hereunder shall not be limited to this country but shall extend to any country in the world and shall attach to each Invention notwithstanding that it is perfected, improved, reduced to specific form or used after termination the Executive’s employment. The Executive agrees to lend such assistance as he may be able, at the Corporation’s request without charge in connection with any proceedings relating to such letters of patent, trade secrets, copyright or application thereof, as may be determined by the Corporation to be reasonably necessary. In such case the Corporation will reimburse expenses which the Executive may reasonably incur in assisting the Corporation to obtain, assert, defend and protect such letters of patent, trade secrets, copyright or other protection.

     20. Successors. This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

DANIELSON HOLDING CORPORATION

By: /s/ Philip Tinkler

Name: Philip Tinkler

Its: Chief Financial Officer

EXECUTIVE

/s/ Jeffrey R. Horowitz

Jeffrey R. Horowitz

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EX-10.2

Exhibit 10.2

COVANTA POWER INTERNATIONAL HOLDINGS, INC.

FIRST AMENDMENT TO CREDIT AGREEMENT

               This FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of April 20, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation (“Company”), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are “Borrowers” and each a “Borrower”), WELLS FARGO BANK, N.A., as Debenture Disbursing Agent (the “Debenture Disbursing Agent”), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (“Administrative Agent”), and DEUTSCHE BANK SECURITIES, INC., as Documentation Agent for the Lenders (“Documentation Agent”), and is made with reference to that certain Credit Agreement dated as of March 10, 2004 (the “Credit Agreement”), by and among Company, the financial institutions identified on the signature pages thereof as Lenders (the “Lenders”), Documentation Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement (as amended by this Amendment).

RECITALS

               WHEREAS, Subsection 9.6 of the Credit Agreement permits Debenture Disbursing Agent, Agents and Borrowers to amend any provision of subsection 9.25 of the Credit Agreement that only affects the rights and obligations of Debenture Disbursing Agent without the concurrence of Lenders; and

               WHEREAS, Borrowers and Debenture Disbursing Agent desire to make certain amendments to subsection 9.25, subject to the terms and conditions set forth below;

               NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows:

      SECTION 1.  AMENDMENTS TO SUBSECTION 9.25 OF THE CREDIT AGREEMENT

      1.1  Provisions Relating to Non-Confirming Holders and Disbursing Agents.

               A. Subsection 9.25A(i) of the Credit Agreement is hereby amended by deleting subsection 9.25A(i) in its entirety and substituting the following therefor:

     “(i) Notwithstanding anything in subsection 2.1A to the contrary, on the Closing Date and the Determination Date, a portion of the Loans equal to the percentage of all Loans reflected on Schedule 2.1 opposite the name of the Allowed Class 6 Disbursing Agent shall be allocable to the Allowed Class 6 Disbursing Agent subject the terms and conditions set forth in this subsection 9.25, and a portion of the Loans equal to the percentage of all Loans reflected on Schedule 2.1 opposite the name of the Debenture Disbursing Agent shall be allocable to the Debenture Disbursing Agent subject to the

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terms and conditions set forth in this subsection 9.25 (including any adjustments as a result of any deemed assignments of such Loans by the Debenture Disbursing Agent pursuant to this subsection 9.25). Notwithstanding that the Loans referenced in the preceding sentence are reflected on Schedule 2.1 as being allocable to Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent, as the case may be, none of the Debenture Disbursing Agent, the Allowed Class 6 Disbursing Agent nor any of the Non-Confirming Holders shall receive any Loans (and each of such Loans and the status (and rights and obligations) of any such Persons as a Lender or as a holder of Debenture Interests or Allowed Class 6 Interests shall be suspended) until (a) in the case of the Debenture Disbursing Agent and the Non-Confirming Holders with respect to Debenture Interests, the Debenture Closing Date, or (b) in the case of the Allowed Class 6 Disbursing Agent and the Non-Confirming Holders with respect to Allowed Class 6 Interests, the Allowed Class 6 Closing Date; provided, however, that the foregoing provisions of this sentence shall cease to apply with respect to any Non-Confirming Holder that becomes a Lender in accordance with clause (iii) of this subsection 9.25A. On the Debenture Closing Date and the Determination Date (if the Debenture Closing Date shall have occurred prior to the Determination Date), the portion of the Loan allocable to the Debenture Disbursing Agent as aforesaid, the delivery of which at such time remains suspended pursuant to the preceding sentence, shall be registered in the name of the Debenture Disbursing Agent; and on the Allowed Class 6 Closing Date and the Determination Date (if the Allowed Class 6 Closing Date shall have occurred prior to the Determination Date), the portion of the Loan allocable to the Allowed Class 6 Disbursing Agent as aforesaid, the delivery of which at such time remains suspended pursuant to the preceding sentence, shall be registered in the name of the Allowed Class 6 Disbursing Agent. All Loans that would otherwise be distributed on the Allowed Class 6 Closing Date or the Determination Date (if the Allowed Class 6 Closing Date shall have occurred prior to the Determination Date) on account of Allowed Class 6 Interests shall be held on such date by the Allowed Class 6 Disbursing Agent; and all Loans that would otherwise be distributed on the Debenture Closing Date or the Determination Date (if the Debenture Closing Date shall have occurred prior to the Determination Date) on account of 9.25% Debentures shall be held on such date by the Debenture Disbursing Agent.”.

               B. Subsection 9.25A(iii) of the Credit Agreement is hereby amended by deleting subsection 9.25A(iii) in its entirety and substituting the following therefor:

     “(iii) Each Non-Confirming Holder shall hold a Debenture Interest or an Allowed Class 6 Interest, as applicable, and shall not be deemed a Lender for any purpose under this Agreement, except that a Non-Confirming Holder may elect to become a Lender solely with respect to its Debenture Interest by executing and delivering to Administrative Agent and the Debenture Disbursing Agent a Lender Acknowledgement and satisfying the other applicable requirements for becoming a Lender set forth in this subsection 9.25; provided, that a Non-Confirming Holder shall not be permitted at any time to become a Lender with respect to its Allowed Class 6 Interest, and a Non-Confirming Holder may not execute and deliver to Administrative Agent a Lender Acknowledgement with respect to the Debenture Interest held by it except during the following periods: (a) the 45-day period commencing with the Closing Date, (b) the 30-day period after the date of delivery to the Debenture Disbursing Agent

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of any notice described in clause (v) of this subsection 9.25A, and (c) solely in the case of a Non-Confirming Holder who is not a Non-Confirming Holder as of the Debenture Closing Date, the 30-day period after such Non-Confirming Holder validly receives a Debenture Interest by assignment or purchase from another Non-Confirming Holder. Each Lender Acknowledgement shall apply with respect to all Debenture Interests of such Non-Confirming Holder, and upon receipt by Administrative Agent of such executed Lender Acknowledgement (together with, if such Non-Confirming Holder was not a Non-Confirming Holder on the Debenture Closing Date, a representation that such Non-Confirming Holder is an Eligible Assignee and payment of a processing and recordation fee to Administrative Agent of $5,000 (in addition to any fee payable to the Debenture Disbursing Agent)), any forms, certificates or other evidence with respect to United States federal income tax withholding matters that an assignee of Loans would be required to deliver to Administrative Agent pursuant to subsection 9.1B(i), and the ratable portion of the Agent Indemnification Amount (if any) owed with respect to the Loans to be deemed assigned by the Debenture Disbursing Agent to such Non-Confirming Holder, Administrative Agent shall accept such Lender Acknowledgment, the Debenture Disbursing Agent shall confirm to Administrative Agent the amount of the Debenture Interest held by such Non-Confirming Holder, such Non-Confirming Holder shall cease to be a Non-Confirming Holder and shall thereupon become a Lender for all purposes under the Loan Documents holding a Loan and Commitment in amounts equal to the amounts so confirmed by the Debenture Disbursing Agent, the Debenture Disbursing Agent shall be deemed to have assigned such Loan and Commitment to such Lender on such date for all purposes of this Agreement, and Administrative Agent shall record such assignment information in the Register.”.

