8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 5, 2004

DANIELSON HOLDING CORPORATION

(Exact name of Registrant as Specified in Its Charter)

Delaware	1-6732	95-6021257
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

40 Lane Road
Fairfield, New Jersey	07004

(Address of principal executive offices) (Zip Code)

(973) 882-9000

(Registrant’s telephone number, including area code)

2 North Riverside Plaza, Chicago, Illinois 60606

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12(b))

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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TABLE OF CONTENTS

Employment Agreement - Anthony J. Orlando

Employment Agreement - Craig D. Abolt

Employment Agreement - Timothy J. Simpson

Form of Restricted Stock Award Agreement

Form of Stock Option Agreement

Press Release

Item 1.01. Entry into a Material Definitive Agreement.

     On October 5, 2004, Danielson Holding Corporation (the “Company”) issued a press release (the “Press Release”) in connection with the Company’s 2004 Annual Meeting of Stockholders held on the same date, announcing that the Company’s stockholders approved both (i) the Danielson Holding Corporation Equity Award Plan for Employees and Officers and (ii) the Danielson Holding Corporation Equity Award Plan for Directors (collectively, the “Plans”). A summary description of each of these Plans is set forth in the sections entitled “Approval of the Equity Award Plan for Employees and Officers – Plan Principal Features” and “Approval of the Equity Award Plan for Directors – Plan Principal Features” contained in the Company’s Definitive Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission on September 7, 2004, and are incorporated by reference herein. Copies of the Company’s form of Restricted Stock Award Agreement (“Restricted Stock Agreement”) and form of Stock Option Agreement (“Option Agreement”) that implement the terms of the Plans are attached hereto as Exhibit 10.4 and Exhibit 10.5, respectively, and are incorporated by reference herein.

     The Press Release also announced that, effective as of the same date, three members of the senior management team at Covanta Energy Corporation (“Covanta”), Danielson’s wholly-owned subsidiary, have been named as executive officers of the Company. The executive officers are Anthony J. Orlando, Craig D. Abolt and Timothy J. Simpson. In addition, reflecting the successful integration of Covanta, in order to further enhance the long-term stability of the management team and culminating discussions that began prior to the acquisition of Covanta, Danielson and each of these executive officers entered into an employment agreement, a Restricted Stock Agreement, and an Option Agreement following the approval by the Danielson stockholders of the Employees Plan at the annual meeting of stockholders. The agreements are described in Item 5.02 of this Current Report on Form 8-K, which descriptions are incorporated by reference herein.

Item 5.02. Departure of Directors or Principal Executive Officers; Election of Directors; Appointment of Principal Officers.

     Mr. Orlando, 45, has been named the Company’s President and Chief Executive Officer, succeeding Jeffrey R. Horowitz, who had been serving as the Company’s interim President and Chief Executive Officer until his termination pursuant to the appointment of his successor, effective October 5, 2004. Mr. Orlando shall serve until such time as his successor shall be duly elected and qualified, his removal, or his resignation, whichever is earlier. Other than the employment agreement and compensation matters described below, Mr. Orlando has not engaged in any reportable transactions with the Company or any of its subsidiaries during the Company’s last fiscal year, and he is not a party to any currently proposed transactions with the Company. Mr. Orlando does not have any family relationship with any other executive officer or director of the Company.

     The Company and Covanta entered into a five-year employment agreement with Mr. Orlando, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Orlando is entitled to a base salary of $400,000 per year and an annual target bonus of 80% of his base

salary, depending upon Covanta’s achievement of certain financial targets and other criteria approved by the Board of Directors of the Company. Mr. Orlando is also entitled to receive a grant of 49,656 shares of restricted stock, valued at $360,000, and options to purchase 200,000 shares of the Company’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as Mr. Orlando is employed by the Company, and 50% vesting in accordance with Covanta’s achievement of certain operating cash flow or other performance-based metrics of Covanta as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Orlando’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Orlando is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 36 months if such termination occurs in the first three years of his employment contract, or (ii) 24 months if such termination occurs in the last two years of his employment contract. Upon termination other than for “cause,” Mr. Orlando shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of the Company or Covanta. The summary set forth above is qualified by reference to Mr. Orlando’s employment agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated by reference herein.

     Mr. Orlando will continue to serve as the President and Chief Executive Officer of Covanta, a position he has held since November 2003. From March 2003 to November 2003, he served as Senior Vice President, Business and Financial Management of Covanta. From January 2001 until March 2003, Mr. Orlando served as Covanta’s Senior Vice President, Waste to Energy. Previously he served as Executive Vice President of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Orlando joined the Covanta in 1987.

     Mr. Abolt, 43, has been named as the Senior Vice President and Chief Financial Officer of the Company, succeeding Philip G. Tinkler. Mr. Abolt shall serve until such time as his successor shall be duly elected and qualified, his removal, or his resignation, whichever is earlier. Other than the employment agreement and compensation matters described below, Mr. Abolt has not engaged in any reportable transactions with the Company or any of its subsidiaries during the Company’s last fiscal year, and he is not a party to any currently proposed transactions with the Company. Mr. Abolt does not have any family relationship with any other executive officer or director of the Company.

     The Company and Covanta entered into a five year employment agreement with Mr. Abolt, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Abolt is entitled to a base salary of $325,000 per year and an annual target bonus of 55% of his base salary, depending upon Covanta’s achievement of certain financial targets and other criteria approved by the Board of Directors of the Company. Mr. Abolt is also entitled to receive a grant of 20,690 shares of restricted stock, valued at $150,000, and options to purchase 85,000 shares of

the Company’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as Mr. Abolt is employed by the Company, and 50% vesting in accordance with Covanta’s achievement of certain operating cash flow or other performance-based metrics of Covanta as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Abolt’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Abolt is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 24 months if such termination occurs in the first two years of his employment contract, or (ii) 18 months if such termination occurs in the last three years of his employment contract. Upon termination other than for “cause,” Mr. Abolt shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of the Company or Covanta. The summary set forth above is qualified by reference to Mr. Abolt’s employment agreement, a copy of which is attached hereto as Exhibit 10.2 and incorporated by reference herein.

     Mr. Abolt will continue to serve as the Senior Vice President and Chief Financial Officer of Covanta, a position he has held since June, 2004. Prior to joining Covanta, Mr. Abolt served as chief financial officer of DIRECTV Latin America, a majority-owned subsidiary of Hughes Electronics Corporation. In this position, he had financial and operational responsibilities for the multi-national DTG television and multimedia organization. From 1991 to 2001, Mr. Abolt was employed by Walt Disney Company in several executive finance positions.

     Mr. Simpson, 46, has been named as the Company’s Senior Vice President, General Counsel and Secretary. Mr. Simpson shall serve until such time as his successor shall be duly elected and qualified, his removal, or his resignation, whichever is earlier. Other than the employment agreement and compensation matters described below, Mr. Simpson has not engaged in any reportable transactions with the Company or any of its subsidiaries during the Company’s last fiscal year, and he is not a party to any currently proposed transactions with the Company. Mr. Simpson does not have any family relationship with any other executive officer or director of the Company.

     The Company and Covanta entered into a five year employment agreement with Mr. Simpson, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Simpson is entitled to a base salary of $240,180 per year and an annual target bonus of 45% of his base salary, depending upon Covanta’s achievement of certain financial targets and other criteria approved by the Board of Directors of the Company. Mr. Simpson is also entitled to receive a grant of 17,242 shares of restricted stock, valued at $125,000, and options to purchase 75,000 shares of the Company’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three

equal annual installments commencing February 28, 2005, so long as Mr. Simpson is employed by the Company, and 50% vesting in accordance with Covanta’s achievement of certain operating cash flow or other performance-based metrics of Covanta as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Simpson’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Simpson is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 24 months if such termination occurs in the first two years of his employment contract, or (ii) 18 months if such termination occurs in the last three years of his employment contract. Upon termination other than for “cause,” Mr. Simpson shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of the Company or Covanta. The summary set forth above is qualified by reference to Mr. Simpson’s employment agreement, a copy of which is attached hereto as Exhibit 10.3 and incorporated by reference herein.

     Mr. Simpson will continue to serve as the Senior Vice President, General Counsel and Secretary of Covanta, a position he has held since March, 2003. From June 2001 to March 2004, Mr. Simpson served as Vice President, Associate General Counsel and Assistant Secretary of Covanta. Prior thereto he served as Senior Vice President, Associate General Counsel and Assistant Secretary of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Simpson joined Covanta in 1992.

     Item 8.01. Other Events.

     The Press Release also announced that in connection with the Company’s 2004 Annual Meeting of Stockholders held on October 5, 2004, the Company’s stockholders have elected each of the directors nominated in the Company’s 2004 proxy statement, and William C. Pate was formally named as the Company’s Chairman of the Board of Directors.

     The Company also announced in the Press Release that the address of its principal executive offices has been moved from its current location to those of Covanta’s, located at 40 Lane Road, Fairfield, New Jersey 07004. The new main phone number of the Company is (973) 882-9000.

     A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

(a)	Financial Statements of Business Acquired – Not Applicable
(b)	Pro Forma Financial Information – Not Applicable
(c)	Exhibits

Exhibit No.	Exhibit
10.1	Employment Agreement, dated October 5, 2004, by and between Anthony J. Orlando and Danielson Holding Corporation and Covanta Energy Corporation.
10.2	Employment Agreement, dated October 5, 2004, by and between Craig D. Abolt and Danielson Holding Corporation and Covanta Energy Corporation.
10.3	Employment Agreement, dated October 5, 2004, by and between Timothy J. Simpson and Danielson Holding Corporation and Covanta Energy Corporation.
10.4	Form of Danielson Holding Corporation Restricted Stock Award Agreement.
10.5	Form of Danielson Holding Corporation Stock Option Agreement.
99.1	Press Release Announcing Management Team Succession issued by Danielson Holding Corporation dated October 5, 2004.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 7, 2004

DANIELSON HOLDING CORPORATION
(Registrant)

By:	/s/ Anthony J. Orlando
Name:	Anthony J. Orlando,
Title:	President and Chief Executive Officer

DANIELSON HOLDING CORPORATION

EXHIBIT INDEX

Exhibit No.	Exhibit
10.1	Employment Agreement, dated October 5, 2004, by and between Anthony J. Orlando and Danielson Holding Corporation and Covanta Energy Corporation.
10.2	Employment Agreement, dated October 5, 2004, by and between Craig D. Abolt and Danielson Holding Corporation and Covanta Energy Corporation.
10.3	Employment Agreement, dated October 5, 2004, by and between Timothy J. Simpson and Danielson Holding Corporation and Covanta Energy Corporation.
10.4	Form of Danielson Holding Corporation Restricted Stock Award Agreement.
10.5	Form of Danielson Holding Corporation Stock Option Agreement.
99.1	Press Release Announcing Management Team Succession issued by Danielson Holding Corporation dated October 5, 2004.

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), made this 5th day of October, 2004, by and between Covanta Projects, Inc., a Delaware corporation (the “Employer”), Covanta Energy Corporation, a Delaware corporation (the “Company”), Danielson Holding Corporation, a Delaware corporation (the “Parent Company”), and Anthony Orlando, an individual (the “Executive”).

Background

     The Company is a Delaware corporation engaged in the business of owning and operating waste-to-energy facilities and independent power generation facilities. Executive has previously been employed by the Company in various capacities, and is currently serving as the President and Chief Executive Officer of the Company. The Company wishes to continue the employment of Executive as the Company’s President and Chief Executive Officer and the Parent Company wishes to employ Executive as the Parent Company’s President and Chief Executive Officer and Executive wishes to continue to be employed by the Company as the Company’s President and Chief Executive Officer and to be employed as the Parent Company’s President and Chief Executive Officer on the terms and conditions set forth in this Agreement.

     Executive acknowledges and understands that, during the course of his employment by the Company and the Parent Company, Executive has become, and will continue to become, familiar with (as the case may be) certain confidential information of the Company, Employer and Parent Company and their respective subsidiaries and affiliates (collectively, the “DHC Group”) which is exceptionally valuable to the DHC Group and vital to the success of the DHC Group’s business. The Parent Company, the Company and Executive desire to protect such confidential information from disclosure to third parties or use of such information to the detriment of any member of the DHC Group.

     The Company and the Employer are both wholly-owned subsidiaries of the Parent Company. For corporate structuring purposes only, Executive will be employed by the Employer and the Parent Company, yet will owe his obligations as an employee to the Company and to the Parent Company. As a result, the Employer, the Company and the Parent Company have agreed to be jointly and severally liable for the full performance of any obligations (payment or otherwise) of each such party pursuant to this Agreement.

Agreement

     NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, the Company and Executive agree as follows:

     1. Definitions. As used herein, the following terms shall have the meanings set forth below unless the context otherwise requires:

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          “Annual Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Average Bonus” shall mean the average Annual Bonus received by Executive during the two (2) full Employment Years preceding the date of termination.

          “Base Compensation” shall mean the sum of Executive’s Base Salary plus Executive’s Target Bonus for the applicable Employment Year.

          “Base Salary” shall mean the annual rate of compensation set forth in Section 4.1, as such amount may be adjusted from time to time.

          “Board” shall mean the Board of Directors of the Parent Company.

          “Business” shall have the meaning specified in Section 8.1 hereof.

          “Cause” shall mean that Executive has:

          (a) been convicted of, or plead nolo contendere to, a felony or crime involving moral turpitude; or

          (b) committed an act of personal dishonesty or fraud involving personal profit in connection with Executive’s employment by the Company; or

          (c) committed a material breach of any material covenant, provision, term, condition, understanding or undertaking set forth in this Agreement, including, without limitation, the provisions contained in Sections 8.1, 8.2, 8.3 or 8.4 hereof; or

          (d) committed an act which the Board of Directors of the Company has found to have involved willful misconduct or gross negligence on the part of Executive; or

          (e) failed or refused to substantially perform the lawful duties of his employment in any material respect; or

          (f) failed to comply with the lawful written rules and policies of the Company in any material respect;

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless 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 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.

          “CEO” shall have the meaning specified in Section 2.1 hereof.

          “Change in Control” shall mean the occurrence of any of the following events,

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each of which shall be determined independently of the others:

               (a) any “Person” (as defined herein), other than a holder of at least 10% of the outstanding voting power of the Parent Company as of the date of this Agreement, becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of a majority of the stock of either the Company or the Parent Company entitled to vote in the election of directors of either the Company or the Parent Company. For purposes of this definition, the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act;

               (b) the individuals who are “Continuing Directors” (as hereinafter defined) of the Parent Company cease to constitute a majority of the members of the Board. For purposes of this definition, “Continuing Directors” shall mean the members of the Board on the date of execution of this Agreement, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by at least a majority of the directors who then comprised the Continuing Directors shall be considered to be a Continuing Director;

               (c) the stockholders of the Company or the Parent Company adopt and consummate a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of the assets of the Company or the Parent Company;

               (d) the Company or the Parent Company is a party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, with an unaffiliated third party, unless the business of the Company or the Parent Company following consummation of such merger, consolidation or other business combination is continued following any such transaction by a resulting entity (which may be, but need not be, the Company or the Parent Company, as the case may be) and the stockholders of the Company or the Parent Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting power of the resulting entity; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company or the Parent Company (or similar transaction) shall not constitute a Change in Control; or

               (e) there is a Change in Control of the Company or the Parent Company of a nature that is reported in response to item 5.01 of Current Report on Form 8-K or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company or the Parent Company, as the case may be, is then subject to such reporting requirements;

provided, however, that for purposes of this Agreement a Change in Control shall not be deemed to occur if the Person or Persons deemed to have acquired control is or are a holder of at least 10% of the outstanding Voting Power of the Parent Company as of the date of this Agreement.

          “Common Stock” shall have the meaning specified in Section 4.5 hereof.

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          “Company” shall have the meaning specified in the Background Section hereof.

          “Compensation Committee” shall have the meaning specified in Section 2.1 hereof.

          “Confidential Information” shall have the meaning specified in Section 8.4 hereof.

          “Covanta 2004 Cash Bonus Plan” shall have the meaning specified in Section 4.2 hereof.

          “Customer” shall have the meaning specified in Section 8.3 hereof.

          “DHC Group” shall have the meaning specified in the Background Section hereof.

          “Disability” shall mean Executive’s inability, for a period of six (6) consecutive months, or a cumulative period of one hundred thirty (130) business days out of a period of twelve (12) consecutive months, to perform the essential duties of Executive’s position, even taking into account any reasonable accommodation required by law, due to a mental or physical impairment. The determination of whether Executive is suffering from a Disability shall be made by three (3) independent physicians, one chosen by a representative of Executive, one chosen by the Company and one chosen by the physicians chosen by Executive and the Company.

          “Employees’ Plan” shall have the meaning specified in Section 4.5 hereof.

          “Employer” shall have the meaning specified in the introductory paragraph of this Agreement.

          “Employment Year” shall mean each twelve-month period commencing on January 1^st of each applicable year, or part thereof, as the case may be, during which Executive was or is employed by the Company pursuant to this Agreement or prior to this Agreement.