               C. Subsection 9.25A(v) of the Credit Agreement is hereby amended by deleting subsection 9.25A(v) in its entirety and substituting the following therefor:

     “(v) Borrowers shall notify Administrative Agent and the Debenture Disbursing Agent in writing not less than 30 days prior to seeking any amendment, waiver or other modification to the Loan Documents that would require the approval or concurrence of all Lenders. Any notice provided pursuant to this clause (v) shall be provided by facsimile transmission and shall be deemed to have been given upon receipt of such facsimile by Administrative Agent and the Debenture Disbursing Agent in complete and legible form. Promptly after receipt of such notice, the Debenture Disbursing Agent shall notify the relevant Non-Confirming Holders on the register maintained by the Debenture Disbursing Agent promptly in accordance with its procedures established for such purposes. No such amendment, waiver or modification shall be deemed to be effective prior to the expiration of such 30-day period.”.

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      1.2  Provisions Relating to Definitions.

               Subsection 9.25B of the Credit Agreement is hereby amended by deleting the definitions of “Debenture Disbursing Agent”, “Disbursing Agent” and “Debenture Interest”, and substituting therefore the following, which shall be inserted in proper alphabetical order:

          “Debenture Disbursing Agent” means Wells Fargo Bank, N.A., in its capacity as disbursing agent for Covanta for the benefit of the holders of the 9.25% Debentures under the Approved Plan of Reorganization, the Confirmation Order, the Debenture Disbursing Agent Authorization Order and the disbursing agreement relating thereto to be entered into on or after the Closing Date.

          “Debenture Interest” means, with respect to any Non-Confirming Holder, the claim or right to payment in respect of the 9.25% Debentures of such Non-Confirming Holder in any Loan distributed to the Debenture Disbursing Agent; provided, however, that any Debenture Interest shall cease to be a Debenture Interest at such time that the Non-Confirming Holder with respect thereto shall become a Lender in accordance with subsection 9.25.

          “Disbursing Agent” means either Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent, and “Disbursing Agents” means each of them.

      1.3  Provisions Relating to Authority; Execution and Delivery of the Loan Documents.

               Subsection 9.25C of the Credit Agreement is hereby amended by deleting subsection 9.25C in its entirety and substituting the following therefor:

     “C. Execution and Delivery; Authority. The Debenture Disbursing Agent is executing and delivering this Agreement and the Intercreditor Agreement in its capacity as the disbursing agent for Covanta for the benefit of the Non-Confirming Holders on account of the 9.25% Debentures under the Approved Plan of Reorganization, the Confirmation Order and pursuant to the Debenture Disbursing Agent Authorization Order. The Allowed Class 6 Disbursing Agent is executing and delivering this Agreement and the Intercreditor Agreement as the agent for the Non-Confirming Holders holding Loans originally representing Allowed Class 6 Claims under the Approved Plan of Reorganization and the Confirmation Order.”.

      SECTION 2.  BORROWER’S REPRESENTATIONS AND WARRANTIES

               In order to induce the Debenture Disbursing Agent and the Agents to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to Debenture Disbursing Agent and the Agents that the following statements are true, correct and complete:

     2.1 Corporate Power and Authority. Each Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated

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by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the “Amended Agreement”).

     2.2 Authorization of Agreements. The execution and delivery of this Amendment has been duly authorized by all necessary corporate action on the part of each Borrower and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower.

     2.3 No Conflict. The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Organizational Documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation (which Contractual Obligation is enforceable on a post-Petition Date basis) of Company or any of its Subsidiaries or an applicable order of the Bankruptcy Court, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries.

     2.4 Governmental Consents. The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any Governmental Authorization.

     2.5 Binding Obligation. This Amendment has been duly executed and delivered by each Borrower, and each of this Amendment and the Amended Agreement is the legally valid and binding obligation of each Borrower enforceable against each Borrower in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

     SECTION 3. CONDITIONS TO EFFECTIVENESS

               This Amendment shall become effective upon (i) receipt by Administrative Agent and Company of written or telefacsimile notice that each of Company, the other Borrowers, Debenture Disbursing Agent, Administrative Agent and Documentation Agent has executed this Amendment and authorized its delivery, and (ii) execution and delivery by Debenture Disbursing Agent of counterparts to the Credit Agreement and the Intercreditor Agreement in the form attached hereto as Annex A.

      SECTION 4.  ACKNOWLEDGEMENT AND CONSENT

               Each Borrower hereby acknowledges that such Borrower has read this Amendment and consents to the terms hereof and hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Borrower under each of the Loan Documents to which such Borrower is a party shall not be impaired and each of

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the Loan Documents to which such Borrower is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects.

      SECTION 5.  MISCELLANEOUS

      5.1  Reference to and Effect on the Credit Agreement and the Other Loan Documents.

               A. On and after the effective date of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment (the “Amended Agreement”).

               B. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

               C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

     5.2 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 9.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent and their respective counsel (including, without limitation, O’Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers.

     5.3 Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

     5.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE APPLICATION OF ANOTHER LAW.

     5.5 Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

[Remainder of this page intentionally left blank]

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EXECUTION

               IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

BORROWERS:

COVANTA POWER INTERNATIONAL HOLDINGS, INC.,
By:	/s/ Ashish Sarkar
	Name:	Ashish Sarkar
	Title:	Authorized Officer
COVANTA POWER DEVELOPMENT, INC. COVANTA POWER DEVELOPMENT OF BOLIVIA, INC. COVANTA WASTE TO ENERGY OF ITALY, INC. OPI QUEZON, INC.,
By:	/s/ Ashish Sarkar
	Name:	Ashish Sarkar
	Title:	Authorized Officer

S-1

AGENTS AND LENDERS:

BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger
By:	/s/ Henry Y. Yu
	Name:	Henry Y. Yu
	Title:	Managing Director

S-2

DEUTSCHE BANK SECURITIES, INC., as Documentation Agent and Co-Arranger
By:	/s/
	Name:
	Title:
By:	/s/
	Name:
	Title:

S-3

DEBENTURE DISBURSING AGENT:

WELLS FARGO BANK, N.A., as Debenture Disbursing Agent
By:	/s/
	Name:
	Title:

S-4

Annex A

ACKNOWLEDGMENT AND COUNTERPART

     ACKNOWLEDGMENT AND COUNTERPART (this “Counterpart”), dated as of April 20, 2004 is entered into in connection with the Credit Agreement dated as of March 10, 2004 (said Credit Agreement, as it may heretofore have been and as it may hereafter be further amended, restated, supplemented or otherwise modified from time to time being the “Credit Agreement”; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), by and among Covanta Power International Holdings, Inc. (“Company”) and the Subsidiaries of Company listed on the signature pages thereof, as Borrowers; certain Persons listed on the signature pages thereof as Lenders (together with any other lenders that subsequently become party thereto, the “Lenders”); Bank of America, N.A., as administrative agent for Lenders, and Deutsche Bank Securities, Inc., as documentation agent for Lenders. The undersigned, by executing and delivering this Counterpart, hereby acknowledges and agrees (a) that upon acceptance of this Counterpart by Administrative Agent it shall become party to the Credit Agreement as “Debenture Disbursing Agent” in accordance with the terms thereof and shall have the rights and obligations of Debenture Disbursing Agent under the Credit Agreement, (b) that it shall be bound by all of the terms of the Credit Agreement as Debenture Disbursing Agent, and (c) that this Counterpart may be attached to the Credit Agreement. The undersigned hereby further agrees that the address and facsimile number of the undersigned for notice purposes pursuant to subsection 9.8 of the Credit Agreement shall be as set forth below or such shall be designated by the undersigned in a written notice delivered to Administrative Agent.

WELLS FARGO BANK, N.A.,
By:
	Name:
	Title:
	Notice Address:

A-1

ACKNOWLEDGMENT AND COUNTERPART

     ACKNOWLEDGMENT AND COUNTERPART (this “Counterpart”), dated as of April 20, 2004 is entered into in connection with the Intercreditor Agreement dated as of March 10, 2004 (said Intercreditor Agreement, as it may heretofore have been and as it may hereafter be further amended, restated, supplemented or otherwise modified from time to time being the “Intercreditor Agreement”; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), by and among Covanta Power International Holdings, Inc. (“Company”) and the Subsidiaries of Company listed on the signature pages thereof, as Borrowers; Covanta Energy Americas, Inc.; certain Persons listed on the signature pages thereof as Term Loan Lenders (together with any other lenders that subsequently become party thereto, the “Term Loan Lenders”); certain financial institutions listed on the signature pages thereof as Revolver Lenders; Deutsche Bank AG, New York Branch, as administrative agent for Revolver Lenders; Bank of America, N.A., as administrative agent for Term Loan Lenders, as collateral agent, and cash management bank; Deutsche Bank Securities, Inc., as documentation agent for Term Loan Lenders; the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Beneficiaries; the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Obligors; U.S. Bank National Association, as agent for the holders of the Prepetition Unsecured Claims Participation Interest, and U.S. Bank National Association, as Allowed Class 6 Disbursing Agent. The undersigned, by executing and delivering this Counterpart, hereby acknowledges and agrees (a) that upon acceptance of this Counterpart by Administrative Agent it shall become party to the Intercreditor Agreement as “Debenture Disbursing Agent” in accordance with the terms thereof and shall have the rights and obligations of Debenture Disbursing Agent under the Intercreditor Agreement, (b) that it shall be bound by all of the terms of the Intercreditor Agreement as Debenture Disbursing Agent, and (c) that this Counterpart may be attached to the Intercreditor Agreement. The undersigned hereby further agrees that the address and facsimile number of the undersigned for notice purposes pursuant to Section 7.1(a) of the Intercreditor Agreement shall be initially as set forth below.

WELLS FARGO BANK, N.A.,
By:
	Name:
	Title:
	Notice Address:

A-2

EX-10.3

Exhibit 10.3

FIRST AMENDMENT
TO CREDIT AGREEMENT

               This FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of August 13, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation (“Company”), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are “Borrowers” and each a “Borrower”), COVANTA ENERGY AMERICAS, INC., a Delaware corporation (“CEA”), as a Loan Party, THE LENDERS PARTY HERETO, and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent for the Lenders (“Administrative Agent”), and is made with reference to that certain Credit Agreement dated as of March 10, 2004 by and among Borrowers, the financial institutions parties thereto as Lenders and Administrative Agent (the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement (as amended by this Amendment).

RECITALS

               WHEREAS, Borrowers and the undersigned Lenders desire (i) to amend the Credit Agreement to permit a restructuring of the obligations relating to the Trezzo waste-to-energy Project, to permit the termination of the power purchase agreement relating to the Bataan cogeneration Project and to permit a working capital credit line for the Linan cogeneration Project, and (ii) to make certain other amendments to the Credit Agreement, subject to the terms and conditions set forth below;

               NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows:

     SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Provisions Relating to Defined Terms.

               A. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order:

          “Bataan Project” means the cogeneration plant Project in Bataan, the Phillippines.

          “CWTEI” means Covanta Waste to Energy of Italy, Inc., a Delaware corporation.

          “Euro” means the single currency of participating member states of the European Monetary Union.

          “First Amendment” means the First Amendment to Credit Agreement by and among Borrowers, CEA, Administrative Agent and Lenders, dated as of August 13, 2004.

          “First Amendment Effective Date” has the meaning assigned to that term in Section 2 of the First Amendment.

          “Linan JV” means Linan Ogden-Jinjiang Cogeneration Co., Ltd., a company organized under the laws of the People’s Republic of China.

          “Linan Project” means the cogeneration plan Project in Linan, China.

          “Terminated Trezzo Agreement” means the Ogden Equity Contribution Agreement dated February 9, 2001, as in effect immediately prior to the First Amendment Effective Date, relating to the Trezzo Project, pursuant to which agreement Covanta Energy Group, Inc. was (immediately prior to the First Amendment Effective Date) obligated to make capital contributions to Trezzo Project Company in Euros in an amount approximately equal to the Dollar equivalent of $1,300,000.

          “Trezzo Capitalization Agreement” means a capitalization agreement in substantially the form delivered to Administrative Agent pursuant to Section 2.1 of the First Amendment between CWTEI and Trezzo Project Company, setting forth the terms of the subordinated loans owed to CWTEI by Trezzo Project Company as modified upon the consummation of the Trezzo Project Restructuring, and pursuant to which CWTEI is obligated to make additional subordinated loans to Trezzo Project Company (i) up to 132,653 Euros if Trezzo Project Company’s throughput permit is not increased to a capacity of 500 tons/day by June 30, 2006 and (ii) up to 990,000 Euros in the event of an adverse outcome to Trezzo Project Company in its ongoing arbitration proceedings with Protecma Srl., the EPC contractor for the Trezzo Project.

          “Trezzo Project” means the waste-to-energy facility Project in Trezzo, Italy.

          “Trezzo Project Company” means Prima, S.r.l., a company organized under the laws of Italy.

          “Trezzo Project Restructuring” means, collectively: (i) the incurrence by Trezzo Project Company of Indebtedness in an amount up to 77,000,000 Euros to refinance certain existing obligations related to the Trezzo Project outstanding immediately prior to the First Amendment Effective Date and to fund working capital purposes; (ii) the granting of Liens by CWTEI on its equity interests in Trezzo Project Company and on its rights (including its rights with respect to subordinated loans advanced to Trezzo Project Company) under the Trezzo Capitalization Agreement, in each case to secure the Indebtedness described in clause (i) of this definition; (iii) the termination of the Terminated Trezzo Agreement; (iv) the execution and delivery by CWTEI and Trezzo Project Company of the Trezzo Capitalization Agreement; (v) either the creation of an escrow account by CWTEI of not more than 1,122,000 Euros to secure its obligations under the Trezzo Capitalization Agreement or the posting of a letter of credit in the maximum amount of 1,122,000 Euros to secure such obligations; and (vi) the

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repayment in cash by Trezzo Project Company of not less than 1,282,000 Euros of the approximately 2,250,000 Euro principal amount of subordinated loans owed to CWTEI.