          “Good Reason” shall mean the resignation of Executive from employment with the Company following the occurrence of one or more of the events set forth in clauses (a) through (f) below without the prior written consent of Executive, provided that, in connection with any event or events specified in clauses (a) through (e) below, (i) Executive delivers written notice to the Company of his intention to resign from employment due to one or more of such events, which notice specifies in reasonable detail the circumstances claimed to provide the basis for such resignation, and (ii) such event or events are not cured by the Company within fifteen (15) days (or such longer reasonable period of time as is necessary to cure such event so long as the Company is diligently pursuing such cure) following delivery of such written notice:

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               (a) any reduction in Executive’s annual rate of Base Compensation other than a reduction in connection with a Board-approved redesign of the then current salary or bonus structure that affects all senior-level executives of the Company similarly;

               (b) any reduction in Executive’s annual rate of Base Compensation that exceeds ten percent (10%) of Executive’s highest annual Base Compensation for any Employment Year (measuring a change in the Target Bonus by the change in the dollar amount equivalent represented by the Target Bonus and not by amounts actually paid);

               (c) any removal by the Company of Executive from his position indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with termination of Executive’s employment for Cause or Disability;

               (d) a relocation of Executive’s principal business location to a location that is fifty (50) miles or more from the Company’s current principal business office located at 40 Lane Road, Fairfield, New Jersey;

               (e) the Employer’s, the Company’s or the Parent Company’s failure to comply with any of the material terms of this Agreement; or

               (f) the occurrence of a Change of Control pursuant to which the Company, the Parent Company or any successor company, as the case may be, does not agree, as of the date of such Change of Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years.

          “Options” shall have the meaning specified in Section 4.5 hereof.

          “Parent Company” have the meaning specified in the Background Section hereof.

          “Performance Vesting Restricted Stock” shall have the meaning specified in Section 4.6(b) hereof.

          “Post-Employment Period” shall have the following meaning:

               (a) if Executive’s employment is terminated during the initial thirty-six (36) months of the Term of Employment, then the Post-Employment Period shall be thirty-six (36) months; or

               (b) if Executive’s employment is terminated during the final twenty-four (24) months of the Term of Employment, then the Post-Employment Period shall be twenty-four (24) months.

          “Pro Rata Bonus” shall mean an amount equal to the product of the following: (i)

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the quotient obtained by dividing (x) the number of full calendar months Executive has been employed by the Company for the then current Employment Year, by (y) twelve (12); and (ii) that amount of the Annual Bonus that Executive would have been entitled to receive had he remained employed by the Company for the entire applicable Employment Year.

          “Proceeding” shall have the meaning specified in Section 10.1 hereof.

          “Restricted Period” shall have the following meaning:

               (a) if Executive’s employment is terminated for any reason prior to the expiration of the Term of Employment, the term shall mean the period commencing on the date hereof and continuing for a period of time after the termination of employment with the Company for any reason equal to the Post-Employment Period, and with respect to Section 8.1 hereof only, less three (3) months;

               (b) if Executive’s employment is continued after the expiration of this Agreement on an at-will basis as provided in Section 3 hereof, the term shall mean the period commencing on the date of expiration of this Agreement and continuing only during the period of Executive’s at-will employment by the Company, and not thereafter.

          “Restricted Stock” shall have the meaning specified in Section 4.6 hereof.

          “Subsidiary” shall mean any corporation in which the Company owns directly or indirectly fifty percent (50%) or more of the Voting Stock or fifty percent (50%) or more of the equity; or any other venture in which it owns either fifty percent (50%) or more of the voting rights or fifty percent (50%) or more of the equity.

          “Target Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Term of Employment” shall have the meaning specified in Section 3 hereof.

          “Time Vesting Restricted Stock” shall have the meaning specified in Section 4.6(a) hereof.

          “Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.

          “Without Cause” shall mean the termination by the Company of Executive’s employment for any reason other than as a result of Cause; provided, however, that to the extent requested by the Company, Executive shall remain in the active employment of the Company until the date of termination specified by the Company; provided, further, that such date of termination shall be no later than sixty (60) days after the delivery by the Company of written notice of termination to Executive.

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     2. Employment and Duties.

          2.1 Employment. Each of the Parent Company and the Company hereby employs Executive and Executive hereby accepts appointment or election as President and Chief Executive Officer (“CEO”) of the Parent Company and the Company. Executive shall be responsible for all lawful duties and entitled to all authority customarily assigned to the position of CEO, as well as those lawful duties specified by the Board. Executive shall render such services as are necessary and desirable to protect and advance the best interests of the Parent Company and the Company, acting, in all instances, under the supervision of and in accordance with the lawful policies set by the Board. So long as Executive shall remain an employee of the Parent Company and the Company, Executive’s entire working time, energy, skill and best efforts shall be devoted to the performance of Executive’s duties hereunder in a manner which will faithfully and diligently further the business and interests of the Parent Company and the Company; provided, however, that Executive may serve on up to three (3) corporate, civic and charitable boards with the consent of the compensation committee of the Parent Company, which serves as the Company’s compensation committee (such committee, the “Compensation Committee”), and deliver lectures, fulfill speaking engagements or teach at educational institutions; provided, further, that such service does not conflict with or detract from the performance of his duties. Nothing in this Section 2.1 shall be deemed to limit Executive’s management of his personal passive investments.

          2.2 Location. The Company’s current business office located at 40 Lane Road, Fairfield, New Jersey shall be Executive’s primary office; provided, however, that Executive acknowledges and agrees that Executive may be required, in connection with the performance of his duties to the Company hereunder, to work from time to time at other locations reasonably and customarily required in connection with the business of the Company.

     3. Term. Executive shall be employed by the Company for the period commencing on the date hereof and ending on October 5, 2009, unless sooner terminated as hereinafter provided (the “Term of Employment”). Upon expiration of the Term of Employment, unless Executive’s employment is sooner terminated as provided herein, Executive’s employment shall be automatically renewed on an at-will basis and, except as specifically provided herein, this Agreement and each of the parties’ respective obligations hereunder shall terminate.

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Four Hundred Thousand Dollars ($400,000) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect from time to time.

          4.2 Annual Bonus. In addition to the Base Salary, Executive shall be eligible to receive an annual cash bonus from the Company (the “Annual Bonus”). For calendar year 2004, the Annual Bonus payable to Executive shall be based on the Company’s 2004 Cash Bonus Plan dated April 15, 2004 and approved by the Board (the “Covanta 2004 Cash Bonus

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Plan”). Thereafter, the Annual Bonus payable to Executive shall be based on the annual cash bonus program approved by the Board or the Compensation Committee thereof; provided, however, that Executive’s annual target bonus shall continue to be at least eighty percent (80%) of Executive’s Base Salary (the “Target Bonus”) for each subsequent Employment Year unless Executive receives written notice from the Board or the Compensation Committee thereof no later than March 1^st of any applicable Employment Year that the Board or the Compensation Committee thereof has decided to reduce the Target Bonus.

          4.3 Review of Base Compensation. The Base Compensation shall be reviewed annually by the Board or the Compensation Committee thereof and, unless otherwise set forth herein, may be increased or decreased as the Board or the Compensation Committee thereof shall determine from time to time.

          4.4 Incentive Compensation Programs. In addition to the foregoing provisions of this Section 4, Executive shall be eligible to participate in other applicable Company incentive compensation plans and programs (including, without limitation, any cash bonus, equity incentive, restricted stock and stock option plans and programs) on the same terms as apply generally to the Company’s other senior-level executives from time to time.

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon approval of the 2004 Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Employees’ Plan”) by the stockholders of the Parent Company, the Parent Company shall grant to Executive options (the “Options”) to purchase an aggregate of 200,000 shares of common stock, par value $0.10 per share of Parent Company (“Common Stock”) at an exercise price equal to the fair market value per share of the Common Stock (such fair market value being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange). The Options shall be restricted and non-transferable, as set forth in the Stock Option Agreement, in the form attached hereto as Exhibit A, and shall vest in accordance with the schedule set forth below. The term of the Options shall be for a period of ten (10) years following the date of the grant of the Options hereunder, and the Options shall be subject to such other terms and conditions not inconsistent with the terms of this Agreement as are set forth in the Stock Option Agreement to be executed by the Parent Company and Executive and as determined by the Compensation Committee. To the extent permitted by applicable law, the Options shall be incentive stock options in each year and, with respect to any Options that are vested, shall be exercisable for the applicable periods set forth in the Stock Option Agreement. Executive shall not be entitled to any rights with respect to the Common Stock underlying the Options, including the right to vote or receive dividends or distributions with respect to any of the Common Stock underlying the Options, until such Options (or any portion thereof) have been exercised. To the extent that Executive is employed by the Company as of each of the respective dates set forth below and in recognition of Executive’s employment by the Company prior to the execution of this Agreement, the Options shall vest as follows:

               (a) 66,666 Options as of the close of business on February 28, 2006;

               (b) 66,667 Options as of the close of business on February 28, 2007; and

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               (c) 66,667 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing Three Hundred Sixty Thousand Dollars ($360,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to any shares of the Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 24,828 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

          (i) 8,276 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

          (ii) 8,276 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

          (iii) 8,276 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 24,828 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

          (i) First Tranche Amount. The “First Tranche Amount” consisting of 8,276 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

          (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 8,276 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the

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Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

          (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 8,276 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

          4.7 Acceleration of Option and Restricted Stock Vesting. Notwithstanding anything to the contrary in the Stock Option Agreement or the Restricted Stock Agreement, in the event of either (i) a Change in Control prior to the termination or expiration of this Agreement pursuant to which the Company, the Parent Company or any successor company does not agree, as of the date of such Change in Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years, or (ii) the Company or the Parent Company consummates a transaction which constitutes a “Rule 13e-3 transaction” (as such term is defined in Rule 13e-3 of the Exchange Act) prior to the termination or expiration of this Agreement, then effective coincident with the consummation of such Change in Control or Rule 13e-3 transaction, all unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall immediately vest and be exercisable by Executive notwithstanding the vesting schedules set forth in Sections 4.5 and 4.6 hereof or in any applicable award grant agreement; provided, however, that notwithstanding the foregoing, in connection with the consummation of such Change in Control or Rule 13e-3 transaction, all such unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall be deemed to vest and become exercisable at such time in order to permit Executive to participate in such transaction.

          4.8 Restrictions upon Transfer of Options and Restricted Stock. Executive shall not sell, transfer, exchange, convey, pledge or otherwise encumber, whether voluntarily or involuntarily, any of the Options or Restricted Stock, except as specifically permitted by this Agreement, the Stock Option Agreement or the Restricted Stock Agreement.

          4.9 Equitable Adjustment of Options and Restricted Stock. In the event of any subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend by the Parent Company, then the number of shares of Restricted Stock and the number of shares of Common Stock issuable upon exercise of the Options and the exercise price with respect thereto shall be equitably adjusted to reflect the effect of any such subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization,

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recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend.

          4.10 Return and/or Forfeiture of Performance-Based Payments or Awards. Notwithstanding any other provision in this Agreement or in the Stock Option Agreement or Restricted Stock Agreement, in the event that pursuant to the terms or requirements of the Sarbanes-Oxley Act of 2002 or of any applicable laws, rules or regulations promulgated by the Securities and Exchange Commission or any listing requirements of any stock exchange or stock market on which any securities of the Company or the Parent Company trade, from time to time, and in the event any bonus payment, stock award or other payment is based upon the satisfaction of financial performance metrics which are subsequently reversed due to a restatement or reclassification of financial results of the Company or the Parent Company, then any payments made or awards granted shall be returned and forfeited to the extent required and as provided by applicable laws, rules, regulations or listing requirements. This Section 4.10 shall survive any expiration or termination of this Agreement for any reason.

     5. Employee Benefits. As an inducement to Executive to continue employment hereunder, and in consideration of Executive’s covenants under this Agreement, Executive shall be entitled to the benefits set forth below for so long as Executive’s employment with the Company continues:

          5.1 the Company will reimburse Executive for all reasonable and necessary out-of-pocket expenses for travel, lodging, meals, entertainment or any other similar expenses incurred by Executive in connection with the performance of Executive’s duties hereunder upon receipt of documentation therefor in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time.

          5.2 Executive will be eligible to participate in applicable Company benefit plans, programs and arrangements (including, without limitation, pension, profit sharing, 401(k) plans, and medical and life insurance programs) on the same terms as apply generally to other senior-level executives of the Company from time to time.

          5.3 Executive shall be entitled to vacation in accordance with the Company’s generally applicable policies relating to vacations.

     6. Termination.

          6.1 Termination for Any Reason. If, during the Term of Employment, Executive’s employment terminates for any reason, Executive (or his estate in the event of Executive’s death) shall be entitled to receive a lump sum cash payment equal to the sum of the following: (i) accrued but unpaid Base Salary, if any, accrued up to and including the date Executive’s employment was terminated, (ii) any Annual Bonus, if any, earned but unpaid for any year preceding the then current Employment Year, (iii) unreimbursed business expenses, and (iv) the cash equivalent of any vested benefits as of the date of such termination under any benefit plans maintained, or contributed to, by the Company, or any disability benefits program sponsored by the Company, to the extent permitted by, and in accordance with, the terms and

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conditions of each such plan or program, and any benefit required by COBRA.

          6.2 Termination Without Cause, For Good Reason, Death or Disability. In addition to the provisions of Section 6.1, above, if, during the Term of Employment, Executive’s employment is terminated by the Company Without Cause, by Executive for Good Reason or as a result of Executive’s death or Disability, Executive (or his estate in the event of Executive’s death) shall be entitled to the following: (i) an amount equal to the product of (x) Executive’s then current annual Base Salary plus Executive’s Average Bonus, and (y) the number of years in the Post-Employment Period, to be paid to Executive as provided in Section 6.3 hereof; (ii) an amount equal to the Pro Rata Bonus, to be paid to Executive at the time that cash bonuses are paid to other senior-level executives of the Company for such Employment Year; and (iii) the continuation of medical, dental and life insurance coverage (at the rates and on the coverage terms available to other senior-level executives) for the duration of the Post-Employment Period.

          6.3 Terms of Payments. The amounts due to Executive pursuant to Section 6.2(i) hereof shall be paid by the Company as follows:

               (a) fifty percent (50%) of the aggregate amount due to Executive shall be paid to Executive on the effective date of termination of Executive’s employment with the Company; and

               (b) fifty percent (50%) of the aggregate amount due to Executive shall be paid pro rata on a monthly basis to Executive over the duration of the Post-Employment Period;

provided, however, that all payments and continuation of benefits provided to Executive pursuant to this Section 6 shall be contingent upon Executive’s execution and delivery of a general release and waiver, substantially in the form provided on Exhibit C attached hereto; and provided, further, that notwithstanding any of the foregoing terms, in the event, and at the moment, that Executive violates any of his duties or obligations set forth in Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after the termination of his employment, the terms of Sections 6.2(ii), 6.2(iii) and 6.3(b) will be of no force or effect and the Company’s obligations under those subsections to make severance payments or provide continued employee benefits will immediately cease.

          6.4 Treatment of Options and Restricted Stock. Upon termination of Executive’s employment with the Company pursuant to Section 6.2 hereof, Executive shall forfeit all rights and interests to any unvested options, unvested shares of restricted stock or other unvested equity awards (including, without limitation, all unvested Options and shares of Restricted Stock), then held by Executive, except for any options, shares of restricted stock, or other awards that would otherwise vest within three (3) months of the date of termination.

          6.5 Outplacement Services. Upon the termination of Executive’s employment with the Company for any reason, the Company shall provide Executive with outplacement services customary for senior executives and consistent with the Company’s past practice in an

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amount not to exceed Thirty Thousand Dollars ($30,000).

     7. Company Property. All advertising, sales, manufacturers’ and other materials or articles or information, including, without limitation, data processing reports, computer programs, software, Customer information and records, business records, price lists or information, samples, or any other materials or data of any kind furnished to Executive by the Company are and shall remain the sole property of the Company, including in each case all copies thereof in any medium, including computer tapes and other forms of information storage. If the Company requests the return of such materials (whether or not containing confidential information) at any time during or at or after the termination of Executive’s employment, Executive shall promptly deliver such materials and all copies of such materials to the Company.

     8. Noncompetition; Nonsolicitation; Confidential Information, etc. Executive hereby acknowledges that, during and solely as a result of Executive’s employment by the Company, Executive has received and will continue to receive special training and education with respect to the operations of the Company’s business and other related matters, and access to confidential information and business and professional contacts. In consideration of such special and unique opportunities afforded by the Company to Executive as a result of Executive’s employment, Executive hereby agrees to be bound by and acknowledges the reasonableness of the following covenants, which are specifically relied upon by the Company and the Parent Company in entering into this Agreement. Executive acknowledges and agrees that each of the individual provisions of this Section 8 constitutes a separate and distinct obligation of Executive to the Company and the Parent Company, individually enforceable against Executive.