          “Trezzo Project Restructuring Conditions” means, collectively: (i) the consummation of the Trezzo Project Restructuring; (ii) delivery by Company to Administrative Agent of an Officer’s Certificate certifying (a) that the requirements of the Trezzo Project Restructuring set forth in clauses (i) through (vi) of the definition of “Trezzo Project Restructuring” have been met, (b) that Covanta, Borrowers and each of their respective Subsidiaries have no outstanding or further obligations to Trezzo Project Company under the Terminated Trezzo Agreement, (c) that Borrowers and their respective Subsidiaries have no obligations to make any Investments in Trezzo Project Company or related to the Trezzo Project after consummation of the Trezzo Project Restructuring, other than the Investments required under the Trezzo Capitalization Agreement described in the definition of “Trezzo Capitalization Agreement”, and (d) that the Indebtedness described in clause (i) of the definition of “Trezzo Project Restructuring” is non-recourse to Borrowers and their Subsidiaries except with respect to the Liens described in clause (ii) of the definition of “Trezzo Project Restructuring”; (iii) delivery by Company to Administrative Agent of written evidence in form and substance satisfactory to Administrative Agent that the Indebtedness described in clause (i) of the definition of “Trezzo Project Restructuring” is non-recourse to Borrowers and their Subsidiaries except with respect to the Liens described in clause (ii) of the definition of “Trezzo Project Restructuring”; (iv) written acknowledgement by Trezzo Project Company (in form and substance satisfactory to Administrative Agent) that it has no claims against Covanta, Borrower or any of their respective Subsidiaries arising out of or relating to the Terminated Trezzo Agreement; and (v) Administrative Agent’s satisfaction with the form and substance of the documentation implementing the Trezzo Project Restructuring.

     1.2 Provisions Relating to Negative Covenants.

               A. Subsection 6.1 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (ix) thereof, (ii) deleting the “.” at the end of paragraph (x) thereof and substituting therefor “; and” and (iii) adding at the end thereof the following new paragraph (xi):

          “(xi) After the First Amendment Effective Date, Linan JV may become and remain liable with respect to Indebtedness under a working capital credit line denominated in local Chinese currency, so long as (a) the Dollar equivalent amount of such Indebtedness at any time outstanding shall not exceed $600,000, (b) the holder or obligee of such Indebtedness shall have no recourse to any Borrower or any Subsidiary of any Borrower (or any of their assets) other than Linan JV, and (c) the holder or obligee shall have no recourse to any assets of Linan JV and its Subsidiaries other than assets subject to Liens permitted under subsection 6.2A(xi).”.

               B. Subsection 6.2A of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (ix) thereof, (ii) deleting the “.” at the end of paragraph (x)

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thereof and substituting therefor “;” and (iii) adding at the end thereof the following new paragraphs (xi) and (xii):

          “(xi) Linan JV may grant Liens on its assets (including bank accounts) to secure its obligations with respect to Indebtedness permitted under subsection 6.1(xi); and

          (xii) CWTEI may (a) grant Liens upon consummation of the Trezzo Project Restructuring on the collateral described in clause (ii) of the definition of “Trezzo Project Restructuring”, to secure Indebtedness incurred by Trezzo Project Company described in clause (i) of the definition of “Trezzo Project Restructuring”, (b) establish the cash escrow account described in clause (v) of the definition of “Trezzo Project Restructuring”, and (c) in lieu of establishing the escrow account described in clause (b), grant Liens on cash to secure the letter of credit described in clause (v) of the definition of “Trezzo Project Restructuring”, in the case of either clause (b) or (c) to secure its obligations under the Trezzo Capitalization Agreement.”.

               C. Subsection 6.3 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (viii) thereof, (ii) inserting immediately before clause (b) of paragraph (ix) thereof “, and” , (iii) deleting from paragraph (ix) thereof the phrase “and (c) in an aggregate amount not to exceed $1,600,000 in the Trezzo waste-to-energy Project,”, (iv) deleting the “.” at the end of paragraph (ix) thereof and substituting therefor “; and”, and (v) adding at the end thereof the following new paragraph (x):

          “(x) CWTEI may make and own Investments consisting of subordinated loans to Trezzo Project Company made pursuant to the terms of (and required under) the Trezzo Capitalization Agreement, in an aggregate amount advanced not to exceed 1,122,000 Euros.”.

               D. Subsection 6.4 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (vi) thereof, (ii) deleting the “.” at the end of paragraph (vii) thereof and substituting therefor “;” and (iii) adding at the end thereof the following new paragraphs (viii) and (ix):

          “(viii) CWTEI may become and remain liable with respect to the Trezzo Capitalization Agreement concurrently with the consummation of the Trezzo Project Restructuring, so long as the Trezzo Project Restructuring Conditions are satisfied; and

          (ix) CWTEI may, concurrently with the consummation of the Trezzo Project Restructuring, become and remain liable under arrangements with respect to either (a) the cash escrow account or (b) the issuance and reimbursement of drawings under the letter of credit, in either case described in clause (v) of the definition of “Trezzo Project Restructuring”, so long as the Trezzo Project Restructuring Conditions are satisfied.”.

     1.3 Provisions Relating to Events of Default.

               Subsection 7.14 of the Credit Agreement is hereby amended by adding immediately prior to the “;” at the end thereof the following new proviso:

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               “provided, however, that termination by Company and its Subsidiaries of the Power Supply and Purchase Agreement dated June 28, 1993 in effect on the Closing Date relating to the Bataan Project shall not constitute an Event of Default under this subsection 7.14 (regardless of whether such termination occurred prior to the First Amendment Effective Date), so long as such termination is pursuant to the contractual right of pre-termination in such agreement and Company and its Subsidiaries exercise best efforts thereafter to collect any applicable termination penalty or other obligations owed to Company or any of its Subsidiaries by the counterparty to such agreement”.

     SECTION 2. CONDITIONS TO EFFECTIVENESS

               Section 1 of this Amendment shall only become effective upon the first date on which all of the following conditions precedent shall have been satisfied (the date of satisfaction of such conditions being referred to herein as the “First Amendment Effective Date”):

     2.1 Trezzo Restructuring Documents. Administrative Agent shall have received copies of, and shall be satisfied with the form and substance of, the principal documents relating to the Trezzo Project Restructuring, and Administrative Agent shall have received written acknowledgement in form and substance satisfactory to Administrative Agent from Covanta and its Subsidiaries (other than Borrowers and their Subsidiaries) (i) that the Trezzo Project Restructuring shall not give rise to any obligations under any Existing IPP International Project Guaranty and (ii) that Covanta and such Subsidiaries, immediately after giving effect to the Trezzo Project Restructuring, have no outstanding claims against any Borrower or any Subsidiary of any Borrower arising under or relating to the guaranties described in clause (i) of the definition of Existing IPP International Project Guaranties.

     2.2 Payment of Expenses. Borrowers shall have paid in full all outstanding statements for fees and expenses of O’Melveny & Myers LLP, to the extent submitted to Company prior to 12:00 Noon (New York City time) on August 12, 2004.