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s 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 Exchange Act, and then only to the extent of owning not more than two percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or for a

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period of six (6) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, for any reason, directly or indirectly, employ, solicit or endeavor to entice away from the DHC Group (whether for Executive’s own benefit or on behalf of another person or entity), or facilitate the solicitation, employment or enticement of, any employee of the DHC Group to work for Executive, any affiliate of Executive or any competitor of the DHC Group, nor shall Executive otherwise attempt to interfere (to the Parent Company’s or the Company’s detriment) in the relationship between the Parent Company, the Company or any of their respective subsidiaries and any such employees.

          8.3 Covenant Not to Solicit Customers. During the Restricted Period or for a period of eighteen (18) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, directly or indirectly, in any form or manner, contact, solicit, or facilitate the contacting or solicitation of, any Customer of the DHC Group for the purpose of competing with the Business. For purposes of this Agreement, the term “Customer” shall mean and refer to each person, entity, municipality or other governmental entity that has a contract with or is actively being solicited by the DHC Group to deliver waste, receive services or purchase energy during the period of Executive’s employment hereunder.

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, 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 Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “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 any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company 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 Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

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          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company 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 Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

          8.6 Assignment of Inventions. Any and all writings, inventions, improvements, processes, procedures and/or techniques now or hereafter acquired, made, conceived, discovered or developed by Executive, either solely or jointly with any other person or persons, whether or not during working hours and whether or not at the request or upon the suggestion of the Company, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Company, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Company. Executive shall make full disclosure to the Company of all such writings, inventions, improvements, processes, procedures, techniques, or any other material of a proprietary nature, including, without limitation, any ideas, inventions, discoveries, improvements, developments, designs, methods, systems, computer programs, trade secrets or other intellectual property whether or not patentable or copyrightable and specifically including, but not limited to, copyright and mask works, formulae, compositions, products, processes, apparatus, and new uses of existing materials or machines (collectively, “Inventions”), made, conceived or first reduced to practice by Executive solely or jointly with others while employed by the Company or its affiliates and which relate to or result from the actual or anticipated business, work, research or investigation of the Company or any of its affiliates or which are suggested by or result from any task assigned to or performed by Executive for the Company or any of its affiliates; and Executive shall do everything necessary or desirable to vest the absolute title thereto in the Company. Executive shall write and prepare all descriptions, specifications and procedures regarding the Inventions as may be required by the Company to protect the Company’s rights in and to the Inventions, and otherwise aid and assist the Company so that the Company can prepare and present applications for copyright or letters patent therefor and can secure such copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’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 Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’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 Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

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          8.7 Equitable Remedies. In the event that Executive breaches any of the terms or conditions set forth in this Section 8, Executive stipulates that such breach will result in immediate and irreparable harm to the business and goodwill of the Parent Company and/or the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Parent Company and/or the Company 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 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.

          8.8 Continuing Obligation. Upon termination of this Agreement for any reason during the Term of Employment, or upon expiration of this Agreement pursuant to Section 3 hereof, the obligations, duties and liabilities of Executive pursuant to Sections 4.10, 8.1, 8.2, 8.3, 8.4, 8.5 and 8.9 of this Agreement are continuing, and for the periods set forth in such provisions hereof are absolute and unconditional, and shall survive and remain in full force and effect as provided in each such Section. Notwithstanding anything else contained in this Agreement to the contrary, the parties hereto agree that in the event Executive breaches any of the terms contained in Sections 8.1, 8.2, 8.3 and 8.4 of this Agreement, the obligation of the Company to pay any Base Salary or Annual Bonus under this Agreement (or pursuant to any severance payment set forth in Section 6 of this Agreement) shall terminate as of the date of such breach by Executive.

          8.9 Post-Termination Violations of this Agreement. In the event, and at the moment, that Executive violates any of his duties or obligations set forth in (i) Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs during the Term of Employment for any reason, or (ii) Sections 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs after the expiration of the Term of Employment, and notwithstanding any other provision in this Agreement, the Stock Option Agreement or the Restricted Stock Agreement to the contrary, (x) Executive shall immediately forfeit any right to exercise any unexercised Options that previously vested pursuant to the terms of this Agreement or the Stock Option Agreement, and (y) any unvested options, shares of restricted stock or other equity awards (including any unvested Options or shares of Restricted Stock) will immediately be cancelled and forfeited.

     9. Prior Agreements; Conflicts of Interest. 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, company 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, company 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, Executive shall indemnify the Parent Company and the Company from and against any and all manner of expenses and liabilities incurred by the Parent Company, the Company or any of their affiliates in connection with such violation or interference or alleged violation or interference.

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     10. Indemnification.

          10.1 The Company shall indemnify Executive to the fullest extent provided by applicable law against all costs, expenses, liabilities and losses (including, without limitation, attorneys’ fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by Executive in connection with any proceeding brought against Executive related to Executive’s employment with the Company (each, a “Proceeding”).

          10.2 The Company shall advance to Executive all reasonable costs and expenses incurred in connection with any Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by Executive to repay the amount of such advance if ultimately it shall be determined that he is not entitled to be indemnified against such costs and expenses.

          10.3 Executive shall be entitled to indemnification under this Section 10 if Executive meets the standard of conduct specified under applicable law unless non-entitlement is determined by a court of competent jurisdiction. If Executive in fact meets the applicable standard of conduct, he shall be entitled to such indemnification whether or not the Company (whether by the Board, the stockholders, independent legal counsel or other party) determines that indemnification is proper because he has met such applicable standard of conduct. Neither the failure of the Company to have made such a determination nor a determination by the Company that Executive has not met such applicable standard of conduct, shall create a presumption in any litigation, arbitration or other proceeding commenced against Executive that Executive has not met the applicable standard of conduct.

          10.4 The Company shall not settle any Proceeding or claim in any manner which would impose on Executive any penalty or limitation without Executive’s prior written consent. Neither the Company nor Executive will withhold consent to any proposed settlement unreasonably.

     11. Miscellaneous.

          11.1 Joint and Several Liability. The Employer, the Company and the Parent Company each agree to be jointly and severally liable for the performance (payment or otherwise) of all obligations of the Employer, the Company and the Parent Company under this Agreement.

          11.2 Binding Nature of Agreement. This Agreement shall be binding upon the Employer, the Company and the Parent Company and shall inure to the benefit of each such party and their successors and assigns, including any transferee of the business operation, as a going concern, in which Executive is employed and shall be binding upon Executive, Executive’s heirs and personal representatives. None of the rights or obligations of Executive hereunder may be assigned or delegated, except that in the event of Executive’s death or Disability, any rights of Executive hereunder shall be transferred to Executive’s estate or personal representative, as the case may be. The Employer may assign its rights and obligations under this Agreement in whole or in part to the Parent Company or the Company without

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Executive’s prior consent. Any entity into which the Company or the Parent Company is merged, or with which the Company or the Parent Company is consolidated, or which acquires the business of the Company or the Parent Company or the business unit in which Executive is to be principally employed, shall be deemed to be a successor of the Employer, the Company or the Parent Company for purposes hereof.

          11.3 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, inducements or conditions, express or implied, oral or written, except as expressly herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. Notwithstanding the foregoing, nothing herein shall limit the application of any generally applicable Company policy, practice, plan or the terms of any manual or handbook applicable to the Company’s employees generally.

          11.4 Notices. All notices, requests, consents, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally, or mailed first-class, postage prepaid, by registered or certified mail (notices sent by mail shall be deemed to have been given on the date sent), or by confirmed facsimile transmission with a hard copy deposited in first class mail the same day or the following day, as follows (or to such other address as either party shall designate by notice in writing to the other):

If to the Employer, the Company, or the Parent Company:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: President and CEO
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7076

With a copy to:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: General Counsel
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7357

And to:

David S. Stone, Esq.

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Neal, Gerber & Eisenberg LLP
2 North LaSalle Street
Suite 2200
Chicago, IL 60602
Telephone Number: 312-269-8411
Facsimile Number: 312-269-1747

If to Executive:

Anthony Orlando
                                                              
                                                              
Telephone Number:                             

With a copy to:

Michael S. Harrington, Esq.
Fox Rothschild, LLP
P.O. Box 673
760 Constitution Drive
Exton, PA 19341
Telephone Number: (610) 458-4957
Facsimile Number: (610) 458-7337

          11.5 Governing Law. This Agreement shall be governed by and construed and in accordance with the internal laws of the State of Delaware without regard to conflicts of laws provisions thereof.

          11.6 Headings. The article and section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

          11.7 Amendment. This Agreement may be amended, modified, superseded, canceled, renewed, or extended and the terms or covenants of this Agreement may be waived, only by a written instrument executed by all of the parties hereto, or in the case of a waiver, by the party waiving compliance.

          11.8 Waiver. The failure of either party at any time or times to require performance of any provision of this Agreement shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

          11.9 Counterparts. This Agreement may be executed in any number of

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counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument.

          11.10 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.

          11.11 Reimbursement of Expenses. The Company shall pay Executive directly or reimburse Executive for the reasonable legal expenses incurred by Executive related to the negotiation, preparation and execution of this Agreement; provided, however, that such payment or reimbursement shall not exceed Twenty Thousand Dollars ($20,000).

[signature page follows]

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     IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Craig D. Abolt
	Craig D. Abolt, Sr. Vice President and CFO
COMPANY:
Covanta Energy Corporation
By:	/s/ Craig D. Abolt
	Craig D. Abolt, Sr. Vice President and CFO
PARENT COMPANY:
Danielson Holding Corporation
By:	/s/ Craig D. Abolt
	Craig D. Abolt, Sr. Vice President and CFO
/s/ Anthony J. Orlando
Anthony J. Orlando, Individually

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), made this 5th day of October, 2004, by and between Covanta Projects, Inc., a Delaware corporation (the “Employer”), Covanta Energy Corporation, a Delaware corporation (the “Company”), Danielson Holding Corporation, a Delaware corporation (the “Parent Company”), and Craig D. Abolt, an individual (the “Executive”).

Background

     The Company is a Delaware corporation engaged in the business of owning and operating waste-to-energy facilities and independent power generation facilities. Executive has previously been employed by the Company in various capacities, and is currently serving as the Senior Vice President-Chief Financial Officer of the Company. The Company wishes to continue the employment of Executive as the Company’s Senior Vice President-Chief Financial Officer and the Parent Company wishes to employ Executive as the Parent Company’s Senior Vice President-Chief Financial Officer and Executive wishes to continue to be employed by the Company as the Company’s Senior Vice President-Chief Financial Officer and to be employed as the Parent Company’s Senior Vice President-Chief Financial Officer on the terms and conditions set forth in this Agreement.

     Executive acknowledges and understands that, during the course of his employment by the Company and the Parent Company, Executive has become, and will continue to become, familiar with (as the case may be) certain confidential information of the Company, Employer and Parent Company and their respective subsidiaries and affiliates (collectively, the “DHC Group”) which is exceptionally valuable to the DHC Group and vital to the success of the DHC Group’s business. The Parent Company, the Company and Executive desire to protect such confidential information from disclosure to third parties or use of such information to the detriment of any member of the DHC Group.

     The Company and the Employer are both wholly-owned subsidiaries of the Parent Company. For corporate structuring purposes only, Executive will be employed by the Employer and the Parent Company, yet will owe his obligations as an employee to the Company and to the Parent Company. As a result, the Employer, the Company and the Parent Company have agreed to be jointly and severally liable for the full performance of any obligations (payment or otherwise) of each such party pursuant to this Agreement.

Agreement

     NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, the Company and Executive agree as follows:

     1. Definitions. As used herein, the following terms shall have the meanings set forth below unless the context otherwise requires:

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          “Annual Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Average Bonus” shall mean the average Annual Bonus received by Executive during the two (2) full Employment Years preceding the date of termination.

          “Base Compensation” shall mean the sum of Executive’s Base Salary plus Executive’s Target Bonus for the applicable Employment Year.

          “Base Salary” shall mean the annual rate of compensation set forth in Section 4.1, as such amount may be adjusted from time to time.

          “Board” shall mean the Board of Directors of the Parent Company.

          “Business” shall have the meaning specified in Section 8.1 hereof.

          “Cause” shall mean that Executive has:

          (a) been convicted of, or plead nolo contendere to, a felony or crime involving moral turpitude; or

          (b) committed an act of personal dishonesty or fraud involving personal profit in connection with Executive’s employment by the Company; or

          (c) committed a material breach of any material covenant, provision, term, condition, understanding or undertaking set forth in this Agreement, including, without limitation, the provisions contained in Sections 8.1, 8.2, 8.3 or 8.4 hereof; or

          (d) committed an act which the Board of Directors of the Company has found to have involved willful misconduct or gross negligence on the part of Executive; or

          (e) failed or refused to substantially perform the lawful duties of his employment in any material respect; or

          (f) failed to comply with the lawful written rules and policies of the Company in any material respect;

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless 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 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.

          “CFO” shall have the meaning specified in Section 2.1 hereof.

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          “Change in Control” shall mean the occurrence of any of the following events, each of which shall be determined independently of the others:

               (a) any “Person” (as defined herein), other than a holder of at least 10% of the outstanding voting power of the Parent Company as of the date of this Agreement, becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of a majority of the stock of either the Company or the Parent Company entitled to vote in the election of directors of either the Company or the Parent Company. For purposes of this definition, the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act;

               (b) the individuals who are “Continuing Directors” (as hereinafter defined) of the Parent Company cease to constitute a majority of the members of the Board. For purposes of this definition, “Continuing Directors” shall mean the members of the Board on the date of execution of this Agreement, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by at least a majority of the directors who then comprised the Continuing Directors shall be considered to be a Continuing Director;

               (c) the stockholders of the Company or the Parent Company adopt and consummate a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of the assets of the Company or the Parent Company;

               (d) the Company or the Parent Company is a party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, with an unaffiliated third party, unless the business of the Company or the Parent Company following consummation of such merger, consolidation or other business combination is continued following any such transaction by a resulting entity (which may be, but need not be, the Company or the Parent Company, as the case may be) and the stockholders of the Company or the Parent Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting power of the resulting entity; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company or the Parent Company (or similar transaction) shall not constitute a Change in Control; or

               (e) there is a Change in Control of the Company or the Parent Company of a nature that is reported in response to item 5.01 of Current Report on Form 8-K or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company or the Parent Company, as the case may be, is then subject to such reporting requirements;

provided, however, that for purposes of this Agreement a Change in Control shall not be deemed to occur if the Person or Persons deemed to have acquired control is or are a holder of at least 10% of the outstanding Voting Power of the Parent Company as of the date of this Agreement.

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          “Common Stock” shall have the meaning specified in Section 4.5 hereof.

          “Company” shall have the meaning specified in the Background Section hereof.

          “Compensation Committee” shall have the meaning specified in Section 2.1 hereof.

          “Confidential Information” shall have the meaning specified in Section 8.4 hereof.

          “Covanta 2004 Cash Bonus Plan” shall have the meaning specified in Section 4.2 hereof.

          “Customer” shall have the meaning specified in Section 8.3 hereof.

          “DHC Group” shall have the meaning specified in the Background Section hereof.

          “Disability” shall mean Executive’s inability, for a period of six (6) consecutive months, or a cumulative period of one hundred thirty (130) business days out of a period of twelve (12) consecutive months, to perform the essential duties of Executive’s position, even taking into account any reasonable accommodation required by law, due to a mental or physical impairment. The determination of whether Executive is suffering from a Disability shall be made by three (3) independent physicians, one chosen by a representative of Executive, one chosen by the Company and one chosen by the physicians chosen by Executive and the Company.

          “Employees’ Plan” shall have the meaning specified in Section 4.5 hereof.

          “Employer” shall have the meaning specified in the introductory paragraph of this Agreement.

          “Employment Year” shall mean each twelve-month period commencing on January 1^st of each applicable year, or part thereof, as the case may be, during which Executive was or is employed by the Company pursuant to this Agreement or prior to this Agreement.

          “Good Reason” shall mean the resignation of Executive from employment with the Company following the occurrence of one or more of the events set forth in clauses (a) through (f) below without the prior written consent of Executive, provided that, in connection with any event or events specified in clauses (a) through (e) below, (i) Executive delivers written notice to the Company of his intention to resign from employment due to one or more of such events, which notice specifies in reasonable detail the circumstances claimed to provide the basis for such resignation, and (ii) such event or events are not cured by the Company within fifteen (15) days (or such longer reasonable period of time as is necessary to cure such event so long as

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the Company is diligently pursuing such cure) following delivery of such written notice:

               (a) any reduction in Executive’s annual rate of Base Compensation other than a reduction in connection with a Board-approved redesign of the then current salary or bonus structure that affects all senior-level executives of the Company similarly;

               (b) any reduction in Executive’s annual rate of Base Compensation that exceeds ten percent (10%) of Executive’s highest annual Base Compensation for any Employment Year (measuring a change in the Target Bonus by the change in the dollar amount equivalent represented by the Target Bonus and not by amounts actually paid);

               (c) any removal by the Company of Executive from his position indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with termination of Executive’s employment for Cause or Disability;

               (d) a relocation of Executive’s principal business location to a location that is fifty (50) miles or more from the Company’s current principal business office located at 40 Lane Road, Fairfield, New Jersey;

               (e) the Employer’s, the Company’s or the Parent Company’s failure to comply with any of the material terms of this Agreement; or

               (f) the occurrence of a Change of Control pursuant to which the Company, the Parent Company or any successor company, as the case may be, does not agree, as of the date of such Change of Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years.

          “Options” shall have the meaning specified in Section 4.5 hereof.

          “Parent Company” have the meaning specified in the Background Section hereof.

          “Performance Vesting Restricted Stock” shall have the meaning specified in Section 4.6(b) hereof.

          “Post-Employment Period” shall have the following meaning:

               (a) if Executive’s employment is terminated during the initial twenty-four (24) months of the Term of Employment, then the Post-Employment Period shall be twenty-four (24) months; or

               (b) if Executive’s employment is terminated during the final thirty-six (36) months of the Term of Employment, then the Post-Employment Period shall be eighteen (18) months.

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          “Pro Rata Bonus” shall mean an amount equal to the product of the following: (i) the quotient obtained by dividing (x) the number of full calendar months Executive has been employed by the Company for the then current Employment Year, by (y) twelve (12); and (ii) that amount of the Annual Bonus that Executive would have been entitled to receive had he remained employed by the Company for the entire applicable Employment Year.

          “Proceeding” shall have the meaning specified in Section 10.1 hereof.

          “Restricted Period” shall have the following meaning:

               (a) if Executive’s employment is terminated for any reason prior to the expiration of the Term of Employment, the term shall mean the period commencing on the date hereof and continuing for a period of time after the termination of employment with the Company for any reason equal to the Post-Employment Period, and with respect to Section 8.1 hereof only, less three (3) months;

               (b) if Executive’s employment is continued after the expiration of this Agreement on an at-will basis as provided in Section 3 hereof, the term shall mean the period commencing on the date of expiration of this Agreement and continuing only during the period of Executive’s at-will employment by the Company, and not thereafter.

          “Restricted Stock” shall have the meaning specified in Section 4.6 hereof.

          “Subsidiary” shall mean any corporation in which the Company owns directly or indirectly fifty percent (50%) or more of the Voting Stock or fifty percent (50%) or more of the equity; or any other venture in which it owns either fifty percent (50%) or more of the voting rights or fifty percent (50%) or more of the equity.

          “Target Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Term of Employment” shall have the meaning specified in Section 3 hereof.

          “Time Vesting Restricted Stock” shall have the meaning specified in Section 4.6(a) hereof.

          “Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.

          “Without Cause” shall mean the termination by the Company of Executive’s employment for any reason other than as a result of Cause; provided, however, that to the extent requested by the Company, Executive shall remain in the active employment of the Company until the date of termination specified by the Company; provided, further, that such date of termination shall be no later than sixty (60) days after the delivery by the Company of written

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notice of termination to Executive.

     2. Employment and Duties.

          2.1 Employment. Each of the Parent Company and the Company hereby employs Executive and Executive hereby accepts appointment or election as Senior Vice President-Chief Financial Officer (“CFO”) of the Parent Company and the Company. Executive shall be responsible for all lawful duties and entitled to all authority customarily assigned to the position of CFO, as well as those lawful duties specified by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. Executive shall render such services as are necessary and desirable to protect and advance the best interests of the Parent Company and the Company, acting, in all instances, under the supervision of and in accordance with the lawful policies set by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. So long as Executive shall remain an employee of the Parent Company and the Company, Executive’s entire working time, energy, skill and best efforts shall be devoted to the performance of Executive’s duties hereunder in a manner which will faithfully and diligently further the business and interests of the Parent Company and the Company; provided, however, that Executive may serve on up to three (3) corporate, civic and charitable boards with the consent of the compensation committee of the Parent Company, which serves as the Company’s compensation committee (such committee, the “Compensation Committee”), and deliver lectures, fulfill speaking engagements or teach at educational institutions; provided, further, that such service does not conflict with or detract from the performance of his duties. Nothing in this Section 2.1 shall be deemed to limit Executive’s management of his personal passive investments.

          2.2 Location. The Company’s current business office located at 40 Lane Road, Fairfield, New Jersey shall be Executive’s primary office; provided, however, that Executive acknowledges and agrees that Executive may be required, in connection with the performance of his duties to the Company hereunder, to work from time to time at other locations reasonably and customarily required in connection with the business of the Company.

     3. Term. Executive shall be employed by the Company for the period commencing on the date hereof and ending on October 5, 2009, unless sooner terminated as hereinafter provided (the “Term of Employment”). Upon expiration of the Term of Employment, unless Executive’s employment is sooner terminated as provided herein, Executive’s employment shall be automatically renewed on an at-will basis and, except as specifically provided herein, this Agreement and each of the parties’ respective obligations hereunder shall terminate.

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Three Hundred Twenty-Five Thousand Dollars ($325,000) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect from time to time.

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          4.2 Annual Bonus. In addition to the Base Salary, Executive shall be eligible to receive an annual cash bonus from the Company (the “Annual Bonus”). For calendar year 2004, the Annual Bonus payable to Executive shall be based on the Company’s 2004 Cash Bonus Plan dated April 15, 2004 and approved by the Board (the “Covanta 2004 Cash Bonus Plan”). Thereafter, the Annual Bonus payable to Executive shall be based on the annual cash bonus program approved by the Board or the Compensation Committee thereof; provided, however, that Executive’s annual target bonus shall continue to be at least fifty-five percent (55%) of Executive’s Base Salary (the “Target Bonus”) for each subsequent Employment Year unless Executive receives written notice from the Board or the Compensation Committee thereof no later than March 1^st of any applicable Employment Year that the Board or the Compensation Committee thereof has decided to reduce the Target Bonus.

          4.3 Review of Base Compensation. The Base Compensation shall be reviewed annually by the Board or the Compensation Committee thereof and, unless otherwise set forth herein, may be increased or decreased as the Board or the Compensation Committee thereof shall determine from time to time.

          4.4 Incentive Compensation Programs. In addition to the foregoing provisions of this Section 4, Executive shall be eligible to participate in other applicable Company incentive compensation plans and programs (including, without limitation, any cash bonus, equity incentive, restricted stock and stock option plans and programs) on the same terms as apply generally to the Company’s other senior-level executives from time to time.

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon approval of the 2004 Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Employees’ Plan”) by the stockholders of the Parent Company, the Parent Company shall grant to Executive options (the “Options”) to purchase an aggregate of 85,000 shares of common stock, par value $0.10 per share of Parent Company (“Common Stock”) at an exercise price equal to the fair market value per share of the Common Stock (such fair market value being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange). The Options shall be restricted and non-transferable, as set forth in the Stock Option Agreement, in the form attached hereto as Exhibit A, and shall vest in accordance with the schedule set forth below. The term of the Options shall be for a period of ten (10) years following the date of the grant of the Options hereunder, and the Options shall be subject to such other terms and conditions not inconsistent with the terms of this Agreement as are set forth in the Stock Option Agreement to be executed by the Parent Company and Executive and as determined by the Compensation Committee. To the extent permitted by applicable law, the Options shall be incentive stock options in each year and, with respect to any Options that are vested, shall be exercisable for the applicable periods set forth in the Stock Option Agreement. Executive shall not be entitled to any rights with respect to the Common Stock underlying the Options, including the right to vote or receive dividends or distributions with respect to any of the Common Stock underlying the Options, until such Options (or any portion thereof) have been exercised. To the extent that Executive is employed by the Company

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as of each of the respective dates set forth below and in recognition of Executive’s employment by the Company prior to the execution of this Agreement, the Options shall vest as follows:

               (a) 28,333 Options as of the close of business on February 28, 2006;

               (b) 28,333 Options as of the close of business on February 28, 2007; and

               (c) 28,334 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing One Hundred Fifty Thousand Dollars ($150,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to any shares of the Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 10,345 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

        (i) 3,448 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

        (ii) 3,448 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

        (iii) 3,449 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 10,345 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

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        (i) First Tranche Amount. The “First Tranche Amount” consisting of 3,448 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

        (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 3,448 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

        (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 3,449 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

          4.7 Acceleration of Option and Restricted Stock Vesting. Notwithstanding anything to the contrary in the Stock Option Agreement or the Restricted Stock Agreement, in the event of either (i) a Change in Control prior to the termination or expiration of this Agreement pursuant to which the Company, the Parent Company or any successor company does not agree, as of the date of such Change in Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years, or (ii) the Company or the Parent Company consummates a transaction which constitutes a “Rule 13e-3 transaction” (as such term is defined in Rule 13e-3 of the Exchange Act) prior to the termination or expiration of this Agreement, then effective coincident with the consummation of such Change in Control or Rule 13e-3 transaction, all unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall immediately vest and be exercisable by Executive notwithstanding the vesting schedules set forth in Sections 4.5 and 4.6 hereof or in any applicable award grant agreement; provided, however, that notwithstanding the foregoing, in connection with the consummation of such Change in Control or Rule 13e-3 transaction, all such unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall be deemed to vest and become exercisable at such time in order to permit Executive to participate in such transaction.

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          4.8 Restrictions upon Transfer of Options and Restricted Stock. Executive shall not sell, transfer, exchange, convey, pledge or otherwise encumber, whether voluntarily or involuntarily, any of the Options or Restricted Stock, except as specifically permitted by this Agreement, the Stock Option Agreement or the Restricted Stock Agreement.

          4.9 Equitable Adjustment of Options and Restricted Stock. In the event of any subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend by the Parent Company, then the number of shares of Restricted Stock and the number of shares of Common Stock issuable upon exercise of the Options and the exercise price with respect thereto shall be equitably adjusted to reflect the effect of any such subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend.

          4.10 Return and/or Forfeiture of Performance-Based Payments or Awards. Notwithstanding any other provision in this Agreement or in the Stock Option Agreement or Restricted Stock Agreement, in the event that pursuant to the terms or requirements of the Sarbanes-Oxley Act of 2002 or of any applicable laws, rules or regulations promulgated by the Securities and Exchange Commission or any listing requirements of any stock exchange or stock market on which any securities of the Company or the Parent Company trade, from time to time, and in the event any bonus payment, stock award or other payment is based upon the satisfaction of financial performance metrics which are subsequently reversed due to a restatement or reclassification of financial results of the Company or the Parent Company, then any payments made or awards granted shall be returned and forfeited to the extent required and as provided by applicable laws, rules, regulations or listing requirements. This Section 4.10 shall survive any expiration or termination of this Agreement for any reason.

     5. Employee Benefits. As an inducement to Executive to continue employment hereunder, and in consideration of Executive’s covenants under this Agreement, Executive shall be entitled to the benefits set forth below for so long as Executive’s employment with the Company continues:

          5.1 the Company will reimburse Executive for all reasonable and necessary out-of-pocket expenses for travel, lodging, meals, entertainment or any other similar expenses incurred by Executive in connection with the performance of Executive’s duties hereunder upon receipt of documentation therefor in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time.

          5.2 Executive will be eligible to participate in applicable Company benefit plans, programs and arrangements (including, without limitation, pension, profit sharing, 401(k) plans, and medical and life insurance programs) on the same terms as apply generally to other senior-level executives of the Company from time to time.

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          5.3 Executive shall be entitled to vacation in accordance with the Company’s generally applicable policies relating to vacations.

     6. Termination.

          6.1 Termination for Any Reason. If, during the Term of Employment, Executive’s employment terminates for any reason, Executive (or his estate in the event of Executive’s death) shall be entitled to receive a lump sum cash payment equal to the sum of the following: (i) accrued but unpaid Base Salary, if any, accrued up to and including the date Executive’s employment was terminated, (ii) any Annual Bonus, if any, earned but unpaid for any year preceding the then current Employment Year, (iii) unreimbursed business expenses, and (iv) the cash equivalent of any vested benefits as of the date of such termination under any benefit plans maintained, or contributed to, by the Company, or any disability benefits program sponsored by the Company, to the extent permitted by, and in accordance with, the terms and conditions of each such plan or program, and any benefit required by COBRA.

          6.2 Termination Without Cause, For Good Reason, Death or Disability. In addition to the provisions of Section 6.1, above, if, during the Term of Employment, Executive’s employment is terminated by the Company Without Cause, by Executive for Good Reason or as a result of Executive’s death or Disability, Executive (or his estate in the event of Executive’s death) shall be entitled to the following: (i) an amount equal to the product of (x) Executive’s then current annual Base Salary plus Executive’s Average Bonus, and (y) the number of years in the Post-Employment Period, to be paid to Executive as provided in Section 6.3 hereof; (ii) an amount equal to the Pro Rata Bonus, to be paid to Executive at the time that cash bonuses are paid to other senior-level executives of the Company for such Employment Year; and (iii) the continuation of medical, dental and life insurance coverage (at the rates and on the coverage terms available to other senior-level executives) for the duration of the Post-Employment Period.

          6.3 Terms of Payments. The amounts due to Executive pursuant to Section 6.2(i) hereof shall be paid by the Company as follows:

               (a) fifty percent (50%) of the aggregate amount due to Executive shall be paid to Executive on the effective date of termination of Executive’s employment with the Company; and

               (b) fifty percent (50%) of the aggregate amount due to Executive shall be paid pro rata on a monthly basis to Executive over the duration of the Post-Employment Period;

provided, however, that all payments and continuation of benefits provided to Executive pursuant to this Section 6 shall be contingent upon Executive’s execution and delivery of a general release and waiver, substantially in the form provided on Exhibit C attached hereto; and provided, further, that notwithstanding any of the foregoing terms, in the event, and at the moment, that Executive violates any of his duties or obligations set forth in Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after the termination of his employment, the terms of Sections 6.2(ii),

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6.2(iii) and 6.3(b) will be of no force or effect and the Company’s obligations under those subsections to make severance payments or provide continued employee benefits will immediately cease.

          6.4 Treatment of Options and Restricted Stock. Upon termination of Executive’s employment with the Company pursuant to Section 6.2 hereof, Executive shall forfeit all rights and interests to any unvested options, unvested shares of restricted stock or other unvested equity awards (including, without limitation, all unvested Options and shares of Restricted Stock), then held by Executive, except for any options, shares of restricted stock, or other awards that would otherwise vest within three (3) months of the date of termination.

          6.5 Outplacement Services. Upon the termination of Executive’s employment with the Company for any reason, the Company shall provide Executive with outplacement services customary for senior executives and consistent with the Company’s past practice in an amount not to exceed Thirty Thousand Dollars ($30,000).

     7. Company Property. All advertising, sales, manufacturers’ and other materials or articles or information, including, without limitation, data processing reports, computer programs, software, Customer information and records, business records, price lists or information, samples, or any other materials or data of any kind furnished to Executive by the Company are and shall remain the sole property of the Company, including in each case all copies thereof in any medium, including computer tapes and other forms of information storage. If the Company requests the return of such materials (whether or not containing confidential information) at any time during or at or after the termination of Executive’s employment, Executive shall promptly deliver such materials and all copies of such materials to the Company.

     8. Noncompetition; Nonsolicitation; Confidential Information, etc. Executive hereby acknowledges that, during and solely as a result of Executive’s employment by the Company, Executive has received and will continue to receive special training and education with respect to the operations of the Company’s business and other related matters, and access to confidential information and business and professional contacts. In consideration of such special and unique opportunities afforded by the Company to Executive as a result of Executive’s employment, Executive hereby agrees to be bound by and acknowledges the reasonableness of the following covenants, which are specifically relied upon by the Company and the Parent Company in entering into this Agreement. Executive acknowledges and agrees that each of the individual provisions of this Section 8 constitutes a separate and distinct obligation of Executive to the Company and the Parent Company, individually enforceable against Executive.

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s 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 Exchange Act, and then only to the extent of owning not more than two

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percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or for a period of six (6) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, for any reason, directly or indirectly, employ, solicit or endeavor to entice away from the DHC Group (whether for Executive’s own benefit or on behalf of another person or entity), or facilitate the solicitation, employment or enticement of, any employee of the DHC Group to work for Executive, any affiliate of Executive or any competitor of the DHC Group, nor shall Executive otherwise attempt to interfere (to the Parent Company’s or the Company’s detriment) in the relationship between the Parent Company, the Company or any of their respective subsidiaries and any such employees.

          8.3 Covenant Not to Solicit Customers. During the Restricted Period or for a period of eighteen (18) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, directly or indirectly, in any form or manner, contact, solicit, or facilitate the contacting or solicitation of, any Customer of the DHC Group for the purpose of competing with the Business. For purposes of this Agreement, the term “Customer” shall mean and refer to each person, entity, municipality or other governmental entity that has a contract with or is actively being solicited by the DHC Group to deliver waste, receive services or purchase energy during the period of Executive’s employment hereunder.