     2.3 Amendment Fee. Borrowers shall have paid to Administrative Agent, for distribution to each Lender that has executed and delivered a counterpart to this Amendment prior to 12:00 Noon (New York City time) on August 13, 2004, an amendment fee equal to 0.1% of such Lender’s Loan Exposure on and as of such date.

     SECTION 3. BORROWERS’ REPRESENTATIONS AND WARRANTIES

               In order to induce the Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete:

     3.1 Corporate Power and Authority. Each Loan Party that is party thereto has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (collectively, the “Amended Agreement”).

     3.2 Authorization of Agreements. The execution and delivery of this Amendment have been duly authorized by all necessary corporate action on the part of each Loan Party that is

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party thereto and the performance of this Amendment and the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Loan Party that is party thereto.

     3.3 No Conflict. The execution and delivery by each Loan Party that is party to this Amendment and the performance by each Borrower of this Amendment and the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to CEA, Company or any of its Subsidiaries, the Organizational Documents of CEA, Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on CEA, Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of CEA, Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of CEA, Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of CEA, Company or any of its Subsidiaries.

     3.4 Governmental Consents. The execution and delivery by each Loan Party that is party to this Amendment and the performance by each Borrower of this Amendment and the Amended Agreement do not and will not require any Governmental Authorization.

     3.5 Binding Obligation. This Amendment has been duly executed and delivered by each Loan Party that is party thereto, and each of this Amendment and the Amended Agreement is the legally valid and binding obligation of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

     3.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

     3.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement.

     SECTION 4. ACKNOWLEDGEMENT AND CONSENT

               Each Borrower and CEA hereby acknowledges that it has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects.

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     SECTION 5. MISCELLANEOUS

5.1 Reference to and Effect on the Credit Agreement and the Other Loan Documents.

               A. On and after the First Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment.

               B. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

               C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

     5.2 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 9.2 of the Credit Agreement incurred by Administrative Agent or the Lenders and counsel to Administrative Agent with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers.

     5.3 Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

     5.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

     5.5 Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

               Executed counterparts hereof may be delivered by telefacsimile. The effectiveness of any such signatures shall, subject to applicable law, have the same force and effect as an original copy with manual signatures and shall be binding on all Loan Parties, Administrative Agent and Lenders. Administrative Agent may also require that any such

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signatures be confirmed by a manually-signed copy thereof; provided, however, that the failure to request or deliver any such manually-signed copy shall not affect the effectiveness of any facsimile signature.

               This Amendment (other than Section 1 hereof, the effectiveness of which shall be governed by Section 2 hereof) shall become effective upon the first date on which: (i) Borrowers, CEA and Requisite Lenders shall have each executed a counterpart hereof, and (ii) Company and Administrative Agent shall have received written or telephonic notification of such execution and authorization of delivery of such counterparts.

[Remainder of this page intentionally left blank]

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               IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

BORROWERS:
	COVANTA POWER INTERNATIONAL HOLDINGS, INC.
	By: /s/ George Brown Name: George Brown Title: Authorized Officer
	COVANTA POWER DEVELOPMENT, INC. COVANTA POWER DEVELOPMENT OF BOLIVIA, INC. COVANTA WASTE TO ENERGY OF ITALY, INC. OPI QUEZON, INC.
	By: /s/ Timothy J. Simpson Name: Timothy J. Simpson Title: Authorized Officer
OTHER LOAN PARTIES:
	COVANTA ENERGY AMERICAS, INC., as a Loan Party
	By:/s/ Timothy J. Simpson Name: Timothy J. Simpson Title: Authorized Officer

ADMINISTRATIVE AGENT AND LENDERS:	DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent and Lender
	By: DB Service New Jersey, Inc.
	By: /s/ Alice L. Wagner
	Name: Alice L. Wagner
	Title: Vice President
	By: /s/ Deborah O'Keeffe
	Name: Deborah O'Keeffe
	Title: Vice President

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EX-10.4

EXHIBIT 10.4

SECOND AMENDMENT
TO CREDIT AGREEMENT

               This SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of August 13, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation (“Company”), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are “Borrowers” and each a “Borrower”), COVANTA ENERGY AMERICAS, INC., a Delaware corporation (“CEA”), as a Loan Party, THE LENDERS PARTY HERETO, BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (“Administrative Agent”), and DEUTSCHE BANK SECURITIES, INC., as Documentation Agent for the Lenders (“Documentation Agent”), and is made with reference to that certain Credit Agreement dated as of March 10, 2004 by and among Borrowers, the financial institutions parties thereto as Lenders, Documentation Agent and Administrative Agent (as amended by that certain First Amendment to Credit Agreement dated as of April 20, 2004 (“First Amendment”) by and among Company, the other Borrowers, Debenture Disbursing Agent, Administrative Agent and Documentation Agent, the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement (as amended by this Amendment).

RECITALS

               WHEREAS, Borrowers and the undersigned Lenders desire (i) to amend the Credit Agreement to permit a restructuring of the obligations relating to the Trezzo waste-to-energy Project, to permit the termination of the power purchase agreement relating to the Bataan cogeneration Project and to permit a working capital credit line for the Linan cogeneration Project, and (ii) to make certain other amendments to the Credit Agreement, subject to the terms and conditions set forth below;

               NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows:

      SECTION 1.  AMENDMENTS TO THE CREDIT AGREEMENT

      1.1  Provisions Relating to Documentation Agent.

               The introductory paragraph of the Credit Agreement is hereby amended by deleting the reference to “DEUTSCHE BANK SECURITIES, INC.” and substituting therefor “DEUTSCHE BANK AG, NEW YORK BRANCH”.

      1.2  Provisions Relating to Defined Terms.

               A. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order:

     “Bataan Project” means the cogeneration plant Project in Bataan, the Philippines.

     “CWTEI” means Covanta Waste to Energy of Italy, Inc., a Delaware corporation.

     “Euro” means the single currency of participating member states of the European Monetary Union.

     “Second Amendment” means the Second Amendment to Credit Agreement by and among Borrowers, CEA, Agents and Lenders, dated as of August 13, 2004.

     “Second Amendment Effective Date” has the meaning assigned to that term in Section 2 of the Second Amendment.

     “Linan JV” means Linan Ogden-Jinjiang Cogeneration Co., Ltd., a company organized under the laws of the People’s Republic of China.

     “Linan Project” means the cogeneration plan Project in Linan, China.

     “Terminated Trezzo Agreement” means the Ogden Equity Contribution Agreement dated February 9, 2001, as in effect immediately prior to the Second Amendment Effective Date, relating to the Trezzo Project, pursuant to which agreement Covanta Energy Group, Inc. was (immediately prior to the Second Amendment Effective Date) obligated to make capital contributions to Trezzo Project Company in Euros in an amount approximately equal to the Dollar equivalent of $1,300,000.

     “Trezzo Capitalization Agreement” means a capitalization agreement in substantially the form delivered to Agents pursuant to Section 2.1 of the Second Amendment between CWTEI and Trezzo Project Company, setting forth the terms of the subordinated loans owed to CWTEI by Trezzo Project Company as modified upon the consummation of the Trezzo Project Restructuring, and pursuant to which CWTEI is obligated to make additional subordinated loans to Trezzo Project Company (i) up to 132,653 Euros if Trezzo Project Company’s throughput permit is not increased to a capacity of 500 tons/day by June 30, 2006 and (ii) up to 990,000 Euros in the event of an adverse outcome to Trezzo Project Company in its ongoing arbitration proceedings with Protecma Srl., the EPC contractor for the Trezzo Project.