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, 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 Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “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 any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of

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actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company 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 Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company 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 Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

          8.6 Assignment of Inventions. Any and all writings, inventions, improvements, processes, procedures and/or techniques now or hereafter acquired, made, conceived, discovered or developed by Executive, either solely or jointly with any other person or persons, whether or not during working hours and whether or not at the request or upon the suggestion of the Company, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Company, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Company. Executive shall make full disclosure to the Company of all such writings, inventions, improvements, processes, procedures, techniques, or any other material of a proprietary nature, including, without limitation, any ideas, inventions, discoveries, improvements, developments, designs, methods, systems, computer programs, trade secrets or other intellectual property whether or not patentable or copyrightable and specifically including, but not limited to, copyright and mask works, formulae, compositions, products, processes, apparatus, and new uses of existing materials or machines (collectively, “Inventions”), made, conceived or first reduced to practice by Executive solely or jointly with others while employed by the Company or its affiliates and which relate to or result from the actual or anticipated business, work, research or investigation of the Company or any of its affiliates or which are suggested by or result from any task assigned to or performed by Executive for the Company or any of its affiliates; and Executive shall do everything necessary or desirable to vest the absolute title thereto in the Company. Executive shall write and prepare all descriptions, specifications and procedures regarding the Inventions as may be required by the Company to protect the Company’s rights in and to the Inventions, and otherwise aid and assist the Company so that the Company can prepare and present applications for copyright or letters patent therefor and can secure such

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copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’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 Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’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 Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

          8.7 Equitable Remedies. In the event that Executive breaches any of the terms or conditions set forth in this Section 8, Executive stipulates that such breach will result in immediate and irreparable harm to the business and goodwill of the Parent Company and/or the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Parent Company and/or the Company 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 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.

          8.8 Continuing Obligation. Upon termination of this Agreement for any reason during the Term of Employment, or upon expiration of this Agreement pursuant to Section 3 hereof, the obligations, duties and liabilities of Executive pursuant to Sections 4.10, 8.1, 8.2, 8.3, 8.4, 8.5 and 8.9 of this Agreement are continuing, and for the periods set forth in such provisions hereof are absolute and unconditional, and shall survive and remain in full force and effect as provided in each such Section. Notwithstanding anything else contained in this Agreement to the contrary, the parties hereto agree that in the event Executive breaches any of the terms contained in Sections 8.1, 8.2, 8.3 and 8.4 of this Agreement, the obligation of the Company to pay any Base Salary or Annual Bonus under this Agreement (or pursuant to any severance payment set forth in Section 6 of this Agreement) shall terminate as of the date of such breach by Executive.

          8.9 Post-Termination Violations of this Agreement. In the event, and at the moment, that Executive violates any of his duties or obligations set forth in (i) Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs during the Term of Employment for any reason, or (ii) Sections 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs after the expiration of the Term of Employment, and notwithstanding any other provision in this Agreement, the Stock Option Agreement or the Restricted Stock Agreement to the contrary, (x) Executive shall immediately forfeit any right to exercise any unexercised Options that previously vested pursuant to the terms of this Agreement or the Stock Option Agreement, and (y) any unvested options, shares of restricted stock or other equity

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awards (including any unvested Options or shares of Restricted Stock) will immediately be cancelled and forfeited.

     9. Prior Agreements; Conflicts of Interest. 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, company 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, company 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, Executive shall indemnify the Parent Company and the Company from and against any and all manner of expenses and liabilities incurred by the Parent Company, the Company or any of their affiliates in connection with such violation or interference or alleged violation or interference.

     10. Indemnification.

          10.1 The Company shall indemnify Executive to the fullest extent provided by applicable law against all costs, expenses, liabilities and losses (including, without limitation, attorneys’ fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by Executive in connection with any proceeding brought against Executive related to Executive’s employment with the Company (each, a “Proceeding”).

          10.2 The Company shall advance to Executive all reasonable costs and expenses incurred in connection with any Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by Executive to repay the amount of such advance if ultimately it shall be determined that he is not entitled to be indemnified against such costs and expenses.

          10.3 Executive shall be entitled to indemnification under this Section 10 if Executive meets the standard of conduct specified under applicable law unless non-entitlement is determined by a court of competent jurisdiction. If Executive in fact meets the applicable standard of conduct, he shall be entitled to such indemnification whether or not the Company (whether by the Board, the stockholders, independent legal counsel or other party) determines that indemnification is proper because he has met such applicable standard of conduct. Neither the failure of the Company to have made such a determination nor a determination by the Company that Executive has not met such applicable standard of conduct, shall create a presumption in any litigation, arbitration or other proceeding commenced against Executive that Executive has not met the applicable standard of conduct.

          10.4 The Company shall not settle any Proceeding or claim in any manner which would impose on Executive any penalty or limitation without Executive’s prior written consent. Neither the Company nor Executive will withhold consent to any proposed settlement unreasonably.

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     11. Miscellaneous.

          11.1 Joint and Several Liability. The Employer, the Company and the Parent Company each agree to be jointly and severally liable for the performance (payment or otherwise) of all obligations of the Employer, the Company and the Parent Company under this Agreement.

          11.2 Binding Nature of Agreement. This Agreement shall be binding upon the Employer, the Company and the Parent Company and shall inure to the benefit of each such party and their successors and assigns, including any transferee of the business operation, as a going concern, in which Executive is employed and shall be binding upon Executive, Executive’s heirs and personal representatives. None of the rights or obligations of Executive hereunder may be assigned or delegated, except that in the event of Executive’s death or Disability, any rights of Executive hereunder shall be transferred to Executive’s estate or personal representative, as the case may be. The Employer may assign its rights and obligations under this Agreement in whole or in part to the Parent Company or the Company without Executive’s prior consent. Any entity into which the Company or the Parent Company is merged, or with which the Company or the Parent Company is consolidated, or which acquires the business of the Company or the Parent Company or the business unit in which Executive is to be principally employed, shall be deemed to be a successor of the Employer, the Company or the Parent Company for purposes hereof.

          11.3 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, inducements or conditions, express or implied, oral or written, except as expressly herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. Notwithstanding the foregoing, nothing herein shall limit the application of any generally applicable Company policy, practice, plan or the terms of any manual or handbook applicable to the Company’s employees generally.

          11.4 Notices. All notices, requests, consents, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally, or mailed first-class, postage prepaid, by registered or certified mail (notices sent by mail shall be deemed to have been given on the date sent), or by confirmed facsimile transmission with a hard copy deposited in first class mail the same day or the following day, as follows (or to such other address as either party shall designate by notice in writing to the other):

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If to the Employer, the Company, or the Parent Company:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: President and CEO
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7076

With a copy to:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: General Counsel
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7357

And to:

David S. Stone, Esq.
Neal, Gerber & Eisenberg LLP
2 North LaSalle Street
Suite 2200
Chicago, IL 60602
Telephone Number: 312-269-8411
Facsimile Number: 312-269-1747

If to Executive:

Craig D. Abolt
____________________
____________________
Telephone Number: ______________

With a copy to:

Michael S. Harrington, Esq.
Fox Rothschild, LLP
P.O. Box 673
760 Constitution Drive
Exton, PA 19341
Telephone Number:(610) 458-4957
Facsimile Number:(610) 458-7337

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          11.5 Governing Law. This Agreement shall be governed by and construed and in accordance with the internal laws of the State of Delaware without regard to conflicts of laws provisions thereof.

          11.6 Headings. The article and section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

          11.7 Amendment. This Agreement may be amended, modified, superseded, canceled, renewed, or extended and the terms or covenants of this Agreement may be waived, only by a written instrument executed by all of the parties hereto, or in the case of a waiver, by the party waiving compliance.

          11.8 Waiver. The failure of either party at any time or times to require performance of any provision of this Agreement shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

          11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument.

          11.10 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.

[signature page follows]

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     IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
COMPANY:
Covanta Energy Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
PARENT COMPANY:
Danielson Holding Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
/s/ Craig D. Abolt
Craig D. Abolt, Individually

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EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), made this 5th day of October, 2004, by and between Covanta Projects, Inc., a Delaware corporation (the “Employer”), Covanta Energy Corporation, a Delaware corporation (the “Company”), Danielson Holding Corporation, a Delaware corporation (the “Parent Company”), and Timothy J. Simpson, an individual (the “Executive”).

Background

     The Company is a Delaware corporation engaged in the business of owning and operating waste-to-energy facilities and independent power generation facilities. Executive has previously been employed by the Company in various capacities, and is currently serving as the Senior Vice President, General Counsel and Secretary of the Company. The Company wishes to continue the employment of Executive as the Company’s Senior Vice President, General Counsel and Secretary and the Parent Company wishes to employ Executive as the Parent Company’s Senior Vice President, General Counsel and Secretary and Executive wishes to continue to be employed by the Company as the Company’s Senior Vice President, General Counsel and Secretary and to be employed as the Parent Company’s Senior Vice President, General Counsel and Secretary on the terms and conditions set forth in this Agreement.

     Executive acknowledges and understands that, during the course of his employment by the Company and the Parent Company, Executive has become, and will continue to become, familiar with (as the case may be) certain confidential information of the Company, Employer and Parent Company and their respective subsidiaries and affiliates (collectively, the “DHC Group”) which is exceptionally valuable to the DHC Group and vital to the success of the DHC Group’s business. The Parent Company, the Company and Executive desire to protect such confidential information from disclosure to third parties or use of such information to the detriment of any member of the DHC Group.

     The Company and the Employer are both wholly-owned subsidiaries of the Parent Company. For corporate structuring purposes only, Executive will be employed by the Employer and the Parent Company, yet will owe his obligations as an employee to the Company and to the Parent Company. As a result, the Employer, the Company and the Parent Company have agreed to be jointly and severally liable for the full performance of any obligations (payment or otherwise) of each such party pursuant to this Agreement.

Agreement

     NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, the Company and Executive agree as follows:

     1. Definitions. As used herein, the following terms shall have the meanings set forth below unless the context otherwise requires:

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          “Annual Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Average Bonus” shall mean the average Annual Bonus received by Executive during the two (2) full Employment Years preceding the date of termination.

          “Base Compensation” shall mean the sum of Executive’s Base Salary plus Executive’s Target Bonus for the applicable Employment Year.

          “Base Salary” shall mean the annual rate of compensation set forth in Section 4.1, as such amount may be adjusted from time to time.

          “Board” shall mean the Board of Directors of the Parent Company.

          “Business” shall have the meaning specified in Section 8.1 hereof.

          “Cause” shall mean that Executive has:

             (a) been convicted of, or plead nolo contendere to, a felony or crime involving moral turpitude; or

             (b) committed an act of personal dishonesty or fraud involving personal profit in connection with Executive’s employment by the Company; or

             (c) committed a material breach of any material covenant, provision, term, condition, understanding or undertaking set forth in this Agreement, including, without limitation, the provisions contained in Sections 8.1, 8.2, 8.3 or 8.4 hereof; or

             (d) committed an act which the Board of Directors of the Company has found to have involved willful misconduct or gross negligence on the part of Executive; or

               (e) failed or refused to substantially perform the lawful duties of his employment in any material respect; or

               (f) failed to comply with the lawful written rules and policies of the Company in any material respect;

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless 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 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.

          “Change in Control” shall mean the occurrence of any of the following events, each of which shall be determined independently of the others:

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               (a) any “Person” (as defined herein), other than a holder of at least 10% of the outstanding voting power of the Parent Company as of the date of this Agreement, becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of a majority of the stock of either the Company or the Parent Company entitled to vote in the election of directors of either the Company or the Parent Company. For purposes of this definition, the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act;

               (b) the individuals who are “Continuing Directors” (as hereinafter defined) of the Parent Company cease to constitute a majority of the members of the Board. For purposes of this definition, “Continuing Directors” shall mean the members of the Board on the date of execution of this Agreement, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by at least a majority of the directors who then comprised the Continuing Directors shall be considered to be a Continuing Director;

               (c) the stockholders of the Company or the Parent Company adopt and consummate a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of the assets of the Company or the Parent Company;

               (d) the Company or the Parent Company is a party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, with an unaffiliated third party, unless the business of the Company or the Parent Company following consummation of such merger, consolidation or other business combination is continued following any such transaction by a resulting entity (which may be, but need not be, the Company or the Parent Company, as the case may be) and the stockholders of the Company or the Parent Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting power of the resulting entity; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company or the Parent Company (or similar transaction) shall not constitute a Change in Control; or

               (e) there is a Change in Control of the Company or the Parent Company of a nature that is reported in response to item 5.01 of Current Report on Form 8-K or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company or the Parent Company, as the case may be, is then subject to such reporting requirements;

provided, however, that for purposes of this Agreement a Change in Control shall not be deemed to occur if the Person or Persons deemed to have acquired control is or are a holder of at least 10% of the outstanding Voting Power of the Parent Company as of the date of this Agreement.

          “Common Stock” shall have the meaning specified in Section 4.5 hereof.

          “Company” shall have the meaning specified in the Background Section hereof.

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          “Compensation Committee” shall have the meaning specified in Section 2.1 hereof.

          “Confidential Information” shall have the meaning specified in Section 8.4 hereof.

          “Covanta 2004 Cash Bonus Plan” shall have the meaning specified in Section 4.2 hereof.

          “Customer” shall have the meaning specified in Section 8.3 hereof.

          “DHC Group” shall have the meaning specified in the Background Section hereof.

          “Disability” shall mean Executive’s inability, for a period of six (6) consecutive months, or a cumulative period of one hundred thirty (130) business days out of a period of twelve (12) consecutive months, to perform the essential duties of Executive’s position, even taking into account any reasonable accommodation required by law, due to a mental or physical impairment. The determination of whether Executive is suffering from a Disability shall be made by three (3) independent physicians, one chosen by a representative of Executive, one chosen by the Company and one chosen by the physicians chosen by Executive and the Company.

          “Employees’ Plan” shall have the meaning specified in Section 4.5 hereof.

          “Employer” shall have the meaning specified in the introductory paragraph of this Agreement.

          “Employment Year” shall mean each twelve-month period commencing on January 1^st of each applicable year, or part thereof, as the case may be, during which Executive was or is employed by the Company pursuant to this Agreement or prior to this Agreement.

          “Good Reason” shall mean the resignation of Executive from employment with the Company following the occurrence of one or more of the events set forth in clauses (a) through (f) below without the prior written consent of Executive, provided that, in connection with any event or events specified in clauses (a) through (e) below, (i) Executive delivers written notice to the Company of his intention to resign from employment due to one or more of such events, which notice specifies in reasonable detail the circumstances claimed to provide the basis for such resignation, and (ii) such event or events are not cured by the Company within fifteen (15) days (or such longer reasonable period of time as is necessary to cure such event so long as the Company is diligently pursuing such cure) following delivery of such written notice:

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               (a) any reduction in Executive’s annual rate of Base Compensation other than a reduction in connection with a Board-approved redesign of the then current salary or bonus structure that affects all senior-level executives of the Company similarly;

               (b) any reduction in Executive’s annual rate of Base Compensation that exceeds ten percent (10%) of Executive’s highest annual Base Compensation for any Employment Year (measuring a change in the Target Bonus by the change in the dollar amount equivalent represented by the Target Bonus and not by amounts actually paid);

               (c) any removal by the Company of Executive from his position indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with termination of Executive’s employment for Cause or Disability;

               (d) a relocation of Executive’s principal business location to a location that is fifty (50) miles or more from the Company’s current principal business office located at 40 Lane Road, Fairfield, New Jersey;

               (e) the Employer’s, the Company’s or the Parent Company’s failure to comply with any of the material terms of this Agreement; or

               (f) the occurrence of a Change of Control pursuant to which the Company, the Parent Company or any successor company, as the case may be, does not agree, as of the date of such Change of Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years.

          “Options” shall have the meaning specified in Section 4.5 hereof.

          “Parent Company” have the meaning specified in the Background Section hereof.

          “Performance Vesting Restricted Stock” shall have the meaning specified in Section 4.6(b) hereof.

          “Post-Employment Period” shall have the following meaning:

               (a) if Executive’s employment is terminated during the initial twenty-four (24) months of the Term of Employment, then the Post-Employment Period shall be twenty-four (24) months; or

               (b) if Executive’s employment is terminated during the final thirty-six (36) months of the Term of Employment, then the Post-Employment Period shall be eighteen (18) months.

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          “Pro Rata Bonus” shall mean an amount equal to the product of the following: (i) the quotient obtained by dividing (x) the number of full calendar months Executive has been employed by the Company for the then current Employment Year, by (y) twelve (12); and (ii) that amount of the Annual Bonus that Executive would have been entitled to receive had he remained employed by the Company for the entire applicable Employment Year.

          “Proceeding” shall have the meaning specified in Section 10.1 hereof.

          “Restricted Period” shall have the following meaning:

               (a) if Executive’s employment is terminated for any reason prior to the expiration of the Term of Employment, the term shall mean the period commencing on the date hereof and continuing for a period of time after the termination of employment with the Company for any reason equal to the Post-Employment Period, and with respect to Section 8.1 hereof only, less three (3) months;

               (b) if Executive’s employment is continued after the expiration of this Agreement on an at-will basis as provided in Section 3 hereof, the term shall mean the period commencing on the date of expiration of this Agreement and continuing only during the period of Executive’s at-will employment by the Company, and not thereafter.

          “Restricted Stock” shall have the meaning specified in Section 4.6 hereof.

          “Subsidiary” shall mean any corporation in which the Company owns directly or indirectly fifty percent (50%) or more of the Voting Stock or fifty percent (50%) or more of the equity; or any other venture in which it owns either fifty percent (50%) or more of the voting rights or fifty percent (50%) or more of the equity.

          “Target Bonus” shall have the meaning specified in Section 4.2 hereof.

          “Term of Employment” shall have the meaning specified in Section 3 hereof.

          “Time Vesting Restricted Stock” shall have the meaning specified in Section 4.6(a) hereof.

          “Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.

          “Without Cause” shall mean the termination by the Company of Executive’s employment for any reason other than as a result of Cause; provided, however, that to the extent requested by the Company, Executive shall remain in the active employment of the Company until the date of termination specified by the Company; provided, further, that such date of termination shall be no later than sixty (60) days after the delivery by the Company of written notice of termination to Executive.

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     2. Employment and Duties.

          2.1 Employment. Each of the Parent Company and the Company hereby employs Executive and Executive hereby accepts appointment or election as Senior Vice President, General Counsel and Secretary of the Parent Company and the Company. Executive shall be responsible for all lawful duties and entitled to all authority customarily assigned to the position of Senior Vice President, General Counsel and Secretary, as well as those lawful duties specified by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board or by the Board, as the case may be. Executive shall render such services as are necessary and desirable to protect and advance the best interests of the Parent Company and the Company, acting, in all instances, under the supervision of and in accordance with the lawful policies set by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board or by the Board, as the case may be. So long as Executive shall remain an employee of the Parent Company and the Company, Executive’s entire working time, energy, skill and best efforts shall be devoted to the performance of Executive’s duties hereunder in a manner which will faithfully and diligently further the business and interests of the Parent Company and the Company; provided, however, that Executive may serve on up to three (3) corporate, civic and charitable boards with the consent of the compensation committee of the Parent Company, which serves as the Company’s compensation committee (such committee, the “Compensation Committee”), and deliver lectures, fulfill speaking engagements or teach at educational institutions; provided, further, that such service does not conflict with or detract from the performance of his duties. Nothing in this Section 2.1 shall be deemed to limit Executive’s management of his personal passive investments.

          2.2 Location. The Company’s current business office located at 40 Lane Road, Fairfield, New Jersey shall be Executive’s primary office; provided, however, that Executive acknowledges and agrees that Executive may be required, in connection with the performance of his duties to the Company hereunder, to work from time to time at other locations reasonably and customarily required in connection with the business of the Company.

     3. Term. Executive shall be employed by the Company for the period commencing on the date hereof and ending on October 5, 2009, unless sooner terminated as hereinafter provided (the “Term of Employment”). Upon expiration of the Term of Employment, unless Executive’s employment is sooner terminated as provided herein, Executive’s employment shall be automatically renewed on an at-will basis and, except as specifically provided herein, this Agreement and each of the parties’ respective obligations hereunder shall terminate.

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Two Hundred Forty Thousand One Hundred Eighty Dollars ($240,180) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect

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from time to time.

          4.2 Annual Bonus. In addition to the Base Salary, Executive shall be eligible to receive an annual cash bonus from the Company (the “Annual Bonus”). For calendar year 2004, the Annual Bonus payable to Executive shall be based on the Company’s 2004 Cash Bonus Plan dated April 15, 2004 and approved by the Board (the “Covanta 2004 Cash Bonus Plan”). Thereafter, the Annual Bonus payable to Executive shall be based on the annual cash bonus program approved by the Board or the Compensation Committee thereof; provided, however, that Executive’s annual target bonus shall continue to be at least forty-five percent (45%) of Executive’s Base Salary (the “Target Bonus”) for each subsequent Employment Year unless Executive receives written notice from the Board or the Compensation Committee thereof no later than March 1^st of any applicable Employment Year that the Board or the Compensation Committee thereof has decided to reduce the Target Bonus.

          4.3 Review of Base Compensation. The Base Compensation shall be reviewed annually by the Board or the Compensation Committee thereof and, unless otherwise set forth herein, may be increased or decreased as the Board or the Compensation Committee thereof shall determine from time to time.

          4.4 Incentive Compensation Programs. In addition to the foregoing provisions of this Section 4, Executive shall be eligible to participate in other applicable Company incentive compensation plans and programs (including, without limitation, any cash bonus, equity incentive, restricted stock and stock option plans and programs) on the same terms as apply generally to the Company’s other senior-level executives from time to time.

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon approval of the 2004 Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Employees’ Plan”) by the stockholders of the Parent Company, the Parent Company shall grant to Executive options (the “Options”) to purchase an aggregate of 75,000 shares of common stock, par value $0.10 per share of Parent Company (“Common Stock”) at an exercise price equal to the fair market value per share of the Common Stock (such fair market value being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange). The Options shall be restricted and non-transferable, as set forth in the Stock Option Agreement, in the form attached hereto as Exhibit A, and shall vest in accordance with the schedule set forth below. The term of the Options shall be for a period of ten (10) years following the date of the grant of the Options hereunder, and the Options shall be subject to such other terms and conditions not inconsistent with the terms of this Agreement as are set forth in the Stock Option Agreement to be executed by the Parent Company and Executive and as determined by the Compensation Committee. To the extent permitted by applicable law, the Options shall be incentive stock options in each year and, with respect to any Options that are vested, shall be exercisable for the applicable periods set forth in the Stock Option Agreement. Executive shall not be entitled to any rights with respect to the Common Stock underlying the Options, including the right to vote or receive dividends or distributions with respect to any of the Common Stock underlying the Options, until such Options (or any portion thereof) have been exercised. To the extent that Executive is employed by the Company

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as of each of the respective dates set forth below and in recognition of Executive’s employment by the Company prior to the execution of this Agreement, the Options shall vest as follows:

               (a) 25,000 Options as of the close of business on February 28, 2006;

               (b) 25,000 Options as of the close of business on February 28, 2007; and

               (c) 25,000 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing One Hundred Twenty-Five Thousand Dollars ($125,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to the shares of any Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 8,621 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

                    (i) 2,873 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

                    (ii) 2,874 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

                    (iii) 2,874 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 8,621 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

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                    (i) First Tranche Amount. The “First Tranche Amount” consisting of 2,873 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

                    (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 2,874 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

                    (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 2,874 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

                      4.7 Acceleration of Option and Restricted Stock Vesting. Notwithstanding anything to the contrary in the Stock Option Agreement or the Restricted Stock Agreement, in the event of either (i) a Change in Control prior to the termination or expiration of this Agreement pursuant to which the Company, the Parent Company or any successor company does not agree, as of the date of such Change in Control, to assume this Agreement if the remainder of the Term of Employment is at least three (3) years or to renew this Agreement with Executive for at least three (3) years, or (ii) the Company or the Parent Company consummates a transaction which constitutes a “Rule 13e-3 transaction” (as such term is defined in Rule 13e-3 of the Exchange Act) prior to the termination or expiration of this Agreement, then effective coincident with the consummation of such Change in Control or Rule 13e-3 transaction, all unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall immediately vest and be exercisable by Executive notwithstanding the vesting schedules set forth in Sections 4.5 and 4.6 hereof or in any applicable award grant agreement; provided, however, that notwithstanding the foregoing, in connection with the consummation of such Change in Control or Rule 13e-3 transaction, all such unvested options, shares of restricted stock or other equity awards (including, without limitation, all unvested Options and shares of Restricted Stock) then held by Executive shall be deemed to vest and become exercisable at such time in order to permit Executive to participate in such transaction.

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          4.8 Restrictions upon Transfer of Options and Restricted Stock. Executive shall not sell, transfer, exchange, convey, pledge or otherwise encumber, whether voluntarily or involuntarily, any of the Options or Restricted Stock, except as specifically permitted by this Agreement, the Stock Option Agreement or the Restricted Stock Agreement.

          4.9 Equitable Adjustment of Options and Restricted Stock. In the event of any subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend by the Parent Company, then the number of shares of Restricted Stock and the number of shares of Common Stock issuable upon exercise of the Options and the exercise price with respect thereto shall be equitably adjusted to reflect the effect of any such subdivision, consolidation or exchange of Common Stock, whether through merger, consolidation, stock exchange, reorganization, recapitalization, stock split, reverse stock split, stock distribution or combination of stock or the payment of a stock dividend.

          4.10 Return and/or Forfeiture of Performance-Based Payments or Awards. Notwithstanding any other provision in this Agreement or in the Stock Option Agreement or Restricted Stock Agreement, in the event that pursuant to the terms or requirements of the Sarbanes-Oxley Act of 2002 or of any applicable laws, rules or regulations promulgated by the Securities and Exchange Commission or any listing requirements of any stock exchange or stock market on which any securities of the Company or the Parent Company trade, from time to time, and in the event any bonus payment, stock award or other payment is based upon the satisfaction of financial performance metrics which are subsequently reversed due to a restatement or reclassification of financial results of the Company or the Parent Company, then any payments made or awards granted shall be returned and forfeited to the extent required and as provided by applicable laws, rules, regulations or listing requirements. This Section 4.10 shall survive any expiration or termination of this Agreement for any reason.

     5. Employee Benefits. As an inducement to Executive to continue employment hereunder, and in consideration of Executive’s covenants under this Agreement, Executive shall be entitled to the benefits set forth below for so long as Executive’s employment with the Company continues:

          5.1 the Company will reimburse Executive for all reasonable and necessary out-of-pocket expenses for travel, lodging, meals, entertainment or any other similar expenses incurred by Executive in connection with the performance of Executive’s duties hereunder upon receipt of documentation therefor in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time.

          5.2 Executive will be eligible to participate in applicable Company benefit plans, programs and arrangements (including, without limitation, pension, profit sharing, 401(k) plans, and medical and life insurance programs) on the same terms as apply generally to other senior-level executives of the Company from time to time.

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          5.3 Executive shall be entitled to vacation in accordance with the Company’s generally applicable policies relating to vacations.

     6. Termination.

          6.1 Termination for Any Reason. If, during the Term of Employment, Executive’s employment terminates for any reason, Executive (or his estate in the event of Executive’s death) shall be entitled to receive a lump sum cash payment equal to the sum of the following: (i) accrued but unpaid Base Salary, if any, accrued up to and including the date Executive’s employment was terminated, (ii) any Annual Bonus, if any, earned but unpaid for any year preceding the then current Employment Year, (iii) unreimbursed business expenses, and (iv) the cash equivalent of any vested benefits as of the date of such termination under any benefit plans maintained, or contributed to, by the Company, or any disability benefits program sponsored by the Company, to the extent permitted by, and in accordance with, the terms and conditions of each such plan or program, and any benefit required by COBRA.

          6.2 Termination Without Cause, For Good Reason, Death or Disability. In addition to the provisions of Section 6.1, above, if, during the Term of Employment, Executive’s employment is terminated by the Company Without Cause, by Executive for Good Reason or as a result of Executive’s death or Disability, Executive (or his estate in the event of Executive’s death) shall be entitled to the following: (i) an amount equal to the product of (x) Executive’s then current annual Base Salary plus Executive’s Average Bonus, and (y) the number of years in the Post-Employment Period, to be paid to Executive as provided in Section 6.3 hereof; (ii) an amount equal to the Pro Rata Bonus, to be paid to Executive at the time that cash bonuses are paid to other senior-level executives of the Company for such Employment Year; and (iii) the continuation of medical, dental and life insurance coverage (at the rates and on the coverage terms available to other senior-level executives) for the duration of the Post-Employment Period.

          6.3 Terms of Payments. The amounts due to Executive pursuant to Section 6.2(i) hereof shall be paid by the Company as follows:

               (a) fifty percent (50%) of the aggregate amount due to Executive shall be paid to Executive on the effective date of termination of Executive’s employment with the Company; and

               (b) fifty percent (50%) of the aggregate amount due to Executive shall be paid pro rata on a monthly basis to Executive over the duration of the Post-Employment Period;

provided, however, that all payments and continuation of benefits provided to Executive pursuant to this Section 6 shall be contingent upon Executive’s execution and delivery of a general release and waiver, substantially in the form provided on Exhibit C attached hereto; and provided, further, that notwithstanding any of the foregoing terms, in the event, and at the moment, that Executive violates any of his duties or obligations set forth in Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after the termination of his employment, the terms of Sections 6.2(ii),

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6.2(iii) and 6.3(b) will be of no force or effect and the Company’s obligations under those subsections to make severance payments or provide continued employee benefits will immediately cease.

          6.4 Treatment of Options and Restricted Stock. Upon termination of Executive’s employment with the Company pursuant to Section 6.2 hereof, Executive shall forfeit all rights and interests to any unvested options, unvested shares of restricted stock or other unvested equity awards (including, without limitation, all unvested Options and shares of Restricted Stock), then held by Executive, except for any options, shares of restricted stock, or other awards that would otherwise vest within three (3) months of the date of termination.

          6.5 Outplacement Services. Upon the termination of Executive’s employment with the Company for any reason, the Company shall provide Executive with outplacement services customary for senior executives and consistent with the Company’s past practice in an amount not to exceed Thirty Thousand Dollars ($30,000).

     7. Company Property. All advertising, sales, manufacturers’ and other materials or articles or information, including, without limitation, data processing reports, computer programs, software, Customer information and records, business records, price lists or information, samples, or any other materials or data of any kind furnished to Executive by the Company are and shall remain the sole property of the Company, including in each case all copies thereof in any medium, including computer tapes and other forms of information storage. If the Company requests the return of such materials (whether or not containing confidential information) at any time during or at or after the termination of Executive’s employment, Executive shall promptly deliver such materials and all copies of such materials to the Company.

     8. Noncompetition; Nonsolicitation; Confidential Information, etc. Executive hereby acknowledges that, during and solely as a result of Executive’s employment by the Company, Executive has received and will continue to receive special training and education with respect to the operations of the Company’s business and other related matters, and access to confidential information and business and professional contacts. In consideration of such special and unique opportunities afforded by the Company to Executive as a result of Executive’s employment, Executive hereby agrees to be bound by and acknowledges the reasonableness of the following covenants, which are specifically relied upon by the Company and the Parent Company in entering into this Agreement. Executive acknowledges and agrees that each of the individual provisions of this Section 8 constitutes a separate and distinct obligation of Executive to the Company and the Parent Company, individually enforceable against Executive.

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s 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 Exchange Act, and then only to the extent of owning not more than two

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percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or for a period of six (6) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, for any reason, directly or indirectly, employ, solicit or endeavor to entice away from the DHC Group (whether for Executive’s own benefit or on behalf of another person or entity), or facilitate the solicitation, employment or enticement of, any employee of the DHC Group to work for Executive, any affiliate of Executive or any competitor of the DHC Group, nor shall Executive otherwise attempt to interfere (to the Parent Company’s or the Company’s detriment) in the relationship between the Parent Company, the Company or any of their respective subsidiaries and any such employees.

          8.3 Covenant Not to Solicit Customers. During the Restricted Period or for a period of eighteen (18) months following the expiration of this Agreement, Executive agrees and covenants that he shall not, directly or indirectly, in any form or manner, contact, solicit, or facilitate the contacting or solicitation of, any Customer of the DHC Group for the purpose of competing with the Business. For purposes of this Agreement, the term “Customer” shall mean and refer to each person, entity, municipality or other governmental entity that has a contract with or is actively being solicited by the DHC Group to deliver waste, receive services or purchase energy during the period of Executive’s employment hereunder.

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, 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 Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “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 any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of

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actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company 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 Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company 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 Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

          8.6 Assignment of Inventions. Any and all writings, inventions, improvements, processes, procedures and/or techniques now or hereafter acquired, made, conceived, discovered or developed by Executive, either solely or jointly with any other person or persons, whether or not during working hours and whether or not at the request or upon the suggestion of the Company, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Company, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Company. Executive shall make full disclosure to the Company of all such writings, inventions, improvements, processes, procedures, techniques, or any other material of a proprietary nature, including, without limitation, any ideas, inventions, discoveries, improvements, developments, designs, methods, systems, computer programs, trade secrets or other intellectual property whether or not patentable or copyrightable and specifically including, but not limited to, copyright and mask works, formulae, compositions, products, processes, apparatus, and new uses of existing materials or machines (collectively, “Inventions”), made, conceived or first reduced to practice by Executive solely or jointly with others while employed by the Company or its affiliates and which relate to or result from the actual or anticipated business, work, research or investigation of the Company or any of its affiliates or which are suggested by or result from any task assigned to or performed by Executive for the Company or any of its affiliates; and Executive shall do everything necessary or desirable to vest the absolute title thereto in the Company. Executive shall write and prepare all descriptions, specifications and procedures regarding the Inventions as may be required by the Company to protect the Company’s rights in and to the Inventions, and otherwise aid and assist the Company so that the Company can prepare and present applications for copyright or letters patent therefor and can secure such

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copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’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 Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’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 Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

          8.7 Equitable Remedies. In the event that Executive breaches any of the terms or conditions set forth in this Section 8, Executive stipulates that such breach will result in immediate and irreparable harm to the business and goodwill of the Parent Company and/or the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Parent Company and/or the Company 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 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.