     “Trezzo Project” means the waste-to-energy facility Project in Trezzo, Italy.

     “Trezzo Project Company” means Prima, S.r.l., a company organized under the laws of Italy.

     “Trezzo Project Restructuring” means, collectively: (i) the incurrence by Trezzo Project Company of Indebtedness in an amount up to 77,000,000 Euros to refinance certain existing obligations related to the Trezzo Project outstanding immediately prior to the Second Amendment Effective Date and to fund working capital purposes; (ii) the granting of Liens by CWTEI on its equity interests in Trezzo Project Company and on its rights (including its rights with respect to subordinated loans advanced to Trezzo Project Company) under the Trezzo Capitalization Agreement, in each case to secure the Indebtedness described in clause (i) of this definition; (iii) the

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termination of the Terminated Trezzo Agreement; (iv) the execution and delivery by CWTEI and Trezzo Project Company of the Trezzo Capitalization Agreement; (v) either the creation of an escrow account by CWTEI of not more than 1,122,000 Euros to secure its obligations under the Trezzo Capitalization Agreement or the posting of a letter of credit in the maximum amount of 1,122,000 Euros to secure such obligations; and (vi) the repayment in cash by Trezzo Project Company of not less than 1,282,000 Euros of the approximately 2,250,000 Euro principal amount of subordinated loans owed to CWTEI.

     “Trezzo Project Restructuring Conditions” means, collectively: (i) the consummation of the Trezzo Project Restructuring; (ii) delivery by Company to Agents of an Officer’s Certificate certifying (a) that the requirements of the Trezzo Project Restructuring set forth in clauses (i) through (vi) of the definition of “Trezzo Project Restructuring” have been met, (b) that Covanta, Borrowers and each of their respective Subsidiaries have no outstanding or further obligations to Trezzo Project Company under the Terminated Trezzo Agreement, (c) that Borrowers and their respective Subsidiaries have no obligations to make any Investments in Trezzo Project Company or related to the Trezzo Project after consummation of the Trezzo Project Restructuring, other than the Investments required under the Trezzo Capitalization Agreement described in the definition of “Trezzo Capitalization Agreement”, and (d) that the Indebtedness described in clause (i) of the definition of “Trezzo Project Restructuring” is non-recourse to Borrowers and their Subsidiaries except with respect to the Liens described in clause (ii) of the definition of “Trezzo Project Restructuring”; (iii) delivery by Company to Agents of written evidence in form and substance satisfactory to Agents that the Indebtedness described in clause (i) of the definition of “Trezzo Project Restructuring” is non-recourse to Borrowers and their Subsidiaries except with respect to the Liens described in clause (ii) of the definition of “Trezzo Project Restructuring”; (iv) written acknowledgement by Trezzo Project Company (in form and substance satisfactory to Agents) that it has no claims against Covanta, Borrower or any of their respective Subsidiaries arising out of or relating to the Terminated Trezzo Agreement; and (v) Agents’ satisfaction with the form and substance of the documentation implementing the Trezzo Project Restructuring.

               B. Subsection 1.1 of the Credit Agreement is hereby amended by amending and restating the definition of “Permitted Supplemental Loan Amount” as follows:

     “Permitted Supplemental Loan Amount” means, on the “Determination Date” (as defined in the Approved Plan of Reorganization), the excess of (i) the aggregate amount of “New CPIH Funded Debt” (as defined in the Approved Plan of Reorganization) that shall be issued by “Reorganized Covanta” (as defined in the Approved Plan of Reorganization), after giving effect to the adjustment described in the first proviso to the definition of such term in the Approved Plan of Reorganization, over (ii) $90,000,000 (it being understood and agreed that the Permitted Supplemental Loan Amount shall include an amount equal to the amount that would have accrued as interest on such excess during the period from the Closing Date to such Determination Date, if such excess had been deemed Loans made on and as of the Closing Date, to the extent such amount is not paid in cash pursuant to the last sentence of subsection 2.2B).

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      1.3  Provisions Relating to Amounts and Terms of Commitments and Loans.

               Subsection 2.2B of the Credit Agreement is hereby amended by adding at the end thereof the following sentence:

“Notwithstanding anything to the contrary in this Agreement, the Permitted Supplemental Loan Amount shall be deemed to have accrued interest at a per annum rate of 10.50% as if such Permitted Supplemental Loan Amount had been deemed Loans made on and as of the Closing Date, which interest shall be payable either in cash or in kind in accordance with the preceding sentence of this subsection 2.2B on the “Determination Date” (as defined in the Approved Plan of Reorganization).”

      1.4  Provisions Relating to Negative Covenants.

               A. Subsection 6.1 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (ix) thereof, (ii) deleting the “.” at the end of paragraph (x) thereof and substituting therefor “; and” and (iii) adding at the end thereof the following new paragraph (xi):

     “(xi) After the Second Amendment Effective Date, Linan JV may become and remain liable with respect to Indebtedness under a working capital credit line denominated in local Chinese currency, so long as (a) the Dollar equivalent amount of such Indebtedness at any time outstanding shall not exceed $600,000, (b) the holder or obligee of such Indebtedness shall have no recourse to any Borrower or any Subsidiary of any Borrower (or any of their assets) other than Linan JV, and (c) the holder or obligee shall have no recourse to any assets of Linan JV and its Subsidiaries other than assets subject to Liens permitted under subsection 6.2A(xi).”.

               B. Subsection 6.2A of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (ix) thereof, (ii) deleting the “.” at the end of paragraph (x) thereof and substituting therefor “;” and (iii) adding at the end thereof the following new paragraphs (xi) and (xii):

     “(xi) Linan JV may grant Liens on its assets (including bank accounts) to secure its obligations with respect to Indebtedness permitted under subsection 6.1(xi); and

     (xii) CWTEI may (a) grant Liens upon consummation of the Trezzo Project Restructuring on the collateral described in clause (ii) of the definition of “Trezzo Project Restructuring”, to secure Indebtedness incurred by Trezzo Project Company described in clause (i) of the definition of “Trezzo Project Restructuring”, (b) establish the cash escrow account described in clause (v) of the definition of “Trezzo Project Restructuring”, and (c) in lieu of establishing the escrow account described in clause (b), grant Liens on cash to secure the letter of credit described in clause (v) of the definition of “Trezzo Project Restructuring”, in the case of either clause (b) or (c) to secure its obligations under the Trezzo Capitalization Agreement.”.

               C. Subsection 6.3 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (viii) thereof, (ii) inserting immediately before clause (b) of

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paragraph (ix) thereof “, and” , (iii) deleting from paragraph (ix) thereof the phrase “and (c) in an aggregate amount not to exceed $1,600,000 in the Trezzo waste-to-energy Project,”, (iv) deleting the “.” at the end of paragraph (ix) thereof and substituting therefor “; and”, and (v) adding at the end thereof the following new paragraph (x):

     “(x) CWTEI may make and own Investments consisting of subordinated loans to Trezzo Project Company made pursuant to the terms of (and required under) the Trezzo Capitalization Agreement, in an aggregate amount advanced not to exceed 1,122,000 Euros.”.