          8.8 Continuing Obligation. Upon termination of this Agreement for any reason during the Term of Employment, or upon expiration of this Agreement pursuant to Section 3 hereof, the obligations, duties and liabilities of Executive pursuant to Sections 4.10, 8.1, 8.2, 8.3, 8.4, 8.5 and 8.9 of this Agreement are continuing, and for the periods set forth in such provisions hereof are absolute and unconditional, and shall survive and remain in full force and effect as provided in each such Section. Notwithstanding anything else contained in this Agreement to the contrary, the parties hereto agree that in the event Executive breaches any of the terms contained in Sections 8.1, 8.2, 8.3 and 8.4 of this Agreement, the obligation of the Company to pay any Base Salary or Annual Bonus under this Agreement (or pursuant to any severance payment set forth in Section 6 of this Agreement) shall terminate as of the date of such breach by Executive.

          8.9 Post-Termination Violations of this Agreement. In the event, and at the moment, that Executive violates any of his duties or obligations set forth in (i) Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs during the Term of Employment for any reason, or (ii) Sections 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs after the expiration of the Term of Employment, and notwithstanding any other provision in this Agreement, the Stock Option Agreement or the Restricted Stock Agreement to the contrary, (x) Executive shall immediately forfeit any right to exercise any unexercised Options that previously vested pursuant to the terms of this Agreement or the Stock Option Agreement, and (y) any unvested options, shares of restricted stock or other equity

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awards (including any unvested Options or shares of Restricted Stock) will immediately be cancelled and forfeited.

     9. Prior Agreements; Conflicts of Interest. 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, company 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, company 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, Executive shall indemnify the Parent Company and the Company from and against any and all manner of expenses and liabilities incurred by the Parent Company, the Company or any of their affiliates in connection with such violation or interference or alleged violation or interference.

     10. Indemnification.

          10.1 The Company shall indemnify Executive to the fullest extent provided by applicable law against all costs, expenses, liabilities and losses (including, without limitation, attorneys’ fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by Executive in connection with any proceeding brought against Executive related to Executive’s employment with the Company (each, a “Proceeding”).

          10.2 The Company shall advance to Executive all reasonable costs and expenses incurred in connection with any Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by Executive to repay the amount of such advance if ultimately it shall be determined that he is not entitled to be indemnified against such costs and expenses.

          10.3 Executive shall be entitled to indemnification under this Section 10 if Executive meets the standard of conduct specified under applicable law unless non-entitlement is determined by a court of competent jurisdiction. If Executive in fact meets the applicable standard of conduct, he shall be entitled to such indemnification whether or not the Company (whether by the Board, the stockholders, independent legal counsel or other party) determines that indemnification is proper because he has met such applicable standard of conduct. Neither the failure of the Company to have made such a determination nor a determination by the Company that Executive has not met such applicable standard of conduct, shall create a presumption in any litigation, arbitration or other proceeding commenced against Executive that Executive has not met the applicable standard of conduct.

          10.4 The Company shall not settle any Proceeding or claim in any manner which would impose on Executive any penalty or limitation without Executive’s prior written consent. Neither the Company nor Executive will withhold consent to any proposed settlement unreasonably.

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     11. Miscellaneous.

          11.1 Joint and Several Liability. The Employer, the Company and the Parent Company each agree to be jointly and severally liable for the performance (payment or otherwise) of all obligations of the Employer, the Company and the Parent Company under this Agreement.

          11.2 Binding Nature of Agreement. This Agreement shall be binding upon the Employer, the Company and the Parent Company and shall inure to the benefit of each such party and their successors and assigns, including any transferee of the business operation, as a going concern, in which Executive is employed and shall be binding upon Executive, Executive’s heirs and personal representatives. None of the rights or obligations of Executive hereunder may be assigned or delegated, except that in the event of Executive’s death or Disability, any rights of Executive hereunder shall be transferred to Executive’s estate or personal representative, as the case may be. The Employer may assign its rights and obligations under this Agreement in whole or in part to the Parent Company or the Company without Executive’s prior consent. Any entity into which the Company or the Parent Company is merged, or with which the Company or the Parent Company is consolidated, or which acquires the business of the Company or the Parent Company or the business unit in which Executive is to be principally employed, shall be deemed to be a successor of the Employer, the Company or the Parent Company for purposes hereof.

          11.3 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, inducements or conditions, express or implied, oral or written, except as expressly herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. Notwithstanding the foregoing, nothing herein shall limit the application of any generally applicable Company policy, practice, plan or the terms of any manual or handbook applicable to the Company’s employees generally.

          11.4 Notices. All notices, requests, consents, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally, or mailed first-class, postage prepaid, by registered or certified mail (notices sent by mail shall be deemed to have been given on the date sent), or by confirmed facsimile transmission with a hard copy deposited in first class mail the same day or the following day, as follows (or to such other address as either party shall designate by notice in writing to the other):

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If to the Employer, the Company, or the Parent Company:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: President and CEO
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7076

With a copy to:

Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07004
Attn: General Counsel
Telephone Number: (973) 882-9000
Facsimile Number: (973) 882-7357

And to:

David S. Stone, Esq.
Neal, Gerber & Eisenberg LLP
2 North LaSalle Street
Suite 2200
Chicago, IL 60602
Telephone Number: 312-269-8411
Facsimile Number: 312-269-1747

If to Executive:

Timothy J. Simpson
____________________
____________________
Telephone Number: ______________

With a copy to:

Michael S. Harrington, Esq.
Fox Rothschild, LLP
P.O. Box 673
760 Constitution Drive
Exton, PA 19341
Telephone Number: (610) 458-4957
Facsimile Number: (610) 458-7337

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          11.5 Governing Law. This Agreement shall be governed by and construed and in accordance with the internal laws of the State of Delaware without regard to conflicts of laws provisions thereof.

          11.6 Headings. The article and section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

          11.7 Amendment. This Agreement may be amended, modified, superseded, canceled, renewed, or extended and the terms or covenants of this Agreement may be waived, only by a written instrument executed by all of the parties hereto, or in the case of a waiver, by the party waiving compliance.

          11.8 Waiver. The failure of either party at any time or times to require performance of any provision of this Agreement shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

          11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument.

          11.10 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.

[signature page follows]

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     IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
COMPANY:
Covanta Energy Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
PARENT COMPANY:
Danielson Holding Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
/s/ Timothy J. Simpson
Timothy J. Simpson, Individually

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EX-10.4

Exhibit 10.4

DANIELSON HOLDING CORPORATION
RESTRICTED STOCK AWARD AGREEMENT

     THIS AGREEMENT is made and entered into as of this 5th day of October, 2004 (the “Grant Date”) by and between Danielson Holding Corporation, a Delaware corporation (the “Company”), and                 (the “Employee”), pursuant to the Danielson Holding Corporation 2005 Equity Award Plan for Employees and Officer (the “Plan”). This Agreement and the award contained herein is subject to the terms and conditions set forth in the Plan, which are incorporated by reference herein, and the following terms and conditions:

     1. Award of Restricted Stock. In consideration for the prior and continued service of Employee to Covanta Energy Corporation (“Covanta”), a wholly-owned subsidiary of the Company, and as part of the Long-Term Incentive Program of Covanta, as adopted by the Company, the Company hereby awards to the Employee, subject to the further terms and conditions set forth in this Agreement,           shares (the “Restricted Stock”) of its common stock, $0.10 par value per share (the “Common Stock”), as of the Grant Date.

     2. Rights of Stockholder. Employee shall have all of the rights of a stockholder with respect to the shares of Restricted Stock (including the right to vote the shares of Restricted Stock and the right to receive dividends with respect to the shares of Restricted Stock), except as provided in Section 3 and Section 6 hereof.

     3. Restrictions on Transfer. Except as otherwise provided in this Agreement, Employee may not sell, transfer, assign, pledge, encumber or otherwise dispose of any of the shares of Restricted Stock or the rights granted hereunder (any such disposition or encumbrance being referred to herein as a “Transfer”). Any Transfer or purported Transfer by Employee of any of the shares of Restricted Stock shall be null and void and the Company shall not recognize or give effect to such Transfer on its books and records or recognize the person to whom such purported Transfer has been made as the legal or beneficial holder of such shares. The shares of Restricted Stock shall not be subject to sale, execution, pledge, attachment, encumbrance or other process and no person shall be entitled to exercise any rights of Employee as the holder of such Restricted Stock by virtue of any attempted execution, attachment or other process until the restrictions imposed herein on the Transfer of the shares of Restricted Stock shall lapse as provided in Section 4 hereof. All certificates representing the shares of Restricted Stock shall have endorsed thereon the following legend (in addition to any other legends that are customary or required on certificates representing shares of the Company’s Common Stock):

     “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS (INCLUDING FORFEITURE) SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT DATED AS OF OCTOBER 5, 2004, BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE

COMPANY. ANY TRANSFER OR PURPORTED TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF SUCH RESTRICTED STOCK AWARD AGREEMENT SHALL BE NULL AND VOID.”

     If and when the restrictions imposed herein on the transfer of shares of Restricted Stock shall have lapsed as provided in Section 4 hereof, certificates for such shares without the restricted stock legend set forth in this section shall be delivered to the Employee. Until such restrictions have lapsed, any certificates representing any shares of Restricted Stock shall be held in custody by the Company, and the Employee shall, as a condition of any award of Restricted Stock, have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such award. Employee may request the removal of such restricted stock legend from certificates representing any shares of Restricted Stock as to which the restrictions imposed herein on the transfer thereof shall have lapsed as provided in Section 4 hereof. Such request shall be in writing to the General Counsel of the Company.

     4. Lapse of Restrictions and Forfeiture. Subject to Section 4(c) hereof, the restrictions on transfer imposed on the shares of Restricted Stock by this Section 4 shall lapse with respect to the shares of Restricted Stock and the Employee will vest, or gain actual “ownership” of the shares of Restricted Stock in accordance with the terms of Section 4(a) hereof.

(a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of           shares (“Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Employee is employed on such date by the Company or its Affiliates or Subsidiaries:

A.	shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;
B.	shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and
C.	shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

(b) Restricted Stock Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of           shares (“Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

A. First Tranche Amount. The “First Tranche Amount” consisting of           shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005 pursuant to the satisfaction of the applicable performance based metric of operating cashflow of the Covanta as set forth in the Covanta 2004 Cash Bonus Plan.

B.	Second Tranche Amount. The “Second Tranche Amount” consisting of           shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006 pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board of Directors of the Company (the “Board”) or the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”); provided, however, that if the Board or Compensation Committee does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Covanta 2005 Cash Bonus Plan shall apply; and
C.	Third Tranche Amount. The “Third Tranche Amount” consisting of           shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007 pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or Compensation Committee; provided, however, that if the Board or Compensation Committee does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Covanta 2006 Cash Bonus Plan shall apply.
D.	Forfeiture of Unearned Restricted Stock. In the event that any shares of Performance Vesting Restricted Stock do not vest pursuant to any of Subsection A, B or C of this Section 4(b), then such Performance Vesting Restricted Stock shall be forfeited and cancelled as of such date.

(c)

Notwithstanding anything to the contrary in Section 4(a), in the event that prior to the lapse of restrictions on transfer pursuant to Section 4(a), Employee’s employment with all of the Company, its Affiliates and Subsidiaries is terminated for any reason other than death or Disability, Employee shall forfeit, on the date on which his employment is terminated, all of the shares of Restricted Stock as to which the restrictions on transfer imposed thereon by Section 3 hereof shall not have lapsed prior to such date.

(d)

Notwithstanding anything to the contrary in Sections 4(a) or (b) hereof, in the event of a Change in Control, the restrictions on transfer imposed by Section 3 on the shares of Restricted Stock shall lapse. For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following events, each of which shall be determined independently of the others: (i) any “Person” (as hereinafter defined), other than a holder of at least 10% of the outstanding voting power of the Company as of the date of this Agreement, becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of a majority of the stock of the Company entitled to vote in the election of directors of the Company; (ii) individuals who are Continuing Directors of the Company (as hereinafter defined) cease to constitute a majority of the members of the Board; (iii) stockholders of the Company adopt and consummate a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of the assets of the Company; (iv) the Company is a party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, with an unaffiliated third party, unless the business of the Company following consummation of such merger, consolidation or other business combination is continued following any such transaction by a resulting entity (which may be, but need not be, the Company) and the

stockholders of the Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting power of the resulting entity; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) shall not constitute a Change in Control; (v) there is a Change in Control of the Company of a nature that is reported in response to item 5.01 of Current Report on Form 8-K or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company is then subject to such reporting requirements; provided, however, that for purposes of this Agreement a Change in Control shall not be deemed to occur if the Person or Persons deemed to have acquired control is a holder of at least 10% of the outstanding Voting Power of the Company as of the date of this Agreement; or (vi) the Company consummates a transaction which constitutes a “Rule 13e-3 transaction” (as such term is defined in Rule 13e-3 of the Exchange Act) prior to the termination or expiration of this Agreement.

(e)	In the event of a Rule 13e-3 transaction, then effective coincident with the consummation of such Rule 13e-3 transaction, the restrictions on transfer imposed by Section 3 on the shares of Restricted Stock shall lapse; provided, however, that notwithstanding the foregoing, in connection with the consummation of such Change in Control or Rule 13e-3 transaction, all such unvested shares of Restricted Stock then held by Employee shall be deemed to vest and become exercisable at such time in order to permit Employee to participate in such transaction.
(f)	In the event that Employee is an employee of Covanta, then the references to the Company in Section 4(d)(i), (iii), (iv), (v) and (vi) above shall also include, in the alternative, Covanta.
(g)	For purposes of this Section 4, “Continuing Directors” shall mean the members of the Board on the date of execution of this Agreement, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by at least a majority of the directors who then comprised the Continuing Directors shall be considered to be a Continuing Director; and the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act.

     5. Transferability. Notwithstanding anything contained in this Agreement to the contrary, shares of Restricted Stock are not transferable or assignable by the Employee until the restrictions thereon have lapsed.

     6. Adjustment Provisions. If, during the term of this Agreement, there shall be any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, rights offering or extraordinary distribution with respect to the Common Stock, or other change in corporate structure affecting the Common Stock, the Committee shall make or cause to be made an appropriate and equitable substitution, adjustment or treatment with respect to the Restricted Stock, including a substitution or adjustment in the aggregate number or kind of shares subject to this Agreement, notwithstanding that the Restricted Stock are subject to the restrictions on transfer imposed by Section 3 above. Any securities, awards or rights issued pursuant to this Section 6 shall be subject to the same restrictions as the underlying Restricted Stock to which they relate.

     7. Tax Withholding. As a condition precedent to the receipt of any shares of Restricted Stock hereunder, Employee agrees to pay to the Company, at such times as the Company shall determine, such amounts as the Company shall deem necessary to satisfy any withholding taxes due on income that Employee recognizes as a result of (i) the lapse of the restrictions imposed by Section 3 hereof on the shares of Restricted Stock or (ii) Employee’s filing of an election pursuant to Section 83(b) of the Internal Revenue Code of 1986 (the “Code”), as amended, with respect to the shares of Restricted Stock. The obligations of the Company under this Agreement and the Plan shall be conditional on such payment or arrangements, and the Company, its Affiliates and Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Employee.

     8. Registration. This grant is subject to the condition that if at any time the Board or Compensation Committee shall determine, in its discretion, that the listing of the shares of Common Stock subject hereto on any securities exchange, or the registration or qualification of such shares under any federal or state law, or the consent or approval of any regulatory body, shall be necessary or desirable as a condition of, or in connection with, the grant, receipt or delivery of shares hereunder, such grant, receipt or delivery will not be effected unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board or Compensation Committee. The Company agrees to make every reasonable effort to effect or obtain any such listing, registration, qualification, consent or approval.

     9. Rights of Employee. In no event shall the granting of the Restricted Stock or the other provisions hereof or the acceptance of the Restricted Stock by Employee interfere with or limit in any way the right of the Company, an Affiliate or Subsidiary to terminate Employee’s employment at any time, nor confer upon Employee any right to continue in the employ of the Company, an Affiliate or Subsidiary for any period of time or to continue his or her present or any other rate of compensation.

     10. Construction.

(a)	Successors. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs and successors, except as expressly herein otherwise provided.
(b)	Entire Agreement; Modification. This Agreement contains the entire understanding between the parties with respect to the matters referred to herein. Subject to Section 16(c) of the Plan, this Agreement may be amended by the Board or Compensation Committee at any time.
(c)	Capitalized Terms; Headings; Pronouns; Governing Law. Capitalized terms used and not otherwise defined herein are deemed to have the same meanings as in the Plan. The descriptive headings of the respective sections and subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to modify or construe the provisions which follow them. Any use of any masculine pronoun shall include the feminine and vice-versa and any use of a singular, the plural

and vice-versa, as the context and facts may require. The construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Delaware.

(d)	Notices. Each notice relating to this Agreement shall be in writing and shall be sufficiently given if delivered by registered or certified mail, or by a nationally recognized overnight delivery service, with postage or charges prepaid, to the address hereinafter provided in this Section 10. Any such notice or communication given by first-class mail shall be deemed to have been given two business days after the date so mailed, and such notice or communication given by overnight delivery service shall be deemed to have been given one business day after the date so sent, provided such notice or communication arrives at its destination. Each notice to the Company shall be addressed to it at its offices at 40 Lane Road, Fairfield, New Jersey 07004 (attention: Chief Financial Officer), with a copy to the Secretary of the Company or to such other designee of the Company. Each notice to the Employee shall be addressed to the Employee at the Employee’s address shown on the signature page hereof.
(e)	Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party or circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances.
(f)	Counterpart Execution. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute the entire document.

DANIELSON HOLDING CORPORATION
 

By:  

Title:  

Accepted this            day of
                              , 2004.

EMPLOYEE’S ADDRESS:

EX-10.5

Exhibit 10.5

DANIELSON HOLDING CORPORATION

STOCK OPTION AGREEMENT
FOR EMPLOYEES AND OFFICERS

     THIS STOCK OPTION AGREEMENT, is made as of this 5th day of October, 2004 (the “Grant Date”) between Danielson Holding Corporation, a Delaware corporation (the “Company”), and                                   (the “Optionee”). Capitalized terms used herein that are not otherwise defined shall have the meaning ascribed to them in the Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Plan”).

W I T N E S S E T H:

     WHEREAS, the Company desires to provide the Optionee with the opportunity to purchase shares of its common stock, par value $0.10 per share (“Common Stock”), in accordance with the terms of the Plan; and

     WHEREAS, the Optionee wishes to acquire the right to purchase shares of Common Stock granted hereby.

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto mutually covenant and agree as follows:

     1. Grant of Option. The Company hereby grants to the Optionee the option to purchase all or part of an aggregate of                              shares of Common Stock, on the terms and conditions set forth in the Plan, subject to the vesting, exercise and other requirements set forth in this Agreement, to the extent not inconsistent with the Plan (the “Option”). Of the shares subject to this Option,                are intended to qualify as Incentive Stock Options, as defined in and subject to Section 422 of the Internal Revenue Code (“Code”), to the extent these Options, when aggregated with other incentive stock options granted to the Optionee, do not exceed the $100,000 per year limitation of Section 422(d) of the Code. The remainder shall be Non-Qualified Stock Options, which are not intended to qualify as Incentive Stock Options.

     2. Purchase Price. The per share purchase price of the shares of Common Stock issuable upon exercise of the Option shall be $                  , which shall be not less than 100% of the Fair Market Value (as defined in the Plan) on the effective date of this grant.

     3. Term. The term of the Option shall expire as of the earliest of the following:

(a) the date that is ten (10) years from the date of grant, for both Incentive Stock Options and Non-Qualified Stock Options;

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(b)	the date the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated for Cause, as defined in the Plan;
(c)	to the extent the Option is vested on the date of such termination, (i) for Incentive Stock Options, the date that is three (3) months after the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated other than (i) for Cause or (ii) upon the Optionee’s death, Disability or Retirement, as defined in the Plan (provided that if the Optionee dies within such three (3)-month period, any such unexercised Option shall continue to be exercisable for twelve (12) months from the date of such death or the exercise period that applies for purposes of Section 422 of the Code); or (ii) for Non-Qualified Stock Options, the date that is twelve (12) months after the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated other than (i) for Cause or (ii) upon the Optionee’s death, Disability or Retirement;
(d)	to the extent the Option is vested on the date of such termination, the date that is twelve (12) months after the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated as a result of the Optionee’s Disability, as defined in the Plan;
(e)	to the extent the Option is vested on the date of such death, the date that is twelve (12) months after the Optionee dies while employed by the Company, or any Subsidiary or Affiliate (or, for Incentive Stock Options, the exercise period that applies for purposes of Section 422 of the Code);
(f)	to the extent the Option is vested on the date of such Retirement, (i) for Incentive Stock Options, the date that is three (3) months after the date the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated as a result of the Optionee’s Retirement, as defined in the Plan (provided that if the Optionee dies within such three (3)-month period, any such unexercised Option shall continue to be exercisable for twelve (12) months from the date of such death or the exercise period that applies for purposes of Section 422 of the Code); or (ii) for Non-Qualified Stock Options, the date that is three (3) years after the Optionee’s employment with the Company, or any Subsidiary or Affiliate, is terminated as a result of the Optionee’s Retirement, as defined in the Plan (provided that if the Optionee dies within such three (3)-year period, any such unexercised Option shall continue to be exercisable for twelve (12) months from the date of such death); or

In the event of termination of the Optionee’s employment for Cause, the Optionee shall forfeit all rights hereunder with respect to any vested or nonvested Options as of the date of such

2

termination. Subject to the foregoing terms of this Section 3, if the Optionee terminates employment without Cause, the Optionee shall forfeit all rights hereunder with respect to any nonvested Options as of the date of such termination, including the right to purchase shares of Common Stock under the Option.

     4. Vesting.

(a) Subject to any forfeiture provisions in this Agreement or in the Plan, the Optionee shall become vested in the Options granted hereunder as follows:

Percentage Vested	Vesting Date
33%	February 28, 2006
33%	February 28, 2007
34%	February 28, 2008

(b) Notwithstanding the vesting schedule contained in Section 4(a) hereof, in the event of a “Change in Control”, then the Optionee shall become 100% vested in the Option following such “Change in Control” of the Company. For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following events, each of which shall be determined independently of the others: (i) any “Person” (as hereinafter defined), other than a holder of at least 10% of the outstanding voting power of the Company as of the date of this Agreement, becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of a majority of the stock of the Company entitled to vote in the election of directors of the Company; (ii) individuals who are Continuing Directors of the Company (as hereinafter defined) cease to constitute a majority of the members of the Board; (iii) stockholders of the Company adopt and consummate a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of the assets of the Company; (iv) the Company is a party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, with an unaffiliated third party, unless the business of the Company following consummation of such merger, consolidation or other business combination is continued following any such transaction by a resulting entity (which may be, but need not be, the Company) and the stockholders of the Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting power of the resulting entity; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) shall not constitute a Change in Control; (v) there is a Change in Control of the Company of a nature that is reported in response to item 5.01 of Current Report on Form 8-K or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company is then subject to such reporting requirements; provided, however, that for purposes of this Agreement a Change in Control shall not be deemed to occur if the Person or Persons deemed to have acquired control is a holder of at least 10% of the outstanding Voting Power of the Company as of the date of this Agreement; or (vi) the Company

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consummates a transaction which constitutes a “Rule 13e-3 transaction” (as such term is defined in Rule 13e-3 of the Exchange Act) prior to the termination or expiration of this Agreement.

(c)	In the event of a Rule 13e-3 transaction, then effective coincident with the consummation of such Rule 13e-3 transaction, all unvested Options issued hereunder shall immediately vest and be exercisable by Optionee notwithstanding the vesting schedules set forth in Section 4(a) hereof; provided, however, that notwithstanding the foregoing, in connection with the consummation of such Change in Control or Rule 13e-3 transaction, all such unvested Options then held by Optionee shall be deemed to vest and become exercisable at such time in order to permit Optionee to participate in such transaction.
(d)	In the event that Employee is an employee of Covanta Energy Corporation, a wholly-owned subsidiary of the Company (“Covanta”), then the references to the Company in Section 4(b)(i), (iii), (iv), (v) and (vi) above shall also include, in the alternative, Covanta.
(e)	For purposes of this Section 4, “Continuing Directors” shall mean the members of the Board on the date of execution of this Agreement, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by at least a majority of the directors who then comprised the Continuing Directors shall be considered to be a Continuing Director; and the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act.

     5. Exercise. The Optionee shall not be entitled to exercise the Option until it is vested. Subject to the provisions of Section 3, the Option may be exercised only while the Optionee is employed by the Company or an Affiliate or Subsidiary of the Company. In no event shall the Option be exercisable after the expiration date of the Option.

     6. Nontransferability. The Option shall not be transferable or assignable other than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as described in Section 206(d) of the Employee Retirement Income Security Act of 1974, as amended, subject to Article 3. Any attempt to assign, transfer, pledge, hypothecate, dispose of or subject the Option to execution, attachment or similar process shall be null and void and without effect. The Option may be exercised during the lifetime of the Optionee only by the Optionee, his guardian or his legal representative, or by an alternate payee pursuant to a qualified domestic relations order.

     7. Method of Exercising Options.

(a) Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice delivered to the Company or its designated representative in the manner and at the address for notices set forth in Section 10 hereof. Such notice shall state that the Option is being exercised thereby and shall specify the number of shares of Common Stock involved. The notice shall be signed by the person or persons exercising the Option and shall be

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accompanied by payment in full of the Option price for such shares of Common Stock, such payment to be made in (i) cash, as described in Section 8(c) of the Plan; (ii) subject to Section 8(c) of the Plan, that number of Mature Shares of unrestricted Common Stock, or vested Restricted Stock, which has an aggregate Fair Market Value as of the date of exercise equal to the aggregate exercise price for all of the shares of Common Stock subject to such exercise; (iii) a combination of methods (i) and (ii); or (iv) other means authorized by the Committee in accordance with Section 8(c) of the Plan. If the tender of shares of Common Stock as payment of the Option price would result in the issuance of fractional shares of Common Stock, the Company shall instead return the balance in cash or by check to the Optionee. If the Option is exercised by any person or persons other than the Optionee, the notice described in this Section 7(a) shall be accompanied by appropriate proof (as determined by the Committee) of the right of such person or persons to exercise the Option under the terms of the Plan and this Agreement. The Company shall issue and deliver, in the name of the person or persons exercising the Option, a certificate or certificates representing such shares as soon as practicable after notice and payment are received and the exercise is approved.

(b)	The Option may be exercised in accordance with the terms of the Plan and this Agreement with respect to any whole number of shares subject to the Option, but in no event may an Option be exercised as to fewer than one hundred (100) shares at any one time, or the remaining shares covered by the Option if less than two hundred (200).
(c)	The Optionee shall have no rights of a stockholder with respect to shares of Common Stock to be acquired by the exercise of the Option until the date of issuance of a certificate or certificates representing such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. All shares of Common Stock purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable.
(d)	The Optionee agrees that no later than the date as of which an amount first becomes includible in his gross income for federal income tax purposes with respect to the Option, the Optionee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Withholding obligations may be settled with Common Stock, including Common Stock that is acquired upon exercise of the Option. The obligations of the Company under this Agreement and the Plan shall be conditional on such payment or arrangements, and the Company, its Affiliates and Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Employee.

     8. Adjustment upon Changes in Capitalization. Subject to any required action by the stockholders of the Company and the terms of the Plan, if, during the terms of this Agreement, there shall be any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or

5

reclassification of the Common Stock or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company (as defined in Section 14 of the Plan), the Committee may, in its sole discretion, make an appropriate and equitable adjustment in the aggregate number, kind and option price of shares subject to this Option; provided, however, that in no event shall the Option price be adjusted below the par value of a share of Common Stock, nor shall any fraction of a share be issued upon the exercise of the Option.

     9. Conditions Upon Issuance of Option. As a condition to the exercise of the Option, the Company may require the Optionee to (i) represent and warrant at the time of any such exercise that the Common Stock is being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of legal counsel for the Company, such a representation is required by any relevant provision of law; and (ii) enter into a lock-up or similar agreement with the Company with respect to such shares prohibiting, for up to 90 days, the disposition of such shares.

     10. Notices. Each notice relating to this Agreement shall be in writing and shall be sufficiently given if delivered by registered or certified mail, or by a nationally recognized overnight delivery service, with postage or charges prepaid, to the address hereinafter provided in this Section 10. Any such notice or communication given by first-class mail shall be deemed to have been given two business days after the date so mailed, and such notice or communication given by overnight delivery service shall be deemed to have been given one business day after the date so sent, provided such notice or communication arrives at its destination. Each notice to the Company shall be addressed to it at its offices at 40 Lane Road, Fairfield, New Jersey 07004 (attention: Chief Financial Officer), with a copy to the Secretary of the Company or to such other designee of the Company. Each notice to the Optionee or other person or persons then entitled to exercise the Option shall be addressed to the Optionee or such other person or persons at the Optionee’s address shown on the signature page hereof.

     11. Limitations. Nothing contained in this Agreement shall be construed as conferring upon the Optionee the right to continue as an Employee or Officer or shall affect the right of the Company, in its sole discretion, to terminate the Optionee’s employment at any time, with or without cause.

     12. Incorporation of the Plan. Notwithstanding the terms and conditions contained herein, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, which is hereby incorporated by reference. In the event of any discrepancy or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall control.

     13. Interpretation. The interpretation and construction of any terms or conditions of the Plan, or of this Agreement or other matters related to the Plan by the Committee, shall be final and conclusive.

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     14. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party or circumstance shall be prohibited by or be invalid under applicable law, then such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances.

     15. Enforceability. This Agreement shall be binding upon the Optionee and such Optionee’s estate, personal representative and beneficiaries.

     16. Pronouns, Singular/Plural. Any use of any masculine pronoun shall include the feminine and vice-versa, and any use of a singular shall include the plural or vice-versa, as the context and facts may require.

     17. Counterpart Execution. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute the entire document.

* * *

     IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officer thereunto duly authorized, and the Optionee has executed this Agreement all as of the day and year first above written.

DANIELSON HOLDING CORPORATION

By:

Its:

OPTIONEE:

OPTIONEE’S ADDRESS:

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EX-99.1

Exhibit 99.1

DANIELSON HOLDING CORPORATION ANNOUNCES
MANAGEMENT TEAM SUCCESSION

CHICAGO, IL – October 5, 2004 – Danielson Holding Corporation (AMEX:DHC) announced that effective today, three members of the senior management team at Covanta Energy Corporation, Danielson’s wholly-owned subsidiary, have been named as executive officers of Danielson. They are Anthony J. Orlando, Craig D. Abolt and Timothy J. Simpson.

Mr. Orlando, 45, has been named the company’s President and Chief Executive Officer, succeeding Jeffrey R. Horowitz, who had been serving as the company’s interim President and Chief Executive Officer. Mr. Orlando will continue to serve as the President and Chief Executive Officer of the company’s subsidiary, Covanta Energy Corporation, a position he has held since November 2003. Mr. Orlando joined Covanta in 1987 and has held various positions with Covanta and its subsidiaries in the waste-to-energy business.

William C. Pate, Danielson’s new Chairman of the Board of Directors stated that “Tony has contributed significantly to the smooth and successful integration of Danielson and Covanta. He brings with him extensive experience and an intimate knowledge of both the Danielson and Covanta businesses. The Danielson Board of Directors has complete confidence in Tony’s ability to lead the company and to continue to build on the success of this newly integrated organization.” Mr. Pate continued “We also want to thank Jeff Horowitz and Philip Tinkler for their work in integrating Covanta and smoothly transitioning leadership in Danielson.”

Danielson also announced that Craig D. Abolt, 43, has been named as the Senior Vice President and Chief Financial Officer of the company, succeeding Philip G. Tinkler. Mr. Abolt will continue to serve as the Senior Vice President and Chief Financial Officer of the company’s subsidiary, Covanta Energy Corporation, a position he has held since June, 2004. Prior to joining Covanta, Mr. Abolt served as chief financial officer of DIRECTV Latin America, a majority-owned subsidiary of Hughes Electronics Corporation and from 1991 to 2001, Mr. Abolt was employed by Walt Disney Company in several executive finance positions.

Danielson also announced that Timothy J. Simpson, 46, has been named as the company’s Senior Vice President, General Counsel and Secretary. Mr. Simpson will continue to serve as the Senior Vice President, General Counsel and Secretary of the company’s subsidiary, Covanta Energy Corporation, a position he has held since March, 2003. Mr. Simpson joined Covanta in 1992 and has held various positions with Covanta and its subsidiaries in the waste-to-energy business.

In connection with the company’s 2004 Annual Meeting of Stockholders held today, the company announced that the company’s stockholders have elected each of the directors nominated in the company’s 2004 proxy statement. In addition, the company’s stockholders approved both (i) the Danielson Holding Corporation Equity Award Plan for Employees and Officers and (ii) the Danielson Holding Corporation Equity Award Plan for Directors.

The company further announced that in connection with the appointment of its new executive officers, the principal executive offices of Danielson will be moved to the Covanta offices

located at 40 Lane Road, Fairfield, New Jersey 07004. The new main phone number of the company will be (973) 882-9000.

Danielson is an American Stock Exchange listed company, engaging in the energy, financial services and specialty insurance businesses through its subsidiaries. Danielson’s charter contains restrictions that prohibit parties from acquiring 5% or more of Danielson’s common stock without its prior consent.

Danielson’s subsidiary, Covanta Energy Corporation, is an internationally recognized owner and operator of waste-to-energy and power generation projects. Covanta’s waste-to-energy facilities convert municipal solid waste into renewable energy for numerous communities, predominantly in the United States.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission, all as may be amended from time to time. Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Danielson and its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Danielson cautions investors that any forward-looking statements made by Danielson are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Danielson and Covanta, include, but are not limited to, those factors, risks and uncertainties that are described in Item 1 of Danielson’s Annual Report on Form 10-K for the year ended December 31, 2003 and in other securities filings by Danielson or Covanta. Although Danielson and Covanta believe that their plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. Danielson’s and Covanta’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and neither Danielson nor Covanta has any or has undertaken any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

For more information generally, please contact:

FOR DANIELSON HOLDING CORPORATION
Doreen Lubeck
Danielson Holding Corporation
(312) 466-4030