               D. Subsection 6.4 of the Credit Agreement is hereby amended by (i) deleting the “and” at the end of paragraph (vi) thereof, (ii) deleting the “.” at the end of paragraph (vii) thereof and substituting therefor “;” and (iii) adding at the end thereof the following new paragraphs (viii) and (ix):

     “(viii) CWTEI may become and remain liable with respect to the Trezzo Capitalization Agreement concurrently with the consummation of the Trezzo Project Restructuring, so long as the Trezzo Project Restructuring Conditions are satisfied; and

     (ix) CWTEI may, concurrently with the consummation of the Trezzo Project Restructuring, become and remain liable under arrangements with respect to either (a) the cash escrow account or (b) the issuance and reimbursement of drawings under the letter of credit, in either case described in clause (v) of the definition of “Trezzo Project Restructuring”, so long as the Trezzo Project Restructuring Conditions are satisfied.”.

     1.5 Provisions Relating to Events of Default.

               Subsection 7.14 of the Credit Agreement is hereby amended by adding immediately prior to the “;” at the end thereof the following new proviso:

“provided, however, that termination by Company and its Subsidiaries of the Power Supply and Purchase Agreement dated June 28, 1993 in effect on the Closing Date relating to the Bataan Project shall not constitute an Event of Default under this subsection 7.14 (regardless of whether such termination occurred prior to the Second Amendment Effective Date), so long as such termination is pursuant to the contractual right of pre-termination in such agreement and Company and its Subsidiaries exercise best efforts thereafter to collect any applicable termination penalty or other obligations owed to Company or any of its Subsidiaries by the counterparty to such agreement”.

      SECTION 2.  CONDITIONS TO EFFECTIVENESS

               Section 1 of this Amendment shall only become effective upon the first date on which all of the following conditions precedent shall have been satisfied (the date of satisfaction of such conditions being referred to herein as the “Second Amendment Effective Date”):

     2.1 Trezzo Restructuring Documents. Agents shall have received copies of, and shall be satisfied with the form and substance of, the principal documents relating to the Trezzo Project Restructuring, and Agents shall have received written acknowledgement in form and

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substance satisfactory to Agents from Covanta and its Subsidiaries (other than Borrowers and their Subsidiaries) (i) that the Trezzo Project Restructuring shall not give rise to any obligations under any Existing IPP International Project Guaranty and (ii) that Covanta and such Subsidiaries, immediately after giving effect to the Trezzo Project Restructuring, have no outstanding claims against any Borrower or any Subsidiary of any Borrower arising under or relating to the guaranties described in clause (i) of the definition of Existing IPP International Project Guaranties.

     2.2 Payment of Expenses. Borrowers shall have paid in full all outstanding statements for fees and expenses of O’Melveny & Myers LLP, to the extent submitted to Company prior to 12:00 Noon (New York City time) on August 12, 2004.

     2.3 Amendment Fee. Borrowers shall have paid to Administrative Agent, for distribution to each Lender that has executed and delivered a counterpart to this Amendment prior to 12:00 Noon (New York City time) on August 13, 2004, an amendment fee equal to 0.1% of such Lender’s Loan Exposure on and as of such date.

      SECTION 3.  BORROWERS’ REPRESENTATIONS AND WARRANTIES

               In order to induce the Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete:

     3.1 Corporate Power and Authority. Each Loan Party that is party thereto has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (collectively, the “Amended Agreement”).

     3.2 Authorization of Agreements. The execution and delivery of this Amendment have been duly authorized by all necessary corporate action on the part of each Loan Party that is party thereto and the performance of this Amendment and the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Loan Party that is party thereto.

     3.3 No Conflict. The execution and delivery by each Loan Party that is party to this Amendment and the performance by each Borrower of this Amendment and the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to CEA, Company or any of its Subsidiaries, the Organizational Documents of CEA, Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on CEA, Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of CEA, Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of CEA, Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of CEA, Company or any of its Subsidiaries.

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     3.4 Governmental Consents. The execution and delivery by each Loan Party that is party to this Amendment and the performance by each Borrower of this Amendment and the Amended Agreement do not and will not require any Governmental Authorization.

     3.5 Binding Obligation. This Amendment has been duly executed and delivered by each Loan Party that is party thereto, and each of this Amendment and the Amended Agreement is the legally valid and binding obligation of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

     3.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Second Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

     3.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement.

      SECTION 4.  ACKNOWLEDGEMENT AND CONSENT

               Each Borrower and CEA hereby (i) acknowledges that it has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects, (ii) ratifies and confirms the effectiveness of the First Amendment in all respects and (iii) confirms that the provisions of the First Amendment are binding on each Borrower and CEA.

      SECTION 5.  MISCELLANEOUS

      5.1  Reference to and Effect on the Credit Agreement and the Other Loan Documents.

               A. On and after the Second Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment.

               B. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

7

               C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

     5.2 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 9.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and counsel to the Agents with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers.

     5.3 Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

     5.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

     5.5 Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

               Executed counterparts hereof may be delivered by telefacsimile. The effectiveness of any such signatures shall, subject to applicable law, have the same force and effect as an original copy with manual signatures and shall be binding on all Loan Parties, Agents and Lenders. Administrative Agent may also require that any such signatures be confirmed by a manually-signed copy thereof; provided, however, that the failure to request or deliver any such manually-signed copy shall not affect the effectiveness of any facsimile signature.

               This Amendment (other than Section 1 hereof, the effectiveness of which shall be governed by Section 2 hereof) shall become effective upon the first date on which: (i) Borrowers, CEA and Requisite Lenders shall have each executed a counterpart hereof, and (ii) Company, Administrative Agent and Documentation Agent shall have received written or telephonic notification of such execution and authorization of delivery of such counterparts.

[Remainder of this page intentionally left blank]

8

               IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

BORROWERS:

COVANTA POWER INTERNATIONAL HOLDINGS, INC.
By:	/s/ George Brown
	Name:	George Brown
	Title:	Authorized Officer
COVANTA POWER DEVELOPMENT, INC. COVANTA POWER DEVELOPMENT OF BOLIVIA, INC. COVANTA WASTE TO ENERGY OF ITALY, INC. OPI QUEZON, INC.
By:	/s/ Timothy J. Simpson
	Name:	Timothy J. Simpson
	Title:	Authorized Officer

OTHER LOAN PARTIES:

COVANTA ENERGY AMERICAS, INC., as a Loan Party
By:	/s/ Timothy J. Simpson
	Name:	Timothy J. Simpson
	Title:	Authorized Officer

AGENTS AND LENDERS:

BANK OF AMERICA, N.A., as Administrative Agent and as a Lender
By:	/s/ Thomas Biaggi
	Name: Thomas Biaggi
	Title: Managing Director
DEUTSCHE BANK SECURITIES, INC., as Documentation Agent and Co-Arranger
By:	/s/ David J. Bell
	Name: David J. Bell
	Title: Managing Director
By:	/s/ Alexander Richarz
	Name: Alexander Richarz
	Title: Vice President
BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender
By:	/s/ Peter T. Santez
	Name:  Peter T. Santez
	Title:

S-2

BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender
By:	/s/ Loriann Curnyn
	Name: Loriann Curnyn
	Title: Managing Director
By:	/s/ John W. Sweeney
	Name: John W. Sweeney
	Title:  Director
BEAR STEARNS & CO. INC., as a Lender
By:
	Name:
	Title:
CREDIT SUISSE FIRST BOSTON, as a Lender
By:
	Name:
	Title:

S-3

D.E. SHAW LAMINAR PORTFOLIOS, L.L.C., as a Lender
By:	/s/
	Name:
	Title:
GENERAL AMERICAN LIFE INSURANCE COMPANY, as a Lender
By:	/s/
	Name:
	Title:
GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender
By:	/s/
	Name:
	Title:
HIGH RIVER LIMITED PARTNERSHIP, as a Lender
By:	/s/
	Name:
	Title:

S-4

HSBC BANK USA, as a Lender
By:	/s/ John Northington
	Name: John Northington
	Title: Vice President
IIB BANK LIMITED, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
J.P. MORGAN SECURITIES AS AGENT FOR JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as a Lender
By:	/s/ John Abate
	Name: John Abate
	Title: Authorized Signatory

S-5

KBC BANK NV, NEW YORK BRANCH, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
LANDESBANK HESSEN-THÜRINGEN GIROZENTRALE, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:

S-6

MERRILL LYNCH CREDIT PRODUCTS, LLC, as a Lender
By:	/s/  Ron Torok
	Name: Ron Torok
	Title:   Vice President
MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as a Lender
By:	/s/ Ron Torok
	Name: Ron Torok
	Title:   Vice President
METROPOLITAN LIFE INSURANCE COMPANY, as a Lender
By:
	Name:
	Title:
NATIONWIDE LIFE AND ANNUITY COMPANY OF AMERICA, as a Lender
By:
	Name:
	Title:

S-7

NATIONWIDE LIFE INSURANCE COMPANY, as a Lender
By:
	Name:
	Title:
QUANTUM PARTNERS LDC C/O SOROS FUND MANAGEMENT LLC, as a Lender
By:	/s/ Joye M. Anzalotta
	Name: Joye M. Anzalotta
	Title:   Attorney-in-Fact
SPECIAL SITUATIONS INVESTING GROUP, as a Lender
By:
	Name:
	Title:
THE BANK OF NEW YORK, as a Lender
By:	/s/ Julie B. Follosio
	Name: Julie B. Follosio
	Title:   Managing Director

S-8

UBS AG, STAMFORD BRANCH, as a Lender
By:
	Name:
	Title:
By:
	Name:
	Title:
U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender
By:
	Name:
	Title:
WESTLB AG (formerly known as Westdeutsche Landesbank Girozentrale), NEW YORK BRANCH, as a Lender
By:	/s/ Pascal Kabemba
	Name: Pascal Kabemba
	Title:   Associate Director
By:	/s/ Walter T. Duffy III
	Name: Walter T. Duffy III
	Title:   Director

S-9

WATERSHED CAPITAL PARTNERS, L.P.,
as a Lender
By: WS Partners, L.L.C.
Its General Partner
By:	/s/
	Name:
	Title:

S-10

WATERSHED CAPITAL INSTITUTIONAL PARTNERS, L.P.,
as a Lender
By: WS Partners, L.L.C.
Its General Partner
By:	/s/
	Name:
	Title:

S-11

WATERSHED CAPITAL PARTNERS
(OFFSHORE), LTD.,
as a Lender
By: Watershed Asset Management L.L.C.
Its Investment Manager
By:	/s/
	Name:
	Title:

S-12

DEUTSCHE BANK AG, NEW YORK BRANCH,
as Documentation Agent and as a Lender
By:	/s/ Keith C. Braun
	Keith C. Braun
	Director
By:	/s/ Steven Cohen
	Steven Cohen
	Director

S-13

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-117730) and related Prospectus of Danielson Holding Corporation for the registration of 17,711,491 shares of its common stock and to the incorporation by reference therein of our report dated February 20, 2004, except for Note 24 as to which the date is March 10, 2004, with respect to the consolidated financial statements and schedules of Danielson Holding Corporation as of and for the years ended December 31, 2003 and December 27, 2002, included in its Annual Report (Form 10-K) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP  

MetroPark, New Jersey
August 18, 2004

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-117730 and the related Prospectus of Danielson Holding Corporation for the registration of 17,711,491 shares of its common stock and to the incorporation by reference therein of our report dated February 20, 2004, with respect to the consolidated financial statements of American Commercial Lines LLC (Debtor in Possession) as of December 26, 2003 and December 27, 2002 and for the year ended December 26, 2003 and for the periods from May 29, 2002 to December 27, 2002 and December 29, 2001 to May 28, 2002, included in Danielson Holding Corporation’s Annual Report (Form 10-K) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP  

Louisville, Kentucky
August 18, 2004

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-117730 of Danielson Holding Corporation on Form S-3 of our report dated March 26, 2004, relating to the consolidated financial statements of Covanta Energy Corporation (Debtor in Possession) and its subsidiaries (the “Company”) (which report expresses an unqualified opinion and includes explanatory paragraphs relating to Covanta Energy Corporation and various domestic subsidiaries having filed voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code, the Bankruptcy Court having entered an order confirming the Company’s plan of reorganization which became effective after the close of business on March 10, 2004, the Company’s subsequent emergence from Chapter 11, substantial doubt about the Company’s ability to continue as a going concern, and the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” in 2003, SFAS No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” in 2002, and SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, in 2001) appearing in the Current Report on Form 8-K/A of Danielson Holding Corporation filed on May 11, 2004 and to the reference to us under the heading “Experts” in the Prospectus, which is part of this Registration Statement.

/s/ Deloitte & Touche LLP  

Parsippany, New Jersey
August 20, 2004

EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in the Amendment No. 1 to the Danielson Holding Corporation Registration Statement on Form S-3 dated August 20, 2004 and to the incorporation by reference therein of our report dated February 14, 2004, with respect to the consolidated financial statements of Quezon Power, Inc. as of and for the years ended December 31, 2003 and 2002, included in Covanta Energy Corporation’s Annual Report (Form 10-K) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

/s/ Sycip Gorres Velayo & Co.  

A Member Practice of Ernst & Young Global 

Makati City, Philippines
August 19, 2004

EX-23.5

Exhibit 23.5

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Danielson Holding Corporation:

We consent to the incorporation by reference in Amendment No. 1 to the registration statement on Form S-3 of Danielson Holding Corporation of our report dated March 5, 2002, with respect to the consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows of Danielson Holding Corporation and subsidiaries for the year ended December 31, 2001, and all related financial statement schedules, which report appears in the December 31, 2003 annual report on Form 10-K of Danielson Holding Corporation filed on March 15, 2004, as amended by Form 10-K/A filed on May 18, 2004, and to the reference to our firm under the heading “Experts” in the prospectus.

(signed) KPMG LLP

New York, New York
August 20, 2004

EX-23.6

Exhibit 23.6

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in this Amendment No. 1 to Registration Statement on Form S-3 of Danielson Holdings Corporation of our report dated March 26, 2002, except for the restatement, as to which the date is August 13, 2002 relating to the financial statements of American Commercial Lines LLC for the fiscal year ended December 28, 2001, which appears in Danielson Holdings Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003. We also consent to the references to us under the headings “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Louisville, Kentucky
August 20, 2004